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 28, 2006


     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 26, 2007; Common Stock 998,667 shares.

As of April 29, 2006,  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 $3,623,000.  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>
<CAPTION>

                                TABLE OF CONTENTS

PART 1
         Item 1. Business
<S>           <C>
         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

</TABLE>


<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 and LCD flat panel  television  sets,  integrated
remote controls, media servers, 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  eighty  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.

Private Placement and Change of Control

As fully disclosed in Note 2 to the financial statements, on April 17, 2006, the
Company entered into a Securities Purchase Agreement (the "Purchase Agreement"),
modified by an amendment dated September 8, 2006, with several institutional and
other accredited  investors (the "Investors") led by Trinity Investment Partners
LLC ("Trinity").  On November 10, 2006, the Company  completed this transaction.
Pursuant to the  Purchase  Agreement,  the Company  received  gross  proceeds of
$4,000,000  from the sale (the "Private  Placement")  of 8% Series B Convertible
Preferred Stock (the "Series B Preferred Stock").  The proceeds from the Private
Placement  will be used by the  Company  primarily  for  general  corporate  and
working capital purposes, to fund increased advertising expenditures, to replace
the Company's website and to refurbish existing stores.

The Company's  shareholders  incurred  substantial  dilution of their percentage
ownership in the Company upon the closing of the Private Placement. Based on the
number of common shares outstanding at October 28, 2006, the aggregate ownership
of all  holders of the common  stock  immediately  prior to the  issuance of the
securities pursuant to the Private Placement, on a fully diluted basis, would be
reduced by approximately 82.4%. While this represents  significant dilution, the
Company received the funds necessary to substantially  advance its business.  If
all warrants issued in connection with the Private Placement are exercised,  the
Company will receive  approximately  $13.4  million  including  the $4.0 million
received at closing.

The  Purchase  Agreement  and the  related  transactions  were  approved  by the
Company's  shareholders,  at the annual meeting of  shareholders  on October 27,
2006.

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.  The Company is one of the country's  largest retailers of
"premium 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 28, 2006,  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  40% of the  Company's  net sales and  yielded  gross
profit  margins of  approximately  29%. The Company also  provides  installation
services for the products it sells. Custom installation, as commonly referred to
in the  industry,  includes  both  equipment  sales  and  labor  income.  Custom
installation of both equipment and related labor accounted for approximately 65%
of the  Company's  net  sales in  fiscal  2006.  The  labor  portion  of  custom
installation  presently  represents  approximately 12% 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 3% of the Company's overall net sales.

The following  table shows the Company's net product  sales,  as a percentage of
equipment  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 28,    October 29,     October 30,    November 1,     October
Fiscal Year Ended:                          2006           2005           2004            2003        26, 2002
                                       --------------------------------------------------------------------------

<S>                                             <C>            <C>            <C>             <C>            <C>
Audio Components                                27%            26%            24%             29%            31%
Mini Audio Shelf Systems                         2              2              3               4              5
TV and Projectors                               36             38             41              39             39
DVD/DSS/VCR                                      4              4              5               5              6
Furniture                                        5              5              4               5              5
Cable and Wire                                   7              6              6               5              5
Accessories                                     13             12             11               9              7
Extended Warranties                              4              4              4               3              1
Miscellaneous                                    2              3              2               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 to support its retail  business  and maintain a
bias towards custom installation (representing 65% of net sales in fiscal 2006),
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  approximately
$5,000  to in excess of  $100,000.  The  Company  believes  custom  installation
provides the  opportunity  to bundle  products and increase  margins.  In fiscal
2007,   the  Company  will   continue  to  refine  its   merchandising   efforts
demonstrating  complete movie theaters in the home,  in-home  lighting  systems,
media servers 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  61% of the  Company's  purchases for the
fiscal year ended October 28, 2006. These ten  manufacturers are Bang & Olufsen,
Crestron,  Fujitsu, Marantz, Monster Cable, Monster Power, Pioneer Elite, Runco,
Sharp and  Sony.  Fujitsu  accounted  for more  than ten  (10%)  percent  of the
Company's purchases for fiscal 2006, and Bang & Olufsen, Marantz, Monster Cable,
Pioneer Elite, Sharp and Sony, each accounted for more than five (5%) percent of
purchases for such period.

The Company has entered into dealer  agreements with some 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
fiscal  2006,  the Company  became a member of a consumer  electronics  industry
buying group called  Progressive  Retailers  Organization  (PRO).  We are 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.  At the
beginning of fiscal 2007, the Company implemented its new management information
system, which should allow the Company, in the second quarter of fiscal 2007, to
better track its costs relating to its custom installation services.

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 $140,000,  $150,000,  and $130,000,  for fiscal years 2006,
2005 and 2004,  respectively.  The Company's inventory turnover for fiscal years
2006, 2005 and 2004 was approximately 2.94, 3.0 and 3.2 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
Interim Chief Executive  Officer 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 was replaced
by a new  management  information  system  effective  October  29,  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 in fiscal 2006 represented approximately 3%
of the Company's net sales,  including labor income. 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 has a material  presence  from
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 design and 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 radios and other portable products, are available at the mass merchants.
Of the major video brands sold by the Company,  Sony, Pioneer, Sharp and Hitachi
televisions are sold by the mass  merchants.  The Company does sell models which
are not sold by the mass merchants such as Fujitsu and Runco.

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,  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 replace its website in fiscal 2007.

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 October 2006,  the Company
engaged  a new  advertising  agency  to  effectively  promote  its  brand and to
increase  awareness in the  Company's  service  offerings.  In fiscal 2007,  the
Company will also promote its new price match policy on  advertised  prices from
local  manufacturer-authorized  retail competitors.  In fiscal 2007, 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,  keyword  searches and the Internet with the Company's  website,  to
promote its brand.

In fiscal 2006, the Company used 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.  In fiscal
2006,  radio  advertising  was  primarily  run on the two most  listened to news
stations on AM radio within the Company's market.

Certain  promotional  activities  offer  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 28,       October 29,     October 30,     November 1,      October
      Fiscal Year Ended                 2006            2005            2004            2003          26, 2002
                                   ----------------------------------------------------------------------------------

<S>                                <C>                <C>             <C>             <C>             <C>
      Gross advertising costs      $1,970,000         $2,700,000      $2,700,000      $2,540,000      $2,665,000
      Net advertising expenses        614,000            725,000         470,000         366,000         632,000
      Percentage of net sales             1.7%               1.8%            1.1%            .9%             1.5%
</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  28,  2006,  the  Company  employed  approximately  128  full-time
employees  of  which  15  were  management  personnel,  15  were  administrative
personnel,  47 were salespeople,  9 were warehouse workers and truck drivers and
42 were engaged in custom installation.

Of the salespeople,  warehouse workers, truck drivers and installation staff, 82
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

You  should  carefully  consider  the  following  risk  factors  and  all  other
information  set forth in this  Form  10-K in  evaluating  our  Company  and our
business. If any of the following risks actually occur, our business,  financial
condition and results of operations  could be harmed.  In that case, the trading
price of our  securities  could  decline  and you could lose all or part of your
investment. Additional risks not presently known to us or that we currently deem
immaterial may also impair our business operations.


Competing  companies may reduce the demand for our products and services,  as we
are subject to the risks of strong competition.

We compete 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, 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 we
have.  While we compete by  positioning  ourselves as a retailer of high quality
limited   distribution  audio  and  video  products  and,  by  offering  upscale
sophisticated  custom  installations,  which are not  offered by all of the mass
merchants,  there  can be no  assurance  that we  will  be able to  successfully
execute our marketing strategy.

In addition,  a number of different  competitive  factors  could have a material
adverse  effect on  Harvey's  results of  operations  and  financial  condition,
including:

     o    Increased operational efficiencies of competitors;

     o    Competitive pricing strategies;

     o    Expansion into Harvey's markets by existing competitors;

     o    Entry by new  competitors  into  markets in which  Harvey is currently
          operating; or

     o    Adoption by existing competitors of innovative store formats or retail
          sales  methods  that are  similar to the formats or retail sale method
          implemented by Harvey.

We have significant working capital requirements.

We expect  that cash flow from  operations,  together  with the  proceeds of our
recent private  placement and funds available under our revolving line of credit
facility,  will meet our working  capital  requirements  through the fiscal year
ending October 29, 2007.  However,  additional  financing may be required in the
event  we want to open  additional  retail  stores  in the  future.  Any  future
financings that involve the sale of our equity securities may result in dilution
to the then current  stockholders.  Shortages of product or delayed  delivery of
product  from  suppliers  may  delay or  reduce  our  sales,  which  may  affect
profitability.

Our inability to obtain sufficient quantities of certain product could result in
delayed  sales or lost  orders,  and may also  delay the  completion  of service
orders for which our  customers  contract.  In the last twelve  months,  we have
experienced  such  delays in receipt of product  from our  suppliers  on various
occasions  which has caused us to lose sales.  We place  orders for products and
plan  inventory in advance  based on our forecast of consumer  demand,  which is
highly  volatile and difficult to predict.  We may  experience a shortage of LCD
panels,  for example,  which may result in our  inability to meet demand for our
LCD televisions,  or a surplus of LCD panels that may result in the recording of
losses should LCD panel prices decline. Market fluctuations may cause a shortage
of products and may affect the cost of goods sold. Our profitability may also be
adversely affected by supply or inventory shortages.

We are entirely  dependent on leased  locations  for the operation of our retail
stores.

All of our retail stores are located in leased  premises.  Several of the leases
will expire within five years. There can be no assurance that we will be able to
renew our current  leases,  locate  suitable  locations for new stores,  arrange
acceptable  leases  for new  locations,  or open new  retail  stores in a timely
manner.  Our inability to properly  address  those  concerns may prevent us from
achieving our expansion  plans which may have a material  adverse  effect on our
financial condition.

Our  secured  loans  and  existence  of liens on our  assets  make  such  assets
unavailable to secure additional debt financing. Substantially all of our assets
have been  pledged to a financial  institution  to secure  certain  indebtedness
under a revolving  line of credit  facility and term loan.  In the event that we
default on our obligations, including the payment of principal and interest, our
indebtedness  could be accelerated  and, in certain  cases,  our assets could be
subject to foreclosure.  Moreover,  to the extent that our assets continue to be
pledged to secure outstanding indebtedness,  such assets will remain unavailable
to secure additional debt financing.  Such  unavailability  may adversely affect
our ability to borrow in the future.

Our business depends on economic conditions and consumer preferences.

Our business is subject to economic  cycles and changing  consumer  preferences.
Purchases of high quality audio,  video and home theatre products may decline in
periods  of  economic  uncertainty.  We are  particularly  vulnerable  since our
products are upscale and expensive.  As such, any significant decline in general
economic  conditions or uncertainties  regarding future economic  prospects that
affect consumer  spending could have a material  adverse effect on our business,
results of operations and financial condition.

The  development  of  technology  may erode our market  position and cause other
adverse effects.

The  retail  consumer   electronics  market  is  dominated  by  mass  merchants.
Historically,  mass merchants have emphasized volume by selling lower performing
products at lower  prices.  In  contrast,  specialty  boutiques,  including  the
Company,  have  emphasized  selling  higher  quality  products at higher prices.
However,  development of  technologies,  which has been  extremely  rapid in the
electronics  industry,  has  substantially  reduced the difference  between more
expensive and less expensive products. Future technological advances may further
reduce this difference,  possibly to the point at which performance and features
will be indistinguishable.  Thus, there can be no assurance that we will be able
to continue to rely on this difference to implement our operating  strategy.

In addition,  the periodic  introduction  and  availability  of new products and
technologies at price levels that generate wide consumer interest  stimulate the
demand for audio, video and home theatre consumer  electronics  products.  Also,
many  products  that  incorporate  the newest  technologies,  such as HDTV,  are
subject to significant  technological and pricing limitations and to the actions
and cooperation of third parties such as television broadcasters. It is possible
that these products or other new products will never achieve widespread consumer
acceptance.  Furthermore,  the  introduction of new products or technologies may
depress sales of existing products and technologies. Significant deviations from
the projected  demand for products Harvey sells would have a materially  adverse
effect on our results of operations  and financial  condition,  either from lost
sales or  lower  margins  due to the need to mark  down  excess  inventory.  Any
sustained  failure by Harvey to  identify  and  respond  to changes in  consumer
demand and preferences  would have a material adverse effect on Harvey's results
of operations and financial condition.

We depend on a limited number of key personnel.

The success of the Company is largely  dependent  upon the abilities and efforts
of D. Andrew Stackpole,  Chairman,  Martin W. McClanan,  Interim Chief Executive
Officer,  Joseph J.  Calabrese,  Executive  Vice  President and Chief  Financial
Officer,  Michael  Beck,  Vice  President of  Operations,  Roland  Hiemer,  Vice
President of Merchandising  and Patricia Kross,  Controller of the Company.  The
loss of the services of any of these executive officers or the services of other
key management  personnel could have a material adverse effect upon the Company.
The Company does not maintain key man life  insurance with respect to any of its
executive  officers.  We are  subject to the risk of possible  delisting  of our
Common Stock.

Our Common Stock trades on the NASDAQ Capital Market.  If we fail to meet any of
the criteria  trading on the NASDAQ  Capital  Market,  the Common Stock could be
delisted  from  trading on the NASDAQ  Capital  Market,  which  delisting  could
materially  adversely affect the trading market for the Common Stock.  There can
be no assurance that we will meet all the criteria and the Common Stock will not
be delisted.  Existing NASDAQ Capital Market maintenance criteria require, among
other things, that an issuer (such as the Company) have stockholders'  equity of
$2.5 million (or  alternatively net income of $500,000 in the latest fiscal year
or in two of the most recent three fiscal years, or a market  capitalization  of
$50 million) and that the listed  security has a minimum bid price of $1.00.  We
recently  regained  compliance  with  Nasdaq  Capital  Market  requirements  for
continued  listing but there can be no assurance  that we will not be subject to
delisting in the future.

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

<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                             12/31/2009          None             4,000
  at 19th St.
  New York, NY
  (within ABC Carpet & Home)

  19 West Putnam Ave.                      09/30/2011        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 27, 2006, the Company held its annual meeting:

1. To approve the Trinity Investment-led Private Placement:

<TABLE>
<CAPTION>
         For                     %                  Against              Abstain              Non-Vote
         ---                     -                  -------              -------              --------
<S>    <C>                      <C>                 <C>                   <C>                  <C>
       618,738                  65.6                36,952                6,337                280,849
</TABLE>

2. To  consider  and vote upon a proposal  to amend and  restate  the  Company's
Certificate of Incorporation to, among other things, add a new class of Series B
Preferred Stock and increase the Company's authorized number of shares of common
stock to accommodate the Private Placement:

<TABLE>
<CAPTION>

         For                     %                  Against              Abstain              Non-Vote
         ---                     -                  -------              -------              --------
<S>    <C>                      <C>                 <C>                   <C>                  <C>
       615,442                  61.6                40,138                6,446                280,849
</TABLE>

3. To consider and vote upon a proposal to amend and restate the Company's
bylaws to, among other things, provide for a staggered board of directors and
limitations on the removal of directors.

<TABLE>
<CAPTION>
         For                     %                  Against              Abstain              Non-Vote
         ---                     -                  -------              -------              --------
<S>    <C>                      <C>                 <C>                   <C>                  <C>
       597,037                  59.8                57,763                7,227                280,849
</TABLE>

4.  Election of New Directors

                                For                     %              Withhold
                                ---                     -              --------
Robert E. Albus                 914,871               97.0              28,004
Charles M. Berger               913,620               96.9              29,254
Scott Galloway                  914,871               97.0              28,004
Patrick E. Hobbs                914,871               97.0              28,004
Ron L. Jones                    914,870               97.0              28,004
Ira J. Lamel                    914,871               97.0              28,004
Michael E. Recca                914,320               97.0              28,554
D.Andrew Stackpole              914,593               97.0              28,282
Jonathan Stearns                914,871               97.0              28,004

5. To  consider  and vote upon a proposed  employment  agreement  with D. Andrew
Stackpole  to become  Chairman  of the Board  upon the  closing  of the  Private
Placement.

<TABLE>
<CAPTION>
         For                     %                  Against              Abstain              Non-Vote
         ---                     -                  -------              -------              --------
<S>    <C>                      <C>                 <C>                   <C>                  <C>
       618,121                  61.9                36,595                7,310                280,849
</TABLE>

6. To consider and vote upon a proposed to amend the  Company's  Certificate  of
Incorporation  in order to  effect a  one-for-four  reverse  stock  split of the
Company's outstanding common shares.

<TABLE>
<CAPTION>
         For                     %                  Against              Abstain              Non-Vote
         ---                     -                  -------              -------              --------
<S>    <C>                      <C>                 <C>                   <C>                     <C>
       896,235                  89.7                39,392                7,250                  -0-
</TABLE>


7. To ratify the  appointment of BDO Seidman,  LLP as the Company's  independent
registered public accountants for the fiscal year ending October 28, 2006.

