================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

        FOR ANNUAL AND TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

  (Mark One)

     [X]     Annual Report pursuant to Section 13 or 15(d) of the Securities
             Exchange Act of 1934. For the fiscal year ended December 31, 2006.

                                       or

     [_]     Transition Report pursuant to Section 13 or 15(d) of the Securities
             Exchange Act of 1934. For the transition period from _____________
             to _____________.


                           COMMISSION FILE NO. 0-27996


                         WIRELESS XCESSORIES GROUP, INC.
                         -------------------------------
             (Exact name of registrant as specified in its charter)


                DELAWARE                                 13-3835420
                --------                                 ----------
     State or other jurisdiction of                    I.R.S. Employer
     incorporation or organization                  Identification Number


               1840 County Line Road, Huntingdon Valley, PA 19006
               (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including Area Code: (215) 322-4600

        Securities registered pursuant to section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, Par Value $.001 per Share

                                 Title of Class
                             American Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports 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 |_|

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<PAGE>

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-KSB is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |_|

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the act). Yes |_| No |X|

The number of issued and outstanding shares of the Registrant's Common Stock net
of Treasury Stock, par value $.001 per share, on March 1, 2007 was 4,414,122.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant (computed by reference to the closing price of such stock on the
American Stock Exchange February 28, 2006 of $ 2.81 was approximately
$10,076,646.



                                PART I

ITEM 1. BUSINESS

ITEM 1 - NARRATIVE
------------------

OVERVIEW & HISTORY
------------------

Wireless Xcessories Group is a leading provider of cell phone accessories to
dealers, distributors, retailers, agents and airtime carriers throughout the
United States and Canada. We have created a variety of product lines, totaling
over 4,000 items designed to appeal to the widest possible spectrum of wholesale
buyers.

In addition to our products, we support our customers with a wide assortment of
Value Added services, including customized retail packaging, displays, posters,
marketing, and sales training materials, and free e-commerce websites.

Our corporation was formed in 1988, as Advanced Fox Antenna, and our product
line increased steadily as handheld cell phones grew in popularity. As part of
an IPO in April 1996, Advanced Fox Antenna, along with two battery related
companies were acquired by the parent company Batteries Batteries, Inc. Between
1997 and 2001 we sold off or otherwise divested ourselves of the battery
companies' businesses, merged a similar cell phone accessory company into our
main operation and changed our name to Wireless Xcessories Group. We have, since
then, focused on our core strengths. We consider ourselves to be the largest
distributor of accessories to independent wireless dealers in the United States.
Our website address is Wirexgroup.com

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PRODUCTS & SERVICES
-------------------

We source, design, create, market and sell a series of accessory product lines
that appeal to all categories of wireless resellers. The bulk of our lines are
aftermarket accessories that our customers sell in lieu of OEM accessories sold
by the cell phone manufacturers.

Our current product lines are called "Standard," "Platinum," and "Industrial
Strength(R)."

The majority of our products are manufactured in China, Hong Kong and Taiwan. In
addition, we also act as a master distributor for well-known brand name products
such as Plantronics, Body Glove, and Blue Ant.

Our product lines are sold along with comprehensive sales and marketing
programs, and a series of value added services designed to separate and
distinguish us in the minds of wireless resellers.

THESE SERVICES ARE OFFERED FREE OF CHARGE:
------------------------------------------

O    Airtime carrier phone and accessories compatible charts
O    E-Mail blast management programs
O    Customized retail packaging
O    Sales training materials
O    In store displays and posters
O    Private Label E-commerce websites that allow customers to offer our full
     product line to their end users

We offer an on-line ordering option to our customers which permits them to view
our current inventory along with our next receive date if an item is out of
stock.

CUSTOMERS
---------
Our customer base consists of more than 2,500 independent dealers from a
one-location mall kiosk to multi-store retail franchisers covering 250 locations
and more. In addition, we sell to some of the largest distributors of cell
phones, computers, and infrastructure products. These distributors in turn
resell to airtime carriers, mass retailers, and prepaid
phone distributors. In 2005, two customers accounted for 8.9% and 5.4% of sales,
respectively, while in 2006, one customer accounted for 6.5% of net sales. No
other customers in either 2005 or 2006 accounted for more than 5% of net sales.

BUSINESS MODEL
--------------

The wireless phone industry is characterized by the continuous and frequent
introduction of new model handsets with design changes, new operating features,
and enhancements that limit the ability of all but a few of our competitors to
compete with the range of aftermarket accessories we offer, especially by having
them available for purchase soon after the phone manufacturers introduces their
new models.

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<PAGE>

We believe we are virtually the only organization that offers resellers three
full product lines to provide a "good, better, best" choice for end users to
purchase.

In addition to being quick to market on accessories for new phones, it is
necessary to have inventory for some handsets for 1-2 years because of their
continuing popularity in certain parts of the country that do not follow the
latest fashion trends.

Because of the rapid pace of new handset introductions, retail sales people find
it hard to keep current on which accessories are compatible among various brands
and models. We help solve this problem by publishing a monthly chart of phone
and accessory compatibilities for our customers who are agents of Verizon,
Cingular, Nextel, T-Mobile, AT&T, and Sprint.

MANAGEMENT DISCUSSION OF FACTORS THAT HAVE AFFECTED OUR SALES GROWTH:
A) During the fourth quarter of 2003 we introduced a new line of rugged
accessories, which we named Industrial Strength. This line has received an
enthusiastic reception and is an important factor in our sales growth.

B) Early in 2004 we introduced a value-added catalog that shows our customers
and prospects all of the free services that are available to grow their
business. To our knowledge, we are the only organization that offers this
variety and depth of market and sales assistance.

C) In the third quarter of 2004, we introduced The Platinum Collection of
accessories, which have features and benefits equal or superior to higher priced
OEM accessories.

D) In 2004 we realigned our sales force and our sales compensation plan to give
incentive to and reward the sales people who grow their business.

E) In early, 2005 we have introduced handsets to supplement our numerous product
offerings. Also, in 2005, we introduced an extensive line of accessories for
Apple I pods, Mp3 players, as well as a 300 item line of OEM Accessories.

F) In early 2006, we partnered with GE Sanyo to provide an exclusive line of
accessories, which they sell to mass retailers. GE Sanyo has given us exclusive
rights to market this product line to the independent wireless dealer channel.

G) During the first quarter of 2006 we introduced a new line of Fashion phone
cases and a new line of Bluetooth accessories by Anycom of Germany.

H) In the third quarter of 2006, we partnered with two leading Point of Sale
Software companies to integrate our real time inventory with their accounting
software packages. We are jointly promoting Wireless Xcessories Group to their
wireless dealers throughout the U.S.

I) In early 2007 we introduced our Limited collection of high quality cases.

J) In March 2007, we will be introducing our largest ever accessory catalog;
approximately 80 pages, and featuring accessories for over 150 phones.


EMPLOYEES

Wireless Xcessories Group employs approximately 85 full time workers divided

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into accounting, sales, customer services, graphic design, purchasing/product
development, MIS, quality control, and warehouse picking and packing. Our
10-person management team has been with the company from 2-15 years, with most
managers having 10+ years experience.

No employee is covered by collective bargaining and we consider our employee
relations to be excellent.

COMPETITION
-----------

The aftermarket wireless accessory industry is both competitive and fragmented.
There are a number of local and regional distributors who import their products
from the Far east, and there are 10 or more national distributors.

Barriers to entry are low assuming one wants to market a limited product line.
We believe that it would require a large investment in inventory, quality
assurance, packaging capabilities, sales training, purchasing, and marketing to
duplicate the total program we have developed.

The continual introduction of new phone models combined with popularity changes
that can be measured in weeks and months have caused some of the larger
distributors to seek out accessory specialists like Wireless Xcessories Group,
Inc. to manage the selection, packaging and sourcing of their accessory
programs.

INTELLECTUAL PROPERTY
---------------------

We seek to protect our intellectual property through a combination of
trademarks, service marks, and confidentiality agreements, non-compete
agreements, and patent protection when appropriate.

We maintain a number of registered trade names and registered trademarks,
including Industrial Strength(R), IndustrialStrength.com(R),
Platinumaccessories.com and WirexGroup.com.

As our product development initiatives bear fruit we intend to seek protection
for the patentable technology we create.

PROPERTIES AND FACILITIES
-------------------------

We lease a total of close to 65,100 square feet of warehouse space in Huntingdon
Valley, Pa., which we have occupied since 2001.

Our facility is divided into 13,100 square feet of office and administrative
space and 52,000 square feet of warehouse pick, pack, and quality control
facilities.

In March 2004, we signed a new 5-year lease, expiring in 2009, with no increase
in costs. Our rent is approximately $450,000 annually.

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<PAGE>

INDUSTRY RISK FACTORS THAT COULD AFFECT OUR PERFORMANCE
-------------------------------------------------------
A) General economic conditions deteriorate, thus reducing the demand for phones
and accessories.
B) Manufacturers reduce the number of new phone introductions, thereby reducing
our competitive advantage of speed to market new accessories.

FACTORS AFFECTING FUTURE OPERATING RESULTS
------------------------------------------

The provisions of the Private Securities Litigation Reform Act of 1995 (the
"Act") provide companies with a "safe harbor" when making forward-looking
statements. This "safe harbor" encourages companies to provide prospective
information.

We wish to take advantage of the "safe harbor" provisions of the Act and are
including this section in our Annual Report on Form 10-KSB in order to do so.
Forward-looking statements also appear in other sections of this report.
Statements that are not historical facts, including statements about
management's expectations for fiscal year 2007 and beyond, are forward-looking
statements and involve various risks and uncertainties. Factors that could cause
the actual results to differ materially from management's projections,
forecasts, estimates and expectations include, but are not limited to, the
following:

WE MAY NOT SUCCESSFULLY OFFER ATTRACTIVE MERCHANDISE TO OUR CUSTOMERS.
----------------------------------------------------------------------
In order to meet our strategic goals, we must successfully locate and offer our
customers new, innovative and high quality products. Our product offerings must
be affordable, useful to the customer, well made, distinctive in design, and not
widely available from other sources. We cannot predict with certainty that we
will successfully offer products that meet these requirements in the future.

WE DEPEND ON OUR VENDORS.
-------------------------

Our performance depends on our ability to purchase our products in sufficient
quantities at competitive prices and on our vendors' ability to make and deliver
high quality products in a cost effective, timely manner. Some of our smaller
vendors have limited resources, production capacities and limited operating
histories. We have no long-term purchase contracts or other contracts that
provide continued supply, pricing or access to new products and any vendor or
distributor could discontinue selling to us at any time. There can be no
assurance that we will be able to acquire the products that we desire in
sufficient quantities or on terms that are acceptable to us in the future. In
addition, there can be no assurance that our vendors will make and deliver high
quality products in a cost effective, timely manner. We may also be unable to
develop relationships with new vendors. Also, all products we purchase from
vendors in the Far East must be shipped to our warehouse by freight carriers and
there can be no assurance that we will be able to obtain sufficient capacity at
favorable rates. Our inability to acquire suitable products in a cost effective,
timely manner or the loss of one or more key vendors or freight carriers could
have a negative impact on our business.

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<PAGE>

WE FACE CERTAIN RISKS RELATING TO CUSTOMER SERVICE.
---------------------------------------------------

Any material disruption or slowdown in our order processing systems resulting
from labor disputes, telephone down times, electrical outages, mechanical
problems, human error or accidents, fire, natural disasters, or comparable
events could cause delays in our ability to receive and distribute orders and
may cause orders to be lost or to be shipped or delivered late. As a result,
customers may cancel orders or refuse to receive goods on account of late
shipments, which would result in a reduction of net sales and could, mean
increased administrative and shipping costs.

WE EXPERIENCE INTENSE COMPETITION IN OUR MARKETS.
-------------------------------------------------

We operate in a highly competitive environment. We principally compete with a
variety of small distributors of cellular phone accessories that focus on a
particular segment of the market, as well as a few single large distributors
that offer a broad range of such products.

WE ARE DEPENDENT ON CERTAIN KEY PERSONNEL.
------------------------------------------

Our success depends to a significant extent upon the abilities of our senior
management. The loss of the services of any of the members of our senior
management or of certain other key employees could have a significant adverse
effect on our business. In addition, our performance will depend upon our
ability to attract and retain qualified management, merchandising and sales
personnel. There can be no assurance that the members of our existing management
team will be able to manage the Company or our growth or that we will be able to
attract and hire additional qualified personnel as needed in the future.

