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0001193125-04-116764.txt : 200407120001193125-04-116764.hdr.sgml : 2004071220040712171434ACCESSION NUMBER:0001193125-04-116764CONFORMED SUBMISSION TYPE:10-KPUBLIC DOCUMENT COUNT:23CONFORMED PERIOD OF REPORT:20040327FILED AS OF DATE:20040712

FILER:

COMPANY DATA:COMPANY CONFORMED NAME:BOSTON ACOUSTICS INCCENTRAL INDEX KEY:0000805268STANDARD INDUSTRIAL CLASSIFICATION:HOUSEHOLD AUDIO & VIDEO EQUIPMENT [3651]IRS NUMBER:042662473STATE OF INCORPORATION:MAFISCAL YEAR END:0331

FILING VALUES:FORM TYPE:10-KSEC ACT:1934 ActSEC FILE NUMBER:000-15193FILM NUMBER:04910670

BUSINESS ADDRESS:STREET 1:300 JUBILEE DRIVESTREET 2:P O BOX 6015CITY:PEABODYSTATE:MAZIP:01961-6015BUSINESS PHONE:5085385000

MAIL ADDRESS:STREET 1:300 JUBILEE DRIVESTREET 2:P O BOX 6015CITY:PEABODYSTATE:MAZIP:01961-6015

10-K1d10k.htmFORM 10-K

FORM 10-K

Table of Contents

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

xAnnual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended March 27, 2004

or

Transition Report pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File No. 33-9875

BOSTON ACOUSTICS, INC.

(Exact Name of Registrant as Specified in its Charter)

Massachusetts04-2662473

(State or other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

300 Jubilee Drive Peabody, Massachusetts01960

(Address of Principal Executive Offices)(Zip Code)

(978) 538-5000

(Registrants Telephone Number, Including Area Code)

Securitiesregistered pursuant to Section 12(b) of the Act: None

Securitiesregistered pursuant to Section 12(g) of the Act: Common Stock ($.01 Par Value)

Indicate by check mark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90days.YesxNo

Indicate by check mark if the disclosure of delinquent filerspursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).YesNox

The aggregate market value of the voting stock held by non-affiliates of the registrant was$30,771,846 as of September 27, 2003.

There were 4,166,845 shares of CommonStock issued and outstanding as of June 25, 2004.

DOCUMENTSINCORPORATED BY REFERENCE

(1)Registrants Annual Report to Stockholders for the fiscal year ended March 27, 2004 (Part II, Items 5, 6, 7, 8)

(2)Proxy Statement for Registrants Annual Meeting of Stockholders to be held on August 17, 2004 (Part III, Items 10, 11, 12 and 13)

Table of Contents

BOSTON ACOUSTICS, INC.

Securities and Exchange Commission

Item Number and Description

Page

PART I

ITEM1.

Business

1

ITEM 2.

Properties

7

ITEM 3.

Legal Proceedings

7

ITEM 4.

Submission of Matters to a Vote of Security Holders

7

PART II

ITEM 5.

Market for Registrants Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities

8

ITEM 6.

Selected Financial Data

8

ITEM 7.

Managements Discussion and Analysis of Financial Condition and Results of Operations

8

ITEM7A.

Quantitative and Qualitative Disclosures About Market Risk

8

ITEM 8.

Financial Statements and Supplementary Data

8

ITEM 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

9

ITEM 9A.

Controls and Procedures

9

PART III

ITEM 10.

Directors and Executive Officers of the Registrant

10

ITEM 11.

Executive Compensation

10

ITEM12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters

10

ITEM 13.

Certain Relationships and Related Transactions

10

ITEM 14.

Principal Accountant Fees and Services

10

PART IV

ITEM 15.

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

11

SIGNATURES

13

In as much as the calculation ofshares of the registrants voting stock held by non-affiliates requires a calculation of the number of shares held by affiliates, such figure, as shown on the cover page hereof, represents the Registrants best good faith estimate forpurposes of this Annual Report on Form 10-K, and the Registrant disclaims that such figure is binding for any other purpose. The aggregate market value of Common Stock indicated is based upon $11.41, the price at which the Common Stock was last soldon September 27, 2003 as reported by The Nasdaq Stock Market. All outstanding shares beneficially owned by executive officers and directors of the registrant or by any shareholder beneficially owning more than 10% of the Registrants CommonStock, as disclosed herein, were considered for purposes of this disclosure to be held by affiliates.

-i-

Table of Contents

Part I

Item 1. Business

Boston Acoustics, Inc. (theCompany, or Boston) engineers, manufactures, and markets moderately-priced, high-quality audio systems for use in home audio and video entertainment systems, in OEM and after-market automotive audio systems and in multimediacomputer environments. The Company believes that its products deliver better sound quality than other comparably priced audio systems. The Company purchases various home, automotive and multimedia finished products from third party suppliers thatare manufactured according to Company specifications and under the direction of Boston Acoustics personnel. The Company also assembles finished products from manufactured and purchased subassemblies at its corporate headquarters in Peabody,Massachusetts. All of the Companys products and subassemblies, including those supplied by outside sources, have been designed or specified by the Companys engineering department. Boston Acoustics speakers are marketed nationwidethrough selected audio and audio-video specialty dealers and through distributors in many foreign countries. See Managements Discussion and Analysis of Financial Condition and Results of Operations International Operationswhich is included in the Companys 2004 Annual Report, which is filed as Exhibit 13 hereto.

The Company was organized as a Massachusetts corporation in 1979 by Andrew G. Kotsatos, Chairman of the Board, and Francis L. Reed, who passed away in November 1996. Its principal executive offices and manufacturingfacilities are located at 300 Jubilee Drive, Peabody, Massachusetts.

Products

The Company has determined it has two reportablebusiness industry segments: core, and original equipment manufacturer (OEM)/ Multimedia. Prior to fiscal 1998, the Company operated as a single segment. The Companys reportable segments are strategic business units that sell the Companysproducts to distinct distribution channels. Both segments derive their revenues from the sale of audio systems. They are managed separately because each segment requires distinct selling and marketing strategies, as the class of customers withineach segment is different. Each business segment has distinct product lines as discussed below.

The Companys core business segment consists of the Home, Designer, Automotive after market, and Integrated Audio lines of products.

The Home loudspeaker line consists of four bookshelf models currently ranging in price from $150 to $400 per pair, three floor-standingsystems currently priced from $600 to $1,250 per pair, a series of hardwood bookshelf and floor-standing speakers ranging from $700 to $2,700 per pair, and four powered subwoofers priced at $350, $500, $700, and $1,200 each. Additional products forthe home theater market include five different center channel speakers currently ranging in price from $200 to $600 each, two surround speakers priced at $500 and $800 per pair, three models of micro satellites which accommodate space restrictionsranging in price between $100 and $250 each. The Company also produces magnetically shielded versions of most of its models and produces four outdoor weather-resistant speaker systems (Voyager3, Voyager2, Voyager Pro, and Grand Voyager) priced from $220 to $700 per pair. TheVoyager Sub12 is an outdoor 12-inch subwoofer that was introduced in fiscal 2003 and retails for $900 per unit. Prices referenced are USD suggested retail prices.

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The Designer line is a collection of speaker systems engineered for installing in the walls and ceilings, as well as,floors of homes, businesses, and recreational vehicles. These systems are designed to provide outstanding performance and to blend into any dcor. There are currently 25 speaker models in the Designer line, ranging in price from $150 to$3,200 per pair, three powered subwoofers priced at $500 each, and one subwoofer power amplifier priced at $600. The Designer line includes the VRi series, the DSi Series, and the installed powered subwoofer systems.

The Automotive after market series of products consists of 47 models of after-market automotive speakers with prices currently ranging from$70 to $1,000 per pair. This includes the premium amplifier family with 7 models that include subwoofer & multi-channel configurations. Each amplifier uses Q-Tune circuitry that brings the bass impact to the front of the vehicle. The component systems, with system specificcrossovers, permit flexible speaker placement and provide sound rivaling that of fine home speaker systems. The automotive speaker line includes reference quality component systems as well as full-range replacement speakers, imaging systems andsubwoofers. The complete automotive line includes Boston Z, FS, NX, SL, and FX component & coaxial speakers, Boston ProSeries, and the Boston GT Amplifier line. The Company manufactures both raw drivers and enclosed systems for any installation blueprint.

