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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ    Quarterly Report Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

for the quarterly period ended December 28, 2002

or

¨     Transition Report pursuant to 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)

(978) 538-5000

(Registrant’s telephone number, including area code)

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

Yes x    No ¨

There were 4,401,595 shares of Common Stock issued and outstanding as of February 10, 2003.

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Boston Acoustics, Inc.

Index

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PART I: FINANCIAL INFORMATION

Item 1:    Financial Statements

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Boston Acoustics, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

Assets

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

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Boston Acoustics, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

Liabilities and Shareholders’ Equity

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

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Boston Acoustics, Inc. and Subsidiaries

Consolidated Statements of Income

(Unaudited)

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

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Boston Acoustics, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

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

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Boston Acoustics, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

The unaudited consolidated financial statements included herein have been prepared by Boston Acoustics, Inc. and subsidiaries (the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and include, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of interim period results. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. The Company believes, however, that its disclosures are adequate to make the information presented not misleading. The results for the three and nine-month periods ended December 28, 2002 are not necessarily indicative of results to be expected for the full fiscal year. These consolidated financial statements should be read in conjunction with the Company’s Annual Report included in its Form 10-K for fiscal year ended March 30, 2002.

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

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

The Company follows the provisions of Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share. SFAS No. 128 establishes standards for computing and presenting earnings per share (EPS) and applies to entities with publicly held common stock or potential common stock. Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution from common stock equivalents (stock options). This standard requires presentation of both basic and diluted earnings per share on the face of the consolidated statements of income. These consolidated financial statements have been prepared and presented based on this standard. For the three-month and nine-month periods ended December 28, 2002, there were 190,800 stock options that have been excluded from the weighted average number of common and dilutive shares outstanding as their effect would be anti-dilutive. For the three-month and nine-month periods ended December 29, 2001, there were 557,752 and 541,198 stock options, respectively, that have been excluded from the weighted average number of common and dilutive shares outstanding as their effect would be anti-dilutive.

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

The Company recognizes revenue in accordance with the Securities and Exchange Commission’s Staff Accounting Bulletin 101 (SAB 101), Revenue Recognition.

Revenue is recognized when products are shipped to customers, provided that there are no uncertainties regarding customer acceptance, there is persuasive evidence of an arrangement, the sales price is fixed or determinable and collection of the related receivable is probable. The Company’s standard sales terms provide that shipping terms are FOB shipping point, and that title and risk of loss or damage pass to the customer upon delivery of products to the carrier.

At the time of revenue recognition, the Company provides reserves for sales returns and rebates, timely pay discounts, and freight reserves.

The Company charges many of its customers shipping and freight costs related to the delivery of its products. Accordingly, the Company follows the provisions of Emerging Issues Task Force Issue No. 00-10, Accounting for Shipping and Handling Fees and Costs. Amounts charged to customers for shipping and handling costs are included in net sales in the accompanying consolidated statements of income. The related shipping and handling costs are recorded in cost of sales in the accompanying consolidated statements of income

The Company has determined that it has two reportable segments: 1) core, and 2) original equipment manufacturer (OEM) and multimedia.

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

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Three Months Ended December 28, 2002

For the three-month periods ended December 28, 2002 and December 29, 2001, one OEM/Multimedia customer represented approximately 26% of the Company’s net sales for both reporting periods, and one core customer represented approximately 21% and 18% of net sales, respectively. For the nine-month periods ended December 28, 2002 and December 29, 2001, one OEM/Multimedia customer represented approximately 29% and 30% of the Company’s net sales, respectively, and one core customer represented approximately 16% of net sales for both reporting periods. One OEM/Multimedia customer represented approximately 19% of net accounts receivable and one core customer represented approximately 29% of net accounts receivable at December 28, 2002, respectively.

The Company maintains sales concentrations in Europe, Asia, and Canada in addition to distributing product through three foreign subsidiaries. Export sales accounted for approximately 16% and 15% of net sales for the three-month periods ended December 28, 2002 and December 29, 2001, respectively. For the nine-month periods ended December 28, 2002 and December 29, 2001, export sales accounted for approximately 15% and 16% of net sales, respectively.

