<PAGE>

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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K

(Mark One)
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
  For the fiscal period ended December 31, 2000

                                       OR

[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
  For the transition period from                to

                        Commission File Number: 0-25356

                                  P-COM, Inc.
             (Exact Name of Registrant as Specified in its Charter)

<TABLE>
<S>                              <C>
           Delaware                                77-0289371
(State or Other Jurisdiction of       (I.R.S. Employer Identification No.)
Incorporation or Organization)
</TABLE>

            3175 S. Winchester Boulevard, Campbell, California 95008
                                 (408) 866-3666
         (Address and Telephone Number of Principal Executive Offices)

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

          Securities Registered Pursuant to Section 12(g) of the Act:

                        Common Stock, $0.0001 par value
                        Preferred Stock Purchase Rights

  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 [_]

  Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. YES [X] NO [_]

  The aggregate market value of the voting stock held by non-affiliates of the
Registrant, as of March 15, 2001, was approximately $114,762,710 (based upon
the closing price for shares of the Registrant's Common Stock as reported by
the Nasdaq National Market for the last trading date prior to that date. Shares
of Common Stock held by each executive officer, director and holder of 5% or
more of the outstanding Common Stock have been excluded in that such persons
may be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.

  On March 15, 2001, approximately 80,740,176 shares of the Registrant's Common
Stock, $0.0001 par value, were outstanding.

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<PAGE>

                                     PART I

Item 1. Business

The following Business section contains forward-looking statements, which
involve risks and uncertainties. Forward-looking statements are characterized
by words such as "plan," "expect," "believe," "intend," "would" and similar
words. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Certain Risk Factors Affecting
the Company" and elsewhere in this Annual Report on Form 10-K.

Overview

P-Com develops, manufactures, and markets Point-to-Multipoint, Point-to-Point,
and Spread Spectrum radio systems for the worldwide telecommunications market.
Cellular and Personal Communications Services ("PCS") providers employ our
Point-to-Point systems for backhaul between remote tower sites and switching
centers in their growing global markets. Network service providers and Internet
service providers are able, through the deployment of P-Com equipment and
systems, to respond to the increasing global demands for high-speed wireless
access services, such as Internet access associated with Business-to-Business
and E-Commerce business processes. Through deployment of our systems, network
providers can quickly and efficiently establish integrated Internet, data,
voice, and video services for their customers, then expand and grow those
services as demand increases. P-Com's market is a subset of the global telecom,
cellular, PCS, Wireless Internet access, and private network markets. Because
of the number of sub-markets for various products within the nations of the
world, reliable market statistics are not readily available.

Most of our revenue is currently derived from our Point-to-Point products. We
believe that in the future our Point-to-Multipoint products will generate an
increasing share of our revenue.

P-Com's wholly owned subsidiary, P-Com Network Services, Inc. (PCNS), provides
engineering, installation support, program management and maintenance support
services to the telecommunications industry in the United States. Network
service providers (wireless and traditional wireline) outsource these tasks to
approved service suppliers on a project-by-project basis. Microwave service
projects are typically short in duration--one to two weeks--and primarily
involve logistical installation or maintenance of millimeter wave radio
systems. Central office services projects involve ordering materials and
substantial man-hour commitments and can last up to three months.

Since January 1, 2000, we have acted to strengthen our core business by raising
$61.2 million in private equity financings and raising additional capital by
disposing of several previously acquired businesses (Technosystem, Cemetel,
Control Resources, and RT Masts), which we determined no longer fit with our
business plan and strategy. In the year ended December 31, 2000, we generated
our highest revenues to date, but we continued to report operating losses.

Industry background

There is a growing demand for multimedia communications infrastructure
globally. Over the past 3-4 years, Internet usage has exploded, and has become
the key driver, along with demand for global telephone accessibility.
Communication networks' expansion is required. Speed, reliability and economies
of scale are the key elements inherent in commercially successful networked
systems globally. Broadband Wireless Access ("BWA") is an efficient and
particularly economical means to meet this growing demand for information
transfer. P-Com's BWA products and services are targeted to add value to the
integrated service providers and wireless telephone operators globally. The
Company's products are designed to be frequency specific by country where
required.

                                       1
<PAGE>

The BWA market has developed into two commercially viable architectures for
voice and data transmission: Point-to-Point and Point-to-Multipoint. P-Com has
developed and sold equipment in commercial quantities for both formats. BWA
providers have just begun to utilize high frequency Point-to-Multipoint systems
as produced by P-Com, as a significant alternative to existing Point-to-Point
systems, particularly in the United States markets.

Although P-Com believes the overall markets within which it competes are
growing, P-Com cannot insure the proliferation of its products or guarantee a
given market share of the global telecom equipment market in future years.
Additionally, there are competing technologies which service the communication
sector's hardware demands. P-Com does not provide products for wireline sub-
sectors of the telecommunications market, including wireline systems and cable
systems.

Drivers of Broadband Wireless Access Growth

Global deregulation of telecommunications markets and the related set-aside of
radio frequencies for BWA transmission have spurred competition to supply
wireless-based systems as a cost effective alternative to traditional wireline
service delivery systems. New network service providers are operating in the
United States and other high demand markets to create integrated digital
network solutions to meet the growing demand for multi-purpose efficient
telecommunications systems. Broadband wireless systems are competitive due to
the relatively short set up and deployment time compared to wireline
alternatives, high return on capital investment, ability to "turn on" customers
quickly once the transmission hardware and software infrastructure are in
place. There are less capacity restraints for transmission levels compared to
T1/E1 lines and DSL alternatives with lower potential of "stranded capital
costs" as ultimate user locales expand or change over time. Incumbent exchange
carriers can also create more flexible systems via adjunct buildouts of BWA
systems which integrate with their existing trunk lines.

In the United States, incumbent Regional Bell Operating Companies ("RBOC") were
traditionally the sole providers of the copper wire interconnection network
that connected business and residential subscribers to the Public Switched
Telephone Network ("PSTN"), commonly known as the "last mile" connection. The
Telecommunications Act of 1996 required incumbent telephone companies to lease
portions of their networks, including this last mile, to Competitive Local
Exchange Carriers ("CLECs"), created a significantly competitive
telecommunications industry domestically. Additional competition has risen
between traditional telephone companies and cable television operators
expanding services into the others' traditional markets. To provide services,
CLECs can either lease infrastructure from incumbent wireline carriers to
connect their customers, or they can build their own access services, termed
"on network." Constructing landline access, whether copper or fiber optic, is
costly and time-consuming; deployment of BWA is relatively quick, efficient,
and economical, for the reasons noted above.

The initial market deregulation in the United States has fostered similar
deregulation actions globally. Newly allocated frequencies have been auctioned
or apportioned for BWA usage. Service providers of the new systems are
differentiating themselves from "commodity" status of existing private or
state-owned wireline carriers through deploying and marketing integrated,
digital, high-speed access services to business and residential customers. BWA
alternatives are, as a result, in high demand, although many competitors vie
for these markets globally.

Based upon providers' choice to deploy BWA as the quickest, most economical and
scalable means of providing reliable, cost effective telecommunications
service, the demand for this technology portends significant growth globally.

In most locales, P-Com's Point-to-Point and Point-to-Multipoint radio systems
are marketed to spectrum license holders who hold rights to transmit via BWA.
Such license holders have various options from competing technologies and
competitive equipment providers are in direct competition with P-Com for the
business. P-Com does market a line of unlicensed radios, which are used by off
spectrum service providers, primarily in Asian, South American and African
markets.

                                       2
<PAGE>

Global Privatization and Deregulation: Stimuli to Broadband Wireless Access
Growth

In many parts of the world, communication services are either inadequate or
non-existent due to the lack of existing infrastructure. Additionally, many
such countries have both privatized the once state-owned telecommunications
monopoly and opened their markets to competitive network service providers. In
these markets, we believe competitive service providers often find deployment
of BWA the quickest, most economical and scalable means of provisioning
reliable, modern telecommunications services. Thus, the demand for such
wireless access systems is expected to continue to grow.

For the communications service providers of the world to be able to utilize P-
Com's BWA systems (which include P-Com's Point-to-Multipoint and Point-to-Point
radio systems), they must own the licenses required to operate such systems.
Once the service provider has obtained the license, they must then determine
from a number of competing systems (including non-BWA systems), the one that
appears best suited for their particular application. In some cases,
competitive systems may be determined to be more appropriate than P-Com systems
for the satisfaction of such applications.

Network Architecture Bottlenecks

Fiber optic networks have received much attention because of the speed and
quality associated with such technology. Increasingly, network service
providers are constructing fiber optic interoffice backbones to meet the
significant demand created by Internet and data, video conferencing, and voice
services. To satisfy the growing user demand for high-speed access, the fiber
optic channels would (if not supplemented by other systems) have to extend all
the way into the buildings in which the users reside. Such is the case today in
only about five percent of the commercial buildings within the United States,
and that number is not expected to grow much because of the extremely high cost
to extend fiber optic channels to buildings. Instead, the fiber optic channel
usually ends short of the building, at the beginning of the "last mile". Thus,
users are often forced to use slower dial-up modem connections and ISDN
(Integrated Services Digital Network) services, or ADSL (Asymmetrical Digital
Subscriber Line) service, subject to its physical distance proximity
limitations. This local access "bottleneck" denies users the real benefits
afforded by fiber optic backbones because the highest speed which users can
experience is that of the local access portion of their end-to-end connection.
To overcome such limitations in a quick and efficient manner, we believe BWA is
attractive to incumbent and competitive carriers alike because the local access
speed restrictions are obviated, and because wireless systems can be installed
and become operational in weeks as compared to months or years for wired
infrastructure, and at a much reduced cost, since street cuts are not required
for installation.

Wireless Access Solutions

Point-to-Multipoint BWA service is a wireless technology that provides the
highest speed symmetrical access service other than Point-to- Point wireless
and dedicated access fiber optic service. This service is drawing significant
attention and growing interest because it can be rapidly deployed; it is highly
efficient, reliable, and scalable; it is cost effective because it can serve
many subscribers from one hub, and can be expanded as demand for service
dictates. Nonetheless, the traditional system providers' buildout approach has
resulted in P-Com's and its competitors' Point-to-Multipoint products only
gradually gaining market share in the BWA market.

Point-to-Point BWA is a dedicated link wireless technology enabling symmetrical
voice and data services between a subscriber and the network. For each new
subscriber using this service, the network service provider provides a separate
set of dedicated access equipment. Even providers who offer Point-to-Multipoint
services use Point-to-Point technology for those customers with very high
capacity requirements. Backhauls between mobile wireless towers and the mobile
switching office on cellular phone networks are a typical application for
Point-to-Point equipment. As mobile service usage continues to grow, cellular
service providers will have to continue to scale down existing cells into
smaller ones to reuse precious spectrum. With each such division of cells comes
opportunity for new wireless Point-to-Point applications because of the need
for more

                                       3
<PAGE>

backhauls. Mobile wireless access to the numerous and growing Internet-based
applications is fueling growth in this segment of the wireless market.

Certain limitations are common to all BWA systems like those provided by P-Com.
Among the more common of these limitations are the requirement for line-of-
sight between the hubs and the remote sites; signal fade due to weather
conditions including rain, fog, and snow; spacing between the hubs and the
remote stations; signal transmit/receive power level interference; poor
performance if there is improper antenna alignment; and adjacent cell
interference due to improper power levels. Careful and professional execution
encompassing engineering of path and site surveys and installation and testing
procedures can mitigate most of the problems associated with such limiting
factors. P-Com Network Services can provide the professional engineering and
installation services required for wireless access system operation, which adds
an element of competitive advantage for P-Com.

The P-Com Solution

The P-Com Strategy

P-Com's goal is to be the leading worldwide supplier of high-performance Point-
to-Multipoint, Point-to-Point, and Spread Spectrum wireless access equipment.
P-Com's strategy to accomplish this objective is to:

 . Focus on Point-to-Multipoint, Point-to-Point, and Spread Spectrum Microwave
  Markets. P-Com is designing products specifically for the millimeter wave and
  spread spectrum microwave frequency bands. We have designed P-Com's core
  architecture to optimize the systems for operation at millimeter and
  microwave frequencies.

 . Continue domestic expansion of P-Com's service business, PCNS, by commencing
  full EF&I (Engineering, Furnishing and Installation) Central Office
  operations for DC power and transport at selectively targeted microwave
  services field offices.

 . Continue expansion of its identified global market opportunities. We have met
  the standards established by the European Telecommunications Standards
  Institute ("ETSI") and achieved regulatory approval for our systems in
  Argentina, Australia, Austria, Brazil, Canada, China, the Czech Republic,
  France, Germany, Greece, Hungary, Italy, Japan, Mexico, Spain, the United
  Kingdom, as well as the United States. We maintain sales and/or support
  offices in major international markets.

 . Build and Sustain Manufacturing Cost Advantage. P-Com has designed its system
  architecture to reduce the number of components incorporated into each
  system, and to permit the use of common components across the range of our
  products. Such an approach assists in manufacturing cost reduction through
  volume component purchases and through enablement of a standardized
  manufacturing process. Utilization of turnkey contract manufacturers
  eliminates expensive in-house manufacturing assembly facility maintenance,
  provides ability to scale up or down as conditions dictate, and provides
  multiple manufacturing assembly sourcing through which customer requirements
  can be satisfied.

 . Leverage and Maintain Software Leadership. P-Com differentiates its systems
  through proprietary software embedded in the IDU ("InDoor Unit") and ODU
  ("OutDoor Unit"), and in the Windows and SNMP-based software tools. This
  software is designed to allow us to deliver to our customers a high level of
  functionality that can be easily reconfigured by the customer to meet
  changing needs. Software tools are also used to facilitate network
  management.

Range of Product Choices

P-Com offers access providers around the world a range of wireless systems that
encompass Point-to-Multipoint BWA, Point-to-Point BWA, and Spread Spectrum
systems. P-Com's systems utilize a common architecture in the millimeter wave
and spread spectrum microwave frequencies, including 2.4 GHz, 5.7 GHz, 7 GHz,
13 GHz, 14 GHz, 15 GHz, 18 GHz, 23 GHz, 24 GHz, 26 GHz, 28 GHz, 31 GHz, 38 GHz,

                                       4
<PAGE>

and 50 GHz. Both FDMA (Frequency Division Multiple Access) and TDMA (Time
Division Multiple Access) technologies are designed into our systems.

Point-to-Multipoint and Point-to-Point BWA systems operate in specific radio
frequency bands uniquely allocated by the telecommunications authorities of the
nations of the world. To participate in the BWA markets of the world, BWA
manufacturers must provide systems that conform to these national frequency
specifications systems. The systems are subjected to stringent customs testing
and must pass homologation procedures. The greater the number of frequencies
provided for by the BWA manufacturer, the greater the potential market
penetration.

One of the main objectives of the access providers which buy BWA products from
P-Com or its competitors is the establishment of an access system that enables
them to derive from their allocated frequency bandwidth the maximum amount of
revenue-producing traffic, also known as "throughput." The greater the
"throughput" capability of a BWA system, the greater the access provider's
revenue production potential from their finite licensed bandwidth.

Point-to-Point systems provided by P-Com and its competitors are essentially
equal in terms of revenue producing capacity within a common radio spectrum
utilized by providers. Point-to-Multipoint systems, however, differ greatly in
terms of revenue producing capacity within the same spectrum. Systems
throughput may provide typically anywhere from 16mbps or higher. Also, the
radius served may be divided into a range from 4 sectors to 24 sectors per
hubsite.

Access providers determine from studies of their market whether to provide a
Point-to-Multipoint or Point-to-Point system, or a combination of both, to best
meet their business plan objectives. Additionally, access providers determine
if TDMA or FDMA, or a combination of both, best satisfies their engineering
requirements. Although TDMA appears to offer the most cost effective use of
bandwidth, FDMA has the advantage of being easier to deploy and allows
providers to better guarantee service levels to their customers. It is not yet
clear which will be the eventual dominant technology either throughout the
world or in specific geographic regions. As a result, P-Com has elected to
offer both FDMA and TDMA. P-Com provides greater versatility for the customer
and higher levels of network flexibility by allowing both FDMA and TDMA to be
simultaneously deployed within a section.

CLECs, ISPs, and other carriers are currently identifying how Point-to-
Multipoint technology might most effectively integrate into existing and newly
built systems. As a result the products required are evolving as well. All
equipment provider companies in this market must be aware and able to react to
product developments to remain competitive.

P-Com provides both Point-to-Multipoint and Point-to-Point systems in a broad
range of frequencies and provide both TDMA and FDMA capability. P-Com's
competitors' generally provide either Point-to-Multipoint or Point-to-Point,
but seldom both. Through provision of such a broad range of design options, and
through the application of a network management system that is common across
all of our systems, P-Com gives BWA service providers broader design latitudes
than those available from many competing systems and enables providers to
tailor their purchases to help maximize their "throughput." In addition, P-
Com's relatively broad range of product offerings tends to cushion P-Com
against the risk that a particular frequency or standard might, for whatever
reason, come to dominate all marketplace alternatives, or be mandatory for a
particular country or project.

Software embedded in P-Com's systems allows the user to easily configure and
adjust system settings such as frequency, power, and capacity without manual
tuning and mechanical adjustments. Software provided with our systems includes
sophisticated diagnostics, maintenance, network management, and system
configuration tools.

P-Com first produced and marketed its Point-to-Point systems in 1993. P-Com's
Point-to-Multipoint systems became commercially available in 1999, and P-Com's
Spread Spectrum Systems became available through

                                       5
<PAGE>

P-Com's acquisition of Cylink assets in 1998. In fiscal 2000, the revenue mix
reflects P-Com's introduction of the Point-to-Multipoint product line, with
product revenues for the Point-to-Multipoint, Point-to-Point, and Spread
Spectrum systems of 8%, 82%, and 10%, respectively.

Services

P-Com Network Services, Inc. ("PCNS") is an installation services company
providing three distinct service lines in the United States: Central Office DC
Power Services, Central Office Transport Services, and Microwave Services. In
the Central Office Group, PCNS installs and services a wide variety of central
office power and transmission equipment produced and distributed by several
telecommunications manufacturers. Typically, Central Office Group projects
involve full engineering, furnishing and installation (EF&I) services. In the
Microwave Group, PCNS installs the millimeter wave radio equipment manufactured
by P-Com, Inc. The Microwave Group primarily offers installation services in
commercial buildings consisting of site preparation/construction, equipment
installation and equipment commissioning into a customers' network. Both the
Central Office Group and Microwave Group offer full program or project
management that vary in complexity and length of time. Central Office projects
are performed primarily in the Eastern region. Microwave projects are performed
in areas surrounding PCNS field offices in Los Angeles and San Francisco, CA;
Salt Lake City, UT; Denver, CO; Kansas City, KS; Milwaukee, WI; Tampa, FL; and
Dulles, VA.

Manufacturing and Testing

P-Com's Campbell, California facility received its initial ISO 9001
registration in December 1993, and was subsequently recertified in December of
1999. The Company's ISO 9001 registration for its United Kingdom sales and
customer support facility was received in 1996 and recertified in 1999; the
Company's ISO 9001 registration for its Tortona facility in Italy was first
received in 1996 and recertified in 2000. The Company's production facility in
Melbourne, Florida and its Dietzenbach, Germany repair center were ISO 9001
certified in 1999.

Once a system reaches commercial status, P-Com contracts with one or more of
several certified turnkey fabricators to build radio system units in commercial
quantities. Utilization of such fabricators relieves P-Com of expensive
investments in manufacturing facilities, equipment, and parts inventories. This
strategy enables P-Com to quickly scale to meet varying customer demands and
changes in technology.

Manufactured systems are tested by P-Com in its California and Florida
locations prior to shipment to its customers. Testing includes the complete
IDU-ODU assembly, thereby providing customers completely tested end-to-end
systems as opposed to independent testing of IDUs and ODUs.

Sales Channels and P-Com Customers

P-Com's wireless access systems and services are sold internationally and
domestically directly through its own sales force, as well as through strategic
partners, systems providers and original equipment manufacturers ("OEMs"). P-
Com's services are sold directly through its internal sales force.

P-Com's customers include:

<TABLE>
     <S>                       <C>
     . AT&T Local Services     .Orange Personal Communications
     . Bosch Telecom           .Siemens
     . Embratel                .Tellabs
     . Lucent Technologies     .Verizon
     . Mercury One-2-One       .Winstar Communications
     . New Century Global Net  .XO Communications
</TABLE>

During 2000, sales to Winstar Communications and Lucent Technologies accounted
for approximately 28% and 12% of our total sales, respectively. We expect that
sales to relatively few customers will continue to account for a high
percentage of our sales in the foreseeable future. Although the composition of
the group comprising

                                       6
<PAGE>

our largest customers may vary from period to period, the loss of a significant
customer or a major reduction in orders by any significant customer, including
reductions due to market, economic or competitive conditions in the
telecommunications industry, may have a material adverse effect on our
business, financial condition and results of operations. While we generally
enter into written agreements with our major customers, they do not provide for
minimum purchase commitments. Our ability to maintain or increase our sales in
the future will depend, in part upon our ability to obtain orders from new
customers as well as the financial condition and success of our customers, the
telecommunication industry and the economy in general.

We operate in two segments: Product Sales and Service Sales. The Product Sales
segment consists of organizations located primarily in the United States, the
United Kingdom, Germany, and Italy, which develop, manufacture and/or market
network access systems for use in the worldwide wireless telecommunications
market. The Service Sales segment performs installation and program management
services through its Central Office Group and Microwave Group. See Note 8 to
the Consolidated Financial Statements for additional information regarding the
operations of our operating segments, as well as the allocation of sales by
geographic customer destination.

The Company's backlog was approximately $41.9 million as of December 31, 2000,
as compared to approximately $32.6 million as of December 31, 1999. The
increase is due to the timing of purchase orders received from the Company's
largest customers relating to ongoing contracts or significant purchase orders.
The Company includes in backlog only those firm customer commitments to be
shipped within the following twelve months. A significant portion of the
Company's backlog scheduled for shipment in the twelve months subsequent to
December 31, 2000 can be cancelled since orders are often made substantially in
advance of shipment, and most of the Company's contracts provide that orders
may be cancelled with limited or no penalties up to a specified period
(generally 60 to 90 days) before shipment, and in some cases at any time.
Therefore, backlog is not necessarily indicative of future sales for any
particular period.

Technology

P-Com's technological approach to Point-to-Multipoint, Point-to-Point, and
Spread Spectrum radio systems is, we believe, meaningfully different from
conventional approaches. Through use of proprietary digital signal processing,
frequency converter, and antenna interface technology, and proprietary software
and custom application-specific integrated circuits, P-Com produces highly
integrated, feature-rich systems. The results of this integrated design are
reliability and cost advantages. The microprocessor and embedded software in
both the IDU and ODU enclosures enable flexible customization to the user's
specific telecommunications requirements.

Wireless transmission of voice, data and video traffic has become a desirable
alternative to wired solutions due to its advantages in the ease and cost of
implementation and maintenance. Because high frequency transmissions are best
suited for distance replication, microwave radio frequencies are typically used
for communications links of 15 to 50 miles and millimeter wave radio
frequencies for transmissions of up to 15 miles. P-Com's Point-to-Point
technology uses four-level ("FSK") modulation which is spectrally efficient and
very impervious to interference. This robust quality results in improved
frequency reuse distances which is beneficial to operators of large-scale
Point-to-Point radio network deployments.

FSK modulation is generated with low-component-count circuitry, and it is
therefore very cost-effective. It is also reasonably insensitive to circuit
linearity and can therefore be multiplied to higher frequencies without
degradation. This in turn enables a range of high frequency millimeter wave
bands to be supported with inexpensive circuitry. This technology is also quite
suitable for high-volume manufacturing.

P-Com's Point-to-Point and Spread Spectrum microwave radios consist of three
primary assemblies: the IDU, the ODU and the antenna. The IDU houses the
digital signal processing and the modem functions, and interfaces to the ODU
via a single coaxial cable. The ODU, a radio frequency ("RF") enclosure,
establishes the specific transmit and receive frequencies and houses the
proprietary P-Com frequency converter. The antenna interfaces directly to the
ODU via a proprietary P-Com wave-guide transition technology.

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We believe our millimeter wave technology is meaningfully different from that
contained in most conventional systems. When transmitting, the Company's IDU
sends an already modulated, intermediate frequency ("IF") transmit signal to
the ODU where it is received by the IF processor, routed to the transmit
converter and mixed with a synthesized frequency source. This signal is then
amplified and passed through to the Company's proprietary frequency converter
to establish the appropriate millimeter wave frequency. The signal is then
routed to the antenna for transmission to the millimeter wave radio system at
the receiving end. At the receiving end, the incoming signal is routed to the
frequency converter and mixed in the down-converter with the same frequency
that was used when transmitting. The signal is passed through the IF processor
to the IDU where it is demodulated and sent to the end-user's equipment.

Our spread spectrum products use biphase shift keying ("BPSK"), minimal shift
keying ("MSK"), quadrature phase shift keying ("QPSK") or quadrature amplitude
modulation ("QAM") in the IDU. This signal is converted into a microwave
frequency in the ODU, or in the case of some products, a single, stand-alone
terminal can be installed indoors or outdoors. This signal is then routed to
the antenna to be transmitted. The receiving antenna captures the signal power
and routes it to the ODU. The ODU down-converts the signal to be demodulated in
the IDU.

P-Com's architecture is designed to achieve reliability, cost, installation and
maintenance benefits over conventional approaches. The Company employs a common
architecture in the ODU for all stages of the system other than the frequency
converter used to establish the millimeter wave frequency at which the system
operates. Finally, in P-Com's systems, the IDU and ODU are connected with a
single coaxial cable, in contrast to many conventional systems that require
multiple cable connections.

P-Com's Point-to-Multipoint radios provide further software configurable
options. The system is comprised of Base Station equipment transmitting to many
Remote Terminals within a sector. This "downlink" carries Asynchronous Transfer
Mode ("ATM") cells over the link. The return, or up-link from the Remote to the
Base Station, can operate in either FDMA or TDMA mode. This gives the network
service provider the option of selecting the most efficient transmission method
for the type of traffic to be carried. FDMA is efficient for constant bit rate,
high-capacity traffic, while TDMA is more suitable for fractional rate, or
bursty type data. The system can operate concurrently in both modes within the
sector thereby providing the network access operator the flexibility to design
systems that uniquely match the specific traffic profiles within individual
sectors.

The transport of ATM cells over the link allows multimedia transmission to be
supported, including voice, data, fax, IP, Frame Relay, 10 BaseT, and many
other services.

The modulation of each carrier can also be software configured from 4-level to
16- or 64-level QAM, as well as QPSK. This provides the network provider with
the capability to best match the capacity demands of customers with the range
trade-off of each modulation level. Such flexibility enables operators to
optimally use the available spectrum.

The modular design of this Point-to-Multipoint system allows the user to start
with a low capacity installation, and then by plugging cards into the sector
IDU, to increase the number of carriers, and hence capacity, within the sector.
This is achieved without the duplication of any of the more expensive microwave
ODU equipment.

All of these innovations result in a highly flexible, yet cost-effective,
Point-to-Multipoint system that enables network system providers to optimize
spectrum utilization, and correspondingly, revenue generation.

Research and Development

The Company has a continuing research and development program in order to
enhance its existing systems and related software tools and to introduce new
systems. The Company invested approximately $20.2 million, $32.4 million, and
$38.9 million in 2000, 1999, and 1998, respectively, in research and
development efforts and expects to continue to invest significant resources in
research and development. The Company's research and

                                       8
<PAGE>

development efforts can be classified into two distinct efforts: (1) increasing
the functionality of its Point-to-Point and Point-to-Multipoint radio systems
under development by adding additional frequencies and capacities to its
product portfolio, modifying its network management system software offering,
and developing other advancements to its radio systems under development, and
(2) integrating new functionality to extend the reach of its products into the
customers' networks, such as access technology which allows the customer to
manage telecommunications services at its site and integrate voice, data, video
and facsimile in one offering. There can be no assurance that current efforts
will result in new product introductions or modifications to existing products.
The wireless communications market is subject to rapid technological change,
frequent new product introductions and enhancements, product obsolescence,
changes in end-user requirements and evolving industry standards. The Company's
ability to be competitive in this market will depend in significant part upon
its ability to develop successfully, introduce, and sell new systems and
enhancements and related software tools on a timely and cost effective basis
that respond to changing customer requirements. The Company has experienced and
may continue to experience delays from time to time in completing development
and introduction of new systems, and enhancements or related software tools.
There can be no assurance that errors will not be found in the Company's
systems after commencement of commercial shipments, which would result in the
loss of or delay in market acceptance. The inability of the Company to
introduce in a timely manner new systems, enhancements, or related software
tools that contribute to sales could have a material adverse effect on the
Company's business, financial condition, and results of operations.

Sales and Marketing

P-Com's sales and marketing efforts are directed from the Company's executive
offices in Campbell, California. The Company has sales and customer support
facilities in the United Kingdom, and Germany that serve as bases for the
European market and in China and Singapore for the Asian Market.
Internationally, the Company uses a variety of sales channels, including system
providers, OEMs, dealers and local agents. In addition, the Company has
established agent relationships in numerous other countries in the Asia/Pacific
region, the mid-East, South America, and Europe.

Typically, our sales process commences with the solicitation of bids by
prospective customers. If selected to proceed further, the Company may provide
systems for incorporation into system trials, or may proceed directly to
contract negotiations. When system trials are required and successfully
completed, the Company then negotiates a contract with the customer to set
technical and commercial terms of sale. These terms of sale govern the purchase
orders issued by the customer as the network is deployed.