The Boston Acoustics Recepter Radio is a high performance AM/FM radio that has been designed to deliver high fidelity soundcomparable to the finest radios ever made. Not only does this add a new business category, Integrated Audio, but also it significantly expands Boston Acoustics target customer. The new Recepter Radio has a suggested minimum retail price of$159. Available in platinum, polar white and charcoal, the Recepter Radio is a perfect radio for the kitchen, living room, office, or nightstand.

The OEM/Multimedia category of products has historically been sold primarily through Gateway, Inc. (Gateway). During fiscal 2004 this category consisted oftwo high performance powered subwoofer/satellite speaker systems for computing environments. Both the BA745 and BA7900 were available either as a component of certain pre-configured computer systems offered by Gateway, or as an upgrade option onthose configurations that did not include Boston Acoustics products as standard.

New Products

During the fiscal year, the Company focused onintroducing new and innovative products, particularly within its Core business segment. Revenue from these new product introductions partially offset the loss of revenue from discontinued product lines. Introductions of upgraded versions of existingproduct offerings, while permitting the Company to remain competitive, are not likely to result in significant increases in revenue over the long term.

During the first quarter of fiscal 2004, the Company introduced new powered subwoofers to the Companys acclaimed PV series of products replacing discontinuedmodels. The PV700 and PV900 have suggested retails of $500 and $700 each respectively. During the third quarter of fiscal 2004, the Company introduced an upgraded series of its Micro high performance satellite speaker systems. These compactsatellites are small enough to fit anywhere. There are four models, Micro 110x, Micro 120x, Micro 130x, and the MicroCenter, with suggested retails ranging from $100 to $250 each. Also contributing to gross sales during the latter half of fiscal2004, were sales of VR floor-standing speakersystems. The VR Series has suggested retails ranging from $300 to $625 each. In addition, sales of the Companys high performance AM/FM Recepter Radio increased during the fiscal year as compared to the previous fiscal year.

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The custom product category of speakers was enhanced with the introduction of several models during the fiscal year. TheVRi595, with a suggested retail of $800 per speaker, is a high-end, three-way in-ceiling speaker used in Hidden Theater applications and is styled to blend into any dcor and skillfully engineered with a unique, rotating baffle so that the sound may be directedtowards the listening position. The VRi585T2 and the DSi465T2, with suggested retails of $500 and $350 each respectively, are versatile in-ceiling speaker systems; either model has the ability to deliver full-range, two-channel stereo sound from asingle installation location, or can be used as a diffuse surround speaker in Hidden Theater systems.

The SL line of after-market car speaker systems was introduced during the second fiscal quarter and is currently composed of 3 models to fit the broadest range of vehicles. With suggested retails ranging from $250 to$300, all models share the same technology, sound quality, and are engineered to make them ideal for factory mounting locations.

The Company, in partnership with Visteon Corporation, began its first OEM contract with the Chrysler Group for development of premium audio systems as standard equipmentor factory-installed upgrade options in the Chrysler 300, and Dodge Magnum vehicles. The Company started shipments for the Chrysler 300 in January 2004 and for the Dodge Magnum in April 2004. The Company expects a ramping up of these shipmentsduring the first and second quarters of fiscal 2005. There is not at this time, however, sufficient historical information to predict with any certainty the volume of revenue the Company will experience during this initial stage.

Engineering and Development

The Companys engineering and development department is actively engaged in thedevelopment of new products and manufacturing processes, the improvement of existing products and the research of new materials for use in the Companys products. The Company designs or specifies all of its products and subassemblies, includingthose supplied by outside sources.

The Companys engineering anddevelopment staff includes 37 full-time employees, five outside consultants and four engineering firms providing design services. During fiscal years 2002, 2003 and 2004, the Company spent approximately $5,252,000, $6,773,000, and $4,460,000respectively, for engineering and development.

Sales, Marketing andDistribution

The Company employs 19 salespersons and retains 27manufacturers representatives who service the Companys U.S. and Canada dealer network. In addition, the Company retained the service of one freelance public relations consultant to assist in the professional promotion of the Company andits products. Boston Acoustics home audio, Designer Series (in-wall/in-ceiling models) and outdoor speaker products are distributed in the United States and Canada through approximately 571 selected audio or audio specialist retailers, some ofwhom have multiple outlets, and to selected custom installers. The Companys car audio products are sold through approximately 262 similarly specialized retailers, some of whom also sell the Companys home audio products. TheCompanys Recepter Radio is sold through its dealer network, to certain mail order catalogs, and direct by telephone or fax. The Companys dealers usually stock and sell a broad range of audio products including, in most cases, theCompanys competitors products. The Company seeks dealers who emphasize quality products and who are knowledgeable about the products they sell. The Companys Multimedia products are currently sold primarily through an OEM agreementwith Gateway. In previous fiscal years, these products were also sold through the Companys retailers and through business arrangements with leading distributors and computer retailers. Gateway accounted for 30% of net sales in fiscal 2002, 29%in fiscal 2003 and 9% in fiscal 2004.

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Boston Acoustics products are also exported to dealers in Canada and sold through exclusive distributors in over 50foreign countries, primarily in Europe, Asia/Pacific Rim, and South/Central America. Export sales accounted for approximately 15% of net sales in fiscal 2002, 15% in fiscal 2003 and 19% in fiscal 2004.

The Company emphasizes the high performance-to-price ratio of its products in its advertisingand promotion. Boston Acoustics believes that specialty retailers can be effective in introducing retail customers to the high dollar value of the Companys products. The Company directly supports its domestic dealers and internationaldistributors via a cooperative advertising program, prepared advertisements, detailed product literature, and point of purchase materials. During fiscal 2004, the Company spent approximately $1,092,000 (2.1% of net sales) for advertising.

Competition

The Company competes primarily on the basis of product performance, price, and the strengthof its dealer organization.

The market for branded loudspeaker systems isserved by many manufacturers, both foreign and domestic. Many products are available over a broad price range, and the market is highly fragmented and competitive. The Company distributes its products primarily through specialty retailers where itcompetes directly for space with other branded speaker manufacturers. Audio systems produced by many of the Companys competitors can be purchased by consumers through mass merchandisers, department stores, mail-order merchants, through theInternet, and factory-owned outlet stores. The Company believes it is more advantageous to distribute through specialty retailers who provide product demonstration, technical information and service, and face-to-face sales support to consumers.

Boston Acoustics competes with a substantial number of branded speakermanufacturers, including Bose Corporation, Infinity and JBL (divisions of Harman International Industries), B&W, Polk Audio, Inc., and Klipsch and Associates, Inc. Some of these competitors have greater technical and financial resources than theCompany and may have broader brand recognition than Boston Acoustics.

Inaddition to competition from branded loudspeaker manufacturers, the Companys products compete indirectly with single name integrated systems. Integrated systems contain all the various components needed to form an audio system, andare sold by Sony, Pioneer, Bose, JVC, Yamaha, and many others. Integrated systems are generally sold through mass merchandisers and department stores, although many of the Companys dealers also sell integrated systems. During the past threeyears, home theater systems with integrated DVD video have garnered significant market share. While these systems were historically sold in mass merchants or big box retailers, the Companys dealers are selling systems at higherprice points.

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Table of Contents

Manufacturing and Suppliers

The Company purchases various home, automotive and multimedia finished products from third party suppliers that are manufactured accordingto Company specifications and under the direction of Boston Acoustics personnel. The Company also assembles finished products from components specifically fabricated for the Company.

The Company purchases materials and component parts from approximately 192 suppliers located in the United States, Canada, Europe, andAsia/Pacific Rim. Although Boston Acoustics relies on single suppliers for certain parts, the Company could, if necessary, develop multiple sources of supply for these parts. The Company does not have long-term fixed price contracts or arrangementsfor inventory supplied by any foreign or domestic manufacturers. The Company did have one inventory supplier, which accounted for more than 10% of the Companys purchases during fiscal year 2004. See Managements Discussion andAnalysis of Financial Condition and Results of Operations International Operations which is included in the Companys 2004 Annual Report, which is filed as Exhibit 13 hereto.

