**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 
 **Washington,
        D.C. 20549**
 
 Form
        10-QSB
 
 **QUARTERLY
        REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE**
 **SECURITIES
        EXCHANGE ACTS OF 1934**
 
 For
        the
        quarterly period ended June 30, 2005
 
 
 Commission
        File Number 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.
                  EmployerIncorporation
                  or Organization)
              Identification
                  Number)
 
 
 **1840
        COUNTY LINE ROAD**
 **HUNTINGDON
        VALLEY, PA 19006**
 (Address
        of principal executive offices)
 
 (215)
        322-4600
 (Registrant's
        telephone number, including area code)
 
 **N/A**
 (Former
        name, former address and former fiscal year,
 If
        changed since last report)
 
 Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days. Yes x No o
 
 As
        of
        June 30, 2005, there were 4,458,195 shares of the registrant's Common Stock
        net
        of Treasury Stock, par value $.001 per share, outstanding.
 
 **FORWARD
        LOOKING STATEMENTS**
 Some
        of
        the information presented in this quarterly report constitutes forward-looking
        statements within the meaning of the private Securities Litigation Reform
        Act of
        1995. Statements that are not historical facts, including statements about
        management's expectations for fiscal year 2005 and beyond, are forward looking
        statements and involve various risks and uncertainties. Although the Company
        believes that its expectations are based on reasonable assumptions within
        the
        bounds of its knowledge, there can be no assurance that actual results will
        not
        differ materially from the Company's expectations. Factors that could cause
        the
        actual results to differ materially from expectations are discussed in the
        Company's Annual Report
        on
        Form 10-K and in other filings with the Securities and Exchange
        Commission
 
 
 
  **WIRELESS
        XCESSORIES GROUP, INC.**
 **FORM
        10-QSB FOR THE PERIOD ENDED JUNE 30, 2005**
 
 **INDEX**
 
 PART
                  I.FINANCIAL
                  INFORMATIONITEM
                  1.
              CONDENSED
                  CONSOLIDATED FINANCIAL STATEMENTSCondensed
                  Consolidated Balance Sheets June 30, 2005(unaudited)
                  and December 31, 2004 (Audited)
              3Condensed
                  Consolidated Statements of Income for the three and six months
                  endedJune
                  30, 2005 and 2004(unaudited)
              4Condensed
                  Consolidated Statements of Cash Flows for the three and six months
                  ended
                  June 30, 2005 and 2004.
                  (unaudited)
              5Notes
                  to Condensed Consolidated Financial Statements
              6-7ITEM
                  2.
              Management's
                  Discussion and Analysis of Financial Condition andResults
                  of Operations
              8-11ITEM
                  3.
              Financial
                  graphs
              12ITEM
                  4.
              Controls
                  and Procedures
              12PARTII.COMPANY
                  HISTORY, OVERVIEW, AND DESCRIPTION OF RECENT EVENTSITEM
                  1.
              Company
                  history, overview, and description of recent events
              13-16ITEM
                  2.
              Risk
                  Factors
              16PART
                  III.OTHER
                  INFORMATIONITEM
                  1.
              Submission
                  of Matters to a Vote of Security Holders
              18Signatures
              19
 
  2
  F **INANCIAL
        INFORMATION**
 
 **ITEM
        1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **WIRELESS
        XCESSORIES GROUP, INC.**
 **CONDENSED
        CONSOLIDATED BALANCE SHEET**
 **(IN
        THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)**
 
 June
                  30 2005
              
              December
                  31, 2004(unaudited)
              
              (Audited)ASSETSCURRENT
                  ASSETS:Cash
                  and cash equivalents
              
              $
              1,968
              
              $
              1,907Accounts
                  receivable (net of allowance of
              
              
              1,787
              
              
              1,131$151
                  and $157, respectively)Inventories
              
              
              1,962
              
              
              1,559Prepaid
                  expenses and other current assets
              
              
              310
              
              
              204Current
                  portion- notes receivable
              
              
              —
              
              
              13Total
                  Current Assets
              
              
              6,027
              
              
              4,814PROPERTY
                  AND EQUIPMENT - Net
              
              
              425
              
              
              449OTHER
                  ASSETS
              
              
              36
              
              
              36TOTAL
                  ASSETS
              
              $
              6,488
              
              $
              5,299LIABILITIES
                  AND STOCKHOLDERS' EQUITYCURRENT
                  LIABILITIES:Current
                  portion of long-term debt
              
