<PAGE>   1
 
     AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 24, 1998
 
                                               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>
 
                            ------------------------
 
                                 40 HUDSON ROAD
 
                          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.
                                 40 HUDSON ROAD
                          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>
                KITT SAWITSKY, ESQ.                             EDWIN L. MILLER, JR., ESQ.
               DANIEL R. AVERY, ESQ.                          TESTA, HURWITZ & THIBEAULT, LLP
              GOULSTON & STORRS, P.C.                                 125 HIGH STREET
                400 ATLANTIC AVENUE                             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, no par value         3,116,500 Shares             $17.00                 $52,980,500               $16,055
==============================================================================================================================
</TABLE>
 
(1) Includes 406,500 shares that the Underwriters have the right to purchase
    from the Company to cover over-allotments, if any.
 
(2) Estimated solely for the purpose of calculating the registration fee
    pursuant to Rule 457(a) under the Securities Act of 1933.
 
    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
 
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
 
                                                           SUBJECT TO COMPLETION
 
                                                                  APRIL 24, 1998
 
                                2,710,000 SHARES
 
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
[TWEETER LOGO]                  [BRYN MAWR LOGO]               [HI FI BUYS LOGO]
 
                                  COMMON STOCK
 
                               ------------------
 
     Of the 2,710,000 shares of Common Stock of Tweeter Home Entertainment
Group, Inc. (the "Company") offered hereby, 2,200,000 shares are being offered
by the Company and 510,000 shares are being offered by certain stockholders of
the Company (the "Selling Stockholders"). The Company will not receive any
proceeds from the sale of shares by the Selling Stockholders. See "Principal and
Selling Stockholders." Prior to the Offering, there has been no public market
for the Common Stock of the Company. See "Underwriting" for the factors to be
considered in determining the initial public offering price. It is currently
estimated that the initial public offering price will be between $15.00 and
$17.00 per share. Application has been made for quotation of the Common Stock on
the Nasdaq National Market under the symbol "TWTR."
                               ------------------
 
        THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
                    SEE "RISK FACTORS" COMMENCING ON PAGE 8.
                               ------------------
 
  THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
 EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
   AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
                               CRIMINAL OFFENSE.
 
<TABLE>
<CAPTION>
====================================================================================================================
                                 PRICE            UNDERWRITING              PROCEEDS               PROCEEDS TO
                                  TO              DISCOUNTS AND                TO                    SELLING
                                PUBLIC           COMMISSIONS(1)            COMPANY (2)            STOCKHOLDERS
--------------------------------------------------------------------------------------------------------------------
<S>                        <C>               <C>                     <C>                     <C>
Per Share.................         $                    $                       $                       $
--------------------------------------------------------------------------------------------------------------------
Total (3).................         $                    $                       $                       $
====================================================================================================================
</TABLE>
 
(1) The Company and the Selling Stockholders have agreed to indemnify the
    Underwriters against certain liabilities, including liabilities under the
    Securities Act of 1993, as amended. See "Underwriting."
 
(2) Before deducting expenses payable by the Company estimated at $900,000.
 
(3) The Company has granted the Underwriters a 30-day option to purchase up to
    406,500 additional shares of Common Stock, solely to cover over-allotments,
    if any. To the extent that the option is exercised, the Underwriters will
    offer the additional shares at the Price to Public shown above. If the
    option is exercised in full, the total Price to Public, Underwriting
    Discounts and Commissions and Proceeds to Company will be $        ,
    $        and $        , respectively. See "Underwriting."
                            ------------------------
 
     The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of BT Alex. Brown Incorporated, Baltimore, Maryland, on or about             ,
1998.
 
BT ALEX. BROWN
                           PAINEWEBBER INCORPORATED
                                                 DAIN RAUSCHER WESSELS
                                                   A DIVISION OF DAIN RAUSCHER
                                                          INCORPORATED
 
                THE DATE OF THIS PROSPECTUS IS           , 1998.
<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 "23 Tweeter
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 "17 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 "10 HiFi Buys Locations in Greater Atlanta".
 
     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 Company 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)".
 
                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
<PAGE>   4
 
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 the Company has stores. Gray dots mark
store locations and states in which the Company 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.
 
     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." (23 Locations);
 
          2. "Bryn Mawr Stereo & Video" (17 Locations); and
 
          3. "HiFi Buys" (10 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 Georgia to New Hampshire, Gray dots
mark store locations and states in which Company stores are located are offset
by white fill.
 
     CERTAIN PERSONS PARTICIPATING IN THE 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 THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
 
    "TWEETER ETC.," "TWEETER," "BRYN MAWR STEREO," "BRYN MAWR," "HIFI BUYS,"
"AUTOMATIC PRICE PROTECTION" AND "WISE BUYS" ARE SERVICE MARKS OF THE COMPANY.
SEE "BUSINESS -- INTELLECTUAL PROPERTY."
<PAGE>   5
 
                               PROSPECTUS SUMMARY
 
     The following summary is qualified in its entirety by the more detailed
information and the financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, all information in
this Prospectus assumes or gives effect to: (i) no exercise of the
over-allotment option granted by the Company to the Underwriters; (ii) the
exercise of warrants to purchase 259,856 shares of Common Stock which will be
exercised and sold in the Offering; and (iii) the automatic conversion of all
outstanding shares of the Company's Series A Preferred Stock and Series B
Preferred Stock (the "Preferred Stock") into an aggregate of 2,566,561 shares of
Common Stock upon the consummation of the Offering. Unless the context requires
otherwise, the term "Company" refers collectively to Tweeter Home Entertainment
Group, Inc., a Delaware corporation, its predecessors and its subsidiaries.
 
                                  THE COMPANY
 
     The Company is a leading specialty retailer of mid to high-end audio and
video consumer electronics products. The Company operates 50 stores under the
Tweeter, Bryn Mawr and HiFi Buys names in the New England, Mid-Atlantic and
Atlanta, Georgia markets, respectively. The Company's 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. The
Company differentiates itself by focusing on consumers who seek audio and video
products with advanced features, functionality and performance, and does not
offer personal computers or home office equipment. The Company seeks to build
name recognition and customer loyalty by combining quality products and
knowledgeable sales associates with a high level of service and competitive
prices. The Company has been recognized as the "Consumer Electronics Retailer of
the Year" in both 1996 and 1997 by Audio Video International Magazine and the
fastest growing consumer electronics retailer in the United States in 1997 by
the TWICE Consumer Electronics Retail Registry.
 
     The Company's goal is to become the nation's leading specialty retailer of
high quality audio and video products to its targeted customer base. To achieve
this objective, the Company has implemented an operating model that includes (i)
a deep merchandise selection focused on mid to high-end audio and video
products, including limited distribution products which accounted for
approximately 40% of 1997 sales, (ii) exceptional customer service based upon
relationship and knowledge-based selling that is critical to higher-end
products, (iii) every day competitive pricing featuring the Company's patented
Automatic Price Protection program and (iv) a dynamic and inviting retail
environment.
 
     The Company believes that the quality and knowledge of its sales associates
is critical to its 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 the Company's regional training centers. The Company's 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 the Company's relationship selling model is its Automatic Price
Protection program. This program is designed to remove pricing concerns from the
purchase decision and allows 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 the
Company's stores and a competitor within 25 miles of the store advertises a
lower price within 30 days, the Company automatically sends a check to the
customer for the difference without requiring the customer to request the
payment. The Company believes that the success of its operating model is
evidenced by the fact that approximately 40% of the customers who purchased from
Tweeter stores in the six months ended March 31, 1998 had previously purchased
products from the Company during the prior two fiscal years.
 
                                        3
<PAGE>   6
 
     The Company's store prototype is 10,000 square feet with brightly painted
interiors, often in pastel colors, and many stores exhibit hand painted murals
and other decorative artwork. Unlike many competitors whose stores contain
large, open spaces, the Company's stores feature individual sound rooms with
practical displays which allow customers to sample and compare the features and
functions of products in various combinations. The sound rooms are intended to
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 which features a state-of-the-art car stereo
system.
 
     The Company believes that the consumer electronics industry is large,
growing and fragmented with significant consolidation opportunities. Industry
sources estimate that factory sales of consumer electronics in 1997 reached $74
billion, with $22 billion comprised of audio and video products. Between 1990
and 1997, the audio and video segments expanded at a compound annual growth rate
of 2.3% and the Company believes that new technologies such as digital
television 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. The
Company believes that these regional specialty operators provide acquisition
opportunities for the Company. Industry sources indicate that approximately $7
billion of sales were attributable to specialty electronic chains with five or
more locations.
 
     The Company has developed an aggressive growth strategy (i) to open new
stores in current regional markets and relocate certain stores to more favorable
sites and (ii) to 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. The Company currently intends to open five stores in fiscal
1998, three of which have been opened as of March 31, 1998, and to relocate two
other stores. In fiscal 1999, the Company intends to open 15 stores. The Company
has demonstrated its acquisition and integration capability through its purchase
of Bryn Mawr Radio & Television Centre, Inc. in May 1996 (the "Bryn Mawr
Acquisition") and HiFi Buys Incorporated in May 1997 (the "HiFi Buys
Acquisition"). To support its acquisition strategy, the Company obtained equity
investments in fiscal 1996 of $10.6 million from a group of investors led by
Weston Presidio and Advent International (the "1996 Investors"). In May 1997,
the Company raised an additional $22.0 million, comprised of preferred stock and
subordinated debt, from the 1996 Investors and several additional investors,
including PNC Capital Corp.
 
THE BRYN MAWR ACQUISITION
 
     In May 1996, the Company acquired the 13 store Bryn Mawr chain located in
the Mid-Atlantic market for $8.7 million. The Company implemented strategic
initiatives within the acquired stores focused on increasing sales and store
contribution. Specifically, the Company (i) increased advertising expenditures
during the quarter following the acquisition and refocused advertising to
emphasize radio, television and direct marketing rather than print, (ii)
implemented the Company's every day competitive pricing and Automatic Price
Protection programs, (iii) initiated a substantial sales associate training
program to improve product knowledge and enhance relationship selling skills and
(iv) focused the sales staff on higher margin products, particularly audio
products. These initiatives enabled the Company to generate comparable store
sales increases at Bryn Mawr of 37.6% during the period from the acquisition
through September 30, 1996, 4.7% during fiscal 1997 and 15.0% during the six
months ended March 31, 1998. On a pro forma basis assuming completion of the
Bryn Mawr Acquisition as of October 1, 1995, store contribution for Bryn Mawr
improved to 6.8% in fiscal 1997 from -1.1% in fiscal 1996.
 
                                        4
<PAGE>   7
 
THE HIFI BUYS ACQUISITION
 
     In May 1997, the Company acquired the 10 store HiFi Buys chain located in
the greater Atlanta, Georgia market for $19.6 million. Following the
acquisition, the Company implemented strategic objectives designed to increase
store contribution by combining a planned decrease in revenues with an increase
in gross margin and a substantial decrease in operating expenses. Specifically,
the Company (i) adjusted the merchandise mix to increase the proportion of mid
and high-end products and reduce the number of lower margin introductory
products, (ii) altered store employee compensation to reduce the emphasis on
promotional sales and focus incentives on gross margin and store contribution,
(iii) reduced marketing expenditures and shifted marketing emphasis from
promotional advertising toward the Company's traditional relationship-selling
and every day competitive price message, (iv) converted the advertising program
to emphasize electronic advertising and direct mail marketing as opposed to
print media (v) implemented the Automatic Price Protection program and (vi)
eliminated $2.4 million in overhead costs. As a result, comparable store sales
decreased 29.7% during the period from the acquisition through September 30,
1997 and decreased 13.2% during the six months ended March 31, 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 to 10.6% in the six months ended
March 31, 1998 from 7.8% in the same period for the prior year.
 
     The Company was organized as a Massachusetts corporation in 1972 and was
reorganized as a Delaware holding company in                , 1998. The
Company's principal executive offices are located at 40 Hudson Road, Canton,
Massachusetts 02021. The Company's telephone number is (781) 830-3000.
 
                                  THE OFFERING
 
<TABLE>
<S>                                                     <C>
Common Stock offered by the Company.................    2,200,000 shares
Common Stock offered by the Selling Stockholders....    510,000 shares
                                                        -------------------
     Total..........................................    2,710,000 shares
Common Stock to be outstanding after the Offering...    6,082,690 shares(1)
Use of proceeds.....................................    To repay indebtedness and for working
                                                        capital and other general corporate
                                                        purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol..............    TWTR
</TABLE>
 
---------------
(1) Excludes 511,808 shares of Common Stock issuable upon exercise of warrants
    outstanding after the date of the Offering, with a weighted average exercise
    price of $2.13 per share. Also excludes 845,059 shares of Common Stock
    issuable upon exercise of options outstanding at the date of this
    Prospectus, with a weighted average exercise price of $3.97 per share. See
    Notes 6 and 11 of Notes to Consolidated Financial Statements of the Company,
    "Capitalization," "Description of Capital Stock" and "Management -- Stock
    Plans."
 
                                        5
<PAGE>   8
 
                      SUMMARY FINANCIAL AND OPERATING DATA
              (IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
 
<TABLE>
<CAPTION>
                                                                                                        SIX MONTHS
                                                                                                          ENDED
                                                         FISCAL YEAR ENDED SEPTEMBER 30,                MARCH 31,
                                                 ------------------------------------------------   ------------------
                                                  1993      1994      1995     1996(1)   1997(2)     1997       1998
                                                 -------   -------   -------   -------   --------   -------   --------
<S>                                              <C>       <C>       <C>       <C>       <C>        <C>       <C>
STATEMENT OF OPERATIONS DATA:
  Total revenue................................  $38,200   $47,401   $60,121   $80,607   $132,525   $60,583   $129,129
  Gross profit.................................   13,007    16,489    20,954    28,791     46,210    21,402     44,849
  Store contribution(3)........................    2,738     3,985     5,550     6,798     10,642     6,605     14,641
  Income from operations.......................       10     1,344     2,238     1,953      2,053     2,692      8,798
  Interest expense.............................      631       426       629       617      1,808       513      1,610
                                                 -------   -------   -------   -------   --------   -------   --------
  Income before taxes..........................     (621)      918     1,609     1,336        245     2,179      7,188
  Income tax expense (benefit).................       --        --      (174)     (453)        99       876      2,875
                                                 -------   -------   -------   -------   --------   -------   --------
  Net income (loss)............................  $  (621)  $   918   $ 1,783   $ 1,789   $    146   $ 1,303   $  4,313
                                                 =======   =======   =======   =======   ========   =======   ========
  Pro forma income tax expense (benefit)(4)....     (248)      371       661       550         99       876      2,875
  Pro forma net income (loss)..................  $  (373)  $   547   $   948   $   786   $    146   $ 1,303   $  4,313
                                                 =======   =======   =======   =======   ========   =======   ========
  Pro forma net income per common share........                                          $   0.03             $   0.87
                                                                                         ========             ========
  Weighted average shares outstanding(5).......                                             4,966                4,966
                                                                                         ========             ========
  Supplemental pro forma net income per common
    share(6)...................................                                          $    .37             $   1.05
                                                                                         ========             ========
OPERATING DATA:
  Stores open at beginning of period...........       13        14        16        18         33        33         47
  New stores...................................        1         2         2         2          4         2          3
  Relocated stores.............................        0         1         1         1          1         1          2
  Closed stores................................        0         0         0         0          0         0          0
  Acquired stores..............................        0         0         0        13         10         0          0
  Stores open at end of period.................       14        16        18        33         47        35         50
COMPARABLE STORE SALES GROWTH:(7)
  Tweeter......................................     2.8%     11.2%     12.5%      1.6%      -4.5%     -7.7%      29.9%
  Bryn Mawr....................................                                  37.6%       4.7%      8.9%      15.0%
  HiFi Buys....................................                                            -29.7%               -13.2%
  Consolidated.................................     2.8%     11.2%     12.5%      5.7%      -7.0%     -2.3%       8.8%
</TABLE>
 
<TABLE>
<CAPTION>
                                                                           MARCH 31, 1998
                                                              -----------------------------------------
                                                              ACTUAL     PRO FORMA(8)    AS ADJUSTED(9)
                                                              -------    ------------    --------------
<S>                                                           <C>        <C>             <C>
 
BALANCE SHEET DATA:
  Working capital...........................................  $16,250      $16,250          $ 16,250
  Total assets..............................................   84,528       84,528            84,221
  Long term debt, excluding current portion.................   31,275       31,275             1,935
  Redeemable convertible preferred stock....................   22,174           --                --
  Stockholder's equity (deficit)............................   (2,939)      19,235            49,624
</TABLE>
 
---------------
(1) Includes results of the Bryn Mawr Acquisition from May 13, 1996, which was
    accounted for using the purchase method. See Note 10 of Notes to the
    Consolidated Financial Statements of the Company.
 
(2) Includes results of the HiFi Buys Acquisition from May 30, 1997, which was
    accounted for using the purchase method. See Note 10 of Notes to the
    Consolidated Financial Statements of the Company.
 
(3) 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 the
    Company 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 the Company's
    profitability or liquidity. There can be no assurance that the Company's
    calculation of store contribution is comparable to similarly titled items
    reported by other companies.
 
                                        6
<PAGE>   9
 
(4) The Company 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, the Company
    revoked its S election, and became subject to taxation as a C corporation,
    effective October 1, 1995. The pro forma information has been computed as if
    the Company were subject to Federal and all applicable state income taxes
    for each of the periods presented, assuming the Company had been taxed as a
    C corporation. The Company actually recorded an income tax benefit of
    $174,000 and $453,000 for the fiscal years ended September 30, 1995 and
    1996, respectively.
 
(5) Weighted average shares outstanding gives effect to the automatic conversion
    of all outstanding shares of the Company's Series A Convertible Preferred
    Stock and Series B Convertible Preferred Stock (the "Preferred Stock") into
    2,566,561 shares of Common Stock. Weighted average shares outstanding also
    include an aggregate of 845,059 shares issuable upon exercise of stock
    options and 771,664 shares issuable upon exercise of warrants, after
    applying the treasury stock method assuming an initial public offering price
    of $16.00 per share.
 
(6) Supplemental pro forma net income per share is based on pro forma net income
    per share, increased to give effect to the reduction in interest costs of
    $1,701 for the fiscal year ended September 30, 1997 and $1,531 for the six
    months ended March 31, 1998 (net of the applicable income taxes), which
    would have resulted assuming the application of a portion of the net
    proceeds from the Offering were used to repay certain indebtedness of the
    Company. See "Use of Proceeds."
 
(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. Relocated stores are
    excluded from the comparable store base until they have completed 12 full
    months of operation from the date the store was reopened after relocation.
 
(8) Represents actual data pro forma to give effect to the conversion of all the
    outstanding shares of Preferred Stock into 2,566,561 shares of common stock.
 
(9) Represents pro forma data as adjusted to give effect to the sale of
    2,200,000 shares of Common Stock offered by the Company at an assumed
    initial public offering price of $16.00 per share (after deducting
    underwriting discounts and commission and estimated offering expenses), the
    application of the estimated net proceeds therefrom and the writeoff of
    approximately $307,000 of deferred financing costs in connection with the
    repayment of the 1997 Notes issued in connection with the HiFi Buys
    Acquisition and the accretion of debt of approximately $325,000. See
    "Capitalization" and "Use of Proceeds."
 
                                        7
<PAGE>   10
 
                                  RISK FACTORS
 
     In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating an investment in
the shares of Common Stock offered hereby. This Prospectus contains certain
forward-looking statements that involve risks and uncertainties. When used in
this Prospectus, the terms "anticipates," "expects," "estimates," "believes,"
"intends" and similar terms as they relate to the Company or management are
intended to identify such forward-looking statements. The Company's actual
results could differ materially from the results discussed in such
forward-looking statements. Factors that could cause or contribute to such a
difference include, but are not limited to, those set forth below and elsewhere
in this Prospectus.
 
     Risks Associated With Growth.  The Company's success will depend 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
on a profitable basis. The opening of additional stores in existing markets
could result in lower net sales at the Company's existing stores in that market,
and the opening of additional stores in new geographic markets could present
competitive and merchandising challenges different from those currently or
previously faced by the Company within its existing geographic markets. In
addition, the Company may incur higher costs related to advertising,
administration and distribution as it enters new markets.
 
     The Company's growth strategy is dependent upon a number of factors,
including 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 by the Company and the successful consummation of such acquisitions,
the obtaining of consents, including government consents, permits and licenses,
needed to complete such acquisitions and operate such additional sites, the
hiring, training and retention of skilled personnel, the availability of
adequate management and financial resources, the adaptation of the Company's
distribution and other operational and management systems to an expanded network
of stores, the ability and willingness of the Company's vendors to supply the
Company on a timely basis at competitive prices, continued consumer demand for
the Company's products at levels that can support acceptable profit margins, and
other factors, many of which are beyond the control of the Company. There can be
no assurance that the Company will be successful with respect to any of these
factors in particular or that the Company will be successful in opening or
acquiring new stores on a schedule consistent with the Company's business plan,
if at all, or that such newly opened or acquired stores will achieve sales and
profitability levels comparable to existing stores, if they are profitable at
all, or that the Company will improve its overall market position and
profitability as a result.
 
     In addition, the Company's rapid expansion through the opening or
acquisition of new stores will place significant demands on the Company's
management, resources, operations and information systems, and the Company will
be required to expend significant effort and additional resources to ensure the
continuing adequacy of its financial controls, operating procedures, information
systems, product purchasing and distribution systems and employee training
programs. In addition, the Company will need to attract and retain additional
qualified personnel, including new store managers. Further, the Company's
continued growth will depend on its ability to increase sales in its existing
stores. There can be no assurance that the Company will be successful in any of
these efforts, and, as a result, there can be no assurance that the Company will
achieve its planned expansion or that any new stores will be effectively
integrated into the Company's existing operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Business -- Growth Strategy."
 
     Risks Associated with Acquisitions.  The Company has completed two
acquisitions and is continuing to integrate the acquired stores and to convert
those stores to its operating model. There can be no assurance that the Company
will be able to integrate such stores without significant delay or expense. For
example, comparable store sales within the stores acquired by the Company as
part
 
                                        8
<PAGE>   11
 
of the HiFi Buys Acquisition have decreased since the consummation of the HiFi
Buys Acquisition. Although the Company will consider strategic acquisitions of
other retail chains in the audio and video consumer electronics industry, there
can be no assurance that suitable acquisition candidates will be identified,
that acquisitions can be consummated or that new stores acquired through such
acquisitions can be operated profitably or integrated successfully into the
Company's operations. Previously acquired stores have had, and newly acquired
stores may have, different merchandising, advertising, store format and
operating approaches from those of the Company, and the Company's success in
integrating such stores will depend on its ability to effect significant changes
in the operations of such stores to conform to the Company's approach in these
areas. There can be no assurance that the Company will be successful in
effecting such changes without an adverse effect on the revenues or
profitability of such stores. In addition, future acquisitions by the Company
could result in potentially dilutive issuances of equity securities, the
incurrence of debt and contingent liabilities and amortization expenses related
to goodwill and other intangible assets, all of which could materially adversely
affect the Company.
 
     Potential Need for Additional Financing.  The Company intends to finance
the opening and acquisition of new stores during the next two years with a
portion of the proceeds from the Offering, cash flow from operations and
borrowings. The average cash investment, including pre-opening expenses for
tenant fit-out, demonstration and inventory (net of payables), required to open
a store is estimated by the Company to be approximately $855,000. However, there
can be no assurance that the actual cost of opening a store will not be
significantly greater than such current estimates, and the Company may be
required to seek additional debt and/or equity financing in order to fund its
continued expansion through 1999 and beyond. There can be no assurance that such
additional financing will be available on terms acceptable to the Company, if at
all. In addition, the Company's 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
the Company may result in dilution to the Company's stockholders.
 
     Dependence on Key Personnel.  The success of the Company will be dependent
upon the active involvement of senior management personnel, particularly Samuel
J. Bloomberg, the Company's Chief Executive Officer and Chairman of the Board,
and Jeffrey Stone, the Company'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 the Company'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 the Company, and David Ginsburg, a
regional Vice President of the Company, the Company does not have employment
agreements with any members of its senior management team. The Company currently
maintains key-man life insurance on the lives of Messrs. Bloomberg and Stone in
the amounts of $1,000,000 and $5,000,000, respectively. See
"Business -- Business Strategy" and "Management."
 
     Risks Associated with Competition.  The retail consumer electronics
industry is highly competitive. The Company 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 electronic products similar and
often identical to those sold by the Company. The Company also competes in
particular markets with a substantial number of retailers that specialize in one
or more types of consumer electronic products sold by the Company. Certain of
these competitors have substantially greater financial resources than the
Company 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. In this regard,
the Company understands that Best Buy has announced its intention to enter the
New England market in 1998. A number of different competitive factors could have
a material adverse effect on the Company's results of operations and financial
condition, including increased opera-
 
                                        9
<PAGE>   12
 
tional efficiencies of competitors, competitive pricing strategies, expansion by
existing competitors, entry by new competitors into markets in which the Company
is currently operating or the adoption by existing competitors of innovative
store formats or retail sales methods. See "Business -- Industry."
 
     Seasonal and Quarterly Fluctuations in Sales.  Like many retailers, the
Company's business is materially impacted by seasonal shopping patterns. The
fourth calendar quarter, which is the Company's first fiscal quarter and which
includes the December holiday shopping period, has historically contributed, and
is expected to continue to represent, a substantial portion of the Company's
operating income for its entire fiscal year. As a result, any factors negatively
affecting the Company during such calendar quarter of any year, including
adverse weather or unfavorable economic conditions, would have a material
adverse effect on the Company's results of operations for the entire year. More
generally, the Company's quarterly results of operations 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 and profitability of sales of particular products and other
competitive factors. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Seasonality and Quarterly Results."
 
     Fluctuations in Comparable Store Sales.  A number of factors have
historically affected, and will continue to affect, the Company's comparable
store sales results including, among other factors, competition, general
regional and national economic conditions, consumer trends, changes in the
Company's product mix, timing of promotional events, new product introductions
and the Company's ability to execute its business strategy effectively. The
Company does not expect comparable store sales to increase at historical rates,
and there can be no assurance that comparable store sales will not decrease in
the future. Changes in the Company's comparable store sales results could cause
the price of the Common Stock to fluctuate substantially. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
 
     Lack of Geographical Dispersion.  The Company currently operates 50 stores,
of which 23 are operated under the Tweeter name in the New England market, 17
are operated under the Bryn Mawr name in the Mid-Atlantic market, and 10 are
operated under the HiFi Buys name in the Atlanta, Georgia market. The lack of
wider geographical dispersion of the Company's current stores makes the Company
vulnerable to adverse events in these markets, including weather, regional
competition or unfavorable regional economic conditions. See "Business -- Store
Format and Operations."
 
     Changes in Consumer Demand and Preferences.  The Company'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 marketed by the Company, are
affected by, among other things, prevailing economic conditions. In addition,
demand for audio and video consumer electronics products is often stimulated by
or dependent upon the periodic introduction and availability of new products and
technologies at price levels which generate wide consumer interest. 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. There can be no assurance that
these products or other new products will ever achieve widespread consumer
acceptance. Furthermore, the introduction or expected introduction of new
products or technologies may have a depressing effect on sales of existing
products and technologies. Significant deviations from the projected demand for
products sold by the Company would have a materially adverse effect on the
Company's 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 the Company to identify and respond to changes in consumer demand and
preferences would have a material adverse effect on the Company's results of
 
                                       10
<PAGE>   13
 
operations and financial condition. See "Business -- Industry," "-- Business
Strategy" and "-- Merchandise."
 
     Dependence on Suppliers.  The Company's business and its growth strategy
are dependent 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. The Company does not have any supply
agreements or exclusive arrangements with any vendors, and ordering of Company
inventory typically occurs through the issuance of individual purchase orders to
vendors. In addition, the Company relies heavily on a relatively small number of
suppliers. The Company's two largest suppliers accounted for approximately 31%
of the Company's purchases during its fiscal year ended September 30, 1997. The
loss of any of these key vendors or the failure by the Company to establish and
maintain relationships with these or other vendors could have a material adverse
effect on the Company's results of operations and financial condition and
expansion. The Company believes it currently has adequate supply sources but
there can be no assurance, especially given the Company's growth strategy, that
the Company will be able to acquire sufficient quantities or an appropriate mix
of consumer electronic products at acceptable prices or at all. Specifically,
the establishment of additional stores in existing markets and the penetration
of new markets is dependent to a significant extent on the willingness and
ability of vendors to supply those additional stores, of which there can be no
assurance. As the Company continues to open or acquire new stores, the inability
or unwillingness of suppliers to supply some or all of their products to the
Company at acceptable prices in one or more markets could have a material
adverse effect on the Company's results of operations and financial condition.
Furthermore, the Company 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 purchased by the Company from foreign vendors or create shortages of such
items, which could in turn have a material adverse effect on the Company'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
the Company's ability to successfully differentiate itself from other
competitors, thereby resulting in an adverse effect on the Company's sales,
margin or competitive position. See "Business -- Purchasing and Inventory."
 
     Membership in Buying Group.  The Company is a member of the Progressive
Retailers Organization ("PRO"), 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 members. There can be no assurance that any future termination
of the Company's membership in this group would not have a material adverse
effect on the Company's results of operations and financial condition. In
addition, rebates paid to the Company by product manufacturers through this
group depend on the sales volumes achieved by the group's other members, as well
as the Company, and therefore decreased sales performance by these other members
could reduce the amounts of such rebates payable to the Company, which could in
turn have a material adverse effect on the Company's results of operations and
financial condition. See "Business -- Purchasing and Inventory."
 
     Intellectual Property.  The Company's "Tweeter etc." and "Bryn Mawr Stereo"
service marks have been registered with the United States Patent and Trademark
Office. The Company has not registered the "HiFi Buys" service mark and is aware
that other consumer electronics retailers use the name "HiFi Buys" outside the
Company's current geographical markets. The Company has submitted applications
for registration of certain other of its service marks, which applications are
currently pending. There can be no assurance that the Company will be able to
successfully register such service marks. In addition, there can be no assurance
that any service mark, whether registered or unregistered, or any patent will be
effective to protect the Company's intellectual property rights, or that
infringement or invalidity claims by third parties will not be asserted in the
future or that such assertions, if proven to be true, would not have a material
adverse effect on the Company's results of operations and financial condition.
See "Business -- Intellectual Property."
 
                                       11
<PAGE>   14
 
     Planned Relocation of Company Headquarters.  The Company plans to relocate
to a new facility that will serve as its corporate headquarters and New England
regional distribution and service center in the summer of 1998. The Company's
corporate, financial, administrative and marketing staff will be based at that
relocated facility. The Company's principal data processing and computer
facility is located elsewhere. There can be no assurance that such relocation
will not result in a disruption to the Company's operations. See
"Business -- Properties" "Business -- Purchasing and Inventory."
 
     Control by Existing Stockholders.  Upon completion of the Offering, the
Company's current stockholders will own approximately 55.4% of the Company's
outstanding Common Stock. As a result, those parties will continue to be able to
influence significantly the affairs of the Company if they were to act together.
See "Principal and Selling Stockholders."
 
     Effect of Certain Charter And By-law Provisions; Anti-Takeover
Provisions.  The Company's Amended and Restated Certificate of Incorporation, as
in effect immediately following the consummation of the Offering (the "Charter")
and the Company's Amended and Restated Bylaws, as in effect immediately
following the consummation of the Offering (the "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 the Company,
even if such a change in control would be in the interest of a significant
number of Company 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, under the Charter, the Board of Directors of the
Company is authorized to issue one or more classes of Preferred Stock, having
such designations, rights and preferences as may be determined by the Board, and
such issuances may, among other things, have an adverse effect on the rights of
holders of Common Stock.
 
     Stockholders of the Company have no right to take action by written consent
and are not permitted to 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. See
"Description of Capital Stock -- Delaware Law and Certain Charter and By-Law
Provisions; Anti-Takeover Effects."
 
     In addition, the Company will adopt, effective upon the consummation of the
Offering, a Stockholder Rights Plan. Under the terms of the 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 the
Company would have the right to purchase securities from the Company 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. See "Description of
Capital Stock -- Stockholder Rights Plan."
 
     Shares Eligible For Future Sale.  The Company and its existing stockholders
holding all of the Company's outstanding capital stock prior to the Offering
have agreed pursuant to lock-up agreements (the "Lock-up Agreements") with the
Underwriters, 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 180 days after the date of
this Prospectus (the "Lock-up Period"), without the prior written consent of BT
Alex. Brown Incorporated. Following the Offering, the Company will have
outstanding 6,082,690 shares of Common Stock. Of such shares, the 2,710,000
shares offered hereby will be freely tradable by those persons who are not
affiliates of the Company and all of the remaining outstanding shares will be
subject to Lock-up Agreements for the duration of the Lock-up Period. Upon
expiration of the Lock-up Period,
 
                                       12
<PAGE>   15
 
approximately 3,372,690 additional shares will be available for sale in the
public market, subject to the provisions of Rule 144 under the Securities Act of
1933, as amended. As of the date of the Offering, approximately 845,059 shares
of Common Stock were issuable pursuant to options under the Company's stock
plans and 511,808 shares of Common Stock were issuable upon the exercise of
warrants. All shares issuable upon exercise of options are subject either to
Lock-up Agreements or to a lock-up period of 120 days pursuant to the Company's
stock option agreements. All shares issuable upon the exercise of warrants are
subject to Lock-up Agreements. In addition, the holders of approximately
3,884,498 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 following the Offering, or the perception that such
sales could occur, could have a material adverse effect on the market price of
the Common Stock after the Offering. See "Description of Capital Stock" and
"Shares Eligible for Future Sale."
 
     No Prior Public Trading Market; Volatility.  Prior to the Offering, there
has been no public market for the Common Stock, and there can be no assurance
that an active public market for the Common Stock will develop or be sustained
after the Offering. The initial public offering price of the Common Stock will
be determined by negotiations between the Company and the representatives of the
Underwriters. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The initial public
offering price may not necessarily be indicative of the market price of the
Common Stock after the Offering, which may be highly volatile. Factors such as
announcements of fluctuations in the Company's or its competitors' operating
results and market conditions for retail industry stocks in general could have a
material adverse effect on the market price of the Common Stock after the
Offering.
 
     Year 2000 Compliance.  The Company currently utilizes several computer
software systems which will require modification or upgrading to accommodate the
"Year 2000" changes needed for correct recording of dates in the year 2000 and
beyond. The Company believes that all such systems can be changed by the end of
1999 and does not expect the cost of the changes to be material to the Company's
financial condition or results of operations. The Company does not currently
have any information concerning the compliance status of its suppliers. Any
failure by the Company's significant suppliers to successfully achieve Year 2000
compliance could have a material adverse effect on the Company's results of
operations and financial condition. See "Business -- Information Systems."
 
     Dividend Policy.  The Company does not anticipate paying any cash dividends
on the Common Stock for the foreseeable future. In addition, it is likely that
any future lending arrangements, including the lending arrangements currently
under discussion between the Company and its existing lender, will prohibit or
limit the payment of cash dividends. See "Use of Proceeds" and "Dividend
Policy."
 
     Dilution.  Investors participating in the Offering will incur immediate and
substantial dilution in the amount of $10.93 per share (assuming an initial
public offering price of $16.00 per share). To the extent that currently
outstanding options or warrants to purchase Common Stock are exercised, there
will be further dilution. See "Dilution."
 
                                       13
<PAGE>   16
 
                                USE OF PROCEEDS
 
     The net proceeds to the Company from the sale of the 2,200,000 shares of
Common Stock offered hereby are estimated to be $31,836,000 ($37,884,720 if the
Underwriters' over-allotment option is exercised in full), assuming an initial
public offering price of $16.00 per share and after deducting the estimated
underwriting discounts and commissions and expenses payable by the Company. The
Company will use all or substantially all of such proceeds to repay existing
indebtedness. Specifically, the Company intends to repay (i) approximately $14.1
million in outstanding indebtedness under its existing Credit Agreement with
BankBoston, N.A. (the "Credit Facility"); (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 (the "1997
Notes"); (iii) approximately $1.0 million in outstanding indebtedness under the
Senior Subordinated Note dated November 28, 1995 issued in connection with a
recapitalization pursuant to which the Company repurchased Common Stock from
certain of its stockholders (the "Redemption Note") plus approximately $800,000
due to these stockholders in connection with the Offering; and (iv)
approximately $900,000 to repay outstanding indebtedness under the Subordinated
Note dated June 1, 1997 issued in connection with the HiFi Buys Acquisition (the
"HiFi Buys Note"). Any remaining net proceeds will be used to finance new store
openings and for general working capital purposes.
 
     The Credit Facility matures on May 30, 2000 and bears interest at a
floating rate of interest based on the lender's base rate or LIBOR. The 1997
Notes mature on May 30, 2004 and bear interest at a rate of 12.0%. The
Redemption Note matures on December 31, 1998 and bears interest at an effective
rate of 10.8%. The HiFi Buys Note matures on June 1, 2000 and bears interest at
a rate of 9.5%. The Company intends to obtain a new credit facility in the
amount of $30.0 million effective upon consummation of the Offering (the "New
Credit Facility") which will be used first to refinance any remaining
indebtedness under the Credit Facility after application of proceeds of the
Offering. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
 
     Pending use as described above, any remaining net proceeds of the Offering
will be invested in investment-grade, interest-bearing instruments. The Company
will not receive any proceeds from the sale of Common Stock by the Selling
Stockholders.
 
                                DIVIDEND POLICY
 
     Following the Offering, the Company does not anticipate paying any cash
dividends and intends to retain any earnings to finance expansion. Payment of
future dividends, if any, will depend upon the Company's results of operations,
financial condition, cash requirements and other factors deemed relevant by the
Company's Board of Directors. The Company's current Credit Facility contains,
and any future credit agreements, including the new Credit Facility, may
contain, restrictions on the payment of dividends by the Company.
 
                                       14
<PAGE>   17
 
                                 CAPITALIZATION
 
     The following table sets forth the pro forma capitalization of the Company
as of March 31, 1998, (i) on an actual basis; (ii) on a pro forma basis to
reflect the automatic conversion of all outstanding Preferred Stock into
2,566,561 shares of Common Stock and the exercise of warrants to purchase
259,856 shares of Common Stock, each upon the consummation of the Offering, and
(iii) as adjusted to reflect the application of the estimated net proceeds from
the sale of 2,200,000 shares of Common Stock offered by the Company hereby
assuming an initial public offering price of $16.00 per share. This table should
be read in conjunction with the Company's Consolidated Financial Statements and
the notes thereto appearing elsewhere in this Prospectus.
 
<TABLE>
<CAPTION>
                                                                    MARCH 31, 1998
                                                          -----------------------------------
                                                          ACTUAL     PRO FORMA    AS ADJUSTED
                                                          -------    ---------    -----------
                                                                    (IN THOUSANDS)
<S>                                                       <C>        <C>          <C>
Short-term debt:
  Current portion of long-term debt.....................  $   400     $   400       $    --
                                                          =======     =======       =======
Long-term debt:
  Note payable to bank..................................   15,100      15,100           979
  Subordinated debt.....................................   16,175      16,175            --
                                                          -------     -------       -------
          Total long-term debt..........................  $31,275     $31,275       $   979
                                                          -------     -------       -------
Redeemable convertible preferred stock:
  Series A Convertible Preferred Stock, no par value;
     authorized, 4,000,000 shares; 1,700,136 shares
     issued and outstanding in 1998, 1997 and 1996,
     actual; no shares outstanding pro forma and as
     adjusted (liquidation preference, $14,432,999 as of
     March 31, 1998, actual)............................   14,433          --            --
  Series B Convertible Preferred Stock, no par value;
     authorized, 4,000,000 shares; 866,425 shares issued
     and outstanding in 1998 and 1997, actual; no shares
     outstanding pro forma and as adjusted (liquidation
     preference $7,741,248 as of March 31, 1998,
     actual)............................................    7,741          --            --
                                                          -------     -------       -------
                                                           22,174          --            --
                                                          -------     -------       -------
Stockholders' equity:
  Preferred Stock, no par value, 10,000,000 shares
     authorized(1), no shares issued and outstanding
     actual, pro forma and as adjusted..................       --          --            --
  Common stock, no par value, 20,000,000 shares
     authorized; 1,056,273 shares issued and outstanding
     actual and 3,882,690 shares issued and outstanding
     pro forma and 6,082,690 shares issued and
     outstanding as adjusted(2).........................       --          --            --
  Additional paid-in capital............................      326      22,500        54,336
  Retained earnings(3)(4)...............................   (1,684)     (1,684)       (2,677)
  Note receivable from officer..........................      (32)        (32)          (32)
  Treasury stock, 1,698,929 shares at cost actual and
     pro forma and 1,439,073 shares as adjusted(3)(5)...   (1,550)     (1,550)       (2,003)
                                                          -------     -------       -------
     Total stockholders' equity (deficit)...............   (2,940)     19,234        49,624
                                                          -------     -------       -------
          Total capitalization..........................  $50,509     $50,509       $50,603
                                                          =======     =======       =======
</TABLE>
 
---------------
(1) Reflects an increase in authorized shares to be effected prior to the
    consummation of the Offering.
(2) Excludes 511,808 shares of Common Stock issuable upon exercise of warrants
    outstanding at the date of this Prospectus, with a weighted average exercise
    price of $2.13 per share. Also excludes 845,059 shares of Common Stock
    issuable upon exercise of options outstanding at the date of this
    Prospectus, with a weighted average exercise price of $3.97 per share.
 
                                       15
<PAGE>   18
 
    See Notes 6 and 11 of Notes to Consolidated Financial Statements of the
    Company, "Description of Capital Stock" and "Management -- Stock Plans."
(3) Assumes the exercise of warrants to purchase 259,856 shares of Common Stock
    which the Company intends to issue from Treasury Stock.
(4) As adjusted reflects the writeoff of approximately $307,000 of deferred
    financing costs in connection with the 1997 Notes and the accretion of debt
    of approximately $325,000. See -- "Use of Proceeds."
(5) As adjusted reflects the impact of the $813,517 contingency payment due to
    the holder of the Redemption Note upon consummation of the Offering.
 
                                       16
<PAGE>   19
 
                                    DILUTION
 
     The net tangible book value of the Company's Common Stock at March 31, 1998
was a deficit of ($1,014,844), or approximately ($.28) per share of Common
Stock. Net tangible book value per share is determined by dividing the net
tangible book value of the Company (total assets less goodwill and total
liabilities) by the number of outstanding shares of Common Stock. After giving
effect to the sale of the shares of Common Stock by the Company in the Offering,
assuming an initial public offering price of $16.00 per share and after
deducting the estimated underwriting discounts and commissions and expenses
payable by the Company, the pro forma net tangible book value of the Company as
of March 31, 1998 would have been $30,821,156 or $5.07 per share. This
represents an immediate increase in pro forma net tangible book value of $5.35
per share to existing stockholders and an immediate dilution to new investors of
$10.93 per share. The following table illustrates the per share dilution:
 
<TABLE>
<S>                                                           <C>       <C>
Assumed initial public offering price per share.............            $16.00
  Net tangible book value per share as of March 31, 1998....     (.28)
  Increase per share attributable to new investors..........     5.35
                                                              -------
Pro forma net tangible book value per share after the
  Offering..................................................              5.07
                                                                        ------
Dilution per share to new investors(1)......................            $10.93
                                                                        ======
</TABLE>
 
---------------
(1) If all outstanding options and warrants at March 31, 1998 to acquire 859,049
    and 511,808 shares of Common Stock, respectively, were exercised, in
    addition to the Underwriters' exercise of their over-allotment option, the
    pro forma net tangible book value per share after the Offering would be
    $4.21, resulting in an immediate dilution of $11.79 per share to new
    investors.
 
     The following table summarizes on a pro forma basis as of March 31, 1998,
the differences between existing stockholders and new investors with respect to
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price paid per share before deducting
estimated underwriting discounts and commissions and offering expenses payable
by the Company, assuming (i) the automatic conversion of the outstanding shares
of Preferred Stock into 2,566,561 shares of Common Stock and (ii) the exercise
of warrants to purchase 259,856 shares of Common Stock, each upon the
consummation of the Offering:
 
<TABLE>
<CAPTION>
                           SHARES PURCHASED       TOTAL CONSIDERATION
                          -------------------    ---------------------     AVERAGE PRICE
                           NUMBER     PERCENT      AMOUNT      PERCENT       PER SHARE
                          ---------   -------    -----------   -------    ---------------
<S>                       <C>         <C>        <C>           <C>        <C>
Existing
  stockholders(1).......  3,882,690    63.8%     $15,848,295    31.0%         $ 4.08
New investors...........  2,200,000    36.2%     $35,200,000    69.0%         $16.00
                          ---------    -----     -----------    -----
          Total.........  6,082,690     100%     $51,048,295     100%
                          =========    =====     ===========    =====
</TABLE>
 
---------------
(1) Of this amount, 510,000 shares will be sold in the Offering by Selling
    Stockholders. Sales by Selling Stockholders in this Offering will reduce the
    number of shares of Common Stock held by existing stockholders to 3,372,690,
    or approximately 55.4% and will increase the number of shares held by new
    investors to 2,710,000, or approximately 44.6% of the total number of shares
    of Common Stock outstanding after the Offering. See "Principal and Selling
    Stockholders."
 
     The computations in the tables set forth above exclude 511,808 shares of
Common Stock issuable upon exercise of warrants outstanding at the date of this
Prospectus with a weighted average exercise price of $2.13 per share, and
exclude 845,059 shares of Common Stock issuable upon exercise of options
outstanding at the date of this Prospectus with a weighted average exercise
price of $3.97 per share. To the extent any of these warrants and options are
exercised, there will be further dilution to new investors and the percentage
ownership of new investors will decrease. See Notes 6 and 11 of Notes to
Consolidated Financial Statements of the Company, "Capitalization," "Description
of Capital Stock," and "Management -- Stock Plans."
 
                                       17
<PAGE>   20
 
               SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
              (IN THOUSANDS, EXCEPT PER SHARE AND OPERATING 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, 1997, and for the six months
ended March 31, 1997 and March 31, 1998, respectively. The selected statement of
operations and balance sheet data for each of the five years ended September 30,
1997 have been derived from financial statements of the Company, which have been
audited by its independent auditors. The balance sheets as of September 30, 1996
and September 30, 1997, and the related statements of income, stockholders'
equity (deficit), and cash flows for each of the three years in the period ended
September 30, 1997, and the audit report thereon, are included elsewhere in this
Prospectus. The financial data for the six months ended March 31, 1997 and March
31, 1998 are derived from unaudited financial statements of the Company and
reflect all adjustments, consisting only of normal recurring accruals, that the
Company considers necessary for a fair presentation of the financial position
and results of operations for those periods. The information set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements and the Notes thereto included elsewhere in this
Prospectus.
 
<TABLE>
<CAPTION>
                                                                                               SIX MONTHS ENDED
                                                FISCAL YEAR ENDED SEPTEMBER 30,                    MARCH 31,
                                        ------------------------------------------------   -------------------------
                                         1993      1994      1995     1996(1)   1997(2)       1997          1998
                                        -------   -------   -------   -------   --------   -----------   -----------
                                                                                           (UNAUDITED)   (UNAUDITED)
<S>                                     <C>       <C>       <C>       <C>       <C>        <C>           <C>
STATEMENT OF OPERATIONS:
  Total revenue.......................  $38,200   $47,401   $60,121   $80,607   $132,525     $60,583      $129,129
  Cost of sales.......................   25,193    30,912    39,167    51,816     86,315      39,181        84,280
                                        -------   -------   -------   -------   --------     -------      --------
    Gross profit......................   13,007    16,489    20,954    28,791     46,210      21,402        44,849
  Selling expenses....................   10,269    12,504    15,404    21,993     35,568      14,797        30,208
                                        -------   -------   -------   -------   --------     -------      --------
    Store contribution(3).............    2,738     3,985     5,550     6,798     10,642       6,605        14,641
  Corporate, general and
    administrative expenses...........    2,663     2,576     3,247     4,716      8,102       3,793         5,420
  Amortization of goodwill............       65        65        65       129        487         120           423
                                        -------   -------   -------   -------   --------     -------      --------
    Income from operations............       10     1,344     2,238     1,953      2,053       2,692         8,798
  Interest expense....................      631       426       629       617      1,808         513         1,610
                                        -------   -------   -------   -------   --------     -------      --------
  Income before taxes.................     (621)      918     1,609     1,336        245       2,179         7,188
  Income tax expense (benefit)........       --        --      (174)     (453)        99         876         2,875
                                        -------   -------   -------   -------   --------     -------      --------
  Net income (loss)...................  $  (621)  $   918   $ 1,783   $ 1,789   $    146     $ 1,303      $  4,313
                                        =======   =======   =======   =======   ========     =======      ========
  Pro forma income tax expense
    (benefit)(4)......................     (248)      371       661       550         99         876         2,875
  Pro forma net income (loss).........  $  (373)  $   547   $   948   $   786   $    147     $ 1,303      $  4,313
                                        =======   =======   =======   =======   ========     =======      ========
  Pro forma diluted earnings(5).......                                          $   0.03                  $   0.87
                                                                                ========                  ========
  Weighted average shares
    outstanding(5)....................                                             4,966                     4,966
                                                                                ========                  ========
  Supplemental pro forma diluted
    earnings income per share(6)......                                          $    .37                  $   1.05
                                                                                ========                  ========
OPERATING DATA:
  Stores open at beginning of
    period............................       13        14        16        18         33          33            47
  New stores..........................        1         2         2         2          4           2             3
  Relocated stores....................        0         1         1         1          1           1             2
  Closed stores.......................        0         0         0         0          0           0             0
  Acquired stores.....................        0         0         0        13         10           0             0
  Stores open at end of period........       14        16        18        33         47          35            50
BALANCE SHEET DATA:
  Working capital.....................  $ 1,617   $   835   $ 1,590   $ 1,897   $ 11,857     $ 2,281      $ 16,250
  Total assets........................    9,367    12,562    15,162    38,619     78,688      42,107        84,528
  Long term debt, excluding current
    portion...........................    9,057     7,955     8,705    10,700     30,875       9,975        31,275
  Redeemable convertible preferred....       --        --        --    11,597     20,591      12,496        22,174
  Stockholder's equity (deficit)......   (5,039)   (4,122)   (2,457)   (3,984)    (5,669)     (3,580)       (2,939)
</TABLE>
 
                                          (footnotes following Other Store Data)
 
                                       18
<PAGE>   21
 
                                OTHER STORE DATA
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                         SIX MONTHS ENDED
                                              FISCAL YEAR ENDED SEPTEMBER 30,               MARCH 31,
                                      -----------------------------------------------   ------------------
                                       1993      1994      1995      1996      1997      1997       1998
                                      -------   -------   -------   -------   -------   -------   --------
                                                                                           (UNAUDITED)
<S>                                   <C>       <C>       <C>       <C>       <C>       <C>       <C>
TWEETER
  Total revenue.....................  $38,200   $47,401   $60,121   $68,577   $74,049   $40,801   $ 54,690
  Store contribution(3).............    2,738     3,985     5,550     7,089     6,338     4,558      7,178
  Store contribution margin.........      7.2%      8.4%      9.2%     10.3%      8.6%     11.2%      13.1%
  Stores open at beginning of
    period..........................       13        14        16        18        20        20         22
  New stores........................        1         2         2         2         2         2          1
  Relocated stores..................        0         1         1         1         1         1          2
  Closed stores.....................        0         0         0         0         0         0          0
  Stores open at end of period......       14        16        18        20        22        22         23
BRYN MAWR
  Total revenue.....................                                $12,030   $35,432   $19,782   $ 28,359
  Store contribution(3).............                                   (291)    2,414     2,047      2,589
  Store contribution margin.........                                   -2.4%      6.8%     10.4%       9.1%
  Stores open at beginning of
    period..........................                                      0        13        13         15
  New stores........................                                      0         2         0          2
  Relocated stores..................                                      0         0         0          0
  Closed stores.....................                                      0         0         0          0
  Acquired stores...................                                     13         0         0          0
  Stores open at end of period......                                     13        15        13         17
HIFI BUYS
  Total revenue.....................                                          $23,044             $ 46,080
  Store contribution(3).............                                            1,890                4,874
  Store contribution margin.........                                              8.2%                10.6%
  Stores open at beginning of
    period..........................                                                0                   10
  New stores........................                                                0                    0
  Relocated stores..................                                                0                    0
  Closed stores.....................                                                0                    0
  Acquired stores...................                                               10                    0
  Stores open at end of period......                                               10                   10
CONSOLIDATED
  Corporate, general and
    administrative expenses.........  $ 2,663   $ 2,576   $ 3,247   $ 4,716   $ 8,102   $ 3,793   $  5,420
  Amortization of goodwill..........       65        65        65       129       487       120        423
                                      -------   -------   -------   -------   -------   -------   --------
  Income from operations............  $    10   $ 1,344   $ 2,238   $ 1,953   $ 2,053   $ 2,692   $  8,798
                                      =======   =======   =======   =======   =======   =======   ========
COMPARABLE STORE SALES GROWTH(7):
  Tweeter...........................      2.8%     11.2%     12.5%      1.6%     -4.5%     -7.7%      29.9%
  Bryn Mawr.........................                                   37.6%      4.7%      8.9%      15.0%
  HiFi Buys.........................                                            -29.7%               -13.2%
  Consolidated......................      2.8%     11.2%     12.5%      5.7%     -7.0%     -2.3%       8.8%
</TABLE>
 
---------------
(1) Includes results of the Bryn Mawr Acquisition from May 13, 1996, which was
    accounted for using the purchase method. See Note 10 of Notes to the
    Consolidated Financial Statements of the Company.
 
(2) Includes results of the HiFi Buys Acquisition from May 30, 1997, which was
    accounted for using the purchase method. See Note 10 of Notes to the
    Consolidated Financial Statements of the Company.
 
(3) 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 the
    Company 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 the Company's
    profitability or
 
                                       19
<PAGE>   22
 
    liquidity. There can be no assurance that the Company's calculation of store
    contribution is comparable to similarly titled items reported by other
    companies.
 
(4) The Company 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, the Company
    revoked its S election, and became subject to taxation as a C corporation.
    The pro forma information has been computed as if the Company were subject
    to Federal and all applicable state income taxes for each of the periods
    presented, assuming the Company had been taxed as a C corporation. The
    Company recorded an income tax benefit of $173,000 and $453,000 for the
    fiscal years ended September 30, 1995 and 1996, respectively.
 
(5) Weighted average shares outstanding gives effect to the automatic conversion
    of all outstanding shares of the Company's Preferred Stock into 2,566,561
    shares of Common Stock. Weighted average shares outstanding also include an
    aggregate of 845,059 shares issuable upon exercise of stock options and
    771,664 shares issuable upon exercise of warrants, after applying the
    treasury stock method assuming an initial public offering price of $16.00
    per share.
 
(6) Supplemental pro forma net income per share is based on pro forma net income
    per share, increased to give effect to the reduction in interest costs of
    $1,701 for the fiscal year ended September 30, 1997 and $1,531 for the six
    months ended March 31, 1998 (net of the applicable income taxes), which
    would have resulted assuming the application of a portion of the net
    proceeds from the Offering were used to repay certain indebtedness of the
    Company. See "Use of Proceeds."
 
