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 28, 2000

 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.
              (Exact 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. $34,355,415

State the number of shares outstanding of each of the issuer's classes of common
equity, as of January 5, 2001. 3,282,833

As of January 5, 2001,  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  $2,961,514.  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.

<PAGE>
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 and plasma flat-screen
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-three  years. The Company
currently  operates six Harvey  specialty  retail  stores and two Bang & Olufsen
branded  stores.  There are two Harvey  locations in Manhattan and four suburban
locations  in  Paramus,  New  Jersey;  Mt.  Kisco,  in  Westchester;  Greenwich,
Connecticut;  and in  Greenvale/Roslyn,  on the north shore of Long Island.  The
Bang & Olufsen  branded  stores are located in Union Square at Broadway and 21st
Street,  in Manhattan,  and the newest Bang & Olufsen store opened in Greenwich,
Connecticut on Greenwich  Avenue in October 2000. In September 2000, the Company
entered into a lease for a new Harvey showroom in Eatontown, New Jersey which is
expected to open in March 2001. This new store will be the Company's ninth.

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  ($2,262,306)  and to retire the principal  ($350,000)
and interest ($47,627) of a term loan.

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 which commenced March
31, 2000. 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 and Services

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,  Marantz,  McIntosh,  Vienna Acoustics,
Sonus Faber,  Kef,  Krell,  Nakamichi,  Loewe,  Martin Logan,  and Adcom,  whose
products the Company has sold for a number of years.  The Company  believes that
it benefits from strong working relationships with these manufacturers. See Page
4, below, for a discussion about Bang & Olufsen.

For the fiscal year ended October 28, 2000,  the  Company's  audio product sales
represented  approximately  64% of the  Company's  net sales and  yielded  gross
profit  margins  of  approximately   40%.  The  Company's  video  product  sales
represented  approximately  31% of the  Company's  net sales and  yielded  gross
profit  margins of  approximately  29%. 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 33%
of the  Company's  net  sales in  fiscal  2000.  The  labor  portion  of  custom
installation  presently  represents  approximately  5% of net  sales,  with  the
equipment  portion  accounting  for 28% of net  sales.  The  Company  also sells
extended  warranties,  on behalf of third  party  providers.  Sales of  extended
warranties  which yield a gross profit margin in excess of 47%,  represent 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     Fiscal Year
                                              Ended             Ended
                                            October 28,     October 30,
                                              2000              1999
                                              ----              ----

Audio Components                               43%                49%
Mini Audio Shelf Systems                        7                  8
TV and Projectors                              25                 18
VCR/DVD/DSS                                     7                  7
Furniture                                       5                  5
Cable and Wire                                  5                  5
Accessories                                     6                  6
Extended Warranties                             1                  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.  Three
new  technologies,  HDTV, DVD and plasma  flat-screen  television  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
television  allows a 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
(currently  representing  33% of net sales)  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 29%, 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 64%.

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,
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  56% of the  Company's  purchases for the
fiscal year ended October 28, 2000. These ten  manufacturers are Bang & Olufsen,
Boston Acoustics,  Fujitsu, KEF, Marantz, Mitsubishi,  Monster Cable, Nakamichi,
Pioneer  Elite  and Sony.  Sony  accounted  for more  than 10% of the  Company's
purchases  for the  fiscal  year ended  October  28,  2000,  and Bang & Olufsen,
Marantz  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 products have been sold by the Company since 1980. Bang & Olufsen
has decided  that it will focus on  developing  Bang & Olufsen  licensed  stores
("Branded  Stores")  throughout  the  world.  Bang & Olufsen  has,  accordingly,
canceled its dealer  agreement  with the Company  effective May 31, 1999.  Since
this date,  Bang & Olufsen  products are available only in Branded  Stores.  The
line represented  approximately  $2,100,000 or 6% of the Company's net sales for
fiscal 2000.

The Company opened its first B&O Branded Store in the Union Square area of lower
Manhattan  in July  1999.  This  Branded  Store is the first of two  stores  the
Company plans to open in Manhattan.

On May 13, 2000, the Company signed a sublease and a related Dealer Agreement to
open a new 1,600 square foot B&O Branded  Store in Greenwich,  Connecticut.  The
new retail store, opened in October 2000, was the second B&O store opened by the
Company.

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  televisions,  and 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
28, 2000, was approximately 3.6 times, as compared to 2.9 times for fiscal 1999.

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,  or lease with an  unrelated  finance  company,  which the
Company makes available to its customers.  The Harvey credit card is also issued
by an unrelated  finance company.  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 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 only 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 November 1999. 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,  New York  Magazine,
Greenwich Magazine,  Newsday, Bergen Record, Greenwich Times, Stanford Advocate,
Hampton's  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  currently  consists of 30 second commercials run on the
WNBC,  WABC and WCBS stations in New York as well as cable  advertising  on CNN,
ESPN, MSG 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 28,      October 30,
                                              2000              1999
                                              ----              ----
Gross advertising costs                    $2,701,000        $1,220,000
Net advertising expenses                      934,000           227,000
Percentage of net sales                           2.7%              1.1%


The Company has  retained an outside  advertising  agency who was paid a monthly
retainer of $15,000 plus approved expenses.  This agreement expired December 31,
2000 and the Company has renewed this  agreement for one year with a new monthly
retainer of $17,000.

Licenses and Intellectual Properties

The Company owns two registered  service marks  "HARVEY,"  issued in March 1989,
and "THE TEMPLE OF HOME  THEATER,"  issued in May 1997.  Both 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 mark HARVEY has  significant  value and is  important  in marketing  the
Company's products and services.

Employees

As of October  28,  2000,  the  Company  employed  approximately  143  full-time
employees  of  which  22  were  management  personnel,  12  were  administrative
personnel, 53 were salespeople, 26 were warehouse workers and 30 were engaged in
custom installation.

The salespeople,  warehouse  workers,  and  installation  staff (109 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 premises at 205 Chubb Avenue, Lyndhurst, New Jersey, a
24,400 square foot  facility.  This lease expires April 30, 2001.  The warehouse
area of 19,500 square feet of the Lyndhurst  facility was sublet in October 1997
for  approximately  $145,000  per year through  April 2001 leaving  4,900 square
feet,  which the Company uses as its  corporate  office.  The Company  currently
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>            <C>
  2 West 45th Street                       6/30/2005           None             7,500          $  488,000
  New York, NY

  556 Route 17 North                       6/30/2003           None             7,000          $  265,000
  Paramus, NJ

  888 Broadway                            12/31/2003           None             4,000          $  394,000
  at 19th St.
  New York, NY
  (within ABC Carpet & Home)

