Introduction

Wireless Telecom Group, Inc., and its operating subsidiaries, (collectively, the "Company"), develop, manufacture and market a wide variety of electronic noise sources, electronic testing and measuring instruments including power meters, voltmeters and modulation meters, high-power passive microwave components and handset production testers for wireless products. The Company's products have historically been primarily used to test the performance and capability of cellular/PCS and satellite communication systems and to measure the power of RF and microwave systems. Other applications include radio, radar, wireless local area network (WLAN) and digital television.

The financial information presented herein includes: (i) Consolidated Balance Sheets as of December 31, 2008 and 2007 (ii) Consolidated Statements of Operations for the years ended December 31, 2008 and 2007 (iii) Consolidated Statement of Changes in Shareholders' Equity for the years ended December 31, 2008 and 2007 (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2008 and 2007.

Forward-Looking Statements

The statements contained in this Annual Report on Form 10-K that are not historical facts, including, without limitation, the statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations," are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may be identified by, among other things, the use of forward-looking terminology such as "believes," "expects," "intends," "plans," "may," "will," "should," "anticipates" or "continues" or the negative thereof of other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. These statements are based on the Company's current expectations of future events and are subject to a number of risks and uncertainties that may cause the Company's actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties include, continued ability to maintain positive cash flow from results of operations, continued evaluation of goodwill for impairment and the Company's development and production of competitive technologies in our market sector, among others. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. These risks and uncertainties are disclosed from time to time in the Company's filings with the Securities and Exchange Commission, the Company's press releases and in oral statements made by or with the approval of authorized personnel. The Company assumes no obligation to update any forward-looking statements as a result of new information or future events or developments.

Critical Accounting Policies

Estimates and assumptions

Management's discussion and analysis of the financial condition and results of operations are based upon the consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses for each period. The following represents a summary of the Company's critical accounting policies, defined as those policies that the Company believes are: (a) the most important to the portrayal of our financial condition and results of operations, and (b) that require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. Estimates and assumptions are made by management to assess the overall likelihood that an accounting estimate or assumption may require adjustment. Management assumptions have been reasonably accurate in the past, and future estimates or assumptions are likely to be calculated on the same basis.

The Company follows the provisions of SFAS 123(R), "Share-Based Payment". The fair value of options at the date of grant was estimated using the Black-Scholes option pricing model. For the performance-based options granted in 2008 and the service-based options granted during 2007, the Company took into consideration guidance under SFAS 123(R) and SEC Staff Accounting Bulletin No.
107 (SAB 107) when reviewing and updating assumptions. The expected option life is derived from assumed exercise rates based upon historical exercise patterns and represents the period of time that options granted are expected to be outstanding. The expected volatility is based upon historical volatility of our shares using weekly price observations over an observation period of three years. The risk-free rate is based on the U.S. treasury yield curve rate in effect at the time of grant for periods similar to the expected option life. Due to the Company's history with respect to incentive stock options, the estimated forfeiture rate included in the option valuation was zero.

Revenue recognition

Revenue from product shipments, including shipping and handling fees, is recognized once delivery has occurred provided that persuasive evidence of an arrangement exists, the price is fixed or determinable, and collectibility is reasonably assured. Delivery is considered to have occurred when title and risk of loss have transferred to the customer. Sales to international distributors are recognized in the same manner. If title does not pass until the product reaches the customer's delivery site, then revenue recognition is deferred until that time. There are no formal sales incentives offered to any of the Company's customers. Volume discounts may be offered from time to time to customers purchasing large quantities on a per transaction basis. There are no special post shipment obligations or acceptance provisions that exist with any sales arrangements.

Raw material inventories are stated at the lower of cost (first-in, first-out method) or market. Finished goods and work-in-process are valued at average cost of production, which includes material, labor and manufacturing expenses.

Comprehensive income(loss)/Foreign currency

Assets and liabilities of the Company's foreign subsidiaries are translated at period-end exchange rates, while income and expenses are translated at average rates for the period. Translation gains and losses are reported as a component of accumulated other comprehensive income (loss) on the statement of shareholders' equity in accordance with SFAS No. 130, "Reporting Comprehensive Income".

Allowances for doubtful accounts

The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. A key consideration in estimating the allowance for doubtful accounts has been, and will continue to be, our customer's payment history and aging of its accounts receivable balance.

Income taxes

As part of the process of preparing the consolidated financial statements, the Company is required to estimate its income taxes in each of the jurisdictions in which it operates. The process incorporates an assessment of the current tax exposure together with temporary differences resulting from different treatment of transactions for tax and financial statement purposes. Such differences result in deferred tax assets and liabilities, which are included within the consolidated balance sheet. The recovery of deferred tax assets from future taxable income must be assessed and, to the extent that recovery is not likely, the Company establishes a valuation allowance. Increases in valuation allowances result in the recording of additional tax expense. Further, if the ultimate tax liability differs from the periodic tax provision reflected in the consolidated statements of operations, additional tax expense may be recorded. We must continue to be profitable in order to be able to utilize this asset in future periods.