The Company believes that due to the complexity of its radio systems, a high
level of technical sophistication is required on the part of the Company's
sales and marketing personnel. In addition, the Company believes that customer
service is fundamental to its success and potential for follow-on business. New
customers are provided engineering assistance for installation of the first
units as well as varying degrees of field training depending upon the
customer's technical aptitude. All customers are provided telephone support via
a 24-hour customer service help desk. The Company's customer service efforts
are supplemented by its system providers.

The Company believes that it must continue to expand its sales and marketing
organization worldwide. Any significant sales growth will be dependent in part
upon the Company's expansion of its marketing, sales and customer support
capabilities which will require significant expenditures to build the necessary
infrastructure.

Competition

The worldwide wireless communications market is very competitive. P-Com's
wireless radio systems compete with other wireless telecommunications products
and alternative telecommunications transmission media, including copper and
fiber optic cable. The Company has experienced increasing competition worldwide
from a number of leading telecommunications companies that offer a variety of
competitive products and services, including Alcatel Network Systems, Floware,
DMC Stratex Networks, Ericsson, Harris-Farinon Division,

                                       9
<PAGE>

Nokia, Nortel, SIAE, Hughes Network Systems, and Western Multiplex Corporation,
many of which have substantially greater installed bases, financial resources
and production, marketing, manufacturing, engineering and other capabilities
than P-Com. The Company faces actual and potential competition not only from
these established companies, but also from start-up companies that are
developing and marketing new commercial products and services, such as DSL. The
Company may also face competition in the future from new market entrants
offering competing technologies. The Company's results of operations may depend
in part upon the extent to which customers, which choose to rely on wireless
strategies, elect to purchase from outside sources rather than develop and
manufacture their own radio systems. There can be no assurance that such
customers will rely on, or expand, their reliance on the Company as an external
source of supply for their radio systems. Recently, certain of the Company's
competitors have announced the introduction of competitive products, including
related software tools, and the acquisition of other competitors and
competitive technologies. The Company expects its competitors to continue to
improve the performance and lower the price of their current products, and to
introduce new products or new technologies that provide added functionality and
other features. New product introductions and enhancements by the Company's
competitors could cause a significant decline in sales or loss of market
acceptance of the Company's systems or intense price competition, or make the
Company's systems or technologies obsolete or noncompetitive. The Company has
experienced significant price competition and expects such price competition to
intensify, which may materially adversely affect its gross margins and its
business, financial condition and results of operations. The Company believes
that to be competitive, it will continue to be required to expend significant
resources on, among other items, new product development and enhancements.

The principal elements of competition in the Company's market, and the basis
upon which customers may select the Company's systems, include price,
performance, software functionality, the ability to meet delivery requirements
and customer service and support.

Government Regulation

Radio communications are subject to extensive regulation by the United States
and foreign governmental agencies and international treaties. The Company's
systems must conform to a variety of domestic and international requirements
established to, among other things, avoid interference among users of radio
frequencies and to permit interconnection of equipment. Each country has a
different regulatory process. Historically, in many developed countries, the
limited availability of frequency spectrum has inhibited growth of wireless
telecommunications networks. In order for the Company to operate in a foreign
jurisdiction, it must obtain regulatory approval for its systems and comply
with different regulations in each jurisdiction. Regulatory bodies worldwide
are continuing the process of adopting new standards for wireless communication
products. The delays inherent in this governmental approval process may cause
the cancellation, postponement or rescheduling of the installation of
communications systems by the Company and its customers, which in turn may have
prevent or delay the sale of systems by the Company to such customers.

The failure to comply with current or future regulations or changes in the
interpretation of existing regulations could result in suspension or cessation
of operations. Such regulations or such changes could require the Company to
modify its products and incur substantial costs to comply with such time-
consuming regulations and changes. In addition, the Company is also affected to
the extent that domestic and international authorities regulate the allocation
and auction of the radio frequency spectrum. Equipment to support new services
can be marketed only if permitted by suitable frequency allocations, auctions
and regulations, and the process of establishing new regulations is complex and
lengthy. To the extent PCS operators and others are delayed in deploying these
systems, the Company could experience delays in orders. Failure by the
regulatory authorities to allocate suitable frequency spectrum could have a
material adverse effect on the Company's business, financial condition and
results of operations.

The regulatory environment in which the Company operates is subject to
significant change. Regulatory changes, which are affected by political,
economic and technical factors, could significantly impact the Company's
operations by restricting development efforts by the Company's customers,
making current systems

                                       10
<PAGE>

obsolete or increasing the opportunity for additional competition. Any such
regulatory changes, including changes in the allocation of available spectrum,
could have a material adverse effect on the Company's business and results of
operations. The Company might deem it necessary or advisable to modify its
systems to operate in compliance with such regulations. Such modifications
could be extremely expensive and time consuming.

Intellectual Property

The Company relies on a combination of patents, trademarks, trade secrets,
copyrights and a variety of other measures to protect its intellectual property
rights. The Company currently holds eleven U.S. patents. The Company generally
enters into confidentiality and nondisclosure agreements with its service
providers, customers and others, and attempts to limit access to and
distribution of its proprietary rights. The Company also enters into software
license agreements with its customers and others. However, there can be no
assurance that such measures will provide adequate protection for the Company's
trade secrets or other proprietary information, that disputes with respect to
the ownership of its intellectual property rights will not arise, that the
Company's trade secrets or proprietary technology will not otherwise become
known or be independently developed by competitors or that the Company can
otherwise meaningfully protect its intellectual property rights. There can be
no assurance that any patent owned by the Company will not be invalidated,
circumvented or challenged, that the rights granted thereunder will provide
competitive advantages to the Company or that any of the Company's pending or
future patent applications will be issued with the scope of the claims sought
by the Company, if at all. Furthermore, there can be no assurance that others
will not develop similar products or software, duplicate the Company's products
or software or design around the patents owned by the Company or that third
parties will not assert intellectual property infringement claims against the
Company. In addition, there can be no assurance that foreign intellectual
property laws will adequately protect the Company's intellectual property
rights abroad. The failure of the Company to protect its proprietary rights
could have a material adverse effect on its business, financial condition and
results of operations.

Litigation may be necessary to enforce the Company's patents, copyrights and
other intellectual property rights, to protect the Company's trade secrets, to
determine the validity of and scope of the proprietary rights of others or to
defend against claims of infringement or invalidity. Such litigation could
result in substantial costs and diversion of resources and could have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that infringement, invalidity,
right to use or ownership claims by third parties or claims for indemnification
resulting from infringement claims will not be asserted in the future or that
such assertions will not materially adversely affect the Company's business,
financial condition and results of operations. If any claims or actions are
asserted against the Company, the Company may seek to obtain a license under a
third party's intellectual property rights. There can be no assurance, however,
that a license will be available under reasonable terms or at all. In addition,
should the Company decide to litigate such claims, such litigation could be
extremely expensive and time consuming and could materially adversely affect
the Company's business, financial condition and results of operations,
regardless of the outcome of the litigation.

Employees

As of March 16, 2001, P-Com and its subsidiaries had a total of 891 employees,
including 484 in Operations, 124 in Research and Development, 93 in Sales and
Marketing, 31 in Quality Assurance and 159 in Administration. P-Com believes
that future results of operations will depend in large part on its ability to
attract and retain highly skilled employees. None of the Company's employees
are represented by a labor union, and we have not experienced any work
stoppages to date. On February 7, 2001, the RT Masts group was sold, at which
time this group employed 172 employees.

                                       11
<PAGE>

Item 2. Properties

<TABLE>
<CAPTION>
      Location of                                              Square    Date Lease
  Lease Facility (/1/)                 Functions               Footage    Expires
  --------------------                 ---------               ------- --------------
<S>                       <C>                                  <C>     <C>
HEADQUARTERS              Administration/ Customer Support/    61,000  November 2005
Campbell, CA              Sales/ Engineering/ Manufacturing
Campbell, CA              Manufacturing                        25,000  September 2002
San Jose, CA              Warehouse                            34,000  September 2003
Redditch, England         Sales/ Customer Support               5,500  June 2005
Watford, England          Research/ Development                 7,500  April 2008
Redditch, England         Warehouse                             6,800  September 2004
Dulles, VA                Administration                        8,750  October 2007
Sterling, VA              Sales/ Customer Support/ Warehouse   15,000  July 2007
Orange, CA                Warehouse                             3,400  April 2001
Northants, England (/2/)  Administration Sales/ Customer        5,290  August 2011
                          Support
Essex, England (/2/)      Administration Sales/ Customer        8,000  September 2007
                          Support
Frankfurt, Germany        Warehouse/ Sales and Customer        11,000  Month to Month
                          Support
Melbourne, Florida        Research/ Development                36,250  June 2001
Beijing, China            Sales/ Customer Support               4,200  July 2002
</TABLE>

(/1/)All locations support product sales except Sterling, VA; Northants,
     England; and Essex, England which support services sales.
(/2/)Leased properties located in Northants and Essex, England pertain to the
     operation of RT Masts, which was sold in February 2001. Leases related to
     these properties were assumed by the buyer at the time of the sale.

P-Com Italia, S.p.A., owns and maintains its corporate headquarters in Tortona,
Italy. This facility, approximately 36,000 square feet, contains design, test,
manufacturing, mechanical and warehouse functions.

Item 3. Legal Proceedings

In September and October 1998, several punitive class action complaints were
filed in the Superior Court of California, County of Santa Clara, on behalf of
P-Com stockholders who purchased or otherwise acquired its Common Stock between
April 1997 and September 11, 1998. The plaintiffs allege various state
securities laws violations by P-Com and certain of its officers and directors.
The complaints seek un- quantified compensatory, punitive and other damages,
attorneys' fees and injunctive and/or equitable relief.

On December 3, 1998, the Superior Court of California, County of Santa Clara,
entered an order consolidating all of the above complaints. On June 30, 2000
the Superior Court issued a notice of ruling certifying this matter as a class
action.

Although the litigation is being conducted actively, it is still at an early
stage and the Company is unable to speculate as to ultimate outcomes. However,
the Company believes the claims are without merit and intends to defend against
them vigorously. An unfavorable outcome could have a material adverse effect on
our business, prospects, financial condition and results of operations. Even if
all of the litigation is resolved in our favor, the defense of such litigation
may entail considerable cost and the significant diversion of efforts of
management, either of which may have a material adverse effect on our business,
prospects, financial condition and results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

In August 2000, the Company solicited the written consent of stockholders for a
proposal to amend the Certificate of Incorporation to increase the authorized
number of shares of Common Stock of the Company from 95,000,000 to 145,000,000.
The proposal was approved on October 17, 2000 with 45,321,49 votes FOR;
1,941,572 votes AGAINST; and 135,221 votes ABSTAINED.

                                       12
<PAGE>

On November 30, 2000, the Company held its 1999 Annual Meeting of Stockholders,
where one matter was put to a vote of stockholders, the election of two
directors to serve for "three-year" terms ending upon the 2002 annual meeting
of stockholders or until their successors are duly elected. George P. Roberts
and Brian T. Josling were elected. There were 48,512, 670 votes FOR and
1,105,126 votes WITHHELD from George P. Roberts; and 48,566,993 votes FOR and
1,050,903 votes WITHHELD from Brian T. Josling. The continuing directors were
John A. Hawkins, James J. Sobczak, and M. Bernard Pucket.

Also, on November 30, 2000, the Company held its 2000 Annual Meeting of
Stockholders, where three matters were put to a vote of stockholders. The first
matter was to elect 2 directors to serve for "three-year" terms ending upon the
2003 annual meeting of stockholders or until their successors are duly elected.
John A. Hawkins and James J. Sobczak were elected. There were 44,292,908 votes
FOR and 2,591,456 votes WITHHELD from John A. Hawkins; and 45,796,704 votes FOR
and 1,087,660 votes WITHHELD from James J. Sobczak. The continuing directors
were George P. Roberts, Brian T. Josling, and M. Bernard Pucket.

The second proposal was to approve a series of amendments to the Company's 1995
Stock Option/Stock Issuance Plan (the "1995 Plan") which included: (i)
elimination of the automatic share increase provisions of the 1995 Plan; (ii)
elimination of the provisions of the 1995 Plan that would otherwise allow
option grants to be made with exercise prices below the fair market value of
the option shares on the grant date; (iii) modification of the option
cancellation/re-grant provisions of the 1995 Plan to require stockholder
approval of any repricing of outstanding options; (iv) to increase the maximum
number of shares authorized for issuance under the 1995 Plan; (v) to increase
the limitation on the maximum number of shares any one individual may be
granted; and (vi) to change the vesting period for 4,000-share automatic option
grants to non-employee Board members so they fully vest upon grant. The
proposal was approved with 42,338,431 votes FOR, 4,291,534 votes AGAINST, and
254,399 votes ABSTAINED.

The third proposal was to ratify the appointment of PricewaterhouseCoopers LLP
as independent accountants of the Company for the fiscal year ending December
31, 2000. The proposal was approved with 46,757,275 votes FOR, 87,735 votes
AGAINST, and 39,354 votes ABSTAINED.

                                       13
<PAGE>

                                    PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

Our Common Stock is quoted in the Nasdaq National Market under the symbol PCOM.
The following tables sets forth the range of high and low closing bid prices,
as reported on the Nasdaq Market for each quarter in 1999 and 2000. These
quotations reflect inter-dealer prices, without retail mark-up, markdown or
commission and may not necessarily represent actual transactions.

As of March 15, 2001, there were 495 stockholders of record of our Common
Stock.

<TABLE>
<CAPTION>
                                                                   Price Range
                                                                    of Common
                                                                      Stock
                                                                   ------------
                                                                    High   Low
                                                                   ------ -----
   <S>                                                             <C>    <C>
   Year Ended December 31, 1999:
    First Quarter................................................. $10.38 $3.31
    Second Quarter................................................   7.72  3.75
    Third Quarter.................................................   8.00  3.69
    Fourth Quarter................................................  10.00  4.56

   Year Ended December 31, 2000:
    First Quarter................................................. $23.72 $9.00
    Second Quarter................................................  15.00  5.56
    Third Quarter.................................................   8.44  5.18
    Fourth Quarter................................................   6.13  1.53
</TABLE>

Recent Sales of Unregistered Securities

None.

Dividends

To date, we have not paid any cash dividends on shares of our Common Stock. We
currently anticipate that we will retain any available funds for use in the
operation of our business, and do not anticipate paying any cash dividends in
the foreseeable future. In addition, the terms of our working capital credit
agreements prohibit us from paying any dividends without the prior approval of
the other parties named therein.

                                       14
<PAGE>

Item 6. Selected Financial Data

The selected financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The balance sheet data as of December 31, 2000 and 1999 and the
Statement of Operations data for the years ended December 31, 2000, 1999, and
1998, have been derived from the audited financial statements included in Item
8 of this document.

                          Statement of Operations Data

<TABLE>
<CAPTION>
                             2000 (2)(3) 1999 (4)   1998 (5)    1997      1996
                             ----------- ---------  --------  --------  --------
                                  (in thousands, except per share data)
<S>                          <C>         <C>        <C>       <C>       <C>
Sales:
 Product...................   $183,606   $ 116,409  $118,948  $169,453  $101,853
 Service...................     50,795      40,470    43,597    30,157    19,100
                              --------   ---------  --------  --------  --------
  Total sales..............    234,401     156,879   162,545   199,610   120,953
                              --------   ---------  --------  --------  --------
Cost of sales:
 Product...................    160,965     107,378    93,829    96,948    60,362
 Service...................     38,170      28,274    30,777    18,968    13,696
                              --------   ---------  --------  --------  --------
  Total cost of sales......    199,135     135,652   124,606   115,916    74,058
                              --------   ---------  --------  --------  --------
Gross profit...............     35,266      21,227    37,939    83,694    46,895
                              --------   ---------  --------  --------  --------

Operating expenses:
 Research and development..     20,241      32,431    38,882    27,854    20,163
 Selling and marketing.....     11,972      17,135    19,224    12,795     7,525
 General and
  administrative...........     26,893      25,179    24,260    11,029    10,178
 Goodwill amortization.....     19,598       6,547     5,023     1,380       105
 Restructuring charges.....         --       3,300     4,332        --        --
 Acquired in-process
  research and
  development(7)...........         --          --    15,442        --        --
                              --------   ---------  --------  --------  --------
  Total operating
   expenses................     78,704      84,592   107,163    53,058    37,971
                              --------   ---------  --------  --------  --------
Income (loss) from
 operations................    (43,438)    (63,365)  (69,224)   30,636     8,924
Interest expense...........     (4,750)     (8,175)   (8,652)   (1,811)       --
Other income (expense),
 net.......................     (6,977)     (2,537)    1,446     1,988       906
                              --------   ---------  --------  --------  --------
Income (loss) from
 continuing operations
 before income taxes,
 extraordinary item and
 cumulative effect of
 accounting change.........    (55,165)    (74,077)  (76,430)   30,813     9,830
Provision (benefit) for
 income taxes..............     11,140       1,407   (11,501)   11,018       956
                              --------   ---------  --------  --------  --------
Income (loss) from
 continuing operations
 before extraordinary item
 and cumulative effect of
 accounting change.........    (66,305)    (75,484)  (64,929)   19,795     8,874
Discontinued operations(6):
 Loss from operations......     (4,000)    (13,903)   (2,869)     (904)       --
 Loss on disposal..........         --     (26,901)       --        --        --
                              --------   ---------  --------  --------  --------
                               (4,000)     (40,804)   (2,869)     (904)    8,874
                              --------   ---------  --------  --------  --------
Extraordinary gain on
 retirement of notes.......      1,890      13,239     5,333        --        --
Cumulative effect of
 accounting change(2)......     (1,534)         --        --        --        --
                              --------   ---------  --------  --------  --------
Net income (loss)..........   $(69,949)  $(103,049) $(62,465) $ 18,891  $  8,874
                              ========   =========  ========  ========  ========
Charge related to Preferred
 Stock discount............         --          --    (1,839)       --        --
Loss on conversion of
 Preferred Stock Common
 Stock.....................         --     (18,521)       --        --        --
                              --------   ---------  --------  --------  --------
Net income (loss)
 applicable to Common
 Stockholders..............   $(69,949)  $(121,570) $(64,304) $ 18,891  $  8,874
                              ========   =========  ========  ========  ========
Basic income (loss) from
 Continuing Operations(1)..   $  (0.85)  $   (1.32) $  (1.50) $   0.47  $   0.23
Diluted income (loss) from
 Continuing Operations(1)..      (0.85)      (1.32)    (1.50)     0.44      0.22
Basic net income (loss)
 applicable to Common
 Stockholders(1)...........      (0.90)      (2.13)    (1.49)     0.45      0.23
Diluted net income (loss)
 applicable to Common
 Stockholders(1)...........      (0.90)      (2.13)    (1.49)     0.42      0.22
</TABLE>


                                       15
<PAGE>

                       Balance Sheet Data (in thousands)

<TABLE>
<CAPTION>
                               2000       1999       1998      1997     1996
                             ---------  ---------  --------  -------- --------
<S>                          <C>        <C>        <C>       <C>      <C>
Cash and cash equivalents..  $  27,541  $  11,629  $ 29,241  $ 88,145 $ 42,226
Working capital............     76,823     31,984    78,967   196,279   90,811
Total assets...............    216,219    218,746   315,217   305,521  155,452
Long-term debt.............     30,290     39,858    97,769   101,690      914
Mandatorily redeemable
 Preferred Stock...........         --         --    13,559        --       --
Mandatorily Redeemable
 Common Stock Warrants.....         --         --     1,839        --       --
Retained earnings
 (accumulated deficit).....   (218,922)  (148,973)  (45,924)   18,380     (511)
Stockholders' equity.......     95,247     89,215    99,409   148,297  112,479
</TABLE>
--------
(/1/)See Note 9 of Notes to Consolidated Financial Statements for an
     explanation of the method used to determine share and per share amounts.

(/2/)The Company recorded a non-cash charge of approximately $1.5 million on
     January 1, 2000 to account for the cumulative effect of the change in
     accounting method related to revenue recognition made to comply with SAB
     101. See Note 2 of Notes to Consolidated Financial Statements.

(/3/)In 2000, the Company recorded charges of approximately $21.7 million
     related to excess inventory and inventory purchase commitments, $15.0
     million related to a write-down of goodwill, and a $9.9 million increase
     in the valuation allowance against the carrying value of deferred tax
     assets.

(/4/)In 1999, the Company recorded restructuring and other charges of
     approximately $36.5 million.

(/5/)In 1998, the Company recorded restructuring and other charges of
     approximately $26.6 million.

(/6/)Losses from discontinued operations are attributable to Technosystem,
     which was reclassified to discontinued operations in the third quarter of
     1999.

(/7/)In connection with the acquisition of substantially all of the assets of
     the Cylink Wireless Group in 1998, $15.4 million of purchase price
     attributed to in-process research and development was expensed.


Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "--Certain Factors Affecting the Company"
contained in this Item 7 and elsewhere in this Annual Report on Form 10-K.

Overview

We supply equipment and services for access to worldwide telecommunications and
broadcast networks. The Company was founded in April 1991 to develop,
manufacture, market and sell millimeter wave radio systems for wireless
networks. Currently, we ship 2.4 GHz and 5.7 GHz spread spectrum radio systems,
as well as 7 GHz, 13 GHz, 14 GHz, 15 GHz, 18 GHz, 23 GHz, 26 GHz, 38 GHz and 50
GHz Point-to-Point radio systems. Additionally, we offer central office and
microwave installation services. Our Point-to-Multipoint radio system, first
marketed in the fourth quarter of 1999, was sold primarily to one U.S. customer
and one Chinese customer in 2000. We anticipate that our ability to generate
future revenues and profits will depend in large part on our ability to attract
a large customer base and increase market penetration for the Point-to-
Multipoint systems, as well as our ability to continue to bring to market
competitive new products in our Point-to-Point and Spread Spectrum product
lines.

                                       16
<PAGE>

The net loss in 2000 was primarily attributable to charges to operations
required to state inventories and deferred tax assets at realizable value,
write down of goodwill carried from prior years' acquisitions to current
estimated realizable value, losses recorded from discontinued operations and
losses on the sale of subsidiaries. We experienced a sharp decrease in sales
beginning in September 1998 due to the worldwide downturn in the
telecommunications equipment market as a whole. This status continued into the
third quarter of 1999. We instituted cost reduction programs through this
period, and made decisions to divest certain non-core operations in 1999 and
2000, which resulted in significant losses related to the disposition of these
businesses over the past two years.

In February 2000, we completed the divestiture of two Italian subsidiaries,
Technosystem, S.p.A. and Cemetel S.r.L., resulting in additional losses for the
first quarter of approximately $4.0 million and $3.5 million, respectively.

In April 2000, we sold Control Resources Corporation ("CRC") resulting in a
gain of approximately $2.6 million.

The Company revised its method for recognizing revenue for sales of radio
systems as a result of the adoption of Staff Accounting Bulletin ("SAB") No.
101 "Revenue Recognition in Financial Statements." The Company previously
recognized revenue upon shipment of product, provided no significant
obligations remained and collection was probable. This was changed to
recognition upon transfer of title and risk of loss, which is generally upon
shipment of the product provided no significant obligations remained and
collection was probable. In accordance with SAB No. 101, the Company recorded a
non-cash charge of approximately $1.5 million on January 1, 2000 to account for
the cumulative effect of the accounting change.

The cumulative effect of this accounting change primarily resulted from
contracts where revenue had historically been recognized upon shipment,
however, under the terms of the underlying contracts, title and risk of loss
did not transfer until either delivery or subsequent receipt of payment. Under
the Company's revised revenue recognition method, revenue relating to such
sales is deferred until both title and risk of loss is assumed by the customer.
As a result of this change, approximately $12.0 million in revenue and $10.5
million in related costs originally recognized in 1999 were deferred and re-
recognized in the first quarter of 2000. During 2000, the Company renegotiated
the terms of one of its significant contracts so that title and risk of loss
transfers upon shipment.

Years Ended 2000, 1999 and 1998

Sales

Sales consist of revenues from radio systems sales and repairs and support
services offered.

In 2000, 1999 and 1998, sales were approximately $234.4 million, $156.9
million, and $162.5 million, respectively. The 49.4% increase in sales from
1999 to 2000 was primarily due to increased radio systems delivery levels under
a large order from Winstar in the second half of the year and a 25% increase in
the services business sales in the U.S. and UK combined. The 3.5% decrease in
sales from 1998 to 1999 was primarily due to the downturn in the
telecommunications equipment market.

During 2000, the Tel-Link Point-to-Point product line contributed 61.0% of our
total sales, compared to 59.0% of our total sales during 1999 and 58.2% during
1998. The Spread Spectrum product line contributed approximately 8% of our
total sales in 2000, as compared to 11.3% during 1999 and 10.6% of our total
sales during 1998. Our Point-to-Multipoint Tel-Link product line, which was
introduced in late fourth quarter 1999, contributed 6% of our total sales in
2000 and only approximately $1.1 million of sales in 1999. Total sales for the
Point-to-Multipoint line of approximately $13.9 million in 2000 did not meet
our expectations. Customers, particularly in the U.S. CLEC markets, did not
place orders equivalent to forecasted orders. However, these same customers
increased their Point-to-Point radio orders to bring actual sales levels for
this line higher than originally forecasted for 2000.

                                       17
<PAGE>

Sales to Orange Personal Communications Services accounted for approximately
7%, 20%, and 24% of total sales in 2000, 1999, and 1998, respectively. Sales to
Winstar Communications accounted for approximately 28% and 11% of total sales
in 2000 and 1999, respectively. Sales to Bosch Telecom accounted for
approximately 13% of total sales in 1999. Sales to Lucent Technologies
accounted for approximately 12% of total sales in 2000.

Product sales for 2000 reached $183.6 million during the year, an increase of
$67.2 million or 57.7%, when compared to 1999 levels, and as compared to a
decrease of approximately $2.5 million or 2.1% during 1999 when compared to
1998. Product sales represented 78.3%, 74.2%, and 73.2% of sales in 2000, 1999,
and 1998, respectively. The increase in 2000 product sales resulted from larger
orders from U.S. CLEC customers and an order from a Chinese customer under a
multi-year contract for Point-to-Multipoint products announced in mid-2000. The
decrease in product sales in 1999 and 1998 was primarily due to the continued
slowdown in the telecommunication equipment industry construction activity and
declining prices as a result of the Pacific Rim currency crisis and surplus
capacity in the industry.

Service sales for 2000 increased approximately $10.3 million or 25.5% from the
prior year as compared to a decrease of approximately $3.1 million or 7.2%
during 1999. Service sales represented 21.7%, 25.8%, and 26.8% of total sales
in 2000, 1999, and 1998, respectively. The increase in service sales in 2000
resulted from increased levels of installation services for the primary UK
service group customers, and a significant increase in central office
maintenance work performed by the U.S. service group for a major RBOC group.
The decrease in service revenue sales in 1999 vs. 1998 was a result of the
previously mentioned downturn. Historically, we have generated a majority of
our sales outside of the United States. During 2000, we generated 55.9% of our
sales in the United States, 24.3% in the United Kingdom, 7.8% in Continental
Europe and Middle East markets, and 12% in other geographic regions,
particularly in the Pacific Rim. During 1999, we generated 30.8% of our sales
in the U.S., 34.5% in the United Kingdom, 18.0% in Europe excluding the UK,
6.1% in Asia, and 10.7% in other geographic regions. During 1998, we generated
25.6% of our sales in the U.S., 43.9% in the United Kingdom, 7.5% in Europe
excluding the UK and 11.8% in Africa, 11.2% in Asia.

In February 2001, we sold RT Masts, our U.K. services unit. RT Masts' revenues
were approximately $20 million, $18 million and $22 million in 2000, 1999 and
1998, respectively. Operating income for RT Masts was approximately $1.2
million, $3.1 million and $5.8 million for 2000, 1999 and 1998, respectively.

Many of our largest customers use our products and services to build
telecommunication network infrastructures. These purchases are significant
investments in capital equipment and are required for a phase of the rollout in
a geographic area or a market. Consequently, the customer may have different
requirements from year to year and may vary its purchases from us accordingly.

We provide our customers with significant volume price discounts, which would
lower the average selling price of any particular product line as more units
are sold to a given customer up to a maximum discount level offered. In
addition, we expect that the average selling price of any particular product
line will also decline as a given product matures and as competition increases
in the future. Accordingly, our ability to maintain or increase sales will
depend upon many factors, including our ability to increase unit sales volumes
of our systems and to introduce and sell new systems at prices sufficient to
compensate for reduced revenues resulting from declines in the average selling
price of our more mature products.

As the first quarter of 2001 progresses, there is evidence of a significant
slowing in economic growth and related capital spending in the U.S. economy
and, to a lesser extent, in other global economies, especially in the
telecommunications equipment industry. Such a slowdown can have an effect on
our ability to continue recent quarter-on-quarter sales increases, and our most
recent guidance to financial and investor markets have included lowered sales
expectations as a result of this economic slowdown.

Gross Profit

Cost of sales consists primarily of costs related to materials, labor and
overhead, freight and duty. And in the case of the services business, direct
labor and applied materials. In 2000, 1999, and 1998, gross profits were

                                       18
<PAGE>

$35.3 million, $21.7 million, and $37.9 million, respectively, or 15.0%, 13.5%,
and 23.3% of sales, respectively.