(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.
 
                                       20
<PAGE>   23
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
OVERVIEW
 
     The Company is a leading specialty retailer of audio and video consumer
electronics under the Tweeter, Bryn Mawr and HiFi Buys names. The Company opened
its first Tweeter store in New England in 1972. Over 26 years, the Company has
refined its retail concept to meet the needs of consumers seeking mid to
high-end brand name products with advanced features, functionality and
performance which the Company sells through its highly trained,
relationship-driven sales force. The Company believes that its effective
merchandising and superior customer service has enabled it to generate
substantial customer loyalty. Approximately 40% of customers who purchased from
Tweeter stores in the six months ended March 31, 1998 had previously purchased
products from the Company within the prior two fiscal years.
 
     In 1995, the Company adopted an aggressive growth strategy (i) to open new
stores in current regional markets and relocate certain stores to more favorable
sites and (ii) to selectively pursue acquisitions in new regional markets and
achieve operating improvements by converting the acquired company to the
Company's core operating model and leveraging distribution, marketing and
corporate infrastructure. To support this growth strategy, the Company obtained
equity investments in fiscal 1996 of approximately $10.6 million from a group of
investors led by Weston Presidio and Advent International (the "1996
Investors"). In May 1996, the Company completed the Bryn Mawr Acquisition. In
May 1997, the Company raised an additional $22.0 million, comprised of $7.0
million of equity and $15.0 million of subordinated debt from the 1996 Investors
and a new group of investors, including PNC Capital Corp. The proceeds were used
primarily to finance the HiFi Buys Acquisition. Both acquisitions were accounted
for by the purchase method of accounting. By December 31, 1997, the Company had
grown to 50 stores.
 
     The Company seeks to increase sales, profitability and asset productivity
at acquired companies by converting them to the Company's 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. The Company has aggressively expanded its
corporate infrastructure over the past two years to support anticipated higher
levels of growth, including expanding its management team with the addition of
senior financial, information systems and buying personnel. Enhancements were
also made to its management information systems with the addition of a new
mainframe and operating platform, and to its distribution and administrative
infrastructure to enable the Company to support all three regions on an
integrated basis.
 
     Prior to their acquisition by the Company, both Bryn Mawr and HiFi Buys
operated at substantially lower store contribution margins than the Company's
existing operations. Consequently, the Company's results were adversely impacted
in fiscal 1996 and 1997 following each of these acquisitions as the Company
converted acquired stores to its operating model. The impact was exacerbated by
the timing of the acquisitions that resulted in the peak, holiday sales period
being excluded from the operations of the acquired stores during the year of the
acquisition.
 
BRYN MAWR
 
     Subsequent to the Bryn Mawr Acquisition, the Company implemented a variety
of strategic initiatives to convert Bryn Mawr to its 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: (i) increasing advertising expenditures during the quarter
following the acquisition and refocusing advertising to emphasize radio,
television and direct marketing rather than print, (ii) implementing the
Company's every day competitive pricing and Automatic Price Protection programs,
(iii) initiating a substantial sales associate training
 
                                       21
<PAGE>   24
 
program to improve product knowledge and enhance relationship selling skills and
(iv) focusing the sales staff on higher margin products, particularly audio
products.
 
     Primarily as a result of these initiatives, comparable store sales
increased 37.6% 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 15.0%
during the six months ended March 31, 1998. On a pro forma basis, assuming the
completion of the Bryn Mawr Acquisition as of October 1, 1995, store
contribution increased to 6.8% in fiscal 1997 from -1.1% in fiscal 1996. Bryn
Mawr store contribution margin fell to 9.1% in the six months ended March 31,
1998 from 10.4% in the prior year period primarily due to preopening expenses
incurred to open two new stores in the six months ended March 31, 1998 as well
as start up sales levels at those two stores and two additional stores opened in
May and June of 1997. The Company incurred preopening expenses of approximately
$135,000 in connection with the two stores opened in the six months ended March
31, 1998. Excluding preopening expenses, store contribution margin was 9.6% in
the six months ended March 31, 1998.
 
     The following table sets forth total revenues in thousands and store
contribution as a percentage of total revenues for Bryn Mawr on a stand-alone
basis:
 
<TABLE>
<CAPTION>
                                 PRO FORMA                                     SIX MONTHS ENDED
                              12 MONTHS ENDED       12 MONTHS ENDED     -------------------------------
                           SEPTEMBER 30, 1996(1)   SEPTEMBER 30, 1997   MARCH 31, 1997   MARCH 31, 1998
                           ---------------------   ------------------   --------------   --------------
<S>                        <C>                     <C>                  <C>              <C>
Total revenue............         $33,525               $35,432            $19,782          $28,359
Store contribution.......      -1.1%                   6.8%               10.4%             9.1%
</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 from the prior owner's financial statements and certain
    assumptions that the Company believes are reasonable under the
    circumstances. The pro forma results are not necessarily indicative of what
    the Company's results would have been for the period had the Company
    completed the Bryn Mawr Acquisition as of the date indicated.
 
HIFI BUYS
 
     As with the Bryn Mawr Acquisition, the Company initiated a series of
strategic initiatives subsequent to the HiFi Buys Acquisition. In contrast to
Bryn Mawr, these initiatives combined a planned decrease of revenue with a
planned increase in gross margin and a substantial decrease in operating
expenses to generate increased store contribution. Specifically, the Company (i)
adjusted the merchandise mix to increase the proportion of mid and high-end
products and reduce the number of lower margin introductory products, (ii)
altered store employee compensation to reduce the emphasis on promotional sales
and focus incentives on gross margin and store contribution, (iii) reduced
marketing expenditures and shifted marketing emphasis from promotional
advertising toward the Company's traditional relationship-selling and every day
competitive price message, (iv) converted the advertising program to emphasize
electronic advertising and direct mail marketing as opposed to print media, (v)
implemented the Automatic Price Protection program and (vi) eliminated $2.4
million of overhead by centralizing accounting, purchasing and other support
infrastructure.
 
     Primarily as a result of these initiatives, the Company experienced a
planned decline in comparable store sales of 29.7% during the period from the
acquisition, May 30, 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 13.2% in the
six months ended March 31, 1998 at HiFi Buys, and the Company expects such
declines to continue through at least the quarter ended December 31, 1998 as it
implements its operating strategy. Pro forma for the HiFi Buys Acquisition
 
                                       22
<PAGE>   25
 
as of October 1, 1996, store contribution improved to 10.6% in the six months
ended March 31, 1998 from 7.8% in the prior year period.
 
     The following table sets forth total revenues in thousands and store
contribution as a percentage of total revenues for HiFi Buys on a stand-alone
basis:
 
<TABLE>
<CAPTION>
                                                      PRO FORMA
                                                  SIX MONTHS ENDED     SIX MONTHS ENDED
                                                  MARCH 31, 1997(1)    MARCH 31, 1998(1)
                                                  -----------------    -----------------
<S>                                               <C>                  <C>
Total revenue...................................    $52,450              $46,080
Store contribution..............................      7.8%                10.6%
</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 from the prior owner's financial statements and certain
    assumptions that the Company believes are reasonable under the
    circumstances. The pro forma results are not necessarily indicative of what
    the Company's results would have been for the period had the Company
    completed the HiFi Buys Acquisition as of the date indicated.
 
RESULTS OF OPERATIONS
 
     The following table is derived from Selected Financial Data 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 YEAR ENDED             SIX MONTHS ENDED
                                                                   SEPTEMBER 30,                   MARCH 31,
                                                            ---------------------------    -------------------------
                                                            1995       1996       1997        1997          1998
                                                            -----      -----      -----    -----------   -----------
<S>                                                         <C>        <C>        <C>      <C>           <C>
Total revenue.............................................  100.0%     100.0%     100.0%      100.0%        100.0%
Cost of sales.............................................   65.1%      64.3%      65.1%       64.7%         65.3%
  Gross profit............................................   34.9%      35.7%      34.9%       35.3%         34.7%
Selling expenses..........................................   25.6%      27.3%      26.8%       24.4%         23.4%
                                                            -----      -----      -----       -----         -----
  Store contribution......................................    9.2%       8.4%       8.0%       10.9%         11.3%
Corporate, general and administrative expenses............    5.4%       5.9%       6.1%        6.3%          4.2%
Amortization of goodwill..................................    0.1%       0.2%       0.4%        0.2%          0.3%
                                                            -----      -----      -----       -----         -----
  Income from operations..................................    3.7%       2.4%       1.5%        4.4%          6.8%
Interest expense..........................................    1.0%       0.8%       1.4%        0.8%          1.2%
                                                            -----      -----      -----       -----         -----
Income before income taxes................................    2.7%       1.7%       0.2%        3.6%          5.6%
Income tax expense (benefit)..............................   -0.3%      -0.6%       0.1%        1.4%          2.2%
                                                            -----      -----      -----       -----         -----
Net income................................................    3.0%       2.2%       0.1%        2.2%          3.3%
                                                            =====      =====      =====       =====         =====
</TABLE>
 
SIX MONTHS ENDED MARCH 31, 1998 AS COMPARED TO SIX MONTHS ENDED MARCH 31, 1997
 
     Total Revenue.  Total revenue includes delivered sales, completed service
center work orders, insurance replacement and corporate sales. Total revenue
increased $68.5 million, or 113.1%, to $129.1 million in the six months ended
March 31, 1998 from $60.6 million for the six months ended March 31, 1997. The
increase was comprised of $46.1 million from the HiFi Buys Acquisition, $7.9
million from other new stores, and $14.5 million comparable store sales growth.
Comparable store sales increased by 8.8%, made up of a 29.9% increase at
Tweeter, a 15.0% increase at Bryn Mawr and a planned 13.2% decrease at HiFi
Buys. The exit from the New England market of certain competing retail chains
has had a favorable impact on comparable store sales at Tweeter, while the
increase at Bryn Mawr primarily resulted from the conversion to the Company'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 $45.1 million, or 115.1%, to $84.3 million in the six months ended
March 31, 1998 from $39.2 million in the six months ended March 31, 1997. Gross
profit increased $23.4 million, or 109.6%, to $44.8 million in the six months
ended March 31, 1998 from $21.4 million for the six months ended March 31, 1997.
The gross
 
                                       23
<PAGE>   26
 
margin decreased to 34.7% of total revenues in the six months ended March 31,
1998 from 35.3% for the prior year period. The decrease was primarily due to the
inclusion of HiFi Buys insurance replacement and corporate sales business, which
operates at a lower margin than the Company's core retail product sales. This
was offset by an increase in volume-related vendor rebates. Excluding the HiFi
Buys insurance replacement and corporate sales business, gross margin for the
Company would have been 35.6%. Gross margin increased at Tweeter and Bryn Mawr
in the six months ended March 31, 1998 over the prior year period.
 
     Selling Expenses.  Selling expenses include the compensation of store
personnel, occupancy, store level depreciation, advertising, preopening expenses
and bank fees and exclude corporate overhead. Selling expenses increased $15.4
million, or 104.2%, to $30.2 million in the six months ended March 31, 1998 from
$14.8 million for the six months ended March 31, 1997. The increase was
principally associated with advertising, commissions related to increased sales,
fees related to private label credit card promotions, rent and personnel costs
associated with the stores acquired in the HiFi Buys Acquisition. As a
percentage of total revenue, selling expenses declined to 23.4% for the six
months ended March 31, 1998 from 24.4% in the prior year period. This decline
was primarily the result of increased revenue at Tweeter and the inclusion of
the HiFi Buys stores which have lower advertising expenses as a percentage of
revenue than the Company's other stores due to their concentration in the
Atlanta, Georgia market. Also, the HiFi Buys insurance replacement business
generates significant revenues with reduced store level expenses.
 
     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 for the six months
ended March 31, 1998 increased 42.9% to $5.4 million from $3.8 million for the
six months ended March 31, 1997. As a percentage of total revenue, corporate,
general and administrative expenses decreased to 4.2% for the six months ended
March 31, 1998 from 6.3% for the prior year period as the Company benefited from
a larger sales base.
 
     Amortization of Goodwill.  Amortization of goodwill increased to $423,279
for the six months ended March 31, 1998 from $119,562 for the six months ended
March 31, 1997. This increase is attributable to the additional goodwill
recorded in connection with the HiFi Buys Acquisition.
 
     Interest Expense.  Interest expense increased to $1.6 million for the six
months ended March 31, 1998 from $513,520 for the six months ended March 31,
1996 due primarily to the increased debt incurred to fund the HiFi Buys
Acquisition.
 
     Income Taxes.  For a discussion of changes in the Company's effective tax
rate, see Note 9 to Consolidated Financial Statements of the Company.
 
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 in revenues associated with the HiFi Buys Acquisition as well
as a full year of revenue from stores acquired in May 1996 in the Bryn Mawr
Acquisition. Additionally comparable store sales increased 4.7% at the Company's
Bryn Mawr stores. Total revenue increased 8.0% at the Tweeter stores, all of
which came from new stores as comparable store sales decreased 4.5% during
fiscal 1997 versus the prior year. The Company believes that the decline in
comparable store sales was due to general weakness in the consumer electronics
industry and a less effective marketing campaign for the first half of the
fiscal year.
 
     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 of the gross margin at HiFi Buys, which
was lower than the gross margin at the Tweeter and Bryn Mawr stores. The Company
also incurred lower
 
                                       24
<PAGE>   27
 
gross margin at Tweeter 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 the Company
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 purchasing,
accounting and information systems staff in conjunction with the Bryn Mawr and
HiFi Buys acquisitions and the Company'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 the Company's 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 a discussion of changes in the Company's effective tax
rate see Note 9 to Consolidated Financial Statements of the Company.
 
FISCAL YEAR ENDED SEPTEMBER 30, 1996 AS COMPARED TO FISCAL YEAR ENDED SEPTEMBER
30, 1995
 
     Total Revenue.  Total revenue increased $20.5 million, or 34.1%, to $80.6
million in fiscal 1996 from $60.1 million in fiscal 1995. Approximately $12.0
million of the increase was due to the inclusion of a partial year of revenues
associated with the Bryn Mawr Acquisition. Revenue increased $8.5 million, or
14.1%, at the Tweeter stores, principally due to revenue from new stores.
Comparable store sales increased 1.6% at the Tweeter stores due primarily to the
general weakness of the consumer electronics industry. Comparable store sales
increased 37.6% at the Bryn Mawr stores following the Bryn Mawr Acquisition.
 
     Gross Profit.  Cost of sales increased $12.6 million, or 32.3%, to $51.8
million in fiscal 1996 from $39.2 million in fiscal 1995. Gross profit increased
$7.8 million, or 37.4%, to $28.8 million in fiscal 1996 from $21.0 million in
fiscal 1996. Gross margin increased to 35.7% in fiscal 1996 from 34.9% in fiscal
1995 principally due to the vendor rebates earned from the increased volume and
the leveraging of distribution costs.
 
     Selling Expenses.  Selling expenses increased $6.6 million, or 42.8%, to
$22.0 million in fiscal 1996 from $15.4 million in fiscal 1995. As a percentage
of sales, selling expenses increased to 27.3% in fiscal 1996 from 25.6% in
fiscal 1995. The increase was due to the continued growth in the number of
Tweeter stores, as well as the timing of the Bryn Mawr Acquisition.
 
     Corporate, General and Administrative Expenses.  Corporate, general and
administrative expenses increased $1.5 million, or 45.2% to $4.7 million in
fiscal 1996 from $3.2 million in fiscal 1995. The increase was due to investment
in infrastructure to support the Company's growth strategy including additions
to its purchasing, training and accounting staff. The Company also entered into
 
                                       25
<PAGE>   28
 
an operating lease for new information systems equipment. As a percentage of
total revenue, corporate, general and administrative expense increased to 5.9%
in fiscal 1996 from 5.4% in fiscal 1995. In addition to investment in
infrastructure, the Company incurred expenses in anticipation of and following
the Bryn Mawr Acquisition, while not benefiting from inclusion of revenue from
the acquired stores during the peak holiday selling season.
 
     Amortization of Goodwill.  Amortization of goodwill increased to $129,273
for fiscal 1996 from $65,268 for fiscal 1995. This increase is attributable to
the additional goodwill recorded in connection with the Bryn Mawr Acquisition.
 
     Interest Expense.  Interest expense remained constant at approximately
$616,879 in fiscal 1996 and fiscal 1995. Interest expense as a percentage of
total revenues decreased to 0.8% in fiscal 1996 from 1.0% in fiscal 1995 as the
Company leveraged expenses over a larger revenue base.
 
     Income Taxes.  For a discussion of changes in the Company's effective tax
rate see Note 9 to Consolidated Financial Statements of the Company.
 
SEASONALITY AND QUARTERLY RESULTS
 
     The Company's business is subject to seasonal variations. Historically, the
Company 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 the Company's
financial condition and results of operations. The Company'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 ten quarters ended March 31,
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 the Consolidated Financial
Statements of the Company 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."
 
                                       26
<PAGE>   29
 
<TABLE>
<CAPTION>
                                         THREE MONTHS ENDED
                                 ----------------------------------
                                  DECEMBER 31,         MARCH 31,
                                      1997               1998
                                 ---------------    ---------------
<S>                              <C>       <C>      <C>       <C>      <C>       <C>      <C>       <C>
Total revenue..................  $74,617   100.0%   $54,512   100.0%
Cost of sales..................   49,236    66.0%    35,044    64.3%
                                 -------   -----    -------   -----
  Gross profit.................   25,381    34.0%    19,468    35.7%
Selling expenses...............   16,188    21.7%    14,020    25.7%
                                 -------   -----    -------   -----
  Store contribution...........    9,193    12.3%     5,448    10.0%
Corporate, general and
  administrative expenses......    2,838     3.8%     2,582     4.7%
Amortization of goodwill.......      205     0.3%       218     0.4%
                                 -------   -----    -------   -----
  Income from operations.......    6,150     8.2%     2,648     4.9%
Interest expense...............      865     1.2%       745     1.4%
                                 -------   -----    -------   -----
Income before income taxes.....    5,285     7.0%     1,903     3.5%
Income tax expense.............    2,115     2.8%       760     1.4%
                                 -------   -----    -------   -----
Net income.....................  $ 3,170     4.2%   $ 1,143     2.1%
                                 =======   =====    =======   =====
Stores open at beginning of
  period.......................       47                 50
New stores.....................        3                  0
Relocated stores...............        2                  0
Closed stores..................        0                  0
Acquired stores................        0                  0
Stores open at end of period...       50                 50
</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%
                                 -------   -----    -------   -----    -------   -----    -------   -----
  Store contribution...........    4,373    12.5%     2,232     8.8%     1,499     5.3%     2,538     5.8%
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
Acquired stores................        0                  0                 10                  0
Stores open at end of period...       35                 35                 47                 47
</TABLE>
 
                                       27
<PAGE>   30
 
<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED
                                    ---------------------------------------------------------------------
                                     DECEMBER 31,        MARCH 31,         JUNE 30,        SEPTEMBER 30,
                                         1995              1996             1996(2)           1996(2)
                                    ---------------   ---------------   ---------------   ---------------
<S>                                 <C>       <C>     <C>       <C>     <C>       <C>     <C>       <C>
Total revenue.....................  $22,991   100.0%  $15,640   100.0%  $18,004   100.0%  $23,972   100.0%
Costs of sales....................   14,718    64.0%    9,905    63.3%   11,446    63.6%   15,747    65.7%
                                    -------           -------           -------           -------
  Gross profit....................    8,273    36.0%    5,735    36.7%    6,558    36.4%    8,225    34.3%
Selling expenses..................    4,917    21.4%    4,367    27.9%    5,698    31.6%    7,011    29.2%
                                    -------   -----   -------   -----   -------   -----   -------   -----
  Store contribution..............    3,356    14.6%    1,368     8.7%      860     4.8%    1,214     5.1%
Corporate, general and
  administrative expenses.........      793     3.4%      854     5.5%    1,418     7.9%    1,651     6.9%
Amortization of goodwill..........       16     0.1%       16     0.1%       32     0.2%       65     0.3%
                                    -------   -----   -------   -----   -------   -----   -------   -----
  Income (loss) from operations...    2,547    11.1%      498     3.2%     (590)   -3.3%     (502)   -2.1%
Interest expense..................      155     0.7%      108     0.7%      125     0.7%      229     1.0%
                                    -------   -----   -------   -----   -------   -----   -------   -----
Income (loss) before income
  taxes...........................    2,392    10.4%      390     2.5%     (715)   -4.0%     (731)   -3.1%
Income tax expense (benefit)(3)...      (26)   -0.1%      160     1.0%     (292)    1.6%     (295)   -1.2%
                                    -------   -----   -------   -----   -------   -----   -------   -----
Net income (loss).................  $ 2,418    10.5%  $   230     1.5%  $  (423)   -2.4%  $  (436)   -1.9%
                                    =======   =====   =======   =====   =======   =====   =======   =====
Stores open at beginning of
  period..........................       18                19                19                32
New stores........................        1                 0                 0                 1
Relocated stores..................        0                 1                 0                 0
Closed stores.....................        0                 0                 0                 0
Acquired stores...................        0                 0                13                 0
Stores open at end of period......       19                19                32                33
</TABLE>
 
---------------
(1) Includes results of the HiFi Buys Acquisition from May 30, 1997, which was
    accounted for using the purchase method.
(2) Includes results of the Bryn Mawr Acquisition from May 13, 1996, which was
    accounted for using the purchase method.
(3) The Company 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, the Company
    revoked its S election and became subject to taxation as a C Corporation,
    effective October 1, 1995. This resulted in a deferred tax benefit of $1.0
    million, which was recorded in the three months ended December 31, 1995.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     The Company's cash needs are primarily 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, the Company pursues an active acquisition strategy, and
capital needs arise as acquisition opportunities are pursued.
 
     Historically, the Company's primary sources of financing have been net cash
from operations and borrowings under the Credit Facility. The Company's
acquisitions have also been funded through the sale of equity or subordinated
notes. At March 31, 1998 and March 31, 1997, the Company's working capital was
$16.3 million and $2.3 million, respectively. Cash provided by operations was
$1.8 million for the six months ended March 31, 1998, as compared to a use of
$.4 million in cash from operations in the six months ended March 31, 1997. This
increase is a result of $4.3 million in net income and an increase in accounts
payable and accrued expenses of $2.2 million, offset by increases in inventory
of $4.3 million and accounts receivable of $1.9 million.
 
     At September 30, 1997 and September 30, 1996, working capital was $11.9
million and $1.9 million, respectively. During fiscal 1997, cash used in
operations was $6.2 million, principally due to a $6.5 million increase in
inventory and a $1.3 million increase in accounts receivable. These increases
were primarily due to the opening of new stores and relocation of existing
stores. Cash generated by operations in fiscal 1996 and 1995 was $.5 million and
$2.1 million, respectively. In these years, $2.4 million and $.3 million,
respectively, was used to increase inventory levels.
 
                                       28
<PAGE>   31
 
     Net cash used in investing activities during the six months ended March 31,
1998 and March 31, 1997 was approximately $1.3 million and $1.4 million,
respectively. During fiscal 1997, net cash used in investing activities was
$23.5 million, including $19.5 million for the HiFi Buys Acquisition. In
addition, the Company used $4.0 million of cash to open four new stores and
relocate one store. During fiscal 1996, net cash used in investing activities
was $11.2 million. Of that amount, $8.4 million was used in the Bryn Mawr
Acquisition and $2.8 million was used to open two new stores and relocate one
store. On March 25, 1998 the Company entered into a purchase and sale agreement
for a facility in Massachusetts that will serve as its new corporate
headquarters, service center and distribution center in Massachusetts. The
Company expects the purchase price and related building improvements to be
approximately $5.3 million, and expects to finance the purchase with a mortgage
of $4.0 million. There are no other material commitments for capital
expenditures other than new store openings and remodeling or relocating existing
stores in the next 12 months.
 
     In connection with a redemption of Common Stock from certain stockholders
of the Company and the Bryn Mawr Acquisition in fiscal 1996, the Company sold
shares of preferred stock for net proceeds of approximately $10.6 million and
issued the $1.0 million Redemption Note to certain of its redeeming
stockholders. In connection with the HiFi Buys Acquisition in fiscal 1997, the
Company sold shares of preferred stock for net proceeds of approximately $6.8
million, issued $15.0 million of 1997 Notes and issued the $1.2 million HiFi
Buys Note, in addition to increasing the borrowing limit under its Credit
Facility. See Notes 6 and 11 to the Consolidated Financial Statements of the
Company and "Certain Transactions." At March 31, 1998, the Company had
outstanding approximately $15.1 million under its Credit Facility, approximately
$1.0 million under the Redemption Note, approximately $15.0 million under the
1997 Notes and approximately $900,000 under the HiFi Buys Note. Substantially
all of such indebtedness will be paid in full upon the consummation of the
Offering.
 
     The Credit Facility currently has a maximum availability of $20.0 million
and a maturity date of June 1, 2000, and is secured by the inventory of the
Company and certain other assets. The Company intends to obtain the New Credit
Facility in the amount of $30.0 million, effective upon the consummation of the
Offering.
 
     The Company believes that the net proceeds that it will receive from the
Offering, together with the cash expected to be generated from operations and
available borrowings under the New Credit Facility, will be sufficient to
finance its working capital and capital expenditure requirements, exclusive of
acquisitions, for at least the next 12 months.
 
IMPACT OF INFLATION
 
     Management does not believe that inflation has had a material adverse
effect on the Company's results of operations. However, the Company 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. 128, "Earnings per Share," SFAS No.
130, "Reporting Comprehensive Income," SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," and SFAS No. 132, "Employer's
Disclosures About Pensions and Other Post Retirement Benefits".
 
     SFAS No. 128 changes the method of calculating earnings per share and is
effective for interim and annual periods ending after December, 1997. It
requires a dual presentation of basic and diluted earnings per share. The
Company adopted SFAS No. 128 during fiscal year 1998. The Company had not
previously reported earnings per share as it was not a public company.
 
     SFAS Nos. 130, 131 and 132 will be implemented during fiscal year 1999.
Management does not expect that the adoption of these statements will have a
material impact on the consolidated financial statements.
 
                                       29
<PAGE>   32
 
                                    BUSINESS
 
OVERVIEW
 
     The Company is a leading specialty retailer of mid to high-end audio and
video consumer electronics products. The Company operates 50 stores under the
Tweeter, Bryn Mawr and HiFi Buys names in the New England, Mid-Atlantic and
Atlanta, Georgia markets, respectively. The Company's 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. The
Company differentiates itself by focusing on consumers who seek audio and video
products with advanced features, functionality and performance, and does 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. The Company seeks to build
customer loyalty by combining a high level of service with competitive prices
backed by its patented Automatic Price Protection program. The Company has been
recognized as the "Consumer Electronics Retailer of the Year" in 1996 and 1997
by Audio Video International Magazine and the fastest growing consumer
electronics retailer in the United States in 1997 by the TWICE Consumer
Electronics Retail Registry.
 
     The Company opened its first store in 1972 in Boston under the Tweeter name
and over the next two decades grew exclusively through new store openings in New
England, expanding to 18 stores by 1995. In 1995, the Company adopted an
aggressive growth strategy (i) to open new stores in its existing regional
markets and relocate certain stores to more favorable sites and (ii) to
selectively pursue acquisitions in new regional markets and achieve operating
improvements by converting acquired stores to the Company's core operating model
and leveraging distribution, marketing and corporate infrastructure. The Company
completed the Bryn Mawr Acquisition in May 1996 and the HiFi Buys Acquisition in
May 1997.
 
INDUSTRY
 
     According to the Consumer Electronics Manufacturers Association ("CEMA"),
factory sales of consumer electronics in 1997 reached $74 billion, with $22
billion attributable to audio and video products. 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.
 
     The Company believes that the following trends in the consumer electronics
industry create significant opportunities for a specialty retailer of audio and
video products such as the Company:
 
     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 the
Company believes has contributed to a decrease in emphasis by those stores on
audio and video products. According to CEMA statistics, audio and video products
accounted for 33% of total sales of consumer electronic products in 1997 versus
51% in 1990. The Company 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 the Company.
 
     Consolidation of Consumer Electronics Retailers.  The retail consumer
electronics industry is highly fragmented, with the two largest superstore
chains accounting for less than 25% of the total sales attributable to the 100
largest retailers in 1996. The expansion of large format chains has
                                       30
<PAGE>   33
 
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, reduced purchasing power and lack of management depth. The
Company 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. The Company believes that a new generation of technology offers the
prospect of increased industry sales with the introduction of digital video
products such as DVD players and high definition televisions, as well as direct
broadcast satellite systems and internet-ready televisions. For example,
according to statistics of the Digital Video Group, Inc., an industry group,
350,000 DVD players were sold in 1997, the year the product was introduced, and
sales of DVD players are projected to reach 1,000,000 units for 1998. 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
 
     The Company's goal is to become the leading specialty retailer of high
quality audio and video products. The key elements of the Company's business
strategy are as follows:
 
     Extensive Selection of Mid to High-End Audio and Video Products.  The
Company concentrates on mid to high-end audio and video consumer electronics
products. This focus differentiates it 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. The Company'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 40% of product sales for the Company in
fiscal 1997. As a result of its higher-end focus, a historical early adopter
customer base and its extensively trained sales force, the Company is often
among the earliest retailers to offer new product innovations on behalf of
manufacturers. In addition, the Company believes that its focused product
offering allows for higher gross margin opportunities, appeals to a more
service-conscious consumer and results in enhanced brand awareness of its
regional names.
 
     Exceptional Customer Service.  The Company believes that the quality and
knowledge of its sales associates is critical to its success and represents a
significant competitive advantage. The Company's relationship selling model
encourages sales associates to promote a comfortable, trusting, low pressure
environment. The Company provides its new sales associates with five weeks of
intensive classroom training, and all sales associates receive five to fifteen
days of additional training per year, both at the store and at the Company's
regional training centers. The sales force receives technical product and sales
training prior to the Company's introduction of significant new products. The
Company believes that the success of its operating model has enabled it to
engender long term customer loyalty. Approximately 40% of customers who
purchased from Tweeter stores in the six months ended March 31, 1998 had
previously purchased products from the Company during the prior two fiscal
years.
 
     Dynamic, Inviting Stores.  The Company's stores display products in a
dynamic and inviting setting intended to encourage the customer to view and hear
products in sound rooms architectur-
 
                                       31
<PAGE>   34
 
ally and acoustically designed to simulate the customer's home or car
environment. The store prototype is brightly painted, often in pastel colors,
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
the Company's home theater products.
 
     Every Day Competitive Pricing.  The Company utilizes an "every day
competitive pricing" strategy with fixed prices clearly marked on its products.
Store managers regularly visit local competitors to ensure that the Company's
pricing remains competitive within the store's local market. In addition, all
product sales are backed by the Company's patented Automatic Price Protection
program. Under this program, if a customer purchases a consumer electronics
product from one of the Company's stores and a competitor within 25 miles of the
store advertises a lower price within 30 days of purchase, the Company
automatically sends a check to the customer for the difference without requiring
the customer to request the 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
 
     The Company's growth strategy is (i) to open new stores in current regional
markets and relocate certain stores to more favorable sites and (ii) to
selectively pursue acquisitions in new regional markets and achieve operating
improvements by converting the acquired company to its core operating model and
leveraging distribution, marketing and corporate infrastructure.
 
     New Stores.  The Company intends 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 1997, the Company opened two Tweeter stores and two Bryn Mawr stores, and
relocated one Tweeter store. The Company currently intends to open five stores
in fiscal 1998, comprised of two at Tweeter and three at Bryn Mawr, and to
relocate two additional stores. Three of the five new stores planned for fiscal
1998 have been opened as of March 31, 1998. The Company intends to open 15
stores, and to relocate three stores, in fiscal 1999. The Company believes that
its Bryn Mawr Acquisition and HiFi Buys Acquisition have provided it with
platforms from which to open new stores within and around their respective
markets.
 
     Strategic Acquisitions.  The Company believes that it has 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 the Company does not
currently operate. The Company believes that it can leverage the performance of
an acquisition candidate by (i) applying its sales management and sales
incentive strategies, (ii) adjusting the product mix to be compatible with its
emphasis on higher margin audio and video products, (iii) applying its
advertising and marketing strategies and programs, including Automatic Price
Protection and every day competitive pricing, (iv) implementing its relationship
selling and customer service philosophies and (v) utilizing its purchasing and
distribution capabilities and administrative infrastructure.
 
     The Company believes 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 presented by larger format superstores and mass
merchandisers on those retailers, and the difficulties faced by local and
regional specialty retailers in raising capital necessary to support inventory,
advertising or expansion. According to the TWICE Consumer Electronics Retail
Registry, which reports annually on the state of the industry, approximately $7
billion of 1996 sales were attributable to specialty electronics chains with
five or more stores, many of which the Company believes would be attractive
acquisition candidates. The Company believes that it is a well-positioned
consolidator because the Company (i) is known within the
 
                                       32
<PAGE>   35
 
industry as a leading specialty retailer, (ii) utilizes a store size and concept
which can be readily adapted to acquired stores, (iii) has successfully
consummated two strategic acquisitions, (iv) has developed an operational,
administrative and marketing infrastructure with the proven capability to
successfully integrate acquisitions, (v) enjoys experienced and proven senior
management, having an average of 13 years of tenure with the Company and (vi)
would seek to offer employment and managerial opportunities within the
consolidated enterprise to qualified employees of the acquired retailer.
 
RECENT ACQUISITIONS
 
     Acquisition of Bryn Mawr.  In May 1996, the Company completed the Bryn Mawr
Acquisition. Like the Tweeter 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 stores, the Company
consummated the Bryn Mawr Acquisition with the goal of realizing increased
revenues and store contribution through the application of the Company's
established operational strategies to the acquired stores. Towards that goal,
the Company adopted a series of strategic initiatives including (i) increasing
advertising expenditures during the quarter following the acquisition and
refocusing advertising to emphasize radio, television and direct marketing
rather than print, (ii) implementing the Company's every day competitive pricing
and Automatic Price Protection programs, (iii) initiating a substantial sales
associate training program to improve product knowledge and enhance relationship
selling skills and (iv) focusing the sales staff on higher margin products,
particularly audio products.
 
     Acquisition of HiFi Buys.  In May 1997, the Company completed the HiFi Buys
Acquisition. Like Tweeter 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 or Bryn Mawr stores. However, the HiFi Buys
stores carried a broader product mix, including more entry level product
offerings and marketed heavily through promotional newspaper advertising. The
Company's 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 Company's and managing a planned decrease in sales while increasing
gross margin and reducing operating expenses. Specifically, following the HiFi
Buys Acquisition, the Company (i) adjusted the merchandise mix to increase the
proportion of mid and high-end products and reduce the number of lower margin
introductory products, (ii) altered store employee compensation to reduce the
emphasis on promotional sales and focus incentives on gross margin and store
contribution, (iii) reduced marketing expenditures and shifted marketing
emphasis from promotional advertising toward the Company's traditional
relationship-selling and every day competitive pricing strategy, (iv) converted
the advertising program to emphasize electronic advertising and direct mail
marketing as opposed to print media, (v) implemented the Automatic Price
Protection program and (vi) eliminated $2.4 million of overhead by centralizing
accounting, purchasing and other support infrastructure.
 
STORE FORMAT AND OPERATIONS
 
     Store Format.  As of March 31, 1998, the Company operated 50 stores,
comprised of 23 Tweeter stores in New England, 17 Bryn Mawr stores in the
Mid-Atlantic market, and 10 HiFi Buys stores in the greater Atlanta, Georgia
market. While the Company's 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 occupancy expense.
 
     The Company's store concept is intended to combine 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 stores of the
Company's competitors, which contain large, open spaces in which many different
                                       33
<PAGE>   36
 
audio and video products are tested and sampled, the Company's stores feature
individual sound rooms. The sound rooms are intended to architecturally and
acoustically resemble a home or car environment to enable the customer to see
and hear how products will perform, and allow the customer to listen to and
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 the
Company'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 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 the Company's installation capabilities. Most stores
provide car stereo installation through on-premises installation bays.
 
     Store Operations  Stores are typically staffed with a store manager, an
assistant manager, twelve sales associates and two mobile electronics
installers. The Company provides new sales associates with five weeks of
intensive classroom training, and all sales associates receive five to fifteen
days of additional training per year, both at the store and at the Company's
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  The Company believes that it benefits from attractive
store level economics. The average investment by the Company for the eight new
stores opened in the 24 months ended March 31, 1998, including leasehold
improvements, equipment, the cost of inventory (net of payables), and preopening
expenses was $855,000. 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 the 12 months
ended March 31, 1998 was $3,389,000 and $317,000, respectively, for stores owned
by the Company throughout the period.
 
SITE SELECTION
 
     The Company'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 competitors, access to highways or other major
roadways and available lease terms. The Company looks for co-tenants, such as
bookstores, that are likely to draw customers who would otherwise be targeted by
the Company within the site's relevant market and believes that close proximity
to large format competitors is a positive factor due to increased customer
traffic. All of the Company's stores are leased.
 
                                       34
<PAGE>   37
 
     Set forth below is a table summarizing the locations, opening years, and
years of relocation where specified, of the Company's stores as of March 31,
1998:
 
<TABLE>
<CAPTION>
          TWEETER                          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, GA      1990
Cambridge, MA     1974  /      Maple Shade, NJ        1978         Alpharetta, GA    1991
                  1998         Abington, PA           1981         Athens, GA        1991
Newton, MA        1976  /      Allentown, PA          1982         Buckhead, GA      1993
                  1995         Montgomeryville, PA    1984         Southlake, GA     1993
Burlington, MA    1978  /      Wilmington, DE         1985  /      Tucker, GA        1993
                  1996                                1992         Kennesaw, GA      1995
Dedham, MA        1980         Harrisburg, PA         1986  /      Smyrna, GA        1995
Framingham, MA    1983                                1994         Gwinnett, GA      1996
Hyannis, MA       1983  /      Wilmington, DE         1987
                  1994         Allentown, PA          1987
New London, CT    1985  /      Baltimore, MD          1990
                  1998         Timonium, MD           1990
Hanover, MA       1986         King of Prussia, PA    1995
Danbury, CT       1986  /      Glen Burnie, MD        1995
                  1997         Princeton, NJ          1997
Seekonk, MA       1988         Lancaster, PA          1997
Warwick, RI       1989         Reading, PA            1997
Newington, CT     1990         York, PA               1997
Avon, CT          1993
Peabody, MA       1993
Manchester, NH    1994
Salem, NH         1994
Boston, MA        1995
Milford, CT       1995
Holyoke, MA       1996
Portsmouth, NH    1996
Nashua, NH        1996
Attleboro, MA     1997
</TABLE>
 
MERCHANDISE
 
     The Company's 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. The Company
offers custom home and car stereo installation services and provides warranty
and non-warranty repair services through all of its stores. The Company also
offers insurance replacement services to insurance companies, providing
replacement products to policyholders of such companies. Additionally, the
Company has a corporate sales division which markets and sells Company products
to businesses, institutions and other organizations. The Company's emphasis on
mid to high-end products enables it 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 40% of the Company's
sales in fiscal 1997.
 
     The Company stocks products from over 75 vendors, including Adcom, Aiwa,
Alpine, Bose, Boston Acoustics, Denon, Eclipse, Kenwood, Klipsch, Mirage,
Mitsubishi, Monster Cable, Panasonic, Pioneer, ProScan, Rockford Fosgate, Sony
and Yamaha. The Company seeks to manage its product mix to maximize gross
margin. Historically, the Company's video products have yielded lower gross
margin than audio products. Total sales of video products have increased at
rates faster than the
 
                                       35
<PAGE>   38
 
increases in audio product sales during the last several years as a result of
the increased consumer interest in big screen televisions. Accordingly, the
Company has adopted a "Sell Audio with Video" strategy in order to enhance
overall gross margin through increases in sales of higher margin audio products.
 
     The table below sets forth the approximate percentages of revenues for each
of the Company's primary product categories for its fiscal years ended September
30, 1996 and September 30, 1997 and for the six months ended March 31, 1997 and
March 31, 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
the Company's product mix, and the timing of marketing events. The percentages
are also impacted by acquisitions of stores offering a different product mix. In
particular, the increase in the percentage of revenue represented by video
products in the year ended September 30, 1997 and six months ended March 31,
1998 versus the prior year periods was primarily driven by the inclusion of
stores acquired in the HiFi Buys Acquisition. Video products represent a greater
percentage of revenues at HiFi Buys than at the other Company stores. The
historical percentages set forth below may not be indicative of revenue
percentages for future periods:
 
                             PERCENTAGE OF REVENUES
 
<TABLE>
<CAPTION>
                             YEAR ENDED          YEAR ENDED      SIX MONTHS ENDED  SIX MONTHS ENDED
   PRODUCT CATEGORY      SEPTEMBER 30, 1996  SEPTEMBER 30, 1997   MARCH 31, 1997    MARCH 31, 1998
-----------------------  ------------------  ------------------  ----------------  ----------------
<S>                      <C>                 <C>                 <C>               <C>
Audio Equipment(1).....         38%                 31%                39%               34%
Video Equipment(2).....         39%                 43%                40%               44%
Mobile Equipment and
  Other(3).............         23%                 26%                21%               22%
</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
 
     The Company's purchasing and inventory control functions are based at its
executive offices in Canton, Massachusetts. Purchasing decisions are made by the
Company's buying team, which has primary responsibility for product selection,
stocking levels and pricing. This process is facilitated by the Company's
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 Company's product mix. In order to remain
current with new and developing products, the Company regularly hosts
presentations by its major suppliers.
 
     In addition to making direct purchases, the Company is a member of PRO, a
volume-buying group of 14 specialty electronics retailers across the country.
This affiliation often provides the Company with opportunities to obtain
additional vendor rebates, product discounts and promotional products. The
Company is not obligated to make purchases through the PRO. The Company's
President serves on the Board of Directors of PRO.
 
     The Company sources products from more than 75 vendors, the largest of whom
accounted for 24% of fiscal 1997 purchases. The Company 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 the Company's existing product mix, when making
purchasing decisions. The Company utilizes a sophisticated automatic
replenishment system for store inventory, maintaining stock levels and
minimizing total dollars invested in
 
                                       36
<PAGE>   39
 
inventory. The Company believes that its relationship with its large vendors is
excellent and that its focused merchandising and high degree of customer service
makes it an important distribution channel for its suppliers, particularly for
the introduction of new products.
 
     The Company distributes products to stores through three regional
distribution and service centers. The Canton, Massachusetts facility is 32,000
square feet and currently serves as the Company's headquarters and distribution
and service center for the Tweeter stores. The Company will be relocating this
facility to a new 80,000 square foot facility two miles from its existing
facility in August 1998. 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. The Company
believes that these facilities are sufficient to handle the Company's planned
expansion through at least the year 2000.
 
ADVERTISING AND MARKETING
 
     The Company targets consumers seeking informed advice concerning product
selection and system integration of audio and video consumer electronics
products. The Company's marketing strategy differs from its major competitors in
that it relies substantially on electronic media, primarily radio, and an
extensive direct marketing effort. The Company believes advertising on specific
radio stations and at specific times allows it the flexibility to tailor its
marketing message. The Company's radio advertising campaigns seek to generate
name recognition and to reinforce identification of the Company as a source of
high quality products at competitive prices, staffed with a knowledgeable,
attentive sales force. This radio strategy is complemented with television
advertisements and, less frequently, with print advertisements. The specific
allocation of the Company's committed advertising dollars among the various
types of advertising media is reviewed from time to time by Company management
and, if necessary, adjusted to reflect the Company's assessment of advertising
results and market conditions.
 
     The Company also relies on a sophisticated direct marketing campaign to its
customers. The Company has developed a comprehensive database marketing program
to attempt to match past customer purchasing history to the next logical
purchase option for that customer. For example, the Company has distributed
direct mail regarding surround sound products to customers who recently
purchased large screen televisions. The Company also distributes an
award-winning 100 page Buyer's Guide three times a year and a smaller 24 page
catalog nine times per year. Management believes that its relatively inexpensive
direct mail activities leverage and complement its general media advertising
campaigns.
 
     The Company believes that its commitment to providing competitive pricing
on its products is a critical component of its marketing and advertising
strategy. In 1993, the Company abandoned its promotional marketing approach and
adopted an every day competitive pricing strategy, with fixed prices clearly
marked on its products. Store managers regularly visit the local competition to
ensure the store's pricing remains competitive. At the same time, the Company's
competitive prices are backed by its Automatic Price Protection program. Under
the Automatic Price Protection program, if a customer purchases a consumer
electronics product from one of the Company's stores and a competitor within 25
miles of that store advertises a lower price within 30 days of the customer's
purchase, the Company automatically sends a check to 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
to request a price match refund. The Automatic Price Protection program is
intended to be hassle-free, customer friendly and viewed as a reflection of the
Company's commitment to customer service. Most recently, in fiscal 1997, the
Company began its "Wise Buys" program. Under this program, the Company'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. The
Company believes that the pricing of the Wise Buys items represents substantial
value to the
 
                                       37
<PAGE>   40
 
consumer with little or no negative impact to gross margin. The Company's
advertisements frequently describe or refer to the Automatic Price Protection
and Wise Buys programs.
 
INFORMATION SYSTEMS
 
     The Company utilizes a sophisticated, fully integrated mainframe-based
management information system which updates after every transaction, and is
accessible on a real-time basis to Company 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 the Company. 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. The Company provides ongoing training and
support in the use of this system and compensates and benchmarks the store
managers based upon this information.
 
     The Company currently utilizes several software systems which will require
modification or upgrading to accommodate the "Year 2000" changes needed for
correct recording of dates in the year 2000 and beyond. The Company believes
that all such systems can be changed by the end of 1999 and does not expect the
cost of such changes to be material to the Company's financial condition or
results of operations. The Company does not, however, currently have any
information concerning Year 2000 compliance status of its suppliers. See "Risk
Factors -- Year 2000 Compliance."
 
EMPLOYEES
 
     As of March 15, 1998, the Company had 979 employees, comprised of 910
full-time and 69 part-time employees. None of the Company's employees are
covered by collective bargaining agreements, and the Company believes its
relations with its employees are good. See "Risk Factors -- Dependence on Key
Personnel."
 
INTELLECTUAL PROPERTY
 
     The Company's "Tweeter etc." and "Bryn Mawr Stereo" service marks have been
registered with the United States Patent and Trademark Office. The Company has
not registered the "HiFi Buys" service mark. The Company has submitted
applications for registration of certain other of its service marks, which
applications are currently pending. See "Risk Factors -- Intellectual Property."
 
PROPERTIES
 
     In addition to the Company's stores, all of which are leased, the Company
also leases three distribution and office facilities in Canton, Massachusetts,
King of Prussia, Pennsylvania, and Atlanta, Georgia, with lease terms expiring
in 2001, 2011 and 2008, respectively. On March 25, 1998 the Company entered into
a purchase and sale agreement for a facility in Massachusetts that will serve as
its new corporate headquarters, service and distribution center in
Massachusetts. The Company expects the purchase price and related building
improvements to be approximately $5.3 million, and expects to finance the
purchase with a mortgage of $4.0 million.
 
LITIGATION
 
     From time to time, the Company is involved in litigation in the ordinary
course of the Company's business. In the opinion of management, no such
litigation is likely to have a material adverse effect on the Company's 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 the Company
immediately following 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(1).................  41    President, Chief Operating Officer, Treasurer and
                                         Director
Joseph McGuire...................  37    Vice President, Chief Financial Officer and Chief
                                         Information Officer
Jeffrey Bloomberg(1).............  51    Director
Matthew Bronfman(2)..............  38    Director
Michael Cronin(1)(2).............  44    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....................  38    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 the Company and has served as a
director and/or officer since its inception. Mr. Bloomberg has been Chief
Executive Officer of the Company 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 the Company 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 PRO, the buying group of specialty consumer
electronics retailers of which the Company is a member.
 
     Joseph McGuire has been a Vice President, Chief Financial Officer and Chief
Information Officer of the Company since May 1996. Prior to joining the Company,
Mr. McGuire was the Chief Financial Officer of Bryn Mawr Radio & Television
Centre, Inc. from 1987 to 1996.
 
     Jeffrey Bloomberg has served as a director in 1972 and from 1992 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 a director 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 a Director since November, 1995. From 1991 to
the present Mr. Cronin has served as Managing Partner of Weston Presidio
Capital. Mr. Cronin also serves as a director of Tekni-plex, Inc. and Casella
Waste Systems, Inc.
 
     Roy Bertalotto has served as Vice President, New Store Development of the
Company 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 the
Company 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 the
Company since May 1997. Prior to joining the Company, Mr. Ginsburg served as a
Vice President of HiFi Buys Incorporated.
 
     Dori Ginsburg has served as Vice President, Insurance Replacement of the
Company since May 1997. Prior to joining the Company, Ms. Ginsburg served as
Vice President, Insurance Replacement of HiFi Buys Incorporated.
 
     Albert Gordon has served as Vice President, Operations and Corporate
Finance of the Company 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 the Company 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 the
Company from 1988 to 1990.
 
     Bernard Sapienza has served as Vice President, Purchasing of the Company
since 1994. Prior to that, from 1989 to 1994, Mr. Sapienza served as a Senior
Product Buyer of the Company.
 
     Paul Shindler has served as Vice President, Training of the Company since
1994. Prior to that, Mr. Shindler served as Regional Vice President of Sales for
the northern region and Training Director of the Company from 1991 to 1994 and
served in various sales and training capacities for the Company from 1977 to
1987.
 
BOARD COMPOSITION
 
     Reorganization of Board.  The Company currently has five directors,
comprised of Samuel Bloomberg, Jeffrey Stone, Jeffrey Bloomberg, Mathew Bronfman
and Michael Cronin. Mr. Cronin has been appointed to the Board pursuant to the
terms of the Company's outstanding Preferred Stock, which will be converted into
Common Stock effective upon consummation of the Offering. Effective upon the
consummation of the Offering, the Board of Directors will be reorganized by
dividing the Board into three staggered classes consisting of Class I directors
(Messrs.           and           ), Class II directors (Messrs.           and
          ) and Class III directors (Mr.          ). 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 Company stockholders. The Company believes that classification of the
Board of Directors will help facilitate continuity and stability of the
Company's business strategies and policies as determined by the Board of
Directors. Holders of Common Stock will have no right to cumulative voting in
the election of directors. Consequently, at
 
                                       40
<PAGE>   43
 
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.
 
     Audit Committee.  The Audit Committee 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 Stone, Samuel Bloomberg and Michael Cronin.
 
     Compensation Committee.  The Compensation Committee will establish
compensation policies and programs for the Company's executive officers and
exercise all powers of the Board of Directors in connection with establishing
and implementing compensation matters, including incentive compensation and
benefit plans. The Compensation Committee of the Board consists of Mathew
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 Mathew Bronfman of non-qualified stock options to purchase 107,584 shares of
the Company's Common Stock at an exercise price of $1.524 per share. Such
Options, by their terms, were fully vested on the date of grant.
 
DIRECTORS' COMPENSATION
 
     The Company pays its Directors $1,500 per quarter. All directors are
reimbursed for expenses incurred in attending meetings. Following the Offering,
each director who is not also an employee or affiliate of the Company will be
granted options or other plan awards worth $     pursuant to the 1998 Outside
Director Plan. See "Management -- Stock Plans."
 
EXECUTIVE COMPENSATION
 
     The following table sets forth the compensation earned by the Company's
Chief Executive Officer and each of the other executive officers of the Company
(the "Named Executives") for services rendered in all capacities to the Company
during the fiscal year ended September 30, 1997:
 
                           SUMMARY COMPENSATION TABLE
 
<TABLE>
<CAPTION>
                                                               LONG-TERM
                                                              COMPENSATION
                                                              ------------
                                 ANNUAL COMPENSATION(1)        SECURITIES
                               ---------------------------     UNDERLYING
                                            OTHER ANNUAL        OPTIONS          ALL OTHER
NAME AND PRINCIPAL POSITION     SALARY     COMPENSATION(2)        (#)         COMPENSATION(3)
---------------------------    --------    ---------------    ------------    ---------------
<S>                            <C>         <C>                <C>             <C>
Samuel Bloomberg.............  $203,269        $1,960            66,240           $65,818
  Chairman and Chief
  Executive Officer
Jeffrey Stone................  $204,005        $1,448            48,610           $13,888
  President and Chief
  Operating Officer
Joseph McGuire...............  $149,420        $  466             2,624                --
  Vice President, Chief
  Financial Officer and Chief
  Information Officer
</TABLE>
 
---------------
(1) The compensation described in this table does not include medical, group
    life insurance or other benefits received by the Named Executives which are
    available generally to all salaried employees of the Company.
(2) Represents amounts contributed by the Company under the Company's 401(k)
    Plan to the accounts of the Named Executives.
(3) Represents amount distributed to cover personal tax liability from the
    Company's prior status as a Subchapter 'S' corporation for federal income
    tax purposes. On November 25, 1995, as part of a recapitalization, the
    Company 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 the fiscal year ended September 30, 1997 to each of the
Named Executives under the Company's existing stock option plan:
 
                          OPTION GRANTS IN FISCAL 1997
 
<TABLE>
<CAPTION>
                                                PERCENT OF
                               NUMBER OF       TOTAL OPTIONS                                GRANT
                              SECURITIES        GRANTED TO      EXERCISE                     DATE
                              UNDERLYING       EMPLOYEES IN       PRICE      EXPIRATION    PRESENT
           NAME             OPTIONS GRANTED     FISCAL YEAR     PER SHARE       DATE       VALUE(1)
           ----             ---------------    -------------    ---------    ----------    --------
<S>                         <C>                <C>              <C>          <C>           <C>
Samuel Bloomberg..........      13,350              5.7%          $7.10         2007       $ 2,646
                                52,890             22.7%          $8.08         2007       $10,481
                                ------             ----                                    -------
                                66,240             28.4%                                   $13,127
Jeffrey Stone.............      13,350              5.7%          $6.46         2007       $ 2,646
                                35,260             15.2%          $7.24         2007       $ 6,988
                                ------             ----                                    -------
                                48,610             20.9%                                   $ 9,634
Joseph McGuire............       2,624              1.1%          $7.24         2007       $   520
</TABLE>
 
---------------
(1) The fair value of each stock option granted in fiscal 1997 under the
    Company's existing stock option plan was estimated on the date of grant
    using the Black-Scholes option pricing model assuming an expected volatility
    of 25%, a risk-free interest rate of 6%, an expected life of 4 years and no
    dividend payments. See Note 11 of Notes to Consolidated Financial Statements
    of the Company.
 
     The following table sets forth certain information regarding stock option
exercises during the fiscal year ended September 30, 1997 and stock options held
at such year end by the Named Executives. No options were exercised during such
fiscal year by the Named Executives.
 
                AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                       AND FISCAL YEAR-END OPTION VALUES
 
<TABLE>
<CAPTION>
                                                                              VALUE OF UNEXERCISED
                                                   NUMBER OF SECURITIES           IN-THE-MONEY
                                                  UNDERLYING UNEXERCISED            OPTIONS
                                                OPTIONS AT FISCAL YEAR-END     AT FISCAL YEAR-END
                                                       EXERCISABLE/               EXERCISABLE/
NAME                                                  UNEXERCISABLE              UNEXERCISABLE
----                                            --------------------------    --------------------
<S>                                             <C>                           <C>
Samuel Bloomberg..............................             208,916/0                 $2,526,691/0
Jeffrey Stone.................................             114,978/0                 $1,343,651/0
Joseph McGuire................................          8,397/15,220             $110,187/188,265
</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
 
     Effective upon the consummation of the Offering, the Company will enter
into five-year employment agreements with Samuel Bloomberg, to serve as Chairman
of the Board and Chief Executive Officer of the Company, and with Jeffrey Stone,
to serve as President and Chief Operating Officer of the Company (the
"Employment Agreements"). The Employment Agreements provide that in addition to
their base annual salaries, each of Messrs. Bloomberg and Stone will have the
opportunity to earn incentive bonuses based upon certain performance criteria,
to be determined by
 
                                       42
<PAGE>   45
 
the Compensation Committee, and the opportunity to receive stock options and
other incentive awards under the Company's 1998 Stock Option and Incentive Plan.
 
     The Employment Agreements provide for continued employment until
termination by either party. The Company, however, may terminate either
Employment Agreement with or without cause at any time. If either executive's
employment is terminated by the Company without cause, the Company 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: (i) if the executive is terminated in
during the first three years of the agreement, he will receive an amount equal
to three times his annual base salary in the year of termination; (ii) if the
executive is terminated in the fourth year, he will receive an amount equal to
two times his annual base salary in the year of termination; and (iii) 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.
 
  Other Employment Agreements
 
     Effective upon the consummation of the Offering the Company will enter into
an employment agreement with Joseph McGuire to serve as Chief Financial Officer
of the Company. Under the terms of this three-year agreement, Mr. McGuire will
earn a base annual salary 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 the Company's stock option plans.
 
INSURANCE
 
     The Company intends to obtain a directors' and officers' liability
insurance policy in the aggregate amount of $5.0 million. The directors' and
officers' insurance will insure the (i) directors and officers of the Company
from any claim arising out of an alleged wrongful act by the directors and
officers in their respective capacities as directors and officers and (ii)
Company to the extent that it has indemnified a director or officer for such
loss.
 
STOCK PLANS
 
     1995 Stock Option Plan.  On November 28, 1995, the Company adopted its 1995
Stock Option Plan (the "1995 Stock Option Plan"). The 1995 Stock Option Plan
allowed the Company 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 Company employees and (ii) options to purchase Common
Stock which do not qualify as ISOs ("Non-Qualified Options") to directors,
officers, employees and consultants of the Company. 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           , 1998, the Board of Directors of the
Company voted to terminate the 1995 Stock Option Plan effective on, and subject
to, the consummation of the Offering. As of the date of this Prospectus, the
Company 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 Plan and 1998 Outside Director Plan.  On                  ,
1998, the Company adopted its 1998 Stock Option and Incentive Plan (the "1998
Stock Plan") and its 1998 Outside Director Stock Plan (the "1998 Outside
Director Plan", together with the 1998 Stock Plan, the "1998 Plans") to provide
incentives to attract and retain executive officers, directors, and key
employees and consultants. The summary of the 1998 Plans set forth below is
qualified in its entirety by reference to the 1998 Plans, which are included as
exhibits to the Registration Statement of which this Prospectus is a part.
 
                                       43
<PAGE>   46
 
     The aggregate number of shares of Common Stock issuable under the 1998 Plan
is equal to      % of the total shares of Common Stock that will be issued and
outstanding, on a fully diluted basis, upon completion of the Offering. In
addition, the number of shares of Common Stock issuable under the 1998 Plans
will increase, on each anniversary date of the adoption of the 1998 Plans, to
that number of shares equal to      % of the total number of shares of Common
Stock that are issued and outstanding on a fully diluted basis, on each such
anniversary date. As options under the 1998 Stock Plans are exercised, the
number of shares represented by such previously outstanding options will again
become available for issuance under the 1998 Plans.
 
     The 1998 Plans will expire five years following their adoption. Awards made
thereunder and outstanding at the expiration of the 1998 Plans will survive in
accordance with their terms. As of the date of this Prospectus, no awards or
grants have been made under either of the 1998 Stock Plans.
 
     The 1998 Stock Plan will be 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 (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 Stock Plans, may be used for Plan Awards consisting of restricted
stock. All grants of restricted stock under the 1998 Stock 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 Outside Director Plan will provide for the grant or issuance of
Plan Awards to directors of the Company who are not employees of the Company.
 
                                       44
<PAGE>   47
 
                       PRINCIPAL AND SELLING STOCKHOLDERS
 
     The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the date of this Prospectus and as
adjusted to reflect the sale by the Company 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 the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock (assuming conversion of all outstanding Preferred Stock
and the exercise of warrants to purchase 259,856 shares of Common Stock), (ii)
each of the Company's Named Executives and directors, (iii) all of the Company's
executive officers and directors as a group and (iv) the Selling Stockholders.
Except as otherwise indicated in the footnotes to this table, the Company
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 OF         SHARES
                                             BENEFICIALLY OWNED     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>
Advent International Group(3)..............    883,871    22.7%          --      883,871    14.6%
Weston Presidio Offshore Capital C.V.(4)...    646,558    16.7%          --      646,558    10.6%
PNC Capital Corp(5)........................    457,403    11.2%          --      457,403     7.3%
Exeter Venture Management Corp.(6).........    333,632     8.6%     333,632           --       *
BNP Venture Holding Corp.(7)...............    286,401     7.4%          --      286,401     4.7%
Seacoast Capital Partners, L.P.(8).........    209,855     5.2%      50,000      159,855     2.6%
Samuel Bloomberg(9)........................    912,362    22.3%      85,119      827,243    13.1%
Jeffrey Stone(10)..........................    321,618     8.0%      16,473      305,145     4.9%
Joseph McGuire(11).........................     12,595       *           --       12,595       *
Jeffrey Bloomberg(12)......................    291,059     7.5%      17,478      273,581     4.5%
Matthew Bronfman(13).......................    112,143     2.8%          --      112,143     1.8%
Michael Cronin(14).........................    646,558    16.7%          --      646,558    10.6%
Armin Biller(15)...........................     14,529       *        7,298        7,231       *
All executive officers and directors as a
  group (6 persons)(16)....................  2,296,335    52.9%     119,070    2,177,265    33.3%
</TABLE>
 
---------------
  *  Less than 1%.
 
 (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 (a) options held by that person that are currently exercisable
     or exercisable within 60 days of the date of this Prospectus or (b)
     warrants that are currently exercisable or that will be exercisable upon
     consummation of the Offering. Such exercisable options and warrants are
     described in the footnotes to this table for each such person. Such shares,
     however, are not deemed outstanding for the purposes of computing the
     percentage ownership of each other person.
 
 (2) Unless otherwise specified, the address of all persons who are executive
     officers or directors of the Company is in care of the Company, 40 Hudson
     Road, Canton, Massachusetts 02021.
 
 (3) Includes 642,040 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.
 
 (4) Includes 11,832 shares issuable upon exercise of outstanding warrants. Its
     address is One Federal Street, Boston, Massachusetts 02110.
 
 (5) Includes 209,855 shares issuable upon exercise of outstanding warrants. Its
     address is One PNC Plaza, Pittsburgh, Pennsylvania 15222.
 
 (6) Includes 166,816 shares held by Exeter Venture Lenders, L.P. (including
     104,928 shares issuable upon exercise of outstanding warrants) and 166,816
     shares held by Exeter Equity Partners, L.P. (including 104,928 shares
     issuable upon
 
                                       45
<PAGE>   48
 
     exercise of outstanding warrants). The 333,632 shares sold by Exeter
     Venture Management Corp. include 166,816 shares sold by Exeter Venture
     Lenders, L.P. and 166,816 shares sold by Exeter Equity Partners, L.P. Its
     address is 10 East 53rd Street, New York, New York 10022.
 
 (7) Includes 3,383 shares issuable upon exercise of outstanding warrants. Its
     address is Banexi/12 Rue Chauchat, 75009 Paris, France.
 
 (8) Consists of 209,855 shares issuable upon exercise of outstanding warrants.
     Its address is 55 Ferncroft Road, Danvers, Massachusetts 01923.
 
 (9) Includes 48,912 shares held in the aggregate by the Samuel Bloomberg Family
     Trusts for the benefit of Mr. Bloomberg's children and 24,774 shares held
     by Carolina Bloomberg, the wife of Mr. Bloomberg. Carolina Bloomberg's
     24,774 shares include 313 shares issuable upon 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 the Company to
     Mr. Bloomberg exercisable within 60 days of the date of this Prospectus.
     The 85,119 shares sold by Mr. Bloomberg include 17,234 shares sold by
     Carolina Bloomberg and 16,182 shares sold, in the aggregate, by the Samuel
     Bloomberg Family Trusts. After the Offering, Carolina Bloomberg will hold
     7,540 shares (including 313 shares issuable upon the exercise of warrants)
     and the Samuel Bloomberg Family Trusts will hold, in the aggregate, 32,730
     shares.
 
(10) Includes 26,240 shares held by trusts for the benefit of Mr. Stone's
     children. Mr. Stone expressly disclaims beneficial ownership of these
     shares. Also includes 114,978 shares subject to options granted by the
     Company to Mr. Stone exercisable within 60 days of the date of this
     Prospectus.
 
(11) Includes 12,595 shares subject to options granted by the Company
     exercisable within 60 days of the date of this Prospectus.
 
(12) Includes 8,083 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 48,912 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 the
     Company to Mr. Bloomberg exercisable within 60 days of the date of this
     Prospectus and 609 shares issuable upon exercise of outstanding warrants.
     The 17,478 shares sold by Mr. Bloomberg include 16,182 shares sold, in the
     aggregate, by the Samuel Bloomberg Family Trusts. After the Offering, the
     Samuel Bloomberg Family Trusts will hold, in the aggregate, 32,730 shares.
 
(13) Includes 107,584 shares subject to options granted by the Company
     exercisable within 60 days of the date of this Prospectus and 84 shares
     issuable upon exercise of outstanding warrants.
 
(14) Includes shares held by Weston Presidio Offshore Capital C.V. ("Weston
     Presidio"). See Note 4 above. 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.
 
(15) Includes 313 shares issuable upon exercise of outstanding warrants.
 
(16) See Notes 9 through 14 above.
 
                                       46
<PAGE>   49
 
                              CERTAIN TRANSACTIONS
 
CERTAIN FINANCING TRANSACTIONS
 
     On November 28, 1995, the Company sold an aggregate of 911,787 shares of
its Series A Preferred Stock in a private venture capital financing at a price
of $6.46 per share. Among the purchasers in the initial closing of this
financing were Weston Presidio Offshore Capital, C.V. and BNP Venture Holding
Corp., each 5% stockholders of the Company, and Matthew Bronfman and Jeffrey
Bloomberg, directors of the Company, and Armin Biller and Harriet Bloomberg,
family members of directors and executive officers of the Company. In connection
with such transaction, Bloomberg Associates, Inc., of which Jeffrey Bloomberg, a
director of the Company, is President, received $150,000 in consulting fees in
connection with a capital restructuring of the Company. At the same time, the
Company repurchased its outstanding Common Stock of the Company then held by
Matthew Bronfman (a director of the Company) and certain of his family members,
for approximately $550,000 in cash and a $1.0 million subordinated promissory
note accruing interest at the initial rate of 10% per annum, increased in
connection with the HiFi Buys Acquisition to 12.0% (the "Redemption Note"). The
Redemption Note must be repaid in full upon the closing of the Offering,
together with an additional payment of approximately $800,000 due to such
redeeming stockholders in connection with the Offering equal to 9.0% interest
per annum accruing from the issue date to the date of the closing of the
Offering. All such payments required under the Redemption Note will be paid upon
the closing of the Offering.
 
     On May 13, 1996, in connection with the Bryn Mawr Acquisition, the Company
sold an additional 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 the
Company, and to Carolina Bloomberg, the spouse of Samuel Bloomberg.
 
     On March 7, 1997, and in connection with a $2.0 million bridge loan from
the Company's existing lender, the Company entered into a Warrant and Debenture
Commitment with certain of its 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 (the "Debentures"). In consideration for this obligation, the
Company issued to the participating stockholders, warrants 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, the Company
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,
the Company issued $15 million in Senior Subordinated Notes (the "Senior 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,
Seacoast Capital Partners, L.P., Exeter Venture Lenders, L.P., and Exeter Equity
Partners, L.P., (the "Exeter Entities"), each a 5% stockholder of the Company.
Each of PNC Capital Corp and Seacoast Capital Partners, L.P. holds $5.0 million
of the Senior Notes and warrants to purchase 209,856 shares of Common Stock, and
each of the Exeter Entities holds $2.5 million of the Senior Notes and Warrants
to purchase 104,928 shares of Common Stock. Each Exeter Entity is selling all
104,928 shares of Common Stock issuable upon exercise of such warrants as a
Selling Stockholder in the Offering. Seacoast Capital Partners, L.P. is selling
50,000 shares of Common Stock issuable upon partial exercise of its warrants as
a Selling Stockholder in the Offering.
                                       47
<PAGE>   50
 
OTHER TRANSACTIONS AND RELATIONSHIPS
 
     In May 1996, in connection with the Bryn Mawr Acquisition, the Company
entered into a consulting agreement with Fred Lokoff, the former owner of Bryn
Mawr and a former director of the Company. This consulting agreement was amended
as of April 23, 1997 and currently has a term of four years (the "Consulting
Period") expiring May 2000. Pursuant to the amended agreement, the Company is
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. The
Company also entered into a 15 year lease of its King of Prussia, Pennsylvania
distribution facility with an affiliate of Mr. Lokoff and agreed to sublease a
portion in this distribution facility back to another affiliate of Mr. Lokoff at
no rental charge. During fiscal 1997, the Company paid $266,267 in total rent
under such lease.
 
                                       48
<PAGE>   51
 
                          DESCRIPTION OF CAPITAL STOCK
 
     Effective upon the consummation of the Offering, the authorized capital
stock of the Company will consist of 20,000,000 shares of Common Stock, no par
value, and 10,000,000 shares of Preferred Stock, no par value. Prior to the
Offering, there were outstanding an aggregate of 1,700,136 shares of Series A
Preferred Stock and 866,425 shares of Series B Preferred Stock which will
automatically convert into an aggregate of 2,566,561 shares of Common Stock upon
the consummation of the Offering. In addition, prior to the Offering, there were
outstanding warrants to purchase an aggregate of 721,664 shares of Common Stock
at a weighted average exercise price of $2.13. Of these, warrants to purchase
259,856 shares of Common Stock will be exercised immediately prior to the
closing of the Offering and these shares will be sold by Selling Stockholders in
the Offering.
 
     The following summary description of the Company'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 the Company'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. The Charter and By-laws will be effective upon the
consummation of the Offering.
 
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 the Company may designate and issue in the
future. Upon the liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to receive ratably the net assets of the
Company 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 the
Company 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 the Company may designate and
issue in the future.
 
PREFERRED STOCK
 
     Under the terms of the Charter, the Board of Directors is authorized,
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 the outstanding voting stock of the
Company. The Company has no present plans to issue any shares of Preferred
Stock, but the Company will, effective upon the consummation of the Offering,
authorize and reserve 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."
 
                                       49
<PAGE>   52
 
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS; ANTI-TAKEOVER EFFECTS
 
     The Company 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 "interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.
 
     The By-laws provide that (i) the number of directors shall be determined
from time to time by resolution adopted by a majority of the Board of Directors,
(ii) vacancies on the Board of Directors may be filled by the Board unless and
until filled by the stockholders, and (iii) 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 the Company'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 -- Board Composition."
 
     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,
(i) the interests of the Company's stockholders, including the possibility that
these interests might be best served by the continued independence of the
Company, (ii) whether the proposed transaction might violate federal or state
laws, (iii) not only the consideration being offered in the proposed
transaction, in relation to the then current market price for the outstanding
capital stock of the Company, but also the market price for the capital stock of
the Company over a period of years, the estimated price that might be achieved
in a negotiated sale of the Company 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 the Company's financial condition and
future prospects, and (iv) the social, legal and economic effects upon
employees, suppliers, customers, creditors and others having similar
relationships with the Company, upon the communities in which the Company
conducts 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 51% 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 By-Laws also provide 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 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 the Company.
Stockholder nominations of Director nominees who are not nominated by the Board
of Directors must be submitted to the Secretary of the Company not less than 90
days or more than 120 days prior to the anniversary of 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 the then outstanding
                                       50
<PAGE>   53
 
voting securities of the Company. These provisions may also discourage another
person or entity from making a tender offer for the Company's Common Stock,
because such person or entity, even if it acquired a majority of the outstanding
voting securities of the Company, 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 the Company 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
 
     The Company's Board of Directors will adopt, effective upon the
consummation of the Offering, a Stockholder Rights Plan (the "Rights Plan"). The
adoption of the Rights Plan by the Board is likely to make it more difficult for
a third party to acquire the Company 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") will be distributed, by way
of dividend for each outstanding share of Common Stock, to stockholders of
record as of a day prior to the effectiveness of the Registration Statement of
which this Prospectus is a part (the "Record Date"). In addition, one Right will
automatically attach to each share of Common Stock issued between the Record
Date and the Distribution Date (as hereinafter defined). Each Right entitles the
holder thereof to purchase one one-thousandth of one share (each, a "Unit") of
the Company's Junior Participating Cumulative Preferred Stock, no par value (the
"Junior Preferred Stock") at a cash purchase price per Unit to be established by
the Board when it approves the Rights Plan, subject to adjustment. The Rights
and their exercise price will be adjusted to take into account dilutive events.
 
     The Junior Preferred Stock shall rank 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 shall be 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 (i) $1.00, or (ii) 1,000 times the
aggregate per share amount of all dividends declared on the Common Stock.
Dividends shall accrue and be cumulative but shall not accrue interest. Except
as otherwise provided by law or set forth below, the holders of shares of Junior
Preferred Stock shall vote together with the Common Stock, and any other capital
stock of the Company having general voting rights, as one class. Each share of
Junior Preferred Stock shall entitle the holder thereof to 1,000 votes on all
matters submitted to a vote.
 
     Whenever dividends payable on any shares of Junior Preferred Stock shall be
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, shall have the right to elect two
directors of the Company at a special meeting of the stockholders or at the
Company'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
 
                                       51
<PAGE>   54
 
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
Junior Preferred Directors shall terminate.
 
     Upon the earlier to occur of (i) the tenth calendar day after an "Acquiring
Person" has acquired beneficial ownership of more than 15% of the outstanding
shares of Common Stock (such date being the "Stock Acquisition Date"), or (ii)
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 than 15% of the outstanding shares of Common Stock
(such date being the "Tender Offer Date"); the Board may, in its discretion,
cause the rights to separate from the Common Stock and become exercisable (such
earlier date of the Stock Acquisition Date and the Tender Offer Date being the
"Distribution Date"). An "Acquiring Person" shall be 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 shall not be deemed to include any
underwriters in their capacities as such. No person who is a stockholder of the
Company immediately prior to the consummation of the Offering will be an
Acquiring Person unless that person acquires beneficial ownership of both (i)
more than   % of the outstanding Common Stock, and (ii) a greater percentage of
the then outstanding Common Stock than the percentage held by such person as of
the consummation of the Offering.
 
     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
shall be 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 the
Common Stock of the Company. 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 (i) the tenth calendar year after a Distribution Date, or (ii) 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 (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL or
(iv) for any transaction from which the director derives an improper personal
benefit. These provisions do not limit or eliminate the rights of the Company or
any stockholder 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
the Company to the fullest extent permitted by the DGCL. The Company believes
that these provisions will assist the Company in attracting and retaining
qualified individuals to serve as directors.
 
TRANSFER AGENT AND REGISTRAR
 
     The transfer agent and registrar for the Company's Common Stock is
BankBoston, N.A.
 
                                       52
<PAGE>   55
 
                        SHARES ELIGIBLE FOR FUTURE SALE
 
     Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurances with respect to the effect, if any, that public
sales of shares or the availability of shares will have on the market price of
the Common Stock prevailing from time to time. Sales of substantial amounts of
Common Stock in the public market following the Offering, or the perception that
such sales may occur, could adversely affect the market price of the Common
Stock and could impair the Company's future ability to obtain capital through an
offering of equity securities. See "Risk Factors -- Shares Eligible for Future
Sale."
 
     As of the date of this March 31, 1998, the Company had outstanding
3,882,690 shares of Common Stock (assuming conversion of all outstanding
Preferred Stock into an aggregate of 2,566,561 shares of Common Stock and the
exercise of warrants to purchase 259,856 shares of Common Stock) held of record
by 23 stockholders. Upon completion of the Offering, the Company will have
6,082,690 shares of Common Stock outstanding a (assuming no exercise of
outstanding options or warrants other than warrants exercisable into 259,856
shares of Common Stock being sold by a Selling Stockholder in the Offering, but
assuming conversion of all outstanding Preferred Stock into 2,566,561 shares of
Common Stock, each of which will occur upon consummation of the Offering). Of
these outstanding shares, the 2,710,000 shares of Common Stock being sold in the
Offering will be freely tradable without restriction or further registration
under the Securities Act, except for shares acquired by an "affiliate" or
"affiliates" of the Company (as that term is used in Rule 144 promulgated under
the Securities Act, "Affiliate" or "Affiliates"), which may generally only be
sold in compliance with the limitations of Rule 144 as described below.
 
SALES OF RESTRICTED SHARES
 
     The remaining 3,372,690 shares of Common Stock were issued and sold by the
Company prior to the Offering in private transactions and therefore constitute
"restricted securities" under Rule 144. As a result, such shares may not be
resold unless they are registered under the Securities Act or are sold pursuant
to an applicable exemption from registration, such as Rule 144. The Company and
its existing stockholders holding all of the Preferred Stock and Common Stock
outstanding immediately prior to the Offering have agreed pursuant to lock-up
agreements ("Lock-Up Agreements") not to sell, offer or contract to sell, sell
short, engage in certain hedging transactions or otherwise dispose of, with
certain exceptions, any shares of Common Stock for a period of 180 days after
the date of this Prospectus without the prior written consent of BT Alex. Brown
Incorporated. See "Underwriting."
 
     In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned
"restricted" shares (as defined under Rule 144) for at least one year is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of (i) one percent of the then outstanding shares of
Common Stock or (ii) the average weekly trading volume of the Common Stock
reported through the Nasdaq Stock Market during the four calendar weeks
preceding the date on which notice of the sale is filed with the Securities and
Exchange Commission. Sales under Rule 144 are subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. In addition, a stockholder who is not deemed an
Affiliate at any time during the 90 days preceding a sale and who has
beneficially owned his shares for at least two years, is entitled to sell such
shares under Rule 144(k) without regard to volume limitations, manner of sale
provisions, notice requirements or the availability of current public
information concerning the Company.
 
OPTIONS
 
     The Company has granted options to purchase an aggregate of 845,059 shares
of Common Stock to certain directors, officers and employees pursuant to the
1995 Plan. All shares issuable upon
 
                                       53
<PAGE>   56
 
exercise of options are subject to Lock-up Agreements or to a lock-up period of
120 days pursuant to the Company's stock option agreements.
 
WARRANTS
 
     As of the date of this Prospectus, warrants to purchase an aggregate of
511,808 shares of Common Stock were outstanding, at an average weighted exercise
price of $2.13 per share, excluding warrants to purchase 259,856 shares which
will be exercised and sold in the Offering. All of these Warrants were issued by
the Company between March 7, 1997 and May 30, 1997. All of the shares issuable
pursuant to such Warrants are subject to Lock-up Agreements.
 
REGISTRATION RIGHTS
 
     The Company has entered into registration rights agreements with certain of
its stockholders owning an aggregate of 3,884,498 shares of Common Stock, which
provide those stockholders with prescribed rights, subject to certain conditions
and limitations, to require the Company to register the sale of shares of Common
Stock held by such stockholders under the Securities Act or to include such
shares in a registered offering being effected by the Company for its own
account. Copies of such registration rights agreements are included as exhibits
to the Registration Statement of which this Prospectus is a part. All of the
shares entitled to the benefits of such registration rights agreements are
subject to Lock-up Agreements.
 
                                       54
<PAGE>   57
 
                                  UNDERWRITING
 
     Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives, BT
Alex. Brown Incorporated, PaineWebber Incorporated and Dain Rauscher Wessels, a
division of Dain Rauscher Incorporated ("Dain Rauscher Wessels") have severally
agreed to purchase from the Company and the Selling Stockholders the following
respective numbers of shares of Common Stock at the initial public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus:
 
<TABLE>
<CAPTION>
UNDERWRITER                                                  NUMBER OF SHARES
-----------                                                  ----------------
<S>                                                          <C>
BT Alex. Brown Incorporated................................
PaineWebber Incorporated...................................
Dain Rauscher Wessels......................................
                                                                ---------
          Total............................................     2,710,000
                                                                =========
</TABLE>
 
     The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of the Common Stock offered hereby if any
of such shares are purchased.
 
     The Company and the Selling Stockholders have been advised by the
Representatives of the Underwriters that the Underwriters propose to offer the
shares of Common Stock to the public at the initial public offering price set
forth on the cover page of this Prospectus and to certain dealers at such price
less a concession not in excess of $          per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $
per share. After the initial public offering, the public offering price and
other selling terms may be changed by the Representatives of the Underwriters.
 
     The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to 406,500
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth 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 to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to 2,710,000, and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 2,710,000 shares are being offered.
 
     The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act.
 
     The Company, each of its officers and directors, all of its stockholders
and warrant holders, and certain of its option holders have agreed, subject to
certain exceptions, not to sell, offer or contract to sell, transfer, engage in
hedging transactions with respect to or otherwise dispose of any shares of
Common Stock for a period of 180 days after the date of this Prospectus without
the prior written consent of BT Alex. Brown Incorporated. BT Alex. Brown
Incorporated, on behalf of the Representatives of the Underwriters, may, in its
sole discretion and at any time without notice, release all or any portion of
the securities subject to such lock-up agreements. See "Shares Eligible for
Future Sale."
 
                                       55
<PAGE>   58
 
     The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
 
     In connection with the Offering, the Underwriters and other persons
participating in the 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 the Offering, creating a short
position in Common Stock for their own account. To cover over-allotments 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 the 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 end any of
these activities at any time.
 
     Prior to the Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined by negotiation between the Company and the
Representatives of the Underwriters. Among the factors to be considered in such
negotiations are prevailing market conditions, the results of operations of the
Company in recent periods, the market capitalization and stages of development
of other companies which the Company and the Representatives of the Underwriters
believed to be comparable to the Company, estimates of the business potential of
the Company, the present state of the Company's development and other factors
deemed relevant.
 
                                 LEGAL MATTERS
 
     An opinion will be delivered by Goulston & Storrs, P.C., Boston,
Massachusetts, to the effect that the shares of Common Stock being offered
hereby will, when issued as contemplated by this Prospectus, be validly issued,
fully paid and non-assessable. Certain legal matters related to the Offering
will be passed upon for the Underwriters by Testa, Hurwitz & Thibeault, LLP,
Boston, Massachusetts.
 
                                    EXPERTS
 
     The consolidated financial statements of the Company as of September 30,
1996 and 1997, and for each of the years in the three-year period ended
September 30, 1997, included in this Prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report of Deloitte &
Touche LLP given upon the authority of said firm as experts in accounting and
auditing.
 
     The financial statements of HiFi Buys Incorporated for the years ended
December 31, 1996, 1995 and 1994, included in this Prospectus have been audited
by Deloitte & Touche LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report of Deloitte & Touche LLP given upon the authority of said firm as experts
in accounting and auditing.
 
     The combined financial statements of Bryn Mawr Radio and Television Centre,
Inc. and affiliate for the year ended August 31, 1995, included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
set forth in their report thereon appearing elsewhere herein, and are included
in reliance upon such report of Deloitte & Touche LLP given upon the authority
of said firm as experts in accounting and auditing.
 
                                       56
<PAGE>   59
 
                             ADDITIONAL INFORMATION
 
     A Registration Statement on Form S-1 under the Securities Act relating to
the Common Stock offered hereby has been filed by the Company with the
Securities and Exchange Commission (the "Commission") in Washington, D.C. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto, certain portions having been
omitted from this Prospectus in accordance with the rules and regulations of the
Commission. 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 the Company and the Common Stock offered hereby, reference is made to
such Registration Statement, the exhibits thereto and the financial statements,
notes and schedules filed as a part thereof. The Registration Statement may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, DC 20549, and at the
Commission's regional offices located at Seven World Trade Center, New York, NY
10048 and at 500 West Madison Street, Chicago, Illinois 60661. Copies of such
materials, including the Registration Statement, can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, DC
20549 at prescribed rates. The Commission also maintains a World Wide Web site
that contains reports, proxy and information statements, and other information
regarding registrants that file electronically with the Commission. The site and
this Registration Statement may be accessed at http://www.sec.gov. Copies of the
Registration Statement may also be inspected at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006.
 
     The Company intends to furnish its stockholders with annual reports
containing financial statements certified by its independent accountants and
make available quarterly reports containing unaudited financial information for
the first three quarters of each fiscal year.
 
                                       57
<PAGE>   60
 
                         INDEX TO FINANCIAL STATEMENTS
 
<TABLE>
<S>                                                           <C>
TWEETER HOME ENTERTAINMENT GROUP, INC.
  Independent Auditors' Report..............................  F-2
  Consolidated Balance Sheets as of September 30, 1996 and
     1997, and March 31, 1998 (unaudited)...................  F-3
  Consolidated Statements of Income for the Years Ended
     September 30, 1995, 1996 and 1997, and the Six Months
     Ended March 31, 1997 (unaudited) and March 31, 1998
     (unaudited)............................................  F-4
  Consolidated Statements of Stockholders' Equity (Deficit)
     for the Years Ended September 30, 1995, 1996 and 1997,
     and the Six Months Ended March 31, 1998 (unaudited)....  F-5
  Consolidated Statements of Cash Flows for the Years Ended
     September 30, 1995, 1996 and 1997, and the Six Months
     Ended March 31, 1997 (unaudited) and March 31, 1998
     (unaudited)............................................  F-6
  Notes to Consolidated Financial Statements................  F-7
  PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
     (unaudited)............................................  F-23
HIFI BUYS INCORPORATED
  Independent Auditors' Report..............................  F-26
  Statements of Operations for the Years Ended December 31,
     1996, 1995 and 1994 and the Three Months Ended March
     31, 1997 (unaudited) and March 31, 1996 (unaudited)....  F-27
  Statements of Cash Flows for the Years Ended December 31,
     1996, 1995 and 1994 and the Three Months Ended March
     31, 1997 (unaudited) and March 31, 1996 (unaudited)....  F-28
  Notes to Financial Statements.............................  F-29
BRYN MAWR RADIO AND TELEVISION CENTRE, INC.
  Independent Auditors' Report..............................  F-32
  Combined Statement of Operations for the Year Ended August
     31, 1995 and the Six Months Ended February 29, 1996
     (unaudited) and the Six Months Ended February 28, 1995
     (unaudited)............................................  F-33
  Combined Statement of Cash Flows for the Year Ended August
     31, 1995 and the Six Months Ended February 29, 1996
     (unaudited) and the Six Months Ended February 28, 1995
     (unaudited)............................................  F-34
  Notes to Financial Statements.............................  F-35
</TABLE>
 
                                       F-1
<PAGE>   61
 
                          INDEPENDENT AUDITORS' REPORT
 
     The accompanying consolidated financial statements reflect the
reorganization and the 1 for 1.524 reverse split of common stock which is to be
effected prior to the effective date of the Offering. The following report is in
the form which will be furnished by Deloitte & Touche LLP upon completion of the
above events, which are described in Note 1 of Notes to Consolidated Financial
Statements, and assuming that, from April 24, 1998 to the date of such
completion no other events have occurred which would affect the accompanying
consolidated financial statements and notes thereto.
 
"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, 1996 and 1997, and the
related statements of income, stockholders' equity (deficit), and cash flows for
each of the three years in the period ended September 30, 1997. 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, 1996 and
1997, and the results of its operations and its cash flows for each of the three
years in the period ended September 30, 1997 in conformity with generally
accepted accounting principles.
 
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 20, 1998 (May   , 1998 as to Note 1)"
 
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 24, 1998
 
                                       F-2
<PAGE>   62
 
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                    SEPTEMBER 30,          MARCH 31,     PRO FORMA
                                                              -------------------------   -----------    MARCH 31,
                                                                 1996          1997          1998          1998
                                                              -----------   -----------   -----------   -----------
                                                                                          (UNAUDITED)   (UNAUDITED)
<S>                                                           <C>           <C>           <C>           <C>
ASSETS
CURRENT ASSETS:
  Cash and cash equivalents.................................  $   438,607   $ 1,156,837   $ 1,138,808
  Accounts receivable, net of allowance for doubtful
    accounts of $440,000 at September 30, 1996, $631,000 at
    September 30, 1997 and $600,000 at March 31, 1998
    (unaudited).............................................    2,791,993     5,472,779     7,396,312
  Inventory.................................................   15,352,307    31,160,043    35,471,117
  Deferred tax assets.......................................      596,454     1,220,481     1,276,020
  Prepaid expenses and other current assets.................      308,867       822,904       501,110
                                                              -----------   -----------   -----------
        Total current assets................................   19,488,228    39,833,044    45,783,367
  PROPERTY AND EQUIPMENT -- Net.............................   13,490,304    17,967,504    17,889,050
  DEFERRED TAX ASSET........................................      754,464        59,397       108,605
  OTHER ASSETS -- Net.......................................           --       331,870       496,970
  GOODWILL -- Net...........................................    4,886,287    20,496,115    20,249,636
                                                              -----------   -----------   -----------
        TOTAL...............................................  $38,619,283   $78,687,930   $84,527,628
                                                              ===========   ===========   ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Current portion of long-term debt.........................  $        --   $   400,000   $   400,000
  Amount due to bank........................................    1,880,743     4,948,702     4,044,346
  Accounts payable..........................................   11,252,458    11,456,967     7,378,773
  Accrued expenses..........................................    3,138,991     8,405,704    14,751,337
  Customer deposits.........................................      851,089     1,255,024     1,629,154
  Deferred warranty revenue.................................      468,418     1,509,481     1,329,757
                                                              -----------   -----------   -----------
        Total current liabilities...........................   17,591,699    27,975,878    29,533,367
                                                              -----------   -----------   -----------
LONG-TERM DEBT:
  Note payable to bank......................................    9,700,000    14,500,000    15,100,000
  Subordinated debt.........................................    1,000,000    16,374,617    16,174,617
                                                              -----------   -----------   -----------
        Total long-term debt................................   10,700,000    30,874,617    31,274,617
                                                              -----------   -----------   -----------
OTHER LONG-TERM LIABILITIES:
  Rent related accruals.....................................    2,063,887     2,421,082     2,670,423
  Deferred warranty.........................................      650,750     2,175,577     1,555,710
  Other long-term liabilities...............................           --       318,780       258,720
                                                              -----------   -----------   -----------
        Total other long-term liabilities...................    2,714,637     4,915,439     4,484,853
        Total liabilities...................................   31,006,336    63,765,934    65,292,837
                                                              -----------   -----------   -----------
COMMITMENTS AND CONTINGENCIES (Note 8)
REDEEMABLE CONVERTIBLE PREFERRED STOCK:
  Series A Convertible Preferred Stock, no par value;
    authorized, 4,000,000 shares; 1,700,136 shares issued
    and outstanding in 1998, 1997 and 1996 (liquidation
    preference, $14,432,999 as of March 31, 1998)...........   11,596,868    13,399,386    14,432,999   $        --
  Series B Convertible Preferred Stock, no par value;
    authorized, 4,000,000 shares; 866,425 shares issued and
    outstanding in 1998 and 1997 (liquidation preference
    $7,741,248 as of March 31, 1998)........................           --     7,191,221     7,741,248            --
                                                              -----------   -----------   -----------   -----------
                                                               11,596,868    20,590,607    22,174,247            --
                                                              -----------   -----------   -----------   -----------
STOCKHOLDERS' EQUITY (DEFICIT):
  Common stock, no par value, authorized: 20,000,000 shares;
    2,755,200 shares issued in 1996, 1997 and 1998
    (7,521,761 shares issued pro forma in 1998).............           --            --            --            --
  Additional paid-in capital................................          600       325,983       325,983    22,500,230
  Retained earnings (deficit)...............................   (2,403,004)   (4,413,077)   (1,683,922)   (1,683,922)
  Note receivable from officer..............................      (31,500)      (31,500)      (31,500)      (31,500)
                                                              -----------   -----------   -----------   -----------
        Total...............................................   (2,433,904)   (4,118,594)   (1,389,439)   20,784,808
  Less treasury stock: 1,698,929 shares at cost.............   (1,550,017)   (1,550,017)   (1,550,017)   (1,550,017)
                                                              -----------   -----------   -----------   -----------
        Total stockholders' equity (deficit)................   (3,983,921)   (5,668,611)   (2,939,456)  $19,234,791
                                                              -----------   -----------   -----------   -----------
        TOTAL...............................................  $38,619,283   $78,687,930   $84,527,628
                                                              ===========   ===========   ===========
</TABLE>
 
                See notes to consolidated financial statements.
                                       F-3
<PAGE>   63
 
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
                       CONSOLIDATED STATEMENTS OF INCOME
 
<TABLE>
<CAPTION>
                                         YEARS ENDED SEPTEMBER 30,            SIX MONTHS ENDED MARCH 31,
                                 ------------------------------------------   ---------------------------
                                     1995           1996           1997           1997           1998
                                 ------------   ------------   ------------   ------------   ------------
                                                                              (UNAUDITED)    (UNAUDITED)
<S>                              <C>            <C>            <C>            <C>            <C>
Total revenue..................  $ 60,121,370   $ 80,606,727   $132,525,037   $ 60,582,539   $129,129,712
Cost of sales..................    39,167,031     51,816,041     86,314,918     39,180,469     84,280,356
                                 ------------   ------------   ------------   ------------   ------------
Gross profit...................    20,954,339     28,790,686     46,210,119     21,402,070     44,849,356
Selling expenses...............    15,404,513     21,993,070     35,567,940     14,797,225     30,207,653
                                 ------------   ------------   ------------   ------------   ------------
Store contribution.............     5,549,826      6,797,616     10,642,179      6,604,845     14,641,703
Corporate, general and
  administrative expenses......     3,246,443      4,715,697      8,102,190      3,792,702      5,419,985
Amortization of goodwill.......        65,268        129,273        487,084        119,562        423,279
                                 ------------   ------------   ------------   ------------   ------------
Income from operations.........     2,238,115      1,952,646      2,052,905      2,692,581      8,798,439
Interest expense...............       628,700        616,879      1,807,660        513,520      1,610,446
                                 ------------   ------------   ------------   ------------   ------------
Income before income taxes.....     1,609,415      1,335,767        245,245      2,179,061      7,187,993
Income tax expense (benefit)...      (173,498)      (453,448)        98,962        876,337      2,875,198
                                 ------------   ------------   ------------   ------------   ------------
NET INCOME.....................  $  1,782,913   $  1,789,215   $    146,283   $  1,302,724   $  4,312,795
                                 ============   ============   ============   ============   ============
Pro forma information
  Basic earnings per share.....                                        0.04                          1.19
  Weighted average shares
    outstanding................                                   3,622,832                     3,622,832
  Diluted earnings per share...                                        0.03                          0.87
  Weighted average shares and
    dilutive shares
    outstanding................                                   4,966,353                     4,966,353
</TABLE>
 
                See notes to consolidated financial statements.
                                       F-4
<PAGE>   64
 
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
 
                                   COMMON STOCK      ADDITIONAL     RETAINED         NOTE           TREASURY STOCK
                                ------------------     PAID-IN      EARNINGS      RECEIVABLE    -----------------------
                                 SHARES     AMOUNT     CAPITAL      (DEFICIT)    FROM OFFICER    SHARES       AMOUNT
                                ---------   ------   -----------   -----------   ------------   ---------   -----------
<S>                             <C>         <C>      <C>           <C>           <C>            <C>         <C>
BALANCE, OCTOBER 1, 1994......  2,755,200    $--     $       600   $(4,090,825)    $(31,500)                $        --
  Net income..................         --                            1,782,913
  Subchapter S
    distributions.............         --                             (118,615)
                                ---------    ---     -----------   -----------     --------     ---------   -----------
BALANCE, SEPTEMBER 30, 1995...  2,755,200     --             600    (2,426,527)     (31,500)           --            --
  Treasury stock acquired.....         --                                                       1,698,929    (1,550,017)
  Accretion of Series A
    Convertible Preferred
    Stock.....................         --                           (1,035,942)
  Net income..................         --                            1,789,215
  Subchapter S
    distributions.............         --                             (729,750)
                                ---------    ---     -----------   -----------     --------     ---------   -----------
BALANCE, SEPTEMBER 30, 1996...  2,755,200     --             600    (2,403,004)     (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...  2,755,200     --         325,983    (4,413,077)     (31,500)    1,698,929    (1,550,017)
  Accretion of Series A
    Convertible Preferred
    Stock (unaudited).........         --                           (1,033,613)
  Accretion of Series B
    Convertible Preferred
    Stock (unaudited).........         --                             (550,027)
  Net income (unaudited)......         --                            4,312,795
                                ---------    ---     -----------   -----------     --------     ---------   -----------
BALANCE, MARCH 31, 1998
  (UNAUDITED).................  2,755,200    $--     $   325,983   $(1,683,922)    $(31,500)    1,698,929   $(1,550,017)
                                =========    ===     ===========   ===========     ========     =========   ===========
 
<CAPTION>
                                    TOTAL
                                STOCKHOLDERS'
                                   EQUITY
                                  (DEFICIT)
                                -------------
<S>                             <C>
BALANCE, OCTOBER 1, 1994......   $(4,121,725)
  Net income..................     1,782,913
  Subchapter S
    distributions.............      (118,615)
                                 -----------
BALANCE, SEPTEMBER 30, 1995...    (2,457,427)
  Treasury stock acquired.....    (1,550,017)
  Accretion of Series A
    Convertible Preferred
    Stock.....................    (1,035,942)
  Net income..................     1,789,215
  Subchapter S
    distributions.............      (729,750)
                                 -----------
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 (unaudited).........    (1,033,613)
  Accretion of Series B
    Convertible Preferred
    Stock (unaudited).........      (550,027)
  Net income (unaudited)......     4,312,795
                                 -----------
BALANCE, MARCH 31, 1998
  (UNAUDITED).................   $(2,939,456)
                                 ===========
</TABLE>
 
                See notes to consolidated financial statements.
                                       F-5
<PAGE>   65
 
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                                                         SIX MONTHS ENDED
                                                                 YEARS ENDED SEPTEMBER 30,                   MARCH 31,
                                                         -----------------------------------------   -------------------------
                                                            1995           1996           1997          1997          1998
                                                         -----------   ------------   ------------   -----------   -----------
                                                                                                     (UNAUDITED)   (UNAUDITED)
<S>                                                      <C>           <C>            <C>            <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income...........................................  $ 1,782,913   $  1,789,215   $    146,283   $ 1,302,724   $ 4,312,795
  Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
    Depreciation and amortization......................      950,132      1,383,235      2,785,205     1,099,537     1,908,858
    Loss on disposal of equipment......................       63,467             --         18,845                          --
    Deferred income tax provision (benefit)............     (173,498)    (1,177,420)        71,040        58,683      (104,747)
    Changes in operating assets and liabilities, net of
      effects from acquisition of businesses:
      Increase in accounts receivable..................     (286,912)      (631,945)    (1,251,986)   (1,071,793)   (1,923,533)
      Increase in inventory............................     (306,172)    (2,411,139)    (6,534,336)   (2,226,461)   (4,311,074)
      (Increase) decrease in prepaid expenses and other
        current assets.................................       (2,512)      (250,391)      (277,537)       29,738       (83,777)
      Increase (decrease) in accounts payable and
        accrued expenses...............................     (399,485)       848,630       (923,291)      521,238     2,267,439
      Increase (decrease) in customer deposits.........      422,184       (329,713)      (242,565)        5,038       374,130
      Increase in deferred rent........................       29,867      1,441,315        357,195       139,597       249,341
      Decrease in deferred warranty revenue............           --       (157,113)      (710,610)     (254,465)     (799,591)
      Increase (decrease) in other liabilities.........           --             --        318,780            --       (60,060)
                                                         -----------   ------------   ------------   -----------   -----------
        Net cash provided by (used in) operating
          activities...................................    2,079,984        504,674     (6,242,977)     (396,164)    1,829,781
                                                         -----------   ------------   ------------   -----------   -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment...................   (2,620,885)    (2,865,784)    (3,972,465)   (1,404,026)   (1,343,454)
  Proceeds from sale of property and equipment.........       19,614             --             --            --            --
  Acquisition of business; net of cash deferred........           --     (8,368,208)   (19,539,800)           --            --
                                                         -----------   ------------   ------------   -----------   -----------
        Net cash used in investing activities..........   (2,601,271)   (11,233,992)   (23,512,265)   (1,404,026)   (1,343,454)
                                                         -----------   ------------   ------------   -----------   -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Amount due to bank...................................      333,270        390,000      3,067,959       498,544      (904,356)
  Proceeds from bridge loan............................           --             --             --     2,000,000            --
  Proceeds from long-term borrowings, net of debt issue
    costs..............................................    1,400,000      1,994,594     20,668,128     5,950,000       600,000
  Payments of debt.....................................     (850,000)                     (100,000)   (6,675,000)     (200,000)
  Subchapter S distributions...........................     (118,615)      (729,750)            --            --            --
  Issuance of preferred stock..........................           --     10,560,926      6,837,385            --            --
  Treasury stock acquired..............................           --     (1,550,017)            --            --            --
                                                         -----------   ------------   ------------   -----------   -----------
        Net cash provided by (used in) financing
          activities...................................      764,655     10,665,753     30,473,472     1,773,544      (504,356)
                                                         -----------   ------------   ------------   -----------   -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......      243,368        (63,565)       718,230       (26,646)      (18,029)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR...........      258,804        502,172        438,607       438,607     1,156,837
                                                         -----------   ------------   ------------   -----------   -----------
CASH AND CASH EQUIVALENTS, END OF YEAR.................  $   502,172   $    438,607   $  1,156,837   $   411,961   $ 1,138,808
                                                         ===========   ============   ============   ===========   ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid during the year for:
    Interest...........................................  $   602,643   $    538,718   $  1,538,077   $   552,647   $ 1,874,530
    Taxes..............................................           --        860,541        358,000       355,000     1,080,496
</TABLE>
 
                See notes to consolidated financial statements.
                                       F-6
<PAGE>   66
 
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
                  AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
 
1.  BUSINESS OF THE COMPANY
 
     New England Audio Co., Inc. ("NEA") was organized as a Massachusetts
corporation in 1972. In May 1998 NEA will effect a 1 for 1.524 reverse stock
split. Also in May 1998, NEA will be reorganized as a Delaware holding company,
whereby all of the holders of capital stock, options, and warrants of NEA will
exchange 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 the wholly owned subsidiary of NEA, NEA Delaware Inc., a Delaware
corporation (collectively referred to as the "Company"). As discussed in Note
11, the redeemable convertible preferred stock will automatically convert into
2,566,561 shares of common stock upon the completion of an initial public
offering. The accompanying pro forma balance sheet gives effect to this
conversion as if it had occurred on March 31, 1998.
 
     The Company sells home audio, video, entertainment and electronic products
through a chain of 50 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 accompanying consolidated balance sheet as of
March 31 1998 and the related consolidated statements of income, stockholders'
equity (deficit) and cash flows for the six months ended March 31, 1997 and 1998
are unaudited. In the opinion of management, these financial statements have
been prepared on the same basis as the audited consolidated financial statements
and include all adjustments consisting only of normal recurring adjustments
necessary for the fair presentation, in accordance with generally accepted
accounting principles, of financial data for such periods. The results of
operations and cash flows for the six months ended March 31, 1997 and 1998 are
not necessarily indicative of results that would be expected for a full year.
The data disclosed in these notes to the consolidated financial statements for
those interim periods are also unaudited.
 
     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 life of the leases.
 
     GOODWILL -- Goodwill and other acquisition costs are being amortized on a
straight-line basis over periods from 15 to 25 years.
 
                                       F-7
<PAGE>   67
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
                  AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
     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.
 
     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 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.
 
     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 revenue from the sale of
extended warranty contracts in net sales and records as cost of goods sold 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.
 
     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 25 miles of the store advertises a lower price within 30 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
goods sold, and carries a reserve based on management's estimate of future
liability under the program.
 
     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 12 and 60 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
 
                                       F-8
<PAGE>   68
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
                  AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, and the sales
that continued through July 31, 1996.
 
     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 12 and 60
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 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 Statement of
Financial Accounting Standards ("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 the financial reporting
and tax bases of assets and liabilities and for loss carryforwards based on
enacted tax laws and rates.
 
     STORE OPENING COSTS -- Costs of 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 11.
 
     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, which are expensed as incurred,
amounted to $1,402,310, $2,574,340 and $3,742,433 for the years ended September
30, 1995, 1996 and 1997, respectively, and $1,437,306 and $2,645,535 for the
six-month periods ended March 31, 1997 and 1998, respectively.
                                       F-9
<PAGE>   69
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
                  AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
     PRO FORMA EARNINGS PER SHARE -- The Company computed pro forma earnings per
share in accordance with SFAS No. 128, "Earnings Per Share". Pro forma basic
earnings per share is based on the weighted average number of common shares
outstanding. Diluted earnings per share is based on the weighted average number
of common shares and dilutive potential common shares (common stock options and
warrants) outstanding. The pro forma weighted average number of common shares
assumes the automatic conversion of all shares of Series A Redeemable
Convertible Preferred Stock and Series B Redeemable Convertible Preferred Stock
(the "preferred stock") to 2,566,561 shares of common stock which will occur
upon the consummation of the initial public offering. Potential common shares
are not included in the per share calculations where the effect of their
inclusion would be anti-dilutive, except in accordance with the requirements of
Securities and Exchange Commission Staff Accounting Bulletin No. 98 (the
"Bulletin"). The Bulletin requires nominal issuances of common stock be treated
in a manner similar to a stock split or stock dividend, for which retroactive
treatment is required under SFAS No. 128. For purposes of computing the impact
of potential shares as described in the Bulletin, the Company has assumed an
initial public offering price of $16 per share.
 
     The following is a reconciliation of the numerators and denominators of the
pro forma basic earnings per share and pro forma diluted earnings per share:
 
<TABLE>
<CAPTION>
                                                      YEAR         SIX MONTHS
                                                      ENDED          ENDED
                                                  SEPTEMBER 30,    MARCH 31,
                                                      1997            1998
                                                  -------------    ----------
<S>                                               <C>              <C>
Pro Forma Basic Earnings Per Share ("EPS"):
  Numerator.....................................   $  146,283      $4,312,795
  Denominator -- Weighted Average Shares
     Outstanding................................    3,622,832       3,622,832
                                                   ----------      ----------
  Basic EPS.....................................   $     0.04      $     1.19
                                                   ==========      ==========
Pro Forma Diluted Earnings Per Share:
  Numerator.....................................   $  146,283      $4,312,795
                                                   ----------      ----------
  Denominator:
     Weighted Average shares outstanding........    3,622,832       3,622,832
     Potential common shares outstanding........    1,343,521       1,343,521
                                                   ----------      ----------
  Total.........................................    4,966,353       4,966,353
                                                   ----------      ----------
  Diluted EPS...................................   $     0.03      $     0.87
                                                   ==========      ==========
</TABLE>
 
     Historical earnings per share is not presented on the face of the
consolidated statements of income as such information is not meaningful.
 
     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" and
SFAS No. 132, "Employees' Disclosures About Pensions and Other Post Retirement
Benefits." The effect of adopting these Statements is not expected to be
material to the Company's consolidated financial position or results of
operations.
 
                                      F-10
<PAGE>   70
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
                  AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
     RECLASSIFICATION -- Various financial statement amounts for 1995, 1996 and
1997 have been reclassified to conform to the classifications used in the March
31, 1998 financial statements.
 
3.  PROPERTY AND EQUIPMENT
 
     Major classifications of property and equipment are summarized below:
 
<TABLE>
<CAPTION>
                                                   SEPTEMBER 30,          MARCH 31,
                                             -------------------------   -----------
                                                1996          1997          1998
                                             -----------   -----------   -----------
                                                                         (UNAUDITED)
<S>                                          <C>           <C>           <C>
Leasehold improvements.....................  $13,927,021   $17,050,196   $18,717,376
Furniture and equipment....................    5,804,643     8,380,734     8,864,998
Automobiles and trucks.....................      208,266       247,950       305,463
Construction in progress...................    1,161,038       865,503            --
Leasehold interests........................           --       165,000       165,000
                                             -----------   -----------   -----------
                                              21,100,968    26,709,383    28,052,837
Less accumulated depreciation and
  amortization.............................    7,610,664     8,741,879    10,163,787
                                             -----------   -----------   -----------
                                             $13,490,304   $17,967,504   $17,889,050
                                             ===========   ===========   ===========
</TABLE>
 
     Depreciation and amortization (excluding amortization of goodwill) for the
fiscal years ended September 30, 1995, 1996 and 1997 aggregated $884,864,
$1,226,109 and $2,258,121, respectively. Depreciation and amortization
(excluding amortization of goodwill) for the six-month period ended March 31,
1998 aggregated $1,421,908.
 
4.  ACCRUED EXPENSES
 
     Accrued expenses consist of the following:
 
<TABLE>
<CAPTION>
                                                 SEPTEMBER 30,           MARCH 31,
                                            ------------------------    -----------
                                               1996          1997          1998
                                            ----------    ----------    -----------
                                                                        (UNAUDITED)
<S>                                         <C>           <C>           <C>
Merchandise received not invoiced.........  $  472,799    $1,576,413    $ 2,579,884
Fringe benefits...........................     376,557       660,790      1,377,520
Sales taxes payable.......................     513,543       616,764      1,027,987
Advertising...............................     342,308       900,952      1,540,767
Group insurance...........................     246,500       220,826        220,826
Compensation..............................     845,577     1,422,106      2,118,208
Other.....................................     341,707     3,007,853      5,886,145
                                            ----------    ----------    -----------
                                            $3,138,991    $8,405,704    $14,751,337
                                            ==========    ==========    ===========
</TABLE>
 
5.  DEFERRED WARRANTY REVENUE
 
     As part of the acquisition of Bryn Mawr in May of 1996, the Company assumed
deferred warranty revenue on Bryn Mawr's books at that time. Amortization of
deferred warranty revenue for the six months ended March 31, 1998 was $179,724.
Amortization of deferred warranty revenue for the
 
                                      F-11
<PAGE>   71
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
                  AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
 
5.  DEFERRED WARRANTY REVENUE (CONTINUED)
years ended September 30, 1996 and 1997 was $253,529 and $468,418, 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 $709,425 for the six
months ended March 31, 1998, and $478,145 for the year ended September 30, 1997
(See Note 2). Self-funded extended warranty contract sales were $276,720 in the
year ended September 30, 1997.
 
