<PAGE>

--------------------------------------------------------------------------------

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                  FORM 10-K/A

                                AMENDMENT NO. 3
                                 TO FORM 10-K

(MARK ONE)
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934
     [NO FEE REQUIRED]

For the fiscal year ended December 31, 1998.

OR
[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from              to.

                        Commission File Number: 0-25356
                     ____________________________________

                                  P-Com, Inc.
            (Exact name of Registrant as specified in its charter)
                      __________________________________


        Delaware                                        77-0289371
(State of Incorporation)                     (IRS Employer Identification No.)


           3175 S. Winchester Boulevard, Campbell, California 95008
         (Address of principal executive offices, including zip code)

     Registrant's telephone number, including area code:   (408) 866-3666
--------------------------------------------------------------------------------

Securities Registered Pursuant To Section 12(B) Of The Act:


       Title of each class           Name of each exchange on which registered
       -------------------           -----------------------------------------
              None                                     None


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 a 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. [X]

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant, as of March 18, 1999, was approximately $406,802,000 (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 18, 1999, approximately 48,944,270 shares of the Registrant's
Common Stock, $0.0001 par value, were outstanding.

--------------------------------------------------------------------------------
<PAGE>

                                    PART I
                                    ------

ITEM 1.  BUSINESS

   The following Business section 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 "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Certain Factors Affecting the Company" and elsewhere in this Annual Report on
Form 10-K.

   P-Com was incorporated in Delaware on August 23, 1991. P-Com supplies
equipment and services for access to worldwide telecommunications and broadcast
networks. The Company's Tel-Link(R) and Airlink/Airpro systems (point-to-point
radios) are used as wireless digital links in applications that include
interconnecting base stations and mobile switching centers in microcellular and
personal communications services ("PCN/PCS") networks for providing local
telephone company ("telco") connectivity in the local loop and public and
private networks. The integrated architecture and high software content of the
Company's systems are designed to offer cost-effective, high-performance
products with a high degree of flexibility and functionality. Additionally, the
Company offers turnkey microwave relocation services, engineering, path design,
program management, installation and maintenance of communication systems to
network service providers. The Company is currently field testing and further
developing a range of point-to-multipoint radio systems for use in both the
telecommunications and broadcast industries.

   P-Com's Tel-Link(R), Point-to-Multipoint and Airlink/Airpro radio systems
utilize a common architecture for systems in multiple millimeter wave and
unlicensed 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 and 50 GHz. The Company's systems are designed to be highly reliable, cost
effective and simple to install and maintain. Software embedded in the Company's
systems allows the user to easily configure and adjust system settings such as
frequency, power and capacity without manual tuning and mechanical adjustments.
The Company also markets a full line of Windows and SNMP- based software
products that are complementary to its systems as sophisticated diagnostic,
maintenance, network management and system configuration tools.

   The Company's radio systems are sold internationally and domestically through
strategic partners, system providers, original equipment manufacturers ("OEMs")
and distributors as well as directly to end-users. The Company's radio system
customers include Advanced Radio Telecom Corp. ("ART"), Bosch Telecom GmbH,
Lucent Technologies, Inc. (including the entities formerly known as AT&T Network
Systems Deutschland GmbH and AT&T Network Systems Nederland BV), Mercury
Communications Ltd., Mercury One-2-One Personal Communications, Orange Personal
Communications Services, Italtel S.p.A. (formerly known as Siemens (Italtel)
Limited, Ericsson, Ltd., Fujitsu Limited, Northern Telecom, Ltd. and WinStar
Communications, Inc. (collectively with its subsidiary WinStar Equipment Corp.,
"WinStar"). The Company's customers for services include AT&T Wireless, Bell
Atlantic Corp., BellSouth Corp., Mercury One-2-One Personal Communications,
Omnipoint Corporation, Orange Personal Communications Services, PrimeCo Personal
Communications, Sprint Spectrum, Tellabs Operations, Inc. and WinStar
Communications Inc.

   P-Com received in December 1993 its initial ISO 9001 registration, a standard
established by the International Organization for Standardization that provides
a methodology by which manufacturers can obtain quality certification. In
accordance with ISO 9001 requirements, the Company's ISO 9001 registration was
subsequently recertified. The Company also completed ISO 9001 registration for
its United Kingdom sales and customer support facility, Geritel facility in
Italy in 1996 and Technosystem facility in Italy in 1997. The Company is in the
process of obtaining ISO 9001 registration for its other facilities outside of
the United States.