Seasonality and Consumer Discretion

The home and automotive audio markets are both somewhat seasonal, with a majority of homespeaker retail sales normally occurring in the period October through March and a majority of automotive speaker retail sales normally occurring in the period March through September.

The Companys sales and earnings can also be affected by changes in the general economy since purchases of home entertainment andautomotive audio products, including loudspeakers, are discretionary for consumers.

Patents and Trademarks

Boston Acoustics holds thirteen UnitedStates design patents and numerous international patents, which relate to certain audio technologies, assemblies, and cabinet design. The Company also currently has several registered trademarks including Boston, Boston Acoustics, Boston Rally BassTrac, Bravo, DirectVent,DSi, Kortec, MagnaGuard, PowerVent, RadialVent Recepter Radio SoundBar, SST, The Boston Acoustics Logo , The Sine Wave/Speaker Icon ,Voyager, and VR. Trademarks used by the Companys subsidiary, Snell Acoustics (Snell) include Snell Acoustics, Snell Multimedia, Snell Music &Cinema, and Room Ready. The Company believes thatits growth, competitive position and success in the marketplace are more dependent on its technical and marketing skills and expertise than upon the ownership of patent and trademark rights. There can be no assurance that any patent or trademarkwould ultimately be proven valid if challenged.

Significant Customers

One OEM/Multimedia customer, Gateway, accounted for approximately 9% ofthe Companys net sales for the fiscal year ended March 27, 2004 as compared to approximately 29%, for the

5

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corresponding period a year ago. The Company had anticipated that OEM sales would decrease during fiscal 2004 as comparedto fiscal 2003. The Companys management has taken steps (including expansion of the Companys aftermarket automotive products offerings, renewed efforts to increase sales of the Companys Core products and pursuit of additional OEMautomotive customers), which it believes will mitigate the consequences of the expected decline in orders from this customer.

One Core customer accounted for approximately 31% of the Companys net sales for fiscal year ended March 27, 2004 as compared to approximately 17%, for thecorresponding period a year ago. On March 15, 2004, the Company announced that this customer had notified the Company that it would reduce its annual purchases by approximately 50%. In addition to its strategy of expanding the Companys productofferings, management continues its efforts to enlarge and diversify its customer base for all products in order to reduce dependence on any single customer.

Backlog

The Company currently has no significant backlog. The Companys policy is to maintain sufficient inventories of finished goods to fill all orders within two business days of receipt.

Warranties

Boston Acoustics warrants its home speakers to be free from defects in materials and workmanship for a period of five years, its RecepterRadio for one year, its Designer Series speakers for a period of two years, its automotive speakers for one year and its multimedia audio speaker systems for a period of one to three years. During the years ended March 27, 2004, March 29, 2003, andMarch 30, 2002, warranty costs recorded by the Company were approximately $108,000, $134,000, and $174,000, respectively.

Employees

As of May 29, 2004, the Company had 194 full-time employees who were engaged as follows: 92 in production and materials management; 37 in engineering and development; 44 in marketing and sales support; and 21 inadministration.

None of the Companys employees are represented by acollective bargaining agreement and the Company believes that its relations with its employees are satisfactory.

Executive Officers of the Registrant

The information required by this item is incorporated by reference to the sections entitled Executive Compensation in the Registrants definitive ProxyStatement for its Annual Meeting of Stockholders to be held August 17, 2004.

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Item 2. Properties

The Company owns itsprincipal executive offices and manufacturing facilities, which sit on 15 acres of land at 300 Jubilee Drive, Peabody, Massachusetts.

The Companys subsidiary, Snell Acoustics, maintains its principal executive offices and manufacturing facilities at 300 Jubilee Drive, Peabody, Massachusetts. Asmall portion, approximately 25,000 square feet of space, used primarily for cabinet production, is located at 143 Essex Street, Haverhill, Massachusetts and is leased from an unrelated party under an operating lease, which expires in September2004.

Item 3. Legal Proceedings

There are no materiallegal proceedings affecting the Company.

Item 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of shareholders during the fourth quarter of fiscal 2004.

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PART II

Item 5. Market for Registrants Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities

The information required by Paragraphs (a) and (b) of this item is incorporated by reference to the section entitled Stock Market Activity on page 32 in theRegistrants 2004 Annual Report to Stockholders, which is filed herewith as Exhibit 13. There were no purchases of the Registrants Securities by the Registrant or by any affiliated purchaser during the fiscal quarter ended March 27, 2004.

Item 6. Selected Financial Data

The informationrequired by this item is incorporated by reference to the section entitled Selected Financial Data on page 31 in the Registrants 2004 Annual Report to Stockholders, which is filed herewith as Exhibit 13.

Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations

The information required by this item is incorporated by reference to the section entitled Managements Discussion and Analysis of Financial Condition andResults of Operations on pages 9 through 16 in the Registrants 2004 Annual Report to Stockholders, which is filed herewith as Exhibit 13.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

The information required by this item is incorporated by reference to the section entitled Quantitative and Qualitative Disclosures about Market Risk on page 15 in the Registrants 2004 Annual Reportto Stockholders, which is filed herewith as Exhibit 13.

Item 8. Financial Statements and Supplementary Data

The information required by this item is incorporated by reference to the Consolidated Financial Statements at March 27, 2004 and notes thereto on pages 17 through 28 in the Registrants 2004 Annual Report to Stockholders, which isfiled herewith as Exhibit 13.

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

On June 28, 2002 the Company dismissed Arthur Andersen LLP as its independent auditor and on July 9, 2002 it engaged Ernst & Young LLP as its new independent auditor.

The Companys consolidated financial statements for the fiscal year endedMarch 30, 2002 were audited by Arthur Andersen. On August 31, 2002 Arthur Andersen ceased practicing before the SEC. Therefore, Arthur Andersen did not participate in the preparation of this Form 10-K, did not reissue its audit report with respectto the financial statements included in this Form 10-K, and did not consent to the inclusion of its audit report in this Form 10-K. As a result, holders of the Companys securities may have no effective remedy against Arthur Andersen inconnection with any material misstatement or omission in the financial statements to which its audit report relates and, because it has ceased operations, Arthur Andersen may have insufficient assets to satisfy claims made by holders of theCompanys securities that might arise under federal securities laws or otherwise with respect to Arthur Andersens audit report.

Item 9A. Controls and Procedures

a.)Evaluation of disclosure controls and procedures. Based on their evaluation of the design and operation of the Companys disclosure controls and procedures (as definedin Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934) as of a date within 90 days of the filing date of this Annual Report on Form 10-K, the Companys President and CEO (principal executive officer) and the Companys VicePresident - Finance (principal financial officer) have concluded that the Companys disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that the Company files orsubmits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms.

b.)Changes in internal controls. There were no changes in the Companys internal control over financial reporting that occurred during the Companys fiscal quarterended March 27, 2004 that materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.

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PART III

Item 10. Directors and Executive Officers of the Registrant

The information required by this item, including information concerning the Companys audit committee and the audit committee financial expert and compliance with Item 401 of S-K, is incorporated by reference tothe Companys proxy statement for the annual meeting to be held on August 17, 2004.

There is incorporated herein by reference to the discussion under Compliance with Section 16(a) of the Securities Exchange Act of 1934 in the Companys definitive Proxy Statement for its AnnualMeeting of Stockholders to be held August 17, 2004 the information with respect to delinquent filings of reports pursuant to Section 16(a) of the Securities Exchange Act of 1934.

The Company has adopted a Code of Ethics that applies to its Chief Executive Officer, Chief Financial Officer and senior financial officers.The Code of Ethics appears on the Companys Internet website at www.bostonacoustic.com. The Company intends to disclose any amendments to, or waiver from, a provision of its code of ethics that applies to its Chief Executive Officer,Chief Financial Officer and senior financial officers and that relates to any element of the code of ethics definition enumerated in Item 406 of Regulation S-K by posting such information on the Companys website.

Item 11. Executive Compensation

The informationrequired by this item is incorporated by reference to the sections entitled Executive Compensation in the Registrants definitive Proxy Statement for its Annual Meeting of Stockholders to be held August 17, 2004.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item is incorporated by reference to the section entitled Principal and Management Stockholders in the Registrantsdefinitive Proxy Statement for its Annual Meeting of Stockholders to be held August 17, 2004.