  19 West Putnam Ave.                      9/30/2001         5 years            5,300          $  218,000
  Greenwich, CT

  44 Glen Cove Road                        8/15/2009           None             4,600          $  192,000
  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          $  117,000
  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 $10,000 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 August 18, 2000, the Company's  shareholders at an Annual Meeting (i) elected
Franklin C. Karp (2,893,815 shares in favor,  47,952 shares against),  Joseph J.
Calabrese  (2,893,815 shares in favor, 47,952 shares against),  Michael E. Recca
(2,893,712 shares in favor, 48,055 shares against), Fredric J. Gruder (2,893,815
shares in favor,  47,952 shares against),  Jeffrey A. Wurst (2,893,815 in favor,
47,952 shares against) and William F. Kenny (2,893,815  shares in favor,  47,952
shares  against) as directors of the Company;  (ii) approved the  appointment of
Ernst & Young LLP as the  Company's  independent  auditors  for the fiscal  year
ending October 28, 2000 (2,890,271 shares in favor, 35,770 shares against);  and
(iii) approved the amendment to the Harvey  Electronics,  Inc. Stock Option Plan
(2,703,080 shares in favor, 220,256 shares against and 18,431 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
year 2000 and 1999:

Quarter Ended                    High              Low
-------------                    ----              ---
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
January 30, 1999                2.0625             .875
May 1, 1999                     3.250             1.4688
July 31, 1999                   2.6875            1.875
October 30, 1999                1.9375            1.2812

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  5,  2001,  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  therefor.  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 5, 2001,  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 is $105 per  share,  with  interest  at the rate of 8.5% per
annum. The installments  relating to the 1997 dividends have been either paid or
accrued by the Company as of October 28, 2000.  Total  Preferred Stock dividends
of $110,206 were paid in fiscal 2000. 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.

The Preferred Stock was  convertible  into shares of Common Stock until December
31, 2000, at the option of the holder, in whole or in part, as follows:  (i) 50%
of the Preferred  Stock will be convertible  at $6.00 per share;  and (ii) $7.50
per share for the balance.  Commencing  January 1, 2001, the Conversion Price is
equal to the average of 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 28, 2000 and
October 30, 1999, appearing elsewhere in this Form 10-KSB.


<PAGE>


Statements of Operations Data:
<TABLE>
<CAPTION>

                                                           Fiscal Year       Fiscal Year        Fiscal Year
                                                             Ended             Ended               Ended
                                                           October 28,       October 30,        October 31,
                                                             2000              1999               1998
                                                             -----------------------------------------
                                                                (in thousands, except share data)

<S>                                                      <C>                 <C>               <C>
Net sales                                                $   34,355          $   21,386        $   17,262
Cost of sales                                                20,813              13,082            10,646
                                                             --------------------------------------------
Gross profit                                                 13,542               8,304             6,616
Gross profit percentage                                        39.4%               38.8%            38.3%
Interest expense                                                218                 179               224
Selling, general and administrative expenses                 12,856               9,043             6,756
Other income                                                     34                  72                70
Stock compensation expense                                        -                   -               297
Financial advisory and consulting fee to
  Underwriter                                                     -                   -               124
Costs associated with lease transaction                           -                   -               114
                                                             --------------------------------------------
Income (loss) before income taxes                               502                (846)             (829)
Income taxes                                                    185                   -                 -
                                                             --------------------------------------------
Net income (loss)                                               317                (846)             (829)

Accretion of Preferred Stock                                      -                   -                (6)

Preferred Stock dividend requirement                            (75)                (74)              (83)
                                                             --------------------------------------------
Net income (loss) attributable to
  Common Stock                                           $      242          $     (920)       $     (918)
                                                             =============================================
Net income (loss) per common share
  applicable to common shareholders:
     Basic                                               $      .07          $     (.28)       $     (.32)
                                                             =============================================
     Diluted                                             $      .07          $     (.28)       $     (.32)
                                                             =============================================
Shares used in the calculation of net income
  (loss) per common shares:
     Basic                                                3,282,833           3,282,833         2,844,751
                                                          ================================================
     Diluted                                              3,346,307           3,282,833         2,844,751
                                                          ================================================
</TABLE>
<PAGE>

Balance Sheet Data:


                                            October 28,        October 30,
                                               2000               1999
                                               -----------------------
                                                    (in thousands)

Working capital                         $      747 (1)      $    925 (1)
Total assets                                11,437             9,745
Long-term liabilities                          215               251
Total liabilities                            6,590 (1)         5,140 (1)
Total shareholders' equity                   4,847             4,605

(1)     The balances  outstanding  under the Company's  revolving line of credit
        facility  ($1,067,709 and $1,477,603 at October 28, 2000 and October 30,
        1999, respectively) are presented as a current liability as the line was
        temporarily paid down in December 2000 and 1999.

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 $160,000.  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 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.

Fiscal Year Ended October 30, 1999 as Compared
   to Fiscal Year Ended October 31, 1998

Net Loss

The net loss for the fiscal year ended October 30, 1999 was $845,519 as compared
to a net loss of $828,871 for the fiscal year ended  October 31,  1998.  The net
loss for fiscal 1999 includes  preoperating  expenses relating to the opening of
the new Bang & Olufsen  store in the Union  Square  area in lower  Manhattan  of
approximately $115,000.

The net loss for fiscal 1998 included  non-cash  stock  compensation  expense of
$297,500 and various costs  associated with the surrender of a real estate lease
of  $113,782.  Additionally,   fiscal  1998  includes  an  expense  of  $123,660
representing  three  years of  consulting  fees paid to the  Underwriter  at the
closing of the Company's  successful public offering.  These fees, which were to
be amortized over three years,  were fully charged to expense in fiscal 1998, as
a result of the early  termination  of the  Financial  Advisory  and  Consulting
Agreement between the Company and its underwriter.

Revenues

Net sales for the fiscal year ended October 30, 1999, aggregated $21,387,000, an
increase of  approximately  $4,124,000 or 23.9% from the prior year.  Comparable
store  sales  for the year  ended  October  30,  1999,  increased  approximately
$602,000 or 3.5% from the prior fiscal year.

Fiscal 1999  includes  sales from four mature  Harvey  retail stores and two new
Harvey stores opened in November 1998.  Fiscal 1999 also includes sales from the
Company's  new Bang & Olufsen  branded  store opened in July 1999.  Net sales in
1999 have also been  positively  affected by the  Company's  e-commerce  efforts
particularly  with product  offerings on eBay and from increased  demand for its
custom installation services.

Fiscal 1998 includes  sales from three mature Harvey stores and one Harvey store
opened in Greenwich,  Connecticut in January 1997.  Also included in fiscal 1998
sales,  is  approximately  one month of sales relating to the Mount Kisco store,
acquired in August 1998.

Custom  installation  services  continue to expand and account for approximately
26% of net sales  for  fiscal  1999 as  compared  to 25% for  fiscal  1998.  The
increase in net sales for fiscal 1999 is  attributed  to the volume of goods and
services sold and to a lesser extent, changes in product lines or prices.

Comparable  store sales for fiscal 1999  increased  over fiscal 1998,  primarily
from  increased  demand  for new  digital  products  such as DVD,  HDTV,  plasma
flat-screen televisions and an increase in our custom installation services.

The overall performance of the Company was negatively impacted by the decline in
sales during the third and fourth quarters.  In particular during May (the first
month of the third quarter),  overall sales declined by approximately  17% while
comparable  store sales  declined by  approximately  30%. May 1999 was the first
month that Harvey experienced a decline in total sales since 1996.