WE FACE CERTAIN RISKS RELATED TO CASH ACCOUNTS, TRADEABLE SECURIES, INVESTMENTS,
AND CREDIT LOSSES.

The Company has not experienced any losses on its cash accounts, tradable
securities or its investments. The Company sells its products to commercial
businesses. Through its continuing relationships with these customers, the
Company performs credit evaluations and generally does not require collateral.
The Company maintains a reserve for potential credit losses.


ITEM 2. PROPERTIES

All of our real properties are held under leases. The following table provides
certain information concerning our leased properties:

                                                       APPROXIMATE      LEASE
                                                           AREA       EXPIRATION
OPERATION        NATURE          LOCATION                (SQ.FT.)        DATE
---------        ------          --------                --------        ----
Main Facility    Warehouse and   Huntingdon Valley, PA     52,000       3/31/09
                 Office                                    13,100       3/31/09


In March 2004 the above lease for both office and warehouse was extended to
March 31, 2009. As part of the lease extension the Company has the right to
relinquish approximately 15,000 feet of warehouse space without further

                                        7
<PAGE>

obligation to the Company upon giving the landlord six months prior notice of
its intention to vacate.


ITEM 3. LEGAL PROCEEDINGS

We, from time to time, are a party to other litigation arising in the normal
course of our business, most of which involves claims for amounts due from
merchandise or services purchased or merchandise sold to third parties we
believe that none of these actions will have a material adverse effect on our
financial condition or our results of operations.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Our annual meeting of stockholders was held on April 12, 2006. The following are
results of the voting on the proposals submitted to the stockholders at the
annual meeting:

Proposal No. 1: Election of Directors.
The following individuals were elected as directors:

         NAME                                           FOR          AGAINST
         ----                                        ---------       -------
Stephen Rade                                         3,911,338       50,611
Christopher McConnell                                3,910,639       50,865
Bradley T. MacDonald                                 3,910,389       51,115
Allan Kalish                                         3,910,389       51,115
Christopher C. Cole                                  3,897,939       63,565

There were no broker non-votes or abstentions or votes withheld with respect to
this proposal. The proposal passed by a majority of the vote's casts as dictated
by our by-laws. There were no broker non-votes or votes withheld with respect to
this proposal.

Proposal No 2: Proposal to ratify the appointment by our Board of Directors of
Bagell, Josephs, Levine & Company, L.L.C the Company's independent auditors for
the fiscal year ending December 31, 2006.

For: 3,907,379 Against: 50,275 Abstained 3,849

The proposal passed by a majority of the vote's cast as dictated by our by-laws.
There were no broker non-votes or voted withheld with respect to this proposal.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company trades its Common Stock under the symbol "XWG" on the American Stock
Exchange.

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<PAGE>

There were 61 record holders of the Company's Common Stock as of March 1, 2007.
A substantially larger number of beneficial owners hold such shares of Common
Stock in depository or nominee form. No dividends have been paid on the
outstanding shares of Common Stock.

The Company trades its Common Stock under the symbol "WIRX" on the Over the
Counter Bulletin Board ("OTC").
The following tables set forth the range of high and low closing prices for the
quarters indicated for the Common Stock on the NMS as reported by NMS for the
period January 1, 2005 through April, 2005 on the OTC and from April 2005
through December 31, 2006 on the American Stock Exchange.


COMMON STOCK

2005                             HIGH      LOW
-----                            ----      ---

FIRST QUARTER                    3.15     1.90
SECOND QUARTER                   8.70     2.61
THIRD QUARTER                   15.05     6.30
FOURTH QUARTER                  10.90     4.36



2006

FIRST QUARTER                    7.89     4.60
SECOND QUARTER                   6.75     4.07
THIRD QUARTER                    5.90     2.95
FOURTH QUARTER                   3.74     2.69


ITEM 6. SELECTED FINANCIAL DATA

INTRODUCTION

The following table sets forth the selected financial data for Wireless
Xcessories Group, Inc. This information should be read in conjunction with the
Consolidated Financial Statements and Notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" that appear elsewhere
in this document.

The Selected Financial Data have been derived from the consolidated financial
results for the year ended December 31, 2006 and 2005 audited by Bagell,
Josephs, Levine & Company, L.L.C, respectively, appear only in this section.

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<PAGE>

                             SELECTED FINANCIAL DATA
                         FISCAL YEAR ENDED DECEMBER 31,

                                                       2006           2005
                                                     --------       --------

                                                  ($ IN THOUSANDS, EXCEPT SHARE
                                                       AND PER SHARE DATA)
     INCOME STATEMENT DATA:

     NET SALES                                       $ 22,869       $ 22,059
     COST OF SALES                                     15,479         13,663
                                                     --------       --------

     GROSS PROFIT                                       7,390          8,396
                                                     --------       --------

     SELLING, GENERAL &
     ADMINISTRATIVE EXPENSES                            6,310          6,254
     (OTHER INCOME) EXPENSE
     LOSS (GAIN) FROM DISPOSITION OF PROPERTY             --               9
     UNREALIZED GAINS ON TRADEABLE SECURITIES            (122)           --
     (GAIN) ON SALE OF INVESTMENTS                       (106)          (153)
     (INTEREST INCOME)                                    (11)           (18)
                                                     --------       --------
     NET INCOME BEFORE INCOME TAXES                     1,319          2,304
     INCOME TAX EXPENSE                                   130            271
                                                     --------       --------
     NET INCOME                                      $  1,189       $  2,033
                                                     ========       ========

     NET EARNINGS PER SHARE OF
     COMMON STOCK- BASIC                             $   0.27       $   0.45
                                                     ========       ========
     NET EARNINGS PER SHARE OF
     COMMON STOCK- DILUTED                           $   0.26       $   0.44
                                                     ========       ========

BALANCE SHEET DATA:

                                                        AS OF DECEMBER 31,
                                                        ------------------
                                                       2006           2005
                                                     --------       --------
     WORKING CAPITAL                                 $  6,269       $  5,806
     TOTAL ASSETS                                       8,029          7,326
     LONG TERM DEBT                                  --------       --------
     STOCKHOLDERS' EQUITY                               7,075          6,173

                                       10
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Year Ended December 31, 2006 ("2006") Compared to Year Ended December 31, 2005
("2005")

Net sales increased by 4.0% or $.8 million from $22.1 million in 2005 to $22.9
million in 2006. The increase in sales is mainly attributable to the major
expansion of our mainly distributed products and product lines, such as, but not
limited to, Bluetooth (including the Anycom Bluetooth line introduced in late
2005), sales to a major customer relating to the newly introduced GE Sanyo line,
and expanded OEM accessories line. The distributed product lines are a vehicle
to not only open new markets, but supplement sales from our regular customer
base. Additionally, the Company has significantly improved its competitive
position due to the introduction of these expanded product lines, and expanded
value added services offered to customers bolstered by our 30 person Sales and
Customer Service department, expanded product selection, expanded marketing and
overall pricing/value relationship offered to Customers.

Gross profit decreased by $1,006,000 from $8,396,000 in 2005 to $7,390,000 in
2006, but as a percentage of sales decreased from 38.1% to 32.3% The fall off in
gross profit percentage resulted from the following:

     (1)  The growth of lower margin third party product sales such as, but not
          limited to: Bluetooth, and GE Sanyo line sales as compared to higher
          margin direct import sales as a percentage of total sales as compared
          to 2005.

     (2)  The Company gave favorable pricing to new prospects and selected
          existing customers to expand business and offset increasing
          competitive factors.

     (3)  The Company wrote off additional amounts of defective Bluetooth
          product that could not be returned to vendors (in one case, the vendor
          was out of business) for credit.

     (4)  The Company absorbed additional charges for obsolescence expense in
          2006, resulting from the decision to freshen, expand, and upgrade its
          proprietary product lines, particularly cases, and the resultant
          decision to discontinue and aggressively move out slower moving, lower
          turn, and stale product.

     (5)  The company incurred substantially higher freight cost in 2006
          compared to 2005 in relation to Far East Shipments in reaction to the
          tightening of product supply availability, coupled with the bankruptcy
          of one of our sources. Additionally, with the proliferation of new
          phones offerings, the Company wanted to insure a competitive advantage
          by having the product for sale during the holiday selling season.

Selling, general and administrative ("SG&A") expenses increased by 0.2% or $
56,000 in 2006, from $6,254,000 in 2005 to $6,310,000 in 2006 as compared to
sales increase of 4.0% from 2005. As a result, total SG&A expenses as a
percentage of sales decreased from 28.4% in 2005

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<PAGE>

to 27.6% in 2006. The Company continues to give full attention to cost cutting,
particularly of non-revenue generating General and Administrative expenses such
as professional fees, public relations costs, office supplies, etc. and emphasis
on continued productivity, particularly in regards to warehouse labor, which
resulted in continued improvement in our sales per employee ratio and
salesperson productivity, which helped to hold our warehouse expenses down as a
percentage of sales and absorb increases given to our employee base.
Additionally, total depreciation charges are down from approximately $258,000 in
2005 to $204,000 in 2006 as the cumulative effect of our limiting our capital
expenditures over the past several years. Certain company expenditures were up
in the year, particularly the last quarter, to bolster the sales support effort,
including an expansion of supporting marketing staff, catalogs, mailings and
marketing support materials, along with higher charges to bad debt expected as
more Customers were effected by slower sales, heavy competition and continued
stretching of payments from their airtime carriers and salary increases given to
our employee base in 2006.

Interest income decreased from $18,000 in 2005 to $11,000 in 2006. This is
primarily due to less funds being invested in interest bearing certificates
offset in part by increased rates earned on interest bearing certificates in
2006.

The Company's effective income tax rate in calculating an expense on the net
income on 2006 would have been 40.0% or a total expense of $531,885. As of
December 31, 2006, the Company has applied a total of $401,946, consisting of
tax timing differences from its tax allowances against its 2005 income tax
expense resulting in an expense of $129,939 or 9.8% of taxable income. Our
effective income tax rate in 2006 and 2005 was 40.0% and 39%, respectively.

NEW ACCOUNTING STANDARDS

l) Recent Accounting Pronouncements
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections." SFAS No. 154 replaces Accounting Principles Board ("APB") Opinion
No. 20, "Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in
Interim Financial Statements." SFAS No. 154 requires retrospective application
to prior periods' financial statements of a voluntary change in accounting
principle unless it is impracticable. APB No. 20 previously required that most
voluntary changes in accounting principle be recognized by including the
cumulative effect of changing to the new accounting principle in net income in
the period of the change. SFAS No. 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005.
The adoption of SFAS No. 154 did not have a material impact on the Company's
financial position, results of operations, or cash flows. In February 2006, the
FASB issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments,
an amendment of FASB Statements No. 133 and 140." SFAS No. 155 resolves issues
addressed in SFAS No. 133 Implementation Issue No. D1, "Application of Statement
133 to Beneficial Interests in Securitized Financial Assets," and permits fair
value re-measurement for any hybrid financial instrument that contains an
embedded derivative that otherwise would require bifurcation, clarifies which
interest-only strips and principal-only strips are not subject to the
requirements of SFAS No. 133, establishes a requirement to evaluate interests in
securitized financial assets to identify interests that are freestanding
derivatives or that are hybrid financial instruments that contain an embedded
derivative requiring bifurcation, clarifies that concentrations of credit risk
in the form of subordination are not embedded derivatives and amends SFAS No.
140 to eliminate the prohibition on a qualifying special-purpose entity from
holding a derivative financial instrument that pertains to a beneficial interest
other than another derivative financial instrument. SFAS No. 155 is effective
for all financial instruments acquired or issued after the beginning of the
first fiscal year that begins after September 15, 2006. The

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<PAGE>

adoption of FAS 155 is not anticipated to have a material impact on the
Company's financial position, results of operations, or cash flows.

In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets, an amendment of FASB Statement No. 140." SFAS No. 156 requires
an entity to recognize a servicing asset or liability each time it undertakes an
obligation to service a financial asset by entering into a servicing contract
under a transfer of the servicer's financial assets that meets the requirements
for sale accounting, a transfer of the servicer's financial assets to a
qualified special-purpose entity in a guaranteed mortgage securitization in
which the transferor retains all of the resulting securities and classifies them
as either available-for-sale or trading securities in accordance with SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities" and an
acquisition or assumption of an obligation to service a financial asset that
does not relate to financial assets of the servicer or its consolidated
affiliates. Additionally, SFAS No. 156 requires all separately recognized
servicing assets and servicing liabilities to be initially measured at fair
value, permits an entity to choose either the use of an amortization or fair
value

 Recent Accounting Pronouncements (continued) method for subsequent
measurements, permits at initial adoption a one-time reclassification of
available-for-sale securities to trading securities by entities with recognized
servicing rights and requires separate presentation of servicing assets and
liabilities subsequently measured at fair value and additional disclosures for
all separately recognized servicing assets and liabilities. SFAS No. 156 is
effective for transactions entered into after the beginning of the first fiscal
year that begins after September 15, 2006. The adoption of
 FAS 156 is not anticipated to have a material impact on the Company's financial
position or results of operations.