6.  DEBT
 
     Long-term debt consists of the following:
 
<TABLE>
<CAPTION>
                                                   SEPTEMBER 30,          MARCH 31,
                                             -------------------------   -----------
                                                1996          1997          1998
                                             -----------   -----------   -----------
                                                                         (UNAUDITED)
<S>                                          <C>           <C>           <C>
Subordinated debt..........................  $ 1,000,000   $16,774,617   $16,574,617
Revolving term bank loan...................    9,700,000    14,500,000    15,100,000
                                             -----------   -----------   -----------
Subtotal...................................   10,700,000    31,274,617    31,674,617
Less current portion.......................           --       400,000       400,000
                                             -----------   -----------   -----------
                                             $10,700,000   $30,874,617   $31,274,617
                                             ===========   ===========   ===========
</TABLE>
 
     On November 28, 1995, the Company entered into a loan agreement with a
bank. The agreement established a line of credit with a maximum balance of
$6,000,000 dependent upon the Company's inventory levels. Amounts outstanding
under the agreement bear interest at either the lender's base rate plus  1/4% or
the Eurodollar rate plus 2 1/4%, dependent upon the amount of advance
notification the Company gives to the bank.
 
     On November 28, 1995, as part of a recapitalization, the Company
repurchased approximately 1,698,929 shares equalling 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") carries interest at 10% and is due on December 31, 1998. Interest is
payable on a quarterly basis. The terms of the Redemption Note also require that
upon the closing of an initial public offering by the Company an additional
payment of $650,000 plus an amount equal to 9% interest per annum accruing from
November 28, 1995 to the date of such offering be made (approximately $814,000
at the estimated time of the effective date of this offering). 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.
 
                                      F-12
<PAGE>   72
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
                  AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
 
6.  DEBT (CONTINUED)
     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 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. Amounts outstanding
under the agreement totaled $14,500,000 and $15,100,000 at September 30, 1997
and March 31, 1998, respectively, are 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 30 days or more (8.16% at September 30, 1997 and 7.68% at March
31, 1998).
 
     On May 30, 1997, as part of the acquisition of HiFi Buys, the Company
entered into a subordinated debt financing with the Seller, and issued a
$1,200,000 subordinated term note to the Seller, with principal payments made in
36 equal installments monthly. The unpaid principal balance bears an annual
interest rate of 9.5%. At September 30, 1997 and March 31, 1998, the unpaid
balance on this note was $1,100,000 and $900,000, respectively. 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 11). The notes bear
an annual interest rate of 12% on the unpaid principal balance. Principal
payments under the notes are $5,000,000 due on May 30 of 2002, 2003, and 2004.
The notes may be prepaid in whole or in part at any time. The detachable
warrants issued with the notes are exercisable for up to 629,566 shares of the
Company's common stock, with an exercise price of $.01 per share. Because these
warrants had a fair value of $325,383, such discount was recorded on the debt.
The discount will accrete over the term of the debt.
                                      F-13
<PAGE>   73
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
                  AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
 
6.  DEBT (CONTINUED)
     Scheduled maturities under long-term debt, excluding the revolving term
bank loan, at March 31, 1998 were as follows:
 
<TABLE>
<S>                                                           <C>
Six months ended September 30, 1998.........................  $   200,000
Year ended September 30, 1999...............................    1,400,000
Year ended September 30, 2000...............................      300,000
Year ended September 30, 2001...............................           --
Year ended September 30, 2002...............................    5,000,000
Thereafter..................................................   10,000,000
                                                              -----------
          Total.............................................  $16,900,000
                                                              ===========
</TABLE>
 
7.  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, 1995, 1996 and 1997. The Company's contribution
expense was $75,000, $75,000 and $100,000 for the years ended September 30,
1995, 1996 and 1997, respectively. The Company's contribution expense for the
six months ended March 31, 1998 was $75,000.
 
8.  COMMITMENTS AND CONTINGENCIES
 
     The Company leases all of its stores, installation centers, warehouses and
administrative facilities under operating leases. The lives of these leases
range from 5 to 20 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 six months ended March 31, 1998 was $4,332,171. Rent expense for
the years ended September 30, 1995, 1996 and 1997 was $2,054,250, $3,163,095 and
$5,978,819, respectively. Percentage rent expense was $53,657 for the six months
ended March 31, 1998. Percentage rent expense was $82,379, $64,964 and $47,243
for the years ended September 30, 1995, 1996 and 1997, respectively.
 
     Future minimum rental commitments on operating leases as of March 31, 1998
are as follows:
 
<TABLE>
<S>                                                           <C>
Six months ended September 30, 1998.........................  $ 4,177,508
Year ended September 30, 1999...............................    8,118,044
Year ended September 30, 2000...............................    7,931,735
Year ended September 30, 2001...............................    7,601,751
Year ended September 30, 2002...............................    7,188,791
Thereafter..................................................   41,903,750
                                                              -----------
          Total.............................................  $76,921,579
                                                              ===========
</TABLE>
 
                                      F-14
<PAGE>   74
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
                  AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
 
8.  COMMITMENTS AND CONTINGENCIES (CONTINUED)
     On March 25, 1998 the Company entered into a purchase and sale agreement
for a facility in Massachusetts that will serve as the corporate headquarters,
service center and distribution center in Massachusetts. The Company expects the
purchase price and related building improvements to be approximately $5.3
million, and expects to finance the purchase with a mortgage of $4 million.
 
     Effective upon the consummation of the offering contemplated in this
Prospectus, the Company will enter 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 up to
an amount equal three times annual base salary.
 
9.  INCOME TAXES
 
     The provision (benefit) for income taxes under SFAS No. 109 consisted of
the following:
 
<TABLE>
<CAPTION>
                                                                             SIX MONTHS ENDED
                                           YEAR ENDED SEPTEMBER 30,              MARCH 31,
                                       ---------------------------------   ---------------------
                                         1995         1996        1997       1997        1998
                                       ---------   -----------   -------   --------   ----------
                                                                                (UNAUDITED)
<S>                                    <C>         <C>           <C>       <C>        <C>
Current:
  Federal............................  $      --   $   563,777   $21,821   $654,881   $2,322,446
  State..............................         --       160,195     6,101    162,773      657,499
                                       ---------   -----------   -------   --------   ----------
                                              --       723,972    27,922    817,654    2,979,945
Deferred:
  Current deferral...................   (173,498)     (176,615)   71,040     58,683     (104,747)
  Tax rate increase on temporary
    differences resulting from the
    revocation of the S Corporation
    election.........................         --    (1,000,805)       --         --           --
                                       ---------   -----------   -------   --------   ----------
                                       $(173,498)  $  (453,448)  $98,962   $876,337   $2,875,198
                                       =========   ===========   =======   ========   ==========
</TABLE>
 
                                      F-15
<PAGE>   75
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
                  AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
 
9.  INCOME TAXES (CONTINUED)
     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,          MARCH 31,
                                              -------------------------   -----------
                                                 1996          1997          1998
                                              -----------   -----------   -----------
                                                                          (UNAUDITED)
<S>                                           <C>           <C>           <C>
Accruals and reserves.......................  $   395,971   $   574,272   $   706,751
Deferred revenue............................      200,483       646,209       569,269
                                              -----------   -----------   -----------
Net deferred tax assets -- current..........      596,454     1,220,481     1,276,020
                                              -----------   -----------   -----------
Deferred rent...............................      883,344     1,036,466     1,143,208
Depreciation................................      824,699       854,091     1,075,091
Deferred revenue............................      278,521       931,364       665,999
Amortization and other......................   (1,232,100)   (2,762,524)   (2,775,693)
                                              -----------   -----------   -----------
Net deferred tax assets -- long-term........      754,464        59,397       108,605
                                              -----------   -----------   -----------
Total net deferred tax assets...............  $ 1,350,918   $ 1,279,878   $ 1,384,625
                                              ===========   ===========   ===========
</TABLE>
 
     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, 1996, September 30, 1997 and March 31, 1998. A
reconciliation between the statutory and effective income tax rates is as
follows:
 
<TABLE>
<CAPTION>
                                    YEAR ENDED           SIX MONTHS ENDED
                                   SEPTEMBER 30,            MARCH 31,
                                   -------------    --------------------------
                                   1996     1997       1997           1998
                                   -----    ----    -----------    -----------
                                                    (UNAUDITED)    (UNAUDITED)
<S>                                <C>      <C>     <C>            <C>
Statutory income tax rate......     34.0%   34.0%      34.0%          34.0%
State income taxes net of
  federal benefit..............      5.8%    5.8%       5.8%           5.8%
Change in tax status...........    (74.9)%   0.0%       0.0%           0.0%
Other..........................      1.2%    0.5%       0.5%           0.2%
                                   -----    ----       ----           ----
Effective income tax rate......    (33.9)%  40.3%      40.3%          40.0%
                                   =====    ====       ====           ====
</TABLE>
 
     The Company was taxed under Subchapter S of the Internal Revenue Code for
1995. The significant items included in the reconciliation between the statutory
and effective state income tax rate for that year were primarily attributable to
changes in the valuation allowance.
 
10.  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 statements of
income since the acquisition date. The allocation of the purchase price is final
and resulted in goodwill of $5,600,900, which is being amortized over
twenty-five years
 
                                      F-16
<PAGE>   76
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
                  AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
 
10.  ACQUISITIONS (CONTINUED)
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 31, 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 statement of
income since the acquisition date. The allocation of the purchase price is final
and resulted in goodwill of $15,312,500, 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 (see Note
  11).................................................   19,539,800
                                                        -----------
  Goodwill............................................  $15,312,500
                                                        ===========
</TABLE>
 
     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         636,698
Diluted Earnings per share...........          0.28            0.13
</TABLE>
 
     Accumulated amortization of goodwill was $899,000 for the six months ended
March 31, 1998. Accumulated amortization of goodwill was approximately $64,000
and $476,000 for the years ended September 30, 1996 and 1997, respectively.
 
                                      F-17
<PAGE>   77
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
                  AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
 
11.  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 -- The holders of
preferred stock are entitled to significant additional rights beyond those
granted to the common stock. Some of these rights are as follows:
 
          Voting Rights -- Each share of preferred stock is entitled to one vote
     for each share of common stock into which it is then convertible.
 
          Representative Directors -- Holders of a majority of the shares of
     preferred stock and Investor Common Stock (as defined in the Company's
     Certificate of Incorporation (the "Charter"), voting separately as a class,
     are entitled to elect two members of the Board of Directors. Holders of
     preferred stock are also entitled to elect additional members of the Board
     of Directors under certain circumstances.
 
          Conversion Provisions -- All shares of preferred stock are
     automatically convertible into 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 September 30, 1997 and March 31, 1998, the conversion
     price under most circumstances of a share of Series A Preferred Stock is
     $6.46. The conversion price of a share of Series B Redeemable Convertible
     Preferred Stock (the "Series B Preferred Stock") at September 30, 1997 and
     March 31, 1998 is $8.08.
 
          Dividends -- No dividends shall be paid on the common stock unless the
     shares of preferred stock receive the same dividends that such shares 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 Preferred
     Stock and Series B Preferred Stock is 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 and/or $8.08 for each
     share of Series A Preferred Stock and Series B Preferred Stock,
     respectively, plus (b) an amount in the form of a dividend equal to a 15%
     rate of return on each holder's investment compounded annually from the
     date of original issuance.
 
          Redemption Provisions -- Preferred Stock is redeemable if (a) such
     redemption would not violate any of the existing subordination agreements
     between the Company and its Senior Lender, (as such term is defined in the
     Charter), and (b) the Company has the consent of the holders of the 1997
     Notes. Mandatory redemption of 6.5% of the total outstanding shares of
     Preferred Stock, is required to occur on the last day of March, June,
     September and December commencing in 2001. The redemption price is equal to
     $6.46 for each share of Series A Preferred Stock and $8.08 for each share
     of Series B Preferred Stock, plus an amount in the form of a dividend equal
     to a 15% rate of return on such holder's investment compounded annually and
     calculated from the original issue date.
 
          Reserved Shares -- As of September 30, 1997, and March 31, 1998 there
     were 2,566,561 shares of common stock reserved for issuance upon conversion
     of the preferred stock, 855,400 shares of common stock reserved for
     issuance upon the exercise of options granted under the
                                      F-18
<PAGE>   78
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
                  AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
 
11.  STOCKHOLDERS' EQUITY (DEFICIT) AND REDEEMABLE CONVERTIBLE PREFERRED STOCK
(CONTINUED)
     Company's 1995 Stock Option Plan, and 771,664 shares 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 stockholders for net proceeds of $5,469,108 from private venture
capital sources and related parties, for $1,550,017 in cash and the Redemption
Note. The terms of the subordinated debt also require that upon the closing of
an initial public offering by the Company 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 $814,000 at the
estimated time of the effective date of this offering). Also on November 28,
1995, the Company authorized and issued 4,000,000 and 911,781 shares,
respectively, of Series A Preferred Stock.
 
     On January 16, 1996, the Board of Directors authorized a 10-for-1 stock
split. All share data in these financial statements reflect the impact of the
split.
 
     On May 13, 1996, the Company issued an additional 788,349 shares of Series
A 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 37,132 shares of common stock to certain
stockholders who participated in a Warrant and Debenture Commitment relating to
a Bridge Loan financing (see Note 6). 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 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 March 31, 1998.
 
     On May 30, 1997, the Company issued 866,425 shares of Series B Preferred
Stock for net proceeds to the Company of $6,837,385 in order to partially
finance the acquisition of HiFi Buys. Series B Preferred Stock is subject to
essentially the same terms and conditions as the Series A Preferred Stock,
except that the conversion price of Series B Preferred Stock 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 are
outstanding as of September 30, 1997 and March 31, 1998. These warrants are
exercisable five years from the date of issue, or earlier if the Company
completes an initial public offering with net cash proceeds in excess of $15
million.
 
     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. The warrants have a term of (a) ten years from the date of issuance,
or (b) five years from the date of a qualified initial public offering. The
Company hired an independent appraiser to determine the fair value of the
warrants as
 
                                      F-19
<PAGE>   79
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
                  AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
 
11.  STOCKHOLDERS' EQUITY (DEFICIT) AND REDEEMABLE CONVERTIBLE PREFERRED STOCK
(CONTINUED)
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, 1997 and
March 31, 1998.
 
     The weighted average exercise price for all warrants outstanding at
September 30, 1997 and March 31, 1998 is $1.42. The following table summarizes
information regarding stock warrants outstanding at March 31, 1998:
 
<TABLE>
<CAPTION>
                                                     NUMBER
                                                   OUTSTANDING        WEIGHTED
                    AVERAGE                      AND EXERCISABLE      AVERAGE
                   EXERCISE                       AT MARCH 31,       REMAINING
                    PRICES                            1998          LIFE (YEARS)
                   --------                      ---------------    ------------
<S>                                              <C>                <C>
 $0.01.........................................      629,566            9.20
  6.46.........................................       37,138            8.90
  8.08.........................................      104,960            9.20
                                                     -------            ----
                                                     771,664            9.20
                                                     =======
</TABLE>
 
     COMMON STOCK INCENTIVE PLAN -- In November of 1995, the Company implemented
the 1995 Stock Option Plan, under which incentive and nonqualified stock options
may be granted to management, key 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 $6.46 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 617,479 shares were exercisable under the
1995 Stock Option Plan at September 30, 1996 and 1997 and March 31, 1998,
respectively. There were 26,745, 30,438 and 10,431 shares available for future
grants at September 30, 1996 and 1997 and March 31, 1998, respectively.
 
                                      F-20
<PAGE>   80
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
                  AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
 
11.  STOCKHOLDERS' EQUITY (DEFICIT) AND REDEEMABLE CONVERTIBLE PREFERRED STOCK
(CONTINUED)
     The following summarizes transactions under the 1995 Stock Option Plan:
 
<TABLE>
<CAPTION>
                                                                     WEIGHTED
                                                                     AVERAGE
                                       NUMBER        PER SHARE       EXERCISE
                                      OF 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...........................     29,604        $7.24          $7.24
  Exercised.........................
  Canceled..........................     10,282    $0.61 to $7.24     $3.24
                                      ---------
March 31, 1998 (unaudited)..........    845,059    $0.61 to $8.08     $3.97
                                      =========
</TABLE>
 
     The following summarizes information about all stock options outstanding at
March 31, 1998 (unaudited):
 
<TABLE>
<CAPTION>
                                                        WEIGHTED       NUMBER OF
                                         NUMBER         AVERAGE         OPTIONS
                                      OUTSTANDING      REMAINING      EXERCISABLE
EXERCISE                              AT MARCH 31,    CONTRACTUAL     AT MARCH 31,
PRICES                                    1998        LIFE (YEARS)        1998
--------                              ------------    ------------    ------------
<S>                                   <C>             <C>             <C>
$0.61...............................     215,676           7.9          172,157
 0.67...............................     111,878           8.0          111,878
 1.52...............................     107,584           7.8          107,584
 6.46...............................     133,023           8.2           93,562
 7.10...............................      44,148           8.3           44,148
 7.24...............................     179,860           9.4           35,260
 8.08...............................      52,890           9.4           52,890
                                       ---------                        -------
Total...............................     845,059          8.38          617,479
                                       =========                        =======
</TABLE>
 
     The weighted average exercise price of all options outstanding as of
September 30, 1997 and March 31, 1998 is $3.72 and $3.97, 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 1995 Stock Option Plan was
 
                                      F-21
<PAGE>   81
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
                  AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
 
11.  STOCKHOLDERS' EQUITY (DEFICIT) AND REDEEMABLE CONVERTIBLE PREFERRED STOCK
(CONTINUED)
estimated on the date of grant using the Black-Scholes option-pricing model. Key
assumptions used to apply this pricing model were as follows:
 
<TABLE>
<CAPTION>
                                                                             SIX MONTHS
                                                           SEPTEMBER 30,       ENDED
                                                           --------------    MARCH 31,
                                                           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         3.0
Expected volatility of underlying stock..................  54.5%    54.5%       54.5%
</TABLE>
 
     Had compensation cost for stock option grants during fiscal 1996, fiscal
1997 and the six months ended March 31, 1998 been determined under the
provisions of SFAS No. 123, the Company's net income would have been
approximately $1,763,000, $106,700 and $4,252,000, respectively. Pro forma
diluted earnings per share would have been $0.02 and $0.86 for the year ended
September 30, 1997 and the six months ended March 31, 1998, respectively.
 
12.  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 approximately $21,000 a month
during the first year after the commencement date of the agreement, and
approximately $4,200 a month during years three and four of the Consulting
Period plus out-of-pocket expenses. Aggregate payments under the agreement are
expensed on a straight-line basis over the Consulting Period.
 
     The Company also entered into certain lease agreements for three facilities
in Pennsylvania with an affiliate of BMFO. Aggregate yearly payments under these
agreements total approximately $670,000.
 
                                      F-22
<PAGE>   82
 
             PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                  (UNAUDITED)
 
     The following Pro Forma Condensed Consolidated Financial Information should
be read in conjunction with the historical consolidated financial statements and
the notes thereto included elsewhere in this Prospectus.
 
     The Pro Forma Condensed Consolidated Statement of Operations for the year
ended September 30, 1997 reflects financial information with respect to the
Company's acquisition of HiFi Buys on May 30, 1997, which has been accounted for
under the purchase method of accounting. The Pro Forma Condensed Consolidated
Statement of Operations for the year ended September 30, 1997 was prepared as if
the acquisition of HiFi Buys occurred on October 1, 1996, the first day of
fiscal 1997.
 
     The Pro Forma Condensed Consolidated Statements of Operations for fiscal
1997 do not include any potential operational costs savings, with the exception
of the reduction of the workforce of HiFi Buys that took place at the time of
the acquisition. The Company believes that it may be able to further reduce
operational costs as it consolidates the HiFi Buys operations into the Company.
There can be no assurance that the Company will be successful in effecting any
such costs savings.
 
     The Pro Forma Condensed Consolidated Financial Information is unaudited and
is not necessarily indicative of the consolidated financial position and results
which actually would have occurred if the acquisition of HiFi Buys had been
consummated as of the date presented, nor does it purport to present the
financial position or results of operations of the Company for future periods.
 
                                      F-23
<PAGE>   83
 
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
                   PRO FORMA CONDENSED CONSOLIDATED STATEMENT
                                 OF OPERATIONS
                     FOR THE YEAR ENDED SEPTEMBER 30, 1997
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                            HIFI BUYS
                           COMPANY      EIGHT MONTHS ENDED                    PRO FORMA
                          HISTORICAL         5/30/97           SUBTOTAL      ADJUSTMENTS        PRO FORMA
                         ------------   ------------------   -------------   -----------      -------------
<S>                      <C>            <C>                  <C>             <C>              <C>
Total Revenue..........  $132,525,037      $ 63,937,649      $ 196,462,686   $        --      $ 196,462,686
Cost Of Sales..........   (86,314,918)      (45,168,763)      (131,483,681)                    (131,483,681)
                         ------------      ------------      -------------                    -------------
Gross Profit...........    46,210,119        18,768,886         64,979,005                       64,979,005
                                                                              (1,574,323)(1)
Operating Expenses.....    44,157,214        17,842,958         62,000,172       408,333(2)      60,834,183
                         ------------      ------------      -------------                    -------------
Income (Loss) From
  Operations...........     2,052,905           925,928          2,978,833                        4,144,822
                                                                               1,276,000(3)
Interest Expense.......     1,807,660           437,773          2,245,433      (437,773)(4)      3,083,660
                         ------------      ------------      -------------                    -------------
Income (loss) before
  income taxes.........       245,245           488,155            733,400                        1,061,162
Income tax expense
  (benefit)............        98,962                 0             98,962       325,503(5)         424,465
                         ------------      ------------      -------------   -----------      -------------
Net income.............  $    146,283      $    488,155      $     634,438   $    (2,260)     $     636,697
                         ============      ============      =============   ===========      =============
Pro Forma
  Information..........
Basic Earnings per
  Share................          0.04                                                                  0.18
Weighted Average
  Shares,
  Outstanding..........     3,622,832                                                             3,622,832
Diluted Earnings per
  Share................          0.03                                                                  0.13
Weighted Average Shares
  and Common
  Equivalents
  Outstanding..........     4,966,353                                                             4,966,353
</TABLE>
 
                                      F-24
<PAGE>   84
 
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
              NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT
                                 OF OPERATIONS
                     FOR THE YEAR ENDED SEPTEMBER 30, 1997
                                  (UNAUDITED)
 
(1) To record the prorated eight-month savings associated with the closing down
    of the corporate offices of HiFi Buys. This resulted in the immediate
    termination of 43 positions, and as part of the purchase and sale agreement
    severance costs for these positions were borne by the seller.
 
(2) To record the amortization of goodwill associated with the acquisition of
    HiFi Buys for a full fiscal year. See Note 10 to the Consolidated Financial
    Statements.
 
(3) To record interest expense for the $15,000,000 senior subordinated
    promissory notes and the $1,200,000 subordinated term note for the full
    fiscal year. Both notes were issued in connection with the acquisition of
    HiFi Buys. See Note 6 to the Consolidated Financial Statements.
 
(4) To eliminate interest expense recorded by HiFi Buys associated with (i) a
    HiFi Buys mortgage not assumed as part of the HiFi Buys acquisition and (ii)
    a line of credit that was replaced with the financing mentioned in (2).
 
(5) To reflect an effective tax rate of 40%, representing management's estimate
    of the effective tax rate had HiFi Buys been a C corporation for the period
    presented.
 
                                      F-25
<PAGE>   85
 
                          INDEPENDENT AUDITORS' REPORT
 
Board of Directors and Stockholders
HiFi Buys Incorporated
 
     We have audited the accompanying statements of operations and cash flows of
HiFi Buys Incorporated (the "Company") for the years ended December 31, 1996,
1995 and 1994. 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 results of operations and cash flows of the Company for the years
ended December 31, 1996, 1995 and 1994 in conformity with generally accepted
accounting principles.
 
/s/DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 7, 1997
 
                                      F-26
<PAGE>   86
 
                             HIFI BUYS INCORPORATED
 
                            STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                         THREE MONTHS ENDED
                                   YEARS ENDED DECEMBER 31,                   MARCH 31,
                            ---------------------------------------   -------------------------
                               1996          1995          1994          1997          1996
                            -----------   -----------   -----------   -----------   -----------
                                                                      (UNAUDITED)   (UNAUDITED)
<S>                         <C>           <C>           <C>           <C>           <C>
NET SALES.................  $93,227,100   $89,452,900   $78,305,300   $20,853,581   $21,491,067
COST OF GOODS SOLD........   67,368,800    64,608,800    56,547,400    14,619,834    15,239,827
                            -----------   -----------   -----------   -----------   -----------
                             25,858,300    24,844,100    21,757,900     6,233,747     6,251,240
OPERATING EXPENSES:
  Selling, general, and
     administrative.......   23,367,600    22,007,600    19,374,500     5,896,816     5,735,997
  Depreciation and
     amortization.........      991,900       972,100       870,900       269,894       215,771
                            -----------   -----------   -----------   -----------   -----------
                             24,359,500    22,979,700    20,245,400     6,166,710     5,951,768
                            -----------   -----------   -----------   -----------   -----------
OPERATING INCOME..........    1,498,800     1,864,400     1,512,500        67,037       299,472
INTEREST EXPENSE..........      519,600       491,500       352,100       145,265       115,671
                            -----------   -----------   -----------   -----------   -----------
NET INCOME (LOSS).........  $   979,200   $ 1,372,900   $ 1,160,400   $   (78,228)  $   183,801
                            ===========   ===========   ===========   ===========   ===========
</TABLE>
 
                See notes to consolidated financial statements.
                                      F-27
<PAGE>   87
 
                             HIFI BUYS INCORPORATED
 
                            STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                                          THREE MONTHS ENDED
                                                    YEARS ENDED DECEMBER 31,                   MARCH 31,
                                             ---------------------------------------   -------------------------
                                                1996          1995          1994          1997          1996
                                             -----------   -----------   -----------   -----------   -----------
                                                                                       (UNAUDITED)   (UNAUDITED)
<S>                                          <C>           <C>           <C>           <C>           <C>
OPERATING ACTIVITIES:
  Net income (loss)........................  $   979,200   $ 1,372,900   $ 1,160,400   $  (78,228)   $   183,801
  Adjustments to reconcile net income to
    net cash provided by operating
    activities:
    Depreciation and amortization..........      991,900       972,100       870,900      269,894        215,771
    Deferred product warranty revenues and
      related costs, net...................      356,700       304,600        78,400       86,989         75,798
    Gain on the sale of property and
      equipment............................                    (80,300)      (19,500)          --             --
    Change in operating assets and
      liabilities:
      Accounts receivable, net.............      201,200      (276,100)      (19,400)    (260,081)      (511,245)
      Inventories..........................   (1,568,100)      638,500    (2,086,600)   2,412,644      1,374,132
      Prepaid expenses and other assets....     (103,900)      (84,800)      (73,400)     127,159       (157,674)
      Accounts payable and accrued
        expenses...........................    2,714,100    (2,544,700)    2,238,100   (5,879,764)    (2,439,064)
      Customer deposits....................     (215,900)      318,800       107,000      (13,200)      (353,673)
                                             -----------   -----------   -----------   -----------   -----------
        Net cash provided by operating
          activities.......................    3,355,200       621,000     2,255,900   (3,334,587)    (1,612,154)
INVESTING ACTIVITIES:
  Purchase of property and equipment.......   (3,632,100)   (1,969,000)     (549,000)     (80,118)      (795,584)
  Proceeds from sale of property and
    equipment..............................           --       141,900        60,100           --             --
  Sale (purchase) of short-term
    investment.............................           --       600,000      (600,000)          --             --
                                             -----------   -----------   -----------   -----------   -----------
        Net cash used in investing
          activities.......................   (3,632,100)   (1,227,100)   (1,088,900)     (80,118)      (795,584)
FINANCING ACTIVITIES:
  Net borrowings (repayments) on line of
    credit.................................     (770,400)      957,600    (1,689,000)          --             --
  Proceeds from long-term borrowings.......    2,945,000       566,300       600,000    4,539,122      3,346,614
  Payments on long-term borrowings.........   (1,089,000)      (67,500)      (67,200)          --             --
  Payment for repurchase of common stock...           --      (105,000)           --           --             --
  Proceeds from the issuance of common
    stock..................................           --            --       500,000           --             --
  Dividends paid...........................     (854,800)     (721,100)     (516,500)    (701,947)      (626,027)
                                             -----------   -----------   -----------   -----------   -----------
        Net cash provided by (used in)
          financing activities.............      230,800       630,300    (1,172,700)   3,837,175      2,720,587
NET (DECREASE) INCREASE IN CASH............      (46,100)       24,200        (5,700)     422,470        312,849
CASH:
  Beginning of year........................       62,900        38,700        44,400       16,800         62,900
                                             -----------   -----------   -----------   -----------   -----------
  End of year..............................  $    16,800   $    62,900   $    38,700   $  439,270    $   375,749
                                             ===========   ===========   ===========   ===========   ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
  INFORMATION:
  Interest paid during the year (net of
    amounts capitalized)...................  $   456,200   $   465,500   $   353,200   $  145,265    $   115,670
                                             ===========   ===========   ===========   ===========   ===========
  Equipment purchased through note
    payable................................  $        --   $   354,600   $        --   $       --    $        --
                                             ===========   ===========   ===========   ===========   ===========
  Common stock repurchased through note
    payable................................  $        --   $   102,800   $        --   $       --    $        --
                                             ===========   ===========   ===========   ===========   ===========
</TABLE>
 
                See notes to consolidated financial statements.
                                      F-28
<PAGE>   88
 
                             HIFI BUYS INCORPORATED
 
                         NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 AND THE THREE-MONTH PERIODS
                         ENDED MARCH 31, 1997 AND 1996
  (UNAUDITED WITH RESPECT TO THE THREE-MONTH PERIODS ENDED MARCH 31, 1997 AND
                                     1996)
 
1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     HiFi Buys Incorporated (the "Company") sells consumer electronics through
its ten retail stores in Georgia. Its significant accounting policies are:
 
     INVENTORIES -- Inventories are stated at the lower of average cost or
market. Cost includes certain warehousing and distribution costs which have been
capitalized in inventories.
 
     PROPERTY AND EQUIPMENT -- Property and equipment is recorded at cost.
Depreciation is computed using accelerated methods based on the estimated useful
lives of the related assets. Amortization of leasehold improvements is computed
on the straight-line method over the shorter of the estimated useful lives or
the lease terms.
 
     REVENUE RECOGNITION -- Revenue from merchandise sales is recognized upon
shipment or delivery of goods. Service revenue is recognized when the repair
service is completed.
 
     COST OF GOODS SOLD -- Cost of goods sold represents the cost of the
inventory as well as substantially all warehousing and distribution costs.
 
     INCOME TAXES -- The Company elected to be treated as an S Corporation for
federal and state income tax purposes.
 
     STORE OPENING COSTS -- Costs associated with opening new stores are
expensed as incurred.
 
     INTEREST -- In 1996, approximately $61,600 of interest incurred during the
construction of a new store was capitalized into the cost basis of the
constructed property. No interest costs were capitalized in 1995 or 1994.
 
     USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
 
     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.
 
2.  ACCOUNTING FOR PRODUCT WARRANTY REVENUES AND RELATED COSTS
 
     Since 1988, the Company has offered and sold extended warranty contracts
(the "Contracts") under a Company-administered and self-insured program. The
terms of these Contracts generally extend from one to five years from their
purchase dates. Revenues from Contract sales are deferred and amortized into
income on a straight-line basis over the lives of the related Contracts (the
average life of Contracts sold by the Company is approximately four years).
Certain costs of such sales, principally sales commissions, are deferred and
amortized similarly; costs for product repairs are expensed as incurred.
 
                                      F-29
<PAGE>   89
                             HIFI BUYS INCORPORATED
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 AND THE THREE-MONTH PERIODS
                         ENDED MARCH 31, 1997 AND 1996
  (UNAUDITED WITH RESPECT TO THE THREE-MONTH PERIODS ENDED MARCH 31, 1997 AND
                                     1996)
 
     An analysis of product warranty sales and the associated product repair
expense is as follows:
 
<TABLE>
<CAPTION>
                                                                           THREE MONTHS ENDED
                                       YEARS ENDED DECEMBER 31,                 MARCH 31,
                                 ------------------------------------   -------------------------
                                    1996         1995         1994         1997          1996
                                 ----------   ----------   ----------   -----------   -----------
                                                                        (UNAUDITED)   (UNAUDITED)
<S>                              <C>          <C>          <C>          <C>           <C>
Product warranty:
  Contracts sold...............  $1,908,800   $1,625,100   $1,456,400    $474,000      $436,000
                                 ==========   ==========   ==========    ========      ========
  Revenue recognized...........  $1,535,600   $1,372,200   $1,410,300    $410,200      $351,000
                                 ==========   ==========   ==========    ========      ========
Related costs of product
  warranty sales:
  Deferred.....................  $  233,300   $  150,700   $  166,400    $ 52,300      $ 53,300
                                 ==========   ==========   ==========    ========      ========
  Expensed.....................  $  216,800   $  202,500   $  198,800    $ 58,700      $ 49,600
                                 ==========   ==========   ==========    ========      ========
Product repair expense.........  $  377,600   $  230,200   $  224,000    $130,600      $116,800
                                 ==========   ==========   ==========    ========      ========
</TABLE>
 
3.  INCOME TAXES
 
     The Company has elected to be treated as an S Corporation under Section
1362(a) of the Internal Revenue Code and to have its income taxed directly to
its stockholders. As a result of this election, the statements of operations for
the years ended December 31, 1996, 1995 and 1994 do not include a provision for
income taxes. Had this election not been made, the Company's net income in 1996,
1995 and 1994 would have been reduced by approximately $391,700, $549,200 and
$464,200, respectively, for federal and state income taxes. Similarly, had this
selection not been made, net income (loss) in the three months ended March 31,
1997 and 1996 would have been (increased)/reduced by approximately ($31,291) and
73,520, respectively (unaudited).
 
4.  COMMITMENTS
 
     The Company leases office, warehouse, and retail space under various
noncancelable operating leases. Total annual minimum rental payments at December
31, 1996 for all noncancelable operating leases with terms in excess of one year
are as follows:
 
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S>                                                     <C>
1997..................................................  $ 2,483,300
1998..................................................    2,252,200
1999..................................................    2,235,000
2000..................................................    2,258,400
2001..................................................    2,067,900
Thereafter............................................   11,022,200
                                                        -----------
                                                        $22,319,000
                                                        ===========
</TABLE>
 
     Under a sublease agreement for certain retail space, the Company will
receive approximately $82,800 in annual minimum rental payments through 2003.
 
                                      F-30
<PAGE>   90
                             HIFI BUYS INCORPORATED
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 AND THE THREE-MONTH PERIODS
                         ENDED MARCH 31, 1997 AND 1996
  (UNAUDITED WITH RESPECT TO THE THREE-MONTH PERIODS ENDED MARCH 31, 1997 AND
                                     1996)
 
     Rent expense consisted of the following:
 
<TABLE>
<CAPTION>
                                                                           THREE MONTHS ENDED
                                       YEARS ENDED DECEMBER 31,                 MARCH 31,
                                 ------------------------------------   -------------------------
                                    1996         1995         1994         1997          1996
                                 ----------   ----------   ----------   -----------   -----------
                                                                        (UNAUDITED)   (UNAUDITED)
<S>                              <C>          <C>          <C>          <C>           <C>
Minimum rent...................  $2,633,300   $2,567,400   $2,096,400    $649,800      $658,300
Contingent rent................          --       21,700       39,400          --            --
Sublease income................     (82,800)     (82,800)     (82,800)    (20,700)      (20,700)
                                 ----------   ----------   ----------    --------      --------
          Total rent expense...  $2,550,500   $2,506,300   $2,053,000    $629,100      $637,600
                                 ==========   ==========   ==========    ========      ========
</TABLE>
 
     Most leases provide for additional payments of real estate taxes and other
operating expenses applicable to the property. Such expenses are recorded as a
component of minimum rent.
 
5.  EMPLOYEE BENEFIT PLAN
 
     The Company maintains a retirement plan (the "Plan") covering substantially
all of its employees. Employees who are over the age of 21 and who have
completed their first year of service with the Company are eligible to be
admitted to the Plan during the open enrollment period. The Plan provides for a
discretionary profit sharing contribution as well as discretionary matching of
participant contributions by the Company. Participants are fully vested in their
contributions to the Plan and become 40% and 100% vested in the Company's profit
sharing and matching contributions after four and five years, respectively. The
Company's profit sharing and matching contributions were $117,900, $92,200 and
$68,700 for the years ended December 31, 1996, 1995 and 1994, respectively and
approximately $30,000 and $29,500 for the three months ended March 31, 1997 and
1996, respectively.
 
6.  SUBSEQUENT EVENT
 
     In February 1997, the Company entered into a nonbinding letter of intent
for the sale of substantially all of its assets.
 
                                      F-31
<PAGE>   91
 
                          INDEPENDENT AUDITORS' REPORT
 
Board of Directors and Stockholders
Bryn Mawr Radio and Television Centre, Inc.
 
     We have audited the combined statements of operations and cash flows of
Bryn Mawr Radio and Television Centre, Inc. and affiliate (the "Company") for
the year ended August 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these statements based on our audit.
 
     We conducted our audit 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 audit provide a reasonable basis for our opinion.
 
     In our opinion, such financial statements present fairly, in all material
respects, the combined results of operations and combined cash flows of the
Company for the year ended August 31, 1995 in conformity with generally accepted
accounting principles.
 
     As discussed in Note 2 to the combined financial statements, on May 9,
1996, the Company sold substantially all of its assets to an unrelated party.
 
/s/ DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
October 20, 1995 (May 9, 1996 as to Note 2)
 
                                      F-32
<PAGE>   92
 
           BRYN MAWR RADIO AND TELEVISION CENTRE, INC. AND AFFILIATE
 
                        COMBINED STATEMENT OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                   SIX MONTHS          SIX MONTHS
                                                  YEAR ENDED          ENDED               ENDED
                                                  AUGUST 31,      FEBRUARY 29,        FEBRUARY 28,
                                                     1995             1996                1995
                                                  -----------   -----------------   -----------------
                                                                   (UNAUDITED)         (UNAUDITED)
<S>                                               <C>           <C>                 <C>
NET SALES.......................................  $29,020,487      $19,098,609         $17,712,637
COST OF SALES...................................   18,631,960       12,370,459          11,410,268
                                                  -----------      -----------         -----------
GROSS PROFIT....................................   10,388,527        6,728,150           6,302,369
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES....   10,945,401        5,912,217           5,818,914
OTHER REVENUE...................................      255,882           81,683             125,456
                                                  -----------      -----------         -----------
(LOSS) INCOME FROM OPERATIONS...................     (300,992)         897,616             608,911
INTEREST EXPENSE ON DEBT AND CAPITAL LEASES.....      300,989          310,640             146,474
INCOME TAXES (STATE)............................        4,000               --                  --
                                                  -----------      -----------         -----------
NET (LOSS) INCOME...............................  $  (605,981)     $   586,976             462,437
                                                  ===========      ===========         ===========
</TABLE>
 
                See notes to consolidated financial statements.
                                      F-33
<PAGE>   93
 
           BRYN MAWR RADIO AND TELEVISION CENTRE, INC. AND AFFILIATE
 
                        COMBINED STATEMENT OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                            YEAR ENDED       SIX MONTHS ENDED     SIX MONTHS ENDED
                                          AUGUST 31, 1995    FEBRUARY 29, 1996    FEBRUARY 28, 1995
                                          ---------------    -----------------    -----------------
                                                                (UNAUDITED)          (UNAUDITED)
<S>                                       <C>                <C>                  <C>
OPERATING ACTIVITIES:
  Net (loss) income.....................    $  (605,981)        $   586,976          $   462,437
  Adjustments to reconcile net (loss)
     income to net cash (used in)
     provided by operating activities:
     Depreciation and amortization......        610,481             485,891              255,082
  Changes in assets and liabilities
     which (used) provided cash:
     Accounts receivable................       (180,712)           (182,870)            (167,453)
     Inventories........................        101,914          (1,221,898)            (778,459)
     Prepaid expenses and other
       assets...........................         25,747            (114,473)            (283,681)
     Accounts payable and accrued
       expenses.........................       (557,335)          2,952,726            1,124,126
     Deferred revenue...................       (156,329)             46,156               (7,391)
     Customer deposits..................         90,128              70,171              121,553
                                            -----------         -----------          -----------
          Net cash (used in) provided by
            operating activities........       (672,087)          2,622,679              726,214
                                            -----------         -----------          -----------
INVESTING ACTIVITIES -- Acquisition of
  net property, plant and equipment.....     (6,776,579)         (3,273,258)          (3,742,066)
                                            -----------         -----------          -----------
FINANCING ACTIVITIES:
  Capital contributions.................        100,000                  --                   --
  Distribution to shareholders..........       (265,860)         (1,950,817)          (1,902,191)
  Principal payments on capital leases
     and term loans.....................       (245,451)           (122,726)            (110,453)
  Net prepayments of proceeds from bank
     line of credit.....................     (1,600,000)                 --                   --
  Net borrowings under revolving credit
     facility...........................      2,950,000                  --                   --
  Borrowings under term loan facility...      1,900,000           3,005,496            4,697,829
  Proceeds from construction loan
     agreements.........................      4,089,262                  --                   --
                                            -----------         -----------          -----------
          Net cash provided by financial
            activities..................      6,927,951             931,953            2,685,185
                                            -----------         -----------          -----------
NET (DECREASE) INCREASE IN CASH AND CASH
  EQUIVALENTS...........................       (520,715)            281,374             (330,667)
CASH AND CASH EQUIVALENTS, BEGINNING OF
  YEAR..................................        711,163             190,448              711,163
                                            -----------         -----------          -----------
CASH AND CASH EQUIVALENTS, END OF
  YEAR..................................    $   190,448             471,822              380,496
                                            ===========         ===========          ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  ITEMS:
  Cash paid during the year for:
     Interest...........................    $   300,989         $   373,057          $    70,125
                                            ===========         ===========          ===========
     Income taxes.......................    $    23,873         $        --          $        --
                                            ===========         ===========          ===========
</TABLE>
 
                  See notes to combined financial statements.
                                      F-34
<PAGE>   94
 
           BRYN MAWR RADIO AND TELEVISION CENTRE, INC. AND AFFILIATE
 
                     NOTES TO COMBINED FINANCIAL STATEMENTS
             YEAR ENDED AUGUST 31, 1995 AND SIX-MONTH PERIODS ENDED
                    FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
    (UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED FEBRUARY 29, 1996
                             AND FEBRUARY 28, 1995)
 
1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     BASIS OF PRESENTATION -- The financial statements are combined and include
the accounts of Bryn Mawr Radio and Television Centre, Inc. and BMS of Delaware,
Inc. (collectively, the "Company") which are under common ownership. All
significant balances and transactions between the companies have been
eliminated.
 
     BMS of Delaware, a Delaware Holding Company, was incorporated in 1991, and
its shareholders are the same as Bryn Mawr Radio and Television Centre, Inc.
 
     CASH AND CASH EQUIVALENTS -- The Company considers all highly liquid debt
instruments purchased with maturities of three months or less to be temporary
investments and cash equivalents for balance sheet and cash flow statement
purposes.
 
     INVENTORIES -- Inventories are stated at the lower of cost (average-cost
basis) or market.
 
     DEPRECIATION AND AMORTIZATION -- 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.
 
     OTHER ASSETS -- Goodwill and other acquisition costs are being amortized on
a straight-line basis over periods from six to ten years.
 
     DEFERRED REVENUE -- The Company sells 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 is deferred, and the
revenue is amortized on a straight-line basis over the contract period. All
costs related to the contracts are charged to expense when incurred.
 
     REVENUE RECOGNITION -- Revenue from merchandise sales is recognized upon
shipment or delivery of goods. Service revenue is recognized when the repair is
completed.
 
     INCOME TAXES -- Effective September 1, 1987, the shareholders elected to
have the Company taxed as an S Corporation for federal and certain state
corporate income tax purposes.
 
     STORE OPENING COSTS -- The costs of opening new stores are expensed as
incurred.
 
     CAPITAL LEASES -- The amount of amortization of assets recorded under
capital leases is included with depreciation expense.
 
     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.
 
2.  SUBSEQUENT EVENT
 
     On March 15, 1996, the Company entered into an agreement to sell
substantially all of the assets of the Company to an unrelated party. The
consummation of this transaction is expected to occur on or about May 9, 1996.
                                      F-35
<PAGE>   95
           BRYN MAWR RADIO AND TELEVISION CENTRE, INC. AND AFFILIATE
 
              NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
             YEAR ENDED AUGUST 31, 1995 AND SIX-MONTH PERIODS ENDED
                    FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
    (UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED FEBRUARY 29, 1996
                             AND FEBRUARY 28, 1995)
 
3.  DEFERRED REVENUE
 
     Extended warranty contract sales were approximately $531,000 in the year
ended August 31, 1995 and $375,000 and $337,000 in the six-month periods ended
February 29, 1996 and February 28, 1995, respectively. Amortization of the
deferred revenue was approximately $688,000 in the year ended August 31, 1995
and $324,000 and $292,000 in the six-month periods ended February 29, 1996 and
February 28, 1995, respectively. (See Note 1.)
 
4.  EMPLOYEE BENEFIT PLANS
 
     The Company has a qualified profit sharing plan covering eligible employees
which provides for contributions at the discretion of the Board of Directors and
also contains a 401(k) feature which provides for salary reduction and certain
employer-matching contributions. Profit sharing plan contributions were $20,000
for the year ended August 31, 1995 and $10,000 for each of the six-month periods
ended February 29, 1996 and February 28, 1995.
 
5.  COMMITMENTS AND RELATED-PARTY TRANSACTIONS
 
     The Company has entered into various lease agreements with respect to its
stores and certain warehouse and administrative facilities. Certain of these
leases contain several options and escalation clauses.
 
     A portion of the Company's store space is leased from an individual who is
both the principal shareholder and president. Rent expense for the years ended
August 31, 1995 was $1,271,811, of which $186,000 was paid to related parties.
 
     Future minimum rental commitments on operating leases are as follows:
 
<TABLE>
<CAPTION>
                 YEAR ENDING AUGUST 31
                 ---------------------
<S>                                                       <C>
1996....................................................  $1,026,119
1997....................................................     960,270
1998....................................................     868,651
1999....................................................     860,709
2000....................................................     788,464
Thereafter                                                 2,748,670
                                                          ----------
Total...................................................  $7,252,883
                                                          ==========
</TABLE>
 
     The Company has commitments at August 31, 1995 to expend approximately
$1,800,000 to complete construction of its new distribution center,
administrative offices, and a retail facility.
 
                                      F-36
<PAGE>   96
 
======================================================
 
     NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER
OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
 
                                ---------------
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                        PAGE
                                        ----
<S>                                     <C>
Prospectus Summary....................    3
Risk Factors..........................    8
Use of Proceeds.......................   14
Dividend Policy.......................   14
Capitalization........................   15
Dilution..............................   17
Selected Financial and Operating
  Data................................   18
Management's Discussion and Analysis
  of Financial Condition and Results
  of Operations.......................   21
Business..............................   30
Management............................   39
Principal and Selling Stockholders....   45
Certain Transactions..................   47
Description of Capital Stock..........   49
Shares Eligible for Future Sale.......   53
Underwriting..........................   55
Legal Matters.........................   56
Experts...............................   56
Additional Information................   57
Index to Financial Statements.........  F-1
</TABLE>
 
                                ---------------
     UNTIL           , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
 
                                2,710,000 SHARES
 
                                  TWEETER HOME
                                 ENTERTAINMENT
                                  GROUP, INC.
 
                                  COMMON STOCK
                             ---------------------
 
                                   PROSPECTUS
                             ---------------------
 
                                 BT ALEX. BROWN
 
                            PAINEWEBBER INCORPORATED
 
                             DAIN RAUSCHER WESSELS
                    A DIVISION OF DAIN RAUSCHER INCORPORATED
                                          , 1998
======================================================
<PAGE>   97
 
                                    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,
all of which will be paid solely by the Company.
 
<TABLE>
<S>                                                           <C>
SEC Registration Fee........................................  $ 16,055
NASD Filing Fee.............................................     5,800
NASDAQ Listing Fee..........................................    59,960
Printing, Engraving and Mailing Expenses....................   125,000
Legal Fees and Expenses.....................................   400,000
Accounting Fees and Expenses................................   275,000
Transfer Agent Fees and Expenses............................    12,000
Miscellaneous...............................................     6,185
          TOTAL.............................................  $900,000
</TABLE>
 
ITEM 14.  INDEMNIFICATION OF DIRECTORS AND OFFICERS.
 
     The Company's Certificate of Incorporation generally limits the liability
of the Company's Directors to the Company to the fullest extent permitted from
time to time by Delaware law. The DGCL permits, but does not require, a
corporation 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 such
corporation'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 Certificate of Incorporation provides that directors and executive
officers of the Company shall be and, in the discretion of the Board of
Directors, other officers and non-officer employees may be indemnified by the
Company 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 the Company.
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 Certificate of Incorporation 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>   98
 
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 the Company, and
the amount of debt securities issued by the Company since March 31, 1995, the
consideration received by the Company for such shares, options and debt
instruments and information relating to the section of the Securities Act of
1933 (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 the Company 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 November 28, 1995, the Company issued an aggregate of 911,787
     shares of Series A Redeemable Convertible Preferred Stock to Weston
     Presidio Offshore Capital C.V., Natio Vie Developpement II, FCPR, BNP
     Venture Holding Corp., Jeffrey Bloomberg, Harriet Bloomberg, Armin Biller
     and Matthew Bronfman at a purchase price of $6.46 per share. These shares
     will be converted into 911,787 shares of Common Stock upon consummation of
     the Offering. At the same time, the Company redeemed shares of Common Stock
     from certain stockholders and issued the Redemption Note to such
     stockholders. The above securities were sold pursuant to Section 4(2) and
     Regulation D under the Securities Act.
 
          2.  On May 13, 1996, the Company 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 will be converted into 788,349 shares of Common Stock upon
     consummation of the Offering. The securities were sold pursuant to Section
     4(2) and Regulation D under the Securities Act.
 
          3.  On March 7, 1997, in connection with a $2.0 million bridge loan
     from the Company'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.
 
          4.  On June 2, 1997, as part of the consideration for a subordinated
     loan in the aggregate amount of $15,000,000 from PNC Capital Corp, Exeter
     Venture Lenders, L.P. and Seacoast Capital Partners, L.P. to the Company,
     each such lender was issued a Warrant exercisable for an aggregate of
     629,646 shares of Common Stock issuable upon exercise of all three such
     Warrants. 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 May 30, 1997, as part of the total purchase price for the HiFi
     Buys Acquisition, the Company 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. The Company 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.
 
          6.  On June 2, 1997, the Company issued an aggregate of 866,425 shares
     of Series B Redeemable Convertible Preferred Stock to Weston Presidio
     Offshore Capital C.V., Natio Vie
 
                                      II-2
<PAGE>   99
 
     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 will be converted into 866,425 shares of Common
     Stock upon consummation of the Offering. The securities were sold pursuant
     to Section 4(2) and Regulation D under the Securities Act.
 
          7.  During the past three years, the Company has granted options to
     purchase an aggregate number of 866,630 shares to purchase Common Stock to
     263 individuals, (some of which have terminated) all of whom were at the
     time of grant employees or directors of the Company, pursuant to the
     Company's 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 to 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 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.
 
     (c) 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.
 
     (c) The undersigned hereby undertakes to provide to the underwriters at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
 
                                      II-3
<PAGE>   100
 
                                   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 April 23, 1998.
 
                                          TWEETER HOME ENTERTAINMENT GROUP, INC.
 
                                          By:       /s/ JEFFREY STONE
 
                                            ------------------------------------
                                            Jeffrey Stone
                                            President, Treasurer and Director
 
                        POWER OF ATTORNEY AND SIGNATURES
 
     KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints Samuel J. Bloomberg, Jeffrey Stone, and Joseph
McGuire, and each of them singly, as his true and lawful attorneys-in-fact and
agents for the undersigned, with full power of substitution, for and in the
name, place and stead of the undersigned, to sign and file with the Securities
and Exchange Commission under the Securities Act any registration statement
relating to the Offering that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act (a "462(b) Registration Statement"), any and all
amendments and exhibits to this Registration Statement or any 462(b)
Registration Statement, and any and all applications and other documents to be
filed with the Securities and Exchange Commission pertaining to the registration
of the securities covered hereby or thereby, with full power and authority to do
and perform any and all acts and things whatsoever requisite and necessary or
desirable.
 