<TABLE>
<CAPTION>
         For                     %                  Against              Abstain              Non-Vote
         ---                     -                  -------              -------              --------
<S>    <C>                     <C>                  <C>                   <C>                     <C>
       908,008                 90.9%                26,040                8,826                  -0-
</TABLE>


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  28,  2006,  the  outstanding  shares of Common  Stock  were held by
approximately 1,500 shareholders 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 2006 and 2005 adjusted retroactively for the 1 for 4 reverse stock split:

Fiscal Year 2006                        High              Low
--------------------------------- ----------------- ----------------
First Quarter 2006                     $4.20             $2.36
Second Quarter 2006                     4.12              2.16
Third Quarter 2006                      3.80              2.16
Fourth Quarter 2006                     2.76              1.40

Fiscal Year 2005                        High              Low
--------------------------------- ----------------- ----------------
First Quarter 2005                     $12.00             $4.60
Second Quarter 2005                      7.04              4.80
Third Quarter 2005                       5.60              4.28
Fourth Quarter 2005                      5,96              3.20


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 cash  dividends  on Common  Stock in
2007.

Reverse Stock Split

As  fully  described  in  Note  9 to the  financial  statements,  the  Company's
shareholders,  at the  annual  meeting,  approved a reverse  stock  split of its
common  stock at an  exchange  ratio of 1 for 4. The  reverse  stock  split  was
completed November 10, 2006 together with the Private Placement. For a period of
ten (10)  consecutive  trading days following the closing,  the Company's common
stock remained above $1.00 per share,  enabling the Company to regain compliance
with the NASDAQ minimum bid price listing  requirement.  The reverse stock split
has been retroactively adjusted for all periods presented.

On December 6, 2006,  the Company  announced  that it was  notified by the Panel
that the  Company  had  satisfied  the  conditions  set  forth by the  Panel and
regained compliance with the NASDAQ Market Place Rules.  Accordingly,  the Panel
determined  to continue the listing of the  Company's  securities  on The NASDAQ
Capital Market.

Description of Securities

The  Company is  authorized  to issue  30,014,350  Shares of capital  stock,  as
follows: 30,000,000 shares of Common Stock and 14,350 shares of Preferred Stock,
of which 10,000 represent Series A Preferred Stock ("Series A Preferred  Stock")
(of which none are outstanding at October 28, 2006) and 4,350 shares of Series B
Preferred Stock, all of which are outstanding.  The following description of the
Company's  capital  stock is intended to be a summary and does not  describe all
provisions  of our  Certificate  of  Incorporation  or  Bylaws  or New  York law
applicable to us. For a more thorough  understanding of the terms of our capital
stock,  you should refer to the Company's  Amended and Restated  Certificate  of
Incorporation and Bylaws.

Common Stock

As of October 28, 2006,  998,771 shares of Common Stock are  outstanding.  After
the completion of the reverse stock split,  998,771 Shares are  outstanding  and
held by approximately  1,500  Shareholders of record as of January 26, 2007. 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.
Standing for election at any given meeting of  shareholders  at which  directors
are being elected. 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 any preferred stock of the Company,  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.

Series A Preferred Stock

The Company's  Certificate  of  Incorporation  authorizes the issuance of 10,000
shares of Series A Preferred Stock. These represent 8.5% Cumulative  Convertible
Preferred  Stock also with a par value of $1,000  per  share,  of which none are
outstanding at October 28, 2006.

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

Dividends  on the  Series  A  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 Series A Preferred  Stock,  the
holders of such 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 Series A Preferred Stock dividends
of $51,000,  $53,000 and $70,000 were paid in fiscal years 2006,  2005 and 2004,
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 Series A 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.

If and when issued,  the Series A Preferred Stock is redeemable,  at our 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 then outstanding Series A 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 Series A Preferred Stock then 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  Series A Preferred Stock were originally  issued
in conjunction with the Company's reorganization, effective October 26, 1996.

Prior to January 1, 2001, 50% of the Series A Preferred Stock was convertible at
a price  of  $6.00  per  share  and 50% of the  Series  A  Preferred  Stock  was
convertible at $7.50 per share. Commencing January 1, 2001, each share of Series
A 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 conversion price was set at $1.2333 on January 1, 2001.

875 shares of Series A Preferred Stock were originally issued by the Company. In
fiscal  2002,  48 shares of Series A Preferred  Stock were  converted  to 38,920
(9,730 post reverse  stock  split)  shares of the  Company's  Common  Stock.  In
December 2004, 227 shares of Series A Preferred  Stock were converted to 184,059
(46,015 post reverse  stock split)  shares of the  Company's  Common  Stock.  On
September 20, 2006,  the  remaining  600 shares of the Series A Preferred  Stock
were  converted  to 486,500  (121,625  post reverse  stock split)  shares of the
Company's  Common  Stock.  At October 28, 2006,  no shares of Series A Preferred
Stock were issued and outstanding.

If at any time prior to the  exercise  of the  conversion  rights  afforded  the
holders of the Series A Preferred Stock,  this 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 share of Series A Preferred  Stock
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 Series A Preferred  Stock would have been
entitled upon such reorganization,  reclassification,  consolidation, merger, or
conveyance.

Series B Preferred Stock

The Company's  Series B Preferred  Stock consists of 4,350 shares of 8% Series B
Convertible  Preferred  Stock with a stated  value of $1,000  per share.  Annual
dividends  payable in  connection  with the Series B Preferred  Stock will total
approximately $348,000, which is payable in cash or stock at our option, and are
payable on March 1 of each year.  The Series B  Preferred  Stock is  convertible
into 1,553,571  shares of common stock at $2.80 per share. The holders of Series
B Stock have no voting  rights  unless and until such  shares are  converted  to
common  stock,  at which time,  the  holders of such shares  shall have the same
voting rights as other holders of our common stock.

In the event the Company fails, among other things, to provide to the holders of
the Series B Preferred Stock,  within  specified time periods,  shares of common
stock upon  conversion  of the Series B Preferred  Stock,  the  Company  will be
required to make payments of liquidated  damages to such  Investors.  The events
which may cause the Company to make payments of liquidated damages are contained
within the Registration Rights Agreement executed by the Company and the holders
of  Series B  Preferred  Stock.  The  Company  is also  required  to  reserve  a
sufficient  number  of shares of  common  stock to cover the  conversion  of the
Series B  Preferred  Stock and the  payment of  dividends  in stock.  As long as
Series B  Preferred  Stock  remains  outstanding,  the  Company  cannot  redeem,
purchase or acquire junior  securities  except as  specifically  provided in the
Company's  Certificate  of  Incorporation.  In  addition,  as long as 10% of the
Series B Preferred Stock remains  outstanding,  the Company cannot,  without the
written  consent of the holders of a majority of the then  outstanding  Series B
Preferred Stock (i) enter into, create,  incur,  assume,  guarantee or suffer to
exist any indebtedness for borrowed money of any kind, including but not limited
to, a guarantee,  on or with respect to any of the Company's  property or assets
now  owned or  hereafter  acquired  or any  interest  therein  or any  income or
profits,  except for Permitted  Indebtedness,  (ii) enter into,  create,  incur,
assume or suffer to exist any Liens of any kind,  on or with  respect  to any of
our property or assets now owned or hereafter  acquired or any interest  therein
or any income or profits except for Permitted  Liens,  (iii) amend the Company's
certificate  of  incorporation,  bylaws  or  other  charter  documents  so as to
materially and adversely affect any rights of any Holder, (iv) repay, repurchase
or offer to repay, repurchase or otherwise acquire more than a de minimis number
of shares of our common stock,  Common Stock  Equivalents or Junior  Securities,
except for the Conversion  Shares to the extent  permitted or required under the
Transaction  Documents or as otherwise  permitted by the Transaction  Documents,
(v)  enter  into any  agreement  or  understanding  with  respect  to any of the
foregoing,  or (vi) pay cash dividends or distributions on Junior  Securities of
the  Company.  Defined  terms used but not defined  above shall have the meaning
ascribed  to  them  in  the  Company's  Amended  and  Restated   Certificate  of
Incorporation.

Series A Warrants

The Series A warrants  grant  Investors  in the Private  Placement  the right to
purchase  534,823 shares of common stock and vFinance (the  placement  agent for
the Private  Placement) the right to purchase 18,750 shares of common stock. The
Series A warrants  are  exercisable  at a price of $5.60 per  share,  subject to
customary  anti-dilution  adjustments.  The  exercise  period  of the  Series  A
warrants  commenced on November 10, 2006 and continues for seven years following
that date. During this period,  the Investors may exercise the Series A warrants
in full or in part.  If at any time after one year from the date of  issuance of
the  warrant  there  is no  effective  registration  statement  relating  to the
underlying  shares of common stock, then such warrants may be exercised by means
of cashless exercise.

Series B Warrants

The Series B warrants  grant  Trinity  the right to purchase  500,000  shares of
common  stock and are  exercisable  at a price of $2.80 per  share,  subject  to
customary  anti-dilution  adjustments.  The  exercise  period  of the  Series  B
warrants  commenced on November 10, 2006 and are exercisable for seven years. If
at any time after one year from the date of issuance of the warrant  there is no
effective  registration  statement  relating to the underlying  shares of common
stock, then such warrants may be exercised by means of cashless exercise.

Series C Warrants

The Series C warrants  grant  Trinity  the right to purchase  875,000  shares of
common stock and are exercisable at a price of between $3.20 and $6.80 per share
in ten equal  tranches,  with the  exercise  price  increasing  by $0.10 in each
tranche, subject to customary anti-dilution adjustments.  The exercise period of
the Series B warrants  commenced  on November 10, 2006 and are  exercisable  for
seven  years.  If at any time  after one year from the date of  issuance  of the
warrant there is no effective  registration statement relating to the underlying
shares of common stock, then such warrants may be exercised by means of cashless
exercise.

Registration Rights Agreement

In connection  with the Private  Placement,  the Company  agreed to enter into a
Registration Rights Agreement with the Investors,  pursuant to which it would be
required  to file with the SEC a  registration  statement  for the resale of the
Common  Shares and the Warrant  Shares  issuable  upon  exercise of the Warrants
within 30 days following the closing of the Private  Placement.  On December 11,
2006,  we  filed a  registration  statement  on  Form  S-3,  which  registration
statement  is not yet  effective.  The Company will bear all of the costs of the
registration other than underwriting discounts and commissions and certain other
expenses.  The  Registration  Rights Agreement would obligate the Company to use
its  commercial  best  efforts  to  have  the  registration  statement  declared
effective  as  soon  as  practicable  after  it is  filed.  If the  registration
statement is not declared  effective  by the SEC within 180 days  following  the
closing of the Private  Placement,  we must make liquidated  damages payments to
the Investors during such delay in filing or effectiveness.

Once the  registration  statement  has been declared  effective,  the Company is
required to maintain the  effectiveness of the registration  statement until the
earlier of (i) the date by which all registered shares have been sold thereunder
or become  eligible  for resale  pursuant to SEC Rule 144(k) and (ii) the second
anniversary  of the effective  date of the  registration  statement.  In limited
circumstances,  the Company may  suspend the use of the  registration  statement
after it has been declared  effective  without  incurring the  obligation to pay
liquidated damages so long as the suspension does not exceed 15 consecutive days
and during any  12-month  period the use of the  registration  statement  is not
suspended for more than 20 days in the aggregate.

The Company has also entered into a Registration  Rights  Agreement with Trinity
and the Company's  Chairman,  Mr. Stackpole upon substantially  similar terms in
connection  with the  Warrants and shares  issued to Trinity and Mr.  Stackpole;
provided,  however,  that such shares will not be registered  until at least six
months following the effective date of the Registration Rights Agreement for the
benefit of the Investors.

The Registration Rights Agreements contain customary indemnification  provisions
that obligate the Company to indemnify and hold harmless each Investor,  Trinity
and their  directors,  legal counsel and  accountants  and any  underwriter  for
losses  caused by (i) any untrue  statement  of  material  fact or omission of a
material fact in the registration  statement or any prospectus included therein,
(ii) the  violation by us of the 1933 Act or 1934 Act or any rule or  regulation
thereunder relating to our acts or omissions in connection with the registration
statement.

The laws of New York  would  govern  the  construction  and  enforcement  of the
Registration Rights Agreements.  The Registration Rights Agreements also contain
other customary terms found in such agreements,  including provisions concerning
registration procedures.

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 28, 2006.  The selected  statement of operations and balance
sheet data for each of the five years ended  October 28, 2006 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  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.


<PAGE>

<TABLE>
<CAPTION>

                                                 Fiscal Year       Fiscal Year       Fiscal Year       Fiscal Year     Fiscal Year
                                                   Ended             Ended             Ended              Ended           Ended
                                               October 28,         October 29,       October 30,       November  1,    October 26,
                                                   2006               2005               2004            2003            2002
                                               ------------------------------------------------------------------------------------

<S>                                              <C>     <C>      <C>               <C>              <C>              <C>
Net sales                                        $36,028 (3)      $40,444(3)        $43,145(3)       $42,448(3)       $41,326(3)
Cost of sales                                     20,908           23,589            25,394           25,141           24,973
                                               ------------------------------------------------------------------------------------
Gross profit                                      15,120           16,855            17,751           17,307           16,353
Gross profit percentage                               42%            41.7%             41.1%            40.8%            39.6%
Interest expense                                     394              232               175              343              359
Selling, general and administrative expenses      16,367           17,453            16,968           16,555           15,806
Provision for severance costs                        284                -                 -                -                -
Provision for impairment of long-lived assets
                                                       -                -               144                -                -
Other income                                          37                -                28               73              116
                                               ------------------------------------------------------------------------------------
(Loss) income before income taxes (benefit)       (1,888)            (830)              492              482              304
Income taxes (benefit)                             1,350(4)             -              (782)(4)          195              124
                                               ------------------------------------------------------------------------------------
Net (loss) income                                 (3,238)            (830)            1,274              287              180

Preferred Stock dividend requirement                 (44)             (53)              (70)             (70)             (72)
                                               ------------------------------------------------------------------------------------
Net (loss) income attributable to
   Common Stock                                  $(3,282)           $(883)           $1,204             $217             $108
                                                 ========           ======           ======             ====             ====
Net (loss) income per common share
applicable to common shareholders:
     Basic                                        $(3.69)          $(1.01)           $(1.45)             $.26             $.13
                                                  =======          =======           =======             ====             ====
     Diluted                                      $(3.69)          $(1.01)           $(1.26)             $.22             $.13
                                                  =======          =======           =======             ====             ====

Shares used in the calculation of
net (loss) income per common shares:
     Basic (5)                                   890,142           873,859          831,131            831,131         822,044
                                                 ==========        =======          =======            =======         =======
     Diluted (5)                                 890,142           873,859        1,008,373            966,604         846,256
                                                 ==========        =======        =========            =======         =======

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

 <PAGE>


Balance Sheet Data:
<TABLE>
<CAPTION>

                                          October 28,       October          October           November          October
                                            2006            29, 2005        30, 2004           1, 2003           26, 2002
                                      ----------------- ---------------- ----------------- ----------------- ----------------

<S>                                            <C>  <C>        <C>      <C>     <C>               <C>              <C>   <C>
Working capital (deficiency)                   $551 (2)        $2,961(1)(2)     $3,172(2)         $2,950(2)          $(600)1)
Total assets                                 11,492            13,879           12,799(4)         12,325            12,151
Long-term liabilities                         3,882(2)          3,935(2)         2,109(2)          2,968(2)            156
Total liabilities                            10,488(2)          9,592(2)         7,629(2)          8,380(2)          8,423(1)
Total shareholders' equity                    1,005             4,287            5,170(4)          3,945             3,728
</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   Emerging   Issue  Task  Force   ("EITF")   95-22,   "Balance   Sheet
     Classification of Borrowings  Outstanding under Revolving Credit Agreements
     that  include  both  a  Subjective   Acceleration  Clause  and  a  Lock-Box
     Arrangement".  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 $7.5 million  credit  facility on November 21,
     2003. The credit facility  expires in two 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
     28, 2006,  ($3,348,000),  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 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.  In the third quarter of fiscal 2006,  the Company
     provided  a  full  valuation  allowance  against  previously  recorded  net
     deferred tax assets.  In accordance  with SFAS 109,  "Accounting For Income
     Taxes",   this  valuation  allowance  was  necessary  because  the  Company
     experienced  cumulative losses for its last two fiscal years, including the
     increased loss in fiscal 2006 and declining  sales,  which created a degree
     of  uncertainty  regarding the future  realization of such net deferred tax
     assets.  As a result,  the  Company  recorded  a  deferred  tax  expense of
     $1,350,000 in the third quarter of fiscal 2006.
(5)  Adjusted to retroactively  affect the 1 for 4 reverse stock split completed
     November 10, 2006.

<PAGE>

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  28,  2006,
October 29, 2005 and October 30, 2004, appearing elsewhere in this Form 10-K.

Results of Operations

Fiscal Year Ended October 28, 2006, as Compared
  To Fiscal Year Ended October 29, 2005

Net (Loss)

The Company's pre-tax loss for the year ended October 28, 2006 was $1,888,000 as
compared to a pre-tax loss of $830,000 for the year ended October 29, 2005.  The
net loss for fiscal  2006 was  $3,237,000  as compared to a net loss of $830,000
for fiscal 2005.

In the third quarter of fiscal 2006, the Company recorded a $1,350,000  non-cash
deferred tax expense.  As discussed  below,  this related to the full  valuation
allowance  recorded  on the  Company's  net  deferred  tax  assets  as  there is
uncertainty regarding the future realization of such assets.

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 income or net loss. 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  or  deferred  tax  expense  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 its lender  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
loss.  Specifically,  a portion of interest expense does relate to the Company's
operations  and a portion of the income tax equivalent  provision,  if any, 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 to
EBITDA.

