ULTIMATE ELECTRONICS INC, 424B4, 1999-10-19

ULTIMATE ELECTRONICS INC
424B4, 1999-10-19
RADIO, TV & CONSUMER ELECTRONICS STORES

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Filed Pursuant to Rule 424(b)(4)
Registration No. 333-87341

2,250,000 SHARES

[LOGO]

ULTIMATE ELECTRONICS, INC.

COMMON STOCK

----------------

Ultimate Electronics, Inc. and the selling stockholders are offering shares
of common stock in a firmly underwritten offering. Ultimate Electronics is
offering 2,000,000 shares and the selling stockholders are offering 250,000
shares. The company will not receive any of the proceeds of shares sold by the
selling stockholders.

------------------------

The common stock is traded on the Nasdaq National Market under the symbol
"ULTE." On October 18, 1999, the last reported sale price for the common stock
on the Nasdaq National Market was $16 3/4 per share.

------------------------

INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 8.

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<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Offering Price....................................... $ 16.50 $37,125,000
Discounts and Commissions to Underwriters............ $ 0.928 $ 2,088,000
Offering Proceeds to Ultimate Electronics............ $15.572 $31,144,000
Offering Proceeds to the Selling Stockholders........ $15.572 $ 3,893,000
</TABLE>

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

Ultimate Electronics has granted the underwriters the right to purchase up
to an additional 337,500 shares of common stock to cover any over-allotments.
The underwriters can exercise this right at any time from time to time within
thirty days after the offering. Banc of America Securities LLC expects to
deliver the shares of common stock to investors on or about October 22, 1999.

BANC OF AMERICA SECURITIES LLC U.S. BANCORP PIPER JAFFRAY

----------------

October 18, 1999

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[INSIDE COVER DESIGN]

[picture of Boise, Idaho store exterior]
[picture of Big Screen TV Room, Lakewood, Colorado store]

Ultimate Electronics-Registered Trademark-, Audio King-Registered Trademark-,
Fast Trak-Registered Trademark-, and Big Names. Little Prices.
Guaranteed.-Registered Trademark- are federally registered trademarks and
service marks owned by Ultimate Electronics, Inc. SoundTrack-TM-, Simple
Solution-TM-, and Ultimate Electronics Express-TM- are also trademarks owned by
Ultimate Electronics, Inc., for which there are pending applications for federal
registration. The Ultimate SoundTrack is a registered trademark in the State of
Colorado. Audio King and Fast Trak are registered trademarks in the State of
Minnesota. This prospectus also contains trademarks of companies other than
Ultimate Electronics, Inc.
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TABLE OF CONTENTS

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PAGE
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Forward-Looking Statements.................................. i
Prospectus Summary.......................................... 1
Risk Factors................................................ 8
Use of Proceeds............................................. 16
Dividend Policy............................................. 16
Price Range of Common Stock................................. 17
Capitalization.............................................. 18
Selected Financial Data..................................... 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Business.................................................... 28
Management.................................................. 41
Principal and Selling Stockholders.......................... 43
Description of Capital Stock................................ 45
United States Tax Consequences to Non-United States
Holders................................................... 49
Underwriting................................................ 52
Legal Matters............................................... 53
Experts..................................................... 54
Where You Can Find Additional Information................... 54
Incorporation of Information by Reference................... 54
Index to Consolidated Financial Statements.................. F-1
</TABLE>

FORWARD-LOOKING STATEMENTS

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

- our growth strategy and plans regarding opening new stores and entering
new markets;

- our intention to relocate and/or expand existing stores;

- expected capital and other expenditures to open new and relocated and/or
expanded existing stores;

- our current and future plans with respect to our web site, including
investigation of Internet sales;

- growth trends and projected sales in the consumer electronics business;

- technological and market developments in the consumer electronics
business, including trends with respect to digital products like DVD, HDTV
and other new products;

- our relationships with key suppliers;

- the anticipated consequences of the Year 2000 issue; and

- our expectations regarding competition, including competition on the
Internet.

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These forward-looking statements are subject to numerous risks,
uncertainties and assumptions about our company, including the factors described
under "Risk Factors" and including, among other things:

- risks related to our ability to open and profitably operate new stores;

- our ability to profitably relocate and/or expand existing stores;

- the willingness of vendors to permit product sales over the Internet;

- significant competition, including new competition from Internet
retailers;

- seasonal fluctuations in our business;

- changes in trade regulations and currency fluctuations;

- risks regarding increases in promotional activities of competitors;

- the presence or absence of new products or product features in our
merchandise categories;

- changes in the distribution strategy of our vendors;

- changes in vendor support for advertising and promotional programs;

- changes in our merchandise sales mix;

- the results of financing efforts;

- fluctuations in consumer demand and preferences;

- the risks associated with Year 2000 issues; and

- general economic conditions.

The forward-looking events we discuss in this prospectus might not occur in
light of these risks, uncertainties and assumptions. We undertake no obligation,
and disclaim any obligation, to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
------------------------

You should rely only on the information contained or incorporated by
reference in this prospectus. We have not, and the underwriters have not,
authorized any other person to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely on
it. We are not, and the underwriters are not, making an offer to sell these
securities in any jurisdiction where the offer or sale is not permitted. You
should assume that the information appearing in this prospectus is accurate only
as of the date on the front cover of this prospectus. Our business, financial
condition, results of operations and prospects may have changed since that date.
Information on our web site or in our promotional literature is not incorporated
into this document.

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PROSPECTUS SUMMARY

THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN ALL OF THE INFORMATION YOU
SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY, INCLUDING THE "RISK FACTORS" SECTION AND OUR CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES TO THOSE STATEMENTS. REFERENCES TO ULTIMATE
ELECTRONICS, "WE" AND "OUR" REFER TO ULTIMATE ELECTRONICS, INC. AND OUR
CONSOLIDATED SUBSIDIARIES AND NOT TO THE UNDERWRITERS; REFERENCES TO "YOU" REFER
TO PROSPECTIVE INVESTORS IN OUR COMMON STOCK. REFERENCES TO FISCAL YEARS IN THIS
PROSPECTUS REFER TO THE TWELVE MONTHS ENDED JANUARY 31 OF THAT YEAR, E.G.,
"FISCAL 1999" REFERS TO THE TWELVE MONTHS ENDED JANUARY 31, 1999.

OVERVIEW

Ultimate Electronics is a leading specialty retailer of consumer electronics
and home entertainment products in the Rocky Mountain, Midwest and Southwest
regions of the United States. We appeal to a wide range of consumers and focus
on mid to high-end products sold by a highly-trained, knowledgeable, full-time
sales force in a full service retail environment. We seek to differentiate
Ultimate Electronics from its national, regional and local competitors by:

- focusing on audio, video, television and mobile electronics products;

- offering over 125 brands including a majority of the most popular names
and a large selection of limited-distribution, upscale brands and lines;

- emphasizing products with the latest technology by dedicating significant
resources to their promotion, advertising, merchandising and related
product training;

- offering Simple Solution packages created by us for home theater, mobile
electronics and home computing to make purchasing consumer electronics
systems simple;

- utilizing an upscale, demonstration-oriented store format with an emphasis
on presentation of large screen televisions, home theater systems and
mobile electronics;

- featuring highly-trained, knowledgeable, full-time sales associates and
installation technicians; and

- providing a complete menu of value-added services including home
installation by our own technicians.

We believe that our differentiating characteristics, together with our policy of
offering the same price as our competitors on identical merchandise, makes us an
attractive alternative to volume driven appliance/electronics superstores, as
well as to other national, regional and local merchants. In addition, our
commitment to technologically advanced products, combined with our
highly-trained sales force, positions us to take advantage of the evolution in
consumer electronics products that is being led by digital technology.

We operate 30 stores, including 10 stores in Colorado under the trade name
SoundTrack, 11 stores in Idaho, Iowa, Nevada, New Mexico, Oklahoma and Utah
under the trade name Ultimate Electronics and nine stores in Minnesota and South
Dakota under the trade name Audio King. Our large format store, which is our
prototype store, generally ranges from 30,000 to 36,000 square feet and displays
products in an upscale retail environment. Fifteen of our 30 stores are
currently considered large format stores. Our large format stores have typically
been profitable on a store operating basis within their first 12 months of
operation and had an average initial store investment pay-back period, excluding
inventory, within 24 months. These large format stores feature an extensive
selection of over 4,000 items with products in the following categories:

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- - televisions - camcorders - mobile navigational systems
- - home theater systems - home audio - wireless communications
- - direct broadcast satellite - portable audio - home office/computer
- - VCR - car stereo - home theater furniture
- - digital versatile disc (DVD) - car security - audio and video accessories
</TABLE>

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In fiscal 1999, our sales increased 10% to $337.5 million compared to the
prior year. In May 1998, we executed a major strategic initiative by
significantly reducing our assortment of computers, peripherals and related
products. Comparable store sales for fiscal 1999 increased 2% (7% excluding the
computer category). This initiative also contributed to our improvement in gross
margin to 28.9% of sales in fiscal 1999 from 27.0% of sales in fiscal 1998. Our
earnings per share increased significantly to $.35 in fiscal 1999 from $.02 in
fiscal 1998.

During the first half of fiscal 2000, our sales were $166.6 million and
comparable stores sales increased 17% (20% excluding the computer category). Our
gross margin improved to 30.0% of sales in the first six months of fiscal 2000
from 28.3% of sales for the first six months of fiscal 1999. Our earnings per
share was $.20 during the first half of fiscal 2000, compared to a loss per
share of $.26 for the first half of fiscal 1999.

THE CONSUMER ELECTRONICS INDUSTRY

The consumer electronics industry is defined to include television, audio,
video, mobile electronics, home information (including computers and related
products) and gaming products. According to the Consumer Electronics
Manufacturing Association, total industry factory sales (domestic and imports to
the U.S.) by manufacturers of consumer electronics products were estimated to be
$76 billion in 1998 and projected to exceed $80 billion in 2000. We believe that
growth in the consumer electronics industry is driven by the introduction of new
products and technological advancements.

We believe that growth in this industry will largely be generated in the
coming years by the introduction of products that incorporate digital technology
such as DVD players, digital camcorders and high definition televisions (HDTVs).
Digital products offer significant advantages over their analog counterparts,
such as clarity and quality of video and audio, durability of recording and
compatibility with computers. Due to these advantages, many in the industry
expect the digital evolution in the consumer electronics industry to drive
growth well beyond the year 2000 as consumers seek new technology and replace
their existing analog-based products with digital products. We believe that
specialty retailers with sales personnel trained to demonstrate the benefits of
technologically-advanced products are well positioned to capture increased sales
that should result as such products achieve market acceptance.

BUSINESS STRATEGY

Key elements of our business strategy include:

FOCUSING ON AUDIO, VIDEO, TELEVISION AND MOBILE ELECTRONICS PRODUCTS. We
focus primarily on audio, video, television and mobile electronics products, and
provide our customers with a comprehensive and informative experience when
making the decision to purchase consumer electronics products. We believe that
this specialized focus enhances the reputation of our stores as being a premier
place to purchase products in these core categories.

OFFERING AN EXTENSIVE SELECTION OF MID TO HIGH-END AUDIO AND VIDEO
PRODUCTS. We offer over 4,000 items, representing over 125 brand names across a
broad selection of audio and video products. A significant portion of these
brands, such as Boston Acoustics, Denon, Krell, Martin Logan, Mitsubishi and
Sony ES, are only available through select retailers. We believe our extensive
selection helps customers make a better informed buying decision.

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United States in July 1998. We believe that showcasing the latest technology
differentiates us from less specialized competitors and stimulates the sales of
our other products and services.

OFFERING SIMPLE SOLUTION PRODUCT PACKAGES. We assist our customers in
making larger and more complex consumer electronics purchases with our Simple
Solution program. Our Simple Solution program, which provides complete system
packages to our customers, makes home theater, car audio and computer purchase
decisions simpler, and offers the consumer an excellent value when compared to
purchasing the same components separately.

TRAINING AND DEVELOPING A PREMIER SALES AND INSTALLATION TEAM. We believe
that the quality and knowledge of our sales associates and installation
technicians is critical to our success and represents a significant competitive
advantage. We also believe that our specialized training leads to a superior
customer experience that stimulates sales of our products. We ensure that our
sales associates receive comprehensive on-going technical product and sales
training prior to our introduction of significant new products, which helps us
maintain our new technology product leadership. Our installation technicians
also receive comprehensive technical product and installation training.

OFFERING COMPETITIVE PRICING AND SATISFACTION GUARANTEE. Our goal is to
advertise and sell products at the same price as our competitors. We reinforce
this strategy in our advertising and with our "30 day satisfaction guarantee"
backed by our "60 day price guarantee." Our price guarantee and satisfaction
guarantee are designed to remove pricing and suitability concerns from the
purchase decision and allow the customer and the sales staff to focus on product
features, performance and quality.

GROWTH STRATEGY

In addition to our business strategy that is focused on generating
comparable store sales increases, key elements of our growth strategy include:

OPENING NEW STORES. We intend to expand into select metropolitan areas in
the Rocky Mountain, Midwest and Southwest regions with our prototype 30,000 to
36,000 square foot stores (with a few as small as 20,000 square feet in smaller
markets). We are currently constructing a new 36,000 square foot store in
Davenport, Iowa that is expected to open in fiscal 2000. We expect to open an
additional six to eight new stores in fiscal 2001 primarily in the Phoenix area
and eight to 12 additional stores in fiscal 2002. We believe there are many
additional markets for future expansion within an 850 mile radius of our
distribution center located in Colorado, as well as new store opportunities in
our existing markets.

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RELOCATING AND/OR EXPANDING EXISTING STORES. We are currently planning to
relocate and/or expand several of our smaller locations. In particular:

- we are currently expanding a Minneapolis, Minnesota area store from 9,700
to 18,000 square feet;

- we are currently relocating and expanding our Sioux Falls, South Dakota
store from 3,200 to 22,000 square feet;

- we plan to relocate a 9,300 square foot store in the St. Paul, Minnesota
area to a 35,000 square foot store in the second quarter of fiscal year
2001;

- we expect to expand our Fort Collins, Colorado store from 16,600 to 22,000
square feet in the first quarter of fiscal 2001; and

- we plan to relocate and expand one of our Denver, Colorado area stores
within the next 18 months.

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THE OFFERING

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<S> <C>
Common stock offered by Ultimate Electronics.... 2,000,000 shares

Common stock offered by the selling
stockholders.................................. 250,000 shares

Total shares offered............................ 2,250,000 shares

Common stock to be outstanding after the
offering...................................... 10,238,393 shares(1)

Use of proceeds................................. We will receive approximately $30.7 million in net
proceeds in this offering. We intend to use these
net proceeds:
- to repay amounts outstanding under our
revolving credit facility, any part of which is
available to be reborrowed;
- to prepay on or after March 31, 2000 $13
million of mortgage bonds optionally redeemable
after such date;
- for development of new stores and for
relocation and/or expansion of existing stores;
and
- for general corporate purposes.

We will not receive any proceeds of shares sold by
the selling stockholders. See "Use of Proceeds."

Nasdaq National Market symbol................... ULTE
</TABLE>

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(1) The number of shares that will be outstanding after the offering is based on
the actual number of shares as of September 24, 1999 and assumes that the
underwriters do not exercise their over-allotment option. It also excludes
998,771 shares of common stock reserved for issuance under our stock option
plans, of which options to purchase 946,921 shares were outstanding as of
September 24, 1999, at a weighted average exercise price of $4.41 per share.

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SUMMARY FINANCIAL AND OPERATING DATA
(in thousands, except per share and operating data)

The following table contains our summary consolidated financial and
operating data. Information for each fiscal year is derived from our financial
statements which have been audited by Ernst & Young LLP, independent auditors.
Interim period information is derived from our unaudited financial statements
which include, in the view of management, all adjustments necessary for a fair
presentation of such data. Interim period results are not indicative of full
year results. You should read this information together with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements.

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<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED JANUARY 31, JULY 31,
------------------------------ --------------------
1997 1998(1) 1999 1998 1999
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<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales................................. $261,154 $306,306 $337,454 $142,064 $166,612
Gross profit.......................... 69,251 82,842 97,600 40,163 49,996
Selling, general and administrative
expenses............................ 64,786 78,621 89,010 41,373 45,814
Income (loss) from operations......... 4,465 4,221 8,590 (1,210) 4,182
Income (loss) before income taxes..... 1,255 236 4,633 (3,408) 2,794
Net income (loss)..................... $ 785 $ 148 $ 2,910 $ (2,153) $ 1,757

Earnings (loss) per share--Basic...... $ 0.11 $ 0.02 $ 0.36 $ (0.26) $ 0.21
Earnings (loss) per share--Diluted.... $ 0.11 $ 0.02 $ 0.35 $ (0.26) $ 0.20
Weighted average shares outstanding--
Basic............................... 6,995 7,626 8,150 8,145 8,187
Weighted average shares outstanding--
Diluted............................. 7,125 7,737 8,317 8,145 8,866

SELECTED OPERATING DATA:
Number of stores open at end of
period.............................. 18 30 30 30 30
Inventory turns(2).................... 4.7 4.9 5.1 5.0 5.3
Average square footage per store at
end of period....................... 30,200 25,600 25,600 25,600 25,600
Sales growth.......................... 4% 17% 10% 21%(1) 17%
Comparable stores sales growth(3)..... (16)% (6)% 2% (1)% 17%
Store contribution margin(4).......... 6.8% 6.5% 8.7% 5.6% 8.5%
Gross profit margin................... 26.5% 27.0% 28.9% 28.3% 30.0%
Operating margin...................... 1.7% 1.4% 2.5% (0.8)% 2.5%
Net income margin..................... 0.3% 0.1% 0.9% (1.5)% 1.1%
</TABLE>

(continued on next page)

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<CAPTION>
AS OF JULY 31, 1999
----------------------
AS
ACTUAL ADJUSTED(5)
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BALANCE SHEET DATA:
Working capital............................................. $ 29,140 $ 34,906
Total assets................................................ 121,388 127,154
Long-term debt(6)(7)........................................ 25,143 165
Capital lease obligations(7)................................ 1,810 1,810
Stockholders' equity........................................ 49,644 80,388
</TABLE>

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(1) On June 27, 1997, we acquired Audio King, which has 11 stores with an
average size of 13,700 square feet. The results of operations of Audio King
since the acquisition date are included in our consolidated financial
statements.

(2) Inventory turns are calculated based upon the average of the prior
12 months inventory levels.

(3) Comparable store sales are for stores open at least 13 months and exclude
recently relocated and expanded stores for 13 months after their opening
date.

(4) Store contribution margin includes all store sales less direct and allocated
expenses as a percentage of store sales. Allocated expenses do not include
corporate and warehouse/distribution expenses, interest expense and
corporate income taxes.

(5) Adjusted to reflect the sale of 2,000,000 shares of common stock being sold
by Ultimate Electronics in this offering and the use of the net proceeds
from such sale, as described under "Use of Proceeds."

(6) Our $13 million of 10.25% mortgage bonds cannot be redeemed until March 31,
2000.

(7) Does not include current portions.

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RISK FACTORS

INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THESE RISK FACTORS, TOGETHER WITH ALL OF THE OTHER
INFORMATION INCLUDED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS, BEFORE YOU
DECIDE TO INVEST IN SHARES OF OUR COMMON STOCK. IF ANY OF THE FOLLOWING RISKS,
OR OTHER RISKS NOT PRESENTLY KNOWN TO US OR THAT WE CURRENTLY BELIEVE NOT TO BE
SIGNIFICANT, DEVELOP INTO ACTUAL EVENTS, THEN OUR BUSINESS, FINANCIAL CONDITION,
RESULTS OF OPERATIONS OR PROSPECTS COULD BE MATERIALLY ADVERSELY AFFECTED. IF
THAT HAPPENS, THE MARKET PRICE OF OUR COMMON STOCK WOULD LIKELY DECLINE, AND YOU
MAY LOSE ALL OR PART OF YOUR INVESTMENT.

OUR SUCCESS DEPENDS IN LARGE PART ON OUR ABILITY TO OPEN AND PROFITABLY OPERATE
NEW OR RELOCATED AND/OR EXPANDED STORES IN EXISTING AND NEW GEOGRAPHIC MARKETS

We may not be able to open, relocate and/or expand all of the stores
discussed in our growth strategy and any new stores that we open, relocate
and/or expand may not be profitable, either of which would have a material
adverse impact on our financial results. We have not entered into leases for
most of the stores that we expect to open or relocate over the next 18 months.
We have not yet selected all sites for stores that we may open in fiscal 2001
and 2002. Opening a new store typically requires six to nine months of
construction and preopening activity. The opening of additional stores in new
geographic markets could present competitive and merchandising challenges
significantly different from those we currently face or previously have faced
within our existing geographic markets. In addition, we will incur higher costs
related to advertising, administration and distribution as we enter new markets,
and our large store format may not be as successful in new markets. Also,
opening new stores in markets where we already have existing stores could result
in decreased sales at our other stores in that market. If we do not open a
significant number of new stores in new markets as anticipated, our sales and
earnings will be significantly negatively impacted and we will not be able to
achieve our current business plan.

There are a number of other factors that could affect our ability to open
and operate new stores consistent with our business plan. These factors also
affect the ability of any newly opened or acquired stores to achieve sales and
profitability levels comparable with our existing stores, or to become
profitable at all. These factors include:

- competition in our targeted markets;

- the lack of consumer demand for our products at levels that can support
acceptable profit margins;

- the inability to identify and acquire suitable sites and to negotiate
acceptable leases for such sites due to the large size of our stores or
other factors;

- difficulties associated with the hiring, training and retention of skilled
personnel, including store managers;

- problems in adaptation of our distribution and other operational and
management systems to an expanded network of stores;

- higher costs for print, television and radio advertising;

- the availability of adequate financial resources;

- the inability and unwillingness of vendors to supply product on a timely
basis at competitive prices;

- difficulty in obtaining governmental and other third-party consents,
permits and licenses needed to operate such additional sites;

- challenges associated with the financing, consummation and integration of
any acquisitions; and

- the ability to secure our existing brands in new markets.