Item 13. Certain Relationships and Related Transactions

The information required by this item is incorporated by reference to the section entitled Certain Relationships and Transactions in the Registrants definitive Proxy Statement for its Annual Meeting of Stockholders to beheld August 17, 2004.

Item 14. Principal Accountant Fees and Services

The information required by this item is incorporated by reference to our proxy statement for the annual meeting to be held on August 17, 2004.

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PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a) The following documents are included as part of this report:

(1) Financial Statements

The following consolidated financial statements are incorporated by reference to the Registrants 2004 Annual Report to Stockholders:

Reports of Independent Registered Public Accounting Firm.

Consolidated Balance Sheets as of March 29, 2003 and March 27, 2004.

Consolidated Statements of Income for the three years endedMarch 27, 2004.

Consolidated Statements of StockholdersEquity for the three years ended March 27, 2004.

ConsolidatedStatements of Cash Flows for the three years ended March 27, 2004.

Notes to Consolidated Financial Statements.

(3)Listing of Exhibits

Exhibits

3.1.-Articles of Organization (1)

3.2.-Amendment to Articles of Organization (1)

3.3.-Second Amendment to Articles of Organization (1)

3.4.-Bylaws (1)

4.1.-Specimen Share Certificate (1)

10.1.+-1996 Stock Plan adopted by Boston Acoustics, Inc. on February 20, 1996, as amended (2)

10.2.+-1997 Stock Plan adopted by Boston Acoustics, Inc. on May 28, 1997, as amended (3)

10.4.-Amended and Restated Loan Agreement dated as of May 1, 2002 between Boston Acoustics, Inc. and Citizens Bank of Massachusetts. (4)

10.5.-Amended and Restated Revolving Credit Note dated as of May 1, 2002 in the amount of $25,000,000 made by Boston Acoustics, Inc. payable to the order of Citizens Bank of Massachusetts.(5)

13. *-2004 Annual Report to Shareholders

21.*-Subsidiaries of the Registrant (2)

23.1 *-Consent of Independent Registered Public Accounting Firm

31.1 *-Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2 *-Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1 *-Certification Pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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32.2*-Certification Pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.1-Safe Harbor Statement under Private Securities Litigation Reform Act of 1995 (6)

*Indicates an exhibit which is filed herewith.

+Indicates an exhibit which constitutes an executive compensation plan.

(1)Incorporated by reference to the similarly numbered exhibits in Part II of the Companys Registration Statement on Form S-1, File No. 33-9875.

(2)Incorporated by reference to the similarly numbered exhibit in Item 14 of the Companys Annual Report on Form 10-K for the fiscal year ended March 29, 1997.

(3)Incorporated by reference to Exhibit 4.1. to the Companys Registration Statement on Form S-8, File No. 333-84714.

(4)Incorporated by reference to Exhibit 10.L. to the Companys Annual Report on Form 10-K for the fiscal year ended March 28, 1998.

(5)Incorporated by reference to Exhibit 10.4 to the Companys Annual Report on Form 10-K for the fiscal year ended March 30, 2002.

(6)Incorporated by reference to the similarly numbered exhibit in Item 14 of the Companys Annual Report on Form 10-K for the fiscal year ended March 30, 1996.

(b) Reports on Form 8-K

During the fiscal quarter ended March 27, 2004, the Company filed one Report on Form 8-K.The Report, which was filed on March 15, 2004, reported under Item 5 that the Company had issued a press release announcing that one of the Companys retail dealers had notified the Company that it would reduce annual purchases by approximatelyfifty percent.

(c) The following exhibits are filed herewith:

Exhibits

13.*-2004 Annual Report to Shareholders

21.*-Subsidiaries of the Registrant

23.1*-Consent of Independent Registered Public Accounting Firm

31.1*-Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*-Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*-Certification Pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2*-Certification Pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

12

Table of Contents

SIGNATURES

Pursuant to the requirements ofSection 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Peabody, Commonwealth of Massachusetts, on the 12th dayof July 2004.

BOSTON ACOUSTICS, INC.

(Registrant)

BY:

s/ Andrew G. Kotsatos

Andrew G. Kotsatos

Chairman of the Board

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

Signatures

Capacities

Date

s/ Andrew G. Kotsatos

Andrew G. Kotsatos

Director, Chairman of the

Board and Treasurer

7/12/04

s/ Moses A. Gabbay

Moses A. Gabbay

Director, President

and Chief Executive Officer

7/12/04

s/ Debra A. Ricker-Rosato

Debra A. Ricker-Rosato

Vice President and

Chief Accounting Officer

7/12/04

s/ David E. Bell

David E. Bell

Director

7/12/04

s/ E. William Boehmler

E. William Boehmler

Director

7/12/04

s/ George J. Markos

George J. Markos

Director

7/12/04

13

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized, in the City of Peabody, Commonwealth of Massachusetts, on the 12th day of July 2004.

BOSTON ACOUSTICS, INC.

(Registrant)

BY:

Andrew G. Kotsatos

Chairman of the Board

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

Signatures

Capacities

Date

Andrew G. Kotsatos

Director, Chairman of the

Board and Treasurer

7/12/04

Moses A. Gabbay

Director, President

and Chief Executive Officer

7/12/04

Debra A. Ricker-Rosato

Vice President and

Chief Accounting Officer

7/12/04

David E. Bell

Director

7/12/04

E. William Boehmler

Director

7/12/04

George J. Markos

Director

7/12/04

14

EX-132dex13.htmANNUAL REPORT 2004

ANNUAL REPORT 2004

Exhibit 13

BOSTON ACOUSTICS

2004 ANNUAL REPORT

FELLOW SHAREHOLDERS

We are dealing well with the challenges of managing a business that is changing.

As anticipated, sales declined significantly in fiscal 2004. To counteract the decline, weare working to add new sources of revenue new sales and distribution channels as well as new types of products. At the same time, we are continuing to cut costs, increase efficiencies, and maintain our profitability.

Net sales decreased approximately 26%, to $52.6 million, compared to $70.6 million in thesame period a year ago. Net income, however, increased slightly to approximately $1.9 million from approximately $1.8 million in the prior year, and diluted earnings per share also increased, to $.43 compared to $.41 for the previous year.

The decrease in sales was primarily attributable to the continuing decline inthe OEM/Multimedia segment. It was anticipated and incorporated in our 2004 fiscal year business plan.

Our cost cutting and efficiency programs have been very successful. Gross margins improved. For the year, operating expenses increased as a percentage of sales but decreased in absolute dollars. In the fourth quarter,expenses decreased both as a percentage of sales and in absolute dollars.

1

BOSTON ACOUSTICS

2004 ANNUAL REPORT

GOODNEWS

We announced our joint development agreement with Visteon two years ago.It led to our first OEM contract with the Chrysler Group, in 2002, for the development of premium audio systems as standard equipment or factory-installed upgrade options in the Chrysler 300, and Dodge Magnum vehicles. We started shipments for theChrysler 300 in January 2004 and for the Dodge Magnum in April 2004.

InFebruary, we were awarded additional business to provide systems for other Chrysler Group vehicles, to be specified at a later date. We expect shipments for these vehicles to begin in our 2006 fiscal year.

In April, we announced that Boston Acoustics audio systems would also be factory-installed orupgrade options across the 2005 Jeep Grand Cherokee family of vehicles. We anticipate that shipments will begin mid-July 2004.

The Chrysler Groups decision to offer Boston speaker systems in a growing number of vehicles is a significant vote of confidence for the quality and value of ourproducts.

While it is too early to accurately predict how much revenue theVisteon partnership will ultimately generate, we expect a ramping up of shipments during the first and second quarters of fiscal 2005.

A GROWING CUSTOMMARKET

The custom installation market is becoming increasingly important, andwe are a leader in the field. According to NPD Techworld, the custom market grew 21.6% during our fiscal year, from approximately $71.5 million to $87.0 million. In addition, NPD sales reports indicate that Boston has the best sellingindividual model and three of the top ten.

Above: DSi455 is a high performance in-ceilingspeaker with a 6-inch woofer in a 51/4-inch size. It delivers superb detail and bass response from a smallcutout size.

Bottom left: SL95 is a premier high performance 2-way carcoaxial speaker. Boston SL speakers deliver component-level performance in a chassis designed to fit most factory locations.