Background

   In recent years, there has been an increase in demand for high performance
voice, data, facsimile and video communications. This trend, coupled with
regulatory changes in the United States and abroad and technological advances,
has led to significant growth in the number of users for existing
telecommunications capacity and the emergence of new wireless services for both
mobile and fixed applications.

   In response to this increased demand, existing mobile wireless service
providers, such as cellular service providers, have begun upgrading their
networks to more effectively use their allocated frequency spectrum to
accommodate more users and provide enhanced additional features, such as paging
or facsimile service. One such method of increasing capacity involves dividing
existing coverage cells into several smaller radius cells, which allows the same
frequency of the radio spectrum to be reused in adjacent cells. At the same
time, other telecommunications service providers are beginning to establish
PCN/PCS

                                       1
<PAGE>

networks to provide a broad range of mobile wireless communications similar to
these enhanced cellular services. These microcellular upgrades to existing
systems and new PCN/PCS networks require the establishment of additional,
interconnected base stations.

   Additionally, there has been a worldwide trend toward privatization of public
telephone operators ("PTOs") and deregulation of local loop services. This trend
has resulted in increased competition among companies seeking to provide local
access to the Public Switched Telephone Network (PSTN), which has resulted in
increased spending by existing PTOs and the emergence of new companies providing
fixed telecommunications services. As companies enter this market, they must
establish an infrastructure to deliver local fixed telecommunications services
and interconnect that infrastructure with the PSTN. This local access and
interconnect can often be implemented using wireless technology at a cost and
time advantage to wireline alternatives.

   As competition among service providers intensifies, it is becoming
increasingly important for them to respond quickly to changes in user patterns
and preferences. This frequently involves increasing the coverage of their
networks but also involves adding additional features, functionality, and
service offerings to their customers. As time to market has become ever more
critical, network service providers have increasingly looked to outside
suppliers, including equipment suppliers, for services such as network design
and installation. These service providers have also come to expect their
equipment suppliers to develop and offer additional products for new service
offerings, such as point-to-multipoint product offerings and access devices for
connecting their networks with the customers end site. Point-to-multipoint
offerings are being driven by the need for greater flexibility and more
efficient use of spectrum allocations. Equipment providers with expertise in
these areas are becoming critical for the implementation of network upgrades and
next generation network buildout.

   Millimeter wave radio systems are increasingly utilized for short-haul
wireless connections such as base station interconnect, local fixed
telecommunications access, and interconnect to the PSTN. The lower end of the
radio frequency spectrum, encompassing the traditional microwave frequency
bands, requires the use of more expensive equipment and has become increasingly
congested as compared to the millimeter wave frequency bands. Moreover, higher
frequencies allow a greater number of channels to be allocated in the same
percentage of spectrum compared to lower frequencies. The shorter transmission
distances of higher frequencies also allow these frequencies to be reused in
adjacent geographic areas whereas lower frequencies often propagate beyond the
desired locale into nearby areas. Therefore, regulatory authorities responsible
for the allocation of the radio wave spectrum are under increasing pressure to
assign millimeter wave frequency bands to those applications that can
effectively utilize this portion of the spectrum.

   Most conventional millimeter wave radio systems have been introduced by
suppliers of microwave technology based on architectures that were originally
designed and optimized for microwave frequency bands. These conventional systems
often are expensive to install and configure, lack certain advanced features and
do not readily support remote system management and maintenance. The Company
believes that there is a significant market opportunity for short-haul
communications solutions that are optimized for millimeter wave applications and
offer high levels of functionality, ease of installation and a low cost of
ownership.

   The above notwithstanding, during 1998 the telecommunications equipment
industry as a whole experienced a slowdown. This was due in part to the economic
turmoil in Asia, where the Company saw its sales drop by over 46% in 1998
compared with 1997.  Sales within the United States dropped by over 40% in 1998
compared with 1997, due in part to surplus capacity in the industry.
Additionally, since the Company`s largest cutomers make significant investments
in capital equipment when building telecommunication network infrastructures,
customer requirements may differ substantially from year to year.  For example,
three customers purchased an aggregate of of approximately $43 million in 1997
compared with approximately $4 million in 1998.  Likewise, as discussed further
under "Competition," the wireless telecommunications market is intensively
competitive and the Company's wireless-based radio systems compete with
alternative technologies. Many of these competitors have substantially greater
installed bases and financial and other resources than the Company.