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Our growth plans will require us to expend significant management time and
effort and additional resources to ensure the continuing adequacy of our
financial controls, operating procedures, information systems, product
purchasing and distribution systems and employee training programs. We also need
to attract and retain additional qualified personnel, including new store
managers, for new stores. We currently seek to transfer existing managers and
other personnel to our new stores who are familiar with our procedures but who
may not be familiar with the new market. If we are unable to take these steps,
our business will be adversely affected. We believe that our current
distribution center will be able to support the majority of our expansion
efforts over the next two years. However, we may need to expand or add to our
current facility in the future to fully accommodate our growth.

We estimate that the average cash investment, including preopening costs,
costs of tenant improvements and inventory (net of payables), required to open a
store to be approximately $3.0 million. However, the actual cost of opening any
particular store may be significantly greater than this current estimate. We may
need to seek additional debt and/or equity financing in order to fund our
continued expansion beyond fiscal 2001, depending on the number of stores we
actually open and the actual preopening costs. Any such debt or equity financing
may not be available on terms acceptable to us, if at all. In particular, we
will need to re-borrow amounts we are repaying with the proceeds of this
offering or obtain other financing in order to consummate our growth plan. Any
such re-borrowing may not be on as favorable terms as our current financing. In
addition, our ability to incur additional indebtedness or issue debt securities
is limited by covenants in our present debt instruments. Additional issuances of
equity by Ultimate Electronics will result in dilution to our existing
stockholders.

WE FACE SIGNIFICANT COMPETITION FROM NATIONAL, REGIONAL AND LOCAL CONSUMER
ELECTRONICS RETAILERS AND MAY EXPERIENCE HEIGHTENED COMPETITION FROM INTERNET
RETAILERS

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

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

- expansion by existing competitors;

- entry by new competitors into markets in which Ultimate Electronics is
currently operating;

- competitive pricing strategies by competitors;

- increased sales by our competitors of upscale products;

- larger size and greater operational efficiencies of competitors; and

- adoption by existing competitors of promotional pricing, innovative store
formats or improved retail sales methods.

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sales by 2003. We expect that competition from the Internet will increase in the
future as a result of, among other things, the following factors:

- customers can more easily conduct price comparisons on the Internet, which
could result in decreased margins to us;

- Internet sales by our competitors could enhance price competition;

- the inapplicability of sales tax to Internet sales provides Internet sales
with a competitive advantage and that makes them attractive to consumers;

- lower-end products are currently more susceptible to Internet sales; and

- high-end manufacturers who currently do not allow their products to be
sold over the Internet may change their strategies, an action that could
significantly impact our margins on those high margin products and which
would be beyond our control.

Although we currently operate an information-based web site on the Internet,
we have not yet invested in the capability to engage in sales directly from the
site. Most of the high-end manufacturers of products we sell currently do not
allow their products to be sold over the Internet. In conjunction with our
manufacturers and their strategies, we continue to actively investigate adding a
sales function to our site. If we make an investment to sell over the Internet,
such investment could be very costly and our sales site may not attract
sufficient profitable sales to justify our investment.

BECAUSE WE EXPERIENCE SEASONAL FLUCTUATIONS IN OUR SALES, OUR QUARTERLY RESULTS
WILL FLUCTUATE AND OUR ANNUAL RESULTS COULD BE BELOW EXPECTATIONS

Seasonal consumer shopping patterns affect our business. Our fourth fiscal
quarter includes the holiday shopping period and has historically contributed,
and is expected to continue to represent, a substantial portion of our sales,
income from operations and net income for our entire fiscal year. The fourth
quarter of fiscal 1999 contributed 34% of sales, 80% of income from operations
and 131% of net income. As a result, any factors negatively affecting Ultimate
Electronics during the fourth quarter of any year, including adverse weather or
unfavorable economic conditions, would have a material adverse effect on our
results of operations for the entire year. More generally, our quarterly results
of operations and financial condition may fluctuate based upon such factors as:

- the timing of new store openings and store relocations;

- the amount of store preopening expenses;

- the amount of grand opening expenses incurred in new markets;

- the mix of consumer electronics products sold in our stores;

- timing of availability of new products;

- profitability of sales of particular products; and

- actions by our competitors, including grand opening and store closing
sales by competitors.

OUR COMPARABLE STORE SALES RESULTS WILL FLUCTUATE AND THIS MAY CAUSE OUR STOCK
PRICE TO FLUCTUATE

A number of factors have historically affected, and will continue to affect,
our comparable store sales results including among other factors:

- changes in competition;

- general regional and national economic conditions;

- new product introductions;

- consumer trends;

- changes in our product mix;

- weather conditions in our regions;

- timing of promotional events; and

- our ability to execute our business strategy effectively.

10
<PAGE>
We do not expect comparable store sales to increase at recent historical
rates, and comparable store sales may be negative in the future. Our historical
results have fluctuated significantly from quarter to quarter. Changes in our
quarterly and annual comparable store sales results could cause the price of our
common stock to fluctuate substantially. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Seasonality."

OUR LIMITED GEOGRAPHICAL DISPERSION MAY REDUCE OUR ABILITY TO WEATHER ADVERSE
MARKET EVENTS

Ultimate Electronics currently operates 30 stores in nine states in the
Rocky Mountain, Midwest and Southwest regions of the United States. We are
vulnerable to adverse market events in these locations including weather-related
conditions, regional competition and unfavorable economic conditions.

A DISRUPTION IN OUR RELATIONSHIP WITH, OR IN THE OPERATIONS OF, ANY OF OUR KEY
SUPPLIERS COULD CAUSE OUR SALES TO DECLINE

The success of our business and growth strategy depends to a significant
degree upon our suppliers, particularly our brand name suppliers of audio and
video equipment such as Sony, Mitsubishi, Panasonic, JVC, Yamaha and RCA. We
rely on a number of suppliers for limited distribution upscale items. We also
rely on our suppliers for cooperative advertising support. Ultimate Electronics
does not have any long-term supply agreements or exclusive arrangements with any
vendors. We typically order our inventory through the issuance of individual
purchase orders to vendors. In addition, we rely heavily on a relatively small
number of suppliers. Our top five suppliers represented 63% of our purchases in
fiscal 1999. The loss of any of these key vendors or the failure by us to
establish and maintain relationships with these or other vendors could have a
material adverse effect on our results of operations and financial condition.
Our ability to establish additional stores in existing markets and to penetrate
new markets depends to a significant extent on the willingness and ability of
our vendors to supply those additional stores, and vendors may not be willing or
able to do so. As we continue to open or acquire new stores, the inability or
unwillingness of suppliers to supply some or all of their products to us at
acceptable prices in one or more markets could have a material adverse effect on
our results of operations and financial condition.

IF WE ARE UNABLE TO TIMELY RESPOND TO CHANGES IN CONSUMER DEMAND AND
PREFERENCES, WE MAY LOSE CUSTOMERS AND OUR SALES MAY DECLINE

Our success depends on our ability to anticipate and respond in a timely
manner to consumer demand and preferences regarding audio and video consumer
electronics products and changes in such demand and preferences. Any sustained
failure by us to identify and respond to changes in consumer demand and
preferences would have a material adverse effect on our results of operations
and financial condition.

IF NEW PRODUCTS ARE NOT INTRODUCED OR CONSUMERS DO NOT ACCEPT NEW PRODUCTS, OUR
SALES MAY DECLINE

We depend to a large extent on the periodic introduction and availability of
new products and technologies. Many products that incorporate the newest
technologies, such as DVD and HDTV, are subject to significant technological
changes and pricing limitations. They are also subject to the actions and
cooperation of third parties such as television broadcasters and movie
distributors. It is possible that these products or other new products,
including new digital formats, will never achieve widespread consumer
acceptance. Furthermore, the introduction or expected introduction of new
products or technologies may depress sales of existing products and
technologies, without a comparable increase in sales of new products in the same
period due to uncertainty regarding consumer acceptance of the new products.
Significant deviation from the projected demand for products we sell may have a
material

11
<PAGE>
adverse effect on our results of operations and financial condition, either from
lost sales or lower margins due to the need to mark down excess inventory.

Our historical growth rate has been directly related to our ability to be a
leader in sales of new technology products. In the future, other retailers may
increase their focus on newer technologies. In addition, there may not be
significant technologically advanced products.

A DECLINE IN GENERAL ECONOMIC CONDITIONS COULD LEAD TO REDUCED CONSUMER DEMAND
FOR THE PRODUCTS WE SELL

Consumer spending patterns, particularly discretionary spending for products
such as consumer electronics, are affected by, among other things, prevailing
economic conditions, wage rates, inflation, new housing starts, consumer
confidence and consumer perception of economic conditions. A general slowdown in
the U.S. economy or an uncertain economic outlook would adversely affect
consumer spending habits.

CHANGES IN TRADE REGULATIONS, CURRENCY FLUCTUATIONS AND OTHER FACTORS BEYOND OUR
CONTROL WOULD IMPACT INVENTORY PURCHASED FROM FOREIGN VENDORS

We purchase a significant portion of our inventory from overseas vendors,
particularly vendors headquartered in Japan. Changes in trade regulations,
currency fluctuations or other factors may increase the cost of items we
purchase from foreign vendors or create shortages of such items, which could in
turn have a material adverse effect on our results of operations and financial
condition. Conversely, significant reductions in the cost of such items in U.S.
dollars may cause a significant reduction in retail price levels of those
products, thereby resulting in a material adverse effect on our sales, margins
or competitive position.

OUR BUYING POWER IS SOMEWHAT DEPENDENT UPON MEMBERSHIP IN A BUYING GROUP

We are the largest member of the Progressive Retailers Organization, a
volume buying group currently comprised of 14 consumer electronics retailers
located throughout the country. This organization provides its members with
market information and negotiates purchase terms with vendors on behalf of its
members. Any future termination of our membership in this group could have an
adverse effect on our results of operations and financial condition. In
addition, rebates paid to us by product manufacturers through this group depend
not only on our sales volumes but on the sales volumes achieved by the group's
other members, and therefore decreased sales performance by us or these other
members could reduce the amounts of such rebates payable to us. Any such
reduction could in turn have an adverse effect on our results of operations and
financial condition.

THE LOSS OF THE SERVICES OF OUR CHAIRMAN, CHIEF EXECUTIVE OFFICER, PRESIDENT OR
OTHER KEY EMPLOYEES COULD JEOPARDIZE OUR ABILITY TO MAINTAIN OUR COMPETITIVE
POSITION

We believe that our success depends on the continued service of our key
executive management personnel. Loss of the services of William J. Pearse, our
Chairman, J. Edward McEntire, our Chief Executive Officer, and David J. Workman,
our President and Chief Operating Officer, or other key employees could
jeopardize our ability to maintain our competitive position in the industry. We
do not currently have employment agreements with any of our executives or key
person life insurance for any of our officers or directors.

Our success also depends to a large extent on our ability to recruit, train
and retain qualified personnel throughout our organization and in our stores and
distribution facilities. As is typical in our industry, from time to time we
have had difficulty recruiting sufficient qualified personnel.

12
<PAGE>
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, WHICH COULD IMPAIR
OUR NAME AND REPUTATION

Ultimate Electronics-Registered Trademark-, Audio King-Registered
Trademark-, Fast Trak-Registered Trademark- and Big Names. Little Prices.
Guaranteed.-Registered Trademark- are federally registered trademarks and
service marks owned by Ultimate Electronics, Inc. SoundTrack-TM-, Simple
Solution-TM- and Ultimate Electronics Express-TM- are also trademarks owned by
Ultimate Electronics, Inc. for which there are pending applications for federal
registration. The Ultimate SoundTrack is a registered trademark in the State of
Colorado and Audio King and Fast Trak are registered trademarks in the State of
Minnesota that are owned by Ultimate Electronics, Inc. We actively protect our
rights associated with our portfolio of marks to ensure that the quality
associated with them and the value of our proprietary rights are maintained. Our
marks, however, may not be effective to protect our intellectual property
rights, and infringement or invalidity claims may be asserted by third parties
in the future. Any such assertions, if proven to be true, could have a material
adverse effect on our operational results and financial condition.

OUR CHARTER, BYLAWS AND ANTI-TAKEOVER PROTECTIONS COULD DELAY OR PREVENT AN
ACQUISITION OR SALE OF ULTIMATE ELECTRONICS

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

- our charter authorizes the board of directors to issue one or more classes
of preferred stock having such designations, rights and preferences as
they determine, which issuances may have a material adverse effect on the
rights of holders of common stock;

- our stockholders have no right to take action by written consent;

- our stockholders may not call special meetings of stockholders;

- our charter and bylaws provide for the staggered election of directors to
serve for three-year terms, subject to removal only for cause;

- our bylaws contain advance notice provisions for presentation of new
business and nominations of directors at meetings of stockholders; and

- our bylaws may be amended only by the board of directors or by a majority
vote of the shares represented and entitled to vote at an annual or a
special meeting of stockholders.

In addition, Section 203 of the Delaware General Corporation Law prohibits us
from engaging in a business combination with an interested stockholder for a
period of three years after such person becomes an interested stockholder,
unless various conditions are satisfied. See "Description of Capital Stock."

In addition, under the terms of Ultimate Electronics' Stockholder Rights
Plan, in general, if a person or group acquires more than 15% of the outstanding
shares of common stock (an "Acquiring Person"), all of or our other stockholders
would have the right to purchase securities from Ultimate Electronics at a
discount to such securities' fair market value, thus causing substantial
dilution to the holdings of the Acquiring Person. The Stockholder Rights Plan
may inhibit a change in control and, therefore, could materially adversely
affect the stockholders' ability to realize a premium over the then-prevailing
market price for the common stock in connection with such a transaction.

OUR MANAGEMENT, INCLUDING OUR PRINCIPAL STOCKHOLDER, OWNS A SIGNIFICANT PORTION
OF OUR COMMON STOCK AND WILL BE ABLE TO EXERCISE SIGNIFICANT INFLUENCE OVER OUR
AFFAIRS

After this offering, William J. Pearse, our Chairman, will beneficially own
approximately 18.43% of our outstanding common stock. In addition, our directors
and executive officers as a group (including

13
<PAGE>
Mr. Pearse) will beneficially own approximately 22.27% of our common stock after
this offering and will hold additional options to acquire 251,501 shares not
currently exercisable. As a result of this share ownership, our management, and
in particular Mr. Pearse, will be able to exert significant influence on
corporate action requiring stockholder approval, including the election of
directors. This share ownership could delay or prevent a change in control. It
could also prevent our stockholders from realizing a premium over the market
price for their common stock or making a change in management.

THE SUBSTANTIAL NUMBER OF SHARES THAT ARE ELIGIBLE FOR PUBLIC SALE AFTER THIS
OFFERING MAY ADVERSELY AFFECT OUR STOCK PRICE

After this offering, there will be 10,238,393 shares of our common stock
outstanding. Of these outstanding shares, all 2,000,000 shares sold in this
offering and 8,238,393 shares currently outstanding will be freely tradable
without restriction or registration under the Securities Act, other than shares
held by affiliates that may be sold pursuant to the requirements of Rule 144,
another exemption from registration, or an effective registration statement.
Rule 144 allows affiliates of an issuer to sell such issuer's common stock
subject to certain volume, notice, manner of sale and informational
requirements.

As of September 15, 1999, 946,921 shares of common stock were issuable
pursuant to options granted under our stock option plans. Of these option
shares, 447,078 shares are currently exercisable. All shares issuable under our
stock option plans have been registered under the Securities Act.

Sales of substantial amounts of common stock in the public market, including
shares issued upon the exercise of stock options, or the perception that such
sales could occur, could materially adversely impact the market price for our
common stock.

Ultimate Electronics, our officers and directors, and the selling
stockholders (who will beneficially own 2,375,776 shares after the offering)
have agreed not to sell any shares for 120 days after the date of this
prospectus, without the prior written consent of Banc of America Securities LLC
on behalf of the underwriters. At any time and without notice Banc of America
Securities may, in its sole discretion, release all or some of the securities
from these lockup agreements.

SIGNIFICANT PROBLEMS RELATING TO THE YEAR 2000 ISSUE COULD ADVERSELY AFFECT OUR
BUSINESS

Until recently, most computer programs were written to store only two digits
of date-related information in order to more efficiently handle and sort data.
As a result, these programs were unable to properly distinguish between dates
occurring in the year 1900 and dates occurring in the year 2000. This is
referred to as the "Year 2000 Issue." During 1998 and 1999, we reviewed all
applications and equipment to evaluate our exposure to the Year 2000 Issue. The
required modifications to existing systems were identified, and plans were
developed for upgrades or remediation. We anticipate that all upgrades and
remediation will be completed by November 15, 1999.

We are also in communication with third parties with whom we do significant
business in order to assess their Year 2000 compliance and minimize the
potential for adverse consequences, if any, that

14
<PAGE>
could result from failure of such entities to address this issue. Year 2000
Issues do present risks that are outside of our control, including, but not
limited to, the potential for significant volumes of product returns due to
widespread product failure, the failure of utility companies to provide
electricity, the failure of telecommunication companies to provide voice and
data transfer services, the failure of store security systems, the failure of
financial services companies to process transactions or transfer funds and the
failure of third-party vendors or suppliers to become Year 2000 compliant.

We have contacted our significant suppliers to determine the Year 2000
functionality of their current products to minimize any disruption to our
business. However, we cannot assure you that our vendors will be Year 2000
compliant. Any significant disruption to our supply of goods could have a
material adverse effect on our business, results of operations and financial
condition, particularly during our peak holiday season. We believe that our
vendors are responsible for the Year 2000 functionality of the products they
currently supply to us for resale. However, if we are required to handle product
returns or repairs with respect to those failures on a large-scale basis, it
could have a material adverse effect on our business, results of operations and
financial condition.

In the event of our failure or Tyler's failure to become timely Year 2000
compliant, we have not identified a near-term economically feasible alternative
for operations support. Our most likely worst case scenario is that we would be
required to resort to manual or other processing methods. With regard to any
Year 2000 failure by third-party product suppliers, we plan to pursue
alternative suppliers for Year 2000 compliant products where appropriate, but we
anticipate that our competitors will be similarly impacted in any such event. We
can make no assurances that Year 2000 Issues will not have a material adverse
effect on our business, financial condition, or future operations, particularly
during our peak holiday season. The information provided in this disclosure
constitutes a "Year 2000 Readiness Disclosure" under the Year 2000 Information
and Readiness Disclosure Act of 1998.

WE DO NOT ANTICIPATE PAYING DIVIDENDS ON THE COMMON STOCK FOR THE FORESEEABLE
FUTURE

We have never declared or paid any dividends on our common stock and do not
intend to do so for the foreseeable future. Our credit facility currently
restricts our ability to pay dividends.

OUR COMMON STOCK PRICE MAY BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES
TO STOCKHOLDERS

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

- actual or anticipated variations in our quarterly operating results;

- announcement of new technologies or of new products or services;

- changes in financial estimates or changes in recommendations by securities
analysts;

- additions or departures of key personnel; and

- changes in economic performance and/or market valuations of other consumer
electronics retailers.

Investors may not be able to resell their Ultimate Electronics common stock
at or above the public offering price as a result of a possible decline in price
after this offering. The stock market has experienced significant price and
volume fluctuations over the past several years that have often been unrelated
or disproportionate to the operating performance of particular companies. The
trading prices of many companies' stocks, including ours, are at or near
historical highs. These trading prices may not be sustained. Broad market
factors may have a material adverse effect on our stock price, regardless of our
actual operating performance.

15
<PAGE>
USE OF PROCEEDS

The net proceeds we receive from the sale of 2,000,000 shares of common
stock in this offering at the public offering price of $16.50 per share will be
approximately $30.7 million, after deducting the estimated underwriting discount
and offering expenses that we will pay. If the underwriters exercise their
over-allotment option in full, the net proceeds we receive will be approximately
$36.0 million. We will not receive any proceeds from the sale of common stock by
the selling stockholders, who are selling 250,000 shares of common stock in this
offering.

We expect to use the net proceeds:

- to repay amounts outstanding under our revolving credit facility, which we
expect to be approximately $10 million at closing, all of which will be
available to be reborrowed;

- to prepay on or after March 31, 2000 the $13 million of our 10.25%
mortgage bonds optionally redeemable after such date;

- for development of new stores and for relocation and/or expansion of
existing stores; and

- for general corporate purposes.

In addition, we may pursue acquisitions of businesses that are complementary
to ours, although no such transaction is currently being negotiated. We may also
decide to expand our Internet site to conduct retail sales. We could use
proceeds of this offering for these purposes in the event we decide to pursue
such matters.

Indebtedness under our revolving credit facility accrues interest at 7.875%
as of October 15, 1999. The revolving credit facility matures on September 30,
2001. In order to finance our growth strategy, we will need to use all or a
portion of our revolving credit facility which is being paid down with the
proceeds of this offering.

The mortgage bonds accrue interest at 10.25% annually and mature in 2005.
The mortgage bonds are optionally redeemable on or after March 31, 2000 at par
plus accrued interest to the date of redemption. We are required to redeem
$3.25 million aggregate principal amount of the mortgage bonds (reduced to the
extent of the bonds previously purchased or redeemed by us) on January 31, 2002
and on January 31 of each of the three years thereafter, at a redemption price
equal to par plus accrued interest to the date of redemption. Because we are not
required to redeem the mortgage bonds, except as provided in the preceding
sentence, if there were a significant increase in interest rates prior to the
expected redemption date, or if unanticipated working capital needs or
opportunities were presented, we could elect not to redeem the mortgage bonds.
The mortgage debt was originally incurred in 1995 to finance a substantial
portion of the construction of our warehouses, offices, service and store
facility in Thornton, Colorado. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

Pending these uses, we intend to invest the net proceeds from this offering
in short-term, investment-grade, interest-bearing securities.

