United States

                       Securities and Exchange Commission

                             Washington, D.C. 20549
                                   Form 10-KSB

 Annual Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934

                   For the fiscal year ended October 27, 2001

Transition  Report Under Section 13 or 15(d) of The  Securities  Exchange Act of
1934 for the Transition Period from _____________ to _______________


                           Commission File No. 1-4626

                            Harvey Electronics, Inc.
                 (Name of small business issuer in its charter)

           New York                                     131534671
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)

--------------------------------------------------------------------------------
                  205 Chubb Avenue, Lyndhurst, New Jersey 07071
--------------------------------------------------------------------------------
               (Address of principal executive offices) (Zip Code)

                    Issuer's telephone number: (201) 842-0078

         Securities registered under Section 12(b) of the Exchange Act:

                                      None

         Securities registered under Section 12(g) of the Exchange Act:

                          Common Stock, $.01 par value
                    Redeemable Common Stock Purchase Warrant
-------------------------------------------------------------------------------
                                (Title of Class)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant  was required to file such reports),  and (2)has been
subject to such filing requirements for the past 90 days. Yes [X] No[ ]

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B is contained in this form,  and no disclosure  will be contained,
to the best of the  registrant's  knowledge,  in definitive proxy or information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB.                    [   ]

Check  whether the issuer has filed all  documents  and  reports  required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the  distribution  of
securities under a plan confirmed by a court. Yes [X] No [ ]

State issuer's revenues for its most recent fiscal year.            $36,687,206
                                                                    -----------

State the number of shares outstanding of each of the issuer's classes of common
equity, as of January 7, 2002.                                        3,282,833
                                                                      ---------

As of January 7, 2002,  the aggregate  market value of the  registrant's  common
stock held by  nonaffiliates  computed  by  reference  to the price at which the
stock was sold was  $5,478,801.  The shares are  currently  traded on the NASDAQ
SmallCap  Market  under the symbols  "HRVE" for the Common Stock and "HRVEW" for
the Warrants to purchase Common Stock.


Part I

Item 1. Description of Business.

General

Harvey  Electronics,  Inc.  ("Harvey" or the "Company") is engaged in the retail
sale,  service and custom  installation  of high quality  audio,  video and home
theater equipment.  The equipment includes high fidelity components and systems,
video cassette recorders ("VCR"),  digital versatile disc players ("DVD"),  high
definition television ("HDTV"),  direct view projection,  plasma flat-screen and
LCD  flat  panel  television  sets,  audio/video  furniture,  digital  satellite
systems,  conventional telephones and related accessories.  The Company has been
engaged in this  business  in the New York  Metropolitan  area for  seventy-five
years.  The Company  currently  operates nine locations;  seven Harvey specialty
retail  stores  and two Bang & Olufsen  branded  stores.  There  are two  Harvey
locations in Manhattan and five suburban  locations in Paramus,  New Jersey; Mt.
Kisco, in Westchester;  Greenwich, Connecticut;  Greenvale/Roslyn,  on the north
shore of Long  Island,  and our newest  Harvey store  opened in  Eatontown,  New
Jersey in April  2001.  The Bang & Olufsen  branded  stores are located in Union
Square at Broadway and 21st Street, in Manhattan, and in Greenwich,  Connecticut
on Greenwich Avenue.

The  Company's   stores  are  designed  to  offer  an  attractive  and  pleasing
environment  and to display its  products  and custom  installation  services in
realistic  home  settings  commonly  known in the  industry as  "lifestyle  home
vignettes."  Sales  personnel are highly  trained  professionals  with extensive
product  knowledge.  This  contrasts  sharply with a more rushed  atmosphere and
lesser-trained personnel of mass merchants.

Sale of Common Stock and Warrants in Public Offering

In April 1998, the Company  completed an issuance of its common stock and common
stock  warrants  in  a  public  offering  (the  "Offering").  The  Offering  was
co-managed by The Thornwater  Company,  L.P., which sold 1,200,000 shares of the
Company's  common stock of which  1,025,000  shares were sold by the Company and
175,000 shares by Harvey Acquisition Company, LLC ("HAC"). 2,104,500 of Warrants
("Warrants")  to acquire  additional  shares of the Company's  common stock were
also sold by the Company. The net proceeds from the Offering, approximately $4.1
million,  were used to open three new  retail  stores  and for  general  working
capital purposes.

The net  proceeds  from the  Offering  were also used to repay  temporarily  the
Company's  credit  facility  of  approximately  $2.3  million  and to retire the
principal ($350,000) and interest ($48,000) of a term loan.

Each  Warrant is  exercisable  for one share of common  stock at 110% ($5.50 per
share)  of the  Offering  price,  through  March  31,  2003.  The  Warrants  are
redeemable (at $0.10 per warrant),  at the Company's  option from March 31, 2000
if the closing bid price of the common  stock for 20  consecutive  trading  days
exceeds 150% of the Offering price per share or $7.50.

Products

The Company  offers its  customers a wide  selection  of  high-quality  consumer
audio, video and home theater products,  the distribution of which is limited to
specialty  retailers  (generally  referred  to  in  the  industry  as  "esoteric
brands").  The Company is one of the  country's  largest  retailers of "esoteric
brands"  manufactured by Bang & Olufsen,  Crestron,  Marantz,  McIntosh,  Vienna
Acoustics, Sonus Faber, Kef, Krell, Nakamichi,  Loewe, Martin Logan, Fujitsu and
Adcom.  Many of these  vendors'  products  have been sold by the  Company  for a
number of years.  The  Company  believes  that it benefits  from strong  working
relationships with these manufacturers. See below, for a discussion about Bang &
Olufsen.

For the fiscal year ended October 27, 2001,  the  Company's  audio product sales
represented  approximately  58% of the  Company's  net sales and  yielded  gross
profit  margins  of  approximately   40%.  The  Company's  video  product  sales
represented  approximately  35% of the  Company's  net sales and  yielded  gross
profit  margins of  approximately  28%. The Company also  provides  installation
services for the products it sells. Custom installation, as commonly referred to
in  the  industry  includes  both  equipment  sales  and  labor  income.  Custom
installation of both equipment and related labor accounted for approximately 41%
of the  Company's  net  sales in  fiscal  2001.  The  labor  portion  of  custom
installation  presently  represents  approximately  7% of net  sales,  while the
equipment  portion  accounting  for 34% of net  sales.  The  Company  also sells
extended  warranties  on  behalf of third  party  providers.  Sales of  extended
warranties which yielded a gross profit margin in excess of 46%, and represented
less than 1% of the Company's net sales.

The  following  table shows,  by  percentage,  the  Company's  net product sales
attributable to each of the product categories for the periods indicated.  Audio
components include speakers, subwoofers,  receivers, amplifiers,  preamplifiers,
compact disc players,  cassette decks,  turntables and tuners.  The Company also
sells  digital  satellite  systems  (DSS) which are included in the  VCR/DVD/DSS
category.  Accessories  primarily include  headphones,  surge protectors,  blank
audio and videotapes and projection screens. The miscellaneous category includes
conventional telephones, answering machines, radios and other portable products.


                                 Fiscal Year Ended   Fiscal Year Ended
                                      October             October
                                      27, 2001           30, 2000
                                 ---------------------------------------

Audio Components                          39%                43%
Mini Audio Shelf Systems                   6                  7
TV and Projectors                         30                 25
VCR/DVD/DSS                                8                  7
Furniture                                  5                  5
Cable and Wire                             5                  5
Accessories                                6                  6
Extended Warranties                        -                  1
Miscellaneous                              1                  1
                                 ---------------------------------------
                                         100%               100%
                                 =======================================

The  percentage  of sales by each  product  category is affected by  promotional
activities,  consumer  preferences,  store  displays,  the  development  of  new
products and elimination or reduction of existing  products and, thus, a current
sales mix may not be indicative of the future sales mix.

The Company  believes  that it is well  positioned  to benefit from  advances in
technologies because new technologies tend to be expensive when first introduced
and the Company's  target  customers  desire and can afford such  products.  New
technologies,  such  as  HDTV,  DVD,  plasma  flat-screen  and  LCD  flat  panel
televisions were recently  introduced.  The DVD player provides enhanced picture
and sound quality in a format far more  convenient  and durable than  videotape.
The  plasma  flat-screen  or LCD flat panel  television  allows a small or large
screen television to be only six inches wide from front to back. This allows the
set to be far less obtrusive and more easily  integratable  into the home.  High
definition television has significantly improved picture quality.

The Company  intends to  continue  its recent  emphasis  on custom  installation
(representing  41% of net sales in fiscal  2001)  which can extend from a single
room  audio/video  system to an entire  house with a combined  selling  price of
installation,  labor and product from about $5,000 to in excess of $100,000. The
Company believes custom installation provides the opportunity to bundle products
and increase margins. For example, rather than just selling a television with an
approximate gross profit margin of 28%, custom installation  enables the Company
to sell to the same customer speakers at a margin exceeding 40%,  accessories at
a margin  approximating 46% and installation  labor with margins of over 65%. In
fiscal  2002,  the  Company  will  expand its  merchandising  efforts to include
in-home lighting systems and distributed  in-home cabling for the integration of
computer networks, entertainment systems and other related services.

Based on customers'  desires,  custom  installation  projects  frequently expand
on-site.  A single  room home  theater,  for  example,  during the course of the
installation can grow into a multi-room system with increased margins.

Offering custom  installation  affords the Company a unique selling  opportunity
not only  because it may not be available  at mass  merchants,  but also because
custom installation can generate repeat customers and customer referrals. Due to
the complexity of the installation provided by the Company,  customers generally
remain with the Company,  providing the opportunity to sell upgrades to existing
customers. The recent introduction of DVD players, DSS and advanced televisions,
network  cabling,   in-home  lighting   systems,   as  well  as  other  emerging
technologies, present significant opportunities for such upgrades.

Operations

Supplies, Purchasing and Distribution

The Company purchases its products from approximately eighty manufacturers,  ten
of which  accounted for  approximately  58% of the  Company's  purchases for the
fiscal year ended October 27, 2001. These ten  manufacturers are Bang & Olufsen,
Fujitsu,  Marantz,  Mitsubishi,  Monster Cable,  Nakamichi,  Panasonic,  Pioneer
Elite,  Sharp  and  Sony.  Sony  accounted  for more  than 10% of the  Company's
purchases  for the  fiscal  year ended  October  27,  2001,  and Bang & Olufsen,
Marantz, Fujitsu, Panasonic,  Monster Cable and Pioneer Elite each accounted for
more than five (5%) percent of purchases for such period.

The  Company  has  entered  into dealer  agreements  with  primarily  all of its
vendors.  Under each dealer  agreement,  the Company is  authorized  to sell the
manufacturer's  products from specified retail locations to retail customers and
cannot sell the  products by telephone  or mail order.  Each  agreement is for a
term of a year or two, subject to renewal or extension.

The Company believes that  competitive  sources of supply would be available for
many of the  Company's  products  if a  current  vendor  ceased to supply to the
Company.  However,  a loss of a major  source of supply of limited  distribution
products could have an adverse impact on the Company.

Bang & Olufsen ("B&O") products have been sold by the Company since 1980. As B&O
focuses on developing  B&O licensed  stores  ("Branded  Stores")  throughout the
world,  it has  canceled  its  dealer  agreement  with  the  Company  and  other
retailers. B&O products are available only in Branded Stores.

The Company opened its first B&O Branded Store in the Union Square area of lower
Manhattan  in July 1999.  In October  2000,  the  Company  opened its second B&O
Branded Store in Greenwich, Connecticut.

These new Branded  Stores sell highly  differentiated  Bang & Olufsen  products,
including uniquely designed audio systems, speakers, telephones,  headphones and
accessories.  The stores will also sell video products including LCD projectors,
HDTV's,  DVD players,  plasma  flat-screen and LCD flat panel  televisions,  A/V
furniture  and   accessories.   The  store  also  offers   professional   custom
installation of multi-room audio and home theater systems.

Due to the  Company's  strong  relationships  with many of its suppliers and its
volume of  purchases,  the  Company  has also  been  able to  obtain  additional
manufacturers'  rebates based on volume buying levels. On occasion,  the Company
has been able to negotiate favorable terms on larger purchases, such as extended
payment terms, additional cooperative advertising contributions or lower prices,
particularly  on large  purchases.  In  addition to being a member of a consumer
electronics  industry  buying group called Home Theater  Specialists  of America
(HTSA), the Company is also a member of Professional Audio Retailers Association
(PARA) and Custom Electronics Design Installation  Association (CEDIA),  both of
which provide the Company with additional training in sales and technology.

Purchases are received at the Company's  expanded  11,800 square foot  warehouse
located in Fairfield,  New Jersey.  Merchandise  is distributed to the Company's
retail stores at least twice a week (and more frequently,  if needed), using the
Company's employees and equipment.

The Company's  management  information  system tracks  current  levels of sales,
inventory,  purchasing and other key  information  and provides  management with
information which facilitates  merchandising,  pricing, sales management and the
management of warehouse and store inventories. This system enables management to
review and analyze the  performance of each of its stores and sales personnel on
a periodic  basis.  The central  purchasing  department of the Company  monitors
current  sales and  inventory at the stores on a daily basis.  In addition,  the
Company  currently  conducts a physical  inventory  two times a year and between
such physical inventories it conducts monthly and daily cycle counts on selected
types of inventory.  The  purchasing  department  also  establishes  appropriate
levels of  inventory  at each  store and  controls  the  replenishment  of store
inventory based on the current delivery or replenishment schedule.

The Company  historically  has not had material losses of inventory and does not
experience material losses due to cost and market fluctuations,  overstocking or
technology.  The Company's  inventory turnover for the fiscal year ended October
27, 2001, was approximately 3.4 times, as compared to 3.6 times for fiscal 2000.

Sales and Store Operations

Retail sales are primarily made for cash or by major credit cards.  Revenues are
recorded by the Company  when the product or service is delivered or rendered to
customers.  Customer  deposits are recorded as liabilities  until the product is
delivered,  at which time a sale is recorded and the  liability for the customer
deposit is relieved.

In  addition,  customers  who qualify can obtain  longer term  financing  with a
Harvey credit card,  which the Company  makes  available to its  customers.  The
Harvey  credit  cards  are  issued  by  two  unrelated  finance  companies.  All
transactions  with these unrelated finance companies are without recourse to the
Company. The Company also periodically,  as part of its promotional  activities,
makes  manufacturer,  (i.e.,  Mitsubishi),  sponsored financing available to its
customers. Generally, the cost of such financing is paid for by the Company, but
manufacturers  periodically  participate  with and contribute, to the Company in
financing these promotions.

Each store is operated  by a store  manager and a senior  sales  manager.  Store
managers  report to a Vice  President of  Operations  who oversees all sales and
store  operations,  and who is further  responsible  for sales  training and the
hiring of all retail  employees.  Every  Company  store has at least one in-home
audio/video specialist who will survey the job site at a customer's home, design
the custom  installation and provide a cost estimate.  Each store  independently
services  its custom  installations  through a project  manager and  experienced
installers  employed at the store.  All stores are staffed  with  professionally
trained salespeople and warehouse personnel.  Salespeople are paid a base salary
plus commission based on gross margins.

All stores have an on-line point of sale computer system which enables the store
managers and corporate  headquarters to track sales, margins,  inventory levels,
customer deposits,  back orders,  merchandise on loan to customers,  salesperson
performance and customer histories. Store managers perform sales audit functions
before  reporting  daily  results to the sales audit group in the main office in
Lyndhurst, New Jersey.

Services and Repairs

Products  under  warranty are  delivered  to the  appropriate  manufacturer  for
repair.  Other repairs are sent to the  manufacturers  or an independent  repair
company. Revenues from non-warranty services are not material.

The Company offers an extended  warranty  contract for most of the audio,  video
and other merchandise it sells,  which provides coverage beyond the manufacturer
warranty  period.  Extended  warranties  are provided by an unrelated  insurance
company on a non-recourse basis to the Company.  The Company collects the retail
sales price of the extended  warranty  contract  from  customers  and remits the
customer  information  and the cost of the  contract to the  insurance  company.
Sales of extended warranty contracts represent less than 1% of the Company's net
sales.  The warranty  obligation is solely the  responsibility  of the insurance
company.

Competition

The Company competes in the New York Metropolitan area with mass merchants, mail
order houses,  discount stores and numerous other consumer electronics specialty
stores.  The retail  electronics  industry is dominated by large  retailers with
massive,   "big  box"  retail  facilities  which   aggressively   discount  mass
merchandise.  These retailers  operate on narrow profit margins and high volume,
driven by aggressive  advertising  emphasizing low prices.  Nationwide  industry
leaders  are Circuit  City and Best Buy.  The New York  region is  dominated  by
Circuit City, Best Buy, and local chains  including P.C. Richard & Son, The Wiz,
J&R Music World and 6th Avenue Electronics.

Many of the competitors sell a broader range of electronic  products,  including
computers,  camcorders and office equipment,  and many have substantially larger
sales and greater  financial and other  resources than the Company.  The Company
competes  by  positioning   itself  as  a  retailer  of  high  quality   limited
distribution  audio and video  products and by offering  services such as custom
installations which are not generally offered by the mass merchants.

Very few, if any, of the audio  products  sold by the  Company,  other than Bose
products,  radios  and  other  portable  products,  are  available  at the  mass
merchants. Of the major video products sold by the Company, generally only Sony,
Panasonic and Mitsubishi televisions are sold by the mass merchants.