The P-Com Solution

   While traditional high capacity microwave systems remain expensive, the
opening of unlicensed spread spectrum frequencies by the FCC has allowed cost
effective solutions in the ISM (industrial, scientific and medical) bands. The
Company's AirLink/Airpro product line has two primary applications. The first
application is to provide telephone connectivity to remote locations where the
limited number of users does not justify the cost of a cellular station or wired
communications link. AirLink is capable of providing point-to-point
communications and point-to-multipoint over distances up to thirty miles. The
second application is to provide a data transmission network in locations, such
as developing countries, where wired telecommunications infrastructure is either
unreliable or nonexistent.

                                       2
<PAGE>

   In addressing these two markets, the Company has positioned its AirLink
product line between the full featured, point-to-point, very high speed
microwave radio links and the high volume, low power spread spectrum wireless
devices. The Company believes that its AirLink product line responds to a market
need that exists between these two ends of the marketplace for a cost effective,
ruggedized, outdoor wireless product offering that is capable of transmitting at
medium data rates between 19.2 kbps and 2 Mbps. The Company offers over 20
different models of its AirLink/Airpro products to specifically address a wide
range of individual customer needs within this market segment.

   The Company's strategy for its AirLink product line is to provide last mile
and data network solutions at ranges of up to 30 miles and to continue to seek
feature improvements and cost reductions to enhance and maintain its position
within this market segment. Airlink is differentiated from Airpro by the fact
that Airlink is less expensive, without network management, while the Airpro
series incorporates network management software at a minimal cost increase.
Airpro network management allows remote configuration and diagnostics of the
Airpro network. The Company intends to maintain its strong technical position in
the wireless communications market through continued improvement of its radio
frequency designs, ASIC modem chips and software modules.

   Existing Products and Services

   P-Com offers equipment and services necessary to access telecommunications
and broadcast networks worldwide. The Company's Tel-Link(R) millimeter wave
radio systems and proprietary software offer telecommunications service
providers wireless connections for short-haul applications. The Company also
utilizes both frequency shift keying (FSK) and spread spectrum modulation
techniques in its products. In addition, the Company is developing systems which
utilize Quadrature Phase Shift Keying (QPSK) and Quadrature Amplitude Modulation
(QAM) technologies. These systems are designed to be highly reliable, cost-
effective and simple to install and maintain, thus lowering the service
provider's overall cost of ownership. Additionally, the Company offers complete
turnkey relocation services for new licensees of radio spectrum who must first
remove current users of the frequencies before building out new networks, and
also offers network design, construction, and maintenance services. P-Com also
offers frame relay and integrated access products for network service providers
to facilitate managed connections of end users to their network. The Company
markets its systems and services to cellular and PCN/PCS service providers
implementing microcellular networks and to companies offering local loop
telecommunications services.

   The diagram set forth below illustrates the use of the Company's radio
systems to connect base stations in a cellular or PCN/PCS application; the
Company's systems are used in a similar manner in cellular networks.


                            [DIAGRAM APPEARS HERE]

                                     (logo)


   The following diagram shows the use of the Company's systems in a PTO/local
loop application to establish short-haul radio connections for telco service
utilizing the Company's point-to-point radio systems:


                            [DIAGRAM APPEARS HERE]

                                       3
<PAGE>

   The following diagram shows the use of the Company's systems in a PTO/local
loop application to establish short-haul radio connections for telco service
utilizing the Company's point-to-multipoint radio systems. The Company believes
its current solutions offer the following benefits:


                            [DIAGRAM APPEARS HERE]