In June 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty
in Income Taxes" (FIN 48), which clarifies the accounting for uncertainty in
income taxes recognized in an enterprise's financial statements in accordance
with SFAS No. 109, "Accounting for Income Taxes." FIN 48 establishes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. This interpretation also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition. FIN 48 is effective for fiscal years beginning after
December 15, 2006. The Company is currently evaluating the impact the adoption
of this interpretation will have on its future financial statements. In
September 2006, The Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value
Measurement" ("SFAS No. 157"). This standard provides guidance for using fair
value to measure assets and liabilities. SFAS No. 157 applies whenever other
standards require (or permit) assets or liabilities to be measured at fair value
but does not expand the use of fair value in any new circumstances. Prior to
SFAS No. 157, the methods for measuring fair value were diverse and
inconsistent, especially for items that are not actively traded. The standard
clarifies that for items that are not actively traded, such as certain kinds of
derivatives, fair value should reflect the price in a transaction with a market
participant, including an adjustment for risk, not just the company's
mark-to-model value.
SFAS No. 157 also requires expanded disclosure of the effect on earnings for
items measured using unobservable data. SFAS No. 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. The Company is currently evaluating
the impact of this statement on its financial statements and expects to adopt
SFAS No.157 on December 31, 2007.

In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans --

                                       13
<PAGE>

An Amendment of FASB Statements No. 87, 88, 106, and 132R." This standard
requires an employer to: (a) recognize in its statement of financial position an
asset for a plan's over funded status or a liability for a plan's under funded
status; (b) measure a plan's assets and its obligations that determine its
funded status as of the end of the employer's fiscal year (with limited
exceptions); and (c) recognize changes in the funded status of a defined benefit
postretirement plan in the year in which the changes occur. Those changes will
be reported in comprehensive income. The requirement to recognize the funded
status of a benefit plan and the disclosure requirements are effective as of the
end of the fiscal year ending after December 15, 2006. The requirement to
measure plan assets and benefit obligations as of the date of the employer's
fiscal year-end statement of financial position is effective for fiscal years
ending after December 15, 2008. The Company is evaluating the impact of this
statement on its financial statements and believes that such impact will not be
material.


SIGNIFICANT ACCOUNTING POLICIES

Financial Reporting Release No. 60, which was recently released by the
Securities and Exchange Commission, requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. Our significant accounting policies are described in Note
1 of the Notes to the Consolidated Financial Statements. The significant
accounting policies that we believe are most critical to aid in fully
understanding our reported financial results are the following:

Critical Accounting Estimates -- We have made a number of estimates and
assumptions related to the reporting of assets and liabilities in preparation of
the consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America. The most significant
estimates relate to the allowance for doubtful accounts, the reserve for
Inventory obsolescence and the deferred tax valuation allowance. In determining
the adequacy of the allowance for doubtful accounts, we consider a number of
factors including the aging of the receivable portfolio, customer payment
trends, and financial condition of the customer, industry conditions and overall
credibility of the customer. Actual amounts could differ significantly from our
estimates.

In determining the adequacy of the reserve for inventory obsolescence, we
consider a number of factors including the aging of the inventory, individual
product weeks on hand and reaction to promotions and markdowns, recent sales
trends, availability of the product in the market, industry market conditions
and overall economic conditions. Actual amounts could differ significantly from
our estimates. In assessing the realizability of deferred income tax assets, we
consider whether it is more likely than not that the deferred income assets will
be realized through the future generation of taxable income.

LIQUIDITY AND CAPITAL RESOURCES

Our requirement for capital is to fund (i) sales growth and (ii) financing for
possible acquisitions (iii) Repurchase of the Company's Common Stock, and (iv)
Capital Expenditures mainly related to business system upgrades. Our primary
source of financing during 2006 and 2005 were cash flow from operations.

Our working capital as of December 31, 2006 and 2005 was $ 6,269,281 and

                                       14
<PAGE>

$ 5,805,890, respectively. Net cash provided by operating activities for the
years ended December 31, 2006 and 2005 was $ 358,073 and 168,493, respectively.
In 2006, we showed cash from operations of $ 1,218,813 from our net income of $
1,189,504 as adjusted for non-cash items of depreciation and amortization of $
209,259 bad debt provision of $ 90,677 and Common Stock issued to Directors and
Officers of $ 47,510 offset in part by increases in deferred income taxes of
$195,587, and unrealized gains recognized on marketable securities of $122,550.

Changes in assets and liabilities in 2006 resulted in a net use of $ 758,668
from increases in Marketable Securities, Inventory and Prepaid expenses and
other Assets of $102,071, $230,442, and $339,792 respectively, and by a decrease
in Accounts payable and accrued expenses of $198,456, offset in part by a
decrease in inventory of $10,021.

Net cash used in investing activities for the 12 months ended December 31, 2006
was $788,124, including approximately $165,000 for the implementation and
installation of an upgraded business system including software and hardware cost
during the last week of June, 2006 and $52,618 of assorted computer equipment
and peripherals. Additionally, the Company purchased 28,500 shares at a value of
$7.00 per share in Euro dollars of common stock of Anycom Technologies AG,
Monchengladbach (Germany) Inc., a German based manufacturer of Bluetooth with
sales operations in the United States, for a total investment of approximately
$259,000 in US dollars. Additionally, the Company has advanced Anycom
approximately $286,616 under a distribution, logisitics, warehousing and
factoring arrangement, whereby the Company provides the above services for a fee
based on billings to Anycom customers. The arrangement was entered into in early
February of 2006, and was modified in November of 2006 to give the Company
collateral rights to all inventory and Accounts Receivable covered under the
agreement.

Net cash used in investing activities in 2005 of $127,704 resulted from capital
expenditures of $141,137 offset in part by the collection of $13,433 of
principal payments related to the sale of discontinued operations. The bulk of
Capital Expenditures in 2005 were for upgrades to our business system including
continued improvements to our website and on-line ordering capabilities and
warehouse efficiency improvements and upgrades to selected user hardware
(Computers and printers).

Cash used in financing activities in 2006 of $335,425 resulted from the
repurchase of 100,000 shares of its common stock at an average price of
approximately $3.35 per share.

Cash used in financing activities in 2005 net payments of capital lease
obligations of $1,999.

Based upon its present plans, management believes that operating cash flow, and
available cash will be adequate to finance the stock repurchase program, to meet
the working capital cash needs of the Company and to meet anticipated capital
expenditure needs during the 12 months ending December 31, 2007. Although we
would like to issue shares of Common Stock as our primary method of financing
acquisitions, we anticipate that additional funds may be required to
successfully implement any acquisition program, and will use various methods to
finance acquisitions, including raising new equity capital. There is no
guarantee that such equity or debt financing will be available to us in the
future.

COMMITMENT:

We lease warehouse and administrative office space and copy machines with

                                       15
<PAGE>

non-cancelable operating lease agreements, which expire at various dates.
Certain leases for warehouse and other space contain rental escalation clauses
based on the Consumer Price Index. Future minimum lease payments including base
rent, common area charges, and lease required real estate tax charges
non-cancelable operating leases for the year ending December 31, 2006 are as
follows:


                       2007              $   444,062
                       2008                  480,618
                       2009                  161,494
                       thereafter                --
                                         -----------
                       Total             $ 1,086,174
                                         ===========

SEASONALITY AND INFLATION:

In fiscal years 2006 and 2005 the Company did approximately 51%, of its sales in
the second half of the year. This reflected the more traditional pick up of
additional business in the months preceding the December Holiday season.

The impact of inflation on our operations has not been significant to date.
However, there can be no assurance that a high rate of inflation in the future
would not have an adverse effect on our operating results.

GRAPHS

Total Revenue - Quarterly
Dollars in Millions


          4.955   5.835   5.293   5.976   5.485   5.857   5.670   5.857
         --------------------------------------------------------------
QTR         1       2       3       4       1       2       3       4
 FY        05      05      05      05      06      06      06      06




Gross Profit - Quarterly
Dollars in Millions


          2.066   2.157   2.022   2.151   2.096   1.972   1.582   1.740
         --------------------------------------------------------------
QTR         1       2       3       4       1       2       3       4
 FY        05      05      05      05      06      06      06      06


Operating Cash Flow - Quarterly
Dollars in Thousands


           583    -423     244     502    -25      77      180     126
         --------------------------------------------------------------
QTR         1       2       3       4       1       2       3       4
 FY        05      05      05      05      06      06      06      06


Earnings per Share - Quarterly
Dollars


          .13     .16     .07     .09     .10     .09     .03     .05
         --------------------------------------------------------------
QTR         1       2       3       4       1       2       3       4
 FY        05      05      05      05      06      06      06      06


                                       16
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk - The Company did not have any interest rate risk at December
31, 2006, as there was no outstanding debt owed by the Company other fixed
interest capital lease obligations.

Foreign Currency Risk - We do not use foreign currency forward exchange
contracts or purchased currency options to hedge local currency cash flows or
for trading purposes. All sales arrangements with international customers and
suppliers are denominated in U.S. dollars. We purchase approximately 50% of our
products from manufacturers located overseas, principally in the Far East. The
depreciation of the U.S. dollar against the major Asian currencies could,
therefore, cause an increase in the cost of our products and adversely affect
our results of operations or financial condition.

ITEM 8A. CONTROLS AND PROCEDURES

Bagell, Josephs, Levine & Company, L.L.C. our independent registered public
accounting firm, has provided us with an unqualified report on our consolidated
financial statements for the year ended December 31, 2006. However, in the
course of conducting its assessment of our internal controls for its audit of
our financial statements, Bagell, Josephs has advised the audit committee and
management that the following material weaknesses exist as of December 31, 2006:

(1)  A material weakness exists in that no written Information Technology (I/T)
     policies and procedures exist, nor do I/T internal control functions exist
     to monitor the I/T control environment and assess security.
(2)  A material weakness exists in that access to the LAN is not appropriately
     restricted by firewalls and routers, file access on the server is not
     adequately configured to restrict access to sensitive information and no
     evidence exists that user access management is being properly maintained
     and administered.
(3)  A material weakness exists in that the server room does not contain
     adequate physical or environmental control, the network is not adequately
     secured against virus or malicious software, no evidence exists that system
     event logs, change logs, and access logs are being monitored and reviewed
     and a problem management system for I/T issues does not exist.
     Additionally, back-up procedures are not adequate to reasonably ensure that
     all backups of critical data are consistently successful and financial data
     would be recoverable in the event of a disaster at our main office
     location.

While these material weaknesses did not have an effect on our reported results,
they nevertheless constituted deficiencies in our controls. In light of these
material weaknesses and the requirements enacted by the Sarbanes-Oxley act of
2002, and the related rules and regulations adopted by the SEC, our Chief
Executive Officer and Chief Financial Officer concluded that, as of December 31,
2006, our controls and procedures needed improvement and were not effective at a
reasonable assurance level. Despite those deficiencies in our disclosure
controls, management believes that there were no material inaccuracies or
omissions of material fact in this report.

Since the discovery of the material weaknesses in I/T internal controls
described above, management is strengthening the Company's oversight over the
I/T functions and its attendant controls, procedures, documentation and security
beyond what has existed in prior years. Specifically, we have taken, and plan to
take, whatever additional steps necessary to improve our I/T controls and
procedures and to remediate any deficiencies including, but not limited to, the
following:

(1)  We have commenced a search for a new higher level I/T Manager whose
     responsibility will be to not only run the function at a high level but to
     put in place the necessary staff, procedures and controls to properly
     remediate the deficiencies as sighted above. The selection process is being
     handled directly by two managers from the I/T steering committee, the
     Company's human resource manager and subject to final review by the
     Company's three senior managers. It is expected that the position will be
     filled no later than April 30, 2007.

(2)  The Company's steering committee will take on a more active oversight role
     to review in detail all deficiencies and to develop with the assistance of
     I/T personnel a line by line remedial written action plan sighting and
     defining the deficiency, corrective action to be taken, person(s)
     responsible and appropriate completion dates. The written plan will be
     submitted to the audit committee for their review and approval within the
     next couple of weeks.

