EXHIBIT 10.4 SECURED CONVERTIBLE NOTE

EXHIBIT 10.4

NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS

CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR

THE SECURITIES COMMISSION OF ANY STATE. THESE SECURITIES HAVE BEEN SOLD IN

RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,

AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD

EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT

OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,

THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH

APPLICABLE STATE SECURITIES LAWS.

HARVEY ELECTRONICS, INC.

SECURED CONVERTIBLE DEBENTURE

Issuance Date: August 22, 2007 Original Principal Amount: $4,000,000

No. HRVE-1-3

FOR VALUE RECEIVED, HARVEY ELECTRONICS, INC., a New York corporation (the

"Company"), hereby promises to pay to the order of YA GLOBAL INVESTMENTS, L.P.

or registered assigns (the "Holder") the amount set out above as the Original

Principal Amount (as reduced pursuant to the terms hereof pursuant payment of

Installment Amount(s), redemption, conversion or otherwise, the "Principal")

when due, whether upon the Maturity Date (as defined below), on any Installment

Date with respect to the Installment Amount due on such Installment Date (each,

as defined herein), acceleration, redemption or otherwise (in each case in

accordance with the terms hereof) and to pay interest ("Interest") of an

Interest Installment Amount due on such Interest Installment Date on any

outstanding Principal at the applicable Interest Rate from the date set out

above as the Issuance Date (the "Issuance Date") until the same becomes due and

payable, whether upon an Interest Installment Date (as defined below), or the

Maturity Date or acceleration, conversion, redemption or otherwise (in each case

in accordance with the terms hereof). This Secured Convertible Debenture

(including all Secured Convertible Debentures issued in exchange, transfer or

replacement hereof, this "Debenture") is one of an issue of Secured Convertible

Debentures issued pursuant to the Securities Purchase Agreement (collectively,

the "Debentures" and such other Senior Convertible Debentures, the "Other

Debentures"). Certain capitalized terms used herein are defined in Section 17.

(1) GENERAL TERMS

(a) Payment of Principal. On each Installment Date, the Company shall pay

to the Holder an amount equal to the Installment Amount due on such Installment

Date, provided however the Company shall not be obligated to make an payment of

an Installment Amount on an Installment Date provided that i) the Underlying

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Shares Registration Statement is effective, (ii) no Event of Default has

occurred, iii) for five (5) consecutive Trading Day Volume Weighted Average

Price is at or above one hundred twenty five percent (125%) of the then

effective Conversion Price and iv) the average daily trading volume of the

Company's Common Stock, as quoted by Bloomberg LP, exceeds two hundred fifty

thousand (250,000) shares.

(b) On the Maturity Date, the Company shall pay to the Holder an amount in

cash representing all outstanding Principal, accrued and unpaid Interest. The

"Maturity Date" shall be August 22, 2010, as may be extended at the option of

the Holder (i) in the event that, and for so long as, an Event of Default (as

defined below) shall have occurred and be continuing on the Maturity Date (as

may be extended pursuant to this Section 1) or (ii) any event shall have

occurred and be continuing on the Maturity Date (as may be extended pursuant to

this Section 1) that with the passage of time and the failure to cure would

result in an Event of Default. Other than as specifically permitted by this

Debenture, the Company may not prepay or redeem any portion of the outstanding

Principal without the prior written consent of the Holder.

(c) Interest. Interest shall accrue on the outstanding principal balance

hereof at an annual rate equal to twelve percent (12%) ("Interest Rate").

Interest shall be calculated on the basis of a 365-day year and the actual

number of days elapsed, to the extent permitted by applicable law. Interest

hereunder shall be paid an amount equal to the Interest Installment Amount due

on each Interest Installment Date and on the Maturity Date (or sooner as

provided herein) to the Holder or its assignee in whose name this Debenture is

registered on the records of the Company regarding registration and transfers of

Debentures at the option of the Company in cash, or, provided that the Equity

Conditions are then satisfied converted into Common Stock at the Closing Bid

Price on the Trading Day immediately prior to the date paid.

(d) Security. The Debenture is secured by (i) a security interest in all of

the assets of the Company and of each of the Company's subsidiaries as evidenced

by the security agreement of even date herewith (the "Security Agreement") and

(ii) a security interest in all of the trademarks of the Company and of each of

the Company's subsidiaries as evidenced by the trademark security agreement of

even date herewith (the "Trademark Security Agreement").

(2) EVENTS OF DEFAULT.

