**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 September 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
        September 30, 2005, there were 4,474,195 shares of the registrant's Common
        Stock, net of Treasury Stock, par value **$** .01
        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-KSB and in other filings with the Securities
        and Exchange Commission.
 
 
 
 
 
  **WIRELESS
        XCESSORIES GROUP, INC.**
 **FORM
        10-QSB FOR THE PERIOD ENDED SEPTEMBER 30, 2005**
 
 INDEX
 
 PART
                    I.
                FINANCIAL
                    INFORMATIONITEM
                    1.
                CONDENSED
                    CONSOLIDATED FINANCIAL STATEMENTSCondensed
                    Consolidated Balance Sheets September 30, 2005(unaudited)
                    and December 31**,**2004(audited)
                3Condensed
                    Consolidated Statements of Income for the nine monthsAnd
                    three months ended September 30, 2005 and 2004(unaudited)
                4Condensed
                    Consolidated Statements of Cash Flow for the nine monthsended
                    September 30, 2005 and 2004 (unaudited)
                5Notes
                    to Condensed Consolidated Financial Statements
                6-8ITEM
                    2.
                
                Management's
                    Discussion and Analysis of FinancialCondition
                    and Results of Operations
                8-10ITEM
                    3.
                
                Financial
                    graphs
                11ITEM
                    4.
                
                Controls
                    and Procedures
                11PART
                    II.
                COMPANY
                    HISTORY, OVERVIEW, AND DESCRIPTION OF RECENT EVENTSITEM
                    1.
                
                Company
                    history, overview, and description of recent events
                12ITEM
                    2.
                
                Properties
                15PART
                    III.
                OTHER
                    INFORMATIONITEM
                    1.
                
                Submission
                    of Matters to a Vote of Security Holders
                16Signatures
                17
 
  2
  
 
 **FINANCIAL
        INFORMATION**
 
 **ITEM
        1. CONSOLIDATED FINANCIAL STATEMENTS**
 
 **WIRELESS
        XCESSORIES GROUP, INC.**
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 (IN
        THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
  **September
                    30, 2005**
                
                **December
                    31, 2004**ASSETS(unaudited)
                
                (audited)CURRENT
                    ASSETS:Cash
                    and cash equivalents
                
                $
                2,187
                
                $
                1,907Accounts
                    receivable (net of allowance of
                
                
                1,545
                
                
                1,131$147
                    and $157, respectively)Inventories
                
                
                2,145
                
                
                1,559Prepaid
                    expenses and other current assets
                
                
                401
                
                
                204Current
                    portion- notes receivable
                
                
                —
                
                
                13Deferred
                    tax asset
                
                
                31
                
                
                —Total
                    Current Assets
                
                
                6,309
                
                
                4,814PROPERTY
                    AND EQUIPMENT - Net
                
                
                378
                
                
                449OTHER
                    ASSETS
                
                
                88
                
                
                36TOTAL
                    ASSETS
                
                $
                6,775
                
                $
                5,299LIABILITIES
                    AND STOCKHOLDERS’ EQUITYCURRENT
                    LIABILITIES:Current
                    portion of long-term debt
                
                $
                —
                
                $
                2Accounts
                    payable
                
                
                888
                
                
                972Net
                    liabilities on disposal of discontinued operations
                
                
                —
                
                
                36Accrued
                    payroll and related benefits
                
                
                87
                
                
                192Other
                    accrued expenses
                
                
                95
                
                
                45Total
                    Current Liabilities
                
                
                1,070
                
                
                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, 5,343,080
                    and5,327,080
                    issued and outstanding at September 30, 2005 and December 31,
                    2004,Respectively
                
                
                5
                
                
                5Additional
                    paid - in capital
                
                
                11,411
                
                
                11,364Accumulated
                    deficit
                
                
                (5,258
                )
                
                (6,864
                )Treasury
                    Stock (at cost) 868,885 in 2005 and 2004
                
                
                (453
                )
                
                (453
                )Total
                    Stockholders’
                    Equity
                