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The Company follows the provisions of Emerging Issues Task Force Issue No. 01-09, Accounting for Consideration Given by a Vendor to a Customer, (EITF 01-09). EITF 01-09 addresses whether consideration given to a customer from a vendor should be classified as an adjustment to the selling price of the product sold or as a cost of the product sold. The task force reached a consensus that cash consideration given by a vendor to a customer is presumed to be a reduction of the selling price of the vendor’s products or services and therefore, should be characterized as a reduction of revenue when recognized in the vendor’s income statement. The Company offers cooperative advertising programs to its largest customers whereby the customers can earn sales credits for approved advertisements involving the Company’s products. The Company has historically recorded these credits as an adjustment to the selling price of its products. For the three-month periods ending December 28, 2002 and December 29, 2001, cooperative advertising credits included as sales adjustments were approximately $945,000 and $649,000, respectively. For the nine-month periods ending on the same dates, cooperative advertising credits included as sales adjustments were approximately $2,263,000 and $1,643,000, respectively.

Certain amounts in the prior-period consolidated financial statements have been reclassified to conform to the current period’s presentation.

In July 2002, the Financial Accounting Standards Board (FASB) issued SFAS 146, Accounting for Cost Associated with Exit or Disposal Activities. SFAS 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan and nullifies Emerging Issues Task Force Issue No. 94-3. Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit and Activity (including Certain Costs Incurred in a Restructuring). SFAS 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company does not believe the adoption of this standard will result in any material impact on its consolidated financial statements at this time.

In December 2002, the FASB issued SFAS 148, Accounting for Stock-Based Compensation—Transition and Disclosure, which amends SFAS 123, Accounting for Stock-Based Compensation. In response to a growing number of companies announcing plans to record expenses for the fair value of stock options, SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. The amendments to SFAS 123 in paragraphs 2(a)-2(e) of this statement shall be effective for financial statements for fiscal years ending after December 15, 2002. The Company does not expect this statement to have a significant impact on its consolidated financial statements.

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

The following table sets forth the results of operations for the three-month and nine-month periods ended December 29, 2001 and December 28, 2002 expressed as percentages of net sales.

Net sales for the third quarter decreased 12%, from approximately $23,206,000 last year to approximately $20,464,000 for the current fiscal period. For the nine-month period ended December 28, 2002, net sales decreased 12% from approximately $64,715,000 during fiscal 2002 to approximately $57,249,000. The overall sales decrease for the three-month period ended December 28, 2002 was the result of a 16% or approximately $1,048,000 sales decrease in the OEM and multimedia segment and a 10% or approximately $1,694,000 decrease in net sales of the Company’s Core products from the same period a year ago. The reduction in net sales reflects the continuing difficult economic climate and its impact on both of the Company’s business segments.

During the third 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-

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filling sound despite its compact size. The outstanding audio 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 and polar white. The product launch of the Recepter Radio did not contribute significantly in absolute dollars or percentage of total sales during the period due to the introduction of the product late in the quarter. The OEM/Multimedia segment included sales of the BA745 three-piece system and the BA7800 five-piece system, as well as, initial shipments in December 2002 of the BA7900^™ high performance 6-piece 5.1 channel powered speaker system. These three speaker systems are all designed for use with personal computers and are offered via the Company’s OEM customer, Gateway, Inc. Revenue from the new product introductions partially offset the loss of revenues from discontinued product lines. Introductions of upgraded versions of existing product offerings, while permitting the Company to remain competitive, are not likely to result in significant increases in revenue over the long term.

Expenses included in the cost of goods sold line item are raw materials, direct labor, freight, and indirect costs associated with the Company’s manufacturing operations.