2

BOSTON ACOUSTICS

2004 ANNUAL REPORT

DESIGN FOR CONVENIENCE

We are highly respected for the quality ofthe sound that our products deliver. The Boston Sound is a standard of excellence that we maintain with great pride.

As our product lines have evolved, from relatively simple stand-alone speakers to more complex, highly engineered audio systems, we have added design features that makethem easy to install and to use.

For example, the revolutionary in-ceilingspeakers that we announced in last years annual report are multi-purpose products that can be used as one or two channel speakers, depending on the users needs and wishes.

Each one of our BT Big Theater models has been designed for simple installation. Die-cast finger pulls at thefront of each speaker enclosure make it easy to get in and out of tight cabinet spaces; neoprene pads prevent scratching and allow for smooth slide-in speaker positioning; all cable input terminals are recessed; and subwoofer controls arefront-mounted for easy access after installation.

Rotating baffles are anotherdesign feature that helps to increase utility. Many of our custom speakers can be aimed for the best sonic alignment and more accurate imaging.

Our increasingly successful Recepter Radio is yet another example of how we design in convenience and utility. It not only delivers amazing sound, it is also small enoughto fit virtually anywhere, and its controls are very easy to understand and use.

As our systems become increasingly complex on the inside, we will continue to keep them simple on the outside.

3

BOSTON ACOUSTICS

2004 ANNUAL REPORT

NEW PRODUCTS

With a focus on convenience and utility, as well as on pure Boston sound, we introduced anumber of new and innovative products during the fiscal year. Following our long-established policy of keeping our product lines fresh and new, we also continued to upgrade and replace existing products.

In the first quarter, we added new powered subwoofers to our acclaimed PV series of products, replacing discontinued models. The PV700 and PV900 have suggested retails of $500 and$700 respectively.

Later in the year, we introduced upgraded series of our Micro Reference high performance satellite speaker systems. These compact satellites can fit anywhere, including bookshelvesor floor stands or they can be mounted to fit particular needs more precisely. There are four models Micro110x, Micro120x, Micro130x, and the MicroCenter with suggested retails ranging from $100 to $250 each.

Micro is big performance in a small speaker. Microprovides sound solutions for your home theater, stereo and whole-house systems.

The Bravo is a two-way multipurpose speaker with uniquewedge-shaped design that allows for placement in corners, ceilings and other tight locations.

We also added to our line of high output, high performance Video Reference (VR) floor-standing speaker systems. The VR Series has suggested retails ranging from $300 to $625 each.

We enhanced our custom product offerings with the introduction of several new models. The VRi595, with a suggested retail of $800 per speaker, is a high-end, three-way ceiling-basedspeaker used in Hidden Theater systems. Styled toblend into any dcor, it is skillfully engineered with a unique, rotating baffle so that the sound may be directed towards virtually any listening position.

The VRi585T2 and the DSi465T2, with suggested retails of $500 and $350 each respectively, are dipole in-ceiling speaker systems. As a whole-house product, either modelhas the ability to deliver full-range, two-channel stereo sound from a single installation location, or to be used as a surround speaker in Hidden Theater systems.

We added a new line of after-market car speaker systems. The SL line initially includes three models to fit the broadest range of vehicles. With suggested retails ranging from$249.95 to $299.95, all models share the same technology and sound quality, and are engineered to be ideal for factory mounting locations.

4

BOSTON ACOUSTICS

BROADENING OUR SALES BASE

As we announced in March, one of our major customers notified us that it intended to reduce its annual purchases by approximately 50%,beginning in May 2004. We expect that this lost business will be offset in significant part by increases in sales to other customers.

CONTINUING STRENGTHS

We remain focused and will continue to invest in engineering, sales and marketing, to ensure that our products and brand continue to be cutting edge.

Our balance sheet remains strong. Except for a small working capital line of credit utilizedby one of our foreign subsidiaries, we have no debt. We are using our resources effectively.

We are taking steps to diversify our traditional distribution base and address new channel opportunities, and we are continuing to stress operational efficiencies.

We expect to remain profitable in fiscal 2005.

Andrew G. Kotsatos

Chairman of the Board

Moses A. Gabbay

President and Chief Executive Officer

The Recepter Radio is a compact, easy-to-use, highperformance AM/FM radio, with alarm clock features, that delivers full-blown system sound.

5

2004 ANNUAL REPORT

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

The following table sets forth the results of operations for the years ended March 27, 2004,March 29, 2003, and March 30, 2002 expressed as percentages of net sales.

For the Year Ended

March27,

2004

March29,

2003

March30,

2002

Net sales

100.0%100.0%100.0%

Cost of goods sold

59.769.269.3

Gross profit

40.330.830.7

Selling and marketing expenses

19.115.112.2

General and administrative expenses

8.77.35.6

Engineering and development expenses

8.59.66.2

Total operating expenses

36.332.024.0

Income (loss) from operations

4.0(1.2)6.7

Interest income (expense), net

0.20.2(0.2)

Other income (expense)

0.90.4(0.1)

Income (loss) before provision (benefit) for income taxes

5.1(0.6)6.4

Provision (benefit) for income taxes

1.6(3.2)1.8

Net income

3.5%2.6%4.6%

Net sales are net after deductionsfrom revenue for various sales rebates, timely pay discounts, and freight reserves.

Cost of goods sold consists of purchased components and finished products purchased from third party suppliers and raw materials, direct labor, freight, and indirect costs associated with the Companys manufacturing operations.

Selling and marketing expenses include payroll and payroll-related costs,sales commissions, as well as corporate advertising and literature costs associated with the sale and marketing of the Companys products.

General and administrative expenses include management and administrative payroll and all other expenses associated with the Companys operations outside ofmanufacturing, research and development, and sales and marketing, and include professional services, consulting arrangements, and investor relations expenditures.

Engineering and development expenses include payroll and payroll-related expenses attributed to the design and enhancement of existingproducts along with the creation of new products; associated expenses include supplies, samples, test equipment, and inventory consumed.

FISCAL 2004 COMPARED WITH FISCAL 2003

Net sales for the fiscal year decreased 25.5% to $52.6 million as compared to $70.6 million in fiscal 2003. The overall sales decrease was the result of a 70.8%(approximately $14.5 million) decrease in sales of the OEM and multimedia segment accompanied with a 6.9% (approximately $3.5 million) decrease in sales of the Core business segment compared to fiscal 2003. The decrease in the OEM/Multimedia segmentfor the year ended March 27, 2004 had been anticipated and was the result of the decrease in sales of multimedia products to Gateway, Inc. The overall decrease in the Core business segment was the result of decreases in the gross sales of the homeand aftermarket car product categories offset by increases in the custom and integrated product categories during the fiscal year.

During the three-month period ended March 27, 2004, the Core segment reflected an overall increase in gross sales of approximately 8%, primarily the result of new productintroductions and increased sales of the Recepter Radio during this quarter. Net incomefor the year was approximately $1.9 million compared to approximately $1.8 million a year ago, while diluted earnings per share increased to $.43 per share compared to $.41 per share last year. During January 2004, the Company, in partnership withVisteon Corporation, began initial shipments of its premium audio systems for the Chrysler Group for upcoming vehicles. The Company recorded net sales of approximately $0.9 million to Visteon Corporation during the three-months ended March 27, 2004.The Company anticipates a continued ramping up of these shipments during the first quarter of fiscal 2005. There is not at this time, however, sufficient historical information to predict with any certainty the volume of revenue the Company willexperience during this initial stage.

6

BOSTON ACOUSTICS

During the fiscal year, the Company focused on introducing new and innovative products, particularly within its Core business segment.Revenue from these new product introductions partially offset the loss of revenue from discontinued product lines. Introductions of upgraded versions of existing product offerings, while permitting the Company to remain competitive, are not likelyto result in significant increases in revenue over the long term.

During thefirst quarter of fiscal 2004, the Company introduced new powered subwoofers to the Companys acclaimed PV series of products replacing discontinued models. The PV700 and PV900, have suggested retails of $500 and $700 each respectively. Duringthe third quarter of fiscal 2004, the Company introduced an upgraded series of its Micro high performance satellite speaker systems. These compact satellites are small enough to fit anywhere. There are four models, Micro110x, Micro120x, Micro130x,and the MicroCenter, with suggested retails ranging from $100 to $250 each. Also contributing to gross sales during the latter half of fiscal 2004, were sales of VR floorstanding speaker systems. The VR Series have suggested retails ranging from $300 to $625 each. In addition, salesof the Companys high performance AM/FM Recepter Radio increased during the fiscal year as compared to the previous fiscal year.