              $
              —
              
              $
              2Accounts
                  payable
              
              
              844
              
              
              972Net
                  liabilities on disposal of discontinued operations
              
              
              23
              
              
              36Accrued
                  payroll and related benefits
              
              
              172
              
              
              192Other
                  accrued expense
              
              
              111
              
              
              45Total
                  Current Liabilities
              
              
              1,150
              
              
              1,247STOCKHOLDERS’
                  EQUITYPreferred
                  stock, par value $0.001, 1,000,000 shares authorized,no
                  shares issued or outstandingCommon
                  Stock, par value $.001, 10,000,000 shares authorized,
                  5,327,080and
                  5,327,080 issued in 2005 and 2004, respectively
              
              
              5
              
              
              5Additional
                  paid - in capital
              
              
              11,364
              
              
              11,364Accumulated
                  deficit
              
              
              (5,578
              )
              
              (6,864
              )Treasury
                  Stock at cost, 868,885 in 2005 and 2004
              
              
              (453
              )
              
              (453
              )Total
                  Stockholders’
                  Equity
              
              
              5,338
              
              
              4,052TOTAL
                  LIABILITIES AND STOCKHOLDERS’ EQUITY
              
              $
              6,488
              
              $
              5,299
 
 
 The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.
 
 
 3
  **WIRELESS
        XCESSORIES GROUP, INC.**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF INCOME**
 **(UNAUDITED)**
 **(IN
        THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)**
 
 
 
 Three
                  Months Ended
              
              Six
                  Months EndedJune
                  30,
              
              June
                  30,2005
              
              2004
              
              2005
              
              2004NET
                  SALES
              
              $
              5,835
              
              $
              3,905
              
              $
              10,790
              
              $
              7,056COST
                  OF SALES
              
              
              3,678
              
              
              2,140
              
              
              6,567
              
              
              3,830Gross
                  profit
              
              
              2,157
              
              
              1,765
              
              
              4,223
              
              
              3,226SELLING,
                  GENERAL AND ADMINISTRATIVE EXPENSES
              
              
              1,491
              
              
              1,432
              
              
              3,003
              
              
              2,829INCOME
                  FROM OPERATIONS
              
              
              666
              
              
              333
              
              
              1,220
              
              
              397OTHER
                  INCOME (EXPENSE):BAD
                  DEBT RECOVERIES
              
              
              31
              
              
              —
              
              
              31
              
              
              —DIVIDEND
                  INCOME AND CAPITAL GAINS DISTRIBUTIONS
              
              
              8
              
              
              —
              
              
              26
              
              
              —INTEREST
                  INCOME
              
              
              5
              
              
              5
              
              
              8
              
              
              9Income
                  before income taxes
              
              
              710
              
              
              338
              
              
              1,285
              
              
              406INCOME
                  TAX
              
              
              —
              
              
              —
              
              
              —
              
              
              —Net
                  Income
              
              $
              710
              
              $
              338
              
              $
              1,285
              
              $
              406Net
                  Income per common share- Basic
              
              $
              .16
              
              $
              .07
              
              $
              .29
              
              $
              .08Net
                  Income per common share- Diluted
              
              $
              .15
              
              $
              .07
              
              $
              .28
              
              $
              .08Basic
                  weighted average common shares outstanding
              
              
              4,458,195
              
              
              4,803,388
              
              
              4,458,195
              
              
              4,742,186Diluted
                  weighted average common shares outstanding
              
              
              4,604,195
              
              
              4,826,288
              
              
              4,591,195
              
              
              4,779,946
 
 
 
 
 
 
 
 The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.
  4
  **WIRELESS
        XCESSORIES GROUP, INC.**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOW**
 **(UNAUDITED)**
 **(IN
        THOUSANDS)**
 
 Six
                  Months Ended June 302005
              
              2004OPERATING
                  ACTIVITIES:Net
                  Income
              
              $
              1,285
              
              $
              406Adjustments
                  to reconcile net income to cashprovided
                  by operating activities-Depreciation
                  and amortization
              
              
              142
              
              
              154Provision
                  for doubtful accounts
              
              
              (6
              )
              
              120Changes
                  in assets and liabilities:Accounts
                  receivable
              
              
              (650
              )
              
              (277
              )Inventories
              
              
              (403
              )
              
              212Prepaid
                  expenses and other assets
              
              
              (128
              )
              
              (69
              )Accounts
                  payable and accrued expenses
              
              
              (80
              )
              