Costs and Expenses

Total  cost of sales for the  fiscal  year  ended  October  30,  1999  increased
approximately $2,436,000 or 22.9% from the prior fiscal year. This was primarily
the result of increased sales, offset by improved gross profit margins.

The gross profit  margin for the fiscal year ended October 30, 1999 was 38.9% as
compared to 38.3% for the prior fiscal year.  The gross profit margin  improved,
despite  additional  promotional  activities  in 1999,  as a result of increased
sales of new digital  technologies,  increased custom installation  services and
from a strong product mix. Sales training efforts and merchandising  emphasis on
the sale of higher margin inventory  categories and accessories have also helped
to increase the gross profit margin.

Selling,  general and administrative  expenses ("SG&A expenses") increased 33.8%
or  approximately  $2,287,000  for the fiscal  year ended  October  30,  1999 as
compared  to the prior year.  Total SG&A  expenses  increased  in fiscal 1999 as
compared to fiscal  1998,  primarily  from the two new Harvey  stores  opened in
November 1998, coupled with the preoperating expenses and the opening of the new
Bang & Olufsen store in July 1999.

Comparable  SG&A  expenses  increased  13.7% or  approximately  $927,000 for the
fiscal year ended  October  30,  1999 as compared to the prior year.  Comparable
SG&A expenses  increased  from  additional  payroll and payroll  related  items,
occupancy costs,  professional  expenses,  insurance costs, expenses relating to
Y2K modifications, depreciation expense and various store operating expenses. In
fiscal 1999, the Company has also incurred  additional  expenses relating to the
expansion of its custom installation business and its training efforts.

Interest expense  decreased  approximately  $44,000 or 19.8% for the fiscal year
ended  October 30, 1999 as compared to the prior fiscal  year.  The decrease was
primarily due to the paydown of outstanding  borrowings under the revolving line
of credit  facility  through  February 1999, from the net proceeds of the public
offering.


Liquidity and Capital Resources

The Company's  ratio of current assets to current  liabilities was 1.12, and its
working  capital  was  $747,000  at October  28,  2000,  as compared to 1.19 and
$925,000 at October 30,  1999.  At October  28, 2000 and October 30,  1999,  the
Company's  outstanding  balances  on  its  revolving  line  of  credit  facility
($1,068,000 and $1,478,000, respectively) were classified as a current liability
as the line of credit was  temporarily  paid down in December 2000 and 1999 from
the increased sales of the holiday  selling  season.  The slight decrease in the
current ratio for fiscal 2000 is due to increases in trade accounts  payable and
accrued  expenses  and  other  current  liabilities,  offset by an  increase  in
inventory and a decrease in prepaid expenses.

Net cash provided from operating activities significantly improved to $1,795,000
for fiscal 2000 as compared to cash used in operations of approximately $669,000
in fiscal  1999.  The  improvement  in cash  provided  from  operations  was due
primarily  from the increase in pre-tax  income of  $1,347,000,  coupled with an
increased in accounts  payable,  accrued expenses and other current  liabilities
and offset by an increase in inventory.

Net cash used in investing activities was $1,078,000 for fiscal 2000 as compared
to cash used in of  $831,000  in fiscal  1999.  Net cash used for  purchases  of
property and equipment  excluding  interest Website  development was $689,000 in
fiscal  2000,  as  compared to $828,000  in fiscal  1999.  Fiscal 2000  includes
$343,000 of cash used in Website development.

Net cash used in financing  activities  was $706,000 for fiscal 2000 as compared
to cash provided by financing activities of $1,302,000 in fiscal 1999. Financing
activities  for fiscal 2000  includes  net  payments of  $410,000,  reducing the
revolving line of credit  facility.  This period also includes  Preferred  Stock
dividends paid of $110,000 and principal payments on capital leases of $186,000.
Financing  activities for fiscal 1999 included net borrowings from the revolving
line of credit facility of $1,478,000 and Preferred  Stock dividend  payments of
$113,000.

In November 1997, the Company entered into a three-year revolving line of credit
facility  with Paragon  Capital  L.L.C.  ("Paragon")  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 Paragon. The
Amended  Agreement  included a three (3) 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.

Subsequent to fiscal 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 increases and is fixed at one percent (1%)
over the prime rate. A commitment  fee of $75,000  (which will be amortized over
three years) was also paid by the Company on December 29, 2000.  Prepayment fees
exist under the Third Amended Agreement.  At January 5, 2001, there was $377,000
in  outstanding  borrowings  under the Paragon  revolving  credit  facility.  At
January 5, 2001, the Company had  approximately  $4,675,000  available to borrow
under the revolving line of credit facility.

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

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.

Paragon  obtained  a  senior  security  interest  in  substantially  all  of the
Company's  assets.  The revolving line of credit facility  provides Paragon 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  common stock 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  commencing  March 31, 2000. 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 will have
a positive impact on the Company's operations. This has been demonstrated by the
Company for all store openings since the Company's public offering.

As Bang & Olufsen  ("B&O")  focuses on developing B&O branded  stores  ("Branded
Stores")  throughout  the world,  it has canceled its dealer  agreement with the
Company and, with one  exception,  all other  retailers  effective May 31, 1999.
Since this date, 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.  This  Branded  Store is the first of two  stores  the
Company plans to open in Manhattan. The Company has not identified a location or
lease  agreement  for the second B&O store in Manhattan  and no assurance can be
given about the number of Branded Stores that the Company will ultimately open.

In May 2000,  the Company  signed a sublease and a related  Dealer  Agreement to
open a new 1,600 square foot B&O Branded Store in Greenwich,  Connecticut.  This
new retail store,  opened in October 2000, is the second B&O store opened by the
Company. This new store is the Company's eighth.

The Company estimates that capital  expenditures  necessary for each 1,500-1,600
square foot B&O store, including inventory, should be approximately $400,000.

The Company seeks to open a minimum of two additional Harvey  Electronics stores
in New Jersey within the next twelve months, if the appropriate locations can be
obtained or an existing business can be acquired.  Depending on the availability
of appropriate real estate, of which there can be no assurance, and depending on
market and industry conditions,  the Company will attempt to open up to four new
Harvey  locations in fiscal  2001.  If  successful,  at least two stores will be
opened in New Jersey and the remainder either on Long Island or Connecticut. The
Company estimates that the total cost of opening a new Harvey Electronics retail
store (6,500  square feet of selling  space) is  approximately  $1,000,000.  The
estimated cost of opening a store  includes the cost of leasehold  improvements,
including  design  and  decoration,   machinery  and  equipment,  furniture  and
fixtures,  security  deposits,  opening  inventory  (net  of the  portion  to be
borrowed from the Company's  lender),  legal expense,  pre-opening  expenses and
additional advertising and promotion in connection with the opening.

In September  2000,  the Company  entered into a ten-year  lease for a new 6,500
square foot Harvey showroom in Eatontown, New Jersey. The Company estimates that
capital expenditures necessary to complete the new retail store will approximate
$1,000,000, as noted above. This new retail store will be the Company's ninth.