DIVIDEND POLICY

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

16
<PAGE>
PRICE RANGE OF COMMON STOCK

Ultimate Electronics' common stock trades on the Nasdaq National Market
under the symbol "ULTE." Public trading of our common stock commenced on
October 15, 1993. The following table shows, for the periods indicated, the high
and low closing prices for the common stock as reported by Nasdaq.

<TABLE>
<CAPTION>
HIGH LOW
---------- ------------
<S> <C> <C>
FISCAL 1998
First Quarter............................................. 4 2 5/8
Second Quarter............................................ 3 5/8 2 11/16
Third Quarter............................................. 5 3 1/16
Fourth Quarter............................................ 4 1/4 2 3/4

FISCAL 1999
First Quarter............................................. 4 1/4 2 7/8
Second Quarter............................................ 4 3/8 2 13/16
Third Quarter............................................. 4 1/4 2 1/4
Fourth Quarter............................................ 9 3/8 2 7/16

FISCAL 2000
First Quarter............................................. 14 8 3/16
Second Quarter............................................ 20 1/8 12 15/16
Third Quarter (through October 18, 1999).................. 21 3/4 14
</TABLE>

As of September 3, 1999, there were approximately 117 holders of record of
our common stock. As of October 18, 1999, the closing sale price of our common
stock was $16 3/4.

17
<PAGE>
CAPITALIZATION

The following table sets forth our capitalization plus cash and cash
equivalents as of July 31, 1999, (i) on an actual basis and (ii) as adjusted to
reflect the application of the net proceeds from the sale of the 2,000,000
shares of common stock offered by Ultimate Electronics pursuant to this
prospectus at the public offering price of $16.50 per share. This table should
be read in conjunction with our "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Use of Proceeds," "Selected
Financial Data" and our consolidated financial statements and the accompanying
notes.

<TABLE>
<CAPTION>
JULY 31, 1999
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents:.................................. $ 6,113 $11,879
======= =======
Debt:
Revolving line of credit.................................. $11,978 $ 0
Long-term debt, including current portion................. 13,490 490(3)
Capital lease obligations, including current portion...... 1,887 1,887
------- -------
Total debt.............................................. 27,355 2,377

Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares
authorized; no shares issued and outstanding actual and
as adjusted............................................. -- --
Common stock, $.01 par value, 10,000,000 shares authorized
actual, 15,000,000 shares authorized as adjusted (1);
8,232,645 shares outstanding actual and
10,232,645 shares outstanding as adjusted (2)........... 82 102
Additional paid-in capital................................ 34,123 64,847
Retained earnings......................................... 15,439 15,439
------- -------
Total stockholders' equity.............................. 49,644 80,388
------- -------
Total capitalization.................................... $76,999 $82,765
======= =======
</TABLE>

- ------------------------

(1) We amended our certificate of incorporation to increase the number of
authorized shares of common stock from 10,000,000 to 15,000,000 on
September 29, 1999.

(2) Excludes 998,771 shares of common stock reserved for issuance under our
stock option plans, of which options to purchase 946,921 shares were
outstanding as of September 24, 1999, with a weighted average exercise price
of $4.41 per share.

(3) Our $13 million of 10.25% mortgage bonds cannot be redeemed until March 31,
2000.

18
<PAGE>
SELECTED FINANCIAL DATA

The following table contains our selected consolidated financial and
operating data. Information for each fiscal year is derived from our financial
statements which have been audited by Ernst & Young LLP, independent auditors.
Interim period information is derived from our unaudited financial statements
which include, in the view of management, all adjustments necessary for a fair
presentation of such data. Interim period results are not indicative of full
year results. You should read this information together with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements.

<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED JANUARY 31, ENDED JULY 31,
---------------------------------------------------- ----------------------
1995 1996 1997 1998(1) 1999 1998 1999
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales........................................ $165,069 $251,807 $261,154 $306,306 $337,454 $142,064 $166,612
Costs of goods sold.......................... 120,588 184,343 191,903 223,464 239,854 101,901 116,616
-------- -------- -------- -------- -------- -------- --------
Gross profit................................. 44,481 67,464 69,251 82,842 97,600 40,163 49,996
Selling, general and administrative
expenses................................... 36,276 59,525 64,786 78,621 89,010 41,373 45,814
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations................ 8,205 7,939 4,465 4,221 8,590 (1,210) 4,182
Interest expense, net........................ 407 1,866 3,210 3,985 3,957 2,198 1,388
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes and
cumulative effect of change in accounting
method..................................... 7,798 6,073 1,255 236 4,633 (3,408) 2,794
Income tax expense (benefit)................. 2,908 2,241 470 88 1,723 (1,255) 1,037
-------- -------- -------- -------- -------- -------- --------
Income before cumulative effect of change in
accounting method.......................... $ 4,890 $ 3,832 $ 785 $ 148 $ 2,910 $ (2,153) $ 1,757
Cumulative effect of change in accounting for
preopening expenses, net of taxes(2)....... -- (988) -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)............................ $ 4,890 $ 2,844 $ 785 $ 148 $ 2,910 $ (2,153) $ 1,757
======== ======== ======== ======== ======== ======== ========

Earnings per (loss) share--Basic............. $ 0.88 $ 0.48 $ 0.11 $ 0.02 $ 0.36 $ (0.26) $ 0.21
Earnings per (loss) share--Diluted........... $ 0.88 $ 0.48 $ 0.11 $ 0.02 $ 0.35 $ (0.26) $ 0.20
Pro forma earnings per share (2)............. $ 0.76 $ 0.65 -- -- -- -- --

Weighted average shares outstanding--Basic... 5,500 5,861 6,995 7,626 8,150 8,145 8,187
Weighted average shares
outstanding--Diluted....................... 5,583 5,906 7,125 7,737 8,317 8,145 8,866
SELECTED OPERATING DATA:
Number of stores open at end of period....... 14 18 18 30 30 30 30
Inventory turns (3).......................... 5.5 5.1 4.7 4.9 5.1 5.0 5.3
Average square footage per store at end of
period..................................... 22,000 26,000 30,200 25,600 25,600 25,600 25,600
Sales growth................................. 87% 53% 4% 17% 10% 21%(1) 17%
Comparable stores sales growth (4)........... 29% (2)% (16)% (6)% 2% (1)% 17%
Store contribution margin (5)................ 10.5% 8.0% 6.8% 6.5% 8.7% 5.6% 8.5%
Gross profit margin.......................... 26.9% 26.8% 26.5% 27.0% 28.9% 28.3% 30.0%
Operating margin............................. 5.0% 3.2% 1.7% 1.4% 2.5% (0.8)% 2.5%
Net income margin............................ 3.0% 1.1% 0.3% 0.1% 0.9% (1.5)% 1.1%
BALANCE SHEET DATA: (at period end)
Working capital.............................. $ 4,061 $ 30,995 $ 27,868 $ 5,578 $ 26,740 $ 4,973 $ 29,140
Total assets................................. 69,194 100,466 103,310 123,446 121,904 117,073 121,388
Long-term debt............................... -- 31,996 31,165 13,642 26,518 13,490 25,143
Capital lease obligations (6)................ 3,120 1,295 1,007 2,049 1,841 1,888 1,810
Stockholders' equity......................... 25,611 40,918 41,703 44,721 47,675 42,584 49,644
</TABLE>

- ------------------------------

(2) During fiscal 1996, we changed our accounting method for preopening
expenses, resulting in a cumulative effect adjustment of ($0.17) per share,
net of taxes. For fiscal 1995, the pro forma effect of this change in
accounting method was $678,000 which resulted in pro forma net income for
the year of $4,212,000.

(3) Inventory turns are calculated based upon the average of the prior 12 months
inventory levels.

(4) Comparable store sales are for stores open at least 13 months and exclude
recently relocated and expanded stores for 13 months after their completion
date.

(5) Store contribution margin includes all store sales less direct and allocated
expenses as a percentage of store sales. Allocated expenses do not include
corporate and warehouse/distribution expenses, interest expense and
corporate income taxes.

(6) Does not include current portions.

19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Ultimate Electronics is a leading specialty retailer of consumer electronics
and home entertainment products in the Rocky Mountain, Midwest and Southwest
regions of the United States. We appeal to a wide range of consumers and focus
on mid to high-end products sold by a highly-trained, knowledgeable, full-time
sales force in a full service retail environment. We believe that our
differentiating characteristics, together with our policy of offering the same
prices as our competitors on identical merchandise, makes us an attractive
alternative to volume driven appliance/electronics superstores, as well as other
national, regional and local merchants.

We opened our first store in 1968. We grew to nine stores in Colorado by
1993 and then adopted an expansion strategy to enter new markets in the Rocky
Mountain, Midwest and Southwest regions. By January 31, 1997, we had grown to 18
stores. In June 1997, we acquired Audio King Corporation, a consumer electronics
specialty retailer with 11 retail stores in Minnesota, Iowa and South Dakota.
Beginning in fiscal 1996 and through fiscal 1998, our results were significantly
impacted by new competition, including the entry of several new competitors in
our markets, as well as a lack of significant new products in our core
categories.

In response to increasing competitive pressures and an industry wide decline
in audio and video product sales, we adopted a revised operating strategy in
May 1998. Our new strategy, along with a more favorable retail environment,
contributed to our increased sales, profitability and comparable store sales. In
particular:

- we elected to de-emphasize the computer category and to focus our computer
mix on Sony computers and Canon printers;

- we added additional higher-end products and increased our focus on four
major product categories--audio, video, television and mobile electronics;

- we significantly revitalized our marketing and advertising by promoting
more mid to high-end products and distributing a new 70 to 80 page full
color catalog as part of our direct mail campaign; and

- we adjusted our commission structure to provide improved incentives to our
sales associates to maximize incremental sales of high margin
complementary products and services.

As a result of these initiatives and the acquisition of Audio King, our sales in
fiscal 1999 increased 10% compared to the prior year, with comparable store
sales increasing 2% (7% excluding the computer category). Similarly, in the six
months ended July 31, 1999, sales increased 17%, comparable store sales
increased 17% (20% excluding the computer category) and gross profit increased
24%, in each case compared to the six months ended July 31, 1998.

We intend to build on this success by opening new stores in current and new
markets and relocating and/or expanding selected smaller stores to more
favorable sites. In the current fiscal year, we are constructing a new large
format store in Davenport, Iowa that we expect to open by the end of fiscal
2000. We expect to open an additional six to eight new stores in fiscal 2001
primarily in the Phoenix area, and eight to 12 additional stores in fiscal 2002.
At the present time no leases have been signed for the Phoenix stores, but we
have entered into letters of intent and are negotiating leases for several of
the sites. We have not entered into letters of intent or negotiated leases for
most of the other new stores we may open in fiscal 2001 and 2002. In addition,
we are currently expanding a Minneapolis, Minnesota area store, and relocating
and expanding our Sioux Falls, South Dakota store. In fiscal 2001 we plan to
relocate and expand a St. Paul, Minnesota area store, remodel and expand our
Fort Collins, Colorado store, and relocate and expand one of our Denver,
Colorado stores.

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<PAGE>
Our investment for large format stores opened since 1993 has been
approximately $2.8 million per store, and includes leasehold improvements,
fixtures and equipment, inventory (net of payables) and preopening expenses. Our
large format stores have typically been profitable on a store operating basis
within their first 12 months of operation and had an average initial store
investment pay-back period, excluding inventory, within 24 months. The timing of
our new store openings and relocations will significantly impact our results of
operations and financial condition in future periods.

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS
JANUARY 31, ENDED JULY 31,
------------------------------ -------------------
<S> <C> <C> <C> <C> <C>
1997 1998 1999 1998 1999
----- ----- ----- ----- -----
Sales.................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold....................................... 73.5 73.0 71.1 71.7 70.0
----- ----- ----- ----- -----
Gross profit........................................... 26.5 27.0 28.9 28.3 30.0
Selling, general and administrative expenses............. 24.8 25.6 26.4 29.1 27.5
----- ----- ----- ----- -----
Income (loss) from operations.......................... 1.7 1.4 2.5 (0.8) 2.5
Interest expense, net.................................... 1.2 1.3 1.1 1.6 0.8
----- ----- ----- ----- -----
Income (loss) before taxes............................. 0.5 0.1 1.4 (2.4) 1.7
Income tax expense (benefit)............................. 0.2 -- 0.5 (0.9) 0.6
----- ----- ----- ----- -----
Net income (loss)...................................... 0.3% 0.1% 0.9% (1.5)% 1.1%
===== ===== ===== ===== =====
</TABLE>

SIX MONTHS ENDED JULY 31, 1999 COMPARED TO SIX MONTHS ENDED JULY 31, 1998

SALES. Sales for the six months ended July 31, 1999 were $166.6 million, a
17% increase from sales of $142.1 million for the same period in the prior year.
Sales of comparable stores increased 17% for the six months ended July 31, 1999.
In May 1998, we significantly reduced our computer assortment. Excluding the
computer category, comparable store sales increased 20% for the six months ended
July 31, 1999. Sales of new technology products such as DVD, HDTV and digital
camcorders were the primary drivers of comparable store sales growth during this
six-month period. Beginning in November 1998, we began mailing a 70 to 80 page
full color catalog to our existing customer base and prospective customers on a
quarterly basis. The catalog, along with refinements to our merchandising and
sales systems and a favorable consumer electronics market, contributed to the
increase in comparable store sales in the current year.

GROSS PROFIT. Cost of goods sold includes merchandise costs, buying costs
and warehousing/distribution costs less vendor purchase discounts and volume
rebates. Cost of goods sold increased by $14.7 million to $116.6 million for the
six months ended July 31, 1999 from $101.9 million during the six months ended
July 31, 1998. Gross profit for the six months ended July 31, 1999 increased to
$50.0 million (30.0% of sales) from $40.2 million (28.3% of sales) for the six
months ended July 31, 1998. The improved gross margin was primarily the result
of increased sales in our higher margin categories including audio, television
and mobile electronics. Sales of digital technology products tend to realize
higher gross margins than their analog counterparts. In association with the
decision to reduce our computer assortment, we recorded a $700,000 increase in
inventory reserves during the six months ended July 31, 1998. This adjustment
negatively impacted that period's margin by 0.5%.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses include occupancy costs, payroll, depreciation, computer
costs and all other expenses necessary to operate our

21
<PAGE>
business. Selling, general and administrative expenses for the six months ended
July 31, 1999 increased to $45.8 million (27.5% of sales) from $41.4 million
(29.1% of sales) for the six months ended July 31, 1998. The decrease in
selling, general and administrative expenses as a percentage of sales was
primarily due to the leveraging of our fixed expenses against the 17% comparable
store sales increase that we achieved in the first six months of the current
year as well as the cost control measures implemented after the first quarter of
the prior year. These cost control measures included new commission plans
emphasizing specific profit opportunities, reduced travel expenses, store
support expenses closely tied to volume and increased awareness of controllable
expenses throughout the organization.

INCOME FROM OPERATIONS. As a result of the foregoing, income from
operations for the six months ended July 31, 1999 was $4.2 million (2.5% of
sales) compared to a loss from operations of $1.2 million (0.8% of sales) for
the six months ended July 31, 1998.

INTEREST EXPENSE. Interest expense consists primarily of interest payable
on outstanding balances under our revolving line of credit as well as on our
outstanding mortgage bonds. Interest expense decreased to $1.4 million for the
six months ended July 31, 1999 from $2.2 million for the six months ended
July 31, 1998. We attribute this decrease primarily to lower average amounts
outstanding under our revolving line of credit as well as a reduction in the
interest rate associated with the new line of credit from Foothill Capital
Corporation.

INCOME TAXES. Income tax expense for the six months ended July 31, 1999 was
$1.0 million compared to an income tax benefit of $1.3 million for the same
period in the prior year.

NET INCOME. Net income for the six months ended July 31, 1999 was
$1.8 million compared to a loss of $2.2 million for the same period in the prior
year for the reasons described above.

FISCAL 1999 COMPARED TO FISCAL 1998

SALES. For the year ended January 31, 1999, sales were $337.5 million, a
10% increase from sales of $306.3 million for the prior year. The increase in
sales during fiscal 1999 was due primarily to the effect of having the Audio
King stores for a full year along with an increase in sales of comparable
stores. Comparable store sales increased 2% for the year ended January 31, 1999
compared to a decrease of 6% in comparable store sales for the year ended
January 31, 1998. In May 1998, we significantly reduced our computer assortment.
Excluding the computer category, comparable store sales increased 7% for the
year.

GROSS PROFIT. Gross profit in fiscal 1999 increased 18% to $97.6 million
(28.9% of sales) from $82.8 million (27.0% of sales) in fiscal 1998. The
improvement in gross profit was due primarily to the impact of the reduced
computer assortment along with an increase in sales of higher margin products in
our core categories of audio, video, television and mobile electronics.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses in fiscal 1999 increased 13% to $89.0 million (26.4% of
sales) from $78.6 million (25.6% of sales) in fiscal 1998. The percentage
increase in selling, general and administrative expenses was due primarily to
higher fixed store expenses as a percentage of sales as well as slightly higher
net advertising expenses.

INCOME FROM OPERATIONS. As a result of the foregoing, income from
operations more than doubled in fiscal 1999, increasing to $8.6 million (2.5% of
sales) from $4.2 million (1.4% of sales) in fiscal 1998.

INTEREST EXPENSE. Interest expense was $4.0 million for both fiscal 1999
and 1998.

INCOME TAXES. Our effective tax rate of 37.2% in fiscal 1999 was also the
same as the prior year.

22
<PAGE>
NET INCOME. Net income for fiscal 1999 was $2.9 million compared to
$148,000 for the prior year, for the reasons described above.

FISCAL 1998 COMPARED TO FISCAL 1997

SALES. For the year ended January 31, 1998, sales were $306.3 million, a
17% increase from sales of $261.2 million for the prior year. The increase in
sales during fiscal 1998 was due primarily to the acquisition of Audio King in
June 1997. Comparable store sales decreased 6% for the year ended January 31,
1998 compared to a decrease of 16% in comparable store sales for the year ended
January 31, 1997. We believe the decrease in comparable store sales over the
prior two years resulted primarily from an industry-wide decline in audio and
video product sales and increased competition in our markets.

GROSS PROFIT. Gross profit in fiscal 1998 increased 20% to $82.8 million
(27.0% of sales) from $69.3 million (26.5% of sales) in fiscal 1997. The slight
increase in the gross profit percentage was due to a larger mix of higher margin
product categories as a result of the acquisition of Audio King.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses in fiscal 1998 increased 21% to $78.6 million (25.6% of
sales) from $64.8 million (24.8% of sales) in fiscal 1997. The percentage
increase in selling, general and administrative expenses was due primarily to
higher fixed store expenses as a percentage of sales caused by lower comparable
store sales, partially offset by the leverage gained through the increase in
sales generated from the Audio King merger.

INCOME FROM OPERATIONS. As a result of the foregoing, income from
operations in fiscal 1998 decreased 5% to $4.2 million (1.4% of sales) from
$4.5 million (1.7% of sales) in fiscal 1997.

INTEREST EXPENSE. Interest expense for fiscal 1998 increased to
$4.0 million from $3.2 million in fiscal 1997 due to higher average amounts
outstanding under our revolving line of credit that were used for the Audio King
acquisition, the remodeling of six Audio King stores and an additional store
opening in Colorado in fiscal 1998.

INCOME TAXES. Our effective tax rate of 37.2% in fiscal 1998 decreased
slightly from the 37.4% tax rate in fiscal 1997.

NET INCOME. As a result of the foregoing, net income for fiscal 1998 was
$148,000 compared to $785,000 for the prior year.

LIQUIDITY AND CAPITAL RESOURCES

Historically, our primary sources of liquidity for funding working capital
expansion and growth have been net cash from operations, revolving credit lines,
term debt and issuances of common stock. Our primary cash requirements are
related to expenditures for new store openings and the relocation and/or
remodeling of existing store locations, including preopening expenses and
beginning inventory for new or relocated stores, as well as working capital to
support our inventory requirements and selling, general and administrative
expenses.

Net cash provided by operating activities equaled $4.6 million for the six
months ended July 31, 1999 compared to $1.6 million for the six months ended
July 31, 1998. The increase in cash provided by operating activities resulted
primarily from an increase in net income as well as higher accounts payable
balances during the six months ended July 31, 1999. Net cash provided by
operating activities was $17.9 million for fiscal 1999 compared to net cash
provided by operating activities of $9.4 million in fiscal 1998. The increase in
cash provided by operating activities resulted from an increase in net income as
well as increases in accounts payable and decreases in accounts receivable,
offset by an increase in merchandise inventory.

23
<PAGE>
Net cash used in investing activities during the six months ended July 31,
1999 was $1.6 million compared to $0.5 million during the six months ended
July 31, 1998. The increase reflects increased purchases of property and
equipment during 1999. Net cash used in investing activities during fiscal 1999
was $1.6 million compared to $10.0 million during fiscal 1998. Investing
activities were higher in fiscal 1998 primarily as a result of the purchase of
Audio King, one new store opening and one store relocation.

Net cash used in financing activities totaled $1.3 million during the six
months ended July 31, 1999 compared to $0.5 million during the six months ended
July 31, 1998. The increase reflects primarily a greater pay down on our
revolving line of credit during the 1999 period. Principal payments on term
loans and capital lease obligations remained constant during these periods. Net
cash used in financing activities during fiscal 1999 was $13.9 million compared
to net cash provided by financing activities of $1.9 million during fiscal 1998,
reflecting further repayment during fiscal 1999 of our revolving line of credit.