                                       17
<PAGE>
(3)  The preparation of the plan will be the overall responsibility of the
     steering committee and senior mangers in coordination with the I/T
     Director, who will be closely assisted and monitored by the two steering
     committee members and will include, but not limited to, the following:

     (a)  establishing a formal policy and procedure plan, to address the
          overall security framework, including password usage, intrusion
          detection and system security monitoring.
     (b)  improving our security measures to safeguard our data, including
          enhancing our recovery plan and better securing access to and
          environmental improvements to our computer operations facility.
     (c)  improve our policies, procedures and attendant documentation for
          system maintenance and handling back up and recovery tapes.
     (d)  improve documentation, testing and access controls relating to new
          programs and provide high level control over any possible back end
          entry into the system.
     (e)  establishment of a plan for uniform upgrade of workstations and
          software, including virus protection and software fixes.
     (f)  the preparation of an IT policy and procedure manual to document all
          of our updated procedures/standards on a company-wide basis.

(4)  Additionally, the steering committee including senior management will be
     meeting with top managers of our Business system "Vision" provider and
     servicer during the week ending April 5, 2007 to discuss their
     responsibility and role in the process along with any access, system and
     programming controls we will require from them.

(5)  Further consideration is being given as of the date of this report by
     senior management and the audit committee to the possible hiring of a
     consultant firm, if needed, to assist us with the project, but no specific
     determination has been made as to the scope or the nature of any such
     assignment.

The continued implementation of the initiatives described above is among our
highest priorities. We have discussed our corrective actions and future plans
with our audit committee and Bagell, Josephs, Levine & Company, L.L.C., as of
the date of this report, believe the actions outlined above should serve to
correct the above listed material weaknesses to our internal controls. However,
in designing and evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assistance of achieving the desires
control objectives and are subject to certain limitations, including the
exercise of judgment by individuals, the inability to identify unlikely future
events, and the inability to eliminate misconduct completely. As a result, there
can be no assurance that our disclosure controls and procedures will prevent all
errors or fraud or ensure that all material information will be made known to
management in a timely manner. In addition, we cannot assure you that neither we
nor our independent auditors will in the future identify further material
weaknesses or significant deficiencies in our internal control over financial
reporting that we have not discovered to date.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

As of December 31, 2006 and 2005 there were no changes in or disagreements with
Bagell, Josephs, Levine & Company LLC on accounting or financial disclosures.

                                       18
<PAGE>
                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The following table sets forth as of February 1, 2007, the name of each of our
directors and executive officers, his principal occupation and the nature of all
positions and offices with us held by him. Our directors will hold office until
the next Annual Meeting of Stockholders.

                                                                         FIRST
                                                                         BECAME
NAME                      AGE          OFFICE                           DIRECTOR
-----                     ---          ------                           --------
Stephen Rade               69     President, Chief Executive              1996
                                  Officer and Chairman of the Board
Christopher F. McConnell   53     Director                                1998
Ronald E. Badke            61     Chief Financial Officer and Secretary   1995
Allan Kalish               81     Director                                1998
Christopher C. Cole        51     Director                                2000
Bradley T. MacDonald       59     Director                                1999
Dawn Kenderdine            37     Vice President and Business
                                  Development Manager


Each executive officer serves at the discretion of the Board of Directors.

Mr. Rade has been our Chairman of the Board since June 2002 and President and
Chief Executive Officer since June 1998. From 1996 until June 1998, he was
Executive Vice President of the Company. He has been a director since April
1996. He has been the President, Chief Executive Officer and a director of
Advanced Fox Antenna, Inc. since he founded that company in 1990.

Mr. McConnell has been a director of the Company since December 1998 while
holding the title of Chairman of the Board through June 2002. In addition, he is
principal of The Founders Group, an organization dedicated to helping launch
new, technology-based companies. Mr. McConnell also co-founded CFM Technologies,
Inc., a semiconductor capital equipment company and until it merged into Matson
technologies in March 2001. He currently serves as a director of Mi8
Corporation, a leading application software provider (ASP), where he had
previously been Chairman of the Board.

Mr. Badke has been our Chief Financial Officer since November 1995 and Secretary
since March 1999. He was a Senior Vice President and the Chief Financial Officer
of Shoe Town Inc. from 1984 through September 1994, positions he later held
(September to November 1995) with Natures Elements. Mr. Badke, a certified
public accountant, had been a consultant from October 1994 through August 1995.

Mr. Kalish has been a director since 1998. He is the owner of Kalish &
Associates, a consulting firm specializing in marketing, advertising and public
relations, which he founded in 1986. Kalish & Associates serves advertisers,
marketers and advertising agencies throughout the country, including three New
York Stock Exchange companies. Prior to founding Kalish & Associates, Mr. Kalish
managed Kalish & Rice, Inc., one of the largest advertising agencies in
Philadelphia. Mr. Kalish served as a member of the Board of Directors of
Checkpoint Systems, Inc., a New York stock exchange company, from 1993 to 1997.

                                       19
<PAGE>

Mr. MacDonald was elected a director in March 1999. He is also Chairman of the
Board and Chief Executive Officer of Medifast, Inc (AMEX:MED), a position he has
held since January 1998. Prior thereto, he was appointed as Program Director of
the U.S. Olympic Coin Program of the Atlanta Centennial Olympic Games. From 1991
through 1994, Mr. MacDonald returned to active duty to be Deputy Director and
Chief Financial Officer of the Retail, Food and Hospitality and Recreation
Business for the United States Marine Corps. Prior thereto, Mr. MacDonald served
as Chief Operating Officer of the Bonnie Sunglass Company, President of
Pennsylvania Optical Co., Chairman and CEO of MacDonald and Associates' which
had major financial interests in retail drug, consumer candy, and pilot sunglass
companies. Mr. MacDonald was national president of the Marine Corps Reserve
Officer Association and retired from the United States Marine Corps as a Colonel
in 1997, after 27 years of service. Mr. MacDonald is a member of the Board of
Directors of Toys for Tots Foundation.

Mr. Cole was elected as a director in February 2000. He is currently the CEO of
Intelligrated, Inc., a position he has held since June of 2001. From April 2000
to June 2001 Mr. Cole served as President of Cole Consulting. Until the
acquisition of Pinnacle Automation by FKI, Plc. in early 2000, Mr. Cole was
employed by Pinnacle Automation as its Chief Operating Officer and served as a
director of Pinnacle Automation since June 1997 and as Executive Vice President
from March 1994 to June 1997. Mr. Cole served as Vice President of Cincinnati
Milacron, from 1987 through March of 1994.

Ms. Kenderdine has been with the Company since 1993, and holds the title of Vice
President a position she was promoted to in August, 2005. Prior thereto, she has
held the title of Business Development and Purchasing manager from 2001 and
Purchasing Manager from 1994 to 2001.


COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACTS OF 1934 Section
16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's
directors and executive officers and persons who own more than ten percent of
its Common Stock to file with the Securities and Exchange Commission and The
NASDAQ Stock Market initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company.

To the best of our knowledge, based solely on a review of the copies of such
reports furnished to us and written representations with respect to the year
ended December 31, 2006, our officers, directors and greater than ten percent
shareholders were in compliance with all applicable Section 16(a) filing
requirements.


ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth for the years ended December 31, 2006, 2005, and
2004; the compensation for services rendered in all capacities to the Company
and subsidiaries by the Chief Executive Officer, the Company's other executive
officer and key management personnel for the year ended December 31, 2006.

                                       20
<PAGE>

                           SUMMARY COMPENSATION TABLE
                           --------------------------

        NAME AND PRINCIPAL POSITION                  YEAR          SALARY
        ---------------------------                  ----          ------
        Stephen Rade                                 2006         $300,000
        Chief Executive Officer                      2005          298,000
        President and Chairman of the Board          2004          240,692

        Ronald E. Badke                              2006         $128,308
        Chief Financial Officer and                  2005          126,000
        Secretary                                    2004          128,308

        Susan Rade                                   2006         $183,042
        Vice President                               2005          183,942
        Sales Account  Manager                       2004          185,869

        Dawn Kenderdine                              2006         $130,190
        New Business Development Manager             2005          119,756
        Purchasing Director                          2004          123,023


EMPLOYMENT AGREEMENTS

In August 2005, the Company entered into an employment agreement with its
Chairman of the Board and Chief Executive Officer, Stephen Rade commencing on
September 1, 2005 and expiring on August 31, 2008. The agreement calls for an
annual salary of $ 250,000 and an annual bonus of $ 50,000 predicated on Mr.
Rade achieving certain financial targets. The agreement also provides that Mr.
Rade can receive 5% of the value of any acquisitions under conditions stipulated
in the contract. Prior employment agreements with each of Messrs. Rade, and
Badke terminated on April 1998 and March 1999, respectively.

COMPENSATION OF DIRECTORS:

We instituted the payment of fees for attendance at Board and related committee
meetings in late 2003. Each director will be paid $1,000 for each regular Board
Meeting and $500 for each Committee meeting attended. We also reimburse those
directors who are not employees of the Company for their expenses incurred, if
any, in attending meetings.

In 2007, the Directors will be paid a flat $2,500 for attendance at Board
meetings and committee meetings for the year. In addition, in 2007, each
Director will receive a grant of shares of the Company's Common Stock totaling a
fair market value at grant date not to exceed $5,000.

The Company previously had approved the annual grant of stock options to
purchase the Company's common stock to certain directors in accordance with the
1995 Stock Option Plan. Specifically, the board approved the following grants:

o    to the chairperson of the board (if not also an employee of the Company):
     15,000 options to purchase shares of common Stock (the "Chairperson
     Options");

                                       21
<PAGE>

o    to every other director (if not also an employee of the Company): 8,000
     options to purchase shares of common stock (The "Director Options"); and

o    to each director who is a member of the board committee: 3,000 options to
     purchase shares of common stock multiplied by the number of committees on
     which the director sits ("Committee Options").

A director who receives Chairperson Options may not also receive Director
Options, unless the board determines otherwise.

Half of any options granted vest on the date they are granted, with the
remaining half vesting one year later; provided that these options will
terminate and never vest if the director receiving them does not attend at least
75% of the meetings of the board (or meetings of the applicable board committee,
in the case of Committee Options) held during the one year period following the
date the options are granted.

No option shares were granted to any Director under this plan in 2004.

In December 2004, the Board approved an annual fee of $2,500 to each of its
non-employee directors for service on the Board and its various committees and
the issuance of stock options valued at $5,000 each based on the closing stock
price on the day of issuance, which was February 1, 2005.

STOCK OPTIONS

Under the Company's 1995 Stock Option Plan (the "Plan"), the Company's board of
Directors or a stock option committee appointed by the board may grant stock
options to officers, key employees, directors, and independent consultants of
the Company. Currently, 672,624 shares of the Company's common stock are
reserved for issuance under the Plan.

The following table sets forth the details of the options held at the end of the
year December 31, 2006 by the executive officers set forth in the Summary
Compensation Table. Mr. Rade, Mr. Badke and Ms. Kenderdine were not granted
options under the Plan during the year 2005, but 10,000 option shares were
granted to Dan Kenderdine our facilities manager and husband of executive
officer Dawn Kenderdine and accordingly is listed below as part of Ms.
Kenderdine holdings.

                          FISCAL YEAR END OPTION VALUES

                           NUMBER OF SHARES UNDERLYING
                          UNEXERCISED OPTIONS AT FISCAL
                                    YEAR END
                          -----------------------------
      NAME              Exercisable  Weighted   Option    Option
                          Shares     Exercise   Market   Underlying
                                      Price     Value      Value

      Ronald E. Badke     20,000      $1.44    $59,800    $30,000
      Dawn Kenderdine     10,000      $4.68    $29,500    $     0


                                       22
<PAGE>

(1) The market value used in the above chart was $2.95, which represents the
closing price of the Company's Common Stock as of the close of business on
December 31, 2006.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information as of March 1, 2007, as
supplied to the Company, regarding the beneficial ownership of the Common Stock
by all persons known to the Company who own more than 5% of the outstanding
shares of the Company's Common Stock, each director of the Company, each
executive officer of the Company named in the Summary Compensation Table
included elsewhere in this report and all executive officers and directors as a
group. Unless otherwise indicated, based on information provided to the Company
by the directors, executive officers and principal shareholders, the persons
named in the table below have sole voting and investment power with respect to
all shares of Common Stock shown as beneficially owned by them.