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

                                      Fiscal 2006            Fiscal 2005
                                      -----------            -----------
Net loss                              $ (3,237,000)         $  (830,000)

Add back
Interest Expense                           394,000              232,000
Income Taxes (benefit)                   1,350,000                    -
Depreciation and amortization              728,000              739,000
                                      ===================   ================
EBITDA                                $   (765,000)         $   141,000
                                      ===================   ================

The  Company's  net loss for  fiscal  2006 was  negatively  impacted  by reduced
comparable store sales, as discussed below.

Additionally,  the  net  loss  was  negatively  affected  by the  provision  for
severance  costs,  recorded  in the  Company's  fourth  quarter  of fiscal  2006
aggregating   $284,000   and  relating  to  the   departure  of  the   Company's
President/Chief  Executive  Office and the  former  Chairman  of the Board.  The
former Chairman will remain a Board member in fiscal 2007.

The Company's net loss for fiscal 2006 and 2005 included net advertising expense
of $614,000 and $725,000,  respectively.  In fiscal 2006,  the Company  realized
less  cooperative  advertising  support  from  its  vendors.  Additionally,  the
Company's advertising expenditures decreased 27% in fiscal 2006 to approximately
$1,970,000 as compared to $2,700,000 for fiscal 2005.  Management  believes that
the  reduced  promotional  spending  in fiscal 2006  negatively  affected  sales
results.

In the fourth  quarter of fiscal  2006,  the  Company  initiated a change in its
advertising  campaign which was modified to reflect  current market  conditions,
customer needs and service demands.  The new marketing  strategy was designed to
better  promote  the  Harvey  brand and its  installation  and home  integration
offerings.

Accordingly,  certain  promotional  allowances  received  by  vendors  that were
previously  recorded as a reduction of advertising expense are now recorded as a
reduction  of  inventory   costs  if  the   expenditure  no  longer   represents
identifiable costs incurred by the Company to promote its products.

As a result,  $360,000 of promotional allowances were reflected as an adjustment
to inventory  ($100,000) and a reduction of cost of goods sold ($260,000) in the
fourth quarter of fiscal 2006 for promotional  allowances  related to the fourth
quarter.

For fiscal 2005, no income tax provision was necessary due to net losses.

Additionally,  the  Company  provided  no income  tax  benefit  against  current
operating losses because of uncertainly  regarding their future realization.  In
addition,  as of the third quarter ended July 29, 2006,  the Company  provided a
full valuation allowance against previously recorded net deferred tax assets. In
accordance  with  SFAS  109,  "Accounting  For  Income  Taxes",  this  valuation
allowance was necessary  because the Company  experienced  cumulative losses for
its last two fiscal  years,  including  the  increased  loss in fiscal  2006 and
declining  sales,  which  create a degree of  uncertainty  regarding  the future
realization of such net deferred tax assets. As a result, the Company recorded a
deferred tax expense of $1,350,000 in the third quarter of 2006.

In fiscal 2005, 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 Bridgewater, New Jersey store, which opened in
late June 2005.

Revenues

For the year ended October 28, 2006, net sales aggregated $36,028,000,
a  decrease  of  approximately  $4.4  million  or  10.9%  from the  prior  year.
Comparable store sales for fiscal 2006,  exclusive of a portion of the Company's
sales from the new Bridgewater  store,  decreased  approximately $6.0 million or
14.9% from the prior year.

In fiscal 2006, the Company's comparable store sales declined due to a reduction
in retail store traffic,  increased  competition  and price  compression on high
definition flat panel televisions, reduced marketing expenditures and flat panel
shortages  from  certain  key video  vendors.  The  Company's  third and  fourth
quarters  were  particularly  impacted  from a very soft  retail  climate  and a
further  slowdown in retail store traffic.  This slowdown has continued into the
Company's first quarter of fiscal 2007.

During the fourth  quarter of fiscal  2006,  the  Company  experienced  improved
products availability of key flat panel product from its video vendors. However,
the Company  continued to experience  video price  compression  and expects this
price compression to continue in the future.

For fiscal 2006,  the Company has  experienced  a decline in its audio and video
sales, marginally offset by an increase in its labor revenue.

While  flat panel  product  shortages  and video  price  compression  negatively
impacted  the Company in fiscal  2006,  demand for  flat-panel  televisions  has
increased and unit sales have increased  approximately  9%. The increase in unit
sales was experienced  from the sale of larger size plasma and LCD  televisions.
This continues to provide a service  opportunity  for the Company,  as customers
require custom installations of these televisions and related home theaters. The
Company's  overall  flat-panel sales in dollars decreased for fiscal 2006 by 12%
from fiscal 2005.  Additionally,  the  Company's  overall  video sales  declined
approximately 14.6% in fiscal 2006 from fiscal 2005.

Video sales ($14.7 million)  represented  approximately 40.2% of gross sales for
fiscal 2006, as compared to 41.9% of gross sales for the same period last year.

The Company's  higher  margin audio sales ($17.5  million)  decreased  10.3% for
fiscal 2006, as compared to the same period last year,  and  represented  48% of
gross sales,  as compared to 47.6% of gross sales for the same period last year.
Audio sales were negatively impacted by reduced audio components, systems, radio
and portables,  audio  accessories and furniture.  The Company's cable, wire and
surge protector sales continued to be strong,  despite the overall  reduction in
sales.

The  Company's  higher margin labor  revenue  ($4.3  million)  increased .1% for
fiscal 2006 from the same period last year and represents approximately 11.8% of
gross sales as  compared  to 10.5% for the same period last year.  In the second
quarter of fiscal 2006, the Company  increased its labor rates,  and as a result
has increased labor revenue and resulting labor margins.

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 gross  sales and  accounted  for 64.7% of gross  sales for fiscal
2006, as compared to approximately 62.8% of gross sales for fiscal 2005. Overall
custom  installation  sales,  including  both  equipment  sales and labor income
declined 8% and  aggregated  $23.6 million for fiscal 2006, as compared to $25.7
million for fiscal 2005. 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,  media servers,  hard drive video and audio storage and
distribution,  video  mounts,  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  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 48-hour response time to address the needs
of a qualified customer at an additional labor cost.  Additionally,  the Company
has an agreement with Cablevision offering and installing their high speed cable
modems and digital cable boxes in conjunction with our installation  services to
Cablevision's iO digital cable customers.  The Company is also working with Time
Warner and Patriot Media and Communications in offering these services.

Net sales for the new Harvey  retail store  located in  Bridgewater,  New Jersey
have been encouraging.  The Company believes that this store,  opened June 2005,
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.
The new  Bridgewater  store  contributed  net  cash  flow  in  fiscal  2006  and
essentially achieved a break-even level of store profitability in its first full
year of operation.

In fiscal 2005, the Company  relocated and consolidated its Bang & Olufsen store
in Greenwich,  Connecticut with its Harvey Greenwich store, one block away. This
store-within-a-store  concept  presents Bang & Olufsen  products in a unique and
separate  showcase within a Harvey store.  The Company has been able to increase
its Bang & Olufsen sales with this new store-within-a-store  concept without the
overhead of a separate store.

Net sales for all of the Company's retail stores experienced declines for fiscal
2006, as compared to fiscal 2005,  except the Company's Mt. Kisco,  New York and
Greenwich, Connecticut stores and its newest store in Bridgewater, New Jersey.

As discussed above, comparable store sales results were negatively impacted by a
slowdown  in retail  store  traffic,  flat  panel  product  shortages  and price
compression  of these  video  products.  Comparable  store  sales  results  were
exacerbated by the poor results of the Company's Midtown  Manhattan,  Eatontown,
New Jersey,  Greenvale,  Long Island  stores and its store within ABC Carpet and
Home in Manhattan.  These stores all experienced slower than normal retail store
traffic for the periods reported.

The Company's  marketing efforts continued to be in a transition stage in fiscal
2006. Effective September 1, 2005, the Company engaged a new advertising agency,
Avrett  Free  Ginsberg,  to  promote  its brand and  increase  awareness  in the
Company's service initiatives.  The advertising campaign,  which was expected to
be  released  in the second  quarter of fiscal  2006,  was  modified  to reflect
current market  conditions,  customer needs and service demands.  We believe the
delay in releasing the new campaign had a negative  impact on second,  third and
fourth  quarter sales.  Additionally,  in fiscal 2006 and early fiscal 2007, the
Company  conducted   consumer  focus  groups,   which  should  help  develop  an
appropriate campaign for fiscal 2007. In October 2006, the Company engaged a new
advertising agency,  Warren Kremer Paino, to better promote the Company's brand,
product and service  offerings.  In fiscal  2007,  the Company  also  expects to
increase its marketing expenditures by an effective rate of approximately 49.7%,
using the funds from the recently completed Private Placement. The Company's new
campaign is expected to be launched in the second quarter of fiscal 2007.

In the third  quarter of fiscal  2006,  the  Company  engaged a  consultant  and
marketing  brand  advisor  who  became a member of the Board  after the  Private
Placement  was  consummated.  This  Board  Member  assisted  in  developing  new
strategies  to best  promote and build the Harvey  brand.  The Company paid this
Board Member $50,000 in fiscal 2006.

Advertising efforts will continue to include radio,  newspaper,  direct mail and
e-mail broadcasts,  as well as the continued promotion of the Company's website,
harveyonline.com,  as well as potentially  adding other marketing  mediums.  The
Company expects to replace its website in fiscal 2007.

Furthermore,  in fiscal 2007,  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 internet  keyword  searches and
specific e-mail promotions to prospective and existing customers.

Cost and Expenses

Total cost of goods sold for  fiscal  2006  decreased  11.4% to  $20,908,000  as
compared to fiscal  2005.  The decline in cost of goods sold for fiscal 2006 was
due primarily to the overall 10.9% decrease in net sales, as noted above.

In the fourth  quarter of fiscal  2006,  the  Company  initiated a change in its
advertising  campaign as discussed  above. As a result,  $360,000 of promotional
allowances  were  reflected  as an  adjustment  to  inventory  ($100,000)  and a
reduction of cost of goods sold  ($260,000) in the fourth quarter of fiscal 2006
for promotional allowances related to the fourth quarter. This adjustment in the
Company's  fourth  quarter,  decreased cost of goods sold and improved the gross
margin.

The gross profit margin for fiscal 2006  increased to 42.0% from 41.7% in fiscal
2005.  The increase in the gross profit margin was primarily due to the $260,000
in promotional allowances discussed above. Excluding this adjustment,  the gross
margin was  approximately  41.2% and  declined as compared to fiscal 2005 due to
continued  video price  compression,  reduced  higher  margin audio  sales,  and
additional from price promotions offered throughout fiscal 2006. This was offset
somewhat by an increase in higher margin labor revenues.

Additional  higher  margin  cable,  wire and  surge  protector  sales  helped to
mitigate the decline in the  Company's  overall  gross profit  margin for fiscal
2006.

The Company's  total cost of goods sold also 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 2006 and 2005
approximated  $573,000  and  $704,000,  respectively,  and are  included in SG&A
expenses.

Selling,  general and administrative ("SG&A") expenses for fiscal 2006 decreased
by 6.6% to  $16,366,000 as compared to fiscal 2005. The decrease for fiscal 2006
was offset by additional  SG&A expenses  aggregating  $583,000,  relating to the
Company's new Bridgewater, New Jersey store.

Net  advertising  expense,  which is included in SG&A  expenses in the Company's
Statements  of  Operations  declined to $614,000 in fiscal 2006 from $725,000 in
fiscal 2005.  This decrease was primarily  related to a reduction in advertising
expenditures and a decline in cooperative advertising support from its vendors.

Management  has been  proactive  in response to the sales  decline with its cost
reduction program.  As a result, SG&A expenses declined from reduced payroll and
payroll  related   expenses,   management   bonuses,   other  selling  expenses,
professional fees and  communications.  These decreases were offset by increased
occupancy costs.

As part of its ongoing  cost  reduction  program,  Management  will  continue to
examine  ways to reduce  expenses  further  in fiscal  2007.  More  importantly,
Management  will  continue it efforts to improve its  purchasing  and  inventory
efficiencies,  implement positive  merchandising  changes, while cultivating its
profitable service offerings.

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.  Management
also expects to intensify  its sales  training  efforts in fiscal 2007 to ensure
that its customers are given an exceptional and unsurpassed retail experience.

Interest  expense  increased by  approximately  $162,000 or 69.9% in fiscal 2006
from fiscal 2005.  This was  primarily  due to increased  borrowings  and higher
interest rates. In fiscal 2005, the Company's balance  outstanding on its credit
facility had  increased  as the Company used the credit  facility to finance the
construction of its new retail store in Bridgewater,  New Jersey.  Additionally,
the credit facility was used to fund current operating losses,  expenditures for
computer  equipment,  software  deposits and  development  work  relating to the
replacement of its legacy computer system.  The new computer system was launched
in November 2007.

For fiscal 2005, no income tax provision was necessary due to net losses.

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 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  provided  installation  opportunities  for the Company.  The
Company's  labor  revenue  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  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
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  continued  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.

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.

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
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  of  reorganization   value  in  excess  of  amounts  allocable  to
identifiable  assets until  exhausted,  and  thereafter as a direct  addition to
paid-in capital.

As noted above,  for fiscal 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.

Liquidity and Capital Resources

At October 28, 2006 and October 29, 2005, the Company's  ratio of current assets
to current liabilities was 1.08 and 1.52, respectively.

The current ratio at October 28, 2006 was  negatively  impacted by the Company's
net loss, the decline in inventory, current deferred tax assets and the increase
in trade accounts payable and accrued expenses.

Net cash provided by operating  activities  for fiscal 2006 was  $1,099,000,  as
compared to cash  provided by operating  activities of $211,000 for fiscal 2005.
For fiscal 2006, the Company  reported a net loss from  operations of $3,237,000
as  compared to a net loss from  operations  of $830,000  for fiscal  2005.  The
increased  net loss was offset by the planned  reduction in inventory for fiscal
2006,  where in fiscal  2005,  inventories  were  increased.  Additionally,  the
Company  experienced  an  increase  in accrued  expenses  and trade  accounts in
payables in fiscal  2006,  where there was a  significant  reduction  of accrued
expenses and customer deposits for fiscal 2005.

Net cash used in investing  activities  for fiscal 2006 was $561,000 as compared
to $1,771,000  for fiscal 2005. Net cash used in investing  activities  included
the purchase of  equipment  and  software  aggregating  $189,000 and deposits on
development work aggregating  $378,000 related to the planned replacement of the
Company's legacy computer system.  For fiscal 2005,  $1,459,000 was used for the
purchase of leasehold improvements,  software and equipment,  primarily relating
to  the  new  Bridgewater,   New  Jersey  retail  store  opened  in  June  2005.
Additionally, in fiscal 2005, the Company incurred $150,000 relating to software
purchases  and $170,000 in related  development  and hardware  purchases for its
computer conversion.

Net cash used in financing activities for fiscal 2006 was $538,000,  as compared
to cash provided of $1,771,000.  Financing  activities  included net payments of
$138,000  decreasing the credit  facility,  preferred stock dividends of $51,000
and principal payments on note payables of $56,000. Additionally,  fees relating
to the Company's Private Placement aggregated $293,000. Financing activities for
fiscal  2005  included  net  borrowings  of  $1,661,000,  increasing  the credit
facility,  preferred stock  dividends paid of $59,000 and principal  payments on
note payables of $42,000.

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.  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 credit  facility is either 0.25%
over Webster  Bank's prime rate (8.50% at October 28, 2006) or LIBOR plus 2.75%,
at the Company's option.  Under the credit facility,  the Company pays Webster a
reduced  maintenance  fee of $1,000 per month and a monthly  unused line fee, as
defined in the credit facility.

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).

On November 9, 2006,  the Company  entered into the Sixth  Amendment and Consent
Agreement  with  Webster  which (i)  provided  Webster's  consent to the Private
Placement and change in control, (ii) modified certain Availability Reserves and
the Fixed Charge Ratio, as defined,  and (iii) modified the Financial  Covenants
including the Capital  Expenditures  and Excess  Availability/Cash  requirements
covenants,  as  defined.  The  Company  was in  compliance  with  all  financial
covenants at October 28, 2006.

As the  credit  facility  expires  in two  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 28, 2006
($3,348,000) and October 29, 2005  ($3,486,000),  under the credit facility as a
long-term liability.

At  January  26,  2007,  there  was  approximately   $3,734,000  in  outstanding
borrowings under the credit facility, with approximately $1,736,000 available to
borrow under this credit facility.

As fully  described in Note 2 to the financial  statements,  the Company entered
into a  Securities  Purchase  Agreement  with  several  institutional  and other
accredited  investors.  On November 10, 2006, the Company  completed the Private
Placement and the Company received $4,000,000  ($3,430,000 net of closing costs)
from the sale of a new 8% Series B  Convertible  Preferred  Stock.  The proceeds
will be used by the Company  primarily for general corporate and working capital
purposes,  to fund its increased advertising efforts, to replace its website and
to refurbish existing stores.  These funds will also be used to help develop new
retail  technology  centers within our stores  emphasizing  and  reinforcing the
changing services and products that the Company offers.