The custom product category of speakers was enhanced with the introduction of several models during the fiscal year. The VRi595, with a suggested retail of $800 perspeaker, is a high-end, three-way in-ceiling speaker used in Hidden Theater applications and is styled to blend into any dcor and skillfully engineered with a unique, rotating baffle so that the sound may be directed towards the listening position. The VRi585T2 and the DSi465T2, withsuggested retails of $500 and $350 each respectively, are versatile in-ceiling speaker systems; either model has the ability to deliver full-range, two-channel stereo sound from a single installation location, or can be used as a diffuse surroundspeaker in Hidden Theater systems.

The SL line of after-market car speakersystems was introduced during the second fiscal quarter and is currently composed of 3 models to fit the broadest range of vehicles. With suggested retails ranging from $250 to $300, all models share the same technology and sound quality, and areengineered to make them ideal for factory mounting locations.

TheOEM/Multimedia segment included sales of the BA745 three-piece system and the BA7900 high performance 6-piece 5.1 channel powered speaker system, which was introduced in the fall of 2002. These three-speaker systems are designed for use with personal computers and were offered via theCompanys OEM customer, Gateway, Inc. (Gateway).

TheCompanys gross margin as a percentage of net sales increased to 40.3% in fiscal 2004 compared to 30.8% in fiscal 2003. This increase was due to the higher proportion of higher margin Core business sales, a reduction in payroll andpayroll-related costs, and the continued improvements in manufacturing efficiencies that were implemented at the end of the fourth quarter of fiscal 2003. The lower margin OEM/Multimedia segment represented a smaller proportion of total net salesduring fiscal 2004 (11.4%) as compared to fiscal 2003 (29.1%), contributing to the Companys overall gross margin increase.

Total operating expenses although increasing as a percentage of net sales from 32.0% to 36.3%, have decreased in absolute dollars by approximately $3.6 million. Thisdecrease is the result of the corporate reorganization and rationalization plan implemented in the fourth quarter of fiscal 2003, which resulted in reduced payroll costs and expenses across all departments during fiscal 2004. Selling and marketingexpenses have decreased in absolute dollars (approximately $633,000) as compared to the same period a year ago. The decrease was due to decreases in payroll and payroll-related expenses (approximately $466,000) and corporate advertising andliterature expenses (approximately $891,000) partially offset increases in sales promotions and commissions (approximately $144,000), trade show and travel expenses (approximately $329,000) and consulting services (approximately $238,000) ascompared to the same periods a year ago. General and administrative expenses have decreased in absolute dollars (approximately $617,000) as compared to

7

2004 ANNUAL REPORT

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

the same period a year ago. The decrease in general and administrative expenses was theresult of decreases in payroll and payroll-related expenses (approximately $478,000), the decrease in value of donations contributed to charitable organizations (approximately $217,000), decrease in depreciation related to the corporate ERP systemsoftware and hardware implemented in 1999 (approximately $143,000) were partially offset by increases in corporate tax and general consulting fees (approximately $251,000). Engineering and development expenses have decreased in absolute dollars(approximately $2,313,000), due to a reduction in payroll and payroll-related expenses (approximately $1,104,000) and consulting fees, which vary from year to year, (approximately $1,164,000), as compared to the corresponding periods in fiscal 2003.

For fiscal 2004, the Company reported interest income, net for the fiscalyear, of approximately $102,000 compared to interest income, net of approximately $163,000 last fiscal year. The decrease is primarily the result of lower interest rates during the year.

Other income for fiscal 2004 includes approximately $480,000 for foreign currency gains related to the translation and consolidation of theforeign subsidiaries and approximately $3,000 related to the gain on the sale of property and equipment. In fiscal 2003, approximately $211,000 for foreign currency gains related to the translation and consolidation of the foreign subsidiaries andapproximately $98,000 related to the gain on the sale of property and equipment. The gain on sale of property in fiscal 2003 was primarily from the sale of a fully depreciated automated production line.

The Companys effective tax rate returned to a normalized level of 31.2% in fiscal 2004.The Company recorded an income tax benefit of approximately $2.2 million for fiscal 2003 in order to recognize a deferred tax asset related to the fiscal 2003 net operating loss and certain research tax credits identified for prior fiscal years. Thetax credits identified were both federal and Massachusetts research tax credits and resulted in significant federal and state tax cash savings.

The Company posted net income for fiscal 2004 of approximately $1.9 million compared to approximately $1.8 million for fiscal 2003, while diluted earnings per share were$0.43 per share compared to $0.41 for the same period a year ago. The change is primarily attributable to the reduction in net sales partially offset by the increase in gross profit and the decrease in operating expenses resulting from the corporatereorganization and rationalization plan implemented during the fourth quarter of fiscal year 2003.

FISCAL 2003 COMPARED WITH FISCAL 2002

Net sales for the fiscal year decreased 17.2% to $70.6 million as compared to $85.3 million in fiscal 2002. The overall sales decrease was the result of a 25.2%(approximately $6.9 million) decrease in sales of the OEM and multimedia segment accompanied with a 13.5% (approximately $7.8 million) decrease in sales of the Core business segment compared to fiscal 2002. Although the Company had anticipated thedecline in the OEM/Multimedia business segment, the continued weak U.S. economy impacted the Core business segment more significantly than expected, particularly during the third and fourth quarters. Net income for the year was $1.8 million comparedto $3.9 million a year ago, while diluted earnings per share decreased to $.41 per share compared to $.82 per share last year. During the three months ended March 29, 2003, the Company incurred an operating loss of approximately $2.6 million. Theoperating loss during the quarter was attributed in part to severance related costs of approximately $600,000 related to headcount reductions and the transfer of manufacturing operations of Snell Acoustics, a wholly-owned subsidiary, to theCompanys Peabody, Massachusetts facility. During the same quarter, the Company recorded an income tax benefit to recognize a deferred tax asset related to the current year operating loss and recently identified research tax credits for priorfiscal years.

Throughout the fiscal year, the Company introduced new productsin its Core business segment. During the first quarter of fiscal 2003, the Company introduced upgraded versions of its in-wall/in-ceiling speaker systems. The DSiSeries of speaker systems consist of nine models; 4 in-wall models and 5in-wall/in-ceiling round speakers which can be used for stereo, home theater or, whole-house music applications and range in price from $150 to $600 per pair.

8

BOSTON ACOUSTICS

The Company launched its new high performance automotive after-market component speakers during the second quarter of fiscal 2003. The Z5and Z6 have a suggested retail of $1,000 per pair and have a highly stylized design that minimizes installation effort and cost. The Boston Z component speakers are expected to enhance the Companys leadership in the premium automotive after-market component speaker business. The Companyalso introduced the NX Car Coaxial Series of high performance after-market component speakers during the second quarter of fiscal 2003, replacing the RX Series. The NX Series consists of four models, with suggested retails ranging from $150 to $200per pair, offers maximum performance while maintaining a low profile design. During the fourth quarter, the Company introduced its first-ever line of car audio amplifiers, the Boston GT line. The amplifier line features seven models, ranging from a compact two-channeldesign to a powerful five-channel amplifier, designed to complement the Boston-branded line of car speakers or to improve the sound quality of other after-market and factory automotive speakers. The manufacturers suggested retail prices(MSRP) range from $300 for the GT-20 to $1,000 for the GT-28.

TheCompanys Core segment sales also included initial shipments of the Companys PV500 10-inch, 100-watt, powered subwoofer. The PV500, with a suggested retail of $350, achieves output levels essential for lifelike reproduction of moviesoundtracks and music while delivering a smooth, detailed response.

During thethird quarter of fiscal 2003, the Company launched the new Recepter Radio. The Recepter is a high-performance AM/FM radio that has been designed to deliver smooth, natural response and room-filling sound despite its compact size. The outstandingaudio performance is coupled with a highly sensitive AM/FM tuner with a 20 preset-station memory for clear, distortion-free reception sound. The Recepter Radio, with a retail of $159, is available in three finishes platinum, charcoal andpolar white.