NAME*                                   NUMBER OF SHARES
                                      BENEFICIALLY OWNED(1)       PERCENTAGE(2)
                                      ---------------------       -------------
Christopher F. McConnell (3)                 47,427                    1.1%
Stephen Rade                                742,000                   16.8%
Ronald E. Badke (4)                          23,200                    --**
Christopher C. Cole (5)                      67,427                    1.5%
Allan Kalish (6)                             51,427                    1.2%
Bradley T. MacDonald                         10,427                    --**
Dawn Kenderdine (7)                          49,500                    1.1%
Directors and Officers as a group           991,408                   22.5%
(7) persons)(8)


* The business address of each shareholder named in this table is Wireless
  Xcessories Group, Inc, 1840 County Line Road, Huntingdon Valley, PA 19006.
**Less than 1%.

(1) For purposes of this table, a person or group is deemed to have "beneficial
    ownership" of any shares, which such person has the right to acquire within
    60 days.

(2) Percentage ownership is based on 4,414,122 shares of Common Stock
    outstanding net of Treasury Stock on March 1, 2007. For purposes of
    computing the percentage of outstanding shares held by each such person or
    group of persons named above, any security which such person or group of
    persons has the right to acquire within 60 days is deemed to be outstanding,
    but is not deemed to be outstanding for the purpose of computing the
    percentage ownership of any other person.

(3) Includes exercisable options to purchase 47,427 shares.

(4) Includes exercisable options to purchase 20,000 shares and 3,200 vested
    common stock shares under the Company's restricted stock program.

                                       23
<PAGE>

(5) Includes exercisable options to purchase 44,427 shares.

(6) Includes exercisable options to purchase 41,427 shares.

(7) Includes exercisable options to purchase 10,000 shares and 4,000 vested
    common stock shares under the Company's restricted stock program.

(8) Includes exercisable options to purchase 163,281 shares.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

We employ Susan Rade, wife of Stephen Rade, current CEO, as a high volume and
senior sales person with certain administrative functions. In this role, Mrs.
Rade earns the bulk of her compensation as part of our sales incentive
commission programs earning $183,042 and $183,942 in the twelve months December
31, 2006 and 2005, respectively, including draws, commission and a $36,000
salary for administrative duties. We employ Dan Kenderdine, husband of Dawn
Kenderdine, as our Facilities Manager since mid 2004. Mr. Kenderdine earns the
bulk of his compensation from salary and bonuses earning $ 52,273 for the year
ended December 31, 2006 and $ 44,270 for the year ending December 31, 2005.
Additionally, Mr. Kenderdine was awarded 10,000 stock options under the
Company's stock option plan in December 2005 at a price of $4.68 per share.


ITEM 14. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The term "disclosure controls and procedures " are defined in Rules 13(a)-15e
and 15(d) - 15(e) of the Securities Exchange Act of 1934, as amended (the
Exchange Act). Our principal executive officer and principal financial officer
have evaluated the effectiveness of our disclosure controls and procedures as of
December 31, 2006. They have concluded that, as of December 31, 2006 our
disclosures were effective to ensure that:

     (1)  That information required to be disclosed by the Company in reports
          that it files or submits under the act is recorded, processed,
          summarized and reported, within the time periods specified in the
          Commissions' rules and forms, and
     (2)  Controls and procedures are designed by the Company to ensure that
          information required to be disclosed by Wireless Xcessories Group, Inc
          in the reports it files or submits under the Act is accumulated and
          communicated to the issuer's management including the principal
          executive and principal financial officers or persons performing
          similar functions, as appropriate to allow timely decisions regarding
          financial disclosure.

This term refers to the controls and procedures of a Company that are designed
to ensure that information required to be disclosed by a Company in the reports
that it files under the Exchange Act is recorded, processed, summarized and
reported within the required time periods. Our principal executive officer and

                                       24
<PAGE>

principal financial officer have evaluated the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this quarterly
report. They have concluded that, as of December 31, 2006 our disclosure and
procedures were effective in ensuring that required information would be
disclosed on a timely basis in our reports filed under the exchange act.

CHANGES IN INTERNAL CONTROLS:

There have not been any significant changes in the Company's internal controls
or in other factors that could significantly affect these controls subsequent to
the date of their evaluation.


                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-KSB

(a) The following documents are filed as a part of this Report.

SCHEDULE F- and 2. FINANCIAL STATEMENTS - The financial statements and schedules
required by this item begin on page F-1 of this report. The Reports of
Independent Certified Public Accountants appear on pages F-2, F-3 and F-4 of
this report.

3. EXHIBITS - The following is a list of exhibits. Where so indicated by
footnote, exhibits, which were previously filed, is incorporated by reference.

ITEM 16. PRINCIPAL ACCOUNTANT FEES AND SERVICES

                            AUDIT AND NON-AUDIT FEES:

For the years ended December 31, 2005 and 2006, fees billed for services
performed by Bagell, Josephs, Levine & Company, L.L.C., the Company's
independent auditor, charged to the Company for the annual certified audits, for
10Q filings for the quarters ended March 31, June 30 and September 30, 2005 and
2006 and miscellaneous services, were as follows:

                                         FISCAL           FISCAL
                                        YEAR 2005        YEAR 2006
                                        ---------        ---------
          Annual certified audit        $ 33,500         $ 38,000
          10QSB reviews                   15,000           22,000
          Other charges                      --               --
                                        --------         --------
              TOTAL                     $ 48,500         $ 60,000
                                        ========         ========

All above charges were included as an expense to the Company in the respective
years listed above.

                                       25
<PAGE>

              WIRELESS XCESSORIES GROUP, INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                           PAGE


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM .................   F-2


CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2006 AND 2005 ............   F-3


CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED
DECEMBER 31, 2006 AND 2005 ..............................................   F-5


CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS
ENDED DECEMBER 31, 2006 AND 2005 ........................................   F-6


CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 2006 AND 2005 ..............................................   F-7


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ..............................   F-9







                                       F-1
<PAGE>
                    BAGELL, JOSEPHS, LEVINE & COMPANY, L.L.C.
                          Certified Public Accountants

                     200 Haddonfield Berlin Road, Suite 402
                        Gibbsboro, New Jersey 08026-1239
                        (856) 346-2828 Fax (856) 346-2882




             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors and Stockholders
Wireless Xcessories Group, Inc.
1840 County Line Road
Huntingdon Valley, PA 19006


We have audited the accompanying consolidated balance sheets of Wireless
Xcessories Group, Inc., (the "Company") as of December 31, 2006, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the years in the two-year period ended December 31, 2006. 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
consolidated 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 audit included 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 also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Wireless Xcessories
Group, Inc., as of December 31, 2006, and the results of its operations and its
cash flows for each of the years in the two-year period ended December 31, 2006
in conformity with accounting principles generally accepted in the United States
of America.


/s/ BAGELL, JOSEPHS, LEVINE & COMPANY, L.L.C.
Bagell, Josephs, Levine & Company, L.L.C.
Gibbsboro, NJ 08026

March 15, 2007



           AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA)
                         CENTER FOR AUDIT QUALITY (CAQ)
               NEW JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS
             PENNSYLVANIA INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
                       FLORIDA STATE BOARD OF ACCOUNTANCY


                                       F-2
<PAGE>

                WIRELESS XCESSORIES GROUP, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2006 AND 2005
                                     ASSETS

                                                           2006         2005
                                                        ----------   ----------
CURRENT ASSETS
   Cash and cash equivalents                            $  318,922   $  773,321
   Investment in Tradable Securities                     2,134,992    1,910,371
   Accounts receivable (net of allowance for doubtful
   accounts of $89,205 and $100,696, respectively        1,872,582    1,732,817
   Inventories                                           2,088,346    2,098,367
   Prepaid expenses and other assets                       260,220      343,188
   Current portion of deferred income taxes                127,535      100,878
   Advances to foreign manufacturer under
    distributor agreement                                  286,616          --
   Federal and State prepaid taxes                         134,665          --
                                                        ----------   ----------
          Total current assets                           7,223,878    6,958,942

PROPERTY AND EQUIPMENT - Net                               339,738      331,378
INVESTMENTS                                                259,429          --
LONG-TERM PORTION OF DEFERRED
INCOME TAXES                                               168,930          --
OTHER ASSETS                                                37,230       35,751
                                                        ----------   ----------
Total assets                                            $8,029,205   $7,326,071
                                                        ==========   ==========

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-3
<PAGE>

                WIRELESS XCESSORIES GROUP, INC. AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS (CONTINUED)
                           DECEMBER 31, 2006 AND 2005

                      LIABILITIES AND STOCKHOLDERS' EQUITY

                                                           2006         2005
                                                        ----------   ----------
CURRENT LIABILITIES
  Accounts payable                                      $  792,141   $  862,974
  Income taxes payable                                         --       100,878
  Accrued payroll and related benefits                     133,921      140,997
  Other accrued expenses                                    28,535       48,203
                                                        ----------   ----------
          Total current liabilities                        954,597    1,153,052
                                                        ----------   ----------
STOCKHOLDERS' EQUITY
   Preferred stock, par value $.001, 1,000,000 shares
   authorized, no shares issued or outstanding                 --           --
   Common stock, par value $.001, 10,000,000 shares
    authorized, 5,373,080 and 5,343,080 issued in
    2006 and 2005, respectively                              5,373        5,343
   Additional paid-in capital                           11,453,604   11,411,124
   Accumulated deficit                                  (3,640,872)  (4,830,376)
   Treasury stock, at cost, 958,958 and 861,385
      shares, respectively                                (743,497)    (413,072)
                                                        ----------   ----------
          Total stockholders' equity                     7,074,608    6,173,019
                                                        ----------   ----------
Total liabilities and stockholders' equity              $8,029,205   $7,326,071
                                                        ==========   ==========

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-4
<PAGE>

                WIRELESS XCESSORIES GROUP, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

                                                          2006          2005
                                                      -----------   -----------

Net sales                                             $22,869,199   $22,059,179
Cost of sales                                          15,479,073    13,662,861
                                                      -----------   -----------
Gross profit                                            7,390,126     8,396,318
Selling, general and administrative expenses           (6,310,499)   (6,254,329)
                                                      -----------   -----------
Income from operations                                  1,079,627     2,141,989
Other Income (Expense):
 (Loss) from disposition of Property                          --         (8,824)
 Unrealized gains on Tradable Securities                  122,550           --
 Gain on sale of investments                              106,187       152,872
 Interest income                                           11,079        18,320
                                                      -----------   -----------
Income before Income taxes                              1,319,443     2,304,357
Income tax expense                                        129,939       271,113
                                                      -----------   -----------
Net Income                                            $ 1,189,504   $ 2,033,244
                                                      ===========   ===========

                WIRELESS XCESSORIES GROUP, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

                                                          2006          2005
                                                      -----------   -----------

Earnings per common share - Basic:
  Net Income                                          $      0.27   $      0.45
                                                      ===========   ===========
Diluted:
Net Income                                            $      0.26   $      0.44
                                                      ===========   ===========
Weighted average number of common
shares outstanding - Basic                              4,464,710     4,467,570
                                                      ===========   ===========
Weighted average number of common
shares outstanding - Diluted                            4,627,940     4,672,779
                                                      ===========   ===========

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-5
<PAGE>

                WIRELESS XCESSORIES GROUP, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
<TABLE><CAPTION>

                                   Common Stock         Paid-in       Accumulated       Treasury Stock         Total
                                 Shares     Amount      Capital         Deficit        Shares     Amount       equity
                                 ------     ------      -------       -----------      ------     ------       ------
<S>                            <C>          <C>       <C>             <C>            <C>        <C>          <C>
Balance December 31, 2004      5,327,080    $5,327    $11,363,939     $(6,863,620)   (868,885)  $(453,422)   $4,052,224

Stock Issued                      16,000        16         47,185                       7,500      40,350        87,551

Net Income                                                              2,033,244                             2,033,244
                               ---------    ------    -----------     -----------     -------   ---------    ----------

Balance December 31, 2005      5,343,080     5,343     11,411,124      -4,830,376    (861,385)   (413,072)    6,173,019

Net Income                                                              1,189,504                             1,189,504

Stock issued                      30,000        30         42,480                       2,427       5,000        47,510

Shares repurchased                                                                   (100,000)   (335,425)     (335,425)
                               ---------    ------    -----------     -----------     -------   ---------    ----------
Balance December 31, 2006      5,373,080    $5,373    $11,453,604      (3,640,872)   (958,958)  $(743,497)   $7,074,608
                               =========    ======    ===========     ===========     =======   =========    ==========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-6
<PAGE>

               WIRELESS XCESSORIES GROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
<TABLE><CAPTION>