              190Net
                  cash provided by operating activities
              
              
              160
              
              
              736INVESTING
                  ACTIVITIES:Purchase
                  of property and equipment
              
              
              (110
              )
              
              (148
              )Principal
                  payments on notes receivables
              
              
              13
              
              
              67Net
                  cash (used in) investing activities
              
              
              (
                  97
              )
              
              (81
              )FINANCING
                  ACTIVITIES:Net
                  payments on borrowings
              
              
              (2
              )
              
              1Repurchase
                  of company stock
              
              
              (—
              )
              
              (77
              )Net
                  cash provided (used in) financing activities
              
              
              (2
              )
              
              (76
              )NET
                  INCREASE IN CASH AND CASH EQUIVALENTS
              
              
              61
              
              
              579CASH
                  AND CASH EQUIVALENTS, BEGINNING OF PERIOD
              
              
              1,907
              
              
              1,316CASH
                  AND CASH EQUIVALENTS, END OF PERIOD
              
              
              1,968
              
              
              1,895SUPPLEMENTAL
                  DISCLOSURES OF CASH FLOW INFORMATIONCash
                  paid during period for-Interest
              
              $
              —
              
              $
              7
 
 
  
 The
        accompanying notes are an integral part of these condensed consolidated
        financial statements
  5
  
 
 **WIRELESS
        XCESSORIES GROUP, INC** .
 
 **NOTES
        TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS**
 (unaudited)
 
 **1.
        BASIS OF PRESENTATION**
 
 The
        condensed consolidated financial statements included herein have been prepared
        by the management of Wireless Xcessories Group, Inc. ("Wireless Xcessories"
        or
        the "Company") without audit, pursuant to the rules and regulations of the
        Securities and Exchange Commission. Certain information and footnote disclosures
        normally included in financial statements prepared in accordance with accounting
        principles generally accepted in the United States of America have been
        condensed or omitted pursuant to such rules and regulations. These statements
        include all adjustments that, in the opinion of management, are necessary
        to
        provide a fair statement of the results for the periods covered. All such
        adjustments are of a normal recurring nature. These condensed consolidated
        financial statements should be read in conjunction with the audited financial
        statements and footnotes thereto included in the Company's Annual Report
        on Form
        10-K for the year ended December 31, 2004. The results of operations for
        the six
        months ended June 30, 2005 are not necessarily indicative of the results
        for the
        full year. Certain prior year amounts have been reclassified to conform to
        current period presentations.
  **2.
        STOCK REPURCHASE PROGRAM**
 
 As
        of
        June 30, 2005, the Company under a Stock buyback program authorized by its
        Board
        of Directors had repurchased 868,885 shares at an average approximate price
        of
        $.53 per share, recorded at cost as Treasury Stock in the accompanying condensed
        consolidated balance sheet net, of re-issuances as at June 30, 2005.
        During the
        September 2004 quarter, the Board approved an increase in the Company Stock
        buyback plan to a total of up to 1,250,000 shares at a cost not to exceed
        $1,000,000 through July 20, 2005.
  **3.
        SEGMENT DISCLOSURE**
 
 The
        Company operates in one business segment, which distributes cellular telephone
        accessory products principally in North America. The Wireless Products Segment
        is headquartered in Huntingdon Valley, Pennsylvania and all revenue and
        essentially all long-lived assets were related to operations in the United
        States as of June 30, 2005 and during the periods presented.
 
 **4.
        EARNINGS PER SHARE**
 
 The
        Company follows the provisions of Statement of Financial Accounting Standards
        No. 128, "Earnings per Share." The calculation of basic and diluted earnings
        per
        share ("EPS") is reflected on the accompanying Condensed Consolidated Statement
        of Operations.
 
 O ptions
        to
        purchase 183,500 and 216,500 shares were outstanding at June 30, 2005 and
        June
        30, 2004, respectively, with exercise prices ranging $.28 to $4.44.
 