On September 30, 1998, we executed a three-year $40 million credit agreement
with Foothill Capital Corporation, a wholly owned subsidiary of Norwest Bank.
Borrowings under this revolving line of credit are limited to the lesser of
$40 million or 80% of eligible inventory and a portion of accounts receivable.
As of July 31, 1999, the entire $40 million facility was available to us, and
$12 million was outstanding. Borrowings bear interest, payable monthly, based on
a blend of LIBOR plus 2% and Norwest Bank's prime rate minus 0.375%.
Inventories, accounts receivable, equipment and intangibles secure our
borrowings. The facility includes negative covenants that limit our ability to,
without the bank's prior approval and subject to various exceptions, incur
indebtedness, create liens, enter into mergers and consolidations, pay
dividends, repurchase our capital stock, issue guarantees, sell or transfer
assets, consign inventory, prepay or retire any debt owed to third parties, make
investments or engage in transactions with affiliates. The facility also
contains covenants regulating our gross margins, inventory levels, tangible net
worth and capital expenditures. We were in compliance with all covenants for all
periods of fiscal 1999 and through July 31, 1999. We expect to use a portion of
the proceeds of this offering to repay all of our indebtedness outstanding under
this credit agreement, which amounts may be reborrowed in order to finance our
growth.

In March 1995, we issued $13.0 million aggregate principal amount of 10.25%
first mortgage bonds and received net proceeds of $12.7 million. We used the
proceeds of the bond offering to fund a substantial portion of the construction
of our warehouse, offices, service and store facility in Thornton, Colorado.
Interest on the bonds accrues at a rate of 10.25% per year until maturity or
earlier redemption. We are required to redeem $3.25 million aggregate principal
amount of the bonds (reduced to the extent of the bonds previously purchased or
redeemed by us) on January 31, 2002 and on January 31 of each of the three years
thereafter, at a redemption price equal to par plus accrued interest to the date
of redemption. The bonds are redeemable at par on or after March 31, 2000 at our
option and are secured by our Thornton facility. We are also required to make an
offer to purchase all of the outstanding bonds, at par plus accrued interest,
following the occurrence of any change of control. The indenture governing the
bonds includes covenants which, among other things, subject to various
exceptions, restricts our ability to incur additional indebtedness, declare
dividends on our equity interests, purchase or redeem any of our equity
interests, create liens, enter into mergers and consolidations or engage in
transactions with affiliates. We expect to use a portion of the proceeds of this
offering to redeem all of the outstanding mortgage bonds on or after March 31,
2000. Our credit agreement provides that we may redeem the mortgage bonds at any
time prior to June 30, 2000.

In June 1997, we acquired all of the outstanding shares of Audio King
Corporation, a consumer electronics specialty retailer operating 11 retail
stores in Minnesota, Iowa and South Dakota. The purchase price consisted of
$2.5 million in cash, 986,432 shares of our common stock, assumed debt of
$7.2 million and other expenses and severance costs of $1.4 million. The
transaction was accounted for as a purchase. The transaction resulted in our
recording goodwill in the amount of $2.7 million, which

24
<PAGE>
is being amortized over a 10-year life. Our financial statements include the
operating results of Audio King beginning on June 27, 1997.

We received proceeds of $17.8 million (net of offering costs) in
October 1993 in connection with the initial public offering of our common stock.
We received proceeds of $12.5 million (net of offering costs) in November 1995
in connection with a second public offering of our common stock.

Capital expenditures for fiscal 1999 were $1.6 million. During fiscal 2000
we plan to construct a new large format store in Davenport, Iowa and to expand
or relocate two other stores. Our capital expenditures budget for fiscal year
2000 is $10.0 million, of which $1.6 million had been spent through July 31,
1999. We expect capital expenditures of $18 million to $24 million in fiscal
2001, primarily for new store openings and store relocations and expansions.

We believe that our cash flow from operations and borrowings under our
current credit facility, together with proceeds of this offering, will be
sufficient to fund our operations, debt repayment and expansion through fiscal
2001. To fund the capital requirements for our anticipated plans beyond that
time, we may be required to seek additional financing, which may take the form
of expansion of our existing credit facility, or possibly additional debt or
equity financings. We may also re-mortgage our Thornton facility. There can be
no assurance that we will be able to obtain such funds on favorable terms, if at
all. Furthermore, due to the seasonality of our business, our working capital
needs are significantly higher during the fiscal third and fourth quarters.

SEASONALITY

The following table shows our sales, income from operations and net income
for each of the most recent ten quarters. The quarterly information is unaudited
but has been prepared on the same basis as our audited financial statements
included elsewhere in the prospectus. In the view of management, this unaudited
data includes all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the unaudited quarterly results when read in
conjunction with our audited financial statements. The results of operations for
any quarter are not necessarily indicative of the results for any future period.
See "Risk Factors--Because We Experience Seasonal Fluctuations in Our Net Sales,
Our Quarterly Results Will Fluctuate and Our Annual Results Could Be Below
Expectations."
<TABLE>
<CAPTION>
FISCAL 1998 FISCAL 1999
QUARTER ENDED QUARTER ENDED
------------------------------------------------ ------------------------------------------------
APRIL 30, JULY 31, OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, OCTOBER 31, JANUARY 31,
1997 1997 1997 1998 1998 1998 1998 1999
--------- -------- ----------- ----------- --------- -------- ----------- -----------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales................ $55,508 $61,944 $81,990 $106,864 $70,882 $71,182 $79,441 $115,949
Income (loss) from
operations......... $ 290 $ 299 $ 927 $ 2,705 $(2,438) $ 1,228 $ 2,952 $ 6,848
Net income (loss).... $ (311) $ (422) $ (115) $ 996 $(2,211) $ 58 $ 1,250 $ 3,813

<CAPTION>
FISCAL 2000
QUARTER ENDED
--------------------
APRIL 30, JULY 31,
1999 1999
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Sales................ $80,303 $86,309
Income (loss) from
operations......... $ 1,389 $ 2,793
Net income (loss).... $ 439 $ 1,318
</TABLE>

Seasonal consumer buying patterns affect our business. As is the case with
many other retailers, our sales and profits have been greatest in the fourth
quarter (which includes the holiday selling season). In fiscal 1999, the fourth
quarter represented 34% of sales, 80% of income from operations and 131% of net
income. Due to the importance of the holiday shopping season, any factors
negatively impacting the holiday selling season could have a material adverse
effect on our financial condition and results of operations. Operating results
are dependent upon a number of factors, including discretionary consumer
spending, which is affected by local, regional and national economic conditions
affecting

25
<PAGE>
disposable consumer income, such as employment, business conditions, interest
rates and taxation. Our quarterly results of operations may fluctuate
significantly as a result of a number of factors, including:

- the timing of new or relocated and expanded store openings;

- expenses related to relocation and expansion;

- unexpected changes in volume related rebates from manufacturers;

- the success of new stores; and

- the impact of new stores on existing stores.

As we have opened additional stores or relocated and expanded stores within
markets we already serve, sales at existing stores have been adversely affected.
Such adverse effects may occur in the future. Our quarterly operating results
also may be affected by increases in merchandise costs, price changes in
response to competitive factors, new and increased competition and product
availability.

INFLATION

We believe, because of competition among manufacturers and technological
changes in the consumer electronics industry, inflation has not had a
significant effect on results of operations during the last few years.

YEAR 2000 ISSUE

Our primary information system software is provided by Tyler Retail
Systems, Inc. of Clearwater, Florida. This software operates the vast majority
of our systems and has been evaluated for Year 2000 compliance. Tyler has stated
that with the current software and the pending upgrade, our system should be
Year 2000 compliant by November 15, 1999. We began the upgrade process in the
first quarter of fiscal 2000. We believe that no other significant modifications
to the Tyler software will be necessary. Our system review also identified that
some older hardware and software were not Year 2000 compliant. These items were
few in number and have been replaced with Year 2000 compliant products. In our
opinion, costs of these upgrades will not be material to our financial condition
or operations. We are also in communication with third parties with whom we do
significant business in order to assess their Year 2000 compliance and minimize
the potential for adverse consequences, if any, that could result from failure
of such entities to address this issue. Year 2000 issues do present risks that
are outside of our control, including, but not limited to, the failure of
utility companies to provide electricity, the failure of telecommunications
companies to provide voice and data transfer services, the failure of financial
services companies to process transactions or transfer funds and the failure of
third-party vendors or suppliers to become Year 2000 compliant. In the event of
our failure or Tyler's failure to become timely Year 2000 compliant, we have not
identified a near-term economically feasible alternative for operations support,
and would be required to resort to manual or other processing methods. With
regard to any Year 2000 failure by third-party product suppliers, we plan to
pursue alternative suppliers for Year 2000 compliant products, where
appropriate, but we anticipate that our competitors will be similarly impacted
in any such event. We can make no assurances that Year 2000 issues will not have
an adverse effect on our business, financial condition, or future operations.
The information provided in this disclosure constitutes a "Year 2000 Readiness
Disclosure" under the Year 2000 Information and Readiness Disclosure Act of
1998.

26
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS

We adopted Statements of Financial Accounting Standards (SFAS) No. 130
"Reporting Comprehensive Income" and SFAS No. 131 "Disclosure about Segment
Reporting of an Enterprise and Related Information" in fiscal 1999 with no
material impact to our financial statements.

QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

As of July 31, 1999, we had outstanding long-term debt of approximately
$25.1 million, $13.0 million of which bears interest at an annual fixed rate of
10.25%. A hypothetical 10.0% decrease in interest rates would not have a
material impact on us. Increases in interest rates could, however, increase
interest expense associated with our future borrowings, if any. For example, we
frequently effect borrowings under our $40.0 million revolving line of credit
for general corporate purposes, capital expenditures and other purposes related
to expansion of our capacity. Borrowings under the $40.0 million line of credit
bear interest based on a blend of LIBOR plus 2.0% and Norwest Bank's prime rate
minus 0.375%. Borrowings under this credit facility in the amount of
$12.0 million were outstanding as of July 31, 1999. We have not hedged against
interest rate changes.

FORWARD-LOOKING STATEMENTS

Management's discussion and analysis of financial condition and results of
operations contain statements that are not historical facts but are
forward-looking statements that involve risks and uncertainties that could cause
future results to vary materially from projected results. Such statements
address activities, events or developments that we expect, believe, project,
intend, estimate, plan or anticipate will, should, could or may occur, including
reference to future profitability and steps being taken to achieve that result.
Factors that could cause actual results to differ materially from our
projections, forecasts, estimates and expectations include, but are not limited
to:

- risks related to our ability to open and profitably operate new stores;

- our ability to profitably relocate and/or expand existing stores and the
willingness of vendors to permit product sales over the Internet;

- significant competition, including new competition from internet
retailers;

- seasonal fluctuations in our business;

- changes in trade regulations and currency fluctuations;

- risks regarding increases in promotional activities of competitors;

- the presence or absence of new products or product features in our
merchandise categories;

- changes in the distribution strategy of our vendors;

- changes in vendor support for advertising and promotional programs;

- changes in our merchandise sales mix;

- the results of financing efforts;

- fluctuations in consumer demand and preferences;

- the risks associated with Year 2000 issues; and

- general economic conditions.

Please refer to a discussion of these and other factors in our Annual Report on
Form 10-K for the year ended January 31, 1999, in this prospectus under "Risk
Factors" and in our other filings with the Securities and Exchange Commission.
We disclaim any intent or obligation to update publicly these forward-looking
statements, whether as a result of new information, future events or otherwise.

27
<PAGE>
BUSINESS

OVERVIEW

- focusing on audio, video, television and mobile electronics products;

- offering over 125 brands including a majority of the most popular names
and a large selection of limited-distribution, upscale brands and lines;

- emphasizing products with the latest technology by dedicating significant
resources to their promotion, advertising, merchandising and related
product training;

- offering Simple Solution packages created by us for home theater, mobile
electronics and home computing to make purchasing consumer electronics
systems simple;

- utilizing an upscale, demonstration-oriented store format with an emphasis
on presentation of large screen televisions, home theater systems and
mobile electronics;

- featuring highly-trained, knowledgeable, full-time sales associates and
installation technicians; and

- providing a complete menu of value-added services including home
installation by our own technicians.

We believe that our differentiating characteristics, together with our policy of
offering the same price as our competitors on identical merchandise, makes us an
attractive alternative to volume driven appliance/electronics superstores, as
well as other national, regional and local merchants. In addition, our early
commitment to technologically advanced products, combined with our
highly-trained sales force, positions us to take advantage of the evolution in
consumer electronics products that is being led by digital technology.

We operate 30 stores, including 10 stores in Colorado under the trade name
SoundTrack, 11 stores in Idaho, Iowa, Nevada, New Mexico, Oklahoma and Utah
under the trade name Ultimate Electronics and nine stores in Minnesota and South
Dakota under the trade name Audio King. Our large format store generally ranges
from 30,000 to 36,000 square feet and displays products in an upscale retail
environment. Our large format stores have typically been profitable on a store
operating basis within their first 12 months of operation and achieved an
average initial store investment pay-back period, excluding inventory, within
24 months. These stores feature an extensive selection of over 4,000 items with
products from the following categories:

- televisions

- home theater systems

- direct broadcast satellite

- VCR

- DVD

- camcorders

- home audio

- portable audio

- car stereo

- car security

- mobile navigational systems

- wireless communications

- home office/computer

- home theater furniture

- audio and video accessories

In fiscal 1999, our sales increased 10% to $337.5 million compared to the
prior year. In May 1998, we executed a major strategic initiative by
significantly reducing our assortment of computers, peripherals and related
products. Comparable store sales for fiscal 1999 increased 2% (7% excluding the
computer category). This initiative also contributed to our improvement in gross
margin to 28.9% of sales in fiscal 1999 from 27.0% of sales in fiscal 1998. Our
earnings per share increased significantly to $.35 in fiscal 1999 from $.02 in
fiscal 1998.

During the first half of fiscal 2000, our sales were $166.6 million and
comparable stores sales increased 17% (20% excluding the computer category). Our
gross margin improved to 30.0% of sales

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<PAGE>
in the first six months of fiscal 2000 from 28.3% of sales for first six months
of fiscal 1999. Our earnings per share was $.20 during the first half of fiscal
2000, compared to a loss per share of $.26 for the first half of fiscal 1999.

THE CONSUMER ELECTRONICS INDUSTRY

The consumer electronics industry is defined to include television, audio,
video, mobile electronics, home information (including computers and related
products) and gaming products. According to the Consumer Electronics
Manufacturing Association, total industry factory sales (domestic and imports to
the U.S.) by manufacturers of consumer electronics products were estimated to be
$76 billion in 1998 and are projected to exceed $80 billion in 2000. We believe
that growth in the consumer electronics industry is driven by the introduction
of new products and technological advancements.

In the 1990s, consumer electronics retailing has become increasingly
competitive due to the increased presence of large national chains, numerous
smaller specialty stores and consumer electronics departments of many
department, discount and home improvement stores. Many of these retailers have
sought to capitalize on the growth of certain product categories within the
overall consumer electronics industry, including personal computers, software,
home office/computer equipment and telecommunications equipment. The large
national chains typically rely on high sales volumes by marketing a wide variety
of products including appliances and software to a broad group of consumers,
with an emphasis on low to mid level products. We believe these dynamics have
contributed to a decrease in emphasis by the national chains on audio and video
products. We also believe that because our competitors emphasize broad product
categories, they do not provide the knowledgeable sales force, customer service
and inviting shopping environment available at a specialty retailer such as
Ultimate Electronics.

The introduction of new products and technological advancements have driven
growth in the consumer electronics market. In recent years, a large portion of
the growth in our industry has been in the computer sector. More recently,
industry growth has been generated by the introduction of products that
incorporate digital technology such as DVD players, digital camcorders and
HDTVs. Digital products offer significant advantages over their analog
counterparts such as clarity and quality of video and audio, durability of
recording and compatibility with computers. Due to these advantages, many in the
industry believe the digital evolution in the consumer electronics industry will
drive growth well beyond the year 2000 as consumers seek new technology and
replace their existing analog-based products with digital products. The Consumer
Electronics Manufacturing Association estimates that digital video products will
average 35% annual growth from 1999 through 2002. Among the digital product
developments that we believe support this growth are the following:

- DIGITAL VERSATILE DISC (DVD). According to the Consumer Electronics
Manufacturing Association, DVD player sales reached an estimated 800,000
units in 1998 and are estimated by CEMA to total over 3,000,000 units in
1999.

- HIGH DEFINITION TELEVISION (HDTV). The Federal Communication Commission
has set a target of 2006 for all commercial television stations to
transition from broadcasting analog signals to digital signals. In order
to receive a digital transmission, consumers will need either a digital-
ready television or a set-top box converter capable of converting the
digital broadcast for viewing on an analog set. As there are roughly
250 million televisions in the United States today, the HDTV market
opportunity for retailers is significant.

- NEW DIGITAL PRODUCT INTRODUCTIONS. The expected introduction of various
new digital products in the next two years should provide consumer
electronics retailers with significant additional growth opportunities.
Some of these products include MP3 players (for playing audio downloaded
from the Internet), digital radio, TiVo/Replay TV (digital video recording
and playback devices) and DVD car audio and mobile video systems.

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<PAGE>
We believe that specialty retailers with sales personnel trained to
demonstrate the benefits of technologically-advanced products are well
positioned to capture the increased sales that should result as such products
achieve market acceptance.

BUSINESS STRATEGY

Our business strategy is to capitalize on our position as the upscale, full
service consumer electronics alternative to our competitors. We seek to satisfy
consumer demand for consumer electronics and home entertainment products,
particularly in the core categories of audio, video, television and mobile
electronics. Key elements of this strategy include:

OFFERING AN EXTENSIVE SELECTION OF MID TO HIGH-END AUDIO AND VIDEO
PRODUCTS. We offer a broad selection of mid to high-end audio and video brand
name consumer electronics and home entertainment products. We offer over 4,000
items representing over 125 brand names across a broad selection of audio and
video products. A significant portion of these brands, such as Boston Acoustics,
Denon, Krell, Martin Logan, Mitsubishi and Sony ES, are only available through
select retailers. We believe our extensive selection helps customers make a
better informed buying decision. In addition, we offer merchandise in each of
our product categories at a range of price points and generally maintain
sufficient product stock for immediate delivery to our customers.

BEING A LEADER IN OFFERING NEW TECHNOLOGY. We strive to be recognized by
consumers and vendors as a leader in presenting the latest technology. We devote
significant resources to marketing and substantial floor space and inventory to
the display of new technologies. For example, as a result of this focus, we were
able to sell and deliver the first HDTV for residential use in the United States
in July 1998. We believe that showcasing the latest technology differentiates us
from less specialized competitors and stimulates the sales of other products and
services. We offer such leading edge products as HDTV, DVD players, vehicle
navigational systems and digital camcorders. In addition, we provide our sales
associates with specialized training in order to present the advantages of new
technology to our customers, and we frequently hold special events at our stores
to introduce and promote new products.

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

PROVIDING AN UPSCALE, DEMONSTRATION-ORIENTED STORE FORMAT. We have
developed an upscale, demonstration-oriented store format that showcases our
merchandise and encourages customers to fully experience our products. We
believe that this format assists our customers in understanding the benefits of
upscale products and new technology. Our stores have acoustically designed home
audio and car stereo demonstration rooms, fully furnished home theater rooms and
automobiles equipped with the latest in car stereo and car security products.
Carpeted and hardwood floors, soft lighting and high quality merchandise
fixtures further enhance the appeal of the stores.

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<PAGE>
TRAINING AND DEVELOPING A PREMIER SALES AND INSTALLATION TEAM. We conduct
an extensive ongoing training program designed to ensure that our sales
associates are armed with the most up-to-date sales techniques and product
knowledge. We believe that the quality and knowledge of our sales associates and
installation technicians is critical to our success and represents a significant
competitive advantage. We also believe that our ongoing, specialized training
leads to a superior customer experience that stimulates sales of our products.
We ensure that our sales associates receive comprehensive technical product and
sales training prior to our introduction of significant new products, which
helps us maintain our new technology product leadership. We also ensure that our
installation technicians receive comprehensive technical product and
installation training.

PROVIDING "RED CARPET" CUSTOMER SERVICE. We have always been committed to
providing excellent customer service. We support our product sales by providing
many important customer services, including home delivery and set-up, home
theater and audio design and installation, home satellite installation, mobile
electronics installation, extended service contracts and regional service
centers that offer in-home and carry-in repair services. We believe that our
in-home installation service provided by our own employees is an important
competitive advantage. We also provide in-store product instruction and will
provide follow-up instruction at a customer's home upon request. In addition, we
offer a 30-day money-back satisfaction guarantee on most products and an
in-stock guarantee on advertised products.

PROMOTING OUR MERCHANDISE THROUGH DIFFERENTIATED MARKETING AND
ADVERTISING. We recently redesigned our marketing program to create awareness
of our comprehensive selection of mid to high-end brand name merchandise at
competitive prices. Our advertising strategy primarily uses newspaper, radio and
targeted direct mail media. The cornerstone of our direct mail campaign is a 70
to 80 page full color catalog that we publish four times a year that emphasizes
the breadth of our selection and new technology. The catalog educates our
customers on the features and benefits of the latest consumer electronics
products and advertises the full array of products and services available at our
stores. This catalog is currently mailed to approximately 800,000 current and
400,000 prospective customers in our operating regions.

OFFERING COMPETITIVE PRICING AND SATISFACTION GUARANTEE. Our goal is to
advertise and sell products at the same price as our competitors. We reinforce
this strategy in our advertising and with our "30 day satisfaction guarantee"
backed by our "60 day price guarantee." Our price guarantee and our satisfaction
guarantee are designed to remove pricing concerns from the purchase decision and
allow the customer and the sales staff to focus on product features, performance
and quality.

GROWTH STRATEGY

In addition to our business strategy that is focused on generating
comparable store sales increases, we intend to grow our business by opening new
stores and relocating and/or expanding existing stores.