                
                5,705
                
                
                4,052TOTAL
                    LIABILITIES AND STOCKHOLDERS’
                    EQUITY
                
                $
                6,775
                
                $
                5,299
 The
          accompanying notes on page 6-8 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**
                
                **Nine
                    Months Ended****September
                    30**,
                
                **September
                    30**,**2005**
                
                **2004**
                
                **2005**
                
                **2004**NET
                    SALES
                
                $
                5,293
                
                $
                4,075
                
                $
                16,083
                
                $
                11,131COST
                    OF SALES
                
                
                3,271
                
                
                2,329
                
                
                9,838
                
                
                6,159Gross
                    profit
                
                
                2,022
                
                
                1,746
                
                
                6,245
                
                
                4,972SELLING,
                    GENERAL AND ADMINISTRATIVE EXPENSES
                
                
                1,596
                
                
                1,495
                
                
                4,599
                
                
                4,324INCOME
                    FROM OPERATIONS
                
                
                426
                
                
                251
                
                
                1,646
                
                
                648OTHER
                    INCOME(EXPENSE)BAD
                    DEBT RECOVERIES
                
                
                —
                
                
                —
                
                
                31
                
                
                —DIVIDEND
                    INCOME AND CAPITAL GAIN DISTRIBUTION
                
                
                9
                
                
                —
                
                
                34
                
                
                —INTEREST
                    INCOME
                
                
                4
                
                
                8
                
                
                12
                
                
                17Income
                    before income taxes
                
                $
                439
                
                
                259
                
                $
                1,723
                
                
                665INCOME
                    TAX EXPENSE
                
                
                118
                
                
                —
                
                
                118
                
                
                —Net
                    Income
                
                $
                321
                
                $
                259
                
                $
                1,605
                
                $
                665Net
                    Income per common share- Basic
                
                $
                .07
                
                $
                .06
                
                $
                .36
                
                $
                .14Net
                    Income per common share- Diluted
                
                
                .07
                
                
                .06
                
                
                .35
                
                
                .14Basic
                    weighted average common shares outstanding
                
                
                4,474,121
                
                
                4,531,810
                
                
                4,463,628
                
                
                4,788,599Diluted
                    weighted average common shares outstanding
                
                
                4,626,063
                
                
                4,601,690
                
                
                4,615,570
                
                
                4,840,741
  
 
 
 
 
 
 
  
 
 
 The
          accompanying notes on pages 6-8 are an integral part of these condensed
          consolidated financial statements
 4
  
 **WIRELESS
        XCESSORIES GROUP, INC.**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOW**
 (UNAUDITED)
 (IN
        THOUSANDS)
  **Nine
                    Months Ended September 30,****2005**
                
                **2004**OPERATING
                    ACTIVITIES:Net
                    Income
                
                $
                1,605
                
                $
                665Adjustments
                    to reconcile net Income (loss) to cashprovided
                    by operating activities-Depreciation
                    and amortization
                
                
                206
                
                
                245Provision
                    for doubtful accounts
                
                
                (15
                )
                
                129Issuance
                    of Common Stock to third parties for services
                
                
                47
                
                
                —Issuance
                    of Common Stock to Directors for compensation
                
                
                —
                
                
                26Changes
                    in assets and liabilities, net of effects from
                    dispositions:Accounts
                    receivable
                
                
                (399
                )
                
                (339
                )Inventories
                
                
                (586
                )
                
                (89
                )Prepaid
                    expenses and other assets
                
                
                (279
                )
                
                (90
                )Accounts
                    payable and accrued expenses
                
                
                (175
                )
                
                808Net
                    cash provided by operating activities
                
                
                404
                
                
                1,355INVESTING
                    ACTIVITIES:Purchase
                    of property and equipment
                
                
                (135
                )
                
                (256
                )Principal
                    payments on notes receivables
                
                
                13
                
                
                107Net
                    cash (used in) investing activities
                
                
                (122
                )
                
                (149
                )FINANCING
                    ACTIVITIES:Net
                    payments on borrowings
                