The Company seeks to reinforce its  positioning  by displaying  its products and
custom  installation  services in lifestyle  home vignettes in an attractive and
pleasing store environment and by offering  personalized service through trained
sales personnel who are fully familiar with all of the Company's products.

Internet Website

In October 2000, the Company launched its new website, www.harveyonline.com,  to
support the continued  growth of its exclusive  consumer  electronics and custom
home theater installation showrooms. The website was designed to extend Harvey's
extraordinary  in-store  experience  onto the  Internet as a vehicle to increase
customer traffic at the Company's  retail  locations.  On-line sales,  available
seven days a week, twenty-four hours a day, are a secondary goal of the website.
Harvey  customers  can order on-line  within the  Company's  trading area in the
metropolitan New York marketplace.

Website visitors can experience a video tour of a Harvey showroom and a complete
Harvey  custom  installation  transaction  from  point-of-contact  at the retail
showroom  through the final  in-home  installation.  Visitors to the website are
able to leave  inquiries,  request home theater systems based on budget and room
size,  reserve equipment or schedule an in-home or in-store  consultation with a
Harvey professional.  Product specification,  price and warranty comparisons are
also  available  on the site.  The  Company's  website  was  designed to further
differentiate Harvey from its competitors.

Advertising

During the late 1980's and early 1990's,  the Company  introduced lesser quality
product  lines to become  more price  competitive.  This  strategy  placed it in
direct  competition  with mass merchants.  This strategy sent a mixed message to
the traditional  customers of the Company.  Commencing in late 1995, the Company
refocused its operations by returning to its traditional marketing strategy.

In the latter part of fiscal 1999, the Company decided to materially  modify its
advertising  program,   including  the  decision  to  begin  network  and  cable
television  advertising,  which had not been done in the past by the Company. In
addition,  the  frequency and size of the  Company's  print ads were  increased.
Finally,  the Company  returned to  advertising  on radio.  The new campaign was
fully implemented in fiscal 2000. The results of this significant  investment in
increased advertising have been quite positive.

The  television,  radio,  direct  mail  and  certain  of the  print  advertising
differentiates  the  Company by  emphasizing  the  benefits of  integrating  the
Internet with  www.harveyonline.com,  the Company's new website,  with beautiful
Harvey retail showrooms presenting the Company's home theater experience.

The Company currently uses larger, more frequent print advertising,  emphasizing
image,  products,  and  technology in the New York Times,  Wall Street  Journal,
Greenwich Magazine,  Newsday, Bergen Record,  Greenwich Times, The Journal News,
Asbury Park Press, Hampton's Magazine,  Gotham Magazine and the Gannett Suburban
News. The Company also distributes direct mail advertising  several times a year
to  reach  its  customer  database  of  over  70,000.  Some of the  direct  mail
promotions are for specific  manufacturers,  products,  or  technology,  and are
supported by the manufacturers.

Television  advertising consists of a 30 second commercial run on the WNBC, WABC
and WCBS networks as well as cable  advertising on CNN, ESPN, MSNBC, News 12 and
CNBC.  Radio  advertising  is  currently  running on news,  sports and  business
stations on AM radio.

All  advertising   consistently  offers  attractive  financing  alternatives  on
purchases on credit without interest for six or twelve months.

The  following  table  shows  the  Company's  gross  advertising  costs  and net
advertising expense as a percentage of net sales for the periods presented.  Net
advertising  expense  represents gross advertising cost less market  development
funds,  cooperative  advertising and other promotional amounts received from the
manufacturers.

                                   Fiscal Year         Fiscal Year
                                      Ended               Ended
                                     October             October
                                    27, 2001             28, 2000
                                    --------             --------


Gross advertising costs             $2,864,000          $2,701,000
Net advertising expenses             1,206,000             934,000
Percentage of net sales                    3.3%                2.7%

The Company has  retained an outside  advertising  agency that is paid a monthly
retainer of $17,000 plus approved expenses.  This agreement expired December 31,
2001 and the Company has renewed the agreement for one year.

Licenses and Intellectual Properties

The Company owns three registered service marks "HARVEY  ELECTRONICS," issued in
June 1982,  "HARVEY,"  issued in March 1989,  and "THE TEMPLE OF HOME  THEATER,"
issued in May 1997. These service marks are registered for  International  Class
42, which includes retail store services in the field of audio, video,  consumer
electronics,  home  theater  products  and custom  installation  of home theater
products.  The Company  believes that the service marks HARVEY  ELECTRONICS  and
HARVEY have  significant  value and is  important  in  marketing  the  Company's
products and services.

Employees

As of October  27,  2001,  the  Company  employed  approximately  134  full-time
employees  of  which  17  were  management  personnel,  16  were  administrative
personnel, 56 were salespeople, 15 were warehouse workers and 30 were engaged in
custom installation.

The salespeople,  warehouse  workers,  and  installation  staff (101 people) are
covered by a collective  bargaining  agreement  with the Company  which  expires
August 1, 2003.  The Company has never  experienced a material work stoppage and
believes  that  its   relationships   with  its  employees  and  the  union  are
satisfactory.

Item 2. Description of Properties

All of the  premises  the Company  presently  occupies  are  leased.  Management
believes that the Company's facilities are adequate and suitable for its present
business.  The Company  believes that  adequate  locations are available for its
proposed expansion.

The  Company  leases  approximately  4,900  square  feet  at 205  Chubb  Avenue,
Lyndhurst,  New Jersey,  which the Company uses as its  corporate  office.  This
office space is under lease through  September  2002. The Company also leases an
11,800 square foot warehouse in Fairfield,  New Jersey at approximately  $94,000
per year, pursuant to a lease which expires November 2005.

The Company leases the following retail premises:
<TABLE>
<CAPTION>

                                           Expiration                       Approximate
                                            Date of                           Selling
                                            Current          Renewal           Square            Rent
                Location                  Annual Lease       Options          Footage          Expense
  ------------------------------------- ----------------- --------------- ----------------- ---------------

<S>                                        <C>                 <C>              <C>             <C>
  2 West 45th Street                       6/30/2005           None             7,500          $  573,000
  New York, NY

  556 Route 17 North                       6/30/2003           None             7,000          $  273,000
  Paramus, NJ

  888 Broadway                            12/31/2003           None             4,000          $  406,000
  at 19th St.
  New York, NY
  (within ABC Carpet & Home)

  19 West Putnam Ave.                      9/30/2006         5 years            5,300          $  289,000
  Greenwich, CT

  44 Glen Cove Road                        8/15/2009           None             4,600          $  195,000
  Greenvale, NY

  115 Main St.                             8/31/2008           None             3,500          $   76,000
  Mt. Kisco, NY

  973 Broadway                            12/31/2005          5 year            1,500          $  121,000
  New York, NY
  (Bang & Olufsen Branded Store)

  86 Greenwich Ave.                        6/30/2005         5 years            1,500          $  104,000
  Greenwich, CT
  (Bang & Olufsen Branded Store)

  57 Route 36 West                         1/01/2011         10 years           6,500          $  183,000
  Eatontown, NJ
</TABLE>

Item 3. Legal Proceedings.

Except as set forth herein,  the Company  believes that it is not a party to any
material  asserted  legal  proceedings  other than those arising in the ordinary
course of  business  and  which  are fully  covered  by  insurance  (except  for
deductible  amounts).  The Company  maintains  general  liability and commercial
insurance in amounts believed to be adequate. However, there can be no assurance
that such amounts of insurance  will fully cover claims made against the Company
in the future.

There are outstanding  disputed tax claims of  approximately  $52,000 which were
made  against the  Company  during its  Chapter 11  proceeding.  The Company has
provided reserves of $20,000 for such taxes,  penalties and interest,  which the
Company  believes to be adequate.  However,  there can be no assurance  that the
reserve will be sufficient to cover these tax claims.

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

On May 31, 2001,  the Company's  shareholders  at an Annual  Meeting (i) elected
Franklin C. Karp (2,690,916 shares in favor, 104,335 shares against),  Joseph J.
Calabrese (2,690,916 shares in favor, 104,335 shares against),  Michael E. Recca
(2,690,916  shares  in  favor,  104,335  shares  against),   Fredric  J.  Gruder
(2,690,916 shares in favor, 104,335 shares against), Jeffrey A. Wurst (2,690,916
in favor,  104,335  shares  against) and William F. Kenny  (2,690,916  shares in
favor, 104,335 shares against) as directors of the Company and (ii) ratified the
appointment of Ernst & Young LLP as the Company's  independent  auditors for the
fiscal year ending  October 27, 2001  (2,785,374  shares in favor,  9,354 shares
against and 523 abstained).

Part II

Item 5. Market for Common Equity and Related Stockholder Matters.

The  Company's  securities  are traded on the NASDAQ  SmallCap  Market under the
symbols  "HRVE" for the Common  Stock and "HRVEW"  for the  Warrants to purchase
Common Stock.

The outstanding shares of Common Stock are currently held by approximately 1,600
shareholders of record,  and the Preferred Stock by five holders of record.  The
transfer  agent and  registrar  for the Common Stock is  Registrar  and Transfer
Company, 10 Commerce Drive, Cranford, New Jersey 07016.

The following table indicates the quarterly high and low stock prices for fiscal
years 2001 and 2000:

       Quarter Ended                    High              Low
--------------------------------- ----------------- ----------------

January 27, 2001                      $1.625          $   .75
April 28, 2001                         1.50               .75
July 28, 2001                          1.50              1.00
October 27, 2001                       1.27               .55
January 29, 2000                       2.4375            1.0625
April 29, 2000                         2.375             1.50
July 29, 2000                          2.125             1.75
October 28, 2000                       1.9375            1.4688

The Company has paid no dividends on its common stock for the last two years and
does not expect to pay dividends on common stock in the future.

Description of Securities

The total authorized  capital stock of the Company consists of 10,000,000 shares
of common stock with a par value of $0.01 per share ("Common Stock"), and 10,000
shares of 8.5% Cumulative Convertible Preferred Stock with a par value of $1,000
per share. The following descriptions contain all material terms and features of
the  securities of the Company and are qualified in all respects by reference to
the Company's  Certificate of Incorporation  and Amended and Restated By-Laws of
the Company, copies of which are filed as exhibits.

Common Stock

The Company is authorized to issue 10,000,000  shares of Common Stock with a par
value  of  $0.01  per  share.  As of  January  7,  2002,  3,282,833  shares  are
outstanding and held by approximately 1,600 shareholders of record.

The holders of Common Stock are entitled to one vote per share on all matters to
be voted on by stockholders.  There is no cumulative  voting with respect to the
election  of  directors,  with the result  that  holders of more than 50% of the
shares voted for the election of directors can elect all of the  directors.  The
holders of Common  Stock are  entitled  to  receive  dividends  when,  as and if
declared by the Board of Directors from sources legally available therefore.  In
the event of  liquidation,  dissolution  or winding up of the  Company,  whether
voluntary or  involuntary,  and after  payment in full of the amount  payable in
respect of the Preferred Stock, the holders of Common Stock are entitled, to the
exclusion of the holders of the Preferred  Stock, to share ratably in the assets
of the Company  available  for  distribution  to  stockholders  after payment of
liabilities  and  after  provision  for each  class  of  stock,  if any,  having
preference  over the Common  Stock.  Holders of Common Stock have no  preemptive
rights.  All  outstanding  shares  are,  and all shares to be sold and issued as
contemplated  hereby,  will be fully paid and non-assessable and legally issued.
The Board of Directors is authorized to issue additional  shares of Common Stock
within the limits  authorized by the Company's  charter and without  stockholder
action.

Preferred Stock

The Company's  Certificate  of  Incorporation  authorizes the issuance of 10,000
shares of 8.5% Cumulative Convertible Preferred Stock ("Preferred Stock") with a
par value of $1,000 per share.  As of January 7, 2002,  875 shares of  Preferred
Stock were issued and outstanding and were held by five holders of record.

The Preferred Stock may be issued from time-to-time without stockholder approval
in one or more  classes  or  series.  A  holder  of the  Preferred  Stock is not
entitled to vote except as required by law.

Dividends  on the  Preferred  Stock  are  cumulative  from  the day of  original
issuance, whether or not earned or declared. In the event the Board of Directors
declares  dividends  to be paid  on the  Preferred  Stock,  the  holders  of the
Preferred Stock will be entitled to receive semiannual  dividends at the rate of
eighty-five  ($85) dollars per share payable in cash on the last business day of
June and December in each year. For calendar year 1997,  the Company  elected to
defer payment of the dividends over a three-year period. The preference rate for
calendar  year 1997 was $105 per share,  with  interest  at the rate of 8.5% per
annum. The installments relating to the 1997 dividends have been paid in full by
the Company as of October 27, 2001.  Total Preferred Stock dividends of $107,603
were paid in fiscal 2001. In addition,  no dividend  shall be paid, or declared,
or set apart for payment upon,  and no other  distribution  shall at any time be
declared  or made in  respect  of,  any  shares of Common  Stock,  other  than a
dividend  payable  solely in, or a  distribution  of, Common Stock,  unless full
cumulative  dividends of the Preferred  Stock for all past dividend  periods and
for the then current  dividend period have been paid or have been declared and a
sum sufficient for the payment thereof has been set apart.

The Preferred Stock shall be redeemable, at the Company's option, in whole or in
part,  upon payment in cash of the Redemption  Price in respect of the shares so
redeemed.  The "Redemption Price" per share shall be equal to the sum of (i) One
Thousand  and 00/100  ($1,000.00)  Dollars  and (ii) all  dividends  accrued and
unpaid  on such  shares  to the  date of  redemption.  If less  than  all of the
outstanding  Preferred  Stock is to be redeemed,  the redemption will be in such
amount and by such method (which need not be by lot or pro rata), and subject to
such other  provisions,  as may from time to time be  determined by the Board of
Directors.

In the event of liquidation,  dissolution or winding-up of the Company,  whether
voluntary or  involuntary,  resulting in any  distribution  of its assets to its
shareholders,  the holders of the Preferred Stock  outstanding shall be entitled
to receive in respect of each such share an amount  which  shall be equal to the
Redemption  Price, and no more, before any payment or distribution of the assets
of the Company is made to or set apart for the holders of Common Stock.

Commencing  January 1, 2001,  the  conversion  price of the Company's  Preferred
Stock was $1.2333 and thus  convertible  into  709,479  shares of Common  Stock,
(calculated  from the closing bid price of the Common  Stock over the 45 trading
days  preceding  January  1,  2001).  No shares  of  Preferred  Stock  have been
converted to date.

If at any time prior to the  exercise  of the  conversion  rights  afforded  the
holders of the Preferred  Stock, the Preferred Stock is redeemed by the Company,
in whole or in part,  then the  conversion  right shall be deemed  canceled with
respect to such redeemed stock, as of the date of such redemption.

In case of any  capital  reorganization  or any  reclassification  of the Common
Stock,  or in case of the  consolidation  or merger of the Company  with or into
another corporation, or the conveyance of all or substantially all of the assets
of the Company to another corporation,  each Preferred Share shall thereafter be
convertible  into the number of shares of stock or other  securities or property
to which a holder of the  number of shares  of  Common  Stock  deliverable  upon
conversion  of  such  Preferred   Stock  would  have  been  entitled  upon  such
reorganization, reclassification, consolidation, merger, or conveyance.

Item 6. Management's Discussion and Analysis or Plan of Operations.

The following discussion and analysis contains forward-looking  statements which
involve  risks and  uncertainties.  When used  herein,  the words  "anticipate,"
"believe,"  "estimate,"  and "expect" and similar  expressions as they relate to
the Company or its  management  are  intended to identify  such  forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. The Company's  actual results,  performance or  achievements  could differ
materially  from the results  expressed  in or implied by these  forward-looking
statements.

General

The  following  discussion  should  be read in  conjunction  with the  Company's
audited  financial  statements  for the fiscal years ended  October 27, 2001 and
October 28, 2000, appearing elsewhere in this Form 10-KSB.
<TABLE>
<CAPTION>

Statements of Operations Data:

                                                          Fiscal Year         Fiscal Year        Fiscal Year
                                                             Ended              Ended               Ended
                                                            October            October             October
                                                            27, 2001           28, 2000            30, 1999
                                                    ----------------------------------------------------------
                                                            (in thousands, except share and per share data)

<S>                                                      <C>                 <C>                <C>
Net sales                                                $   36,687          $   34,355         $   21,386
Cost of sales                                                22,552              20,813             13,082
                                                    ----------------------------------------------------------
Gross profit                                                 14,135              13,542              8,304
Gross profit percentage                                        38.5%               39.4%              38.8%
Interest expense                                                340                 218                179
Selling, general and administrative expenses                 15,128              12,856              9,043
Other income                                                     83                  34                 72
                                                    ----------------------------------------------------------
(Loss) income before income taxes                            (1,250)                502               (846)
Income taxes                                                      -                 185                  -
                                                    ----------------------------------------------------------
                                                    ----------------------------------------------------------
Net (loss) income                                            (1,250)                317               (846)

Preferred Stock dividend requirement                            (75)                (75)               (74)
                                                    ----------------------------------------------------------
Net (loss) income attributable to
   Common Stock                                          $   (1,325)         $      242         $     (920)
                                                    ==========================================================

Net (loss) income per common share
 applicable to common shareholders:
     Basic                                               $     (.40)         $     .07          $     (.28)
                                                    ==========================================================
     Diluted                                             $     (.40)         $     .07          $     (.28)
                                                    ==========================================================

Shares used in the calculation of net (loss)
 income per common shares:
     Basic                                                3,282,833           3,282,833          3,282,833
                                                    ==========================================================
     Diluted                                              3,282,833           3,346,307          3,282,833
                                                    ==========================================================
</TABLE>


Balance Sheet Data:

                                      October             October
                                      27, 2001            28, 2000
                                ------------------- -------------------
                                            (in thousands)

Working capital (deficiency)       $   (1,416) (1)     $      747 (1)
Total assets                           12,727              11,437
Long-term liabilities                     160                 215
Total liabilities                       9,107  (1)          6,590 (1)
Total shareholders' equity              3,620               4,847

(1)  It is important to note that at October 27, 2001 and October 28, 2000,  the
     Company's  outstanding  balances on its revolving  line of credit  facility
     ($3,442,000  and  $1,068,000,  respectively)  were  classified  as  current
     liabilities,  despite the three-year term of the Company's credit facility.
     The  presentation  as a current  liability is in accordance with EITF 95-22
     (See Note 2 to the Financial Statements for details). The current ratio was
     negatively  impacted by the  Company's  increase in the  revolving  line of
     credit facility.  The increase in the line of credit facility was necessary
     to fund retail store expansion and renovation.