The Company  intends to continue  its  advertising  campaign  and  increase  its
marketing  expenditures  on fiscal 2001.  This will broaden the Company's  media
presence with the  continuation of print,  radio,  cable and network  television
advertising.

The Company plans to broaden its e-commerce business with its  fully-interactive
website,  which was launched in October  2000.  The website  gives the Company's
customers   access  to  product   specifications,   information   about   custom
installation  services and new technologies,  store locations and on-line sales,
seven days a week,  twenty-four  hours a day. The website enables the Company to
sell its  products  and  services,  through  the  Internet to  customers  in its
traditional  market in the  Metropolitan New York area,  however,  the Company's
objective  is to give  its  customers  a  unique  shopping  experience  offering
valuable information, high-quality products, professional installation and other
services which continues to differentiate

Harvey from its competitors. 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 further improve its website and plans to expend between  $50,000-$100,000  in
fiscal 2001 in related costs.

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

During the periods presented,  the Company was not significantly impacted by the
effects of inflation.  The Company did benefit from a strong  holiday  demand in
November and December 2000.

Year 2000 and Other Computer System Modifications

In fiscal 1999, the Company successfully implemented all Year 2000 modifications
to upgrade its operating systems.  Currently,  the Company' computer environment
is operating as designed,  as all systems are Year 2000  compliant.  The Company
does not anticipate any additional  material capital  expenditures or management
efforts relating to this issue for fiscal 2001. However,  the Company expects to
further improve its point of sale computer  systems in 2001.  Such  improvements
are expected to cost between $50,000-$100,000 in fiscal 2001.

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


<PAGE>


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                        50        Chairman and Director
William F. Kenny, III                   69        Director
Jeffrey A. Wurst                        51        Director
Fredric J. Gruder                       54        Director
Franklin C. Karp                        47        President and Director
Joseph J. Calabrese                     41        Executive Vice President, Chief Financial
                                                   Officer, Treasurer, Secretary and Director
Michael A. Beck                         41        Vice President of Operations
Roland W. Hiemer                        39        Director of Inventory Control
<FN>
(1)      As of October 28, 2000.
</FN>
</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, 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 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,  a director  since  July 1998,  has since July 1999 been of
counsel to Dorsey & Witney  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.  For the
past nine years Mr. Kenny has been 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 ten  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.  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.  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       Compensation
--------------------------------------------------------------------------------------------------------------
<S>                              <C>       <C>       <C>      <C>              <C>                 <C>
Michael Recca                    2000      $ 108,000 (1)      $15,000          $     -             $    -
Chairman (1)                     1999      $  95,000          $     -          $     -             $    -
                                 1998      $  55,000          $     -          $     -             $    -

Franklin C. Karp (2)             2000      $ 138,000          $60,000          $     -             $    -
President                        1999      $ 126,000          $ 5,000          $     -             $    -
                                 1998      $ 125,000          $15,000          $10,313 (5)         $    -

Joseph J. Calabrese (3)          2000      $ 128,000          $46,000          $     -             $    -
Executive Vice President         1999      $ 117,000          $ 3,750          $     -             $    -
Chief Financial Officer,         1998      $ 116,000          $10,000          $ 6,875 (5)         $    -
   Treasurer and Secretary

Michael A. Beck (4)              2000      $ 113,000          $46,000          $     -             $    -
Vice President of                1999      $ 101,000          $ 3,750          $     -             $    -
   Operations                    1998      $  92,000          $ 2,000          $ 5,156 (5)         $    -
<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.

(2)--Effective November 1, 2000, Mr. Karp's annual salary was increased to $150,000.

(3)--Effective November 1, 2000, Mr. Calabrese's annual salary was increased to $140,000.

(4)--Effective November 1, 2000, Mr. Beck's annual salary was increased to $125,000.

(5)--Represents  stock  compensation  at fair  market  value from  Common  Stock
      received from HAC, on October 12, 1998.

</FN>
</TABLE>

Severance Agreements

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

Each  Amended  Severance  Agreement  provides  that either (i) in the event of a
change in  control  of the  Company  (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,  or
(ii) in the event the  executive is  terminated  for any reason other than cause
(as defined) and a change in control,  potential change in control or disability
shall not have occured,  then in either event,  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 executive's  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.

Employment Agreement

On April 3, 1998, the Company entered into a two-year employment  agreement with
Franklin C. Karp, the Company's  President.  The employment  agreement  provides
that Mr. Karp continue as the Company's President with the same compensation and
benefits which Mr. Karp currently  receives,  subject to annual adjustment to be
determined and made by the Board of Directors of the Company.

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
Committee  are  William F. Kenny III,  Jeffrey A. Wurst and  Fredric J.  Gruder,
outside directors.

The  Compensation  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 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.

In fiscal  1999,  the  Compensation  Committee  approved two grants of incentive
stock options,  aggregating 222,500, to the Company's officers,  to purchase the
Company's  common stock at an exercise price of $1.50 per share. The fiscal 1999
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 28, 2000, 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                    Amount and Nature of
                  Beneficial Owner                      Beneficial Ownership                 Percentage
------------------------------------------------------------------------------------------------------------
<S>                                                               <C>                            <C>
Harvey Acquisition Company LLC ("HAC")                            253,932                        7.7%
c/o Michael E. Recca
949 Edgewood Avenue
Pelham Manor, NY 10803

Michael E. Recca                                                  367,578 (1)                    10.9%
949 Edgewood Avenue
Pelham Manor, NY 10803

Jeffrey A. Wurst                                                   16,050 (6)                    *
c/o Ruskin, Moscou, Evans & Faltischek, PC
170 Old Country Rd.
Mineola, NY 11501-4366

William F. Kenny, III                                              18,989 (2)                    *
Harvey Electronics, Inc.
205 Chubb Avenue
Lyndhurst, NJ 07071

Fredric J. Gruder                                                  12,500 (2)                    *
Dorsey & Whitney LLP
250 Park Ave., 16th Floor
New York, NY 10177

Franklin C. Karp                                                  142,000 (3)                    4.2%
Harvey Electronics, Inc.
205 Chubb Avenue
Lyndhurst, NJ 07071

Joseph J. Calabrese                                               114,202 (4)                    3.4%
Harvey Electronics, Inc.
205 Chubb Avenue
Lyndhurst, NJ 07071

Michael A. Beck                                                   110,000 (4)                    3.2%
Harvey Electronics, Inc.
205 Chubb Avenue
Lyndhurst, NJ 07071

Roland W. Hiemer                                                   55,000 (5)                    1.6%
Harvey Electronics, Inc.
205 Chubb Avenue
Lyndhurst, NJ 07071

All Directors and Officers as group                               836,319 (7)                   22.0%
(8 Persons)

* Less than 1% of outstanding shares of Common Stock.
<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 97,500 shares of the
     Company's  Common  Stock  which are  exercisable  at an  exercise  price of
     between $1.00-$1.925 per share.