(a) An "Event of Default", wherever used herein, means any one of the

following events which remains uncured for a period of ten (10) business days

from the date of receipt of written notice from the Holder to cure such Event of

Default (whatever the reason and whether it shall be voluntary or involuntary or

effected by operation of law or pursuant to any judgment, decree or order of any

court, or any order, rule or regulation of any administrative or governmental

body):

(i) the Company's failure to pay to the Holder any amount of Principal,

Interest, or other amounts when and as due under this Debenture (including,

without limitation, the Company's failure to pay any redemption payments or

amounts hereunder) or any other Transaction Document;

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(ii) The Company or any subsidiary of the Company shall commence, or there

shall be commenced against the Company or any subsidiary of the Company under

any applicable bankruptcy or insolvency laws as now or hereafter in effect or

any successor thereto, or the Company or any subsidiary of the Company commences

any other proceeding under any reorganization, arrangement, adjustment of debt,

relief of debtors, dissolution, insolvency or liquidation or similar law of any

jurisdiction whether now or hereafter in effect relating to the Company or any

subsidiary of the Company or there is commenced against the Company or any

subsidiary of the Company any such bankruptcy, insolvency or other proceeding

which remains undismissed for a period of 61 days; or the Company or any

subsidiary of the Company is adjudicated insolvent or bankrupt; or any order of

relief or other order approving any such case or proceeding is entered; or the

Company or any subsidiary of the Company suffers any appointment of any

custodian, private or court appointed receiver or the like for it or any

substantial part of its property which continues undischarged or unstayed for a

period of sixty one (61) days; or the Company or any subsidiary of the Company

makes a general assignment for the benefit of creditors; or the Company or any

subsidiary of the Company shall fail to pay, or shall state that it is unable to

pay, or shall be unable to pay, its debts generally as they become due; or the

Company or any subsidiary of the Company shall call a meeting of its creditors

with a view to arranging a composition, adjustment or restructuring of its

debts; or the Company or any subsidiary of the Company shall by any act or

failure to act expressly indicate its consent to, approval of or acquiescence in

any of the foregoing; or any corporate or other action is taken by the Company

or any subsidiary of the Company for the purpose of effecting any of the

foregoing;

(iii) The Company or any subsidiary of the Company shall default in any of

its obligations under any other debenture or any mortgage, credit agreement or

other facility, indenture agreement, factoring agreement or other instrument

under which there may be issued, or by which there may be secured or evidenced

any indebtedness for borrowed money or money due under any long term leasing or

factoring arrangement of the Company or any subsidiary of the Company in an

amount exceeding $100,000, whether such indebtedness now exists or shall

hereafter be created and such default shall result in such indebtedness becoming

or being declared due and payable prior to the date on which it would otherwise

become due and payable;

(iv) If the Common Stock ceases to be so quoted or listed for trading and

shall not again be quoted or listed for trading on the the Nasdaq Capital Market

(the "Primary Market");

(v) The Company or any subsidiary of the Company shall be a party to any

Change of Control Transaction (as defined in Section 6) unless in connection

with such Change of Control Transaction this Debenture is retired;

(vi) The Company shall fail to file the Underlying Shares Registration

Statement with the Commission, or the Underlying Shares Registration Statement

shall not have been declared effective by the Commission, in each case within

thirty (30) days of the periods set forth in the Registration Rights Agreement

("Registration Rights Agreement") dated August 22, 2007 among the Company and

each Buyer listed on Schedule I attached thereto, or, while the Underlying

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Shares Registration Statement is required to be maintained effective pursuant to

the terms of the Investor Registration Rights Agreement, the effectiveness of

the Underlying Shares Registration Statement lapses for any reason (including,

without limitation, the issuance of a stop order) or is unavailable to the

Holder for sale of all of the Holder's Registrable Securities (as defined in the

Investor Registration Rights Agreement) in accordance with the terms of the

Investor Registration Rights Agreement, and such lapse or unavailability

continues for a period of more than ten (10) consecutive Trading Days or for

more than an aggregate of twenty (20) days in any 365-day period (which need not

be consecutive);

(vii) the Company's (A) failure to cure a Conversion Failure by delivery of

the required number of shares of Common Stock within five (5) Business Days

after the applicable Conversion Failure or (B) notice, written or oral, to any

holder of the Debentures, including by way of public announcement, at any time,

of its intention not to comply with a request for conversion of any Debentures

into shares of Common Stock that is tendered in accordance with the provisions

of the Debentures, other than pursuant to Section 4(c);

(viii) The Company shall fail for any reason to deliver the payment in cash

pursuant to a Buy-In (as defined herein) within three (3) Business Days after

such payment is due;

(ix) The Company shall fail to observe or perform any other covenant,

agreement or warranty contained in, or otherwise commit any breach or default of

any provision of this Debenture (except as may be covered by Section 2(a)(i)

through 2(a)(vii) hereof) or any Transaction Document (as defined in Section 17)

which is not cured within the time prescribed.