Results of Operations

Fiscal Year Ended  October 27, 2001 as Compared to Fiscal Year Ended October 28,
2000

Net Loss

The Company's net loss for the fiscal year ended October 27, 2001 was $1,250,000
as compared to a net profit of  $317,000  for the fiscal year ended  October 28,
2000. The net loss for fiscal 2001 included  approximately $650,000 of operating
losses and  pre-opening  expenses  for two new  stores as well as the  Company's
website. Operating losses of approximately $225,000 related to the Company's new
Bang & Olufsen  branded store which opened in Greenwich,  Connecticut in October
2000.  Approximately  $260,000 of  operating  losses  related to the new website
launched in October  2000.  Included  in the  $260,000  of  operating  losses is
$193,000 of  amortization,  as website  related  assets are being  amortized  to
expense over a period of one to three years.  Pre-opening expenses,  relating to
the new Eatontown, New Jersey store opened in April 2001, approximated $140,000.
Operating  losses for the seven-month  period  Eatontown was open,  approximated
$25,000.

The  Company's  net loss for fiscal 2001  includes  net  advertising  expense of
$1,206,000  as  compared  to  $934,000  for fiscal  2000.  The  Company's  gross
advertising  costs  increased to  $2,864,000  in fiscal 2001 from  $2,701,000 in
fiscal 2000.

Results of operations for fiscal years 2001 and 2000 also included  depreciation
and amortization expense of $989,000 and $647,000, respectively.

The Company's net loss for fiscal 2001 was  materially  impacted by the horrific
events of September 11, 2001,  the total  renovation  of the Company's  flagship
store on 45th  Street in  Manhattan  and the general  slowdown in retail  sales,
experienced from the latter part of the third quarter.

The fourth  quarter of fiscal 2000 included  pre-operating  expenses of $125,000
relating to the  opening of the new Bang & Olufsen  store in  Greenwich  and the
October  2000 launch of the  Company's  new  website.  In the fourth  quarter of
fiscal 2000, the Company also recorded  occupancy expense of $90,000 relating to
additional  rent, which was contingent upon actual sales levels achieved for one
of the  Company's  retail  stores.  Finally,  the fourth  quarter of fiscal 2000
included incentive bonuses of approximately $125,000.

The Company recorded an income tax equivalent  provision  recorded within income
taxes,  which arose from the  utilization  of  pre-reorganization  net operating
losses for fiscal 2000 of $160,000. This income tax equivalent provision did not
require the use of cash.  No income tax  equivalent  provision was necessary for
fiscal 2001.

Revenues

For the year ended October 27, 2001, net sales  approximated  $36.7 million,  an
increase  of over $2.3  million or 6.8% from the prior  year.  Comparable  store
sales for fiscal 2001 decreased slightly by approximately  $101,000 or less than
1% from fiscal 2000.

Overall net sales  increases  have been achieved from a base year,  fiscal 2000,
that  resulted in  approximately  60%  increases  over fiscal 1999.  Fiscal 2000
increases  included the maturation of several retail locations.  As noted above,
the Company's comparable store sales results for fiscal 2001 were down slightly;
however,  these sales were competing  against very high  comparable  store sales
increases of 52%, from the prior year.

Overall net sales benefited  primarily from the new Bang & Olufsen branded store
opened in Greenwich,  Connecticut in October 2000 and, to a greater extent, from
the new Harvey showroom opened in Eatontown,  New Jersey in April 2001. To date,
sales and operating  profitability  from the new  Eatontown  store have exceeded
management's  expectations,  while  sales from the new Bang & Olufsen  store for
fiscal 2001 had been slower than anticipated.

While the Company's  overall sales and  comparable  store sales results  through
June 2001 were favorable in comparison to certain other  electronics  retailers,
the  slowing  economy  did  have a  negative  impact  on  third  quarter  sales,
especially  in the month of July.  The  decline in  comparable  store  sales was
primarily related to slower sales from the Company's  Paramus,  New Jersey store
and its 45th Street  store in Manhattan  and from the events of September  11th.
The reduction in comparable store sales at Paramus and 45th Street was offset by
sales growth from the  Company's  Harvey  showrooms in  Greenwich,  Connecticut,
Mount Kisco, New York, Greenvale,  Long Island and from the retail store located
within ABC Carpet and Home in Manhattan.

The decline in sales for the Company's  45th Street  flagship store in Manhattan
was largely due to the extensive renovation at this store. Subsequent to October
2001,  sales  have  rebounded  for the  45th  Street  store,  as well as for the
Company's Bang & Olufsen branded stores.

Net  sales  and  comparable  store  sales  benefited  from  increases  in custom
installation  projects  including both equipment  sales and labor income.  These
sales were stimulated by strong demand for new digital video  technologies  such
as plasma and LCD flat-screen,  high definition and HD-ready  televisions,  DVD,
DSS as well as home theaters. Custom installation sales continue to increase and
accounted for approximately 41% of net sales ($14.9 million) for fiscal 2001, as
compared to only 33% ($11.4 million) for fiscal 2000.

Sales  also have  benefited  from the  Company's  increased  marketing  efforts,
including  radio,  newspaper,  cable and  network  television,  direct  mail and
catalog   advertisements.   The  Company   also   promoted   its  new   website,
www.harveyonline.com  which  was  launched  in  October  2000 as well as the new
Harvey  Eatontown  and new Bang & Olufsen,  Connecticut  stores.  The  Company's
website  has been  successful  in  generating  leads for the  retail  showrooms;
however, as expected, website sales have been insignificant. The Company expects
its website to continue to create consumer  interest and increase sales leads to
its retail stores in fiscal 2002 and beyond.

Costs  and  Expenses.  Total  cost of  goods  sold  for  fiscal  2001  increased
approximately  $1.7  million  or 8.4%  from  the  prior  fiscal  year.  This was
primarily related to the overall increase in net sales as noted above, offset by
a small decline in the gross profit margin.

The gross  profit  margin for fiscal 2001 was 38.5% as compared to 39.4% for the
prior  fiscal  year.  The small  decrease  in the gross  profit  margin  was due
primarily  to the  increased  sale of  video  products,  which  is  driving  the
Company's  overall  business and which  typically  have lower gross margins than
audio  products.  The increase in video sales was  primarily  due to  additional
customer demand for new digital  technologies such as HDTV, DVD, DSS, plasma and
LCD flat-screen televisions. It should be noted that sales of these new products
do benefit from higher gross margins and higher overall sales prices as compared
to commodity analog televisions and VCR's.  Interest in these new video products
will also cultivate  larger  projects  including new sales of audio  components,
speakers, home theater systems,  furniture,  accessories and custom installation
services, which all realize higher margins for the Company. For fiscal 2001, the
Company's  sales of video  products  accounted  for over 35% of its net sales as
compared to 31% in fiscal 2000.

The increase in higher margin custom  installation  labor income  (approximately
$1.9 million in fiscal 2001 as compared to approximately  $1.1 million in fiscal
2000) has helped to mitigate the reduction in the gross margin from the increase
in video sales.

Selling,  general and administrative  expenses ("SG&A expenses") increased 17.7%
or approximately $2.3 million for fiscal 2001, as compared to fiscal 2000.

Comparable  SG&A expenses for fiscal 2001  increased  approximately  $945,000 or
7.4%.  Comparable  SG&A  expenses  actually  decreased in the  Company's  fourth
quarter by $200,000 or 5.7% primarily  from a reduction in payroll,  bonuses and
payroll  related  expenses  as  prescribed  by  management.  This was  primarily
accomplished  by a reduction in personnel and the  implementation  of a one-week
non-paid  furlough  for all  Company  employees,  including  officers  and other
management employees.

The overall increase in total SG&A expense was affected by costs relating to the
new Bang & Olufsen and Eatontown stores and additionally  from costs relating to
the Company's new website.  Comparable  SG&A expenses  increased  primarily from
additional payroll, commissions and payroll-related items resulting in part from
the new  three-year  union  contract,  which was  completed at the end of fiscal
2000.  Comparable SG&A expenses also increased from additional  occupancy costs,
advertising  expenditures,  depreciation  expense,  insurance costs,  consulting
fees, investor relations costs and various other store-operating  expenses.  The
Company also  continued to hire  additional  custom  installation  personnel and
incur  other  associated  expenses  relating  to the  expansion  of  its  custom
installation business. In July 2000, the Company also expanded its warehouse and
distribution  facility,  which  increased  occupancy  costs  and  other  related
expenses for all of fiscal 2001.

Interest  expense for fiscal 2001 increased 56.1% or  approximately  $122,000 as
compared to fiscal 2000. The increase was primarily due to additional borrowings
from the  Company's  revolving  line of credit  facility  to fund the  Company's
retail store expansion and renovation.  Additionally,  the increased  expense is
due to  amortization  of warrants  issued to the  Company's  lender and from the
amortization of the commitment fee paid by the Company to its lender in December
2000, relating to the increase and extension of the line of credit.

In connection with the Company's  emergence from its reorganization  proceeding,
the Company adopted Fresh Start Accounting. Fresh Start Accounting requires that
the Company report an income tax equivalent  provision when there is book income
and  pre-reorganization  net  operating  loss  carryforwards.  This  requirement
applies  despite the fact that the  Company's  pre-reorganization  net operating
loss carryforward will be utilized to reduce the related income tax payable. The
current  and  any  future  year  benefit   arising  from   utilization   of  the
pre-reorganization  carryforward  is not  reflected  as a  reduction  of the tax
equivalent provision in determining net income, but instead is recorded first as
a  reduction  of  reorganization   value  in  excess  of  amounts  allocable  to
identifiable  assets until  exhausted,  and  thereafter as a direct  addition to
paid-in capital.

As noted  above,  for  fiscal  2000,  the income tax  equivalent  provision  was
$185,000  and the  reduction  of  reorganization  value  in  excess  of  amounts
allocable to identifiable assets amounted to $160,000. The income tax equivalent
provision did not affect the Company's cash.

Fiscal Year Ended  October 28, 2000 as Compared to Fiscal Year Ended October 30,
1999

Net Profit

The  Company's  pretax  income  for the  fiscal  year  ended  October  28,  2000
significantly increased to $502,000 as compared to a pretax loss of $846,000 for
the fiscal year ended October 30, 1999.  Net income for fiscal 2000 was $317,000
as compared to a net loss of $846,000  for fiscal  1999.  The fourth  quarter of
fiscal 2000 included  pre-operating expenses of $125,000 relating to the opening
of the new Bang & Olufsen  store in Greenwich and the October 2000 launch of the
Company's new website.  In the fourth  quarter of fiscal 2000,  the Company also
recorded  occupancy  expense of $90,000  relating to additional  rent, which was
contingent  upon actual sales levels  achieved for one of the  Company's  retail
stores. Finally, the fourth quarter of fiscal 2000 included incentive bonuses of
approximately $125,000.  Fiscal 1999 included $115,000 of pre-operating expenses
relating to the opening of the Bang & Olufsen store in lower Manhattan.

The Company's net income for fiscal 2000 also includes net  advertising  expense
of $934,000 as compared to only $227,000 for fiscal 1999.  The  Company's  gross
advertising  costs  increased  121% to  $2,701,000 in fiscal 2000 as compared to
only $1,220,000 for 1999.  Approximately  $120,000 of these costs related to the
Company's  television  commercial  which were  recorded in the  Company's  first
fiscal quarter of 2000. The  discussion  below further  explains the increase in
advertising expense.

The Company recorded an income tax equivalent  provision  recorded within income
taxes,  which arose from the  utilization  of  pre-reorganization  net operating
losses for fiscal 2000 of $185,000.  This income tax  equivalent  provision will
not affect the  Company's  tax  liability  and does not require the use of cash.
(Refer to pages 18 and 19 for further details.)

Revenues

For the year ended  October 28, 2000,  net sales  approximated  $34.4 million an
increase of  approximately  $13.0  million or more than 60% from the prior year.
Comparable  store sales for fiscal  2000  increased  by  slightly  more than $11
million, or 52% from fiscal 1999.

The Company  experienced  strong sales increases in all of its retail  showrooms
including a significant  increase in its custom  installation  services.  Custom
installation  services  more than  doubled in fiscal  2000 to  $11,314,000  from
$5,509,000  in fiscal  1999.  Custom  installation  sales,  including  labor and
equipment,  accounted  for 33% of net sales for fiscal  2000 as compared to only
26% in the prior fiscal year.

Sales also increased as the Company significantly  increased its advertising and
marketing  efforts,  with a new  campaign  implemented  in November  1999.  This
successful  campaign  included for the first time  network and cable  television
advertising. This television advertising complimented the Company's larger print
ads, radio commercials,  direct mail and various catalogs and newspaper inserts.
Additionally,  overall  sales  were  positively  affected  by the  strong  sales
performance  of the  Company's  Bang & Olufsen store in lower  Manhattan,  which
opened in July 1999, and to a lesser extent,  the additional  sales from its new
Bang & Olufsen store in Greenwich Connecticut,  opened in October 2000, and from
the   Company's   e-commerce    initiatives.    The   Company's   new   website,
harveyonline.com  was launched in October  2000 and should  drive new  customers
into the Company's retail showrooms in fiscal 2001 and beyond.

Each of the Company's two new Harvey retail stores (in Mount Kisco,  Westchester
County and  Greenvale,  Long Island,  both of which opened in November 1998, the
beginning of fiscal  1999) have shown  significant  improvement  in their second
year of operation.  The  improvement in sales at these two stores  significantly
impacted comparable store sales for fiscal 2000.

Finally, the Company benefited from strong customer demand for new higher-priced
digital and home theater products led by HDTV, HD ready projection sets,  plasma
flat-screen televisions, DVD and DSS.

Costs and Expenses

Total cost of goods sold for fiscal 2000, increased $7,731,000 or 59.1% from the
prior fiscal year. This was primarily the result of increased sales as discussed
above.

The gross profit margin for fiscal 2000  increased to 39.4% as compared to 38.8%
for the prior fiscal year. The gross profit margin improved  despite the overall
increased sale of video products,  which typically have lower margins than audio
products.  Customer  demand for new digital video products such as HDTV,  plasma
flat-screen televisions,  DVD and DSS is driving the Company's overall business.
Interest  in these  new  video  products  will also  cultivate  larger  projects
including  new  sales of  audio  components,  speakers,  home  theater  systems,
furniture,  accessories  and custom  installation  services,  which all  realize
higher margins for the Company.  Due to strong consumer demand,  the Company has
been less sales  promotional and has also experienced less price  competition in
the market for these new  products and related  installation  services in fiscal
2000 as  compared  to fiscal  1999 and this has also  helped  improve  the gross
profit margin.

It should be noted that sales of these new video products do benefit from higher
gross  margins and much higher  overall  sales  prices as compared to  commodity
analog  televisions  and VCR's.  For fiscal 2000,  the Company's  sales of video
products  accounted for 31.1% of its net sales as compared to 25.2% in the prior
fiscal year.

Additionally, for fiscal 2000, the Company's two newest Harvey showrooms (opened
November 1998) have shown significant  improvement in the gross profit margin as
compared to fiscal 1999.  Continued training and maturity of the sales force and
custom  installation teams at these stores have helped to increase the Company's
overall gross profit margin.

Selling,   general  and  administrative  expenses  ("SG&A  expenses")  increased
$3,813,000 or 42.2% for fiscal 2000 as compared to the prior year.

Comparable  SG&A  expenses  for fiscal  2000  increased  36.9% or  approximately
$3,312,000 from the prior year.

In addition to the significant increase in advertising expenses, as noted above,
the increase in total SG&A expenses were also affected by costs  relating to the
new Bang & Olufsen stores and additionally  from costs relating to the Company's
e-commerce  endeavors  and launch of its new website.  Comparable  SG&A expenses
increased  primarily  from  additional  advertising  costs,  payroll and payroll
related items, incentive bonuses, professional expenses,  depreciation expenses,
occupancy  costs,  truck  expenses and various  store  operating  expenses.  The
Company also continues to incur additional expenses relating to the expansion of
its custom installation  business,  its training efforts and its warehousing and
distribution of inventory.