(2)  Includes an option to purchase up to 10,000 shares of the Company's  Common
     Stock, which is exercisable at an exercise price of $1.00 per share.

(3)  Includes  options to purchase up to 125,000 shares of the Company's  Common
     Stock,  which are  exercisable at an exercise price of between  $1.00-$.300
     per share.

(4)  Includes  options to purchase up to 102,500 shares of the Company's  Common
     Stock,  which are  exercisable at an exercise price of between  $1.00-$3.00
     per share.

(5)  Includes  options to purchase up to 52,500 shares of the  Company's  Common
     Stock,  which are  exercisable at an exercise price of between  $1.00-$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. Mr. Wurst has
     expressly disclaimed beneficial ownership of this warrant.

(7)  Includes  options and  warrants to purchase up to 515,000  shares of Common
     Stock,  which are  exercisable at an exercise price of between  $1.00-$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, the  Company  believes  that during the fiscal year
ended October 28, 2000, 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  and Franklin C. Karp each  reported one
transaction late on a Form 4 and shall report another transaction late on a Form
4, and Fredric  Gruder,  Michael A. Beck,  William F. Kenny and Roland W. Heimer
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.

At October 28, 2000, $23,000 was payable to Recca & Co. Inc., of which Mr. Recca
is the sole  shareholder.  Amounts  payable relate to management  fees and other
miscellaneous amounts from fiscal 1998. This amount was subsequently paid to Mr.
Recca in December 2000.

Mr.  Recca is also a  principal  in North  Star  Capital,  LLC  which is a joint
venture  between Ruskin,  Moscou,  Evans and Faltischek,  P.C.  ("Ruskin"),  the
Company's corporate counsel and Mr. Recca.

Jeffrey A. Wurst, Director, is also a Senior Partner with Ruskin. At October 28,
2000, the Company had amounts payable to Ruskin of  approximately  $91,000.  The
Company also paid legal fees to Ruskin of $127,000 and $54,000,  in fiscal years
2000 and 1999, 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 $110,000 for fiscal 2000 and
$113,000 for fiscal 1999.

In October 1998, the Company  received a promissory  note from a previous member
of its  underwriter,  in lieu of an  outstanding  trade  receivable for $73,321.
Payments,  including interest at 9% per annum, aggregating $11,277, were made to
the Company in fiscal 1999.  The remaining  balance of the original note was due
on October 30, 1999.  However,  in November 1999, an amendment to the promissory
note was executed,  deferring the payment of the remaining principal balance and
interest at 9% per annum as follows: one payment of $44,994 due January 25, 2000
with the remaining  balance of $24,141 due March 25, 2000. As a result,  $68,430
was due to the Company at October 30, 1999.  Subsequently,  the Company received
$54,914 from this individual.

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 $40,000
in fiscal 2000.

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:
<TABLE>
<CAPTION>

Exhibit Number                Description
--------------                -----------

<S>    <C>
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

10.3--Employment Agreement with Franklin C. Karp

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.

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

10.5.3--Lease between the Company and Sprout Development Co.

10.5.4--Lease between the Company and Service Realty Company

10.5.5--Lease between the Company and 205 Associates

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

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 The Thornwater Company, L.P. 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 10-KSB dated October 31, 1998:

105.7--Lease Agreement with Martin Goldbaum and Sally Goldbaum

105.8--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.

(vi) The following exhibit is hereto  incorporated by reference to the Company's
Form 10-KSB dated October 30, 1999:

(b) Reports on Form 8-K

None.

(vii) The following exhibits are annexed hereto:

10.2.5--Amended and Restated Severance Agreement between the Company and Michael E. Recca dated November 2000

10.2.6--Second Amended and Restated Severance Agreement between the Company and Franklin C. Karp dated November 2000

10.2.7--Second Amended and Restated Severance Agreement between the Company and Joseph J. Calabrese dated November 2000

10.2.8--Second Amended and Restated Severance Agreement between the Company and Michael A. Beck dated November 2000

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 & Olfsen 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.

23.--Consent of Ernst & Young LLP.
</TABLE>
<PAGE>


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, 2001

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, 2001
-------------------------------------
    Franklin C. Karp

/s/  Joseph J. Calabrese              Executive Vice President, Chief Financial         January 25, 2001
------------------------------------- Officer, Treasurer, Secretary and Director
    Joseph J. Calabrese

/s/  Michael E. Recca                 Chairman and Director                             January 25, 2001
-------------------------------------
    Michael E. Recca

/s/  William F. Kenny, III            Director                                          January 25, 2001
-------------------------------------
    William F. Kenny, III

/s/  Fredric J. Gruder                Director                                          January 25, 2001
-------------------------------------
    Fredric J. Gruder

/s/  Jeffrey A. Wurst                 Director                                          January 25, 2001
-------------------------------------
    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 28, 2000.....................................................................    F-3

Statements of Operations--Fiscal years ended
   October 28, 2000 and October 30, 1999...........................................................    F-4

Statements of Shareholders' Equity--Fiscal years ended
   October 28, 2000 and October 30, 1999...........................................................    F-5

Statements of Cash Flows--Fiscal years ended
   October 28, 2000 and October 30, 1999...........................................................    F-6

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

                         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 28, 2000 and the related statements of operations, shareholders' equity,
and cash flows for the fiscal years ended October 28, 2000 and October 30, 1999.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audits.

We conducted our audits in accordance with 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 28, 2000,  and the results of its  operations and its cash flows for the
fiscal years ended  October 28, 2000 and October 30, 1999,  in  conformity  with
accounting principles generally accepted in the United States.


                                                         /s/ Ernst & Young LLP



Melville, NY
December 28, 2000


<PAGE>


                                             Harvey Electronics, Inc.

                                                   Balance Sheet

                                                 October 28, 2000

<TABLE>
<CAPTION>

Assets
Current assets:
<S>                                                                                            <C>
   Cash and cash equivalents                                                                   $     35,373
   Accounts receivable, less allowance of $25,000                                                   473,097
   Note receivable--officer                                                                           7,500
   Inventories                                                                                    6,396,915
   Prepaid expenses and other current assets                                                        209,078
                                                                                               ------------
Total current assets                                                                              7,121,963
Property and equipment:
   Leasehold improvements                                                                         1,871,538
   Furniture, fixtures and equipment                                                              1,460,825
   Internet website                                                                                 342,598
                                                                                               ------------
                                                                                                  3,674,961
   Less accumulated depreciation and amortization                                                 1,186,758
                                                                                               ------------
                                                                                                  2,488,203
Equipment under capital leases, less accumulated amortization of $362,679                           211,017
Cost in excess of net assets acquired, less accumulated amortization of $13,000                     137,000
Reorganization value in excess of amounts allocable to identifiable assets, less
  accumulated amortization of $264,023                                                            1,224,440
Other assets, less accumulated amortization of $230,436                                             254,104
                                                                                               ------------
Total assets                                                                                   $ 11,436,727
                                                                                               ============
Current liabilities:
   Revolving line of credit facility                                                           $  1,067,709
   Trade accounts payable                                                                         2,919,563
   Accrued expenses and other current liabilities                                                 2,134,579
   Income taxes                                                                                      45,000
   Cumulative Preferred Stock dividends payable                                                      57,586
   Current portion of long-term debt                                                                 22,390
   Current portion of capital lease obligations                                                     128,219
                                                                                               ------------
Total current liabilities                                                                         6,375,046

   Long-term debt                                                                                    11,714
   Capital lease obligations                                                                         26,806
   Deferred rent                                                                                    176,216
                                                                                               ------------
                                                                                                    214,736
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                                                                     7,481,667
   Accumulated deficit                                                                           (3,069,587)
                                                                                               ------------
Total shareholders' equity                                                                        4,846,945
                                                                                               ------------
Total liabilities and shareholders' equity                                                     $ 11,436,727
                                                                                               ============
See notes to financial statements.
</TABLE>

<PAGE>


                                             Harvey Electronics, Inc.

