United States

                       Securities and Exchange Commission

                             Washington, D.C. 20549
                                    Form 10-K

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

                   For the fiscal year ended October 29, 2005


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

                           Commission File No. 1-4626

                            Harvey Electronics, Inc.
                         (Name of 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
------------------------------------------------------------------------------
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes[ X ] No[ ]

Indicate by checkmark if disclosure of delinquent filers in response to Item 405
of Regulation S-K is not contained herein and will not 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-K or any amendment to this
Form 10-K. Yes [ ] No [ X ]

Indicate by check mark whether the registrant is an accelerated filer as defined
in Exchange Act Rule 12b-2). Yes[ ] No[X]

Indicate by checkmark  whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No[ X ]

State the number of shares outstanding of each of the issuer's classes of common
equity, as of January 9, 2006; Common Stock 3,508,584 shares.

As of April 30, 2005,  the  aggregate  market value of the  registrant's  Common
Stock held by  non-affiliates  computed by  reference  to the price at which the
stock was sold was $4,235,000.  The shares of Common Stock are currently  traded
on the NASDAQ Capital Market under the symbols  "HRVE".  Non-affiliates  include
all  stockholders  other than  officers,  directors and 5%  stockholders  of the
Company

<PAGE>
                                TABLE OF CONTENTS


PART 1
     Item 1.    Business
     Item 1A.   Risk Factors
     Item 1B.   Unresolved Staff Comments
     Item 2.    Properties
     Item 3.    Legal Proceedings
     Item 4.    Submission of Matters to a Vote of Security Holders

PART II
     Item 5.    Market for Registrant's Common Equity and  Related  Stockholder
                Matters
     Item 6.    Selected Financial Data
     Item 7.    Management's Discussion and Analysis of Financial Condition and
     Results of Operations
     Item 7A.   Quantitative and Qualitative Disclosures About Market Risk
     Item 8.    Financial Statements and Supplementary Data
     Item 9.    Changes in and Disagreements With Accountants on Accounting and
     Financial Disclosure
     Item 9A.   Disclosure Controls and Procedures
     Item 9B.   Other Information

PART III
     Item 10.   Directors and Executive Officers of the Registrant
     Item 11.   Executive Compensation
     Item 12.   Security Ownership of Certain Beneficial Owners and Management
     Item 13.   Certain Relationships and Related Transactions
     Item 14.   Principal Accountant's Fees and Services

PART IV
     Item 15.   Exhibits and Financial Statement Schedule


SIGNATURES

EXHIBIT INDEX
     Ex-23      Consent of Independent Registered Public Accounting Firm
     Ex-31.1    Certification - Chief Executive Officer/President
     Ex-31.2    Certification - Chief Financial Officer
     Ex-32.1    Certification - Chief Executive Officer/President
     Ex-32.2    Certification - Chief Financial Officer
<PAGE>

Part I

In  this  Annual  Report  on  Form  10-K,  the  "Company,"   "Harvey",   "Harvey
Electronics", "we," "us," and "our" mean Harvey Electronics, Inc.

This Annual Report on Form 10-K contains  forward-looking  statements  regarding
Harvey's performance,  strategy,  plans, objectives,  expectations,  beliefs and
intentions.  The actual outcome of the events described in these forward-looking
statements  could differ  materially.  This report,  and  especially the section
entitled  "Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations,"  contains a discussion of some of the factors that could
contribute to those differences.

Item 1. Business.

General

Harvey   Electronics  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,  digital versatile disc
players ("DVD"),  digital video recorders  ("DVR"),  high definition  television
("HDTV"), plasma flat-screen, LCD flat panel and DLP television sets, integrated
remote controls,  audio/video furniture,  conventional telephones,  MP3 players,
iPods,  satellite and analog radios,  service contracts and related accessories.
The Company has been engaged in this business in the New York  Metropolitan area
for seventy-nine  years. The Company  currently  operates nine locations;  eight
Harvey  specialty  retail stores and one separate Bang & Olufsen  branded store.
There are two Harvey  locations  in  Manhattan  and six  suburban  locations  in
Paramus,   New  Jersey;  Mt.  Kisco,  in  Westchester,   New  York;   Greenwich,
Connecticut;  Greenvale/Roslyn,  on the north  shore of Long  Island,  New York;
Eatontown,  New Jersey; and our newest store in Bridgewater,  New Jersey,  which
opened in late June 2005.  The Bang & Olufsen  branded store is located in Union
Square at Broadway and 21st Street in  Manhattan.  The Company also has a Bang &
Olufsen showroom within our Harvey retail store in Greenwich, Connecticut.

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.

The Company  also offers its custom  installation  services  through  "Harvey on
Demand". The Company believes it can expand its service niche in offering custom
labor and other  accessories  for both Harvey  customers and customers that have
purchased  products  elsewhere,  specifically  on  the  internet  or  from  mass
merchants.  The Company,  through this service group,  offers a forty-eight hour
response time to address the needs of a qualified customer.

Products

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

For the fiscal year ended October 29, 2005,  the  Company's  audio product sales
represented  approximately  48% of the  Company's  net sales and  yielded  gross
profit  margins  of  approximately   42%.  The  Company's  video  product  sales
represented  approximately  42% of the  Company's  net sales and  yielded  gross
profit  margins of  approximately  30%. 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 63%
of the  Company's  net  sales in  fiscal  2005.  The  labor  portion  of  custom
installation  presently  represents  approximately 10% of net sales. The Company
also sells  extended  warranties  on behalf of third party  providers.  Sales of
extended   warranties   yield  higher  gross  profit  margins  and   represented
approximately 4% of the Company's overall net sales.

The  following  table shows,  by  percentage,  the  Company's  net product sales
(excluding labor income)  attributable to each of the product categories for the
periods  indicated.  Audio components include speakers,  subwoofers,  receivers,
amplifiers,   preamplifiers,   compact  disc  players,  turntables  and  tuners.
Accessories  primarily  include  integrated remote controls,  headphones,  surge
protectors  and  projection   screens.   The  miscellaneous   category  includes
conventional  telephones,  iPods,  MP3 players,  satellite and analog radios and
other portable products.

<TABLE>
<CAPTION>

                              October 29,    October 30,     November 1,     October      October
Fiscal Year Ended:                2005           2004           2003        26, 2002     27, 2001
                             ------------------------------------------------------------------------

<S>                               <C>            <C>            <C>             <C>         <C>
Audio Components                  26%            24%            29%             31%         39%
Mini Audio Shelf Systems           2              3              4               5           6
TV and Projectors                 38             41             39              39          30
DVD/DSS/VCR                        4              5              5               6           8
Furniture                          5              4              5               5           5
Cable and Wire                     6              6              5               5           5
Accessories                       12             11              9               7           6
Extended Warranties                4              4              3               1           -
Miscellaneous                      3              2              1               1           1
                             ------------------------------------------------------------------------
                             ------------------------------------------------------------------------
                                 100%           100%           100%            100%        100%
                                 ====           ====           ====            ====        ====
</TABLE>

The  percentage  of sales by each  product  category is affected by, among other
things,  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.  Newer
technologies,  such as HDTV,  plasma  flat-screen and LCD flat panel televisions
are strongly desired by the Company's  customers.  The plasma flat-screen or LCD
flat panel  television  allows the set to be far less  obtrusive and more easily
integratable  into  the  home.  High  definition  television  has  significantly
improved picture quality.

The Company  intends to  continue  its recent  emphasis  on custom  installation
(representing  63% of net sales in fiscal 2005),  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.  In fiscal 2006,  the Company will continue to expand its
merchandising  efforts of complete movie theaters in the home,  in-home lighting
systems  and  distributed  in-home  cabling  for  the  integration  of  computer
networks,  entertainment  systems and other related  services.  The Company will
continue to showcase the lifestyle benefits of flat panel televisions.

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
because it may not be  available  at certain  mass  merchants  and 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.  We
believe digital video products,  network cabling,  in-home lighting systems,  as
well as other emerging satellite and internet 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  65% of the  Company's  purchases for the
fiscal year ended October 29, 2005. These ten  manufacturers are Bang & Olufsen,
Boston Acoustics,  Fujitsu,  Marantz,  McIntosh,  Monster Cable,  Pioneer Elite,
Samsung,  Sharp and Sony.  Fujitsu  and Sharp each  accounted  for more than ten
(10%)  percent of the Company's  purchases for fiscal 2005,  and Bang & Olufsen,
Marantz,  Pioneer  Elite  and  Samsung  each  accounted  for more than five (5%)
percent of purchases for such period.

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

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

Bang & Olufsen ("B&O") products have been sold by the Company since 1980. As B&O
focused on developing  B&O licensed  stores  ("Branded  Stores")  throughout the
world,  its products  become  available only in Branded Stores.  Currently,  the
Company operates one B&O Branded Store and operates a second showroom within the
Harvey store in Greenwich,  Connecticut,  under a store-within-a  store concept.
These  stores  sell highly  differentiated  Bang & Olufsen  products,  including
uniquely   designed  audio  systems,   speakers,   telephones,   headphones  and
accessories.  The stores  also sell video  products  including  LCD  projectors,
HDTV's,  DVD players,  plasma  flat-screen and LCD flat panel  televisions,  A/V
furniture  and  accessories.   These  stores  also  offer  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  manufacturers'
rebates based on volume buying levels.  With many vendors,  the Company has been
able to negotiate  favorable terms,  such as extended payment terms,  additional
cooperative  advertising  contributions or lower prices, 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 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 transportation.

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
changes in  technology.  The Company  maintains  specific and general  inventory
reserves  aggregating  $150,000,  $130,000 and $130,000,  for fiscal years 2005,
2004 and 2003,  respectively.  The Company's inventory turnover for fiscal years
2005, 2004 and 2003 was approximately 3.0, 3.2 and 3.4 times, respectively.

Sales and Store Operations

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

In  addition,  customers  who qualify can obtain  longer term  financing  with a
Harvey credit card,  which the Company  makes  available to its  customers.  The
Harvey credit cards are issued by an unrelated finance company. All transactions
with this unrelated  finance  company are without  recourse to the Company.  The
Company  also  periodically,  as  part  of its  promotional  activities,  offers
manufacturer sponsored financing to its customers.

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 in-home  audio/video
specialists 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. The Company's stores are aided by the Company's  Director
of Custom  Installation and additionally,  a  highly-specialized  programmer for
more difficult and technical  projects.  The Vice President of Merchandising and
President  of the Company  determine  what  products  will be  demonstrated  and
presented  at each 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. The Company's computer system is expected to
be replaced by the Company,  effective May 2006.  Store  managers  perform sales
audit functions  before  reporting daily results to the sales audit group in the
main office in Lyndhurst, New Jersey.

Services and Repairs

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

The Company offers an extended  warranty  contract for most of the audio,  video
and other merchandise it sells,  which provides coverage beyond the manufacturer
warranty  period.  Extended  warranties  are provided by an  unrelated  warranty
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 this  company.
Sales  of  extended  warranty  contracts  have  increased  in  fiscal  2005  and
represented approximately 4% of the Company's net sales. The warranty obligation
is solely the responsibility of the warranty insurance company. See notes to the
financial  statements  for  additional  information  on  warranty  sales and the
presentation of such sales in the Company's Statements of Operations.

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  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, J&R Music World,  6th
Avenue Electronics and Electronics Expo.

Many of the competitors sell a broader range of electronic  products,  including
computers,  camcorders,  digital  cameras  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, we believe,  more
importantly,  by offering upscale sophisticated custom installations,  which are
not offered by all of the mass merchants.

Very few, if any, of the audio products sold by the Company, other than Bose and
certain Sony products,  radios and other portable products, are available at the
mass merchants.  Of the major video brands sold by the Company,  Samsung,  Sony,
Pioneer and Sharp  televisions are sold by the mass merchants.  The Company does
sell models which are not sold by the mass merchants.

The Company seeks to reinforce its  positioning  by  displaying  its  higher-end
products and custom  installation  services in customized  movie  theaters built
within the home and 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.
Additionally,   we  believe  the  Company   differentiates  itself  by  offering
programming  capabilities that address complex technological  integration issues
and ultimately give the consumer easy remote control access to multiple devices.

Internet Website

The  Company  offers its  website,  www.harveyonline.com,  to its  customers  to
augment  its retail  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,  which are
insignificant, are available seven days a week, twenty-four hours a day, and 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.

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. Current promotions, special
product offerings,  product  specification,  price and warranty  comparisons are
also available on the site.

The Company expects to improve or replace its website in fiscal 2006.

Advertising

The Company believes it has a strong and important brand in its marketplace. The
Company strives to promote its superior products and  sophisticated  services in
its  advertising  campaign to both men and women. In September 2005, the Company
engaged a new advertising  agency to promote its brand and to increase awareness
in the  Company's  service  offerings.  In fiscal  2006,  the Company  will also
continue to expand its efforts in its important  customer  relations  management
program.

Currently,  the  Company  has radio,  direct  mail,  print  advertising,  e-mail
broadcasts and the Internet with www.harveyonline.com, the Company's website, to
promote its brand.

The Company  currently  uses  frequent  print  advertising,  emphasizing  image,
products, and technology in The New York Times, New York Magazine, Courier News,
The  Journal  News and the Asbury Park  Press.  The  Company  also uses The Wall
Street Journal for certain Bang & Olufsen  advertising.  The Company distributes
direct mail advertising and specific e-mail  broadcasts to reach its significant
customer database.  Direct mail promotions can update customers on new products,
or  technology,  and can be  supported,  in part,  by the  manufacturers.  Radio
advertising is currently running on the two most listened to news stations on AM
radio within the Company's market.

All  advertising   consistently  offers  attractive  financing  alternatives  on
purchases on credit without interest for an extended period of time.

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 advertising  income
received from the manufacturers.

<TABLE>
<CAPTION>

                                    October 29,     October 30,     November 1,       October         October
      Fiscal Year Ended                 2005           2004            2003          26, 2002         27, 2001
                                   --------------------------------------------------------------------------------

<S>                                  <C>            <C>             <C>             <C>             <C>
      Gross advertising costs        $2,700,000     $2,700,000      $2,540,000      $2,665,000      $2,864,000
      Net advertising expenses          725,000        470,000         366,000         632,000       1,206,000
      Percentage of net sales               1.8%           1.1%             .9%            1.5%            3.3%
</TABLE>

Licenses and Intellectual Properties

     The Company  owns four  registered  service  marks.  "HARVEY  ELECTRONICS,"
issued in June 1982,  and "Harvey",  issued March 7, 1989 are currently  used by
the Company.  The Company believes that the service marks HARVEY ELECTRONICS and
HARVEY have  significant  value and are  important  in marketing  the  Company's
products and services.

Employees

As of October  29,  2005,  the  Company  employed  approximately  152  full-time
employees  of  which  18  were  management  personnel,  15  were  administrative
personnel, 53 were salespeople,  11 were warehouse workers and truck drivers and
55 were engaged in custom installation.

Of the salespeople, warehouse workers, truck drivers and installation staff, 102
people are covered by a collective bargaining agreement with the Company,  which
expires  August 1, 2008.  The Company has never  experienced a work stoppage and
believes  that  its   relationships   with  its  employees  and  the  union  are
satisfactory.

Item 1A. Risk Factors

Not applicable.

Item 1B. Unresolved Staff Comments

Not applicable.

Item 2. 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 future
expansion.

The  Company  leases  approximately  3,900  square  feet  at 205  Chubb  Avenue,
Lyndhurst,  New  Jersey,  which  the  Company  uses as its  corporate  office at
approximately  $45,000 per year,  including other occupancy  costs.  This office
space is under lease  through  January  2009.  The Company also leases an 11,800
square foot  warehouse in Fairfield,  New Jersey at  approximately  $140,000 per
year,  including  other  occupancy  costs,  pursuant  to a lease  which  expires
December 2008.

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

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

<S>      <C>                            <C>   <C>                         <C>
  2 West 45th Street                    06/30/2015          None          7,500
  New York, NY

  556 Route 17 North                    06/30/2015          None          7,000
  Paramus, NJ

  888 Broadway                          12/31/2006          None          4,000
  at 19th St.
  New York, NY
  (within ABC Carpet & Home)

  19 West Putnam Ave.                   09/30/2006        5 years         5,300
  Greenwich, CT(1)

  44 Glen Cove Road                     08/15/2008          None          4,600
  Greenvale, NY

  115 Main St.                          08/31/2008          None          3,500
  Mt. Kisco, NY

  927 Broadway                          12/31/2010          None          1,500
  New York, NY
  (Bang & Olufsen Branded Store)

  57 Route 36 West                      01/01/2011        10 years        6,500
  Eatontown, NJ

  762 Route 202 South                   05/01/2015        5 years         4,500
  Bridgewater, N J 08807
</TABLE>

     (1) Includes a Bang & Olufsen showroom under a store-within-a-store concept
with this Harvey Store in Greenwich, Connecticut.


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 most likely 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.

In July 2003,  the Company  received a notice and  information  request from the
Pennsylvania Department of Environmental Protection ("PADEP"). The notice stated
that  PADEP   considers  the  Company  a  potentially   responsible   party  for
contamination  related to a septic  drain  field  located  at a former  Chem Fab
Corporation ("Chem Fab") site in Doylestown, Pennsylvania.

PADEP's  notice  stated that if Chem Fab was  previously  owned by Harvey Radio,
Inc.  ("Harvey Radio") and if the Company was a successor to Harvey Radio,  then
the Company could be, in part,  responsible for any environmental  investigation
or clean up actions necessary at this site.

Harvey Radio was the  predecessor of The Harvey Group,  Inc.  ("Harvey  Group"),
which filed for relief under Chapter 11 of the United States  Bankruptcy Code in
August 1995. The Company is the surviving  retail  business of the Harvey Group,
which emerged from  bankruptcy  in December  1996.  Chem Fab was a  wholly-owned
subsidiary of Harvey Radio as of September  1967.  The capital stock of Chem Fab
(a then wholly-owned  subsidiary of Harvey Group) was sold by the Company to the
Boarhead  Corporation in January 1978. The  disposition of Chem Fab was prior in
time to the Company's bankruptcy petition date of August 3, 1995.

In August 2003,  the Company sent its response  letter to PADEP.  The  Company's
response  stated  that any action by PADEP to recover any money from the Company
relating to any environmental investigation or cleanup related to Chem Fab is in
violation of the injunctions  imposed by virtue of the Company's 1995 Bankruptcy
proceeding. The response letter to PADEP specifically referred to two cases with
respect to  entities  subject  to a  discharge  in  bankruptcy  by the  Southern
District of New York and the Second  Circuit  Court of Appeals.  These cases may
support the Company's position enjoining any further action against the Company.

The Company believes PADEP's claim, even absent the bankruptcy injunction, would
be improper  against the Company,  as Harvey Group was a shareholder of Chem Fab
and Chem Fab's capital stock was sold in 1978, as previously stated.

The Company  advised PADEP that any further action to pursue a claim against the
Company would result in the Company  bringing a motion to reopen its  bankruptcy
case, solely to address the PADEP claim and further,  the Company would commence
contempt  proceedings  against  PADEP.  To date,  the Company has not received a
response from PADEP. The Company has also retained special environmental counsel
for advice with respect to PADEP's  request for  information  and other  matters
with respect to the claim.

Furthermore, the number of other parties that may be responsible,  their ability
to share in the cost of a clean up and whether the  Company's  existing or prior
insurance  policies provide coverage for this matter is not known. At this time,
it is impossible for the Company to determine the outcome or cost to the Company
of this matter.