Interest  expense for fiscal 2000 increased  21.4% or $38,000 as compared to the
prior year.  The increase was primarily  due to  borrowings  under the revolving
line of credit  facility,  which  began in March 1999.  In the first  quarter of
fiscal  1999,  there  were no  borrowings  under  the  revolving  line of credit
facility.

In connection with the Company's  emergence from its reorganization  proceeding,
the Company adopted Fresh Start Accounting. Fresh Start Accounting requires that
the Company report an income tax equivalent  provision when there is book income
and a pre-organization net operating loss carryforward. This requirement applies
despite  the fact  that the  Company's  pre-reorganization  net  operating  loss
carryforward  will be  utilized to reduce the related  income tax  payable.  The
current  and  any  future  year  benefit   arising  from   utilization   of  the
pre-reorganization  carryforward  is not  reflected  as a  reduction  of the tax
equivalent provision in determining net income, but instead is recorded first as
a  reduction  of  reorganization   value  in  excess  of  amounts  allocable  to
identifiable  assets until  exhausted,  and  thereafter as a direct  addition to
paid-in capital.

As noted above,  during  fiscal 2000,  the income tax  equivalent  provision was
$185,000  and the  associated  reduction  of  reorganization  value in excess of
amounts allocable to identifiable  assets amounted to $160,000.  This income tax
equivalent  provision  does not affect the  Company's tax liability and does not
require a cash payment.

Liquidity and Capital Resources

At  October  27,  2001,  the  Company's  ratio  of  current  assets  to  current
liabilities  was .84. The Company had negative  working capital of $1,416,000 at
October 27, 2001, as compared to 1.12 and $747,000 at October 28, 2000. However,
it is  important  to note that at October 27, 2001 and  October  28,  2000,  the
Company's  outstanding  balances  on  its  revolving  line  of  credit  facility
($3,442,000   and   $1,068,000,   respectively)   were   classified  as  current
liabilities,  despite the three-year term of the Company's credit facility.  The
presentation as a current liability is in accordance with EITF 95-22 (See Note 2
to the  Financial  Statements  for details).  The current  ratio was  negatively
impacted by the Company's increase in the revolving line of credit facility. The
increase in the line of credit  facility  was  necessary  to fund  retail  store
expansion and renovation.

Net cash used in operating activities was $263,000 in fiscal 2001 as compared to
net cash provided by operating  activities of  $1,795,000  for fiscal 2000.  The
decrease of $2,058,000 in cash provided from operating activities was due to the
reduction of pre-tax income of $1,752,000,  with the difference primarily due to
the reduction of trade accounts payable, accrued expenses, other liabilities and
income taxes,  offset by a reduction in inventory,  accounts  receivable  and an
increase in depreciation and amortization.

Net cash used in investing activities for fiscal 2001 was $1,727,000 as compared
to  $1,078,000  for fiscal 2000.  Net cash used for the  purchase of  furniture,
fixtures, equipment and leasehold improvements relating to new store openings as
well  as  a  retail  store  renovation  and  website   enhancements   aggregated
approximately  $1,734,000  for fiscal 2001 as compared to $1,031,000  for fiscal
2000.

Net cash  provided by financing  activities  for fiscal 2001 was  $1,984,000  as
compared to net cash used in financing  activities  of $706,000 for fiscal 2000.
Financing activities for fiscal 2001, included net borrowings of $2,374,000 from
the  Company's  revolving  line of credit  facility,  preferred  stock  dividend
payments of $108,000,  principal  payments on capital  leases of $198,000,  note
payable  payments  of  $10,000  and a $75,000  commitment  fee  relating  to the
increase  and  extension of the  revolving  line of credit  facility.  Financing
activities  for fiscal 2000  included  net  payments of  $410,000,  reducing the
revolving line of credit facility, preferred stock dividend payments of $110,000
and payments on capital leases of $186,000.

In November 1997, the Company entered into a three-year revolving line of credit
facility  with Paragon  Capital  L.L.C.,  currently  Wells Fargo Retail  Finance
("Wells Fargo"),  whereby the Company could borrow up to $3,300,000 based upon a
lending formula (as defined) calculated on eligible inventory. In July 2000, the
Company  entered  into a Second  Amendment  to the Loan and  Security  Agreement
("Amended  Agreement") with Wells Fargo. The Amended Agreement  includes a three
year  extension  enabling  the Company to borrow up to  $3,500,000  based on the
lending  formula  described  above.  The  interest  rate  on  borrowings  up  to
$2,500,000 was reduced to  three-quarters  of 1% (.75%) over the prime rate. The
rate charged on  outstanding  balances  over  $2,500,000  was also reduced to 1%
above the prime rate.  Additionally,  the Amended Agreement provided for a lower
annual facility fee and reduced monthly maintenance fees.

In December  2000, the Company  entered into a Third  Amendment to its revolving
line of credit facility ("Third Amended Agreement"). The Third Amended Agreement
increased the amount available under the credit facility to $7.0 million,  based
on a lending formula calculated on eligible inventory,  as defined, and extended
the credit  facility  through  November 30, 2003.  The new interest  rate on all
borrowings  was  increased and is fixed at one percent (1%) over the prime rate,
with a minimum  interest  rate of 8%.  Effective  January 1, 2002,  the  minimum
interest rate will be reduced to 6.5% and will be in effect through fiscal 2002.
A commitment  fee of $75,000 (which is being  amortized  over three years),  was
also paid by the Company on December 29, 2000.  Prepayment  fees exist under the
Third Amended Agreement. At January 7, 2002, there was $1,726,000 in outstanding
borrowings under the credit facility, with approximately $3,857,000 available to
borrow under the credit facility.  The decrease in the balance outstanding under
the revolving  credit  facility from the amount  outstanding at October 27, 2001
($3,442,000),  is  primarily  due  to the  cash  flow  generated  to  date  from
operations in the first quarter of fiscal 2002.

The maximum  amount of  borrowings  available to the Company  under this line of
credit is limited to  formulas,  as  prescribed  by Wells Fargo.  The  Company's
maximum  borrowing  availability  is equal to 75% of  eligible  inventory,  less
existing borrowings and certain reserves established by Wells Fargo.

Pursuant to the credit facility, the Company cannot exceed certain advance rates
on eligible inventory and must maintain certain levels of net income or loss and
minimum gross profit margins.  Additionally,  the Company's capital expenditures
cannot exceed a predetermined amount.

Wells Fargo  obtained a senior  security  interest in  substantially  all of the
Company's  assets.  The revolving line of credit  facility  provides Wells Fargo
with rights of acceleration  upon the breach of certain  financial  covenants or
the  occurrence  of certain  customary  events of  default.  The Company is also
restricted from paying  dividends on common stock,  retiring or repurchasing its
common stock,  and generally  from entering  into  additional  indebtedness  (as
defined).

The Company has 2,104,500 redeemable common stock purchase warrants ("Warrants")
outstanding from its public offering of common stock and Warrants in fiscal 1998
(the  "Offering").  Each  outstanding  Warrant is  exercisable  for one share of
common  stock at 110% ($5.50 per share) of the Offering  price,  for a period of
three years expiring  March 31, 2003. The Warrants are also  redeemable (at $.10
per Warrant), at the Company's option,  commencing March 31, 2000 if the closing
bid price of the common  stock for 20  consecutive  trading days exceeds 150% of
the Offering price per share or $7.50.

The Company's  management believes that the Company's overhead structure has the
capacity to support additional stores without significant  increases in cost and
personnel,  and consequently,  that revenues and profit from new stores, after a
maturation  period,  would have a positive  impact on the Company's  operations.
This has been demonstrated by the Company for all store openings (except for the
retail stores  opened  during fiscal 2001 which have not yet matured)  since the
Company's public offering to date.

As Bang & Olufsen  ("B&O")  focuses on developing B&O Branded Stores  throughout
the world,  it has canceled its dealer  agreement with the Company and all other
retailers.  As a result,  B&O products are available only in Branded Stores. The
Company  opened its first B&O  branded  store in the Union  Square area of lower
Manhattan in July 1999. In October 2000, the Company opened its second B&O store
in Greenwich, Connecticut.

In September  2000,  the Company  entered into a ten-year  lease for a new 6,500
square foot Harvey showroom in Eatontown, New Jersey. This store opened in April
2001 and is the Company's  ninth.  Capital  expenditures,  including  inventory,
necessary to operate this new retail store approximated $1,500,000.

The  Company  does  not plan to open  any new  retail  stores  in  fiscal  2002.
Additionally,  no material  capital  expenditures,  improvements or purchases of
equipment or other assets are necessary for fiscal 2002.

The Company  does intend to continue  its  advertising  campaign in fiscal 2002.
This will continue the Company's media presence with print,  radio, direct mail,
cable and network television advertising.

The  Company's  website gives its  customers  access to one of Harvey's  upscale
retail showrooms or offers its customers a private in-home  consultation through
the  convenience of the Internet.  The Company plans to continually  improve its
website,  however,  the anticipated costs of these improvements are not expected
to be material for 2002.

In March 2001, the Company  engaged Porter,  LeVay & Rose, Inc.  ("PL&R") as its
investor  relations  advisor.  PL&R will help the Company  communicate  with its
shareholders, the financial community and the business news media. The Company's
goal in engaging PL&R is to heighten its visibility and shareholder value as the
Company  pursues its business  strategy  and  selective  expansion.  The monthly
retainer paid to PL&R is $5,000, plus expenses.

Management  believes that cash on hand, cash flow from operations and funds made
available  under the extended and  increased  credit  facility with Wells Fargo,
will be sufficient to meet the Company's  anticipated  working capital needs for
at least the next twelve-month period.

Item 7. Financial Statements

The  information  required  by this item is  incorporated  by  reference  to the
Company's financial statements.

Item  8.  Changes  In and  Disagreements  With  Accountants  on  Accounting  and
Financial Disclosure.

None.

Part III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act.

The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>

              Name                   Age (1)                            Position
--------------------------------- --------------- ----------------------------------------------------

<S>                                     <C>       <C>
Michael E. Recca                        51        Chairman and Director
William F. Kenny, III                   70        Director
Jeffrey A. Wurst                        52        Director
Fredric J. Gruder                       55        Director
Franklin C. Karp                        48        President and Director
Joseph J. Calabrese                     42        Executive Vice President, Chief Financial Officer,
                                                       Treasurer, Secretary and Director
Michael A. Beck                         43        Vice President of Operations
Roland W. Hiemer                        40        Director of Inventory Control

(1)      As of October 27, 2001.
</TABLE>


Michael E. Recca became the Chairman of the Board of Directors of the Company in
November  1996.  Mr.  Recca is also a member and  manager of Harvey  Acquisition
Company,  LLC, which is a principal shareholder of the Company. Mr. Recca was an
employee of Taglich  Brothers,  D'Amadeo,  Wagner & Co., Inc., a NASD registered
broker-dealer,  through  December  31,  1998.  Mr.  Recca is also a principal in
NorthStar Capital,  LLC , which is a joint venture with Ruskin,  Moscou, Evans &
Faltischek, P.C. the Company's corporate counsel.

Franklin C. Karp began his career in the retail  consumer  electronics  industry
over 25 years ago,  working  then as a salesman  for one of the most  successful
chain operations in the New York metropolitan area. He held various positions in
sales management,  purchasing and operations. In 1990, Mr. Karp joined Harvey as
Merchandise Manager and later as Vice President in charge of merchandising.  Mr.
Karp was appointed President of Harvey in 1996.

Jeffrey A. Wurst,  a director  since February 2000, is a Partner at the law firm
of Ruskin,  Moscou,  Evans & Faltischek,  P.C.  ("Ruskin"),  where he chairs the
firm's Financial Services Group. Mr. Wurst began his legal career with Ruskin in
1987. Mr. Wurst is experienced  in asset based  lending,  factoring,  commercial
finance and  bankruptcy  matters.  Mr. Wurst attended the Jacob D. Fuchsburg Law
Center of Touro  College  in 1987 and  earned  his B.S.  and M.A.  from  Hofstra
University.  Mr. Wurst's law firm has been involved in the legal  representation
of the Company since it reorganized under the bankruptcy laws in 1996.

Fredric J. Gruder, has been a director since July 1998. Since December 2001, Mr.
Gruder  has been a sole  practitioner  in his own law  firm.  From  July 1999 to
December  2001,  Mr.  Gruder has been of counsel to Dorsey & Whitney  LLP.  From
September  1996 to July  1999,  he was a  partner  in the law  firm of  Gersten,
Savage,  Kaplowitz & Fredericks,  LLP ("Gersten"),  which represented Thornwater
Company, L.P.  ("Thornwater"),  representative of the Company's  underwriters in
the Offering.  From March 1996 through September 1996, Mr. Gruder was of counsel
to Gersten,  having been a sole  practitioner  from May 1995 through March 1996.
From March 1992 until  March  1996,  Mr.  Gruder  served as vice  president  and
general counsel to Sbarro,  Inc., then a publicly traded corporation which owns,
operates,  and franchises  Italian  restaurants.  Prior to this time, Mr. Gruder
practiced  law in New York for over  twenty  years,  specializing  in  corporate
securities and retail real estate.

William F.  Kenny,  III has been a director  of the  Company  since  1975.  From
January 1992 to December  2000,  Mr.  Kenny was a consultant  to Meenan Oil Co.,
Inc. Prior to 1992, Mr. Kenny was the President and Chief  Executive  Officer of
Meenan Oil Co., Inc. Mr. Kenny has also served as a director of the Empire State
Petroleum Association, Petroleum Research Foundation and is the President of the
East Coast Energy  Council.  Mr. Kenny was also the President of the Independent
Fuel Terminal Operators Association and the Metropolitan Energy Council.

Joseph J.  Calabrese,  a  certified  public  accountant,  joined the  Company as
Controller in 1989.  Since 1991,  Mr.  Calabrese  has served as Vice  President,
Chief Financial Officer,  Treasurer and Secretary of the Company.  Mr. Calabrese
was elected  Executive Vice President and a Director of the Company in 1996. Mr.
Calabrese  began  his  career  with  Ernst & Young  LLP in  1981  where  for the
eight-year  period prior to his joining the Company he performed  audit services
with respect to the Company.

Michael A. Beck has been Vice President of Operations of the Company since April
1997.  From  June  1996  until  such  date,  he was the  Company's  Director  of
Operations  and from  October  1995 until  April 1996 he served as  director  of
operations for Sound City, a consumer electronics retailer. Mr. Beck was a store
manager for the Company from August 1989 until October 1995. Mr. Beck holds a BA
in Psychology from Merrimack College.

Roland W.  Hiemer  is an  executive  officer  of the  Company  and  Director  of
Inventory  Control.  Mr. Hiemer has been with the Company for eleven  years.  He
started with the Company as a salesman and advanced to Senior Sales  Manager for
the Paramus store in 1991. He was further promoted to Inventory  Control Manager
in 1991. In 1997, he was promoted to Director of Inventory Control.  In November
2001, Mr. Hiemer's title was changed to Merchandise  Manager. Mr. Hiemer holds a
BA in Business Administration from Hofstra University.

Committees of the Board of Directors

The Board of  Directors  has an Audit  Committee  and a  Compensation  and Stock
Option Committee.

Audit   Committee.   The  function  of  the  Audit  Committee   includes  making
recommendations  to the Board of Directors with respect to the engagement of the
Company's  independent  auditors  and the  review of the scope and effect of the
audit engagement. The Company's Audit Committee is governed by a written charter
approved by the Board of Directors. William F. Kenny, III, Fredric J. Gruder and
Jeffrey A. Wurst are the current members of the Audit Committee.

Compensation  and Stock Option  Committee.  The function of the Compensation and
Stock Option Committee is to make  recommendations  to the Board with respect to
the  compensation of management  employees and to administer  plans and programs
relating  to  stock  options,  pension  and  other  retirement  plans,  employee
benefits, incentives, and compensation. Fredric J. Gruder, William F. Kenny, III
and  Jeffrey A. Wurst are the  current  members  of the  Compensation  and Stock
Option Committee.

Item 10. Executive Compensation.

The following  table sets forth the cash  compensation  paid by the Company,  as
well as any other compensation paid to or earned by the Chairman of the Company,
the  President of the Company and those  executive  officers  compensated  at or
greater than  $100,000 for  services  rendered to the Company in all  capacities
during the three most recent fiscal years.

Summary Compensation Table
<TABLE>
<CAPTION>

     Name of Individual                                                       Stock             Long-Term
   and Principal Position        Year         Salary          Bonus       Compensation (5)    Compensation
------------------------------ --------- ----------------- ------------- ------------------- ----------------

<S>                              <C>       <C>                <C>              <C>                <C>
Michael Recca                    2001      $ 120,000          $     -          $     -            $  -
Chairman (1)                     2000      $ 108,000 (1)      $15,000          $     -            $  -
                                 1999      $  95,000          $     -          $     -            $  -

Franklin C. Karp (2)             2001      $ 147,000          $50,000          $     -            $  -
President                        2000      $ 138,000          $60,000          $     -            $  -
                                 1999      $ 126,000          $ 5,000          $     -            $  -

Joseph J. Calabrese (3)          2001      $ 138,000          $40,000          $     -            $  -
Executive Vice President         2000      $ 128,000          $46,000          $     -            $  -
Chief Financial Officer,         1999      $ 117,000          $ 3,750          $     -            $  -
   Treasurer and Secretary

Michael A. Beck (4)              2001      $ 123,000          $40,000          $     -            $  -
Vice President of                2000      $ 113,000          $46,000          $     -            $  -
   Operations                    1999      $ 101,000          $ 3,750          $     -            $  -
<FN>

(1)--From  April 1,  1998 to April  30,  2000,  Mr.  Recca  received  an  annual
     director's fee of $95,000 at the rate of $7,917 per month,  in his capacity
     as the Chairman of the Board of Directors of the Company.  Effective May 1,
     2000,  Mr.  Recca had been  placed on the  Company's  payroll  at an annual
     salary of $120,000, plus Company sponsored benefits.