     In accordance with 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 Board     April 23, 1998
---------------------------------------------------    and Chief Executive Officer
                 Samuel Bloomberg
 
                 /s/ JEFFREY STONE                   Director and President (Principal   April 23, 1998
---------------------------------------------------    Executive Officer)
                   Jeffrey Stone
 
                /s/ JOSEPH MCGUIRE                   Vice President and Chief Financial  April 23, 1998
---------------------------------------------------    Officer (Principal Financial
                  Joseph McGuire                       Officer and Principal Accounting
                                                       Officer)
 
               /s/ JEFFREY BLOOMBERG                 Director                            April 23, 1998
---------------------------------------------------
                 Jeffrey Bloomberg
 
               /s/ MATTHEW BRONFMAN                  Director                            April 23, 1998
---------------------------------------------------
                 Matthew Bronfman
 
                /s/ MICHAEL CRONIN                   Director                            April 23, 1998
---------------------------------------------------
                  Michael Cronin
</TABLE>
 
                                      II-4
<PAGE>   101
 
                                                                     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>
Allowance for doubtful
  accounts:
Six months ended March 31,
  1998........................     $631            $ --              $ --           $31          $600
Years ended
  September 30, 1997..........      440             191                --            --           631
  September 30, 1996..........       15             427                --             2           440
  September 30, 1995..........       15               4                --             4            15
</TABLE>
 
                                       S-1
<PAGE>   102
 
                                 EXHIBIT INDEX
 
     (a)EXHIBITS:
 
<TABLE>
<CAPTION>
EXHIBIT NO.                                DESCRIPTION
-----------                                -----------
<C>           <C>  <S>                                                           <C>
    *1.1      --   Form of Underwriting Agreement.
    *3.1      --   Certificate of Incorporation of the Company.
   **3.2      --   Form of Amended and Restated Certificate of Incorporation of
                   the Company.
    *3.3      --   Articles of Organization of New England Audio Co., Inc., as
                   amended.
    *3.4      --   By-Laws of the Company.
   **3.5      --   Form of Amended and Restated By-Laws of the Company.
    *3.6      --   By-Laws of New England Audio Co., Inc.
   **4.1      --   Specimen Certificate representing the Common Stock.
   **4.2      --   Form of Shareholder Rights Agreement to be effective
                   immediately prior to the closing of the Offering.
   **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 May
                   30, 1997 for 209,855 shares of Common Stock of the Company.
   *10.4      --   Stock Purchase Warrant issued to Seacoast Capital Partners,
                   L.P. dated May 30, 1997 for 209,855 shares of Common Stock
                   of the Company.
   *10.5      --   Stock Purchase Warrant issued to Exeter Venture Lenders,
                   L.P. dated as of May 30, 1997 for 104,928 shares of Common
                   Stock of the Company.
   *10.6      --   Stock Purchase Warrant issued to Exeter Equity Partners,
                   L.P. dated as of May 30, 1997 for 104,928 shares of Common
                   Stock of the Company.
   *10.7      --   Common Stock Warrant issued to HiFi Buys Incorporated dated
                   May 30, 1997 for 104,960 shares of Common Stock of the
                   Company.
   *10.8      --   Form of Common Stock Purchase Warrant dated March 7, 1997
                   issued by the Company pursuant to the Warrant and Debenture
                   Commitment.
  **10.9      --   Credit Agreement among the Company, NEA Delaware, Inc. and
                   BankBoston, N.A. as agent for itself and other.
  **10.10     --   Promissory Note by the Company in favor of BankBoston, N.A.
                   and other lenders.
   *10.11     --   Lease from James M. Salah of Boca Raton, Florida, as Trustee
                   of JMS Realty Trust, to the Company for premises at 40
                   Hudson Road, Canton, Massachusetts, dated June 11, 1991.
   *10.12     --   1995 Stock Option Plan.
  **10.13     --   1998 Stock Plan.
  **10.14     --   1998 Outside Director Stock Plan.
  **10.15     --   Employment Agreement between the Company and Samuel
                   Bloomberg to be effective upon the Offering.
</TABLE>
<PAGE>   103
 
<TABLE>
<CAPTION>
EXHIBIT NO.                                DESCRIPTION
-----------                                -----------
<C>           <C>  <S>                                                           <C>
  **10.16     --   Employment Agreement between the Company and Jeffrey Stone
                   to be effective upon the Offering.
  **10.17     --   Employment Agreement between the Company and Joseph McGuire
                   to be effective upon the Offering.
   *10.18     --   Employment Agreement between the Company and Fred Lokoff,
                   dated as of May 13, 1996 and amended as of April 23, 1997.
   *10.19     --   Employment Agreement between the Company and David Ginsburg,
                   dated as of June 1, 1997.
   *10.20     --   Asset Purchase Agreement, dated as of May 30, 1997, between
                   the Company and HiFi Buys Incorporated.
   *10.21     --   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.
   *10.22     --   Progressive Retailers Organization, Inc. Policy and
                   Procedures Manual.
  **21.1      --   Subsidiaries of the Company.
   *23.1      --   Consent of Deloitte & Touche LLP (Boston).
   *23.2      --   Consent of Deloitte & Touche LLP (Atlanta).
   *23.3      --   Consent of Deloitte & Touche LLP (Philadelphia).
  **23.4      --   Consent of Goulston & Storr, 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 herewith.
 
** To be filed by amendment.
 
(b) FINANCIAL STATEMENT SCHEDULES
 
     Schedule II -- Valuation and Qualifying Accounts
 
     All other schedules have been omitted because they are not required or
because the required information is given in the Consolidated Financial
Statements or in the Notes thereto.
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1
 
     AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 24, 1998
 
                                               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.)
------------------------
 
                                 40 HUDSON ROAD
 
                          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.
                                 40 HUDSON ROAD
                          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:
KITT SAWITSKY, ESQ.                             EDWIN L. MILLER, JR., ESQ.
               DANIEL R. AVERY, ESQ.                          TESTA, HURWITZ & THIBEAULT, LLP
              GOULSTON & STORRS, P.C.                                 125 HIGH STREET
                400 ATLANTIC AVENUE                             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, no par value         3,116,500 Shares             $17.00                 $52,980,500               $16,055
==============================================================================================================================
(1) Includes 406,500 shares that the Underwriters have the right to purchase
    from the Company to cover over-allotments, if any.
 
(2) Estimated solely for the purpose of calculating the registration fee
    pursuant to Rule 457(a) under the Securities Act of 1933.
 
    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
 
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
 
                                                           SUBJECT TO COMPLETION
 
                                                                  APRIL 24, 1998
 
                                2,710,000 SHARES
 
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
[TWEETER LOGO]                  [BRYN MAWR LOGO]               [HI FI BUYS LOGO]
 
                                  COMMON STOCK
 
                               ------------------
 
     Of the 2,710,000 shares of Common Stock of Tweeter Home Entertainment
Group, Inc. (the "Company") offered hereby, 2,200,000 shares are being offered
by the Company and 510,000 shares are being offered by certain stockholders of
the Company (the "Selling Stockholders"). The Company will not receive any
proceeds from the sale of shares by the Selling Stockholders. See "Principal and
Selling Stockholders." Prior to the Offering, there has been no public market
for the Common Stock of the Company. See "Underwriting" for the factors to be
considered in determining the initial public offering price. It is currently
estimated that the initial public offering price will be between $15.00 and
$17.00 per share. Application has been made for quotation of the Common Stock on
the Nasdaq National Market under the symbol "TWTR."
                               ------------------
 
        THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
                    SEE "RISK FACTORS" COMMENCING ON PAGE 8.
                               ------------------
 
  THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
 EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
   AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
                               CRIMINAL OFFENSE.
====================================================================================================================
                                 PRICE            UNDERWRITING              PROCEEDS               PROCEEDS TO
                                  TO              DISCOUNTS AND                TO                    SELLING
                                PUBLIC           COMMISSIONS(1)            COMPANY (2)            STOCKHOLDERS
--------------------------------------------------------------------------------------------------------------------
Per Share.................         $                    $                       $                       $
--------------------------------------------------------------------------------------------------------------------
Total (3).................         $                    $                       $                       $
====================================================================================================================
(1) The Company and the Selling Stockholders have agreed to indemnify the
    Underwriters against certain liabilities, including liabilities under the
    Securities Act of 1993, as amended. See "Underwriting."
 
(2) Before deducting expenses payable by the Company estimated at $900,000.
 
(3) The Company has granted the Underwriters a 30-day option to purchase up to
    406,500 additional shares of Common Stock, solely to cover over-allotments,
    if any. To the extent that the option is exercised, the Underwriters will
    offer the additional shares at the Price to Public shown above. If the
    option is exercised in full, the total Price to Public, Underwriting
    Discounts and Commissions and Proceeds to Company will be $        ,
    $        and $        , respectively. See "Underwriting."
                            ------------------------
 
     The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of BT Alex. Brown Incorporated, Baltimore, Maryland, on or about             ,
1998.
 
BT ALEX. BROWN
                           PAINEWEBBER INCORPORATED
                                                 DAIN RAUSCHER WESSELS
                                                   A DIVISION OF DAIN RAUSCHER
                                                          INCORPORATED
 
                THE DATE OF THIS PROSPECTUS IS           , 1998.
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 "23 Tweeter
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 "17 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 "10 HiFi Buys Locations in Greater Atlanta".
 
     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 Company 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)".
 
                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
4
 
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 the Company has stores. Gray dots mark
store locations and states in which the Company 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.
 
     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." (23 Locations);
 
          2. "Bryn Mawr Stereo & Video" (17 Locations); and
 
          3. "HiFi Buys" (10 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 Georgia to New Hampshire, Gray dots
mark store locations and states in which Company stores are located are offset
by white fill.
 
     CERTAIN PERSONS PARTICIPATING IN THE 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 THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
 
    "TWEETER ETC.," "TWEETER," "BRYN MAWR STEREO," "BRYN MAWR," "HIFI BUYS,"
"AUTOMATIC PRICE PROTECTION" AND "WISE BUYS" ARE SERVICE MARKS OF THE COMPANY.
SEE "BUSINESS -- INTELLECTUAL PROPERTY."
5
 
                               PROSPECTUS SUMMARY
 
     The following summary is qualified in its entirety by the more detailed
information and the financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, all information in
this Prospectus assumes or gives effect to: (i) no exercise of the
over-allotment option granted by the Company to the Underwriters; (ii) the
exercise of warrants to purchase 259,856 shares of Common Stock which will be
exercised and sold in the Offering; and (iii) the automatic conversion of all
outstanding shares of the Company's Series A Preferred Stock and Series B
Preferred Stock (the "Preferred Stock") into an aggregate of 2,566,561 shares of
Common Stock upon the consummation of the Offering. Unless the context requires
otherwise, the term "Company" refers collectively to Tweeter Home Entertainment
Group, Inc., a Delaware corporation, its predecessors and its subsidiaries.
 
                                  THE COMPANY
 
     The Company is a leading specialty retailer of mid to high-end audio and
video consumer electronics products. The Company operates 50 stores under the
Tweeter, Bryn Mawr and HiFi Buys names in the New England, Mid-Atlantic and
Atlanta, Georgia markets, respectively. The Company's 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. The
Company differentiates itself by focusing on consumers who seek audio and video
products with advanced features, functionality and performance, and does not
offer personal computers or home office equipment. The Company seeks to build
name recognition and customer loyalty by combining quality products and
knowledgeable sales associates with a high level of service and competitive
prices. The Company has been recognized as the "Consumer Electronics Retailer of
the Year" in both 1996 and 1997 by Audio Video International Magazine and the
fastest growing consumer electronics retailer in the United States in 1997 by
the TWICE Consumer Electronics Retail Registry.
 
     The Company's goal is to become the nation's leading specialty retailer of
high quality audio and video products to its targeted customer base. To achieve
this objective, the Company has implemented an operating model that includes (i)
a deep merchandise selection focused on mid to high-end audio and video
products, including limited distribution products which accounted for
approximately 40% of 1997 sales, (ii) exceptional customer service based upon
relationship and knowledge-based selling that is critical to higher-end
products, (iii) every day competitive pricing featuring the Company's patented
Automatic Price Protection program and (iv) a dynamic and inviting retail
environment.
 
     The Company believes that the quality and knowledge of its sales associates
is critical to its 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 the Company's regional training centers. The Company's 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 the Company's relationship selling model is its Automatic Price
Protection program. This program is designed to remove pricing concerns from the
purchase decision and allows 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 the
Company's stores and a competitor within 25 miles of the store advertises a
lower price within 30 days, the Company automatically sends a check to the
customer for the difference without requiring the customer to request the
payment. The Company believes that the success of its operating model is
evidenced by the fact that approximately 40% of the customers who purchased from
Tweeter stores in the six months ended March 31, 1998 had previously purchased
products from the Company during the prior two fiscal years.
 
                                        3
6
 
     The Company's store prototype is 10,000 square feet with brightly painted
interiors, often in pastel colors, and many stores exhibit hand painted murals
and other decorative artwork. Unlike many competitors whose stores contain
large, open spaces, the Company's stores feature individual sound rooms with
practical displays which allow customers to sample and compare the features and
functions of products in various combinations. The sound rooms are intended to
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 which features a state-of-the-art car stereo
system.
 
     The Company believes that the consumer electronics industry is large,
growing and fragmented with significant consolidation opportunities. Industry
sources estimate that factory sales of consumer electronics in 1997 reached $74
billion, with $22 billion comprised of audio and video products. Between 1990
and 1997, the audio and video segments expanded at a compound annual growth rate
of 2.3% and the Company believes that new technologies such as digital
television 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. The
Company believes that these regional specialty operators provide acquisition
opportunities for the Company. Industry sources indicate that approximately $7
billion of sales were attributable to specialty electronic chains with five or
more locations.
 
     The Company has developed an aggressive growth strategy (i) to open new
stores in current regional markets and relocate certain stores to more favorable
sites and (ii) to 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. The Company currently intends to open five stores in fiscal
1998, three of which have been opened as of March 31, 1998, and to relocate two
other stores. In fiscal 1999, the Company intends to open 15 stores. The Company
has demonstrated its acquisition and integration capability through its purchase
of Bryn Mawr Radio & Television Centre, Inc. in May 1996 (the "Bryn Mawr
Acquisition") and HiFi Buys Incorporated in May 1997 (the "HiFi Buys
Acquisition"). To support its acquisition strategy, the Company obtained equity
investments in fiscal 1996 of $10.6 million from a group of investors led by
Weston Presidio and Advent International (the "1996 Investors"). In May 1997,
the Company raised an additional $22.0 million, comprised of preferred stock and
subordinated debt, from the 1996 Investors and several additional investors,
including PNC Capital Corp.
 
THE BRYN MAWR ACQUISITION
 
     In May 1996, the Company acquired the 13 store Bryn Mawr chain located in
the Mid-Atlantic market for $8.7 million. The Company implemented strategic
initiatives within the acquired stores focused on increasing sales and store
contribution. Specifically, the Company (i) increased advertising expenditures
during the quarter following the acquisition and refocused advertising to
emphasize radio, television and direct marketing rather than print, (ii)
implemented the Company's every day competitive pricing and Automatic Price
Protection programs, (iii) initiated a substantial sales associate training
program to improve product knowledge and enhance relationship selling skills and
(iv) focused the sales staff on higher margin products, particularly audio
products. These initiatives enabled the Company to generate comparable store
sales increases at Bryn Mawr of 37.6% during the period from the acquisition
through September 30, 1996, 4.7% during fiscal 1997 and 15.0% during the six
months ended March 31, 1998. On a pro forma basis assuming completion of the
Bryn Mawr Acquisition as of October 1, 1995, store contribution for Bryn Mawr
improved to 6.8% in fiscal 1997 from -1.1% in fiscal 1996.
 
                                        4
7
 
THE HIFI BUYS ACQUISITION
 
     In May 1997, the Company acquired the 10 store HiFi Buys chain located in
the greater Atlanta, Georgia market for $19.6 million. Following the
acquisition, the Company implemented strategic objectives designed to increase
store contribution by combining a planned decrease in revenues with an increase
in gross margin and a substantial decrease in operating expenses. Specifically,
the Company (i) adjusted the merchandise mix to increase the proportion of mid
and high-end products and reduce the number of lower margin introductory
products, (ii) altered store employee compensation to reduce the emphasis on
promotional sales and focus incentives on gross margin and store contribution,
(iii) reduced marketing expenditures and shifted marketing emphasis from
promotional advertising toward the Company's traditional relationship-selling
and every day competitive price message, (iv) converted the advertising program
to emphasize electronic advertising and direct mail marketing as opposed to
print media (v) implemented the Automatic Price Protection program and (vi)
eliminated $2.4 million in overhead costs. As a result, comparable store sales
decreased 29.7% during the period from the acquisition through September 30,
1997 and decreased 13.2% during the six months ended March 31, 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 to 10.6% in the six months ended
March 31, 1998 from 7.8% in the same period for the prior year.
 
     The Company was organized as a Massachusetts corporation in 1972 and was
reorganized as a Delaware holding company in                , 1998. The
Company's principal executive offices are located at 40 Hudson Road, Canton,
Massachusetts 02021. The Company's telephone number is (781) 830-3000.
 
                                  THE OFFERING
Common Stock offered by the Company.................    2,200,000 shares
Common Stock offered by the Selling Stockholders....    510,000 shares
                                                        -------------------
     Total..........................................    2,710,000 shares
Common Stock to be outstanding after the Offering...    6,082,690 shares(1)
Use of proceeds.....................................    To repay indebtedness and for working
                                                        capital and other general corporate
                                                        purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol..............    TWTR
---------------
(1) Excludes 511,808 shares of Common Stock issuable upon exercise of warrants
    outstanding after the date of the Offering, with a weighted average exercise
    price of $2.13 per share. Also excludes 845,059 shares of Common Stock
    issuable upon exercise of options outstanding at the date of this
    Prospectus, with a weighted average exercise price of $3.97 per share. See
    Notes 6 and 11 of Notes to Consolidated Financial Statements of the Company,
    "Capitalization," "Description of Capital Stock" and "Management -- Stock
    Plans."
 
                                        5
8
 
                      SUMMARY FINANCIAL AND OPERATING DATA
              (IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
SIX MONTHS
                                                                                                          ENDED
                                                         FISCAL YEAR ENDED SEPTEMBER 30,                MARCH 31,
                                                 ------------------------------------------------   ------------------
                                                  1993      1994      1995     1996(1)   1997(2)     1997       1998
                                                 -------   -------   -------   -------   --------   -------   --------
STATEMENT OF OPERATIONS DATA:
  Total revenue................................  $38,200   $47,401   $60,121   $80,607   $132,525   $60,583   $129,129
  Gross profit.................................   13,007    16,489    20,954    28,791     46,210    21,402     44,849
  Store contribution(3)........................    2,738     3,985     5,550     6,798     10,642     6,605     14,641
  Income from operations.......................       10     1,344     2,238     1,953      2,053     2,692      8,798
  Interest expense.............................      631       426       629       617      1,808       513      1,610
                                                 -------   -------   -------   -------   --------   -------   --------
  Income before taxes..........................     (621)      918     1,609     1,336        245     2,179      7,188
  Income tax expense (benefit).................       --        --      (174)     (453)        99       876      2,875
                                                 -------   -------   -------   -------   --------   -------   --------
  Net income (loss)............................  $  (621)  $   918   $ 1,783   $ 1,789   $    146   $ 1,303   $  4,313
                                                 =======   =======   =======   =======   ========   =======   ========
  Pro forma income tax expense (benefit)(4)....     (248)      371       661       550         99       876      2,875
  Pro forma net income (loss)..................  $  (373)  $   547   $   948   $   786   $    146   $ 1,303   $  4,313
                                                 =======   =======   =======   =======   ========   =======   ========
  Pro forma net income per common share........                                          $   0.03             $   0.87
                                                                                         ========             ========
  Weighted average shares outstanding(5).......                                             4,966                4,966
                                                                                         ========             ========
  Supplemental pro forma net income per common
    share(6)...................................                                          $    .37             $   1.05
                                                                                         ========             ========
OPERATING DATA:
  Stores open at beginning of period...........       13        14        16        18         33        33         47
  New stores...................................        1         2         2         2          4         2          3
  Relocated stores.............................        0         1         1         1          1         1          2
  Closed stores................................        0         0         0         0          0         0          0
  Acquired stores..............................        0         0         0        13         10         0          0
  Stores open at end of period.................       14        16        18        33         47        35         50
COMPARABLE STORE SALES GROWTH:(7)
  Tweeter......................................     2.8%     11.2%     12.5%      1.6%      -4.5%     -7.7%      29.9%
  Bryn Mawr....................................                                  37.6%       4.7%      8.9%      15.0%
  HiFi Buys....................................                                            -29.7%               -13.2%
  Consolidated.................................     2.8%     11.2%     12.5%      5.7%      -7.0%     -2.3%       8.8%
MARCH 31, 1998
                                                              -----------------------------------------
                                                              ACTUAL     PRO FORMA(8)    AS ADJUSTED(9)
                                                              -------    ------------    --------------
BALANCE SHEET DATA:
  Working capital...........................................  $16,250      $16,250          $ 16,250
  Total assets..............................................   84,528       84,528            84,221
  Long term debt, excluding current portion.................   31,275       31,275             1,935
  Redeemable convertible preferred stock....................   22,174           --                --
  Stockholder's equity (deficit)............................   (2,939)      19,235            49,624
---------------
(1) Includes results of the Bryn Mawr Acquisition from May 13, 1996, which was
    accounted for using the purchase method. See Note 10 of Notes to the
    Consolidated Financial Statements of the Company.
 
(2) Includes results of the HiFi Buys Acquisition from May 30, 1997, which was
    accounted for using the purchase method. See Note 10 of Notes to the
    Consolidated Financial Statements of the Company.
 
(3) 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 the
    Company 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 the Company's
    profitability or liquidity. There can be no assurance that the Company's
    calculation of store contribution is comparable to similarly titled items
    reported by other companies.
 
                                        6
9
 
(4) The Company 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, the Company
    revoked its S election, and became subject to taxation as a C corporation,
    effective October 1, 1995. The pro forma information has been computed as if
    the Company were subject to Federal and all applicable state income taxes
    for each of the periods presented, assuming the Company had been taxed as a
    C corporation. The Company actually recorded an income tax benefit of
    $174,000 and $453,000 for the fiscal years ended September 30, 1995 and
    1996, respectively.
 
(5) Weighted average shares outstanding gives effect to the automatic conversion
    of all outstanding shares of the Company's Series A Convertible Preferred
    Stock and Series B Convertible Preferred Stock (the "Preferred Stock") into
    2,566,561 shares of Common Stock. Weighted average shares outstanding also
    include an aggregate of 845,059 shares issuable upon exercise of stock
    options and 771,664 shares issuable upon exercise of warrants, after
    applying the treasury stock method assuming an initial public offering price
    of $16.00 per share.
 
(6) Supplemental pro forma net income per share is based on pro forma net income
    per share, increased to give effect to the reduction in interest costs of
    $1,701 for the fiscal year ended September 30, 1997 and $1,531 for the six
    months ended March 31, 1998 (net of the applicable income taxes), which
    would have resulted assuming the application of a portion of the net
    proceeds from the Offering were used to repay certain indebtedness of the
    Company. See "Use of Proceeds."
 
(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. Relocated stores are
    excluded from the comparable store base until they have completed 12 full
    months of operation from the date the store was reopened after relocation.
 
(8) Represents actual data pro forma to give effect to the conversion of all the
    outstanding shares of Preferred Stock into 2,566,561 shares of common stock.
 
(9) Represents pro forma data as adjusted to give effect to the sale of
    2,200,000 shares of Common Stock offered by the Company at an assumed
    initial public offering price of $16.00 per share (after deducting
    underwriting discounts and commission and estimated offering expenses), the
    application of the estimated net proceeds therefrom and the writeoff of
    approximately $307,000 of deferred financing costs in connection with the
    repayment of the 1997 Notes issued in connection with the HiFi Buys
    Acquisition and the accretion of debt of approximately $325,000. See
    "Capitalization" and "Use of Proceeds."
 
                                        7
10
 
                                  RISK FACTORS
 
     In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating an investment in
the shares of Common Stock offered hereby. This Prospectus contains certain
forward-looking statements that involve risks and uncertainties. When used in
this Prospectus, the terms "anticipates," "expects," "estimates," "believes,"
"intends" and similar terms as they relate to the Company or management are
intended to identify such forward-looking statements. The Company's actual
results could differ materially from the results discussed in such
forward-looking statements. Factors that could cause or contribute to such a
difference include, but are not limited to, those set forth below and elsewhere
in this Prospectus.
 
     Risks Associated With Growth.  The Company's success will depend 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
on a profitable basis. The opening of additional stores in existing markets
could result in lower net sales at the Company's existing stores in that market,
and the opening of additional stores in new geographic markets could present
competitive and merchandising challenges different from those currently or
previously faced by the Company within its existing geographic markets. In
addition, the Company may incur higher costs related to advertising,
administration and distribution as it enters new markets.
 
     The Company's growth strategy is dependent upon a number of factors,
including 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 by the Company and the successful consummation of such acquisitions,
the obtaining of consents, including government consents, permits and licenses,
needed to complete such acquisitions and operate such additional sites, the
hiring, training and retention of skilled personnel, the availability of
adequate management and financial resources, the adaptation of the Company's
distribution and other operational and management systems to an expanded network
of stores, the ability and willingness of the Company's vendors to supply the
Company on a timely basis at competitive prices, continued consumer demand for
the Company's products at levels that can support acceptable profit margins, and
other factors, many of which are beyond the control of the Company. There can be
no assurance that the Company will be successful with respect to any of these
factors in particular or that the Company will be successful in opening or
acquiring new stores on a schedule consistent with the Company's business plan,
if at all, or that such newly opened or acquired stores will achieve sales and
profitability levels comparable to existing stores, if they are profitable at
all, or that the Company will improve its overall market position and
profitability as a result.
 
     In addition, the Company's rapid expansion through the opening or
acquisition of new stores will place significant demands on the Company's
management, resources, operations and information systems, and the Company will
be required to expend significant effort and additional resources to ensure the
continuing adequacy of its financial controls, operating procedures, information
systems, product purchasing and distribution systems and employee training
programs. In addition, the Company will need to attract and retain additional
qualified personnel, including new store managers. Further, the Company's
continued growth will depend on its ability to increase sales in its existing
stores. There can be no assurance that the Company will be successful in any of
these efforts, and, as a result, there can be no assurance that the Company will
achieve its planned expansion or that any new stores will be effectively
integrated into the Company's existing operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Business -- Growth Strategy."
 
     Risks Associated with Acquisitions.  The Company has completed two
acquisitions and is continuing to integrate the acquired stores and to convert
those stores to its operating model. There can be no assurance that the Company
will be able to integrate such stores without significant delay or expense. For
example, comparable store sales within the stores acquired by the Company as
part
 
                                        8
11
 
of the HiFi Buys Acquisition have decreased since the consummation of the HiFi
Buys Acquisition. Although the Company will consider strategic acquisitions of
other retail chains in the audio and video consumer electronics industry, there
can be no assurance that suitable acquisition candidates will be identified,
that acquisitions can be consummated or that new stores acquired through such
acquisitions can be operated profitably or integrated successfully into the
Company's operations. Previously acquired stores have had, and newly acquired
stores may have, different merchandising, advertising, store format and
operating approaches from those of the Company, and the Company's success in
integrating such stores will depend on its ability to effect significant changes
in the operations of such stores to conform to the Company's approach in these
areas. There can be no assurance that the Company will be successful in
effecting such changes without an adverse effect on the revenues or
profitability of such stores. In addition, future acquisitions by the Company
could result in potentially dilutive issuances of equity securities, the
incurrence of debt and contingent liabilities and amortization expenses related
to goodwill and other intangible assets, all of which could materially adversely
affect the Company.
 
     Potential Need for Additional Financing.  The Company intends to finance
the opening and acquisition of new stores during the next two years with a
portion of the proceeds from the Offering, cash flow from operations and
borrowings. The average cash investment, including pre-opening expenses for
tenant fit-out, demonstration and inventory (net of payables), required to open
a store is estimated by the Company to be approximately $855,000. However, there
can be no assurance that the actual cost of opening a store will not be
significantly greater than such current estimates, and the Company may be
required to seek additional debt and/or equity financing in order to fund its
continued expansion through 1999 and beyond. There can be no assurance that such
additional financing will be available on terms acceptable to the Company, if at
all. In addition, the Company's 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
the Company may result in dilution to the Company's stockholders.
 
     Dependence on Key Personnel.  The success of the Company will be dependent
upon the active involvement of senior management personnel, particularly Samuel
J. Bloomberg, the Company's Chief Executive Officer and Chairman of the Board,
and Jeffrey Stone, the Company'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 the Company'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 the Company, and David Ginsburg, a
regional Vice President of the Company, the Company does not have employment
agreements with any members of its senior management team. The Company currently
maintains key-man life insurance on the lives of Messrs. Bloomberg and Stone in
the amounts of $1,000,000 and $5,000,000, respectively. See
"Business -- Business Strategy" and "Management."
 
     Risks Associated with Competition.  The retail consumer electronics
industry is highly competitive. The Company 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 electronic products similar and
often identical to those sold by the Company. The Company also competes in
particular markets with a substantial number of retailers that specialize in one
or more types of consumer electronic products sold by the Company. Certain of
these competitors have substantially greater financial resources than the
Company 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. In this regard,
the Company understands that Best Buy has announced its intention to enter the
New England market in 1998. A number of different competitive factors could have
a material adverse effect on the Company's results of operations and financial
condition, including increased opera-
 
                                        9
12
 
tional efficiencies of competitors, competitive pricing strategies, expansion by
existing competitors, entry by new competitors into markets in which the Company
is currently operating or the adoption by existing competitors of innovative
store formats or retail sales methods. See "Business -- Industry."
 
     Seasonal and Quarterly Fluctuations in Sales.  Like many retailers, the
Company's business is materially impacted by seasonal shopping patterns. The
fourth calendar quarter, which is the Company's first fiscal quarter and which
includes the December holiday shopping period, has historically contributed, and
is expected to continue to represent, a substantial portion of the Company's
operating income for its entire fiscal year. As a result, any factors negatively
affecting the Company during such calendar quarter of any year, including
adverse weather or unfavorable economic conditions, would have a material
adverse effect on the Company's results of operations for the entire year. More
generally, the Company's quarterly results of operations 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 and profitability of sales of particular products and other
competitive factors. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Seasonality and Quarterly Results."
 
     Fluctuations in Comparable Store Sales.  A number of factors have
historically affected, and will continue to affect, the Company's comparable
store sales results including, among other factors, competition, general
regional and national economic conditions, consumer trends, changes in the
Company's product mix, timing of promotional events, new product introductions
and the Company's ability to execute its business strategy effectively. The
Company does not expect comparable store sales to increase at historical rates,
and there can be no assurance that comparable store sales will not decrease in
the future. Changes in the Company's comparable store sales results could cause
the price of the Common Stock to fluctuate substantially. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
 
     Lack of Geographical Dispersion.  The Company currently operates 50 stores,
of which 23 are operated under the Tweeter name in the New England market, 17
are operated under the Bryn Mawr name in the Mid-Atlantic market, and 10 are
operated under the HiFi Buys name in the Atlanta, Georgia market. The lack of
wider geographical dispersion of the Company's current stores makes the Company
vulnerable to adverse events in these markets, including weather, regional
competition or unfavorable regional economic conditions. See "Business -- Store
Format and Operations."
 
     Changes in Consumer Demand and Preferences.  The Company'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 marketed by the Company, are
affected by, among other things, prevailing economic conditions. In addition,
demand for audio and video consumer electronics products is often stimulated by
or dependent upon the periodic introduction and availability of new products and
technologies at price levels which generate wide consumer interest. 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. There can be no assurance that
these products or other new products will ever achieve widespread consumer
acceptance. Furthermore, the introduction or expected introduction of new
products or technologies may have a depressing effect on sales of existing
products and technologies. Significant deviations from the projected demand for
products sold by the Company would have a materially adverse effect on the
Company's 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 the Company to identify and respond to changes in consumer demand and
preferences would have a material adverse effect on the Company's results of
 
                                       10
13
 
operations and financial condition. See "Business -- Industry," "-- Business
Strategy" and "-- Merchandise."
 
     Dependence on Suppliers.  The Company's business and its growth strategy
are dependent 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. The Company does not have any supply
agreements or exclusive arrangements with any vendors, and ordering of Company
inventory typically occurs through the issuance of individual purchase orders to
vendors. In addition, the Company relies heavily on a relatively small number of
suppliers. The Company's two largest suppliers accounted for approximately 31%
of the Company's purchases during its fiscal year ended September 30, 1997. The
loss of any of these key vendors or the failure by the Company to establish and
maintain relationships with these or other vendors could have a material adverse
effect on the Company's results of operations and financial condition and
expansion. The Company believes it currently has adequate supply sources but
there can be no assurance, especially given the Company's growth strategy, that
the Company will be able to acquire sufficient quantities or an appropriate mix
of consumer electronic products at acceptable prices or at all. Specifically,
the establishment of additional stores in existing markets and the penetration
of new markets is dependent to a significant extent on the willingness and
ability of vendors to supply those additional stores, of which there can be no
assurance. As the Company continues to open or acquire new stores, the inability
or unwillingness of suppliers to supply some or all of their products to the
Company at acceptable prices in one or more markets could have a material
adverse effect on the Company's results of operations and financial condition.
Furthermore, the Company 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 purchased by the Company from foreign vendors or create shortages of such
items, which could in turn have a material adverse effect on the Company'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
the Company's ability to successfully differentiate itself from other
competitors, thereby resulting in an adverse effect on the Company's sales,
margin or competitive position. See "Business -- Purchasing and Inventory."
 
     Membership in Buying Group.  The Company is a member of the Progressive
Retailers Organization ("PRO"), 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 members. There can be no assurance that any future termination
of the Company's membership in this group would not have a material adverse
effect on the Company's results of operations and financial condition. In
addition, rebates paid to the Company by product manufacturers through this
group depend on the sales volumes achieved by the group's other members, as well
as the Company, and therefore decreased sales performance by these other members
could reduce the amounts of such rebates payable to the Company, which could in
turn have a material adverse effect on the Company's results of operations and
financial condition. See "Business -- Purchasing and Inventory."
 
     Intellectual Property.  The Company's "Tweeter etc." and "Bryn Mawr Stereo"
service marks have been registered with the United States Patent and Trademark
Office. The Company has not registered the "HiFi Buys" service mark and is aware
that other consumer electronics retailers use the name "HiFi Buys" outside the
Company's current geographical markets. The Company has submitted applications
for registration of certain other of its service marks, which applications are
currently pending. There can be no assurance that the Company will be able to
successfully register such service marks. In addition, there can be no assurance
that any service mark, whether registered or unregistered, or any patent will be
effective to protect the Company's intellectual property rights, or that
infringement or invalidity claims by third parties will not be asserted in the
future or that such assertions, if proven to be true, would not have a material
adverse effect on the Company's results of operations and financial condition.
See "Business -- Intellectual Property."
 
                                       11
14
 
     Planned Relocation of Company Headquarters.  The Company plans to relocate
to a new facility that will serve as its corporate headquarters and New England
regional distribution and service center in the summer of 1998. The Company's
corporate, financial, administrative and marketing staff will be based at that
relocated facility. The Company's principal data processing and computer
facility is located elsewhere. There can be no assurance that such relocation
will not result in a disruption to the Company's operations. See
"Business -- Properties" "Business -- Purchasing and Inventory."
 
     Control by Existing Stockholders.  Upon completion of the Offering, the
Company's current stockholders will own approximately 55.4% of the Company's
outstanding Common Stock. As a result, those parties will continue to be able to
influence significantly the affairs of the Company if they were to act together.
See "Principal and Selling Stockholders."
 
     Effect of Certain Charter And By-law Provisions; Anti-Takeover
Provisions.  The Company's Amended and Restated Certificate of Incorporation, as
in effect immediately following the consummation of the Offering (the "Charter")
and the Company's Amended and Restated Bylaws, as in effect immediately
following the consummation of the Offering (the "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 the Company,
even if such a change in control would be in the interest of a significant
number of Company 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, under the Charter, the Board of Directors of the
Company is authorized to issue one or more classes of Preferred Stock, having
such designations, rights and preferences as may be determined by the Board, and
such issuances may, among other things, have an adverse effect on the rights of
holders of Common Stock.
 
     Stockholders of the Company have no right to take action by written consent
and are not permitted to 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. See
"Description of Capital Stock -- Delaware Law and Certain Charter and By-Law
Provisions; Anti-Takeover Effects."
 
     In addition, the Company will adopt, effective upon the consummation of the
Offering, a Stockholder Rights Plan. Under the terms of the 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 the
Company would have the right to purchase securities from the Company 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. See "Description of
Capital Stock -- Stockholder Rights Plan."
 
     Shares Eligible For Future Sale.  The Company and its existing stockholders
holding all of the Company's outstanding capital stock prior to the Offering
have agreed pursuant to lock-up agreements (the "Lock-up Agreements") with the
Underwriters, 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 180 days after the date of
this Prospectus (the "Lock-up Period"), without the prior written consent of BT
Alex. Brown Incorporated. Following the Offering, the Company will have
outstanding 6,082,690 shares of Common Stock. Of such shares, the 2,710,000
shares offered hereby will be freely tradable by those persons who are not
affiliates of the Company and all of the remaining outstanding shares will be
subject to Lock-up Agreements for the duration of the Lock-up Period. Upon
expiration of the Lock-up Period,
 
                                       12
15
 
approximately 3,372,690 additional shares will be available for sale in the
public market, subject to the provisions of Rule 144 under the Securities Act of
1933, as amended. As of the date of the Offering, approximately 845,059 shares
of Common Stock were issuable pursuant to options under the Company's stock
plans and 511,808 shares of Common Stock were issuable upon the exercise of
warrants. All shares issuable upon exercise of options are subject either to
Lock-up Agreements or to a lock-up period of 120 days pursuant to the Company's
stock option agreements. All shares issuable upon the exercise of warrants are
subject to Lock-up Agreements. In addition, the holders of approximately
3,884,498 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 following the Offering, or the perception that such
sales could occur, could have a material adverse effect on the market price of
the Common Stock after the Offering. See "Description of Capital Stock" and
"Shares Eligible for Future Sale."
 
     No Prior Public Trading Market; Volatility.  Prior to the Offering, there
has been no public market for the Common Stock, and there can be no assurance
that an active public market for the Common Stock will develop or be sustained
after the Offering. The initial public offering price of the Common Stock will
be determined by negotiations between the Company and the representatives of the
Underwriters. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The initial public
offering price may not necessarily be indicative of the market price of the
Common Stock after the Offering, which may be highly volatile. Factors such as
announcements of fluctuations in the Company's or its competitors' operating
results and market conditions for retail industry stocks in general could have a
material adverse effect on the market price of the Common Stock after the
Offering.
 
     Year 2000 Compliance.  The Company currently utilizes several computer
software systems which will require modification or upgrading to accommodate the
"Year 2000" changes needed for correct recording of dates in the year 2000 and
beyond. The Company believes that all such systems can be changed by the end of
1999 and does not expect the cost of the changes to be material to the Company's
financial condition or results of operations. The Company does not currently
have any information concerning the compliance status of its suppliers. Any
failure by the Company's significant suppliers to successfully achieve Year 2000
compliance could have a material adverse effect on the Company's results of
operations and financial condition. See "Business -- Information Systems."
 
     Dividend Policy.  The Company does not anticipate paying any cash dividends
on the Common Stock for the foreseeable future. In addition, it is likely that
any future lending arrangements, including the lending arrangements currently
under discussion between the Company and its existing lender, will prohibit or
limit the payment of cash dividends. See "Use of Proceeds" and "Dividend
Policy."
 
     Dilution.  Investors participating in the Offering will incur immediate and
substantial dilution in the amount of $10.93 per share (assuming an initial
public offering price of $16.00 per share). To the extent that currently
outstanding options or warrants to purchase Common Stock are exercised, there
will be further dilution. See "Dilution."
 
                                       13
16
 
                                USE OF PROCEEDS
 
     The net proceeds to the Company from the sale of the 2,200,000 shares of
Common Stock offered hereby are estimated to be $31,836,000 ($37,884,720 if the
Underwriters' over-allotment option is exercised in full), assuming an initial
public offering price of $16.00 per share and after deducting the estimated
underwriting discounts and commissions and expenses payable by the Company. The
Company will use all or substantially all of such proceeds to repay existing
indebtedness. Specifically, the Company intends to repay (i) approximately $14.1
million in outstanding indebtedness under its existing Credit Agreement with
BankBoston, N.A. (the "Credit Facility"); (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 (the "1997
Notes"); (iii) approximately $1.0 million in outstanding indebtedness under the
Senior Subordinated Note dated November 28, 1995 issued in connection with a
recapitalization pursuant to which the Company repurchased Common Stock from
certain of its stockholders (the "Redemption Note") plus approximately $800,000
due to these stockholders in connection with the Offering; and (iv)
approximately $900,000 to repay outstanding indebtedness under the Subordinated
Note dated June 1, 1997 issued in connection with the HiFi Buys Acquisition (the
"HiFi Buys Note"). Any remaining net proceeds will be used to finance new store
openings and for general working capital purposes.
 
     The Credit Facility matures on May 30, 2000 and bears interest at a
floating rate of interest based on the lender's base rate or LIBOR. The 1997
Notes mature on May 30, 2004 and bear interest at a rate of 12.0%. The
Redemption Note matures on December 31, 1998 and bears interest at an effective
rate of 10.8%. The HiFi Buys Note matures on June 1, 2000 and bears interest at
a rate of 9.5%. The Company intends to obtain a new credit facility in the
amount of $30.0 million effective upon consummation of the Offering (the "New
Credit Facility") which will be used first to refinance any remaining
indebtedness under the Credit Facility after application of proceeds of the
Offering. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
 
     Pending use as described above, any remaining net proceeds of the Offering
will be invested in investment-grade, interest-bearing instruments. The Company
will not receive any proceeds from the sale of Common Stock by the Selling
Stockholders.
 
                                DIVIDEND POLICY
 
     Following the Offering, the Company does not anticipate paying any cash
dividends and intends to retain any earnings to finance expansion. Payment of
future dividends, if any, will depend upon the Company's results of operations,
financial condition, cash requirements and other factors deemed relevant by the
Company's Board of Directors. The Company's current Credit Facility contains,
and any future credit agreements, including the new Credit Facility, may
contain, restrictions on the payment of dividends by the Company.
 
                                       14
17
 
                                 CAPITALIZATION
 
     The following table sets forth the pro forma capitalization of the Company
as of March 31, 1998, (i) on an actual basis; (ii) on a pro forma basis to
reflect the automatic conversion of all outstanding Preferred Stock into
2,566,561 shares of Common Stock and the exercise of warrants to purchase
259,856 shares of Common Stock, each upon the consummation of the Offering, and
(iii) as adjusted to reflect the application of the estimated net proceeds from
the sale of 2,200,000 shares of Common Stock offered by the Company hereby
assuming an initial public offering price of $16.00 per share. This table should
be read in conjunction with the Company's Consolidated Financial Statements and
the notes thereto appearing elsewhere in this Prospectus.
MARCH 31, 1998
                                                          -----------------------------------
                                                          ACTUAL     PRO FORMA    AS ADJUSTED
                                                          -------    ---------    -----------
                                                                    (IN THOUSANDS)
Short-term debt:
  Current portion of long-term debt.....................  $   400     $   400       $    --
                                                          =======     =======       =======
Long-term debt:
  Note payable to bank..................................   15,100      15,100           979
  Subordinated debt.....................................   16,175      16,175            --
                                                          -------     -------       -------
          Total long-term debt..........................  $31,275     $31,275       $   979
                                                          -------     -------       -------
Redeemable convertible preferred stock:
  Series A Convertible Preferred Stock, no par value;
     authorized, 4,000,000 shares; 1,700,136 shares
     issued and outstanding in 1998, 1997 and 1996,
     actual; no shares outstanding pro forma and as
     adjusted (liquidation preference, $14,432,999 as of
     March 31, 1998, actual)............................   14,433          --            --
  Series B Convertible Preferred Stock, no par value;
     authorized, 4,000,000 shares; 866,425 shares issued
     and outstanding in 1998 and 1997, actual; no shares
     outstanding pro forma and as adjusted (liquidation
     preference $7,741,248 as of March 31, 1998,
     actual)............................................    7,741          --            --
                                                          -------     -------       -------
                                                           22,174          --            --
                                                          -------     -------       -------
Stockholders' equity:
  Preferred Stock, no par value, 10,000,000 shares
     authorized(1), no shares issued and outstanding
     actual, pro forma and as adjusted..................       --          --            --
  Common stock, no par value, 20,000,000 shares
     authorized; 1,056,273 shares issued and outstanding
     actual and 3,882,690 shares issued and outstanding
     pro forma and 6,082,690 shares issued and
     outstanding as adjusted(2).........................       --          --            --
  Additional paid-in capital............................      326      22,500        54,336
  Retained earnings(3)(4)...............................   (1,684)     (1,684)       (2,677)
  Note receivable from officer..........................      (32)        (32)          (32)
  Treasury stock, 1,698,929 shares at cost actual and
     pro forma and 1,439,073 shares as adjusted(3)(5)...   (1,550)     (1,550)       (2,003)
                                                          -------     -------       -------
     Total stockholders' equity (deficit)...............   (2,940)     19,234        49,624
                                                          -------     -------       -------
          Total capitalization..........................  $50,509     $50,509       $50,603
                                                          =======     =======       =======
---------------
(1) Reflects an increase in authorized shares to be effected prior to the
    consummation of the Offering.
(2) Excludes 511,808 shares of Common Stock issuable upon exercise of warrants
    outstanding at the date of this Prospectus, with a weighted average exercise
    price of $2.13 per share. Also excludes 845,059 shares of Common Stock
    issuable upon exercise of options outstanding at the date of this
    Prospectus, with a weighted average exercise price of $3.97 per share.
 
                                       15
18
 
    See Notes 6 and 11 of Notes to Consolidated Financial Statements of the
    Company, "Description of Capital Stock" and "Management -- Stock Plans."
(3) Assumes the exercise of warrants to purchase 259,856 shares of Common Stock
    which the Company intends to issue from Treasury Stock.
(4) As adjusted reflects the writeoff of approximately $307,000 of deferred
    financing costs in connection with the 1997 Notes and the accretion of debt
    of approximately $325,000. See -- "Use of Proceeds."
(5) As adjusted reflects the impact of the $813,517 contingency payment due to
    the holder of the Redemption Note upon consummation of the Offering.
 
                                       16
19
 
                                    DILUTION
 
     The net tangible book value of the Company's Common Stock at March 31, 1998
was a deficit of ($1,014,844), or approximately ($.28) per share of Common
Stock. Net tangible book value per share is determined by dividing the net
tangible book value of the Company (total assets less goodwill and total
liabilities) by the number of outstanding shares of Common Stock. After giving
effect to the sale of the shares of Common Stock by the Company in the Offering,
assuming an initial public offering price of $16.00 per share and after
deducting the estimated underwriting discounts and commissions and expenses
payable by the Company, the pro forma net tangible book value of the Company as
of March 31, 1998 would have been $30,821,156 or $5.07 per share. This
represents an immediate increase in pro forma net tangible book value of $5.35
per share to existing stockholders and an immediate dilution to new investors of
$10.93 per share. The following table illustrates the per share dilution:
Assumed initial public offering price per share.............            $16.00
  Net tangible book value per share as of March 31, 1998....     (.28)
  Increase per share attributable to new investors..........     5.35
                                                              -------
Pro forma net tangible book value per share after the
  Offering..................................................              5.07
                                                                        ------
Dilution per share to new investors(1)......................            $10.93
                                                                        ======
---------------
(1) If all outstanding options and warrants at March 31, 1998 to acquire 859,049
    and 511,808 shares of Common Stock, respectively, were exercised, in
    addition to the Underwriters' exercise of their over-allotment option, the
    pro forma net tangible book value per share after the Offering would be
    $4.21, resulting in an immediate dilution of $11.79 per share to new
    investors.
 
     The following table summarizes on a pro forma basis as of March 31, 1998,
the differences between existing stockholders and new investors with respect to
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price paid per share before deducting
estimated underwriting discounts and commissions and offering expenses payable
by the Company, assuming (i) the automatic conversion of the outstanding shares
of Preferred Stock into 2,566,561 shares of Common Stock and (ii) the exercise
of warrants to purchase 259,856 shares of Common Stock, each upon the
consummation of the Offering:
SHARES PURCHASED       TOTAL CONSIDERATION
                          -------------------    ---------------------     AVERAGE PRICE
                           NUMBER     PERCENT      AMOUNT      PERCENT       PER SHARE
                          ---------   -------    -----------   -------    ---------------
Existing
  stockholders(1).......  3,882,690    63.8%     $15,848,295    31.0%         $ 4.08
New investors...........  2,200,000    36.2%     $35,200,000    69.0%         $16.00
                          ---------    -----     -----------    -----
          Total.........  6,082,690     100%     $51,048,295     100%
                          =========    =====     ===========    =====
---------------
(1) Of this amount, 510,000 shares will be sold in the Offering by Selling
    Stockholders. Sales by Selling Stockholders in this Offering will reduce the
    number of shares of Common Stock held by existing stockholders to 3,372,690,
    or approximately 55.4% and will increase the number of shares held by new
    investors to 2,710,000, or approximately 44.6% of the total number of shares
    of Common Stock outstanding after the Offering. See "Principal and Selling
    Stockholders."
 
     The computations in the tables set forth above exclude 511,808 shares of
Common Stock issuable upon exercise of warrants outstanding at the date of this
Prospectus with a weighted average exercise price of $2.13 per share, and
exclude 845,059 shares of Common Stock issuable upon exercise of options
outstanding at the date of this Prospectus with a weighted average exercise
price of $3.97 per share. To the extent any of these warrants and options are
exercised, there will be further dilution to new investors and the percentage
ownership of new investors will decrease. See Notes 6 and 11 of Notes to
Consolidated Financial Statements of the Company, "Capitalization," "Description
of Capital Stock," and "Management -- Stock Plans."
 
                                       17
20
 
               SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
              (IN THOUSANDS, EXCEPT PER SHARE AND OPERATING 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, 1997, and for the six months
ended March 31, 1997 and March 31, 1998, respectively. The selected statement of
operations and balance sheet data for each of the five years ended September 30,
1997 have been derived from financial statements of the Company, which have been
audited by its independent auditors. The balance sheets as of September 30, 1996
and September 30, 1997, and the related statements of income, stockholders'
equity (deficit), and cash flows for each of the three years in the period ended
September 30, 1997, and the audit report thereon, are included elsewhere in this
Prospectus. The financial data for the six months ended March 31, 1997 and March
31, 1998 are derived from unaudited financial statements of the Company and
reflect all adjustments, consisting only of normal recurring accruals, that the
Company considers necessary for a fair presentation of the financial position
and results of operations for those periods. The information set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements and the Notes thereto included elsewhere in this
Prospectus.
SIX MONTHS ENDED
                                                FISCAL YEAR ENDED SEPTEMBER 30,                    MARCH 31,
                                        ------------------------------------------------   -------------------------
                                         1993      1994      1995     1996(1)   1997(2)       1997          1998
                                        -------   -------   -------   -------   --------   -----------   -----------
                                                                                           (UNAUDITED)   (UNAUDITED)
STATEMENT OF OPERATIONS:
  Total revenue.......................  $38,200   $47,401   $60,121   $80,607   $132,525     $60,583      $129,129
  Cost of sales.......................   25,193    30,912    39,167    51,816     86,315      39,181        84,280
                                        -------   -------   -------   -------   --------     -------      --------
    Gross profit......................   13,007    16,489    20,954    28,791     46,210      21,402        44,849
  Selling expenses....................   10,269    12,504    15,404    21,993     35,568      14,797        30,208
                                        -------   -------   -------   -------   --------     -------      --------
    Store contribution(3).............    2,738     3,985     5,550     6,798     10,642       6,605        14,641
  Corporate, general and
    administrative expenses...........    2,663     2,576     3,247     4,716      8,102       3,793         5,420
  Amortization of goodwill............       65        65        65       129        487         120           423
                                        -------   -------   -------   -------   --------     -------      --------
    Income from operations............       10     1,344     2,238     1,953      2,053       2,692         8,798
  Interest expense....................      631       426       629       617      1,808         513         1,610
                                        -------   -------   -------   -------   --------     -------      --------
  Income before taxes.................     (621)      918     1,609     1,336        245       2,179         7,188
  Income tax expense (benefit)........       --        --      (174)     (453)        99         876         2,875
                                        -------   -------   -------   -------   --------     -------      --------
  Net income (loss)...................  $  (621)  $   918   $ 1,783   $ 1,789   $    146     $ 1,303      $  4,313
                                        =======   =======   =======   =======   ========     =======      ========
  Pro forma income tax expense
    (benefit)(4)......................     (248)      371       661       550         99         876         2,875
  Pro forma net income (loss).........  $  (373)  $   547   $   948   $   786   $    147     $ 1,303      $  4,313
                                        =======   =======   =======   =======   ========     =======      ========
  Pro forma diluted earnings(5).......                                          $   0.03                  $   0.87
                                                                                ========                  ========
  Weighted average shares
    outstanding(5)....................                                             4,966                     4,966
                                                                                ========                  ========
  Supplemental pro forma diluted
    earnings income per share(6)......                                          $    .37                  $   1.05
                                                                                ========                  ========
OPERATING DATA:
  Stores open at beginning of
    period............................       13        14        16        18         33          33            47
  New stores..........................        1         2         2         2          4           2             3
  Relocated stores....................        0         1         1         1          1           1             2
  Closed stores.......................        0         0         0         0          0           0             0
  Acquired stores.....................        0         0         0        13         10           0             0
  Stores open at end of period........       14        16        18        33         47          35            50
BALANCE SHEET DATA:
  Working capital.....................  $ 1,617   $   835   $ 1,590   $ 1,897   $ 11,857     $ 2,281      $ 16,250
  Total assets........................    9,367    12,562    15,162    38,619     78,688      42,107        84,528
  Long term debt, excluding current
    portion...........................    9,057     7,955     8,705    10,700     30,875       9,975        31,275
  Redeemable convertible preferred....       --        --        --    11,597     20,591      12,496        22,174
  Stockholder's equity (deficit)......   (5,039)   (4,122)   (2,457)   (3,984)    (5,669)     (3,580)       (2,939)
(footnotes following Other Store Data)
 
                                       18
21
 
                                OTHER STORE DATA
                             (DOLLARS IN THOUSANDS)
SIX MONTHS ENDED
                                              FISCAL YEAR ENDED SEPTEMBER 30,               MARCH 31,
                                      -----------------------------------------------   ------------------
                                       1993      1994      1995      1996      1997      1997       1998
                                      -------   -------   -------   -------   -------   -------   --------
                                                                                           (UNAUDITED)
TWEETER
  Total revenue.....................  $38,200   $47,401   $60,121   $68,577   $74,049   $40,801   $ 54,690
  Store contribution(3).............    2,738     3,985     5,550     7,089     6,338     4,558      7,178
  Store contribution margin.........      7.2%      8.4%      9.2%     10.3%      8.6%     11.2%      13.1%
  Stores open at beginning of
    period..........................       13        14        16        18        20        20         22
  New stores........................        1         2         2         2         2         2          1
  Relocated stores..................        0         1         1         1         1         1          2
  Closed stores.....................        0         0         0         0         0         0          0
  Stores open at end of period......       14        16        18        20        22        22         23
BRYN MAWR
  Total revenue.....................                                $12,030   $35,432   $19,782   $ 28,359
  Store contribution(3).............                                   (291)    2,414     2,047      2,589
  Store contribution margin.........                                   -2.4%      6.8%     10.4%       9.1%
  Stores open at beginning of
    period..........................                                      0        13        13         15
  New stores........................                                      0         2         0          2
  Relocated stores..................                                      0         0         0          0
  Closed stores.....................                                      0         0         0          0
  Acquired stores...................                                     13         0         0          0
  Stores open at end of period......                                     13        15        13         17
HIFI BUYS
  Total revenue.....................                                          $23,044             $ 46,080
  Store contribution(3).............                                            1,890                4,874
  Store contribution margin.........                                              8.2%                10.6%
  Stores open at beginning of
    period..........................                                                0                   10
  New stores........................                                                0                    0
  Relocated stores..................                                                0                    0
  Closed stores.....................                                                0                    0
  Acquired stores...................                                               10                    0
  Stores open at end of period......                                               10                   10
CONSOLIDATED
  Corporate, general and
    administrative expenses.........  $ 2,663   $ 2,576   $ 3,247   $ 4,716   $ 8,102   $ 3,793   $  5,420
  Amortization of goodwill..........       65        65        65       129       487       120        423
                                      -------   -------   -------   -------   -------   -------   --------
  Income from operations............  $    10   $ 1,344   $ 2,238   $ 1,953   $ 2,053   $ 2,692   $  8,798
                                      =======   =======   =======   =======   =======   =======   ========
COMPARABLE STORE SALES GROWTH(7):
  Tweeter...........................      2.8%     11.2%     12.5%      1.6%     -4.5%     -7.7%      29.9%
  Bryn Mawr.........................                                   37.6%      4.7%      8.9%      15.0%
  HiFi Buys.........................                                            -29.7%               -13.2%
  Consolidated......................      2.8%     11.2%     12.5%      5.7%     -7.0%     -2.3%       8.8%
---------------
(1) Includes results of the Bryn Mawr Acquisition from May 13, 1996, which was
    accounted for using the purchase method. See Note 10 of Notes to the
    Consolidated Financial Statements of the Company.
 