OPENING NEW STORES. We intend to expand into select metropolitan areas in
the Rocky Mountain, Midwest and Southwest regions with 30,000 to 36,000 square
foot stores (with a few as small as 20,000 square feet in smaller markets). We
are currently constructing a new 36,000 square foot store in Davenport, Iowa
that is expected to open in fiscal 2000. We expect to open an additional six to
eight new stores in fiscal 2001 primarily in the Phoenix area and eight to 12
additional stores in fiscal 2002. At the present time no leases have been signed
for the Phoenix stores but we have entered into letters of intent and are
negotiating leases for several of the sites. We believe there are many
additional markets for future expansion within an 850 mile radius of our
distribution center located in Colorado, as well as new store opportunities in
our existing markets.

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<PAGE>
RELOCATING AND/OR EXPANDING EXISTING STORES. We are currently planning to
relocate and/or expand several of our smaller locations. In particular:

- we are currently expanding a Minneapolis, Minnesota area store from 9,700
to 18,000 square feet;

- we are currently relocating and expanding our Sioux Falls, South Dakota
store from 3,200 to 22,000 square feet;

- we plan to relocate a 9,300 square foot store in the St. Paul, Minnesota
area to a 35,000 square foot store in the second quarter of fiscal year
2001;

- we expect to expand our Fort Collins, Colorado store from 16,600 to 22,000
square feet in the first quarter of fiscal 2001; and

- we plan to relocate and expand one of our Denver, Colorado area stores
within the next 18 months.

In addition to these planned relocations and expansions, we are currently
analyzing opportunities in existing markets to relocate and/or expand several of
the remaining smaller stores.

STORE OPERATIONS

STORES. We currently operate 30 stores, comprised of 10 SoundTrack stores
in Colorado, 11 Ultimate Electronics stores in Idaho, Iowa, Nevada, New Mexico,
Oklahoma and Utah and nine Audio King stores in Minnesota and South Dakota. Of
these 30 stores, 15 are larger format stores and the balance are smaller format
stores.

While our 15 larger stores vary in size from 31,500 to 51,700 square feet,
our current prototype store generally ranges from 30,000 to 36,000 square feet,
with approximately 55% to 60% of the square footage devoted to selling space.
The remaining space is dedicated to a car audio installation facility, a store
warehouse, general office space and, in selected stores, a service facility.
This store format emphasizes mid to high-end products, and features multiple
home audio and car demonstration rooms, multiple home theater settings,
extensive portable electronics displays and an area displaying 35 to 45
projection televisions. Each of these stores has displays designed to provide
the customer with a full spectrum of our products upon entering the store. At
these locations we offer home installation of audio, video and satellite
products, installation of mobile electronics, a home theater planning center and
two automobiles equipped with the latest in car stereo and car security
products.

Thirteen of our stores range in size from 9,300 to 28,200 square feet, with
approximately 60 to 65% of the square footage devoted to selling space. These
stores generally contain the same products and services available at our large
format stores except that they typically contain fewer large screen televisions
and fewer demonstration rooms for home and mobile electronics. We may relocate
and/or expand a number of these stores as opportunities become available. We
currently have plans to relocate and/or expand four of these stores by the end
of fiscal 2001. We also operate two mall-based stores that we acquired as part
of the 1997 merger with Audio King, one of which we are currently relocating and
expanding.

SITE SELECTION. Our new stores are expected to range from 30,000 to 36,000
square feet. We typically locate these stores in power centers, freestanding
locations near shopping malls and other major retail shopping areas. We select
locations for future stores based on our evaluation of individual site economics
and market conditions. When deciding to enter a new market, we evaluate a number
of criteria, including the following:

- sales volume potential;

- distance from our current distribution center;

- existing and potential competition in the market, including their size,
strength and merchandising philosophy;

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<PAGE>
- marketing and advertising costs; and

- size, demographic makeup and growth potential of the market.

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

- store locations of our competition;

- local demographics;

- proximity to our existing or proposed store locations;

- real estate occupancy expenses and tenant build-out costs;

- store visibility;

- traffic patterns; and

- overall retail activity.

STORE ECONOMICS. We believe that we benefit from attractive store level
economics. Our average investment for the 15 large format stores we opened since
1993 was approximately $2.8 million including leasehold improvements, fixtures
and equipment, inventory (net of payables) and preopening expenses. The average
sales per store and store level contribution for these 15 stores, which excludes
corporate and warehouse/distribution expenses, interest expense and corporate
income taxes, for the four quarters ending July 31, 1999 were approximately
$15.0 million and $1.4 million.

The cost of future stores is anticipated to average approximately
$3.0 million per store, which includes leasehold improvements, fixtures and
equipment, inventory (net of payables) and preopening expenses. Leasehold
improvements, fixtures and equipment are expected to average approximately
$1.9 million per store. Preopening expenses for these stores are expected to
average approximately $350,000, and include such items as advertising prior to
opening, recruitment and training of new employees and other costs of opening
stores. The inventory requirement for our new stores is expected to average
approximately $1.5 million, of which $750,000 is typically financed through
trade credit. For relocations of existing stores, preopening costs are expected
to average approximately $150,000 and will be higher if we terminate existing
store leases prior to their maturity.

TRAINING. We provide new sales associates with a minimum of three weeks of
intensive classroom training. Our sales associates also receive additional
weekly training at the store, weekly self study programs and testing. Our
training program begins with an orientation by one or more of our executive
officers and continues with instruction in areas such as technical knowledge by
product category, selling techniques and policies and procedures of Ultimate
Electronics. Further, in conjunction with our vendors, we conduct day long
training seminars five to six times a year that all sales associates are
required to attend. Our sales force also receives technical product and sales
training prior to our introduction of significant new products, which helps us
maintain our new technology product leadership. Our installation technicians
also receive comprehensive product installation training.

STORE MANAGEMENT. An average large format store is generally staffed with a
store manager, an operations manager, an installation supervisor, 10 to 12
installers and 10 support personnel including five warehouse employees and five
customer service representatives. Each large format store also has two sales
managers, one for home electronics and one for mobile electronics, and
approximately 30 to 35 sales associates. All of our store management personnel
have been promoted from within the company. The staffing of our smaller stores
generally follows the same format as our larger stores but includes fewer
employees.

STORE PERSONNEL COMPENSATION. Our compensation plan is designed to provide
greater incentives to our sales associates to sell more than one product to a
customer. Our sales associates are compensated pursuant to a flexible incentive
pay plan with commissions determined on the basis of sales and gross margins.
Installers are also paid based on commissions. Store managers receive a base
salary, monthly and annual bonuses and opportunities for commissions. Sales
managers similarly receive a

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<PAGE>
small base salary, bonuses and earned commissions. Bonuses are calculated on a
store-by-store basis. Support staff are typically paid an hourly wage plus
bonuses and may also earn commissions. We also motivate our employees by
providing opportunities for advancement within the company.

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

- home delivery and set-up

- home audio installation and design

- home satellite installation

- home theater installation and design

- mobile electronics installation

- regional service centers

- in-store product instruction

- home instruction upon request

Virtually all merchandise purchased from us may be taken to any of our
stores for repair, whether or not the product is currently under the
manufacturer's warranty or an extended service contract. In order to provide
maximum service to our customers, we have regional service centers in
Albuquerque, New Mexico; Boise, Idaho; Denver, Colorado; Des Moines, Iowa; Las
Vegas, Nevada; Minneapolis, Minnesota; Salt Lake City, Utah; and Tulsa,
Oklahoma. Our largest service facilities, located in metropolitan Denver and
Minneapolis, provide backup for our other regional service centers. We employ
approximately 150 employees in connection with our service business. Each
service department is staffed with product specialists capable of making complex
repairs. In addition, we operate a fleet of approximately 120 customer service
vehicles to provide in-home repair and delivery, installation and setup of home
satellites, home theater components and televisions.

We offer a private label credit card that is financed, operated and serviced
by a third party finance company on a non-recourse basis. We entered into an
agreement with the finance company whereby the finance company retains all
credit risk associated with the private label credit card. In addition, certain
manufacturers sponsor their own private label credit cards. These arrangements
permit us to provide our customers with financing promotions, including
interest-free and deferred payments, without using Ultimate Electronics' working
capital. During fiscal 1999, approximately 26% of our sales were purchased
through our private label and manufacturer sponsored credit cards.

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<PAGE>
MERCHANDISING

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

<TABLE>
<CAPTION>
CATEGORY PRODUCTS SELECTED BRANDS
- -------- -------- ---------------
<S> <C> <C>
Television................... Conventional televisions, Echostar, GE, JVC, Magnavox,
projection televisions and Mitsubishi, Panasonic,
digital satellite systems Pioneer, Proscan, RCA,
Samsung, Sharp, Sony and
Zenith

Audio........................ Audio components, compact Adcom, Aiwa, Bose, Boston
disc players, speakers and Acoustics, Definitive
portable electronics Technology, Denon, Infinity,
JVC, Klipsch, Krell, Martin
Logan, Monster Cable,
Pioneer, Sunfire, Sony,
Technics, Yamaha

Mobile Electronics........... Car stereo components, car Alpine, Boston Acoustics,
stereo speakers, wireless Clarion, Infinity, JVC,
communications, installation Motorola, Nokia, Panasonic,
services and cellular phones Pioneer, Rockford Fosgate,
Sony, XTANT

Video........................ VCRs, camcorders, digital Canon, Denon, JVC, Monster
cameras, DVD players and Cable, Mitsubishi, Olympus,
editing equipment Panasonic, Pioneer, Samsung,
Sony, Yamaha

Home Office.................. Computers, computer Canon, Panasonic, Sony, US
peripherals, fax machines and Robotics, VTech
telephones

Other........................ Audio and video furniture, Bell'ogetti, Bush, Great
blank tapes, batteries, American Oak, Sanus, Sony,
extended service contracts TDK, Wambold
and repair services
</TABLE>

We offer customers a wide range of price points within each product
category, with the greatest depth in middle to higher priced items. Within our
product categories, we carry and actively promote new models as they become
available. We do not carry home appliances or music, video or computer software.
During the second quarter of fiscal 1999, we significantly reduced our computer
assortment, concentrating on a limited number of computer packages offering Sony
personal computers and Canon printers. At that time we also discontinued 35mm
and Advanced Photo System cameras.

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<PAGE>
The following table shows the approximate percent of sales for each major
product category for the last three fiscal years.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JANUARY 31,
------------------------------
PRODUCT CATEGORY 1997 1998 1999
- ---------------- ---- ---- ----
<S> <C> <C> <C>
Television......................................... 29% 28% 31%
Audio.............................................. 22 23 24
Mobile Electronics................................. 12 14 15
Video.............................................. 13 14 15
Home Office........................................ 16 12 7
Other.............................................. 8 9 8
--- --- ---
100% 100% 100%
=== === ===
</TABLE>

We offer extended service contracts to our customers for most categories of
our products. The extended service contracts cover parts and labor for service
periods not covered by the manufacturer's warranty on such products. These
contracts are administered for us by an unaffiliated third party warrantor that
pays for the repair service. We sell all of our extended service contracts to
the warrantor on a non-recourse basis. The warrantor is required by its
agreement with us to maintain insurance to protect us in the event that the
warrantor fails to fulfill its obligations under the extended service contracts
and we are a named loss-payee under the agreement. Gross margins from the sale
of extended service contracts are higher than the average gross margins of our
other products.

PRICING. We emphasize competitive pricing on all items and reinforce this
strategy with extensive advertising of our "60 day price guarantee" and our
"30 day satisfaction guarantee." Our "60 day price guarantee" allows our
customers to receive 110% of the difference between the original purchase price
and any locally available lower price for the identical product under the same
purchase conditions. This guarantee applies to all products, excluding computer
products and digital cameras which are covered by a 30 day price guarantee. Our
"30 day satisfaction guarantee" allows our customers to return most products
within 30 days for a full refund. Our price guarantee and our satisfaction
guarantee are designed to remove pricing and suitability concerns from the
purchase decision and allow the customer and the sales staff to focus on product
functionality, performance and quality. Sales and other special events that we
conduct may have lower than normal prices on selected products and product
categories. In addition, we offer an in-stock guarantee on advertised products.

ADVERTISING AND MARKETING. Our marketing program is designed to create
awareness of our comprehensive selection of mid to high-end brand name
merchandise at competitive prices. Our advertising strategy primarily uses
newspaper, radio and targeted direct mail media. We present a blend of
aggressive promotional price points on products sold by our competitors as well
as an extensive selection of mid to high-end products. We primarily advertise
through newspaper in every market we serve, producing six to eight-page full
color weekly inserts. We also conduct a direct mail campaign, the cornerstone of
which is a 70 to 80 page full color catalog that we publish four times a year
that emphasizes the breadth of our selection and new technology. The catalog
educates our customers on the features and benefits of the latest consumer
electronics products as well as advertises the full array of products and
services available at our stores. The catalog is currently mailed to
approximately 800,000 current and 400,000 prospective customers in our operating
regions. We also hold special events at our stores to introduce or promote new
products. We produce prominent and colorful in-store signage that describe
differentiating product features, new technology and promotional information.

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

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<PAGE>
WEB SITE. Our web site, WWW.ULTIMATEELECTRONICS.COM, is currently content
based and designed to provide product information and enhance our advertising
and marketing for our stores. We have not made the investment to enable us to
conduct sales through our web site because a significant number of our major and
high-end manufacturers currently restrict the sale of mid and upscale products
via the Internet. We are currently investigating the feasibility of initiating
an e-tailing strategy. Any e-tailing strategy will depend on whether a
significant number of our product manufacturers redesign their distribution
strategy and allow Internet distribution of our mid to high-end products. See
"Risk Factors--We Face Significant Competition from National, Regional and Local
Consumer Electronics Retailers and May Experience Heightened Competition from
Internet Retailers."

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

We are the largest member of a volume-buying group, Progressive Retailers'
Organization, consisting of other companies similar to Ultimate Electronics with
respect to the types of merchandise sold. Membership in this organization helps
us to obtain additional volume rebates, special buys and access to closeout and
final production items.

During the fiscal year ended January 31, 1999, our ten largest suppliers
accounted for approximately 76% of the merchandise purchased by Ultimate
Electronics. Two of our suppliers, Sony and Mitsubishi, each accounted for more
than 10% of our merchandise mix. The master agreements under which we operate
with each of our suppliers are normally terminable upon 30 to 60 days' notice by
either party. As is customary in the industry, we do not have commitments of
longer than one year with the majority of our product suppliers. We believe that
our relationship with our large vendors is excellent and that our focused
merchandising and high degree of customer service makes us an important
distribution channel, particularly for the introduction of new products. See
"Risk Factors--A Disruption in Our Relationship With, or in the Operations of
Any of, Our Key Suppliers Could Cause Our Sales to Decline."

DISTRIBUTION. Ultimate Electronics currently distributes products to all of
its stores from a 175,000 square foot warehouse located in Thornton, Colorado, a
suburb of Denver. All of our stores in Colorado are located within 75 miles of
this warehouse. For stores over 75 miles away from this facility, we use
contract carriers for distribution. Our distribution center reduces our
inventory requirements at individual stores, while preserving the benefits of
volume purchasing and facilitating centralized inventory and accounting
controls. Virtually all of our merchandise is distributed through our
distribution center.

MANAGEMENT INFORMATION SYSTEMS

We installed our management information system using proven third party
software in August 1990 and have upgraded with enhancements nearly every year.
The system runs on Unix-based Hewlett-Packard computer hardware that can be
upgraded to accommodate future growth. We believe this system will be Year 2000
compliant by November 15, 1999. This on-line system connects all of our
facilities and allows sales associates to determine the location of all of our
inventory at any time. Pricing can be changed immediately by our buyers and
store management to react to competitor pricing. See "Risk Factors--Significant
Problems Relating to Year 2000 Issues Could Adversely Affect Our Business."

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<PAGE>
COMPETITION

We operate in a highly competitive and price sensitive industry. The
principal competitive factors in the consumer electronics industry are breadth
of product selection, price, store location and customer service. We face
competition from large national chains, numerous smaller specialty stores and
consumer electronics departments of many department, discount, and home
improvement stores. We consider our primary competitors to include consumer
electronics retailers such as Best Buy and Circuit City as well as mass
merchants such as Sears, Wal-Mart and Target. We compete with Circuit City in
every market except Sioux Falls, South Dakota; Rochester, Minnesota; and
Boulder, Colorado and our two stores in Iowa. We compete with Best Buy in every
market except those in Utah and Idaho. We expect to face competition from
Circuit City in Boulder, Colorado during the next few months. We will be
competing with both Best Buy and Circuit City when we enter the Phoenix market
and we expect to compete with both of them in each of our other markets at some
point in the future. Our primary competitors have financial and other resources
greater than ours. There can be no assurance that our operating results will not
be adversely affected for the balance of fiscal 2000 and beyond by such
increased competition. In addition, if such competitors seek to gain or retain
market share by reducing prices, we may be required to reduce our prices,
thereby reducing gross margins and profits. Also, as we expand into markets
where our name may not be recognized, our success will depend in part on our
ability to compete with established and future competitors in such markets.

We also compete with retailers of consumer electronics on the Internet.
Internet sales of consumer electronics excluding computers are currently
estimated by Forrester Research to reach 10% of industry sales by 2003. We
expect that competition from the Internet will increase in the future. See "Risk
Factors--We Face Significant Competition from National, Regional and Local
Consumer Electronics Retailers and May Experience Heightened Competition from
Internet Retailers."

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<PAGE>
PROPERTIES

We operate 30 stores in nine states. Each store, other than the store
located in Thornton, Colorado, is leased. The following table sets forth data
regarding our store locations.

<TABLE>
<CAPTION>
APPROXIMATE LEASE EXPIRATION
YEAR LATEST YEAR APPROXIMATE RETAIL DATE
ORIGINALLY REMODELED TOTAL SELLING PRIMARY/WITH
CURRENT STORE LOCATIONS OPENED OR RELOCATED SQUARE FEET SQUARE FEET OPTIONS
- ---------------------------------- ---------- ------------ ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
COLORADO:
Arvada, CO........................ 1968 1991 14,500 9,500 2001/2006
Boulder, CO....................... 1985 1996 34,700 20,300 2017/2047
Colorado Springs, CO.............. 1989 N/A 14,900 9,800 2000/2001
Denver, CO........................ 1976 1994 31,600 16,700 2004/2009
Englewood, CO..................... 1983 1997 41,300 23,000 2017/2027
Fort Collins, CO.................. 1990 (1) 16,600 8,400 2005/2005
Lakewood, CO...................... 1997 N/A 40,400 23,000 2013/2028
Littleton, CO..................... 1986 1998 16,600 9,900 2004/2007
Littleton, CO..................... 1984 1996 39,100 22,600 2017/2027
Thornton, CO...................... 1985 1996 40,300 25,900 N/A
IDAHO:
Boise, ID......................... 1995 N/A 37,800(2) 19,500 2010/2025
IOWA:
Cedar Rapids, IA.................. 1995 1997 15,400 10,300 2015/2035
Des Moines, IA.................... 1994 1997 20,700(2) 12,200 2009/2019
MINNESOTA:
Brooklyn Center, MN............... 1980 1997 15,000 9,200 2008/2023
Burnsville, MN.................... 1979 (3) 9,700 6,600 2007/2017
Maplewood, MN..................... 1989 (4) 9,300 5,600 1999/1999
Minnetonka, MN.................... 1977 1997 15,000 9,100 2008/2023
Rochester, MN..................... 1986 N/A 3,900 2,700 1999/1999
Roseville, MN..................... 1977 1997 17,400 11,300 2015/2035
Edina, MN......................... 1974 1997 28,200 17,900 2015/2025
St. Cloud, MN..................... 1987 N/A 10,000 7,100 2001/2011
NEVADA:
Las Vegas, NV..................... 1995 N/A 37,300(2) 17,900 2015/2035
Las Vegas, NV..................... 1994 N/A 31,500 17,600 2014/2024
NEW MEXICO:
Albuquerque, NM................... 1994 N/A 37,100(2) 17,700 2004/2014
OKLAHOMA:
Tulsa, OK......................... 1995 N/A 50,500(2) 30,400 2011/2026
SOUTH DAKOTA:
Sioux Falls, SD................... 1986 (5) 3,200 2,400 2000/2000
UTAH:
Layton, UT........................ 1995 N/A 34,400 18,600 2010/2025
Murray, UT........................ 1994 N/A 32,200 18,000 2009/2024
Orem, UT.......................... 1993 N/A 32,900 17,100 2005/2010
Salt Lake City, UT................ 1993 N/A 33,400 18,200 2005/2013
</TABLE>

- ------------------------

(1) We are currently negotiating to expand and to remodel this store.

(2) Includes regional service center.

(3) We have signed an agreement to expand this store and it is currently under
construction.

(4) We have signed a new lease and are expecting to relocate this store.

(5) We have signed a lease to relocate this store to a 22,000 square-foot site
and the new site is currently under construction.

39
<PAGE>
Our main warehouse, business office and a main service center is located in
Thornton, Colorado. This facility, in addition to the retail store in this
facility noted in the table above, is comprised of 175,000 square feet of
warehouse space, 30,000 square feet for our business offices, 21,000 square feet
devoted to a service department and 18,000 square feet for a training and
employee facility. We lease a 45,000 square foot facility in Minneapolis,
Minnesota that we use as a training center, office space, service center for the
greater Minneapolis/St. Paul area and warehouse space for our delivery
department. We lease an 8,500 square foot service center in Salt Lake City,
Utah. The store locations in Colorado Springs, Colorado and Fort Collins,
Colorado are leased from the selling stockholders. We also are in the process of
negotiating leases to relocate stores and are analyzing lease opportunities in
new markets. See "--Growth Strategy."