In 2000, 1999, and 1998, product gross margins were affected by inventory and
other related charges of $21.3 million, $21.4 million, and $16.9 million,
respectively. (See Restructuring and Other Charges below.) Product gross profit
as a percentage of product sales, not including the effect of the inventory
charges described above, was approximately 23.9%, 26.1%, and 35.3% in 2000,
1999, and 1998, respectively. In 2000, the reduced gross profit margins related
to high materials cost for the Point-to-Multipoint products due to industry
wide part shortages, and higher overhead applied to sales due to lower than
originally expected unit sales of the Point-to-Multipoint line in the second
half of 2000. Additionally, the Point-to-Point Tel-Link products were subjected
to margin pressure due to the existence of highly competitive alternative
product lines in the marketplace in 2000. In 1999, the decrease in such product
gross profit percentage was due to manufacturing variances and declining
average selling prices that generated lower margins.

Service gross profit as a percentage of service sales was approximately 25.0%,
30.1%, and 29.4% in 2000, 1999, and 1998, respectively. The decrease in service
gross profit percentage in 2000 was due to fixed contract rates charged in the
UK market for RT Masts' largest customer and shifts in service job type mix.
Fourth quarter revenue in the U.S. service market was heavily weighted to lower
margin radio installation work directly related to our higher sales volume of
radios to Winstar.

Research and Development

Research and development expenses consist primarily of costs associated with
new product development. Our research and development activities include the
development of additional radio products, frequencies and upgrading operating
features and related software tools. Software development costs incurred prior
to the establishment of technological feasibility are expensed as incurred.
Software development costs incurred after the establishment of technological
feasibility and before general release to customers are capitalized, if
material. To date, all software development costs incurred after the
establishment of technological feasibility have been immaterial.

In 2000, 1999, and 1998, research and development expenses were approximately
$20.2 million, $32.4 million, and $38.9 million, respectively. As a percentage
of sales, research and development expenses decreased from 20.7% in 1999 to
8.6% in 2000, primarily due to our Point-to-Multipoint development project,
which was completed in the fourth quarter of 1999, resulting in reduced
spending for this project in 2000 as compared to 1999,and overall sales
increases in 2000, including rollout of the Point-to-Multipoint radio product.
The period from early 1998 through the third quarter of 1999 was a period of
relatively high research and development activity, since the Point-to-
Multipoint project involved entirely new technology, not just improving
existing products. As a percentage of sales, research and development expenses
decreased from 23.9% in 1998 to 20.7% in 1999.

Selling and Marketing

Selling and Marketing expenses consist of salaries, sales commissions, travel
expenses, customer service and support expenses and costs related to business
development and trade shows. In 2000, 1999, and 1998, selling and marketing
expenses were $12.0 million, $17.1 million, and $19.2 million, respectively. As
a percentage of sales, selling and marketing expense decreased from 10.9% in
1999 to 5.1% in 2000, primarily due to smaller sales and marketing staff levels
as a result of the sales of Control Resources Corporation and Technosystem
subsidiaries in early 2000. The decrease in actual spending in 1999 was due to
the Company implementing a cost reduction program, which included personnel
reductions and the closure of sales offices in the United Arab Emirates and
Mexico. As a percentage of sales, selling and marketing expense decreased from
11.8% in 1998 to 10.9% in 1999, primarily due to a lower level of sales in 1998
and the 1998 expansion and start-up of our international sales and marketing
organization, including opening sales offices in the United Arab Emirates,
Singapore, China, and Mexico.

                                       19
<PAGE>

General and Administrative

General and administrative expenses consist primarily of salaries and other
expenses for management, finance, accounting, data processing, and legal and
other professional services. In 2000, 1999, and 1998, general and
administrative expenses were $26.9 million, $25.2 million, and $24.3 million,
respectively. As a percentage of sales, general and administrative expenses
decreased from 16.0% in 1999 to 11.5% in 2000. General and administrative
expenses overall increased 6.8% in 2000 compared to 1999. The sale of Control
Resources Corporation in April 2000 reduced the total 2000 expense levels.
Control Resources Corporation general and administrative expenses in 2000
through the April 2000 sale date were approximately $850,000. However, the
expansion of the services business, predominantly in the U.S. market,
significantly increased the related administrative expenses in 2000. General
and administrative expenses overall level for the manufacturing operations were
reduced in 2000 as compared to 1999 due to better cost controls and due to
significant write-offs of accounts receivable in 1999 which did not recur in
2000. The increase in 1999 compared to 1998 was primarily due to a charge for
accounts receivable write-offs and reserves of $11.8 million and charges of
$3.3 million for the abandonment of one of our leased facilities in Campbell,
California.

Goodwill Amortization

Goodwill represents the excess of the purchase price over the fair value of the
net identifiable assets of acquired companies accounted for as purchase
business combinations. Goodwill is amortized based on a straight-line basis
over the period of expected benefit, ranging from 5 to 20 years. In 2000, 1999,
and 1998, goodwill amortization was approximately $19.6 million, $6.5 million,
and $5.0 million, respectively. In the second quarter of 2000, management
reviewed the carrying value of goodwill related to its 1998 acquisition of the
Cylink Wireless Group. Based upon its assessment of future value of revenue
flows estimated to be provided from this acquisition, a $15 million impairment
charge was made. This amount is included in the total figure for 2000 noted
above. Management also determined it appropriate to amortize the remaining
goodwill related to the Cylink Wireless Group over a 4 1/2 year period
beginning in July 2000. Other than the impairment charge of $15 million, the
amortization of goodwill for 2000 totaled $4.6 million compared to $6.5 million
in 1999. The increase in goodwill amortization for 1999 as compared to 1998 was
due to recording a full year of amortization expense relating to the
acquisition of the assets of the Cylink Wireless Group on March 28, 1998.

Restructuring and Other Charges

In the second quarter of 2000, the Company determined that there was a need to
reevaluate its inventory levels and related accrued liabilities in light of
recent changes in product and customer mix. The evaluation was prompted by a
change in customer mix away from the UK and other European markets and toward
the U.S. market, and the resulting anticipated decrease in demand for certain
of its lower speed and lower frequency Tel-Link Point-to-Point product line,
and resulted in total charges of approximately $21.7 million during the second
quarter of 2000. These charges consisted of increases to inventory reserve of
approximately $17.4 million and accrued liabilities of approximately $4.3
million, both relating to the Company's product segment. In addition, the
Company performed a review of the carrying value and remaining life of long-
lived assets associated with the Company's product segment and recorded write-
downs of approximately $15.0 million of goodwill, and an approximately $9.9
million of deferred tax assets.

The increase in inventory reserves and related purchases liabilities was
charged to product cost of sales in the second quarter of 2000. Of the $17
million charge for additional reserves, $15.4 million related to the
aforementioned Tel-Link Point-to-Point product line. An additional reserve of
approximately $1.0 million was added in the second quarter to adjust carrying
value of certain modules of the Point-to-Multipoint radio line.

During 1999 and 1998, the Company's management approved restructuring plans,
which included initiatives to integrate the operations of acquired companies,
consolidate duplicate facilities, and reduce overhead. Total

                                       20
<PAGE>

accrued restructuring and other charges of approximately $36.5 million and
approximately $26.6 million were recorded in 1999 and 1998, respectively,
relating to these initiatives, all relating to the Company's product segment.
As of December 31, 1999, the Company had utilized all restructuring reserves
established to offset actual restructuring costs incurred by the Company.

Operating expenses overall declined in fiscal 2000 due to cost reduction plans
in place and due to sale of Control Resources Corporation in April 2000.

In-Process Research and Development

We had no expenses for acquired in-process research and development in 2000 or
1999.

On March 28, 1998, we acquired substantially all of the assets, and on April 1,
1998, the accounts receivable, of the Cylink Wireless Group. The total purchase
price of the acquisition was $58.2 million including acquisition expenses of
$2.5 million. Of the purchase price, $15.4 million was ultimately assigned to
in-process research and development ("IPR&D") and expensed upon the
consummation of the acquisition. In-process research and development had no
alternative use at the date of acquisition and technological feasibility had
not been established.

Interest Expense

In 2000, 1999, and 1998, interest expense was $4.8 million, $8.2 million and
$8.7 million, respectively. For 2000 and 1999, interest expense consisted
primarily of interest and fees incurred on borrowings under our bank lines of
credit, interest on the principal amount of our subordinated 4 1/4% convertible
promissory notes due 2002 (the "Notes"), equipment leases, and contractual
penalties for late filing of the registration statement in connection with the
issuance of the Series B Convertible Preferred Stock and the related warrants.
Approximately $1.9 million was charged to interest expense during the year
related to amortization of fair value of warrants issued to our lender group in
January 2000. The reduction in interest expense in 2000 was primarily due to
reduced debt levels outstanding.

Other Income (Expense), net

In 2000, other income and expense represents primarily a $3.5 million loss in
the first quarter on the sale of our Cemetel unit, foreign exchange losses of
approximately $5 million and the write-off of a 1998 investment in a Poland-
based telecom venture of $1.3 million. This was partially offset by interest
income from bank deposits, a gain of $2.6 million on the sale of Control
Resources Corporation in April 2000. For 2000, 1999, and 1998, interest income
consisted primarily of interest generated from cash maintained in interest
bearing bank accounts. In 2000, 1999, and 1998, interest income was
$0.4 million, $0.6 million, and $1.5 million, respectively. For 2000, 1999, and
1998, we incurred net other expenses of $7.4, $3.2 million, and $0.1 million.

Sales contracts negotiated in foreign currencies have been primarily limited to
British Pound Sterling contracts and Italian Lira contracts. The impact of
translating balance sheet accounts due to currency fluctuations in British
Pound Sterling or Italia Lira for 2000 was related to strengthening of the U.S.
dollar versus these currencies through most of the year. We may in the future
be exposed to the risk of foreign currency gains or losses depending upon the
magnitude of a change in the value of a local currency in an international
market.

Provision (Benefit) for Income Taxes

In 2000 and 1999, we recorded tax provisions of $11,140 and $1,407,
respectively, representing effective tax rates of (20.2)% and (1.4)%,
respectively. The tax provision for 2000 is comprised of a $9.9 million write-
off of deferred tax assets taken in 2000 and income taxes attributable to
foreign jurisdictions that had taxable income for 2000. The tax provision for
1999 is comprised of income taxes attributable to foreign jurisdictions that
had taxable income for 1999. No benefit was recognized in 2000 or 1999 for net
operating losses incurred. In 1998, we recorded a tax benefit of $(11,501)
representing an effective tax rate of 15.9%.

                                       21
<PAGE>

Discontinued Operations

In August 1999, we decided to divest our broadcast equipment business,
Technosystem. Accordingly, beginning in the third quarter of 1999, this
business was reported as a discontinued operation and the financial statement
information related to this business was presented on one line in the 1999
Consolidated Balance Sheet, "net assets of discontinued operations", and in the
"discontinued operations" line of the Consolidated Statements of Operations.
The "net assets of discontinued operations" represented the assets intended to
be sold, offset by the liabilities anticipated to be assumed by the buyers of
the business. The disposition of Technosystem was completed by the end of the
first quarter of 2000.

In 1999 we recorded an estimated loss on disposal of $26.9 million, including
the write-off of approximately $12.5 million of goodwill, related to the
disposal of Technosystem. Losses from discontinued operations were $4.0
million, $13.9, million, and $2.9 million in 2000, 1999, and 1998,
respectively.

Extraordinary Item

In January 2000, we repurchased an additional $7.0 million of our Notes for
677,000 shares of newly issued common stock with a fair market value of $5.1
million. The extraordinary gain resulting from this transaction amounted to
$1.9 million. In January and February of 1999, we repurchased an aggregate of
$25.5 million of our Notes for an aggregate of 2,792,000 shares of our Common
Stock with a fair market value of $18.3 million and recorded an extraordinary
gain of $7.2 million. In December 1999, we repurchased an aggregate of
$23.8 million of our Notes for an aggregate of 2,359,000 shares of our Common
Stock with a fair market value of $17.8 million. This transaction resulted in
an extraordinary gain of $6.0 million. In December 1998, we repurchased an
aggregate of $14.3 million of our Notes for an aggregate of 2,467,000 shares of
our Common Stock with a fair market value of $9.0 million, which resulted in an
extraordinary gain of $5.3 million.

Charge related to preferred stock discount

In June 1999, we exchanged all 15,000 shares of Series B Convertible Preferred
Stock for 5,135,000 shares of redeemable Common Stock. We also exchanged
outstanding mandatorily redeemable warrants to purchase 1,242,000 shares of
Common Stock, which were held by the Series B Convertible Preferred
Stockholders, for new warrants with an exercise price of $3.00 per share rather
than $3.47 per share. We recorded a charge in 1999 of approximately $12.2
million resulting from this exchange.

In November 1999, we entered into agreements with the former Series B preferred
shareholders to eliminate their redemption rights and their past and future
late registration premiums and penalties in exchange for 220,000 shares of
Common Stock, warrants to purchase 443,000 share of Common Stock, and a
$400,000 promissory note convertible (with interest) into Common Stock at a
conversion price of approximately $4.72 per share. As a result of these
transactions, we recorded a charge in 1999 of approximately $6.3 million
relating to these agreements.

In December 1998, we completed a private placement of 15,000 shares of a newly
designated Series B Convertible Preferred stock and warrants to purchase up to
1,242,000 shares of Common Stock for $15 million. During the period the Series
B preferred stock as outstanding, we recorded a charge for the accretion of the
Series B preferred stock to its redemption value as a dividend to the holders
of the Series B preferred stock. Consequently, we recorded a charge of
approximately $1.8 million to our accumulated deficit in 1998.

Liquidity and Capital Resources

Since our inception in August 1991, we have financed our operations and met our
capital requirements through net proceeds of approximately $89.5 million from
our initial and two follow-on public offerings of our Common Stock, three
private placements of Common Stock yielding approximately $18.2 million in
August 2000, $43.0 million in January 2000, $38.3 million in June 1999, four
preferred stock financings aggregating approximately $32.2 million, including a
$13.6 million preferred stock financing in 1998. Notes with net proceeds of
approximately $97.5 million in 1997 and borrowings under bank lines of credit
and equipment lease arrangements.

                                       22
<PAGE>

In 2000, we used approximately $37.0 million of cash in operating activities,
primarily due to the net loss of $69.9 million offset by non-cash charges for
inventory related charges aggregating $21.7 million, the loss on disposal of
discontinued operations of $4.0 million and an impairment charge related to
goodwill of $15 million. In addition, we experienced increases in accounts
receivable and inventories. These increases were offset by increases in
accounts payable and other accrued liabilities.

During 2000, we used approximately $2.5 million of cash in investing activities
primarily for the acquisition of property and equipment of $8.0 million offset
by proceeds on the sale of the Control Resources Corporation and Cemetel
subsidiaries of $6.8 million.

In 2000, we generated approximately $57.2 million from financing activities. We
repaid approximately $14.0 million of borrowings under our bank line of credit
and other credit arrangements, borrowed $12 million under a new bank line of
credit, and received approximately $61.2 million in net proceeds from private
placements of approximately 7.5 million shares of Common Stock in January and
an additional private placement of 3.0 million shares in July. In addition
proceeds from exercises of stock options and warrants aggregated $9.9 million.
During 2000, we retired approximately $7 million of our 4 1/4% convertible
subordinated notes ("Notes") through the issuance of approximately 677,000
shares of Common Stock. This non-cash exchange resulted in an extraordinary
gain of approximately $1.9 million.

At December 31, 2000, we had working capital of approximately $76.8 million. In
recent years, we have realized most of our sales near the end of each quarter,
resulting in a significant investment in accounts receivable at the end of the
quarter. We expect that our investments in accounts receivable and inventories
will continue to represent a significant portion of working capital. Sales
terms to some larger customers have recently been at extended due dates,
resulting in additional use of working capital.

Our principal sources of liquidity as of December 31, 2000 consisted of
approximately $27.5 million of cash and cash equivalents. At December 31, 1999,
we had approximately $11.6 million in cash and cash equivalents. At December
31, 2000, we had outstanding borrowings of approximately $11.0 million under
our line of credit, which expired and was paid off, with accrued interest, on
January 31, 2001.

In February 2001, we sold RT Masts our U.K. services unit for approximately $12
million in cash, an additional $750,000 retained by the purchaser for six
months to cover any contingencies, and a seven year note receivable for
$750,000, interest due annually at LIBOR.

On March 29, 2001, we entered into a Loan and Security Agreement with a
borrowing capacity of up to $25 million. The Loan and Security Agreement
matures in March 2004. Borrowings under the Loan and Security Agreement bear
interest at LIBOR plus 3.5% to 4.5% per annum and are secured by our cash
deposits, receivables, inventories, equipment, and intangibles. Maximum
borrowings under the Loan and Security Agreement are limited to 85% of eligible
accounts receivable.

Given the size and working capital needs of our business and our recent history
of losses, we judge our current liquidity situation to be adequate. At present,
we do not have any material commitments for capital equipment purchases.
However, our future capital requirements will depend upon many factors,
including the repayment of our outstanding debt (including $29 million of Notes
maturing on November 1, 2002), our results of operations, the development of
new radio systems and related software tools, expansion of our domestic
services business, the extent and timing of acceptance of our radio systems in
the market, requirements to maintain adequate manufacturing facilities, the
progress of our research and development efforts, expansion of our marketing
and sales efforts, and the status of competitive products, potential
acquisitions, working capital requirements. We believe that cash and cash
equivalents on hand, projected cash flow from operations and funds available
from eligible receivable financing under our new loan agreement should be
adequate to fund our operations in the ordinary course of business for at least
the next twelve months. There can be no assurance, however, that we will not
require additional financing prior to such date to fund our operations,
particularly if economic conditions in our industry or in global economies in
which we compete restrain our sales.

                                       23
<PAGE>

To the extent that our financial resources are insufficient to fund our
activities and to repay our debts, additional funds will be required. There can
be no assurance that any additional financing will be available to us on
acceptable terms, or at all, when required by us. If additional funds are
raised by issuing equity securities further dilution to the existing
stockholders will result. If adequate funds are not available, we may be
required to delay, scale back or eliminate one or more of our research and
development or manufacturing programs, cease any potential acquisition
activities or obtain funds through arrangements with partners or others that
may require the Company to relinquish some level of control of operations.
Accordingly, the inability to obtain such financing could have a material
adverse effect on our business, financial condition and results of operations.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities," SFAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires companies to recognize all derivatives as
either assets or liabilities on the balance sheet and measure those instruments
at fair value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. SFAS 133 is effective for fiscal
years beginning after June 15, 2000 and cannot be applied retroactively. The
Company adopted SFAS 133 effective January 1, 2001. The adoption of SFAS 133
did not have a material impact on our financial position or results of
operations.

CERTAIN RISK FACTORS AFFECTING THE COMPANY

Small Player in Large Market

We do not have the customer base or other resources of more established
companies, which makes it more difficult for us to address the liquidity and
other challenges we face.

Although we have installed and have in operation over 100,000 radio units
globally, we have not developed a large installed base of our equipment or the
kind of close relationships with a broad base of customers of a type enjoyed by
older, more developed companies, which would provide a base of financial
performance from which to launch strategic initiatives and withstand business
reversals. In addition, we have not built up the level of capital often enjoyed
by more established companies, so from time to time we may face serious
challenges in financing our continued operation. We may not be able to
successfully address these risks.

Additional Capital Requirements

Our future capital requirements will depend upon many factors, including
development costs of new products and related software tools, potential
acquisitions opportunities, maintenance of adequate manufacturing facilities
and contract manufacturing agreements, progress of research and development
efforts, expansion of marketing and sales efforts, and status of competitive
products. Additional financing may not be available in the future on acceptable
terms or at all. The continued existence of a substantial amount of debt
(including Notes which come due November 1, 2002) could also severely limit our
ability to raise additional financing. In addition, given the recent price for
our common stock, if we raise additional funds by issuing equity securities,
significant dilution to our stockholders could result.

If adequate funds are not available, we may be required to restructure or
refinance our debt or delay, scale back or eliminate our research and
development, acquisition or manufacturing programs. We may also need to obtain
funds through arrangements with partners or others that may require us to
relinquish rights to certain of our technologies or potential products or other
assets. Our inability to obtain capital, or our ability to obtain additional
capital only upon onerous terms, could very seriously damage our business,
operating results and financial condition and further erode our stock price.

                                       24
<PAGE>

Rapid Technological Change

Rapid technological change, frequency of new product introductions and
enhancements, product obsolescence, changes in end-user requirements and
period-to-period demand, and evolving industry standards characterize the
communications market. The Company's ability to compete in this market will
depend upon successful development, introduction and sale of new systems and
enhancements and related software tools, on a timely and cost-effective basis,
in response to changing customer requirements. Recently, the Company has been
developing our new Point-to-Multipoint systems, upgraded Point-to-Point
systems, and cost effective Spread Spectrum radios. Any success in developing
new and enhanced systems and related software tools will depend upon a variety
of factors. Such factors include:

 . new product development to meet market demand;

 . integration of various elements of complex technology;

 . timely and efficient implementation of manufacturing and assembly processes
  at turnkey suppliers and manufacturing cost reduction programs for existing
  product lines;

 . development and completion of related software tools, system performance,
  quality and reliability of systems; and

 . timely and efficient completion of system design.

Moreover, the Company may not be successful in selecting, developing,
manufacturing and marketing new systems or enhancements or related software
tools. For example, to date, revenue generated through the sales of Point-to-
Multipoint systems has not met original expectations.

Also, errors could be found in the Company's systems after commencement of
commercial quantity shipments. Such errors could result in the loss of or delay
in market acceptance, as well as expenses associated with re-work of previously
delivered equipment.

History of Losses

From inception to December 31, 2000, the Company generated an accumulated
deficit of approximately $219.0 million. The decrease in retained earnings from
$18.4 million at December 31, 1997 to an accumulated deficit of $219.0 million
at December 31, 2000 was due primarily to net losses of $62.5 million in 1998,
$103.0 million in 1999, and $70.0 million in 2000.

The decline in product prices received has had a significant downward impact on
the Company's gross margin over the past three years, particularly in its
Point-to-Point radio systems line. Additionally, slow sales in the Point-to-
Multipoint product line in the second half of 2000 resulted in lower margins on
this line than had been forecasted for higher sales unit levels. The Company
expects pricing pressures to continue for the next several quarters and also
expects pricing pressures from the slowing U.S. economy in 2001 to affect gross
margins. Our ability to drive down cost of producing radio units will be a key
issue in the coming year.

Customer Concentration

For 2000, approximately 180 customers accounted for substantially all of the
Company's sales. Sales to 4 customers accounted for 58% of sales. Our ability
to maintain or increase our sales in the future will depend, in part upon our
ability to obtain orders from new customers as well as the financial condition
and success of our customers, the telecommunications industry and the economy
in general.

Many of the Company's major customers are located in foreign countries,
primarily in the United Kingdom and the Pacific Rim. Some of these customers
are implementing new networks and are themselves in the early stages of
development. They may require additional capital to fully implement their
planned networks, which may be unavailable to them on an as-needed basis, and
which the Company cannot supply in terms of long-term financing.

                                       25
<PAGE>

If the Company's customers cannot finance their purchases of the Company's
products or services, this may materially adversely affect the Company's
business, operations and financial condition. Financial difficulties of
existing or potential customers may also limit the overall demand for the
Company's products and services. Both current customers and potential future
customers in the telecommunications industry have, from time to time,
reportedly undergone financial difficulties and may therefore limit their
future orders or find it difficult to pay our billings to them. Any
cancellation, reduction or delay in orders or shipments, for example, as a
result of manufacturing or supply difficulties or a customer's inability to
finance its purchases of the Company's products or services, may materially
adversely affect the Company's business. Some difficulties of this nature have
occurred in the past and the Company believes they can occur in the future.

Finally, acquisitions in the communications industry are common, which further
concentrates the customer base and may cause some orders to be delayed or
cancelled.

Fluctuations in Operating Results

The Company has experienced and will continue to experience significant
fluctuations in sales, gross margins and operating results. The procurement
process for most of its current and potential customers is complex and lengthy.
As a result, the timing and amount of sales is often difficult to predict
reliably. The sale and implementation of its products and services generally
involves a significant commitment of senior management, as well as its sales
force and other resources. The sales cycle for its products and services
typically involve technical evaluation and commitment of cash and other
resources and delays often occur. Delays are frequently associated with, among
other things:

 . customers' seasonal purchasing and budgetary cycles, as well as their own
  buildout schedules;

 . compliance with customers' internal procedures for approving large
  expenditures and evaluating and accepting new technologies;

 . compliance with governmental or other regulatory standards;

 . difficulties associated with customers' ability to secure financing;

 . negotiation of purchase and service terms for each sale;

 . price negotiations required to secure purchase orders; and

 . education of customers as to the potential applications of our products and
  services, as well as related product-life cost savings.

Shipment delays

Due to logistics of production and inventory, a delay in a shipment near the
end of a particular quarter for any reason may cause sales in a particular
quarter to fall significantly below the Company's and stock market analysts'
expectations. A single customer's order scheduled for shipment in a quarter can
represent a large portion of the Company's potential sales for the quarter.
Such delays have occurred in the past due to, for example, unanticipated
shipment rescheduling, cancellations or deferrals by customers, competitive and
economic factors, unexpected manufacturing or other difficulties, delays in
deliveries of components, subassemblies or services by suppliers and failure to
receive anticipated orders. The Company cannot determine whether similar or
other delays might occur in the future, but expect that some or all of such
problems might recur.

Uncertainty in Telecommunications Industry

Although much of the anticipated growth in the telecommunications
infrastructure is expected to result from the entrance of new service
providers, many new providers do not have the financial resources of existing
service providers. If these new service providers are unable to adequately
finance their operations, they may

                                       26
<PAGE>

cancel or delay orders. Moreover, purchase orders are often received and
accepted far in advance of shipment and, as a result, the Company typically
permits orders to be modified or canceled with limited or no penalties. Any
failure to reduce actual costs to the extent anticipated when an order is
received substantially in advance of shipment or an increase in anticipated
costs before shipment could materially adversely affect the Company's gross
margin for such orders. Ordering materials and building inventory based on
customer forecasts or non-binding orders can also result in large inventory
write-offs, such as occurred in 2000.

Global economic conditions have had a depressing effect on sales levels in past
years, particularly in 1998. The soft economy and reported slowdown in capital
spending in early 2001 in the U.S. market may again have a significant
depressing effect on the sales levels to be attained by our Company in 2001.

Inventory

The Company's customers have increasingly been requiring product shipment upon
ordering rather than submitting purchase orders far in advance of expected
shipment dates. This practice requires the Company to keep inventory on hand
for immediate shipment. Given the variability of customer need and purchasing
power, it is difficult to predict the amount of inventory needed to satisfy
customer demand. If the Company over or under-estimates inventory requirements
to fulfill customer needs, its results of operations could continue to be
adversely affected. In particular, increases in inventory could materially
adversely affect operations if such inventory is ultimately not used or becomes
obsolete. This risk was realized in the large inventory write-downs in the
second quarter of 1999 and 2000.

Expenses

Magnifying the effects of any sales shortfall, a material portion of the
Company's operating expenses is fixed and difficult to reduce should sales not
meet expectations.

Volatility of Operating Results

If the Company or its competitors announce new products, services and
technologies, it could cause customers to defer or cancel purchases of its
existing systems and services. Additional factors have caused and will continue
to cause the Company's performance to vary significantly from period to period.
These factors include:

 . new product introductions and enhancements and related costs;

 . weakness in emerging-country markets, resulting in overcapacity;

 . ability to manufacture and produce sufficient volumes of systems and meet
  customer requirements;

 . manufacturing efficiencies and costs;

 . customer hold on placing orders due to the impact of actions of competitors;

 . variations in the mix of sales through direct efforts or through distributors
  or other third parties;

 . variations in the mix of systems and related software tools sold and services
  provided, as margins from service revenues are typically lower than margins
  from product sales;

 . operating and new product development expense levels incurred;

 . product sales discounts;

 . accounts receivable collection issues;

 . changes in its pricing or customers' or its suppliers' pricing;

 . inventory write-downs and obsolescence;

 . market acceptance by customers and timing of availability of new products and
  services provided by the Company or its competitors;

                                       27
<PAGE>

 . acquisitions, including costs and expenses thereof;

 . use of different distribution and sales channels;

 . fluctuations in foreign currency exchange rates;

 . delays or changes in regulatory approval of systems and services;

 . warranty and customer support expenses;

 . severance costs;

 . consolidation and other restructuring costs;

 . the pending stockholder class action lawsuit;

 . the need for additional financing;

 . customisation of systems;

 . general economic and political conditions; and

 . natural disasters.

All of the above factors are difficult for the Company to forecast, and any of
them could materially adversely affect its business, financial condition and
results of operations.

Because of all of the foregoing factors, in some future quarter or quarters the
Company's operating results may be below those projected by public market
analysts, and the price of its common stock may continue to be materially
adversely affected. Because of lack of order visibility and the current trend
of order delays, deferrals and cancellations, the Company cannot assure that it
will be able to achieve or maintain its current or recent historical sales
levels.

Acquisition Related Risks

The Company may be unable to realize the full value of its past acquisitions.

From April 1996 through 1998, the Company acquired nine complementary companies
and businesses. Integration and management of these companies into the
Company's business is ongoing. Some of these acquisitions have not resulted in
the benefits originally anticipated and two of these companies, Technosystem
S.p.A. and Cemetel S.r.l. were divested in February 2000, Control Resources
Corporation was divested in April 2000, and RT Masts was divested in February
2001. The Company has encountered or expects to encounter the following
problems relating to such transactions:

 . difficulty of assimilating operations and personnel of combined companies;

 . potential disruption of ongoing business;

 . inability to retain key technical and managerial personnel;

 . inability of management to maximize financial and strategic position through
  integration of acquired businesses;

 . additional expenses and/or accelerated write-offs associated with
  amortization of acquired intangible assets;

 . impairment of relationships with employees and customers as a result of
  integration of new personnel;

 . risks of entering markets in which it has no or limited direct prior
  experience; and

 . operation of companies in different geographical locations with different
  operating cultures.