(x) any Event of Default (as defined in the Other Debentures) occurs with

respect to any Other Debentures.

(b) During the time that any portion of this Debenture is outstanding, if

any Event of Default has occurred, which remains uncured for a period of ten

(10) business days from the date of receipt of written notice from the Holder to

cure such Event of Default, the full unpaid Principal amount of this Debenture,

together with interest and other amounts owing in respect thereof, to the date

of acceleration shall become at the Holder's election, immediately due and

payable in cash; provided however, the Holder may request (but shall have no

obligation to request) payment of such amounts in Common Stock of the Company.

Furthermore, in addition to any other remedies, the Holder shall have the right

(but not the obligation) to convert this Debenture at any time after (x) an

Event of Default which remained uncured for a period of ten (10) business days

from the date of receipt of written notice from the Holder to cure such Event of

Default or (y) the Maturity Date at the lower of the Fixed Conversion Price or

the Market Conversion Price. Following any such Event of Default the Holder need

not provide and the Company hereby waives any presentment, demand, protest or

other notice of any kind, (other than required notice of conversion) and the

Holder may immediately and without expiration of any grace period enforce any

and all of its rights and remedies hereunder and all other remedies available to

it under applicable law. Such declaration may be rescinded and annulled by

Holder at any time prior to payment hereunder. No such rescission or annulment

shall affect any subsequent Event of Default or impair any right consequent

thereon.

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(3) COMPANY REDEMPTION.

(a) Company's Cash Redemption. The Company at its option shall have the

right to redeem ("Redemption") a portion or all amounts outstanding under this

Debenture in addition to any Installment Amount prior to the Maturity Date

provided that as of the date of the Holder's receipt of a Redemption Notice (as

defined herein) (i) the Closing Bid Price is less than the Fixed Conversion

Price, (ii) the Underlying Shares Registration Statement is effective, and (iii)

no Event of Default has occurred or is continuing. The Company shall pay an

amount equal to the principal amount being redeemed plus a redemption premium

("Redemption Premium"), if the Redemption Notice is delivered prior to the

twelve (12) month anniversary date from the date hereof, equal to fifteen

percent (15%) of the Principal amount being redeemed, and accrued Interest, if

the Redemption Notice is delivered between the thirteenth (13th) and twenty

third (23rd) month anniversary date from the date hereof, equal to seven percent

(7%) of the Principal amount being redeemed, and accrued Interest, and if the

Redemption Notice is delivered after the twenty fourth (24th) anniversary date

from the date hereof, equal to five percent (5%) of the Principal amount being

redeemed, and accrued Interest, (collectively referred to as the "Company

Redemption Amount"). The Holder acknowledges that payments of Installment

Amounts made pursuant to Section 1(a) shall not be subject to any Redemption

Premium. In order to make a redemption pursuant to this Section, the Company

shall first provide written notice to the Holder of its intention to make a

redemption (the "Redemption Notice") setting forth the amount of Principal it

desires to redeem. After receipt of the Redemption Notice the Holder shall have

three (3) Business Days to elect to convert all or any portion of this

Debenture, subject to the limitations set forth in Section 4 (d).

(4) CONVERSION OF DEBENTURE. This Debenture shall be convertible into

shares of the Company's Common Stock, on the terms and conditions set forth in

this Section 4.

(a) Conversion Right. Subject to the provisions of Section 4(c), at any

time or times on or after the Issuance Date, the Holder shall be entitled to

convert any portion of the outstanding and unpaid Conversion Amount (as defined

below) into fully paid and nonassessable shares of Common Stock in accordance

with Section 4(b), at the Conversion Rate (as defined below). The number of

shares of Common Stock issuable upon conversion of any Conversion Amount

pursuant to this Section 4(a) shall be determined by dividing (x) such

Conversion Amount by (y) the Conversion Price (the "Conversion Rate"). The

Company shall not issue any fraction of a share of Common Stock upon any

conversion. If the issuance would result in the issuance of a fraction of a

share of Common Stock, the Company shall round such fraction of a share of

Common Stock up to the nearest whole share. The Company shall pay any and all

transfer, stamp and similar taxes that may be payable with respect to the

issuance and delivery of Common Stock upon conversion of any Conversion Amount.