The Company's  newest 4,500 square foot Harvey retail  showroom in  Bridgewater,
New Jersey  opened in late June 2005. In fiscal 2005,  the Company  financed all
necessary leaseholds,  equipment, furniture, fixtures and inventory, aggregating
$1,560,000, with its credit facility.

The Company replaced its existing  computer system in November 2006. The project
cost is estimated at $650,000 - $700,000.  At October 28,  2006,  the  remaining
costs to complete the project are  estimated  at $50,000 - $75,000.  These costs
will be financed using the Company's credit facility in fiscal 2007.

The Company intends to launch its new advertising campaign in the second quarter
of fiscal 2007,  primarily with print,  radio, direct mail, keyword searches and
e-mail  broadcasts.  Advertising  expenditures  are  expected  to  significantly
increase by almost 50% for fiscal 2007 using  funds  available  from the Private
Placement.

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 2007 at an  estimated  cost of between  $80,000 - $100,000
using funds available from the Private Placement.

In fiscal  2004,  the Company  amended and  extended  the lease for its flagship
store in Midtown  Manhattan.  This amendment  increased the Company's  occupancy
costs in fiscal 2005 and significantly increased these costs in fiscal 2006. The
annual  increase  in rent  expense  for this  store  beginning  in fiscal  2006,
calculated on a straight-line basis, approximated $200,000.

In July 2003,  the Company  received a notice and  information  request from the
Pennsylvania Department of Environmental Protection ("PADEP"). See Part I, Legal
Proceedings, 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 2007 to meet its
compliance requirements for the fiscal year ending 2008. 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 2008.

As  fully  disclosed  in  Note  9 to the  financial  statements,  The  Company's
shareholders,  at the  annual  meeting,  approved a reverse  stock  split of its
common  stock at an  exchange  ratio of 1 for 4. The  reverse  stock  split  was
completed November 10, 2006 together with the Private Placement. For a period of
ten (10)  consecutive  trading days following the closing,  the Company's common
stock remained above $1.00 per share,  enabling the Company to regain compliance
with the NASDAQ minimum bid price listing requirement.

On December 6, 2006,  the Company  announced  that it was  notified by the Panel
that the  Company  had  satisfied  the  conditions  set  forth by the  Panel and
regained compliance with the NASDAQ Market Place Rules.  Accordingly,  the Panel
determined  to continue the listing of the  Company's  securities  on The NASDAQ
Capital Market.

Management  believes  that  cash on hand,  cash  available  from the  successful
Private Placement,  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.

The  following  is a  summary  of the  Company's  significant  contractual  cash
obligations for the periods indicated that existed as of October 28, 2006 and is
based on information appearing in the Notes to the Financial Statements:

<TABLE>
<CAPTION>

                          2007           2008          2009          2010            2011       After 2011         Total
--------------------- -------------- ------------- ------------- -------------- --------------- -------------- ---------------
<S>                     <C>            <C>           <C>           <C>            <C>             <C>           <C>
Operating leases        $2,301,000     $2,265,000    $2,047,000    $1,637,000     $1,369,000      $5,720,000    $15,339,000
Credit facility                  -        -           3,348,000             -              -               -      3,348,000
Notes payable               59,000      13,000                -             -              -               -         72,000
--------------------- -------------- ------------- ------------- -------------- --------------- -------------- ---------------
Total    contractual    $2,360,000     $2,278,000    $5,395,000                   $1,369,000
cash obligations                                                   $1,637,000                     $5,720,000    $18,759,000
--------------------- -------------- ------------- ------------- -------------- --------------- -------------- ---------------
</TABLE>

Interest  costs are not  included in the above table as  interest  amounts  will
vary, however using similar interest rates and outstanding borrowings consistent
with fiscal 2006, interest would approximate $400,000 per year.

The Company has no off-balance sheet arrangements as of October 28, 2006.

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  28,  2006  October  29,  2005 is
     $140,000 and $150,000, 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 Promotional Allowances

     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
     promotional  allowances.  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.

     In the fourth quarter of fiscal 2006, the Company initiated a change in its
     advertising   campaign  which  was  modified  to  reflect   current  market
     conditions,  customer needs and service demands. The new marketing strategy
     was designed to better  promote the Harvey brand and its  installation  and
     home integration offerings.

Accordingly,  certain  promotional  allowances  received  by  vendors  that were
previously  recorded as a reduction of advertising expense are now recorded as a
reduction  of  inventory  costs and costs of goods sold  relating  to the fourth
quarter, if the expenditure no longer represents  identifiable costs incurred by
the Company to promote its products.

     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 July 2006, the Financial  Accounting  Standards  Board  ("FASB")  issued FASB
Interpretation  No.  48,  "Accounting  for  Uncertainty  in  Income  Taxes -- an
interpretation  of FASB  Statement  No. 109" ("FIN 48").  FIN 48  clarifies  the
accounting and reporting for uncertainties in income tax law. The interpretation
prescribes  a  comprehensive  model  for the  financial  statement  recognition,
measurement,  presentation  and  disclosure of uncertain tax positions  taken or
expected to be taken in income tax returns. FIN 48 is effective for fiscal years
beginning  after  December 15,  2006.  The Company is  currently  assessing  the
impact, if any, of FIN 48 which it will adopt at the beginning of Fiscal 2008.

In June 2006,  the FASB ratified  Emerging  Issues Task Force ("EITF") Issue No.
06-3,   "How  Taxes  Collected  from  Customers  and  Remitted  to  Governmental
Authorities  Should Be Presented in the Income  Statement (that is, Gross versus
Net Presentation)", which allows companies to adopt a policy of presenting taxes
in the income  statement on either a gross or net basis.  Taxes within the scope
of this EITF  would  include  taxes that are  imposed  on a revenue  transaction
between a seller and a customer.  If such taxes are significant,  the accounting
policy  should  be  disclosed  as well as the  amount of taxes  included  in the
financial  statements if presented on a gross basis.  EITF 06-3 is effective for
interim and annual  reporting  periods  beginning  after  December 15, 2006. The
Company is currently assessing the impact, if any, of EITF Issue No. 06-03 which
it will adopt at the beginning of Fiscal 2008.

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 Interim Chief Executive  Officer 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  Interim  Chief
Executive  Officer 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 28, 2006), 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  Interim  Chief  Executive  Officer 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 2007 to meet its compliance requirements of fiscal year 2008.

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.

Following the end of the 2006 fiscal year and in connection  with the closing of
the Private  Placement on November 10, 2006,  certain of the Company's  officers
and directors resigned or were replaced. The biographies of the new officers and
directors  of the Company  appear  following  the listing of the  directors  and
executive officers of the Company in fiscal 2006 were as follows:
<TABLE>
<CAPTION>

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

<S>             <C>                     <C>
Michael E. Recca(3)                     56        Chairman and Director
William F. Kenny, III                   75        Director
Fredric J. Gruder                       60        Director
Nicholas A. Marshall                    74        Director
Ira J. Lamel                            59        Director
Franklin C. Karp(2)                     53        Chief Executive Officer, President and Director
Joseph J. Calabrese                     47        Executive Vice President, Chief Financial Officer,
                                                     Treasurer, Secretary and Director
Michael A. Beck                         48        Vice President of Operations
Roland W. Hiemer                        45        Vice President Merchandising
</TABLE>


(1)  As of October 28 2006.

(2)  Effective October 26, 2006, Mr. Karp is no longer an officer or director of
     the Company.

(3)  Effective November 10, 2006, Mr. Recca no longer serves as the Chairman but
     remains on the Company's Board.


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. From April
2002 through November 2006, Mr. Recca was 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. Mr. Recca remains on the Board in fiscal 2007.

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.  Effective October 26, 2006, Mr. Karp is no longer an
officer or director of the Company.

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.  Effective  November 10, 2006, Mr.  Calabrese is no
longer a member of the Board.

Fredric J. Gruder served as a director  from July 1998 until  November 10, 2006.
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.  Effective November
10, 2006, Mr. Gruder is no longer a member of the Board.

William F. Kenny, III served as a director of the Company from 1975 November 10,
2006.  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.  Effective  November 10,  2006,  Mr. Kenny is no longer a member of the
Board.

Nicholas  A.  Marshall  served as a  director  of the  Company  from May 2003 to
November  10, 2006.  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. Effective November 10, 2006,
Mr. Marshall is no longer a member of the Board.

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
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). Mr. Lamel remains on the Board in fiscal 2007.

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.

Committees of the Board of Directors

The Board of Directors,  which met six times either in person or  telephonically
during fiscal 2006, 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 2006, Fredric J. Gruder,
William F. Kenny,  III,  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 2006 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 2006.

Audit Committee. During fiscal 2006, William F. Kenny, III, Nicholas A. Marshall
and Ira J. Lamel  (Chairman)  served on the Audit  Committee.  Each of the Audit
Committee members in 2006 met the independence criteria prescribed by Rule 10A-3
promulgated under the Exchange Act and was an "independent  director" as defined
in NASD Rule  4200(a)(15).  Each Audit Committee  member met 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 2006.

Affirmative Determinations Regarding Director Independence

The Board of  Directors  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  regularly
schedule  "Executive  Sessions" whereby the Independent  Directors 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.
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,  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  2006,  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 2006.

Policy for Nomination of Directors

In fiscal 2006, 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.

Election of New Directors

Pursuant to the Private Placement,  The Company amended and restated its bylaws,
which, among other things, (i) provided for a staggered, or classified, Board of
Directors,  (ii) limits the removal of directors,  and (iii) enable directors to
consider multiple factors when making major decisions.

In fiscal 2006, the Company's  Board of Directors was comprised of seven members
who were not divided into classes. With the completion of the Private Placement,
in fiscal 2007,  the newly  elected  Board of  Directors  are divided into three
classes,  the term of each respective director will end at our annual meeting of
stockholders  in 2007,  2008 or 2009  depending  on the class to which each such
director belongs.

At the Annual  Shareholders  Meeting  held October 27,  2006,  the  Shareholders
elected the following persons as directors:  D. Andrew Stackpole,  Ron L. Jones,
Robert E. Albus, Patrick E. Hobbs, Charles Berger, Scott Galloway, Ira J. Lamel,
Michael E. Recca and Jonathan Stearns. Robert E. Albus, Ira J. Lamel and Michael
E. Recca, shall serve as Class I Directors, Patrick E. Hobbs, Scott Galloway and
Jonathan Stearns shall serve as Class II Directors and D. Andrew Stackpole,  Ron
L. Jones, and Charles Berger shall serve as Class III Directors.  Messrs. Albus,
Hobbs, Galloway, Lamel, Recca and Stearns will be independent directors.

Set forth below is biographical information for each new director.

Class I Directors: Continuing in Office Until the 2007 Annual Meeting

Robert E.  Albus,  60, is  currently  President  & CEO of  Goodrich  Capital,  a
financial  Advisory  Firm.  Prior to this he was  President of Premier  Business
Development,  a Management  Consulting Company, and since 1998 has been Managing
Partner of ChemPro LLC, a technology  development company he founded.  Mr. Albus
served as President and Chief Executive officer of Home-Link  Services from 2002
to 2003.  Prior to joining  Home-Link  Services,  Mr. Albus was President of the
Toiletry Division of Advanced Polymer Services, Inc., where he was employed from
1997 to 2000. Prior to that, Mr. Albus served as Director of Marketing of Combe,
Inc, (U.S.); General Manager of Combe, Inc. (Canada); Vice President of Business
Development  of the W.B.  Saunders  Division of CBS;  and a Product  Director of
Johnson &  Johnson.  Mr.  Albus is a  Director  of  Merisant  Worldwide,  Inc. a
position he has held since May 2004. He received a BA from Lafayette College and
an MBA from Lehigh University.

Ira J. Lamel,  59,  continues to serve on the Board of Directors  following  the
Private Placement. His biography appears above.

Michael E. Recca, 56, continues to serve on the Board of Directors following the
Private Placement. His biography appears above.

Class II Directors: Continuing in Office Until the 2008 Annual Meeting

Patrick  E.  Hobbs,  46,  has served as the Dean of the Law School at Seton Hall
University  since 1999, and from 1995 until 1999 he served as the Associate Dean
for  Finance.  Mr.  Hobbs  joined  the  faculty  of Seton  Hall in 1990,  and he
continues to teach in the area of tax law,  including  Federal Income  Taxation,
Corporate Taxation,  Business Planning,  and Law and Literature.  Mr. Hobbs is a
Commissioner on the New Jersey State Commission of Investigation. He is a member
of the Standards Review  Committee of the American Bar  Association,  Section of
Legal  Education and Admissions to the Bar, and has twice chaired the Law School
Development  Committee.  He  serves  as a member  of the  boards  of the  Newark
Alliance,  Lexis-Nexis,  Newark  Beth  Israel  Medical  Center,  the New  Jersey
Commission of Professionalism, and the New Jersey Institute for Continuing Legal
Education.  In 2004 he served as the Chairman of the Newark,  New Jersey Mayor's
Blue Ribbon Commission on the Downtown Core Redevelopment.  Mr. Hobbs received a
BS from Seton Hall  University,  a JD from the  University of North  Carolina at
Chapel Hill, and an LL.M. from New York University.

Scott Galloway, 41, is a Clinical Associate Professor at the NYU Stern School of
Business where he teaches brand  strategy to 2nd year MBA students.  In 1997, he
co-founded Red Envelope (an Internet-based gift retailer) and served as Chairman
until 2000 and on the firm's Board until 2004. He also co-founded  Prophet Brand
Strategy  in  1992,  an   international   consultancy   that  employs  over  100
professionals,  serving as CEO until 2000 and Chairman until 2002. Mr.  Galloway
was named one of the one  hundred  Global  Leaders  for  Tomorrow in 1999 by the
World  Economic Forum in Davos,  Switzerland.  He received a BA from UCLA and an
MBA from UC Berkeley.

Jonathan  Stearns,  47, is the Managing  Director of the Private Equity Group at
AIG, since September 2006. Prior to this, he was a Managing Director since 2004,
and was a  founding  member  of  Associated  Partners,  LLC,  where  he  managed
co-investment  portfolios totaling $175 million for Abbott Capital, and rendered
other advisory  services and  participated in the private equity fund investment
program.  Prior to 2004 he was a Managing Director of Abbott Capital Management,
LLC, where since 2001 he was the head of a  co-investment  team  responsible for
direct  investments in private  companies.  Mr. Stearns has also been a Managing
Director  and  co-head of Equinox  Investment  Partners,  LLC from 1996 to 2001,
where he focused primarily on investing in private,  middle-market companies. He
previously  spent several years in the private capital group of Kleinwort Benson
Limited,  ultimately as a Director with  significant  involvement in forming and
raising  capital  for the $180  million KB  Mezzanine  Fund II, LP. Mr.  Stearns
received  a BA from The  University  of the  South  in  Sewanee,  Tennessee  and
completed graduate studies in political economics, with an emphasis on Japan, at
Cornell University.

Class III Directors: Continuing in Office Until the 2009 Annual Meeting

D. Andrew  Stackpole,  42, is a founder and has been Managing Partner of Trinity
Investment  Partners  LLC since  2002.  From 1999  until  2001 he was a Managing
Director  in the  Global  Consumer  Products  group of Merrill  Lynch.  Prior to
joining Merrill Lynch,  Mr.  Stackpole was a Managing  Director in the Mergers &
Acquisitions department of Bear Stearns, and prior to that an Executive Director
at SBC Warburg  where he held various  positions  including  Co-Head of the U.S.
Mergers and  Acquisitions  group.  Mr.  Stackpole  has been a Term Member of the
Council on Foreign  Relations,  where he was nominated an International  Affairs
Fellow.  He is a Director  of the  Michael  J.  Berkeley  Foundation,  a charity
focused on providing academic scholarships for minority college students, and is
also a Director of TechFoundation,  a nonprofit provider of technology resources
to charitable  organizations.  Mr. Stackpole received a BA from Trinity College,
an MPA from the Kennedy School of Government at Harvard  University,  and an MBA
from the Wharton School of the University of Pennsylvania.

Ron L. Jones, 63, has been a Management Partner in Trinity  Investment  Partners
LLC since 2003. Mr. Jones was President and CEO of Sealy, Inc. from 1996 to 1997
and  Chairman,  President  and CEO of Sealy from 1997 to 2002 and  continued  to
serve  as  Chairman  until  retiring  in  2004.  He was  President  of the  Home
Furnishings  Group of Masco,  Inc.  from 1988 to 1996.  Mr. Jones also served as
President  of The HON Company  from 1983 to 1987 and was elected to the Board of
HON Industries (now dba HNI  Corporation) in 1996. Mr. Jones was named President
of HON  Industries  in 1987 and served in that  capacity  until joining Masco in
1988. He also served as a Director of Vermeer  Corporation from 2000 to 2002. He
is currently a Director of AOT Bedding Holdings  Corporation  (National  Bedding
Company).  Mr.  Jones  serves as a Trustee  of the High  Point  Regional  Health
System, of High Point University,  The Piedmont School, and of Southern Virginia
University.  Mr.  Jones  received a BS from  Central  Methodist  College and has
received an honorary doctorate degree from Southern Virginia University.