                                                                 2006          2005
                                                             -----------   -----------
<S>                                                          <C>           <C>
OPERATING ACTIVITIES:
   Net Income                                                $ 1,189,504   $ 2,033,244
Adjustments to reconcile net income to net cash provided
by operating activities:
   Unrealized Gains on Tradable Securities                      (122,550)          --
   Depreciation and amortization                                 209,259       258,313
   Provision for doubtful accounts                                90,677         2,920
   Common Stock issued to Directors, Officer and employees        47,510           --
   Common Stock issued to Consultants                                --         87,550
   Deferred Income taxes                                        (195,587)     (100,878)
   Changes in assets and liabilities:
   Tradable Securities                                          (102,071)     (737,620)
   Accounts Receivable                                          (230,442)     (605,169)
    Inventories                                                   10,021      (539,304)
   Prepaid expenses and other assets                            (339,792)     (138,798)
   Accounts payable and accrued expenses                        (198,456)      (91,765)
                                                             -----------   -----------
          Net cash provided by operating activities              358,073       168,493
                                                             -----------   -----------
INVESTING ACTIVITIES:
   Purchases of property and equipment, net                     (217,618)     (141,137)
   Investment in common stock of foreign distributor            (259,429)          --
   Principal payment received on note receivables from
    sale of subsidiaries                                             --         13,433
                                                             -----------   -----------
          Net cash (used in) investing activities               (477,047)     (127,704)
                                                             ===========   ===========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-7
<PAGE>

                WIRELESS XCESSORIES GROUP, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
<TABLE><CAPTION>

                                                                 2006          2005
                                                             -----------   -----------
<S>                                                          <C>           <C>
FINANCING ACTIVITIES:
Repurchase of common stock                                   $  (335,425)  $       --
Payments on capital lease obligations                                --         (1,999)
                                                             -----------   -----------
          Net cash (used) in financing activities               (335,425)       (1,999)
                                                             -----------   -----------
NET (DECREASE) INCREASE IN CASH AND
 CASH EQUIVALENTS                                               (454,399)       38,790

CASH & CASH EQUIVALENTS - BEGINNING OF YEAR                      773,321       734,531
                                                             -----------   -----------
CASH AND CASH EQUIVALENTS - END OF YEAR                      $   318,922   $   773,321
                                                             ===========   ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

   Cash paid during year for:

       Income taxes                                          $   562,182   $   270,000
                                                             ===========   ===========
Supplemental Disclosure of Non-Cash Activity:

Common Stock issued to Directors, Officer
  and Employee                                               $    47,510   $       --
                                                             ===========   ===========
Common Stock issued to Consultants                           $       --    $    87,550
                                                             ===========   ===========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-8
<PAGE>

                WIRELESS XCESSORIES GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2006 AND 2005


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Financial Reporting Release No. 60 requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. The significant accounting policies that we believe are
most critical to aid in fully understanding our reported financial results are
the following:

Significant Estimates--we have made a number of estimates and assumptions
related to the reporting of assets and liabilities in preparation of the
consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America. The most significant
estimates relate to the allowance for doubtful accounts, the reserve for
inventory obsolescence and the deferred tax value allowance.

In determining the adequacy of the allowance for doubtful accounts, we consider
number of factors including the aging of the receivable portfolio, customer
payment trends, and financial condition of the customer, industry conditions and
overall credibility of the customer. Actual amounts could differ significantly
from our estimates.

In determining the adequacy of the reserve for inventory obsolescence, we
consider a number of factors including the aging of the inventory, recent sales
trends, availability of the product in the market, industry market conditions
and overall economic conditions. Actual amounts could differ significantly from
our estimates.

In assessing the reliability of deferred income tax assets, we consider whether
it is more likely than not that the deferred income assets will be realized
through the future generation of taxable income.

                                       F-9
<PAGE>

                WIRELESS XCESSORIES GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 2006 AND 2005

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ( CONTINUED)

Cash equivalents- The Company considers all highly liquid investments with a
maturity date of three months or less from the date of purchase or high-grade
money market funds to be cash equivalents.

Concentration of Risk- the Company has not experienced any losses on its cash
accounts or short-term investments. The Company sells its products to commercial
businesses. Through its continuing relationships with these customers, the
Company performs credit evaluations and generally does not require collateral.
The Company maintains a reserve for potential credit losses. In 2005, two
customers accounted for 8.9% and 5.4% of sales, respectively, while in 2006, one
customer accounted for 6.5% of net sales. No other customers in either 2005 or
2006 accounted for more than 5% of net sales.

In 2006, the Company purchased approximately 50% of its products from domestic
sources and 50% from foreign sources, principally the Far East.
A Far East supplier accounted for approximately 26.7% of total purchases in
2006. No other vendor accounted for 10% or more of our purchases in 2006. In
2005, the Company purchased approximately 23.5% of its products from two Far
East suppliers accounting for approximately 12.7% and 10.8% respectively, of
total purchases. No other vendor accounted for 10% or more of our purchases in
2005.

Inventories- Inventories, which consist solely of finished goods, are carried at
the lower of cost, determined on a first-in, first-out basis (FIFO), or market
value.

Property and Equipment- Property and equipment are stated at cost. Additions and
improvements are capitalized. Maintenance and repairs are expensed as incurred.
Depreciation and amortization of property and equipment is calculated under the
straight-line method over the estimated useful lives of the respective assets.
Estimated useful lives are five to seven years for furniture and fixtures and
three to ten years for machinery and equipment. Leasehold improvements are

                                      F-10
<PAGE>

                WIRELESS XCESSORIES GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 2006 AND 2005

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

amortized over the shorter of their estimated useful lives or the terms of their
leases. Depreciation and amortization expense was $209,259 and $258,313 in 2006
and 2005, respectively, and is included in selling, general and administrative
expense in the consolidated statements of operations.

Revenue Recognition -- Revenue is recognized at the point of shipment in
accordance with our standard shipping terms which is FOB shipping point, which
includes all groups of products and services we provide to our Customers. Any
shipment not in accordance with our standard shipping terms would recognize
revenue at the point of destination.

 We uniformly warrant most of our products from defectives and provide limited
stock rotation rights on selected product within 60 days of purchase from our
Customers. The Company total percentage of Customer returns is less than 3.5% of
its net sales and the Company provides reserves and allowances to provide for
this exposure, which are applied against net sales.

Shipping and Handling Fees- the Company records revenues derived from shipping
and handling in net sales and the costs associated with shipping and handling in
cost of sales.

Income Taxes- The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes." Under the liability method specified by SFAS No. 109, a deferred tax
asset or liability is determined based on the difference between the financial
reporting basis and tax basis of assets and liabilities, measured using enacted
tax rates. The impact of changes in tax rates is reflected in income in the
period in which the change is enacted.

Earnings per share- Basic earning per share (EPS) is computed using the weighted

                                      F-11
<PAGE>

                WIRELESS XCESSORIES GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 2006 AND 2005

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

average number of common shares outstanding for the period while diluted EPS is
computed assuming conversion of all dilutive securities such as options.

Included below is a reconciliation of shares for the basic and diluted EPS
computations.
                                                       2006             2005
                                                    ---------        ---------
           Basic EPS Shares                         4,464,710        4,467,570
           Dilutive effect of stock options
             and warrants                             163,320          205,209
                                                    ---------        ---------
           Diluted EPS shares                       4,627,940        4,672,779
                                                    =========        =========

Options to purchase 172,781 and 205,209 and shares with exercise prices ranging
from $.28 to $4.68 respectively were outstanding at December 31, 2006 and 2005
respectively, which shares were included in the computation of diluted EPS.

Disclosures about Fair Value of Financial Instruments- the carrying values of
cash, and cash equivalents, and long-term debt approximate their respective fair
values.

Employee Stock Options-The Company applies Accounting Principles Board Opinion
No. 25 ("APB No. 25"), "Accounting for Stock Issued to Employees," which
recognizes compensation costs based on the intrinsic value of an equity

                                      F-12
<PAGE>

                WIRELESS XCESSORIES GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 2006 AND 2005

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

instrument. The Company has applied APB No. 25 to its stock compensation awards
to employees and has disclosed the required pro forma effect on net income
(loss) income per share in accordance with the provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation" and has adopted the enhanced
disclosure provisions of

SFAS No. 148 "Accounting for Stock-Based Compensation- Transition and
Disclosure, an amendment of SFAS No. 123" (See Note 5).

Reclassifications- certain prior year amounts may have been reclassified to
conform to current year presentation.

Use of Estimates in the Preparation of Financial Statements- The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

                        RECENT ACCOUNTING PRONOUNCEMENTS-

l) Recent Accounting Pronouncements
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections." SFAS No. 154 replaces Accounting Principles Board ("APB") Opinion
No. 20, "Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in
Interim Financial Statements." SFAS No. 154 requires retrospective application
to prior periods' financial statements of a voluntary change in accounting
principle unless it is impracticable. APB No. 20 previously required that most
voluntary changes in accounting principle be recognized by including the

                                      F-13
<PAGE>

                WIRELESS XCESSORIES GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 2006 AND 2005

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

cumulative effect of changing to the new accounting principle in net income in
the period of the change. SFAS No. 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005.
The adoption of SFAS No. 154 did not have a material impact on the Company's
financial position, results of operations, or cash flows.

In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid
Financial Instruments, an amendment of FASB Statements No. 133 and 140." SFAS
No. 155 resolves issues addressed in SFAS No. 133 Implementation Issue No. D1,
"Application of Statement 133 to Beneficial Interests in Securitized Financial
Assets," and permits fair value re-measurement for any hybrid financial
instrument that contains an embedded derivative that otherwise would require
bifurcation, clarifies which interest-only strips and principal-only strips are
not subject to the requirements of SFAS No. 133, establishes a requirement to
evaluate interests in securitized financial assets to identify interests that
are freestanding derivatives or that are hybrid financial instruments that
contain an embedded derivative requiring bifurcation, clarifies that
concentrations of credit risk in the form of subordination are not embedded
derivatives and amends SFAS No. 140 to eliminate the prohibition on a qualifying
special-purpose entity from holding a derivative financial instrument that
pertains to a beneficial interest other than another derivative financial
instrument. SFAS No. 155 is effective for all financial instruments acquired or
issued after the beginning of the first fiscal year that begins after September
15, 2006. The adoption of FAS 155 is not anticipated to have a material impact
on the Company's financial position, results of operations, or cash flows.

In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets, an amendment of FASB Statement No. 140." SFAS No. 156 requires
an entity to recognize a servicing asset or liability each time it undertakes an
obligation to service a financial asset by entering into a servicing contract
under a transfer of the servicer's financial assets that meets the requirements
for sale accounting, a transfer of the servicer's financial assets to a
qualified special-purpose entity in a guaranteed mortgage securitization in
which the transferor retains all of the resulting securities and classifies them
as

                                      F-14
<PAGE>

                WIRELESS XCESSORIES GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 2006 AND 2005

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ( CONTINUED)

either available-for-sale or trading securities in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" and an
acquisition or assumption of an obligation to service a financial asset that
does not relate to financial assets of the servicer or its consolidated
affiliates. Additionally, SFAS No. 156 requires all separately recognized
servicing assets and servicing liabilities to be initially measured at fair
value, permits an entity to choose either the use of an amortization or fair
value

 Recent Accounting Pronouncements (continued) method for subsequent
measurements, permits at initial adoption a one-time reclassification of
available-for-sale securities to trading securities by entities with recognized
servicing rights and requires separate presentation of servicing assets and
liabilities subsequently measured at fair value and additional disclosures for
all separately recognized servicing assets and liabilities. SFAS No. 156 is
effective for transactions entered into after the beginning of the first fiscal
year that begins after September 15, 2006. The adoption of

FAS 156 is not anticipated to have a material impact on the Company's financial
position or results of operations.

In June 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty
in Income Taxes" (FIN 48), which clarifies the accounting for uncertainty in
income taxes recognized in an enterprise's financial statements in accordance
with SFAS No. 109, "Accounting for Income Taxes." FIN 48 establishes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. This interpretation also provides guidance on de recognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition. FIN 48 is effective for fiscal years beginning after
December 15, 2006. The Company is currently evaluating the impact the adoption
of this interpretation will have on its future financial statements. In
September 2006, The Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value
Measurement" ("SFAS No. 157"). This standard

                                      F-15
<PAGE>

                WIRELESS XCESSORIES GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 2006 AND 2005

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ( CONTINUED)

provides guidance for using fair value to measure assets and liabilities. SFAS
No. 157 applies whenever other standards require (or permit) assets or
liabilities to be measured at fair value but does not expand the use of fair
value in any new circumstances. Prior to SFAS No. 157, the methods for measuring
fair value were diverse and inconsistent, especially for items that are not
actively traded. The standard clarifies that for items that are not actively
traded, such as certain kinds of derivatives, fair value should reflect the
price in a transaction with a market participant, including an adjustment for
risk, not just the company's mark-to-model value.
SFAS No. 157 also requires expanded disclosure of the effect on earnings for
items measured using unobservable data. SFAS No. 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. The Company is currently evaluating
the impact of this statement on its financial statements and expects to adopt
SFAS No.157 on December 31, 2007.