                
                (2
                )
                
                (3
                )Repurchase
                    of company stock
                
                
                —
                
                
                (375
                )Net
                    cash (used in) financing activities
                
                
                (2
                )
                
                (378
                )NET
                    INCREASE IN CASH AND CASH EQUIVALENTS
                
                
                280
                
                
                828CASH
                    AND CASH EQUIVALENTS, BEGINNING OF PERIOD
                
                
                1,907
                
                
                1,316CASH
                    AND CASH EQUIVALENTS, END OF PERIOD
                
                $
                2,187
                
                
                2,144SUPPLEMENTAL
                    DISCLOSURES OF CASH FLOW INFORMATIONCash
                    paid during period for-Interest
                
                $
                —
                
                $
                7SUPPLEMENTAL
                    DISCLOSURES OF NON-CASH INFORMATIONNon-Cash
                    Issuance of Common Stock as services
                
                $
                47
                
                $
                —Non-Cash
                    Issuance of Common Stock as compensation
                
                $
                —
                
                $
                26
 
 The
          accompanying notes on pages 6-8 are an integral part of these condensed
          consolidated financial statements
 
 5
  **WIRELESS
        XCESSORIES GROUP, INC.**
 
 **NOTES
        TO CONDENSED CONSOLIDATED 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
        certified 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 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-KSB for the year ended December 31, 2004 **.** The
        results of operations for the nine months ended September 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
        September 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 September
        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 and the program has expired.
 
 **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 September 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 Income.
 
 O ptions
        to
        purchase 183,500 and 216,500 shares were outstanding at September 30, 2005
        and
        September 30, 2004, respectively, with exercise prices ranging $.28 to $4.44.
 
 As
        provided for in SFAS No. 123, “Accounting 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 nine months ended September 30,
        2005
        and 2004 would have been the pro forma amounts indicated below:
  6
  **2005**
                
                **2004**As
                    reported net incomefrom
                    continuing operations:
                
                $
                1,605
                
                $
                665Add:
                    Stock-based compensationexpense
                    included in reportedincome
                    from continuing operationsnet
                    of related tax effects
                
                
                0
                
                
                0Deduct:
                    Total stock-basedemployee
                    compensation expensedetermined
                    under fair value basedmethod
                    for all awards, net of relatedtax
                    effects
                
                
                0
                
                
                0Pro
                    forma income fromcontinuing
                    operations
                
                $
                1,605
                
                $
                665Basic
                    incomefrom
                    continuing operations percommon
                    share:As
                    reported
                
                $
                0.36
                
                $
                0.14Pro
                    forma
                
                $
                0.35
                
                $
                0.14Diluted
                    incomefrom
                    continuing operations percommon
                    share:As
                    reported
                
                $
                0.36
                
                $
                0.14Pro
                    forma
                
                $
                0.35
                
                $
                0.14
  **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.
 
 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.
 
 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.
 
 7
 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.
  **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 September 30**
                
                **Nine
                    Months EndedSeptember
                    30****2005**
                
                **2004**
                
                **2005**
                
                **2004**Net
                    Sales
                
                
                100.0
                %
                
                100.0
                %
                
                100.0
                %
                
                100.0
                %Cost
                    of Sales
                
                
                61.8
                
                
                57.1
                
                
                61.2
                
                
                55.3Gross
                    Profit
                
                
                38.2
                
                
                42.9
                
                
                38.8
                
                
                44.7Selling,
                    General and administrative Expenses
                
                
                30.1
                
                
                36.8
                
                
                28.6
                
                
                38.9Bad
                    Debt Recoveries
                
                
                —
                
                
                —
                
                
                0.2
                
                
                —Income
                    from sale of investments
                
                
                0.1
                
                
                —
                
                
                0.2
                
                
                —Interest
                    Income
                
                
                0.1
                
                
                0.2
                
                
                0.1
                
                
                0.2Interest
                    Expense
                
                
                —
                
                
                —
                
                
                —
                
                
                —Net
                    Income before Income Tax
                
                
                8.3
                
                
                6.3
                
                
                10.7
                
                
                6.0Income
                    Tax
                
                
                2.2
                
                
                —
                
                
                0.7
                
                
                —Net
                    Income
                
                
                6.1
                %
                
                6.3
                %
                
                10.0
                %
                
                6.0
                %
 
 **Management
        discussion**
  **Three
        Months Ended September 30, 2005 ("2005") Compared to Three Months ended
        September 30, 2004 ("2004").**
 