Charles M.  Berger,  70,  has been a  Management  Partner in Trinity  Investment
Partners  LLC since  2003.  Mr.  Berger  served as  Chairman of the Board of The
Scotts  Company from 1996  through  2002.  From 1996 to 2001,  he was also Chief
Executive  Officer,  and from 1996 until  2000,  he was  President.  Prior that,
during his  32-year  career at H.J.  Heinz  Company,  he held the  positions  of
Chairman  and  Chief  Executive  Officer  of Heinz  India  Pvt.  Ltd.  (Bombay);
Chairman,   President,   and  Chief   Executive   Officer  of  Weight   Watchers
International,  a Heinz affiliate; Managing Director and Chief Executive Officer
of  Heinz-Italy  (Milan),  the largest  Heinz profit  center in Europe;  General
Manager, Marketing, for all Heinz U.S. grocery products;  Marketing Director for
Heinz  U.K.  (London);  and  Director  of  Corporate  Planning  at  Heinz  World
Headquarters. Mr. Berger is a Director of the Colibri Corporation of Providence,
Rhode Island, and of Salerno Plastics,  Plattsburgh, New York. He is also on the
Board of the  Philharmonic  Center  for the Arts in Naples,  Florida,  the North
Shore  Hospital  System in  Manhasset,  New York,  and  Chairman  of the  Naples
Botanical  Garden.  Mr.  Berger is also  Executive in Residence at Ohio Wesleyan
University.  He graduated  from  Princeton  University  and received an MBA from
Harvard Business School.

Vacancies on the New Board of Directors

In fiscal 2007,  vacancies on the Board of Directors may be filled by a majority
of the  remaining  independent  directors.  A  director  elected by the Board of
Directors to fill a vacancy,  including a vacancy  created by an increase in the
number of directors, shall serve for the remainder of the full term of the class
of directors in which the vacancy occurred and until the director's successor is
elected and qualified.

Independence of the New Board of Directors

As required under applicable NASDAQ Marketplace Rules, a majority of the members
of a listed  company's  Board of  Directors  must qualify as  "independent,"  as
affirmatively  determined  by the board of  directors.  Our  Board of  Directors
consults with our counsel to ensure that the Board of Directors'  determinations
are  consistent  with all  relevant  securities  and other laws and  regulations
regarding  the  definition  of  "independent,"  including  those  set  forth  in
pertinent NASDAQ Marketplace Rules, as in effect time to time.

Consistent with these considerations,  after review of all relevant transactions
or  relationships  between each director or any of his family  members,  and our
senior management, our independent registered public accounting firm and us, the
Board of Directors  affirmatively  has determined  that all of the directors are
independent  directors within the meaning of the applicable  NASDAQ  Marketplace
Rules, except for D. Andrew Stackpole, Ron L. Jones and Charles Berger.


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>

     Name of Individual                                                 Stock
   and Principal Position       Year      Salary       Bonus       Options Granted    Long-Term Compensation
----------------------------- --------- ----------- ------------- ------------------- -----------------------

<S>                           <C>        <C>          <C>                                      <C>
Michael E. Recca              2006       $ 48,000     $  -                -                    $ -
Chairman (1)                  2005       $105,000     $  -                -                    $ -
                              2004       $112,000     $   -               -                    $ -

Franklin C. Karp              2006       $165,000     $  9,000            -                    $ -
Chief Executive Officer       2005       $164,000     $ 54,000            -                    $ -
 & President (2)              2004       $165,000     $ 75,000            -

Joseph J. Calabrese           2006       $155,000     $ 18,000            -                    $ -
Executive Vice President
                              2005       $155,000     $ 51,000            -                    $ -
Chief Financial Officer,      2004       $156,000     $ 71,000            -                    $ -
   Treasurer and Secretary

Michael A. Beck               2006       $140,000     $ 17,000            -                    $ -
Vice President of             2005       $140,000     $ 49,000            -                    $ -
   Operations                 2004       $140,000     $ 70,000            -                    $ -

Roland W. Hiemer              2006       $ 96,000     $ 11,000            -                    $ -
Vice President of             2005       $ 96,000     $ 21,000            -                    $ -
   Merchandising              2004       $ 95,000     $ 35,000            -                    $ -
</TABLE>

(1)--In September  2005, Mr.  Recca's annual salary was reduced to $48,000.  Mr.
     Recca no longer serves as Chairman.
(2)--No longer serves as Chief Executive Officer & President.

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.

Effective  October 26, 2006,  the Company  entered into a termination  agreement
with our then President and Chief Executive Officer whereby the executive agreed
to resign from his employment and directorship. In consideration,  the executive
received  $55,000 in November  2006 and  additionally  will receive  $10,000 per
month for twelve consecutive months,  aggregating  $175,000.  The executive will
also continue his medical  coverage  under COBRA for the one year period,  where
the Company  will  continue to pay its portion of the  premiums  for this twelve
month period. This agreement supersedes the executive's severance agreement.

As previously authorized by the Company's Compensation Committee for services up
to the end of fiscal 2006,  and upon the  shareholders'  approval of the Private
Placement on October 27, 2006, the Company's Chairman entered into a termination
settlement  agreement with the Company.  In connection with this agreement,  the
Chairman received $100,000,  resigned his position as Chairman and will continue
his medical  coverage under COBRA for a one year period (with the Company paying
its portion of the insurance premiums). This agreement supersedes the Chairman's
severance agreement.

In connection  with the Private  Placement,  the Company's Vice  Presidents were
required, as a condition to closing, to agree that neither the Private Placement
nor any  purported  tender  offer by  Modern  Technology  Group,  Inc.  publicly
announced prior to the closing shall constitute a change of control or Potential
Change of Control as defined in their Amended Severance Agreements.

In addition,  the Company's  Vice  Presidents  are entitled to receive,  and the
Company has been accruing,  quarterly special retention bonuses of $10,000 each,
per quarter,  for ten quarters commencing in May 2006 and continuing during such
time  for as  long  as  such  members  of the  management  team  continue  their
employment with the Company.  These retention bonuses accrue monthly. For fiscal
2006,  these retention  bonuses  aggregated  $60,000 and are included in accrued
expenses at October 28, 2006.

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.

In fiscal  2006,  the  Compensation  Committee  consisted  of Fredric J. Gruder,
William F. Kenny,  III,  Nicholas A.  Marshall and Ira J. Lamel.  Following  the
closing of the Private Placement, the Compensation Committee membership changed,
and now includes Robert Albus, Scott Galloway and Jonathan Stearns.

The 2006 Compensation  Committee believed 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 2006,
2005 and 2004, 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 then in place.  In fiscal 2002,  stock options were also
made in accordance  with the quarterly and annual bonus plan, as approved by the
Compensation  Committee.  The  2006  Compensation  Committee  believed  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 2006,  the  Company's  executive  officers  (excluding  the  Chairman)
received a  significantly  reduced bonus plan,  as approved by the  Compensation
Committee due to the recent  performance of the Company.  Under the plan,  sixty
percent (60%) of the annual bonus  potential was based on financial  performance
and the  achievement of the Company's  quarterly  budgets.  The remaining  forty
percent (40%) was an annual bonus based on the  achievement of specific  Company
goals.

As previously  mentioned,  stock option grants,  prior to 2003, had 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 our stock  price,  the  Compensation  Committee  believed  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 2006.

With  respect  to the base  salary  granted  to Mr.  Karp,  our Chief  Executive
Officer/President in fiscal 2006, the Compensation  Committee made an assessment
of the Company's  actual  operating  results for fiscal 2005, as compared to the
Company's goals and from the performance of Mr. Karp on various  accomplishments
for fiscal 2005. 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  retained  at  $170,000  for  fiscal  2006.  Mr.  Karp took a
voluntary reduction in salary and reduced this amount to $165,000.

In fiscal 2006, no options were granted to the Company's executive officers.

The 2007 Compensation  Committee played no role in determining  compensation for
the Company's officers and directors in fiscal 2006.

                                  Robert Albus
                                 Scott Galloway
                                Jonathan Stearns

Stackpole Employment Agreement

Pursuant to the Private Placement, D. Andrew Stackpole,  the founder of Trinity,
became Chairman of the Board pursuant to the terms of the Employment  Agreement.
Mr.  Stackpole will receive base salary at an annual rate of $150,000 payable on
the Termination Date (as defined in the Employment Agreement) in vested warrants
to purchase common stock of the Company, and a quarterly bonus of $50,000,  also
payable in the month  immediately  following  such quarter.  For purposes of Mr.
Stackpole's base salary and bonus calculations, common stock of the Company will
be deemed to have a value equal to the average VWAP (as defined) over the period
with respect to which the payment is being made.  Warrants will be issued with a
strike  price of 50% of the average VWAP over such period and shall be deemed to
have a value for purposes of this  calculation  equal to 50% of the average VWAP
over such period and shall be exercisable no later than March 15 of the calendar
year  following  the  calendar  year in which they are  issued.  Notwithstanding
anything to the  contrary  set forth in the  Employment  Agreement,  in no event
shall warrants issued  thereunder be exercisable for more than 1,000,000  shares
of common stock, except upon a termination of Mr. Stackpole's employment without
Cause, in which event the number of shares issued will not exceed 3,000,000.

Mr.  Stackpole  is  entitled  to receive  employee  benefits  (including  fringe
benefits,  vacation,  pension and profit  sharing plan  participation  and life,
health,  accident and disability  insurance) on the same basis as those benefits
are generally  made available to senior  executives of the Company,  and will be
reimbursed  for reasonable  travel,  entertainment  and other business  expenses
incurred by him in the performance of his duties, all in accordance with Company
policies.  In the  event  Mr.  Stackpole  is  terminated  due to  his  death  or
disability,  he shall  continue to receive  payments of base  salary,  bonus and
other benefits specified in the Employment Agreement for a period of twelve (12)
months. In the event Mr. Stackpole is terminated without Cause, he shall receive
in a single lump sum as soon as practicable but not later than 30 days following
such termination  equal to (1) in the case of termination other than a Change in
Control or  Potential  Change in  Control,  the  equivalent  of one year of base
salary and bonus and (2) in the case of  termination  as a result of a Change in
Control or Potential  Change in Control,  three (3) times annual base salary and
bonus,  payable  in each case in cash or  common  stock of the  Company,  at the
option of Mr. Stackpole.

Stock Option Plan

In April 1997, the Company adopted a stock option plan,  which currently  covers
1,000,000 (250,000  retroactively  adjusted for the 1 for 4 reverse stock split)
shares of the Common Stock. At October 28, 2006,  options currently  outstanding
aggregate 205,525 and options available for grant aggregate 44,475.  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  (25,000 post reverse  stock  split),  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 2006,  no stock  options were granted to the  Company's  executives or
directors.

No stock options were exercised by executives or directors in fiscal 2006.

It is expected  that in  connection  with the closing of the Private  Placement,
directors' options which are currently issued and outstanding will not terminate
after 180 days of leaving the Company's Board of Directors,  as prescribed,  but
rather  will be  modified  to retain  the  original  term of the  option  grant.
Additional compensation expense may be incurred based on this modification,  but
Management does not believe that this  modification  will have a material impact
on the Company's financial  statements.  It is also expected that, following the
closing of the  Private  Placement,  options  will be  granted to newly  elected
outside directors commensurate with standard practices.


Exercise prices for options outstanding as of October 28, 2006 are as follows:

                                                                Weighted-
                          Number of                              Average
                          Options              Options          Remaining
    Range of            Outstanding at      Exercisable at    Contractual Life
 Exercise Price           Year End           End of Year         In Years
-------------------- ------------------- ------------------ ------------------
             $3.25            18,750             18,750           5
             $3.75            22,500             22,500           5
             $4.00            13,156             13,156           2
             $4.60            22,500             22,500           6
             $5.06             6,250              6,250           1
             $5.40            22,500             22,500           6
             $5.50             7,500              7,500           5
             $6.00            43,125             43,125           3
             $7.00            22,500             22,500           4
             $7.44            11,250             11,250           4
             $8.00               744                744           1
            $12.00            14,750             14,750           1
                     ----------------- ------------------
                              205,525            205,525         4.02
                     ================= ==================


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
27, 2001, 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]


<PAGE>


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 28, 2006, based on
information  obtained from the persons named below,  by (i) each person known to
the Company to beneficially own more than 5% of the outstanding shares of Common
Stock,  (ii) each executive  officer and director of the Company,  and (iii) all
officers and directors of the Company as a group:
<TABLE>
<CAPTION>

        Name and Address of Beneficial Owner          Title of Class      Amount and Nature of
                                                                          Beneficial Ownership         Percentage
----------------------------------------------------- ---------------- ---------------------------- -----------------
<S>                                                                            <C>                       <C>
Michael E. Recca                                          Common               55,020(1)                5.3%
949 Edgewood Avenue
Pelham Manor, NY 10803

Ronald I. And Joyce L. Heller                             Common               48,725                   4.9%
74 Farview Road
Tenafly, New Jersey 07670

William F. Kenny, III                                     Common               13,647 (2)               1.4%
C/o Harvey Electronics, Inc.
205 Chubb Avenue
Lyndhurst, NJ 07071

Fredric J. Gruder                                         Common               10,000 (2)               1.0%
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

Franklin C. Karp-resigned effective October 26, 2006      Common                    -0-(3)               -
c/o Harvey Electronics, Inc.
205 Chubb Avenue
Lyndhurst, NJ 07071

Joseph J. Calabrese                                       Common               50,426 (4)               4.8%
c/o Harvey Electronics, Inc.
205 Chubb Avenue
Lyndhurst, NJ 07071

Michael A. Beck                                           Common               49,375 (4)               4.7%
c/o Harvey Electronics, Inc.
205 Chubb Avenue
Lyndhurst, NJ 07071

Roland W. Hiemer                                          Common               26,875 (5)               2.6%
c/o Harvey Electronics, Inc.
205 Chubb Avenue
Lyndhurst, NJ 07071

SBA Receiver for Inter-Equity Capital Partners, L.P.      Common              121,625                  12.2%
666 11th Street N.W. Suite 200
Washington, D.C. 2001-4542

Richard and Frances McGlenn                               Common              124,875(7)               12.5%(8)
5803 Palmetto Drive
Fort Pierce, FL 34982
----------------------------------------------------- ---------------- ---------------------------- -----------------

All Directors and Officers as a group                     Common              205,343                  17.0%
(8 Persons)

All Beneficial Owners as a group                          Common              500,568 (6)              41.4%
----------------------------------------------------- ---------------- ---------------------------- -----------------
</TABLE>

(1)  Includes  10,983  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 40,000 shares of the Company's
     Common Stock which are  exercisable  at prices of between  $3.575-7.70  per
     share.

(2)  Includes  options to purchase up to 10,000 shares of the  Company's  Common
     Stock, which are exercisable at prices of between $3.25-5.50 per share.

(3)  Mr. Karp resigned October 26, 2006. As a result, his options to purchase up
     to 53,125 shares of the Company's Common Stock, which are exercisable at an
     exercise price of between $3.25-12.00 per share were not included.

(4)  Includes  options to purchase up to 47,500 shares of the Company's  Common
     Stock,  which are exercisable at an exercise price of between  $3.25-12.00
     per share.

(5)  Includes  options to purchase up to 26,250 shares of the Company's  Common
     Stock,  which are exercisable at an exercise price of between  $3.25-12.00
     per share.

(6)  Includes  options and  warrants to purchase up to 245,625  shares of Common
     Stock,  which are exercisable at an exercise price of between  $3.25-15.00
     per share.

(7)  Information  relating to the McGlenns is based solely upon a review of Form
     4s and the  Schedule  13G filed by the  McGlenns  with the SEC covering the
     period through October 28, 2006.


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  28,  2006,  except  Richard  and Frances
McGlenn.  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 also  served as 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.  From April 2002  through  November  2006,  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 was
also a director of Sky Venture  Capital and Sky Capital  Ventures and several of
their wholly or partially owned subsidiaries during this period.

Dividends paid to preferred stockholders aggregated $51,000, $53,000 and $70,000
for fiscal years 2006, 2005 and 2004, 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 2006 and 2005.

                                            2006                   2005
                                            ----                   ----

       Audit Fees                           $106,000               $101,000

       Audit - Related Fees                   58,000(1),(2)          23,500(1)

       Tax Fees                                    -                      -

       All Other Fees                              -                      -
                                            ------------         ----------
            Total                           $164,000              $124,500
                                            ============         ==========

     (1)  For  fiscal  2006  and  2005,  amounts  related  to  consultations  on
          accounting and SEC matters.

     (2)  For fiscal 2006, fees relate to  consultation  and review of the proxy
          statement for the Private Placement.

     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 28, 2006 and October 29, 2005

     Statements of Operations - Fiscal years ended October 28, 2006, October 29,
     2005 and October 30, 2004

     Statements of  Shareholders'  Equity - Fiscal years ended October 28, 2006,
     October 29, 2005 and October 30, 2004

     Statements of Cash Flows - Fiscal years ended October 28, 2006, October 29,
     2005, and October 30, 2004

     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 Common Stock Certificate

4.3--Form of Redeemable Common Stock Purchase Warrant

4.4--Form of Representative's Warrant

4.5--Form of Warrant to Holders of Preferred Stock

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

10.1.2--Form of Stock Option Agreement

10.2.1--Severance Agreement with Franklin C. Karp

10.2.2--Severance Agreement with Joseph J. Calabrese

10.2.3--Severance Agreement with Michael A. Beck

10.2.4--Severance Agreement with Roland W. Hiemer

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

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

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

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

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

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

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

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

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

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

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

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

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

4.4--Representative's Warrant Agreement

4.5--Warrant Agent Agreement

10.1--Underwriting Agreement

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

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

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

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

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

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

10.5.7--Lease Agreement with Martin Goldbaum and Sally Goldbaum

10.5.8--Lease Agreement with Bender Realty

10.7--Surrender of Lease with 873 Broadway Associates

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

10.14--Consulting Agreement with Mesa Partners Inc.