In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans --

An Amendment of FASB Statements No. 87, 88, 106, and 132R." This standard
requires an employer to: (a) recognize in its statement of financial position an
asset for a plan's over funded status or a liability for a plan's under funded
status; (b) measure a plan's assets and its obligations that determine its
funded status as of the end of the employer's fiscal year (with limited
exceptions); and (c) recognize changes in the funded status of a defined benefit
postretirement plan in the year in which the changes occur. Those changes will
be reported in comprehensive income. The requirement to recognize the funded
status of a benefit plan and the disclosure requirements are effective as of the
end of the fiscal year ending after December 15, 2006. The requirement to
measure plan assets and benefit obligations as of the date of the employer's
fiscal year-end statement of financial position is effective for fiscal years
ending after December 15, 2008. The Company is evaluating the impact of this
statement on its financial statements and believes that such impact will not be
material.

                                      F-16
<PAGE>

                WIRELESS XCESSORIES GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 2006 AND 2005

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In March 2005, the FASB issued Statement of Financial Accounting Standards
Interpretation Number 47 ("FIN 47"), "Accounting for Conditional Asset
Retirement Obligations." FIN 47 provides clarification regarding the meaning of
the term "conditional asset retirement obligation" as used in SFAS 143,
"Accounting for Asset Retirement Obligations." FIN 47 is effective for the year
ended December 31, 2006. The effect of FIN 47 on the Company's financial
position, results of operations and cash flows is immaterial.

In May 2005, the FASB issued SFAS 154, "Accounting for Changes and Error
Corrections--a replacement of APB Opinion No. 20 and FASB Statement No. 3." SFAS
154 changes the requirements with regard to the accounting for and reporting a
change in an accounting principle. The provisions of SFAS 154 require, unless
impracticable, retrospective application to prior periods presented in financial
statements for all voluntary changes in an accounting principle and changes
required by the adoption of a new accounting pronouncement in the unusual
instance that the new pronouncement does not indicate a specific transition
method. SFAS 154 also requires that a change in depreciation, amortization or
depletion method for long-lived, non-financial assets be accounted for as a
change in an accounting estimate, which requires prospective application of the
new method. SFAS 154 is effective for all changes in an accounting principle
made in fiscal years beginning after December 15, 2005. The Company plans to
adopt SFAS 154 beginning January 1, 2006. Because SAS 154 is directly dependent
upon future events, the Company cannot determine what effect, if any, the
expected adoption of SFAS 154 will have on its financial condition, results of
operations or cash flows.

                                      F-17
<PAGE>

                WIRELESS XCESSORIES GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 2006 AND 2005

NOTE 2 - PROPERTY AND EQUIPMENT - NET Property and equipment consists of the
following:

                                                        DECEMBER 31,
                                                 ------------------------
                                                    2006          2005
                                                 ----------    ----------
           Machinery and equipment               $2,255,910    $2,034,293
           Furniture and fixtures                   419,979       419,979
           Vehicles                                     --          4,000
           Leasehold improvements                   253,482       253,482
                                                 ----------    ----------
                                                  2,929,371     2,711,754
           Less accumulated depreciation
             and amortization                    (2,589,634)   (2,380,376)
                                                 ----------    ----------
           Property and equipment, net           $  339,737    $  331,378
                                                 ==========    ==========

NOTE 3 - INVESTMENTS

In August 2006, the Company purchased 28,500 shares of stock in Anycom
Technologies A.G. "Anycom" Monchengladbach, Germany, at 7 Euros per share for a
total investment of approximately $259,000 in US dollars. Anycom moved ahead
with an initial public offering in early January 2007, and as a stipulation to
this transaction, the Company has agreed to a 90-day post offering restriction
period in which the Company cannot trade its shares without the specific
knowledge and approval of Anycom and its underwriters. The approximate market
value of the investment on March 1, 2007 was $ 276,706, based on the closing
price of the stock on February 28, 2007.

                                      F-18
<PAGE>

                WIRELESS XCESSORIES GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 2006 AND 2005

NOTE 3 - INVESTMENTS - (CONTINUED)

and collection support for certain specified items for shipment, and sales to
Anycom designated an approved customers. As of December 31, 2006, the Company
has made advances to Anycom of $ 286,616, which are fully collateralized by
inventory held by the Company and Accounts Receivable generated by billings. The
company had earlier in the year, as modified in November 2006, entered into a
distribution agreement in which the Company provides distributing, warehousing,
financing, logistical, billing, and collection support for certain specified
items for shipment, and sales to Anycom designated an approved customers. As of
December 31, 2006, the Company has made advances to Anycom of $ 286,616, which
are fully collateralized by inventory held by the Company and Accounts
Receivable generated by billings.

NOTE 4 - STOCKHOLDERS' EQUITY

PREFERRED STOCK- The Board of Directors of the Company, without action by the
stockholders, is authorized to issue shares of Preferred Stock in one or more
series and, within certain limitations, to determine the voting rights
(including the right to vote as a series on particular matters), preferences as
to dividends and in liquidation, conversion, redemption, and other rights of
each such series. The Board of Directors could issue series with rights more
favorable with respect to dividends, liquidation and voting than those held by
the holders of any class of Common Stock.

COMMON STOCK- the shares of Common Stock have one vote per share. None of the
shares have preemptive or cumulative voting rights, redemption rights, are or
will be liable for assessment or further calls. The holders of the Common Stock
are entitled to dividends when declared from funds legally available therefore.

                                      F-19
<PAGE>

                WIRELESS XCESSORIES GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 2006 AND 2005

NOTE 4 - STOCKHOLDERS' EQUITY - (CONTINUED)

The Board of Directors has approved a stock buyback program and have authorized
Management to repurchase a total of up to 1,250,000 shares of Common Stock at a
total cost not to exceed $1,000,000 through July 5, 2005. As of December 31,
2005 and 2004, the Company has repurchased cumulatively 981,775 (and
subsequently reissued approximately 120,390 shares at an average price of
$0.51per share.

On December 7, 2005, the Board authorized a Company Stock buy back program for a
one year period which expired on December 7, 2005 whereby management may make
purchases from time to time on the open market at prevailing prices or in
privately negotiated transactions of a total of up to 250,000 shares of its
Common Stock at a cost not to exceed $1,000,000. Under this program the Company
purchased 100,000 shares at an average of $3.35 per share or a total cost of
approximately $335,000 under this program.

STOCK OPTIONS- The Company, on June 6, 1995, adopted the Company's Stock Option
Plan (the "Plan"), which as amended in December 1995, authorizes the Board of
Directors or a Stock Option Committee appointed by the Board to grant up to
250,000 qualified stock options and non-qualified stock options to officers and
key employees, directors, and independent consultants. Directors who are not
employees and consultants are eligible only to receive non-qualified stock
options. The Board of Directors in 1995 granted under the Plan options to
purchase 20,720 shares of Common Stock to two directors at a price of $2.89 per
share. In 1996, the Company granted under the Plan five-year options to purchase
an aggregate of 195,000 shares of Common Stock to employees. The options are
exercisable at the initial offering price per share of $5.00. In 1997, the
Company granted, under the Plan, five-year options to Purchase an aggregate of
75,000 shares of Common Stock to employees of the Company. The options are
exercisable at prices ranging from $2.80 to $4.50 per share. In 1998, the
shareholders of the Company approved an amendment to the Plan increasing the
number of shares granted by 350,000 to an aggregate total of 600,000 for the
Plan. In addition in 1998, the Company granted, under the Plan, five-year
options to purchase an aggregate of 455,000 shares of Common Stock to

                                      F-20
<PAGE>

                WIRELESS XCESSORIES GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 2006 AND 2005

NOTE 4 - STOCKHOLDERS' EQUITY - (CONTINUED)

Directors and employees of the Company. The options are exercisable at prices
ranging from $1.38 to $2.69 per share. In 1999, the Company granted, under the
Plan, one-year options to purchase 85,000 shares of Common Stock to a director
of the Company. The options are exercisable at prices ranging from $1.38 to
$1.88 per share. The Company also granted, under the Plan, ten-year options to
purchase 95,000 shares of Common Stock to directors and employees of the
Company. The options are exercisable at $1.38 per share.

In 2000, the stockholders of the Company approved an amendment to the Plan
increasing the number of shares reserved for issuance by 400,000 to an aggregate
of 1,000,000 under the Plan. In addition in 2000, the Company granted, under the
Plan, ten-year options to purchase an aggregate of 138,500 shares of Common
Stock to directors and employees of the Company. In 2001, the Company granted,
under the Plan, ten-year options to purchase a total of 65,000 shares of Common
Stock at $.375 per share to the directors of the Company. In 2002, the Company
granted, under the plan, ten-year options to purchase a total of 51,000 shares
of Common Stock at $0.28 per share to the directors of the Company. In 2003, the
Company did not grant any options under the plan. In December, 2004, a Director
of the Company exercised a total of 33,000 options from three different
issuances at their respective fair market value's at their respective date of
issuance totaling at an average price of $.67 per share.

In 2005, the Company granted, under the plan, 10-year options totaling 2,427
shares to each of its four non-employee directors at $2.06 per share and 10,000
shares at $4.68 to Dan Kenderdine, the Company's Facility Director and warehouse
manager and husband of Company Officer Dawn Kenderdine and 2,000 shares to
another non officer employee.

At December 31, 2006 and 2005, there were a total of 672,624 shares available
for grant.

                                      F-21
<PAGE>

                WIRELESS XCESSORIES GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 2006 AND 2005

NOTE 4 - STOCKHOLDERS' EQUITY - (CONTINUED)

The following information pertains to the stock options outstanding for the
years ending December 31, 2005:

                                Options outstanding       Options exercisable
                                -------------------       -------------------
                                            Weighted                Exercisable
                               Number       Average                  Wtd. Avg.
                                 of         Share        Options     Exercise
                               Shares       Price        Shares       Price
                              --------     --------     --------     --------
Options outstanding at
  December 31, 2004            183,500     $   1.12      183,500     $   1.12
     Granted                    21,708         3.51       21,708         3.51
                              --------     --------     --------     --------
Options outstanding at
  December 31, 2005            205,208         1.37      205,208         1.37
     Exercised                 (32,427)        1.46       32,427         1.46
                              --------     --------     --------     --------
Options outstanding at
  December 31, 2006            172,781     $   1.30      172,781     $   1.30
                              ========     ========     ========     ========




                                      F-22
<PAGE>

                WIRELESS XCESSORIES GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 2006 AND 2005

NOTE 4 - STOCKHOLDERS' EQUITY (CONTINUED)

The following table summarizes information as of December 31, 2006 concerning
currently outstanding and exercisable options:

                       Options outstanding and exercisable
                                    Weighted
                                     Average
                                    Remaining
                                Contractual Life

                                         Weighted
                                         Average                     Weighted
   Range of        Number        Life    Exercise     Number         Average
Exercise Price   Outstanding   (Years)    Price     Exercisable   Exercise Price
--------------------------------------------------------------------------------
 $0.28-$3.75      80,000         4.7      $0.33        80,000         $ 0.33
 $1.01-$2.00      62,500         3.2      $1.42        62,500         $ 1.42
 $2.06-$2.06       7,281         8.1      $2.06         7,281         $ 2.06
 $4.01-$5.00      23,000         6.1      $4.57        23,000         $ 4.57

The outstanding stock options as of December 31, 2006 vest as follows:
(a) All of the option shares are vested on the date of the grant (12,000 options
outstanding at December 31, 2006)
(b) Half of the options shares are vested on the date of the grant with an
additional one-half vesting in the first anniversary there from (133,281 options
outstanding at December 31, 2006) or
(c) one-fifth of the options shares are

                                      F-23
<PAGE>

                WIRELESS XCESSORIES GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 2006 AND 2005

NOTE 4 - STOCKHOLDERS' EQUITY (CONTINUED)

vested on the date of grant with an additional one-fifth vesting on the first,
second, third, and forth anniversaries there from, respectively (27,500 shares
outstanding at December 31, 2006).