(i) "Conversion Amount" means the portion of the Principal to be converted,

redeemed or otherwise with respect to which this determination is being made.

(ii) "Conversion Price" means, as of any Conversion Date (as defined below)

or other date of determination, $5.60, subject to adjustment as provided herein

(the "Fixed Conversion Price"). Provided however in the event that an Event of

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Default has occurred which remained uncured for a period of ten (10) business

days from the date of receipt of written notice from the Holder to cure such

Event of Default the Conversion Price shall mean the lesser of a) the Fixed

Conversion Price then in effect or b) eighty percent (80%) of the lowest Volume

Weighted Average Price during the ten (10) Trading Days immediately preceding

the Conversion Date (the "Market Conversion Price").

(b) Forced Conversion. Provided that the Underlying Shares Registration

Statement is effective, and no Event of Default has occurred, if for a period of

twenty (20) out of twenty five (25) consecutive Trading Days i) the Volume

Weighted Average Price of the Company's Common Stock is at or above one hundred

twenty five percent (125%) of the then effective Conversion Price and ii) the

average daily trading volume of the Company's Common Stock, as quoted by

Bloomberg LP, exceeds two hundred fifty thousand (250,000) shares the Company

shall have the right to cause the Holder to convert all or a portion of then

outstanding principal hereunder, subject to Section 4(d)(i), herein pursuant to

the Sections 4(a) and (c) herein.

(c) Mechanics of Conversion.

(i) Optional Conversion. To convert any Conversion Amount into shares of

Common Stock on any date (a "Conversion Date"), the Holder shall (A) transmit by

facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., New

York Time, on such date, a copy of an executed notice of conversion in the form

attached hereto as Exhibit I (the "Conversion Notice") to the Company and (B) if

required by Section 4(b)(iv), surrender this Debenture to a nationally

recognized overnight delivery service for delivery to the Company (or an

indemnification undertaking reasonably satisfactory to the Company with respect

to this Debenture in the case of its loss, theft or destruction). On or before

the third Business Day following the date of receipt of a Conversion Notice (the

"Share Delivery Date"), the Company shall (X) if legends are not required to be

placed on certificates of Common Stock pursuant to the Securities Purchase

Agreement and provided that the Transfer Agent is participating in the

Depository Trust Company's ("DTC") Fast Automated Securities Transfer Program,

credit such aggregate number of shares of Common Stock to which the Holder shall

be entitled to the Holder's or its designee's balance account with DTC through

its Deposit Withdrawal Agent Commission system or (Y) if the Transfer Agent is

not participating in the DTC Fast Automated Securities Transfer Program, issue

and deliver to the address as specified in the Conversion Notice, a certificate,

registered in the name of the Holder or its designee, for the number of shares

of Common Stock to which the Holder shall be entitled which certificates shall

not bear any restrictive legends unless required pursuant to Section 2(g) of the

Securities Purchase Agreement. If this Debenture is physically surrendered for

conversion and the outstanding Principal of this Debenture is greater than the

Principal portion of the Conversion Amount being converted, then the Company

shall as soon as practicable and in no event later than three (3) Business Days

after receipt of this Debenture and at its own expense, issue and deliver to the

holder a new Debenture representing the outstanding Principal not converted. The

Person or Persons entitled to receive the shares of Common Stock issuable upon a

conversion of this Debenture shall be treated for all purposes as the record

holder or holders of such shares of Common Stock upon the transmission of a

Conversion Notice. In the event of a partial conversion of this Debenture

pursuant hereto, the principal amount converted shall be deducted from the

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Installment Amounts relating to the Installment Dates as set forth in the

Conversion Notice.

(ii) Company's Failure to Timely Convert. If within three (3) Trading Days

after the Company's receipt of the facsimile copy of a Conversion Notice the

Company shall fail to issue and deliver a certificate to the Holder or credit

the Holder's balance account with DTC for the number of shares of Common Stock

to which the Holder is entitled upon such holder's conversion of any Conversion

Amount (a "Conversion Failure"), and if on or after such Trading Day the Holder

purchases (in an open market transaction or otherwise) Common Stock to deliver

in satisfaction of a sale by the Holder of Common Stock issuable upon such

conversion that the Holder anticipated receiving from the Company (a "Buy-In"),

then the Company shall, within three (3) Business Days after the Holder's

request and in the Holder's discretion, either (i) pay cash to the Holder in an

amount equal to the Holder's total purchase price (including brokerage

commissions and other out of pocket expenses, if any) for the shares of Common

Stock so purchased (the "Buy-In Price"), at which point the Company's obligation

to deliver such certificate (and to issue such Common Stock) shall terminate, or

(ii) promptly honor its obligation to deliver to the Holder a certificate or

certificates representing such Common Stock and pay cash to the Holder in an

amount equal to the excess (if any) of the Buy-In Price over the product of (A)

such number of shares of Common Stock, times (B) the Closing Bid Price on the

Conversion Date.