(2) Includes results of the HiFi Buys Acquisition from May 30, 1997, which was
    accounted for using the purchase method. See Note 10 of Notes to the
    Consolidated Financial Statements of the Company.
 
(3) 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 the
    Company 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 the Company's
    profitability or
 
                                       19
22
 
    liquidity. There can be no assurance that the Company's calculation of store
    contribution is comparable to similarly titled items reported by other
    companies.
 
(4) The Company 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, the Company
    revoked its S election, and became subject to taxation as a C corporation.
    The pro forma information has been computed as if the Company were subject
    to Federal and all applicable state income taxes for each of the periods
    presented, assuming the Company had been taxed as a C corporation. The
    Company recorded an income tax benefit of $173,000 and $453,000 for the
    fiscal years ended September 30, 1995 and 1996, respectively.
 
(5) Weighted average shares outstanding gives effect to the automatic conversion
    of all outstanding shares of the Company's Preferred Stock into 2,566,561
    shares of Common Stock. Weighted average shares outstanding also include an
    aggregate of 845,059 shares issuable upon exercise of stock options and
    771,664 shares issuable upon exercise of warrants, after applying the
    treasury stock method assuming an initial public offering price of $16.00
    per share.
 
(6) Supplemental pro forma net income per share is based on pro forma net income
    per share, increased to give effect to the reduction in interest costs of
    $1,701 for the fiscal year ended September 30, 1997 and $1,531 for the six
    months ended March 31, 1998 (net of the applicable income taxes), which
    would have resulted assuming the application of a portion of the net
    proceeds from the Offering were used to repay certain indebtedness of the
    Company. See "Use of Proceeds."
 
(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.
 
                                       20
23
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
OVERVIEW
 
     The Company is a leading specialty retailer of audio and video consumer
electronics under the Tweeter, Bryn Mawr and HiFi Buys names. The Company opened
its first Tweeter store in New England in 1972. Over 26 years, the Company has
refined its retail concept to meet the needs of consumers seeking mid to
high-end brand name products with advanced features, functionality and
performance which the Company sells through its highly trained,
relationship-driven sales force. The Company believes that its effective
merchandising and superior customer service has enabled it to generate
substantial customer loyalty. Approximately 40% of customers who purchased from
Tweeter stores in the six months ended March 31, 1998 had previously purchased
products from the Company within the prior two fiscal years.
 
     In 1995, the Company adopted an aggressive growth strategy (i) to open new
stores in current regional markets and relocate certain stores to more favorable
sites and (ii) to selectively pursue acquisitions in new regional markets and
achieve operating improvements by converting the acquired company to the
Company's core operating model and leveraging distribution, marketing and
corporate infrastructure. To support this growth strategy, the Company obtained
equity investments in fiscal 1996 of approximately $10.6 million from a group of
investors led by Weston Presidio and Advent International (the "1996
Investors"). In May 1996, the Company completed the Bryn Mawr Acquisition. In
May 1997, the Company raised an additional $22.0 million, comprised of $7.0
million of equity and $15.0 million of subordinated debt from the 1996 Investors
and a new group of investors, including PNC Capital Corp. The proceeds were used
primarily to finance the HiFi Buys Acquisition. Both acquisitions were accounted
for by the purchase method of accounting. By December 31, 1997, the Company had
grown to 50 stores.
 
     The Company seeks to increase sales, profitability and asset productivity
at acquired companies by converting them to the Company's 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. The Company has aggressively expanded its
corporate infrastructure over the past two years to support anticipated higher
levels of growth, including expanding its management team with the addition of
senior financial, information systems and buying personnel. Enhancements were
also made to its management information systems with the addition of a new
mainframe and operating platform, and to its distribution and administrative
infrastructure to enable the Company to support all three regions on an
integrated basis.
 
     Prior to their acquisition by the Company, both Bryn Mawr and HiFi Buys
operated at substantially lower store contribution margins than the Company's
existing operations. Consequently, the Company's results were adversely impacted
in fiscal 1996 and 1997 following each of these acquisitions as the Company
converted acquired stores to its operating model. The impact was exacerbated by
the timing of the acquisitions that resulted in the peak, holiday sales period
being excluded from the operations of the acquired stores during the year of the
acquisition.
 
BRYN MAWR
 
     Subsequent to the Bryn Mawr Acquisition, the Company implemented a variety
of strategic initiatives to convert Bryn Mawr to its 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: (i) increasing advertising expenditures during the quarter
following the acquisition and refocusing advertising to emphasize radio,
television and direct marketing rather than print, (ii) implementing the
Company's every day competitive pricing and Automatic Price Protection programs,
(iii) initiating a substantial sales associate training
 
                                       21
24
 
program to improve product knowledge and enhance relationship selling skills and
(iv) focusing the sales staff on higher margin products, particularly audio
products.
 
     Primarily as a result of these initiatives, comparable store sales
increased 37.6% 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 15.0%
during the six months ended March 31, 1998. On a pro forma basis, assuming the
completion of the Bryn Mawr Acquisition as of October 1, 1995, store
contribution increased to 6.8% in fiscal 1997 from -1.1% in fiscal 1996. Bryn
Mawr store contribution margin fell to 9.1% in the six months ended March 31,
1998 from 10.4% in the prior year period primarily due to preopening expenses
incurred to open two new stores in the six months ended March 31, 1998 as well
as start up sales levels at those two stores and two additional stores opened in
May and June of 1997. The Company incurred preopening expenses of approximately
$135,000 in connection with the two stores opened in the six months ended March
31, 1998. Excluding preopening expenses, store contribution margin was 9.6% in
the six months ended March 31, 1998.
 
     The following table sets forth total revenues in thousands and store
contribution as a percentage of total revenues for Bryn Mawr on a stand-alone
basis:
PRO FORMA                                     SIX MONTHS ENDED
                              12 MONTHS ENDED       12 MONTHS ENDED     -------------------------------
                           SEPTEMBER 30, 1996(1)   SEPTEMBER 30, 1997   MARCH 31, 1997   MARCH 31, 1998
                           ---------------------   ------------------   --------------   --------------
Total revenue............         $33,525               $35,432            $19,782          $28,359
Store contribution.......      -1.1%                   6.8%               10.4%             9.1%
---------------
(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 from the prior owner's financial statements and certain
    assumptions that the Company believes are reasonable under the
    circumstances. The pro forma results are not necessarily indicative of what
    the Company's results would have been for the period had the Company
    completed the Bryn Mawr Acquisition as of the date indicated.
 
HIFI BUYS
 
     As with the Bryn Mawr Acquisition, the Company initiated a series of
strategic initiatives subsequent to the HiFi Buys Acquisition. In contrast to
Bryn Mawr, these initiatives combined a planned decrease of revenue with a
planned increase in gross margin and a substantial decrease in operating
expenses to generate increased store contribution. Specifically, the Company (i)
adjusted the merchandise mix to increase the proportion of mid and high-end
products and reduce the number of lower margin introductory products, (ii)
altered store employee compensation to reduce the emphasis on promotional sales
and focus incentives on gross margin and store contribution, (iii) reduced
marketing expenditures and shifted marketing emphasis from promotional
advertising toward the Company's traditional relationship-selling and every day
competitive price message, (iv) converted the advertising program to emphasize
electronic advertising and direct mail marketing as opposed to print media, (v)
implemented the Automatic Price Protection program and (vi) eliminated $2.4
million of overhead by centralizing accounting, purchasing and other support
infrastructure.
 
     Primarily as a result of these initiatives, the Company experienced a
planned decline in comparable store sales of 29.7% during the period from the
acquisition, May 30, 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 13.2% in the
six months ended March 31, 1998 at HiFi Buys, and the Company expects such
declines to continue through at least the quarter ended December 31, 1998 as it
implements its operating strategy. Pro forma for the HiFi Buys Acquisition
 
                                       22
25
 
as of October 1, 1996, store contribution improved to 10.6% in the six months
ended March 31, 1998 from 7.8% in the prior year period.
 
     The following table sets forth total revenues in thousands and store
contribution as a percentage of total revenues for HiFi Buys on a stand-alone
basis:
PRO FORMA
                                                  SIX MONTHS ENDED     SIX MONTHS ENDED
                                                  MARCH 31, 1997(1)    MARCH 31, 1998(1)
                                                  -----------------    -----------------
Total revenue...................................    $52,450              $46,080
Store contribution..............................      7.8%                10.6%
---------------
 
(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 from the prior owner's financial statements and certain
    assumptions that the Company believes are reasonable under the
    circumstances. The pro forma results are not necessarily indicative of what
    the Company's results would have been for the period had the Company
    completed the HiFi Buys Acquisition as of the date indicated.
 
RESULTS OF OPERATIONS
 
     The following table is derived from Selected Financial Data 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 YEAR ENDED             SIX MONTHS ENDED
                                                                   SEPTEMBER 30,                   MARCH 31,
                                                            ---------------------------    -------------------------
                                                            1995       1996       1997        1997          1998
                                                            -----      -----      -----    -----------   -----------
Total revenue.............................................  100.0%     100.0%     100.0%      100.0%        100.0%
Cost of sales.............................................   65.1%      64.3%      65.1%       64.7%         65.3%
  Gross profit............................................   34.9%      35.7%      34.9%       35.3%         34.7%
Selling expenses..........................................   25.6%      27.3%      26.8%       24.4%         23.4%
                                                            -----      -----      -----       -----         -----
  Store contribution......................................    9.2%       8.4%       8.0%       10.9%         11.3%
Corporate, general and administrative expenses............    5.4%       5.9%       6.1%        6.3%          4.2%
Amortization of goodwill..................................    0.1%       0.2%       0.4%        0.2%          0.3%
                                                            -----      -----      -----       -----         -----
  Income from operations..................................    3.7%       2.4%       1.5%        4.4%          6.8%
Interest expense..........................................    1.0%       0.8%       1.4%        0.8%          1.2%
                                                            -----      -----      -----       -----         -----
Income before income taxes................................    2.7%       1.7%       0.2%        3.6%          5.6%
Income tax expense (benefit)..............................   -0.3%      -0.6%       0.1%        1.4%          2.2%
                                                            -----      -----      -----       -----         -----
Net income................................................    3.0%       2.2%       0.1%        2.2%          3.3%
                                                            =====      =====      =====       =====         =====
SIX MONTHS ENDED MARCH 31, 1998 AS COMPARED TO SIX MONTHS ENDED MARCH 31, 1997
 
     Total Revenue.  Total revenue includes delivered sales, completed service
center work orders, insurance replacement and corporate sales. Total revenue
increased $68.5 million, or 113.1%, to $129.1 million in the six months ended
March 31, 1998 from $60.6 million for the six months ended March 31, 1997. The
increase was comprised of $46.1 million from the HiFi Buys Acquisition, $7.9
million from other new stores, and $14.5 million comparable store sales growth.
Comparable store sales increased by 8.8%, made up of a 29.9% increase at
Tweeter, a 15.0% increase at Bryn Mawr and a planned 13.2% decrease at HiFi
Buys. The exit from the New England market of certain competing retail chains
has had a favorable impact on comparable store sales at Tweeter, while the
increase at Bryn Mawr primarily resulted from the conversion to the Company'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 $45.1 million, or 115.1%, to $84.3 million in the six months ended
March 31, 1998 from $39.2 million in the six months ended March 31, 1997. Gross
profit increased $23.4 million, or 109.6%, to $44.8 million in the six months
ended March 31, 1998 from $21.4 million for the six months ended March 31, 1997.
The gross
 
                                       23
26
 
margin decreased to 34.7% of total revenues in the six months ended March 31,
1998 from 35.3% for the prior year period. The decrease was primarily due to the
inclusion of HiFi Buys insurance replacement and corporate sales business, which
operates at a lower margin than the Company's core retail product sales. This
was offset by an increase in volume-related vendor rebates. Excluding the HiFi
Buys insurance replacement and corporate sales business, gross margin for the
Company would have been 35.6%. Gross margin increased at Tweeter and Bryn Mawr
in the six months ended March 31, 1998 over the prior year period.
 
     Selling Expenses.  Selling expenses include the compensation of store
personnel, occupancy, store level depreciation, advertising, preopening expenses
and bank fees and exclude corporate overhead. Selling expenses increased $15.4
million, or 104.2%, to $30.2 million in the six months ended March 31, 1998 from
$14.8 million for the six months ended March 31, 1997. The increase was
principally associated with advertising, commissions related to increased sales,
fees related to private label credit card promotions, rent and personnel costs
associated with the stores acquired in the HiFi Buys Acquisition. As a
percentage of total revenue, selling expenses declined to 23.4% for the six
months ended March 31, 1998 from 24.4% in the prior year period. This decline
was primarily the result of increased revenue at Tweeter and the inclusion of
the HiFi Buys stores which have lower advertising expenses as a percentage of
revenue than the Company's other stores due to their concentration in the
Atlanta, Georgia market. Also, the HiFi Buys insurance replacement business
generates significant revenues with reduced store level expenses.
 
     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 for the six months
ended March 31, 1998 increased 42.9% to $5.4 million from $3.8 million for the
six months ended March 31, 1997. As a percentage of total revenue, corporate,
general and administrative expenses decreased to 4.2% for the six months ended
March 31, 1998 from 6.3% for the prior year period as the Company benefited from
a larger sales base.
 
     Amortization of Goodwill.  Amortization of goodwill increased to $423,279
for the six months ended March 31, 1998 from $119,562 for the six months ended
March 31, 1997. This increase is attributable to the additional goodwill
recorded in connection with the HiFi Buys Acquisition.
 
     Interest Expense.  Interest expense increased to $1.6 million for the six
months ended March 31, 1998 from $513,520 for the six months ended March 31,
1996 due primarily to the increased debt incurred to fund the HiFi Buys
Acquisition.
 
     Income Taxes.  For a discussion of changes in the Company's effective tax
rate, see Note 9 to Consolidated Financial Statements of the Company.
 
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 in revenues associated with the HiFi Buys Acquisition as well
as a full year of revenue from stores acquired in May 1996 in the Bryn Mawr
Acquisition. Additionally comparable store sales increased 4.7% at the Company's
Bryn Mawr stores. Total revenue increased 8.0% at the Tweeter stores, all of
which came from new stores as comparable store sales decreased 4.5% during
fiscal 1997 versus the prior year. The Company believes that the decline in
comparable store sales was due to general weakness in the consumer electronics
industry and a less effective marketing campaign for the first half of the
fiscal year.
 
     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 of the gross margin at HiFi Buys, which
was lower than the gross margin at the Tweeter and Bryn Mawr stores. The Company
also incurred lower
 
                                       24
27
 
gross margin at Tweeter 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 the Company
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 purchasing,
accounting and information systems staff in conjunction with the Bryn Mawr and
HiFi Buys acquisitions and the Company'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 the Company's 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 a discussion of changes in the Company's effective tax
rate see Note 9 to Consolidated Financial Statements of the Company.
 
FISCAL YEAR ENDED SEPTEMBER 30, 1996 AS COMPARED TO FISCAL YEAR ENDED SEPTEMBER
30, 1995
 
     Total Revenue.  Total revenue increased $20.5 million, or 34.1%, to $80.6
million in fiscal 1996 from $60.1 million in fiscal 1995. Approximately $12.0
million of the increase was due to the inclusion of a partial year of revenues
associated with the Bryn Mawr Acquisition. Revenue increased $8.5 million, or
14.1%, at the Tweeter stores, principally due to revenue from new stores.
Comparable store sales increased 1.6% at the Tweeter stores due primarily to the
general weakness of the consumer electronics industry. Comparable store sales
increased 37.6% at the Bryn Mawr stores following the Bryn Mawr Acquisition.
 
     Gross Profit.  Cost of sales increased $12.6 million, or 32.3%, to $51.8
million in fiscal 1996 from $39.2 million in fiscal 1995. Gross profit increased
$7.8 million, or 37.4%, to $28.8 million in fiscal 1996 from $21.0 million in
fiscal 1996. Gross margin increased to 35.7% in fiscal 1996 from 34.9% in fiscal
1995 principally due to the vendor rebates earned from the increased volume and
the leveraging of distribution costs.
 
     Selling Expenses.  Selling expenses increased $6.6 million, or 42.8%, to
$22.0 million in fiscal 1996 from $15.4 million in fiscal 1995. As a percentage
of sales, selling expenses increased to 27.3% in fiscal 1996 from 25.6% in
fiscal 1995. The increase was due to the continued growth in the number of
Tweeter stores, as well as the timing of the Bryn Mawr Acquisition.
 
     Corporate, General and Administrative Expenses.  Corporate, general and
administrative expenses increased $1.5 million, or 45.2% to $4.7 million in
fiscal 1996 from $3.2 million in fiscal 1995. The increase was due to investment
in infrastructure to support the Company's growth strategy including additions
to its purchasing, training and accounting staff. The Company also entered into
 
                                       25
28
 
an operating lease for new information systems equipment. As a percentage of
total revenue, corporate, general and administrative expense increased to 5.9%
in fiscal 1996 from 5.4% in fiscal 1995. In addition to investment in
infrastructure, the Company incurred expenses in anticipation of and following
the Bryn Mawr Acquisition, while not benefiting from inclusion of revenue from
the acquired stores during the peak holiday selling season.
 
     Amortization of Goodwill.  Amortization of goodwill increased to $129,273
for fiscal 1996 from $65,268 for fiscal 1995. This increase is attributable to
the additional goodwill recorded in connection with the Bryn Mawr Acquisition.
 
     Interest Expense.  Interest expense remained constant at approximately
$616,879 in fiscal 1996 and fiscal 1995. Interest expense as a percentage of
total revenues decreased to 0.8% in fiscal 1996 from 1.0% in fiscal 1995 as the
Company leveraged expenses over a larger revenue base.
 
     Income Taxes.  For a discussion of changes in the Company's effective tax
rate see Note 9 to Consolidated Financial Statements of the Company.
 
SEASONALITY AND QUARTERLY RESULTS
 
     The Company's business is subject to seasonal variations. Historically, the
Company 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 the Company's
financial condition and results of operations. The Company'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 ten quarters ended March 31,
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 the Consolidated Financial
Statements of the Company 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."
 
                                       26
29
THREE MONTHS ENDED
                                 ----------------------------------
                                  DECEMBER 31,         MARCH 31,
                                      1997               1998
                                 ---------------    ---------------
Total revenue..................  $74,617   100.0%   $54,512   100.0%
Cost of sales..................   49,236    66.0%    35,044    64.3%
                                 -------   -----    -------   -----
  Gross profit.................   25,381    34.0%    19,468    35.7%
Selling expenses...............   16,188    21.7%    14,020    25.7%
                                 -------   -----    -------   -----
  Store contribution...........    9,193    12.3%     5,448    10.0%
Corporate, general and
  administrative expenses......    2,838     3.8%     2,582     4.7%
Amortization of goodwill.......      205     0.3%       218     0.4%
                                 -------   -----    -------   -----
  Income from operations.......    6,150     8.2%     2,648     4.9%
Interest expense...............      865     1.2%       745     1.4%
                                 -------   -----    -------   -----
Income before income taxes.....    5,285     7.0%     1,903     3.5%
Income tax expense.............    2,115     2.8%       760     1.4%
                                 -------   -----    -------   -----
Net income.....................  $ 3,170     4.2%   $ 1,143     2.1%
                                 =======   =====    =======   =====
Stores open at beginning of
  period.......................       47                 50
New stores.....................        3                  0
Relocated stores...............        2                  0
Closed stores..................        0                  0
Acquired stores................        0                  0
Stores open at end of period...       50                 50
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%
                                 -------   -----    -------   -----    -------   -----    -------   -----
  Store contribution...........    4,373    12.5%     2,232     8.8%     1,499     5.3%     2,538     5.8%
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
Acquired stores................        0                  0                 10                  0
Stores open at end of period...       35                 35                 47                 47
27
30
THREE MONTHS ENDED
                                    ---------------------------------------------------------------------
                                     DECEMBER 31,        MARCH 31,         JUNE 30,        SEPTEMBER 30,
                                         1995              1996             1996(2)           1996(2)
                                    ---------------   ---------------   ---------------   ---------------
Total revenue.....................  $22,991   100.0%  $15,640   100.0%  $18,004   100.0%  $23,972   100.0%
Costs of sales....................   14,718    64.0%    9,905    63.3%   11,446    63.6%   15,747    65.7%
                                    -------           -------           -------           -------
  Gross profit....................    8,273    36.0%    5,735    36.7%    6,558    36.4%    8,225    34.3%
Selling expenses..................    4,917    21.4%    4,367    27.9%    5,698    31.6%    7,011    29.2%
                                    -------   -----   -------   -----   -------   -----   -------   -----
  Store contribution..............    3,356    14.6%    1,368     8.7%      860     4.8%    1,214     5.1%
Corporate, general and
  administrative expenses.........      793     3.4%      854     5.5%    1,418     7.9%    1,651     6.9%
Amortization of goodwill..........       16     0.1%       16     0.1%       32     0.2%       65     0.3%
                                    -------   -----   -------   -----   -------   -----   -------   -----
  Income (loss) from operations...    2,547    11.1%      498     3.2%     (590)   -3.3%     (502)   -2.1%
Interest expense..................      155     0.7%      108     0.7%      125     0.7%      229     1.0%
                                    -------   -----   -------   -----   -------   -----   -------   -----
Income (loss) before income
  taxes...........................    2,392    10.4%      390     2.5%     (715)   -4.0%     (731)   -3.1%
Income tax expense (benefit)(3)...      (26)   -0.1%      160     1.0%     (292)    1.6%     (295)   -1.2%
                                    -------   -----   -------   -----   -------   -----   -------   -----
Net income (loss).................  $ 2,418    10.5%  $   230     1.5%  $  (423)   -2.4%  $  (436)   -1.9%
                                    =======   =====   =======   =====   =======   =====   =======   =====
Stores open at beginning of
  period..........................       18                19                19                32
New stores........................        1                 0                 0                 1
Relocated stores..................        0                 1                 0                 0
Closed stores.....................        0                 0                 0                 0
Acquired stores...................        0                 0                13                 0
Stores open at end of period......       19                19                32                33
---------------
(1) Includes results of the HiFi Buys Acquisition from May 30, 1997, which was
    accounted for using the purchase method.
(2) Includes results of the Bryn Mawr Acquisition from May 13, 1996, which was
    accounted for using the purchase method.
(3) The Company 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, the Company
    revoked its S election and became subject to taxation as a C Corporation,
    effective October 1, 1995. This resulted in a deferred tax benefit of $1.0
    million, which was recorded in the three months ended December 31, 1995.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     The Company's cash needs are primarily 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, the Company pursues an active acquisition strategy, and
capital needs arise as acquisition opportunities are pursued.
 
     Historically, the Company's primary sources of financing have been net cash
from operations and borrowings under the Credit Facility. The Company's
acquisitions have also been funded through the sale of equity or subordinated
notes. At March 31, 1998 and March 31, 1997, the Company's working capital was
$16.3 million and $2.3 million, respectively. Cash provided by operations was
$1.8 million for the six months ended March 31, 1998, as compared to a use of
$.4 million in cash from operations in the six months ended March 31, 1997. This
increase is a result of $4.3 million in net income and an increase in accounts
payable and accrued expenses of $2.2 million, offset by increases in inventory
of $4.3 million and accounts receivable of $1.9 million.
 
     At September 30, 1997 and September 30, 1996, working capital was $11.9
million and $1.9 million, respectively. During fiscal 1997, cash used in
operations was $6.2 million, principally due to a $6.5 million increase in
inventory and a $1.3 million increase in accounts receivable. These increases
were primarily due to the opening of new stores and relocation of existing
stores. Cash generated by operations in fiscal 1996 and 1995 was $.5 million and
$2.1 million, respectively. In these years, $2.4 million and $.3 million,
respectively, was used to increase inventory levels.
 
                                       28
31
 
     Net cash used in investing activities during the six months ended March 31,
1998 and March 31, 1997 was approximately $1.3 million and $1.4 million,
respectively. During fiscal 1997, net cash used in investing activities was
$23.5 million, including $19.5 million for the HiFi Buys Acquisition. In
addition, the Company used $4.0 million of cash to open four new stores and
relocate one store. During fiscal 1996, net cash used in investing activities
was $11.2 million. Of that amount, $8.4 million was used in the Bryn Mawr
Acquisition and $2.8 million was used to open two new stores and relocate one
store. On March 25, 1998 the Company entered into a purchase and sale agreement
for a facility in Massachusetts that will serve as its new corporate
headquarters, service center and distribution center in Massachusetts. The
Company expects the purchase price and related building improvements to be
approximately $5.3 million, and expects to finance the purchase with a mortgage
of $4.0 million. There are no other material commitments for capital
expenditures other than new store openings and remodeling or relocating existing
stores in the next 12 months.
 
     In connection with a redemption of Common Stock from certain stockholders
of the Company and the Bryn Mawr Acquisition in fiscal 1996, the Company sold
shares of preferred stock for net proceeds of approximately $10.6 million and
issued the $1.0 million Redemption Note to certain of its redeeming
stockholders. In connection with the HiFi Buys Acquisition in fiscal 1997, the
Company sold shares of preferred stock for net proceeds of approximately $6.8
million, issued $15.0 million of 1997 Notes and issued the $1.2 million HiFi
Buys Note, in addition to increasing the borrowing limit under its Credit
Facility. See Notes 6 and 11 to the Consolidated Financial Statements of the
Company and "Certain Transactions." At March 31, 1998, the Company had
outstanding approximately $15.1 million under its Credit Facility, approximately
$1.0 million under the Redemption Note, approximately $15.0 million under the
1997 Notes and approximately $900,000 under the HiFi Buys Note. Substantially
all of such indebtedness will be paid in full upon the consummation of the
Offering.
 
     The Credit Facility currently has a maximum availability of $20.0 million
and a maturity date of June 1, 2000, and is secured by the inventory of the
Company and certain other assets. The Company intends to obtain the New Credit
Facility in the amount of $30.0 million, effective upon the consummation of the
Offering.
 
     The Company believes that the net proceeds that it will receive from the
Offering, together with the cash expected to be generated from operations and
available borrowings under the New Credit Facility, will be sufficient to
finance its working capital and capital expenditure requirements, exclusive of
acquisitions, for at least the next 12 months.
 
IMPACT OF INFLATION
 
     Management does not believe that inflation has had a material adverse
effect on the Company's results of operations. However, the Company 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. 128, "Earnings per Share," SFAS No.
130, "Reporting Comprehensive Income," SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," and SFAS No. 132, "Employer's
Disclosures About Pensions and Other Post Retirement Benefits".
 
     SFAS No. 128 changes the method of calculating earnings per share and is
effective for interim and annual periods ending after December, 1997. It
requires a dual presentation of basic and diluted earnings per share. The
Company adopted SFAS No. 128 during fiscal year 1998. The Company had not
previously reported earnings per share as it was not a public company.
 
     SFAS Nos. 130, 131 and 132 will be implemented during fiscal year 1999.
Management does not expect that the adoption of these statements will have a
material impact on the consolidated financial statements.
 
                                       29
32
 
                                    BUSINESS
 
OVERVIEW
 
     The Company is a leading specialty retailer of mid to high-end audio and
video consumer electronics products. The Company operates 50 stores under the
Tweeter, Bryn Mawr and HiFi Buys names in the New England, Mid-Atlantic and
Atlanta, Georgia markets, respectively. The Company's 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. The
Company differentiates itself by focusing on consumers who seek audio and video
products with advanced features, functionality and performance, and does 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. The Company seeks to build
customer loyalty by combining a high level of service with competitive prices
backed by its patented Automatic Price Protection program. The Company has been
recognized as the "Consumer Electronics Retailer of the Year" in 1996 and 1997
by Audio Video International Magazine and the fastest growing consumer
electronics retailer in the United States in 1997 by the TWICE Consumer
Electronics Retail Registry.
 
     The Company opened its first store in 1972 in Boston under the Tweeter name
and over the next two decades grew exclusively through new store openings in New
England, expanding to 18 stores by 1995. In 1995, the Company adopted an
aggressive growth strategy (i) to open new stores in its existing regional
markets and relocate certain stores to more favorable sites and (ii) to
selectively pursue acquisitions in new regional markets and achieve operating
improvements by converting acquired stores to the Company's core operating model
and leveraging distribution, marketing and corporate infrastructure. The Company
completed the Bryn Mawr Acquisition in May 1996 and the HiFi Buys Acquisition in
May 1997.
 
INDUSTRY
 
     According to the Consumer Electronics Manufacturers Association ("CEMA"),
factory sales of consumer electronics in 1997 reached $74 billion, with $22
billion attributable to audio and video products. 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.
 
     The Company believes that the following trends in the consumer electronics
industry create significant opportunities for a specialty retailer of audio and
video products such as the Company:
 
     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 the
Company believes has contributed to a decrease in emphasis by those stores on
audio and video products. According to CEMA statistics, audio and video products
accounted for 33% of total sales of consumer electronic products in 1997 versus
51% in 1990. The Company 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 the Company.
 
     Consolidation of Consumer Electronics Retailers.  The retail consumer
electronics industry is highly fragmented, with the two largest superstore
chains accounting for less than 25% of the total sales attributable to the 100
largest retailers in 1996. The expansion of large format chains has
                                       30
33
 
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, reduced purchasing power and lack of management depth. The
Company 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. The Company believes that a new generation of technology offers the
prospect of increased industry sales with the introduction of digital video
products such as DVD players and high definition televisions, as well as direct
broadcast satellite systems and internet-ready televisions. For example,
according to statistics of the Digital Video Group, Inc., an industry group,
350,000 DVD players were sold in 1997, the year the product was introduced, and
sales of DVD players are projected to reach 1,000,000 units for 1998. 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
 
     The Company's goal is to become the leading specialty retailer of high
quality audio and video products. The key elements of the Company's business
strategy are as follows:
 
     Extensive Selection of Mid to High-End Audio and Video Products.  The
Company concentrates on mid to high-end audio and video consumer electronics
products. This focus differentiates it 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. The Company'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 40% of product sales for the Company in
fiscal 1997. As a result of its higher-end focus, a historical early adopter
customer base and its extensively trained sales force, the Company is often
among the earliest retailers to offer new product innovations on behalf of
manufacturers. In addition, the Company believes that its focused product
offering allows for higher gross margin opportunities, appeals to a more
service-conscious consumer and results in enhanced brand awareness of its
regional names.
 
     Exceptional Customer Service.  The Company believes that the quality and
knowledge of its sales associates is critical to its success and represents a
significant competitive advantage. The Company's relationship selling model
encourages sales associates to promote a comfortable, trusting, low pressure
environment. The Company provides its new sales associates with five weeks of
intensive classroom training, and all sales associates receive five to fifteen
days of additional training per year, both at the store and at the Company's
regional training centers. The sales force receives technical product and sales
training prior to the Company's introduction of significant new products. The
Company believes that the success of its operating model has enabled it to
engender long term customer loyalty. Approximately 40% of customers who
purchased from Tweeter stores in the six months ended March 31, 1998 had
previously purchased products from the Company during the prior two fiscal
years.
 
     Dynamic, Inviting Stores.  The Company's stores display products in a
dynamic and inviting setting intended to encourage the customer to view and hear
products in sound rooms architectur-
 
                                       31
34
 
ally and acoustically designed to simulate the customer's home or car
environment. The store prototype is brightly painted, often in pastel colors,
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
the Company's home theater products.
 
     Every Day Competitive Pricing.  The Company utilizes an "every day
competitive pricing" strategy with fixed prices clearly marked on its products.
Store managers regularly visit local competitors to ensure that the Company's
pricing remains competitive within the store's local market. In addition, all
product sales are backed by the Company's patented Automatic Price Protection
program. Under this program, if a customer purchases a consumer electronics
product from one of the Company's stores and a competitor within 25 miles of the
store advertises a lower price within 30 days of purchase, the Company
automatically sends a check to the customer for the difference without requiring
the customer to request the 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
 
     The Company's growth strategy is (i) to open new stores in current regional
markets and relocate certain stores to more favorable sites and (ii) to
selectively pursue acquisitions in new regional markets and achieve operating
improvements by converting the acquired company to its core operating model and
leveraging distribution, marketing and corporate infrastructure.
 
     New Stores.  The Company intends 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 1997, the Company opened two Tweeter stores and two Bryn Mawr stores, and
relocated one Tweeter store. The Company currently intends to open five stores
in fiscal 1998, comprised of two at Tweeter and three at Bryn Mawr, and to
relocate two additional stores. Three of the five new stores planned for fiscal
1998 have been opened as of March 31, 1998. The Company intends to open 15
stores, and to relocate three stores, in fiscal 1999. The Company believes that
its Bryn Mawr Acquisition and HiFi Buys Acquisition have provided it with
platforms from which to open new stores within and around their respective
markets.
 
     Strategic Acquisitions.  The Company believes that it has 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 the Company does not
currently operate. The Company believes that it can leverage the performance of
an acquisition candidate by (i) applying its sales management and sales
incentive strategies, (ii) adjusting the product mix to be compatible with its
emphasis on higher margin audio and video products, (iii) applying its
advertising and marketing strategies and programs, including Automatic Price
Protection and every day competitive pricing, (iv) implementing its relationship
selling and customer service philosophies and (v) utilizing its purchasing and
distribution capabilities and administrative infrastructure.
 
     The Company believes 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 presented by larger format superstores and mass
merchandisers on those retailers, and the difficulties faced by local and
regional specialty retailers in raising capital necessary to support inventory,
advertising or expansion. According to the TWICE Consumer Electronics Retail
Registry, which reports annually on the state of the industry, approximately $7
billion of 1996 sales were attributable to specialty electronics chains with
five or more stores, many of which the Company believes would be attractive
acquisition candidates. The Company believes that it is a well-positioned
consolidator because the Company (i) is known within the
 
                                       32
35
 
industry as a leading specialty retailer, (ii) utilizes a store size and concept
which can be readily adapted to acquired stores, (iii) has successfully
consummated two strategic acquisitions, (iv) has developed an operational,
administrative and marketing infrastructure with the proven capability to
successfully integrate acquisitions, (v) enjoys experienced and proven senior
management, having an average of 13 years of tenure with the Company and (vi)
would seek to offer employment and managerial opportunities within the
consolidated enterprise to qualified employees of the acquired retailer.
 
RECENT ACQUISITIONS
 
     Acquisition of Bryn Mawr.  In May 1996, the Company completed the Bryn Mawr
Acquisition. Like the Tweeter 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 stores, the Company
consummated the Bryn Mawr Acquisition with the goal of realizing increased
revenues and store contribution through the application of the Company's
established operational strategies to the acquired stores. Towards that goal,
the Company adopted a series of strategic initiatives including (i) increasing
advertising expenditures during the quarter following the acquisition and
refocusing advertising to emphasize radio, television and direct marketing
rather than print, (ii) implementing the Company's every day competitive pricing
and Automatic Price Protection programs, (iii) initiating a substantial sales
associate training program to improve product knowledge and enhance relationship
selling skills and (iv) focusing the sales staff on higher margin products,
particularly audio products.
 
     Acquisition of HiFi Buys.  In May 1997, the Company completed the HiFi Buys
Acquisition. Like Tweeter 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 or Bryn Mawr stores. However, the HiFi Buys
stores carried a broader product mix, including more entry level product
offerings and marketed heavily through promotional newspaper advertising. The
Company's 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 Company's and managing a planned decrease in sales while increasing
gross margin and reducing operating expenses. Specifically, following the HiFi
Buys Acquisition, the Company (i) adjusted the merchandise mix to increase the
proportion of mid and high-end products and reduce the number of lower margin
introductory products, (ii) altered store employee compensation to reduce the
emphasis on promotional sales and focus incentives on gross margin and store
contribution, (iii) reduced marketing expenditures and shifted marketing
emphasis from promotional advertising toward the Company's traditional
relationship-selling and every day competitive pricing strategy, (iv) converted
the advertising program to emphasize electronic advertising and direct mail
marketing as opposed to print media, (v) implemented the Automatic Price
Protection program and (vi) eliminated $2.4 million of overhead by centralizing
accounting, purchasing and other support infrastructure.
 
STORE FORMAT AND OPERATIONS
 
     Store Format.  As of March 31, 1998, the Company operated 50 stores,
comprised of 23 Tweeter stores in New England, 17 Bryn Mawr stores in the
Mid-Atlantic market, and 10 HiFi Buys stores in the greater Atlanta, Georgia
market. While the Company's 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 occupancy expense.
 
     The Company's store concept is intended to combine 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 stores of the
Company's competitors, which contain large, open spaces in which many different
                                       33
36
 
audio and video products are tested and sampled, the Company's stores feature
individual sound rooms. The sound rooms are intended to architecturally and
acoustically resemble a home or car environment to enable the customer to see
and hear how products will perform, and allow the customer to listen to and
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 the
Company'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 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 the Company's installation capabilities. Most stores
provide car stereo installation through on-premises installation bays.
 
     Store Operations  Stores are typically staffed with a store manager, an
assistant manager, twelve sales associates and two mobile electronics
installers. The Company provides new sales associates with five weeks of
intensive classroom training, and all sales associates receive five to fifteen
days of additional training per year, both at the store and at the Company's
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  The Company believes that it benefits from attractive
store level economics. The average investment by the Company for the eight new
stores opened in the 24 months ended March 31, 1998, including leasehold
improvements, equipment, the cost of inventory (net of payables), and preopening
expenses was $855,000. 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 the 12 months
ended March 31, 1998 was $3,389,000 and $317,000, respectively, for stores owned
by the Company throughout the period.
 
SITE SELECTION
 
     The Company'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 competitors, access to highways or other major
roadways and available lease terms. The Company looks for co-tenants, such as
bookstores, that are likely to draw customers who would otherwise be targeted by
the Company within the site's relevant market and believes that close proximity
to large format competitors is a positive factor due to increased customer
traffic. All of the Company's stores are leased.
 
                                       34
37
 
     Set forth below is a table summarizing the locations, opening years, and
years of relocation where specified, of the Company's stores as of March 31,
1998:
TWEETER                          BRYN MAWR                        HIFI BUYS
----------------------------   ---------------------------------   ----------------------------
                YEAR OPENED/                        YEAR OPENED/                   YEAR OPENED/
   LOCATION      RELOCATED          LOCATION         RELOCATED        LOCATION      RELOCATED
   --------     ------------        --------        ------------      --------     ------------
Boston, MA        1972         Bryn Mawr, PA          1946         Norcross, GA      1990
Cambridge, MA     1974  /      Maple Shade, NJ        1978         Alpharetta, GA    1991
                  1998         Abington, PA           1981         Athens, GA        1991
Newton, MA        1976  /      Allentown, PA          1982         Buckhead, GA      1993
                  1995         Montgomeryville, PA    1984         Southlake, GA     1993
Burlington, MA    1978  /      Wilmington, DE         1985  /      Tucker, GA        1993
                  1996                                1992         Kennesaw, GA      1995
Dedham, MA        1980         Harrisburg, PA         1986  /      Smyrna, GA        1995
Framingham, MA    1983                                1994         Gwinnett, GA      1996
Hyannis, MA       1983  /      Wilmington, DE         1987
                  1994         Allentown, PA          1987
New London, CT    1985  /      Baltimore, MD          1990
                  1998         Timonium, MD           1990
Hanover, MA       1986         King of Prussia, PA    1995
Danbury, CT       1986  /      Glen Burnie, MD        1995
                  1997         Princeton, NJ          1997
Seekonk, MA       1988         Lancaster, PA          1997
Warwick, RI       1989         Reading, PA            1997
Newington, CT     1990         York, PA               1997
Avon, CT          1993
Peabody, MA       1993
Manchester, NH    1994
Salem, NH         1994
Boston, MA        1995
Milford, CT       1995
Holyoke, MA       1996
Portsmouth, NH    1996
Nashua, NH        1996
Attleboro, MA     1997
MERCHANDISE
 
     The Company's 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. The Company
offers custom home and car stereo installation services and provides warranty
and non-warranty repair services through all of its stores. The Company also
offers insurance replacement services to insurance companies, providing
replacement products to policyholders of such companies. Additionally, the
Company has a corporate sales division which markets and sells Company products
to businesses, institutions and other organizations. The Company's emphasis on
mid to high-end products enables it 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 40% of the Company's
sales in fiscal 1997.
 
     The Company stocks products from over 75 vendors, including Adcom, Aiwa,
Alpine, Bose, Boston Acoustics, Denon, Eclipse, Kenwood, Klipsch, Mirage,
Mitsubishi, Monster Cable, Panasonic, Pioneer, ProScan, Rockford Fosgate, Sony
and Yamaha. The Company seeks to manage its product mix to maximize gross
margin. Historically, the Company's video products have yielded lower gross
margin than audio products. Total sales of video products have increased at
rates faster than the
 
                                       35
38
 
increases in audio product sales during the last several years as a result of
the increased consumer interest in big screen televisions. Accordingly, the
Company has adopted a "Sell Audio with Video" strategy in order to enhance
overall gross margin through increases in sales of higher margin audio products.
 
     The table below sets forth the approximate percentages of revenues for each
of the Company's primary product categories for its fiscal years ended September
30, 1996 and September 30, 1997 and for the six months ended March 31, 1997 and
March 31, 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
the Company's product mix, and the timing of marketing events. The percentages
are also impacted by acquisitions of stores offering a different product mix. In
particular, the increase in the percentage of revenue represented by video
products in the year ended September 30, 1997 and six months ended March 31,
1998 versus the prior year periods was primarily driven by the inclusion of
stores acquired in the HiFi Buys Acquisition. Video products represent a greater
percentage of revenues at HiFi Buys than at the other Company stores. The
historical percentages set forth below may not be indicative of revenue
percentages for future periods:
 
                             PERCENTAGE OF REVENUES
YEAR ENDED          YEAR ENDED      SIX MONTHS ENDED  SIX MONTHS ENDED
   PRODUCT CATEGORY      SEPTEMBER 30, 1996  SEPTEMBER 30, 1997   MARCH 31, 1997    MARCH 31, 1998
-----------------------  ------------------  ------------------  ----------------  ----------------
Audio Equipment(1).....         38%                 31%                39%               34%
Video Equipment(2).....         39%                 43%                40%               44%
Mobile Equipment and
  Other(3).............         23%                 26%                21%               22%
---------------
(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
 
     The Company's purchasing and inventory control functions are based at its
executive offices in Canton, Massachusetts. Purchasing decisions are made by the
Company's buying team, which has primary responsibility for product selection,
stocking levels and pricing. This process is facilitated by the Company's
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 Company's product mix. In order to remain
current with new and developing products, the Company regularly hosts
presentations by its major suppliers.
 
     In addition to making direct purchases, the Company is a member of PRO, a
volume-buying group of 14 specialty electronics retailers across the country.
This affiliation often provides the Company with opportunities to obtain
additional vendor rebates, product discounts and promotional products. The
Company is not obligated to make purchases through the PRO. The Company's
President serves on the Board of Directors of PRO.
 
     The Company sources products from more than 75 vendors, the largest of whom
accounted for 24% of fiscal 1997 purchases. The Company 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 the Company's existing product mix, when making
purchasing decisions. The Company utilizes a sophisticated automatic
replenishment system for store inventory, maintaining stock levels and
minimizing total dollars invested in
 
                                       36
39
 
inventory. The Company believes that its relationship with its large vendors is
excellent and that its focused merchandising and high degree of customer service
makes it an important distribution channel for its suppliers, particularly for
the introduction of new products.
 
     The Company distributes products to stores through three regional
distribution and service centers. The Canton, Massachusetts facility is 32,000
square feet and currently serves as the Company's headquarters and distribution
and service center for the Tweeter stores. The Company will be relocating this
facility to a new 80,000 square foot facility two miles from its existing
facility in August 1998. 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. The Company
believes that these facilities are sufficient to handle the Company's planned
expansion through at least the year 2000.
 
ADVERTISING AND MARKETING
 
     The Company targets consumers seeking informed advice concerning product
selection and system integration of audio and video consumer electronics
products. The Company's marketing strategy differs from its major competitors in
that it relies substantially on electronic media, primarily radio, and an
extensive direct marketing effort. The Company believes advertising on specific
radio stations and at specific times allows it the flexibility to tailor its
marketing message. The Company's radio advertising campaigns seek to generate
name recognition and to reinforce identification of the Company as a source of
high quality products at competitive prices, staffed with a knowledgeable,
attentive sales force. This radio strategy is complemented with television
advertisements and, less frequently, with print advertisements. The specific
allocation of the Company's committed advertising dollars among the various
types of advertising media is reviewed from time to time by Company management
and, if necessary, adjusted to reflect the Company's assessment of advertising
results and market conditions.
 
     The Company also relies on a sophisticated direct marketing campaign to its
customers. The Company has developed a comprehensive database marketing program
to attempt to match past customer purchasing history to the next logical
purchase option for that customer. For example, the Company has distributed
direct mail regarding surround sound products to customers who recently
purchased large screen televisions. The Company also distributes an
award-winning 100 page Buyer's Guide three times a year and a smaller 24 page
catalog nine times per year. Management believes that its relatively inexpensive
direct mail activities leverage and complement its general media advertising
campaigns.
 
     The Company believes that its commitment to providing competitive pricing
on its products is a critical component of its marketing and advertising
strategy. In 1993, the Company abandoned its promotional marketing approach and
adopted an every day competitive pricing strategy, with fixed prices clearly
marked on its products. Store managers regularly visit the local competition to
ensure the store's pricing remains competitive. At the same time, the Company's
competitive prices are backed by its Automatic Price Protection program. Under
the Automatic Price Protection program, if a customer purchases a consumer
electronics product from one of the Company's stores and a competitor within 25
miles of that store advertises a lower price within 30 days of the customer's
purchase, the Company automatically sends a check to 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
to request a price match refund. The Automatic Price Protection program is
intended to be hassle-free, customer friendly and viewed as a reflection of the
Company's commitment to customer service. Most recently, in fiscal 1997, the
Company began its "Wise Buys" program. Under this program, the Company'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. The
Company believes that the pricing of the Wise Buys items represents substantial
value to the
 
                                       37
40
 
consumer with little or no negative impact to gross margin. The Company's
advertisements frequently describe or refer to the Automatic Price Protection
and Wise Buys programs.
 
INFORMATION SYSTEMS
 
     The Company utilizes a sophisticated, fully integrated mainframe-based
management information system which updates after every transaction, and is
accessible on a real-time basis to Company 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 the Company. 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. The Company provides ongoing training and
support in the use of this system and compensates and benchmarks the store
managers based upon this information.
 
     The Company currently utilizes several software systems which will require
modification or upgrading to accommodate the "Year 2000" changes needed for
correct recording of dates in the year 2000 and beyond. The Company believes
that all such systems can be changed by the end of 1999 and does not expect the
cost of such changes to be material to the Company's financial condition or
results of operations. The Company does not, however, currently have any
information concerning Year 2000 compliance status of its suppliers. See "Risk
Factors -- Year 2000 Compliance."
 
EMPLOYEES
 
     As of March 15, 1998, the Company had 979 employees, comprised of 910
full-time and 69 part-time employees. None of the Company's employees are
covered by collective bargaining agreements, and the Company believes its
relations with its employees are good. See "Risk Factors -- Dependence on Key
Personnel."
 
INTELLECTUAL PROPERTY
 
     The Company's "Tweeter etc." and "Bryn Mawr Stereo" service marks have been
registered with the United States Patent and Trademark Office. The Company has
not registered the "HiFi Buys" service mark. The Company has submitted
applications for registration of certain other of its service marks, which
applications are currently pending. See "Risk Factors -- Intellectual Property."
 
PROPERTIES
 
     In addition to the Company's stores, all of which are leased, the Company
also leases three distribution and office facilities in Canton, Massachusetts,
King of Prussia, Pennsylvania, and Atlanta, Georgia, with lease terms expiring
in 2001, 2011 and 2008, respectively. On March 25, 1998 the Company entered into
a purchase and sale agreement for a facility in Massachusetts that will serve as
its new corporate headquarters, service and distribution center in
Massachusetts. The Company expects the purchase price and related building
improvements to be approximately $5.3 million, and expects to finance the
purchase with a mortgage of $4.0 million.
 
LITIGATION
 
     From time to time, the Company is involved in litigation in the ordinary
course of the Company's business. In the opinion of management, no such
litigation is likely to have a material adverse effect on the Company's 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 the Company
immediately following the Offering:
NAME                               AGE                          POSITION
----                               ---                          --------
EXECUTIVE OFFICERS AND DIRECTORS
Samuel Bloomberg.................  46    Chairman, Chief Executive Officer and Director
Jeffrey Stone(1).................  41    President, Chief Operating Officer, Treasurer and
                                         Director
Joseph McGuire...................  37    Vice President, Chief Financial Officer and Chief
                                         Information Officer
Jeffrey Bloomberg(1).............  51    Director
Matthew Bronfman(2)..............  38    Director
Michael Cronin(1)(2).............  44    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....................  38    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 the Company and has served as a
director and/or officer since its inception. Mr. Bloomberg has been Chief
Executive Officer of the Company 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 the Company 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 PRO, the buying group of specialty consumer
electronics retailers of which the Company is a member.
 
     Joseph McGuire has been a Vice President, Chief Financial Officer and Chief
Information Officer of the Company since May 1996. Prior to joining the Company,
Mr. McGuire was the Chief Financial Officer of Bryn Mawr Radio & Television
Centre, Inc. from 1987 to 1996.
 
     Jeffrey Bloomberg has served as a director in 1972 and from 1992 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 a director 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 a Director since November, 1995. From 1991 to
the present Mr. Cronin has served as Managing Partner of Weston Presidio
Capital. Mr. Cronin also serves as a director of Tekni-plex, Inc. and Casella
Waste Systems, Inc.
 
     Roy Bertalotto has served as Vice President, New Store Development of the
Company 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 the
Company 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 the
Company since May 1997. Prior to joining the Company, Mr. Ginsburg served as a
Vice President of HiFi Buys Incorporated.
 
     Dori Ginsburg has served as Vice President, Insurance Replacement of the
Company since May 1997. Prior to joining the Company, Ms. Ginsburg served as
Vice President, Insurance Replacement of HiFi Buys Incorporated.
 
     Albert Gordon has served as Vice President, Operations and Corporate
Finance of the Company 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 the Company 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 the
Company from 1988 to 1990.
 
     Bernard Sapienza has served as Vice President, Purchasing of the Company
since 1994. Prior to that, from 1989 to 1994, Mr. Sapienza served as a Senior
Product Buyer of the Company.
 
     Paul Shindler has served as Vice President, Training of the Company since
1994. Prior to that, Mr. Shindler served as Regional Vice President of Sales for
the northern region and Training Director of the Company from 1991 to 1994 and
served in various sales and training capacities for the Company from 1977 to
1987.
 
BOARD COMPOSITION
 
     Reorganization of Board.  The Company currently has five directors,
comprised of Samuel Bloomberg, Jeffrey Stone, Jeffrey Bloomberg, Mathew Bronfman
and Michael Cronin. Mr. Cronin has been appointed to the Board pursuant to the
terms of the Company's outstanding Preferred Stock, which will be converted into
Common Stock effective upon consummation of the Offering. Effective upon the
consummation of the Offering, the Board of Directors will be reorganized by
dividing the Board into three staggered classes consisting of Class I directors
(Messrs.           and           ), Class II directors (Messrs.           and
          ) and Class III directors (Mr.          ). 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 Company stockholders. The Company believes that classification of the
Board of Directors will help facilitate continuity and stability of the
Company's business strategies and policies as determined by the Board of
Directors. Holders of Common Stock will have no right to cumulative voting in
the election of directors. Consequently, at
 
                                       40
43
 
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.
 
     Audit Committee.  The Audit Committee 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 Stone, Samuel Bloomberg and Michael Cronin.
 
     Compensation Committee.  The Compensation Committee will establish
compensation policies and programs for the Company's executive officers and
exercise all powers of the Board of Directors in connection with establishing
and implementing compensation matters, including incentive compensation and
benefit plans. The Compensation Committee of the Board consists of Mathew
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 Mathew Bronfman of non-qualified stock options to purchase 107,584 shares of
the Company's Common Stock at an exercise price of $1.524 per share. Such
Options, by their terms, were fully vested on the date of grant.
 
DIRECTORS' COMPENSATION
 
     The Company pays its Directors $1,500 per quarter. All directors are
reimbursed for expenses incurred in attending meetings. Following the Offering,
each director who is not also an employee or affiliate of the Company will be
granted options or other plan awards worth $     pursuant to the 1998 Outside
Director Plan. See "Management -- Stock Plans."
 
EXECUTIVE COMPENSATION
 
     The following table sets forth the compensation earned by the Company's
Chief Executive Officer and each of the other executive officers of the Company
(the "Named Executives") for services rendered in all capacities to the Company
during the fiscal year ended September 30, 1997:
 
                           SUMMARY COMPENSATION TABLE
LONG-TERM
                                                              COMPENSATION
                                                              ------------
                                 ANNUAL COMPENSATION(1)        SECURITIES
                               ---------------------------     UNDERLYING
                                            OTHER ANNUAL        OPTIONS          ALL OTHER
NAME AND PRINCIPAL POSITION     SALARY     COMPENSATION(2)        (#)         COMPENSATION(3)
---------------------------    --------    ---------------    ------------    ---------------
Samuel Bloomberg.............  $203,269        $1,960            66,240           $65,818
  Chairman and Chief
  Executive Officer
Jeffrey Stone................  $204,005        $1,448            48,610           $13,888
  President and Chief
  Operating Officer
Joseph McGuire...............  $149,420        $  466             2,624                --
  Vice President, Chief
  Financial Officer and Chief
  Information Officer
---------------
(1) The compensation described in this table does not include medical, group
    life insurance or other benefits received by the Named Executives which are
    available generally to all salaried employees of the Company.
(2) Represents amounts contributed by the Company under the Company's 401(k)
    Plan to the accounts of the Named Executives.
(3) Represents amount distributed to cover personal tax liability from the
    Company's prior status as a Subchapter 'S' corporation for federal income
    tax purposes. On November 25, 1995, as part of a recapitalization, the
    Company 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 the fiscal year ended September 30, 1997 to each of the
Named Executives under the Company's existing stock option plan:
 
                          OPTION GRANTS IN FISCAL 1997
PERCENT OF
                               NUMBER OF       TOTAL OPTIONS                                GRANT
                              SECURITIES        GRANTED TO      EXERCISE                     DATE
                              UNDERLYING       EMPLOYEES IN       PRICE      EXPIRATION    PRESENT
           NAME             OPTIONS GRANTED     FISCAL YEAR     PER SHARE       DATE       VALUE(1)
           ----             ---------------    -------------    ---------    ----------    --------
Samuel Bloomberg..........      13,350              5.7%          $7.10         2007       $ 2,646
                                52,890             22.7%          $8.08         2007       $10,481
                                ------             ----                                    -------
                                66,240             28.4%                                   $13,127
Jeffrey Stone.............      13,350              5.7%          $6.46         2007       $ 2,646
                                35,260             15.2%          $7.24         2007       $ 6,988
                                ------             ----                                    -------
                                48,610             20.9%                                   $ 9,634
Joseph McGuire............       2,624              1.1%          $7.24         2007       $   520
---------------
(1) The fair value of each stock option granted in fiscal 1997 under the
    Company's existing stock option plan was estimated on the date of grant
    using the Black-Scholes option pricing model assuming an expected volatility
    of 25%, a risk-free interest rate of 6%, an expected life of 4 years and no
    dividend payments. See Note 11 of Notes to Consolidated Financial Statements
    of the Company.
 