The Company’s gross margin for the three-month period ended December 28, 2002 decreased from 34.0% to 32.2% as compared to the same period a year ago. Both the Core and OEM/Multimedia business segments were impacted during the quarter by slightly lower margins and the re-classification of certain cooperative advertising expenses from sales and marketing expenses to net sales as compared to the comparable periods a year ago. For the nine-month period ended December 28, 2002, gross margin increased to 31.6% from 30.6% for the same period last year. The increase for the nine-month period was primarily within the Core business segment and reflects the continuing gains in manufacturing efficiencies and the cost tightening measures implemented last calendar year. Additionally, the OEM/Multimedia segment of sales, which has lower gross margins, represented a smaller portion of total net sales during the nine-month period ended December 28, 2002 as compared to the same period a year ago, and as a result, the overall gross margin increased.

Selling and marketing expenses include payroll and payroll-related costs as well as corporate advertising and literature costs associated with the sale and marketing of the Company’s products. Expenses included in the general and administrative expenses line item are management and administrative payroll and other expenses associated with the Company’s operations outside of manufacturing, 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 existing products along with the creation of new products; associated expenses include supplies, samples, test equipment, and inventory consumed.

Total operating expenses increased in both absolute dollars and as a percentage of net sales for both the three-month and nine-month periods ended December 28, 2002 as compared to the same periods a year ago. This increase was anticipated and resulted from the Company’s investment in personnel and process (approximately $500,000 and $1,100,000 for the three-month and nine-month periods ended December 28, 2002 as compared to the corresponding periods a year ago) to meet new business opportunities in new markets, particularly the OEM automotive market. Selling and marketing expenses decreased by approximately $10,000 for the three-month period ended December 28, 2002 while increasing by approximately $72,000 for the nine-month period ended on December 28, 2002 as compared to the same periods a year ago. As a percentage of sales, these expenses increased for both periods primarily due to increases in corporate advertising and literature costs, mainly associated with the launch of the Receptor Radio product which accounted for approximately $250,000 of the total selling and marketing expenses during the quarter. These increased expenditures were offset by the re-classification of certain cooperative advertising expenses from sales and marketing expenses to net sales as compared to the comparable periods a year ago. General and administrative expenses decreased by approximately $11,000 for the three-month period ended December 28, 2002 and increased by approximately $151,000 for the nine-month period ended on December 28, 2002 as compared to the same periods a year ago. The increase for the nine-month period ended December 28, 2002 is primarily due to the value of donations contributed to charitable

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organizations as compared to the same period a year ago. Engineering and development expenses have increased in absolute dollars (approximately $353,000 and $713,000 for the three-month and nine-month periods, respectively) and as a percentage of sales in preparation to meet new business challenges particularly the OEM automotive market. This has resulted in increased consulting fees and industrial design costs for both the three-month and nine-month periods ending December 28, 2002 as compared to the corresponding periods in fiscal 2002.

The Company posted net interest income of approximately $18,000 for the three-month period ended December 28, 2002 compared to approximately $1,000 for the corresponding period last year. For the nine-month period ended December 28, 2002, the Company reported net interest income of approximately $45,000 compared to net interest expense of approximately $152,000 for the same period a year ago. The turnaround is due to a reduction in the Company’s outstanding line of credit balance for the period ended December 28, 2002 as compared to the period ended December 29, 2001. At December 28, 2002, there was no outstanding balance on the Company’s lines of credit as compared to $3,500,000 at December 29, 2001.

During the second quarter of fiscal 2003, the Company recognized a gain on the sale of property and equipment totaling approximately $100,000. The gain resulted primarily from the sale of a fully depreciated automated production line. For presentation purposes, the gain is recorded as other income for the nine-month period ended December 28, 2002. For the three-month period ended December 28, 2002, other income includes only the gain on foreign exchange. For the three-month and nine-month periods ended December 29, 2001, other expense includes only the loss on foreign exchange.

The Company’s effective tax rate for the three-month period ended December 28, 2002 decreased to 23.1% from 37.4% for the corresponding period a year ago. The Company’s effective income tax rate decreased to 30.6% for the nine-month period ended December 28, 2002 as compared to 40.4% for the nine-month period ended December 29, 2001. The lower effective income tax rate for the three-month and nine-month periods ended December 28, 2002 is primarily the result of the recognition of benefits from additional research and development tax credits identified during the current fiscal quarter.