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

On October 21, 2005, the Company's shareholders at an Annual meeting (i) elected
Franklin C. Karp (3,242,444 shares in favor,  17,609 shares against),  Joseph J.
Calabrese  (3,238,244  shares  in  favor,  21,809  against),  Michael  E.  Recca
(3,240,244  shares  in  favor,  19,809  shares  against),   Frederic  J.  Gruder
(3,253,382 shares in favor,  6,671 shares against),  William F. Kenny (3,253,382
shares in favor, 6,671 shares against),  Nicholas A. Marshall  (3,253,382 shares
in favor,  6,671 shares against),  and Ira J. Lamel (3,253,340  shares in favor,
6,713  shares  against)  as  directors  of the  Company  and (ii)  ratified  the
appointment of BDO Seidman, LLP, the Company's independent auditors for the year
ended  October 29, 2005  (3,233,002  shares in favor,  9,291 shares  against and
17,760 shares abstained).

Part II

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

The  Company's  Common  Stock is traded on the NASDAQ  Capital  Market under the
symbol "HRVE".

On  October  29,  2005,  the  outstanding  shares  of  Common  Stock are held by
approximately  1,500  shareholders  of record,  and the  Preferred  Stock by one
holder of record.  The  transfer  agent and  registrar  for the Common  Stock is
Registrar and Transfer Company, 10 Commerce Drive, Cranford, New Jersey 07016.

The following table indicates the quarterly high and low stock prices for fiscal
years 2005 and 2004:

Fiscal Year 2005                        High              Low
--------------------------------- ----------------- ----------------

January 29, 2005                      $3.00             $1.15
April 30, 2005                         1.76              1.20
July 30, 2005                          1.40              1.07
October 29, 2005                       1.49               .80

Fiscal Year 2004
January 31, 2004                      $1.04              $.83
May 1, 2004                            1.75               .98
July 31, 2004                          1.54              1.00
October 30, 2004                       1.38               .98


The Company has paid no  dividends  on its Common  Stock for the last two years.
The Company's  lender restricts the payment of dividends on the Company's Common
Stock.  The  Company  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  9,  2006,  3,508,584  shares  are
outstanding and held by approximately 1,500 shareholders of record.

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

The Preferred Stock may be issued from time-to-time without shareholder 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.  Total  Preferred  Stock  dividends of $52,796,
$70,295 and $70,295 were paid in fiscal years 2005, 2004 and 2003, respectively.
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.

875  shares  of 8.5%  convertible  Preferred  Stock  were  originally  issued in
conjunction with the Company's  reorganization,  effective  October 26, 1996. As
specified  in the  Company's  By-laws,  the  preferred  stock  has a  conversion
feature.

Prior to January 1, 2001, 50% of the Preferred  Stock was convertible at a price
of $6.00 per share and 50% of the Preferred  Stock was  convertible at $7.50 per
share.  Commencing  January  1,  2001,  each  share of  Preferred  Stock  became
convertible  into  shares of common  stock at a  conversion  price  equal to the
average  of the  closing  bid  price of one share of  Common  Stock  over the 45
trading days preceding  January 1, 2001, if traded on the NASDAQ Capital Market.
This new conversion price was set at $1.2333 on January 1, 2001.

Pursuant to the SEC's comment letter  received by the Company in fiscal 2005, it
was  identified  that when the Preferred  Stock was issued in October 1996,  the
conversion reset provision at January 1, 2001 represented a contingent event. In
accordance  with EITF Issue No. 00-27,  Application of Issue No. 98-5 to Certain
Convertible Instruments, the Company has determined that a beneficial conversion
feature  existed at the issuance  date. In accordance  with EITF No. 00-27,  the
Company  recalculated the intrinsic value of the conversion  feature,  which was
reset on January 1, 2001, and has determined that retained  earnings should have
been reduced by $711,000,  while  additional  paid-in  capital  should have been
increased by the same amount in fiscal 2001. This  adjustment  ultimately had no
effect on shareholders'  equity or earnings.  In fiscal 2001, the $711,000 would
have been  recorded as a dividend to the preferred  shareholders  and would have
impacted the loss per share applicable to common  shareholders.  In fiscal 2001,
the Company  reported a loss and, as a result,  the loss per share applicable to
common  shareholders  would have been  increased to $.62 per share from $.40 per
share.  As this  adjustment only impacted  certain  components of  shareholders'
equity, having no effect on total equity and no effect on earnings,  the Company
corrected  the equity  accounts  in the second  quarter of fiscal  2005,  and in
addition restated the balance sheet as of October 30, 2004, and the Statement of
Shareholders' Equity as of October 26, 2002, for comparative purposes.

875 shares of Preferred Stock were originally  issued by the Company.  In fiscal
2002,  48 shares of  Preferred  Stock  were  converted  to 38,920  shares of the
Company's  Common Stock.  In December 2004,  227 shares of Preferred  Stock were
converted to 184,059 shares of the Company's  Common Stock. At October 29, 2005,
600 shares of Preferred  Stock were issued and  outstanding and were held by one
holder of record.

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. Selected  Financial  Data  (amounts in  thousands,  except per share and
number of stores data)

Set forth below is selected  financial and  operating  data for each of the five
years ended October 29, 2005.  The selected  statement of operations and balance
sheet data for each of the five years ended  October 29, 2005 have been  derived
from our audited  financial  statements.  Certain items in the fiscal 2004, 2003
and 2002  financial  data have  been  reclassified  to  conform  to fiscal  2005
presentation. Certain items in the fiscal 2002 and 2001 financial data have been
reclassified to conform to fiscal 2003  presentation.  The information set forth
below should be read in conjunction with  "Management's  Discussion and Analysis
of Financial  Condition and Results of Operations" and our financial  statements
and the notes thereto included elsewhere in this Form 10K.

<TABLE>
<CAPTION>

                                                 Fiscal Year      Fiscal Year      Fiscal Year     Fiscal Year     Fiscal Year
                                                    Ended            Ended           Ended           Ended           Ended
                                                 October 29,      October 30,      November 1,    October 26,     October 27,
                                                     2005            2004             2003            2002            2001
                                               ----------------------------------------------------------------------------------

<S>                                               <C>              <C>           <C>              <C>              <C>
Net sales                                         $40,444(3)       $43,145(3)      $42,448(3)       $41,326(3)       $36,606(3)
Cost of sales                                      23,589           25,394          25,141           24,973           22,471
                                               -----------------------------------------------------------------------------------
Gross profit                                       16,855           17,751          17,307           16,353           14,135
Gross profit percentage                             41.7%            41.1%           40.8%            39.6%            38.6%
Interest expense                                      232              175             343              359              340
Selling, general and administrative expenses       17,453           16,968          16,555           15,806           15,128
Provision for impairment of long-lived assets
                                                        -              144               -                -                -
Other income                                            -               28              73              116               83
                                               -----------------------------------------------------------------------------------
(Loss) income before income taxes (benefit)         (830)              492             482              304          (1,250)
Income taxes (benefit)                                  -            (782)(4)          195              124                -
                                               -----------------------------------------------------------------------------------
Net (loss) income                                   (830)            1,274             287              180          (1,250)

Preferred Stock dividend requirement                 (53)             (70)            (70)             (72)             (75)
                                               -----------------------------------------------------------------------------------
Net (loss) income attributable to
   Common Stock                                    $(883)           $1,204            $217             $108         $(1,325)
                                                   ======           ======            ====             ====         ========

Net (loss) income per common share
   applicable to common shareholders:
     Basic                                         $(.25)             $.36            $.07             $.03           $(.40)
                                                   ======             ====            ====             ====           ======
     Diluted                                       $(.25)             $.32            $.07             $.03           $(.40)
                                                   ======             ====            ====             ====           ======

Shares used in the calculation of net (loss)
    income per common shares:
     Basic                                      3,495,435        3,324,525       3,324,525        3,288,174        3,282,833
                                                =========        =========       =========        =========        =========
     Diluted                                    3,495,435        4,033,492       3,866,415        3,385,022        3,282,833
                                                =========        =========       =========        =========        =========

Stores opened at end of period                          9                9               9                9                9
</TABLE>

<PAGE>


Balance Sheet Data:
<TABLE>
<CAPTION>

                                        October          October         November         October         October
                                       29, 2005         30, 2004          1, 2003         26, 2002       27, 2001
                                    ---------------- ---------------- ---------------- --------------- --------------

<S>                                    <C>      <C>     <C>              <C>             <C>    <C>  <C>       <C>
Working capital (deficiency)           $2,961(1)(2)     $3,172(2)        $2,950(2)       $ (600)(1)  $  (1,416)(1)
Total assets                           13,879           12,799(4)        12,325           12,151        12,727
Long-term liabilities                   3,935(2)         2,109(2)         2,968(2)           156           160
Total liabilities                       9,592(2)         7,629(2)         8,380(2)         8,423(1)      9,107(1)
Total shareholders' equity              4,287            5,170(4)         3,945            3,728         3,620
</TABLE>

(1)  It is  important  to note  that at the end of  fiscal  2002 and  2001,  the
     Company's  outstanding  balances on its revolving  line of credit  facility
     ($3,119,000  and  $3,442,000,  respectively)  were  classified  as  current
     liabilities, despite the long-term nature of the Company's then outstanding
     credit facility.  The presentation as a current liability was in accordance
     with EITF 95-22,  "Balance Sheet  Classification of Borrowings  Outstanding
     under   Revolving   Credit   Agreements  that  include  both  a  Subjective
     Acceleration  Clause  and a  Lock-Box  Arrangement".  Working  capital  was
     negatively impacted by the Company's  significant increase in the revolving
     line of credit  facility in fiscal 2005 and 2001,  which was  necessary  to
     fund retail store expansion and renovation.
(2)  The Company entered into a new $7.5 million credit facility on November 21,
     2003 and the  existing  credit  facility  was  simultaneously  paid off and
     terminated.  As the new credit facility  expires in five years and does not
     include both a subjective  acceleration  clause and a lock box arrangement,
     in  accordance  with  EITF  95-22,  the  Company   classified  the  balance
     outstanding,   at  October   29,  2005   ($3,486,000),   October  30,  2004
     ($1,825,000)  and  November  1, 2003  ($2,726,000),  under  the new  credit
     facility as a long-term liability.
(3)  The Company sells extended  warranty  contracts for a third party provider.
     The profit on extended warranty sales is considered  commission at the time
     of sale.  As a result,  the net amount earned on these sales is recorded in
     net sales,  in  accordance  with  Emerging  Issue Task Force  99-19  ("EITF
     99-19"), "Reporting Revenue Gross as a Principal Versus Net as an Agent."
(4)  At October  30,  2004,  the  Company  reassessed  the  valuation  allowance
     previously  established  against its net deferred tax assets.  Based on the
     Company's earnings history and projected future taxable income, the Company
     determined  that it is more likely than not that a portion of its  deferred
     tax  assets  would be  realized  and  recorded  an income  tax  benefit  of
     approximately   $977,000  and  a  reduction  of  reorganization   value  of
     approximately $373,000.


Item 7. Management's  Discussion and Analysis of Financial Condition and Results
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.  Historical  results  are not  necessarily  indicative  of trends in
operating  results for any future  period.  Readers are  cautioned  not to place
undue reliance on these forward-looking  statements,  which speak only as of the
date the statement was made.

General

The  following  discussion  should  be read in  conjunction  with the  Company's
audited  financial  statements  for the fiscal  years ended  October  29,  2005,
October 30, 2004 and November 1, 2003, appearing elsewhere in this Form 10-K. It
should be noted that fiscal  2003 was a  fifty-three  week year,  as compared to
fifty-two weeks for fiscal 2005 and 2004.

Results of Operations

Fiscal Year Ended October 29, 2005, as Compared
  to Fiscal Year Ended October 30, 2004

Net (Loss) Income

The Company's  pre-tax loss for the year ended October 29, 2005, was $830,000 as
compared to pre-tax  income of $492,000 for the year ended October 30, 2004. The
net loss for fiscal 2005 was  $830,000  as compared to net income of  $1,274,000
for fiscal 2004.

The Company  believes  the non-GAAP  measurement  of earnings  before  interest,
taxes,  depreciation  and  amortization  ("EBITDA") is an important  operational
measure.  Depreciation and amortization  have  historically  been significant in
relation to net (loss)  income.  The  Company's  depreciation  and  amortization
expense,  as is interest expense from its line of credit,  primarily  relates to
the Company's  retail stores and expansion of its retail  stores.  The Company's
income tax  equivalent  provisions  (benefit) or deferred tax expense  (benefit)
have also had a significant impact on earnings,  but have primarily not required
the use of the Company's cash, due to the reporting  requirements of Fresh Start
Accounting.

The Company's  Management,  Board of Directors and bank comparably review EBITDA
monthly,  quarterly and annually to gauge the Company's performance.  EBITDA may
also be used in simple  valuation  measures of the Company,  by its shareholders
and  potential  investors.  Management  understands  that there are  limitations
associated  with the use of this  non-GAAP  measure of EBITDA as compared to net
income. Specifically, a portion of interest expense does relate to the Company's
operations and a portion of the income tax  equivalent  provision does relate to
the payment of certain  state taxes,  although  these  amounts are not material.
Additionally,   the  Company  will  not   eliminate   any  other   recurring  or
non-recurring  expenses in its reconciliation of the Company's net (loss) income
to EBITDA.

The  following is a  reconciliation  of the  Company's  net (loss) income to the
non-GAAP measure of EBITDA:

                                        Fiscal 2005          Fiscal 2004
                                        -----------          -----------
      Net (loss) income                  ($830,000)          $1,274,000

      Add back
      Interest expense                     232,000              175,000
      Income taxes (benefit)                  -                (782,000)
      Depreciation and amortization        739,000              683,000
                                          --------              -------
      EBITDA                              $141,000           $1,350,000
                                          ========           ==========

The  Company's  net loss for  fiscal  2005 was  negatively  impacted  by reduced
comparable store sales, as discussed below.

Additionally,  the Company's net loss was negatively  affected by  approximately
$200,000 in  pre-opening  expenses,  operating  losses and  related  promotional
expenses  related to the Company's  new  Bridgewater,  New Jersey  store,  which
opened in late June 2005.

A 54.3% increase in net  advertising  expense also  contributed to the Company's
net loss in fiscal 2005.  Net  advertising  expense in fiscal 2005  increased to
$725,000 from $470,000 in fiscal 2004, and is discussed below.

Net income for fiscal 2004 was negatively impacted by a fourth quarter provision
for  impairment  of  long-lived  assets  aggregating  $144,000,  relating to the
relocation  of  the  Company's  Bang  &  Olufsen  branded  store  in  Greenwich,
Connecticut. Net income for fiscal 2004 was also negatively impacted by $133,000
relating to the Company's estimates of unclaimed property due to certain states.

No income  tax  provision  was  required  for  fiscal  2005,  as a result of the
Company's  net loss.  In fiscal  2004,  the  Company  reversed  a portion of its
valuation  allowance against its deferred tax assets,  recognizing an income tax
benefit of $977,000.  This income tax benefit was partially  offset by an income
tax provision of $195,000 recorded in fiscal 2004.


Revenues

For the year  ended  October  29,  2005,  net sales  aggregated  $40,444,000,  a
decrease of approximately  $2.7 million or 6.3% from the prior year.  Comparable
store  sales for  fiscal  2005,  excluding  the  sales  from the  Company's  new
Bridgewater  store,  decreased  approximately  $3.5 million or 8% from the prior
year.

The Company's net sales for fiscal 2005 were negatively impacted by a decline in
retail  store  traffic,  which  began  in  January  2005,  coupled  with a 15.4%
reduction in its video business.

The Company believes the slowdown was due to a deceleration of consumer spending
during the year,  as well as consumer  expectations  that flat panel  television
prices  would  continue to  significantly  decline,  thus  delaying the purchase
decision.  Additionally,  consumer uncertainties and confusion regarding current
technologies continue to be somewhat problematic for the industry.

Audio sales declined 1.2%, while video sales have declined  approximately  15.4%
for fiscal  2005 as  compared to fiscal  2004.  Video  sales have  declined as a
result of  reduced  DLP,  CRT and DVD sales and to a lesser  extent  from  price
compression,  an overall  1%  reduction  of flat  panel  unit sales and  certain
product shortages, particularly in the third and fourth quarters.

The  Company  has  experienced  flat panel  growth in larger size plasma and LCD
televisions  while reporting  declines in smaller screen sizes.  Sales of larger
screen flat panels have provided installation opportunities for the Company. The
Company's  labor  revenue has increased  approximately  17.1% for fiscal 2005 as
compared to fiscal 2004 as custom installation demand continues to be strong.

The Company's overall video sales ($17.2 million) have been negatively  impacted
by price  compression  in the industry as well as  competitive  pressures in the
market.  Management  believes this trend will  continue.  As video  products are
affected by price compression,  Management believes it is an opportunity for the
Company to attach  additional  higher margin audio  components,  accessories and
labor. Video sales have declined to approximately 41.9% of gross sales in fiscal
2005, from 46.5% of gross sales for fiscal 2004.

The  Company's  higher  margin audio sales ($19.5  million) for fiscal 2005 have
increased  to 47.6% of gross sales for fiscal 2005 from 45.2% of gross sales for
fiscal 2004.  Audio sales were  positively  impacted by additional  cable sales,
headphones,  furniture,  radio and  portables.  Labor income ($4.3  million) for
fiscal  2005  represented  approximately  10.5% of gross  sales as  compared  to
approximately 8.4% of gross sales for fiscal 2004.

The Company  believes it  continues  to benefit  from the strong  demand for its
custom installation services. Additionally,  despite increased competition and a
decline in retail  store  traffic,  customer  demand  continues to be strong for
digital video  products  including  larger  plasma flat screen,  LCD flat panel,
high-definition televisions,  integrated remote controls and related custom home
installations.   Custom  installation   projects  continue  to  increase,  as  a
percentage  of net sales and in actual  dollars,  and  accounted  for 63% of net
sales for fiscal 2005 as compared to  approximately  59% of net sales for fiscal
2004. Custom installation sales, including both equipment sales and labor income
aggregated  $25.7  million for fiscal  2005,  as  compared to $25.6  million for
fiscal 2004.  The  Company's  custom  installation  services  yield higher gross
profit  margins and stronger  net  profitability,  as compared to normal  retail
store sales.

The Company believes it differentiates  itself by offering  sophisticated custom
installation services,  including programming  capabilities that address complex
technological  integration  issues  giving its  customers  easy  remote  control
operations  for a variety of functions.  Management  believes  installations  of
dedicated  theater rooms,  hard drive video and audio storage and  distribution,
lighting  systems  in the home,  as well as network  cabling  will  continue  to
attract  affluent  customers to the  Company.  The home theater room will be the
forefront of the smart home,  for the desired  integration  of all  electronics,
lighting,  security  and  networking  within the home.  These  offerings  should
continue to benefit  sales,  enhance  gross  margins and improve  overall  store
profitability.

The Company  also offers a service  initiative  called  "Harvey on Demand".  The
Company  believes it can expand its service  niche in offering  custom labor and
other  accessories  for both Harvey  customers and customers that have purchased
products  elsewhere,  specifically on the internet or from mass  merchants.  The
Company is offering a  forty-eight  hour response time to address the needs of a
qualified  customer at an additional labor cost.  Additionally,  the Company has
been working with  Cablevision and Time Warner in offering and installing  their
high  speed  cable  modems  and  digital  cable  boxes in  conjunction  with our
installation services.

Net sales for the new Harvey  retail store  located in  Bridgewater,  New Jersey
have been encouraging.  The Company believes that this store will take some time
to mature as its sales have  significantly  come from new home  construction and
custom installations which take time to cultivate and complete.

As previously disclosed, the Company elected not to renew the lease for its Bang
&  Olufsen  store in  Greenwich,  Connecticut,  which  expired  in  April  2005.
Management  decided to relocate and consolidate this operation within its Harvey
Greenwich  store,  one block away.  This  relocation was completed in late April
2005. This  store-within-a-store  concept  presents Bang & Olufsen products in a
unique and separate showcase within a Harvey store. The Company is excited about
this new store-within-a-store concept. The Company has been able to increase its
Bang & Olufsen sales without the overhead of a separate store.