 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 for the six months ended June 30, 2005
        and
        2004 would have been the pro forma amounts indicated below:
 
 6
  
 **2005**
              
              **2004**As
                  reported net incomefrom
                  continuing operations:
              
              $
              1,285
              
              $
              406Add:
                  Stock-based compensationexpense
                  included in reportedincome
                  from continuing operationsnet
                  of related tax effects
              
              
              —
              
              
              —Deduct:
                  Total stock-basedemployee
                  compensation expensedetermined
                  under fair value basedmethod
                  for all awards, net of relatedtax
                  effects
              
              
              —
              
              
              (1
              )Pro
                  forma income fromcontinuing
                  operations
              
              $
              1,285
              
              $
              405Basic
                  incomefrom
                  continuing operations percommon
                  share:As
                  reported
              
              $
              0.29
              
              $
              0.08Pro
                  forma
              
              $
              0.29
              
              $
              0.08Diluted
                  incomefrom
                  continuing operations percommon
                  share:As
                  reported
              
              $
              0.28
              
              $
              0.08Pro
                  forma
              
              $
              0.28
              
              $
              0.08
  **5.
        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. Our significant accounting policies are described in Note 1 of
        the
        Notes to the Condensed 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:
 
 Notes
        to
        Condensed Consolidated Income Statements Continued
 
 Significant
        Estimates-- We have made a number of estimates and assumptions related to
        the
        reporting of assets and liabilities in preparation of the condensed 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.
 
 7
  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 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.
 
 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.
 
 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
        2.8% of
        its net sales and the Company provides reserves and allowances to provide
        for
        this exposure, which are applied against net sales.
  **ITEM
        2. MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**
  **RESULTS
        OF OPERATIONS:**
 
 The
        following table represents the Company's statement of income data expressed
        as a
        percentage of net sales for the respective periods:
 
 Three
                  Months Ended June 30
              
              
              Six
                  Months Ended June 302005
              
              
              2004
              
              
              2005
              
              
              2004Net
                  Sales
              
              
              100.0
              %
              
              100.0
              %
              
              100.0
              %
              
              100.0
              %Cost
                  of Sales
              
              
              63.0
              
              
              54.8
              
              
              60.9
              
              
              54.3Gross
                  Profit
              
              
              37.0
              
              
              45.2
              
              
              39.1
              
              
              45.7Selling,
                  General and administrative Expenses
              
              
              25.6
              
              
              36.7
              
              
              27.8
              
              
              40.1Bad
                  Debt Recoveries
              
              
              .6
              
              
              0.0
              
              
              0.3
              
              
              0.0Income
                  from sale of Investments
              
              
              0.1
              
              
              0.0
              
              
              0.2
              
              
              0.0Interest
                  Income
              
              
              0.1
              
              
              0.1
              
              
              0.1
              
              
              0.1Interest
                  Expense
              
              
              (0.0
              )
              
              (0.0
              )
              
              (0.0
              )
              
              0.0Net
                  Income (Loss) before Income Tax
              
              
              12.2
              
              
              8.6
              
              
              11.9
              
              
              5.6Income
                  Tax
              
              
              0.0
              
              
              0.0
              
              
              0.0
              
              
              0.0Net
                  Income
              
              
              12.2
              %
              
              8.6
              %
              
              11.9
              %
              
              5.6
              %
 
 **Management
        discussion**
  **Three
        Months Ended June 30, 2005 ("2005") Compared to Three Months ended June,
        30 2004
        ("2004").**
 
 Net
        sales
        increased by $1.9 million or 49% from $3.9 million in 2004 to $5.8 million
        in
        2005. The increase in sales is mainly attributable to the major expansion
        of our
        products and product lines such as our IPOD MP3, PDA, Bluetooth, and OEM
        accessories along with the distribution of phones, which provides 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 product lines, expanded value added services
        offered to customers bolstered by a 30 person well-trained and motivated
        sales
        representative and Customer service department employees, expanded product
        selection,
  8
  expanded
        marketing and overall pricing/value relationship offered to Customers. We
        have
        made significant progress in fostering the growth of new customers and highly
        compensate our sales force for their success in booking new
        business.
 
 Gross
        profit increased by $.4 million from $1.8 million in 2004 to $2.2 million
        in
        2005 and as a percentage of sales decreased from 45.2% to 37.0%. The fall
        off in
        percentage resulted from the major expansion of lower priced brand name product
        sales and favorable pricing given to new and selected existing Customers
        to
        expand business. Offsetting this in part is the
        following factors:
  ·
              Reductions
                  in charges in earnings and as a percentage of sales to provide
                  for
                  obsolete and slower moving inventory due primarily to enhanced
                  controls
                  over new purchases, and faster identification and promotion of
                  overstocked
                  and slow moving product.
 ·
              Increase
                  in our core product lines including industrial strength, platinum
                  and
                  standard lines carry significantly higher margins and are subject
                  to less
                  competitive pressures than our branded product
                  lines.
  Selling,
        general and administrative (SG&A) expenses increased by only $59,000 or 4%
        as compared to a sales increase of 49%. As a result, total SG& A expenses as
        a percentage of sales decreased from 36.7% in 2004 to 25.6% in 2005. This is
        a
        result of the Company's continuous cost cutting program and emphasis on improved
        employee productivity particularly, in warehouse labor, which resulted in
        a
        significant improvement in our sales per employee ratio, and in several other
        general and administrative line items such as, telephone costs, significant
        bad
        debts expense reductions due to stringent collection procedures, rent expense
        and various other administrative expenses. The Company made an investment
        in
        expanding its selling force as total selling costs was up by approximately
        30%,
        which helped to generate the 49% sales increase for the quarter.
 