(2)--Effective  October 28, 2001,  Mr.  Karp's  annual  salary was  increased to
     $155,000.

(3)--Effective  October 28, 2001, Mr. Calabrese's annual salary was increased to
     $145,000.

(4)--Effective  October 28, 2001,  Mr.  Beck's  annual  salary was  increased to
     $130,000.

(5)--See "Stock  Option Plan" for related  information  relating to stock option
     grants.
</FN>
</TABLE>

Severance Agreements

In fiscal year 2000, the Company's  Board of Directors  approved and the Company
entered into  substantially  similar Amended and Restated  Severance  Agreements
(each an "Amended Severance  Agreement") with each of Michael E. Recca, Franklin
C. Karp, Joseph J. Calabrese, and Michael A. Beck, executives of the Company.

Each Amended  Severance  Agreement  provides  that in the event the executive is
terminated for any reason other than for cause, as defined in the agreement, and
in the event of a change in  control  (as  defined),  such as a merger,  sale or
disposition of assets,  change in the  constitution of the Board of Directors or
the current Chairman, the assignment to the executive of a position inconsistent
with the executive's  current position or relocation of the corporate office (as
defined),  or in the event of a  potential  change in control (as  defined),  or
disability  (as defined),  and within one hundred eighty (180) days from the day
of one of the foregoing  events the  executive is  terminated  for reasons other
than for cause or the executive  terminates his  employment for any reason,  the
respective executive shall receive, among other things:

i.   a cash amount equal to the higher of: (x) the executive's base salary prior
     to termination or the event giving rise to the change in control, potential
     change in control or disability,  or (y) the executive's  base salary prior
     to the  event  giving  rise  to the  executive's  right  to  terminate  his
     employment  for any reason;

ii.  a cash  payment  equal to the  higher of:  (x)  twelve  (12)  months of the
     executive's  highest  monthly  car  allowance  or  monthly  average  travel
     reimbursement in effect within the six (6) month period  immediately  prior
     to  termination  or the change in control,  potential  change in control or
     disability,  not to exceed twelve thousand and 00/100 ($12,000) dollars, or
     (y) twelve (12) months of the executives  highest  monthly car allowance or
     monthly  average  travel  reimbursement  in effect within the six (6) month
     period  immediately  prior  to  the  date  the  executive   terminates  his
     employment  for any  reason,  not to  exceed  twelve  thousand  and  00/100
     ($12,000) dollars; and

iii. the maximum /highest benefits which the executive was receiving at any time
     during  a  two-year  period  prior  to  termination,   relating  to  health
     insurance,   accident   insurance,   long-term  care,  life  insurance  and
     disability,  which  shall  continue  for one (1)  year  beyond  the date of
     termination of the executive's employment.

Roland W. Hiemer's severance agreement provides that in the event the Company is
sold or merged with another company, involved in a corporate reorganization,  or
if a change of the current  management  takes  place,  and Mr.  Hiemer,  for the
foregoing  reasons,  is terminated or asked to accept a position other than that
of a  senior  officer  requiring  similar  responsibilities  to  those  that  he
currently  performs,  or if the  current  corporate  office  is  moved  to a new
location which is more than thirty miles Lyndhurst, New Jersey, as a result of a
reorganization  or change in  ownership  or  control,  and he  declines  the new
position  or  relocation,  the  Company  or its  successor  in  control  will be
obligated,  and continue,  to pay him at the same salary and car  allowance,  if
any, he had most recently been earning, for a period of six months. In addition,
he will be fully covered under the Company's benefit plans,  including,  without
limitation,  the  Company's  medical,  dental,  life  and  disability  insurance
programs, during the six month period.

If, following termination of Mr. Hiemer as described in the preceding paragraph,
Mr.  Hiemer  obtains  employment  at a lesser  compensation  than  Mr.  Hiemer's
compensation  by the  Company,  the Company will pay Mr.  Hiemer the  difference
between  the two  salaries  for the  remainder  of the six  month  period,  plus
continued  coverage of the  Company's  benefit  plans for the same  period.  The
severance  agreement  for Mr.  Hiemer  also  provides  that in the  event  he is
terminated for any other reasons, except conduct that is materially injurious to
the Company or conviction of any crime  involving moral  turpitude,  the Company
will be obligated  and continue to pay Mr. Hiemer at the same salary he has most
recently been earning,  for a period following  termination of three months plus
full coverage of the Company's benefits for the same period.

Stock Option Plan

In April 1997, the Company  adopted a stock option plan which  currently  covers
1,000,000  shares of the Common  Stock.  Options may be designated as either (i)
incentive  stock options  ("ISOs")  under the Internal  Revenue Code of 1986, as
amended (the "Code") or (ii)  non-qualified  stock options.  ISOs may be granted
under  the  Stock  Option  Plan  to  employees  and  officers  of  the  Company.
Non-qualified  options may be granted to consultants,  directors (whether or not
they  are  employees),  employees  or  officers  of  the  Company  (collectively
"Options").  In certain  circumstances,  the  exercise  of  Options  may have an
adverse  effect on the market price of the Common  Stock.  The Stock Option Plan
was approved by the Company's shareholders in fiscal 1998.

The Stock Option Plan is intended to encourage  stock  ownership by employees of
the Company, so that they may acquire or increase their proprietary  interest in
the Company and to  encourage  such  employees  and  directors  to remain in the
employ of the  Company and to put forth  maximum  efforts for the success of the
business.  Options  granted  under the Stock Option Plan may be  accompanied  by
either stock appreciation  rights ("SARS") or limited stock appreciation  rights
(the "Limited SARS"), or both.

The  Plan  is  administered  by the  Company's  Compensation  and  Stock  Option
Committee  ("Compensation  Committee")  as the Board may establish or designate.
The Compensation  Committee shall be comprised of not less than two members, and
all of whom shall be outside  directors.  The  members of the  Compensation  and
Stock Option Committee are William F. Kenny III, Jeffrey A. Wurst and Fredric J.
Gruder, outside directors.

The Compensation and Stock Option Committee,  within the limitation of the Stock
Option Plan,  shall have the  authority to determine  the types of options to be
granted,  whether an Option shall be  accompanied  by SARS or Limited SARS,  the
purchase price of the shares of Common Stock covered by each Option (the "Option
Price"),  the persons to whom, and the time or times at which,  Options shall be
granted,  the number of shares to be  covered  by each  Option and the terms and
provisions of the option agreements.

The  maximum  aggregate  number of shares of Common  Stock as to which  Options,
Rights and Limited  Rights may be granted under the Stock Option Plan to any one
optionee  during any fiscal  year of the Company is  100,000,  as  approved  and
amended by the shareholders in fiscal 2000.

With respect to the ISOs,  in the event that the  aggregate  fair market  value,
determined as of the date the ISO is granted, of the shares of Common Stock with
respect to which Options  granted and all other option plans of the Company,  if
any,  become  exercisable for the first time by any optionee during any calendar
year exceeds $100,000,  Options granted in excess of such limit shall constitute
non-qualified stock options for all purposes.  Where the optionee of an ISO is a
ten (10%)  percent  stockholder,  the Option Price will not be less than 110% of
the fair market value of the Company's  Common Stock,  determined on the date of
grant,  and the exercise  period will not exceed five (5) years from the date of
grant of such ISO. Otherwise, the Option Price will not be less than one hundred
(100%) percent of the fair market value of the shares of the Common Stock on the
date of grant,  and the exercise  period will not exceed ten (10) years from the
date of grant.  Options granted under the Plan shall not be  transferable  other
than by will or by the laws of descent  and  distribution,  and  Options  may be
exercised,  during the lifetime of the optionee,  only by the optionee or by his
guardian or legal representative.

In fiscal 2001, the Company's  Compensation and Stock Option Committee  approved
three grants of incentive stock options  aggregating  262,500,  to the Company's
officers  and outside  directors,  to purchase  the  Company's  common  stock at
exercise prices from  $.8125-$1.375  per share.  The fiscal 2001 incentive stock
options are exercisable immediately.

In fiscal 2000, the Company's  Compensation  Committee  approved three grants of
incentive  stock options  aggregating  172,500,  to the Company's  officers,  to
purchase the Company's  common stock at exercise  prices from  $1.75-$1.925  per
share. The fiscal 2000 incentive stock options are exercisable immediately.

Item 11. Security Ownership of Certain Beneficial Owners and Management.

The  following  table  sets  forth  certain  information  with  respect  to  the
beneficial  ownership of shares of Common Stock as of October 27, 2001, based on
information  obtained from the persons named below,  by (i) each person known to
the Company to beneficially own more than 5% of the outstanding shares of Common
Stock,  (ii) each executive  officer and director of the Company,  and (iii) all
officers and directors of the Company as a group:
<TABLE>
<CAPTION>

                Name and Address of                       Title        Amount and Nature of
                  Beneficial Owner                       of Class      Beneficial Ownership     Percentage
----------------------------------------------------- --------------- ------------------------ --------------

<S>                            <C>                        <C>                 <C>                   <C>
Harvey Acquisition Company LLC ("HAC")                    Common              253,932               7.7%
c/o Michael E. Recca
949 Edgewood Avenue
Pelham Manor, NY 10803

Michael E. Recca                                          Common              405,078 (1)          11.9%
949 Edgewood Avenue
Pelham Manor, NY 10803

Matthew and Alicia Larson                                 Common              196,800               6%
c/o CIBC 200 Liberty Street
New York, NY 10281

Jeffrey A. Wurst                                          Common               46,050 (6)           1.4%
c/o Ruskin, Moscou, Evans & Faltischek, PC
170 Old Country Rd.
Mineola, NY 11501-4366

William F. Kenny, III                                     Common               48,989 (2)           1.5%
Harvey Electronics, Inc.
205 Chubb Avenue
Lyndhurst, NJ 07071

Fredric J. Gruder                                         Common               42,500 (2)           1.3%
Dorsey & Whitney LLP
250 Park Ave., 16th Floor
New York, NY 10177

Franklin C. Karp                                          Common              179,500 (3)           5.2%
Harvey Electronics, Inc.
205 Chubb Avenue
Lyndhurst, NJ 07071

Joseph J. Calabrese                                       Common              151,702 (4)           4.4%
Harvey Electronics, Inc.
205 Chubb Avenue
Lyndhurst, NJ 07071

Michael A. Beck                                           Common              147,500 (4)           4.3%
Harvey Electronics, Inc.
205 Chubb Avenue
Lyndhurst, NJ 07071

Roland W. Hiemer                                          Common               77,500 (5)           2.3%
Harvey Electronics, Inc.
205 Chubb Avenue
Lyndhurst, NJ 07071

All Directors and Officers as a group                     Common            1,098,819 (7)          27.1%
(8 Persons)

All Beneficial Owners as a group                          Common            1,295,619 (7)          31.9%
<FN>

(1)  Includes  shares  owned by HAC,  of which Mr.  Recca is a member and one of
     three  managers,  plus  options to  purchase  up to  135,000  shares of the
     Company's  Common  Stock  which are  exercisable  at an  exercise  price of
     between $.8937-$1.925 per share.

(2)  Includes an option to purchase up to 40,000 shares of the Company's  Common
     Stock,  which is exercisable at an exercise price of between  $.8125-$1.375
     per share.

(3)  Includes  options to purchase up to 162,500 shares of the Company's  Common
     Stock,  which are exercisable at an exercise price of between  $.8125-$.300
     per share.

(4)  Includes  options to purchase up to 140,000 shares of the Company's  Common
     Stock,  which are exercisable at an exercise price of between  $.8125-$3.00
     per share.

(5)  Includes  options to purchase up to 75,000 shares of the  Company's  Common
     Stock,  which are exercisable at an exercise price of between  $.8125-$3.00
     per share.

(6)  Includes a warrant to purchase 15,000 shares of the Company's Common Stock,
     in the name of Ruskin,  Moscou,  Evans & Faltischek,  P.C., the law firm in
     which Mr. Wurst is a Partner,  at an exercise price of $5.00 per share. Mr.
     Wurst has expressly disclaimed  beneficial ownership of this warrant.  Also
     includes  options to purchase up to 30,000 shares of the  Company's  Common
     Stock,  which is exercisable at an exercise price of between  $.8125-$1.375
     per share.

(7)  Includes  options and  warrants to purchase up to 777,500  shares of Common
     Stock,  which are exercisable at an exercise price of between  $.8125-$5.00
     per share.
</FN>
</TABLE>

Section 16(a) Beneficial Ownership Reporting Compliance

     Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers  and  directors,  and  persons  who own more  than ten  percent  of the
Company's common stock, to file reports of ownership and changes in ownership on
Forms  3,4  and 5 with  the  Securities  and  Exchange  Commission  and  Nasdaq.
Officers,  directors and greater than ten percent  shareholders  are required by
Securities  and  Exchange  Commission  regulations  to furnish the Company  with
copies of all Section 16(a) forms they file.

     To the  Company's  knowledge,  based  solely on its review of the copies of
such forms received by it, and written  representations  from certain  reporting
persons that no Forms 5 were required for those  persons,  the Company  believes
that during the fiscal year ended  October 28,  2001,  all Section  16(a) filing
requirements applicable to its officers,  directors and greater than ten percent
beneficial owners were complied with,  except that Joseph J. Calabrese,  Michael
A. Beck, Michael Recca,  Roland W. Heimer and Franklin C. Karp each reported two
transactions late on a Form 4, and Frederic Gruder, William F. Kenny and Jeffrey
A. Wurst each reported one transaction late on a Form 4.


Item 12. Certain Relationships and Related Transactions.

From April 1, 1998 through April 30, 2000, Mr. Recca received  $7,917 per month,
representing a director's  fee in the annual amount of $95,000,  in his capacity
as the Chairman of the Board of Directors of the Company. Effective May 1, 2000,
Mr. Recca was placed on the  Company's  payroll at an annual salary of $120,000,
plus all Company sponsored benefits.

In December  2000,  $23,000 was paid to Recca & Co. Inc.,  of which Mr. Recca is
the  sole  shareholder.  Amounts  paid  relate  to  management  fees  and  other
miscellaneous amounts from fiscal 1998.

Since  January 2001,  Mr. Recca has also been a principal of NorthStar  Capital,
LLC which is a joint venture between certian of the partners of Ruskin,  Moscou,
Evans and Faltischeck,  P.C. ("Ruskin"), the Company's corporate counsel and Mr.
Recca.

Jeffrey A. Wurst, Director, is also a Senior Partner with Ruskin. At October 27,
2001, the Company had amounts payable to Ruskin of  approximately  $25,000.  The
Company also paid legal fees to Ruskin of $64,000 and $127,000,  in fiscal years
2001 and 2000, respectively.

At October 28, 2000, the Company had a receivable of  approximately  $45,000 due
from Mr. E.H.  Arnold,  a member of HAC and a holder of  Preferred  Stock.  This
amount was subsequently collected by the Company in December 2000.

Dividends paid to preferred stockholders aggregated $108,000 for fiscal 2001 and
$110,000 for fiscal 2000.

Effective  November 1, 1998,  the Company  signed a consulting  agreement with a
previous  member  of its  underwriter.  Pursuant  to the  terms of the  two-year
agreement,  the  consultant  received an annual fee of $75,000 for fiscal  1999.
This  agreement was  terminated by the Company  effective  February 29, 2000. In
August 2000,  the  consultant  was again  engaged by the Company,  pursuant to a
consulting  agreement,  at $5,000 per month. At December 15, 2000, the agreement
was terminated by the Company.  The consultant  received fees aggregating $5,000
and $40,000 in fiscal years 2001 and 2000, respectively.

Item 13. Exhibits and Reports on Form 8-K.

(a)--The  following  exhibits  are hereby  incorporated  by  reference  from the
     corresponding exhibits filed under the Company's Form SB-2 under Commission
     File #333--42121:

Exhibit
Number                   Description
------                   -----------
3.1.1--Restated Certificate of Incorporation of 1967

3.1.2--Certificate of Amendment of the Certificate of Incorporation of 1997

3.1.3--Certificate of Amendment of the Certificate of Incorporation of December
       1996

3.1.4--Certificate of Amendment of Certificate of Incorporation of July 1988

3.1.5--Certificate of Amendment of Certificate of Incorporation of July 1971

3.1.6--Certificate of Amendment of Certificate of Incorporation of February 1971

3.1.7--Certificate of Amendment of Certificate of Incorporation of June 1969

3.1.8--Certificate of Amendment of Certificate of Incorporation of September
       1968

4.1--Sections in Certificate of Incorporation and the Amended and Restated
     By-Laws of Harvey  Electronics,  Inc., that define the rights of the
     holders of shares of Common Stock, Preferred Stock and holders of Warrants
     (included in Exhibit Nos. 3.1.2 and 3.1.3)

4.2--Form of Common Stock Certificate

4.3--Form of Redeemable Common Stock Purchase Warrant

4.4--Form of Representative's Warrant

4.5--Form of Warrant to Holders of Preferred Stock

10.1.1--Stock Option Plan of Harvey Electronics, Inc.