Net sales for all of the Company's retail locations have experienced declines in
fiscal  2005,  as compared to fiscal 2004,  due  primarily  from reasons  stated
above,  except  the  Company's  Greenvale,  Long  Island  store.  This store has
benefited from  additional  custom  installation  business from various new home
development  sites,  where the Company has exclusive rights to service these new
developments.

The  Company's  marketing  efforts  were in a  transition  stage in fiscal 2005.
Effective  September 1, 2005, the Company  engaged a new  advertising  agency to
promote its brand and increase  awareness in the Company's service  initiatives.
The new  campaign is  expected  to be  introduced  after the  completion  of the
holiday  shopping  season.  In fiscal  2005,  the  Company's  marketing  efforts
remained  stable,  as compared to fiscal 2004.  These  efforts  included  radio,
newspaper, direct mail and e-mail broadcasts, as well as the continued promotion
of the  Company's  website,  www.harveyonline.com.  The  Company  does expect to
improve or replace its website in fiscal 2006.

For fiscal 2006,  the Company also will endeavor to put  additional  efforts and
resources into its important customer relations management initiatives and plans
to be more  aggressive  with  specific  e-mail  promotions  to  prospective  and
existing customers.

Costs and Expenses

Total cost of goods sold for  fiscal  2005  decreased  7.1% to  $23,589,000,  as
compared to fiscal 2004.  The decline in cost of goods sold was primarily due to
the decrease in net sales as noted above.  This decline was offset by the slight
improvement in the Company's gross profit margin in fiscal 2005.

The gross profit margin for fiscal 2005 increased to 41.7% from 41.1% for fiscal
2004.

The increase in the gross  profit  margin in fiscal 2005 was due to a decline in
the Company's  overall video  business,  which  generally has lower margins than
audio  and  labor  sales.  This was  offset by  higher  margin  audio  sales and
additional  labor  income,  wire and cable sales,  which  generate  strong gross
margins.

The  Company's  total  cost of  goods  sold  includes  freight  costs,  purchase
discounts  from its vendors and inventory  shrink.  The  Company's  gross profit
margin may not be comparable to other reporting  electronics  retailers as other
entities may include the costs relating to their  warehousing  and  distribution
networks.  Warehouse  and  distribution  network  costs for fiscal 2005 and 2004
approximated  $704,000  and  $711,000,  respectively,  and are  included in SG&A
expenses.

Selling,  general and  administrative  expenses (SG&A  expenses) for fiscal 2005
increased  by  approximately  $460,000  or 2.9%,  as  compared  to fiscal  2004.
Pre-opening and operating  expense relating to the Company's new Harvey store in
Bridgewater,  New  Jersey  contributed  to this  increase,  in  addition  to the
substantial increase in net advertising expense for fiscal 2005. Net advertising
expense for fiscal 2005  increased  to $725,000  from  $470,000 in fiscal  2004.
Advertising  expenditures remained stable at $2,700,000 for both fiscal 2005 and
2004.  However,  the Company realized lost cooperative  advertising support from
its vendors due to a decline in the Company's sales.

As a result, net advertising expense,  which is included in SG&A expenses in the
Company's  Statements of Operations,  has increased  54.3% or $255,000 in fiscal
2005 as compared to fiscal 2004.  SG&A expenses also increased  from  additional
payroll and payroll related costs,  professional  fees,  occupancy costs,  truck
expenses,  depreciation and amortization, EDP expenses and various other general
store  operating  expenses.   These  increases  were  offset  by  a  decline  in
communication  expense,  bad  debt  expense,  supplies  expense,  other  selling
expenses and the reduced provision relating to unclaimed property due to certain
states.

The Company plans to continue to hire and train custom  installation  personnel,
as needed, and incur the necessary associated expenses relating to the expansion
of  its  custom  installation  services.   Management  believes  these  services
differentiate Harvey and are vital to the Company's business plan.

Due to the slowdown in the  Company's  business,  Management  elected to begin a
cost  reduction  program  which  began in the  third  quarter  of  fiscal  2005.
Management  implemented  a one-week  non-paid  furlough  for all  employees  and
reduced its work force and SG&A expenses, where appropriate.  These efforts will
continue in fiscal 2006.

Interest expense increased by approximately  $57,000,  or 32.7% for fiscal 2005,
as compared to fiscal 2004.  This was primarily due to increased  borrowings and
higher interest rates. The Company's balance  outstanding on its credit facility
has  increased  as  the  Company  used  the  credit   facility  to  finance  the
construction  of its new retail  store in  Bridgewater,  New Jersey,  as well as
computer  equipment,  software  deposits and  development  work  relating to the
replacement of its computer systems expected to be completed in fiscal 2006.

In connection with the Company's  emergence from its reorganization  proceeding,
in 1996,  the Company  adopted Fresh Start  Accounting.  Fresh Start  Accounting
requires that the Company report an income tax  equivalent  provision when there
is book  income and  pre-organization  net  operating  loss  carryforward.  This
requirement  applies  despite the fact that the Company's  pre-organization  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  or  reorganization   value  in  excess  of  amounts  allocable  to
identifiable  assets until  exhausted,  and  thereafter as a direct  addition to
paid-in capital.

As noted above,  for fiscal 2004,  the income tax  equivalent  provision and the
reduction  of  the  organization   value  in  excess  of  amounts  allocable  to
identifiable assets was $135,000.

No income  tax  provision  was  required  for  fiscal  2005,  as a result of the
Company's net loss.

Fiscal Year Ended October 30, 2004, as Compared
   to Fiscal Year Ended November 1, 2003

Net Income

The Company's  pre-tax  income for the  fifty-two  weeks ended October 30, 2004,
increased 2% to $492,000 from $482,000 for the fifty-three  weeks ended November
1, 2003.  Net income for fiscal 2004  increased to $1,274,000  from $287,000 for
fiscal 2003. In the fourth  quarter of fiscal 2004,  the Company  reassessed the
valuation allowance previously  established against its net deferred tax assets.
Based on the Company's earnings history and projected future taxable income, the
Company recorded a portion of its deferred tax assets, recognizing an income tax
benefit of $977,000 in the fourth quarter of fiscal 2004.

The  following is a  reconciliation  of the Company's net income to the non-GAAP
measure of EBITDA:

                                                Fiscal 2004        Fiscal 2003
                                                -----------        -----------
        Net income                               $1,274,000           $287,000
        Add back:
        Interest expense                            175,000            343,000
        Income taxes (benefit)                    (782,000)            195,000
        Depreciation and amortization               683,000            795,000
                                                    -------            -------
        EBITDA                                   $1,350,000         $1,620,000
                                                 ==========         ==========

Net  income and EBITDA for  fiscal  year 2004 were  negatively  impacted  by the
provision for impairment of long-lived assets aggregating $144,000,  recorded in
the fourth  quarter,  relating to the relocation of the Company's Bang & Olufsen
branded store in Greenwich,  Connecticut.  (As discussed  above,  this store was
moved and consolidated with the Company's Harvey Greenwich location.) Net income
and EBITDA for fiscal 2004 were also negatively  impacted by $133,000,  relating
to the Company's estimate of unclaimed property due to certain States.

Net income for fiscal 2004 and 2003 were reduced by operating losses relating to
the Company's website of approximately $140,000 and $249,000, respectively.

The  Company's net income for fiscal 2004  included net  advertising  expense of
$470,000,  as  compared  to  $366,000  for  fiscal  2003.  The  Company's  gross
advertising   expenditures  in  fiscal  2004  increased  6.3%  to  approximately
$2,700,000 from $2,540,000 in fiscal 2003.

The Company recorded an income tax provision of $195,000 in both fiscal 2004 and
2003.  The 2004  income tax  provision  was offset by the income tax  benefit of
$977,000, as discussed above.

Management  believes that the results for the second quarter of fiscal 2003 were
negatively impacted by the Iraq war.

Revenues

For the  fifty-two  weeks  ended  October  30,  2004,  net  sales  increased  to
$43,145,000,  or a 1.5% increase over the  fifty-three  weeks ended  November 1,
2003. It is important to note that fiscal 2003 was a  fifty-three  week year, as
the  first  quarter  of  fiscal  2003  included  fourteen  weeks.  As a  result,
comparable  store sales for the fifty-two weeks ended October 30, 2004 increased
approximately $1,641,000 or 4.0% from the same period last year.

Overall net sales  benefited by the strong sales growth of the Company's  Harvey
stores in Mount Kisco, New York,  Greenvale,  Long Island,  and its store within
ABC Carpet  and Home in lower  Manhattan.  Additionally,  the  Company's  Bang &
Olufsen  branded store in lower  Manhattan  experienced a strong 35% increase in
sales for fiscal 2004 as compared to fiscal 2003. Additional custom installation
revenue from increased customer demand helped improve sales for these stores.

These strong sales results offset disappointing results for the Company's Harvey
store and its Bang & Olufsen branded store, both in Greenwich,  Connecticut.  As
mentioned  above,  the Company  elected not to renew its lease which  expired in
April  2005,  and  relocated  its Bang &  Olufsen  branded  store in  Greenwich,
Connecticut  in the spring of 2005.  This Bang & Olufsen  retail  operation  was
moved and consolidated with the Company's Harvey Greenwich  location,  one block
away. This  store-within-a-store  concept,  approved by Bang & Olufsen, presents
Bang & Olufsen  products  in a unique and  separate  showcase  within the Harvey
store. The Company  believes it will retain a significant  portion of the Bang &
Olufsen  store's  revenue  while  significantly   reducing  the  overhead  costs
associated with this store.

In 2004, the Company believes it continued to benefit from expanding revenues as
a result  of  unabated  strong  demand  for its  custom  installation  services.
Additionally,  despite  increased  competition,  customer demand continues to be
strong for digital video products  including plasma flat screen, LCD flat panel,
high-definition  and DLP  televisions,  integrated  remote  controls and related
custom home installations.  Custom  installation  projects continued to increase
and accounted for 59% of net sales for fiscal 2004 as compared to  approximately
56% of net sales for the same  period  last  year.  Custom  installation  sales,
including both equipment sales and labor income, increased approximately 7.7% to
$25.6  million for fiscal 2004, as compared to $23.8 million for the same period
last year. The Company's custom installation  services yield higher gross profit
margins and  stronger  net  profitability,  as compared to normal  retail  store
sales.

The Company believes it differentiates  itself by offering  sophisticated custom
installation services,  including programming  capabilities that address complex
technological  integration  issues  giving its  customers  easy  remote  control
operations  for a variety of functions.  Management  believes  installations  of
dedicated theater rooms and lighting systems in the home, as well as distributed
audio and network  cabling will  continue to attract  affluent  customers to the
Company.  The theater  room will be the  forefront  of the smart  home,  for the
desired integration of all electronics, lighting, security and networking within
the home.  These  offerings  should  continue to benefit  sales,  enhance  gross
margins and improve overall store profitability.

In October 2004, the Company launched its new service  initiative called "Harvey
on Demand"  and  continues  to attempt to expand its  service  niche in offering
custom labor and other  accessories for both Harvey customers and customers that
have purchased  products  elsewhere,  specifically  on the internet or from mass
merchants.  The  Company  is  marketing  this  service  group and is  offering a
forty-eight  hour response time to address the needs of a qualified  customer at
an additional labor cost.

The Company sells extended warranty contracts through a third-party provider. In
fiscal 2004, sales of extended warranty contracts  increased 8.6% as compared to
fiscal  2003,  and  represented  approximately  3% of net  sales.  The profit on
extended  warranty  sales is  considered  commission  at the time of sale.  As a
result,  the net amount  earned on these  sales is  recorded  in net  sales,  in
accordance  with  Emerging  Issue Task Force 99-19  ("EITF  99-19"),  "Reporting
Revenue Gross as a Principal Versus Net as an Agent."

The  Company's  marketing  efforts  increased in fiscal 2004,  which the Company
believes continued to drive sales.  These efforts included radio,  newspaper and
direct  mail  advertisements,  and  the  continued  promotion  of the  Company's
website, www.harveyonline.com.

Cost and Expenses

Total cost of goods sold for fiscal  2004  increased  $253,000 or 1% from fiscal
2003.  This was primarily due to an increase in sales as noted above,  offset by
an increase in the gross margin.

The gross profit margin for fiscal 2004  increased to 41.1% as compared to 40.8%
for fiscal 2003.

The gross profit margin for fiscal 2004 improved despite an overall reduction in
sales of higher margin audio  products and from  competitive  pressures on video
products.  Management  believes  the  consumer  electronics  industry  generally
suffered  a  decline  in 2004 in gross  margin  from  this  shift  in  business,
additional  competitive  pricing  as well as  falling  prices in  certain  video
categories.  The Company  concentrated its efforts in reviving its higher margin
audio  business by better  demonstrating  audio  products to its  customers  and
successfully bundling more audio components with its video sales. In the second,
third  and  fourth  quarters  of  fiscal  2004,  the  Company's  audio  business
increased, compared to the same quarters in fiscal 2003.

Additionally, the overall improvement in the gross profit margin for fiscal 2004
was due to the following factors: The new digital and flat screen video products
are sold at higher  margins than analog  products;  analog video  products  were
almost  eliminated  entirely from the Company's  product mix in fiscal 2004; and
further,  the  Company  was  successful  with the sales of higher  margin  labor
income, furniture, accessories, cable and extended warranties.

Selling, general and administrative expenses ("SG&A expenses") increased 2.7% or
$438,000 for fiscal 2004, as compared to fiscal 2003.

Comparable  SG&A expenses for fiscal 2004  increased  approximately  $614,000 or
3.8% as  compared  to fiscal  2003.  Comparable  SG&A  expenses  increased  from
additional  payroll and payroll  related  costs,  occupancy  costs,  advertising
expense,  truck expenses and various other general and store operating expenses,
offset by a decrease in depreciation and  amortization,  communications  expense
and professional fees.

The Company continued to hire additional custom installation personnel and incur
the  necessary  associated  expenses  relating  to the  expansion  of its custom
installation  services.  Management believes these services differentiate Harvey
and are vital to the Company's business plan.

Interest expense for fiscal 2004 decreased by approximately $168,000 or 49% from
fiscal  2003.  This was  primarily  due to reduced  borrowings  and lower  costs
relating to the new 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 pre-organization net operating loss carryforwards.  This requirement applies
despite  the  fact  that  the  Company's  pre-organization  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.

In fiscal years 2004,  2003 and 2002, the income tax equivalent  provisions were
$135,000,  $195,000 and  $124,000,  respectively.  All such  provisions  reduced
reorganization  value in excess of amounts allocable to identifiable assets. The
income tax equivalent  provisions did not materially  affect the Company's cash.
In fiscal 2004, the income tax provision was offset by the income tax benefit of
$977,000, as discussed above.

Liquidity and Capital Resources

At October 29, 2005 and October 30, 2004, the Company's  ratio of current assets
to current liabilities was 1.52 and 1.57, respectively.

The current ratio at October 29, 2005 was  negatively  impacted by the Company's
pre-tax  loss.  Other  factors  that  decreased  working  capital  included  the
reduction of accounts receivable and an increase in accounts payable.

Net cash  provided  by  operating  activities  was  $211,000  for fiscal 2005 as
compared to $1,381,000 for fiscal 2004. This reduction was due to the decline in
pretax income as the Company  experienced  a slowdown in its  business,  coupled
with the reduction of customer deposits from reduced store traffic,  an increase
in inventory from the new store in  Bridgewater,  New Jersey,  and offset by the
reduction  of accounts  receivable  and an increase in accounts  payable to fund
inventory increases.

Net cash used in investing activities was $1,771,000 for fiscal 2005 as compared
to $364,000  for fiscal  2004.  Net cash was used for the  purchase of leasehold
improvements,  equipment and software,  aggregating  $1,780,000 for fiscal 2005.
These  improvements  related to the  construction  of a new retail store and the
planned replacement of the Company's legacy computer system which is expected to
be completed in May 2006. For fiscal 2004,  purchases of equipment and leasehold
improvements aggregated $331,000.

Net cash provided by financing  activities  was  $1,560,000  for fiscal 2005, as
compared to net cash used in financing activities of $1,017,000 for fiscal 2004.
Financing  activities  for fiscal 2005 included net  borrowings  of  $1,661,000,
increasing the revolving line of credit facility, preferred stock dividends paid
of  $59,000  and  principal  payments  on  note  payables  of  $42,000.  The net
borrowings on the credit facility was necessary to fund the ongoing construction
costs relating to the new store in Bridgewater, New Jersey. Financing activities
for fiscal 2004 included net payments of $900,000,  reducing the revolving  line
of credit facility, preferred stock dividends paid of $70,000 and commitment and
deferred legal fees relating to the new credit facility of $68,000.

In November 2003,  the Company  entered into a new five-year $7.5 million credit
facility with Webster Business Credit Corporation  ("Webster"),  a subsidiary of
Connecticut  based  Webster  Bank.  This  credit  facility  replaced  the credit
facility with Wells Fargo. Under the new credit facility, the Company can borrow
up to $7.5 million based upon lending  formulas  calculated  on eligible  credit
card receivables and inventory,  less certain reserves,  as defined.  The credit
facility expires November 21, 2008.

The  interest  rate on all  borrowings  under the credit  facility is 0.25% over
Webster Bank's prime rate (7.0% at October 29, 2005) or LIBOR plus 2.75%, at the
Company's option.

In connection  with the credit  facility,  the Company  granted Webster a senior
security interest in all of the Company's  assets.  The credit facility provides
Webster with rights of  acceleration  upon the  occurrence of certain  customary
events of default. The Company is restricted from paying dividends on its Common
Stock,  retiring or  repurchasing  its Common Stock and entering into additional
indebtedness (as defined).

Pursuant to the credit facility, the Company cannot exceed certain advance rates
on eligible  inventory  and must  maintain  certain  levels of  earnings  before
interest,  taxes,  depreciation and amortization ("EBITDA").  Additionally,  the
Company's  capital  expenditures  cannot  exceed  a  predetermined   amount.  On
September  13,  2005,  the Company  entered  into a First  Amendment  and Waiver
Agreement ("First Amendment") with Webster. The First Amendment waived the third
quarter  covenant  defaults  and  modified  the EBITDA and capital  expenditures
covenants  for the fourth  quarter of fiscal  2005.  On January  20,  2006,  the
Company entered into a Second Amendment ("Second  Amendment") with Webster.  The
Second  Amendment  modified the EBITDA and capital  expenditures  covenants  for
fiscal 2006.  As of October 29,  2005,  the Company was in  compliance  with all
covenants.

At  January  26,  2006,  there  was  approximately   $2,262,000  in  outstanding
borrowings under the credit facility, with approximately $2,411,000 available to
borrow under this credit facility.

The  Company  has  authorized  10,000  shares  of  8.5%  Cumulative  Convertible
Preferred Stock  ("Preferred  Stock") with a par value of $1,000 per share.  The
conversion  price of the Company's  preferred  stock is $1.2333.  At October 30,
2004,  827 shares of  Preferred  Stock  were  issued  and  outstanding  and were
convertible into 670,559 shares of Common Stock. In December 2004, 227 shares of
Preferred  Stock were converted to 184,059 shares of the Company's  Common Stock
by three preferred  shareholders.  As a result,  600 shares of Preferred  Stock,
held by one shareholder,  are currently outstanding and convertible into 486,500
shares of Common Stock at October 29, 2005.

The Company's  newest 4,500 square foot Harvey retail  showroom in  Bridgewater,
New Jersey  opened in late June 2005.  Through  October  29,  2005,  the Company
financed all necessary leaseholds, equipment, furniture, fixtures and inventory,
aggregating  $1,560,000,  with its credit facility.  In fiscal 2006, the Company
expects to make remaining  improvements  to one of its Harvey retail  showrooms,
including  the  installation  of a movie  theater  within  this  store  and make
miscellaneous purchases of computer equipment,  and other assets,  approximating
$200,000 to be financed using the Company's credit facility.