Although we have now integrated the remaining acquired businesses, we may
continue to encounter problems related to the management of these companies.
Overcoming existing and potential problems may entail increased costs,
additional investment and diversion of management attention and other
resources, or require

                                       28
<PAGE>

divestment of one or more business units, which may adversely affect our
business, financial condition and operating results. In addition, we have
written off assets of several of our other acquired companies for which the
acquisitions have not worked out as originally anticipated.

The Company may not be successful in overcoming any or all of these risks or
any other problems encountered in connection with our past or any future
acquisitions, and such transactions may materially adversely affect its
business, financial condition and results of operations or require divestment
of one or more business units or a charge due to impairment of assets
including, in particular, goodwill.

Most of the Company's past acquisitions have been accounted for under the
purchase method of accounting, and as a result, a significant amount of
goodwill is being amortized relative to two of these acquisitions where the
Company continues to operate. This amortization expense may have a significant
effect on the Company's future financial results.

Contract Manufacturers and Limited Sources of Supply

The Company's internal manufacturing capacity is very limited. The Company uses
contract manufacturers in large part to produce its systems, components and
subassemblies and expects to rely increasingly on these manufacturers in the
future. The Company also relies on outside vendors to manufacture certain other
components and subassemblies. Its internal manufacturing capacity and that of
its contract manufacturers may not be sufficient to fulfill its orders. The
Company's failure to manufacture, assemble and ship systems and meet customer
demands on a timely and cost-effective basis could damage relationships with
customers and have a material adverse effect on its business, financial
condition and results of operations.

In addition, certain components, subassemblies and services necessary for the
manufacture of its systems are obtained from a sole supplier or a limited group
of suppliers.

The Company's reliance on contract manufacturers and on sole suppliers or a
limited group of suppliers involves risks. The Company has experienced an
inability to obtain an adequate supply of finished products and required
components and subassemblies. As a result, the Company has reduced control over
the price, timely delivery, reliability and quality of finished products,
components and subassemblies. The Company does not have long-term supply
agreements with most of its manufacturers or suppliers. The Company has
experienced problems in the timely delivery and quality of products and certain
components and subassemblies from vendors. Some suppliers have relatively
limited financial and other resources. Any inability to obtain timely
deliveries of components and subassemblies of acceptable quality or any other
circumstance would require the Company to seek alternative sources of supply,
or to manufacture finished products or components and subassemblies internally.
As manufacture of its products and certain of its components and subassemblies
is an extremely complex process, finding and educating new vendors could delay
the Company's ability to ship its systems.

Management of Growth

To maintain a competitive market position, the Company is required to continue
to invest resources for growth. Currently, the Company is devoting significant
resources to the development of new products and technologies and is
continuously conducting evaluations of these products. The Company will
continue to invest additional resources in plant and equipment, inventory,
personnel and other items, to begin production of these products and to provide
any necessary marketing and administration to service and support bringing
these products to commercial production stage. Accordingly, in addition to the
effect its recent performance has had on gross profit margin and inventory
levels, its gross profit margin and inventory management may be further
adversely impacted in the future by start-up costs associated with the initial
production and installation of these new products. Start-up costs may include
additional manufacturing overhead, additional allowance for doubtful accounts,
inventory and warranty reserve requirements and the creation of service and
support organizations.

                                       29
<PAGE>

Additional inventory on hand for new product development and customer service
requirements also increases the risk of further inventory write-downs if such
products do not gain reasonable market acceptance at normal gross profit
margin. Although the Company, through monitoring its operating expense levels
relative to business plan revenue levels, tries to maintain a given level of
operating results, there are many market condition changes which have and may
continue to challenge the Company's ability to maintain given levels of
operating expenses to revenue ratios.

Expansion of its operations and acquisitions in prior periods have caused and
continue to impose a significant strain on the Company's management, financial,
manufacturing and other resources and have from time to time disrupted its
normal business operations. The Company's ability to manage any possible future
growth may depend upon significant expansion of its executive, manufacturing,
accounting and other internal management systems and the implementation of a
variety of systems, procedures and controls, including improvements or
replacements to inventory and management systems designed to help control and
monitor inventory levels and other operating decision criteria. In particular,
the Company must successfully manage and control overhead expenses and
inventories, the development, introduction, marketing and sales of new
products, the management and training of its employee base, the integration and
coordination of a geographically and ethnically diverse group of employees and
the monitoring of third party manufacturers and suppliers. The Company cannot
be certain that attempts to manage or expand its marketing, sales,
manufacturing and customer support efforts will be successful or result in
future additional sales or profitability. The Company must efficiently
coordinate activities in its companies and facilities in Italy, the United
Kingdom, California, Florida, Virginia, and elsewhere. The Company has
experienced difficulties due to the integration of acquired businesses
utilizing differing business and accounting systems, currencies, and a variety
of unique customs, cultures, and language barriers.

Any failure to coordinate and improve systems, procedures and controls,
including improvements relating to inventory control and coordination with its
subsidiaries, at a pace consistent with the Company's business, could cause
continued inefficiencies, additional operational expenses and inherent risks,
greater risk of billing delays, inventory write-downs and financial reporting
difficulties.

A significant ramp-up of production of products and services could require the
Company to make substantial capital investments in equipment and inventory, in
recruitment and training additional personnel and possibly in investment in
additional manufacturing facilities. If undertaken, the Company anticipates
these expenditures would be made in advance of increased sales. In such event,
gross margins would be adversely affected from time-to-time due to short-term
inefficiencies associated with the addition of equipment and inventory,
personnel or facilities, and such cost categories may periodically increase as
a percentage of revenues.

Decline in Selling Prices

The Company believes that average selling prices and possibly gross margins for
its systems and services will tend to decline in both the near and the long
term relative from the point at which a product is initially marketed and
priced. Reasons for such decline may include the maturation of such systems,
the effect of volume price discounts in existing and future contracts and the
intensification of competition. To offset declining average selling prices, the
Company believes it must take a number of steps, including:

 . successfully introducing and selling new systems on a timely basis;

 . developing new products that incorporate advanced software and other features
  that can be sold at higher average selling prices; and

 . reducing the costs of its systems through contract manufacturing, design
  improvements and component cost reduction, among other actions.

                                       30
<PAGE>

If the Company cannot develop new products in a timely manner or fails to
achieve increase sales of new products at a higher average selling price, then
the Company would be unable to offset declining average selling prices. If the
Company is unable to offset declining average selling prices, its gross margins
will decline.

Accounts Receivable

The Company is subject to credit risk in the form of trade accounts receivable.
The Company could be unable to enforce a policy of receiving payment within a
limited number of days of issuing bills, especially for customers in the early
phases of business development. Such risk is mitigated through the requirement
that newer customers place irrevocable Letters of Credit at the Company's
disposal. The Company's current credit policy on customers both domestically
and internationally requires letters of credit and/or significant advance
payments for those customers deemed to be a high risk and open credit levels
for customers which are deemed creditworthy and have a history of timely
payments with the Company. The Company's current credit policy typically allows
payment terms between 30 and 120 days depending upon the customer and the
economic norms of the region. The Company could have difficulties in receiving
payment in accordance with its policies, particularly from customers awaiting
financing to fund their expansion and from customers outside of the United
States. In 1999, the Company recorded charges of $11.3 million, for accounts
receivable write-offs and reserves additions. While such charges amount to only
$0.7 million in 2000, similar write-offs may occur in the future, which could
have a further material adverse effect on its business, financial condition and
results of operations.

Product Quality, Performance and Reliability

Customers require very demanding specifications for quality, performance and
reliability. The Company has limited experience in producing and manufacturing
systems and contracting for such manufacture. As a consequence, problems may
occur with respect to the quality, performance and reliability of the Company's
systems or related software tools. If such problems occur, the Company could
experience increased costs, delays or cancellations or rescheduling of orders
or shipments, delays in collecting accounts receivable and product returns and
discounts. If any of these events occur, it would have a material adverse
effect on the Company's business, financial condition and results of
operations.

Market Acceptance

The Company's future operating results depend upon the continued growth and
increased availability and acceptance of microcellular, PCN/PCS and wireless
local loop access telecommunications services in the United States and
internationally. The volume and variety of wireless telecommunications services
or the markets for and acceptance of such services may not continue to grow as
expected. The growth of such services may also fail to create anticipated
demand for its systems. Because these markets are relatively new, predicting
which segments of these markets will develop and at what rate these markets
will grow is difficult. In addition to its other products, the Company has
recently invested significant time and resources in the development of Point-
to-Multipoint radio systems. If the licensed millimeter wave, spread spectrum
microwave radio or Point-to-Multipoint microwave radio market and related
services for the Company's systems fails to grow, or grows more slowly than
anticipated, the Company's business, financial condition and results of
operations will be materially adversely affected.

Certain sectors of the communications market will require the development and
deployment of an extensive and expensive communications infrastructure. In
particular, the establishment of PCN/PCS networks will require very large
capital expenditure levels. Communications providers may not make the necessary
investment in such infrastructure, and the creation of this infrastructure may
not occur in a timely manner. Moreover, one potential application of the
Company's technology is the use of its systems in conjunction with the
provision of alternative wireless access in competition with the existing
wireline local exchange providers

                                       31
<PAGE>

depends on the pricing of wireless telecommunications services at rates
competitive with those charged by wireline telephone companies. Rates for
wireless access must become competitive with rates charged by wireline
companies for this approach to be successful. If wireless access rates are not
competitive, consumer demand for wireless access will be materially adversely
affected. If the Company allocates resources to any market segment that does
not grow, it may be unable to reallocate resources to other market segments in
a timely manner, ultimately curtailing or eliminating its ability to enter such
other segments.

Certain current and prospective customers are delivering services and features
that use competing transmission media such as fiber optic and copper cable,
particularly in the local loop access market. To successfully compete with
existing products and technologies, the Company must offer systems with
superior price/performance characteristics and extensive customer service and
support. Additionally, the Company must supply such systems on a timely and
cost-effective basis, in sufficient volume to satisfy such prospective
customers' requirements and otherwise overcome any reluctance on the part of
such customers to transition to new technologies. Any delay in the adoption of
the Company's systems may result in prospective customers using alternative
technologies in their next generation of systems and networks.

Prospective customers may not design their systems or networks to include the
Company's systems. Existing customers may not continue to include the Company's
systems in their products, systems or networks in the future. The Company's
technology may not replace existing technologies and achieve widespread
acceptance in the wireless telecommunications market. Failure to achieve or
sustain commercial acceptance of the Company's currently available radio
systems or to develop other commercially acceptable radio systems would
materially adversely affect it. Also, industry technical standards may change
or, if emerging standards become established, the Company may not be able to
conform to these new standards in a timely and cost-effective manner.

Intensely Competitive Industry

The wireless communications market is intensely competitive. The Company's
wireless-based radio systems compete with other wireless telecommunications
products and alternative telecommunications transmission media, including
copper and fiber optic cable. The Company is experiencing intense competition
worldwide from a number of leading telecommunications companies. Such companies
offer a variety of competitive products and services and some offer broader
telecommunications product lines, and include Alcatel Network Systems, Bosch
Telekom, DMC Stratex Networks, Cerragon, Ericsson Limited, Harris Corporation-
Farinon Division, Lucent T.R.T., NEC, Nokia Telecommunications, Nortel/BNI,
SIAE, Siemens, and Western Multiplex Corporation.

Many of these companies have greater installed bases, financial resources and
production, marketing, manufacturing, engineering and other capabilities than
the Company does. The Company faces actual and potential competition not only
from these established companies, but also from start-up companies that are
developing and marketing new commercial products and services.

The Company may also compete in the future with other market entrants offering
competing technologies. Some of the Company's current and prospective customers
and partners have developed, are currently developing or could manufacture
products competitive with the Company's products. Nokia and Ericsson have
recently developed new competitive radio systems, and new technology featuring
laser-based millimeter-wave delivery is now on the marketplace.

The principal elements of competition in its market and the basis upon which
customers may select the Company's systems include price, performance, software
functionality, ability to meet delivery requirements, and customer service and
support. Recently, certain competitors have announced the introduction of new
competitive products, including related software tools and services, and the
acquisition of other competitors and competitive technologies. The Company
expects competitors to continue to improve the performance and lower the price
of their current products and services and to introduce new products and
services or new technologies that provide added functionality and other
features. New product and service offerings and enhancements by

                                       32
<PAGE>

the Company's competitors could cause a decline in sales or loss of market
acceptance of its systems. New offerings could also make the Company's systems,
services or technologies obsolete or non-competitive. In addition, the Company
is experiencing significant price competition and expects such competition to
intensify.

The Company believes that to be competitive, it will need to expend significant
resources on, among other items, new product development and enhancements. In
marketing the Company's systems and services, the Company will compete with
vendors employing other technologies and services that may extend the
capabilities of their competitive products beyond their current limits,
increase their productivity or add other features. The Company may not be able
to compete successfully in the future.

Uncertainty in International Operations

In doing business in international markets, the Company faces economic,
political and foreign currency fluctuations that are more volatile than those
commonly experienced in the United States. The majority of the Company's sales
to date have been made to customers located outside of the United States. In
addition, to date, the Company has acquired three companies based in Italy,
Technosystem S.p.A., Cemetel S.r.l., and P-Com Italia S.p.A., and two United
Kingdom-based companies, RT Masts and Telesys Limited, as well as the
acquisition of the assets of the Cylink Wireless Group, a division with
substantial international operations. Many of these acquired companies sell
their products and services primarily to customers in Europe, the Middle East
and Africa. In February 2000, the Company sold Technosystem S.p.A. and Cemetel
S.r.l. at a significant loss. In February 2001, the Company sold RT Masts at an
estimated gain.

Historically, the Company's international sales have been denominated in
British pounds sterling or United States dollars. Certain of the Company's
international sales are denominated in other foreign currencies, including
Italian lira (P-Com Italia). A decrease in the value of foreign currencies
relative to the United States dollar could result in decreased margins from
those transactions if such decreases are not hedged. For international sales
that are United States dollar-denominated, such a decrease could make its
systems less price-competitive if competitors choose to price in other
currencies and could have a material adverse effect upon its financial
condition.

Additional risks are inherent in the Company's international business
activities. Such risks include:

 . changes in regulatory requirements;

 . costs and risks of localizing systems (homologation) in foreign countries;

 . delays in receiving and processing components and materials;

 . availability of suitable export financing;

 . timing and availability of export licenses, tariffs and other trade barriers;

 . difficulties in staffing and managing foreign operations, branches and
  subsidiaries;

 . difficulties in managing distributors;

 . potentially adverse tax consequences;

 . foreign currency exchange fluctuations;

 . the burden of complying with a wide variety of complex foreign laws and
  treaties;

 . difficulty in accounts receivable collections, if applicable; and

 . political and economic instability.

In addition, many of the Company's customer purchase and other agreements are
governed by foreign laws, which may differ significantly from U.S. laws.
Therefore, the Company may be limited in its ability to enforce its rights
under such agreements and to collect damages, if awarded.

                                       33
<PAGE>

In many cases, local regulatory authorities own or strictly regulate
international telephone companies. Established relationships between
government-owned or government-controlled telephone companies and their
traditional indigenous suppliers of telecommunications often limit access to
such markets. The successful expansion of the Company's international
operations in certain markets will depend on its ability to locate, form and
maintain strong relationships with established companies providing
communication services and equipment in targeted regions. The failure to
establish regional or local relationships or to successfully market or sell its
products in international markets could limit its ability to expand operations.
The Company's inability to identify suitable parties for such relationships, or
even if such parties are identified to form and maintain strong relationships
with them, could prevent the Company from generating sales of products and
services in targeted markets or industries. Moreover, even if such
relationships are established, the Company may be unable to increase sales of
products and services through such relationships.

Some of the Company's potential markets include developing countries that may
deploy wireless communications networks as an alternative to the construction
of a limited wired infrastructure. These countries may decline to construct
wireless telecommunications systems or construction of such systems may be
delayed for a variety of reasons. If such events occur, any demand for the
Company's systems in these countries will be similarly limited or delayed.
Also, in developing markets, economic, political and foreign currency
fluctuations may be even more volatile than conditions in developed areas. Such
volatility could have a material adverse effect on its ability to develop or
continue to do business in such countries.

Countries in the Asia/Pacific, African, and Latin American regions have
recently experienced weaknesses in their currency, banking and equity markets.
These weaknesses have adversely affected and could continue to adversely affect
demand for products, the availability and supply of product components to the
Company and, ultimately, its consolidated results of operations.

Extensive Government Regulation

Radio communications are extensively regulated by the United States and foreign
governments as well as by international treaties. The Company's systems must
conform to a variety of domestic and international requirements established to,
among other things, avoid interference among users of radio frequencies and to
permit interconnection of equipment. Historically, in many developed countries,
the limited availability of radio frequency spectrum has inhibited the growth
of wireless telecommunications networks.

Each country's regulatory process differs. To operate in a jurisdiction, the
Company must obtain regulatory approval for its systems and comply with
differing regulations. Regulatory bodies worldwide continue to adopt new
standards for wireless communications products. The delays inherent in this
governmental approval process may cause the cancellation, postponement or
rescheduling of the installation of communications systems by the Company and
its customers. The failure to comply with current or future regulations or
changes in the interpretation of existing regulations could result in the
suspension or cessation of operations. Such regulations or such changes in
interpretation could require the Company to modify its products and services
and incur substantial costs to comply with such regulations and changes.

In addition, the Company is also affected by domestic and international
authorities' regulation of the allocation and auction of the radio frequency
spectrum. Equipment to support new systems and services can be marketed only if
permitted by governmental regulations and if suitable frequency allocations are
auctioned to service providers. Establishing new regulations and obtaining
frequency allocation at auction is a complex and lengthy process. If PCS
operators and others are delayed in deploying new systems and services, the
Company could experience delays in orders. Similarly, failure by regulatory
authorities to allocate suitable frequency spectrum could have a material
adverse effect on the Company's results. In addition, delays in the radio
frequency spectrum auction process in the United States could delay the
Company's ability to develop and market equipment to support new services.

                                       34
<PAGE>

The Company operates in a regulatory environment subject to significant change.
Regulatory changes, which are affected by political, economic and technical
factors, could significantly impact its operations by restricting its
development efforts and those of its customers, making current systems obsolete
or increasing competition. Any such regulatory changes, including changes in
the allocation of available spectrum, could have a material adverse effect on
the Company's business, financial condition and results of operations. The
Company may also find it necessary or advisable to modify its systems and
services to operate in compliance with such regulations. Such modifications
could be expensive and time-consuming.

Class Action Litigation

In September and October 1998, several class action complaints were filed in
the Superior Court of California, County of Santa Clara, on behalf of P-Com
stockholders who purchased or otherwise acquired its Common Stock between April
1997 and September 11, 1998. The plaintiffs allege various state securities
laws violations by P-Com and certain of its officers and directors. The
complaints seek un-quantified compensatory, punitive and other damages,
attorneys' fees and injunctive and/or equitable relief.

On December 3, 1998, the Superior Court of California, County of Santa Clara,
entered an order consolidating all of the above complaints. On June 30, 2000
the Superior Court of California, County of Santa Clara, issued a notice of
ruling certifying this matter as a class action.

Although the litigation is being conducted actively, it is still at an early
stage and the Company is unable to speculate as to ultimate outcomes. An
unfavorable outcome could have a material adverse effect on our business,
prospects, financial condition and results of operations. Even if all of the
litigation is resolved in our favor, the defense of such litigation may entail
considerable cost and the significant diversion of efforts of management.

Protection of Proprietary Rights

The Company relies on a combination of patents, trademarks, trade secrets,
copyrights and other measures to protect its intellectual property rights. The
Company generally enters into confidentiality and nondisclosure agreements with
service providers, customers and others to limit access to and distribution of
proprietary rights. The Company also enters into software license agreements
with customers and others. However, such measures may not provide adequate
protection for its trade secrets or other proprietary information for a number
of reasons.

Any of the Company's patents could be invalidated, circumvented or challenged,
or the rights granted thereunder may not provide competitive advantages to the
Company. Any of the Company's pending or future patent applications might not
be issued within the scope of the claims sought, if at all. Furthermore, others
may develop similar products or software or duplicate the Company's products or
software. Similarly, others might design around the patents owned by the
Company, or third parties may assert intellectual property infringement claims
against the Company. In addition, foreign intellectual property laws may not
adequately protect the Company's intellectual property rights abroad. A failure
or inability to protect proprietary rights could have a material adverse effect
on the Company's business, financial condition and results of operations.

Even if the Company's intellectual property rights are adequately protected,
litigation may be necessary to enforce patents, copyrights and other
intellectual property rights, to protect the Company's trade secrets, to
determine the validity of and scope of proprietary rights of others or to
defend against claims of infringement or invalidity. Litigation, even if wholly
without merit, could result in substantial costs and diversion of resources,
regardless of the outcome. Infringement, invalidity, right to use or ownership
claims by third parties or claims for indemnification resulting from
infringement claims could be asserted in the future and such assertions may
materially adversely affect the Company. If any claims or actions are asserted
against the Company, the Company may seek a license under a third party's
intellectual property rights. However, such a license may not be available
under reasonable terms or at all.

                                       35
<PAGE>

Dependence on Key Personnel

The Company's future operating results depend in significant part upon the
continued contributions of key technical and senior management personnel, many
of who would be difficult to replace. Future operating results also depend upon
the ability to attract and retain qualified management and technical personnel.
Competition for such personnel is intense, and the Company may not be
successful in attracting or retaining such personnel. Only a limited number of
persons with the requisite skills to serve in these positions may exist and it
may be increasingly difficult for the Company to hire such personnel.

The Company has experienced and may continue to experience employee turnover
due to several factors, including an expanding economy within the geographic
area in which the Company maintains its principal business offices. Such
turnover could adversely impact its business. The Company is presently
addressing these issues and has instituted solutions designed to provide
performance incentives and thereby retain employees. The loss of any key
employee, the failure of any key employee to perform in his or her position,
the Company's inability to attract and retain skilled employees as needed or
the inability of its officers and key employees to expand, train and manage the
Company's employee base could all materially adversely affect the Company's
business.

Volatility of Stock Price

In recent years, the stock market in general, and the market for shares of
small capitalization, technology stocks in particular, have experienced extreme
price fluctuations. Such fluctuations have often been unrelated to the
operating performance of individual affected companies. The Company believes
that factors such as announcements of developments related to its business,
announcements of technological innovations or new products or enhancements by
the Company or its competitors, developments in the emerging countries'
economies, sales by competitors, including sales to its customers, sales of its
common stock into the public market, including by members of management,
developments in its relationships with customers, partners, lenders,
distributors and suppliers, shortfalls or changes in revenues, gross margins,
earnings or losses or other financial results that differ from analysts'
expectations, regulatory developments, fluctuations in results of operations
and general conditions in its market or markets served by its customers or the
economy, could cause the price of its common stock to fluctuate, sometimes
reaching extreme and unexpected lows. The market price of its Common Stock may
continue to decline substantially, or otherwise continue to experience
significant fluctuations in the future, including fluctuations that are
unrelated to its performance.

Substantial Amount of Debt

As of December 31, 2000, the Company's total indebtedness including current
liabilities was approximately $121.0 million and its stockholders' equity was
approximately $95.2 million. The Company's ability to make scheduled payments
of the principal and interest on indebtedness will depend on future
performance, which is subject in part to economic, financial, competitive and
other factors beyond its control. There can be no assurance that the Company
will be able to make payments on its debt in the future. As of January 31,
2001, the Company paid off $11 million in maturing debt under an asset-based
lending agreement, as the lender was withdrawing from the market. The Company's
$29 million outstanding principal amount of Notes matures on November 1, 2002.

Dividends

Since the Company's incorporation in 1991, the Company has not declared or paid
cash dividends on its common stock, and the Company anticipates that any future
earnings will be retained for investment in the business. Any payment of cash
dividends in the future will be at the discretion of the Company's board of
directors and will depend upon, among other things, its earnings, financial
condition, capital requirements, extent of indebtedness and contractual
restrictions with respect to the payment of dividends.


                                       36
<PAGE>

Change of Control Inhibition

The Company's stockholder rights ("poison pill") plan, certificate of
incorporation, equity incentive plans, bylaws and Delaware law, may have a
significant effect in delaying, deferring or preventing a change in control of
the Company and may adversely affect the voting and other rights of other
holders of common stock.

The rights of the holders of Common Stock will be subject to, and may be
adversely affected by, the rights of any other preferred stock that may be
issued in the future, including the Series A junior participating preferred
stock that may be issued pursuant to the stockholder rights ("poison pill")
plan, upon the occurrence of certain triggering events. In general, the
stockholder rights plan provides a mechanism by which the share position of
anyone that acquires 15% or more (20% or more in the case of the State of
Wisconsin Investment Board and Firsthand Capital Management) of the Common
Stock will be substantially diluted. Future issuance of stock or any additional
preferred stock could have the effect of making it more difficult for a third
party to acquire a majority of its outstanding voting stock.

Item 7a. Quantitative and Qualitative Disclosures about Market Risk

The Company has international sales and facilities and is, therefore, subject
to foreign currency rate exposure. Historically, its international sales have
been denominated in British pounds sterling or United States dollars. The
functional currency of the Company's wholly owned and majority-owned foreign
subsidiaries are the local currencies. Assets and liabilities of these
subsidiaries are translated into U.S. dollars at exchange rates in effect at
the balance sheet date. Income and expense items are translated at average
exchange rates for the period. Accumulated net translation adjustments are
recorded in stockholders' equity. Foreign exchange transaction gains and losses
are included in the results of operations, and were not material for all
periods presented. Based on our overall currency rate exposure at December 31,
2000, a near-term 10% appreciation or depreciation of the U.S. dollar would
have an insignificant effect on our financial position, results of operations
and cash flows over the next fiscal year. The Company does not use derivative
financial instruments for speculative or trading purposes.

Interest Rate Risk

The Company's Notes bear interest at a fixed rate, therefore, the Company's
financial condition and results of operations would not be affected by interest
rate changes in this regard. The working capital credit facility being
negotiated at March 15, 2001 includes borrowing options based on either U.S.
prime, or 30-90 LIBOR settings. Such rates in either case are subject to
movements in underlying central bank offering rates.


                                       37
<PAGE>

Item 8. Financial Statements

                                  P-Com, Inc.

  Index to Consolidated Financial Statements and Financial Statement Schedule

<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
<S>                                                                        <C>
Financial Statements:
  Report of Independent Accountants.......................................  39
  Consolidated Balance Sheets at December 31, 2000 and 1999...............  40
  Consolidated Statements of Operations for the years ended December 31,
   2000, 1999, and 1998...................................................  41
  Consolidated Statements of Stockholders' Equity for the years ended
   December 31, 2000, 1999, and 1998......................................  42
  Consolidated Statements of Cash Flows for the years ended December 31,
   2000, 1999, and 1998...................................................  44
  Notes to Consolidated Financial Statements..............................  45
Financial Statement Schedule:
  Schedule II--Valuation and Qualifying Accounts..........................  66
</TABLE>

All other schedules have been omitted because they are not required, are not
applicable, or the information is included in the consolidated financial
statements or notes thereto.

                                       38
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of P-Com, Inc.

In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of P-Com, Inc. and its subsidiaries at December 31, 2000 and 1999, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting associated with revenue recognition effective
January 1, 2000.