                                             Statements of Operations

<TABLE>
<CAPTION>

                                                                                Fiscal Years Ended
                                                                          October 28,          October 30,
                                                                             2000                 1999
                                                                       -----------------------------------
<S>                                                                    <C>                    <C>
Net sales                                                              $  34,355,415          $21,386,507
Interest and other income                                                     33,519               72,524
                                                                        ----------------------------------
                                                                          34,388,934           21,459,031
                                                                        ----------------------------------
Cost of sales                                                             20,813,396           13,082,163
Selling, general and administrative expenses                              12,856,155            9,043,046
Interest expense                                                             217,724              179,341
                                                                        ----------------------------------
                                                                          33,887,275           22,304,550
                                                                        ----------------------------------
Income (loss) before income taxes                                            501,659             (845,519)
Income taxes                                                                 185,000                    -
                                                                        ----------------------------------
Net income (loss)                                                            316,659             (845,519)

Preferred Stock dividend requirement                                          74,376               74,376
                                                                        ----------------------------------
Net income (loss) applicable to Common Stock                            $    242,283             (919,895)
                                                                        ==================================
Net income (loss) per common share applicable to common shareholders:
     Basic                                                                     $0.07               $(0.28)
                                                                        ==================================
     Diluted                                                                   $0.07               $(0.28)
                                                                        ==================================
Shares used in the calculation of net income (loss) per common share:

     Basic                                                                 3,282,833            3,282,833
                                                                        ==================================
     Diluted                                                               3,346,307            3,282,833
                                                                        ==================================

See notes to financial statements.
</TABLE>


<PAGE>


                                             Harvey Electronics, Inc.

                                        Statements of Shareholders' Equity
<TABLE>
<CAPTION>



                                                                                        Additional                     Total
                                       Preferred Stock            Common Stock           Paid-in    Accumulated    Shareholders'
                                    Shares       Amount       Shares        Amount       Capital      Deficit          Equity
                                   -----------------------------------------------------------------------------------------------
<S>                                   <C>   <C>             <C>         <C>           <C>           <C>            <C>
Balance at October 31, 1998           875   $   402,037     3,282,833   $    32,828   $ 7,481,667   $(2,391,975)   $ 5,524,557

Net loss for the year                --            --            --            --            --        (845,519)      (845,519)
Preferred Stock dividend             --            --            --            --            --         (74,376)       (74,376)
                                   -----------------------------------------------------------------------------------------------
Balance at October 30, 1999           875       402,037     3,282,833        32,828     7,481,667    (3,311,870)     4,604,662
Net income for the year              --            --            --            --            --         316,659        316,659
Preferred Stock dividend             --            --            --            --            --         (74,376)       (74,376)
                                   -----------------------------------------------------------------------------------------------
Balance at October 28, 2000           875   $   402,037     3,282,833   $    32,828   $ 7,481,667   $(3,069,587)   $ 4,846,945
                                   ===============================================================================================

See notes to financial statements.
</TABLE>

<PAGE>


                                             Harvey Electronics, Inc.

                                             Statements of Cash Flows

<TABLE>
<CAPTION>

                                                                                       Fiscal Years Ended
                                                                                  October 28,       October 30,
                                                                               --------------------------------
Operating activities
<S>                                                                            <C>               <C>
Net income (loss)                                                              $    316,659      $  (845,519)
Adjustments to reconcile net income (loss) to net cash provided
     Depreciation and amortization                                                  647,064          478,284
     Income tax equivalent provision                                                160,000                -
     Straight-line impact of rent escalations                                       (22,867)          15,161
     Consulting fees                                                                 10,000                -
     Miscellaneous                                                                  (12,667)          (8,366)
     Changes in operating assets and liabilities:
       Accounts receivable                                                          (24,040)         (83,422)
       Note receivable--previous member of Underwriter                               54,914            4,891
       Inventories                                                               (1,341,791)        (905,678)
       Prepaid expenses and other current assets                                    179,863          (61,919)
       Trade accounts payable                                                       976,338          366,099
       Accrued expenses, other current liabilities and income taxes                 851,531          371,937
                                                                               --------------------------------
Net cash provided by (used in) operating activities                               1,795,004         (668,532)
Restricted cash                                                                           -           25,000
Purchases of property and equipment excluding Internet website development         (688,550)        (828,276)
Internet website development                                                       (342,598)               -
Purchase of other assets                                                            (53,927)         (13,060)
Note receivable--officer                                                              7,500          (15,000)
                                                                               --------------------------------
Net cash used in investing activities                                            (1,077,575)        (831,336)
                                                                               --------------------------------
Net (payments) proceeds from revolving credit facility                             (409,894)       1,477,603
Preferred Stock dividends paid                                                     (110,206)        (112,809)
Principal payments on capital lease obligations                                    (185,903)         (62,423)
                                                                               --------------------------------
Net cash (used in) provided by financing activities                                (706,003)       1,302,371
                                                                               --------------------------------
Increase (decrease) in cash and cash equivalents                                     11,426         (197,497)
Cash and cash equivalents at beginning of year                                       23,947          221,444
                                                                               --------------------------------
Cash and cash equivalents at end of year                                       $     35,373      $    23,947
                                                                               ================================
Interest paid                                                                  $    247,000      $   171,000
                                                                               ================================
Taxes paid                                                                     $     11,000      $    17,000
                                                                               ================================

See notes to financial statements.
</TABLE>


<PAGE>





                            Harvey Electronics, Inc.

                          Notes to Financial Statements

                                October 28, 2000


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 28, 2000 and October 30,
1999 each consist of 52 weeks.

Accounting Estimates

The  preparation  of the  financial  statements  in  conformity  with  generally
accepted  accounting  principles  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 recognized is measured by the amount by
which the carrying amount of the asset exceeds the future discounted cash flows.
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.


<PAGE>


                            Harvey Electronics, Inc.

                    Notes to Financial Statements (continued)




1.  Description  of Business  and  Summary of  Significant  Accounting  Policies
(continued)

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  are  also
permitted  to  continue  to  account  for  such  transactions  under  Accounting
Principles  Board  Opinion  No. 25, 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.