INTELLECTUAL PROPERTY

We believe our trademark and service mark portfolio includes marks that have
developed public recognition and are of significant value. Our portfolio of
marks include Ultimate Electronics, Audio King, Fast Trak, and Big Names. Little
Prices. Guaranteed. which are federally registered trademarks and service marks
owned by Ultimate Electronics, Inc. In addition, SoundTrack, Simple Solution,
and Ultimate Electronics Express are Ultimate Electronics, Inc. marks for which
there are pending applications for federal registration. The Ultimate SoundTrack
is a registered trademark in the State of Colorado and Audio King and Fast Trak
are registered trademarks in the State of Minnesota that are owned by Ultimate
Electronics, Inc. We actively protect our rights associated with our portfolio
of marks to ensure that the quality associated with them and the value of our
proprietary rights are maintained. We are not aware of any adverse claims
concerning our trademarks and service marks.

EMPLOYEES

As of July 31, 1999, we employed approximately 1,700 persons, approximately
1,450 of whom were store, customer delivery or service employees and
approximately 250 of whom were main warehouse or corporate personnel. We
consider our employee relations to be good. Most employees, other than corporate
and store support personnel, are paid pursuant to a flexible pay plan. We
believe that we provide working conditions and wages that compare favorably with
those of other companies within the industry. None of our employees are covered
by collective bargaining agreements.

LITIGATION

We are subject to litigation from time to time in the ordinary course of
business. However, we are not currently subject to any litigation which,
singularly or in the aggregate, could reasonably be expected to have a material
adverse effect on our financial condition or results of operations.

40
<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Our directors and executive officers include the following persons:

<TABLE>
<CAPTION>
SERVED AS OFFICER
NAME AGE POSITIONS OR DIRECTOR SINCE
- ---- -------- ----------------------------------------------- -----------------
<S> <C> <C> <C>
William J. Pearse........... 58 Chairman of the Board and Founder 1968

J. Edward McEntire.......... 55 Chief Executive Officer and Director 1993

David J. Workman............ 43 President, Chief Operating Officer and Director 1985

Alan E. Kessock............. 40 Senior Vice President--Finance and 1988
Administration, Chief Financial Officer,
Treasurer, Secretary and Director

Neal A. Bobrick............. 38 Senior Vice President--Sales and Store 1992
Operations

Robert W. Beale............. 63 Director 1993

Randall F. Bellows.......... 71 Director 1995
</TABLE>

All executive officers hold office at the discretion of the board of
directors.

WILLIAM J. PEARSE. Mr. Pearse is Chairman of the Board and has been an
officer and director of Ultimate Electronics since he founded Ultimate
Electronics with his wife, Barbara, in 1968. Mr. Pearse is a founding member and
former president of Progressive Retailers' Organization, a current member of the
Chief Executives Organization, a former member and chairman of the Rocky
Mountain Young Presidents Organization and presently serves on various private
corporate and charitable boards.

J. EDWARD MCENTIRE. Mr. McEntire was promoted to Chief Executive Officer of
Ultimate Electronics and elected a director in August of 1997. Mr. McEntire had
previously held the position of Vice President--Operations for Ultimate
Electronics since February 1995. He was also a non-employee Director of Ultimate
Electronics from August 1993 to January 31, 1995. From 1993 to January 31, 1995,
Mr. McEntire operated JEM Enterprises, a private investing and consulting firm.
From 1991 until 1993, he was the President of the Regulatory Products Division
of IHS Group, an information publishing company. From 1989 until 1991,
Mr. McEntire was the Executive Vice President--Investor Services and, from 1981
until 1988, was the Group Vice President of Standard & Poor's Corporation.

DAVID J. WORKMAN. Mr. Workman is our President and Chief Operating Officer.
He has been a director since April 1993. He was promoted to Executive Vice
President and General Manager in 1991 and then to President and Chief Operating
Officer in 1992. From 1985 until 1991, Mr. Workman worked with Ultimate
Electronics as Vice President of Sales and Store Operations. He joined us in
1979 as a sales associate and was promoted to store manager in 1982.
Mr. Workman was part owner of Dakota Sight and Sound from 1976 until 1979.

ALAN E. KESSOCK. Mr. Kessock is our Senior Vice President of Finance and
Administration, Chief Financial Officer and has been Secretary and Treasurer and
a director of Ultimate Electronics since April 1993 and was our Vice President
of Finance and Administration from 1988-1999. He joined us in 1985 as
Controller. Prior to joining us, Mr. Kessock worked two years with the
accounting firm of KPMG Peat Marwick and two years with American Home Video
Corporation. Mr. Kessock is currently a member of the Colorado Society of CPAs,
and taught a national CPA review course from 1983 until 1991.

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<PAGE>
NEAL A. BOBRICK. Mr. Bobrick is our Senior Vice President of Sales and
Store Operations. He was a Vice President of Sales and Store Operations from
1992 to 1999. Mr. Bobrick joined us in 1981 as a sales associate and was
promoted to store manager in 1984. He was made Director of Sales in 1989.
Mr. Bobrick has worked in the consumer electronics industry since 1979.

ROBERT W. BEALE. Mr. Beale has been a director of Ultimate Electronics
since April 1993 and is the President of Beale International, a management
consulting firm specializing in mid-sized businesses. Mr. Beale was formerly the
Chief Executive Officer and founder of Management Design Associates, a national
management consulting firm. He was also an employee of IBM in the marketing
division, and a consultant on the staff of Deloitte & Touche.

RANDALL F. BELLOWS. Mr. Bellows became a director of Ultimate Electronics
on January 31, 1995. Mr. Bellows was a co-founder of Cobe Laboratories, Inc. in
1965. He served as an Executive Vice President of Cobe Laboratories from 1965
until its acquisition by Gambro A.B. in 1990 and as a Director until 1995.
Mr. Bellows has also served as a director of Scimed Life Systems, Inc. from 1992
to the present. Scimed Life Systems, Inc. was acquired by Boston Scientific
Corp. in February 1996. Mr. Bellows served as a director for Boston Scientific
Corp. until May 1999.

The board of directors is divided into three classes, each class consisting
as nearly as possible of one-third of the total number of directors. Directors
hold office for staggered terms of three years or until their successors have
been duly elected and qualified. Directors in one of the three classes are
elected each year at the annual meeting of shareholders to succeed the directors
whose terms are expiring. Class I directors include Alan E. Kessock and
Robert W. Beale and will serve as directors until the 2001 annual meeting.
Class II directors include David J. Workman and Randall F. Bellows and will
serve as directors until the 2002 annual meeting. Class III directors include
William J. Pearse and J. Edward McEntire and will serve until the 2000 annual
meeting.

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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth information regarding beneficial ownership of
Ultimate Electronics' common stock and stock options exercisable within 60 days
of September 15, 1999 held by (i) each person or group of persons known by us to
own beneficially five percent (5%) or more of the outstanding shares of common
stock, (ii) each director of Ultimate Electronics, (iii) our chief executive
officer and each of the next four most highly compensated executive officers and
(iv) all executive officers and directors of Ultimate Electronics as a group.
All information is taken from or based upon ownership filings made by such
persons with the Securities and Exchange Commission or upon information provided
by such persons to us. Unless otherwise indicated, the stockholders listed below
have sole voting and investment power with respect to the shares reported as
owned.

<TABLE>
<CAPTION>
SHARES OWNED PRIOR SHARES OWNED
TO THE OFFERING AFTER THE OFFERING
-------------------- AMOUNT SOLD IN --------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) AMOUNT PERCENT THE OFFERING AMOUNT PERCENT
- --------------------------------------- --------- -------- -------------- --------- --------
<S> <C> <C> <C> <C> <C>
William J. and Barbara A. Pearse(2)....... 2,142,300 25.92% 250,000 1,892,300 18.43%

Various family trusts of William and
Barbara Pearse(3)....................... 960,000 11.65% -- 960,000 9.38%

Dimensional Fund Advisors, Inc.(4)........ 471,200 5.72% -- 471,200 4.60%

J. Edward McEntire(5)..................... 119,600 1.43% -- 119,600 1.16%

David J. Workman(6)....................... 153,209 1.83% -- 153,209 1.47%

Alan E. Kessock(7)........................ 96,061 1.16% -- 96,061 *

Neal A. Bobrick(8)........................ 75,606 * -- 75,606 *

Robert W. Beale(9)........................ 18,000 * -- 18,000 *

Randall F. Bellows(10).................... 21,000 * -- 21,000 *

All directors and officers as a group
(7 persons)............................. 2,625,776 30.29% 250,000 2,375,776 22.27%
</TABLE>

- ------------------------

(1) The address of each of such persons, unless otherwise noted, is
c/o Ultimate Electronics, Inc., 321 West 84th Avenue, Suite A, Thornton,
Colorado 80260. The percentage of shares owned prior to the offering is
based on 8,238,393 shares outstanding as of September 15, 1999 and
10,238,393 shares outstanding after the offering (in each case, assuming
the underwriters do not exercise their over-allotment option). In
presenting shares beneficially owned and in calculating each holder's
percentage ownership, only options exercisable by such person within
60 days of September 15, 1999 and not options exercisable by any other
person are deemed to be outstanding.

(2) Includes 27,300 shares underlying stock options exercisable within
60 days.

(3) Mr. Thomas Hoffman, SKB Business Services, 6530 South Yosemite, Englewood,
Colorado 80111, is the trustee of the various family trusts with sole
voting and dispositive power over the shares held in the trusts.

(4) According to Form 13F dated July 31, 1999, Dimensional Fund Advisors, an
investment advisor, organized under the laws of the state of Delaware,
located at 1299 Ocean Avenue, Santa Monica, California 90401, holds 471,200
shares of our common stock.

(5) Includes 102,500 shares underlying options exercisable within 60 days.

(6) Includes 150,250 shares underlying options exercisable within 60 days.

(7) Includes 63,333 shares underlying options exercisable within 60 days.

(8) Includes 63,916 shares underlying options exercisable within 60 days.

(9) Includes 14,000 shares underlying options exercisable within 60 days.

(10) Includes 10,000 shares underlying options exercisable within 60 days.

43
<PAGE>
In addition to serving as our Chairman, Mr. William J. Pearse has entered
into an Indemnification Agreement and a Change of Control Agreement with us. In
addition, in 1989, William J. and Barbara A. Pearse entered into leases with us
for our Colorado Springs and Fort Collins stores, pursuant to which we paid rent
of $114,238 and $146,670 to them in fiscal 1999. Jim Pearse, the son of Mr. and
Mrs. Pearse, serves as Vice President, Marketing of Ultimate Electronics. See
"Certain Relationships and Related Transactions" and "Employment Agreements" in
the proxy statement for our 1999 annual meeting of stockholders and Form 10-K
for the fiscal year ended January 31, 1999, which are incorporated by reference
into this prospectus.

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<PAGE>
DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of Ultimate Electronics consists of 15,000,000
shares of common stock, par value $.01, of which 8,238,393 shares were
outstanding on September 15, 1999, and 10,000,000 shares of preferred stock, par
value $.01, none of which is outstanding.

The following summary description of Ultimate Electronics capital stock is
not intended to be complete and is qualified in its entirety by reference to the
provisions of applicable law and to Ultimate Electronics' Amended and Restated
Certificate of Incorporation and bylaws, filed as exhibits to the registration
statement of which this prospectus is a part.

COMMON STOCK

Each holder of common stock is entitled to one vote for each share of common
stock held on all matters as to which holders of common stock are entitled to
vote. Except for and subject to those preferences, rights and privileges
expressly granted to the holders of preferred stock, and except as may be
provided by the laws of the State of Delaware, the holders of common stock have
exclusively all other rights of stockholders of Ultimate Electronics, including,
but not by way of limitation, (1) the right to receive dividends, when, as and
if declared by the board of directors out of assets lawfully available therefor,
and (2) in the event of any distribution of assets upon the dissolution and
liquidation of Ultimate Electronics, the right to receive ratably and equally
all of the assets of Ultimate Electronics remaining after the payment to the
holders of preferred stock of the specific amounts, if any, which they are
entitled to receive. Holders of common stock have no preemptive or similar
rights or cumulative voting rights. The outstanding shares of common stock are,
and all of the shares offered by this prospectus will be upon issuance, validly
issued and fully paid and nonassessable.

PREFERRED STOCK

The board of directors of Ultimate Electronics is authorized to provide by
resolution or resolutions for the issuance of the shares of preferred stock as a
class or in series and, by filing a certificate of designations, pursuant to the
Delaware General Corporation Law, or the DGCL, setting forth a copy of which
resolution or resolutions, to establish from time to time the number of shares
to be included in each such series, and to fix the designation, powers,
preferences and rights of the shares of the class or of each such series and the
qualifications, limitations and restrictions thereof. The authority of the board
of directors with respect to the class or each series include, but are not
limited to, determination of the following:

- the number of shares constituting any series and the distinctive
designation of that series;

- the dividend rate on the shares of the class or of any series, whether
dividends are cumulative and, if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of
the class or of that series;

- whether the class or any series have voting rights, in addition to the
voting right provided by law and, if so, the terms of such voting rights;

- whether the class or any series have conversion privileges and, if so, the
terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the board of directors
determines;

- whether or not the shares of the class or of any series are redeemable
and, if so, the terms and conditions of such redemption, including the
date or dates upon or after which they are redeemable and the amount per
share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;

- whether the class or any series have a sinking fund for the redemption or
purchase of shares of the class or of that series and, if so, the terms
and amount of such sinking fund;

45
<PAGE>
- the rights of the shares of the class or of any series in the event of
voluntary or involuntary dissolution or winding up of the corporation and
the relative rights of priority, if any, of payment of shares of the class
or of that series; and

- any other powers, preferences, rights, qualifications, limitations and
restrictions of the class or of any series.

Ultimate Electronics filed a Certificate of Designations for our Series A Junior
Participating Preferred Stock with the Delaware Secretary of State on
February 10, 1995, pursuant to the implementation of the Stockholder Rights
Plan, as described below.

DELAWARE LAW AND CERTAIN CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS;
ANTI-TAKEOVER EFFECTS

Ultimate Electronics is subject to the provisions of Section 203 of the
DGCL. Subject to certain exceptions, Section 203 prohibits a publicly-held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
interested stockholder attained such status with the approval of the board of
directors or the business combination is approved in a prescribed manner, or
certain other conditions are satisfied. A "business combination" includes
mergers, asset sales and other transactions resulting in a financial benefit to
the interested stockholder. Subject to certain exceptions, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within three years did own, 15% or more of a corporation's voting stock.

In addition, our bylaws provide that:

- the number of directors shall be determined from time to time by
resolution adopted by a majority of the board of directors, but shall in
no event be less than three nor more than 11;

- vacancies on the board of directors shall be filled solely by the
affirmative vote of a majority of the remaining directors then in office,
or a sole remaining director, even though less than a quorum of the board
of directors; and

- the presence of a majority of the entire board of directors is required to
constitute a quorum.

Our certificate of incorporation and bylaws also provide for a classified
board of directors consisting of three classes of directors having staggered
terms of three years each, with each of the classes being as nearly equal as
possible. A single class of directors will be elected each year at Ultimate
Electronics' annual meeting of stockholders. Subject to transition provisions,
each director elected at each such meeting will serve for a term ending on the
date of the third annual meeting of stockholders after his election and until
his successor has been elected and duly qualified.

Under our certificate of incorporation and bylaws, special meetings of the
stockholders may be called only by the chairman of the board, the chief
executive officer, the president or the board of directors pursuant to a
resolution approved by a majority of the entire board of directors. The entire
board of directors means the total number of directors we have when there were
no vacancies. Our certificate of incorporation also states that any action
required or permitted to be taken by the shareholders must be effected at a duly
called annual or special meeting of such shareholders and may not be effected by
any consent in writing of such shareholders. Our bylaws provide that at least
one-third of the shares entitled to vote at any meeting of stockholders will
constitute a quorum and the act of the majority of such quorum will be deemed
the act of the stockholders.

Our bylaws also contain advance notice provisions for raising business and
nominating directors at shareholder meetings. For business to be properly
brought before an annual meeting by a stockholder, notice of such business must
be delivered to or mailed and received at our principal executive offices not
less than ninety days prior to the anniversary date of the immediately preceding
annual meeting. The stockholder's notice must include a brief description of the
business desired to be discussed, the name and address of such stockholder, the
class and number of shares owned by such stockholder and

46
<PAGE>
any material interest of such stockholder in such business. Similarly, any
stockholder entitled to vote at an annual or special meeting may nominate
directors only if written notice of such nomination, meeting specified
requirements, is provided (1) with respect to an annual meeting, ninety days
prior to the anniversary date of the immediately preceding annual meeting and
(2) with respect to a special meting, the tenth day following the date on which
notice of such meeting is given to stockholders.

The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or bylaws, unless a corporation's certificate of
incorporation or bylaws, as the case may be, requires a greater percentage.

STOCKHOLDER RIGHTS PLAN

The description and terms of the rights are set forth in a rights agreement
dated as of January 31, 1995 by and between Ultimate Electronics and Norwest
Bank Minnesota, N.A., as rights agent. The following description of the rights
and the rights agreement does not purport to be complete and is qualified in its
entirety by the rights agreement, a copy of which is included as an exhibit to
the registration statement of which this prospectus is a part, which is
incorporated herein by reference.

On January 31, 1995, our board of directors adopted a stockholder rights
plan. The rights plan makes it more difficult for a third party to acquire us or
large portions of our common stock. Each right entitles the registered holder to
purchase from us one one-hundredth of a share of Series A Junior Participating
Preferred Stock of Ultimate Electronics at a price of $75 per one one-hundredth
of a preferred share, subject to adjustment.

If any person becomes the beneficial owner of 15% or more of our outstanding
common stock (more than 60% in the case of Mr. Pearse and his family), then each
right not owned by such person or certain related parties will entitle its
holder to purchase, at the right's then current exercise price, shares of our
Series A Junior Participating Preferred Stock (or, in certain circumstances, our
common stock, cash, property or other of our securities) having a market value
equal to twice the then-current exercise price. In addition, if we are involved
in a merger or other business combination transaction with another person after
which none of our common stock remains outstanding, or we sell 25% or more of
our assets or earning power to another person, each right will entitle its
holder to purchase, at the right's then-current exercise price, shares of common
stock of such other person having a market value equal to twice the right's
then-current exercise price.

One preferred stock purchase right is attached to each share of common stock
including the shares of common stock issued and sold in this offering. The
rights will become exercisable on the distribution date, which is the earlier of
(1) 10 business days following a public announcement that a person or group or
affiliated or associated persons has acquired beneficial ownership of 15% or
more of the outstanding common shares (more than 60% in the case of our
Chairman, William J. Pearse, and his family) or (2) 10 business days (or such
later date as may be determined by action by the board of directors prior to
such time as any person or group of affiliated persons becomes an acquiring
person) following the commencement or announcement of an intention to make a
tender offer or exchange offer the consummation of which would result in the
beneficial ownership by a person or group of 15% or more of the outstanding
common shares (more than 60% in the case of Mr. Pearse and his family). The
rights will be evidenced, with respect to any of the common share certificates
outstanding as of the record date, by such common share certificate.

47
<PAGE>
LIMITATION OF LIABILITY AND INDEMNIFICATION

Our certificate of incorporation contains certain provisions permitted under
the DGCL relating to the liability of directors, officers and employees. These
provisions eliminate a director's personal liability for monetary damages
resulting from a breach of fiduciary duty, except in connection with:

- any breach of the director's duty of loyalty to Ultimate Electronics or
our stockholders;

- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;

- violations of Section 174 of the DGCL; or

- any transaction from which the director derives an improper personal
benefit.

The certificate of incorporation and our bylaws also contain provisions
indemnifying our directors and officers to the fullest extent permitted under
applicable laws and the laws of the State of Delaware currently in effect and as
amended from time to time, against all liability and expense incurred by reason
of the fact that he or she is or was a director or officer of Ultimate
Electronics or serving Ultimate Electronics in other capacities. We believe that
these provisions will assist us in attracting and retaining qualified
individuals to serve as directors.

Ultimate Electronics has entered into agreements to indemnify our directors
and officers which are intended to provide the maximum indemnification permitted
by Delaware law. These agreements, among other things, indemnify each of them
for certain liabilities and expenses (including attorneys' fees), judgments,
fines and settlement amounts incurred by them in any action or proceeding,
including any action by or in the right of Ultimate Electronics, on account of
such director's service with Ultimate Electronics.

TRANSFER AGENT AND REGISTRAR

The transfer agent for our common stock is Norwest Bank Minnesota, N.A.

48
<PAGE>
UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS

The following is a general discussion of the principal United States federal
income and estate tax consequences of the ownership and disposition of our
common stock by a Non-U.S. Holder. As used in this prospectus, the term
"Non-U.S. Holder" is a person other than:

- a citizen or individual resident of the United States;

- a corporation or partnership created or organized in or under the laws of
the United States or of any political subdivision of the United States,
other than a partnership treated as foreign under U.S. Treasury
regulations;

- an estate whose income is includible in gross income for U.S. federal
income tax purposes regardless of its source; or

- a trust, in general, if it is subject to the primary supervision of a
court within the U.S. and the control of one or more U.S. persons.

An individual may, subject to certain exceptions, be treated as a resident
of the U.S. for U.S. federal income tax purposes, instead of a nonresident, by,
among other things, being present in the United States for at least 31 days in
the calendar year and for an aggregate of at least 183 days during a three-year
period ending in the current calendar year--counting for these purposes all of
the days present in the current year, one-third of the days present in the
immediately preceding year and one-sixth of the days present in the second
preceding year. Residents are subject to U.S. federal tax as if they were U.S.
citizens.