PricewaterhouseCoopers LLP
San Jose, California
March 9, 2001, except for Note 15, which is as of March 29, 2001

                                       39
<PAGE>

                                  P-Com, Inc.
                          Consolidated Balance Sheets
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                              December 31,
                                                            ------------------
                                                              2000      1999
                                                            --------  --------
<S>                                                         <C>       <C>
Assets
Current assets:
 Cash and cash equivalents................................. $ 27,541  $ 11,629
 Accounts receivable, net of allowances of $3,810 and
  $14,899, respectively....................................   63,458    44,041
 Inventory.................................................   62,838    46,849
 Prepaid expenses and notes receivable.....................   13,668    15,987
 Net assets of discontinued operations.....................       --     3,151
                                                            --------  --------
   Total current assets....................................  167,505   121,657

Property and equipment, net................................   23,166    36,626
Deferred income taxes......................................       --     9,858
Goodwill and other assets..................................   25,548    50,605
                                                            --------  --------
   Total assets............................................ $216,219  $218,746
                                                            ========  ========

Liabilities and Stockholders' Equity
Current liabilities:
 Accounts payable.......................................... $ 36,093  $ 34,275
 Accrued employee benefits.................................    2,440     2,894
 Other accrued liabilities.................................   41,238    28,947
 Notes payable.............................................   10,911    23,557
                                                            --------  --------
   Total current liabilities...............................   90,682    89,673
Other long-term liabilities................................      991     3,542
Convertible subordinated notes.............................   29,299    36,316
                                                            --------  --------
   Total liabilities.......................................  120,972   129,531
                                                            --------  --------
Commitments and contingencies (notes 12 and 13)
Stockholders' equity:
 Series A Preferred Stock..................................       --        --
 Common Stock, $0.0001 par value; 145,000 shares and 95,000
  shares authorized at December 31, 2000 and 1999,
  respectively; 80,631 and 67,400 shares issued and
  outstanding at December 31, 2000 and 1999, respectively..        8         7
 Additional paid-in capital................................  316,515   238,721
 Accumulated deficit....................................... (218,922) (148,973)
 Accumulated other comprehensive loss......................   (2,354)     (540)
                                                            --------  --------
   Total stockholders' equity..............................   95,247    89,215
                                                            --------  --------
   Total liabilities and stockholders' equity.............. $216,219  $218,746
                                                            ========  ========
</TABLE>

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

                                       40
<PAGE>

                                  P-Com, Inc.
                     Consolidated Statements of Operations
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                    2000      1999       1998
                                                  --------  ---------  --------
<S>                                               <C>       <C>        <C>
Sales:
 Product........................................  $183,606  $ 116,409  $118,948
 Service........................................    50,795     40,470    43,597
                                                  --------  ---------  --------
  Total sales...................................   234,401    156,879   162,545
                                                  --------  ---------  --------
Cost of sales:
 Product........................................   160,965    107,378    93,829
 Service........................................    38,170     28,274    30,777
                                                  --------  ---------  --------
  Total cost of sales...........................   199,135    135,652   124,606
                                                  --------  ---------  --------
Gross profit....................................    35,266     21,227    37,939
                                                  --------  ---------  --------
Operating expenses:
 Research and development.......................    20,241     32,431    38,882
 Selling and marketing..........................    11,972     17,135    19,224
 General and administrative.....................    26,893     25,179    24,260
 Goodwill amortization..........................    19,598      6,547     5,023
 Restructuring charges..........................        --      3,300     4,332
 Acquired in-process research and development...        --         --    15,442
                                                  --------  ---------  --------
  Total operating expenses......................    78,704     84,592   107,163
                                                  --------  ---------  --------
Loss from continuing operations.................   (43,438)   (63,365)  (69,224)

Interest expense................................    (4,750)    (8,175)   (8,652)
Other income (expense), net.....................    (6,977)    (2,537)    1,446
                                                  --------  ---------  --------
Loss from continuing operations before income
 taxes, extraordinary items and cumulative
 effect of change in method of accounting.......   (55,165)   (74,077)  (76,430)
Provision (benefit) for income taxes............    11,140      1,407   (11,501)
                                                  --------  ---------  --------
Loss from continuing operations before
 extraordinary items and cumulative effect of
 accounting change..............................   (66,305)   (75,484)  (64,929)
Discounted operations:
 Loss from operations...........................    (4,000)   (13,903)   (2,869)
 Loss on disposal...............................        --    (26,901)       --
                                                  --------  ---------  --------
                                                    (4,000)   (40,804)   (2,869)
Extraordinary gain on retirement of Notes.......     1,890     13,239     5,333
Cumulative effect of change in method of
 accounting.....................................    (1,534)        --        --
                                                  --------  ---------  --------
Net loss........................................  $(69,949) $(103,049) $(62,465)
                                                  ========  =========  ========

Net loss applicable to Common Stockholders:
 Net loss.......................................   (69,949)  (103,049)  (62,465)
 Charge related to Preferred Stock discount.....        --         --    (1,839)
 Loss on conversion of Preferred Stock to Common
  Stock.........................................        --    (18,521)       --
                                                  --------  ---------  --------
 Net loss applicable to Common Stockholders.....  $(69,949) $(121,570) $(64,304)
                                                  ========  =========  ========
Basic and diluted loss per share:
 Loss from continuing operations................  $  (0.85) $   (1.32) $  (1.50)
 Loss from discontinued operations..............     (0.05)     (0.72)    (0.07)
 Extraordinary gain on retirement of Notes......      0.02       0.23      0.12
 Cumulative effect of change in method of
  accounting....................................     (0.02)        --        --
 Charges related to Preferred Stock discount and
  loss on conversion of Preferred Stock to
  Common Stock..................................        --      (0.32)    (0.04)
                                                  --------  ---------  --------
Basic and diluted net loss per share applicable
 to Common Stockholders.........................  $  (0.90) $   (2.13) $  (1.49)
                                                  ========  =========  ========
Shares used in per share computations:
 Basic and diluted..............................    78,000     56,995    43,254
                                                  ========  =========  ========
</TABLE>

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

                                       41
<PAGE>

                                  P-Com, Inc.
                 Consolidated Statement of Stockholders' Equity
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                Accumulated
                                                                   Other
                                                     Retained     Compre-   Compre-
                          Common Stock  Additional   Earnings     hensive   hensive
                          -------------  Paid-In   (Accumulated   Income     Income
                          Shares Amount  Capital     Deficit)     (Loss)     (Loss)    Total
                          ------ ------ ---------- ------------ ----------- --------  --------
<S>                       <C>    <C>    <C>        <C>          <C>         <C>       <C>
Balance at December 31,
 1997...................  42,664  $ 4    $131,735    $ 18,380     $(1,822)            $148,297
Issuance of Common Stock
 upon exercise of stock
 options and warrants...     499   --       2,651          --          --                2,651
Issuance of Common Stock
 under employee stock
 purchase plan..........     240   --       1,842          --          --                1,842
Issuance of Common Stock
 upon retirement of
 Convertible
 Subordinated Notes due
 2002...................   2,467    1       9,018          --          --                9,019
Charge related to
 Preferred Stock
 discount...............      --   --          --      (1,839)         --               (1,839)
Cumulative translation
 adjustment.............      --   --          --          --       1,904   $  1,904     1,904
Net loss................      --   --          --     (62,465)         --    (62,465)  (62,465)
                                                                            --------
Comprehensive income....                                                     (60,561)
                          ------  ---    --------    --------     -------   ========  --------
Balance at December 31,
 1998...................  45,870    5     145,246     (45,924)         82               99,409
Issuance of Common
 Stock, net of issuance
 costs..................  10,068    1      38,274          --          --               38,275
Issuance of Common Stock
 in exchange for
 convertible notes......   5,171   --      36,095          --          --               36,095
Charge to Common
 stockholders resulting
 from the conversion of
 redeemable Preferred
 Stock to redeemable
 Common Stock...........      --   --     (10,190)         --          --              (10,190)
Charge to Common
 stockholders resulting
 from repricing of
 warrants...............      --   --      (2,000)         --          --               (2,000)
Charge to Common
 stockholders resulting
 from penalties due to
 certain Common
 stockholders...........      --   --      (6,331)         --          --               (6,331)
Issuance of Common Stock
 and Common Stock
 warrants in
 satisfaction of
 penalties due to
 certain Common
 stockholders...........     220   --       4,886          --          --                4,886
Reclassification of
 Mandatorily redeemable
 Common Stock and Common
 Stock warrants
 resulting from the
 cancellation of
 Redemption rights......   5,135    1      29,007          --          --               29,008
Issuance of Common Stock
 upon exercise of stock
 options................     725   --       3,016          --          --                3,016
Issuance of Common Stock
 under employee stock
 purchase plan..........     211   --         718          --          --                  718
Cumulative translation
 adjustment.............      --   --          --          --        (622)      (622)     (622)
Net loss................      --   --          --    (103,049)         --   (103,049) (103,049)
                                                                            --------
Comprehensive income....                                                    (103,671)
                          ------  ---    --------    --------     -------   ========  --------
Balance at December 31,
 1999...................  67,400    7     238,721    (148,973)       (540)              89,215
</TABLE>

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

                                       42
<PAGE>

                                  P-Com, Inc.
           Consolidated Statement of Stockholders' Equity (Continued)
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                Accumulated
                                                                   Other
                                                     Retained     Compre-   Compre-
                          Common Stock  Additional   Earnings     hensive   hensive
                          -------------  Paid-In   (Accumulated   Income     Income
                          Shares Amount  Capital     Deficit)     (Loss)     (Loss)    Total
                          ------ ------ ---------- ------------ ----------- --------  --------
<S>                       <C>    <C>    <C>        <C>          <C>         <C>       <C>
Balance at December 31,
 1999...................  67,400    7     238,721    (148,973)       (540)              89,215
Issuance of Common Stock
 for cash, net of
 issuance costs of
 $125...................  10,531    1      61,206          --          --               61,207
Issuance of warrants for
 Common Stock on
 conjunction with line
 of credit borrowings...      --   --       1,902          --          --                1,902
Conversion of notes
 payable to Common
 Stock..................     677   --       4,382          --          --                4,382
Issuance of Common Stock
 upon exercise of
 warrant................     158   --         600                                          600
Stock-based compensation
 expense from
 acceleration of option
 vesting................      --   --         372          --          --                  372
Issuance of Common Stock
 upon exercise of stock
 options................   1,473   --       8,098          --          --                8,098
Issuance of Common Stock
 under employee stock
 purchase plan..........     392   --       1,234          --          --                1,234
Cumulative translation
 adjustment.............      --   --          --          --      (1,814)    (1,814)   (1,814)
Net loss................      --   --          --     (69,949)         --    (69,949)  (69,949)
                                                                            --------
Comprehensive income....                                                    $(71,763)
                          ------  ---    --------   ---------     -------   ========  --------
Balance at December 31,
 2000...................  80,631  $ 8    $316,515   $(218,922)    $(2,354)            $ 95,247
                          ======  ===    ========   =========     =======             ========
</TABLE>



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

                                       43
<PAGE>

                                  P-Com, Inc.
                      Consolidated Statement of Cash Flows
                                 (in thousands)

<TABLE>
<CAPTION>
                                                    2000      1999       1998
                                                  --------  ---------  --------
<S>                                               <C>       <C>        <C>
Cash flows from operating activities:
 Net loss.......................................  $(69,949) $(103,049) $(62,465)
 Adjustments to reconcile net loss to net cash
  used in operating activities, net of effect of
  acquisition:
 Depreciation...................................    10,948     11,783    11,544
 Amortization of goodwill and other intangible
  assets........................................     4,598      7,798     6,827
 Write-off of goodwill..........................    15,000         --        --
 Loss on disposal of property and equipment.....     6,206      2,157        --
 Compensation expense related to stock
  options.......................................       372         --        --
 Change in minority interest....................        --         --      (604)
 Deferred income taxes..........................     9,858       (180)   (7,981)
 Acquired in-process research and development
  expenses......................................        --         --    15,442
 Inventory and other restructuring charges......    21,679     15,100        --
 Non cash effect of retirement of notes.........    (1,890)   (13,239)   (5,333)
 Loss on sale of subsidiary.....................       855         --        --
 Loss on disposal of discontinued operations....     4,000     26,901        --
 Cumulative effect of change in method of
  accounting....................................     1,534         --        --
 Amortization of stock warrants.................     1,745         --        --
 Accounts receivable charge.....................        --     21,400        --
 Writedown of long term investment..............     1,320         --        --
 Changes in assets and liabilities:
  Accounts receivable...........................   (23,034)   (18,501)   23,905
  Inventory.....................................   (36,940)       563   (15,016)
  Prepaid expenses and notes receivable.........       473      3,800    (9,109)
  Other assets..................................     1,559        295     2,684
  Accounts payable..............................     6,409          1    (1,390)
  Accrued employee benefits.....................       587        362      (585)
  Other accrued liabilities.....................     7,695     17,584     2,709
  Deferred contract obligation..................        --         --     8,000
  Income taxes payable..........................        --     (2,189)   (6,409)
                                                  --------  ---------  --------
   Net cash used in operating activities........   (36,975)   (29,414)  (37,781)
                                                  --------  ---------  --------

Cash flows from investing activities:
 Acquisition of property and equipment..........    (8,037)    (6,054)  (29,187)
 Cash paid on disposal of discontinued
  operations....................................    (2,000)        --        --
 Proceeds from sale of property and equipment...       700      1,373        --
 Proceeds from sale of subsidiary...............     6,860         --        --
 Acquisitions, net of cash received.............        --         --   (61,398)
                                                  --------  ---------  --------
   Net cash used in investing activities........    (2,477)    (4,681)  (90,585)
                                                  --------  ---------  --------

Cash flows from financing activities:
 Proceeds from (payment of) note payable........   (12,487)   (21,525)   46,067
 Proceeds from issuance of Common Stock, net of
  expenses......................................    61,206     38,274        --
 Proceeds from exercise of stock options and
  warrants......................................     9,932      3,734     4,493
 Borrowings (Repayments) of long-term
  obligations and capital leases................    (1,223)    (3,378)    1,882
 Proceeds from issuance of Preferred Stock and
  warrants, net.................................        --         --    13,559
 Proceeds from sale-leaseback transaction.......        --         --     1,557
 Issuance of note receivable to officers........      (250)        --        --
                                                  --------  ---------  --------
   Net cash provided by financing activities....    57,178     17,105    67,558
                                                  --------  ---------  --------
Effect of exchange rate changes on cash.........    (1,814)      (622)    1,904
                                                  --------  ---------  --------
Net increase (decrease) in cash and cash
 equivalents....................................    15,912    (17,612)  (58,904)
                                                  --------  ---------  --------
Cash and cash equivalents at beginning of year..    11,629     29,241    88,145
                                                  --------  ---------  --------
Cash and cash equivalents at end of year........  $ 27,541  $  11,629  $ 29,241
                                                  ========  =========  ========
</TABLE>

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

                                       44
<PAGE>

                                  P-Com, Inc.

                   Notes to Consolidated Financial Statements

1.The Company and Summary of Significant Accounting Policies

The Company

P-Com, Inc. (the "Company") was incorporated in Delaware on August 23, 1991 to
engage in the design, manufacture and marketing of millimeter network access
wave radio systems for use in the worldwide wireless telecommunications market.
The Company also provides network services including system and program
planning and management, path design, and installation for the wireless
communication market through its service sales segment.

Through December 31, 2000, the Company has incurred substantial losses and
negative cash flows from operations and, as of December 31, 2000, the Company
had an accumulated deficit of $218.9 million. For the year ended December 31,
2000, the Company recorded losses from operations of $69.9 million and cash
outflows from operating activities of $37.0 million.

During 2000, the Company successfully consummated two separate sales of Common
Stock in private placement offerings. The Company sold a total of 7,531,000
shares of Common Stock at a 15% discount to the trailing 60-day average closing
market price for net proceeds of $43.0 million in January 2000. In August 2000,
the Company sold 3,000,000 shares of Common Stock in a private placement at a
7.2% discount to the trailing 60-day average closing market price for net
proceeds of $18.2 million.

The Company operates in a highly competitive market characterized by rapidly
changing technology, together with competitors and distributors that have
significantly greater financial resources than the Company. The Company intends
to incur significant expenses to develop and promote new products as well as to
support existing product sales. Failure to generate sufficient revenues from
new and existing products, raise additional capital or reduce discretionary
expenditures would have a material adverse effect on the Company's ability to
continue as a going concern and achieve its intended business objectives.

Summary of Significant Accounting Policies

Management's use of estimates and assumptions

The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates, and such differences could be material and affect the results
of operations reported in future periods.

Principles of consolidation

The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.

Foreign currency translation

The functional currencies of the Company's foreign subsidiaries are the local
currencies. Assets and liabilities of these subsidiaries are translated into
U.S. dollars at exchange rates in effect at the balance sheet date. Income and
expense items are translated at average exchange rates for the period.
Accumulated net translation adjustments are recorded as a component of
comprehensive income (loss) in stockholders' equity. Foreign exchange
transaction gains and losses are included in the results of operations in the
periods incurred, and were not material in all periods presented.

                                       45
<PAGE>

                                  P-Com, Inc.

            Notes to Consolidated Financial Statements -- Continued


Fair value of financial instruments

The Company measures its financial assets and liabilities in accordance with
accounting principles generally accepted in the United States of America. The
estimated fair value of the Company's Convertible Subordinated Notes included
in long-term debt was approximately 70% of par or $20.4 million at December 31,
2000, compared to 74% of par or $21.7 million at December 31, 1999. The
estimated fair value of cash, accounts receivable and payable, and accrued
liabilities at December 31, 2000 and 1999 approximated cost due to the short
maturity of these assets and liabilities.

Cash and cash equivalents

The Company considers all highly liquid debt instruments with a maturity when
acquired of three months or less to be cash equivalents.

Revenue recognition

Revenue from product sales is generally recognized upon transfer of title and
risk of loss, which is generally upon shipment of the product provided
persuasive evidence of an arrangement exists, the price is fixed or
determinable, no significant obligations remain and collection is probable.
Provisions for estimated warranty repairs, returns and other allowances are
recorded at the time revenue is recognized. Revenue from service sales is
recognized ratably over the contractual period or as the service is performed.

Inventory

Inventory is stated at the lower of cost or market, based on standard costs
that are updated at least annually. Products and their associated costs are
released from inventory based on first-in, first-out basis.

Property and equipment

Property and equipment are stated at cost and include tooling and test
equipment, computer equipment, furniture, land and buildings, and construction-
in-progress. Depreciation is computed using the straight-line method based upon
the useful lives of the assets ranging from three to seven years. Leasehold
improvements are amortized using the straight-line method based upon the
shorter of the estimated useful lives or the lease term of the respective
assets.

Research and development and software development costs

Research and development costs are expensed as incurred. The Company's software
products are integrated into its hardware products. Software development costs
incurred prior to the establishment of technological feasibility are expensed
as incurred. Software development costs incurred subsequent to the
establishment of technological feasibility and before general release to
customers are capitalized, if material. To date, all software development costs
incurred subsequent to the establishment of technological feasibility have been
immaterial.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the
net assets of acquired companies accounted for as purchase business
combinations. Goodwill is amortized on a straight-line basis over the period of
expected benefit ranging from 5 to 20 years.

                                       46
<PAGE>

                                  P-Com, Inc.

            Notes to Consolidated Financial Statements -- Continued


Impairment of long-lived assets

In the event that facts and circumstances indicate that the cost of assets may
be impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows associated
with the asset would be compared to the asset's carrying amount to determine if
a write-down is required.

Comprehensive income (loss)

The Company has adopted SFAS 130, "Reporting Comprehensive Income." Under SFAS
130, the Company is required to display comprehensive income and its components
as part of the Company's full set of financial statements. The measurement and
presentation of net income did not change. Comprehensive income comprises net
income and other comprehensive income. Other comprehensive income includes
certain changes in equity of the Company that are excluded from net income.
Specifically, SFAS 130 requires unrealized gains and losses on the Company's
foreign currency translation, which were reported separately in stockholders'
equity, to be included in accumulated other comprehensive income. Comprehensive
income (loss) in 2000, 1999 and 1998 has been reflected in the Consolidated
Statement of Stockholders' Equity.

Accounting for stock-based compensation

The Company accounts for stock-based employee compensation arrangements using
the intrinsic value method as prescribed in Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25") and Financial
Accounting Standards Board Interpretation No. 44 "Accounting for Certain
Transactions Involving Stock Compensation" ("FIN 44"). Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
fair value of the Company's stock at the date of grant over the stock option
exercise price. The Company accounts for stock issued to non-employees in
accordance with the provisions of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123") and
Emerging Issues Task Force Consensus No. 96-18, "Accounting for Equity
Instruments that are offered to other than employees for acquiring or in
conjunction with selling goods or services" ("EITF 96-18"). Under SFAS No. 123
and EITF 96-18, stock option awards issued to non-employees are accounted for
at their fair value, determined using the Black-Scholes option pricing method.
The fair value of each non-employee stock option or award is remeasured at each
period end until a commitment date is reached, which is generally the vesting
date.

Concentration of credit risk

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash equivalents, trade
accounts receivable, and derivative financial instruments used in hedging
activities. The Company places its cash equivalents in a variety of financial
instruments such as market rate accounts and U.S. Government agency debt
securities. The Company, by policy, limits the amount of credit exposure to any
one financial institution or commercial issuer.

To date, the Company has sold most of its products in international markets.
Sales to several customers have been denominated in British pounds and, at
December 31, 2000 and 1999, amounts due from these customers represented 22%
and 28%, respectively, of accounts receivable. Any gains and/or losses incurred
on the settlement of these receivables are included in the financial statements
as they occur.

The Company extends credit terms to international customers of up to 120 days,
which is consistent with local business practices. The Company performs on-
going credit evaluations of its customers' financial condition to determine the
customer's credit worthiness. Sales are then generally made either on 30 to 120
day payment terms, COD or letters of credit.

                                       47
<PAGE>

                                  P-Com, Inc.

            Notes to Consolidated Financial Statements -- Continued


At December 31, 2000 and 1999, approximately 66% and 43%, respectively, of
trade accounts receivable represents amounts due from three and four customers,
respectively.

The following table summarizes the percentage of total company sales to
Company's significant customers with sales of 10% or more:
<TABLE>
<CAPTION>
                                                                    Year Ended
                                                                   December 31,
                                                                  ----------------
                                                                  2000  1999  1998
                                                                  ----  ----  ----
       <S>                                                        <C>   <C>   <C>
       Company A.................................................  --    20%   25%
       Company B.................................................  28%   11%   --
       Company C.................................................  --    13%   --
       Company D.................................................  12%   --    --
</TABLE>

Reclassifications

Certain amounts reported in prior years' consolidated financial statements have
been reclassified to conform with the current year presentation.

2.Change in Method of Accounting

Effective January 1, 2000, the Company has revised its method of accounting
associated with revenue recognition for sales of equipment as a result of the
adoption of Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in
Financial Statements." The Company previously recognized revenue upon shipment
of product, provided no significant obligations remained and collection was
probable. This method was changed to recognition upon transfer of title and
risk of loss, which is generally upon shipment of the product provided no
significant obligations remained and collection is probable. In accordance with
SAB No. 101, the Company has recorded a non-cash charge of approximately $1.5
million ($1.5 million, after tax) on January 1, 2000 to account for the
cumulative effect of this change in method of accounting.

The cumulative effect of this change in method of accounting primarily resulted
from one contract where revenue had historically been recognized upon shipment,
however, under the terms of the underlying contract, title did not transfer
until subsequent receipt of payment. Under the Company's revised revenue
recognition method, revenue relating to such sales is deferred until title
transfers. Primarily as a result of this, approximately $12.0 million in
revenue and $10.5 million in related costs originally recognized in 1999 were
deferred and re-recognized in the first quarter of 2000.

The following table provides selected financial data for 1999 as reported and
on a Pro Forma basis assuming SAB No. 101 had been in effect for that year (in
thousands, except per share data):

<TABLE>
<CAPTION>
                                                                 1999
                                                         ---------------------
                                                         As Reported Pro Forma
                                                         ----------- ---------
   <S>                                                   <C>         <C>
   Loss from Continuing Operations Before Extraordinary
    Items and Cumulative Effect of Change in Method of
    Accounting..........................................  $ (75,484) $ (75,638)
   Net Loss.............................................   (103,049)  (103,203)
   Net Loss Applicable to Common Stockholders...........   (121,570)  (121,724)
   Basic and Diluted Net Loss Applicable to Common
    Stockholders........................................  $   (2.13) $   (2.14)
</TABLE>

Pro Forma information for 1998 has not been presented as the underlying records
necessary to prepare such information are no longer readily available.

                                       48
<PAGE>

                                  P-Com, Inc.

            Notes to Consolidated Financial Statements -- Continued


3.Balance Sheet Components

Inventory consists of the following (in thousands of dollars):

<TABLE>
<CAPTION>
                                                               December 31,
                                                             ------------------
                                                               2000      1999
                                                             --------  --------
   <S>                                                       <C>       <C>
   Raw materials............................................ $ 36,366  $ 22,484
   Work-in-process..........................................   20,757    16,019
   Finished goods...........................................   25,155    21,837
   Inventory at customer sites..............................    6,550     2,689
                                                             --------  --------
                                                               88,828    63,029
   Less: Inventory reserves.................................  (25,990)  (16,180)
                                                             --------  --------
                                                             $ 62,838  $ 46,849
                                                             ========  ========
</TABLE>

Property and equipment consists of the following (in thousands of dollars):

<TABLE>
<CAPTION>
                                                         December 31,
                                                -------------------------------
                                                Useful Life    2000      1999
                                                ------------ --------  --------
   <S>                                          <C>          <C>       <C>
   Tooling and test equipment.................. 5 to 7 years $ 41,839  $ 48,936
   Computer equipment.......................... 3 to 5 years   11,809    10,716
   Furniture and fixtures...................... 3 to 5 years    3,822     5,860
   Land and buildings.......................... 5 to 7 years    2,923     2,837
   Construction-in-process.....................                    --     1,538
                                                             --------  --------
                                                               60,393    69,887
   Less: Accumulated deprecation and amortization...........  (37,227)  (33,261)
                                                             --------  --------
                                                             $ 23,166  $ 36,626
                                                             ========  ========
</TABLE>

The above amounts include items under capital leases and related accumulated
amortization of $3,634 and $974 at December 31, 2000 and $1,557 and $441 at
December 31, 1999, respectively.

Goodwill and other assets consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                               December 31,
                                                             ------------------
                                                               2000      1999
                                                             --------  --------
   <S>                                                       <C>       <C>
   Goodwill:
    CSM..................................................... $ 22,295  $ 22,295
    Cylink..................................................   34,261    34,261
    Cemetel S.r.l...........................................       --     4,360
                                                             --------  --------
                                                               56,556    60,916
   Less: Accumulated amortization...........................  (31,616)  (12,474)
                                                             --------  --------
     Net goodwill...........................................   24,940    48,442
   Other assets.............................................      608     2,163
                                                             --------  --------
                                                             $ 25,548  $ 50,605
                                                             ========  ========
</TABLE>

In 2000, management reviewed the carrying value of the goodwill related to
Cylink. Based upon its assessment of future cash flows estimated to be provided
by Cylink, a $15 million impairment charge was recorded.

                                       49
<PAGE>

                                  P-Com, Inc.

            Notes to Consolidated Financial Statements -- Continued


Other accrued liabilities consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                 December 31,
                                                                ---------------
                                                                 2000    1999
                                                                ------- -------
   <S>                                                          <C>     <C>
   Deferred revenue............................................ $11,920 $ 4,735
   Deferred contract obligation (a)............................   8,000   8,000
   Purchase commitment.........................................   6,687   4,047
   Accrued warranty............................................   6,323   3,060
   Other.......................................................   5,106   4,153
   Income taxes payable........................................   1,566   2,098
   Lease obligations...........................................   1,428   1,364
   Interest payable............................................     208   1,490
                                                                ------- -------
                                                                $41,238 $28,947
                                                                ======= =======
</TABLE>

(a) Under a joint license and development contract, the Company determined that
    a related Original Equipment Manufacturer ("OEM") agreement provided for
    subsequent payments of $8 million specifically earmarked for marketing the
    Company's products manufactured under this joint license and development
    contract. As of December 31, 2000 and 1999, payment obligations of $8
    million under this contract remained outstanding.

Other long-term liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
                                                                     December
                                                                        31,
                                                                    -----------
                                                                    2000  1999
                                                                    ---- ------
   <S>                                                              <C>  <C>
   Capital lease obligations....................................... $703 $1,777
   Other...........................................................  288  1,765
                                                                    ---- ------
                                                                    $991 $3,542
                                                                    ==== ======
</TABLE>

4.Borrowing Arrangements

The Company entered into a revolving line-of-credit agreement on May 15, 1998,
as amended, that provided for borrowings of up to $50.0 million. The maximum
revolving commitment, as amended, had been reduced to $30.0 million until
maturity on January 15, 2000. At December 31, 1999, the Company had been
advanced approximately $23.6 million and had used the remaining $3.4 million to
secure letters of credit under such line. In January 2000, the balance was paid
in full and the line-of-credit agreement was terminated. Borrowings under the
line were secured by the assets of the Company and bore interest at either a
base interest rate or a variable interest rate.

In January 2000 the Company entered into a line-of-credit agreement for $12
million. The line matured and was repaid in full on January 31, 2001 (see Note
15). Borrowings under the line bore interest at the greater of prime rate plus
2% (8% per annum at December 31, 2000) and were secured by cash deposits,
receivables, inventory, equipment, investment property and intangibles of the
Company in the United States. In connection with the loan agreement, the
Company issued the lender warrants to purchase 200,000 shares of common stock
at $5.71 per share. The warrants are fully exercisable, are subject to anti-
dilution clauses and expire on January 31, 2005. The Company recorded a
discount to amounts recorded under the loan agreement of approximately $2
million, which represented the estimated fair value of the warrants. Such
discount was amortized to interest expense over the term of the loan resulting
in $1,745,000 of interest expense in 2000.

On November 5, 1997, the Company issued $100 million in 4 1/4% Convertible
Subordinated Notes (the "Notes") due November 1, 2002. The Notes are
convertible at the option of the holder into shares of the Company's Common
Stock at an initial conversion price of $27.46 per share and at $24.73 per
share subsequent to October 2000. The Notes are redeemable by the Company,
beginning on November 5, 2000,

                                       50
<PAGE>

                                  P-Com, Inc.

            Notes to Consolidated Financial Statements -- Continued

upon 30 days notice, subject to a declining redemption price. Interest on the
Notes is paid semi-annually on May 1 and November 1 of each year. In 2000, 1999
and 1998, the Company issued Common Stock in exchange for a portion of these
Notes and recorded extraordinary gains as noted below.

A summary of Convertible Subordinated Note activity is as follows:

<TABLE>
<CAPTION>
                                                          Shares     Gain on
                                               Amount     Issued    Conversion
                                             ---------- ----------- ----------
                                             (millions) (thousands) (millions)
<S>                                          <C>        <C>         <C>
Issuance of $100 million in Convertible
 Subordinated Notes in November 1997........    $100          --       $ --
                                                ----       -----       ----
Balance at December 31, 1997................     100          --         --
Conversion of Notes in December 1998........     (14)      2,467          5
                                                ----       -----       ----
Balance at December 31, 1998................      86       2,467          5
Conversion of Notes in January and February
 1999.......................................     (26)      2,812          7
Conversion of Notes in December 1999........     (24)      2,359          6
                                                ----       -----       ----
Balance at December 31, 1999................      36       7,638         18
Conversion of Notes in January 2000.........      (7)        677          2
                                                ----       -----       ----
Balance at December 31, 2000................    $ 29       8,315       $ 20
                                                ====       =====       ====
</TABLE>

5.Capital Stock

The authorized capital stock of the Company consists of 145 million shares of
Common Stock, $0.0001 par value (the "Common Stock"), and 2 million shares of
preferred stock, $0.0001 par value (the "Preferred Stock"), including 500,000
shares of which have been designated Series A Junior Participating Preferred
Stock (the "Series A") pursuant to the Stockholder Rights Agreement (see
discussion below).