The OEM/Multimedia segment included sales of the BA745three-piece system and the BA7800 five-piece system, as well as, initial shipments of the BA7900 high performance 6-piece 5.1 channel powered speaker system which was introduced in the fall of 2002. These three speaker systems are all designed for use with personal computers and areoffered via the Companys OEM customer, Gateway, a leading direct marketer of PC products.

Revenue from these new product introductions partially offset the loss of revenue from discontinued product lines. Introductions of upgraded versions of existing product offerings, while permitting the Company toremain competitive, are not likely to result in significant increases in revenue over the long term.

The Companys gross margin as a percentage of net sales increased slightly to 30.8% in fiscal 2003 compared to 30.7% in fiscal 2002. The gross margin percentage reflects certain lower margin closeout sales duringthe 2003 fiscal year. However, the Company was able to maintain its gross margin despite fourth quarter severance related costs of approximately $0.2 million, because of improved manufacturing efficiencies and a decrease in costs related to overheadsalaries, depreciation, scrap and rework costs and warehousing costs compared to the same period a year ago. In addition, the OEM/Multimedia segment of sales, which has lower gross margins, represented a smaller portion of total net sales duringfiscal 2003 (29.1%) as compared to fiscal 2002 (32.1%).

Total operatingexpenses increased both as a percentage of net sales from 24.0% to 32.0% and in absolute dollars by approximately $2.1 million. Selling and marketing expenses increased by approximately $0.2 million primarily due to increased salaries (approximately$0.4 million including approximately $0.2 million of severance related costs), increased expenditures on marketing literature (approximately $0.3 million), and expenses of approximately $0.2 million related to the launch of new products includingthe Recepter Radio, offset by a decrease in advertisement of approximately $0.7 million. General and administrative expenses have increased by approximately $0.4 million. The increase is primarily attributable to the value of donations contributedto charitable organizations (approximately $0.2 million) and increased consulting fees

9

2004 ANNUAL REPORT

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

and outside services related to tax and auditing services (approximately $0.2 million).Research and development expenses increased by approximately $1.5 million because significant product development expenditures (approximately $1.3 million) were incurred throughout fiscal 2003 in conjunction with new business opportunities,including the OEM automotive program and the integrated development program which combines our high performance speakers with electronics of comparable quality. Fourth quarter severance related costs accounted for approximately $0.2million of the increase.

For fiscal 2003, the Company reported interestincome, net for the fiscal year, of approximately $163,000 compared to interest expense, net of approximately $155,000 last fiscal year. The turnaround is due to the Companys repayment of its outstanding line of credit and an increase in cashand cash equivalents during fiscal 2003 which were invested in interest bearing low risk financial instruments.

Other income for fiscal 2003 includes approximately $211,000 for foreign currency gains related to the translation and consolidation of the foreign subsidiaries andapproximately $98,000 related to the gain on the sale of property and equipment. The gain on sale of property was primarily from the sale of a fully depreciated automated production line. In fiscal 2002, other expense included losses on foreigncurrency exchange.

The Company recorded an income tax benefit of approximately$2.2 million for fiscal 2003 in order to recognize a deferred tax asset related to the current year operating loss and certain research tax credits identified for prior fiscal years. The tax credits identified were both federal and Massachusettsresearch tax credits and will result in significant federal and state tax cash savings.

During fiscal 2003, the Company undertook a project to identify historical research and development tax credits that had not been previously identified or claimed in prior year tax returns. The Company identified approximately $1.5 millionof historical federal and state research and development tax credits related to fiscal years 1999, 2000, 2001 and 2002. The Company is in the process of filing amended returns for these fiscal years in order to claim the appropriate refund as aresult of the identified credits. Accordingly, the Company has recorded an income tax benefit during fiscal 2003 in order to recognize the deferred tax asset related to these historical credits. The Company expects to complete the filing of allamended returns and receive the related refunds during fiscal 2004. The Company also expects its effective tax rate to return to a normalized level in fiscal 2004.

The Company posted a net income for fiscal 2003 of $1.8 million compared to $3.9 million for fiscal 2002, while diluted earnings per sharewere $0.41 per share compared to $0.82 for the same period a year ago. Although the company had net income for the year, it incurred an operating loss of approximately $0.9 million. The operating loss is attributed in part to severance related costsof approximately $0.6 million related to certain headcount reductions and a corporate reorganization and rationalization plan implemented during the fourth quarter.

LIQUIDITY AND CAPITAL RESOURCES

As of March 27, 2004, the Companys working capital was approximately $21,683,000, a decrease of $1,109,000 from March 29, 2003. Increases in inventory, accountsreceivable and accounts payable were offset by decreases in deferred taxes and prepaid expenses. Cash and cash equivalents increased by approximately $611,000, compared to levels at the end of fiscal 2003. Current liabilities increased byapproximately $1,554,000 to approximately $10,240,000 primarily as a result of an increase in accounts payable and current maturities of a line of credit. The Company has two lines of credit with two U.S. banking institutions totaling $26,500,000.At March 27, 2004, the Company did not have any borrowings under either of these USD lines of credit. One foreign subsidiary, who has a Euro denominated working capital line of credit had approximately $309,000 outstanding at March 27, 2004.

Cash increased in fiscal 2004, 2003 and 2002 by $611,000, $1,807,000 and$2,349,000, respectively. Net cash provided by operating activities in fiscal years 2004, 2003 and 2002 was approximately $5,919,000, $9,388,000 and $18,138,000, respectively. Differences in cash flows from operating activities over this three-yearperiod were primarily related to significant year-to-year changes in net income, accounts receivable, inventories and accounts payable. Net cash used in investing activities for fiscal years 2004, 2003 and 2002 was approximately $1,488,000,$1,123,000 and $1,950,000, respectively.

10

BOSTON ACOUSTICS

Net cash used in investing activities during these periods were for improvements to the existing facility and purchases of property andequipment. Net cash used in financing activities in fiscal years 2004, 2003 and 2002 was approximately ($3,820,000), ($6,458,000) and ($13,840,000), respectively. In fiscal 2004 net cash used in financing activities included the repurchase of274,700 shares of common stock for approximately $3,281,000. In fiscal 2003, net cash used in financing activities included $2,500,000 of repayments of borrowings under one of the Companys USD credit facilities. In addition, during fiscal2003, the Company repurchased 194,000 shares of common stock for approximately $2,429,000. During fiscal 2002, the Company repaid $9,000,000 of its borrowings under one of the Companys USD credit facilities and repurchased 332,200 shares ofcommon stock for approximately $3,192,000.

Given the Companys historicalprofitability and its ability to manage expenses, the Company believes that its current resources are adequate to meet its requirements for working capital expenditures through the foreseeable future.

CONTRACTUAL OBLIGATIONS

The Company had certain obligations as of March 27, 2004 due as follows:

Payments due by period

Contractual obligations

Total
Less than
1 year
1-3 years
3-5years
Morethan
5 years

Short-term debt

$309,394$309,394$$$

Operating leases

117,82581,08027,0859,660

Total

$427,219$390,474$27,085$9,660$

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our significantaccounting policies are described in Note 1 to the consolidated financial statements. We believe that our most critical accounting policies include revenue recognition, reserve for bad debts and other allowances, and inventory related reserves.

A. REVENUE RECOGNITION

We recognize revenue in accordance with the Securities and Exchange Commissions StaffAccounting Bulletin 104, Revenue Recognition (SAB 104).

Revenue is generally recognized when products are (1) delivered to customers provided that there are no uncertainties regarding customer acceptance, (2) there is persuasive evidence of an arrangement, (3) the sales price is fixed ordeterminable and (4) collection of the related receivable is probable. At the time of revenue recognition, we provide reserves for various sales rebates, timely pay discounts, and freight reserves. The determination of criteria (3) and (4) are basedon managements judgements regarding the fixed nature of sales price for the products delivered and the collectibility of those amounts. At the time of revenue recognition, we also accrue a warranty reserve for estimated costs to providewarranty services. Our estimate of costs to service our warranty obligations is based on historical experience and expectation of future conditions.