Net income for the third quarter of fiscal 2003 decreased from approximately $1,516,000 in fiscal 2002 to approximately $789,000 while diluted earnings per share decreased from $.32 to $.18 per share. The decrease is primarily attributable to a 12% decrease in net sales coupled with an increase in operating expenses of approximately $332,000. Net income for the nine-month period ended December 28, 2002 decreased from approximately $2,423,000 in fiscal 2002 to approximately $1,424,000 in fiscal 2003, while diluted earnings per share decreased from $.50 to $.31 per share. The decrease in net income for the nine-month period ended December 28, 2002 is primarily the result of a 12% decrease in net sales coupled with an increase in operating expenses of approximately $935,000.

Liquidity and Capital Resources

As of December 28, 2002, the Company’s working capital was approximately $22,054,000, a decrease of approximately $614,000 since the end of fiscal 2002. The decrease in working capital since March 30, 2002, was primarily the result of repayments made on the Company’s line of credit borrowings, purchases of treasury stock and a reduction in inventory partially offset by an increase in accounts payable. The Company’s cash and cash equivalents were approximately $6,044,000 at December 28, 2002, an increase of approximately $909,000 from March 30, 2002. Current liabilities decreased by approximately $51,000 due to repayments on the line of credit offset by an increase in accounts payable and accrued expenses. The Company has two lines of credit with two banking institutions totaling $26,500,000. At December 28, 2002, the Company did not have any borrowings under any of its lines of credit.

Based on current market prices, management believes that the Company’s stock is undervalued and that the current Company stock repurchase program is a good investment of available funds. Repurchases are made from time to time on the open market at prevailing market prices and in negotiated transactions off the market. The repurchase program is expected to continue through the end of the current fiscal year unless

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extended or shortened by the Board of Directors. Repurchased shares will be held in treasury and, at the present, the Company has no plans for their reissuance.

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

Significant Customers

The Company’s financial results for the three-month and nine-month periods ended December 28, 2002 include significant OEM sales of multimedia speaker systems to Gateway, Inc. (“Gateway”). For the three-month and nine-month periods ended December 28, 2002, Gateway accounted for 26.3% and 29.2% of the Company’s net sales, respectively. The terms of these sales are governed by a Master Supply Agreement between Gateway and the Company which defines such issues as ordering and invoicing procedures, shipping charges, warranties, repair service support, product safety requirements, etc. This Master Supply Agreement with Gateway does not contain minimum or scheduled purchase requirements; therefore, purchase orders by Gateway may fluctuate significantly from quarter to quarter.

Based on nine months actual sales and information currently available from our OEM customer, the Company anticipates that our OEM sales will decrease during fiscal 2003 as compared to fiscal 2002. Although the loss of Gateway as a customer or the loss of any significant portion of orders from Gateway could have a material adverse effect on the Company’s business, consolidated results of operations and consolidated financial condition, the Company’s management has taken steps (including pursuit of additional OEM customers, expansion of the Company’s automotive product offerings and renewed efforts to increase sales of the Company’s Core products) which it believes will mitigate the adverse consequences of the expected decline in orders from Gateway.

Cautionary Statements

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

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Item 4.    Controls and Procedures

Based on their evaluation as of a date within 90 days of the filing of this Form 10-Q, the Company’s Chief Executive Officer and its Principal Financial Officer have concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect those controls subsequent to the date of their evaluation.

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PART II: OTHER INFORMATION

Item 1.    Legal Proceedings

None

Item 2.    Changes in Securities

None

Item 3.     Defaults Upon Senior Securities

None

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

None

Item 5.     Other Information

None

Item 6.     Exhibits and Reports on Form 8-K

The following exhibits are filed herewith:

Exhibit 99.1    Certification Pursuant to 18 U.S.C. Section 1350

Exhibit 99.2    Certification Pursuant to 18 U.S.C. Section 1350

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SIGNATURES

Pursuant to the requirements 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.

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Certifications

I, Moses A. Gabbay, certify that:

Date: February 10, 2003

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I, Debra A. Ricker-Rosato, certify that:

Date: February 10, 2003

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