 Interest
        (income) is $5,000 in both 2004 and 2005.
 
 The
        Company has a net operating loss carry forward in the amount of $1,290,869,
        which will be utilized in the current tax year to offset the tax provision.
        The
        effective income tax rate in calculating the tax provision is 38%. The Company
        will begin accruing income taxes at its normal statutory rates commencing
        in the
        September, 2005 quarter.
 
 **Six
        Months Ended June 30, 2005 ("2005") Compared to Six Months ended June, 30
        2004
        ("2004").**
 
 Net
        sales
        increased by $3.8 million or 53% from $7.0 million in 2004 to $10.8 million
        in
        2005. The increase in sales is mainly attributable to the major expansion
        of our
        products and product lines such as our IPOD MP3, PDA, Bluetooth, and OEM
        accessories along with the distribution of phones, which provides 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 product lines, expanded value added services
        offered to customers bolstered by a 30 person well-trained and motivated
        sales
        representative and Customer service department employees, expanded product
        selection, expanded marketing and overall pricing/value relationship offered
        to
        Customers. We have made significant progress in fostering the growth of new
        customers and highly compensate our sales force for their success in booking
        new
        business.
 
 Gross
        profit increased by $1.0 million from $3.2 million in 2004 to $4.2 million
        in
        2005 and as a percentage of sales decreased from 45.7% to 39.1%. The fall
        off in
        percentage resulted from the major expansion of lower priced brand name product
        sales and favorable pricing given to new and selected existing Customers
        to
        expand business. Offsetting this in part is
 the
        following factors:
  ·
              Reductions
                  in charges in earnings and as a percentage of sales to provide
                  for
                  obsolete and slower moving inventory due primarily to enhanced
                  controls
                  over new purchases, and faster identification and promotion of
                  overstocked
                  and slow moving product.
 ·
              Increase
                  in our core product lines including industrial strength, platinum
                  and
                  standard lines carry significantly higher margins and are subject
                  to less
                  competitive pressures than our branded product
                  lines.
  Selling,
        general and administrative (SG&A) expenses increased by only $174,000 or 6%
        as compared to a sales increase of 49%. As a result, total SG& A expenses as
        a percentage of sales decreased from 40.1% in 2004 to 27.8% in 2005. This
        is a
        result of the Company's continuous cost cutting program and emphasis on improved
        employee productivity particularly, in warehouse labor, which resulted in
        a
        significant improvement in our sales per employee ratio, and in several other
        general and administrative line items such as, telephone costs, major reduction
        to bad debt expenses due to a tightened credit policy
  9
  and
        stringent collection procedures, rent expense and various other administrative
        expenses.
 
 Interest
        (income) decreased from $9,000 in 2004 to $8,000 in 2005. This is primarily
        due
        to a major part of the Company’s excess cash in 2005 in non- interest bearing
        money market instruments.
 
 The
        Company has a net operating loss carry forward in the amount of $1,290,869,
        which will be utilized in the current tax year to offset the tax provision.
        The
        effective income tax rate in calculating the tax provision is 38%. The Company
        will begin accruing income taxes at its normal statutory rates commencing
        in the
        September, 2005 quarter.
  **LIQUIDITY
        AND CAPITAL RESOURCES:**
 
 The
        Company's requirements for capital are to fund (i) sales growth, (ii) financing
        for possible acquisitions, (iii) repurchase of stock, and (iv) capital
        expenditures mainly related to business system and warehouse upgrades. The
        Company's primary sources of financing during the six months ended June 30,
        2005
        were cash flow from operations.
 