10.1.2--Form of Stock Option Agreement

10.2.1--Severance Agreement with Franklin C. Karp

10.2.2--Severance Agreement with Joseph J. Calabrese

10.2.3--Severance Agreement with Michael A. Beck

10.2.4--Severance Agreement with Roland W. Hiemer

10.4.1--Dealer Agreement between the Company and Mitsubishi Electronics America,
        Inc.

10.4.2--Dealer Agreement between the Company and Niles Audio Corporation, Inc.

10.5.1--Lease between the Company and Joseph P. Day Realty Corp. (2)

10.5.2--Lease between the Company and Goodrich Fairfield Associates, L.L.C. (2)

10.5.3--Lease between the Company and Sprout Development Co. (2)

10.5.4--Lease between the Company and Service Realty Company (2)

10.5.5--Lease between the Company and 205 Associates (2)

10.5.6--Sublease between the Company and Fabian Formals, Inc. and Affiliate
        First Nighter of Canada (2)

10.6--Loan and Security Agreement, Master Note and Trademark Security Agreement
      with Paragon Capital L.L.C.

(ii) The following exhibits are hereby  incorporated by reference from Exhibit A
     filed as part of the registrant's Form 8-K dated November 3, 1997:

2.1.1--Restated Modified Amended Joint and Substantially Consolidated Plan of
       Reorganization of Harvey Electronics, Inc.

2.1.2--Order dated November 13, 1996 Confirming Plan of Reorganization

(iii)The following  exhibits are hereby  incorporated  by reference  from Item 7
     filed as part of the registrant's Form 8-K dated April 7, 1998:

4.4--Representative's Warrant Agreement

4.5--Warrant Agent Agreement

10.1--Underwriting Agreement

10.2--Financial Advisory and Investment Banking Agreement between the Company
      and The Thornwater Company, L.P.

(iv) The  following  exhibits  are  hereby  incorporated  by  reference  to  the
     corresponding  exhibits filed with the Company's Form 8-K dated October 12,
     1998:

10.01--Bang & Olufsen America, Inc. Termination Letter dated September 7, 1998

10.02--Bang & Olufsen America, Inc. New Agreement Letter dated October 8, 1998

10.03--Agreement with Thornwater regarding termination of agreements and
       lock-up amendments dated October 31, 1998

(v)  The  following  exhibits  are  hereto  incorporated  by  reference  to  the
     Company's Form 10KSB dated October 31, 1998:

10.5.7--Lease Agreement with Martin Goldbaum and Sally Goldbaum

10.5.8--Lease Agreement with Bender Realty

10.7--Surrender of Lease with 873 Broadway Associates

10.8--Contract of Sale with Martin Goldbaum, Sally Goldbaum, the Sound Mill,
      Inc. and Loriel Custom Audio Video Corp.

10.9--License Agreement with ABC Home Furnishings, Inc.

(vii)The  following  exhibits  are  hereto  incorporated  by  reference  to  the
     Company's Form 10KSB dated October 28, 2000:

10.2.5--Severance Agreement between the Company and Michael E. Recca

10.2.6--Amended and Restated Severance Agreement between the Company
        and Franklin C. Karp

10.2.7--Amended and Restated Severance Agreement between the Company and Joseph
        J. Calabrese

10.2.8--Amended and Restated Severance Agreement between the Company and
        Michael A. Beck

10.5.9--Sublease Agreement between the Company and Bang & Olufsen America, Inc.

10.6--Lease Agreement between the Company and WSG Eatontown LP

10.6.1--Lease Modification Agreement between the Company and WSG Eatontown LP

10.6.2--Renewal of License Agreement with ABC Home Furnishings, Inc.

10.10--Repurchase Agreement between the Company, Bang & Olufsen America, Inc.
       and Paragon Capital, L.L.C.

10.11--Addendum to Repurchase Agreement between the Company, Bang & Olufsen
       America, Inc. and Paragon Capital, L.L.C.

10.12--Second Amendment to Loan and Security Agreement with Paragon Capital,
       L.L.C.

10.13--Third Amendment to Loan and Security Agreement with Paragon Capital,
       L.L.C.

10.14--Consulting Agreement with Mesa Partners Inc.

10.15--Addendum to Consulting Agreement with Mesa Partners, Inc.

10.16--Warrant to purchase 15,000 shares of the Company's common stock, issued
       to Mesa Partners, Inc.

10.17--Investor relations agreement with Porter, LeVay & Rose

(viii) The following exhibits are annexed hereto:

10.6.3--Modification of Lease between the Company and Service Realty Company

10.6.4--First Amendment of Lease between the Company and 205 Associates

23.--Consent of Ernst & Young LLP

(b)--Reports on Form 8-K

     None.


Signatures

In  accordance  with  Section 13 or 15(d) of the Exchange  Act,  the  Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                            Harvey Electronics, Inc.

                            By: /s/ Franklin C. Karp
                                --------------------
                                Franklin C. Karp, President

Dated: January 25, 2002

In  accordance  with the Exchange  Act, this report has been signed below by the
following  persons on behalf of the  Registrant and in the capacities and on the
dated indicated.
<TABLE>
<CAPTION>

             Signature                                     Title                                Date
------------------------------------- ------------------------------------------------- ---------------------

<S>                                   <C>                                                <C>
/s/ Franklin C. Karp                  President and Director                            January 25, 2002
-------------------------------------
    Franklin C. Karp

/s/ Joseph J. Calabrese               Executive Vice President, Chief Financial         January 25, 2002
-------------------------------------
    Joseph J. Calabrese               Officer, Treasurer, Secretary and Director


/s/ Michael E. Recca                  Chairman and Director
-------------------------------------
    Michael E. Recca

/s/ William F. Kenny, III             Director
-------------------------------------
    William F. Kenny, III

/s/ Fredric J. Gruder                 Director
-------------------------------------
    Fredric J. Gruder

/s/ Jeffrey A. Wurst                  Director
-------------------------------------
    Jeffrey A. Wurst
</TABLE>




Item 7. Financial Statements.

                            Harvey Electronics, Inc.

                          Index to Financial Statements


<TABLE>
<CAPTION>


<S>                                                                                                      <C>

Report of Independent Auditors.....................................................................    F-2

Balance Sheet--October 27, 2001....................................................................    F-3

Statements of Operations--Fiscal years ended
   October 27, 2001 and October 28, 2000...........................................................    F-4

Statements of Shareholders' Equity--Fiscal years ended
   October 27, 2001 and October 28, 2000...........................................................    F-5

Statements of Cash Flows--Fiscal years ended
   October 27, 2001 and October 28, 2000...........................................................    F-6

Notes to Financial Statements......................................................................    F-7
</TABLE>

                         Report of Independent Auditors

Shareholders and Board of Directors
Harvey Electronics, Inc.

We have audited the accompanying balance sheet of Harvey Electronics, Inc. as of
October 27, 2001 and the related statements of operations, shareholders' equity,
and cash flows for the years ended October 27, 2001 and October 28, 2000.  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 auditing standards generally accepted
in the United States. 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 financial position of Harvey  Electronics,  Inc. at
October 27, 2001,  and the results of its  operations and its cash flows for the
years ended October 27, 2001 and October 28, 2000, in conformity with accounting
principles generally accepted in the United States.


                                                     /s/ Ernst & Young LLP



Melville, New York
December 28, 2001


<TABLE>
<CAPTION>

                            Harvey Electronics, Inc.

                                  Balance Sheet

                                October 27, 2001

Assets
Current assets:
<S>                                                                                            <C>
   Cash and cash equivalents                                                                   $     28,336
   Accounts receivable, less allowance of $25,000                                                   578,905
   Inventories                                                                                    6,709,125
   Prepaid expenses and other current assets                                                        214,270
                                                                                             ----------------
Total current assets                                                                              7,530,636
Property and equipment:
   Leasehold improvements                                                                         3,194,392
   Furniture, fixtures and equipment                                                              1,799,369
   Internet website                                                                                 415,630
                                                                                             ----------------
                                                                                                  5,409,391
   Less accumulated depreciation and amortization                                                 1,981,683
                                                                                             ----------------
                                                                                                  3,427,708
Equipment under capital leases, less accumulated amortization of $377,131                           119,365
Cost in excess of net assets acquired, less accumulated amortization of $19,000                     131,000
Reorganization value in excess of amounts allocable to identifiable assets,
   less accumulated amortization of $324,023                                                      1,164,440
Other assets, less accumulated amortization of $111,347                                             354,051
                                                                                             ----------------
Total assets                                                                                   $ 12,727,200
                                                                                             ================

Liabilities and shareholders' equity Current liabilities:
   Revolving line of credit facility                                                           $  3,442,020
   Trade accounts payable                                                                         2,823,781
   Accrued expenses and other current liabilities                                                 2,555,242
   Income taxes                                                                                      28,200
   Cumulative preferred stock dividends payable                                                      24,792
   Current portion of long-term debt                                                                 21,985
   Current portion of capital lease obligations                                                      50,921
                                                                                             ----------------
Total current liabilities                                                                         8,946,941

Long-term liabilities:
   Capital lease obligations                                                                          5,265
   Deferred rent                                                                                    154,660
                                                                                             ----------------
                                                                                                    159,925
Commitments and contingencies

Shareholders' equity:
   8-1/2% Cumulative Convertible preferred stock, par value $1,000 per share;
     authorized 10,000 shares; issued and outstanding 875 shares (aggregate liquidation
     preference--$875,000)                                                                           402,037
   Common Stock, par value $.01 per share; authorized 10,000,000 shares;
     issued and outstanding 3,282,833 shares                                                         32,828
   Additional paid-in capital                                                                     7,579,667
   Accumulated deficit                                                                           (4,394,198)
                                                                                             ----------------
Total shareholders' equity                                                                        3,620,334
                                                                                             ----------------
Total liabilities and shareholders' equity                                                     $ 12,727,200
                                                                                             ================

See notes to financial statements.
</TABLE>


                            Harvey Electronics, Inc.

                            Statements of Operations
<TABLE>
<CAPTION>

                                                                              Fiscal Years Ended
                                                                   October 27, 2001      October 28, 2000
                                                                  -------------------- ----------------------

<S>                                                                      <C>                  <C>
Net sales                                                                $36,687,206          $34,355,415
Interest and other income                                                     82,917               33,519
                                                                  -------------------- ----------------------
                                                                          36,770,123           34,388,934
                                                                  -------------------- ----------------------

Cost of sales                                                             22,552,054           20,813,396
Selling, general and administrative expenses                              15,128,410           12,856,155
Interest expense                                                             339,894              217,724
                                                                  -------------------- ----------------------
                                                                          38,020,358           33,887,275
                                                                  -------------------- ----------------------

(Loss) income before income taxes                                         (1,250,235)             501,659
Income taxes                                                                       -              185,000
                                                                  -------------------- ----------------------
Net (loss) income                                                         (1,250,235)             316,659

Preferred Stock dividend requirement                                          74,376               74,376
                                                                  -------------------- ----------------------
Net (loss) income applicable to Common Stock                             $(1,324,611)            $242,283
                                                                  ==================== ======================

Net (loss) income per common share applicable
 to common shareholders:
     Basic                                                                    $(0.40)               $0.07
                                                                  ==================== ======================
     Diluted                                                                  $(0.40)               $0.07
                                                                  ==================== ======================

Shares used in the calculation of net (loss) income
 per common share:
     Basic                                                                 3,282,833            3,282,833
                                                                  ==================== ======================
     Diluted                                                               3,282,833            3,346,307
                                                                  ==================== ======================



See notes to financial statements.
</TABLE>


                            Harvey Electronics, Inc.

                       Statements of Shareholders' Equity


<TABLE>
<CAPTION>

                                                                                                                 Additional
                                                             Preferred Stock              Common Stock             Paid-in
                                                           Shares       Amount        Shares        Amount         Capital
                                                        -----------------------------------------------------------------------

<S>                <C> <C>                                  <C>        <C>           <C>            <C>          <C>
Balance at October 30, 1999                                 875        $ 402,037     3,282,833      $32,828      $7,481,667
  Net income for the year                                  -                   -             -            -               -
  Preferred Stock dividend                                    -                -             -            -               -
                                                        -----------------------------------------------------------------------
Balance at October 28, 2000                                 875          402,037     3,282,833       32,828       7,481,667
  Net loss for the year                                    -                   -             -            -               -
  Recorded value of Common Stock warrants granted             -                -             -            -          98,000
  Preferred Stock dividend                                    -                -             -            -               -
                                                        -----------------------------------------------------------------------
Balance at October 27, 2001                                 875        $ 402,037     3,282,833      $32,828      $7,579,667
                                                        =======================================================================


                                                                                   Total
                                                              Accumulated      Shareholders'
                                                                Deficit           Equity
                                                        ---------------------------------------
<CAPTION>

Balance at October 30, 1999                                   $(3,311,870)      $ 4,604,662
<S>                                                               <C>               <C>
  Net income for the year                                         316,659           316,659
  Preferred Stock dividend                                        (74,376)          (74,376)
                                                        ---------------------------------------
Balance at October 28, 2000                                    (3,069,587)        4,846,945
  Net loss for the year                                        (1,250,235)       (1,250,235)
  Recorded value of Common Stock warrants granted                       -            98,000
  Preferred Stock dividend                                        (74,376)          (74,376)
                                                        ---------------------------------------
Balance at October 27, 2001                                   $(4,394,198)      $ 3,620,334
                                                        =======================================

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


See notes to financial statements.
</TABLE>



<TABLE>
<CAPTION>


                            Harvey Electronics, Inc.

                            Statements of Cash Flows

                                                                                    Fiscal Years Ended
                                                                              October 27,       October 28,
                                                                                  2001              2000
                                                                            ----------------- -----------------
Operating activities
<S>                                                                           <C>              <C>
Net (loss) income                                                             $  (1,250,235)   $      316,659
Adjustments to reconcile net (loss) income to net cash (used in)
   provided by operating activities:
     Depreciation and amortization                                                  989,055           647,064
     Income tax equivalent provision                                                      -           160,000
     Straight-line impact of rent escalations                                       (21,556)          (22,867)
     Consulting fees                                                                  3,516            10,000
     Miscellaneous                                                                   (8,980)          (12,667)
     Changes in operating assets and liabilities:
       Accounts receivable                                                         (105,808)          (24,040)
       Note receivable--previous member of Underwriter                                     -            54,914
       Inventories                                                                 (168,729)       (1,341,791)
       Prepaid expenses and other current assets                                     (8,708)          179,863
       Trade accounts payable                                                       (95,782)          976,338
       Accrued expenses, other current liabilities and income taxes
                                                                                    403,863           851,531
                                                                            ----------------- -----------------
Net cash (used in) provided by operating activities                                (263,364)        1,795,004

Investing activities
Purchases of property and equipment excluding Internet
   website development                                                           (1,661,398)         (688,550)
Internet website development                                                        (73,032)         (342,598)
Purchase of other assets                                                               (563)          (53,927)
Note receivable--officer                                                               7,500             7,500
                                                                            ----------------- -----------------
Net cash used in investing activities                                            (1,727,493)       (1,077,575)
                                                                            ----------------- -----------------

Financing activities
Net proceeds (payments) proceeds from revolving credit facility                   2,374,311          (409,894)
Commitment fee from increased revolving credit facility                             (75,000)                -
Preferred Stock dividends paid                                                     (107,603)         (110,206)
Principal payment on note payable                                                   (10,374)                -
Principal payments on capital lease obligations                                    (197,514)         (185,903)
                                                                            ----------------- -----------------
Net cash provided by (used in) financing activities                               1,983,820          (706,003)
                                                                            ----------------- -----------------
(Decrease) increase in cash and cash equivalents                                     (7,037)           11,426
Cash and cash equivalents at beginning of year                                       35,373            23,947
                                                                            ----------------- -----------------
Cash and cash equivalents at end of year                                      $      28,336    $       35,373
                                                                            ================= =================

Supplement cash flow information
Interest paid                                                                 $     302,000    $      247,000
                                                                            ================= =================
Taxes paid                                                                    $      17,000    $       11,000
                                                                            ================= =================
</TABLE>

See notes to financial statements.



                            Harvey Electronics, Inc.

                          Notes to Financial Statements

                                October 27, 2001


1. Description of Business and Summary of Significant Accounting Policies

Description of Business

The  Company  is a  specialty  retailer  of high  quality  audio/video  consumer
electronics  and home  theater  products  in the  Metropolitan  New  York  area.
Revenues from retail sales are recognized at the time goods are delivered to the
customer or, for certain installation services, when such services are performed
and  accepted by the  customer.  The  Company's  fiscal  year ends the  Saturday
closest to October 31. The fiscal  years ended  October 27, 2001 and October 28,
2000 each consist of 52 weeks.