<PAGE>


1.  Description  of Business  and  Summary of  Significant  Accounting  Policies
(continued)

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 of Emerging Issues Task Force ("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  $343,000
relating to the development of its 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).


<PAGE>


1.  Description  of Business  and  Summary of  Significant  Accounting  Policies
(continued)

Income (Loss) Per Share

Basic and diluted income (loss) per share are calculated in accordance with SFAS
No. 128,  "Earnings  Per Share." The basic and diluted  income (loss) per common
share for the fiscal  years  ended  October  28,  2000 and October 30, 1999 were
computed based on the weighted-average number of common shares outstanding.  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
2,240,600 for fiscal 2000 and 2,467,400 for fiscal 1999,  were excluded from the
computation  as their effect  would have been  antidilutive.  Common  equivalent
shares of  approximately  131,250 relating to the conversion of Preferred Stock,
were not considered since they were anti-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 and
notes  receivable,  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.


<PAGE>


1.  Description  of Business  and  Summary of  Significant  Accounting  Policies
(continued)

Advertising Expense

In accordance with Statement of Position 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 fiscal years ended  October 28, 2000 and October 30, 1999 was  approximately
$934,000   and   $227,000,   respectively.   Prepaid   advertising   for   print
advertisements  not run and  broadcast  advertisements  not aired at October 28,
2000 and October 30, 1999 was approximately $69,000 and $167,000, respectively.

Reorganization Value and Fresh Start Reporting

The Company  adopted  Fresh Start  Reporting  in  accordance  with  Statement of
Position  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
($1,224,440,   net  of   amortization  at  October  28,  2000)  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 $66,000 was
recorded for fiscal years 2000 and 1999.

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 is required to adopt
SAB No. 101 in the fourth quarter of fiscal 2001.  Management  believes that the
provision  of SAB No.  101 will not  impact the  Company's  revenue  recognition
policies.


<PAGE>


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.  ("Paragon")  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  Paragon.  The  Amended
Agreement  includes a three (3) 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 $2,500,000 million was reduced to
three  quarters of 1% (.75%) over the prime rate  (10.25% at October 28,  2000).
The rate charged on outstanding  balances over $2,500,000 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.  The
balance  outstanding  under the revolving line of credit facility at October 28,
2000 was  $1,067,709.  The balance was  presented as a current  liability as the
line of credit was temporarily  paid down in December 2000,  using the cash flow
generated from the holiday selling season.

Subsequent to fiscal 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. Prepayment fees also exist under the Third Amended Agreement. A commitment
fee of $75,000  (which will be amortized  over the three years) was also paid by
the Company on December 29, 2000.

Paragon has a senior  security  interest  in all of the  Company's  assets.  The
amended line of credit  facility  provides  Paragon 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).  Additionally, the line of credit facility
contains certain financial covenants, with which the Company is in compliance at
October 28, 2000.


<PAGE>


2. Amendments and Extension of Revolving Line of Credit Facility (continued)

In connection with the Third Amended  Agreement,  Paragon 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.  Paragon 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.  The Company  will be  amortizing  the value of the  warrants  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 Paragon credit  facility
($2,262,306) and to retire the principal  ($350,000) and interest ($47,627) 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 and commenced March 31,
2000, two years from the effective  date of the Offering.  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.


<PAGE>


4. Stock Based Compensation (continued)

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 1999,  the  Company's  Compensation  Committee  approved two grants of
incentive  stock  options  aggregating  222,500  to the  Company's  officers  to
purchase the Company's common stock at an exercise price of $1.50 per share.
The fiscal 1999 incentive stock options are also exercisable immediately.

In fiscal 2000 and 1999,  the  Company  reserved  172,500 and 222,500  shares of
common stock,  respectively,  for issuance in connection with stock options. The
following  table  summarizes  activity in stock  options  during fiscal 1999 and
1998:
<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 31, 1998                 3,200                           141,800         $1.89
        1999 Stock option grants                222,500
         Granted--February 12, 1999              (45,000)         $1.50            45,000         $1.50
         Granted--October 29, 1999              (177,500)         $1.50           177,500         $1.50
         Forfeited                                 1,400       $1.00-$2.00         (1,400)        $1.36
                                                ---------                        ---------
      Balance at October 30, 1999                  4,600                          362,900         $1.65
         2000 Stock option grants                172,500
         Granted--March 1, 2000                  (57,500)         $1.75            57,500         $1.50
         Granted--July 3, 2000                   (57,500)         $1.86            57,500         $1.86
         Granted--July 28, 2000                   (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
                                                =========                        =========
</TABLE>

At October 28, 2000,  options for the purchase of 524,950 shares of common stock
are exercisable. At October 30, 1999, options for the purchase of 311,400 shares
of common stock are exercisable with a weighted-average exercise price of $1.63.
The weighted-average fair value of options granted during the fiscal years ended
October 28, 2000 and October 30, 1999 was $1.43 and $1.24, respectively.


<PAGE>


4. Stock Based Compensation (continued)

Exercise prices for options outstanding as of October 28, 2000, are as follows:
<TABLE>
<CAPTION>

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

<S>      <C>                      <C>                    <C>                         <C>
         $1.00                    63,850                 63,850                      8
         $1.50                   222,500                222,500                      9
         $1.75                   102,500                102,500                     10
         $1.86                    57,500                 57,500                     10
        $1.925                    12,500                 12,500                     10
         $2.00                     6,100                  6,100                      7
         $3.00                    60,000                 60,000                      7
                                 -----------------------------------------------------
                                 524,950                524,950                      9
                                 =====================================================
</TABLE>

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.



<PAGE>


4. Stock Based Compensation (continued)

Pro forma  information  regarding  net income  (loss) and net income  (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 2000 and 1999:  risk-free interest rate ranging from 6.20%-6.36% and 6.0%,
respectively;  no dividend yield; volatility factor of the expected market price
of  the  Company's  common  stock  of  $0.897  and  $1.507  respectively;  and a
weighted-average  expected  life of the  options  of  6.57  years  and 3  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 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                                                       2000               1999
                                                                       ----               ----

<S>                                                             <C>                 <C>
Pro forma net income (loss)                                     $      49,000       $  (1,117,000)
Pro forma net loss attributable to common stock                 $     (25,000)      $  (1,191,000)
Pro forma basic and diluted loss per share                      $         (.01)     $         (.36)
</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 28, 2000.

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 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 either been paid or accrued by
the Company as of October 28, 2000.


<PAGE>


5. 8.5% Cumulative Convertible Preferred Stock (continued)

The Preferred Stock was converted into shares of Common Stock until December 31,
2000,  at the option of the holder,  in whole or in part,  as  follows:  (i) the
first 50% of the Preferred  Stock can be converted at $6.00 per share,  and (ii)
the balance is convertible at $7.50 per share. Beginning on January 1, 2001, the
Preferred Stock is convertible at the average closing price, as defined,  of the
Company's Common Stock for the preceding  45-day 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 28, 2000 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 $57,586 are  outstanding and
classified  as a current  liability at October 28, 2000.  Dividends  aggregating
$74,376 were recorded as a charge to accumulated deficit at October 28, 2000.