     The following table sets forth certain information regarding stock option
exercises during the fiscal year ended September 30, 1997 and stock options held
at such year end by the Named Executives. No options were exercised during such
fiscal year by the Named Executives.
 
                AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                       AND FISCAL YEAR-END OPTION VALUES
VALUE OF UNEXERCISED
                                                   NUMBER OF SECURITIES           IN-THE-MONEY
                                                  UNDERLYING UNEXERCISED            OPTIONS
                                                OPTIONS AT FISCAL YEAR-END     AT FISCAL YEAR-END
                                                       EXERCISABLE/               EXERCISABLE/
NAME                                                  UNEXERCISABLE              UNEXERCISABLE
----                                            --------------------------    --------------------
Samuel Bloomberg..............................             208,916/0                 $2,526,691/0
Jeffrey Stone.................................             114,978/0                 $1,343,651/0
Joseph McGuire................................          8,397/15,220             $110,187/188,265
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
 
     Effective upon the consummation of the Offering, the Company will enter
into five-year employment agreements with Samuel Bloomberg, to serve as Chairman
of the Board and Chief Executive Officer of the Company, and with Jeffrey Stone,
to serve as President and Chief Operating Officer of the Company (the
"Employment Agreements"). The Employment Agreements provide that in addition to
their base annual salaries, each of Messrs. Bloomberg and Stone will have the
opportunity to earn incentive bonuses based upon certain performance criteria,
to be determined by
 
                                       42
45
 
the Compensation Committee, and the opportunity to receive stock options and
other incentive awards under the Company's 1998 Stock Option and Incentive Plan.
 
     The Employment Agreements provide for continued employment until
termination by either party. The Company, however, may terminate either
Employment Agreement with or without cause at any time. If either executive's
employment is terminated by the Company without cause, the Company 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: (i) if the executive is terminated in
during the first three years of the agreement, he will receive an amount equal
to three times his annual base salary in the year of termination; (ii) if the
executive is terminated in the fourth year, he will receive an amount equal to
two times his annual base salary in the year of termination; and (iii) 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.
 
  Other Employment Agreements
 
     Effective upon the consummation of the Offering the Company will enter into
an employment agreement with Joseph McGuire to serve as Chief Financial Officer
of the Company. Under the terms of this three-year agreement, Mr. McGuire will
earn a base annual salary 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 the Company's stock option plans.
 
INSURANCE
 
     The Company intends to obtain a directors' and officers' liability
insurance policy in the aggregate amount of $5.0 million. The directors' and
officers' insurance will insure the (i) directors and officers of the Company
from any claim arising out of an alleged wrongful act by the directors and
officers in their respective capacities as directors and officers and (ii)
Company to the extent that it has indemnified a director or officer for such
loss.
 
STOCK PLANS
 
     1995 Stock Option Plan.  On November 28, 1995, the Company adopted its 1995
Stock Option Plan (the "1995 Stock Option Plan"). The 1995 Stock Option Plan
allowed the Company 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 Company employees and (ii) options to purchase Common
Stock which do not qualify as ISOs ("Non-Qualified Options") to directors,
officers, employees and consultants of the Company. 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           , 1998, the Board of Directors of the
Company voted to terminate the 1995 Stock Option Plan effective on, and subject
to, the consummation of the Offering. As of the date of this Prospectus, the
Company 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 Plan and 1998 Outside Director Plan.  On                  ,
1998, the Company adopted its 1998 Stock Option and Incentive Plan (the "1998
Stock Plan") and its 1998 Outside Director Stock Plan (the "1998 Outside
Director Plan", together with the 1998 Stock Plan, the "1998 Plans") to provide
incentives to attract and retain executive officers, directors, and key
employees and consultants. The summary of the 1998 Plans set forth below is
qualified in its entirety by reference to the 1998 Plans, which are included as
exhibits to the Registration Statement of which this Prospectus is a part.
 
                                       43
46
 
     The aggregate number of shares of Common Stock issuable under the 1998 Plan
is equal to      % of the total shares of Common Stock that will be issued and
outstanding, on a fully diluted basis, upon completion of the Offering. In
addition, the number of shares of Common Stock issuable under the 1998 Plans
will increase, on each anniversary date of the adoption of the 1998 Plans, to
that number of shares equal to      % of the total number of shares of Common
Stock that are issued and outstanding on a fully diluted basis, on each such
anniversary date. As options under the 1998 Stock Plans are exercised, the
number of shares represented by such previously outstanding options will again
become available for issuance under the 1998 Plans.
 
     The 1998 Plans will expire five years following their adoption. Awards made
thereunder and outstanding at the expiration of the 1998 Plans will survive in
accordance with their terms. As of the date of this Prospectus, no awards or
grants have been made under either of the 1998 Stock Plans.
 
     The 1998 Stock Plan will be 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 (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 Stock Plans, may be used for Plan Awards consisting of restricted
stock. All grants of restricted stock under the 1998 Stock 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 Outside Director Plan will provide for the grant or issuance of
Plan Awards to directors of the Company who are not employees of the Company.
 
                                       44
47
 
                       PRINCIPAL AND SELLING STOCKHOLDERS
 
     The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the date of this Prospectus and as
adjusted to reflect the sale by the Company 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 the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock (assuming conversion of all outstanding Preferred Stock
and the exercise of warrants to purchase 259,856 shares of Common Stock), (ii)
each of the Company's Named Executives and directors, (iii) all of the Company's
executive officers and directors as a group and (iv) the Selling Stockholders.
Except as otherwise indicated in the footnotes to this table, the Company
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 OF         SHARES
                                             BENEFICIALLY OWNED     SHARES     BENEFICIALLY OWNED
                                                PRIOR TO THE         BEING          AFTER THE
                                                 OFFERING(1)        OFFERED        OFFERING(1)
                                             -------------------   ---------   -------------------
       NAME OF BENEFICIAL OWNER(2):           NUMBER     PERCENT    NUMBER      NUMBER     PERCENT
       ----------------------------          ---------   -------   ---------   ---------   -------
Advent International Group(3)..............    883,871    22.7%          --      883,871    14.6%
Weston Presidio Offshore Capital C.V.(4)...    646,558    16.7%          --      646,558    10.6%
PNC Capital Corp(5)........................    457,403    11.2%          --      457,403     7.3%
Exeter Venture Management Corp.(6).........    333,632     8.6%     333,632           --       *
BNP Venture Holding Corp.(7)...............    286,401     7.4%          --      286,401     4.7%
Seacoast Capital Partners, L.P.(8).........    209,855     5.2%      50,000      159,855     2.6%
Samuel Bloomberg(9)........................    912,362    22.3%      85,119      827,243    13.1%
Jeffrey Stone(10)..........................    321,618     8.0%      16,473      305,145     4.9%
Joseph McGuire(11).........................     12,595       *           --       12,595       *
Jeffrey Bloomberg(12)......................    291,059     7.5%      17,478      273,581     4.5%
Matthew Bronfman(13).......................    112,143     2.8%          --      112,143     1.8%
Michael Cronin(14).........................    646,558    16.7%          --      646,558    10.6%
Armin Biller(15)...........................     14,529       *        7,298        7,231       *
All executive officers and directors as a
  group (6 persons)(16)....................  2,296,335    52.9%     119,070    2,177,265    33.3%
---------------
  *  Less than 1%.
 
 (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 (a) options held by that person that are currently exercisable
     or exercisable within 60 days of the date of this Prospectus or (b)
     warrants that are currently exercisable or that will be exercisable upon
     consummation of the Offering. Such exercisable options and warrants are
     described in the footnotes to this table for each such person. Such shares,
     however, are not deemed outstanding for the purposes of computing the
     percentage ownership of each other person.
 
 (2) Unless otherwise specified, the address of all persons who are executive
     officers or directors of the Company is in care of the Company, 40 Hudson
     Road, Canton, Massachusetts 02021.
 
 (3) Includes 642,040 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.
 
 (4) Includes 11,832 shares issuable upon exercise of outstanding warrants. Its
     address is One Federal Street, Boston, Massachusetts 02110.
 
 (5) Includes 209,855 shares issuable upon exercise of outstanding warrants. Its
     address is One PNC Plaza, Pittsburgh, Pennsylvania 15222.
 
 (6) Includes 166,816 shares held by Exeter Venture Lenders, L.P. (including
     104,928 shares issuable upon exercise of outstanding warrants) and 166,816
     shares held by Exeter Equity Partners, L.P. (including 104,928 shares
     issuable upon
 
                                       45
48
 
     exercise of outstanding warrants). The 333,632 shares sold by Exeter
     Venture Management Corp. include 166,816 shares sold by Exeter Venture
     Lenders, L.P. and 166,816 shares sold by Exeter Equity Partners, L.P. Its
     address is 10 East 53rd Street, New York, New York 10022.
 
 (7) Includes 3,383 shares issuable upon exercise of outstanding warrants. Its
     address is Banexi/12 Rue Chauchat, 75009 Paris, France.
 
 (8) Consists of 209,855 shares issuable upon exercise of outstanding warrants.
     Its address is 55 Ferncroft Road, Danvers, Massachusetts 01923.
 
 (9) Includes 48,912 shares held in the aggregate by the Samuel Bloomberg Family
     Trusts for the benefit of Mr. Bloomberg's children and 24,774 shares held
     by Carolina Bloomberg, the wife of Mr. Bloomberg. Carolina Bloomberg's
     24,774 shares include 313 shares issuable upon 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 the Company to
     Mr. Bloomberg exercisable within 60 days of the date of this Prospectus.
     The 85,119 shares sold by Mr. Bloomberg include 17,234 shares sold by
     Carolina Bloomberg and 16,182 shares sold, in the aggregate, by the Samuel
     Bloomberg Family Trusts. After the Offering, Carolina Bloomberg will hold
     7,540 shares (including 313 shares issuable upon the exercise of warrants)
     and the Samuel Bloomberg Family Trusts will hold, in the aggregate, 32,730
     shares.
 
(10) Includes 26,240 shares held by trusts for the benefit of Mr. Stone's
     children. Mr. Stone expressly disclaims beneficial ownership of these
     shares. Also includes 114,978 shares subject to options granted by the
     Company to Mr. Stone exercisable within 60 days of the date of this
     Prospectus.
 
(11) Includes 12,595 shares subject to options granted by the Company
     exercisable within 60 days of the date of this Prospectus.
 
(12) Includes 8,083 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 48,912 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 the
     Company to Mr. Bloomberg exercisable within 60 days of the date of this
     Prospectus and 609 shares issuable upon exercise of outstanding warrants.
     The 17,478 shares sold by Mr. Bloomberg include 16,182 shares sold, in the
     aggregate, by the Samuel Bloomberg Family Trusts. After the Offering, the
     Samuel Bloomberg Family Trusts will hold, in the aggregate, 32,730 shares.
 
(13) Includes 107,584 shares subject to options granted by the Company
     exercisable within 60 days of the date of this Prospectus and 84 shares
     issuable upon exercise of outstanding warrants.
 
(14) Includes shares held by Weston Presidio Offshore Capital C.V. ("Weston
     Presidio"). See Note 4 above. 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.
 
(15) Includes 313 shares issuable upon exercise of outstanding warrants.
 
(16) See Notes 9 through 14 above.
 
                                       46
49
 
                              CERTAIN TRANSACTIONS
 
CERTAIN FINANCING TRANSACTIONS
 
     On November 28, 1995, the Company sold an aggregate of 911,787 shares of
its Series A Preferred Stock in a private venture capital financing at a price
of $6.46 per share. Among the purchasers in the initial closing of this
financing were Weston Presidio Offshore Capital, C.V. and BNP Venture Holding
Corp., each 5% stockholders of the Company, and Matthew Bronfman and Jeffrey
Bloomberg, directors of the Company, and Armin Biller and Harriet Bloomberg,
family members of directors and executive officers of the Company. In connection
with such transaction, Bloomberg Associates, Inc., of which Jeffrey Bloomberg, a
director of the Company, is President, received $150,000 in consulting fees in
connection with a capital restructuring of the Company. At the same time, the
Company repurchased its outstanding Common Stock of the Company then held by
Matthew Bronfman (a director of the Company) and certain of his family members,
for approximately $550,000 in cash and a $1.0 million subordinated promissory
note accruing interest at the initial rate of 10% per annum, increased in
connection with the HiFi Buys Acquisition to 12.0% (the "Redemption Note"). The
Redemption Note must be repaid in full upon the closing of the Offering,
together with an additional payment of approximately $800,000 due to such
redeeming stockholders in connection with the Offering equal to 9.0% interest
per annum accruing from the issue date to the date of the closing of the
Offering. All such payments required under the Redemption Note will be paid upon
the closing of the Offering.
 
     On May 13, 1996, in connection with the Bryn Mawr Acquisition, the Company
sold an additional 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 the
Company, and to Carolina Bloomberg, the spouse of Samuel Bloomberg.
 
     On March 7, 1997, and in connection with a $2.0 million bridge loan from
the Company's existing lender, the Company entered into a Warrant and Debenture
Commitment with certain of its 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 (the "Debentures"). In consideration for this obligation, the
Company issued to the participating stockholders, warrants 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, the Company
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,
the Company issued $15 million in Senior Subordinated Notes (the "Senior 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,
Seacoast Capital Partners, L.P., Exeter Venture Lenders, L.P., and Exeter Equity
Partners, L.P., (the "Exeter Entities"), each a 5% stockholder of the Company.
Each of PNC Capital Corp and Seacoast Capital Partners, L.P. holds $5.0 million
of the Senior Notes and warrants to purchase 209,856 shares of Common Stock, and
each of the Exeter Entities holds $2.5 million of the Senior Notes and Warrants
to purchase 104,928 shares of Common Stock. Each Exeter Entity is selling all
104,928 shares of Common Stock issuable upon exercise of such warrants as a
Selling Stockholder in the Offering. Seacoast Capital Partners, L.P. is selling
50,000 shares of Common Stock issuable upon partial exercise of its warrants as
a Selling Stockholder in the Offering.
                                       47
50
 
OTHER TRANSACTIONS AND RELATIONSHIPS
 
     In May 1996, in connection with the Bryn Mawr Acquisition, the Company
entered into a consulting agreement with Fred Lokoff, the former owner of Bryn
Mawr and a former director of the Company. This consulting agreement was amended
as of April 23, 1997 and currently has a term of four years (the "Consulting
Period") expiring May 2000. Pursuant to the amended agreement, the Company is
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. The
Company also entered into a 15 year lease of its King of Prussia, Pennsylvania
distribution facility with an affiliate of Mr. Lokoff and agreed to sublease a
portion in this distribution facility back to another affiliate of Mr. Lokoff at
no rental charge. During fiscal 1997, the Company paid $266,267 in total rent
under such lease.
 
                                       48
51
 
                          DESCRIPTION OF CAPITAL STOCK
 
     Effective upon the consummation of the Offering, the authorized capital
stock of the Company will consist of 20,000,000 shares of Common Stock, no par
value, and 10,000,000 shares of Preferred Stock, no par value. Prior to the
Offering, there were outstanding an aggregate of 1,700,136 shares of Series A
Preferred Stock and 866,425 shares of Series B Preferred Stock which will
automatically convert into an aggregate of 2,566,561 shares of Common Stock upon
the consummation of the Offering. In addition, prior to the Offering, there were
outstanding warrants to purchase an aggregate of 721,664 shares of Common Stock
at a weighted average exercise price of $2.13. Of these, warrants to purchase
259,856 shares of Common Stock will be exercised immediately prior to the
closing of the Offering and these shares will be sold by Selling Stockholders in
the Offering.
 
     The following summary description of the Company'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 the Company'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. The Charter and By-laws will be effective upon the
consummation of the Offering.
 
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 the Company may designate and issue in the
future. Upon the liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to receive ratably the net assets of the
Company 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 the
Company 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 the Company may designate and
issue in the future.
 
PREFERRED STOCK
 
     Under the terms of the Charter, the Board of Directors is authorized,
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 the outstanding voting stock of the
Company. The Company has no present plans to issue any shares of Preferred
Stock, but the Company will, effective upon the consummation of the Offering,
authorize and reserve 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."
 
                                       49
52
 
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS; ANTI-TAKEOVER EFFECTS
 
     The Company 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 "interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.
 
     The By-laws provide that (i) the number of directors shall be determined
from time to time by resolution adopted by a majority of the Board of Directors,
(ii) vacancies on the Board of Directors may be filled by the Board unless and
until filled by the stockholders, and (iii) 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 the Company'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 -- Board Composition."
 
     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,
(i) the interests of the Company's stockholders, including the possibility that
these interests might be best served by the continued independence of the
Company, (ii) whether the proposed transaction might violate federal or state
laws, (iii) not only the consideration being offered in the proposed
transaction, in relation to the then current market price for the outstanding
capital stock of the Company, but also the market price for the capital stock of
the Company over a period of years, the estimated price that might be achieved
in a negotiated sale of the Company 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 the Company's financial condition and
future prospects, and (iv) the social, legal and economic effects upon
employees, suppliers, customers, creditors and others having similar
relationships with the Company, upon the communities in which the Company
conducts 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 51% 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 By-Laws also provide 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 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 the Company.
Stockholder nominations of Director nominees who are not nominated by the Board
of Directors must be submitted to the Secretary of the Company not less than 90
days or more than 120 days prior to the anniversary of 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 the then outstanding
                                       50
53
 
voting securities of the Company. These provisions may also discourage another
person or entity from making a tender offer for the Company's Common Stock,
because such person or entity, even if it acquired a majority of the outstanding
voting securities of the Company, 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 the Company 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
 
     The Company's Board of Directors will adopt, effective upon the
consummation of the Offering, a Stockholder Rights Plan (the "Rights Plan"). The
adoption of the Rights Plan by the Board is likely to make it more difficult for
a third party to acquire the Company 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") will be distributed, by way
of dividend for each outstanding share of Common Stock, to stockholders of
record as of a day prior to the effectiveness of the Registration Statement of
which this Prospectus is a part (the "Record Date"). In addition, one Right will
automatically attach to each share of Common Stock issued between the Record
Date and the Distribution Date (as hereinafter defined). Each Right entitles the
holder thereof to purchase one one-thousandth of one share (each, a "Unit") of
the Company's Junior Participating Cumulative Preferred Stock, no par value (the
"Junior Preferred Stock") at a cash purchase price per Unit to be established by
the Board when it approves the Rights Plan, subject to adjustment. The Rights
and their exercise price will be adjusted to take into account dilutive events.
 
     The Junior Preferred Stock shall rank 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 shall be 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 (i) $1.00, or (ii) 1,000 times the
aggregate per share amount of all dividends declared on the Common Stock.
Dividends shall accrue and be cumulative but shall not accrue interest. Except
as otherwise provided by law or set forth below, the holders of shares of Junior
Preferred Stock shall vote together with the Common Stock, and any other capital
stock of the Company having general voting rights, as one class. Each share of
Junior Preferred Stock shall entitle the holder thereof to 1,000 votes on all
matters submitted to a vote.
 
     Whenever dividends payable on any shares of Junior Preferred Stock shall be
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, shall have the right to elect two
directors of the Company at a special meeting of the stockholders or at the
Company'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
 
                                       51
54
 
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
Junior Preferred Directors shall terminate.
 
     Upon the earlier to occur of (i) the tenth calendar day after an "Acquiring
Person" has acquired beneficial ownership of more than 15% of the outstanding
shares of Common Stock (such date being the "Stock Acquisition Date"), or (ii)
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 than 15% of the outstanding shares of Common Stock
(such date being the "Tender Offer Date"); the Board may, in its discretion,
cause the rights to separate from the Common Stock and become exercisable (such
earlier date of the Stock Acquisition Date and the Tender Offer Date being the
"Distribution Date"). An "Acquiring Person" shall be 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 shall not be deemed to include any
underwriters in their capacities as such. No person who is a stockholder of the
Company immediately prior to the consummation of the Offering will be an
Acquiring Person unless that person acquires beneficial ownership of both (i)
more than   % of the outstanding Common Stock, and (ii) a greater percentage of
the then outstanding Common Stock than the percentage held by such person as of
the consummation of the Offering.
 
     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
shall be 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 the
Common Stock of the Company. 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 (i) the tenth calendar year after a Distribution Date, or (ii) 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 (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL or
(iv) for any transaction from which the director derives an improper personal
benefit. These provisions do not limit or eliminate the rights of the Company or
any stockholder 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
the Company to the fullest extent permitted by the DGCL. The Company believes
that these provisions will assist the Company in attracting and retaining
qualified individuals to serve as directors.
 
TRANSFER AGENT AND REGISTRAR
 
     The transfer agent and registrar for the Company's Common Stock is
BankBoston, N.A.
 
                                       52
55
 
                        SHARES ELIGIBLE FOR FUTURE SALE
 
     Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurances with respect to the effect, if any, that public
sales of shares or the availability of shares will have on the market price of
the Common Stock prevailing from time to time. Sales of substantial amounts of
Common Stock in the public market following the Offering, or the perception that
such sales may occur, could adversely affect the market price of the Common
Stock and could impair the Company's future ability to obtain capital through an
offering of equity securities. See "Risk Factors -- Shares Eligible for Future
Sale."
 
     As of the date of this March 31, 1998, the Company had outstanding
3,882,690 shares of Common Stock (assuming conversion of all outstanding
Preferred Stock into an aggregate of 2,566,561 shares of Common Stock and the
exercise of warrants to purchase 259,856 shares of Common Stock) held of record
by 23 stockholders. Upon completion of the Offering, the Company will have
6,082,690 shares of Common Stock outstanding a (assuming no exercise of
outstanding options or warrants other than warrants exercisable into 259,856
shares of Common Stock being sold by a Selling Stockholder in the Offering, but
assuming conversion of all outstanding Preferred Stock into 2,566,561 shares of
Common Stock, each of which will occur upon consummation of the Offering). Of
these outstanding shares, the 2,710,000 shares of Common Stock being sold in the
Offering will be freely tradable without restriction or further registration
under the Securities Act, except for shares acquired by an "affiliate" or
"affiliates" of the Company (as that term is used in Rule 144 promulgated under
the Securities Act, "Affiliate" or "Affiliates"), which may generally only be
sold in compliance with the limitations of Rule 144 as described below.
 
SALES OF RESTRICTED SHARES
 
     The remaining 3,372,690 shares of Common Stock were issued and sold by the
Company prior to the Offering in private transactions and therefore constitute
"restricted securities" under Rule 144. As a result, such shares may not be
resold unless they are registered under the Securities Act or are sold pursuant
to an applicable exemption from registration, such as Rule 144. The Company and
its existing stockholders holding all of the Preferred Stock and Common Stock
outstanding immediately prior to the Offering have agreed pursuant to lock-up
agreements ("Lock-Up Agreements") not to sell, offer or contract to sell, sell
short, engage in certain hedging transactions or otherwise dispose of, with
certain exceptions, any shares of Common Stock for a period of 180 days after
the date of this Prospectus without the prior written consent of BT Alex. Brown
Incorporated. See "Underwriting."
 
     In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned
"restricted" shares (as defined under Rule 144) for at least one year is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of (i) one percent of the then outstanding shares of
Common Stock or (ii) the average weekly trading volume of the Common Stock
reported through the Nasdaq Stock Market during the four calendar weeks
preceding the date on which notice of the sale is filed with the Securities and
Exchange Commission. Sales under Rule 144 are subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. In addition, a stockholder who is not deemed an
Affiliate at any time during the 90 days preceding a sale and who has
beneficially owned his shares for at least two years, is entitled to sell such
shares under Rule 144(k) without regard to volume limitations, manner of sale
provisions, notice requirements or the availability of current public
information concerning the Company.
 
OPTIONS
 
     The Company has granted options to purchase an aggregate of 845,059 shares
of Common Stock to certain directors, officers and employees pursuant to the
1995 Plan. All shares issuable upon
 
                                       53
56
 
exercise of options are subject to Lock-up Agreements or to a lock-up period of
120 days pursuant to the Company's stock option agreements.
 
WARRANTS
 
     As of the date of this Prospectus, warrants to purchase an aggregate of
511,808 shares of Common Stock were outstanding, at an average weighted exercise
price of $2.13 per share, excluding warrants to purchase 259,856 shares which
will be exercised and sold in the Offering. All of these Warrants were issued by
the Company between March 7, 1997 and May 30, 1997. All of the shares issuable
pursuant to such Warrants are subject to Lock-up Agreements.
 
REGISTRATION RIGHTS
 
     The Company has entered into registration rights agreements with certain of
its stockholders owning an aggregate of 3,884,498 shares of Common Stock, which
provide those stockholders with prescribed rights, subject to certain conditions
and limitations, to require the Company to register the sale of shares of Common
Stock held by such stockholders under the Securities Act or to include such
shares in a registered offering being effected by the Company for its own
account. Copies of such registration rights agreements are included as exhibits
to the Registration Statement of which this Prospectus is a part. All of the
shares entitled to the benefits of such registration rights agreements are
subject to Lock-up Agreements.
 
                                       54
57
 
                                  UNDERWRITING
 
     Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives, BT
Alex. Brown Incorporated, PaineWebber Incorporated and Dain Rauscher Wessels, a
division of Dain Rauscher Incorporated ("Dain Rauscher Wessels") have severally
agreed to purchase from the Company and the Selling Stockholders the following
respective numbers of shares of Common Stock at the initial public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus:
UNDERWRITER                                                  NUMBER OF SHARES
-----------                                                  ----------------
BT Alex. Brown Incorporated................................
PaineWebber Incorporated...................................
Dain Rauscher Wessels......................................
                                                                ---------
          Total............................................     2,710,000
                                                                =========
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of the Common Stock offered hereby if any
of such shares are purchased.
 
     The Company and the Selling Stockholders have been advised by the
Representatives of the Underwriters that the Underwriters propose to offer the
shares of Common Stock to the public at the initial public offering price set
forth on the cover page of this Prospectus and to certain dealers at such price
less a concession not in excess of $          per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $
per share. After the initial public offering, the public offering price and
other selling terms may be changed by the Representatives of the Underwriters.
 
     The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to 406,500
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth 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 to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to 2,710,000, and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 2,710,000 shares are being offered.
 
     The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act.
 
     The Company, each of its officers and directors, all of its stockholders
and warrant holders, and certain of its option holders have agreed, subject to
certain exceptions, not to sell, offer or contract to sell, transfer, engage in
hedging transactions with respect to or otherwise dispose of any shares of
Common Stock for a period of 180 days after the date of this Prospectus without
the prior written consent of BT Alex. Brown Incorporated. BT Alex. Brown
Incorporated, on behalf of the Representatives of the Underwriters, may, in its
sole discretion and at any time without notice, release all or any portion of
the securities subject to such lock-up agreements. See "Shares Eligible for
Future Sale."
 
                                       55
58
 
     The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
 
     In connection with the Offering, the Underwriters and other persons
participating in the 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 the Offering, creating a short
position in Common Stock for their own account. To cover over-allotments 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 the 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 end any of
these activities at any time.
 
     Prior to the Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined by negotiation between the Company and the
Representatives of the Underwriters. Among the factors to be considered in such
negotiations are prevailing market conditions, the results of operations of the
Company in recent periods, the market capitalization and stages of development
of other companies which the Company and the Representatives of the Underwriters
believed to be comparable to the Company, estimates of the business potential of
the Company, the present state of the Company's development and other factors
deemed relevant.
 
                                 LEGAL MATTERS
 
     An opinion will be delivered by Goulston & Storrs, P.C., Boston,
Massachusetts, to the effect that the shares of Common Stock being offered
hereby will, when issued as contemplated by this Prospectus, be validly issued,
fully paid and non-assessable. Certain legal matters related to the Offering
will be passed upon for the Underwriters by Testa, Hurwitz & Thibeault, LLP,
Boston, Massachusetts.
 
                                    EXPERTS
 
     The consolidated financial statements of the Company as of September 30,
1996 and 1997, and for each of the years in the three-year period ended
September 30, 1997, included in this Prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report of Deloitte &
Touche LLP given upon the authority of said firm as experts in accounting and
auditing.
 
     The financial statements of HiFi Buys Incorporated for the years ended
December 31, 1996, 1995 and 1994, included in this Prospectus have been audited
by Deloitte & Touche LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report of Deloitte & Touche LLP given upon the authority of said firm as experts
in accounting and auditing.
 
     The combined financial statements of Bryn Mawr Radio and Television Centre,
Inc. and affiliate for the year ended August 31, 1995, included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
set forth in their report thereon appearing elsewhere herein, and are included
in reliance upon such report of Deloitte & Touche LLP given upon the authority
of said firm as experts in accounting and auditing.
 
                                       56
59
 
                             ADDITIONAL INFORMATION
 
     A Registration Statement on Form S-1 under the Securities Act relating to
the Common Stock offered hereby has been filed by the Company with the
Securities and Exchange Commission (the "Commission") in Washington, D.C. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto, certain portions having been
omitted from this Prospectus in accordance with the rules and regulations of the
Commission. 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 the Company and the Common Stock offered hereby, reference is made to
such Registration Statement, the exhibits thereto and the financial statements,
notes and schedules filed as a part thereof. The Registration Statement may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, DC 20549, and at the
Commission's regional offices located at Seven World Trade Center, New York, NY
10048 and at 500 West Madison Street, Chicago, Illinois 60661. Copies of such
materials, including the Registration Statement, can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, DC
20549 at prescribed rates. The Commission also maintains a World Wide Web site
that contains reports, proxy and information statements, and other information
regarding registrants that file electronically with the Commission. The site and
this Registration Statement may be accessed at http://www.sec.gov. Copies of the
Registration Statement may also be inspected at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006.
 
     The Company intends to furnish its stockholders with annual reports
containing financial statements certified by its independent accountants and
make available quarterly reports containing unaudited financial information for
the first three quarters of each fiscal year.
 
                                       57
60
 
                         INDEX TO FINANCIAL STATEMENTS
TWEETER HOME ENTERTAINMENT GROUP, INC.
  Independent Auditors' Report..............................  F-2
  Consolidated Balance Sheets as of September 30, 1996 and
     1997, and March 31, 1998 (unaudited)...................  F-3
  Consolidated Statements of Income for the Years Ended
     September 30, 1995, 1996 and 1997, and the Six Months
     Ended March 31, 1997 (unaudited) and March 31, 1998
     (unaudited)............................................  F-4
  Consolidated Statements of Stockholders' Equity (Deficit)
     for the Years Ended September 30, 1995, 1996 and 1997,
     and the Six Months Ended March 31, 1998 (unaudited)....  F-5
  Consolidated Statements of Cash Flows for the Years Ended
     September 30, 1995, 1996 and 1997, and the Six Months
     Ended March 31, 1997 (unaudited) and March 31, 1998
     (unaudited)............................................  F-6
  Notes to Consolidated Financial Statements................  F-7
  PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
     (unaudited)............................................  F-23
HIFI BUYS INCORPORATED
  Independent Auditors' Report..............................  F-26
  Statements of Operations for the Years Ended December 31,
     1996, 1995 and 1994 and the Three Months Ended March
     31, 1997 (unaudited) and March 31, 1996 (unaudited)....  F-27
  Statements of Cash Flows for the Years Ended December 31,
     1996, 1995 and 1994 and the Three Months Ended March
     31, 1997 (unaudited) and March 31, 1996 (unaudited)....  F-28
  Notes to Financial Statements.............................  F-29
BRYN MAWR RADIO AND TELEVISION CENTRE, INC.
  Independent Auditors' Report..............................  F-32
  Combined Statement of Operations for the Year Ended August
     31, 1995 and the Six Months Ended February 29, 1996
     (unaudited) and the Six Months Ended February 28, 1995
     (unaudited)............................................  F-33
  Combined Statement of Cash Flows for the Year Ended August
     31, 1995 and the Six Months Ended February 29, 1996
     (unaudited) and the Six Months Ended February 28, 1995
     (unaudited)............................................  F-34
  Notes to Financial Statements.............................  F-35
F-1
61
 
                          INDEPENDENT AUDITORS' REPORT
 
     The accompanying consolidated financial statements reflect the
reorganization and the 1 for 1.524 reverse split of common stock which is to be
effected prior to the effective date of the Offering. The following report is in
the form which will be furnished by Deloitte & Touche LLP upon completion of the
above events, which are described in Note 1 of Notes to Consolidated Financial
Statements, and assuming that, from April 24, 1998 to the date of such
completion no other events have occurred which would affect the accompanying
consolidated financial statements and notes thereto.
 
"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, 1996 and 1997, and the
related statements of income, stockholders' equity (deficit), and cash flows for
each of the three years in the period ended September 30, 1997. 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, 1996 and
1997, and the results of its operations and its cash flows for each of the three
years in the period ended September 30, 1997 in conformity with generally
accepted accounting principles.
 
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 20, 1998 (May   , 1998 as to Note 1)"
 
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 24, 1998
 
                                       F-2
62
 
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
                          CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30,          MARCH 31,     PRO FORMA
                                                              -------------------------   -----------    MARCH 31,
                                                                 1996          1997          1998          1998
                                                              -----------   -----------   -----------   -----------
                                                                                          (UNAUDITED)   (UNAUDITED)
ASSETS
CURRENT ASSETS:
  Cash and cash equivalents.................................  $   438,607   $ 1,156,837   $ 1,138,808
  Accounts receivable, net of allowance for doubtful
    accounts of $440,000 at September 30, 1996, $631,000 at
    September 30, 1997 and $600,000 at March 31, 1998
    (unaudited).............................................    2,791,993     5,472,779     7,396,312
  Inventory.................................................   15,352,307    31,160,043    35,471,117
  Deferred tax assets.......................................      596,454     1,220,481     1,276,020
  Prepaid expenses and other current assets.................      308,867       822,904       501,110
                                                              -----------   -----------   -----------
        Total current assets................................   19,488,228    39,833,044    45,783,367
  PROPERTY AND EQUIPMENT -- Net.............................   13,490,304    17,967,504    17,889,050
  DEFERRED TAX ASSET........................................      754,464        59,397       108,605
  OTHER ASSETS -- Net.......................................           --       331,870       496,970
  GOODWILL -- Net...........................................    4,886,287    20,496,115    20,249,636
                                                              -----------   -----------   -----------
        TOTAL...............................................  $38,619,283   $78,687,930   $84,527,628
                                                              ===========   ===========   ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Current portion of long-term debt.........................  $        --   $   400,000   $   400,000
  Amount due to bank........................................    1,880,743     4,948,702     4,044,346
  Accounts payable..........................................   11,252,458    11,456,967     7,378,773
  Accrued expenses..........................................    3,138,991     8,405,704    14,751,337
  Customer deposits.........................................      851,089     1,255,024     1,629,154
  Deferred warranty revenue.................................      468,418     1,509,481     1,329,757
                                                              -----------   -----------   -----------
        Total current liabilities...........................   17,591,699    27,975,878    29,533,367
                                                              -----------   -----------   -----------
LONG-TERM DEBT:
  Note payable to bank......................................    9,700,000    14,500,000    15,100,000
  Subordinated debt.........................................    1,000,000    16,374,617    16,174,617
                                                              -----------   -----------   -----------
        Total long-term debt................................   10,700,000    30,874,617    31,274,617
                                                              -----------   -----------   -----------
OTHER LONG-TERM LIABILITIES:
  Rent related accruals.....................................    2,063,887     2,421,082     2,670,423
  Deferred warranty.........................................      650,750     2,175,577     1,555,710
  Other long-term liabilities...............................           --       318,780       258,720
                                                              -----------   -----------   -----------
        Total other long-term liabilities...................    2,714,637     4,915,439     4,484,853
        Total liabilities...................................   31,006,336    63,765,934    65,292,837
                                                              -----------   -----------   -----------
COMMITMENTS AND CONTINGENCIES (Note 8)
REDEEMABLE CONVERTIBLE PREFERRED STOCK:
  Series A Convertible Preferred Stock, no par value;
    authorized, 4,000,000 shares; 1,700,136 shares issued
    and outstanding in 1998, 1997 and 1996 (liquidation
    preference, $14,432,999 as of March 31, 1998)...........   11,596,868    13,399,386    14,432,999   $        --
  Series B Convertible Preferred Stock, no par value;
    authorized, 4,000,000 shares; 866,425 shares issued and
    outstanding in 1998 and 1997 (liquidation preference
    $7,741,248 as of March 31, 1998)........................           --     7,191,221     7,741,248            --
                                                              -----------   -----------   -----------   -----------
                                                               11,596,868    20,590,607    22,174,247            --
                                                              -----------   -----------   -----------   -----------
STOCKHOLDERS' EQUITY (DEFICIT):
  Common stock, no par value, authorized: 20,000,000 shares;
    2,755,200 shares issued in 1996, 1997 and 1998
    (7,521,761 shares issued pro forma in 1998).............           --            --            --            --
  Additional paid-in capital................................          600       325,983       325,983    22,500,230
  Retained earnings (deficit)...............................   (2,403,004)   (4,413,077)   (1,683,922)   (1,683,922)
  Note receivable from officer..............................      (31,500)      (31,500)      (31,500)      (31,500)
                                                              -----------   -----------   -----------   -----------
        Total...............................................   (2,433,904)   (4,118,594)   (1,389,439)   20,784,808
  Less treasury stock: 1,698,929 shares at cost.............   (1,550,017)   (1,550,017)   (1,550,017)   (1,550,017)
                                                              -----------   -----------   -----------   -----------
        Total stockholders' equity (deficit)................   (3,983,921)   (5,668,611)   (2,939,456)  $19,234,791
                                                              -----------   -----------   -----------   -----------
        TOTAL...............................................  $38,619,283   $78,687,930   $84,527,628
                                                              ===========   ===========   ===========
See notes to consolidated financial statements.
                                       F-3
63
 
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
                       CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30,            SIX MONTHS ENDED MARCH 31,
                                 ------------------------------------------   ---------------------------
                                     1995           1996           1997           1997           1998
                                 ------------   ------------   ------------   ------------   ------------
                                                                              (UNAUDITED)    (UNAUDITED)
Total revenue..................  $ 60,121,370   $ 80,606,727   $132,525,037   $ 60,582,539   $129,129,712
Cost of sales..................    39,167,031     51,816,041     86,314,918     39,180,469     84,280,356
                                 ------------   ------------   ------------   ------------   ------------
Gross profit...................    20,954,339     28,790,686     46,210,119     21,402,070     44,849,356
Selling expenses...............    15,404,513     21,993,070     35,567,940     14,797,225     30,207,653
                                 ------------   ------------   ------------   ------------   ------------
Store contribution.............     5,549,826      6,797,616     10,642,179      6,604,845     14,641,703
Corporate, general and
  administrative expenses......     3,246,443      4,715,697      8,102,190      3,792,702      5,419,985
Amortization of goodwill.......        65,268        129,273        487,084        119,562        423,279
                                 ------------   ------------   ------------   ------------   ------------
Income from operations.........     2,238,115      1,952,646      2,052,905      2,692,581      8,798,439
Interest expense...............       628,700        616,879      1,807,660        513,520      1,610,446
                                 ------------   ------------   ------------   ------------   ------------
Income before income taxes.....     1,609,415      1,335,767        245,245      2,179,061      7,187,993
Income tax expense (benefit)...      (173,498)      (453,448)        98,962        876,337      2,875,198
                                 ------------   ------------   ------------   ------------   ------------
NET INCOME.....................  $  1,782,913   $  1,789,215   $    146,283   $  1,302,724   $  4,312,795
                                 ============   ============   ============   ============   ============
Pro forma information
  Basic earnings per share.....                                        0.04                          1.19
  Weighted average shares
    outstanding................                                   3,622,832                     3,622,832
  Diluted earnings per share...                                        0.03                          0.87
  Weighted average shares and
    dilutive shares
    outstanding................                                   4,966,353                     4,966,353
See notes to consolidated financial statements.
                                       F-4
64
 
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK      ADDITIONAL     RETAINED         NOTE           TREASURY STOCK
                                ------------------     PAID-IN      EARNINGS      RECEIVABLE    -----------------------
                                 SHARES     AMOUNT     CAPITAL      (DEFICIT)    FROM OFFICER    SHARES       AMOUNT
                                ---------   ------   -----------   -----------   ------------   ---------   -----------
BALANCE, OCTOBER 1, 1994......  2,755,200    $--     $       600   $(4,090,825)    $(31,500)                $        --
  Net income..................         --                            1,782,913
  Subchapter S
    distributions.............         --                             (118,615)
                                ---------    ---     -----------   -----------     --------     ---------   -----------
BALANCE, SEPTEMBER 30, 1995...  2,755,200     --             600    (2,426,527)     (31,500)           --            --
  Treasury stock acquired.....         --                                                       1,698,929    (1,550,017)
  Accretion of Series A
    Convertible Preferred
    Stock.....................         --                           (1,035,942)
  Net income..................         --                            1,789,215
  Subchapter S
    distributions.............         --                             (729,750)
                                ---------    ---     -----------   -----------     --------     ---------   -----------
BALANCE, SEPTEMBER 30, 1996...  2,755,200     --             600    (2,403,004)     (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...  2,755,200     --         325,983    (4,413,077)     (31,500)    1,698,929    (1,550,017)
  Accretion of Series A
    Convertible Preferred
    Stock (unaudited).........         --                           (1,033,613)
  Accretion of Series B
    Convertible Preferred
    Stock (unaudited).........         --                             (550,027)
  Net income (unaudited)......         --                            4,312,795
                                ---------    ---     -----------   -----------     --------     ---------   -----------
BALANCE, MARCH 31, 1998
  (UNAUDITED).................  2,755,200    $--     $   325,983   $(1,683,922)    $(31,500)    1,698,929   $(1,550,017)
                                =========    ===     ===========   ===========     ========     =========   ===========
TOTAL
                                STOCKHOLDERS'
                                   EQUITY
                                  (DEFICIT)
                                -------------
BALANCE, OCTOBER 1, 1994......   $(4,121,725)
  Net income..................     1,782,913
  Subchapter S
    distributions.............      (118,615)
                                 -----------
BALANCE, SEPTEMBER 30, 1995...    (2,457,427)
  Treasury stock acquired.....    (1,550,017)
  Accretion of Series A
    Convertible Preferred
    Stock.....................    (1,035,942)
  Net income..................     1,789,215
  Subchapter S
    distributions.............      (729,750)
                                 -----------
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 (unaudited).........    (1,033,613)
  Accretion of Series B
    Convertible Preferred
    Stock (unaudited).........      (550,027)
  Net income (unaudited)......     4,312,795
                                 -----------
BALANCE, MARCH 31, 1998
  (UNAUDITED).................   $(2,939,456)
                                 ===========
See notes to consolidated financial statements.
                                       F-5
65
 
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
                                                                 YEARS ENDED SEPTEMBER 30,                   MARCH 31,
                                                         -----------------------------------------   -------------------------
                                                            1995           1996           1997          1997          1998
                                                         -----------   ------------   ------------   -----------   -----------
                                                                                                     (UNAUDITED)   (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income...........................................  $ 1,782,913   $  1,789,215   $    146,283   $ 1,302,724   $ 4,312,795
  Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
    Depreciation and amortization......................      950,132      1,383,235      2,785,205     1,099,537     1,908,858
    Loss on disposal of equipment......................       63,467             --         18,845                          --
    Deferred income tax provision (benefit)............     (173,498)    (1,177,420)        71,040        58,683      (104,747)
    Changes in operating assets and liabilities, net of
      effects from acquisition of businesses:
      Increase in accounts receivable..................     (286,912)      (631,945)    (1,251,986)   (1,071,793)   (1,923,533)
      Increase in inventory............................     (306,172)    (2,411,139)    (6,534,336)   (2,226,461)   (4,311,074)
      (Increase) decrease in prepaid expenses and other
        current assets.................................       (2,512)      (250,391)      (277,537)       29,738       (83,777)
      Increase (decrease) in accounts payable and
        accrued expenses...............................     (399,485)       848,630       (923,291)      521,238     2,267,439
      Increase (decrease) in customer deposits.........      422,184       (329,713)      (242,565)        5,038       374,130
      Increase in deferred rent........................       29,867      1,441,315        357,195       139,597       249,341
      Decrease in deferred warranty revenue............           --       (157,113)      (710,610)     (254,465)     (799,591)
      Increase (decrease) in other liabilities.........           --             --        318,780            --       (60,060)
                                                         -----------   ------------   ------------   -----------   -----------
        Net cash provided by (used in) operating
          activities...................................    2,079,984        504,674     (6,242,977)     (396,164)    1,829,781
                                                         -----------   ------------   ------------   -----------   -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment...................   (2,620,885)    (2,865,784)    (3,972,465)   (1,404,026)   (1,343,454)
  Proceeds from sale of property and equipment.........       19,614             --             --            --            --
  Acquisition of business; net of cash deferred........           --     (8,368,208)   (19,539,800)           --            --
                                                         -----------   ------------   ------------   -----------   -----------
        Net cash used in investing activities..........   (2,601,271)   (11,233,992)   (23,512,265)   (1,404,026)   (1,343,454)
                                                         -----------   ------------   ------------   -----------   -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Amount due to bank...................................      333,270        390,000      3,067,959       498,544      (904,356)
  Proceeds from bridge loan............................           --             --             --     2,000,000            --
  Proceeds from long-term borrowings, net of debt issue
    costs..............................................    1,400,000      1,994,594     20,668,128     5,950,000       600,000
  Payments of debt.....................................     (850,000)                     (100,000)   (6,675,000)     (200,000)
  Subchapter S distributions...........................     (118,615)      (729,750)            --            --            --
  Issuance of preferred stock..........................           --     10,560,926      6,837,385            --            --
  Treasury stock acquired..............................           --     (1,550,017)            --            --            --
                                                         -----------   ------------   ------------   -----------   -----------
        Net cash provided by (used in) financing
          activities...................................      764,655     10,665,753     30,473,472     1,773,544      (504,356)
                                                         -----------   ------------   ------------   -----------   -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......      243,368        (63,565)       718,230       (26,646)      (18,029)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR...........      258,804        502,172        438,607       438,607     1,156,837
                                                         -----------   ------------   ------------   -----------   -----------
CASH AND CASH EQUIVALENTS, END OF YEAR.................  $   502,172   $    438,607   $  1,156,837   $   411,961   $ 1,138,808
                                                         ===========   ============   ============   ===========   ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid during the year for:
    Interest...........................................  $   602,643   $    538,718   $  1,538,077   $   552,647   $ 1,874,530
    Taxes..............................................           --        860,541        358,000       355,000     1,080,496
See notes to consolidated financial statements.
                                       F-6
66
 
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
                  AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
 
1.  BUSINESS OF THE COMPANY
 
     New England Audio Co., Inc. ("NEA") was organized as a Massachusetts
corporation in 1972. In May 1998 NEA will effect a 1 for 1.524 reverse stock
split. Also in May 1998, NEA will be reorganized as a Delaware holding company,
whereby all of the holders of capital stock, options, and warrants of NEA will
exchange 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 the wholly owned subsidiary of NEA, NEA Delaware Inc., a Delaware
corporation (collectively referred to as the "Company"). As discussed in Note
11, the redeemable convertible preferred stock will automatically convert into
2,566,561 shares of common stock upon the completion of an initial public
offering. The accompanying pro forma balance sheet gives effect to this
conversion as if it had occurred on March 31, 1998.
 
     The Company sells home audio, video, entertainment and electronic products
through a chain of 50 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 accompanying consolidated balance sheet as of
March 31 1998 and the related consolidated statements of income, stockholders'
equity (deficit) and cash flows for the six months ended March 31, 1997 and 1998
are unaudited. In the opinion of management, these financial statements have
been prepared on the same basis as the audited consolidated financial statements
and include all adjustments consisting only of normal recurring adjustments
necessary for the fair presentation, in accordance with generally accepted
accounting principles, of financial data for such periods. The results of
operations and cash flows for the six months ended March 31, 1997 and 1998 are
not necessarily indicative of results that would be expected for a full year.
The data disclosed in these notes to the consolidated financial statements for
those interim periods are also unaudited.
 
     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 life of the leases.
 
     GOODWILL -- Goodwill and other acquisition costs are being amortized on a
straight-line basis over periods from 15 to 25 years.
 
                                       F-7
67
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
                  AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
     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.
 
     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 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.
 
     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 revenue from the sale of
extended warranty contracts in net sales and records as cost of goods sold 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.
 
     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 25 miles of the store advertises a lower price within 30 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
goods sold, and carries a reserve based on management's estimate of future
liability under the program.
 
     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 12 and 60 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
 
                                       F-8
68
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
                  AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, and the sales
that continued through July 31, 1996.
 
     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 12 and 60
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 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 Statement of
Financial Accounting Standards ("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 the financial reporting
and tax bases of assets and liabilities and for loss carryforwards based on
enacted tax laws and rates.
 
     STORE OPENING COSTS -- Costs of 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 11.
 
     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, which are expensed as incurred,
amounted to $1,402,310, $2,574,340 and $3,742,433 for the years ended September
30, 1995, 1996 and 1997, respectively, and $1,437,306 and $2,645,535 for the
six-month periods ended March 31, 1997 and 1998, respectively.
                                       F-9
69
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
                  AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
     PRO FORMA EARNINGS PER SHARE -- The Company computed pro forma earnings per
share in accordance with SFAS No. 128, "Earnings Per Share". Pro forma basic
earnings per share is based on the weighted average number of common shares
outstanding. Diluted earnings per share is based on the weighted average number
of common shares and dilutive potential common shares (common stock options and
warrants) outstanding. The pro forma weighted average number of common shares
assumes the automatic conversion of all shares of Series A Redeemable
Convertible Preferred Stock and Series B Redeemable Convertible Preferred Stock
(the "preferred stock") to 2,566,561 shares of common stock which will occur
upon the consummation of the initial public offering. Potential common shares
are not included in the per share calculations where the effect of their
inclusion would be anti-dilutive, except in accordance with the requirements of
Securities and Exchange Commission Staff Accounting Bulletin No. 98 (the
"Bulletin"). The Bulletin requires nominal issuances of common stock be treated
in a manner similar to a stock split or stock dividend, for which retroactive
treatment is required under SFAS No. 128. For purposes of computing the impact
of potential shares as described in the Bulletin, the Company has assumed an
initial public offering price of $16 per share.
 
     The following is a reconciliation of the numerators and denominators of the
pro forma basic earnings per share and pro forma diluted earnings per share:
YEAR         SIX MONTHS
                                                      ENDED          ENDED
                                                  SEPTEMBER 30,    MARCH 31,
                                                      1997            1998
                                                  -------------    ----------
Pro Forma Basic Earnings Per Share ("EPS"):
  Numerator.....................................   $  146,283      $4,312,795
  Denominator -- Weighted Average Shares
     Outstanding................................    3,622,832       3,622,832
                                                   ----------      ----------
  Basic EPS.....................................   $     0.04      $     1.19
                                                   ==========      ==========
Pro Forma Diluted Earnings Per Share:
  Numerator.....................................   $  146,283      $4,312,795
                                                   ----------      ----------
  Denominator:
     Weighted Average shares outstanding........    3,622,832       3,622,832
     Potential common shares outstanding........    1,343,521       1,343,521
                                                   ----------      ----------
  Total.........................................    4,966,353       4,966,353
                                                   ----------      ----------
  Diluted EPS...................................   $     0.03      $     0.87
                                                   ==========      ==========
Historical earnings per share is not presented on the face of the
consolidated statements of income as such information is not meaningful.
 
     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" and
SFAS No. 132, "Employees' Disclosures About Pensions and Other Post Retirement
Benefits." The effect of adopting these Statements is not expected to be
material to the Company's consolidated financial position or results of
operations.
 
                                      F-10
70
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
                  AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
     RECLASSIFICATION -- Various financial statement amounts for 1995, 1996 and
1997 have been reclassified to conform to the classifications used in the March
31, 1998 financial statements.
 
3.  PROPERTY AND EQUIPMENT
 
     Major classifications of property and equipment are summarized below:
SEPTEMBER 30,          MARCH 31,
                                             -------------------------   -----------
                                                1996          1997          1998
                                             -----------   -----------   -----------
                                                                         (UNAUDITED)
Leasehold improvements.....................  $13,927,021   $17,050,196   $18,717,376
Furniture and equipment....................    5,804,643     8,380,734     8,864,998
Automobiles and trucks.....................      208,266       247,950       305,463
Construction in progress...................    1,161,038       865,503            --
Leasehold interests........................           --       165,000       165,000
                                             -----------   -----------   -----------
                                              21,100,968    26,709,383    28,052,837
Less accumulated depreciation and
  amortization.............................    7,610,664     8,741,879    10,163,787
                                             -----------   -----------   -----------
                                             $13,490,304   $17,967,504   $17,889,050
                                             ===========   ===========   ===========
Depreciation and amortization (excluding amortization of goodwill) for the
fiscal years ended September 30, 1995, 1996 and 1997 aggregated $884,864,
$1,226,109 and $2,258,121, respectively. Depreciation and amortization
(excluding amortization of goodwill) for the six-month period ended March 31,
1998 aggregated $1,421,908.
 
4.  ACCRUED EXPENSES
 
     Accrued expenses consist of the following:
SEPTEMBER 30,           MARCH 31,
                                            ------------------------    -----------
                                               1996          1997          1998
                                            ----------    ----------    -----------
                                                                        (UNAUDITED)
Merchandise received not invoiced.........  $  472,799    $1,576,413    $ 2,579,884
Fringe benefits...........................     376,557       660,790      1,377,520
Sales taxes payable.......................     513,543       616,764      1,027,987
Advertising...............................     342,308       900,952      1,540,767
Group insurance...........................     246,500       220,826        220,826
Compensation..............................     845,577     1,422,106      2,118,208
Other.....................................     341,707     3,007,853      5,886,145
                                            ----------    ----------    -----------
                                            $3,138,991    $8,405,704    $14,751,337
                                            ==========    ==========    ===========
5.  DEFERRED WARRANTY REVENUE
 
     As part of the acquisition of Bryn Mawr in May of 1996, the Company assumed
deferred warranty revenue on Bryn Mawr's books at that time. Amortization of
deferred warranty revenue for the six months ended March 31, 1998 was $179,724.
Amortization of deferred warranty revenue for the
 
                                      F-11
71
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
                  AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
 
5.  DEFERRED WARRANTY REVENUE (CONTINUED)
years ended September 30, 1996 and 1997 was $253,529 and $468,418, 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 $709,425 for the six
months ended March 31, 1998, and $478,145 for the year ended September 30, 1997
(See Note 2). Self-funded extended warranty contract sales were $276,720 in the
year ended September 30, 1997.
 
6.  DEBT
 
     Long-term debt consists of the following:
SEPTEMBER 30,          MARCH 31,
                                             -------------------------   -----------
                                                1996          1997          1998
                                             -----------   -----------   -----------
                                                                         (UNAUDITED)
Subordinated debt..........................  $ 1,000,000   $16,774,617   $16,574,617
Revolving term bank loan...................    9,700,000    14,500,000    15,100,000
                                             -----------   -----------   -----------
Subtotal...................................   10,700,000    31,274,617    31,674,617
Less current portion.......................           --       400,000       400,000
                                             -----------   -----------   -----------
                                             $10,700,000   $30,874,617   $31,274,617
                                             ===========   ===========   ===========
On November 28, 1995, the Company entered into a loan agreement with a
bank. The agreement established a line of credit with a maximum balance of
$6,000,000 dependent upon the Company's inventory levels. Amounts outstanding
under the agreement bear interest at either the lender's base rate plus  1/4% or
the Eurodollar rate plus 2 1/4%, dependent upon the amount of advance
notification the Company gives to the bank.
 