The  Company's  net  loss  for the  fiscal  year  ended  October  27,  2001  was
approximately $1,250,000 as compared to net income of approximately $317,000 for
the fiscal year ended  October 28, 2001.  At October 27, 2001,  the Company also
had an accumulated  deficit of  approximately  $4,394,000 and a working  capital
deficiency of  approximately  $1,416,000.  The net loss for fiscal 2001 included
the impact on sales  resulting from the events of September 11, 2001,  operating
losses and pre-opening  expenses  associated with two new stores,  one opened in
October 2000 and one opened in April 2001,  and operating  losses related to the
Company's  new website  which was launched in October  2000.  In  addition,  the
Company made capitalized  expenditures of approximately $1,734,000 during fiscal
2001,   related  primarily  to  its  retail  store  expansion,   renovation  and
capitalized  website  assets,  which  it  financed  with  borrowings  under  its
revolving  line  of  credit  facility.   At  October  27,  2001,  the  Company's
outstanding  balance  on  its  three-year  revolving  line  of  credit  facility
(approximately  $3,442,000) was classified as a current  liability in accordance
with Emerging Issues Task Force ("EITF") 95-22, "Balance Sheet Classification of
Borrowings  Outstanding  under Revolving  Credit  Agreements that Include both a
Subjective Acceleration Clause and a Lock-Box Arrangement" (see Note 2).

The Company's ability to maintain a satisfactory level of working capital during
fiscal 2002 depends on its ability to increase revenue, reduce costs, and obtain
additional financing,  if needed. The Company's current revolving line of credit
facility  (see Note 2) provides for  borrowings  up to $7 million and expires on
November 30, 2003.  Borrowings  bear interest at one percent over the prime rate
with a minimum  interest  rate of 6.5% for fiscal 2002. As of December 28, 2001,
the Company  had  outstanding  $2,065,000  under this  revolving  line of credit
facility and had approximately  $3,400,000 available to borrow under this credit
facility.

The Company's management believes that cash flows from operations, existing cash
and cash  equivalents,  and the additional  ability to borrow from its revolving
line of credit  facility  will be  sufficient  to meet the  Company's  currently
anticipated working capital requirements for the next 12 months.

Accounting Estimates

The  preparation  of the  financial  statements in  conformity  with  accounting
principles  generally accepted in the United States requires  management to make
estimates and assumptions that affect the financial  statements and accompanying
notes. Actual results could differ from those estimates.

Long-Lived Assets

In accordance with Financial  Accounting  Standards Board Statement of Financial
Accounting  Standards  ("SFAS")  No.  121,  "Accounting  for the  Impairment  of
Long-Lived  Assets and for Long-Lived Assets to Be Disposed Of," when impairment
indicators are present,  the Company reviews the carrying value of its assets in
determining the ultimate recoverability of their unamortized values using future
undiscounted  cash flows expected to be generated by the assets.  If such assets
are  considered  impaired,  the  impairment  loss  recognized is measured by the
amount by which the  carrying  amount of the asset  exceeds the  estimated  fair
value. No such impairment  exists at October 27, 2001.  Assets to be disposed of
are  reported at the lower of the  carrying  amount or fair value,  less cost to
sell.

The Company  evaluates the periods of  amortization  continually  in determining
whether  later  events and  circumstances  warrant  revised  estimates of useful
lives. If estimates are changed,  the unamortized  cost will be allocated to the
increased or decreased number of remaining periods in the revised lives.

Stock-Based Compensation

SFAS No. 123,  "Accounting for Stock-Based  Compensation,"  defines a fair value
method  of  accounting  for the  issuance  of stock  options  and  other  equity
instruments.  Under the fair value method,  compensation cost is measured at the
grant  date  based on the fair  value of the  award and is  recognized  over the
service period,  which is usually the vesting period.  Pursuant to SFAS No. 123,
companies are encouraged,  but are not required,  to adopt the fair value method
of  accounting  for  employee  stock-based  transactions.   Companies  also are
permitted  to  continue  to  account  for  such  transactions  under  Accounting
Principles  Board  Opinion  ("APB")  No.  25,  "Accounting  for Stock  Issued to
Employees,"  as the Company  has elected to do, but are  required to disclose in
the financial statement footnotes, pro forma net income and per share amounts as
if the  Company had  applied  the new method of  accounting  for all grants made
since 1996.  SFAS No. 123 also requires  increased  disclosures  for stock-based
compensation  arrangements.  The Company follows the disclosure  requirements of
SFAS No. 123 (see Note 4).

Segment Disclosures

SFAS  No.  131,  "Disclosures  about  Segments  of  an  Enterprise  and  Related
Information," establishes standards for the way that 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.  SFAS No. 131 also establishes  standards
for related disclosure about products and services,  geographic areas, and major
customers.  The Company  operates in one business  segment and,  therefore,  the
adoption of SFAS No. 131 did not affect the  Company's  results of operations or
financial position, and did not require the disclosure of segment information.

Inventories

Inventories  are  stated  at the  lower  of  cost  (average-cost  method,  which
approximates the first-in, first-out method) or market value.

Depreciation and Amortization

Property and  equipment  are stated at cost less  accumulated  depreciation  and
amortization.  Depreciation  of  property  and  equipment,  including  equipment
acquired under capital leases, is calculated using the straight-line method over
the  estimated  useful  lives of the related  assets,  ranging from three to ten
years.   Amortization  of  leasehold   improvements  is  calculated   using  the
straight-line  method  over the  shorter of the lease term or  estimated  useful
lives of the improvements.

Internet Website

The  Company  follows  the  provisions   EITF  00-2,   "Accounting  for  Website
Development Costs",  which provides guidance or how an entity should account for
website  development  costs. In accordance with EITF 00-2, costs incurred in the
website  application  and  infrastructure  development  stage  relating  to  the
acquisition  or  development  of software  or the  development  of graphics  for
internal  use,  should be  accounted  for under the  provisions  of Statement of
Position ("SOP") 98-1,  "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use" and  capitalized.  As such, and in accordance with
SOP 98-1, the Company capitalized  approximately $73,000 and $343,000 for fiscal
years 2001 and 2000, respectively, relating to the development of their website.
These costs are being amortized on a straight-line basis over a period of one to
three years.

Income Taxes

The Company  follows the  liability  method in  accounting  for income  taxes as
described in SFAS No. 109,  "Accounting  for Income  Taxes."  Under this method,
deferred tax assets and liabilities are determined based on differences  between
financial  reporting  and tax bases of assets and  liabilities  and are measured
using the enacted tax rates and laws that will be in effect when the differences
are  expected  to  reverse.  Deferred  income  taxes  reflect the net effects of
temporary differences between the carrying amounts of assets and liabilities for
financial  reporting  purposes and the amounts used for income tax purposes (see
Note 6).

(Loss) Income Per Share

Basic and diluted (loss) income per share are calculated in accordance with SFAS
No. 128,  "Earnings  Per Share." The basic and diluted  (loss) income per common
share for the fiscal  years  ended  October  27,  2001 and October 28, 2000 were
computed based on the weighted-average  number of common shares outstanding.  No
common  equivalent shares relating to stock options or warrants were included in
the weighted average number of shares  outstanding for the basic or diluted loss
per share  computation  for fiscal year 2001 as their effect was  anti-dilutive.
For fiscal 2000, common equivalent shares relating to stock options  aggregating
63,474 were included in the weighted average number of common shares outstanding
for the diluted earnings per share computation. Options and warrants aggregating
3,361,233 for fiscal 2001 and 2,240,600 for fiscal 2000,  were excluded from the
computation as their effect would have been antidilutive. Common shares issuable
upon  the   conversion   of   preferred   stock   were  not   considered   since
theyanti-dilutive.

Cash Equivalents

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

Fair Value of Financial Instruments

The  recorded  amounts  of the  Company's  cash and cash  equivalents,  accounts
receivable,  revolving  line of credit  facility,  accounts  payable and accrued
liabilities  approximate their fair values principally because of the short-term
nature of these items.

Concentration of Credit Risk

The  Company's  operations  consist  of the  retail  sale,  service  and  custom
installation of high quality audio,  video and home theater equipment in the New
York Metropolitan area. The Company performs credit evaluations of its customers
financial  condition  and  payment  history  but  does not  require  collateral.
Generally,  accounts  receivable  are due within 30 days and credit  losses have
historically been immaterial.

Advertising Expense

In accordance  with SOP 93-7,  "Reporting of  Advertising  Costs," the Company's
advertising expense, net of cooperative  advertising  allowances,  is charged to
operations when the advertising takes place.  Advertising  expense for the years
ended  October 27, 2001 and October 28, 2000 was  approximately  $1,206,000  and
$934,000, respectively. Prepaid advertising for print advertisements not run and
broadcast  advertisements not aired at October 27, 2001 and October 28, 2000 was
approximately $53,000 and $69,000, respectively.

Reorganization Value and Fresh Start Reporting

The  Company  adopted  Fresh  Start  Reporting  in  accordance  with  SOP  90-7,
"Financial  Reporting by Entities in Reorganization  under the Bankruptcy Code,"
when it emerged from a Chapter 11 proceeding on December 26, 1996. At that time,
Fresh  Start  Reporting  resulted  in changes to the  balance  sheet,  including
valuation of assets and  liabilities  at fair market value,  elimination  of the
accumulated deficit and valuation of equity based on the reorganization value of
the ongoing business.

The   reorganization   value  of  the  Company  was  determined   based  on  the
consideration  received from Harvey Acquisition Company LLC. (HAC) to obtain its
principal ownership in the Company. A carrying value of $318,000 was assigned to
the Preferred  Stock (see Note 5).  Subsequent to the  Reorganization  Date, the
Company  issued an  additional  51,565  shares of  Common  Stock to  InterEquity
Capital Partners, L.P., a pre-reorganization subordinated secured debtholder, as
authorized  by the  Court,  for an  approved  finders  fee.  The  excess  of the
reorganization  value  over  the  fair  value  of  net  assets  and  liabilities
($1,164,440,   net  of   amortization  at  October  27,  2001)  is  reported  as
"Reorganization value in excess of amounts allocable to identifiable assets" and
is being  amortized over a 25-year period.  Amortization  expense of $60,000 and
$66,000 was recorded for fiscal years 2001 and 2000, respectively.

Recent Accounting Pronouncements

In December 1999, the  Securities and Exchange  Commission  staff released Staff
Accounting  Bulletin No. 101,  "Revenue  Recognition  in Financial  Statements,"
("SAB No. 101"),  which provides  guidance on the recognition,  presentation and
disclosure of revenue in financial statements. The Company appropriately adopted
the  provisions  of SAB No.  101 in the fourth  quarter  of fiscal  2001 and the
effect of the adoption of the Company's financial statements was immaterial.

In June 2001,  the  Financial  Accounting  Standards  Board issued SFAS No. 141,
"Business  Combinations,"  and SFAS No.  142,  "Goodwill  and  Other  Intangible
Assets", effective for fiscal years beginning after December 15, 2001. Under the
new rules,  goodwill and other intangible assets deemed to have indefinite lives
will no longer be amortized  but will be subject to annual  impairment  tests in
accordance  with the  Statement.  Other  intangible  assets will  continue to be
amortized over their useful lives.  In addition,  Statement 141,  eliminates the
pooling-of-interest method of accounting for business combinations.  The Company
will adopt SFAS No. 141 and 142  beginning in the first  quarter of fiscal 2003.
During  fiscal  2003,  the  Company  will  perform  the  first  of the  required
impairment  tests of  goodwill  and  indefinite  lived  intangible  assets as of
October 27,  2002.  Management  has not yet  determined  what  impact  these new
pronouncements  will have on the  Company's  financial  position  and results of
operations.

In August 2001, the Financial  Accounting  Standards  Board issued SFAS No. 144,
"Accounting  for  the  Impairment  or  Disposal  of  Long-Lived  Assets,"  which
addresses  financial  accounting and reporting for the impairment or disposal of
long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived  Assets  and  for  Long-Lived  Assets  to be  Disposed  Of,"  and the
accounting and reporting provisions of APB Opinion No 30, "Reporting the Results
of  Operations,"  for a  disposal  of a segment of a  business.  SFAS No. 144 is
effective  for fiscal years  beginning  after  December  15, 2001,  with earlier
application encouraged.  The Company expects to adopt SFAS No. 144 as of October
27,  2002,  the first day of fiscal  2003,  and  management  does not expect the
adoption of SFAS No. 144 to have a material  effect on the  Company's  financial
position and results of operations.

2. Amendments and Extension of Revolving Line of Credit Facility

In November 1997, the Company entered into a three-year revolving line of credit
facility  with Paragon  Capital  L.L.C.,  currently  Wells Fargo Retail  Finance
("Wells Fargo"),  whereby the Company could borrow up to $3,300,000 based upon a
lending formula (as defined) calculated on eligible inventory.

On July 7, 2000,  the Company  entered into a Second  Amendment to its revolving
line of credit  facility  ("Amended  Agreement")  with Wells Fargo.  The Amended
Agreement  includes a three-year extension  enabling the Company to borrow up to
$3,500,000  based upon a lending formula  calculated on eligible  inventory,  as
defined. The interest rate on borrowings up to $2.5 million was reduced to three
quarters  of 1% (.75%)  over the prime  rate.  The rate  charged on  outstanding
balances  over  $2.5  million  was also  reduced  to 1% above  the  prime  rate.
Additionally,  the Amended  Agreement  provides  for an annual  facility  fee of
$17,500 and reduced maintenance fees of $1,500 per month.

In December 2000, the Company  entered into the Third Amendment to its revolving
line of credit facility ("Third Amended Agreement"). The Third Amended Agreement
increased the amount available under the credit facility to $7.0 million,  again
based on a lending formula  calculated on eligible  inventory,  as defined,  and
extended the credit facility through November 30, 2003. The new interest rate on
all  borrowings  was fixed at one  percent  (1%) over the  prime  rate  (6.5% at
October 27, 2001) with a minimum interest rate of 8%. Effective January 1, 2002,
the  minimum  interest  rate  will be  reduced  to 6.5%  and  will be in  effect
throughout  fiscal  2002.  Prepayment  fees also exist  under the Third  Amended
Agreement.  A commitment fee of $75,000  (being  amortized over the three years)
was also paid by the Company on December 29, 2000. The balance outstanding under
the revolving line of credit  facility at October 27, 2001 was $3,442,020 and is
presented as a current  liability in accordance with EITF 95-22 (See Note 1).

Wells Fargo has a senior security interest in all of the Company's  assets.  The
amended line of credit facility provides Wells Fargo with rights of acceleration
upon the  occurrence of certain  customary  events of default  including,  among
others, the event of bankruptcy. The Company is restricted from paying dividends
on common  stock,  retiring or  repurchasing  its common stock and entering into
additional  indebtedness (as defined). The line of credit facility also contains
certain  financial  covenants.  The Company  did not meet a certain  covenant at
October 27, 2001 and it received a waiver from Wells Fargo.

In  connection  with the  Third  Amended  Agreement,  Wells  Fargo  received  an
additional  warrant to purchase  100,000  shares of the Company's  common stock,
subject to  adjustment,  which is currently  exercisable at a price of $2.00 per
share and expires  November 30, 2003.  Wells Fargo also received an extension of
an  existing  warrant to purchase  125,000  shares of common  stock,  subject to
adjustment,  which is  currently  exercisable  at a price of $5.50 per share and
also expires  November 30, 2003. In accordance with EITF 96-18,  "Accounting for
Equity Instruments that are Issued to Other than Employees for Acquiring,  or in
Conjunction  with  Selling,  Goods or Services,"  the Company  recorded the fair
value of the warrants  ($75,000) in December  2000  (included in Other Assets in
the  accompanying  balance  sheet),  which is being  amortized over a three-year
period.

3. Sale of Common Stock and Warrants in Public Offering

In April 1998, the Company  completed an issuance of its common stock and common
stock  warrants  in  a  public  offering  (the  "Offering").  The  Offering  was
co-managed  by The  Thornwater  Company,  L.P.  (the  "Underwriter")  which sold
1,200,000  shares of the Company's  common stock, of which 1,025,000 shares were
sold by the Company  and  175,000  shares  were sold by HAC,  and  2,104,500  of
Warrants  ("Warrants")  to acquire  additional  shares of the  Company's  common
stock. The net proceeds from the Offering, which approximated $4.1 million, were
used to temporarily repay amounts borrowed under the Wells Fargo credit facility
(approximately $2.3 million) and to retire the principal ($350,000) and interest
($48,000) of a term loan,  with the balance of the  proceeds  used to open three
new retail stores and for general working capital purposes.

Each  Warrant is  exercisable  for one share of common  stock at 110% ($5.50 per
share) of the Offering price for a period of  three-years  expiring on March 31,
2003.  The Warrants also are  redeemable  (at $.10 per warrant) at the Company's
option,  beginning  March 31, 2000 if the closing bid price of the common  stock
for 20 consecutive  trading days exceeds 150% of the Offering price per share or
$7.50 per share.

4. Stock-Based Compensation

Stock Option Plan

The  Company's  Board  of  Directors  and   shareholders   approved  the  Harvey
Electronics,  Inc.  Stock Option Plan ("Stock  Option Plan") in fiscal 1998. The
Stock  Option  Plan  provides  for the  granting  of up to  1,000,000  shares of
incentive and non-qualified  common stock options and stock appreciation  rights
to directors,  officers and employees.  All options are  exercisable at times as
determined  by the Board of  Directors  not to exceed ten years from the date of
grant.

In fiscal 2001, the Company's  Compensation and Stock Option Committee  approved
three grants of incentive stock options  aggregating  262,500,  to the Company's
officers  and outside  directors,  to purchase  the  Company's  common  stock at
exercise prices from  $.8125-$1.375  per share.  The fiscal 2001 incentive stock
options are exercisable immediately.