 Net
        sales
        increased by $1.2 million or 30% from $4.1 million in 2004 to $5.3 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 provided additional
        sales of approx $1,238,000 and 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, but were hurt during the
        quarter by the drop off in excess of $450,000 of sales from our largest customer
        who began to import directly from China, compared to the third quarter of
        2004.
 
 Gross
        profit increased by $.3 million from $1.7 million in 2004 to $2.0 million
        in
        2005 and as a percentage of sales decreased from 42.9% to 38.2%. The fall
        off in
        percentage resulted from the major expansion of our IPOD, MP3, PDA, Bluetooth
        and OEM Accessories and selected other high priced third party 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.
  8
  Selling,
        general and administrative (SG&A) expenses increased by only $101,000 or
        6.8% as compared to a sales increase of 30.0%. As a result, total SG& A
        expenses as a percentage of sales decreased from 36.8% in 2004 to 30.1% in
        2005.
        This is a result of the Company's continuous cost cutting program and emphasis
        on improved employee productivity particularly, a reduction 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,
        and various other administrative expenses. On the other hand our public
        relations costs were up 67% resulting primarily from use of outside consultants
        and costs of listing on the American Stock exchange. The Company made an
        investment in expanding its selling force as total selling costs were up
        by
        approximately 14%, which helped to generate the 30% sales increase for the
        quarter.
 
 Interest
        (income) decreased from $8,000 in 2004 to $4,000 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 was fully utilized in the first six months of this year. The effective
        income tax rate in calculating the tax provision is 34%. The Company began
        accruing income taxes at its normal statutory rates commencing in the September,
        2005 quarter.
 
 
 **Nine** **Months Ended September 30, 2005 ("2005") Compared to Nine Months ended
        September, 30 2004 ("2004").**
 
 Net
        sales
        increased by $5.0 million or 44.5% from $11.1 million in 2004 to $16.1 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 contributed $3.6
        million of extra volume and provided 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 Sales and Customer Service department, 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 $1.3 million from $5.0 million in 2004 to $6.3 million
        in
        2005 and as a percentage of sales decreased from 44.7% to 38.8%. The fall
        off in
        gross profit percentage resulted from the major expansion of lower priced
        third
        party 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 third party product
                    lines.
 ·
              Overall
                  reduction of total freight costs as a percentage of sales due to
                  a greater
                  proportion of our purchases being domestic offset in part by higher
                  freight costs.
  Selling,
        general and administrative (SG&A) expenses increased by only $275,000 or
        6.3% as compared to a sales increase of 44.5%. As a result, total SG&A
        expenses as a percentage of sales decreased from 38.9% in 2004 to 28.6% in
        2005.
        This is a result of the Company's continuous cost cutting program and emphasis
        on improved employee productivity particularly, a reduction 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 and
        stringent collection procedures, depreciation expense and various other
        administrative expenses.
 
 Interest
        (income) decreased from $17,000 in 2004 to $12,000 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 offset in part by higher rates.
 
 The
        Company has a net operating loss carry forward in the amount of $1,290,869,
        which was fully utilized in the current tax year to offset the tax provision.
        The effective income tax rate in calculating the current period tax provision
        is
        34%. The Company began 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, and (iii) capital expenditures mainly related
        to
        business system and warehouse upgrades. The Company's primary sources of
        financing during the nine months ended September 30, 2005 were cash flow
        from
        operations.
 