In December  2004,  the Company  entered  into a  three-year  note  agreement to
finance  the  purchase  of a new  phone  system.  This note  payable  aggregated
$129,000 and was financed  through an affiliate of Webster  Bank. In March 2005,
the Company entered into a second  three-year note agreement with this affiliate
of Webster to complete the  installation of the phone system.  This note payable
aggregated $40,000.

The  Company  plans to replace its  existing  computer  system in May 2006.  The
project  cost is  estimated  at $600,000 - $650,000.  At October 29,  2005,  the
remaining  costs to complete  the project are  estimated at $400,000 - $450,000.
These costs will be financed using the Company's credit facility in fiscal 2006.

The Company  intends to introduce its new  advertising  campaign in fiscal 2006,
primarily  with print,  radio,  direct mail and e-mail  broadcasts.  Advertising
expenditures will not be materially diminished in fiscal 2006.

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 is expected to improve or replace
its website in fiscal 2006 at an estimated cost of between $75,000 - $100,000.

The  following  is a  summary  of the  Company's  significant  contractual  cash
obligations for the periods indicated that existed as of October 29, 2005 and is
based on information appearing in the Notes to the Financial Statements:

<TABLE>
<CAPTION>

                          2006        2007-2008     2009-2010     After 2010        Total
--------------------- -------------- ------------- ------------- -------------- ---------------
<S>                     <C>            <C>           <C>           <C>           <C>
Operating leases        $2,519,000     $4,016,000    $3,334,000    $7,066,000    $16,935,000
Credit facility                  -              -     3,486,000             -      3,486,000
Notes payable               55,000         72,000             -             -        127,000
--------------------- -------------- ------------- ------------- -------------- ---------------
Total    contractual    $2,574,000     $4,088,000    $6,820,000    $7,066,000    $20,548,000
cash obligations
--------------------- -------------- ------------- ------------- -------------- ---------------
</TABLE>

In fiscal  2004,  the Company  amended and  extended  the lease for its flagship
store in  Midtown  Manhattan.  This  lease  amendment  increased  the  Company's
occupancy costs in fiscal 2005 but will increase these costs to a greater extent
beginning  in  fiscal  2006.  The  increase  in rent  expense  for  this  store,
calculated  on a  straight-line  basis,  beginning in fiscal 2006 is expected to
approximate $200,000 per year.

In July 2003,  the Company  received a notice and  information  request from the
Pennsylvania Department of Environmental Protection ("PADEP"). See Part I, Legal
Proceedings and the notes to the Company's financial statements,  for details on
this matter.

The  Securities and Exchange  Commission  has extended the compliance  dates for
non-accelerated  filers,  pursuant to 404 of the Sarbanes-Oxley Act of 2002. The
Company will further evaluate its implementation plan in fiscal 2006 to meet its
compliance  requirements  for the  fiscal  year  ending  October  27,  2007.  In
connection with this  significant  effort,  Management  believes that normal and
customary  expenses related to implementation of the required current provisions
of the Act may be in the range of $250,000 - $350,000 for fiscal 2007.

The Company has no off-balance sheet arrangements as of October 29, 2005.

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

Seasonality

The  Company's  business is subject to seasonal  variations.  Historically,  the
Company has  realized a slight  increase in its total  revenue and a majority of
its net  income  for the  year  during  the  first  fiscal  quarter.  Due to the
importance of the holiday shopping season, any factors negatively  impacting the
holiday  selling season could have an adverse  effect on the Company's  revenues
and its  ability  to  generate  a profit.  The  Company's  quarterly  results of
operations  may  also  fluctuate  significantly  due  to a  number  of  factors,
including  the timing of new store  openings  and  acquisitions  and  unexpected
changes in volume-related rebates or changes in cooperative advertising policies
from manufacturers. In addition, operating results may be negatively affected by
increases in merchandise costs, price changes in response to competitive factors
and unfavorable local, regional or national economic developments that result in
reduced consumer spending.

Impact of Inflation

Management does not believe that inflation has had a material  adverse effect on
our results of operations.  However,  we cannot predict accurately the effect of
inflation on future operating results.

Critical Accounting Estimates

The discussion and analysis of the Company's  financial condition and results of
operations are based upon its financial  statements  which have been prepared in
accordance with accounting  principles  generally accepted in the United States.
The  preparation  of these  financial  statements  requires  management  to make
estimates and judgments that affect the reported amounts of assets,  liabilities
and related  disclosure of contingent  assets and liabilities at the date of the
financial  statements and the reported  amounts for revenues and expenses during
the reporting  period.  On an ongoing  basis,  Management  evaluates  estimates,
including those related to income taxes, inventory allowances, contingencies and
to a lesser  extent,  bad debts.  The Company  bases its estimates on historical
data,  when available,  experience,  and on various other  assumptions  that are
believed to be reasonable under the circumstances, the combined results of which
form the basis for  making  judgments  about the  carrying  values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates.

Critical Accounting Policies

The  accompanying   financial   statements  were  prepared  in  accordance  with
accounting  principles  generally  accepted  in the  United  States of  America.
Significant  accounting  policies are  discussed in Footnote 1 to the  Financial
Statements,  Item 8.  Inherent in the  application  of many of these  accounting
policies is the need for  management  to make  estimates  and  judgments  in the
determination of certain revenues,  expenses,  assets and liabilities.  As such,
materially  different  financial  results can occur as circumstances  change and
additional  information  becomes known. The policies with the greatest potential
effect on our results of operation and financial position include:

     Revenue Recognition

     Net sales  include the sale of goods to customers  and custom  installation
     revenue.  Retail  sales are  recorded at the time of sale to the  customer.
     Custom  installation  revenue,  which  is  comprised  of both  the  sale of
     products and the labor in connection with the installation of the products,
     are recorded in  accordance  with the  provisions  of EITF 00-21,  "Revenue
     Arrangements with Multiple  Deliverables".  The revenue related to the sale
     of the  products  is  recognized  when  the  product  is  delivered  to the
     customers.  The  revenue  related  to the  labor  in  connection  with  the
     installation  of the  products,  is  recorded  when  the  service  has been
     substantially  completed.  If the custom  installation  project  requires a
     pre-wire phase, this phase will be considered a separate and distinct stage
     of work. The customer agrees to take title of wire and any in-wall speakers
     when  delivered to the site as they have fair value.  The  customer  agrees
     that amounts paid in advance for wire or in-wall speakers  delivered to the
     site are  non-refundable  and as a result,  these amounts are recognized as
     revenue  when  delivered.  Labor on the  pre-wire  phase is  recognized  as
     revenue when the pre-wire installation is substantially completed. Revenues
     relating to these  elements are recorded  based on their fair values in the
     market.

     In addition,  the Company  sells  extended  warranty  contracts for a third
     party  provider.  The  profit  on  extended  warranty  sales is  considered
     commission at the time of sale. The net amount earned on these sales, which
     is not  significant,  is recorded  in net sales,  in  accordance  with EITF
     99-19, "Reporting Revenue Gross as a Principal Versus Net as an Agent."

     Inventory

     Inventory is the Company's largest asset class,  comprising over 54% of the
     Company's total assets. The Company's  inventory consists of finished goods
     held for  retail  sale.  Purchase-based  volume  rebates  are  credited  to
     inventory or cost of products sold, as  appropriate.  The Company  assesses
     the market value of its inventory on a regular  basis by  reviewing,  on an
     item-by-item basis, the realizable value of its inventory;  net of specific
     or general lower of cost or market reserves. If it is Management's judgment
     that the selling  price of an item must be lowered  below its cost in order
     for it to be sold,  then the  carrying  value of the related  inventory  is
     written down to estimated realizable sales value. A number of factors would
     be taken into  consideration  in assessing  realizable  value including the
     quantity on hand, historical sales,  technological  advances, the existence
     of a replacement product, and consumer demand and preferences. Depending on
     market  conditions,  the actual  amount  received on sale could differ from
     management's estimate.

     As a result,  the Company  reduced its net  inventory  value to reflect the
     estimated  amount of  inventory  with lower of cost or market  issues.  The
     Company's  inventory  reserve at October  29,  2005 and October 30, 2004 is
     $150,000 and $130,000, respectively.

     Long-Lived Assets

     Long-lived  assets such as property,  plant and  equipment,  goodwill,  and
     reorganization  value are reviewed for impairment when events or changes in
     circumstances  indicate  the  carrying  value  of  the  assets  may  not be
     recoverable.  The Company  recognizes  an  impairment  loss when  estimated
     future undiscounted cash flows expected to result from the use of the asset
     and its value  upon  disposal  are less than its  carrying  amount.  If the
     Company's  estimates  regarding  future  undiscounted  cash flows or useful
     lives were to change,  we could be exposed to losses  that are  material in
     nature. In fiscal 2004, the Company provided a provision for the impairment
     of long-lived assets  aggregating  $144,000,  relating to the relocation of
     its Bang & Olufsen branded store in Greenwich, Connecticut.

     Cash Discounts and Cooperative Advertising

     The Company  receives  cash  discounts  for timely  payment of  merchandise
     invoices and  recognizes  these amounts in its statement of operations as a
     reduction of cost of sales.

     The  Company  also  receives  substantial  funds  from  its  suppliers  for
     cooperative advertising.  These funds are used for advertising purposes and
     the funds  earned are  recorded net of  advertising  expenditures,  and are
     included in selling,  general and administrative expenses on the Statements
     of Operations. Accrued expenses

     The Company is  constantly  required to make  estimates of future  payments
     that will be made which  relate to the  current  accounting  period.  These
     estimates range from things such as accrued bonuses to estimates of pending
     litigation claims and income taxes. In establishing  appropriate  accruals,
     Management  must make  judgments  regarding the amount of the  disbursement
     that will ultimately be incurred.  In making such  assessments,  management
     uses  historical  experience  as well as any  other  special  circumstances
     surrounding  a particular  item.  The actual  amount paid could differ from
     Management's estimate.

Recent Accounting Pronouncements

In  December  2004,  the  FASB  issued  FASB  Statement  No.  123 (as  amended),
"Shared-Based   Payment."   Statement   123(R)   addresses  the  accounting  for
share-based  payment  transactions  in which  an  enterprise  receives  employee
services  in  exchange  for (a)  equity  instruments  of the  enterprise  or (b)
liabilities  that  are  based  on the  fair  value  of the  enterprise's  equity
instruments  or that may be settled by the issuance of such equity  instruments.
Statement  123(R)  requires an entity to recognize the grant-date  fair-value of
stock  options and other  equity-based  compensation  issued to employees in the
income  statement.  The  revised  Statement  generally  requires  that an entity
account for those transactions using the fair-value-based method, and eliminates
the intrinsic value method of accounting in APB Opinion No. 25,  "Accounting for
Stock  Issued to  Employees",  which  was  permitted  under  Statement  123,  as
originally issued.

The revised Statement requires entities to disclose information about the nature
of the share-based payment transactions and the effects of those transactions on
the financial statements.

Statement  123(R) is effective  for public  companies  that do not file as small
business  issuers as of the beginning of the first annual  reporting period that
begins after June 15, 2005.  All public  companies  must use either the modified
prospective or the modified  retrospective  transition method. Early adoption of
this Statement for interim or annual periods for which  financial  statements or
interim  reports  have not been issued is  encouraged.  This  pronouncement  was
adopted  in the  fourth  quarter  of  fiscal  year 2005 and had no impact on the
Company's financial position or results of operations.

In November 2004, the FASB issued SFAS No. 151,  "Inventory  Costs, an amendment
of ARB No. 43, Chapter 4," ("SFAS 151") which  clarifies the types of costs that
should be expensed  rather than  capitalized  as inventory.  This statement also
clarifies the  circumstances  under which fixed overhead costs  associated  with
operating facilities involved in inventory processing should be capitalized. The
provisions  of SFAS No. 151 were  adopted in its fourth  quarter of fiscal 2005.
This statement has not had a material impact on the Company's financial position
or results of operations.

In May 2005, the FASB issued  Statements of Financial  Accounting  Standards No.
154,  Accounting changes and Error Corrections - a replacement of APB Opinion 20
and FASB Statement 3, or SFAS 154. SFAS 154 requires  retrospective  application
to prior  periods'  financial  statements  for changes in accounting  principle,
unless it is impracticable to determine  either the  period-specific  effects or
the  cumulative  effect of the change.  SFAS 154 also  requires that a change in
depreciation,  amortization  or depletion  method for long lived,  non financial
assets be accounted for as a change in accounting  estimate effected by a change
in  accounting  principle.  SFAS 154 is  effective  for  accounting  changes and
corrections  of errors made in fiscal years  beginning  after December 14, 2005.
The  implementation of SFAS 154 is not expected to have a material impact on the
Company's operations.

In March 2005,  the SEC issued Staff  Accounting  Bulleting No. 107 ("SAB 107"),
"Share-Based  Payment,"  providing  guidance on option  valuation  methods,  the
accounting  for income tax  effects of  share-based  payment  arrangements  upon
adoption  of SFAS 123R,  and the  disclosures  in  management's  Discussion  and
Analysis of Financial  condition  and Results of  Operations  subsequent  to the
adoption. The Company will provide SAB 107 required disclosures upon adoption of
SFAS 123R. The Company is currently evaluating SAB 107 and will be incorporating
it as part of its adoption of SFAS 123R in the first fiscal quarter of 2006.

On  October  6,  2006,  the FASB  issued  FASB  Staff  Position  (FSP) FAS 13-1,
Accounting for Rental Costs Incurred during a Construction Period. ("FSP 13-1").
FSP 13-1 requires that rental costs associated with ground or building operating
leases that are incurred  during a  construction  period be recognized as rental
expense. FSP 13-1 is effective for the first reporting period after December 15,
2005. In fiscal 2005, the Company had  capitalized  rental costs incurred during
the  construction  period  of its new  store in  Bridgewater,  New  Jersey.  The
adoption of this guidance could impact the Company's future financial statements
if the Company opens additional retail facilities.

Item 7a. Quantitative and Qualitative Disclosures About Market Risk

The Company's primary market risk exposure with regard to financial  instruments
are the changes in interest rates.  The revolving  credit  facility  between the
Company and  Webster  Bank bears  interest at either the bank's  prime rate plus
..25% or LIBOR plus 2.75%, at the Company's option. Historically, the Company has
not used  derivative  financial  instruments to manage exposure to interest rate
changes.  The  Company  estimates  that a  hypothetical  10%  adverse  change in
interest rates would not materially affect the consolidated operating results of
the Company.

Item 8. Financial Statements and Supplementary Data

The  information  required  by this item is  incorporated  by  reference  to the
Company's financial statements set forth on page F-1.

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

None

Item 9A. Disclosure Controls and Procedures

Under the supervision and with the  participation  of the Company's  Management,
including the Chief Executive Officer/President and the Chief Financial Officer,
the Company  carried out an  evaluation of the  effectiveness  of the design and
operation  of the  disclosure  controls  and  procedures,  as  defined  in Rules
13a-15(e) and 15d-15(e) of the Securities  Exchange Act of 1934, as amended (the
"Exchange  Act").  Based upon that  evaluation,  the Company's  Chief  Executive
Officer/President  and Chief  Financial  Officer  concluded  that the  Company's
disclosure  controls and procedures  are effective,  as of the end of the period
covered by this Report (October 29, 2005), in ensuring that material information
relating to the Company  required to be disclosed by the Company in reports that
it files or submits  under the Exchange Act is recorded,  processed,  summarized
and reported  within the time periods  specified in the  Securities and Exchange
Commission's rules and forms,  including ensuring that such material information
is  accumulated  and  communicated  to the Company's  Management,  including the
Company's Chief Executive  Officer/President  and Chief  Financial  Officer,  as
appropriate to allow timely decisions regarding required disclosure.

As noted  above,  the  Securities  and  Exchange  Commission  has  extended  the
compliance   dates  for   non-accelerated   filers,   pursuant  to  404  of  the
Sarbanes-Oxley Act of 2002. The Company will further evaluate its implementation
plan in fiscal 2006 to meet its  compliance  requirements  of fiscal year ending
October 27, 2007.

There were no changes in the Company's internal control over financial reporting
(as required by the Exchange Act) that occurred during the Company's last fiscal
quarter that have materially  affected,  or are reasonably  likely to materially
affect, the Company's internal controls over financial reporting.

Item 9B. Other Information None


Part III

Item  10.  Directors,   Executive  Officers,   Promoters  and  Control  Persons;
Compliance With Section 16(a) of the Securities Exchange Act.

The directors and executive officers of the Company are as follows:

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

  Michael E. Recca             55        Chairman and Director
  William F. Kenny, III        74        Director
  Fredric J. Gruder            59        Director
  Nicholas A. Marshall         73        Director
  Ira J. Lamel                 58        Director
  Franklin C. Karp             52        Chief Executive Officer, President
                                         and Director
  Joseph J. Calabrese          46        Executive Vice President, Chief
                                         Financial Officer, Treasurer,
                                         Secretary and Director
  Michael A. Beck              47        Vice President of Operations
  Roland W. Hiemer             44        Vice President Merchandising
  (1) As of October 29, 2005.


Michael E. Recca became the Chairman of the Board of Directors of the Company in
November  1996.  Mr.  Recca is also a  member  and the sole  manager  of  Harvey
Acquisition  Company,  LLC, which is a stockholder of the Company. Mr. Recca was
an employee of Taglich Brothers, Inc., an NASD registered broker-dealer, through
December 31, 1998.  Beginning in January 2002 and continuing through April 2002,
Mr. Recca was  self-employed as a financial  restructuring  consultant,  and, in
this capacity,  was also associated with NorthStar Capital, LLC, a joint venture
with Ruskin Moscou Faltischek, P.C., the Company's corporate counsel. Currently,
Mr.  Recca is an officer  and  director  of Sky Capital  Holdings,  LTD,  and of
several wholly owned  subsidiaries of Sky Capital  Holdings and the President of
Sky Capital, LLC, a wholly owned subsidiary of Sky Capital Holdings,  LTD and an
NASD  broker-dealer.  Mr. Recca is also an officer and a director of Sky Capital
Enterprises and of Sky Capital Ventures,  (companies affiliated with Sky Capital
Holdings,  LTD) and several of their  wholly or  partially  owned  subsidiaries,
including Global Secure Holdings, Ltd., and its wholly owned subsidiaries.

Franklin C. Karp began his career in the retail  consumer  electronics  industry
over 25  years  ago,  working  as a  salesman  for what was then 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 and Chief
Executive Officer in 2004.

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.

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

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

Nicholas A.  Marshall has been a director of the Company  since May 2003.  Since
1998,  Mr.  Marshall has worked as a consultant  and trustee of a family estate.
From 1983 - 1997,  Mr.  Marshall  served as a director  of the  Greater New York
Savings  Bank and from  1997-1998  he was an  Advisory  Board  member of Astoria
Federal Corporation.  Mr. Marshall has over 37 years of experience in investment
banking and has held senior  executive  positions  in several  asset  management
firms. Mr. Marshall has a BA degree from Yale University and an MBA from Harvard
Business School.

Ira J.  Lamel  was  appointed  to the  Company's  Board of  Directors  and Audit
Committee (Chairman) in November 2003. He has been the Executive Vice President,
Chief Financial  Officer and Treasurer of The Hain Celestial  Group,  Inc. since
October 1, 2001.  Mr. Lamel,  a certified  public  accountant,  was a partner at
Ernst & Young  LLP  where he  served  in  various  capacities  from June 1973 to
September 2001. Ernst & Young LLP served as the Company's independent registered
public  accountants until fiscal 2001. Mr. Lamel directed all of Ernst & Young's
services to the Company, including the audits of our financial statements,  from
fiscal  1997  through  fiscal  2000.  Mr.  Lamel  is also a  director  of  Excel
Technology, Inc. (NASDAQ - XLTC).