B. RESERVE FOR BAD DEBTS AND OTHER ALLOWANCES

Significant management judgements and estimates must be made and used in connection with establishing the allowances for rebates and timely pay discounts in anyaccounting period. Similarly, our management must make estimates of the uncollectibility of our accounts receivable. Management specifically analyzes accounts receivable and historical bad debts, customer concentrations, customer credit-worthiness,current economic trends and changes in our customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. The increase in amounts charged to expense during fiscal 2004 is the result of management review regarding aspecific account which was deemed uncollectible during the fourth quarter and an increase in the general reserve amount due to the increase in the accounts receivable balance at March 27, 2004. Historically, we have not experienced any significantlosses related to individual customers or groups of customers in any particular industry or geographic area.

March 27,
2004
March 29,
2003
March 30,
2002

Doubtful accounts reserve beginning of year

$312,000$366,000$385,000

Plus: amounts charged to costs and expenses

313,0005,00041,000

Less: deductions charged against doubtful accounts reserve

(43,000)(59,000)(60,000)

Doubtful accounts reserve end of year

$582,000$312,000$366,000

11

2004 ANNUAL REPORT

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

March 27,
2004

March 29,

2003

March 30,

2002

Reserve for off-invoice allowances beginning of year

$2,230,000$3,005,000$2,711,000

Plus: amounts charged against revenues

8,286,00010,522,00012,771,000

Less: deductions charged against reserve for off-invoice allowances

(8,163,000)(11,297,000)(12,477,000)

Reserve for off-invoice allowances end of year

$2,353,000$2,230,000$3,005,000

C.INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out)or market and consist of raw material, work-in-process and finished goods. Work-in-process and finished goods inventories consist of purchased components and finished products purchased from third party suppliers and raw materials, labor andmanufacturing overhead.

We value our inventory at the lower of the actual costto purchase and/or manufacture the inventory or the current estimated market value of the inventory. We regularly review inventory quantities on hand and record a provision for excess and obsolete inventory based primarily on our estimated forecastof product demand and production requirements for the next twelve months. As demonstrated during the last three years, demand for our products can fluctuate significantly. A significant increase in the demand for our products could result in ashort-term increase in the cost of inventory purchases while a significant decrease in demand could result in an increase in the amount of excess inventory quantities on hand. The increase in the provision for excess and obsolete inventory at March27, 2004 is primarily attributable to discontinued products that may not be saleable.

Total

Inventory reserve as of March 29, 2003

$1,980,000

Plus: provision for excess and obsolete inventory

712,000

Less: amounts charged against reserve for excess and obsolete inventory

(92,000)

Inventory reserve as of March 27, 2004

$2,600,000

RECENT ACCOUNTING PRONOUNCEMENTS

In May 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 150, Accounting for Certain FinancialInstruments with Characteristics of both Liabilities and Equity. SFAS No. 150 provides guidance on how to classify and measure certain financial instruments with characteristics of both liabilities and equity. This statement is effectivefor financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Companys adoption of SFAS No. 150 had no impact on theCompanys consolidated financial statements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

A.DERIVATIVE FINANCIAL INSTRUMENTS, OTHER FINANCIAL INSTRUMENTS, AND DERIVATIVE COMMODITY INSTRUMENTS.

As of March 27, 2004, the Company did not participate in any derivative financial instruments, or other financial and commodity instruments for which fair value disclosure would be required under SFAS No. 107. All ofthe Companys investments are considered cash equivalents and consist of money market accounts. Accordingly, the Company has no quantitative information concerning the market risk of participating in such investments.

B. PRIMARY MARKET RISK EXPOSURES

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

For the year ended March 27, 2004, foreign currency translation gains wereapproximately $480,000 as a result of consolidating the foreign currencies of the Companys subsidiaries. During fiscal 2004, the Company had not engaged in any foreign currency hedging activities.

12

BOSTON ACOUSTICS

SIGNIFICANT CUSTOMERS

One OEM/Multimedia customer accounted for approximately 9% of the Companys net sales for the fiscal year ended March 27, 2004 ascompared to approximately 29%, for the corresponding period a year ago. The Company had anticipated that OEM sales would decrease during fiscal 2004 as compared to fiscal 2003. The Companys management has taken steps (including expansion ofthe Companys aftermarket automotive products offerings, renewed efforts to increase sales of the Companys Core products and pursuit of additional OEM automotive customers), which it believes will mitigate the consequences of the expecteddecline in orders from this customer.

One Core customer accounted forapproximately 31% of the Companys net sales for fiscal year ended March 27, 2004 as compared to approximately 17%, for the corresponding period a year ago. In March 2004 the Company announced that this particular customer would be reducing itsannual purchases by approximately 50% beginning in May 2004. In addition to its strategy of expanding the Companys product offerings, management expects that its continued efforts to enlarge and diversify its customer base for all productswill offset the decrease in business with this one customer and reduce dependence on any single customer.

INTERNATIONAL OPERATIONS

Export sales accounted for approximately 19% of the Companys net sales during fiscal 2004, 15% during fiscal 2003 and 15% during fiscal 2002, with salesconcentrations in Europe, Canada and Asia/Pacific Rim. The Company also distributes its products through its three foreign subsidiaries. The Company obtains most of its supply of inventory from manufacturers located in foreign countries. The Companyhas no long-term, fixed price contracts or arrangements for inventory supplied by such foreign manufacturers. The Company could readily obtain such inventory from other sources, but there can be no assurance that it would not be at some delay. Anysubstantial delay in obtaining inventory from another supplier could have an adverse effect on the Companys business, results of operations and financial condition. A number of factors beyond the control of the Company, including, but notlimited to, changes in world politics, unstable governments in foreign customer and manufacturer nations and inflation, may affect the operations or financial condition of the Companys foreign customers and manufacturers, as well as the timingof orders and deliveries of Boston Acoustics products by such customers and manufacturers.

CAUTIONARY STATEMENTS

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

13

2004 ANNUAL REPORT

CONSOLIDATED BALANCE SHEETS

March27,

2004

March29,

2003

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$7,552,054$6,941,222

Accounts receivable, net of allowance for doubtful accounts of approximately $582,000 and $312,000 in 2004 and 2003,respectively

8,202,0446,582,033

Inventories

12,240,83811,919,039

Deferred income taxes

2,492,0003,577,000

Prepaid income taxes

480,0001,449,000

Prepaid expenses and other current assets

956,1421,009,369

Total current assets

31,923,07831,477,663

PROPERTY AND EQUIPMENT, AT COST:

Machinery and equipment

17,429,27916,449,563

Building and improvements

8,795,5678,795,567

Office equipment and furniture

5,902,4875,473,707

Land

1,815,7551,815,755

Motor vehicles

209,950264,969

34,153,03832,799,561

LessAccumulated depreciation and amortization

23,278,69520,609,012

10,874,34312,190,549

OTHER ASSETS, NET

Other assets, net

754,710726,172

Deferred income taxes

406,000270,000

$43,958,131$44,664,384

LIABILITIES AND STOCKHOLDERS EQUITY

CURRENT LIABILITIES:

Accounts payable

$7,322,535$5,630,246

Accrued payroll and payroll-related expenses

523,234602,589

Accrued income taxes

649,512532,000

Dividends payable

354,182374,136

Other accrued expenses

1,081,3611,547,095

Current maturity of line of credit

309,394

Total current liabilities

10,240,2188,686,066

COMMITMENTS (NOTE 9)

MINORITY INTEREST IN JOINT VENTURE

37,344

STOCKHOLDERS EQUITY:

Common stock, $0.01 par value Authorized 8,000,000 shares
Issued 5,161,514 and 5,100,314 shares in 2004 and 2003,respectively

51,61551,003

Additional paid-in capital

1,789,6891,191,988

Subscriptions receivable

(230,917)

Retained earnings

43,409,15842,978,409

45,250,46243,990,483

Less Treasury stock, 994,650 and 698,700 shares in 2004 and 2003, respectively, at cost

11,532,5498,049,509

Total stockholders equity

33,717,91335,940,974

$43,958,131$44,664,384

The accompanying notes are anintegral part of these consolidated financial statements.

14

BOSTON ACOUSTICS

CONSOLIDATED STATEMENTS OF INCOME

Years ended

March27,

2004

March29,

2003

March30,

2002

NET SALES

$52,627,938$70,629,162$85,335,768

Cost of goods sold

31,437,26448,867,16659,135,678

Gross profit