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

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

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

(viii)--The  following  exhibits  are 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 hereby  incorporated  by  reference  to the
Company's Form 10-K dated October 29, 2005:

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.

(xvii)--The  following  exhibits  are hereby  incorporated  by  reference to the
Company's Form 8-K filed April 18, 2006.

99.1 Securities Purchase Agreement,  dated April 17, 2006, by and between Harvey
     Electronics, Inc. and certain Purchasers listed therein

        Exhibit A   Amended and Restated Certificate of Incorporation
        Exhibit B   Registration Rights Agreement
        Exhibit C   Series A Common Stock Purchase Warrant
        Exhibit D   Employment Agreement with D. Andrew Stackpole
        Exhibit E   Consulting Agreement with Trinity Investment Partners, LLC
        Exhibit F   Placement Agency Agreement with vFinance Investments,  Inc.

99.2 Series B Common Stock  Purchase  Warrant,  dated April 17, 2006 in favor of
     Trinity Investment Partners LLC

99.3 Series C Common Stock  Purchase  Warrant,  dated April 17, 2006 in favor of
     Trinity Investment Partners LLC

99.4 Registration Rights Agreement,  dated April 17, 2006, by and between Harvey
     Electronics, Inc. in favor of Trinity Investment Partners LLC and D. Andrew
     Stackpole

99.5 Consulting  Agreement,   dated  April  17,  2006,  by  and  between  Harvey
     Electronics, Inc. and Trinity Investment Partners LLC

99.6 Placement  Agency  Agreement,  dated April 17, 2006, by and between  Harvey
     Electronics, Inc. and vFinance Investments, Inc.

(xviii)--The  following  exhibit  is hereby  incorporated  by  reference  to the
Company's Form DEF14A, filed on September 22, 2006

     Appendix  M--Amendment  No. 1 to the Securities  Purchase  Agreement  dated
     September 8, 2006.

(xixi)--The  following  exhibits  are hereby  incorporated  by  reference to the
Company's third quarter Form 10-Q filed September 18, 2006.

10.23--Fourth Amendment to its loan agreement with Webster dated July 31, 2006.

10.24--Fifth  Amendment to its loan agreement  with Webster dated  September 18,
2006.

(xx)--The following exhibit is hereby incorporated by reference to the Company's
Form 8-K filed November 6, 2006:

     99.1 Franklin Karp Termination Agreement.

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

3.1.9--Amended and Restated Certificate of Incorporation of November 2006

4.1.1--Amended and Restated Bylaws (2006)

10.25--Amended and Restated Registration Rights Agreement

10.26--Sixth  Amendment to its loan  agreement  with Webster  dated  November 9,
2006.

10.27--Severance Agreement with Michael E. Recca effective October 2006.

10.28--Employment  Agreement with Martin  McClanan,  Interim CEO, dated December
19, 2006.

23.1--Consent of BDO Seidman, LLP

31.1--Certification - Chief Executive Officer

31.2--Certification - Chief Financial Officer

32.1--Certification - Chief Executive Officer

32.2--Certification - Chief Financial Officer

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

November 6, 2006:  Letter  agreement  between the Company and  Franklin C. Karp,
President and Chief Executive Officer.

November 16, 2006: The Company  announced  consummation of the Private Placement
and appointment of new Board members.

November  30,  2006:  The  Company  announced  the new  members of the Audit and
Compensation Committees.

December 6, 2006: The Company  announced that it was notified by the NASDAQ that
the Company had satisfied the conditions set forth by the Qualifications Listing
Panel and regained  compliance with the NASDAQ Market Place Rules.  Accordingly,
the Panel determined to continue the listing of the Company's  securities on The
NASDAQ Capital Market.


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/ Martin W. McClanan
                                  ------------------------------
                                  Martin W. McClanan
                                  Interim Chief Executive Officer
                           Dated: January 26, 2007

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

<TABLE>
<CAPTION>

             Signature                                     Title                                Date

<S>                                                                                             <C> <C>
/s/ Martin W. McClanan                Interim Chief Executive Officer                   January 26, 2007
-------------------------------------
    Martin W. McClanan

/s/ Joseph J. Calabrese               Executive Vice President, Chief Financial         January 26, 2007
-------------------------------------
    Joseph J. Calabrese               Officer, Treasurer, Secretary


/s/ D. Andrew Stackpole               Chairman of the Board                             January 26, 2007
-------------------------------------
    D. Andrew Stackpole

/s/ Ronald L. Jones                   Director                                          January 26, 2007
-------------------------------------
    Ronald L. Jones

/s/ Robert E. Albus                   Director                                          January 26, 2007
-------------------------------------
    Robert E. Albus

/s/ Ira J. Lamel                      Director                                          January 26, 2007
-------------------------------------
    Ira J. Lamel

/s/ Patrick E. Hobbs                  Director                                          January 26, 2007
-------------------------------------
    Patrick E. Hobbs

/s/ Charles Berger                    Director                                          January 26, 2007
-------------------------------------
    Charles Berger

/s/ Scott Galloway                    Director                                          January 26, 2007
-------------------------------------
    Scott Galloway

/s/ Michael E. Recca                  Director                                          January 26, 2007
-------------------------------------
    Michael E. Recca

/s/ Jonathan Stearns                  Director                                          January 26, 2007
-------------------------------------
    Jonathan Stearns
</TABLE>


<PAGE>


Item 8. Financial Statements and Supplementary Data

                            Harvey Electronics, Inc.

               Index to Financial Statements and Supplemental Data

<TABLE>
<CAPTION>

<S>                                                                                                      <C>
Report of Independent Registered Public Accounting Firm............................................    F-2

Balance Sheets-- October 28, 2006 and October 29, 2005 .............................................   F-3

Statements of Operations--Fiscal years ended October 28, 2006, October 29, 2005
And October 30, 2004...............................................................................    F-4

Statements of Shareholders' Equity--Fiscal years ended October 28, 2006,
   October 29, 2005 and October 30, 2004...........................................................    F-5

Statements of Cash Flows--Fiscal years ended October 28, 2006, October 29, 2005
   and October 30, 2004............................................................................    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

</TABLE>


                                       F-1


<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  28,  2006 and  October  29,  2005,  and the  related  statements  of
operations,  shareholders' equity and cash flows for the years ended October 28,
2006, October 29, 2005 and October 30, 2004. 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 28, 2006 and October 29, 2005, and the results of its operations and its
cash flows for the years ended  October 28,  2006,  October 29, 2005 and October
30, 2004 in conformity  with  accounting  principles  generally  accepted in the
United States of America.



s/BDO Seidman, LLP
BDO Seidman, LLP
Melville, New York
January 10, 2007




                                       F-2


<PAGE>

                            Harvey Electronics, Inc.
                            Statements Of Operations
<TABLE>
<CAPTION>
                                                                              Fifty-two      Fifty-two       Fifty-two
                                                                                Weeks           Weeks          Weeks
                                                                                Ended           Ended          Ended
                                                                             October 28,     October 29,     October 30,
                                                                                 2006            2005            2004
                                                                            --------------- --------------- ---------------
<S>                                                                            <C>             <C>             <C>
Net sales                                                                      $36,027,775     $40,444,374     $43,145,073
Other income                                                                        36,904               -          28,150
                                                                            --------------- --------------- ---------------
                                                                                36,064,679      40,444,374      43,173,223
                                                                            --------------- --------------- ---------------
Cost of sales                                                                   20,907,733      23,588,853      25,393,702
Selling, general and administrative expenses                                    16,366,169      17,453,670      16,968,504
Interest expense                                                                   394,388         232,194         175,025
Provision for severance costs                                                      283,950               -               -
Provision for impairment of long-lived assets                                            -               -         144,092
                                                                            --------------- --------------- ---------------
                                                                                37,952,240      41,274,717      42,681,323
                                                                            --------------- --------------- ---------------
(Loss) income before income taxes (benefit)                                    (1,887,561)       (830,343)         491,900
Income taxes (benefit)                                                           1,350,000               -       (782,000)
                                                                            --------------- --------------- ---------------
Net (loss) income                                                              (3,237,561)       (830,343)       1,273,900

Preferred Stock dividend requirement                                                44,495          52,796          70,295
                                                                            --------------- --------------- ---------------
Net (loss) income applicable to Common Stock                                  ($3,282,056)      ($883,139)      $1,203,605
                                                                            =============== =============== ===============

Net (loss) income per share applicable to common shareholders:
  Basic                                                                            ($3.69)         ($1.01)           $1.45
                                                                            =============== =============== ===============
  Diluted                                                                          ($3.69)         ($1.01)           $1.26
                                                                            =============== =============== ===============

Shares used in the calculation of net (loss) income per common share:
  Basic                                                                            890,142         873,859         831,131
                                                                            =============== =============== ===============
  Diluted                                                                          890,142         873,859       1,008,373
                                                                            =============== =============== ===============
</TABLE>

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





                                       F-3


<PAGE>


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

                                                                                             October       October 29,
                                                                                             28, 2006          2005
                                                                                          --------------- ---------------
Assets
Current assets:
<S>                                                                                              <C>             <C>
   Cash and cash equivalents                                                                     $16,400         $16,400
   Accounts receivable, less allowances of $70,000 and $20,000                                   716,662         589,450
   Inventories                                                                                 6,176,644       7,427,364
   Prepaid expenses and other current assets                                                     247,989         284,151
   Deferred taxes                                                                                      -         301,000
                                                                                          --------------- ---------------
Total current assets                                                                           7,157,695       8,618,365
                                                                                          --------------- ---------------
Property and equipment:
   Leasehold improvements                                                                      4,618,168       4,556,945
   Furniture, fixtures and equipment                                                           3,008,798       2,887,233
   Internet website                                                                              461,870         461,870
                                                                                          --------------- ---------------
                                                                                               8,088,836       7,906,048
   Less accumulated depreciation and amortization                                              5,325,659       4,655,147
                                                                                          --------------- ---------------
                                                                                               2,763,177       3,250,901
Intangible asset-software, less accumulated amortization of $48,526 and $12,543                  103,963         137,234
Deferred taxes                                                                                         -       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 $319,098 and $299,184                           1,058,987         415,166
                                                                                          --------------- ---------------
Total assets                                                                                 $11,492,262     $13,879,106
                                                                                          =============== ===============
Liabilities and shareholders' equity
Current liabilities:
  Trade accounts payable                                                                      $3,090,474      $2,536,222
  Customer deposits                                                                            1,603,735       1,696,807
  Accrued expenses and other current liabilities                                               1,804,067       1,314,912
  Income taxes payable                                                                            37,000          37,000
  Cumulative Preferred Stock dividends payable                                                    11,318          17,404
  Current portion of long-term debt                                                               59,247          55,505
                                                                                          --------------- ---------------
Total current liabilities                                                                      6,605,841       5,657,850
                                                                                          --------------- ---------------
Long-term liabilities:
  Revolving line of credit facility                                                            3,348,188       3,486,441
  Long-term debt                                                                                  12,715          71,962
  Deferred rent                                                                                  520,935         376,214
                                                                                          --------------- ---------------
Total long-term liabilities                                                                    3,881,838       3,934,617
                                                                                          --------------- ---------------
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 -0- shares--2006, 600
shares--2005 (aggregate liquidation preference--$0--2006, $600,000--2005)

                                                                                                       -         275,682
Common Stock, par value $.01 per share; authorized 30,000,000 shares;
  issued and outstanding; 998,771 shares--2006,  877,146 shares--2005                              9,988           8,771
  Additional paid-in capital                                                                   8,737,164       8,462,699
  Accumulated deficit                                                                        (7,742,569)     (4,460,513)
                                                                                          --------------- ---------------
Total shareholders' equity                                                                     1,004,583       4,286,639
                                                                                          --------------- ---------------
Total liabilities and shareholders' equity                                                   $11,492,262     $13,879,106
                                                                                          =============== ===============
</TABLE>

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


                                      F-4
<PAGE>
<TABLE>
<CAPTION>

                            Harvey Electronics, Inc.
                        Statement of Shareholders' Equity


                                           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>
Balance at November 1, 2003                   827   $ 379,982      $831,131     $ 8,311   $8,337,460    $(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                   827     379,982      831,131      $ 8,311    8,358,859     (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)       46,015          460      103,840               -             -
                                        ---------- ----------- ------------ ------------ ------------ --------------- -------------
Balance at October 29, 2005                   600     275,682      877,146        8,771    8,462,699     (4,460,513)     4,286,639
   Net loss for the year                        -           -            -            -            -     (3,237,561)   (3,237,561)
   Preferred Stock dividend                     -           -            -            -            -        (44,495)      (44,495)
   Conversion of Preferred Stock
     to Common Stock                        (600)   (275,682)      121,625        1,217      274,465               -             -
                                        ---------- ----------- ------------ ------------ ------------ --------------- -------------
Balance at October 28, 2006                     -  $         -     998,771  $     9,988  $ 8,737,164   $ (7,742,569)    $ 1,004,583
                                        ========== =========== ============ ============ ============  =============  =============
</TABLE>

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

                                       F-5

<PAGE>

                             Harvey Electronics, Inc
                            Statements of Cash Flows
<TABLE>
<CAPTION>

                                                                        Fifty-two         Fifty-two       Fifty-two
                                                                          Weeks            Weeks            Weeks
                                                                          Ended            Ended            Ended
                                                                       October 28,       October 29,     October 30,
                                                                           2006             2005             2004
                                                                     ----------------- ---------------- ---------------
Operating activities
<S>                                                                      <C>                <C>             <C>
Net (loss) income                                                        ($3,237,561)       ($830,343)      $1,273,900
Adjustments to reconcile net (loss) income to net
  cash provided by operating activities:
    Depreciation and amortization                                             727,545          739,407         683,420
    Provision for impairment of long-lived assets                                   -                -         144,092
    Income tax equivalent provision                                                 -                -         135,000
    Reduction of reorganization value in excess of
       amounts allocable to identifiable assets                                     -                -         373,000
    Straight-line impact of rent escalations                                  144,721           92,323          41,154
    Deferred tax assets                                                     1,350,000                -     (1,350,000)
    Miscellaneous                                                               4,164           46,629          11,741
    Changes in operating assets and liabilities:
      Accounts receivable                                                   (177,212)          308,638       (146,795)
      Allowance for sales returns                                              50,000                -               -
      Inventories                                                           1,250,720        (139,800)         129,414
      Prepaid expenses and other current assets                                36,162         (88,505)         (5,762)
      Trade accounts payable                                                  554,252          470,208       (214,005)
      Customer deposits                                                      (93,072)        (258,633)         262,177
      Accrued expenses, other current liabilities and income taxes            489,155        (128,853)          43,497
                                                                     ----------------- ---------------- ---------------
Net cash provided by operating activities                                   1,098,874          211,071       1,380,833
                                                                     ----------------- ---------------- ---------------
Investing activities
Purchases of property and equipment excluding
  Internet website development                                              (189,102)      (1,459,044)       (331,056)
Purchase of intangible asset-software                                         (2,713)        (149,777)               -
Internet website development                                                        -          (5,000)               -
Purchases of other assets                                                   (378,394)        (170,727)         (3,949)
Security deposit--net                                                          8,844           13,882        (28,955)
                                                                     ----------------- ---------------- ---------------
Net cash used in investing activities                                       (561,365)      (1,770,666)       (363,960)
                                                                     ----------------- ---------------- ---------------
Financing activities
Borrowings of revolving credit facility                                    38,805,673       45,297,318      48,464,498
Payments of revolving credit facility                                    (38,943,926)     (43,636,197)    (49,364,781)
Preferred Stock dividends paid                                               (50,581)         (58,824)        (70,295)
Principal payments on note payable                                           (55,505)         (42,292)               -
Fees relating to private placement                                          (293,170)                -               -
Proceeds from shareholder short-swing profits                                       -                -          21,399
Fees paid in connection with new credit facility                                    -                -        (67,704)
                                                                     ----------------- ---------------- ---------------
Net cash (used) in provided by financing activities                         (537,509)        1,560,005     (1,016,883)
                                                                     ----------------- ---------------- ---------------
Increase (decrease) in cash and cash equivalents                                    -              410            (10)
Cash and cash equivalents at beginning of year                                 16,400           15,990          16,000
                                                                     ----------------- ---------------- ---------------
Cash and cash equivalents at end of year                                      $16,400          $16,400         $15,990
                                                                     ================= ================ ===============
Supplemental cash flow information:
Interest paid                                                                $380,000         $222,000        $210,000
                                                                     ================= ================ ===============
Taxes paid                                                                     $5,000          $48,000        $137,000
                                                                     ================= ================ ===============
</TABLE>

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

                                      F-6


<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.

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."


                                       F-7


<PAGE>


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 10).

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 2006
and 2004.