 The
        Company's working capital as of June 30, 2005 and 2004 was $4,876,000 and
        $3,134,000, respectively. Net cash provided by operating activities for the
        six
        months ended June 30, 2005 and 2004 were $160,000 and $736,000, respectively.
        In
        2005, the Company provided $1,421,000 from operations from its net income
        of
        $1,285,000 as adjusted for non-cash items of depreciation and amortization
        of
        $142,000 and a bad debt provision of $(6,000). Cash used in changes in assets
        and liabilities of $1,261,000 resulted from increases in accounts receivable,
        inventory, and in prepaid expense and other assets of $650,000, $403,000,
        and
        $128,000, respectively, and an increase in accounts payable, and accrued
        expenses of $80,000. The increase in accounts receivable was directly
        attributable to substantially higher customer billings in June 2005, compared
        to
        December 2004, offset in part by continued in improvement in customer
        collections. The increase in Inventory of $403,000 is attributable to increased
        purchases to meet forecasted increased consumer demand as a result of
        substantial increase in the Company’s product lines and Customer sales base
        (Sales are up for the six months ended June 30, 2005 by 49%).
 
 In
        the
        six months ended June 30, 2004, the Company provided cash from operations
        of
        $680,000 from its net income of $406,000 as adjusted for non-cash items of
        depreciation and amortization of $154,000 and a bad debt provision of $120,000.
        Cash provided from changes in assets and liabilities totaled $56,000 resulting
        from net decreases in inventory of $212,000 and an increase in accounts payable
        and accrued expenses of $190,000 offset in part by an increase in Accounts
        Receivable of $277,000 and an increase in prepaid expense and other assets
        of
        $69,000.
 
 Net
        cash
        used in investing activities for the six months ended June 30, 2005 was $97,000
        resulting from the purchase of property and equipment of $110,000 (Principally
        software related to enhancements in our business system and computer equipment
        and peripherals), offset in part by $13,000 of principal note receivable
        payments.
 
 Cash
        used
        in financing activities for the six months ended June 30, 2005 was $2,000
        resulting from net reductions in capital leases of $2,000.
 
 The
        Company estimates that it will incur capital expenditures of approximately
        $125,000 during the twelve months ended June 30, 2006, principally for business,
        warehouse, and upgrades.
 
 Based
        upon its present plans, management believes that operating cash flow, available
        cash and available credit resources will be adequate to meet the working
        capital
        cash and capital expenditure needs of the Company during the twelve months
        ending June 30, 2006.
 
 **CRITICAL
        ACCOUNTING POLICY AND ESTIMATES**
 
 Our
        Management’s Discussion and Analysis of Financial Condition and Results of
        Operations section discusses our condensed consolidated financial statements,
        which have been prepared in accordance with accounting principles generally
        accepted in the United States of America as promulgated by the Public Company
        Accounting Oversight Board. The preparation of these financial statements
        requires management to make estimates and assumptions that affect the reported
        amounts of assets and liabilities at the date of the financial statements
        and
        the reported amount of revenues and expenses during the reporting period.
        On an
        ongoing basis, management evaluates its estimates and judgments, including
        those
        related to revenue recognition, accrued expenses, financing operations, and
        contingencies and litigation. Management bases its estimates and judgments
        on
        historical experience and on various other factors that are believed to be
        reasonable under the circumstances, the results of which form the basis for
        making judgments about the carrying value of assets and liabilities that
  10
  are
        not
        readily apparent from other sources. Actual results may differ from these
        estimates under different assumptions and conditions. The most significant
        accounting estimates inherent in the preparation of our financial statements
        include estimates as to the appropriate carrying value of certain assets
        and
        liabilities which are not readily apparent from other sources. These accounting
        policies are described at relevant sections in this discussion and analysis
        and
        in the condensed consolidated financial statements included in this quarterly
        report.
  **OFF-BALANCE
        SHEET ARRANGEMENTS**
  The
        Company has no off-balance sheet arrangements.
 
 **SEASONALITY
        AND INFLATION**
 
 In
        fiscal
        years 2005 and 2004 the Company did approximately 54% and 55%, respectively,
        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.
  11
  **ITEM
        3. FINANCIAL
        GRAPHS**




GRAPHS
 **ITEM
        4. CONTROLS AND
        PROCEDURES**
  **Evaluation
        of disclosure controls and procedures**
 
 The
        term
“ disclosure controls and procedures “ is 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 June 30, 2005.
        They have concluded that, as of June 30, 2005 that 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 principal
        financial officer have evaluated the
  12
  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 June 30, 2005 our
        disclosure and procedures were effective in ensuring that required information
        will be disclosed on a timely basis in our reports filed under the exchange
        act.
  **PART
        II. COMPANY HISTORY**
  **ITEM
        1 - NARRATIVE**
 
 **Overview
        & History**
 
 Wireless
        Xcessories Group is a leading provider of 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 Unites
        States.
        Our website address is Wirexgroup.com
  **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 offer in lieu of OEM accessories
        sold
        by the cell phone manufacturers.
 