In fiscal 2000,  the Company's  Compensation  and Stock Option  Committee of the
Board of Directors ("Compensation Committee") approved three grants of incentive
stock options aggregating  172,500,  to the Company's officers,  to purchase the
Company's  common  stock at exercise  prices from  $1.75-$1.925  per share.  The
fiscal 2000 incentive stock options are exercisable immediately.

In fiscal 2001 and 2000,  the  Company  reserved  262,500 and 172,500  shares of
common stock,  respectively,  for issuance in connection with stock options. The
following  table  summarizes  activity in stock  options  during fiscal 2001 and
2000:
<TABLE>
<CAPTION>

                                                                                             Weighted-
                                              Shares            Shares Under Option           Average
                                                          --------------------------------
                                          Available for     Option Price      Number of       Exercise
                                             Granting        per Share         Shares          Price
                                          --------------- ----------------- -------------- ---------------

<S>                                          <C>            <C>                 <C>            <C>
   Balance at October 30, 1999                 4,600                            362,900        $1.65
      2000 Stock option grants               172,500
      Granted--March 1, 2001                 (57,500)          $1.75             57,500        $1.50
      Granted--July 3, 2001                  (57,500)          $1.86             57,500        $1.86
      Granted--July 28, 2001                  (57,500)      $1.75-$1.925         57,500        $1.79
      Forfeited                               10,450        $1.00-$2.00         (10,450)       $1.02
                                          ---------------                   --------------
                                          ---------------                   --------------
   Balance at October 28, 2000                15,050                            524,950        $1.68
      2001 Stock option grants               262,500
      Granted--November 29, 2000              (45,000)          $1.375            45,000       $1.375
      Granted--December 28, 2000             (102,500)      $.8125-$.8937        102,500       $  .82
      Granted--March 12, 2001                (115,000)      $.9375-$1.0313       115,000       $  .96
      Forfeited                                2,175         $1.00-$3.00          (2,175)      $ 2.13
                                          ---------------                   --------------
                                          ---------------                   --------------
   Balance at October 27, 2001                17,225                            785,275        $1.44
                                          ===============                   ==============
</TABLE>

At  October  27,  2001  and  October  28,  2000,  all  outstanding  options  are
exercisable.  The  weighted-average  fair  value of options  granted  during the
fiscal  years  ended  October  27, 2001 and October 28, 2000 was $.76 and $1.43,
respectively.

Exercise prices for options outstanding as of October 27, 2001, are as follows:
<TABLE>
<CAPTION>

                                                                              Weighted-
                                Number of                                      Average
                                 Options                Options               Remaining
       Range of              Outstanding at         Exercisable at        Contrtactual Life
    Exercise Price              Year End              End of Year              in Years
------------------------ ---------------------- ---------------------- ----------------------

<S>     <C>                       <C>                    <C>                      <C>
        $.8125                    90,000                 90,000                   10
        $.8937                    12,500                 12,500                   10
        $.9375                    90,000                 90,000                   10
         $1.00                    63,125                 63,125                    7
        $1.0313                   25,000                 25,000                   10
        $1.375                    45,000                 45,000                   10
         $1.50                   222,500                222,500                    8
         $1.75                   102,500                102,500                    9
         $1.86                    57,500                 57,500                    9
        $1.925                    12,500                 12,500                    9
         $2.00                     5,650                  5,650                    6
         $3.00                    59,000                 59,000                    6
                         ---------------------- ----------------------
                                 785,275                785,275                    9
                         ====================== ======================
</TABLE>

At October 27, 2001, the Company has reserved approximately  3,576,000 shares of
common stock for issuance  under common stock  options,  warrants and  preferred
stock.

The alternative fair value accounting  provided for under SFAS No. 123, requires
use of option  valuation  models  that  were not  developed  for use in  valuing
employee  stock  options.  Under  APB 25,  because  the  exercise  price  of the
Company's  Stock  Options  equals or exceeds the market price of the  underlying
stock on the date of grant, no compensation expense is recognized.

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 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 provide a reliable  single  measure of the
fair value of its stock options.

Pro forma information  regarding net (loss) income and net loss per share (basic
and  diluted)  is  required  by SFAS  No.  123,  which  also  requires  that the
information  be determined as if the Company had accounted for its stock options
granted under the fair value of that statement.

The fair value of these  options  was  estimated  at the date of grant using the
Black-Sholes  option  pricing  model with the following  assumptions  for fiscal
years 2001 and 2000:  risk-free  interest  rate  ranging  from  4.88%-5.47%  and
6.20%-6.36%,  respectively; no dividend yield; volatility factor of the expected
market price of the Company's  common stock of $0.938 and $0.897,  respectively;
and a  weighted-average  expected life of the options of 7 years and 6.57 years,
respectively.

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 for fiscal year 2001 and 2000 are as follows:
<TABLE>
<CAPTION>

                                                                     2001               2000
                                                              ------------------- ------------------

<S>                                                            <C>                  <C>
Pro forma net (loss) income                                    $   (1,475,000)      $      49,000
Pro forma net loss attributable to common stock                $   (1,549,000)      $     (25,000)
Pro forma basic and diluted loss per share                     $         (.47)      $        (.01)
</TABLE>

5. 8.5% Cumulative Convertible Preferred Stock

The  Company's  Preferred  Stock has no voting  rights and is  redeemable at the
option of the Company's  Board of Directors,  in whole or in part, at face value
plus  any  accrued  dividends.  The  carrying  value of the  Preferred  Stock is
$402,037 at October 27, 2001.

In the event of liquidation of the Company,  the holders of the Preferred  Stock
shall receive  preferential rights and shall be entitled to receive an aggregate
liquidation preference of $875,000 plus any outstanding dividends,  prior to any
distributions to common  shareholders.  The holders of the Preferred Stock shall
receive  a  semiannual  8.5%  cumulative  dividend  ($85 per  share  or  $74,376
annually),  payable on the last business day in June and  December.  The Company
had elected to defer the fiscal 1997 dividends, at a preference rate of $105 per
share  annually  ($91,875)  plus  interest  at 8.5% per annum over a  three-year
period.  All  installments  relating to the 1997 dividends have been paid by the
Company as of October 27, 2001.

Commencing on January 1, 2001, the Preferred  Stock is convertible at $1.2333 or
709,479 shares of common stock (calculated from the average closing price of the
Company's Common Stock for the preceding  45-day trading  period).  No shares of
preferred stock have been converted to date.

The Preferred Stock  originally  contained a mandatory  redemption  feature.  In
December  1997,  the  redemption  feature was  eliminated and the holders of the
Preferred  Stock  received  36,458  Warrants to purchase  shares of common stock
(valued at  approximately  $6,000) with terms equivalent to the Warrants granted
during the Offering (see Note 3). The balance sheet at October 27, 2001 has been
presented to reflect the Preferred  Stock as part of  shareholders'  equity as a
result of the eliminated redemption feature.

Cumulative  Preferred  Stock  dividends  payable of $24,792 are  outstanding and
classified  as a current  liability at October 27, 2001.  Dividends  aggregating
$74,376 were recorded as a charge to accumulated deficit at October 27, 2001.

6. Income Taxes

Fresh Start  Accounting  requires the Company to report an income tax equivalent
provision  when  there  is book  taxable  income  and a  pre-reorganization  net
operating loss carryforward.  This requirement applies despite the fact that the
Company's pre-reorganization net operating loss carryforward would eliminate (or
reduce)  the related  income tax  payable.  The current and future year  benefit
related to the  carryforward  is not  reflected  in net  income,  but instead is
recorded as an adjustment to reorganization value in excess of amounts allocable
to identifiable assets. There was no provision (benefit) for income taxes during
the year ended  October 27, 2001.  During the year ended  October 28, 2000,  the
income tax equivalent provision and the associated  adjustment to reorganization
value amounted to $160,000.  The income tax equivalent  provision did not affect
the Company's tax liability.

The provision for income taxes for the year ended October 28, 2000 consists of
the following:

Current:
Federal                                                     $    13,500
State                                                            11,500
Equivalent tax expense                                          160,000
                                                           ----------------
                                                                185,000
Deferred                                                              -
                                                           ----------------
                                                              $ 185,000
                                                           ================

The effective income tax rate differed from the Federal statutory rate as
follows:
<TABLE>
<CAPTION>

                                                           Year ended                Year ended
                                                        October 27, 2001          October 28, 2000
                                                    ------------------------- --------------------------
                                                      Amount          %          Amount          %
                                                    ------------ ------------ ------------- ------------
Federal income tax provision (benefit) at
<S>                                                   <C>          <C>           <C>           <C>
   statutory rate                                    $(425,000)    (34.0%)     $171,000       34.0%
State income taxes, net of Federal benefit             (55,000)     (4.4)        47,400        9.5
Nondeductible reorganization amortization               20,000       1.6         22,400        4.5
Operating losses not currently deductible              453,000      36.2              -          -
Other, net                                               7,000        .6         11,500        2.4
Benefit from post reorganization temporary
   differences on tax equivalent provision                   -       -          (67,300)     (13.4)
                                                    ------------ ------------ ------------- ------------
                                                    $        -       0%        $ 185,000      36.9%
                                                    ============ ============ ============= ============
</TABLE>
The Company has deferred tax assets and deferred tax liabilities as presented in
the table  below.  The net  deferred  tax  assets  are  subject  to a  valuation
allowance, which was approximately $1,886,000 and $1,483,000 at October 27, 2001
and October 28, 2000, respectively.

Deferred tax assets and liabilities as of October 27, 2001 and October 28, 2000
prior to the allocation of the valuation allowance consisted of the following:

                                                        October 27, 2001
                                                        -----------------

Pre-reorganization net operating loss carryforwards      $      442,000
Pre-reorganization deductible temporary differences              77,000
Pre-reorganization tax credits                                   53,000
Post-reorganization net operating loss carryforwards            981,000
Deferred rent                                                    16,000
Expenses not currently deductible                                33,000
Inventories                                                      98,000
Depreciable assets                                              270,000
Tax credits                                                       2,000
                                                        -----------------
Total deferred tax assets                                     1,972,000

Website development costs                                       (81,000)
Intangible assets                                                (5,000)
                                                        -----------------
Total deferred tax liabilities                                  (86,000)

Net                                                           1,886,000

Valuation allowance                                          (1,886,000)
                                                        -----------------
Total                                                    $            -
                                                        =================

At October 27, 2001, the Company has available net operating loss  carryforwards
of  approximately  $3,600,000 which expire in various years through fiscal 2021.
Of this  amount,  approximately  $1,200,000  relates to  pre-reorganization  net
operating loss carryforwards. Under section 382 of the IRS code, it is estimated
that  these  pre-reorganization  net  operating  loss  carryforwards  and  other
pre-reorganization  tax attributes will be limited to approximately $150,000 per
year.

7. Pension and Profit Sharing Plan

The Company maintains the Harvey  Electronics,  Inc. Savings and Investment Plan
(the "Plan") which includes  profit  sharing,  defined  contribution  and 401(k)
provisions and is available to all eligible employees of the Company. There were
no contributions to the Plan for fiscal 2001 and 2000.

8. Commitments and Contingencies

Commitments

The Company's  financial  statements reflect the accounting for equipment leases
as capital leases by recording the asset and the related liability for the lease
obligation.  Capital lease additions of approximately  $99,000 and $241,000 were
recorded  during fiscal 2001 and 2000,  respectively.  The Company leases stores
and warehouse facilities under operating leases which provide, in certain cases,
for payment of  additional  rentals  based on a percentage of sales over a fixed
amount.  Future minimum rental  commitments,  by year and in the aggregate,  for
equipment  under  capital and  noncancelable  operating  leases with  initial or
remaining  terms of one-year or more  consisted of the  following at October 27,
2001:
<TABLE>
<CAPTION>

                                                              Operating Leases          Capital
                                                                                        Leases
                                                            --------------------- --------------------
<S>    <C>                                                    <C>                     <C>
Fiscal 2002                                                   $   2,216,000           $   52,000
Fiscal 2003                                                       2,128,000                6,000
Fiscal 2004                                                       1,712,000                    -
Fiscal 2005                                                       1,428,000                    -
Fiscal 2006                                                         779,000                    -
Thereafter                                                        1,588,000                    -
                                                            ------------------------------------------
Total minimum lease payments                                  $   9,851,000               58,000
                                                            =====================
Less amount representing interest                                                          2,000
                                                                                  --------------------
Present value of net minimum lease payments                                               56,000
Less current portion                                                                      51,000
                                                                                  --------------------
                                                                                      $    5,000
                                                                                  ====================
</TABLE>


Total rental expense for operating leases was approximately $2,535,000 and
$2,123,000 for fiscal years 2001 and 2000, respectively. Certain leases provide
for the payment of insurance, maintenance charges, electric and taxes and
contain renewal options.

Contingencies

The Company is a party in certain legal actions which arose in the normal course
of business.  The outcome of these legal actions,  in the opinion of management,
will not have a material effect on the Company's financial position,  results of
operations or liquidity.

9. Other Information

Accrued Expenses and Other Current Liabilities
                                                    October 28,
                                                       2001
                                                --------------------

Payroll and payroll related items                 $     397,000
Accrued professional fees                               167,000
Customer deposits                                     1,522,000
Sales taxes                                             129,000
Accrued occupancy                                       156,000
Accrued bonuses                                          66,000
Other                                                   118,000
                                                --------------------
                                                  $   2,555,000
                                                ====================

Consulting Agreements

On March 20, 2001,  the Company  engaged Mesa  Partners,  Inc.  ("Mesa") under a
consulting  agreement.  Mesa was engaged to provide consulting services relating
to the integration of computer networks, entertainment systems and other related
services.  In connection with the consulting  agreement with Mesa, and a related
addendum dated April 26, 2001,  the Company issued a warrant to purchase  15,000
shares  of the  Company's  common  stock,  exercisable  at any time at $3.00 per
share. The warrant has a three-year term and was issued as partial  compensation
for services  rendered by Mesa.  The fair value of the warrant of  approximately
$8,000,  was  amortized  to expense  in fiscal  2001 as the  Company  elected to
terminate this agreement effective June 20, 2001. Additionally,  as was required
by the consulting agreement, Mesa was paid a fee of $20,000 a month plus related
expenses. For fiscal 2001, the Company recorded consulting fees of approximately
$70,000 relating to Mesa.

Effective  November 1, 1998,  the Company  signed a consulting  agreement with a
previous  member  of its  underwriter.  Pursuant  to the  terms of the  two-year
agreement,  the  consultant  received an annual fee of $75,000 for fiscal  1999.
This  agreement was  terminated by the Company  effective  February 29, 2000. In
August 2000,  the  consultant  was again  engaged by the Company,  pursuant to a
consulting  agreement,  at $5,000 per month. At December 15, 2000, the agreement
was terminated by the Company.  The consultant  received fees aggregating $5,000
and $40,000 in fiscal years 2001 and 2000, respectively.

Investor Relations Advisor

On March 15, 2001,  the Company  engaged  Porter,  LeVay & Rose  ("PL&R") as its
investor  relations  advisor.  In connection with the agreement,  the Company is
required to and will issue a warrant to purchase  60,000 shares of the Company's
common stock,  exercisable  immediately at various  exercise prices ranging from
$1.25-$2.50.  The  warrant's  fair  value  of  approximately  $15,000  is  being
amortized to expense over the period of time that services are rendered by PL&R.
Additionally,  the Company pays PL&R a $5,000 monthly fee for its services.  For
the year ended  October 27,  2001,  the Company  recorded an investor  relations
expense of $54,000, relating to PL&R.

Fourth Quarter Adjustments

The fourth quarter of fiscal 2000 included pre-operating expenses of $125,0000
relating to the opening of the Company's Bang & Olufsen store in Greenwich, CT
and the October 2000 launch of the Company's new website. In the fourth quarter
of fiscal 2000, the Company also recorded occupancy expense of $90,000 relating
to additional rent, which was contingent upon actual sales levels achieved for
one of the Company's retail stores. Additionally, the fourth quarter of fiscal
2000 included incentive bonuses of approximately $125,000.

Other

During  fiscal  year 2001,  $23,000  was paid to a company  affiliated  with the
Company's  Chairman of the Board of Directors  relating  primarily to management
fees from fiscal 1998.  Additionally,  the Chairman of the Board of Directors is
also a principal in a company which is a joint venture with a law firm providing
legal services to the Company.

A Director of the Company also is a Senior  Partner in a law firm  providing the
Company  with legal  services.  At October  27,  2001,  the  Company had $25,000
payable  to this law  firm.  The  Company  paid  legal  fees to this law firm of
approximately $64,000 and $127,000 in fiscal years 2001 and 2000, respectively.

At October 27, 2001, the Company recorded a note payable to a real estate broker
of approximately $22,000 classified as a current liability.

10. Retail Store Expansion

The  Company  opened a new 1,600  square  foot Bang & Olufsen  branded  store in
Greenwich,  Connecticut, in October 2000. Since this time, results of operations
from this new store have been included in the Company's results of operations.

During  fiscal year 2000,  the Company  entered into a ten-year  lease for a new
6,500  square foot  Harvey  showroom in  Eatontown,  New Jersey.  This new store
opened in April 2001.  Pre-opening  expenses and results of operations from this
new store have been included in the Company's results of operations for the year
ended  October  27,  2001.  This is the  Company's  ninth store and is the fifth
opened since its public offering, completed in April 1998.