     On November 28, 1995, as part of a recapitalization, the Company
repurchased approximately 1,698,929 shares equalling 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") carries interest at 10% and is due on December 31, 1998. Interest is
payable on a quarterly basis. The terms of the Redemption Note also require that
upon the closing of an initial public offering by the Company an additional
payment of $650,000 plus an amount equal to 9% interest per annum accruing from
November 28, 1995 to the date of such offering be made (approximately $814,000
at the estimated time of the effective date of this offering). 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.
 
                                      F-12
72
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
                  AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
 
6.  DEBT (CONTINUED)
     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 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. Amounts outstanding
under the agreement totaled $14,500,000 and $15,100,000 at September 30, 1997
and March 31, 1998, respectively, are 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 30 days or more (8.16% at September 30, 1997 and 7.68% at March
31, 1998).
 
     On May 30, 1997, as part of the acquisition of HiFi Buys, the Company
entered into a subordinated debt financing with the Seller, and issued a
$1,200,000 subordinated term note to the Seller, with principal payments made in
36 equal installments monthly. The unpaid principal balance bears an annual
interest rate of 9.5%. At September 30, 1997 and March 31, 1998, the unpaid
balance on this note was $1,100,000 and $900,000, respectively. 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 11). The notes bear
an annual interest rate of 12% on the unpaid principal balance. Principal
payments under the notes are $5,000,000 due on May 30 of 2002, 2003, and 2004.
The notes may be prepaid in whole or in part at any time. The detachable
warrants issued with the notes are exercisable for up to 629,566 shares of the
Company's common stock, with an exercise price of $.01 per share. Because these
warrants had a fair value of $325,383, such discount was recorded on the debt.
The discount will accrete over the term of the debt.
                                      F-13
73
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
                  AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
 
6.  DEBT (CONTINUED)
     Scheduled maturities under long-term debt, excluding the revolving term
bank loan, at March 31, 1998 were as follows:
Six months ended September 30, 1998.........................  $   200,000
Year ended September 30, 1999...............................    1,400,000
Year ended September 30, 2000...............................      300,000
Year ended September 30, 2001...............................           --
Year ended September 30, 2002...............................    5,000,000
Thereafter..................................................   10,000,000
                                                              -----------
          Total.............................................  $16,900,000
                                                              ===========
7.  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, 1995, 1996 and 1997. The Company's contribution
expense was $75,000, $75,000 and $100,000 for the years ended September 30,
1995, 1996 and 1997, respectively. The Company's contribution expense for the
six months ended March 31, 1998 was $75,000.
 
8.  COMMITMENTS AND CONTINGENCIES
 
     The Company leases all of its stores, installation centers, warehouses and
administrative facilities under operating leases. The lives of these leases
range from 5 to 20 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 six months ended March 31, 1998 was $4,332,171. Rent expense for
the years ended September 30, 1995, 1996 and 1997 was $2,054,250, $3,163,095 and
$5,978,819, respectively. Percentage rent expense was $53,657 for the six months
ended March 31, 1998. Percentage rent expense was $82,379, $64,964 and $47,243
for the years ended September 30, 1995, 1996 and 1997, respectively.
 
     Future minimum rental commitments on operating leases as of March 31, 1998
are as follows:
Six months ended September 30, 1998.........................  $ 4,177,508
Year ended September 30, 1999...............................    8,118,044
Year ended September 30, 2000...............................    7,931,735
Year ended September 30, 2001...............................    7,601,751
Year ended September 30, 2002...............................    7,188,791
Thereafter..................................................   41,903,750
                                                              -----------
          Total.............................................  $76,921,579
                                                              ===========
F-14
74
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
                  AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
 
8.  COMMITMENTS AND CONTINGENCIES (CONTINUED)
     On March 25, 1998 the Company entered into a purchase and sale agreement
for a facility in Massachusetts that will serve as the corporate headquarters,
service center and distribution center in Massachusetts. The Company expects the
purchase price and related building improvements to be approximately $5.3
million, and expects to finance the purchase with a mortgage of $4 million.
 
     Effective upon the consummation of the offering contemplated in this
Prospectus, the Company will enter 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 up to
an amount equal three times annual base salary.
 
9.  INCOME TAXES
 
     The provision (benefit) for income taxes under SFAS No. 109 consisted of
the following:
SIX MONTHS ENDED
                                           YEAR ENDED SEPTEMBER 30,              MARCH 31,
                                       ---------------------------------   ---------------------
                                         1995         1996        1997       1997        1998
                                       ---------   -----------   -------   --------   ----------
                                                                                (UNAUDITED)
Current:
  Federal............................  $      --   $   563,777   $21,821   $654,881   $2,322,446
  State..............................         --       160,195     6,101    162,773      657,499
                                       ---------   -----------   -------   --------   ----------
                                              --       723,972    27,922    817,654    2,979,945
Deferred:
  Current deferral...................   (173,498)     (176,615)   71,040     58,683     (104,747)
  Tax rate increase on temporary
    differences resulting from the
    revocation of the S Corporation
    election.........................         --    (1,000,805)       --         --           --
                                       ---------   -----------   -------   --------   ----------
                                       $(173,498)  $  (453,448)  $98,962   $876,337   $2,875,198
                                       =========   ===========   =======   ========   ==========
F-15
75
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
                  AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
 
9.  INCOME TAXES (CONTINUED)
     The tax effects of significant temporary differences comprising the
Company's current and long-term net deferred tax assets are as follows:
SEPTEMBER 30,          MARCH 31,
                                              -------------------------   -----------
                                                 1996          1997          1998
                                              -----------   -----------   -----------
                                                                          (UNAUDITED)
Accruals and reserves.......................  $   395,971   $   574,272   $   706,751
Deferred revenue............................      200,483       646,209       569,269
                                              -----------   -----------   -----------
Net deferred tax assets -- current..........      596,454     1,220,481     1,276,020
                                              -----------   -----------   -----------
Deferred rent...............................      883,344     1,036,466     1,143,208
Depreciation................................      824,699       854,091     1,075,091
Deferred revenue............................      278,521       931,364       665,999
Amortization and other......................   (1,232,100)   (2,762,524)   (2,775,693)
                                              -----------   -----------   -----------
Net deferred tax assets -- long-term........      754,464        59,397       108,605
                                              -----------   -----------   -----------
Total net deferred tax assets...............  $ 1,350,918   $ 1,279,878   $ 1,384,625
                                              ===========   ===========   ===========
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, 1996, September 30, 1997 and March 31, 1998. A
reconciliation between the statutory and effective income tax rates is as
follows:
YEAR ENDED           SIX MONTHS ENDED
                                   SEPTEMBER 30,            MARCH 31,
                                   -------------    --------------------------
                                   1996     1997       1997           1998
                                   -----    ----    -----------    -----------
                                                    (UNAUDITED)    (UNAUDITED)
Statutory income tax rate......     34.0%   34.0%      34.0%          34.0%
State income taxes net of
  federal benefit..............      5.8%    5.8%       5.8%           5.8%
Change in tax status...........    (74.9)%   0.0%       0.0%           0.0%
Other..........................      1.2%    0.5%       0.5%           0.2%
                                   -----    ----       ----           ----
Effective income tax rate......    (33.9)%  40.3%      40.3%          40.0%
                                   =====    ====       ====           ====
The Company was taxed under Subchapter S of the Internal Revenue Code for
1995. The significant items included in the reconciliation between the statutory
and effective state income tax rate for that year were primarily attributable to
changes in the valuation allowance.
 
10.  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 statements of
income since the acquisition date. The allocation of the purchase price is final
and resulted in goodwill of $5,600,900, which is being amortized over
twenty-five years
 
                                      F-16
76
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
                  AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
 
10.  ACQUISITIONS (CONTINUED)
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 31, 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 statement of
income since the acquisition date. The allocation of the purchase price is final
and resulted in goodwill of $15,312,500, 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 (see Note
  11).................................................   19,539,800
                                                        -----------
  Goodwill............................................  $15,312,500
                                                        ===========
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         636,698
Diluted Earnings per share...........          0.28            0.13
Accumulated amortization of goodwill was $899,000 for the six months ended
March 31, 1998. Accumulated amortization of goodwill was approximately $64,000
and $476,000 for the years ended September 30, 1996 and 1997, respectively.
 
                                      F-17
77
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
                  AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
 
11.  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 -- The holders of
preferred stock are entitled to significant additional rights beyond those
granted to the common stock. Some of these rights are as follows:
 
          Voting Rights -- Each share of preferred stock is entitled to one vote
     for each share of common stock into which it is then convertible.
 
          Representative Directors -- Holders of a majority of the shares of
     preferred stock and Investor Common Stock (as defined in the Company's
     Certificate of Incorporation (the "Charter"), voting separately as a class,
     are entitled to elect two members of the Board of Directors. Holders of
     preferred stock are also entitled to elect additional members of the Board
     of Directors under certain circumstances.
 
          Conversion Provisions -- All shares of preferred stock are
     automatically convertible into 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 September 30, 1997 and March 31, 1998, the conversion
     price under most circumstances of a share of Series A Preferred Stock is
     $6.46. The conversion price of a share of Series B Redeemable Convertible
     Preferred Stock (the "Series B Preferred Stock") at September 30, 1997 and
     March 31, 1998 is $8.08.
 
          Dividends -- No dividends shall be paid on the common stock unless the
     shares of preferred stock receive the same dividends that such shares 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 Preferred
     Stock and Series B Preferred Stock is 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 and/or $8.08 for each
     share of Series A Preferred Stock and Series B Preferred Stock,
     respectively, plus (b) an amount in the form of a dividend equal to a 15%
     rate of return on each holder's investment compounded annually from the
     date of original issuance.
 
          Redemption Provisions -- Preferred Stock is redeemable if (a) such
     redemption would not violate any of the existing subordination agreements
     between the Company and its Senior Lender, (as such term is defined in the
     Charter), and (b) the Company has the consent of the holders of the 1997
     Notes. Mandatory redemption of 6.5% of the total outstanding shares of
     Preferred Stock, is required to occur on the last day of March, June,
     September and December commencing in 2001. The redemption price is equal to
     $6.46 for each share of Series A Preferred Stock and $8.08 for each share
     of Series B Preferred Stock, plus an amount in the form of a dividend equal
     to a 15% rate of return on such holder's investment compounded annually and
     calculated from the original issue date.
 
          Reserved Shares -- As of September 30, 1997, and March 31, 1998 there
     were 2,566,561 shares of common stock reserved for issuance upon conversion
     of the preferred stock, 855,400 shares of common stock reserved for
     issuance upon the exercise of options granted under the
                                      F-18
78
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
                  AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
 
11.  STOCKHOLDERS' EQUITY (DEFICIT) AND REDEEMABLE CONVERTIBLE PREFERRED STOCK
(CONTINUED)
     Company's 1995 Stock Option Plan, and 771,664 shares 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 stockholders for net proceeds of $5,469,108 from private venture
capital sources and related parties, for $1,550,017 in cash and the Redemption
Note. The terms of the subordinated debt also require that upon the closing of
an initial public offering by the Company 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 $814,000 at the
estimated time of the effective date of this offering). Also on November 28,
1995, the Company authorized and issued 4,000,000 and 911,781 shares,
respectively, of Series A Preferred Stock.
 
     On January 16, 1996, the Board of Directors authorized a 10-for-1 stock
split. All share data in these financial statements reflect the impact of the
split.
 
     On May 13, 1996, the Company issued an additional 788,349 shares of Series
A 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 37,132 shares of common stock to certain
stockholders who participated in a Warrant and Debenture Commitment relating to
a Bridge Loan financing (see Note 6). 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 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 March 31, 1998.
 
     On May 30, 1997, the Company issued 866,425 shares of Series B Preferred
Stock for net proceeds to the Company of $6,837,385 in order to partially
finance the acquisition of HiFi Buys. Series B Preferred Stock is subject to
essentially the same terms and conditions as the Series A Preferred Stock,
except that the conversion price of Series B Preferred Stock 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 are
outstanding as of September 30, 1997 and March 31, 1998. These warrants are
exercisable five years from the date of issue, or earlier if the Company
completes an initial public offering with net cash proceeds in excess of $15
million.
 
     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. The warrants have a term of (a) ten years from the date of issuance,
or (b) five years from the date of a qualified initial public offering. The
Company hired an independent appraiser to determine the fair value of the
warrants as
 
                                      F-19
79
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
                  AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
 
11.  STOCKHOLDERS' EQUITY (DEFICIT) AND REDEEMABLE CONVERTIBLE PREFERRED STOCK
(CONTINUED)
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, 1997 and
March 31, 1998.
 
     The weighted average exercise price for all warrants outstanding at
September 30, 1997 and March 31, 1998 is $1.42. The following table summarizes
information regarding stock warrants outstanding at March 31, 1998:
NUMBER
                                                   OUTSTANDING        WEIGHTED
                    AVERAGE                      AND EXERCISABLE      AVERAGE
                   EXERCISE                       AT MARCH 31,       REMAINING
                    PRICES                            1998          LIFE (YEARS)
                   --------                      ---------------    ------------
$0.01.........................................      629,566            9.20
  6.46.........................................       37,138            8.90
  8.08.........................................      104,960            9.20
                                                     -------            ----
                                                     771,664            9.20
                                                     =======
COMMON STOCK INCENTIVE PLAN -- In November of 1995, the Company implemented
the 1995 Stock Option Plan, under which incentive and nonqualified stock options
may be granted to management, key 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 $6.46 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 617,479 shares were exercisable under the
1995 Stock Option Plan at September 30, 1996 and 1997 and March 31, 1998,
respectively. There were 26,745, 30,438 and 10,431 shares available for future
grants at September 30, 1996 and 1997 and March 31, 1998, respectively.
 
                                      F-20
80
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
                  AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
 
11.  STOCKHOLDERS' EQUITY (DEFICIT) AND REDEEMABLE CONVERTIBLE PREFERRED STOCK
(CONTINUED)
     The following summarizes transactions under the 1995 Stock Option Plan:
WEIGHTED
                                                                     AVERAGE
                                       NUMBER        PER SHARE       EXERCISE
                                      OF 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...........................     29,604        $7.24          $7.24
  Exercised.........................
  Canceled..........................     10,282    $0.61 to $7.24     $3.24
                                      ---------
March 31, 1998 (unaudited)..........    845,059    $0.61 to $8.08     $3.97
                                      =========
The following summarizes information about all stock options outstanding at
March 31, 1998 (unaudited):
WEIGHTED       NUMBER OF
                                         NUMBER         AVERAGE         OPTIONS
                                      OUTSTANDING      REMAINING      EXERCISABLE
EXERCISE                              AT MARCH 31,    CONTRACTUAL     AT MARCH 31,
PRICES                                    1998        LIFE (YEARS)        1998
--------                              ------------    ------------    ------------
$0.61...............................     215,676           7.9          172,157
 0.67...............................     111,878           8.0          111,878
 1.52...............................     107,584           7.8          107,584
 6.46...............................     133,023           8.2           93,562
 7.10...............................      44,148           8.3           44,148
 7.24...............................     179,860           9.4           35,260
 8.08...............................      52,890           9.4           52,890
                                       ---------                        -------
Total...............................     845,059          8.38          617,479
                                       =========                        =======
The weighted average exercise price of all options outstanding as of
September 30, 1997 and March 31, 1998 is $3.72 and $3.97, 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 1995 Stock Option Plan was
 
                                      F-21
81
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
                  AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
 
11.  STOCKHOLDERS' EQUITY (DEFICIT) AND REDEEMABLE CONVERTIBLE PREFERRED STOCK
(CONTINUED)
estimated on the date of grant using the Black-Scholes option-pricing model. Key
assumptions used to apply this pricing model were as follows:
SIX MONTHS
                                                           SEPTEMBER 30,       ENDED
                                                           --------------    MARCH 31,
                                                           1996     1997        1998
                                                           -----    -----    ----------
Risk free interest rate..................................  6.21%    5.69%       5.67%
Expected life of option grants (years)...................   5.0      4.0         3.0
Expected volatility of underlying stock..................  54.5%    54.5%       54.5%
Had compensation cost for stock option grants during fiscal 1996, fiscal
1997 and the six months ended March 31, 1998 been determined under the
provisions of SFAS No. 123, the Company's net income would have been
approximately $1,763,000, $106,700 and $4,252,000, respectively. Pro forma
diluted earnings per share would have been $0.02 and $0.86 for the year ended
September 30, 1997 and the six months ended March 31, 1998, respectively.
 
12.  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 approximately $21,000 a month
during the first year after the commencement date of the agreement, and
approximately $4,200 a month during years three and four of the Consulting
Period plus out-of-pocket expenses. Aggregate payments under the agreement are
expensed on a straight-line basis over the Consulting Period.
 
     The Company also entered into certain lease agreements for three facilities
in Pennsylvania with an affiliate of BMFO. Aggregate yearly payments under these
agreements total approximately $670,000.
 
                                      F-22
82
 
             PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                  (UNAUDITED)
 
     The following Pro Forma Condensed Consolidated Financial Information should
be read in conjunction with the historical consolidated financial statements and
the notes thereto included elsewhere in this Prospectus.
 
     The Pro Forma Condensed Consolidated Statement of Operations for the year
ended September 30, 1997 reflects financial information with respect to the
Company's acquisition of HiFi Buys on May 30, 1997, which has been accounted for
under the purchase method of accounting. The Pro Forma Condensed Consolidated
Statement of Operations for the year ended September 30, 1997 was prepared as if
the acquisition of HiFi Buys occurred on October 1, 1996, the first day of
fiscal 1997.
 
     The Pro Forma Condensed Consolidated Statements of Operations for fiscal
1997 do not include any potential operational costs savings, with the exception
of the reduction of the workforce of HiFi Buys that took place at the time of
the acquisition. The Company believes that it may be able to further reduce
operational costs as it consolidates the HiFi Buys operations into the Company.
There can be no assurance that the Company will be successful in effecting any
such costs savings.
 
     The Pro Forma Condensed Consolidated Financial Information is unaudited and
is not necessarily indicative of the consolidated financial position and results
which actually would have occurred if the acquisition of HiFi Buys had been
consummated as of the date presented, nor does it purport to present the
financial position or results of operations of the Company for future periods.
 
                                      F-23
83
 
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
                   PRO FORMA CONDENSED CONSOLIDATED STATEMENT
                                 OF OPERATIONS
                     FOR THE YEAR ENDED SEPTEMBER 30, 1997
                                  (UNAUDITED)
HIFI BUYS
                           COMPANY      EIGHT MONTHS ENDED                    PRO FORMA
                          HISTORICAL         5/30/97           SUBTOTAL      ADJUSTMENTS        PRO FORMA
                         ------------   ------------------   -------------   -----------      -------------
Total Revenue..........  $132,525,037      $ 63,937,649      $ 196,462,686   $        --      $ 196,462,686
Cost Of Sales..........   (86,314,918)      (45,168,763)      (131,483,681)                    (131,483,681)
                         ------------      ------------      -------------                    -------------
Gross Profit...........    46,210,119        18,768,886         64,979,005                       64,979,005
                                                                              (1,574,323)(1)
Operating Expenses.....    44,157,214        17,842,958         62,000,172       408,333(2)      60,834,183
                         ------------      ------------      -------------                    -------------
Income (Loss) From
  Operations...........     2,052,905           925,928          2,978,833                        4,144,822
                                                                               1,276,000(3)
Interest Expense.......     1,807,660           437,773          2,245,433      (437,773)(4)      3,083,660
                         ------------      ------------      -------------                    -------------
Income (loss) before
  income taxes.........       245,245           488,155            733,400                        1,061,162
Income tax expense
  (benefit)............        98,962                 0             98,962       325,503(5)         424,465
                         ------------      ------------      -------------   -----------      -------------
Net income.............  $    146,283      $    488,155      $     634,438   $    (2,260)     $     636,697
                         ============      ============      =============   ===========      =============
Pro Forma
  Information..........
Basic Earnings per
  Share................          0.04                                                                  0.18
Weighted Average
  Shares,
  Outstanding..........     3,622,832                                                             3,622,832
Diluted Earnings per
  Share................          0.03                                                                  0.13
Weighted Average Shares
  and Common
  Equivalents
  Outstanding..........     4,966,353                                                             4,966,353
F-24
84
 
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
              NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT
                                 OF OPERATIONS
                     FOR THE YEAR ENDED SEPTEMBER 30, 1997
                                  (UNAUDITED)
 
(1) To record the prorated eight-month savings associated with the closing down
    of the corporate offices of HiFi Buys. This resulted in the immediate
    termination of 43 positions, and as part of the purchase and sale agreement
    severance costs for these positions were borne by the seller.
 
(2) To record the amortization of goodwill associated with the acquisition of
    HiFi Buys for a full fiscal year. See Note 10 to the Consolidated Financial
    Statements.
 
(3) To record interest expense for the $15,000,000 senior subordinated
    promissory notes and the $1,200,000 subordinated term note for the full
    fiscal year. Both notes were issued in connection with the acquisition of
    HiFi Buys. See Note 6 to the Consolidated Financial Statements.
 
(4) To eliminate interest expense recorded by HiFi Buys associated with (i) a
    HiFi Buys mortgage not assumed as part of the HiFi Buys acquisition and (ii)
    a line of credit that was replaced with the financing mentioned in (2).
 
(5) To reflect an effective tax rate of 40%, representing management's estimate
    of the effective tax rate had HiFi Buys been a C corporation for the period
    presented.
 
                                      F-25
85
 
                          INDEPENDENT AUDITORS' REPORT
 
Board of Directors and Stockholders
HiFi Buys Incorporated
 
     We have audited the accompanying statements of operations and cash flows of
HiFi Buys Incorporated (the "Company") for the years ended December 31, 1996,
1995 and 1994. 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 results of operations and cash flows of the Company for the years
ended December 31, 1996, 1995 and 1994 in conformity with generally accepted
accounting principles.
 
/s/DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 7, 1997
 
                                      F-26
86
 
                             HIFI BUYS INCORPORATED
 
                            STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
                                   YEARS ENDED DECEMBER 31,                   MARCH 31,
                            ---------------------------------------   -------------------------
                               1996          1995          1994          1997          1996
                            -----------   -----------   -----------   -----------   -----------
                                                                      (UNAUDITED)   (UNAUDITED)
NET SALES.................  $93,227,100   $89,452,900   $78,305,300   $20,853,581   $21,491,067
COST OF GOODS SOLD........   67,368,800    64,608,800    56,547,400    14,619,834    15,239,827
                            -----------   -----------   -----------   -----------   -----------
                             25,858,300    24,844,100    21,757,900     6,233,747     6,251,240
OPERATING EXPENSES:
  Selling, general, and
     administrative.......   23,367,600    22,007,600    19,374,500     5,896,816     5,735,997
  Depreciation and
     amortization.........      991,900       972,100       870,900       269,894       215,771
                            -----------   -----------   -----------   -----------   -----------
                             24,359,500    22,979,700    20,245,400     6,166,710     5,951,768
                            -----------   -----------   -----------   -----------   -----------
OPERATING INCOME..........    1,498,800     1,864,400     1,512,500        67,037       299,472
INTEREST EXPENSE..........      519,600       491,500       352,100       145,265       115,671
                            -----------   -----------   -----------   -----------   -----------
NET INCOME (LOSS).........  $   979,200   $ 1,372,900   $ 1,160,400   $   (78,228)  $   183,801
                            ===========   ===========   ===========   ===========   ===========
See notes to consolidated financial statements.
                                      F-27
87
 
                             HIFI BUYS INCORPORATED
 
                            STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
                                                    YEARS ENDED DECEMBER 31,                   MARCH 31,
                                             ---------------------------------------   -------------------------
                                                1996          1995          1994          1997          1996
                                             -----------   -----------   -----------   -----------   -----------
                                                                                       (UNAUDITED)   (UNAUDITED)
OPERATING ACTIVITIES:
  Net income (loss)........................  $   979,200   $ 1,372,900   $ 1,160,400   $  (78,228)   $   183,801
  Adjustments to reconcile net income to
    net cash provided by operating
    activities:
    Depreciation and amortization..........      991,900       972,100       870,900      269,894        215,771
    Deferred product warranty revenues and
      related costs, net...................      356,700       304,600        78,400       86,989         75,798
    Gain on the sale of property and
      equipment............................                    (80,300)      (19,500)          --             --
    Change in operating assets and
      liabilities:
      Accounts receivable, net.............      201,200      (276,100)      (19,400)    (260,081)      (511,245)
      Inventories..........................   (1,568,100)      638,500    (2,086,600)   2,412,644      1,374,132
      Prepaid expenses and other assets....     (103,900)      (84,800)      (73,400)     127,159       (157,674)
      Accounts payable and accrued
        expenses...........................    2,714,100    (2,544,700)    2,238,100   (5,879,764)    (2,439,064)
      Customer deposits....................     (215,900)      318,800       107,000      (13,200)      (353,673)
                                             -----------   -----------   -----------   -----------   -----------
        Net cash provided by operating
          activities.......................    3,355,200       621,000     2,255,900   (3,334,587)    (1,612,154)
INVESTING ACTIVITIES:
  Purchase of property and equipment.......   (3,632,100)   (1,969,000)     (549,000)     (80,118)      (795,584)
  Proceeds from sale of property and
    equipment..............................           --       141,900        60,100           --             --
  Sale (purchase) of short-term
    investment.............................           --       600,000      (600,000)          --             --
                                             -----------   -----------   -----------   -----------   -----------
        Net cash used in investing
          activities.......................   (3,632,100)   (1,227,100)   (1,088,900)     (80,118)      (795,584)
FINANCING ACTIVITIES:
  Net borrowings (repayments) on line of
    credit.................................     (770,400)      957,600    (1,689,000)          --             --
  Proceeds from long-term borrowings.......    2,945,000       566,300       600,000    4,539,122      3,346,614
  Payments on long-term borrowings.........   (1,089,000)      (67,500)      (67,200)          --             --
  Payment for repurchase of common stock...           --      (105,000)           --           --             --
  Proceeds from the issuance of common
    stock..................................           --            --       500,000           --             --
  Dividends paid...........................     (854,800)     (721,100)     (516,500)    (701,947)      (626,027)
                                             -----------   -----------   -----------   -----------   -----------
        Net cash provided by (used in)
          financing activities.............      230,800       630,300    (1,172,700)   3,837,175      2,720,587
NET (DECREASE) INCREASE IN CASH............      (46,100)       24,200        (5,700)     422,470        312,849
CASH:
  Beginning of year........................       62,900        38,700        44,400       16,800         62,900
                                             -----------   -----------   -----------   -----------   -----------
  End of year..............................  $    16,800   $    62,900   $    38,700   $  439,270    $   375,749
                                             ===========   ===========   ===========   ===========   ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
  INFORMATION:
  Interest paid during the year (net of
    amounts capitalized)...................  $   456,200   $   465,500   $   353,200   $  145,265    $   115,670
                                             ===========   ===========   ===========   ===========   ===========
  Equipment purchased through note
    payable................................  $        --   $   354,600   $        --   $       --    $        --
                                             ===========   ===========   ===========   ===========   ===========
  Common stock repurchased through note
    payable................................  $        --   $   102,800   $        --   $       --    $        --
                                             ===========   ===========   ===========   ===========   ===========
See notes to consolidated financial statements.
                                      F-28
88
 
                             HIFI BUYS INCORPORATED
 
                         NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 AND THE THREE-MONTH PERIODS
                         ENDED MARCH 31, 1997 AND 1996
  (UNAUDITED WITH RESPECT TO THE THREE-MONTH PERIODS ENDED MARCH 31, 1997 AND
                                     1996)
 
1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     HiFi Buys Incorporated (the "Company") sells consumer electronics through
its ten retail stores in Georgia. Its significant accounting policies are:
 
     INVENTORIES -- Inventories are stated at the lower of average cost or
market. Cost includes certain warehousing and distribution costs which have been
capitalized in inventories.
 
     PROPERTY AND EQUIPMENT -- Property and equipment is recorded at cost.
Depreciation is computed using accelerated methods based on the estimated useful
lives of the related assets. Amortization of leasehold improvements is computed
on the straight-line method over the shorter of the estimated useful lives or
the lease terms.
 
     REVENUE RECOGNITION -- Revenue from merchandise sales is recognized upon
shipment or delivery of goods. Service revenue is recognized when the repair
service is completed.
 
     COST OF GOODS SOLD -- Cost of goods sold represents the cost of the
inventory as well as substantially all warehousing and distribution costs.
 
     INCOME TAXES -- The Company elected to be treated as an S Corporation for
federal and state income tax purposes.
 
     STORE OPENING COSTS -- Costs associated with opening new stores are
expensed as incurred.
 
     INTEREST -- In 1996, approximately $61,600 of interest incurred during the
construction of a new store was capitalized into the cost basis of the
constructed property. No interest costs were capitalized in 1995 or 1994.
 
     USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
 
     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.
 
2.  ACCOUNTING FOR PRODUCT WARRANTY REVENUES AND RELATED COSTS
 
     Since 1988, the Company has offered and sold extended warranty contracts
(the "Contracts") under a Company-administered and self-insured program. The
terms of these Contracts generally extend from one to five years from their
purchase dates. Revenues from Contract sales are deferred and amortized into
income on a straight-line basis over the lives of the related Contracts (the
average life of Contracts sold by the Company is approximately four years).
Certain costs of such sales, principally sales commissions, are deferred and
amortized similarly; costs for product repairs are expensed as incurred.
 
                                      F-29
89
                             HIFI BUYS INCORPORATED
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 AND THE THREE-MONTH PERIODS
                         ENDED MARCH 31, 1997 AND 1996
  (UNAUDITED WITH RESPECT TO THE THREE-MONTH PERIODS ENDED MARCH 31, 1997 AND
                                     1996)
 
     An analysis of product warranty sales and the associated product repair
expense is as follows:
THREE MONTHS ENDED
                                       YEARS ENDED DECEMBER 31,                 MARCH 31,
                                 ------------------------------------   -------------------------
                                    1996         1995         1994         1997          1996
                                 ----------   ----------   ----------   -----------   -----------
                                                                        (UNAUDITED)   (UNAUDITED)
Product warranty:
  Contracts sold...............  $1,908,800   $1,625,100   $1,456,400    $474,000      $436,000
                                 ==========   ==========   ==========    ========      ========
  Revenue recognized...........  $1,535,600   $1,372,200   $1,410,300    $410,200      $351,000
                                 ==========   ==========   ==========    ========      ========
Related costs of product
  warranty sales:
  Deferred.....................  $  233,300   $  150,700   $  166,400    $ 52,300      $ 53,300
                                 ==========   ==========   ==========    ========      ========
  Expensed.....................  $  216,800   $  202,500   $  198,800    $ 58,700      $ 49,600
                                 ==========   ==========   ==========    ========      ========
Product repair expense.........  $  377,600   $  230,200   $  224,000    $130,600      $116,800
                                 ==========   ==========   ==========    ========      ========
3.  INCOME TAXES
 
     The Company has elected to be treated as an S Corporation under Section
1362(a) of the Internal Revenue Code and to have its income taxed directly to
its stockholders. As a result of this election, the statements of operations for
the years ended December 31, 1996, 1995 and 1994 do not include a provision for
income taxes. Had this election not been made, the Company's net income in 1996,
1995 and 1994 would have been reduced by approximately $391,700, $549,200 and
$464,200, respectively, for federal and state income taxes. Similarly, had this
selection not been made, net income (loss) in the three months ended March 31,
1997 and 1996 would have been (increased)/reduced by approximately ($31,291) and
73,520, respectively (unaudited).
 
4.  COMMITMENTS
 
     The Company leases office, warehouse, and retail space under various
noncancelable operating leases. Total annual minimum rental payments at December
31, 1996 for all noncancelable operating leases with terms in excess of one year
are as follows:
YEAR ENDING
DECEMBER 31,
------------
1997..................................................  $ 2,483,300
1998..................................................    2,252,200
1999..................................................    2,235,000
2000..................................................    2,258,400
2001..................................................    2,067,900
Thereafter............................................   11,022,200
                                                        -----------
                                                        $22,319,000
                                                        ===========
Under a sublease agreement for certain retail space, the Company will
receive approximately $82,800 in annual minimum rental payments through 2003.
 
                                      F-30
90
                             HIFI BUYS INCORPORATED
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 AND THE THREE-MONTH PERIODS
                         ENDED MARCH 31, 1997 AND 1996
  (UNAUDITED WITH RESPECT TO THE THREE-MONTH PERIODS ENDED MARCH 31, 1997 AND
                                     1996)
 
     Rent expense consisted of the following:
THREE MONTHS ENDED
                                       YEARS ENDED DECEMBER 31,                 MARCH 31,
                                 ------------------------------------   -------------------------
                                    1996         1995         1994         1997          1996
                                 ----------   ----------   ----------   -----------   -----------
                                                                        (UNAUDITED)   (UNAUDITED)
Minimum rent...................  $2,633,300   $2,567,400   $2,096,400    $649,800      $658,300
Contingent rent................          --       21,700       39,400          --            --
Sublease income................     (82,800)     (82,800)     (82,800)    (20,700)      (20,700)
                                 ----------   ----------   ----------    --------      --------
          Total rent expense...  $2,550,500   $2,506,300   $2,053,000    $629,100      $637,600
                                 ==========   ==========   ==========    ========      ========
Most leases provide for additional payments of real estate taxes and other
operating expenses applicable to the property. Such expenses are recorded as a
component of minimum rent.
 
5.  EMPLOYEE BENEFIT PLAN
 
     The Company maintains a retirement plan (the "Plan") covering substantially
all of its employees. Employees who are over the age of 21 and who have
completed their first year of service with the Company are eligible to be
admitted to the Plan during the open enrollment period. The Plan provides for a
discretionary profit sharing contribution as well as discretionary matching of
participant contributions by the Company. Participants are fully vested in their
contributions to the Plan and become 40% and 100% vested in the Company's profit
sharing and matching contributions after four and five years, respectively. The
Company's profit sharing and matching contributions were $117,900, $92,200 and
$68,700 for the years ended December 31, 1996, 1995 and 1994, respectively and
approximately $30,000 and $29,500 for the three months ended March 31, 1997 and
1996, respectively.
 
6.  SUBSEQUENT EVENT
 
     In February 1997, the Company entered into a nonbinding letter of intent
for the sale of substantially all of its assets.
 
                                      F-31
91
 
                          INDEPENDENT AUDITORS' REPORT
 
Board of Directors and Stockholders
Bryn Mawr Radio and Television Centre, Inc.
 
     We have audited the combined statements of operations and cash flows of
Bryn Mawr Radio and Television Centre, Inc. and affiliate (the "Company") for
the year ended August 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these statements based on our audit.
 
     We conducted our audit 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 audit provide a reasonable basis for our opinion.
 
     In our opinion, such financial statements present fairly, in all material
respects, the combined results of operations and combined cash flows of the
Company for the year ended August 31, 1995 in conformity with generally accepted
accounting principles.
 
     As discussed in Note 2 to the combined financial statements, on May 9,
1996, the Company sold substantially all of its assets to an unrelated party.
 
/s/ DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
October 20, 1995 (May 9, 1996 as to Note 2)
 
                                      F-32
92
 
           BRYN MAWR RADIO AND TELEVISION CENTRE, INC. AND AFFILIATE
 
                        COMBINED STATEMENT OF OPERATIONS
SIX MONTHS          SIX MONTHS
                                                  YEAR ENDED          ENDED               ENDED
                                                  AUGUST 31,      FEBRUARY 29,        FEBRUARY 28,
                                                     1995             1996                1995
                                                  -----------   -----------------   -----------------
                                                                   (UNAUDITED)         (UNAUDITED)
NET SALES.......................................  $29,020,487      $19,098,609         $17,712,637
COST OF SALES...................................   18,631,960       12,370,459          11,410,268
                                                  -----------      -----------         -----------
GROSS PROFIT....................................   10,388,527        6,728,150           6,302,369
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES....   10,945,401        5,912,217           5,818,914
OTHER REVENUE...................................      255,882           81,683             125,456
                                                  -----------      -----------         -----------
(LOSS) INCOME FROM OPERATIONS...................     (300,992)         897,616             608,911
INTEREST EXPENSE ON DEBT AND CAPITAL LEASES.....      300,989          310,640             146,474
INCOME TAXES (STATE)............................        4,000               --                  --
                                                  -----------      -----------         -----------
NET (LOSS) INCOME...............................  $  (605,981)     $   586,976             462,437
                                                  ===========      ===========         ===========
See notes to consolidated financial statements.
                                      F-33
93
 
           BRYN MAWR RADIO AND TELEVISION CENTRE, INC. AND AFFILIATE
 
                        COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED       SIX MONTHS ENDED     SIX MONTHS ENDED
                                          AUGUST 31, 1995    FEBRUARY 29, 1996    FEBRUARY 28, 1995
                                          ---------------    -----------------    -----------------
                                                                (UNAUDITED)          (UNAUDITED)
OPERATING ACTIVITIES:
  Net (loss) income.....................    $  (605,981)        $   586,976          $   462,437
  Adjustments to reconcile net (loss)
     income to net cash (used in)
     provided by operating activities:
     Depreciation and amortization......        610,481             485,891              255,082
  Changes in assets and liabilities
     which (used) provided cash:
     Accounts receivable................       (180,712)           (182,870)            (167,453)
     Inventories........................        101,914          (1,221,898)            (778,459)
     Prepaid expenses and other
       assets...........................         25,747            (114,473)            (283,681)
     Accounts payable and accrued
       expenses.........................       (557,335)          2,952,726            1,124,126
     Deferred revenue...................       (156,329)             46,156               (7,391)
     Customer deposits..................         90,128              70,171              121,553
                                            -----------         -----------          -----------
          Net cash (used in) provided by
            operating activities........       (672,087)          2,622,679              726,214
                                            -----------         -----------          -----------
INVESTING ACTIVITIES -- Acquisition of
  net property, plant and equipment.....     (6,776,579)         (3,273,258)          (3,742,066)
                                            -----------         -----------          -----------
FINANCING ACTIVITIES:
  Capital contributions.................        100,000                  --                   --
  Distribution to shareholders..........       (265,860)         (1,950,817)          (1,902,191)
  Principal payments on capital leases
     and term loans.....................       (245,451)           (122,726)            (110,453)
  Net prepayments of proceeds from bank
     line of credit.....................     (1,600,000)                 --                   --
  Net borrowings under revolving credit
     facility...........................      2,950,000                  --                   --
  Borrowings under term loan facility...      1,900,000           3,005,496            4,697,829
  Proceeds from construction loan
     agreements.........................      4,089,262                  --                   --
                                            -----------         -----------          -----------
          Net cash provided by financial
            activities..................      6,927,951             931,953            2,685,185
                                            -----------         -----------          -----------
NET (DECREASE) INCREASE IN CASH AND CASH
  EQUIVALENTS...........................       (520,715)            281,374             (330,667)
CASH AND CASH EQUIVALENTS, BEGINNING OF
  YEAR..................................        711,163             190,448              711,163
                                            -----------         -----------          -----------
CASH AND CASH EQUIVALENTS, END OF
  YEAR..................................    $   190,448             471,822              380,496
                                            ===========         ===========          ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  ITEMS:
  Cash paid during the year for:
     Interest...........................    $   300,989         $   373,057          $    70,125
                                            ===========         ===========          ===========
     Income taxes.......................    $    23,873         $        --          $        --
                                            ===========         ===========          ===========
See notes to combined financial statements.
                                      F-34
94
 
           BRYN MAWR RADIO AND TELEVISION CENTRE, INC. AND AFFILIATE
 
                     NOTES TO COMBINED FINANCIAL STATEMENTS
             YEAR ENDED AUGUST 31, 1995 AND SIX-MONTH PERIODS ENDED
                    FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
    (UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED FEBRUARY 29, 1996
                             AND FEBRUARY 28, 1995)
 
1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     BASIS OF PRESENTATION -- The financial statements are combined and include
the accounts of Bryn Mawr Radio and Television Centre, Inc. and BMS of Delaware,
Inc. (collectively, the "Company") which are under common ownership. All
significant balances and transactions between the companies have been
eliminated.
 
     BMS of Delaware, a Delaware Holding Company, was incorporated in 1991, and
its shareholders are the same as Bryn Mawr Radio and Television Centre, Inc.
 
     CASH AND CASH EQUIVALENTS -- The Company considers all highly liquid debt
instruments purchased with maturities of three months or less to be temporary
investments and cash equivalents for balance sheet and cash flow statement
purposes.
 
     INVENTORIES -- Inventories are stated at the lower of cost (average-cost
basis) or market.
 
     DEPRECIATION AND AMORTIZATION -- 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.
 
     OTHER ASSETS -- Goodwill and other acquisition costs are being amortized on
a straight-line basis over periods from six to ten years.
 
     DEFERRED REVENUE -- The Company sells 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 is deferred, and the
revenue is amortized on a straight-line basis over the contract period. All
costs related to the contracts are charged to expense when incurred.
 
     REVENUE RECOGNITION -- Revenue from merchandise sales is recognized upon
shipment or delivery of goods. Service revenue is recognized when the repair is
completed.
 
     INCOME TAXES -- Effective September 1, 1987, the shareholders elected to
have the Company taxed as an S Corporation for federal and certain state
corporate income tax purposes.
 
     STORE OPENING COSTS -- The costs of opening new stores are expensed as
incurred.
 
     CAPITAL LEASES -- The amount of amortization of assets recorded under
capital leases is included with depreciation expense.
 
     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.
 
2.  SUBSEQUENT EVENT
 
     On March 15, 1996, the Company entered into an agreement to sell
substantially all of the assets of the Company to an unrelated party. The
consummation of this transaction is expected to occur on or about May 9, 1996.
                                      F-35
95
           BRYN MAWR RADIO AND TELEVISION CENTRE, INC. AND AFFILIATE
 
              NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
             YEAR ENDED AUGUST 31, 1995 AND SIX-MONTH PERIODS ENDED
                    FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
    (UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED FEBRUARY 29, 1996
                             AND FEBRUARY 28, 1995)
 
3.  DEFERRED REVENUE
 
     Extended warranty contract sales were approximately $531,000 in the year
ended August 31, 1995 and $375,000 and $337,000 in the six-month periods ended
February 29, 1996 and February 28, 1995, respectively. Amortization of the
deferred revenue was approximately $688,000 in the year ended August 31, 1995
and $324,000 and $292,000 in the six-month periods ended February 29, 1996 and
February 28, 1995, respectively. (See Note 1.)
 
4.  EMPLOYEE BENEFIT PLANS
 
     The Company has a qualified profit sharing plan covering eligible employees
which provides for contributions at the discretion of the Board of Directors and
also contains a 401(k) feature which provides for salary reduction and certain
employer-matching contributions. Profit sharing plan contributions were $20,000
for the year ended August 31, 1995 and $10,000 for each of the six-month periods
ended February 29, 1996 and February 28, 1995.
 
5.  COMMITMENTS AND RELATED-PARTY TRANSACTIONS
 
     The Company has entered into various lease agreements with respect to its
stores and certain warehouse and administrative facilities. Certain of these
leases contain several options and escalation clauses.
 
     A portion of the Company's store space is leased from an individual who is
both the principal shareholder and president. Rent expense for the years ended
August 31, 1995 was $1,271,811, of which $186,000 was paid to related parties.
 
     Future minimum rental commitments on operating leases are as follows:
YEAR ENDING AUGUST 31
                 ---------------------
1996....................................................  $1,026,119
1997....................................................     960,270
1998....................................................     868,651
1999....................................................     860,709
2000....................................................     788,464
Thereafter                                                 2,748,670
                                                          ----------
Total...................................................  $7,252,883
                                                          ==========
The Company has commitments at August 31, 1995 to expend approximately
$1,800,000 to complete construction of its new distribution center,
administrative offices, and a retail facility.
 
                                      F-36
96
 
======================================================
 
     NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER
OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
 
                                ---------------
 
                               TABLE OF CONTENTS
PAGE
                                        ----
Prospectus Summary....................    3
Risk Factors..........................    8
Use of Proceeds.......................   14
Dividend Policy.......................   14
Capitalization........................   15
Dilution..............................   17
Selected Financial and Operating
  Data................................   18
Management's Discussion and Analysis
  of Financial Condition and Results
  of Operations.......................   21
Business..............................   30
Management............................   39
Principal and Selling Stockholders....   45
Certain Transactions..................   47
Description of Capital Stock..........   49
Shares Eligible for Future Sale.......   53
Underwriting..........................   55
Legal Matters.........................   56
Experts...............................   56
Additional Information................   57
Index to Financial Statements.........  F-1
---------------
     UNTIL           , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
 
                                2,710,000 SHARES
 
                                  TWEETER HOME
                                 ENTERTAINMENT
                                  GROUP, INC.
 
                                  COMMON STOCK
                             ---------------------
 
                                   PROSPECTUS
                             ---------------------
 
                                 BT ALEX. BROWN
 
                            PAINEWEBBER INCORPORATED
 
                             DAIN RAUSCHER WESSELS
                    A DIVISION OF DAIN RAUSCHER INCORPORATED
                                          , 1998
======================================================
97
 
                                    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,
all of which will be paid solely by the Company.
SEC Registration Fee........................................  $ 16,055
NASD Filing Fee.............................................     5,800
NASDAQ Listing Fee..........................................    59,960
Printing, Engraving and Mailing Expenses....................   125,000
Legal Fees and Expenses.....................................   400,000
Accounting Fees and Expenses................................   275,000
Transfer Agent Fees and Expenses............................    12,000
Miscellaneous...............................................     6,185
          TOTAL.............................................  $900,000
ITEM 14.  INDEMNIFICATION OF DIRECTORS AND OFFICERS.
 
     The Company's Certificate of Incorporation generally limits the liability
of the Company's Directors to the Company to the fullest extent permitted from
time to time by Delaware law. The DGCL permits, but does not require, a
corporation 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 such
corporation'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 Certificate of Incorporation provides that directors and executive
officers of the Company shall be and, in the discretion of the Board of
Directors, other officers and non-officer employees may be indemnified by the
Company 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 the Company.
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 Certificate of Incorporation 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
98
 
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 the Company, and
the amount of debt securities issued by the Company since March 31, 1995, the
consideration received by the Company for such shares, options and debt
instruments and information relating to the section of the Securities Act of
1933 (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 the Company 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 November 28, 1995, the Company issued an aggregate of 911,787
     shares of Series A Redeemable Convertible Preferred Stock to Weston
     Presidio Offshore Capital C.V., Natio Vie Developpement II, FCPR, BNP
     Venture Holding Corp., Jeffrey Bloomberg, Harriet Bloomberg, Armin Biller
     and Matthew Bronfman at a purchase price of $6.46 per share. These shares
     will be converted into 911,787 shares of Common Stock upon consummation of
     the Offering. At the same time, the Company redeemed shares of Common Stock
     from certain stockholders and issued the Redemption Note to such
     stockholders. The above securities were sold pursuant to Section 4(2) and
     Regulation D under the Securities Act.
 
          2.  On May 13, 1996, the Company 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 will be converted into 788,349 shares of Common Stock upon
     consummation of the Offering. The securities were sold pursuant to Section
     4(2) and Regulation D under the Securities Act.
 
          3.  On March 7, 1997, in connection with a $2.0 million bridge loan
     from the Company'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.
 
          4.  On June 2, 1997, as part of the consideration for a subordinated
     loan in the aggregate amount of $15,000,000 from PNC Capital Corp, Exeter
     Venture Lenders, L.P. and Seacoast Capital Partners, L.P. to the Company,
     each such lender was issued a Warrant exercisable for an aggregate of
     629,646 shares of Common Stock issuable upon exercise of all three such
     Warrants. 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 May 30, 1997, as part of the total purchase price for the HiFi
     Buys Acquisition, the Company 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. The Company 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.
 
          6.  On June 2, 1997, the Company issued an aggregate of 866,425 shares
     of Series B Redeemable Convertible Preferred Stock to Weston Presidio
     Offshore Capital C.V., Natio Vie
 
                                      II-2
99
 
     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 will be converted into 866,425 shares of Common
     Stock upon consummation of the Offering. The securities were sold pursuant
     to Section 4(2) and Regulation D under the Securities Act.
 
          7.  During the past three years, the Company has granted options to
     purchase an aggregate number of 866,630 shares to purchase Common Stock to
     263 individuals, (some of which have terminated) all of whom were at the
     time of grant employees or directors of the Company, pursuant to the
     Company's 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 to 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 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.
 
     (c) 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.
 
     (c) The undersigned hereby undertakes to provide to the underwriters at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
 
                                      II-3
100
 
                                   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 April 23, 1998.
 
                                          TWEETER HOME ENTERTAINMENT GROUP, INC.
 
                                          By:       /s/ JEFFREY STONE
 
                                            ------------------------------------
                                            Jeffrey Stone
                                            President, Treasurer and Director
 
                        POWER OF ATTORNEY AND SIGNATURES
 
     KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints Samuel J. Bloomberg, Jeffrey Stone, and Joseph
McGuire, and each of them singly, as his true and lawful attorneys-in-fact and
agents for the undersigned, with full power of substitution, for and in the
name, place and stead of the undersigned, to sign and file with the Securities
and Exchange Commission under the Securities Act any registration statement
relating to the Offering that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act (a "462(b) Registration Statement"), any and all
amendments and exhibits to this Registration Statement or any 462(b)
Registration Statement, and any and all applications and other documents to be
filed with the Securities and Exchange Commission pertaining to the registration
of the securities covered hereby or thereby, with full power and authority to do
and perform any and all acts and things whatsoever requisite and necessary or
desirable.
 
     In accordance with 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 Board     April 23, 1998
---------------------------------------------------    and Chief Executive Officer
                 Samuel Bloomberg
 
                 /s/ JEFFREY STONE                   Director and President (Principal   April 23, 1998
---------------------------------------------------    Executive Officer)
                   Jeffrey Stone
 
                /s/ JOSEPH MCGUIRE                   Vice President and Chief Financial  April 23, 1998
---------------------------------------------------    Officer (Principal Financial
                  Joseph McGuire                       Officer and Principal Accounting
                                                       Officer)
 
               /s/ JEFFREY BLOOMBERG                 Director                            April 23, 1998
---------------------------------------------------
                 Jeffrey Bloomberg
 
               /s/ MATTHEW BRONFMAN                  Director                            April 23, 1998
---------------------------------------------------
                 Matthew Bronfman
 
                /s/ MICHAEL CRONIN                   Director                            April 23, 1998
---------------------------------------------------
                  Michael Cronin
II-4
101
 
                                                                     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
         -----------            ----------   ----------------   --------------   ----------   ----------
Allowance for doubtful
  accounts:
Six months ended March 31,
  1998........................     $631            $ --              $ --           $31          $600
Years ended
  September 30, 1997..........      440             191                --            --           631
  September 30, 1996..........       15             427                --             2           440
  September 30, 1995..........       15               4                --             4            15
S-1
102
 
                                 EXHIBIT INDEX
 
     (a)EXHIBITS:
EXHIBIT NO.                                DESCRIPTION
-----------                                -----------
*1.1      --   Form of Underwriting Agreement.
    *3.1      --   Certificate of Incorporation of the Company.
   **3.2      --   Form of Amended and Restated Certificate of Incorporation of
                   the Company.
    *3.3      --   Articles of Organization of New England Audio Co., Inc., as
                   amended.
    *3.4      --   By-Laws of the Company.
   **3.5      --   Form of Amended and Restated By-Laws of the Company.
    *3.6      --   By-Laws of New England Audio Co., Inc.
   **4.1      --   Specimen Certificate representing the Common Stock.
   **4.2      --   Form of Shareholder Rights Agreement to be effective
                   immediately prior to the closing of the Offering.
   **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 May
                   30, 1997 for 209,855 shares of Common Stock of the Company.
   *10.4      --   Stock Purchase Warrant issued to Seacoast Capital Partners,
                   L.P. dated May 30, 1997 for 209,855 shares of Common Stock
                   of the Company.
   *10.5      --   Stock Purchase Warrant issued to Exeter Venture Lenders,
                   L.P. dated as of May 30, 1997 for 104,928 shares of Common
                   Stock of the Company.
   *10.6      --   Stock Purchase Warrant issued to Exeter Equity Partners,
                   L.P. dated as of May 30, 1997 for 104,928 shares of Common
                   Stock of the Company.
   *10.7      --   Common Stock Warrant issued to HiFi Buys Incorporated dated
                   May 30, 1997 for 104,960 shares of Common Stock of the
                   Company.
   *10.8      --   Form of Common Stock Purchase Warrant dated March 7, 1997
                   issued by the Company pursuant to the Warrant and Debenture
                   Commitment.
  **10.9      --   Credit Agreement among the Company, NEA Delaware, Inc. and
                   BankBoston, N.A. as agent for itself and other.
  **10.10     --   Promissory Note by the Company in favor of BankBoston, N.A.
                   and other lenders.
   *10.11     --   Lease from James M. Salah of Boca Raton, Florida, as Trustee
                   of JMS Realty Trust, to the Company for premises at 40
                   Hudson Road, Canton, Massachusetts, dated June 11, 1991.
   *10.12     --   1995 Stock Option Plan.
  **10.13     --   1998 Stock Plan.
  **10.14     --   1998 Outside Director Stock Plan.
  **10.15     --   Employment Agreement between the Company and Samuel
                   Bloomberg to be effective upon the Offering.
103
EXHIBIT NO.                                DESCRIPTION
-----------                                -----------
**10.16     --   Employment Agreement between the Company and Jeffrey Stone
                   to be effective upon the Offering.
  **10.17     --   Employment Agreement between the Company and Joseph McGuire
                   to be effective upon the Offering.
   *10.18     --   Employment Agreement between the Company and Fred Lokoff,
                   dated as of May 13, 1996 and amended as of April 23, 1997.
   *10.19     --   Employment Agreement between the Company and David Ginsburg,
                   dated as of June 1, 1997.
   *10.20     --   Asset Purchase Agreement, dated as of May 30, 1997, between
                   the Company and HiFi Buys Incorporated.
   *10.21     --   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.
   *10.22     --   Progressive Retailers Organization, Inc. Policy and
                   Procedures Manual.
  **21.1      --   Subsidiaries of the Company.
   *23.1      --   Consent of Deloitte & Touche LLP (Boston).
   *23.2      --   Consent of Deloitte & Touche LLP (Atlanta).
   *23.3      --   Consent of Deloitte & Touche LLP (Philadelphia).
  **23.4      --   Consent of Goulston & Storr, 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 herewith.
 
** To be filed by amendment.
 
(b) FINANCIAL STATEMENT SCHEDULES
 
     Schedule II -- Valuation and Qualifying Accounts
 
     All other schedules have been omitted because they are not required or
because the required information is given in the Consolidated Financial
Statements or in the Notes thereto.