 Our
        current product lines are called “Standard,”“Platinum,” and “Industrial
        Strength Ò .”
 
 In
        2004
        we created a product design and development division and produced a series
        of
        cases, vehicle power adapters, hands free headsets, and a line of accessories
        for popular PDA’S such as Treo and Blackberry. Our current projects involve a
        series of Blue Tooth hands free accessories. The mission of our product
        development department is to design and create accessories with exclusive
        styling and functionality. We offer these items to phone manufacturers and
        major
        distributors under our name or as a private labeled product.
 
 The
        close
        working relationship with our Chinese factories also allows us to replicate
        the
        most popular accessories appearing on the world market at costs 30-40% below
        their current wholesale pricing.
 
 In
        the
        fourth quarter of 2004 and in early 2005 we added new product lines such
        as
        Apple-IPod accessories, entertainment accessories such as headsets and chargers
        for players, and became a national distributor for a new line of phones
        manufactured by Hop-on MP3. The majority of our products are manufactured
        in
        China and Taiwan. In addition, we also act as a master distributor for
        well-known brand name products such as Plantronics, Body Glove, and
        Nextel.
 
 Our
        product lines are sold along with comprehensive sales and marketing programs,
        and a series of value added products designed to separate and distinguish
        us in
        the minds of wireless resellers.
 
 13
 
 
 These
        Services Are Offered Free of Charge:
 
 ü
              Airtime
                  carrier phone and accessories compatible
                  charts
 ü
              E-Mail
                  blast management programs
 ü
              Customized
                  retail packaging
 ü
              Sales
                  training materials
 ü
              In
                  store displays and posters
 ü
              Private
                  Label E-commerce websites that allow customers to offer our full
                  product
                  line to their end users
 
 Also
        in
        2004, we introduced 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.
        We
        have one customer who accounted for 15 % and a second close to 5% of our
        2005
        sales and no other customer accounted for 5% or more of our sales.
 
 About
        25%
        of our customers either repackage our products for resale through their resale
        channels or ask us to provide custom packaging as part of our value added
        services.
 
 **Business
        Model** ****
 
 With
        our
        recent introduction of entertainment accessories, Blackberry and smartphone
        accessories plus a new line of phones, we have the widest product line in
        America and are truly a “One stop shopping source” for all types of wireless
        resellers.
 
 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.
 
 The
        wireless phone industry is characterized by the continuous 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
        aftermarket accessories, especially by having them available for purchase
        soon
        after the phone manufacturers introduces their new models.
 
 In
        addition to being quick to market on new accessories, 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.
 
 Our
        customers have come to expect same day shipping on orders placed before 3pm,
        and
        we meet this commitment on more then 99% of our orders.
 
 We
        encourage customers to try selected new products by offering a no risk, 60-day
        opportunity to stock balance and return products that do not sell up to their
        expectations. This “guaranteed sale” option has proven very popular with our
        customers.
 We
        encourage customers to place orders on line 24/7 which ensures them same
        day
        shipment and reduces our order processing costs. 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.
  14
 
 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
                  incentivize 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 Bipods, Mp3 players, as well as a 300 item line of OEM
                  Accessories.
 
 F)
              We
                  continue to introduce new products and product lines so that there
                  is
                  always something new to offer customers and
                  prospects.
 
 **Employees**
 
 Wireless
        Xcessories Group employs approximately 80 full time workers divided into
        accounting, sales, customer services, marketing, purchasing/product development,
        MIS, quality control, and warehouse picking and packing. Our 8-person management
        team has been with the company from 2-15 years, with most managers having
        5-10
        years experience.
 
 Most
        members of our management team receive restricted stock grants tied to an
        agreement not to compete and have incentive to remain with the company for
        at
        least 5 years as a result of the vesting provisions of the stock grants.
 
 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 15 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 Ò ,
        IndustrialStrength.com Ò ,
        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 65,000 square feet of warehouse space in Huntingdon Valley,
        Pa., which we have occupied since 2001.
  15
  Our
        facility is divided into 13,000 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.
 