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.  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 does not affect the
Company's tax liability.


<PAGE>


6. Income Taxes (continued)

There was no provision  (benefit) for income taxes during the year ended October
30, 1999.  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 28, 2000           October 30, 1999
                                              ------------------------------------------------
                                               Amount          %          Amount         %
                                              ------------------------------------------------
<S>                                            <C>           <C>         <C>           <C>
       Federal income tax provision
          (benefit) at statutory rate         $171,000       34.0       $(287,000)     (34.0)%
        State income taxes, net of
          benefit                               47,400        9.5         (44,700)      (5.3)
        Nondeductible reorganization
          amortization                          22,400        4.5          22,400        2.6
        Operating losses not currently
          deductible                                 -          -         298,000       35.2
        Other, net                              11,500        2.4          11,300        1.5
        Benefit from post reorganization
          temporary differences on tax
          equivalent provision                 (67,300)     (13.4)              -        -
        Nondeductible compensation                   -        -                 -        -
                                              ------------------------------------------------
                                              $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 $1,483,000 and $1,698,000 at October 28, 2000
and October 30, 1999,  respectively.


<PAGE>


6. Income Taxes (continued)

Deferred  tax assets and  liabilities  as of October 28, 2000  consisted  of the
following:
<TABLE>
<CAPTION>

                                                                                  October 28,
                                                                                     2000
                                                                                --------------
<S>                                                                            <C>
Pre-reorganization net operating loss carryforwards                            $      480,000
Pre-reorganization deductible temporary differences                                    87,000
Pre-reorganization tax credits                                                         53,000
Post-reorganization net operating loss carryforwards                                  760,000
Deferred rent                                                                          16,000
Inventory                                                                              77,000
Depreciable assets                                                                    145,000
Tax credits                                                                             6,000
                                                                                --------------
Total deferred tax assets                                                           1,624,000

Website development costs                                                            (137,000)
Intangible assets                                                                      (4,000)
                                                                                ---------------
Total deferred tax liabilities                                                       (141,000)
                                                                                ---------------
Net deferred tax assets                                                             1,483,000
Less: Valuation allowance                                                          (1,483,000)
                                                                                ---------------
Total                                                                          $            -
                                                                                ---------------
</TABLE>

At October 28, 2000, the Company has available net operating loss  carryforwards
of  approximately  $3,100,000 which expire in various years through fiscal 2019.
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 2000 and 1999.


<PAGE>


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 $241,000 and $154,000 were
recorded  during fiscal 2000 and 1999,  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 28,
2000.
<TABLE>
<CAPTION>

                                                                  Operating             Capital
                                                                   Leases                Leases
                                                            ------------------------------------------
<S>    <C>                                                    <C>                     <C>
Fiscal 2001                                                   $     2,004,000         $   136,000
Fiscal 2002                                                         2,045,000              23,000
Fiscal 2003                                                         1,961,000               6,000
Fiscal 2004                                                         1,530,000                   -
Fiscal 2005                                                         1,240,000                   -
Thereafter                                                          2,300,000                   -
                                                              ----------------------------------------
Total minimum lease payments                                  $    11,080,000             165,000
                                                              =================
Less amount representing interest                                                          10,000
                                                                                      ----------------
Present value of net minimum lease payments                                               155,000
Less current portion                                                                      128,000
                                                                                      ----------------
                                                                                      $    27,000
                                                                                      ===============
</TABLE>

Minimum rental  commitments are offset by certain sublease  agreements which are
expected to earn sublease income of approximately $39,000 for fiscal 2001.


<PAGE>


8. Commitments and Contingencies (continued)

Total rental  expense for  operating  leases was  approximately  $2,123,000  and
$1,853,000  for fiscal 2000 and 1999,  respectively.  Certain leases provide for
the payment of  insurance,  maintenance  charges  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.

Included in prepaid and other  current  assets at October 28, 2000, is a $25,000
certificate of deposit which is held as collateral  under a $25,000  outstanding
letter of credit which expires on March 31, 2001.

9. Other Information

Accrued Expenses and Other Current Liabilities


                                                                    October 28,
                                                                       2000
                                                                  -------------
Payroll and payroll related items                                 $     280,000
Accrued professional fees                                               213,000
Customer deposits                                                     1,030,000
Sales taxes                                                             213,000
Accrued occupancy                                                       143,000
Accrued bonuses                                                         179,000
Other                                                                    77,000
                                                                  -------------
                                                                  $   2,135,000
                                                                  =============


<PAGE>


9. Other Information (continued)

Fourth Quarter Adjustments

The fourth  quarter of fiscal 2000 included  pre-operating  expenses of $125,000
relating to the opening of the new 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.
Fiscal 1999 included $115,000 of pre-operating  expenses relating to the opening
of the Bang & Olufsen store in downtown Manhattan.

Note Receivable and Related Consulting Agreements

During  October  1998,  the Company  received a promissory  note from a previous
member  of its  underwriter,  in lieu of an  outstanding  trade  receivable  for
$73,321. Payments, including interest at 9% per annum, aggregating $11,277, were
made to the Company in fiscal 1999.  The remaining  balance of the original note
was due on October 30,  1999;  however,  in November  1999,  an amendment to the
promissory note was executed,  deferring the payment of the remaining  principal
balance  and  interest  at 9% per annum as  follows:  one payment of $44,994 due
January 25, 2000 with the remaining  balance of $24,141 due March 25, 2000. As a
result,  $68,430 was due to the Company at October 30, 1999. In fiscal 2000, the
Company received principal  payments of $54,914 from this individual,  leaving a
balance due of $3,516.

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 $40,000
in fiscal 2000.


<PAGE>


9. Other Information (continued)

Other

At October  28,  2000,  $23,000  was  payable to a company  affiliated  with the
Company's  Chairman  of the  Board  of  Directors.  Amounts  payable  relate  to
management fees and other miscellaneous amounts from fiscal 1998.

A Director of the Company is also a Senior  Partner in a law firm  providing the
Company  with legal  services.  At October  28,  2000,  the  Company had $91,000
payable  to this law  firm.  The  Company  paid  legal  fees to this law firm of
approximately $127,000 and $54,000 in fiscal 2000 and 1999, respectively.

At October 28, 2000, the Company recorded a note payable to a real estate broker
of  $34,000,  and  classified  $22,000  as a current  liability  and  $12,000 as
long-term debt.

10. Retail Store Expansion

In May 2000,  the Company  signed a sublease and a related  Dealer  Agreement to
open a new  1,600  square  foot  Bang &  Olufsen  Branded  Store  in  Greenwich,
Connecticut.  The  Company  opened this new store in October  2000.  All related
preoperating  expenses  and results of  operations  from the date this new store
opened have been  included in the Company's  results of operations  for the year
ended  October 28, 2000.  This is the  Company's  eighth store and is the fourth
opened since its public offering, completed in April 1998.

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 new store is expected
to open in March 2001 and will be the Company's ninth store.