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 has been with the  Company  since  1990.  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 and in 2001,  Mr.  Hiemer was
promoted to  Merchandise  Manager.  In January 2004,  Mr. Hiemer was promoted to
Vice   President  of   Merchandising.   Mr.   Hiemer  holds  a  BA  in  Business
Administration from Hofstra University.

Jeffrey A. Wurst,  a director of the Company since  February 2000, did not stand
for re-election to the Board for fiscal 2006.

Committees of the Board of Directors

The Board of Directors, which met seven times either in person or telephonically
during fiscal 2005, has an Audit  Committee and a Compensation  and Stock Option
Committee.

The Board generally relies on its network of industry and professional  contacts
in connection  with  identifying  potential  Board members.  The Board will only
consider nominees that have the requisite industry or financial experience to be
able to advise and direct senior  management in the Company's  operations.  At a
minimum,  each nominee:  (i) must be prepared to represent the best interests of
all  of  the  Company's  stockholders,  (ii)  must  be  an  individual  who  has
demonstrated integrity and ethics in his/her personal and professional field and
has established a record of professional accomplishment in his/her chosen field;
(iii) must not have (and  his/her  family  members  must not have) any  material
personal,  financial  or  professional  interest  in any  present  or  potential
competitor  of the Company;  and (iv) must be prepared to  participate  fully in
Board activities, including attendance at, and active participation in, meetings
of the Board and not have other personal or professional  commitments that would
interfere or limit his or her ability to do so.

Compensation and Stock Option Committee.  During fiscal 2005, Fredric J. Gruder,
William F. Kenny,  III,  Jeffrey A. Wurst (did not stand for  re-election to the
Board) for fiscal  2006,  Nicholas A.  Marshall  and Ira J. Lamel  served on the
Compensation and Stock Option  committee (the  "Compensation  Committee").  Each
director who served on the  Compensation  Committee during fiscal 2005 qualified
as an  "independent  director"  as such  term is  defined  in  Marketplace  Rule
4200(a)(15) of the National  Association of Securities Dealers (the "NASD"). The
function of the Compensation  Committee is to make  recommendations to the Board
with respect to the compensation of management level employees and to administer
plans and  programs  relating to stock  options,  pension  and other  retirement
plans,  employee  benefits,   incentives,  and  compensation.  The  Compensation
Committee met one time in fiscal 2005.

Audit Committee. During fiscal 2005, William F. Kenny, III, Nicholas A. Marshall
and Ira J. Lamel (Chairman)  served on the Audit Committee.  Each of the current
Audit Committee members meets the independence criteria prescribed by Rule 10A-3
promulgated  under the Exchange Act and is an "independent  director" as defined
in NASD Rule 4200(a)(15).  Each Audit Committee member meets NASDAQ's  financial
knowledge  requirements,  and Ira J. Lamel, designated by the Board of Directors
as the "Audit Committee  financial  expert" under the SEC rules,  meets NASDAQ's
professional  experience  requirements  as well. The Audit Committee is governed
by,  and  operates  pursuant  to, a  written  charter  adopted  by the  Board of
Directors.   Such  charter  complies  with  the  applicable  provisions  of  the
Sarbanes-Oxley  Act of 2002 and  related  rules of the SEC and  NASDAQ.  As more
fully  described  in  the  charter,  the  Audit  Committee  is  responsible  for
overseeing the accounting  and financial  reporting  processes and the audits of
the financial  statements of the Company.  The Audit Committee met four times in
fiscal 2005.

Affirmative Determinations Regarding Director Independence

The Board of Directors has determined  each of the following  directors to be an
"Independent  Director"  as such term is  defined in the NASD  Marketplace  rule
4200(a)(15):

                                Fredric J. Gruder
                              William F. Kenny, III
                              Nicholas A. Marshall
                                  Ira J. Lamel

As provided by NASD Rule  4350(c)(2),  the Independent  Directors will regularly
schedule  "Executive  Sessions"  whereby  the  Independent  Directors  will hold
meetings with only the Independent Directors present.

Code of Ethics

The  Company  adopted  a  code  of  ethics  applicable  to its  Chief  Executive
Officer/President,  Chief Financial Officer and Controller,  which is a "code of
ethics"  as  defined  by  applicable   rules  of  the  Securities  and  Exchange
Commission.  This code of ethics is publicly available on the Company's website,
www.harveyonline.com. If the Company makes any amendments to this code of ethics
other than technical,  administrative,  or other non-substantive  amendments, or
grants any waivers, including implicit waivers, from a provision of this code of
ethics to the  Company's  Chief  Executive  Officer/President,  Chief  Financial
Officer or Controller,  the Company will disclose the nature of the amendment or
waiver,  its effective date and to whom it applies in a report on Form 8-K filed
with the SEC. The Company also has a third party anonymous ethics and compliance
hotline  available to all  employees  and is  reportable by phone or by website,
www.reportit.net.


Directors' Compensation

In fiscal  2005,  each of the  Company's  outside  directors  received  a $1,000
monthly retainer.

No options to purchase  the  Company's  Common Stock were granted to the outside
directors in fiscal 2005.

Policy for Nomination of Directors

In fiscal 2005, the Company established a resolution outlining its policy on the
nomination  of  directors,  under the  Standards of the NASDAQ  Capital  Market.
Director  nominees  shall be  recommended by a majority of the directors who are
independent.  The  independent  directors will only consider  nominees that have
requisite industry or financial experience.

Item 11. 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  Chief  Executive  Officer/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>
                                                                        Stock
     Name of Individual                                            Options Granted       Long-Term
   and Principal Position       Year      Salary       Bonus             (1)            Compensation
----------------------------- --------- ----------- ------------- -----------------    --------------

<S>                           <C>        <C>          <C>                                  <C>
Michael E. Recca              2005       $105,000     $   -               -                $ -
Chairman (3)                  2004       $112,000     $   -               -                $ -
                              2003(2)    $122,000     $   -               -                $ -

Franklin C. Karp              2005       $164,000     $ 54,000                             $ -
Chief Executive Officer
 & President                  2004       $165,000     $ 75,000            -                $ -
                              2003(2)    $163,000     $ 44,000            -                $ -

Joseph J. Calabrese           2005       $155,000     $ 51,000            -                $ -
Executive Vice President
Chief Financial Officer,      2004       $156,000     $ 71,000            -                $ -
 Treasurer and Secretary      2003(2)    $153,000     $ 41,000            -                $ -


Michael A. Beck               2005       $140,000     $ 49,000            -                $ -
Vice President of             2004       $140,000     $ 70,000            -                $ -
   Operations                 2003(2)    $138,000     $ 41,000            -                $ -

Roland W. Hiemer              2005       $ 96,000     $ 21,000            -                $ -
Vice President of             2004       $ 95,000     $ 35,000            -                $ -
   Merchandising              2003(2)    $ 94,000     $ 17,000            -                $ -
</TABLE>

(1)--See "Stock  Option Plan" for related  information  relating to stock option
     grants. The stock options granted in fiscal 2002 are not in the money as of
     the Record Date.
(2)--Fiscal 2003 is a  fifty-three  week year and, as a result,  salary  amounts
     include fifty-three weeks of compensation.
(3)--In September 2005, Mr. Recca's annual salary was reduced to $48,000.


Severance Agreements

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

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

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

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

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

Roland W. Hiemer's severance agreement provides that in the event the Company is
sold or merged with  another  company,  involved in a corporate  reorganization,
among other  things,  and Mr. Hiemer is terminated or asked to accept a position
other than that of a senior  officer  requiring  similar  responsibilities  as a
result of a  reorganization  or change in ownership or control,  and he declines
the new position, 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, plus benefits, for a period of six months.

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.

Compensation Committee Report on Executive Compensation

The Compensation  Committee of the Board of Directors  establishes the Company's
general  compensation  policies as well as the  compensation  plans and specific
compensation  levels for executive  officers.  It also  administers our employee
stock option plan for executive officers.

The  Compensation  Committee  believes  that the  compensation  of the Company's
executive officers should be influenced by performance.  Base salary levels, and
any salary increases are approved by the Compensation Committee. In fiscal 2005,
2004 and 2003, additional  compensation in the form of cash bonuses were made in
accordance  with  a  quarterly  and  annual  bonus  plan,  as  approved  by  the
Compensation  Committee.  In  fiscal  2002,  stock  options  were  also  made in
accordance  with the  quarterly  and  annual  bonus  plan,  as  approved  by the
Compensation  Committee.  The Compensation Committee believes that the executive
officers  salaries  during these years did not exceed levels in the industry for
similarly-sized  businesses.   Severance  agreements  exist  for  all  executive
officers.

In fiscal 2005,  the  Company's  executive  officers  (excluding  the  Chairman)
received a new bonus plan, as approved by the Compensation Committee.  Under the
plan,  seventy  percent  (65%) of the new  annual  bonus  potential  is based on
financial  performance and the achievement of the Company's  quarterly  budgets.
The remaining  thirty percent (35%) is an annual bonus based on the  achievement
of specific Company goals.

As previously  mentioned,  stock option grants, prior to 2003, have been part of
the bonus plan for executive officers.  The Compensation  Committee viewed these
option  grants as an  important  component of its  long-term,  performance-based
compensation   philosophy.   Since  the  value  of  an  option  bears  a  direct
relationship to the Company's stock price, the Compensation  Committee  believes
that options motivate  executive officers to manage the Company in a manner that
will  also  benefit  stockholders.  As  such,  options  were  granted,  only  if
performance  levels were  achieved,  at the  current  market  price.  One of the
principal factors considered in granting options to an executive officer was the
executive  officer's  ability to influence  the Company's  long-term  growth and
profitability.  No options were granted in fiscal 2005. As only a limited number
of options  remain  available  for grant,  no options are expected be granted to
executive officers in fiscal 2006.

With  respect  to the base  salary  granted to Mr.  Karp,  the  Company's  Chief
Executive  Officer/President,   the  Compensation  Committee  made  a  favorable
assessment  of the  Company's  actual  operating  results  for fiscal  2004,  as
compared to the Company's  goals and from the performance of Mr. Karp on various
accomplishments for fiscal 2004. The Compensation  Committee also considered Mr.
Karp's  relative  position as compared  to his peers in the  industry.  Based on
these  factors,  Mr. Karp's salary was $165,000 in fiscal 2004 and was increased
to $170,000 for fiscal 2005.  After the  Company's  third  quarter  results were
reported,  Mr. Karp took a voluntary reduction in salary and reduced this amount
back to $165,000.

In fiscal 2005, no options were granted to the Company's executive officers.

                               Frederic J. Gruder
                              William F. Kenny, III
                              Nicholas A. Marshall
                                  Ira J. Lamel

Stock Option Plan

In April 1997, the Company adopted a stock option plan,  which currently  covers
1,000,000  shares of the Common Stock.  At October 29, 2005,  options  currently
outstanding  aggregate 989,100 and options available for grant aggregate 10,900.
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  Compensation  Committee  as the  Board  may
establish or designate.

The Compensation and Stock Option Committee,  within the limitation of the Stock
Option Plan,  shall have the  authority to determine  the types of options to be
granted,  whether an Option shall be  accompanied  by SARS or Limited SARS,  the
purchase price of the shares of Common Stock covered by each Option (the "Option
Price"),  the persons to whom, and the time or times at which,  Options shall be
granted,  the number of shares to be  covered  by each  Option and the terms and
provisions of the option  agreements.  The maximum aggregate number of shares of
Common Stock as to which Options, Rights and Limited Rights may be granted under
the Stock Option Plan to any one optionee  during any fiscal year of the Company
is 100,000, as approved and amended by the shareholders in fiscal 2000.

With respect to the ISOs,  in the event that the  aggregate  fair market  value,
determined as of the date the ISO is granted, of the shares of Common Stock with
respect to which Options  granted and all other option plans of the Company,  if
any,  become  exercisable for the first time by any optionee during any calendar
year exceeds $100,000,  Options granted in excess of such limit shall constitute
non-qualified stock options for all purposes.  Where the optionee of an ISO is a
ten (10%)  percent  shareholder,  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 2005,  no stock  options were granted to the  Company's  executives or
directors.

No stock options were exercised by executives or directors in fiscal 2005.

Exercise prices for options outstanding as of October 29, 2005, are as follows:
<TABLE>
<CAPTION>

                                                                 Weighted-
                            Number of                             Average
                             Options            Options          Remaining
                          Outstanding at      Exercisable at   Contractual Life
     Exercise Price         Year End           End of Year        in Years
    -----------------    ----------------    ----------------   ---------------
<S>     <C>                 <C>                    <C>               <C>
       $ .8125              90,000                 90,000            6
       $ .8937              12,500                 12,500            6
       $ .9375              90,000                 90,000            6
       $1.00                62,625                 62,625            3
       $1.0313              25,000                 25,000            6
       $1.15                90,000                 90,000            7
       $1.265               25,000                 25,000            2
       $1.35                90,000                 90,000            7
       $1.375               45,000                 45,000            6
       $1.50               222,500                222,500            4
       $1.75               102,500                102,500            5
       $1.86                57,500                 57,500            5
       $1.925               12,500                 12,500            5
       $2.00                 4,975                  4,975            2
       $3.00                59,000                 59,000            2
                       ------------------   ------------------
                           989,100                989,100            5
                       ==================   ==================
</TABLE>


PERFORMANCE GRAPH

The following graph shows a five year comparison of the cumulative  total return
to  shareholders  for the  Company,  the Russell  2000 Index and a peer group of
substantially larger electronics companies.  The graph assumes that the value of
investment in the  Company's  Common Stock and in each index was $100 on October
30, 2000, including the reinvestment of dividends,  if any. The company's fiscal
year is either a 52 or 53-week  year with the fiscal year ending on the Saturday
closest to October  31. All fiscal  years  presented  in the  performance  graph
include  52 weeks,  except  fiscal  2003,  which  includes  53  weeks.

[GRAPHIC OMITTED]



Item 12. 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 29, 2005, 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>

                                                Title of        Amount and Nature of
   Name and Address of Beneficial Owner           Class           Beneficial Ownership      Percentage
------------------------------------------   ---------------   ------------------------   --------------
<S>                                                                   <C>                      <C>
Michael E. Recca                                 Common               220,078(1)               6.0%
949 Edgewood Avenue
Pelham Manor, NY 10803

Ronald I. And Joyce L. Heller                    Common               194,900                  5.6%
74 Farview Road
Tenafly, New Jersey 07670

William F. Kenny, III                            Common                54,589 (2)              1.5%
C/o Harvey Electronics, Inc.
205 Chubb Avenue
Lyndhurst, NJ 07071

Fredric J. Gruder                                Common                40,000 (2)              1.1%
775 Park Avenue
Huntington, NY 11753

Ira J. Lamel                                     Common                    -0-                 --
c/o The Hain-Celestial Group, Inc.
58 South Service Road
Melville, N Y 11747

Nicholas A. Marshall                             Common                    -0-                 --
113 Horseshoe Road
Mill Neck, NY 11765
</TABLE>


<TABLE>
<CAPTION>

                                                Title of        Amount and Nature of
   Name and Address of Beneficial Owner           Class           Beneficial Ownership      Percentage
------------------------------------------   ---------------   ------------------------   --------------
<S>                                                                   <C>     <C>               <C>
Franklin C. Karp                                 Common               234,500 (3)               6.3%
c/o Harvey Electronics, Inc.
205 Chubb Avenue
Lyndhurst, NJ 07071

Joseph J. Calabrese                              Common               201,702 (4)               5.4%
c/o Harvey Electronics, Inc.
205 Chubb Avenue
Lyndhurst, NJ 07071

Michael A. Beck                                  Common               197,500 (4)               5.3%
c/o Harvey Electronics, Inc.
205 Chubb Avenue
Lyndhurst, NJ 07071

Roland W. Hiemer                                 Common               107,500 (5)               3.0%
c/o Harvey Electronics, Inc.
205 Chubb Avenue
Lyndhurst, NJ 07071
------------------------------------------   ---------------   ------------------------   --------------

All Directors and Officers as a group            Common             1,055,869 (6)              23.4%
(9 Persons)

All Beneficial Owners as a group                 Common             1,250,769 (6)              27.7%
------------------------------------------   ---------------   ------------------------   --------------
</TABLE>

(1)  Includes  43,932  shares  of the  Company's  Common  Stock  owned by Harvey
     Acquisition  Company LLC  ("HAC"),  of which Mr.  Recca is a member and the
     sole  manager,  plus  options  to  purchase  up to  160,000  shares  of the
     Company's   Common  Stock  which  are  exercisable  at  prices  of  between
     $.8937-$1.925 per share.

(2)  Includes  options to purchase up to 40,000 shares of the  Company's  Common
     Stock, which are exercisable at prices of between $.8125-$1.375 per share.

(3)  Includes  options to purchase up to 212,500 shares of the Company's  Common
     Stock,  which are exercisable at an exercise price of between  $.8125-$3.00
     per share.

(4)  Includes  options to purchase up to 190,000 shares of the Company's  Common
     Stock,  which are exercisable at an exercise price of between  $.8125-$3.00
     per share.

(5)  Includes  options to purchase up to 105,000 shares of the Company's  Common
     Stock,  which are exercisable at an exercise price of between  $.8125-$3.00
     per share.

(6)  Includes  options and  warrants to purchase up to 982,500  shares of Common
     Stock,  which are exercisable at an exercise price of between  $.8125-$5.00
     per share.


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.  In
addition,  officers,  directors  and greater than ten percent  shareholders  are
required  by  Securities  and  Exchange  Commission  regulations  to furnish the
Company with copies of all Section 16(a) forms they file.

To the  Company's  knowledge,  based  solely on its review of the copies of such
forms received by it, and written representations from certain reporting persons
that no Forms 5 were  required  for those  persons,  the Company  believes  that
during  the fiscal  year ended  October  29,  2005,  all  Section  16(a)  filing
requirements applicable to its officers,  directors and greater than ten percent
beneficial owners were fully satisfied.

Item 13. Certain Relationships and Related Transactions.

From  January  2001 to April  2002,  Mr.  Recca  had also  been a  principal  of
NorthStar Capital, LLC which was a joint venture between certain of the partners
of Ruskin Moscou Faltischek,  P.C. ("Ruskin"),  the Company's corporate counsel,
and Mr.  Recca.  Since April 2002,  Mr. Recca has been a director of Sky Capital
Holdings, LTD, and of several wholly owned subsidiaries of Sky Capital Holdings,
and the President of Sky Capital,  LLC, a wholly owned subsidiary of Sky Capital
Holdings,  LTD and a NASD  broker-dealer.  Mr.  Recca is also a director  of Sky
Venture  Capital  and Sky  Capital  Ventures  and  several  of their  wholly  or
partially owned subsidiaries.

Jeffrey A. Wurst, who did not stand for re-election as a director of the Company
when his term expired on October 29, 2005, is also a Senior Partner with Ruskin.
At October 29, 2005 and October  30,  2004,  the Company had amounts  payable to
Ruskin of approximately $40,000 and $39,000, respectively. The Company also paid
legal fees to Ruskin of $41,000, $103,000 and $95,000 in fiscal years 2005, 2004
and 2003, respectively.

Dividends paid to preferred stockholders aggregated $53,000, $70,000 and $70,000
for fiscal years 2005, 2004 and 2003, respectively.


Item 14. Principal Accountant's Fees and Services

The following represents amounts billed and amounts expected to be billed to the
Company for the professional services of BDO Seidman, LLP rendered during fiscal
years 2005, 2004 and 2003:


                                     2005             2004             2003
                                     ----             ----             ----

     Audit Fees                    $101,000          $70,000         $60,000

     Audit - Related Fees           23,500(1)          5,000(1)       16,050(2)

     Tax Fees                          -                -                 -

     All Other Fees                    -                -                 -
                                  -----------     ------------    ------------

          Total                    $124,500          $75,000         $76,050
                                   ========          =======         =======


(1)  For fiscal 2005 and 2004,  amounts related to  consultations  on accounting
     and SEC matters.