 **Legal
        Proceedings**
 
 Lawsuits
        and claims are filed against us from time to time in the ordinary course
        of
        business. We do not believe that any lawsuits or claims currently pending
        against our company are material or will have a material adverse affect on
        our
        financial condition.
 
 **Industry
        Risk Factors that could affect our performance**
 
 A)
              General
                  economic conditions deteriorate, thereby 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 2005 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. All products we purchase from vendors
        in
        the Far East must be shipped to our warehouse via 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.
  **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,
  16
  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.
  ITEM
        2.
        PROPERTIES
 
 All
        of
        our real properties are held under leases. The following table provides certain
        information concerning our leased properties:
  APPROXIMATE
              LEASEAREA
              EXPIRATIONOPERATION
              NATURE
              LOCATION
              (SQ.FT.)
              DATEMain
                  Facility
              Warehouse
                  and
              Huntingdon
                  Valley,
                  PA
              52,000
              3/31/09Office
              
              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 obligation to
        the
        Company upon giving the landlord six months prior notice of its intention
        to
        vacate.
  **Legal
        Proceedings**
 
 Lawsuits
        and claims are filed against us from time to time in the ordinary course
        of
        business. We do not believe that any lawsuits or claims currently pending
        against our company are material or will have a material adverse affect on
        our
        financial condition.
 
 **Industry
        Risk Factors that could affect our performance**
 
 (A)
              General
                  economic conditions deteriorate, thereby reducing the demand for
                  handsets
                  and accessories.
 
 (A)
              Manufacturers
                  reduce the number of new handset introductions, thereby reducing
                  our
                  competitive advantage of speed to market new
                  accessories.
 
 **Company
        Specific Risks**
 
 A)
              Our
                  sales and marketing plans are ineffective or poorly
                  executed.
 
 B)
              One
                  or more major customers decide to buy elsewhere or suffer financial
                  difficulties resulting in reduced purchasing of our
                  products.
 
 C)
              One
                  or more competitors successfully take customers from
                  us.
  17
 
 D)
              Lawsuits
                  resulting from alleged infringement of another of another company’s
                  designs or products.
 
 E)
              Key
                  employee resignation or sickness.
 
 F)
              Failure
                  of our products to be accepted in the market place based on poor
                  quality,
                  design, or features.
 
 G)
              Disruption
                  in our Far East supply chain due to accidents, shipping delays
                  or
                  intensive customs inspections.
 
 H)
              Problems
                  experienced by our factories in China. These could be based on
                  component
                  scarcity, labor problems, production delays, all of which are beyond
                  our
                  control.
  PART
        III
 OTHER
        INFORMATION
 
 Submission
        of Matters to a vote of Security Holders
 
 At
        the
        Annual Meeting of shareholders held on May 11 2005, pursuant to the Notice
        of
        Annual Meeting of Stockholders dated March 27, 2005 the following actions
        were
        taken:
 
 Proposal
        No 1: Election of Directors.
 
 The
        following individuals were elected as Directors:
  Name
              For
              AgainstStephen Rade
              3,973,633
              297,993Christopher McConnell
              4,078,956
              192,670Bradley T. Mc Donald
              4,091,456
              180,170Allan Kalish
              4,091,656
              179,970Christopher C. Cole
              4,091,656
              179,970
  No
        other
        matters were submitted to a vote of the Company’s stockholders during the third
        quarter of the fiscal year covered by this report through the solicitation
        of
        proxies or otherwise.
 
 Proposal
        No 2: Proposal to ratify the appointment by our Board of Directors of Bagell,
        Josephs & Company, L.L.C the Company’s independent auditors for the fiscal
        year ending December 31, 2005.
 
 
 For:
        4,091,056 against: 180,570
  ITEM
        6.
        EXHIBITS AND REPORTS ON FORM 8-K
  (a)
        Exhibits
 31-1
              Statement under oath of principal executive officer.
 31-2
              Statement under oath of principal financial
                  officer.
 
 
 (b)
        Reports on Form 8-K
 None
  18
  SIGNATURES
  Pursuant
        to the requirements 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: July
                  27, 2005
                By:
                /s/ Stephen
                  RadeName:Stephen
                  RadeTitle:
                  Chief Executive Officer
 Date: July
                27, 2005
              By:
              /s/ Ronald
                E. BadkeName:
                Ronald E. BadkeTitle:
                Chief Financial Officer
 
 
 
 
 
 
  19