This discussion does not consider:

- U.S. state and local or non-U.S. tax consequences;

- specific facts and circumstances that may be relevant to a particular
Non-U.S. Holder's tax position, including, if the U.S. Holder is a
partnership, that the U.S. tax consequences of holding and disposing of
our common stock may be affected by certain determinations made at the
partner level;

- the tax consequences for the shareholders, partners or beneficiaries of a
Non-U.S. Holder;

- special tax rules that may apply to certain Non-U.S. Holders, including
without limitation, banks, insurance companies, dealers in securities and
traders in securities; or

- special tax rules that may apply to a Non-U.S. Holder that holds our
common stock as part of a "straddle," "hedge" or "conversion transaction."

The following discussion is based on provisions of the U.S. Internal Revenue
Code of 1986, as amended, applicable Treasury regulations and administrative and
judicial interpretations, all as of the date of this prospectus, and all of
which are subject to change, retroactively or prospectively. The following
summary is for general information. ACCORDINGLY, EACH NON-U.S. HOLDER SHOULD
CONSULT A TAX ADVISOR REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND
NON-U.S. INCOME AND OTHER TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING
OF SHARES OF OUR COMMON STOCK.

DIVIDENDS

We do not anticipate paying cash dividends on our common stock in the
foreseeable future. See "Dividend Policy." In the event, however, that dividends
are paid on shares of common stock, dividends paid to a Non-U.S. Holder of
common stock generally will be subject to withholding of United States federal
income tax at a 30% rate, or such lower rate as may be provided by an applicable
income tax treaty. Non-U.S. Holders should consult their tax advisors regarding
their entitlement to benefits under a relevant income tax treaty.

Dividends that are effectively connected with a Non-U.S. Holder's conduct of
a trade or business in the United States or, if an income tax treaty applies,
attributable to a permanent establishment in the United States ("U.S. trade or
business income"), are generally subject to U.S. federal income tax

49
<PAGE>
on a net income basis at regular graduated rates, but are not generally subject
to the 30% withholding tax if the Non-U.S. Holder files the appropriate U.S.
Internal Revenue Service form with the payor. Any U.S. trade or business income
received by a Non-U.S. Holder that is a corporation may also, under certain
circumstances, be subject to an additional "branch profits tax" at a 30% rate or
such lower rate as specified by an applicable income tax treaty.

Dividends paid prior to 2001 to an address in a foreign country are
presumed, absent actual knowledge to the contrary, to be paid to a resident of
such country for purposes of the withholding discussed above and for purposes of
determining the applicability of a tax treaty rate. For dividends paid after
2000:

- a Non-U.S. Holder of common stock who claims the benefit of an applicable
income tax treaty rate generally will be required to satisfy applicable
certification and other requirements;

- in the case of common stock held by a foreign partnership, the
certification requirement will generally be applied to the partners of the
partnership and the partnership will be required to provide certain
information, including a United States taxpayer identification number; and

- look-through rules will apply for tiered partnerships.

A Non-U.S. Holder of common stock that is eligible for a reduced rate of
U.S. withholding tax under an income tax treaty may obtain a refund or credit of
any excess amounts withheld by filing an appropriate claim for a refund with the
U.S. Internal Revenue Service.

GAIN ON DISPOSITION OF COMMON STOCK

A Non-U.S. Holder generally will not be subject to U.S. federal income tax
in respect of gain recognized on a disposition of common stock unless:

- the gain is U.S. trade or business income, in which case, the branch
profits tax described above may also apply to a corporate Non-U.S. Holder;

- the Non-U.S. Holder is an individual who holds the common stock as a
capital asset within the meaning of Section 1221 of the U.S. Internal
Revenue Code, is present in the United States for more than 182 days in
the taxable year of the disposition and meets certain other requirements;

- the Non-U.S. Holder is subject to tax pursuant to the provisions of the
U.S. tax law applicable to certain United States expatriates; or

- we are or have been a "U.S. real property holding corporation" for federal
income tax purposes at any time during the shorter of the five-year period
ending on the date of disposition or the period that the Non-U.S. Holder
held the common stock.

Generally, a corporation is a "U.S. real property holding corporation" if
the fair market value of its "U.S. real property interests" equals or exceeds
50% of the sum of the fair market value of its worldwide real property interests
plus its other assets used or held for use in a trade or business. We believe
that we have not been, are not currently, and do not anticipate becoming, a
"U.S. real property holding corporation" for U.S. federal income tax purposes.
The tax relating to stock in a "U.S. real property holding corporation" will not
apply to a Non-U.S. Holder whose holdings, direct and indirect, at all times
during the applicable period, constituted 5% or less of the common stock,
provided that the common stock was regularly traded on an established securities
market.

FEDERAL ESTATE TAX

Common stock owned or treated as owned by an individual who is a Non-U.S.
Holder at the time of death will be included in the individual's gross estate
for United States federal estate tax purposes, unless an applicable estate tax
or other treaty provides otherwise and, therefore, may be subject to United
States federal estate tax.

50
<PAGE>
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX

We must report annually to the U.S. Internal Revenue Service and to each
Non-U.S. Holder the amount of dividends paid to that holder and the tax withheld
with respect to those dividends. Copies of the information returns reporting
those dividends and withholding may also be made available to the tax
authorities in the country in which the Non-U.S. Holder is a resident under the
provisions of an applicable income tax treaty or agreement.

Under certain circumstances, U.S. Treasury Regulations require information
reporting and backup withholding at a rate of 31% on certain payments on common
stock. Under currently applicable law, Non-U.S. Holders of common stock
generally will be exempt from these information reporting requirements and from
backup withholding on dividends paid prior to 2001 to an address outside the
U.S. For dividends paid after 2000, however, a Non-U.S. Holder of common stock
that fails to certify its Non-U.S. Holder status in accordance with applicable
U.S. Treasury Regulations may, in certain circumstances, be subject to backup
withholding at a rate of 31% on payments of dividends.

51
<PAGE>
UNDERWRITING

Ultimate Electronics and the selling stockholders are offering the shares of
common stock described in this prospectus through a number of underwriters. Banc
of America Securities LLC and U.S. Bancorp Piper Jaffray Inc. are the
representatives of the underwriters. We and the selling stockholders have
entered into a firm commitment underwriting agreement with the representatives.
Subject to the terms and conditions of the underwriting agreement, we and the
selling stockholders have agreed to sell to the underwriters, and the
underwriters have each agreed to purchase, the number of shares of common stock
listed next to its name in the following table:

<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
Banc of America Securities LLC.............................. 1,350,000
U.S. Bancorp Piper Jaffray Inc.............................. 900,000
----------
Total....................................................... 2,250,000
==========
</TABLE>

The underwriting agreement provides that the underwriters must buy all of
the shares if they buy any of them. The underwriters will sell the shares to the
public when and if the underwriters buy the shares from us and the selling
stockholders.

The underwriters initially will offer shares to the public at the price
specified on the cover page of this prospectus. The underwriters may allow to
some dealers a concession of not more than $0.53 per share. The underwriters may
also allow, and any other dealers may reallow, a concession of not more than
$0.10 per share to some other dealers. If all the shares are not sold at the
initial public offering price, the underwriters may change the offering price
and the other selling terms. The common stock is offered subject to a number of
conditions, including:

- receipt and acceptance of the common stock by the underwriters; and

- the right on the part of the underwriters to reject orders in whole or in
part.

We have granted the underwriters an option to buy up to 337,500 additional
shares of common stock. These additional shares would cover sales of shares by
the underwriters that exceed the number of shares specified in the table above.
The underwriters may exercise this option from time to time on one or more
occasions for 30 days after the date of this prospectus. If the underwriters
exercise this option, they will each purchase additional shares approximately in
proportion to the amounts specified in the table above.

The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters. These amounts are shown assuming no
exercise and full exercise of the underwriters' option to purchase additional
shares.

<TABLE>
<CAPTION>
FULL
NO EXERCISE EXERCISE
----------- ----------
<S> <C> <C>
Per share underwriting discounts and commissions..... $ 0.928 $ 0.928
Total underwriting discounts and commissions to be
paid by
us................................................. $1,856,000 $2,169,200
Total underwriting discounts and commissions to be
paid by the selling stockholders................... $ 232,000 $ 232,000
</TABLE>

The expenses of the offering, not including underwriting discounts and
commissions, are estimated to be approximately $400,000 and will be paid by us.

We, our executive officers and directors and the selling stockholders have
entered into lock-up agreements with the underwriters. Under these agreements,
subject to exceptions, we may not issue any new shares of common stock, and our
executive officers and directors and the selling stockholders may

52
<PAGE>
not dispose of or hedge any common stock or securities convertible into or
exchangeable for shares of common stock. These restrictions will be in effect
for a period of 120 days after the date of this prospectus. At any time and
without notice, Banc of America Securities LLC may, in its sole discretion,
release all or some of the securities from these lock-up agreements.

We and the selling stockholders will indemnify the underwriters against some
liabilities, including some liabilities under the Securities Act. If we or the
selling stockholders are unable to provide this indemnification, we and the
selling stockholders will contribute to payments the underwriters may be
required to make in respect of those liabilities.

The common stock is quoted on the Nasdaq National Market System under the
symbol "ULTE."

In connection with this offering, the underwriters may engage in activities
that stabilize, maintain or otherwise affect the price of the common stock.
These transactions may include:

- short sales;

- over allotment;

- purchases to cover positions created by short sales; and

- stabilizing transactions.

Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in this offering. In order to cover a
short position, the underwriters may bid for and purchase shares of common stock
in the open market or may exercise their overallotment option. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the common stock while this offering
is in progress.

The underwriters may also impose a penalty bid. This means that if the
representatives purchase shares in the open market in stabilizing transactions
or to cover short sales, the representatives can require the underwriters that
sold those shares as part of this offering to repay the underwriting discount
received by them.

As a result of these activities, the price of the common stock may be higher
than the price that otherwise might exist in the open market. If the
underwriters commence these activities, they may discontinue them at any time.
The underwriters may carry out these transactions on the Nasdaq National Market,
in the over-the-counter market or otherwise.

In connection with this offering, some underwriters and any selling group
members who are qualified market makers on the Nasdaq National Market may engage
in passive market making transactions in the common stock on the Nasdaq National
Market in accordance with Rule 103 of Regulation M. Rule 103 permits passive
market making during the period when Regulation M would otherwise prohibit
market making activity by the participants in this offering. Passive market
making may occur during the business day before the pricing of the offering,
before the commencement of offers or sales of the common stock. Passive market
makers must comply with applicable volume and price limitations and must be
identified as a passive market maker. In general, a passive market maker must
display its bid at a price not in excess of the highest independent bid for the
security. If all independent bids are lowered below the passive market maker's
bid, however, the bid must then be lowered when purchase limits are exceeded.
Net purchases by a passive market maker on each day are limited to a specified
percentage of the passive market maker's average daily trading volume in the
common stock during a specified period and must be discontinued when such limit
is reached. Underwriters and dealers are not required to engage in passive
market making and may end passive market making activities at any time.

LEGAL MATTERS

The validity of the common stock being offered by this prospectus will be
passed upon for Ultimate Electronics by Davis, Graham & Stubbs LLP, Denver,
Colorado and for the underwriters by

53
<PAGE>
Fried, Frank, Harris, Shriver & Jacobson (a partnership including professional
corporations), New York, New York.

EXPERTS

Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at January 31, 1999 and 1998, and for each of the three
years in the period ended January 31, 1999, as set forth in their report. We
have included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the SEC a registration statement on Form S-3 under the
Securities Act with respect to the common stock offered by this prospectus. This
prospectus does not contain all of the information included in the registration
statement, certain portions of which are omitted as permitted by the rules and
regulations of the Commission. For further information pertaining to our company
and our common stock offered hereby, reference is made to the registration
statement, including the exhibits and the financial statements, notes and
schedules filed as a part of the registration statement. Statements contained in
this prospectus regarding the contents of any contract or other document
referred to in the prospectus or registration statement are not necessarily
complete. In each instance reference is made to the copy of such contract or
other document filed as an exhibit to the registration statement or such other
document, each such statement being qualified in all respects by such reference.

We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and file reports, proxy statements and other
information with the Commission. These reports, proxy statements and other
information, as well as the registration statement, exhibits and schedules,
maybe inspected, without charge, or copied, at prescribed rates, at the public
reference facility maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. In addition, the Commission maintains an Internet
site that contains reports, proxy and information statements and other
information, regarding issuers that file electronically with the Commission. The
address of the Commission's site is http:www.sec.gov.

INCORPORATION OF INFORMATION BY REFERENCE

We incorporate by reference the following documents which we have filed with
the Securities and Exchange Commission under the Exchange Act:

- our Annual Report on Form 10-K for the fiscal year ended January 31, 1999;
and

- our Quarterly Report on Form 10-Q for the period ended April 30, 1999; and

- our Quarterly Report on Form 10-Q for the period ended July 31, 1999; and

- our Current Report on Form 8-K dated October 15, 1999; and

- the description of our common stock on our registration statement on
Form 8-A filed on October 5, 1993.

You should consider all documents we file pursuant to sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this document and
prior to the termination of this offering of our common stock to be incorporated
by reference in this document. You should consider any statement contained in
this document or in a document incorporated or considered to be incorporated by
reference in this document to be modified or superseded for purposes of this
document to the extent that a statement contained in any subsequently filed
document that also is or is considered to be incorporated by reference in this
document modifies or supersedes this statement. You should not

54
<PAGE>

consider any statement modified or superseded in this manner except as so
modified or superseded, to constitute a part of this document.

We will provide without charge to each person whom this document is
delivered, upon written or oral request of that person, a copy of any and all of
the information that has been incorporated by reference in this document
(excluding exhibits unless exhibits are specifically incorporated by reference
in the requested documents). Please direct such requests to Alison Schlomer,
Ultimate Electronics, Inc., 321 West 84th Avenue, Suite A, Thornton, CO 80260.
Our telephone number is (303) 412-2500.

55
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets as of January 31, 1999,
January 31, 1998, July 31, 1999 (unaudited), and July 31,
1998 (unaudited).......................................... F-3

Consolidated Statements of Income for the fiscal years ended
January 31, 1999, January 31, 1998 and January 31, 1997
and for the six month periods ended July 31, 1999
(unaudited) and July 31, 1998 (unaudited)................. F-5

Consolidated Statements of Stockholders' Equity for the
fiscal years ended January 31, 1997, January 31, 1998 and
January 31, 1999 and for the six month period ended
July 31, 1999 (unaudited)................................. F-6

Consolidated Statements of Cash Flows for the fiscal years
ended January 31, 1999, January 31, 1998 and January 31,
1997 and for the six month periods ended July 31, 1999
(unaudited) and July 31, 1998 (unaudited)................. F-7

Notes to Consolidated Financial Statements.................. F-8
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS

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

We have audited the accompanying consolidated balance sheets of Ultimate
Electronics, Inc. and subsidiary ("the Company") as of January 31, 1999 and
1998, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended January 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Ultimate
Electronics, Inc. and subsidiary at January 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended January 31, 1999, in conformity with generally
accepted accounting principles.

/s/ ERNST & YOUNG LLP

Denver, Colorado
March 10, 1999

F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS

(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents......................... $ 4,421 $ 2,006 $ 6,113 $ 2,503
Accounts receivable, net.......................... 17,814 19,826 17,108 14,777
Merchandise inventories........................... 46,908 43,908 46,722 43,895
Prepaid expenses and other........................ 1,087 1,362 1,608 2,099
-------- -------- -------- --------
Total Current Assets................................ 70,230 67,102 71,551 63,274

Property and equipment, at cost:
Furniture, fixtures and equipment................. 25,704 23,907 26,409 24,621
Leasehold improvements............................ 21,920 22,219 21,905 21,848
Autos and trucks.................................. 454 356 466 404
Land and buildings................................ 17,748 17,773 17,748 17,748
Construction-in-progress.......................... 18 5 910 181
-------- -------- -------- --------
65,844 64,260 67,438 64,802
Less accumulated depreciation..................... 19,208 13,405 22,320 16,284
-------- -------- -------- --------
46,636 50,855 45,118 48,518

Property under capital leases, including related
parties, net...................................... 1,729 2,068 1,564 1,899
Goodwill, net....................................... 2,300 2,385 2,163 2,388
Other assets........................................ 1,009 1,036 992 994
-------- -------- -------- --------
Total Assets........................................ $121,904 $123,446 $121,388 $117,073
======== ======== ======== ========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-3
<PAGE>
CONSOLIDATED BALANCE SHEETS (CONTINUED)

(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Revolving line of credit.......................... $ -- $ 26,564 $ -- $ 26,291
Accounts payable.................................. 29,888 25,550 28,626 22,119
Accrued liabilities............................... 12,564 8,807 12,819 8,969
Current portion of term loans..................... 312 286 325 298
Current portion of capital lease obligations,
including related parties....................... 208 317 77 325
Deferred tax liability............................ 518 -- 564 299
-------- -------- -------- --------
Total Current Liabilities........................... 43,490 61,524 42,411 58,301

Revolving line of credit............................ 13,188 -- 11,978 --
Term loans, less current portion.................... 330 642 165 490
Bonds payable....................................... 13,000 13,000 13,000 13,000
Capital lease obligations, including related
parties, less current portion..................... 1,841 2,049 1,810 1,888
Deferred tax liability.............................. 2,380 1,510 2,380 810
-------- -------- -------- --------
Total Liabilities................................... 74,229 78,725 71,744 74,489

Commitments

Stockholders' Equity
Preferred stock, par value $.01 per share
Authorized shares--10,000,000.....................
No shares issued and outstanding.................. -- -- -- --
Common stock, par value $.01 per share
Authorized shares--10,000,000.....................
Issued and outstanding shares, 8,160,796 and
8,139,548 at January 31, 1999 and 1998 and
8,232,645 and 8,150,748 at July 31, 1999 and
1998............................................ 81 81 82 82
Additional paid-in capital........................ 33,912 33,868 34,123 33,883
Retained earnings................................. 13,682 10,772 15,439 8,619
-------- -------- -------- --------
Total Stockholders' Equity.......................... 47,675 44,721 49,644 42,584
-------- -------- -------- --------
Total Liabilities and Stockholders' Equity.......... $121,904 $123,446 $121,388 $117,073
======== ======== ======== ========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-4
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED JANUARY 31, ENDED JULY 31,
------------------------------ -------------------
1999 1998 1997 1999 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Sales..................................... $337,454 $306,306 $261,154 $166,612 $142,064
Cost of goods sold........................ 239,854 223,464 191,903 116,616 101,901
-------- -------- -------- -------- --------

Gross profit.............................. 97,600 82,842 69,251 49,996 40,163
Selling, general and administrative
expenses................................ 89,010 78,621 64,786 45,814 41,373
-------- -------- -------- -------- --------

Income (loss) from operations............. 8,590 4,221 4,465 4,182 (1,210)
Interest expense, net..................... 3,957 3,985 3,210 1,388 2,198
-------- -------- -------- -------- --------

Income (loss) before taxes................ 4,633 236 1,255 2,794 (3,408)
Income tax expense (benefit).............. 1,723 88 470 1,037 (1,255)
-------- -------- -------- -------- --------

Net income (loss)......................... $ 2,910 $ 148 $ 785 $ 1,757 $ (2,153)
======== ======== ======== ======== ========

Earnings (loss) per share--Basic.......... $ .36 $ .02 $ .11 $ .21 $ (.26)
Earnings (loss) per share--Diluted........ $ .35 $ .02 $ .11 $ .20 $ (.26)
Weighted average shares
outstanding--Basic...................... 8,150 7,626 6,995 8,187 8,145
Weighted average shares
outstanding--Diluted.................... 8,317 7,737 7,125 8,866 8,145
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-5
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Balances, January 31, 1996.................... 6,995,000 $70 $31,009 $ 9,839 $40,918
Net income.................................. 785 785
--------- --- ------- ------- -------

Balances, January 31, 1997.................... 6,995,000 70 31,009 10,624 41,703
Acquisition of Audio King,
net of registration fees.................. 986,432 10 2,562 2,572
Exercise of stock options................... 158,116 1 297 298
Net income.................................. 148 148
--------- --- ------- ------- -------

Balances, January 31, 1998.................... 8,139,548 81 33,868 10,772 44,721
Exercise of stock options................... 21,248 44 44
Net income.................................. 2,910 2,910
--------- --- ------- ------- -------

Balances, January 31, 1999.................... 8,160,796 81 33,912 13,682 47,675
Exercise of stock options (unaudited)....... 71,849 1 211 212
Net income (unaudited)...................... 1,757 1,757
--------- --- ------- ------- -------
Balances, July 31, 1999 (unaudited)........... 8,232,645 $82 $34,123 $15,439 $49,644
========= === ======= ======= =======
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-6
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS

(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JANUARY 31, JULY 31,
----------------------------------- -----------------------
1999 1998 1997 1999 1998
---------- ---------- --------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................. $ 2,910 $ 148 $ 785 $ 1,757 $ (2,153)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............. 6,390 5,550 4,449 3,429 3,179
Deferred tax expense...................... 1,388 502 573 46 (371)
Changes in operating assets and
liabilities:
Accounts receivable..................... 2,012 (4,705) 2,618 706 5,049
Merchandise inventories................. (3,000) 6,178 (3,361) 186 13
Prepaid expenses and other.............. 275 (328) 243 (521) (767)
Other assets............................ (156) 1,104 44 17 (91)
Accounts payable and accrued
liabilities........................... 8,095 903 2,773 (1,007) (3,270)
---------- ---------- --------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES..... 17,914 9,352 8,124 4,613 1,589

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment........... (1,564) (6,159) (7,314) (1,609) (543)
Acquisition of Audio King, net of cash
acquired.................................... -- (3,857) -- -- --
---------- ---------- --------- ---------- ----------

NET CASH USED IN INVESTING ACTIVITIES......... (1,564) (10,016) (7,314) (1,609) (543)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under long-term revolving credit
agreement................................... 303,744 321,689 72,227 167,135 147,452
Repayments under long-term revolving credit
agreement................................... (317,120) (319,532) (72,990) (168,345) (147,725)
Proceeds from term loans...................... -- -- 225 -- --
Principal payments on term loans and capital
lease obligations........................... (603) (549) (487) (314) (292)
Proceeds from exercise of stock options....... 44 298 -- 212 16
---------- ---------- --------- ---------- ----------

NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES.................................. (13,935) 1,906 (1,025) (1,312) (549)

Net increase (decrease) in cash and cash
equivalents................................. 2,415 1,242 (215) 1,692 497

Cash and cash equivalents at beginning of
period...................................... 2,006 764 979 4,421 2,006
---------- ---------- --------- ---------- ----------
Cash and cash equivalents at end of period.... $ 4,421 $ 2,006 $ 764 $ 6,113 $ 2,503
========== ========== ========= ========== ==========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest.................................. $ 4,144 $ 3,892 $ 3,210 $ 1,390 $ 2,199
Income taxes.............................. -- -- 353 -- --
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(INFORMATION SUBSEQUENT TO JANUARY 31, 1999 IS UNAUDITED)

1. SIGNIFICANT ACCOUNTING POLICIES

BACKGROUND

Ultimate Electronics, Inc. is a leading specialty retailer of home
entertainment and consumer electronics. The Company currently operates thirty
stores, including ten stores in Colorado under the trade name SoundTrack, eleven
stores in Idaho, Iowa, Nevada, New Mexico, Oklahoma, and Utah under the trade
name Ultimate Electronics and nine stores in Minnesota and South Dakota under
the trade name Audio King.