(2)  For fiscal 2003,  services  provided under this category  consist of $8,550
     for  services  related to a mid-year  inventory  observation  and  research
     regarding the effect of a change in the  Company's  year-end and $7,500 for
     consultations relating to accounting and SEC matters.

     All fees for the years  presented  were  approved  by the  Company's  Audit
     Committee.


Item 15. Exhibits and Financial Statement Schedule

(a)--List of Financial Statements and Financial Statement Schedule and Exhibits:

(1)  List of Financial Statements:

     Balance Sheets - October 29, 2005 and October 30, 2004

     Statements  of Operations - Fiscal years ended October 29, 2005 and October
     30, 2004

     Statements of  Shareholders'  Equity - Fiscal years ended October 29, 2005,
     October 30, 2004, and November 1, 2003

     Statements of Cash Flows - Fiscal years ended October 29, 2005, October 30,
     2004, and November 1, 2003

     Notes to Financial Statements

(2)  List of Financial Statements Schedule:

     Schedule II - Valuation and Qualifying Accounts

     All  other  schedules  for  which  provision  is  made  in  the  applicable
     accounting  regulation  of  the  Securities  Exchange  Commission  are  not
     required under the related  instructions or are  inapplicable and therefore
     have been omitted.

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

Exhibit Number Description

3.1.1--Restated Certificate of Incorporation of 1967

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

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

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

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

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

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

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

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

4.2--Form of Com
mon Stock Certificate

4.3--Form of Redeemable Common Stock Purchase Warrant

4.4--Form of Representative's Warrant

4.5--Form of Warrant to Holders of Preferred Stock

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

10.1.2--Form of Stock Option Agreement

10.2.1--Severance Agreement with Franklin C. Karp

10.2.2--Severance Agreement with Joseph J. Calabrese

10.2.3--Severance Agreement with Michael A. Beck

10.2.4--Severance Agreement with Roland W. Hiemer

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

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

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

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

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

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

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

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

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

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

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

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

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

4.4--Representative's Warrant Agreement

4.5--Warrant Agent Agreement

10.1--Underwriting Agreement

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

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

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

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

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

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

10.5.7--Lease Agreement with Martin Goldbaum and Sally Goldbaum

10.5.8--Lease Agreement with Bender Realty

10.7--Surrender of Lease with 873 Broadway Associates

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

10.14--Consulting Agreement with Mesa Partners Inc.

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

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

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

(viii)--The  following  exhibits  are hereto  incorporated  by  reference to the
Company's Form 10KSB dated October 27, 2001:

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

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

(ix) --The  following  exhibits  are hereto  incorporated  by  reference  to the
Company's Form 10K dated October 26, 2002:

10.6.5--Lease Extension Agreement between the Company and Sprout Development Co.

10.6.6--Second Amendment of lease between the Company and 205 Chubb Avenue, LLC

(x) --The  following  exhibits  are  hereby  incorporated  by  reference  to the
corresponding  exhibits  filed with the  Company's  Form 8-K dated  November 25,
2003:

10.18--Loan and Security Agreement by and between Harvey  Electronics,  Inc. and
Whitehall Retail Finance,  (currently  Webster Business Credit), a subsidiary of
Webster Bank, dated November 21, 2003.

10.19--Trademark Security Agreement by and between Harvey Electronics,  Inc. and
Whitehall Retail Finance,  (currently  Webster Business Credit), a subsidiary of
Webster Bank, dated November 21, 2003.

10.20--Repurchase Agreement by and among Bang & Olufsen America, Inc., Whitehall
Retail Finance, (currently Webster Business Credit) a subsidiary of Webster Bank
and Harvey Electronics, Inc., dated November 21, 2003.

(xi) --The  following  exhibits  are hereby  incorporated  by  reference  to the
corresponding  exhibits  filed with the  Company's  Form 10-K dated  November 1,
2003:

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

(xii)  --The  following  exhibit  is hereby  incorporated  by  reference  to the
corresponding exhibit filed with the Company's Form 8-K dated May 6, 2004:

10.6.7  --Lease  Agreement  between  Harvey  Electronics,   Inc.  and  724  R202
Associates, L.L.C. dated May 3, 2004.

(xiii)  --The  following  exhibit is hereby  incorporated  by  reference  to the
corresponding exhibit filed with the Company's Form 8-K dated May 19, 2004:

10.6.8 --Lease Modification  Agreement and Extension Agreement between Joseph P.
Day Realty and Harvey Electronics, Inc. dated May 7, 2004.

(xiv)  --The  following  exhibit  is hereby  incorporated  by  reference  to the
corresponding exhibit filed with the Company's form 10-K:

10.6.9  --Second  Amendment of the Lease between  Harvey  Electronics,  Inc. and
Martin Goldbaum and Sally Goldbaum dated December 1, 2004.

(xv)  --The  following  exhibit  is  hereby  incorporated  by  reference  to the
Company's third quarter Form 10Q filed September 13, 2005.

10.21  --First  Amendment and Waiver  Agreement  between the Company and Webster
Bank dated September 13, 2005.

(xvi) --The following exhibits are annexed hereto:

10.22 - Second Amendment and Waiver Agreement dated January 20, 2006.

10.6.9 - Third Amendment of Lease between the Company and 205 Chubb Avenue, LLC.

10.6.10 - Lease  Modification  and Extension  Agreement  between the Company and
Fairfield Property Associates, LLC dated September 21, 2005.

23. --Consent of BDO Seidman, LLP

31.1--Certification - Chief Executive Officer/President

31.2--Certification - Chief Financial Officer

32.1--Certification - Chief Executive Officer/President

32.2--Certification - Chief Financial Officer

(b) --Reports on Form 8-K:

Form  8-K  filed  December  20,  2005  indicating  that  the  Company  is not in
compliance  with the $1.00 minimum  closing bid price  requirement for continued
listing  on  the  NASDAQ  Capital  Market  as  set  forth  in  Marketplace  Rule
4310(c)(4).  Harvey received the delinquency letter from the NASDAQ staff as the
Company's Common Stock closed below $1.00 per share for 30 consecutive  business
days.

<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, Chief Executive Officer,
                                President and Director

Dated: January 27, 2006

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 indicated as
of the 27th day of January, 2006.


             Signature                     Title
             ---------                     -----


/s/ Franklin C. Karp                Chief Executive Officer
-----------------------------       President and Director
    Franklin C. Karp

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

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

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

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

/s/ Nicholas A. Marshall            Director
-----------------------------
    Nicholas A. Marshall

/s/ Ira J. Lamel                    Director
-----------------------------
    Ira J. Lamel


<PAGE>

Item 8. Financial Statements and Supplementary Data

                            Harvey Electronics, Inc.

               Index to Financial Statements and Supplemental Data


Report of Independent Registered Public Accounting Firm................    F-2

Balance Sheets--October 29, 2005 and October 30, 2004 .................    F-3

Statements of Operations--Fiscal years ended October 29, 2005,
October 30, 2004 and November 1, 2003..................................    F-4

Statements of Shareholders' Equity--Fiscal years ended October 29,
2005, October 30, 2004 and November 1, 2003............................    F-5

Statements of Cash Flows--Fiscal years ended October 29, 2005,
October 30, 2004 and November 1, 2003..................................    F-6

Notes to Financial Statements.........................................F-7-F-27

The following financial statement schedule of Harvey Electronics, Inc.
is included as supplementary data:

Schedule II - Valuation and Qualifying Accounts........................   F-28

Report of Independent Registered Public Accounting Firm................   F-29

<PAGE>

             Report of Independent Registered Public Accounting Firm



The Board of Directors and Shareholders
Harvey Electronics, Inc.
Lyndhurst, New Jersey

We have audited the accompanying  balance sheets of Harvey Electronics,  Inc. as
of October  29,  2005 and  October  30,  2004,  and the  related  statements  of
operations,  shareholders' equity and cash flows for the years ended October 29,
2005, October 30, 2004 and November 1, 2003. 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 the standards of the Public  Company
Accounting Oversight Board (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.  The Company is not  required to
have,  nor were we engaged to perform,  an audit of its  internal  control  over
financial reporting.  Our audits include  consideration of internal control over
financial  reporting  as  a  basis  for  designing  audit  procedures  that  are
appropriate  in the  circumstances,  but not for the  purpose of  expressing  an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting. Accordingly, we express no such opinion. 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 principals
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. as of
October 29, 2005 and October 30, 2004, and the results of its operations and its
cash flows for the years ended  October 29, 2005,  October 30, 2004 and November
1, 2003 in  conformity  with  accounting  principles  generally  accepted in the
United States of America.



/s/BDO Seidman, LLP
-------------------
BDO Seidman, LLP

Melville, New York

December 28, 2005

<PAGE>

Part I Financial Information
Item I. Financial Statements

                            Harvey Electronics, Inc.
                                 Balance Sheets
<TABLE>
<CAPTION>

                                                                                       October        October
                                                                                      29, 2005       30, 2004
                                                                                    -------------- --------------
Assets
Current assets:
<S>                                                                                       <C>            <C>
   Cash and cash equivalents                                                              $16,400        $15,990
   Accounts receivable, less allowance of $20,000 and $20,000                             589,450        898,088
   Inventories                                                                          7,427,364      7,287,564
   Prepaid expenses and other current assets                                              284,151        189,669
   Deferred taxes                                                                         301,000        301,000
                                                                                    -------------- --------------
Total current assets                                                                    8,618,365      8,692,311
                                                                                    -------------- --------------
Property and equipment:
   Leasehold improvements                                                               4,556,945      3,459,826
   Furniture, fixtures and equipment                                                    2,887,233      2,355,549
   Internet website                                                                       461,870        456,870
                                                                                    -------------- --------------
                                                                                        7,906,048      6,272,245
   Less accumulated depreciation and amortization                                       4,655,147      3,960,341
                                                                                    -------------- --------------
                                                                                        3,250,901      2,311,904
Equipment under capital leases, less accumulated amortization
  of $397,821 and $384,706                                                                      -          6,272
Intangible asset-software, less accumulated amortization of $12,543                       137,234              -
Deferred taxes                                                                          1,049,000      1,049,000
Goodwill                                                                                  125,000        125,000
Reorganization value in excess of amounts allocable to
  identifiable assets                                                                     283,440        283,440
Other assets, less accumulated amortization of $299,184 and $248,769                      415,166        330,736
                                                                                    -------------- --------------
Total assets                                                                          $13,879,106    $12,798,663
                                                                                    ============== ==============
Liabilities and shareholders' equity
Current liabilities:
  Trade accounts payable                                                               $2,536,222     $2,066,014
  Customer deposits                                                                     1,696,807      1,955,440
  Accrued expenses and other current liabilities                                        1,314,912      1,425,988
  Income taxes payable                                                                     37,000         48,800
  Cumulative Preferred Stock dividends payable                                             17,404         23,432
  Current portion of long-term debt                                                        55,505              -
                                                                                    -------------- --------------
Total current liabilities                                                               5,657,850      5,519,674
                                                                                    -------------- --------------

Long-term liabilities:
  Revolving line of credit facility                                                     3,486,441      1,825,320
  Long-term debt                                                                           71,962              -
  Deferred rent                                                                           376,214        283,891
                                                                                    -------------- --------------
Total long-term liabilities                                                             3,934,617      2,109,211
                                                                                    -------------- --------------

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 600 shares--2005, 827
shares--2004 (aggregate liquidation preference--$600,000--2005, $827,000--2004)

                                                                                          275,682        379,982
Common Stock, par value $.01 per share; authorized 10,000,000 shares;
  issued and outstanding; 3,508,584 shares--2005,  3,324,525 shares--2004                  35,086         33,245
  Additional paid-in capital--restated 2004                                             8,436,384      8,333,925
  Accumulated deficit--restated 2004                                                  (4,460,513)    (3,577,374)
                                                                                    -------------- --------------
Total shareholders' equity                                                              4,286,639      5,169,778
                                                                                    -------------- --------------
Total liabilities and shareholders' equity                                            $13,879,106    $12,798,663
                                                                                    ============== ==============
See accompanying summary of significant accounting policies and notes to
financial statements.
</TABLE>

<PAGE>

                            Harvey Electronics, Inc.
                            Statements Of Operations
<TABLE>
<CAPTION>

                                                                 Fifty-two          Fifty-two           Fifty-three
                                                                   Week               Weeks                Weeks
                                                                   Ended              Ended                Ended
                                                                October 29,        October 30,          November 1,
                                                                   2005                2004                 2003
                                                             ------------------ ------------------- ---------------------

<S>                                                                <C>                 <C>                   <C>
Net sales                                                          $40,444,374         $43,145,073           $42,448,216
Other income                                                                 -              28,150                72,677
                                                             ------------------ ------------------- ---------------------
                                                                    40,444,374          43,173,223            42,520,893
                                                             ------------------ ------------------- ---------------------

Cost of sales                                                       23,588,853          25,393,702            25,140,486
Selling, general and administrative expenses                        17,453,670          16,968,504            16,555,451
Interest expense                                                       232,194             175,025               342,915
Provision for impairment of long-lived assets                                -             144,092                     -
                                                             ------------------ ------------------- ---------------------
                                                                    41,274,717          42,681,323            42,038,852
                                                             ------------------ ------------------- ---------------------

(Loss) income before income taxes (benefit)                          (830,343)             491,900               482,041
Income taxes (benefit)                                                       -           (782,000)               195,000
                                                             ------------------ ------------------- ---------------------
Net (loss) income                                                    (830,343)           1,273,900               287,041

Preferred Stock dividend requirement                                    52,796              70,295                70,295
                                                             ------------------ ------------------- ---------------------
Net (loss) income applicable to Common Stock                        ($883,139)          $1,203,605              $216,746
                                                             ================== =================== =====================

Net (loss) income per share applicable to
 common shareholders:

  Basic                                                                ($0.25)               $0.36                 $0.07
                                                             ================== =================== =====================
  Diluted                                                              ($0.25)               $0.32                 $0.07
                                                             ================== =================== =====================
Shares used in the calculation of net (loss) income
   per common share:
  Basic                                                              3,495,435           3,324,525             3,324,525
                                                            =================== =================== =====================
  Diluted                                                            3,495,435           4,033,492             3,866,415
                                                            =================== =================== =====================
</TABLE>

See  accompanying  summary  of  significant  accounting  policies  and  notes to
financial statements.

<PAGE>


                            Harvey Electronics, Inc.
                        Statement of Shareholders' Equity

<TABLE>
<CAPTION>

                                            Preferred Stock           Common Stock         Additional                      Total
                                         ----------------------  ------------------------   Paid-in      Accumulated  Shareholders'
                                          Shares      Amount       Shares         Amount    Capital         Deficit       Equity
                                         ---------- -----------  -------------- --------- ------------- ------------- -------------
<S>                <C> <C>                     <C>    <C>           <C>           <C>       <C>          <C>           <C>
Balance at October 26, 2002 (restated)         827    $379,982      3,324,525     $33,245   $8,312,526   ($4,997,725)  $3,728,028
  Net income for the year                        -           -              -           -            -        287,041     287,041
  Preferred Stock dividend                       -           -              -           -            -       (70,295)    (70,295)
                                         ---------- -----------  -------------- ---------- ------------- ------------- ------------
Balance at November 1, 2003 (restated)         827     379,982      3,324,525      33,245    8,312,526    (4,780,979)   3,944,774
  Net income for the year                        -           -              -           -            -      1,273,900   1,273,900
  Preferred Stock dividend                       -           -              -           -            -       (70,295)    (70,295)
  Return of a shareholder's profits from
     short-swing trades                          -           -              -           -       21,399              -      21,399
                                         ---------- -----------  -------------- ----------- ------------- ------------- -----------
Balance at October 30, 2004 (restated)         827     379,982      3,324,525      33,245     8,333,925    (3,577,374)   5,169,778
   Net loss for the year                         -           -              -           -             -      (830,343)   (830,343)
   Preferred Stock dividend                      -           -              -           -             -       (52,796)    (52,796)
   Conversion of Preferred Stock
     to Common Stock                         (227)   (104,300)        184,059       1,841       102,459              -           -
                                         ---------- ----------- --------------  ---------- ------------- -------------- -----------
Balance at October 29, 2005                    600    $275,682      3,508,584     $35,086    $8,436,384   ($4,460,513)  $4,286,639
                                         ========== =========== ==============  ========== ============= ============== ===========
</TABLE>


See  accompanying  summary  of  significant  accounting  policies  and  notes to
financial statements.

<PAGE>


                             Harvey Electronics, Inc
                            Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                 Fifty-two          Fifty-two        Fifty-three
                                                                   Weeks              Weeks            Weeks
                                                                   Ended              Ended            Ended
                                                                 October 29,        October 30,      November 1,
                                                                   2005               2004              2003
                                                               ---------------    ---------------   --------------
Operating activities
<S>                                                                <C>               <C>                 <C>
Net (loss) income                                                  ($830,343)        $1,273,900          $287,041
Adjustments to reconcile net (loss) income to net
cash provided
  by operating activities:
    Depreciation and amortization                                     739,407           683,420           795,388
    Provision for impairment of long-lived assets                           -           144,092                 -
    Income tax equivalent provision                                         -           135,000           195,000
    Reduction of reorganization value in excess of amounts
       allocable to identifiable assets                                     -           373,000                 -
    Straight-line impact of rent escalations                           92,323            41,154            87,122
    Deferred tax assets                                                     -       (1,350,000)                 -
    Miscellaneous                                                      46,629            11,741          (24,701)
    Changes in operating assets and liabilities:
      Accounts receivable                                             308,638         (146,795)         (116,630)
      Inventories                                                   (139,800)           129,414         (574,257)
      Prepaid expenses and other current assets                      (88,505)           (5,762)            42,439
      Trade accounts payable                                          470,208         (214,005)             5,186
      Customer deposits                                             (258,633)           262,177           209,026
      Accrued expenses, other current liabilities
        and income taxes                                            (128,853)            43,497            64,230
                                                             ----------------- ----------------- -----------------
Net cash provided by operating activities                             211,071         1,380,833           969,844
                                                             ----------------- ----------------- -----------------
Investing activities
Purchases of property and equipment excluding
  Internet website development                                    (1,459,044)         (331,056)         (454,554)
Intangible asset-software                                           (149,777)                 -
Internet website development                                          (5,000)                 -          (15,200)
Purchases of other assets                                           (170,727)           (3,949)          (13,475)
Reduction of security deposit                                          13,882          (28,955)                 -
                                                             ----------------- ----------------- -----------------
Net cash used in investing activities                             (1,770,666)         (363,960)         (483,229)
                                                             ----------------- ----------------- -----------------
Financing activities
Borrowings of revolving credit facility                            45,297,318        48,464,498        45,763,287
Payments of revolving credit facility                            (43,636,197)      (49,364,781)      (46,157,177)
Preferred Stock dividends paid                                       (58,824)          (70,295)          (70,295)
Principal payments on note payable                                   (42,292)                 -                 -
Principal payments on capital lease obligations                             -                 -          (22,420)
Proceeds from shareholder short-swing profits                               -            21,399                 -
Fees paid in connection with new credit facility                            -          (67,704)                 -
                                                             ----------------- ----------------- -----------------
Net cash provided by (used) in financing activities                 1,560,005       (1,016,883)         (486,605)
                                                             ----------------- ----------------- -----------------
Increase (decrease) in cash and cash equivalents                          410              (10)                10
Cash and cash equivalents at beginning of year                         15,990            16,000            15,990
                                                             ----------------- ----------------- -----------------
Cash and cash equivalents at end of year                              $16,400           $15,990           $16,000
                                                             ================= ================= =================
Supplemental cash flow information:
Interest paid                                                        $222,000          $210,000          $347,000
                                                             ================= ================= =================
Taxes paid                                                            $48,000          $137,000           $17,000
                                                             ================= ================= =================
</TABLE>

See accompanying summary of significant accounting policies and notes to
financial statements.