Stock-Based Compensation

In  fiscal  2005,  the  Company  adopted  the  provisions  of  FAS  No.  123(R),
"Share-Based Payment" ("FAS 123(R)"). Under FAS123(R),  share-based compensation
cost is  measured at the grant date,  based on the  estimated  fair value of the
award,  and is  recognized  as expense over the requisite  service  period.  The
Company  adopted  the  provisions  of  FAS123(R)  using a  modified  prospective
application.  Under  this  method,  compensation  cost  is  recognized  for  all
share-based payments granted, modified or settled after the date of adoption, as
well as for any unvested awards that were granted prior to the date of adoption.
Prior  periods are not revised for  comparative  purposes.  In prior years,  the
Company previously adopted only the pro forma disclosure provisions of SFAS 123.


                                       F-8


<PAGE>



There were no stock options issued or vested during the fiscal years 2006,  2005
and 2004 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 $ - 0 - and $5,000 for fiscal years 2006 and
2005, 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 6).








                                       F-9


<PAGE>


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>

                                                    2006             2005             2004
                                                    ----             ----             ----
Numerator:
<S>                                             <C>                <C>            <C>
Net (loss) income                               $(3,237,561)       $(830,343)     $1,273,900
Dividends on convertible preferred stock
                                                    (44,495)         (52,796)        (70,295)
                                                    --------         --------        --------
Numerator for basic earnings per share
   - net (loss) income attributable to
   common stockholders                          $(3,282,056)       $(883,139)     $1,203,605
Effect of dilutive securities:
    Dividends on convertible preferred
   stock                                                  -                -          70,295
                                                -------------      ------------   -------------

Numerator for diluted earnings per
   share - net (loss) income available
   to common stockholders after
     assumed conversion                          $3,282,056)       $(883,139)     $1,273,900
Denominator:
Denominator for basic earnings per
   share - weighted average shares
   outstanding during the period                    890,142          873,859         831,131
Effect of dilutive securities:
   Stock options                                          -                -           9,602
   Convertible preferred stock                            -                -         167,640
Denominator for diluted earnings per
   share - adjusted weighted average            -------------      ------------   -------------
   shares and assumed conversions                     873,859         1,008,373         890,142
                                                      =======         =========    =============
Basic net (loss) income per share                      $(3.69)           $(1.01)          $1.45
                                                       =======           =======          =====
Diluted net (loss) income  per share                   $(3.69)           $(1.01)          $1.26
                                                       =======           =======          =====
</TABLE>

No Preferred Stock was outstanding at October 28, 2006. Common Stock equivalents
were not included in the diluted earnings per share calculation for fiscal 2006,
as they  were  anti-dilutive.  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.




                                      F-10


<PAGE>


Options and warrants aggregating 209,250,  86,800 and 168,707 were excluded from
the  computation for fiscal years 2006,  2005 and 2004,  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 and certain promotional  allowances 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.








                                      F-11


<PAGE>


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.

In the fourth  quarter of fiscal  2006,  the  Company  initiated a change in its
advertising  campaign which was modified to reflect  current market  conditions,
customer needs and service demands.  The new marketing  strategy was designed to
better  promote  the  Harvey  brand and its  installation  and home  integration
offerings.

Accordingly,  certain  promotional  allowances  received  by  vendors  that were
previously  recorded as a reduction of advertising expense are now recorded as a
reduction  of  inventory  costs and cost of goods  sold,  relating to the fourth
quarter, if the expenditure no longer represents  identifiable costs incurred by
the Company to promote its products.

As a result,  $360,000 of promotional allowances were reflected as an adjustment
to inventory  ($100,000) and a reduction of cost of goods sold ($260,000) in the
fourth quarter of fiscal 2006 for promotional  allowances  related to the fourth
quarter.

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

<TABLE>
<CAPTION>

                                               Fiscal 2006        Fiscal 2005        Fiscal 2004
                                               -----------        -----------        -----------
<S>                                            <C>                <C>                <C>
        Gross advertising expenditures          $1,970,000        $2,700,000         $2,700,000

        Cooperative advertising
          Reimbursements                         1,356,000        1,975,000          2,230,000
                                               -----------        ---------          ---------

        Net advertising expense                $   614,000        $  725,000         $  470,000
                                               ===========        ==========         ==========
</TABLE>








                                      F-12

<PAGE>

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 Series A  Preferred  Stock.  All of the Series A  Preferred  Stock have been
converted to the  Company's  Common Stock as of October 28, 2006.  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 28,  2006 and  October 29,  2005,
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.

At October 28, 2006 and again in the second quarter of fiscal 2006 and 2005, 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.






                                      F-13

<PAGE>



Recent Accounting Pronouncements

In July 2006, the Financial  Accounting  Standards  Board  ("FASB")  issued FASB
Interpretation  No.  48,  "Accounting  for  Uncertainty  in  Income  Taxes -- an
interpretation  of FASB  Statement  No. 109" ("FIN 48").  FIN 48  clarifies  the
accounting and reporting for uncertainties in income tax law. The interpretation
prescribes  a  comprehensive  model  for the  financial  statement  recognition,
measurement,  presentation  and  disclosure of uncertain tax positions  taken or
expected to be taken in income tax returns. FIN 48 is effective for fiscal years
beginning  after  December 15,  2006.  The Company is  currently  assessing  the
impact, if any, of FIN 48 which it will adopt at the beginning of Fiscal 2008.

In June 2006,  the FASB ratified  Emerging  Issues Task Force ("EITF") Issue No.
06-3,   "How  Taxes  Collected  from  Customers  and  Remitted  to  Governmental
Authorities  Should Be Presented in the Income  Statement (that is, Gross versus
Net Presentation)", which allows companies to adopt a policy of presenting taxes
in the income  statement on either a gross or net basis.  Taxes within the scope
of this EITF  would  include  taxes that are  imposed  on a revenue  transaction
between a seller and a customer.  If such taxes are significant,  the accounting
policy  should  be  disclosed  as well as the  amount of taxes  included  in the
financial  statements if presented on a gross basis.  EITF 06-3 is effective for
interim and annual  reporting  periods  beginning  after  December 15, 2006. The
Company is currently assessing the impact, if any, of EITF Issue No. 06-03 which
it will adopt at the beginning of Fiscal 2008.

2. Private Placement and Change of Control

On April 17, 2006, the Company entered into a Securities Purchase Agreement (the
"Purchase  Agreement"),  modified by an amendment  dated September 8, 2006, with
several  institutional  and other accredited  investors (the "Investors") led by
Trinity Investment  Partners LLC ("Trinity").  On November 10, 2006, the Company
completed  this  transaction.  Pursuant to the Purchase  Agreement,  the Company
received  $4,000,000  ($3,430,000  net of  closing  costs)  from the  sale  (the
"Private  Placement") of 8% Series B Convertible  Preferred Stock (the "Series B
Preferred  Stock").  The proceeds from the Private Placement will be used by the
Company primarily for general  corporate and working capital  purposes,  to fund
increased  advertising  expenditures,  to replace the  Company's  website and to
refurbish existing stores.

The Company's  shareholders  incurred  substantial  dilution of their percentage
ownership in the Company upon the closing of the Private Placement. Based on the
number of common shares outstanding at October 28, 2006, the aggregate ownership
of all  holders of the common  stock  immediately  prior to the  issuance of the
securities pursuant to the Private Placement, on a fully diluted basis, would be
reduced by approximately 82.4%. While this represents  significant dilution, the
Company received the funds necessary to substantially  advance its business.  If
all warrants issued in connection with the Private Placement are exercised,  the
Company will receive  approximately  $13.4  million  including  the $4.0 million
received at closing.


                                      F-14


<PAGE>



The  Purchase  Agreement  and the  related  transactions  were  approved  by the
Company's  shareholders,  at the annual meeting of  shareholders  on October 27,
2006.

The Series B Preferred Stock is convertible at any time into 1,428,571 shares of
the  Company's  common stock at $2.80 per share.  The  Investors  also  received
Series A seven-year  warrants to purchase an aggregate of 428,573  shares of the
Company's  common  stock,  exercisable  at $5.60 per share.  The dividend on the
Series B  Preferred  Stock can be paid in cash or common  stock at the option of
the  Company  and  must  be  approved  by  the  Company's  lender.  The  rights,
preferences  and  privileges  of the  holders  of the new Series B Stock are set
forth in the required Amended and Restated Certificate of Incorporation.

In  connection  with the Private  Placement,  the Company  also  entered  into a
Consulting Agreement,  as amended, with Trinity.  Trinity received reimbursement
of $350,000 in expenses at the closing,  received a Series B seven-year  warrant
to purchase  500,000 shares of the Company's  common stock  exercisable at $2.80
per share,  and a Series C seven-year  warrant to purchase 875,000 shares of the
Company's  common  stock  exercisable  between  $3.20 and $6.80 per share in ten
equal  tranches,  with the exercise  price  increasing by $0.10 in each tranche.
Cash  transaction  expenses in connection  with the proposed  Private  Placement
approximate $743,000, including the $350,000 reimbursed to Trinity.

A Registration  Rights  Agreement was executed by the Company and the Investors.
Pursuant to this  agreement,  the  Company is  obligated  to  register  with the
Securities and Exchange  Commission  ("SEC") the shares of common stock that are
issuable upon exercise of the Series A Warrant and upon conversion of the Series
B Preferred Stock. In accordance with the separate Registration Rights Agreement
between the Company, Trinity, and D. Andrew Stackpole, the Company has agreed to
register with the SEC the shares of common stock that are issuable upon exercise
of the Series B and Series C Warrants and shares issued or issuable  pursuant to
the warrants relating to the Employment Agreement ("Employment  Agreement") with
D. Andrew  Stackpole,  provided that such shares will not be registered until at
least  six  months  following  the  effective  date of the  Registration  Rights
Agreement for the benefit of the Investors.  In connection with all registerable
securities,  the Company  will be required to pay a penalty  (9%) for failure to
timely file the Registration Rights Agreement or have it declared effective.







                                      F-15


<PAGE>



vFinance Investments, Inc. ("vFinance") acted as placement agent for the Private
Placement.  At the  closing  of the  transaction,  vFinance  and  its  affiliate
Harborview  Capital  Management,   an  institutional  investor  in  the  Private
Placement,  received  350  shares  of  Series B  Preferred  Stock and a Series A
seven-year  warrant to purchase  125,000  shares of the  Company's  common stock
exercisable  at $5.60  per share in lieu of a cash fee.  In  addition,  vFinance
received  the sum of $50,000 in cash which  shall be donated to a charity of its
choice and also received reimbursement of its legal fees aggregating $50,000.

At the closing of the transaction,  D. Andrew Stackpole, the founder of Trinity,
became  the  Company's  new  Chairman  pursuant  to the  terms of an  Employment
Agreement between the Company and Mr. Stackpole.  The Employment Agreement was a
condition for closing of the Purchase Agreement, and provides for the payment to
Mr.  Stackpole  of salary and bonus of $350,000  at the end of the twelve  month
period following the closing of the transaction,  which will be paid in warrants
to purchase the  Company's  common  stock.  Trinity  will receive no  additional
compensation  for services of its  employees or advisors  made  available to the
Company.

As a result of the closing of the Private Placement, the Company's current Board
of Directors  was replaced by a new slate of nine  Directors,  six of which were
appointed  by  Trinity.  This new slate of  Directors,  as well as the  restated
bylaws to provide for a staggered  board of  directors  and  limitations  on the
removal of such  directors  were approved by the Company's  shareholders  at the
annual meeting.

The Company's  current  management team has remained in their current  positions
following the  transaction  except the Chairman and President  /Chief  Executive
Officer. In connection with this transaction only, the Company's management team
waived  certain  change  of  control  provisions  contained  in their  severance
agreements and, for doing so, are receiving special retention bonuses of $10,000
per quarter for the next ten consecutive quarters which began in May 2006.

The Company's  certificate of  incorporation  was also amended and restated,  as
approved by the  shareholders,  to add the new class of Series B Preferred Stock
and to increase  the  Company's  authorized  number of shares of common stock to
accommodate the Private Placement.

Furthermore,  at the closing of the Private Placement, the Company's utilization
of its net operating loss  carryforwards has been limited as a change of control
has taken place pursuant to Internal Revenue Code Section 382.

Following the resignation of the  President/Chief  Executive  Officer in October
2006, the Company appointed a new interim Chief Executive Officer.






                                      F-16

<PAGE>

3. 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.  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 credit  facility is either 0.25%
over Webster  Bank's prime rate (8.50% at October 28, 2006) or LIBOR plus 2.75%,
at the Company's option.  Under the credit facility,  the Company pays Webster a
reduced  maintenance  fee of $1,000 per month and a monthly  unused line fee, as
defined in the credit facility.

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).

In  September  2005,  the  Company  entered  into a First  Amendment  and Waiver
Agreement with Webster which waived any covenant defaults existing at the end of
the  third   quarter  of  fiscal  2005  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 with Webster which modified
the EBITDA and capital  expenditures  covenants  for the first quarter of fiscal
2006. In February 2006, the Company entered into a Third Amendment with Webster,
which further  modified the EBITDA  covenant,  effective at the beginning of the
Company's  second  quarter.  On July 31, 2006, the Company entered into a Fourth
Amendment  with  Webster  which  waived  certain  EBITDA  covenant  defaults and
additionally  provided additional  financing in the form of an over-advance,  if
needed,  on the credit  facility  through  September  30, 2006. On September 18,
2006,  the Company  entered into the Fifth  Amendment and Waiver  Agreement with
Webster which (i) waived certain EBITDA covenant defaults, (ii) modified certain
financial covenants for September and October 2006, (iii) outlined new covenants
for November and December 2006, and (iv) in the event the Private  Placement (as
defined herein) is funded, requires that (A) a new operational and business plan
be  received  from  the  Company  within  thirty  days of  funding,  and (B) new
covenants be set within sixty days of funding.







                                      F-17


<PAGE>

On November 9, 2006,  the Company  entered into the Sixth  Amendment and Consent
Agreement  with Webster which (i) consented to the Private  Placement and change
in control,  (ii) modified  certain  Availability  Reserves and the Fixed Charge
Ratio, as defined and, (iii) and modified the Financial  Covenants including the
Capital Expenditures and Excess Availability/Cash  requirements, as defined. The
Company was in compliance with all financial covenants at October 28, 2006.

As the  credit  facility  expires  in two  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 28, 2006
($3,348,000) and October 29, 2005  ($3,486,000),  under the credit facility as a
long-term liability.

4. Stock-Based Compensation

Stock Option Plan

The  Company's  Board  of  Directors  and   shareholders   approved  the  Harvey
Electronics,  Inc.  Stock Option Plan ("Stock  Option Plan") in fiscal 1998. The
Stock Option Plan provides for the granting of up to 1,000,000  (250,000  shares
retroactive  for the 1 for 4  reverse  stock  split)  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  9,602 were
included in the weighted  average  number of common shares  outstanding  for the
diluted  earnings  per  share  computation  for the  fiscal  year  2004.  Common
equivalent  shares  were not  included  for  fiscal  2006 and 2005 as they  were
antidilutive.

In fiscal 2006, 2005 and 2004, no stock options were granted.










                                      F-18


<PAGE>



The following  table  summarizes  activity in stock options  during fiscal 2006,
2005 and 2004:

<TABLE>
<CAPTION>

                                              Shares            Shares Under Option          Weighted-
                                                          --------------------------------    Average
                                          Available for     Option Price      Number of       Exercise
                                             Granting        per Share         Shares          Price
                                          --------------- ----------------- -------------- ---------------
<S>                                           <C>                 <C>          <C>             <C>
   Balance at November 1, 2003                 2,725                           247,275         $5.664
   2004 Stock Option Grants                        -               -                 -              -
      Granted                                      -               -                 -              -
      Forfeited                                    -               -                 -              -
                                          ---------------                   --------------
   Balance at October 30, 2004                  2,725                          247,275         $5.664

   2005 Stock Option Grants                        -               -                 -              -
      Granted                                      -               -                 -              -
      Forfeited                               24,875               -           (24,875)        $6.284
                                          ---------------                   --------------
   Balance at October 29, 2005                27,600                           (222,400)       $5.612

   2006 Stock Option Grants
   Granted                                         -               -                 -              -
   Forfeited                                  16,875               -           (16,875)        $4.368
                                              ------                           --------
   Balance at October 28, 2006                44,475                           205,525         $5.732
                                             =======                           =======
</TABLE>

At October 28,  2006,  October 29, 2005 and October 30,  2004,  all  outstanding
options are exercisable.






                                      F-19


<PAGE>



Exercise prices for options outstanding as of October 28, 2006 are as follows:

                                                                 Weighted-
                         Number of                                Average
                          Options             Options            Remaining
       Range of       Outstanding at        Exercisable at     Contractual Life
    Exercise Price       Year End             End of Year          In Years
-------------------  -----------------    -----------------    ----------------
             $3.25            18,750             18,750           5
             $3.75            22,500             22,500           5
             $4.00            13,156             13,156           2
             $4.60            22,500             22,500           6
             $5.06             6,250              6,250           1
             $5.40            22,500             22,500           6
             $5.50             7,500              7,500           5
             $6.00            43,125             43,125           3
             $7.00            22,500             22,500           4
             $7.44            11,250             11,250           4
             $8.00               744                744           1
            $12.00            14,750             14,750           1
                     ----------------- ------------------
                              205,525            205,525         4.02
                     ================= ==================

A summary of stock option  transactions is as follows for the year ended October
28, 2006.