As provided for in SFAS No. 123, "According for Stock-Based Compensation," The
Company utilizes the intrinsic value method of expense recognition under APB No.
25. Accordingly, no compensation cost has been recognized for the stock option
plans as all options have been issued with exercise prices equal to fair market
value. Had compensation expense for the stock option plans been determined
consistent with the provisions of SFAS No. 123 and SFAS No. 148, the Company's
net income and net income per share would have been the pro forma amounts
indicated below:

                                                         2006           2005
                                                     -----------    -----------
       As reported net income:                       $ 1,189,504    $ 2,033,244
       Add: Stock-based compensation expense
            included in reported net income
            net of related tax effects                      --             --
       Deduct: Total stock-based
            employee compensation expense
            determined under fair value
            based method for all awards,
            net of related tax effects                     ( -- )       (69,143)
                                                     -----------    -----------
       Pro forma net income                          $ 1,189,504    $ 1,964,101
                                                     ===========    ===========

                                      F-24
<PAGE>

                WIRELESS XCESSORIES GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 2006 AND 2005

NOTE 4 - STOCKHOLDERS' EQUITY (CONTINUED)


Basic net income per common share:
       As reported                                      $    0.27    $    0.45
       Pro forma                                        $    0.27    $    0.44
       Diluted income net income per
       common share:
       As reported                                      $    0.26    $    0.44
       Pro forma                                        $    0.26    $    0.42

There were 0 and 21,708 options granted during the years ended December 31 2006
and 2005, respectively. The fair value of each outstanding option grant was
estimated on the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions: risk-free interest rate of 5.7%, for
2005; and expected volatility of 100% for 2005, respectively.

NOTE 5 - INCOME TAXES
The provision for income taxes on continuing operations consists of:

                                                           2006         2005
                                                        ---------    ---------
       Current:
       Federal                                          $ 454,411    $ 345,368
       State                                               77,474       25,510
                                                        ---------    ---------
                                                          531,885      370,878
                                                        ---------    ---------

                                      F-25
<PAGE>

                WIRELESS XCESSORIES GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 2006 AND 2005

NOTE 5 - INCOME TAXES (CONTINUED)

     Deferred:
       Federal                                          $(365,771)   $ (84,970)
       State                                              (36,175)     (14,795)
                                                        ---------    ---------
                                                         (401,946)     (99,765)
                                                        ---------    ---------
       Total provision
       For income taxes                                 $ 129,939      271,113
                                                        =========    =========

In conformity with SFAS No. 109, deferred tax assets and liabilities are
classified based on the financial reporting classification of the related assets
and liabilities, which give rise to temporary book/tax differences. Deferred
taxes related to the following temporary differences:

                                                              DECEMBER 31,
                                                        ----------------------
                                                           2006         2005
                                                        ---------    ---------
       Deferred income tax assets:
       Benefit of net operating loss carry forward      $     --     $     --
       Accrued compensation                                19,000          --
       Inventory reserve                                  101,590       83,834
       Bad debts reserve                                   29,767       42,065
       Sales returns and allowances                        57,000       45,015
       Goodwill                                           197,430      224,520
       Other                                                  --         9,500
                                                        ---------    ---------
                                                          404,787      404,934
                                                        =========    =========

                                      F-26
<PAGE>

                WIRELESS XCESSORIES GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 2006 AND 2005

NOTE 5 - INCOME TAXES (CONTINUED)

   Deduct:  Deferred income tax liabilities:
       State taxes                                         12,262       14,862
       Deferred Revenue                                    46,569          --
       Depreciation                                        28,500          --
                                                        ---------    ---------
                                                          317,456      390,072

       Deduct: Valuation allowance                         20,991      289,194
                                                        ---------    ---------
       Net deferred tax asset                           $ 296,465    $ 100,878
                                                        =========    =========

The effective income tax rate varied from the U.S. Federal statutory tax rate as
follows:

                                                           2006         2005
                                                        ---------    ---------
       Statutory income tax rate                            34.0%        34.0%
       State income taxes, net of
       federal tax benefit                                   4.3          5.2
       Meals and entertainment                               0.1          0.1
       Valuation allowance                                 (27.7)       (27.3)
                                                        ---------    ---------
       Effective tax rate                                   10.7%        12.0%
                                                        =========    =========


                                      F-27
<PAGE>

                WIRELESS XCESSORIES GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 2006 AND 2005

NOTE 5 - INCOME TAXES (CONTINUED)

As of December 31, 2006 the Company has fully utilized all its federal and state
net operating loss carry forwards. SFAS No. 109 requires the establishment of a
deferred tax asset for all deductible temporary difference, which has included
operating loss carry forwards. The Company in has provided a valuation allowance
for all of its deferred tax asset balance of $289,194 at December 31, 2005. In
2006, The Company provided a valuation allowance of $20,991, which it applied
against its deferred tax asset balance of $317,465, leaving a balance of
$296,465, which is classified as a current asset for financial presentation
purposes.

The Company based on the past two years profitable operation reduced the
valuation allowance by $195,583 which represents the reduction in the Deferred
tax assets from December 31, 2005 to December 31, 2006.

NOTE 6 - COMMITMENTS AND CONTINGENCIES
The Company is, from time to time, party to litigation arising in the normal
course of its business. Based on consultation with legal counsel, management of
the Company does not believe that any such claims or litigation will have a
material adverse effect on the financial position or results of operations of
the Company.

The Company leases various types of warehouse and other space and equipment,
furniture, and fixtures under non-cancelable operating lease agreements, which
expire at various dates. Certain leases for warehouse and other space contain
rental escalation clauses based on the Consumer Price Index. Future minimum
lease payments under non-cancelable operating leases for the years ending
December 31 are as follows:

            2007                                           444,062
            2008                                           480,618
            2009                                           161,494
           thereafter                                          --
                                                        ----------
            Total:                                      $1,086,174
                                                        ==========

                                      F-28
<PAGE>

                WIRELESS XCESSORIES GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 2006 AND 2005

NOTE 5 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

Rent expense exclusive of common area maintenance and real estate taxes, where
applicable for all operating leases for both the years ended December 31, 2006
and 2005 was $353,919.

NOTE 7 - RELATED PARTY TRANSACTIONS
We employ Susan Rade, wife of Stephen Rade, current CEO, as a high volume and
Senior sales person with certain administrative functions. In this role, Mrs.
Rade earns the bulk of her compensation as part of our sales incentive
commission programs earning $183,042 and $183,942 in the twelve months December
31, 2006 and 2005, respectively, including draws, commission and a $36,000
salary for administrative duties.

We employ Dan Kenderdine, husband of Dawn Kenderdine our Vice President, as our
Facilities Manager since mid 2004. Mr. Kenderdine earns the bulk of his
compensation from salary and bonuses earning $ 52,273 for the year ended
December 31, 2006 and $ 44,270 for the year ending December 31, 2005.
Additionally, Mr. Kenderdine was awarded 10,000 stock options under the
Company's stock option plan in December 2005 at a price of $4.68 per share.

NOTE 8 - SEGMENT DISCLOSURE
The Company effectively operates in one business segment, the Wireless Products
Segment, which distributes cellular telephone accessory products including
batteries, chargers, and antennas throughout North America. The Wireless
Products Segment is headquartered in Huntingdon Valley, Pennsylvania. All
revenue and essentially all long-lived assets were related to operations in the
United States as of and for the years ended December 31, 2006, and 2005.

                                      F-29
<PAGE>

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The following documents are filed as a part of this Report.

1. And 2. FINANCIAL STATEMENTS -- The financial statements and schedules
required by this item begin on page F-1 of this report. The Reports of
Independent Certified Public Accountants appear on pages F-2, F-3 and F-4 of
this report.

3. EXHIBITS -- The following is a list of exhibits. Where so
indicated by footnote, exhibits, which were previously filed, are incorporated
by reference.

(b) On Sept. 1, 2004 we filed a Form 8-K relating to the Board of Director
approval of an increase in the amount of shares authorized to be repurchased
under the Company's stock Buy Back program to 1,250,000 shares at a cost not to
exceed $500,000.

(c) On December 7, 2005, the Board of Directors of the Registrant has authorized
the repurchase of up to 250,000 shares of the Registrant's common stock at a
total cost not to exceed $1,000,000. The stock repurchase program will expire on
December 7, 2006.

NUMBER
------

3.1       Certificate of Incorporation of Company and amendments thereto*

3.2       By-Laws*

4.1       Form of Common Stock Certificate*

4.2       Form of Warrant*

10.1      Warrant Agreement related to Redeemable Stock Purchase Warrants*

10.2      Form of Purchase Option issued to underwriter of initial public
          offering*

10.3      Form of Preferred Stock, Series A Certificate*

10.4      1995 Stock Option Plan of Company*

10.5      Forms of Option Agreement under the Plan

10.6      Option issued to Mr. Robert W. Tauber*

10.7      Management Services Agreement between the Company and Founders
          Management Services, Inc., as amended*

10.8      Lease between Advanced Fox Antenna, Inc. and Rade Limited Partners*

10.9      Registration Rights Agreement between the Company and Messrs. Tauber
          and Rade*

10.10     Revolving Credit, Term Loan and Security Agreement, dated January 6,
          1997among IBJ Schroder Bank & Trust Company as Agent and the Company,
          Advanced Fox Antenna, Inc., Tauber Electronics Inc., Battery
          Acquisition Corp., Specific Energy Corporation, Battery Network, Inc.
          and W.S.Battery & Sales Company, Inc.**

10.11     Amendment No. 1 and Joinder Agreement dated __________ among the
          Company, certain of its affiliates and IBJ Schroder Bank & Trust
          Company***

10.12     Waiver and Amendment to Revolving Credit, Term Loan and Security
          Agreement dated __________ by and among the Company, certain of its
          affiliates and IBJ Schroder Bank & Trust Company****

10.13     Waiver and Amendment to Revolving Credit, Term Loan and Security
          Agreement dated __________ by and among the Company, certain of its
          affiliates and IBJ Schroder Bank & Trust Company*****

10.14     Asset Purchase Agreement dated Jan 26, 2000 with respect to the sale
          of substantially all of the assets of Tauber Electronics, Inc.******

<PAGE>

10.15     Agreement and Plan of Merger dated February 28, 2001, by and among
          Wireless Xcessories Group, Inc., Accessory Solutions.com Inc.,
          Advanced Fox Antenna, Inc. and Cliffco of Tampa Bay.

10.16     Waiver and Amendment to Revolving Credit, Term Loan and Security
          Agreement dated March 30, 2001 by and among the Company, certain of
          its affiliates and IBJ Schroder Bank & Trust Company

10.17     Form of Warrant issued to each of Warren H. Haber and John L. Teeger**
          List of Subsidiaries

*         Filed as an exhibit to the Company's Registration Statement on Form
          S-1(File No. 33-80939) and incorporated by reference thereto.

**        Filed as an exhibit to the Company's Current Report on Form 8-K for
          January 7, 1997 and incorporated by reference thereto.

***       Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
          the three months ended June 30, 1997 and incorporated by reference
          thereto.

****      Filed as an exhibit to the Company's Annual Report on Form 10-K for
          the year ended December 31, 1997 and incorporated by reference hereto.

*****     Filed as an exhibit to the Company's Quarterly Report for the three
          months ended June 30, 1998 and incorporated by reference thereto.

******    Filed as an exhibit to the Company's Current Report on Form 8-K for
          January 27, 2000 and incorporated by reference thereto.

99.1      Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant
          to Section 906 of Sarbanes-Oxley Act of 2002

99.2      Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant
          to Section 906 of Sarbanes-Oxley Act of 2002

<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                      WIRELESS XCESSORIES GROUP, INC.

Date: March 15, 2007                  by: /s/ Stephen Rade
                                          -----------------------
                                          Stephen Rade
                                          Chief Executive Officer and President


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the date indicated.


         NAME                               TITLE                      DATE
----------------------------     ----------------------------     --------------


/s/ Stephen Rade                 Chairman of the Board, Chief     March 15, 2007
----------------------------     Executive Officer, President
Stephen Rade                     and Director (Principal
                                 Executive officer)

/s/ Ronald E. Badke              Chief Financial Officer          March 15, 2007
----------------------------     and Secretary (principal
Ronald E. Badke                  financial officer)

/s/ Christopher F. McConnell     Director                         March 15, 2007
----------------------------
Christopher F. McConnell

/s/ Allan Kalish                 Director                         March 15, 2007
----------------------------
Allan Kalish

/s/ Christopher C. Cole          Director                         March 15, 2007
----------------------------
Christopher C. Cole

/s/ Bradley T. MacDonald         Director                         March 15, 2007
----------------------------
Bradley T. MacDonald