(iii) Book-Entry. Notwithstanding anything to the contrary set forth

herein, upon conversion of any portion of this Debenture in accordance with the

terms hereof, the Holder shall not be required to physically surrender this

Debenture to the Company unless (A) the full Conversion Amount represented by

this Debenture is being converted or (B) the Holder has provided the Company

with prior written notice (which notice may be included in a Conversion Notice)

requesting reissuance of this Debenture upon physical surrender of this

Debenture. The Holder and the Company shall maintain records showing the

Principal and Interest converted and the dates of such conversions or shall use

such other method, reasonably satisfactory to the Holder and the Company, so as

not to require physical surrender of this Debenture upon conversion.

(d) Limitations on Conversions.

(i) Beneficial Ownership. The Company shall not effect any conversions of

this Debenture and the Holder shall not have the right to convert any portion of

this Debenture or receive shares of Common Stock as payment of interest

hereunder to the extent that after giving effect to such conversion or receipt

of such interest payment, the Holder, together with any affiliate thereof, would

beneficially own (as determined in accordance with Section 13(d) of the Exchange

Act and the rules promulgated thereunder) in excess of 4.99% of the number of

shares of Common Stock outstanding immediately after giving effect to such

conversion or receipt of shares as payment of interest. Since the Holder will

not be obligated to report to the Company the number of shares of Common Stock

it may hold at the time of a conversion hereunder, unless the conversion at

issue would result in the issuance of shares of Common Stock in excess of 4.99%

of the then outstanding shares of Common Stock without regard to any other

shares which may be beneficially owned by the Holder or an affiliate thereof,

the Holder shall have the authority and obligation to determine whether the

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restriction contained in this Section will limit any particular conversion

hereunder and to the extent that the Holder determines that the limitation

contained in this Section applies, the determination of which portion of the

principal amount of this Debenture is convertible shall be the responsibility

and obligation of the Holder. If the Holder has delivered a Conversion Notice

for a principal amount of this Debenture that, without regard to any other

shares that the Holder or its affiliates may beneficially own, would result in

the issuance in excess of the permitted amount hereunder, the Company shall

notify the Holder of this fact and shall honor the conversion for the maximum

principal amount permitted to be converted on such Conversion Date in accordance

with Section 4(a) and, any principal amount tendered for conversion in excess of

the permitted amount hereunder shall remain outstanding under this Debenture.

The provisions of this Section may be waived by a Holder (but only as to itself

and not to any other Holder) upon not less than 65 days prior notice to the

Company. Other Holders shall be unaffected by any such waiver.

(ii) The Total Transaction Shares shall not be greater than 199,500 shares

(which is less than 19.99% of the 998,667 outstanding shares of Common Stock as

of the date of this Debenture), until the Company's shareholders approve

(without the vote of any shares acquired in this transaction and related

transactions) the issuance of the Total Transaction Shares in excess of 19.99%

of the outstanding shares of the Company's Common Stock.

(e) Other Provisions.

(i) The Company shall at all times reserve and keep available out of its

authorized Common Stock the full number of shares of Common Stock issuable upon

conversion of all outstanding amounts under this Debenture; and within three (3)

Business Days following the receipt by the Company of a Holder's notice that

such minimum number of Underlying Shares is not so reserved, the Company shall

promptly reserve a sufficient number of shares of Common Stock to comply with

such requirement.

(ii) All calculations under this Section 4 shall be rounded to the nearest

$0.0001 or whole share.

(iii) The Company covenants that it will at all times reserve and keep

available out of its authorized and unissued shares of Common Stock solely for

the purpose of issuance upon conversion of this Debenture and payment of

interest on this Debenture, each as herein provided, free from preemptive rights

or any other actual contingent purchase rights of persons other than the Holder,

not less than such number of shares of the Common Stock as shall (subject to any

additional requirements of the Company as to reservation of such shares set

forth in this Debenture or in the Transaction Documents) be issuable (taking

into account the adjustments and restrictions set forth herein) upon the

co