 The
        Company's working capital as of September 30, 2005 and 2004 was $5,239,000
        and
        $3,101,000, respectively. Net cash provided by operating activities for the
        nine
        months ended September 30, 2005 and 2004 were $404,000 and $1,355,000,
        respectively. In 2005, the Company provided $1,843,000 from operations from
        its
        net income of $1,605,000 as adjusted for non-cash items of depreciation and
        amortization of $206,000 a bad debt provision of $(15,000) and issuance of
        stock
        to a third party consultant of $47,000. Cash used in changes
  9
  in
        assets
        and liabilities of $1,439,000 resulted from increases in accounts receivable,
        inventory, and in prepaid expense and other assets of and a decrease in accounts
        payable and accrued expense of $399,000, $586,000, $279,000 and $175,000,
        respectively. The increase in accounts receivable was directly attributable
        to
        substantially higher customer billings in September 2005, compared to December
        2004, and collection of a large receivable from a major customer in early
        October, 2005. The increase in Inventory of $586,000 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 and
        normal seasonal build up for the fourth quarter. (Sales are up for the nine
        months ended September 30, 2005 by 44.5%).
 
 In
        the
        nine months ended September 30, 2005, the Company provided cash from operations
        of $1,065,000 from its net income of $665,000, as adjusted for non-cash items
        of
        depreciation and amortization of $245,000, a bad debt provision of $129,000
        and
        the issuance of $26,000 of common stock to its directors. Cash provided from
        changes in assets and liabilities totaled $290,000 resulting from an increase
        in
        accounts payable and accrued expenses of $808,000 offset in part by an increases
        in accounts receivable, inventory and prepaid expense and other assets of
        $339,000, $89,000 and $90,000, respectively.
 
 Net
        cash
        used in investing activities for the nine months ended September 30, 2005
        was
        $122,000 resulting from the purchase of property and equipment of $135,000
        (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 nine months ended September 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 September 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 September 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
        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.
 
 **SEASONALITY
        AND INFLATION**
 
 In
        fiscal
        years 2005 and 2004, the Company sold approximately 54% and 55% 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.
  10
  
  **ITEM
        THREE- CONTROLS AND PROCEDURES**
  **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 September 30,
        2005. They have concluded that, as of September 30, 2005 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 Wirex 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.
  11
  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 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 September 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.
 
  **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
        11. 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 Bluetooth 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 third party 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.
  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
  12
  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 11.6% of sales for the year to date,
        (but
        only 5% of the September quarter sales) and one other customer accounted
        for
        more than 5% (approx 5.2%) or more of our sales on a year to date basis..
 
 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 smart phone
        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.
 
 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
                  provide 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 IPOD, 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.
  13
  During
        this quarter we introduced 360 items into our product line.
 
 G)
              In
                  mid 2005, we formed a strategic alliance with In Phonic, one of
                  America’s
                  leading on line marketers of cell phones. We began to offer InPhonic
                  nationwide cell phone activations to our 1,000 private label website
                  partner/affiliates. This will allow these dealers with their approx.
                  8,000
                  locations, to provide their shoppers the opportunity to activate
                  cell
                  phone services on any of the nation’s national airtime
                  carriers.
 
 H)
        In
        September 2005, we introduced to our retailers an E-Commerce Direct to Consumer
        Accessory Fulfillment Program.
 
 Employees
 
 Wireless
        Xcessories Group employs approximately 85 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.
 
 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.
  14
  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, 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:
  15
  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.
  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. MacDonald
                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, Levine & 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
  (a)
        Exhibits
 31-1
              Statement
                  under oath of principal executive officer.
 31-2
              Statement
                  under oath of principal financial
                  officer.
 32-1
                Statement
                    under oath of principal executive officer.
 32-2
                Statement
                    under oath of principal financial
                    officer.
 
 (b)
          Reports on Form 8-K
 None
 
 
 
 
 
 16
 
  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: November
                4, 2005
              By:
              /s/ Stephen
                RadeStephen
                RadeChief
                Executive Officer
 Date: November
                  4, 2005
                By:
                /s/ Ronald
                  E. BadkeRonald
                  E. BadkeChief
                  Financial Officer
 17