Preferred Stock

The Board of Directors has the authority to issue shares of Preferred Stock in
one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without further vote or action by the holders of Common Stock.

Mandatorily Redeemable Convertible Preferred Stock and warrants

In December 1998, the Company completed a private placement of 15,000 shares of
the Series B Convertible Participating Preferred Stock (the "Series B") for
$1,000 per share and issued mandatorily redeemable warrants to purchase up to
1,242,000 shares of Common Stock at $3.47 per share. A portion of the proceeds
was allocated to the warrants based on their fair value and accounted for as a
discount to the Series B. The remainder of the proceeds was allocated to the
Series B. Because the Series B was immediately convertible into shares of
Common Stock, the discount was amortized as a reduction of income available to
holders of Common Stock in the amount of $1.8 million upon the issuance of the
Series B. The Company did not record a beneficial conversion feature related to
Series B because the conversion price, using the conversion terms that are most
beneficial to the holder, was greater than the market price of the Common Stock
on the date of issuance.

Pursuant to the registration rights agreement the Company entered into in
connection with the issuance of the Series B, as amended by the exchange
agreements, the Company was required to register the Series B for resale on or
before July 19, 1999. See additional discussion below regarding premiums and
penalties related to this requirement.

                                       51
<PAGE>

                                  P-Com, Inc.

            Notes to Consolidated Financial Statements -- Continued


The mandatorily redeemable warrants issued in connection with Series B were
valued at $1,839,000 using the Black-Scholes option-pricing model with the
following assumptions used: expected volatility of 65%; a weighted-average
risk-free interest rate of 4.5% and a weighted-average expected life of 5
years. The initial exercise price for the Common Stock underlying the warrants
was $3.47.

In June 1999, in connection with the conversion of the Series B to Common
Stock, the mandatorily redeemable warrants were exchanged for 1,242,000 non-
mandatorily redeemable warrants having an exercise price of $3.00. As a result
of the exchange and repricing of warrants, the Company recorded a $2.0 million
charge to loss attributable to Common Stockholders representing the difference
in fair value of the warrants before and after the exchange and repricing. The
warrants are immediately exercisable until the earlier of: (1) December 22,
2002, or (2) the date on which the closing of a consolidation, merger of other
business combination with or into another entity pursuant to which the Company
does not survive. In the event the Company merges or consolidates with any
other company, the warrant holders are entitled to similar choices as to the
consideration they will receive in such merger or consolidation as are provided
to the holders of the Series B. In addition, the number of shares issuable upon
exercise of the warrants is subject to an anti-dilution adjustment if the
Company sells Common Stock or securities convertible into or exercisable for
Common Stock (excluding certain issuances such as Common Stock issued under
employee, director or consultant benefit plans) at a price per share less than
$3.47 (subject to adjustment). These warrants were subsequently exchanged for
Common Warrants as discussed below.

Common Stock

In January 2000, the Company sold approximately 7,531,000 shares of common
stock at a per share price of $5.71, for an aggregate purchase price of $43.0
million. The unregistered shares were priced at a 15% discount to the average
closing sale prices of the Company's common stock for the 60 consecutive
trading days prior to the signing of the agreement. The shares were
subsequently registered for resale in October 2000. As a result of the late
registration of these shares, the Company was required to issue the holders
warrants to purchase 1,358,000 shares of Common Stock at an exercise price of
$3.80 per share.

In August 2000, the Company sold 3,000,000 shares of common stock at a per
share price of $6.11, for an aggregate purchase price of $18.2 million. The
unregistered shares were priced at a 7.2% discount to the average closing sale
price of the Company's Common Stock for the 60 consecutive trading days prior
to the signing of the agreement. The shares have subsequently been registered
for resale.

In June 1999, the Company received net proceeds of $38.3 million from the sale
10,068,000 shares of Common Stock sold at a 7.5% discount from the market
price.

In June 1999, the Company exchanged all 15,000 shares of the Series B for
5,135,000 shares of mandatorily redeemable Common Stock. As a result of this
exchange, the Company recorded a $10.2 million charge to loss attributable to
Common Stockholders representing the difference between the book value of the
Series B and the market value of the mandatorily redeemable common stock net of
incurred premiums and penalties relating to the non-registration of the Series
B. Upon the occurrence of certain events outside the Company's control, each
share of Common Stock was redeemable at the holder's option at the greater of
$4.00 per share or the highest closing price during the period beginning on the
date of the holder's notice to redeem to the date on which the Company redeems
the stock. In connection with the exchange agreements, each holder of the
Series B agreed to waive all premiums which had been accrued and penalties
which had been incurred in connection with the Series B as of the date of
exchange. As discussed above, the Company also exchanged outstanding
mandatorily redeemable warrants to purchase 1,243,000 shares of Common Stock,
which were held by the

                                       52
<PAGE>

                                  P-Com, Inc.

            Notes to Consolidated Financial Statements -- Continued

holders of the Series B for new warrants to purchase 1,243,000 shares of Common
Stock with an exercise price of $3.00 per share rather than $3.47 per share.

In November 1999, the Company entered into agreements with the holders of the
mandatorily redeemable Common Stock to eliminate their redemption rights and
their past and future late registration premiums and penalties in exchange for
212,000 shares of Common Stock issued on November 16, 1999 at $4.72 per share,
warrants to purchase 443,000 shares of Common Stock issued on January 20, 2000
at an exercise price of $8.50 per share, and a $400,000 promissory note
convertible (with interest) into Common Stock at a conversion price of $4.72
per share. As a result of this transaction, the Company recorded a $6.3 million
charge to loss attributable to Common Stockholders representing the difference
between the value of the redemption rights and the market value of the common
stock issued, the fair value of the warrants issued, and the convertible
promissory note net of accrued interest eliminated as part of the transaction.
This note was converted into approximately 95,000 shares of common stock in the
fourth quarter of 2000.

At December 31, 2000, the Company had 10,881 shares of Common Stock reserved
for issuance of warrants and options.

Common Stock warrants

A summary of issued and outstanding warrants to purchase Common Stock is as
follows:

<TABLE>
<CAPTION>
                                                                        Exercise
                                                                Number   Price
                                                                ------  --------
                                                                (in thousands)
     <S>                                                        <C>     <C>
     June 1999 -- issuance..................................... 1,242    $3.00
     August 1999 -- issuance...................................   180    $5.00
     November 1999 -- issuance.................................   443    $8.50
     January 2000 -- issuance..................................   200    $5.71
     October 2000 -- issuance.................................. 1,358    $3.80
     October 2000 -- exercise..................................  (158)   $3.80
                                                                -----
       Balance at December 31, 2000............................ 3,265
                                                                =====
</TABLE>

Stockholder Rights Agreement

On September 26, 1997, the Board of Directors of the Company adopted a
Stockholder Rights Agreement (the "Agreement"). Pursuant to the Agreement,
Rights (the "Rights") were distributed as a dividend on each outstanding share
of its Common Stock held by stockholders of record as of the close of business
on November 3, 1997. Each Right will entitle stockholders to buy Series A
Preferred at an exercise price of $125.00 upon certain events. The Rights will
expire ten years from the date of the Agreement.

In general, the Rights will be exercisable only if a person or group acquires
15% or more of the Company's Common Stock or announces a tender offer, the
consummation of which would result in ownership by a person or group of 15% or
more of the Company's Common Stock. If, after the Rights become exercisable,
the Company is acquired in a merger or other business combination transaction,
or sells 50% or more of its assets or earning power, each unexercised Right
will entitle its holder to purchase, at the Right's then-current exercise
price, a number of the acquiring Company's common shares having a market value
at the time of twice the Right's exercise price. At any time within ten days
after the public announcement that a person or group has acquired beneficial
ownership of 15% or more of the Company's Common Stock, the Board, in its sole
discretion, may redeem the Rights for $0.0001 per Right. In the case of the
State of Wisconsin Investment Board and Firsthand Capital Management, the
threshold figure is 20% rather than 15%.

                                       53
<PAGE>

                                  P-Com, Inc.

            Notes to Consolidated Financial Statements -- Continued


6.Employee Benefit Plans

Stock Option Plans. On January 11, 1995, the Company's Board of Directors
adopted the 1995 Stock Option/Stock Issuance Plan (the "1995 Plan") as a
successor to its 1992 Stock Option Plan (the "1992 Plan"). As of January 11,
1995, no further option grants or stock issuances were made under the 1992
Plan, and all option grants and stock issuances made during the remainder of
1995 were made under the 1995 Plan. All outstanding options under the 1992 Plan
were incorporated into the 1995 Plan. The 1995 Plan authorizes the issuance of
up to 14,934,459 shares of Common Stock as of December 31, 2000.

Options granted under the 1992 Plan are generally exercisable for a period not
to exceed ten years, and generally must be issued with exercise prices not less
than 100% and 85%, for incentive and non-qualified stock options, respectively,
of the estimated fair market value of the Common Stock on the date of grant as
determined by the Board of Directors. Options granted under the 1992 Plan are
exercisable immediately upon grant and generally vest 25% on the first
anniversary from the date of grant, and ratably each month over the remaining
thirty-six month period. Unvested shares purchased through the exercise of
stock options are subject to repurchase by the Company.

The 1995 Plan contains three equity incentive programs: a Discretionary Option
Grant Program, a Stock Issuance Program for officers and employees of the
Company and independent consultants and advisors to the Company and an
Automatic Option Grant Program for non-employee members of the Company's Board
of Directors.

Options under the Discretionary Option Grant Program may be granted at not less
than 100% of the fair market value per share of common stock on the grant date
with exercise periods not to exceed ten years. The plan administrator is
authorized to issue tandem stock appreciation rights and limited stock
appreciation rights in connection with the option grants.

The Stock Issuance Program provides for the sale of common stock at a price not
less than 100% of fair market value. Shares may also be issued solely for
services. The administrator has discretion as to vesting provisions, including
accelerations, and may institute a loan program to assist participants with
financing stock purchases. The program also provides certain alternatives to
satisfy tax liabilities incurred by participants in connection with the
program.

Under the Automatic Option Grant Program, as amended, participants will
automatically receive an option to purchase 40,000 shares of common stock upon
initially joining the Board of Directors and will receive an additional
automatic grant each year at each annual stockholders' meeting for 4,000
shares. Each option will have an exercise price per share equal to 100% of the
fair market value of the common stock on the grant date. The shares subject to
the initial share option vest, and for options granted before November 2000 the
shares subject to the annual 4,000 share option will vest, in eight successive
equal quarterly installments upon the optionee's completion of each successive
3-month period of Board service over the 24-month period measured from the
grant date. Effective November 2000, the annual 4,000 share options will vest
fully on the grant date.

                                       54
<PAGE>

                                  P-Com, Inc.

            Notes to Consolidated Financial Statements -- Continued


The following table summarizes stock option activity under the Company's 1992
and 1995 Plans (in thousands, except per share amounts):
<TABLE>
<CAPTION>
                                        2000          1999          1998
                                    ------------- ------------- --------------
                                    Shares  Price Shares  Price Shares  Price
                                    ------  ----- ------  ----- ------  ------
<S>                                 <C>     <C>   <C>     <C>   <C>     <C>
Outstanding at beginning of year...  6,635  $6.36  7,862  $6.77  6,006  $12.65
 Granted...........................  4,439   6.71  1,453   4.52  6,481    6.20
 Exercised......................... (1,473)  5.50   (725)  4.16   (499)   5.32
 Canceled.......................... (1,985)  6.80 (1,955)  6.73 (4,126)  14.59
                                    ------        ------        ------
Outstanding at end of year.........  7,616   6.62  6,635   6.36  7,862    6.77
                                    ======        ======        ======
Options exercisable at year-end....  2,611   7.49  3,909   7.03  2,483    8.57
                                    ======        ======        ======
Weighted-average fair value of
 options granted during the year...         $5.32         $4.52         $ 2.24
</TABLE>

The following table summarizes information about stock options outstanding and
exercisable at December 31, 2000 (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                  Options Exercisable
                            Options Outstanding                   -------------------------
                      ----------------------------------------
                                   Weighted-
                                    Average        Weighted                    Weighted-
       Range of                    Remaining         Life                       Average
       Exercise                    Life (in        Exercise                    Exercise
        Prices        Shares        Years)          Price         Shares         Price
       --------       ------       ---------       --------       ------       ---------
     <S>              <C>          <C>             <C>            <C>          <C>
     $ 0.10- 2.88       491           8.5           $ 1.80          115         $ 1.04
       3.00- 3.00       827           7.7             3.00          444           3.00
       3.09- 4.75     1,054           8.7             3.95          328           4.24
       5.00- 5.81     2,002           8.5             5.66          515           5.78
       6.31- 7.25     1,715           8.8             6.83          302           6.95
       8.25-10.25       611           6.2             9.37          509           9.43
      12.38-13.75       522           8.7            13.25           79          13.20
      17.25-23.22       394           6.7            18.21          319          18.20
                      -----                                       -----
                      7,616           8.2           $ 6.62        2,611         $ 7.49
                      =====                                       =====
</TABLE>

Employee Stock Purchase Plan. On January 11, 1995, the Company's Board of
Directors adopted the Employee Stock Purchase Plan (the "Purchase Plan"), which
was approved by stockholders in February 1995. The Purchase Plan permits
eligible employees to purchase Common Stock at a discount through payroll
deductions during successive offering periods with a maximum duration of 24
months. Each offering period shall be divided into consecutive semi-annual
purchase periods. The price at which the Common Stock is purchased under the
Purchase Plan is equal to 85% of the fair market value of the Common Stock on
the first day of the offering period or the last day of the purchase period,
whichever is lower. A total of 1,150,000 shares of Common Stock have been
reserved for issuance under the Purchase Plan, as amended at the May 1997 and
1998 Annual Meetings of Stockholders. Awards and terms are established by the
Company's Board of Directors. The Purchase Plan may be canceled at any time at
the discretion of the Company's Board of Directors prior to its expiration in
December 2004. Under the Plan, the Company sold approximately 392,000, 211,000,
and 240,000 shares in 2000, 1999, and 1998, respectively.

Because the Company has adopted the disclosure-only provision of SFAS No. 123,
no compensation expense has been recognized for its stock option plan or for
its stock purchase plan. Had compensation costs for the Company's two stock-
based compensation plans been determined based on the fair value at the grant
dates for

                                       55
<PAGE>

                                  P-Com, Inc.

            Notes to Consolidated Financial Statements -- Continued

awards under those plans, consistent with the method of SFAS 123, the Company's
net loss and net loss per share would have been reduced to the pro forma
amounts indicated as follows:

<TABLE>
<CAPTION>
                                                 2000      1999        1998
                                               --------  ---------  ----------
                                                                    (restated)
   <S>                                         <C>       <C>        <C>
   Net loss applicable to common stockholders
     As reported.............................. $(69,949) $(121,570)  $(64,304)
     Pro forma................................ $(78,219) $(127,685)  $(66,743)
   Net loss per share
     As reported -- Basic and Diluted......... $  (0.90) $   (2.13)  $  (1.49)
     Pro forma -- Basic and Diluted........... $  (1.00) $   (2.24)  $  (1.54)
</TABLE>

The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes option-pricing model with the following assumptions used for
grants in 2000, 1999, and 1998, respectively: expected volatility of 95%, 96%,
and 72%; weighted-average risk-free interest rates of 6.2%, 5.4%, and 5.1%,
weighted-average expected lives of 3.71, 3.28, and 2.76, respectively, and a
zero dividend yield.

The fair value of the employees' stock purchase rights was estimated using the
Black-Scholes model with the following assumptions for 2000, 1999, and 1998,
respectively: expected volatility of 95%, 96%, and 72% weighted-average risk-
free interest rates of 6.2%, 4.6%, and 5.3%, weighted-average expected lives of
0.5, 0.5, and 0.5 years and a dividend yield of zero. The weighted-average fair
value of those purchase rights granted in 2000, 1999, and 1998 was $6.03,
$5.74, and $1.99, respectively.

401(k) Plan

The Company sponsors a 401(k) Plan (the "401(k) Plan") which provides tax-
deferred salary deductions for eligible employees. Employees may contribute up
to 15% of their annual compensation to the 401(k) Plan, limited to a maximum
annual amount as set periodically by the Internal Revenue Service. The 401(k)
Plan permits, but does not require, the Company to make matching contributions.
To date, no matching contributions have been made.

7.Restructuring and Other Charges

In the second quarter of 2000, the Company determined that there was a need to
reevaluate its inventory levels and related accrued liabilities in light of
recent changes in product and customer mix. The evaluation was prompted by a
change in customer mix away from the UK and other European markets and toward
the U.S. market, and the resulting anticipated decrease in demand for certain
of its lower speed and lower frequency Tel-Link Point-to-Point product line,
and resulted in total charges of approximately $21.7 million during the second
quarter of 2000. These charges consisted of increases to inventory reserve of
approximately $17.4 million and accrued liabilities of approximately $4.3
million, both relating to the Company's product segment. In addition, the
Company performed a review of the carrying value and remaining life of long-
lived assets associated with the Company's product segment and recorded write-
downs of approximately $15.0 million of goodwill, and an approximately $9.9
million write-off of deferred tax assets.

The increase in inventory reserves and related purchases liabilities was
charged to product cost of sales in the second quarter of 2000. Of the $17
million charge for additional reserves, $15.4 million related to the Tel-Link
Point-to-Point product line. An additional reserve of approximately $1.0
million was added in the second quarter to adjust carrying value of certain
modules of the Point-to-Multipoint radio line.

                                       56
<PAGE>

                                  P-Com, Inc.

            Notes to Consolidated Financial Statements -- Continued


During 1999 and 1998, the Company's management approved restructuring plans,
which included initiatives to integrate the operations of acquired companies,
consolidate duplicate facilities, and reduce overhead. Total accrued
restructuring and other charges of approximately $36.5 million and
approximately $26.6 million were recorded in 1999 and 1998, respectively,
relating to these initiatives, all relating to the Company's product segment.
As of December 31, 1999, the Company had utilized all restructuring reserves
established to offset actual restructuring costs incurred by the Company.

8.Segment Reporting

For purposes of segment reporting, the Company aggregates operating segments
that have similar economic characteristics and meet the aggregation criteria
specified in SFAS No. 131. The Company has determined that there are two
reportable segments: Product Sales and Service Sales. The Product Sales segment
consists of organizations located primarily in the United States, the United
Kingdom, and Italy, which develop, manufacture, and/or market network access
systems for use in the worldwide wireless telecommunications market. The
Service Sales segment consists of organizations primarily located in the United
States, the United Kingdom, and Italy, which provide comprehensive network
services including system and program planning and management, path design, and
installation for the wireless communications market.

In August 1999, the Company announced its intent to divest its broadcast
equipment business, Technosystem, and concluded that a measurement date had
occurred. Accordingly, beginning in the third quarter of 1999, this business
was reported as a discontinued operation and the amounts presented for prior
periods have been reclassified for appropriate comparability. Technosystem was
divested in the first quarter of 2000. As such, the segment information shown
below does not include Technosystem's financial information. Capital
expenditures for long-lived assets are not reported to management by segment
and are excluded as presenting such information is not practical. The following
tables show the operating results and identifiable assets of the Company's
operating segments (in thousands):

<TABLE>
<CAPTION>
                                                     Product   Service  Total
     For the Year Ended December 31, 2000            --------  ------- --------
     <S>                                             <C>       <C>     <C>
     Sales.......................................... $183,606  $50,795 $234,401
     Income (loss) from operations..................  (46,701)   3,263  (43,438)
     Depreciation...................................   10,375      573   10,948
     Identifiable assets............................  194,351   21,868  216,219
     Interest expense, net..........................    4,629      121    4,750
</TABLE>

<TABLE>
<CAPTION>
                                                     Product   Service  Total
     For the Year Ended December 31, 1999            --------  ------- --------
     <S>                                             <C>       <C>     <C>
     Sales.......................................... $116,409  $40,470 $156,879
     Income (loss) from operations..................  (67,856)   4,491  (63,365)
     Depreciation...................................   11,010      773   11,783
     Identifiable assets............................  196,712   22,034  218,746
     Interest expense, net..........................    8,086       89    8,175
</TABLE>

<TABLE>
<CAPTION>
                                                      Product   Service  Total
     For the Year Ended December 31, 1998             --------  ------- -------
     <S>                                              <C>       <C>     <C>
     Sales........................................... $118,948  $43,597 162,545
     Income (loss) from operations...................  (73,000)   3,776 (69,224)
     Depreciation....................................   10,528    1,016  11,544
     Identifiable assets.............................  290,662   24,555 315,217
     Interest expense, net...........................    8,518      134   8,652
</TABLE>

                                       57
<PAGE>

                                  P-Com, Inc.

            Notes to Consolidated Financial Statements -- Continued

The allocation of sales by geographic customer destination and property, plant
and equipment, net are as follows (in thousands):

<TABLE>
<CAPTION>
                                              % of
                                             Total
                                            for 2000   2000     1999     1998
                                            -------- -------- -------- --------
     <S>                                    <C>      <C>      <C>      <C>
     Sales:
      United States........................   55.9%  $130,942 $ 48,248 $ 41,597
      United Kingdom.......................   24.3%    57,061   54,172   71,399
      Continental Europe...................    7.8%    18,135   28,183   12,123
      Africa...............................    1.1%     2,635       --   19,104
      Asia.................................    3.7%     8,637    9,489   18,322
      Other geographic regions.............    7.2%    16,991   16,787       --
                                             -----   -------- -------- --------
        Total..............................  100.0%  $234,401 $156,879 $162,545
                                             =====   ======== ======== ========

<CAPTION>
                                                                2000     1999
                                                              -------- --------
     <S>                                    <C>      <C>      <C>      <C>
     Property, plant, and equipment, net
      United States.......................................... $ 20,462 $ 28,751
      United Kingdom.........................................    1,234    2,878
      Italy..................................................    1,349    4,771
      Other geographic regions...............................      121      226
                                                              -------- --------
        Total................................................ $ 23,166 $ 36,626
                                                              ======== ========
</TABLE>

9.Net Loss Per Share

For purpose of computing diluted net loss per share, weighted average common
share equivalents do not include stock options with an exercise price that
exceeds the average fair market value of the Company's Common Stock for the
period because the effect would be antidilutive. Because losses were incurred
in the years 2000, 1999, and 1998, all options, warrants, and convertible notes
are excluded from the computations of diluted net loss per share because they
are antidilutive.

10.Income Taxes

Loss before extraordinary items, income taxes and cumulative effect of
accounting change consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                    Year Ended December 31,
                                                   ----------------------------
                                                     2000      1999      1998
                                                   --------  --------  --------
   <S>                                             <C>       <C>       <C>
   Domestic....................................... $(55,511) $(67,120) $(71,277)
   Foreign........................................      346    (6,957)   (5,153)
                                                   --------  --------  --------
                                                   $(55,165) $(74,077) $(76,430)
                                                   ========  ========  ========
</TABLE>

                                       58
<PAGE>

                                  P-Com, Inc.

            Notes to Consolidated Financial Statements -- Continued


The provision (benefit) for income taxes consists of the following (in
thousands):

<TABLE>
<CAPTION>
                                                       Year Ended December 31,
                                                       ------------------------
                                                        2000    1999     1998
                                                       ------- ------  --------
   <S>                                                 <C>     <C>     <C>
   Current:
     Federal.......................................... $    -- $   --  $ (4,727)
     State............................................      --     55       (37)
     Foreign..........................................   1,282  1,532     1,244
                                                       ------- ------  --------
                                                         1,282  1,587    (3,520)
                                                       ------- ------  --------
   Deferred:
     Federal..........................................   8,792   (135)   (7,410)
     State............................................   1,066    (45)     (571)
                                                       ------- ------  --------
                                                         9,858   (180)   (7,981)
                                                       ------- ------  --------
       Total.......................................... $11,140 $1,407  $(11,501)
                                                       ======= ======  ========
</TABLE>

Deferred tax assets consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                               December 31,
                                                             ------------------
                                                               2000      1999
                                                             --------  --------
   <S>                                                       <C>       <C>
   Net operating loss carryforwards......................... $ 54,663  $ 31,776
   Credit carryforwards.....................................    4,302     4,043
   Intangible assets........................................   12,177     6,177
   Reserves and other.......................................   18,412    26,941
                                                             --------  --------
                                                               89,554    68,937
                                                              (89,554)  (59,079)
                                                             --------  --------
   Valuation allowance...................................... $     --  $  9,858
                                                             ========  ========
</TABLE>

The Company's net operating loss carryforwards included as a deferred tax asset
above are approximately $148 million and $86 million for 2000 and 1999,
respectively. These operating loss carryforwards will expire between 2005 and
2020 if not utilized beforehand.

For federal and state tax purposes, a portion of the Company's net operating
loss carryforwards may be subject to certain limitations on utilization in case
of change in ownership as defined by federal and state tax law.

Deferred income taxes reflect the tax consequences on future years of
differences between the tax bases of assets and liabilities and their bases for
financial reporting purposes. In addition, future tax benefits, such as net
operating loss carryforwards, are recognized to the extent that realization of
such benefits is more likely than not. During 2000, the Company reassessed its
ability to realize future tax benefits, and concluded that as a result of the
recent history of losses, it was more likely than not, that such benefits would
not be realized. Accordingly, the Company recorded a charge of approximately
$9.9 million in 2000 to establish a full valuation allowance against its
deferred tax assets.

                                       59
<PAGE>

                                  P-Com, Inc.

            Notes to Consolidated Financial Statements -- Continued


Reconciliation of the statutory federal income tax rate to the Company's
effective tax rate is as follows:

<TABLE>
<CAPTION>
                                                           Year Ended
                                                          December 31,
                                                        ---------------------
                                                        2000    1999    1998
                                                        -----   -----   -----
   <S>                                                  <C>     <C>     <C>
   U.S. federal statutory rate.........................  35.0%   35.0%   35.0%
   State income taxes, net of federal income tax
    benefit............................................   0.0     0.0     0.3
   Change in valuation allowance....................... (52.9)  (35.0)  (11.9)
   Foreign income taxes at different rate..............  (2.3)   (1.5)   (0.8)
   Other, net..........................................   0.0     0.1    (6.7)
                                                        -----   -----   -----
                                                        (20.2)%  (1.4)%  15.9%
                                                        =====   =====   =====
</TABLE>

11.Acquisitions and Divestitures

On March 28, 1998, the Company acquired substantially all of the assets, and on
April 1, 1998, the accounts receivable of the Wireless Communications Group of
Cylink Corporation ("Cylink Wireless Group"), a Sunnyvale, California-based
company, for $46.0 million in cash and $14.5 million in a short-term note, non-
interest bearing unsecured subordinated promissory note due July 6, 1998. The
Cylink Wireless Group designs, manufactures and markets spread spectrum radio
products for voice and data applications in both domestic and international
markets. The Company accounted for this acquisition as a purchase business
combination. The results of the Cylink Wireless Group were included from the
date of acquisition.

During 1998, the Company acquired the remaining interest in Geritel and the
assets of Cemetel S.r.l., a service company located in Carsoli, Italy. These
acquisitions were not material to the consolidated financial statements or the
results of operations of the Company.

On February 24, 1997, the Company acquired 100% of the outstanding stock of
Technosystem, for aggregate payments of $3.3 million and the assumption of
long-term debt of approximately $12.7 million in addition to other liabilities.
The Company initially paid $2.6 million in cash, and an additional payment of
$0.7 million was made on March 31, 1998, which was subject to certain
indemnification obligations of the former Technosystem security holders, as set
forth in the securities purchase agreement. Technosystem designs, manufactures
and markets equipment for transmitters and transponders for television and
radio broadcasting. In 1999 the Company announced its intention to dispose of
Technosystem.

On March 7, 1997, the Company acquired substantially all of the assets of
Columbia Spectrum Management, L.P. ("CSM"), a Vienna, Virginia-based company,
for $7.8 million in cash and 797,000 shares of Common Stock valued at
approximately $14.5 million. CSM provides turnkey relocation services for
microwave paths over spectrum allocated by the Federal Communications
Commission for Personal Communications Services and other emerging
technologies.

The Company accounted for its acquisitions of Technosystem and CSM based on the
purchase method of accounting. The results of these acquired entities are
included from the date of acquisition. Goodwill and other intangible assets
recorded as a result of the purchase of CSM and Technosystem are being
amortized over twenty and ten years, respectively, using the straight-line
method.

On May 29, 1997, the Company acquired all of the outstanding shares of capital
stock of CRC, a provider of integrated network access devices to network
service providers, in exchange for 1,503,000 shares of the Company's Common
Stock that were issued or are issuable to former CRC security holders in a
stock-for-stock merger.

                                       60
<PAGE>

                                  P-Com, Inc.

            Notes to Consolidated Financial Statements -- Continued


On November 27, 1997, the Company acquired all of the outstanding shares of
capital stock of RT Masts and Telematics in exchange for 766,000 and 248,000
shares of the Company's Common Stock, respectively.