<PAGE>

1. Description of Business and Summary of Significant Accounting Policies

Description of Business

The  Company is a  specialty  retailer  and  custom  installer  of high  quality
audio/video  consumer  electronics and home theater products in the Metropolitan
New York area.  Operations of the Company consist solely of this single segment.
The  Company's  fiscal year ends the Saturday  closest to October 31. The fiscal
year ended  November 1, 2003  consisted  of 53 weeks and the fiscal  years ended
October 29, 2005 and October 30, 2004 each consisted of 52 weeks.

Net sales and operating  results for the  Company's  first quarter of its fiscal
year are  positively  affected by generally  stronger  demand for the  Company's
products during the holiday selling season.

Accounting Estimates

The  preparation  of the  financial  statements in  conformity  with  accounting
principles  generally accepted in the United States requires  management to make
estimates and assumptions that affect the financial  statements and accompanying
notes. Management bases its estimates on certain assumptions, which they believe
are  reasonable  in the  circumstances,  and does not believe that any change in
those assumptions would have a significant  affect on the financial  position or
results of operations. Actual results could differ from those estimates.

Revenue Recognition

Net  sales  include  the sale of  goods to  customers  and  custom  installation
revenue.  Retail  sales are  recorded  at the time of the sale to the  customer.
Custom installation revenue, which is comprised of both the sale of products and
the labor in connection with the  installation of the products,  are recorded in
accordance  with  the  provisions  of EITF  00-21,  "Revenue  Arrangements  with
Multiple  Deliverables".  The  revenue  related to the sale of the  products  is
recognized  when the product is delivered to the customers.  The revenue related
to the labor in connection with the  installation  of the products,  is recorded
when the service has been substantially  completed.  If the custom  installation
project requires a pre-wire phase,  this phase will be considered a separate and
distinct  stage of  work.  The  customer  agrees  to take  title of wire and any
in-wall  speakers  when  delivered  to the site as they  have  fair  value.  The
customer agrees that these amounts paid in advance for wire or in-wall  speakers
delivered  to the site are  non-refundable  and as a result,  these  amounts are
recognized as revenue when delivered.  Labor on the pre-wire phase is recognized
as revenue when the pre-wire installation is substantially  completed.  Revenues
relating  to these  elements  are  recorded  based on their  fair  values in the
market.

In addition,  the Company sells  extended  warranty  contracts for a third party
provider.  The profit on extended warranty sales is considered commission at the
time of sale. The net amount earned on these sales, which is not significant, is
recorded in net sales, in accordance with EITF 99-19,  "Reporting  Revenue Gross
as a Principal Versus Net as an Agent."

Long-Lived Assets

Property and equipment are stated at cost.  Depreciation  and  amortization  are
computed by the  straight-line  method over the  estimated  useful  lives of the
respective assets. Depreciable lives are as follows; leasehold improvement, 3-10
years,  machinery and equipment,  3-7 years,  furniture and fixtures, 5-7 years,
signs, 3-7 years,  trucks,  3-7 years and software,  3-5 years.  Amortization of
improvements  to leased  properties  is based  upon the  remaining  terms of the
leases or the estimated useful lives of such improvements, whichever is shorter.
The Company  evaluates the periods of  amortization  continually  in determining
whether events and  circumstances  warrant revised estimates of useful lives. If
estimates are changed,  the unamortized  cost will be allocated to the number of
remaining periods in the revised lives.

When  conditions  indicate  a need to  evaluate  recoverability,  SFAS  No.  144
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed of" requires that the Company (1) recognize an impairment  loss only
if the carrying  amount of a long-lived  asset is not  recoverable  based on its
undiscounted  future  cash  flows  and (2)  measure  an  impairment  loss as the
difference  between  the  carrying  amount and fair  value of the asset.  In the
fourth quarter of fiscal 2004,  the Company  recorded a provision for impairment
of long-lived assets aggregating $144,000, relating to the planned relocation of
a retail store, (See Note 8).

Store Opening Costs

Costs of a non-capital  nature  incurred prior to store openings are expensed as
incurred.  The Company  capitalized  interest and rent,  aggregating $12,000 and
$53,000, respectively,  relating to the construction of the new Bridgewater, New
Jersey retail store, in fiscal 2005. There were no store openings in fiscal 2004
and 2003.

Stock-Based Compensation

The Company applies the intrinsic-value based method of accounting prescribed by
Accounting  Principles  Board  (APB) No.  25,  "Accounting  for Stock  Issued to
Employees",  and related  interpretations,  in  accounting  for its  stock-based
compensation plans and accordingly, no compensation cost has been recognized for
its stock  options in the financial  statements.  The Company has elected not to
implement  the fair value based  accounting  method for employee  stock  options
under SFAS No. 123, "Accounting for Stock-Based  Compensation",  but has elected
to disclose the pro forma net income (loss) per share for employee  stock option
grants made  beginning in fiscal 1997 as if such method had been used to account
for  stock-based  compensation  costs  described in SFAS No. 148 "Accounting for
Stock Based  Compensation-Transition  and Disclosure",  an amendment of SFAS No.
123.

For the purpose of  determining  the  disclosures  required by SFAS No. 123, the
fair  value  of the  options  were  estimated  at the date of  grant  using  the
Black-Scholes  option  pricing model with the following  assumptions  for fiscal
year 2002: risk-free interest rate ranging from 4.44%-5.02%;  no dividend yield;
volatility  factor of the expected market price of the Company's Common Stock of
1.00; and a weighted-average expected life of the options of 5 years.

There were no stock option  grants  during the fiscal years 2005,  2004 and 2003
under the  provisions of SFAS No. 123, as a result,  there would be no impact on
the Company's net income (loss) and earnings (loss) per share.

Inventories

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

Internet Website

The  Company  follows  the  provisions  of EITF 00-2,  "Accounting  for  Website
Development  Costs," which provides guidance on 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.  In accordance with SOP 98-1, the
Company  capitalized  approximately  $5,000 and $-0- for  fiscal  years 2005 and
2004, respectively,  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 5).

Net (Loss) Income Per Share

Basic and diluted net (loss)  earnings per share are  calculated  in  accordance
with SFAS No.  128,  "Earnings  Per Share"  ("SFAS No.  128").  Basic net (loss)
earnings  per share  excludes the  dilutive  effects of options and  convertible
preferred  stock.  Diluted  net  (loss)  earnings  per share  includes  only the
dilutive  effects  of  common  stock  equivalents  such  as  stock  options  and
convertible preferred stock.

The following  table sets forth the  computation of basic and diluted net (loss)
earnings per share for the years presented pursuant to SFAS No. 128.
<TABLE>
<CAPTION>

                                                    2005             2004              2003
                                                    ----             ----              ----
Numerator:
<S>                                               <C>             <C>                <C>
Net (loss) income                                 $(830,343)      $1,273,900         $287,041
Dividends on convertible preferred stock
                                                    (52,796)         (70,295)         (70,295)
                                                    --------         --------         --------
Numerator for basic earnings per share
   - net (loss) income attributable to
   common stockholders                            $(883,139)      $1,203,605         $216,746
Effect of dilutive securities:
    Dividends on convertible preferred
   stock                                                  -           70,295           70,295
Numerator for diluted earnings per               ------------    -------------    -------------
   share - net (loss) income available
   to common stockholders after
     assumed conversion                           $(883,139)      $1,273,900         $287,041
Denominator:
Denominator for basic earnings per
   share - weighted average shares
   outstanding during the period                                   3,324,525        3,324,525
                                                  3,495,435
Effect of dilutive securities:
   Stock options                                          -           38,408           38,971
   Convertible preferred stock                            -          670,559          502,919
Denominator for diluted earnings per           ------------    -------------    --------------
   share - adjusted weighted average
   shares and assumed conversions                 3,495,435        4,033,492        3,866,415
                                                  =========        =========        =========
Basic net (loss) income per share                    $(.25)             $.36             $.07
                                                     ======             ====             ====
Diluted net (loss) income  per share                 $(.25)             $.32             $.07
                                                     ======             ====             ====
</TABLE>

The conversion  price of the Company's  preferred stock is $1.2333 (see note 4).
Convertible  preferred stock and common stock  equivalents  were not included in
the diluted  earnings per share  calculation  for the fiscal 2005,  as they were
anti-dilutive.

Options and warrants  aggregating  347,199,  674,828 and 931,637,  were excluded
from the  computation  for fiscal years 2005,  2004 and 2003,  respectively,  as
their effect would have been antidilutive.

Cash Equivalents

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

Fair Value of Financial Instruments

The  recorded  amounts  of the  Company's  cash and cash  equivalents,  accounts
receivable  and  accounts  payable  approximate  their fair  values  principally
because  of the  short-term  nature  of  these  items.  The  carrying  value  of
borrowings  under the revolving line of credit facility  approximate fair value,
due to its variable market interest rates.

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.

Components  of Selling,  General and  Administrative  Expenses and Cost of Goods
Sold

Major components of selling general and administrative  expenses include payroll
related expenses, net advertising expense,  occupancy costs,  professional fees,
truck  expenses,   warehouse  costs,   distribution  costs,  insurance  expense,
depreciation expense and credit card fees. Cost of goods sold includes inventory
shrink,  purchase  discounts from its vendors and freight  costs.  The Company's
computation  of cost of goods  sold and gross  profit may not be  comparable  to
other  reporting  electronics  retailers as other entities may include the costs
relating to warehousing and distribution networks.

Net Advertising Expense

In  accordance   with  EITF  02-16,   "Accounting  by  a  Customer  for  Certain
Consideration  Received from a Vendor"  ("EITF  02-16") which  addresses how and
when  to  reflect  consideration   received  from  suppliers  in  the  financial
statements,  the Company's  advertising expense, net of cooperative  advertising
allowances,  is charged to  operations  when the  advertising  takes place.  Net
advertising expense is included in selling,  general and administrative expenses
in the Company's Statements of Operations.

Manufacturer rebates received by the Company are recorded based on the quarterly
estimated progress in earning such rebates. The Company's  estimates,  to record
these rebates are based on historical information and current programs with such
vendors.

The  following  represents  the  gross  amounts  of  advertising   expenditures,
cooperative  advertising  reimbursements  and net  advertising  expense  for the
periods reported:

                                     Fiscal 2005    Fiscal 2004    Fiscal 2003
                                     -----------    -----------    -----------
   Gross advertising expenditures     $2,700,000     $2,700,000     $2,540,000

   Cooperative advertising
     reimbursements                   1,975,000      2,230,000       2,174,000
                                      ---------      ---------      ----------

   Net advertising expense            $  725,000     $  470,000     $ 366,000
                                      ==========     ==========     =========

Reorganization Value and Fresh Start Reporting

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

The   reorganization   value  of  the  Company  was  determined   based  on  the
consideration  received from Harvey Acquisition  Company LLC (HAC) to obtain its
principal ownership in the Company. A carrying value of $318,000 was assigned to
the Preferred  Stock (see Note 4).  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  finder's  fee.  The  excess of the
reorganization value over the fair value of net assets and liabilities ($283,000
at  October  29,  2005  and  October  30,  2004  respectively)  is  reported  as
"Reorganization value in excess of amounts allocable to identifiable assets".

The Company  follows the  provisions  of Financial  Accounting  Standards  Board
Statements of Financial  Accounting  Standards  ("SFAS") SFAS No. 141,  Business
Combinations,  and SFAS No. 142,  Goodwill and Other  Intangible  Assets.  Under
these  standards,  both  goodwill  and the  Company's  other  intangible  asset,
reorganization value in excess of amounts allocable to identifiable assets which
are deemed to have indefinite  lives are subject to annual  impairment  tests in
accordance with SFAS 142. Other intangible  assets continue to be amortized over
their estimated useful lives.

In the second quarter of fiscal 2005 and 2004,  the Company  engaged a qualified
independent  firm,  to perform a  valuation  of the  Company  and to prepare the
necessary goodwill impairment analysis. After completion,  this independent firm
found no  impairment  of the  Company's  goodwill  and other  intangible  asset,
reorganization  value in excess of amounts  allocable  to  identifiable  assets.
Goodwill  and this other  intangible  asset is tested  annually  to  identify if
impairment has occurred.

Reclassification

Certain  items in the audited  balance  sheet as of October 30, 2004, as well as
the Statements of  Shareholders'  Equity  effective  October 26, 2002, have been
adjusted and  restated.  See Note 4 for  additional  information.  Additionally,
certain items in the audited  Statement of Operations  for fiscal 2004 have been
reclassified to conform to the 2005 presentation.

Recent Accounting Pronouncements

In December  2004,  the FASB  issued  FASB  Statement  No. 123  (revised  2004),
"Shared-Based   Payment."   Statement   123(R)   addresses  the  accounting  for
share-based  payment  transactions  in which  an  enterprise  receives  employee
services  in  exchange  for (a)  equity  instruments  of the  enterprise  or (b)
liabilities  that  are  based  on the  fair  value  of the  enterprise's  equity
instruments  or that may be settled by the issuance of such equity  instruments.
Statement  123(R)  requires an entity to recognize the grant-date  fair-value of
stock  options and other  equity-based  compensation  issued to employees in the
income  statement.  The  revised  Statement  generally  requires  that an entity
account for those transactions using the fair-value-based method, and eliminates
the intrinsic value method of accounting in APB Opinion No. 25,  "Accounting for
Stock  Issued to  Employees",  which  was  permitted  under  Statement  123,  as
originally issued.

The revised Statement requires entities to disclose information about the nature
of the share-based payment transactions and the effects of those transactions on
the financial statements.

Statement  123(R) is effective  for public  companies  that do not file as small
business  issuers as of the beginning of the annual reporting period that begins
after  June 15,  2005.  All  public  companies  must  use  either  the  modified
prospective or the modified  retrospective  transition method. Early adoption of
this Statement for interim or annual periods for which  financial  statements or
interim  reports  have not been issued is  encouraged.  This  pronouncement  was
adopted  in the  fourth  quarter  of  fiscal  year 2005 and had no impact on the
Company's financial position or results of operations.

In November 2004, the FASB issued SFAS No. 151,  "Inventory  Costs, an amendment
of ARB No. 43, Chapter 4," ("SFAS 151") which  clarifies the types of costs that
should be expensed  rather than  capitalized  as inventory.  This statement also
clarifies the  circumstances  under which fixed overhead costs  associated  with
operating facilities involved in inventory processing should be capitalized. The
provisions  of SFAS No. 151 were  adopted in the fourth  quarter of fiscal 2005.
This statement has not had a material impact on the Company's financial position
or results of operations.

In May 2005, the FASB issued  Statements of Financial  Accounting  Standards No.
154,  Accounting changes and Error Corrections - a replacement of APB Opinion 20
and FASB Statement 3, or SFAS 154. SFAS 154 requires  retrospective  application
to prior  periods'  financial  statements  for changes in accounting  principle,
unless it is impracticable to determine  either the  period-specific  effects or
the  cumulative  effect of the change.  SFAS 154 also  requires that a change in
depreciation,  amortization  or depletion  method for long lived,  non financial
assets be accounted for as a change in accounting  estimate effected by a change
in  accounting   principle.   SFAS  is  effective  for  accounting  changes  and
corrections  of errors made in fiscal years  beginning  after December 14, 2005.
The  implementation of SFAS 154 is not expected to have a material impact on the
Company's operations.

In March 2005,  the SEC issued Staff  Accounting  Bulleting No. 107 ("SAB 107"),
"Share-Based  Payment,"  providing  guidance on option  valuation  methods,  the
accounting  for income tax  effects of  share-based  payment  arrangements  upon
adoption  of SFAS 123R,  and the  disclosures  in  management's  Discussion  and
Analysis of Financial  condition  and Results of  Operations  subsequent  to the
adoption. The Company will provide SAB 107 required disclosures upon adoption of
SFAS 123R. The Company is currently evaluating SAB 107 and will be incorporating
it as part of its adoption of SFAS 123R in the first fiscal quarter of 2006.

On  October  6,  2006,  the FASB  issued  FASB  Staff  Position  (FSP) FAS 13-1,
Accounting for Rental Costs Incurred during a Construction Period. ("FSP 13-1").
FSP 13-1 requires that rental costs associated with ground or building operating
leases that are incurred  during a  construction  period be recognized as rental
expense. FSP 13-1 is effective for the first reporting period after December 15,
2005. In fiscal 2005, the Company had  capitalized  rental costs incurred during
the  construction  period  of its new  store in  Bridgewater,  New  Jersey.  The
adoption of this guidance could impact the Company's future financial statements
if the Company opens additional retail facilities.

2. Revolving Line of Credit Facility

In November  2003,  the Company  entered into a five-year  $7.5  million  credit
facility with Webster Business Credit Corporation  ("Webster"),  a subsidiary of
Connecticut based Webster Bank. This credit facility replaced the line of credit
facility  with Wells Fargo  Retail  Finance  ("Wells  Fargo").  Under the credit
facility,  the Company can borrow up to $7.5 million based upon lending formulas
calculated  on eligible  credit card  receivables  and  inventory,  less certain
reserves, as defined. The Webster credit facility expires November 21, 2008.

The interest rate on all borrowings  under the new credit facility is 0.25% over
Webster Bank's prime rate (7.0% at October 29, 2005) or LIBOR plus 2.75%, at the
Company's  option.  The Company  paid Webster a $25,000  commitment  fee, in two
equal  installments  of $12,500,  on November  21, 2003 and  November  21, 2004,
respectively.  Under the credit  facility,  the Company  will also pay Webster a
reduced  maintenance  fee of $1,000 per month and a monthly  unused line fee, as
defined in the credit facility. Simultaneously,  with the closing of the Webster
credit  facility,  the Company paid all outstanding  amounts due to Wells Fargo,
aggregating  $2,504,000,  and Wells  Fargo's  senior  security  interest  in the
Company's assets was terminated.

In connection with the new credit facility, the Company granted Webster a senior
security interest in all of the Company's  assets.  The credit facility provides
Webster with rights of  acceleration  upon the  occurrence of certain  customary
events of default. The Company is restricted from paying dividends on its Common
Stock,  retiring or  repurchasing  its Common Stock and entering into additional
indebtedness (as defined).

Pursuant to the new credit  facility,  the Company cannot exceed certain advance
rates on eligible  inventory  and must  maintain  certain  monthly and quarterly
levels  of  earnings  before  interest,  taxes,  depreciation  and  amortization
("EBITDA").  Additionally,  the Company's  annual  capital  expenditures  cannot
exceed a predetermined amount. On September 13, 2005, the Company entered into a
First Amendment and Waiver Agreement ("First Amendment") with Webster. The First
Amendment waived any third quarter covenant defaults and modified the EBITDA and
capital expenditures covenants for the fourth quarter of fiscal 2005. On January
20, 2006, the Company entered into a Second Amendment ("Second  Amendment") with
Webster.  The Second  Amendment  modified  the EBITDA and  capital  expenditures
covenants for fiscal 2006. As of October 29, 2005, the Company was in compliance
with all covenants.

As the new credit  facility  expires in three years and does not include  both a
subjective  acceleration  clause and a lock box arrangement,  in accordance with
EITF 95-22, the Company classified the balance outstanding,  at October 29, 2005
($3,486,000) and October 30, 2004 ($1,825,000), under the new credit facility as
a long-term liability.

3. 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.

Common equivalent shares relating to stock options aggregating 38,408 and 38,971
were included in the weighted  average number of common shares  outstanding  for
the  diluted  earnings  per share  computation  for fiscal  years 2004 and 2003.
Common  equivalent  shares  were  not  included  for  fiscal  2005 as they  were
antidilutive.

In fiscal 2005, 2004 and 2003, no stock options were granted.