The Company reviews its goodwill and intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable, and also reviews goodwill annually in accordance with Statement of Financial Accounting Standard ("SFAS") No. 142. The process of evaluating the potential impairment of goodwill is ongoing, subjective and requires significant judgment and estimates regarding future cash flows and forecasts. Goodwill represents the excess of the cost of an acquisition over fair value of net assets acquired. Testing for the impairment of goodwill involves a two step process. The first step of the impairment test requires the comparing of a reporting units fair value to its carrying value. If the carrying value is less than the fair value, no impairment exists and the second step is not performed. If the carrying value is higher than the fair value, there is an indication that impairment may exist and the second step must be performed to compute the amount of the impairment. In the second step, the impairment is computed by estimating the fair values of all recognized and unrecognized assets and liabilities of the reporting unit and comparing the implied fair value of reporting unit goodwill with the carrying amount of that unit's goodwill. Goodwill is attributable to two of the Company's reporting unit's, Willtek Communications GmbH and Microlab/FXR. Intangible assets are evaluated for impairment when events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. The Company considers various valuation methods to evaluate recoverability, such as discounted cash flows, comparable companies and comparable transactions. When such an impairment exists, the related assets are reduced to their net realizable value.

Results of Operations
Year Ended December 31, 2008 Compared to 2007

Net sales for the year ended December 31, 2008 were $51,031,140 as compared to $56,602,050 for the year ended 2007, a decrease of $5,570,910 or 9.8%. This decrease was primarily the result of weakened demand for the Company's products and services, particularly in the latter part of 2008.

The Company's gross profit on net sales for the year ended December 31, 2008 was $24,534,222 or 48.1% as compared to $31,537,641 or 55.7% as reported in the previous year. Gross profit margins are lower in 2008 than in 2007 primarily due to a decrease in sales contribution from Willtek, whose products generally contribute higher gross profit margins within the Company's product mix, and the result of decreased volume along with product discounts offered to our customers. The combination of lower revenue volume and pricing pressure in 2008, coupled with fixed manufacturing labor costs, contributed to the Company's lower gross margins. The Company can experience variations in gross profit based upon the mix of product sales as well as variations due to revenue volume and economies of scale. The Company continues to rigidly monitor costs associated with material acquisition, manufacturing and production.

Operating expenses for the year ended December 31, 2008, excluding impairment of goodwill and intangible assets, were $26,933,148 or 52.8% of net sales as compared to $28,374,952 or 50.1% of net sales for the year ended December 31, 2007. For the year ended December 31, 2008 as compared to the prior year, operating expenses decreased by $1,441,804. Operating expenses are lower in 2008 due to a reduction in headcount and decreased spending in both research and development and sales and marketing, partially off-set by an increase in general and administrative expense. The increase in general and administrative expense is attributable to higher professional and consulting fees, primarily in the second half of 2008. In conjunction with the continuing execution of management's business strategy, the Company incurred significant, non-recurring professional advisory and outside consultant fees and expenses with respect to the preliminary exploration of potential strategic and financial transactions to enhance stockholder value. Management will continue to seek to identify and explore, as appropriate, attractive transaction opportunities, if, and when they arise. In December 2008, the Company recorded a non-cash impairment charge of $22,761,891 and $10,370,010 related to the goodwill and intangible assets of Willtek, respectively, which was acquired on July 1, 2005. Revenues and gross margins have declined during 2008 and expected bookings of a new large sales contract in the fourth quarter of 2008 did not occur. Contributing factors to the impairment charge were the continuing decline in discounted cash flows of future revenues, reduced booking orders, declining gross margins and the overall industry slowdown in worldwide cellular handset demand. In light of the current market challenges facing Willtek, including significant technology research and development expenses required to remain competitive, management is currently evaluating several strategic alternatives and opportunities. These include, among others, a

Interest income decreased by $119,094 for the year ended December 31, 2008. This decrease was primarily due to a lower cash investment balance and consequently decreased returns on short-term investments in 2008. Other income decreased by $861,338 for the year ended December 31, 2008. This decrease was primarily due to the recording of realized losses from the sale of investment securities in 2008 and, in 2007, the inclusion of a realized gain on foreign currency exchange booked on the Company's Germany based subsidiary.

Net loss was $31,265,065 or $1.22 per share on a diluted basis, for the year ended December 31, 2008 as compared to net income of $3,456,656 or $0.13 per share on a diluted basis, for the year ended December 31, 2007, a decrease of $34,721,721. The decrease was primarily due to the analysis mentioned above.

Liquidity and Capital Resources

The Company's working capital has decreased by $612,101 to $24,793,846 at December 31, 2008, from $25,405,947 at December 31, 2007. At December 31, 2008, the Company had a current ratio of 4.6 to 1, and a ratio of debt to tangible net worth of .4 to 1. At December 31, 2007, the Company had a current ratio of 4.6 to 1, and a ratio of debt to tangible net worth of .7 to 1.