<TABLE>
<CAPTION>

                                                    Weighted Average       Weighted Average
                                Number of Shares   Exercise Price Per     Remaining Contract        Aggregate
                                                          Share                  Term            Intrinsic Value
                               ------------------- -------------------- ----------------------- -------------------
Options outstanding at
<S>     <C> <C>                     <C>                  <C>                     <C>
October 29, 2005                    222,400              $5.612                  5.09                   -
Options granted                        -                    -                     -                     -
Exercised                                                   -                     -                     -
Canceled                            (16,875)             $4.136                   -                     -
                               ------------------- -------------------- ----------------------- -------------------
Options outstanding at
October 28, 2006                    205,525              $5.732                  4.02                   -
                               =================== ==================== ======================= ===================
Options exercisable at
October 28, 2006                    205,525              $5.732                  4.02                   -
                               =================== ==================== ======================= ===================
</TABLE>




                                      F-20


<PAGE>

In  fiscal  2005,  the  Company  adopted  the  provisions  of  FAS  No.  123(R),
"Share-Based Payment" ("FAS 123(R)"). Under FAS123(R),  share-based compensation
cost is  measured at the grant date,  based on the  estimated  fair value of the
award,  and is  recognized  as expense over the requisite  service  period.  The
Company  adopted  the  provisions  of  FAS123(R)  using a  modified  prospective
application.  Under  this  method,  compensation  cost  is  recognized  for  all
share-based payments granted, modified or settled after the date of adoption, as
well as for any unvested awards that were granted prior to the date of adoption.
Prior  periods are not revised for  comparative  purposes.  In prior years,  the
Company previously adopted only the pro forma disclosure provisions of SFAS 123.

The fair value of each  future  option  award will be  estimated  on the date of
grant using a Black-Scholes option valuation model.  Expected volatility will be
based on the  historical  volatility  of the price of the Company's  stock.  The
risk-free  interest rate will be based on U.S. Treasury issues with a term equal
to the  expected  life of the option.  The Company will use  historical  data to
estimate expected dividend yield, expected life and forfeiture rates.

The revised Statement required entities to disclose information about the nature
of the share-based payment transactions and the effects of those transactions on
the financial statements. This pronouncement was adopted in fiscal year 2005 and
has had no impact on the Company's  financial  position or results of operations
as no stock options were granted,  and no previously issued stock options vested
in fiscal 2005 or fiscal 2006.

At October 28, 2006 and October 29,  2005,  the Company has  reserved  shares of
Common Stock for issuance  under Common Stock  options,  warrants and  preferred
stock of approximately 209,250 and 226,000, respectively.

5. 8.5% Cumulative Convertible Series A Preferred Stock

The Company's Series A 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 Series A Preferred
Stock  is  $-0-  and  $275,682  at  October  28,  2006  and  October  29,  2005,
respectively.

In the event of liquidation of the Company,  the holders of outstanding Series A
Preferred  Stock  shall  receive  preferential  rights and shall be  entitled to
receive an aggregate  liquidation  preference  plus any  outstanding  dividends,
prior to any distributions to common  shareholders.  The holders of the Series A
Preferred  Stock shall receive a semiannual  8.5%  cumulative  dividend ($85 per
share), payable on the last business day in June and December.





                                      F-21


<PAGE>


875 shares of the Series A 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 conversion price was set at $1.2333 on January 1, 2001.

Cumulative Series A Preferred Stock dividends payable of $11,000 and $17,000 are
outstanding  and  classified  as a current  liability  at October  28,  2006 and
October 29,  2005,  respectively.  Dividends  aggregating  $44,000,  $53,000 and
$70,000 were recorded as a charge to  accumulated  deficit in fiscal years 2006,
2005 and 2004, respectively.

6. 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 28, 2006, October 29, 2005
and October 30, 2004, the Company recorded an income tax equivalent provision of
$ - 0 -, $ -0- and $135,000,  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.



                                      F-22

<PAGE>

In the third  quarter of fiscal  2006,  the  Company  provided a full  valuation
allowance  against  previously  recorded net deferred tax assets.  In accordance
with SFAS 109,  "Accounting  For Income  Taxes",  this  valuation  allowance was
necessary  because the Company  experienced  cumulative  losses for its last two
fiscal years,  including the increased loss in fiscal 2006 and declining  sales,
which create a degree of  uncertainty  regarding the future  realization of such
net  deferred  tax  assets.  As a result,  the Company  recorded a deferred  tax
expense of $1,350,000 in the third quarter of 2006.

The provision for income taxes  (benefits) for the years ended October 28, 2006,
October 29, 2005 and October 30, 2004 consists of the following:

                          October 28, 2006  October 29, 2005  October 30, 2004
                          ----------------  ----------------  ----------------
Current:
Federal                            $ -               $ -            $  25,000
State                                -                 -               35,000
Equivalent tax expense               -                 -              135,000
                          ----------------- ----------------- -----------------
                                     -                 -              195,000
Deferred tax (benefit)           1,350,000             -             (977,000)
                          ----------------- ----------------- -----------------
                                $1,350,000           $ -            ($782,000)
                          ================= ================= =================










                                      F-23


<PAGE>


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

                                               Year Ended                     Year Ended                  Year Ended
                                            October 28, 2006               October 29, 2005            October 30, 2004
                                        ------------- ------------- -------------- ------------- ------------- -------------
                                           Amount          %           Amount           %           Amount          %
                                        ------------- ------------- -------------- ------------- ------------- -------------

Federal income tax provision
<S>                                      <C>             <C>         <C>              <C>        <C>            <C>
   (benefit) at statutory rate          $(621,000)       (34%)       $(282,000)        34.0%     $  167,000     34.0%
State income taxes, net of Federal
   benefit                                (96,000)        (5.3%)       (45,000)         5.4          52,000     10.6%

Valuation allowance                      2,060,000       112.7%        338,000        (40.7)       (977,000)  (198.6%)

Other, net                                   7,000          .4%        (11,000)         1.3         (24,000)   (4.9%)
                                        ------------- ------------- -------------- ------------- ------------  -------------
                                        $1,350,000        73.8%       $-                 -        ($782,000)   (158.9%)
                                        ============= ============= ============== ============= ============  =============
</TABLE>

The Company has deferred tax assets and deferred tax liabilities as presented in
the table  below.  The net  deferred  tax  assets  are  subject  to a  valuation
allowance,  which was approximately $2,872,000 and $812,000, at October 28, 2006
and October 29, 2005, respectively.

Deferred tax assets and  liabilities as of October 28, 2006 and October 29, 2005
consisted of the following:

<TABLE>
<CAPTION>


                                                            October 28,        October 29,
                                                                2006               2005
                                                           ---------------- -----------------
<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             1,367,000           864,000
Deferred rent                                                      189,000           131,000
Expenses not currently deductible                                  140,000            10,000
Inventories                                                         79,000            84,000
Depreciable assets                                                 505,000           462,000
Tax credits                                                         21,000            37,000
                                                           ---------------- -----------------
Total deferred tax assets                                        2,896,000         2,183,000
                                                           ---------------- -----------------

Website development costs                                          (1,000)           (2,000)
Intangible assets                                                 (23,000)          (19,000)
                                                           ---------------- -----------------
Total deferred tax liabilities                                    (24,000)          (21,000)
                                                           ---------------- -----------------

Net                                                              2,872,000         2,162,000

Valuation allowance                                            (2,872,000)         (812,000)
                                                               -----------         ---------
Total                                                                 $  -       $1,350,000
                                                           ================ =================
</TABLE>



                                      F-24


<PAGE>



At October 28, 2006, the Company  determined that the valuation  allowance would
be increased by $2,060,000 due to the current year operating  losses and revised
projected taxable income.

At October 28, 2006, the Company has available net operating loss  carryforwards
of  approximately  $4,700,000 which expire in various years through fiscal 2026.
Due to a change in control of the ownership of the Company,  the annual usage of
these net operating loss carry-  forwards will be subject to  limitation.  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 $100,000 per year.

7. Pension and Profit Sharing Plan

The Company maintains the Harvey  Electronics,  Inc. Savings and Investment Plan
(the "Plan") which includes  profit  sharing,  defined  contribution  and 401(k)
provisions and is available to all eligible employees of the Company. There were
no employer contributions to the Plan for fiscal 2006, 2005 and 2004.

8. 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 28,
2006:

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

        Fiscal 2007                               $ 2,301,000
        Fiscal 2008                                 2,265,000
        Fiscal 2009                                 2,047,000
        Fiscal 2010                                 1,637,000
        Fiscal 2011                                 1,369,000
        Thereafter                                  5,720,000
                                         ---------------------
Total minimum lease payments                     $ 15,339,000
                                         =====================

Total  rental  expense  for  operating  leases  was  approximately   $3,363,000,
$3,163,000 and $3,097,000  for fiscal years 2006,  2005 and 2004,  respectively.
Certain  leases  provide  for the  payment of  insurance,  maintenance  charges,
electric and taxes and contain renewal options.



                                      F-25


<PAGE>


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.




                                      F-26


<PAGE>



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.

9. Reverse Stock Split

The  Company's  shareholders,  at the annual  meeting,  approved a reverse stock
split of its common  stock at an exchange  ratio of 1 for 4. The  reverse  stock
split was completed  November 10, 2006 The reverse stock split was retroactively
reflected in the financial statements.



















                                      F-27


<PAGE>
10. Other Information

<TABLE>
<CAPTION>

Other Assets
                                                                      October 28,              October 29,
                                                                          2006                    2005
                                                               --------------------------- --------------------
<S>                                                                              <C>                  <C>
     Deposits on new computer system                                             $549,000             $171,000
     Security deposits                                                            171,000              180,000
     Costs related to Private Placement                                           293,000                    -
     Other                                                                         46,000               64,000
                                                               --------------------------- --------------------
                                                                               $1,059,000             $415,000
                                                                               ==========             ========


Accrued Expenses and Other Current Liabilities
                                                                          October 28,             October 29,
                                                                             2006                     2005
                                                                  ---------------------------- -------------------

        Payroll and payroll related items                                            $661,000            $370,000
        Accrued professional fees                                                     449,000             215,000
        Sales taxes                                                                   158,000             147,000
        Accrued occupancy                                                              79,000             209,000
        Accrued bonuses                                                               195,000             174,000
        Accrued Unclaimed Property                                                     55,000              84,000
        Other                                                                         207,000             116,000
                                                                  ---------------------------- -------------------
                                                                                   $1,804,000          $1,315,000
                                                                                   ==========          ==========

Components of Net Sales

                                                            2006                      2005                   2004
                                                            ----                      ----                   ----
           Equipment Sales                           $31,725,000               $36,146,000            $39,475,000
           Labor Sales                                $4,303,000                $4,298,000             $3,670,000
                                       -------------------------- ------------------------- ----------------------
                                                     $36,028,000               $40,444,000            $43,145,000
                                                     ===========               ===========            ===========

Components of Cost of Sales

                                                            2006                      2005                   2004
                                                            ----                      ----                   ----
           Equipment Sales                           $19,714,000               $22,355,000            $24,294,000
           Labor Sales                                $1,194,000                $1,234,000             $1,100,000
                                       -------------------------- ------------------------- ----------------------
                                                     $20,908,000               $23,589,000            $25,394,000
                                                     ===========               ===========            ===========

</TABLE>


                                      F-28


<PAGE>



Fourth Quarter Adjustments

Effective  October 26, 2006,  the Company  entered into a termination  agreement
with its President and Chief Executive  Officer whereby the executive  agreed to
resign employment and his directorship. In consideration, the executive received
$55,000 in November  2006 and  additionally  will receive  $10,000 per month for
twelve  consecutive  months,  aggregating  $175,000.  The  executive  will  also
continue his medical  coverage  under COBRA for the one year  period,  where the
Company  will  continue to pay its portion of the premiums for this twelve month
period. This agreement replaced the executive's severance agreement.

As previously authorized by the Company's Compensation Committee for services up
to the end of fiscal 2006,  and upon the  shareholders'  approval of the Private
Placement on October 27, 2006,  the  Company's  former  Chairman  entered into a
termination  settlement  agreement  with the Company.  In  connection  with this
agreement, the Chairman received $100,000 and resigned. The Chairman will remain
as a Board member in fiscal 2007. The Company's  Chairman will also continue his
medical  coverage  under COBRA for a one year  period,  where the  Company  will
continue to pay its portion of the insurance  premiums.  This agreement replaced
the Chairman's severance agreement.

As a result of the contractual  arrangements with the President/Chief  Executive
Officer and former Chairman relating to their termination,  the Company recorded
a provision  for  severance  costs of  $284,000 in the fourth  quarter of fiscal
2006.

In connection  with the Private  Placement,  the Company's Vice  Presidents were
required, as a condition to closing, to agree that neither the Private Placement
nor the  purported  tender  offer by  Modern  Technology  Group,  Inc.  publicly
announced prior to the closing shall constitute a change of control or Potential
Change of Control as delivered in their Amended Severance Agreements.

In addition,  the Company's  Vice  Presidents  are entitled to receive,  and the
Company has been accruing,  quarterly special retention bonuses of $10,000 each,
per quarter,  for ten quarters commencing in May 2006 and continuing during such
time  for as  long  as  such  members  of the  management  team  continue  their
employment with the Company.  These retention bonuses accrue monthly. For fiscal
2006,  these retention  bonuses  aggregated  $60,000 and are included in accrued
expenses at October 28, 2006.

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.













                                      F-29


<PAGE>

Other

Effective  September  22,  2006,  the  Company  engaged  a  consultant  under  a
month-to-month  consulting services agreement. The consulting services agreement
called  for a  weekly  fee of  $5,765  plus  expenses.  Total  fees  paid to the
consultant in fiscal 2006, under the consulting  services  agreement  aggregated
$58,000.

Subsequent to the  termination  of the Company's  President and Chief  Executive
Officer,  the consultant  was named Interim Chief  Executive  Officer  ("Interim
CEO") of the Company.

On December 19, 2006, the Company entered into an employment  agreement with the
Interim  CEO.  The terms of the  employment  agreement  shall  continue  through
January 31, 2007,  with one month  extension  periods for three  months,  at the
Company's option.  The Interim CEO is receiving a salary of $21,500 a month plus
expenses in accordance with the employment agreement.

Pursuant  to this  agreement,  the  Company  has agreed to grant the Interim CEO
non-qualified  vested stock options of 37,500 on January 31, 2007,  provided the
Interim  CEO  continues  to be  employed  until  such  date.  12,500  additional
non-qualified  stock options will be granted and will vest on February 28, 2007,
March 31, 2007 and April 30, 2007,  respectively,  aggregating  75,000  options,
provided the Company has elected to extend the  employment  agreement  for these
monthly extension periods. The exercise price on all options for the purchase of
each  share of the  Company's  Common  Stock is $4.00 per share.  These  monthly
options  will vest on a pro rata basis if the  Company  or Interim  CEO elect to
terminate the employment  agreement during any of the specified extended monthly
periods.

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.







                                      F-30


<PAGE>

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 the Company had $40,000  payable to this law firm.  The Company  paid legal
fees to this law firm of approximately $41,000, in fiscal year 2005.

11. Quarterly Financial Data (Unaudited)

<TABLE>
<CAPTION>

                                                                        Net (Loss) Income
                                                                      Applicable to Common
2006                          Net Sales            Gross Profit               Stock              Basic EPS         Diluted EPS
----------------------- ---------------------- ---------------------- ---------------------- ------------------ ------------------
<S>                         <C>                     <C>                      <C>                   <C>                <C>
First quarter               $11,385,253            $4,551,347               $32,957                $.04               $.04
Second quarter                9,545,930             4,019,251               (64,231)               (.08)              (.08)
Third quarter                 7,623,855             3,224,255            (2,187,030)(2)           (2.48)             (2.48)
Fourth quarter                7,472,737             3,325,189            (1,057,088)(1)           (1.17)             (1.17)
2005
----------------------- ---------------------- ---------------------- ---------------------- ------------------ ------------------
First quarter               $12,085,014            $5,097,150              $259,791                $.32                $.28
Second quarter                9,727,880             4,045,054              (197,714)               (.24)              (.24)
Third quarter                 9,019,892             3,737,742              (647,615)               (.76)              (.72)
Fourth quarter                9,611,588             3,975,575              (297,601)               (.33)              (.33)

</TABLE>


(1)  See Note 10 relating to fourth quarter adjustments.
(2)  Includes deferred tax expense of $1,350,000.





                                      F-31

<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    Charged to      Other changes -  Balance at end of
                                           beginning of  to costs             other accounts- add (deduct) -   period
                                           period        and expenses         describe        describe
------------------------------------------ ------------- -------------------  --------------- ---------------- -----------------
Fiscal year ended October 28, 2006
Reserves and allowances
    Deducted from asset accounts:
               Allowance for doubtful
<S>                                         <C>            <C>                                      <C>                   <C>
               Accounts                     $20,000        $4,806                                   $(4,806)               $20,000
               Allowance for sales returns  $ - 0 -             -                $50,000(2)                -               $50,000

Fiscal year ended October 29, 2005
Reserves and allowances
    deducted from asset accounts:
         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

</TABLE>


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

(2)  Sales returns charged against net sales.


                                      F-32


<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  January  10, 2007  relating to the
financial statements of Harvey Electronics, Inc., which is included in Item 8 of
this Form 10-K,  included the audits of the  financial  statement  schedule II -
Valuation  and  Qualifying  Accounts for the three year period ended October 28,
2006. 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
January 10, 2007

















                                      F-33