The following  table  summarizes  activity in stock options  during fiscal 2005,
2004 and 2003:

<TABLE>
<CAPTION>

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

<S>                   <C> <C>                 <C>                               <C>            <C>
   Balance at October 26, 2002                10,900                            989,100        $1.416
   2003 Stock option grants                        -               -                 -              -
      Granted                                      -               -                 -              -
      Forfeited                                    -               -                 -              -
                                         ---------------                   --------------
   Balance at November 1, 2003                10,900                           989,100         $1.416
   2004 Stock Option Grants                        -               -                 -              -
      Granted                                      -               -                 -              -
      Forfeited                                    -               -                 -              -
                                          ---------------                   --------------
   Balance at October 30, 2004                10,900                           989,100         $1.416

   2005 Stock Option Grants                        -               -                 -              -
      Granted                                      -               -                 -              -
      Forfeited                                    -               -                 -              -
                                          ---------------                   --------------
   Balance at October 29, 2005                10,900                           989,100         $1.416
                                              ======                           =======
</TABLE>

At October 29,  2005,  October 30, 2004 and  November 1, 2003,  all  outstanding
options are exercisable.


Exercise prices for options outstanding as of October 29, 2005, are as follows:
<TABLE>
<CAPTION>

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

<S>    <C>                <C>                    <C>                       <C>
       $ .8125            90,000                 90,000                    6
       $ .8937            12,500                 12,500                    6
       $ .9375            90,000                 90,000                    6
       $1.00              62,625                 62,625                    3
       $1.0313            25,000                 25,000                    6
       $1.15              90,000                 90,000                    7
       $1.265             25,000                 25,000                    2
       $1.35              90,000                 90,000                    7
       $1.375             45,000                 45,000                    6
       $1.50             222,500                222,500                    4
       $1.75             102,500                102,500                    5
       $1.86              57,500                 57,500                    5
       $1.925             12,500                 12,500                    5
       $2.00               4,975                  4,975                    2
       $3.00              59,000                 59,000                    2
                   --------------------- ----------------------
                          989,100                989,100                   5
                   ===================== ======================
</TABLE>

At October 29, 2005 and October 30,  2004,  the Company has  reserved  shares of
Common Stock for issuance  under Common Stock  options,  warrants and  preferred
stock of approximately 1,004,000, for both years.

4. 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
$275,682 and $379,982 at October 29, 2005 and October 30, 2004, respectively.

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 $600,000 plus any outstanding dividends,  prior to any
distributions to common  shareholders.  The holders of the Preferred Stock shall
receive  a  semiannual  8.5%  cumulative  dividend  ($85 per  share  or  $51,000
annually), payable on the last business day in June and December.

875  shares  of 8.5%  convertible  preferred  stock  were  originally  issued in
conjunction with the Company's  reorganization,  effective  October 26, 1996. As
specified  in the  Company's  By-laws,  the  preferred  stock  has a  conversion
feature.

Prior to January 1, 2001, 50% of the preferred  stock was convertible at a price
of $6.00 per share and 50% of the preferred  stock was  convertible at $7.50 per
share.  Commencing  January  1,  2001,  each  share of  preferred  stock  became
convertible  into  shares of common  stock at a  conversion  price  equal to the
average  of the  closing  bid  price of one share of  common  stock  over the 45
trading days preceding  January 1, 2001, if traded on the NASDAQ Capital Market.
This new conversion price was set at $1.2333 on January 1, 2001.

Pursuant to the SEC's comment letter  received by the Company in fiscal 2005, it
was  identified  that when the Preferred  Stock was issued in October 1996,  the
conversion reset provision at January 1, 2001 represented a contingent event. In
accordance  with EITF Issue No. 00-27,  Application of Issue No. 98-5 to Certain
Convertible Instruments, the Company has determined that a beneficial conversion
feature  existed at the issuance  date. In accordance  with EITF No. 00-27,  the
Company  recalculated the intrinsic value of the conversion  feature,  which was
reset on January 1, 2001, and has determined that retained  earnings should have
been reduced by $711,000,  while  additional  paid-in  capital  should have been
increased by the same amount in fiscal 2001. This  adjustment  ultimately had no
effect on shareholders'  equity or earnings.  In fiscal 2001, the $711,000 would
have been  recorded as a dividend to the preferred  shareholders  and would have
impacted the loss per share applicable to common  shareholders.  In fiscal 2001,
the Company  reported a loss and, as a result,  the loss per share applicable to
common  shareholders  would have been  increased to $.62 per share from $.40 per
share.  As this  adjustment only impacted  certain  components of  shareholders'
equity, having no effect on total equity and no effect on earnings,  the Company
corrected  the equity  accounts  in the second  quarter of fiscal  2005,  and in
addition restated the balance sheet as of October 30, 2004 and the Statements of
Shareholders' Equity, effective October 26, 2002, for comparative purposes.

Cumulative  Preferred  Stock  dividends  payable  of  $17,000  and  $23,000  are
outstanding  and  classified  as a current  liability  at October  29,  2005 and
October 30,  2004,  respectively.  Dividends  aggregating  $53,000,  $70,000 and
$70,000 were recorded as a charge to  accumulated  deficit in fiscal years 2005,
2004 and 2003, respectively.

5. Income Taxes (Benefit)

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 29, 2005, October 30, 2004
and November 1, 2003, the Company recorded an income tax equivalent provision of
$ - 0 -, $135,000 and $195,000,  respectively,  and reduced Reorganization Value
in Excess of Amounts  Allowable to Identifiable  Assets by the same amount.  The
income tax equivalent  provisions  did not  materially  affect the Company's tax
liability.

In the fourth  quarter of fiscal  2004,  the Company  reassessed  the  valuation
allowance  previously  established against its net deferred tax assets. Based on
the Company's  earnings history and projected future taxable income, the Company
determined  that it is more likely than not that a portion of its  deferred  tax
assets would be realized.  Accordingly,  the Company  removed  $1,518,000 of the
valuation allowance from its deferred tax assets. In conjunction therewith,  the
Company also  recognized an income tax benefit of  approximately  $977,000 and a
reduction of  reorganization  value of  approximately  $373,000.  At October 29,
2005, Management of the Company determined that the valuation allowance would be
increased  by $338,000  due to the current  year loss and the revised  projected
future taxable income.

The provision for income taxes  (benefits) for the years ended October 29, 2005,
October 30, 2004 and November 1, 2003 consists of the following:
<TABLE>
<CAPTION>

                              October 29, 2005     October 30, 2004     November 1, 2003
                              ----------------     ----------------     ----------------
Current:
<S>                                    <C>               <C>                     <C>
Federal                               $ -                $ 25,000               $ -
State                                   -                  35,000                 -
Equivalent tax expense                  -                 135,000              195,000
                             -------------------- -------------------- ---------------------
                                        -                 195,000              195,000
Deferred (benefit)                      -                (977,000)                -
                             -------------------- -------------------- ---------------------
                                      $ -               ($782,000)            $195,000
                             ==================== ==================== =====================
</TABLE>

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

                                                  Year Ended                  Year Ended                 Year Ended
                                                October 29, 2005           October 30, 2004           November 1, 2003
                                        ------------- ------------- -------------- ------------- ------------- -------------
                                           Amount          %           Amount           %           Amount          %
                                        ------------- ------------- -------------- ------------- ------------- -------------

Federal income tax provision
<S>                                     <C>              <C>         <C>             <C>           <C>           <C>
   (benefit) at statutory rate          $(282,000)       34.0%       $  167,000      34.0%         $164,000      34.0%
State income taxes, net of Federal
   benefit                                (45,000)        5.4            52,000      10.6%           33,000       6.8
Valuation allowance                       338,000       (40.7)         (977,000)   (198.6%)            -           -
Other, net                                (11,000)        1.3           (24,000)     (4.9%)           9,000       1.9
Benefit from post reorganization
   temporary differences on tax
   equivalent provision                      -             -               -           -            (11,000)     (2.3)
                                        ------------- ------------- -------------- ------------- ------------- -------------
                                            $-             -        ($  782,000)   (158.9%)        $195,000      40.4%
                                        ============= ============= ============== ============= ============= =============
</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  $812,000 and $474,000,  at October 29, 2005
and October 30, 2004, respectively.

Deferred tax assets and  liabilities as of October 29, 2005 and October 30, 2004
consisted of the following:
<TABLE>
<CAPTION>

                                                          October 29,     October 30,
                                                            2005            2004
                                                        -------------   ---------------

<S>                                                         <C>               <C>
Pre-reorganization net operating loss carryforwards         $495,000         $495,000
Pre-reorganization deductible temporary differences           47,000           47,000
Pre-reorganization tax credits                                53,000           53,000
Post-reorganization net operating loss carryforwards         864,000          393,000
Deferred rent                                                131,000           95,000
Expenses not currently deductible                             10,000           69,000
Inventories                                                   84,000           90,000
Depreciable assets                                           462,000          564,000
Tax credits                                                   37,000           37,000
                                                        -------------   ---------------
Total deferred tax assets                                  2,183,000        1,843,000
                                                        -------------   ---------------

Website development costs                                     (2,000)          (4,000)
Intangible assets                                            (19,000)         (15,000)
                                                        -------------   ---------------
Total deferred tax liabilities                               (21,000)         (19,000)
                                                        -------------   ---------------

Net                                                        2,162,000        1,824,000

Valuation allowance                                         (812,000)        (474,000)
                                                         ------------   -------------
Total                                                     $1,350,000       $1,350,000
                                                         ===========    =============
</TABLE>

At October 29, 2005, the Company has available net operating loss  carryforwards
of  approximately  $3,400,000 which expire in various years through fiscal 2024.
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.

6. 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 employer contributions to the Plan for fiscal 2005, 2004 and 2003.


7. Commitments and Contingencies

Commitments

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 non-cancelable  operating leases with initial or
remaining  terms of one-year or more  consisted of the  following at October 29,
2005:

                                                         Operating
                                                          Leases
                                                      --------------

        Fiscal 2006                                   $     2,519,000
        Fiscal 2007                                         2,051,000
        Fiscal 2008                                         1,965,000
        Fiscal 2009                                         1,747,000
        Fiscal 2010                                         1,587,000
        Thereafter                                          7,066,000
                                                      ---------------
        Total minimum lease payments                  $    16,935,000
                                                      ===============


Total  rental  expense  for  operating  leases  was  approximately   $3,163,000,
$3,097,000 and $3,022,000  for fiscal years 2005,  2004 and 2003,  respectively.
Certain  leases  provide  for the  payment of  insurance,  maintenance  charges,
electric and taxes and contain renewal options.

Contingencies

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

In July 2003,  the Company  received a notice and  information  request from the
Pennsylvania Department of Environmental Protection ("PADEP"). The notice stated
that  PADEP   considers  the  Company  a  potentially   responsible   party  for
contamination  related to a septic  drain  field  located  at a former  Chem Fab
Corporation ("Chem Fab") site in Doylestown, Pennsylvania.

PADEP's  notice  stated that if Chem Fab was  previously  owned by Harvey Radio,
Inc.  ("Harvey Radio") and if the Company was a successor to Harvey Radio,  then
the Company could be, in part,  responsible for any environmental  investigation
or clean up actions necessary at this site.

Harvey Radio was the  predecessor of The Harvey Group,  Inc.  ("Harvey  Group"),
which filed for relief under Chapter 11 of the United States  Bankruptcy Code in
August 1995. The Company is the surviving  retail  business of the Harvey Group,
which emerged from  bankruptcy  in December  1996.  Chem Fab was a  wholly-owned
subsidiary of Harvey Radio as of September  1967.  The capital stock of Chem Fab
(a then wholly-owned  subsidiary of Harvey Group) was sold by the Company to the
Boarhead  Corporation in January 1978. The  disposition of Chem Fab was prior in
time to the Company's bankruptcy petition date of August 3, 1995.

On August 29, 2003, the Company sent its response letter to PADEP. The Company's
response  stated  that any action by PADEP to recover any money from the Company
relating to any environmental investigation or cleanup related to Chem Fab is in
violation of the injunctions  imposed by virtue of the Company's 1995 Bankruptcy
proceeding. The response letter to PADEP specifically referred to two cases with
respect to  entities  subject  to a  discharge  in  bankruptcy  by the  Southern
District of New York and the Second  Circuit  Court of Appeals.  These cases may
support the Company's position enjoining any further action against the Company.

The Company believes PADEP's claim, even absent the bankruptcy injunction, would
be improper  against the Company,  as Harvey Group was a shareholder of Chem Fab
and Chem Fab's capital stock was sold in 1978, as previously stated.

The Company  advised PADEP that any further action to pursue a claim against the
Company would result in the Company  bringing a motion to reopen its  bankruptcy
case, solely to address the PADEP claim and further,  the Company would commence
contempt  proceedings  against  PADEP.  To date,  the Company has not received a
response from PADEP.

The  Company has also  retained  special  environmental  counsel for advice with
respect to PADEP's request for information and other matters with respect to the
claim.

Furthermore, the number of other parties that may be responsible,  their ability
to share in the cost of a clean up and whether the  Company's  existing or prior
insurance  policies provide coverage for this matter is not known. At this time,
it is impossible for the Company to determine the outcome or cost to the Company
relating to this matter.


8. Other Information

Accrued Expenses and Other Current Liabilities

                                        October 29,         October 30,
                                           2005                2004
                                     ----------------   ------------------

Payroll and payroll related items           $370,000             $394,000
Accrued professional fees                    215,000              139,000
Sales taxes                                  147,000              165,000
Accrued occupancy                            209,000              249,000
Accrued bonuses                              174,000              248,000
Accrued Unclaimed Property                    84,000              132,000
Other                                        116,000               99,000
                                     ----------------   ------------------
                                          $1,315,000           $1,426,000
                                     ================   =================

Fourth Quarter Adjustments

In the fourth  quarter of fiscal  2004,  the Company  recorded a  provision  for
impairment of long-lived  assets  aggregating  $144,000  relating to the planned
relocation of one of its retail locations.  This amount was presented separately
on the Statement of Operations for the year ended October 30, 2004.

In the fourth  quarter of fiscal  2004,  the Company  reassessed  the  valuation
allowance  previously  established against its net deferred tax assets. Based on
the Company's  earnings history and projected future taxable income, the Company
determined  that it is more likely than not that a portion of its  deferred  tax
assets would be realized. Accordingly, the Company recorded a deferred tax asset
in the amount of $1,350,000,  which resulted in the recognition of an income tax
benefit of  approximately  $977,000 and a reduction of  reorganization  value of
approximately $373,000.

Union Contract

The Company is party to a  collective  bargaining  agreement  with a union which
covers  certain  sales,  warehouse and  installation  employees.  This agreement
expires on August 1, 2008.

State Tax Examinations

In  November  2004,  the  Company  received  notification  from the State of New
Jersey,  stating  that the  Company's  income tax and sales and use tax  returns
would be subject to audit.  Additionally,  in fiscal 2004, the Company  received
notification from the State of Connecticut  stating that the Company's sales and
use tax returns would be subject to audit.  Both audits were completed in fiscal
2005, at a cost aggregating $46,000.


Other

In fiscal 2004, the Company received $21,000 from a shareholder owning 5% of the
Company's  Common Stock,  representing  the return of short-swing  profits.  The
Company recorded this amount received to additional paid-in capital.

In fiscal  2004,  the  Company  recorded  $133,000,  relating  to the  Company's
estimate of unclaimed  property due to certain states.  This expense is included
in selling, general and administrative expenses for fiscal 2004.

In January 2004,  the Company  agreed to satisfy  certain long  outstanding  and
disputed  tax claims under an amnesty  program  offered by the City of New York.
The tax claims related to a prior subsidiary for fiscal years 1987 and 1988. The
Company satisfied the claim, in full, paying $90,000 (including interest), under
the amnesty  program.  The  Company  recorded  $50,000 to  selling,  general and
administrative  expenses in fiscal 2003  relating to this  matter.  Prior to the
settlement  of this  matter,  the  Company had  recorded a liability  of $40,000
relating to this claim.

A Director of the Company who resigned effective July 31, 2005, is also a Senior
Partner in a law firm providing the Company with legal services.  At October 29,
2005 and October 30, 2004,  the Company had $40,000 and  $39,000,  respectively,
payable  to this law  firm.  The  Company  paid  legal  fees to this law firm of
approximately $41,000,  $103,000 and $95,000in fiscal years 2005, 2004 and 2003,
respectively.

9. Retail Store Expansion

In fiscal year 2004, the Company  entered into a ten-year lease for a new Harvey
showroom in Bridgewater,  New Jersey.  This 4500 square foot retail store opened
in late June 2005.  Pre-opening  expenses and  operating  losses are included in
results from operations for fiscal 2005.

10. Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>

                                                                   Net (Loss) Income
                                                                     Applicable to
2005                     Net Sales            Gross Profit           Common Stock              Basic EPS         Diluted EPS
------------------ ---------------------- ---------------------- ---------------------- ------------------ ------------------
<S>                     <C>                    <C>                     <C>                    <C>                <C>
First quarter           $12,085,014            $5,097,150              $259,791               $.08               $.07
Second quarter            9,727,880             4,045,054              (197,714)              (.06)              (.06)
Third quarter             9,019,892             3,737,742              (647,615)              (.19)              (.18)
Fourth quarter            9,611,588             3,975,575              (297,601)              (.08)              (.08)
2004
------------------ ---------------------- ---------------------- ---------------------- ------------------ ------------------
First quarter           $12,395,892            $4,995,398              $332,714              $0.10              $0.08
Second quarter           10,346,078             4,368,046                67,516               0.02               0.02
Third quarter            10,042,783             4,153,900                72,706               0.02               0.02
Fourth quarter           10,360,320             4,234,027               730,669(1)            0.22               0.18
</TABLE>

(1)See Note 8 relating to fourth quarter adjustments.

<PAGE>


                 Schedule II - Valuation and Qualifying Accounts

                            Harvey Electronics, Inc.
<TABLE>
<CAPTION>

------------------------------------------ -------------- ------------------ ------------------- ----------------- ---------------
COL. A                                     COL. B         COL. C                                 COL. D            COL. E
------------------------------------------ -------------- ------------------ ------------------- ----------------- ---------------
Description                                Balance at     Additions           Charged to         Other changes -
                                           beginning of   charged to costs    other accounts -   add (deduct) -     Balance at end
                                           period         and expenses        describe           describe           of period
------------------------------------------ -------------- ------------------ ------------------- ----------------- ---------------
Fiscal year ended October 29, 2005
Reserves and allowances
    deducted from asset accounts:
<S>                                        <C>             <C>                                     <C>      <C>       <C>
       Allowance for doubtful accounts     $20,000         $4,422                                  $(4,422) (1)       $20,000

Fiscal year ended October 30, 2004
Reserves and allowances
    deducted from asset accounts:
       Allowance for doubtful accounts     $20,000         $27,640                                 $(27,640) (1)      $20,000

Fiscal year ended November 1, 2003
Reserves and allowances
    deducted from asset accounts:
       Allowance for doubtful accounts     $20,000         $18,646                                 $(18,646) (1)      $20,000

</TABLE>

(1) Uncollectible accounts written off, net of recoveries.

<PAGE>


             Report of Independent Registered Public Accounting Firm



The Board of Directors and Shareholders
Harvey Electronics, Inc.
Lyndhurst, New Jersey

The audits  referred to in our report dated  December  28, 2005  relating to the
financial statements of Harvey Electronics, Inc., which is included in Item 8 of
this Form 10-K,  included  the audit of the  financial  statement  Schedule II -
Valuation  and  Qualifying  Accounts for the three year period ended October 29,
2005. The financial  statement  schedule is the  responsibility of the Company's
management.  Our  responsibility  is to express  an  opinion  on this  financial
statement schedule based on our audits.

In our opinion,  such  financial  statement  schedule  presents  fairly,  in all
material respects, the information set forth therein.



/s/ BDO Seidman, LLP

BDO Seidman, LLP
Melville, New York
December 28, 2005