The Company's unaudited condensed consolidated financial statements have
been prepared by the Company in accordance with generally accepted accounting
principles for interim financial reporting and the regulations of the Securities
and Exchange Commission for quarterly reporting. Accordingly, they do not
include all information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of the Company, the
statements include all adjustments, consisting only of normal recurring
adjustments, which are necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods.
Operating results for the six month period ended July 31, 1999 are not
necessarily indicative of the results that may be expected for the year ending
January 31, 2000. Seasonal fluctuations in sales of the Company's products
result primarily from the purchasing patterns of individual consumers during the
holiday shopping season. These patterns tend to moderately concentrate sales in
the latter half of the year, particularly in the fourth quarter.

PRINCIPLES OF CONSOLIDATION

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

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

CASH EQUIVALENTS

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

INVENTORIES

The Company states merchandise inventories at the lower of cost (weighted
average cost) or market.

F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION SUBSEQUENT TO JANUARY 31, 1999 IS UNAUDITED)

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION AND AMORTIZATION

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

<TABLE>
<S> <C>
Furniture, fixtures and equipment........................... 5 - 7 years
Leasehold improvements...................................... 7 - 20 years
Autos and trucks............................................ 5 years
Property under capital leases............................... 5 - 15 years
Buildings................................................... 30 years
</TABLE>

CAPITALIZED INTEREST

For the fiscal years ended January 31, 1999, 1998 and 1997, the Company
capitalized interest of $0, $52,000 and $160,000, respectively, associated with
the construction of new stores, remodeled stores and the Thornton Facility.

ACCRUED LIABILITIES (IN THOUSANDS)

Accrued liabilities are comprised of the following:

<TABLE>
<CAPTION>
JANUARY 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Compensation............................................... $ 4,643 $3,007
Sales taxes................................................ 1,694 1,803
Customer deposits.......................................... 2,564 2,363
Income taxes............................................... 1,539 --
Other...................................................... 2,124 1,634
------- ------
Total...................................................... $12,564 $8,807
======= ======
</TABLE>

REVENUE RECOGNITION

Revenue is recognized at the time the customer takes possession of the
merchandise or such merchandise is delivered to the customer. Sales, which
includes warranty service and installation revenue, is presented net of
discounts, price guarantees, returns and allowances. The Company grants credit
to customers through independent, third-party finance companies, which companies
assume the credit risk for the collection of the related accounts receivable.
When free interest promotions are offered by the Company, a fee is normally paid
by the Company at the time of the transaction. This fee typically ranges between
1% and 6% of the amount financed by the customer.

DEFERRED REVENUE AND COMMISSIONS

The Company sells extended warranty contracts on behalf of an unrelated
party. The contracts extend beyond the normal manufacturer's warranty period,
usually with terms of coverage (including the manufacturer's warranty period)
between 12 and 60 months. Extended warranty contracts are accounted for in
accordance with FASB Technical Bulletin No. 90-1, "Accounting for Separately
Priced Extended Warranty and Product Maintenance Contracts."

F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION SUBSEQUENT TO JANUARY 31, 1999 IS UNAUDITED)

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS AND COOPERATIVE REVENUE

In accordance with AICPA Statement of Position 93-7, "Reporting on
Advertising Costs," all advertising costs are deferred until the first time the
advertising takes place. In addition, the Company accrues rebates based on
varying percentages of inventory purchases and records such amounts as a
reduction of advertising expense. The Company also deducts amounts for
cooperative advertising directly from payment to manufacturers for inventory
purchases based on individual agreements with the Company's manufacturers. Net
advertising expense charged to operations was $6,021,000, $5,476,000 and
$5,485,000 for the years ended January 31, 1999, 1998 and 1997, respectively.

LONG LIVED ASSETS

In March 1995 the Financial Accounting Standards Board (FASB) issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" (SFAS 121), which required impairment
losses to be recorded on long-lived assets used in operations when indications
of impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. SFAS 121
also addresses the accounting for long-lived assets that are expected to be
disposed of. The Company adopted the provisions of SFAS 121 in the first quarter
of fiscal 1997, with no material effect to its financial statements.

EARNINGS PER SHARE OF COMMON STOCK

In 1997, the FASB issued Statement No. 128, "Earnings per Share" (SFAS 128).
SFAS 128 replaced the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any diluted effects of options,
warrants and convertible securities. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. The calculation of
weighted average shares outstanding--diluted for the fiscal years ending
January 31, 1999, 1998, and 1997 include 167,692, 111,267 and 130,472
outstanding shares to give effect to the potential exercise of options under the
Company's stock option plans, respectively.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments, including cash, accounts receivable,
revolving line of credit and other long-term debt, have fair values that
approximate their recorded values, as the financial instruments are either short
term in nature or carry interest rates that approximate market rates except
bonds payable, which were trading at 97% of face value at January 31, 1999.

NEW ACCOUNTING STANDARDS

During 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. This Statement requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. In addition, this Statement
requires that an enterprise classify items of other comprehensive income by
their nature in a financial statement and display the accumulated balance of

F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION SUBSEQUENT TO JANUARY 31, 1999 IS UNAUDITED)

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
other comprehensive income separately from the retained earnings and additional
paid in capital in the equity section of a statement of financial position. The
Company does not have any components of comprehensive income, and accordingly,
adoption of this Statement during fiscal 1999 had no effect on the Company's
financial reporting,

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

2. PUBLIC STOCK OFFERINGS

On October 15, 1993, the Company completed an initial public offering (the
"Offering") for the sale of 2,300,000 shares of common stock (including
Underwriters overallotment of 300,000 shares) at the Offering price of $8.50 per
share. The Company received proceeds from the Offering of $17,805,000, net of
all offering costs. On November 1, 1995, the Company completed a second public
offering (the "Second Offering") for the sale of 1,495,000 shares of common
stock (including underwriters overallotment of 195,000 shares) at the Second
Offering price of $9.00 per share. The Company received proceeds from the Second
Offering of $12,463,000, net of all offering costs.

3. REVOLVING LINE OF CREDIT AGREEMENT AND TERM LOANS

On September 30, 1998, the Company executed a three year $40 million credit
agreement with Foothill Capital Corporation (a wholly owned subsidiary of
Norwest Bank). Borrowings under the Company's revolving line of credit are
limited to the lesser of $40 million or 80% of eligible inventory and a portion
of accounts receivable. As of July 31, 1999, the entire $40 million facility was
available to the Company, of which $12.0 million was outstanding. Borrowings
bear interest, payable monthly, based on a blend of LIBOR plus 2.0% and Norwest
Bank's prime rate minus 0.375%. Borrowings are secured by inventories, accounts
receivable, equipment and intangibles. The facility includes negative covenants
which limit the Company's ability to, among other things, subject to various
exceptions, incur indebtedness, create liens, enter into mergers and
consolidations, issue guarantees, sell or transfer assets, foreign inventory,
prepay or retire any debt owed to third parties, make investments or engage in
transactions with affiliates. The facility also contains covenants regulating
the Company's gross margin, inventory levels, tangible net worth and capital
expenditures. The Company was in compliance with all borrowing covenants for all
periods of fiscal year 1999 and through July 31, 1999.

The Company has four Commercial Promissory Notes and Security Agreements
with Colorado National Leasing, Inc. Borrowings under the loans totaled $642,000
at January 31, 1999, and $928,000 at January 31, 1998. Each loan is secured by
warehouse equipment and office furniture, and interest

F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION SUBSEQUENT TO JANUARY 31, 1999 IS UNAUDITED)

3. REVOLVING LINE OF CREDIT AGREEMENT AND TERM LOANS (CONTINUED)
rates on the loans range from 8.52% to 8.57%. As of January 31, 1999, the
aggregate maturities of the term loans are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
- -----------------------------
<S> <C>
2000...................................................... $312,000
2001...................................................... 311,000
2002...................................................... 19,000
--------
$642,000
========
</TABLE>

4. BONDS PAYABLE

On March 23, 1995, the Company completed an offering for the sale of
$13,000,000 aggregate principal amount of Bonds. Interest on the Bonds accrues
at the rate of 10.25% per year until maturity or earlier redemption and is
payable on the last day of each month. The Company is required to redeem $3.25
million aggregate principal amount of the Bonds annually (reduced to the extent
of the Bonds previously purchased or redeemed by the Company) on January 31,
2002 and on January 31 of each of the three years thereafter, at a redemption
price equal to par plus accrued interest to the date of redemption. The Bonds
are redeemable by the Company at par at any time after March 31, 2000. The Bonds
are full recourse obligations of the Company and are secured by, among other
things, a first priority lien on the Company's real property, including all
facilities and fixtures thereon, located at the Thornton Facility. The purchase,
construction and development of the property was financed in part by the net
proceeds of the Bonds.

5. STOCK OPTION PLANS

Under the terms of the Company's original stock option plan (the "Plan"),
the Company granted to officers, employees and consultants awards of options to
purchase shares of common stock and other types of awards. The Plan provided for
an authorization of 900,000 shares of common stock. Under the terms of the
nonemployee directors' stock option plan (the "Directors' Plan"), the Company
granted awards of stock options to nonemployee directors. The Directors' Plan
provided for an initial authorization of 20,000 shares of common stock. Each
nonemployee director received options to purchase 2,000 shares of common stock
effective February 1 of each year, which options were exercisable one year from
the date of grant. On January 31, 1999, options to purchase 16,000 shares of
common stock were outstanding, all of which are exercisable.

In June, 1997, at the Company's annual meeting, the Company's shareholders
approved a new stock option plan known as the Equity Incentive Plan (the "New
Plan") which replaced both the original Plan and the Directors' Plan. Grants
issued under the Plan and the Directors' Plan continue to be exercisable
according to their original terms but no additional grants can be issued under
these plans. The New Plan made available 750,000 shares to be awarded to
employees, nonemployee directors and/or outside consultants. The Board of
Directors continues to determine the persons to whom employee awards are
granted, the types of awards granted, the number of shares granted, the vesting
schedule and the term of any option (which cannot exceed ten years). The
exercise price for incentive stock options for employees and non-qualified
options for outside directors is the market value of the underlying common stock
at the date of grant. Options issued to the Chairman of the Board are at an

F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION SUBSEQUENT TO JANUARY 31, 1999 IS UNAUDITED)

5. STOCK OPTION PLANS (CONTINUED)
exercise price of 110% of market value of the underlying common stock at the
date of grant. During fiscal 1999, 139,700 options were granted under the New
Plan. The options were granted at prices of $3.125 and $5.50. The options
available for grant at January 31, 1999 and July 31, 1999 include only the
options available under the New Plan.

Changes in the options outstanding (and option exercise prices for such
options) are as follows:

<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED JANUARY 31,
ENDED JULY 31, ------------------------------
1999 1999 1998 1997
-------------- -------- -------- --------
<S> <C> <C> <C> <C>
Options outstanding at beginning of period.......... 948,517 833,984 420,850 496,000
Granted ($1.07 to $12.875).......................... 8,000 139,700 572,450 95,000
Canceled ($1.07 to $12.875)......................... -- 3,919 1,200 170,150
Exercised ($1.07 to $3.125)......................... 71,849 21,248 158,116 --
------- ------- ------- -------

Options outstanding at end of period................ 884,668 948,517 833,984 420,850
======= ======= ======= =======

Options exercisable at end of period................ 372,777 390,384 237,370 118,042
======= ======= ======= =======

Options available for grant at end of period........ 119,850 127,850 267,550 495,150
======= ======= ======= =======
</TABLE>

The weighted average exercise price of options outstanding at January 31,
1999, 1998 and 1997 was $3.48, $3.09, and $3.01, respectively. The weighted
average exercise price of options outstanding at July 31, 1999 was $3.58. The
weighted average contractual life of the options outstanding at January 31,
1999, 1998 and 1997 was 7.2, 6.5 and 6.0 years, respectively. The weighted
average contractual life of the options outstanding at July 31, 1999 was 6.9
years.

The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations, in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," requires use of
option valuation models that were developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.

Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to January 31, 1995 under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
or the date of repricing using a Black-Scholes option pricing model with the
following weighted average assumptions: risk-free interest rates of 5.50%; a
dividend yield of 0%; volatility factors of the expected market price of the
Company's common stock for fiscal years 1999, 1998 and 1997, respectively, of
.842, .609 and .573, and a weighted average expected life of the options of five
years. The weighted average fair value of stock options granted during
January 31, 1999, 1998 and 1997 was $4.96, $1.85 and $3.36, respectively.

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price

F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION SUBSEQUENT TO JANUARY 31, 1999 IS UNAUDITED)

5. STOCK OPTION PLANS (CONTINUED)
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options. For purposes of
pro forma disclosures, the estimated fair value of the options is amortized to
expense over the options' vesting period.

The Company's pro forma information follows:

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
----------------------------------
1999 1998 1997
---------- ---------- --------
<S> <C> <C> <C>
Pro forma net income (loss)................ $2,188,000 $ (245,000) $688,000
Pro forma earnings (loss) per
share--basic............................. $ 0.27 $ (0.03) $ 0.10
</TABLE>

Because the Statement No. 123 method of accounting has not been applied to
options granted prior to February 1, 1995, the resulting pro forma net income
(loss) may not be representative of that to be expected in future years.

6. PROVISION (BENEFIT) FOR INCOME TAXES (IN THOUSANDS)

Under the liability method of accounting for income taxes as prescribed by
FASB Statement No. 109, "Accounting for Income Taxes", deferred income taxes
reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and amounts
used for income tax purposes. The components of the provision (benefit) for
income taxes as of January 31, 1999, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------- -------- --------
<S> <C> <C> <C>
January 31, 1997
Federal.......................................... $ (90) $ 501 $ 411
State............................................ (13) 72 59
------ ------ ------
Total.............................................. $ (103) $ 573 $ 470
====== ====== ======

January 31, 1998
Federal.......................................... $ (363) $ 439 $ 76
State............................................ (51) 63 12
------ ------ ------
Total.............................................. $ (414) $ 502 $ 88
====== ====== ======

January 31, 1999
Federal.......................................... $ 267 $1,242 $1,509
State............................................ 38 176 214
------ ------ ------
Total.............................................. $ 305 $1,418 $1,723
====== ====== ======
</TABLE>

F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION SUBSEQUENT TO JANUARY 31, 1999 IS UNAUDITED)

6. PROVISION (BENEFIT) FOR INCOME TAXES (IN THOUSANDS)

The following is a reconciliation of the provision (benefit) for income
taxes to the federal statutory rate for the years ended January 31, 1999, 1998
and 1997:

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Income taxes at the federal statutory rate.......... $1,575 $ 80 $ 427
State income taxes, net of federal benefit.......... 148 8 41
Other............................................... -- -- 2
------ ------ ------

Provision for income taxes.......................... $1,723 $ 88 $ 470
====== ====== ======
</TABLE>

The tax effects of temporary differences that give rise to a significant
portion of the deferred tax assets and liabilities at January 31, 1999 and 1998
are as follows:

<TABLE>
<CAPTION>
JANUARY 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Volume/cash discounts.................................. $ 430 $ --
Accrued liabilities.................................... 440 380
Valuation reserves..................................... 672 240
Uniform capitalization................................. 300 80
Capital leases......................................... 118 80
-------- --------
$ 1,960 $ 780
======== ========

Deferred tax liabilities:
Volume/cash discounts.................................. $ -- $ (670)
Purchase incentives.................................... (2,360) (690)
Depreciation and amortization.......................... (2,498) (900)
-------- --------
(4,858) (2,260)
-------- --------
Net deferred tax liability............................... $ (2,898) $ (1,480)
======== ========
</TABLE>

7. LEASES

OPERATING LEASES

The Company leases retail stores under agreements which expire at various
dates through 2017. Several leases contain escalation clauses and/or options to
renew at negotiated or specified minimum lease payments for periods ranging from
one to 30 years beyond the initial noncancelable lease terms. Total rent expense
charged to operations was $7,226,000, $6,132,000 and $4,119,000 for the years
ended January 31, 1999, 1998 and 1997, respectively.

F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION SUBSEQUENT TO JANUARY 31, 1999 IS UNAUDITED)

7. LEASES (CONTINUED)
CAPITAL LEASES, INCLUDING RELATED PARTY LEASES (IN THOUSANDS)

The following property is held under capital leases:

<TABLE>
<CAPTION>
JANUARY 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Buildings and improvements.................................. $2,877 $2,877
Computer equipment.......................................... 711 711
------ ------
3,588 3,588
Less accumulated amortization............................... 1,859 1,520
------ ------
$1,729 $2,068
====== ======
</TABLE>

The Company leases two retail stores under capital lease agreements with two
principal stockholders of the Company. The lease agreements for the two retail
stores provide for annual rent increases over the initial noncancelable lease
terms. Total rental payments to related parties under these leases were
$261,000, $257,000 and $250,000 for the years ended January 31, 1999, 1998 and
1997, respectively.

The aggregate minimum annual rental commitments as of January 31, 1999 are
as follows (in thousands):

<TABLE>
<CAPTION>
OPERATING CAPITAL
FISCAL YEAR ENDED JANUARY 31, LEASES LEASES
- ----------------------------- --------- --------
<S> <C> <C>
2000...................................................... $ 7,404 $ 466
2001...................................................... 7,428 333
2002...................................................... 7,432 347
2003...................................................... 7,136 352
2004...................................................... 7,229 356
2005-2017................................................. 62,867 2,623
------- ------
Total minimum lease payments.............................. $99,496 4,477
======= ======
Less amount representing interest......................... 2,428
------
Present value of net minimum lease payments............... 2,049
Less portion due within one year.......................... 208
------
Long term capital lease obligations....................... $1,841
======
</TABLE>

8. EMPLOYEE BENEFIT PLAN

The Company has a 401(k) Savings Plan for the benefit of substantially all
employees. The Plan provides for both employee and employer contributions. The
Company matches 25% of the employee's contribution limited to 1.5% of the
employee's annual compensation subject to limitations set annually by the
Internal Revenue Service. The Company's contributions were $274,000, $268,000
and $235,000 for the years ended January 31, 1999, 1998 and 1997, respectively.

F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION SUBSEQUENT TO JANUARY 31, 1999 IS UNAUDITED)

9. MERGER

On June 27, 1997, the Company completed a merger in which the Company
acquired all of the outstanding shares of Audio King Corporation. Audio King, a
consumer specialty electronics company, operated 11 retail stores; eight in
Minnesota, two in Iowa and one in South Dakota. The purchase price consisted of
$2.5 million in cash, 986,432 shares of Ultimate Electronics' common stock
valued at $2.6 million, assumed debt of $7.2 million, and other expenses and
severance costs of $1.4 million. The transaction was accounted for as a
purchase, whereby the purchase price has been allocated to the acquired assets
and liabilities based on estimated fair value at the acquisition date. The
transaction resulted in the Company recording goodwill in the amount of $2.7
million, which is being amortized over a 10 year life. Amortization expense for
fiscal years 1999 and 1998 was $268,000 and $142,000, respectively. Total
accumulated amortization was $410,000 at January 31, 1999.

10. QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------
APRIL 30, JULY 31, OCTOBER 31, JANUARY 31,
--------- -------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>

FISCAL 1998
Sales................................ $55,508 $61,944 $81,990 $106,864
Gross profit......................... 14,450 16,914 22,850 28,628
Income from operations............... 290 299 927 2,705
Net income (loss).................... (311) (422) (115) 996
Earnings (loss) per share--basic..... (.04) (.06) (.01) .12
Earnings (loss) per share--diluted... (.04) (.06) (.01) .12

FISCAL 1999
Sales................................ $70,882 $71,182 $79,441 $115,949
Gross profit......................... 18,260 21,903 24,403 33,034
Income (loss) from operations........ (2,438) 1,228 2,952 6,848
Net income (loss).................... (2,211) 58 1,250 3,813
Earnings (loss) per share--basic..... (.27) .01 .15 .47
Earnings (loss) per share--diluted... (.27) .01 .15 .45

FISCAL 2000
Sales................................ $80,303 $86,309
Gross profit......................... 23,515 26,481
Income from operations............... 1,389 2,793
Net income........................... 439 1,318
Earnings per share--basic............ .05 .16
Earnings per share--diluted.......... .05 .15
</TABLE>

F-17
<PAGE>
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2,250,000 SHARES

[LOGO]

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PROSPECTUS

OCTOBER 18, 1999

------------------------

BANC OF AMERICA SECURITIES LLC
U.S. BANCORP PIPER JAFFRAY

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