RT Masts, located in Wellingborough, Northhamptonshire, U.K. and Telematics,
located in Herndon, Virginia, supply, install and maintain telecommunications
systems and structure including antennas covering high frequency, medium
frequency and microwave systems.

The Company accounted for its acquisitions of CRC, RT Masts and Telematics as
poolings-of-interests and, therefore, all prior period financial statements
presented include the results of these acquired companies as if they had been
combined since inception.

In February 2000, the Company completed the divestiture of two Italian
subsidiaries, Technosystem, S.p.A. and Cemetal S.r.L. resulting in additional
losses for the first quarter of approximately $4.0 million and $3.5 million,
respectively.

In April 2000, the Company sold Control Resources Corporation ("CRC") resulting
in a gain of approximately $2.6 million.

Discontinued Operation

In August 1999, the Company's Board of Directors decided to divest its
broadcast equipment business, Technosystem. Accordingly, beginning in the third
quarter of 1999, this business is reported as a discontinued operation and the
financial statement information related to this business has been presented on
one line in the 1999 Consolidated Balance Sheet, "net assets of discontinued
operations," and in the "discontinued operations" line of the Consolidated
Statements of Operations for 2000 and 1999. The "net assets of discontinued
operations" represents the assets intended to be sold offset by the liabilities
anticipated to be assumed by the buyers of the business. The Statements of
Operations amounts related to Technosystem in prior periods have been
reclassified to discontinued operations.

Summarized results of Technosystem are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                Year Ended
                                                               December 31,
                                                             -----------------
                                                               1999     1998
                                                             --------  -------
     <S>                                                     <C>       <C>
     Sales.................................................. $  6,483  $25,258
                                                             ========  =======
     Loss before income taxes............................... $(13,903) $(2,869)
     Provision for income taxes.............................       --       --
                                                             --------  -------
       Net loss............................................. $(13,903) $(2,869)
                                                             ========  =======
</TABLE>

Net assets of Technosystem, as reported in the Consolidated Balance Sheets,
comprised the following (in thousands):

<TABLE>
<CAPTION>
                                                                    December 31,
                                                                        1999
                                                                    ------------
     <S>                                                            <C>
     Current assets................................................   $17,962
     Land, buildings and equipment, net............................     3,832
     Other assets..................................................       453
                                                                      -------
       Total assets................................................    22,247

     Current liabilities...........................................    12,369
     Long-term borrowings..........................................       982
                                                                      -------
       Total liabilities...........................................    13,351
     Accrual for loss on disposal of discontinued operations.......     3,151
                                                                      -------
     Net assets of discontinued operations.........................   $ 5,745
                                                                      =======
</TABLE>


                                       61
<PAGE>

                                  P-Com, Inc.

            Notes to Consolidated Financial Statements -- Continued


12.Commitments

Obligations Under Capital and Operating Leases

In August 1998, the Company entered into a capital lease for equipment in the
amount of $1.6 million with interest accruing at the rate of 6.3%. The lease is
accounted for as a sale-leaseback transaction, which expires in January 2003.
In 2000, the Company entered into several capital leases for equipment in the
amount of $1,869 with interest accruing at 11%. These leases expire in 2002.
Future minimum lease payments required under these leases are as follows (in
thousands):

<TABLE>
<CAPTION>
       Year Ended December 31,
       -----------------------
       <S>                                                               <C>
       2001............................................................. $1,483
       2002.............................................................    750
       2003.............................................................     33
                                                                         ------
       Total minimum lease payments.....................................  2,266
       Less: Amount representing interest...............................   (135)
                                                                         ------
       Present value of net minimum lease payments...................... $2,131
                                                                         ======
</TABLE>

The present value of net minimum lease payments are reflected in the December
31, 2000 and 1999 balance sheets as a component of other accrued liabilities
and other long-term liabilities of $2,131 and $3,141.

The Company leases its facilities under non-cancelable operating leases which
expire at various times through 2007. The leases require the Company to pay
taxes, maintenance and repair costs. Future minimum lease payments under the
Company's non-cancelable operating leases at December 31, 2000 are as follows
(in thousands):

<TABLE>
<CAPTION>
       Year Ended December 31,
       -----------------------
       <S>                                                              <C>
       2001............................................................ $ 4,463
       2002............................................................   3,969
       2003............................................................   3,087
       2004............................................................   2,893
       2005............................................................   2,639
       Thereafter......................................................     351
                                                                        -------
                                                                        $17,402
                                                                        =======
</TABLE>

During 2000, 1999, and 1998, the amount of rent expense incurred by the Company
under non-cancelable operating leases was $3,180, $3,258, and $3,218.

13.Contingencies

In September and October 1998, several class action complaints were filed in
the Superior Court of California, County of Santa Clara, on behalf of P-Com
stockholders who purchased or otherwise acquired its Common Stock between April
1997 and September 11, 1998. The plaintiffs allege various state securities
laws violations by P-Com and certain of its officers and directors. The
complaints seek un-quantified compensatory, punitive and other damages,
attorneys' fees and injunctive and/or equitable relief.

On December 3, 1998, the Superior Court of California, County of Santa Clara,
entered an order consolidating all of the above complaints. On June 30, 2000
the Superior Court of California, County of Santa Clara, issued a notice of
ruling certifying this matter as a class action.

                                       62
<PAGE>

                                  P-Com, Inc.

            Notes to Consolidated Financial Statements -- Continued


Although the litigation is being conducted actively, it is still at an early
stage and the Company is unable to speculate as to ultimate outcomes. An
unfavorable outcome could have a material adverse effect on our business,
prospects, financial condition and results of operations. Even if all of the
litigation is resolved in our favor, the defense of such litigation may entail
considerable cost and the significant diversion of efforts of management.

14.Supplemental Cash Flow Information

The following provides additional information concerning supplemental
disclosure of cash flow activities.

<TABLE>
<CAPTION>
                                                           Year Ended December
                                                                   31,
                                                           --------------------
                                                            2000   1999   1998
                                                           ------ ------ ------
     <S>                                                   <C>    <C>    <C>
     Supplemental cash flow information:
     Cash paid for income taxes........................... $  435 $3,900 $5,610
                                                           ====== ====== ======
     Cash paid for interest............................... $2,725 $8,717 $  656
                                                           ====== ====== ======
</TABLE>

Non-cash transactions

During 2000 and 1999, the Company issued shares of Common Stock in exchange for
Convertible Subordinated Notes. In conjunction with these transactions, the
Company recorded extraordinary gains of $1.9 million and $13.2 million for the
years ended December 31, 2000 and 1999, respectively.

The Company exchanged Mandatorily Redeemable Series B Convertible Preferred
Stock for shares of Common Stock and repriced certain warrants held by the
holders of the Series B Convertible Preferred Stock during June 1999. During
November 1999, the Company issued shares of Common Stock, warrants to purchase
additional shares of Common Stock, and a promissory note convertible into
Common Stock in exchange for the elimination of certain redemption rights and
late registration premiums and penalties. In connection with these
transactions, the Company recorded charges of $18.5 million for the year ended
December 31, 1999, respectively, as adjustments to arrive at the net loss
applicable to Common Stockholders.

During 1999 and 1998, the Company issued shares of Common Stock and a
promissory note in conjunction with various acquisitions. The Company also
exchanged a loan payable to stockholder for shares of Common Stock during 1998.

During 2000 $1,869 of fixed assets were acquired through the assumption of
capital lease liabilities.

15.Subsequent Events

The existing $12 million bank loan facility matured January 31, 2001 and was
paid off, with accrued interest, at that date.

On March 29, 2001, the Company entered into a Loan and Security Agreement with
a borrowing capacity of up to $25 million. The Loan and Security Agreement
matures in March 2004. Borrowings under the Loan and Security Agreement bear
interest at LIBOR plus 3.5% to 4.5% per annum and are secured by cash deposits,
receivables, inventories, equipment, and intangibles of the Company. Maximum
borrowings under the Loan and Security Agreement are limited to 85% of eligible
accounts receivable.

                                       63
<PAGE>

                                  P-Com, Inc.

            Notes to Consolidated Financial Statements -- Continued


On February 7, 2001, the Company sold RT Masts Limited its U.K. services
subsidiary to SpectraSite Transco, a U.S. based company with operations in the
UK and on the European continent, for approximately $12 million in cash, an
additional $750,000 in a 6-month escrow, and a $750,000 Note receivable due in
2008 with interest due annually at LIBOR. RT Masts is primarily engaged in
providing site preparation, installation, and maintenance of wireless broadband
radio systems for cell phone services providers in the UK. RT Masts' revenues
were approximately $20 million, $18 million, and $22 million in 2000, 1999 and
1998, respectively. Operating income for RT Masts was approximately $1.2
million, $3.1 million, and $5.8 million for 2000, 1999 and 1998, respectively.

                                       64
<PAGE>

                                  P-Com, Inc.


Selected Quarterly Financial Data -- Unaudited

The data for first three quarters of 2000 is presented both as originally
reported by the Company and as restated to reflect the retroactive application
by the Company of new revenue recognition accounting policies in accordance
with SAB 101. The data for 1999 is presented both as originally reported by the
Company and on a pro forma basis to reflect the results of the Company as if
the new revenue recognition accounting policies had been in effect during 1999.
The following is in thousands, except per share data:

<TABLE>
<CAPTION>
                                               Three Months Ended
                                  -----------------------------------------------
                                  March 31,  June 30,  September 30, December 31,
                                  ---------  --------  ------------- ------------
<S>                               <C>        <C>       <C>           <C>
2000 - As Reported
 Sales (1)......................  $ 51,055   $ 48,833    $ 59,535      $ 74,978
 Gross profit (loss) (1)........  $ 12,714   $ (9,343)   $ 15,391      $ 16,504
 Net income (loss)..............  $(15,901)  $(52,202)   $ (2,071)     $    225
 Net income (loss) per common
  share:
  Basic and diluted.............  $  (0.21)  $  (0.68)   $  (0.03)     $   0.00

2000 - As Restated
 Sales (1)......................  $ 60,459   $ 49,930    $ 61,031        n/a
 Gross profit (loss) (1)........  $ 13,105   $ (9,382)   $ 16,573        n/a
 Net income (loss)..............  $(17,044)  $(52,241)   $   (889)       n/a
 Net income (loss) per common
  share:
  Basic and diluted.............  $  (0.22)  $  (0.68)   $  (0.01)       n/a

<CAPTION>
                                               Three Months Ended
                                  -----------------------------------------------
                                  March 31,  June 30,  September 30, December 31,
                                  ---------  --------  ------------- ------------
<S>                               <C>        <C>       <C>           <C>
1999 - As Reported
 Sales (1)......................  $ 33,909   $ 35,443    $ 40,058      $ 47,469
 Gross profit (loss) (1)........  $  9,555   $(13,186)   $ 10,817      $ 14,041
 Net loss.......................  $ (6,651)  $(54,615)   $(36,399)     $ (5,384)
 Net loss attributable to common
  stockholders..................  $ (6,651)  $(66,805)   $(36,399)     $(11,715)
 Net loss per common share:
  Basic and diluted.............  $  (0.14)  $  (1.29)   $  (0.55)     $  (0.21)

1999 - Pro Forma
 Sales (1)......................  $ 32,177   $ 38,455    $ 29,649      $ 49,847
 Gross profit (loss) (1)........  $ 10,095   $(12,752)   $  8,980      $ 14,794
 Net loss.......................  $ (6,111)  $(54,181)   $(38,280)     $ (4,631)
 Net loss attributable to common
  stockholders..................  $ (6,111)  $(66,371)   $(38,280)     $(10,962)
 Net loss per common share:
  Basic and diluted.............  $  (0.13)  $  (1.28)   $  (0.58)     $  (0.20)
</TABLE>
--------
(/1/)Quarterly sales and gross profit amounts for each of the four quarters in
     1999 and the first quarter of 2000 reflect a reduction for sales and gross
     profit attributable to Technosystem, which was reclassified to
     discontinued operations in the third quarter of 1999.

                                       65
<PAGE>

                                  Schedule II
                       Valuation and Qualifying Accounts
                 Years ended December 31, 1998, 1999, and 2000
                                 (in thousands)

<TABLE>
<CAPTION>
                                                 Additions
                                     Balance at  Charged to  Deductions Balance
                                     Beginning  Statement of    from    at End
                                      of Year    Operations   Reserves  of Year
                                     ---------- ------------ ---------- -------
<S>                                  <C>        <C>          <C>        <C>
Allowance for doubtful accounts:
 Year ended December 31, 1998.......  $ 2,521     $10,892     $ (3,822) $ 9,591
 Year ended December 31, 1999.......    9,591      11,284       (5,976)  14,899
 Year ended December 31, 2000.......   14,899         696      (11,785)   3,810

Inventory related reserves:
 Year ended December 31, 1998.......  $   915     $23,367     $ (7,360) $16,922
 Year ended December 31, 1999.......   16,922      15,400      (16,142)  16,180
 Year ended December 31, 2000.......   16,180      17,361       (7,551)  25,990
</TABLE>

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures

     Not applicable

                                       66
<PAGE>

                                    PART III

Item 10. Directors and Officers of the Registrant

The executive officers and directors of the Company, their ages as of March 31,
2001, and their positions and their backgrounds are as follows:

<TABLE>
<CAPTION>
Name                      Age Position
----                      --- --------
<S>                       <C> <C>
George P. Roberts.......   68 Chairman of the Board and Chief Executive Officer
James J. Sobczak........   59 President and Chief Operating Officer
Leighton J. Stephenson..   52 Chief Financial Officer, Vice President
Alan T. Wright..........   52 Executive Vice President, Operations
Ben L. Jarvis...........   63 Executive Vice President and General Manager, P-Com Network Services
Caroline Baldwin Kahl...   43 Vice President and General Counsel
John R. Wood............   45 Senior Vice President Technology Strategies
Brian T. Josling........   58 Director
John A. Hawkins.........   40 Director
M. Bernard Puckett......   55 Director
</TABLE>

Background

The principal occupations of each executive officer and director of the Company
for at least the last five years are as follows:

Mr. Roberts is a founder of the Company and has served as Chief Executive
Officer and Director since October 1991. From October 1991 through December
1996, Mr. Roberts served as President of the Company. Since September 1993, he
has also served as Chairman of the Board of Directors.

Mr. Sobczak has served as President and Chief Operating Officer since September
1999 and as a Director of the Company since April 1997. From 1991 to September
of 1999 served as the President of Telecommunications Education and Research
Network, Inc. ("TERN"), a non-profit company that manages a broadband network
providing research and education support to over 35 universities.

Mr. Stephenson has served as Vice President and Chief Financial Officer since
September 2000. From 1993 to 2000 he served as Chief Financial Officer,
Treasurer, and Secretary of Vallen Corporation, a Texas company engaged in
manufacturing and distribution of industrial safety products and services.

Mr. Wright has served as Executive Vice President of Operations since March of
2000 and previously from 1997 to 1998 (from 1998 to 1999 he served as Senior
Operations Advisor and was a private investor from 1996 to 1997 and 1999 to
2000.) From 1994 to 1996 he acted as Director of Quality and Product Integrity
at Stratacom.

Mr. Jarvis has served as Executive Vice President and General Manager of P-Com
Network Services since May of 2000. From September of 1998 to November of 1999
he served as Senior Vice President of Operations for Alaska Communications
Systems. From 1996 to August of 1998, he served as Chief Operating Officer of
Amaritel S.A. DE C.V. and Vice President of Operations, CT Global, Inc.

Ms. Kahl has served as Vice President and General Counsel of the Company since
February 2000. From March 1997 to February 2000 she served as General Counsel
to P-Com Network Services, and from August 1994 to March 1997 as General
Counsel for Columbia Spectrum Management, the predecessor of PCNS.

Mr. Wood was appointed Senior Vice President of Technology Strategies of the
Company in January 1997. From April 1993 to January 1997, Mr. Wood served as
Vice President, Engineering for the Company.

                                       67
<PAGE>

Mr. Josling has served as Director of the Company since September 1999. Since
December 2000 he has served as the President of Fuel Cells, Canada. Mr. Josling
is a former division President for Rogers ATT, Canada's national cellular
telephone carrier, and was a senior executive with CSB and Capitol EMI in the
music entertainment industry.

Mr. Puckett has served as a Director of the Company since May 1994. From 1996
to present he has been a private investor.

Mr. Hawkins has served as a Director of the Company since September 1991. Since
August 1995, Mr. Hawkins has been a General Partner of Generation Capital
Partners, L.P., a private equity firm. He also currently serves on the Board of
Directors for PixTech, Inc. and Hotjobs, Inc.

Board Committees and Meetings

The Board of Directors held six (6) meetings and acted by unanimous written
consent 15 times during the fiscal year ended December 31, 2000. The Board of
Directors has an Audit Committee and a Compensation Committee. Each director
attended or participated in 75% or more of the aggregate of (i) the total
number of meetings of the Board of Directors and (ii) the total number of
meetings held by all committees of the Board on which such director served
during 2000.

The Audit Committee currently consists of two directors, Mr. Josling and Mr.
Puckett, and is primarily responsible for approving the services performed by
the Company's independent accountants and reviewing their reports regarding the
Company's accounting practices and systems of internal accounting controls. The
Audit Committee held four (4) meetings during 2000.

The Compensation Committee currently consists of two directors, Mr. Hawkins and
Mr. Puckett, and is primarily responsible for reviewing and approving the
Company's general compensation policies and setting compensation levels for the
Company's executive officers. The Compensation Committee also has the authority
to administer the Company's Employee Stock Purchase Plan and the Company's 1995
Stock Option/Stock Issuance Plan and to make option grants thereunder. The
Compensation Committee held one (1) meeting and acted by unanimous written
consent 14 times during 2000.

Director Compensation

Non-employee board members do not receive cash compensation for their services
as directors.

Under the Automatic Option Grant Program as now contained in the Company's 1995
Stock Option/Stock Issuance Plan (the "1995 Plan"), each individual who first
joins the Board as a non-employee will receive, at the time of such initial
election or appointment, an automatic option grant to purchase 40,000 shares of
Common Stock, provided such person has not previously been in the Company's
employ. In addition, on the date of each annual stockholders meeting, each
individual who continues to serve as a non-employee Board member, whether or
not such individual is standing for re-election at that particular Annual
Meeting, will be granted an option to purchase 4,000 shares of Common Stock,
provided such individual has not received an option grant under the Automatic
Option Grant Program within the preceding six months. Each grant under the
Automatic Option Grant Program will have an exercise price per share equal to
100% of the fair market value per share of the Company's Common Stock on the
grant date, and will have a maximum term of ten (10) years, subject to earlier
termination should the optionee cease to serve as a Board of Directors member.

Because the "1999" Annual Meeting of Stockholders was held so soon before the
2000 Annual Meeting of Stockholders and the non-employee directors would be
receiving a 4,000-share automatic option grant upon the 1999 Annual Meeting,
the technical terms of the 1995 Plan preclude the three non-employee directors
(Messrs. Hawkins, Josling and Puckett) from receiving automatic 4,000-share
options upon the 2000 Annual

                                       68
<PAGE>

Meeting. The Company believes it would be unfair if the three directors were
deprived of this compensation and therefore granted the three directors 4,000-
share options under the 1995 Plan's Discretionary Option Grant Program, with
the same terms and conditions as the erstwhile automatic grants, immediately
after the 2000 Annual Meeting.

Item 11. Executive Compensation and Related Information

The following table provides certain information summarizing the compensation
earned for services rendered in all capacities to the Company and its
subsidiaries for each of the last three fiscal years by (i) the Company's Chief
Executive Officer, and (ii) each of the Company's four other most highly
compensated executive officers, who were executive officers on December 31,
2000 and whose salary and bonus for the fiscal year ended December 31, 2000
(the "2000 Fiscal Year") was in excess of $100,000 (collectively, the "Named
Executive Officers").

                        2000 SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                    Long-Term
                                                                   Compensation
                                                                      Awards
                                                                   ------------
                                                       Annual
                                                    Compensation    Securities
                                                   ---------------  Underlying
                                                    Salary  Bonus     Stock
         Name and Principal Position          Year ($)(/1/)  ($)   Options (#)
         ---------------------------          ---- -------- ------ ------------
<S>                                           <C>  <C>      <C>    <C>
George P. Roberts............................ 2000 376,000      --   375,000
 Chief Executive Officer and                  1999 376,000      --        --
 Chairman of the Board of Directors           1998 366,600      --   450,000

James J. Sobczak............................. 2000 300,000      --   100,000
 President & Chief Operating Officer          1999 101,538  11,538   300,000
                                              1998      --      --     4,000

Alan T. Wright............................... 2000 164,307  25,000   190,000
 Executive Vice President, Operations         1999  30,000      --        --
                                              1998 159,601      --   100,000

Ben L. Jarvis................................ 2000 151,538      --   100,000
 Executive Vice President &                   1999      --      --        --
 General Manager, P-Com Network Services      1998      --      --        --

Caroline Baldwin Kahl........................ 2000 145,961      --    25,000
 Vice President & General Counsel             1999 115,000  46,000        --
                                              1998 112,615  50,000    65,000
</TABLE>
--------
(/1/)Includes amounts deferred under the Company's 401(k) Plan.

                                       69
<PAGE>

The following table contains information concerning the stock option grants
made to each of the named Executive Officers for the 2000 Fiscal Year. No stock
appreciation rights were granted to these individuals during such fiscal year.

                       OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                                                             Potential
                                                                        Realizable Value at
                                                                              Assumed
                                                                          Annual Rates of
                                     % of Total                                Stock
                          Number of   Options                           Price Appreciation
                         Securities  Granted to    Individual Grant     for Option Term (1)
                         Underlying  Employees  ----------------------- -------------------
                           Options   in Fiscal    Exercise   Expiration
                         Granted (#)    Year    Price ($/Sh)    Date     5% ($)   10% ($)
                         ----------- ---------- ------------ ---------- -------- ----------
<S>                      <C>         <C>        <C>          <C>        <C>      <C>
George P. Roberts.......   375,000      8.48       $ 2.03     12/20/10  $479,029 $1,213,954
James J. Sobczak........   100,000      2.26         5.63     09/27/10   353,753    896,480
Alan T. Wright..........    40,000      0.90         6.81     02/11/10   171,374    434,295
                           150,000      3.39         5.63     08/01/10   530,630  1,344,720
Ben L. Jarvis...........   100,000      2.26         6.81     05/11/10   428,434  1,085,737
Caroline Baldwin Kahl...    25,000      0.57        13.25     01/27/10   208,321    527,927
</TABLE>

(/1/)There can be no assurance provided to any executive officer or any other
     holder of the Company's securities that the actual stock price
     appreciation over the ten-year option term will be at the assumed 5% and
     10% levels or at any other defined level. Unless the market price of the
     Common Stock appreciates over the option term, no value will be realized
     from the option grants made to the executive officers.

(/2/)Each option is immediately exercisable for all the option shares, but any
     shares purchased under the option will be subject to repurchase by the
     Company, at the option exercise price paid per share, should the
     individual cease service with the Company prior to vesting in those
     shares. Twenty-five percent (25%) of the option shares will vest upon the
     optionee's continuation in service through one year following the grant
     date and the balance of the shares will vest in thirty-six (36) successive
     equal monthly installments upon the optionee's completion of each of the
     next thirty-six (36) months of service thereafter. The shares subject to
     the option will immediately vest in full should (i) the Company be
     acquired by merger or asset sale in which the option is not assumed or
     replaced by the acquiring entity or (ii) the optionee's employment be
     involuntarily terminated within eighteen (18) months after certain changes
     in control or ownership of the Company.

The table below sets forth certain information with respect to the named
Executive Officers concerning the exercise of options during 2000 and
unexercised options held by such individuals as of the end of such fiscal year.
No SARs were exercised during 1999 nor were any SARs outstanding at the end of
such fiscal year.

                Aggregated Option Exercises in Last Fiscal Year
                         Fiscal Year-End Option Values

<TABLE>
<CAPTION>
                                                  Number of Securities        Value of Unexercised
                           Shares                Underlying Unexercised           in-the-Money
                         Acquired On  Value       Options at FY-End (#)       Options at FY-End (1)
                          Exercise   Realized ----------------------------- -------------------------
Name                         (#)      ($)(2)  Exercisable (3) Unexercisable Exercisable Unexercisable
------------------------ ----------- -------- --------------- ------------- ----------- -------------
<S>                      <C>         <C>      <C>             <C>           <C>         <C>
George P. Roberts.......       --    $     --    1,160,206       628,126     $199,650     $399,042
James J. Sobczak........       --          --      144,000       300,000           --           --
Alan T. Wright..........       --          --           --       190,000           --           --
Ben L. Jarvis...........   12,604     188,279       15,312       102,084           --           --
Caroline Baldwin Kahl...   12,923     117,929       34,439        42,638          527          410
</TABLE>

                                       70
<PAGE>

(/1/)Based on the fair market value of the option shares at the 2000 Fiscal
     Year-end ($3.0625 per share based on the closing selling price on the
     NASDAQ Market as of December 31, 2000) less the exercise price.

(/2/)Based on the fair market value of the shares on the exercise date less the
     exercise price paid for those shares.

(/3/)The exercisable options are immediately exercisable for all the options
     shares. However, any shares purchased under the options are subject to
     repurchase by the Company, at the original exercise price paid per share,
     upon the optionee's cessation of service prior to vesting in such shares.
     As of December 31, 2000, the following number of shares were unvested: Mr.
     Roberts- 628,126 shares; Mr. Sobczak- 300,000 shares; Mr. Wright- 190,000
     shares; Mr. Jarvis- 102,084 shares and Ms Kahl- 42,638 shares.

Employment Contracts, Termination of Employment Arrangements and Change of
Control Agreements

The Compensation Committee of the Board of Directors, as Plan Administrator of
the 1995 Stock Option/Stock Issuance Plan, has the authority to provide for
accelerated vesting of the shares of Common Stock subject to any outstanding
options held by the Chief Executive Officer and any other executive officer or
any unvested share issuances actually held by such individual, in connection
with certain changes in control of the Company or the subsequent termination of
the officer's employment following the change in control event.

The Company has entered into severance agreements (the "Agreements") with
George Roberts, Chairman of the Board of Directors and Chief Executive Officer,
James Sobczak, President and Chief Operating Officer, and Leighton Stephenson,
Chief Financial Officer and Vice President, Finance and Administration
(individually, the "Officer" and collectively the "Officers"), dated December
15, 1997, September 7, 1999, and September 6, 2000, respectively. Each of these
Agreements provides for the following benefits should the Officer's employment
terminate, either voluntarily or involuntarily, for any reason within twenty-
four (24) months following a Change in Control: (a) a severance payment in an
amount equal to two (2) times his annual rate of base salary; (b) a bonus in an
amount equal to the greater of either (i) two (2) times the full amount of the
Officer's target bonus for the fiscal year in which the termination occurs or
(ii) two (2) times the full amount of his target bonus for the fiscal year in
which a Change in Control occurs; (c) the shares subject to each outstanding
option held by the Officer (to the extent not then otherwise fully vested) will
automatically vest so that each such option will become immediately exercisable
for all the option shares as fully-vested shares (notwithstanding anything in
this Form 10-K to the contrary); and (d) the Company will, at its own expense,
provide Mr. Roberts and his dependents continued health care coverage for life.
A Change in Control will be deemed to occur under the Agreements upon: (a) a
merger or consolidation in which securities possessing fifty percent (50%) or
more of the total combined voting power of the Company's outstanding securities
are transferred to person or persons different from the persons holding those
securities immediately prior to such transaction, (b) the sale, transfer or
other disposition of all or substantially all of the assets of the Company in
complete liquidation or dissolution of the Company; (c) a hostile take-over of
the Company, whether effected through a tender offer for more than twenty-five
percent (25%) of the Company's outstanding voting securities or a change in the
majority of the Board by one or more contested elections for Board membership;
or (d) the acquisition, directly or indirectly by any person or related group
of persons (other than the Company or a person that directly or indirectly
controls, is controlled by, or is under common control with, the Company), of
beneficial ownership (within the meaning of Rule 13d-3 of the Securities
Exchange Act of 1934) of securities possessing more than thirty percent (30%)
of the total combined voting power of the Company's outstanding securities
pursuant to a tender or exchange offer made directly to the Company's
stockholders. In addition, each Officer will be entitled to a full tax gross-up
to the extent one or more of the severance benefits provided under his
Agreement are deemed to constitute excess parachute payments under the federal
income tax laws.

The Company does not have any existing agreements with any named Executive
Officer that establish a specific term of employment for them, and their
employment may accordingly be terminated at any time at the discretion of the
Board of Directors.

                                       71
<PAGE>

Compensation Committee Interlocks and Insider Participation

The Compensation Committee of the Company's Board of Directors currently
consists of Mr. Puckett and Mr. Hawkins. Neither of these individuals was an
officer or employee of the Company at any time during the 2000 Fiscal Year or
at any other time, and neither had a business relationship with the Company.

No executive officer of the Company has ever served as a member of the board of
directors or compensation committee of any other entity that has or has had one
or more executive officers serving as a member of the Company's Board of
Directors or Compensation Committee.

Report of the Compensation Committee of the Board of Directors on Executive
Compensation

"The Compensation Committee of the Board of Directors is responsible for
establishing the base salary and incentive cash bonus programs for the
Company's executive officers. The Committee also has the exclusive
responsibility for the administration of the Company's 1995 Stock Option/Stock
Issuance Plan, under which grants may be made to executive officers and other
key employees of the Company.