Operating activities provided $2,553,434 in cash for the year ending December 31, 2008. For the year ended December 31, 2007, operating activities used $209,810 in cash flows. For 2008, cash provided by operations was primarily due to decreases in accounts receivable and inventory, and an increase in accounts payable and accrued expenses, partially off-set by an increase in prepaid expenses, recoverability of taxes and other assets, and a decrease in income taxes payable. For 2007, cash used for operations was primarily due to a decrease in accounts payable and accrued expenses, an increase in inventory, and a decrease in other long-term liabilities, partially off-set by a decrease in accounts receivable.

The Company has historically been able to turn over its accounts receivable approximately every two months. This average collection period has been sufficient to provide the working capital and liquidity necessary to operate the Company.

Net cash used for investing activities for 2008 amounted to $5,536,558 compared to $765,392 for the year ending December 31, 2007. For 2008 the primary use of cash was for the purchase of short-term investment securities and capital expenditures, partially off-set by proceeds from the sale of investment securities. For 2007, the primary use of cash was for capital expenditures.

Financing activities used $725,000 in cash for the year ended December 31, 2008. The primary use of these funds was for the acquisition of treasury stock and payments made on its bank note payable. Net cash used by financing activities was $4,457,780 for the year ending December 31, 2007. In 2007, the primary use of these funds was for payment made to satisfy the note payable due to Investcorp.

                        Table of Contractual Obligations


                                                                  Payments Due by Period
                                                                ---------------------------
                                                  Less than                                     More than
                                     Total         1 Year        1-3 Years       4-5 Years       5 Years
                                  -----------    -----------    ------------    -----------    ------------

Mortgage                          $ 2,893,429    $    58,784    $    205,430    $ 2,629,215               -
Facilities Leases                   3,161,992      1,387,868       1,714,246         59,878               -
Bank Note Payable                   2,029,827        369,059       1,107,178        553,590               -
Operating/Equipment Leases            584,599        208,729         375,870              -               -
                                  - ---------    - ---------    -- ---------    - ---------    ----- ------
                                  $ 8,669,847    $ 2,024,440    $  3,402,724    $ 3,242,683    $          -
                                  - ---------    - ---------    -- ---------    - ---------    ----- ------

The Company is considering satisfying the entire outstanding principal and interest due on its bank note payable through payment of approximately $2,030,000 in the second quarter of 2009.

The Company believes that its financial resources from working capital provided by operations are adequate to meet its current needs. However, should current global economic conditions continue to deteriorate, additional working capital funding may be required which may be difficult to obtain due to restrictive credit markets.

Inflation and Seasonality

The Company does not anticipate that inflation will significantly impact its business nor does it believe that its business is seasonal.

Recent Accounting Pronouncements Affecting the Company

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" (SFAS 157). SFAS 157 provides guidance for using fair value to measure assets and liabilities. It also responds to investors' requests for expanded information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. SFAS 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value, and does not expand the use of fair value in any new circumstances. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The adoption of SFAS 157 did not have a material impact on the Company's consolidated results of operations and financial condition. Additionally, in February 2008, the FASB issued FASB Staff Positions (FSP) Financial Accounting Standard 157-2, which delays the effective date of SFAS No. 157 from January 1, 2008 to January 1, 2009 for all nonfinancial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company does not expect the adoption of this statement to have a material impact on its consolidated financial statements.

In February 2007, FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS No. 159 allows companies to choose to measure many financial instruments and certain other items at fair value. The statement requires that unrealized gains and losses on items for which the fair value option has been elected to be reported in earnings. SFAS No. 159 also amends certain provisions of SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, although earlier adoption is permitted. The Company's adoption of this standard did not have a material effect on its financial position or results of operations.

In December 2007, the FASB issued two new statements: (a.) SFAS No. 141 (revised 2007), Business Combinations, and (b.) No. 160 Non-controlling Interests in Consolidated Financial Statements. These statements are effective for fiscal years beginning after December 15, 2008 and the application of these standards will improve, simplify and converge internationally the accounting for business combinations and the reporting of non-controlling interests in consolidated financial statements. The Company is in the process of evaluating the impact, if any, on SFAS 141(R) and SFAS 160 and does not anticipate that the adoption of these standards will have any impact on its consolidated financial statements.

(b.) SFAS No. 160 will improve the relevance, comparability and transparency of financial information provided to investors by requiring all entities to: (i) report non-controlling (minority) interests in subsidiaries in the same manner, as equity but separate from the parent's equity, in consolidated financial statements, (ii) net income attributable to the parent and to the non-controlling interest must be clearly identified and presented on the face of the consolidated statement of income, and (iii) any changes in the parent's ownership interest while the parent retains the controlling financial interest in its subsidiary be accounted for consistently.

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities an amendment of FASB Statement No. 133," which amends and expands the disclosure requirements of SFAS 133 to require qualitative disclosure about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. This statement will be effective for the Company beginning in fiscal 2009. The Company does not expect the adoption of this standard to have an impact on the Company's consolidated financial statements.

In May 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 162, "The Hierarchy of Generally Accepted Accounting Principles". This standard is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with US GAAP for non-governmental entities. SFAS No. 162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, the meaning of "Present Fairly in Conformity with GAAP". The Company does not expect the adoption of this standard to have an impact on the Company's consolidated financial statements.