Compensation Philosophy

Since the initial public offering of the Company's Common Stock in March 1995,
it has been the Committee's policy and objective to provide the Company's
executive officers and other key employees with competitive compensation
opportunities based upon their contribution to the financial success of the
Company, the enhancement of corporate and stockholder values, the market levels
of compensation in effect at companies with which the Company competes for
executive talent and the personal performance of such individuals. The primary
factors that the Committee considered in establishing the compensation levels
of the executive officers for the 2000 fiscal year are summarized below. The
Committee may, however, in its discretion, apply different factors in setting
executive compensation for future fiscal years.

It is the Committee's current objective to have a significant portion of each
officer's compensation contingent upon the Company's performance as well as
upon the officer's own level of performance. Accordingly, the compensation
package for each executive officer and key employee is comprised of three
elements: (i) base salary that reflects individual performance and is designed
primarily to be competitive with salary levels in effect at a select group of
companies with which the Company competes for executive talent, (ii) annual
performance awards payable in cash and based upon the Company's financial
performance and the market performance of the Company's common stock and (iii)
long-term equity incentive awards with overlapping vesting schedules that
strengthen the mutuality of interests between the executive officers and the
Company's stockholders while fostering retention of existing personnel.

The Committee recognizes that the highly-specialized industry sector in which
the Company operates is both extremely competitive and globally-challenging,
with the result that there is substantial demand for high-caliber, seasoned
executives with a high level of industry-specific knowledge and industry
contacts, especially overseas contacts. It is crucial that the Company reward
and be assured of retaining the executive personnel essential to the attainment
of the Company's performance goals. For these reasons, the Committee believes
the Company's executive compensation arrangements must remain competitive with
those offered by other companies of similar magnitude, complexity and
performance records (the "peer group") in order to provide adequate incentive
to the Company's executive officers to continue to provide services to the
Company.

Cash Compensation

A key objective of the Company's current executive compensation program is to
position its key executives to earn annual cash compensation (base salary plus
bonus) equaling or exceeding that which the executive would earn at other peer
group companies. During 2000, the Committee reviewed and relied on technology
industry compensation surveys in its assessment of appropriate compensation
levels.

                                       72
<PAGE>

The fiscal year 2000 base salaries for the named executive officers are based
upon a number of factors, including, without limitation, each executive's
performance and contribution to overall Company performance and the levels of
base salary in effect for comparable positions with the peer group companies.
Base salary decisions are made as part of a formal review process. Generally,
the base salaries of the Company's executive officers for the 2000 fiscal year
ranged from the 10th percentile to the 75th percentile of the salaries surveyed
for comparable positions at the peer group companies. In defining "peer group
companies," the Company considered companies with revenues between $100 million
and $200 million. In comparison to other companies in the $200 million to $500
million range, the base salaries for the Company's executive officers ranged
from the 10th percentile to the 50th percentile.

The annual incentive compensation provided to the Company's executive officers
is in the form of cash bonuses based on the Committee's assessment of the
Company's financial performance for the year and the individual officer's
contribution to that performance. For the 2000 fiscal year, the Committee
determined not to award any cash bonus to the executive officers.

Stock Options

Equity incentives are provided primarily through stock option grants under the
1995 Plan. The grants are designed to align the interests of each executive
officer with those of the stockholders and provide each individual with a
significant incentive to manage the Company from the perspective of an owner
with an equity stake in the business. Each grant allows the individual to
acquire shares of the Company's Common Stock at a fixed price per share (the
market price on the grant date) over a specified period of time (up to 10
years). The shares subject to each option generally vest in installments over a
two-to-four-year period, contingent upon the executive officer's continued
employment with the Company. Accordingly, the option will provide a return to
the executive officer only if the executive officer remains employed by the
Company during the applicable vesting period, and then only if the market price
of the underlying shares appreciates over the option term.

The number of shares subject to each option grant is set at a level intended to
create a meaningful opportunity for stock ownership based on the officer's
current position with the Company, the base salary associated with that
position, the size of comparable awards made to individuals in similar
positions within the industry, the individual's potential for increased
responsibility and promotion over the option term, and the individual's
personal performance in recent periods. The Committee will also take into
account the executive officer's existing holdings of the Company's Common Stock
and the number of vested and unvested options held by that individual in order
to maintain an appropriate level of equity incentive. However, the Committee
does not intend to adhere to any specific guidelines as to the relative option
holdings of the Company's executive officers.

Chief Executive Officer Performance and Compensation

In setting the base salary for Mr. Roberts for the 2000 fiscal year, the
Committee sought to achieve two objectives: (i) make his base salary
competitive with the base salaries paid to the chief executive officers of the
same peer group of companies which the Committee surveyed for comparative
compensation purposes for all other executive officers of the Company and (ii)
make a significant percentage of his total compensation package contingent upon
Company performance. For the 2000 fiscal year, the base salary of Mr. Roberts
was set at the 75th percentile of the base salary levels in effect for those
other chief executive officers. In comparison to companies in the range from
$200 million to $500 million in revenues, Mr. Roberts' base salary was set at
the 50th percentile of the base salary levels for those chief executive
officers. As indicated above, the Committee decided not to award any cash bonus
to Mr. Roberts or any other executive officer for the 2000 fiscal year.

The Committee granted Mr. Roberts 375,000 stock options with an exercise price
of $2.03120 on December 20, 2000 (166,152 ISO; 208,848 NQ).

                                       73
<PAGE>

It is the Committee's view that the total compensation package provided Mr.
Roberts for the 2000 fiscal year is competitive with the typical compensation
packages awarded to chief executive officers in the Company's peer group, in
light of the Company's performance.

Compliance with Internal Revenue Code Section 162(m)

Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to publicly held companies for compensation exceeding
$1 million paid to certain of the corporation's executive officers. The
limitation applies only to compensation that is not considered to be
performance-based. The non-performance based compensation to be paid to the
Company's executive officers for the 2000 fiscal year did not exceed the $1
million limit per officer, nor is it expected that the non-performance based
compensation to be paid to the Company's executive officers for fiscal 2001
will exceed that limit. Options granted under the Company's 1995 Plan are
structured so that any compensation deemed paid to an executive officer in
connection with the exercise of those options will qualify as performance-based
compensation that will not be subject to the $1 million limitation. Because it
is very unlikely that the cash compensation payable to any of the Company's
executive officers in the foreseeable future will approach the $1 million
limit, the Compensation Committee has decided at this time not to take any
other action to limit or restructure the elements of cash compensation payable
to the Company's executive officers. The Compensation Committee will reconsider
this decision should the individual compensation of any executive officer ever
approach the $1 million level.

It is the opinion of the Compensation Committee that the executive compensation
policies and programs in effect for the Company's executive officers provide an
appropriate level of total remuneration which properly aligns the Company's
performance and the interests of the Company's stockholders with competitive
and equitable executive compensation in a balanced and reasonable manner, for
both the short and long-term."

                                          M. Bernard Puckett
                                          Member, Compensation Committee

                                          John A. Hawkins
                                          Member, Compensation Committee

Stock Performance Graph

The graph depicted below shows a comparison of cumulative total stockholder
returns for the Company, the Standard & Poor's 500 Index and the Standard &
Poor's Communications Equipment Manufacturers Index.

[STOCK PERFORMANCE GRAPH]

--------

(/1/)The graph covers the period from March 2, 1995, the date of the Company's
     initial public offering of shares of its Common Stock, to December 31,
     2000.

                                       74
<PAGE>

(/2/)The graph assumes that $100 was invested on March 2, 1995, in the
     Company's Common Stock and in each index, and that all dividends were
     reinvested. No cash dividends have been declared on the Company's Common
     Stock.
(/3/)Stockholder returns over the indicated period should not be considered
     indicative of future stockholder returns.

Notwithstanding anything to the contrary set forth in any of the Company's
previous filings made under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate future
filings made by the Company under those statutes, neither the preceding Stock
Performance Graph nor the Compensation Committee Report is to be incorporated
by reference into any such prior filings, nor shall such graph or report be
incorporated by reference into any future filings made by the Company under
those statutes.

12.Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information known to the Company with
respect to the beneficial ownership of the Company's Common Stock as of March
15, 2001, by (i) all persons who are beneficial owners of five percent (5%) or
more of the Company's Common Stock, (ii) each director, (iii) the named
Executive Officers, and (iv) all current directors and executive officers as a
group. Unless otherwise indicated, each of the stockholders has sole voting and
investment power with respect to the shares beneficially owned, subject to
community property laws, where applicable, and has the same address as the
company.

<TABLE>
<CAPTION>
                                                                   Percentage
                                                        Shares     of Shares
                                                     Beneficially Beneficially
                  Beneficial Owner                    Owned (#)    Owned (1)
                  ----------------                   ------------ ------------
<S>                                                  <C>          <C>
State of Wisconsin Investment Board (/2/)...........  15,400,000     19.07
  P.O. Box 7842
  Madison, WI 53707
Firsthand Capital Management, Inc (/3/).............  11,028,300     13.66
  101 Park Center Plaza, Ste. 1300
  San Jose, CA 95113
John A. Hawkins (/4/)...............................      38,000       *
Brian T. Josling (/5/)..............................      38,000       *
M. Bernard Puckett (/6/)............................      89,332       *
George P. Roberts (/7/).............................   1,465,545      1.82
James J. Sobczak (/8/)..............................     197,319       *
Alan T. Wright (/9/)................................      25,236       *
Ben L. Jarvis (/10/)................................      41,146       *
Caroline Baldwin Kahl (/11/)........................      51,988       *
All current directors and executive officersas a
 group (10 persons) (/12/)..........................   2,098,106      2.60
</TABLE>
--------
* Less than one percent of the outstanding Common Stock

(/1/)Percentage of ownership is based on 80,740,176 shares of Common Stock
     outstanding on March 15, 2001. Shares of Common Stock subject to stock
     options that are currently exercisable or will become exercisable within
     60 days after March 15, 2001 are deemed outstanding for computing the
     percentage of the person or group holding such options, but are not deemed
     outstanding for computing the percentage of any other person or group.
(/2/)Pursuant to schedule 13G dated February 9, 2001, filed with the Securities
     and Exchange Commission, the State of Wisconsin Investment Board reported
     that as of December 31, 2000 it had sole voting power over all 15,400,000
     shares and sole dispositive power over all shares.
(/3/)Pursuant to schedule 13G dated February 14, 2001, filed with the
     Securities and Exchange Commission, Firsthand Capital Management reported
     that as of December 31, 2000 it had sole voting power over all 11,028,300
     shares and sole dispositive power over all shares.

                                       75
<PAGE>

(/4/)Includes 38,000 shares issuable upon exercise of options that are
     currently exercisable or will become exercisable within 60 days after
     March 15, 2001.
(/5/)Includes 38,000 shares issuable upon exercise of options that are
     currently exercisable or will become exercisable within 60 days after
     March 15, 2001.
(/6/)Includes 69,332 shares issuable upon exercise of options that are
     currently exercisable or will become exercisable within 60 days after
     March 15, 2001.
(/7/)Includes 1,235,205 shares issuable upon exercise of options that are
     currently exercisable or will become exercisable within 60 days after
     March 15, 2001.
(/8/)Includes 194,000 shares issuable upon exercise of options that are
     currently exercisable or will become exercisable within 60 days after
     March 15, 2001.
(/9/)Includes 20,000 shares issuable upon exercise of options that are
     currently exercisable or will become exercisable within 60 days after
     March 15, 2001.
(/10/)Includes 41,146 shares issuable upon exercise of options that are
      currently exercisable or will become exercisable within 60 days after
      March 15, 2001.
(/11/)Includes 48,383 shares issuable upon exercise of options that are
      currently exercisable or will become exercisable within 60 days after
      March 15, 2001.
(/12/)Includes 1,790,211 shares issuable upon exercise of options that are
      currently exercisable or will become exercisable within 60 days after
      March 15, 2001.

13.Certain Relationships and Related Transactions

In connection with certain relocation expenses a promissory note in the amount
of $250,000 was issued to Mr. James Sobczak interest free and payable one year
after Mr. Sobczak leaves the company. In addition, P-Com agreed to pay for
certain fees and services in connection with the sale of Mr. Sobczack's home in
Pennsylvania so that could complete his relocation to California. We anticipate
these fees and services to amount to approximately $55,000.

In addition to the indemnification provisions contained in the Company's
Restated Certificate of Incorporation and Bylaws, the Company has entered into
separate indemnification agreements with each of its directors and officers.
These agreements require the Company, among other things, to indemnify such
director or officer against expenses (including attorneys' fees), judgments,
fines and settlements (collectively, "Liabilities") paid by such individual in
connection with any action, suit or proceeding arising out of such individual's
status or service as a director or officer of the Company) other than
Liabilities arising from the willful misconduct or conduct that is knowingly
fraudulent or deliberately dishonest) and to advance expenses incurred by such
individual in connection with any proceeding against such individual with
respect to which such individual may be entitled to indemnification by the
Company.

All future transactions between the Company and its officers, directors,
principal stockholders and affiliates will be approved by a majority of the
independent and disinterested members of the Board of Directors, and will be on
terms no less favorable to the Company than could be obtained from unaffiliated
third parties

                                       76
<PAGE>

                                    PART IV

14.Exhibits, Financial Statements Schedules, and Reports on Form 8-K

(a) The following documents are filed as part of this Annual Report on form 10-
    K:

  1. Financial Statements. The following Consolidated Financial Statements of
     P-Com, Inc. and its subsidiaries are included in Item 8 of this Annual
     Report on 10-K:

<TABLE>
   <S>                                                                     <C>
                                                                           Page
   Financial Statements:
   Report of Independent Accountants.....................................   39
   Consolidated Balance Sheets at December 31, 2000 and 1999.............   40
   Consolidated Statements of Operations for the years ended December 31,
   2000, 1999, and 1998..................................................   41
   Consolidated Statements of Stockholders' Equity for the years ended
   December 31, 2000, 1999, and 1998.....................................   42
   Consolidated Statements of Cash Flows for the years ended December 31,
   2000, 1999, and 1998..................................................   44
   Notes to Consolidated Financial Statements............................   45

   Financial Statement Schedule:
   Schedule II--Valuation and Qualifying Accounts........................   66
</TABLE>

  All other schedules have been omitted because they are not required, are
  not applicable, or the information is included in the consolidated
  financial statements or notes thereto.

(b) No reports on Form 8-K were filed during the fourth quarter of 2000.

(c) Exhibits -- See Exhibit list below.

<TABLE>
<CAPTION>
    Number                               Description
    ------                               -----------

 <C>          <S>
  3.2 (/1/)   Restated Certificate of Incorporation filed with the Secretary of
              State on March 9, 1995.

  3.2A (/11/) Certificate of Amendment of Restated Certificate of Incorporation
              filed with the Secretary of State on June 16, 1997.

  3.2B (/12/) Certificate of Designation for the Series A Junior Participating
              Preferred Stock, as filed with the Delaware Secretary of State on
              October 8, 1997.

  3.2C (/13/) Amended and Restated Certificate of Designation of the Series A
              Junior Participating Preferred Stock, as filed with the Delaware
              Secretary of State on December 21, 1998.

  3.2D (/13/) Certificate of Designation for the Series B Convertible
              Participating Preferred Stock, as filed with the Delaware
              Secretary of State on December 21, 1998.

  3.2E (/13/) Certificate of Correction of Certificate of Designations for the
              Series B Convertible Participating Preferred Stock, as filed with
              the Delaware Secretary of State on December 23, 1998.

  3.2F        Certificate of Elimination of Series B Convertible Participating
              Preferred Stock as filed with the Secretary of State on June 15,
              1999

  3.3 (/2/)   Bylaws of the Company.

  4.1 (/2/)   Form of Common Stock Certificates

  4.2 (/3/)   Indenture, dated as of November 1, 1997, between the Registrant
              and State Street Bank and Trust Company of California, N.A., as
              Trustee.

  4.10        Amended and Restated Rights Agreement, dated as of January 24,
              2001 between the Company and BankBoston, N.A.
</TABLE>



                                       77
<PAGE>

<TABLE>
<CAPTION>
    Number                               Description
    ------                               -----------

 <C>          <S>
 10.16 (/10/) 1995 Stock Option/Stock Issuance Plan, as amended. 1995 Stock
              Option/Stock Issuance Plan, including forms of Notices of Grant
              of Automatic Stock Option for initial grant and annual grants and
              Automatic Stock Option Agreements, as amended.

 10.17 (/4/)  Employee Stock Purchase Plan, as amended.

 10.18 (/2/)  Form of Indemnification Agreement by and between the Company and
              each of its officers and directors and a list of signatories.

 10.60 (/5/)  Common Stock PIPES Purchase Agreement, dated January 6, 2000, by
              and among P-Com and several investors.

 10.61 (/5/)  Loan and Security Agreement, dated January 14, 2000, by and
              between P-Com and Greyrock Capital.

 10.62 (/5/)  Warrant to Purchase Stock, dated January 14, 2000, to Greyrock
              Capital.

 10.63 (/5/)  Registration Rights Agreement, dated January 14, 2000, by and
              between P-Com and Greyrock Capital.

 10.64 (/5/)  Antidilution Agreement, dated January 14, 2000, by and between P-
              Com and Greyrock Capital.

 10.65 (/5/)  Warrant to Purchase Stock, dated January 14, 2000 to Silicon
              Valley Bank.

 10.66 (/5/)  Registration Rights Agreements, dated January 14, 2000, by and
              between P-Com and Silicon Valley Bank.

 10.67 (/5/)  Antidilution Agreement, dated January 14, 2000, by and between P-
              Com and Silicon Valley Bank.

 10.74 (/6/)  Stock Purchase Warrant between P-Com, Inc. and Marshall Capital
              Management, Inc., dated January 20, 2000.

 10.75 (/6/)  Promissory Note between P-Com, Inc. and Castle Creek Technology
              Partners LLC, dated November 16, 1999.

 10.76 (/6/)  Asset Purchase Agreement between Paradyne Networks, Inc., P-Com,
              Inc. and Control Resources Corporation, dated April 5, 2000.

 10.77 (/6/)  Promissory note between James Sobczak and P-Com, Inc., dated May
              3, 2000.

 10.78 (/6/)  Agreement between Reloaction, a California Corporation and P-Com,
              Inc., dated November 8, 1999.

 10.79 (/7/)  Letter of Cooperation between China PTIC and P-Com, Inc., dated
              July 12, 2000.

 10.80 (/8/)  Common Stock PIPES Purchase Agreement dated August 11, 2000, by
              and between the Company and State of Wisconsin Investment Board.

 10.84 (/8/)  General Release and Settlement Agreement, dated as of August 28,
              2000, by and between the Company and Robert E. Collins.

 10.85 (/9/)  Letter of Offer, dated August 31, 2000, by and between the
              Company and Leighton J. Stephenson.

 10.86        Severance Agreement dated December 7, 2000 by and between the
              Company and Leighton J. Stephenson

 10.87        Loan and Security Agreement by and between P-Com, Inc., P-Com
              Network Services, Inc., and Foothill Capital Corporation, dated
              March 29, 2001.

 21.1         List of subsidiaries of the Registrant.

 23.1         Consent of PricewaterhouseCoopers LLP, Independent Accountants.
</TABLE>
--------
 (1) Incorporated by reference to the identically numbered exhibit included in
     the Company's Registration Statement on form S-1 (File No. 33-95392)
     declared effective with the Securities and Exchange Commission on August
     17, 1995.

                                       78
<PAGE>

 (2) Incorporated by reference to the identically numbered exhibit included in
     the Company's Registration Statement on form S-1 (File No. 33-88492)
     declared effective with the Securities and Exchange Commission on March 2,
     1995.
 (3) Incorporated by reference to the identically numbered exhibit included in
     the Company's Registration Statement on form S-3 (File No. 333-45463) as
     filed with the Securities and Exchange Commission on February 2, 1998.
 (4) Incorporated by reference to the identically numbered exhibit of the
     Company's Quarterly Report on form 10-Q for the quarterly period ended
     June 30, 1997.
 (5) Incorporated by reference to the identically numbered exhibit of the
     Company's form 8-K as filed with the Securities and Exchange Commission on
     January 25, 2000.
 (6) Incorporated by reference to the identically numbered exhibit included in
     the Company's Registration Statement on form S-3/A (File No. 333-70937) as
     filed with the Securities and Exchange Commission on May 4, 2000.
 (7) Incorporated by reference to the identically numbered exhibit included in
     the Company's Registration Statement on form S-3/A (File No. 333-70937) as
     filed with the Securities and Exchange Commission on August 24, 2000.
 (8) Incorporated by reference to the identically numbered exhibit of the
     Company's form 8-K as filed with the Securities and Exchange Commission on
     August 11, 2000.
 (9) Incorporated by reference to the identically numbered exhibit of the
     Company's Quarterly Report on form 10-Q/A for the quarterly period ended
     September 30, 2000.
(10) Incorporated by reference to exhibit 99.1 included in the Company's
     Registration Statement on form S-8 (File No. 333-55604) as filed with the
     Securities and Exchange Commission on February 14, 2001.
(11) Incorporated by reference to exhibit 3.3 of the Company's Quarterly Report
     on form 10-Q for the quarterly period ended June 30, 1997.
(12) Incorporated by reference to exhibit 3 of the Company's Quarterly Report
     on form 10-Q for the quarterly period ended September 30, 1997.
(13) Incorporatedby reference to the identically numbered exhibit to the
     Company's Report on Form 8-K as filed with the Securities and Exchange on
     December 24, 1998.

                                       79
<PAGE>

Signatures

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

  Date: March 30, 2001                    By:    /s/ George P. Roberts
                                             __________________________________
                                                    George P. Roberts
                                                Chairman of the Board and
                                                 Chief Executive Officer

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

<TABLE>
<CAPTION>
             Signature                           Title                    Date
             ---------                           -----                    ----


<S>                                  <C>                           <C>
      /s/ George P. Roberts           Chairman of the Board and      March 30, 2001
____________________________________   Chief Executive Officer
         George P. Roberts               (Principal Executive
                                               Officer)

   /s/ Leighton J. Stephenson             Vice President and         March 30, 2001
____________________________________   Chief Financial Officer
       Leighton J. Stephenson        (Principal Financial Officer
                                       and Principal Accounting
                                               Officer)

      /s/ James J. Sobczak                  President and            March 30, 2001
____________________________________   Chief Operating Officer,
          James J. Sobczak             Director of the Company

      /s/ Brian T. Josling             Director of the Company       March 30, 2001
____________________________________
          Brian T. Josling

       /s/ John A. Hawkins             Director of the Company       March 30, 2001
____________________________________
          John A. Hawkins

     /s/ M. Bernard Puckett            Director of the Company       March 30, 2001
____________________________________
        M. Bernard Puckett
</TABLE>

                                       80
<PAGE>

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
    Number                               Description
    ------                               -----------


 <C>          <S>
  3.2 (/1/)   Restated Certificate of Incorporation filed with the Secretary of
              State on March 9, 1995.

  3.2A (/11/) Certificate of Amendment of Restated Certificate of Incorporation
              filed with the Secretary of State on June 16, 1997.

  3.2B (/12/) Certificate of Designation for the Series A Junior Participating
              Preferred Stock, as filed with the Delaware Secretary of State on
              October 8, 1997.

  3.2C (/13/) Amended and Restated Certificate of Designation of the Series A
              Junior Participating Preferred Stock, as filed with the Delaware
              Secretary of State on December 21, 1998.

  3.2D (/13/) Certificate of Designation for the Series B Convertible
              Participating Preferred Stock, as filed with the Delaware
              Secretary of State on December 21, 1998.

  3.2E (/13/) Certificate of Correction of Certificate of Designations for the
              Series B Convertible Participating Preferred Stock, as filed with
              the Delaware Secretary of State on December 23, 1998.

  3.2F        Certificate of Elimination of Series B Convertible Participating
              Preferred Stock as filed with the Secretary of State on June 15,
              1999

  3.3 (/2/)   Bylaws of the Company.

  4.1 (/2/)   Form of Common Stock Certificates

  4.2 (/3/)   Indenture, dated as of November 1, 1997, between the Registrant
              and State Street Bank and Trust Company of California, N.A., as
              Trustee.

  4.10        Amended and Restated Rights Agreement, dated as of January 24,
              2001 between the Company and BankBoston, N.A.

 10.16 (/10/) 1995 Stock Option/Stock Issuance Plan, as amended. 1995 Stock
              Option/Stock Issuance Plan, including forms of Notices of Grant
              of Automatic Stock Option for initial grant and annual grants and
              Automatic Stock Option Agreements, as amended.

 10.17 (/4/)  Employee Stock Purchase Plan, as amended.

 10.18 (/2/)  Form of Indemnification Agreement by and between the Company and
              each of its officers and directors and a list of signatories.

 10.60 (/5/)  Common Stock PIPES Purchase Agreement, dated January 6, 2000, by
              and among P-Com and several investors.

 10.61 (/5/)  Loan and Security Agreement, dated January 14, 2000, by and
              between P-Com and Greyrock Capital.

 10.62 (/5/)  Warrant to Purchase Stock, dated January 14, 2000, to Greyrock
              Capital.

 10.63 (/5/)  Registration Rights Agreement, dated January 14, 2000, by and
              between P-Com and Greyrock Capital.

 10.64 (/5/)  Antidilution Agreement, dated January 14, 2000, by and between P-
              Com and Greyrock Capital.

 10.65 (/5/)  Warrant to Purchase Stock, dated January 14, 2000 to Silicon
              Valley Bank.

 10.66 (/5/)  Registration Rights Agreements, dated January 14, 2000, by and
              between P-Com and Silicon Valley Bank.

 10.67 (/5/)  Antidilution Agreement, dated January 14, 2000, by and between P-
              Com and Silicon Valley Bank.

 10.74 (/6/)  Stock Purchase Warrant between P-Com, Inc. and Marshall Capital
              Management, Inc., dated January 20, 2000.
</TABLE>


                                       81
<PAGE>

<TABLE>
<CAPTION>
   Number                                Description
   ------                                -----------


 <C>         <S>
 10.75 (/6/) Promissory Note between P-Com, Inc. and Castle Creek Technology
             Partners LLC, dated November 16, 1999.

 10.76 (/6/) Asset Purchase Agreement between Paradyne Networks, Inc., P-Com,
             Inc. and Control Resources Corporation, dated April 5, 2000.

 10.77 (/6/) Promissory note between James Sobczak and P-Com, Inc., dated May
             3, 2000.

 10.78 (/6/) Agreement between Reloaction, a California Corporation and P-Com,
             Inc., dated November 8, 1999.

 10.79 (/7/) Letter of Cooperation between China PTIC and P-Com, Inc., dated
             July 12, 2000.

 10.80 (/8/) Common Stock PIPES Purchase Agreement dated August 11, 2000, by
             and between the Company and State of Wisconsin Investment Board.

 10.84 (/8/) General Release and Settlement Agreement, dated as of August 28,
             2000, by and between the Company and Robert E. Collins.

 10.85 (/9/) Letter of Offer, dated August 31, 2000, by and between the Company
             and Leighton J. Stephenson.

 10.86       Severance Agreement dated December 7, 2000 by and between the
             Company and Leighton J. Stephenson

 10.87       Loan and Security Agreement by and between P-Com, Inc., P-Com
             Network Services, Inc., and Foothill Capital Corporation, dated
             March 29, 2001.

 21.1        List of subsidiaries of the Registrant.

 23.1        Consent of PricewaterhouseCoopers LLP, Independent Accountants.
</TABLE>
--------
 (1) Incorporated by reference to the identically numbered exhibit included in
     the Company's Registration Statement on form S-1 (File No. 33-95392)
     declared effective with the Securities and Exchange Commission on August
     17, 1995.
 (2) Incorporated by reference to the identically numbered exhibit included in
     the Company's Registration Statement on form S-1 (File No. 33-88492)
     declared effective with the Securities and Exchange Commission on March 2,
     1995.
 (3) Incorporated by reference to the identically numbered exhibit included in
     the Company's Registration Statement on form S-3 (File No. 333-45463) as
     filed with the Securities and Exchange Commission on February 2, 1998.
 (4) Incorporated by reference to the identically numbered exhibit of the
     Company's Quarterly Report on form 10-Q for the quarterly period ended
     June 30, 1997.
 (5) Incorporated by reference to the identically numbered exhibit of the
     Company's form 8-K as filed with the Securities and Exchange Commission on
     January 25, 2000.
 (6) Incorporated by reference to the identically numbered exhibit included in
     the Company's Registration Statement on form S-3/A (File No. 333-70937) as
     filed with the Securities and Exchange Commission on May 4, 2000.
 (7) Incorporated by reference to the identically numbered exhibit included in
     the Company's Registration Statement on form S-3/A (File No. 333-70937) as
     filed with the Securities and Exchange Commission on August 24, 2000.
 (8) Incorporated by reference to the identically numbered exhibit of the
     Company's form 8-K as filed with the Securities and Exchange Commission on
     August 11, 2000.
 (9) Incorporated by reference to the identically numbered exhibit of the
     Company's Quarterly Report on form 10-Q/A for the quarterly period ended
     September 30, 2000.
(10) Incorporated by reference to exhibit 99.1 included in the Company's
     Registration Statement on form S-8 (File No. 333-55604) as filed with the
     Securities and Exchange Commission on February 14, 2001.

                                       82
<PAGE>

(11) Incorporated by reference to exhibit 3.3 of the Company's Quarterly Report
     on form 10-Q for the quarterly period ended June 30, 1997.
(12) Incorporated by reference to exhibit 3 of the Company's Quarterly Report
     on form 10-Q for the quarterly period ended September 30, 1997.
(13) Incorporatedby reference to the identically numbered exhibit to the
     Company's Report on Form 8-K as filed with the Securities and Exchange on
     December 24, 1998.



                                       83