   Commonality of Architecture. The Company's Tel-Link(R) systems employ a
design architecture that is optimized for operation at millimeter wave and
microwave frequencies. In contrast to most conventional radio systems, the
Company's systems across this frequency range are identical in architecture,
functionality and features, except for the final stage of the system which
determines the transmit and receive frequencies. This degree of commonality
assists P-Com in providing a range of products to customers that operate systems
in numerous millimeter wave and microwave bands. Currently, the Company is
shipping 7 GHz, 13 GHz, 14 GHz, 15 GHz, 18 GHz, 23 GHz, 26 GHz, 28 GHz, 31 GHz,
38 GHz and 50 GHz systems. The common architecture employed in the Company's
systems is designed to offer P-Com's customers lower overall cost of ownership
and ease of system implementation through such benefits as reduced spare part
inventories, common features and software across the family of systems, reduced
training and easy integration into a network management system. The Tel-Link(R)
systems employ a high level of circuit integration, with the concomitant
advantages of fewer components and connections, less heat dissipation and
reduced human involvement in production and testing.

   Ease of Installation. The Company's systems were designed to lower
installation costs by minimizing the time and effort involved in system
implementation. The two primary assemblies of the systems, the outdoor unit
("ODU"), which is typically located on a tower or a rooftop, and the indoor unit
("IDU"), are connected with a single coaxial cable. Most conventional systems
require multiple cable connections between the IDU and the ODU, are manually
tuned and require numerous mechanical adjustments. The Company's systems are
smaller and lighter than conventional systems, and are software-configurable,
requiring minimal manual tuning and mechanical adjustments during installation.

   High Level of Software Functionality. The Tel-Link(R) architecture is
designed to provide the Company's customers with a high level of functionality
to facilitate operation of the systems. The configuration of the Company's
systems, including setting the system's power and frequency and upgrading its
capacity, can be performed via the keypad located on the IDU. The Company also
offers proprietary Windows and SNMP-based software tools that permit a user to
perform system configuration from a personal computer attached directly to the
IDU or from any remote location accessed through a network management system.
The capacity of the Company's systems can be upgraded through software,
providing a greater degree of flexibility for customers. In contrast,
conventional millimeter wave systems typically require mechanical adjustments
and manual tuning on both the IDU and ODU, and their capacities cannot be
upgraded using software. To date, the Company has not sold a significant amount
of software separately.

   Cost-effective Maintenance. The ease of maintenance of the Tel-Link(R)
systems is primarily due to the software embedded in the system and its software
tools. The Company includes a significant amount of the system's circuitry in
the IDU where system reliability is increased due to less demanding temperature
extremes and maintenance is easier to perform. Most conventional systems contain
more circuitry in the ODU, which exposes the circuitry to a wider temperature
range. This may require that more maintenance take place in the ODU, which is
typically more difficult to access. Use of the Company's proprietary maintenance
software tools can be on-site at the IDU or from any remote location through a
network management

                                       4
<PAGE>

system. These tools allow the user to read the status of numerous radio
parameters and to change settings and configurations if desired. Maintenance
tools offered with the Tel-Link(R) systems include in-service performance
monitoring and analysis, system alarm reporting and IDU and ODU temperature
readings.

   Comprehensive Services. The Company provides turnkey microwave relocation,
engineering, path design, program management, installation and maintenance to
the telecommunications industry. Such service packages assist in meeting the
critical cost and timeline objectives demanded by the wireless industry. The
Company's service division is designed to be involved in the aspects of system
build-out, including such tasks as needs and objectives assessment, system and
program planning, network engineering, operations, maintenance, frequency
coordination and resolution of regulatory issues, management reporting,
training, installation, commissioning and acceptance, and preparation of
documentation. The Company provides these services either directly or through
approved subcontractors.

   Products Under Development

   Point-to-Multipoint Products. The re-allocation of spectrum in many bands
ranging from 2.4 GHz to 40 GHz is enabling the development of new services such
as local multipoint distribution service (LMDS) and local multipoint
communications service (LMCS). These services address the desire of service
providers for more efficient use of spectrum within a particular service area.
Certain bandwidth demand thresholds must be met before a customer can
economically justify the cost of a dedicated point-to-point system. Point-to-
multipoint provides the flexibility for a service provider to offer customers
wireless bandwidth on demand thereby creating the concept of a wireless central
office. The Company is currently developing a point-to-multipoint system to
provide service to end users from a hub station in a cell typically extending
from 1 to 10 kilometers. Cell size is based on frequency, traffic requirements,
and desired availability. The hub consists of one to 24 sector subsystems that
include sectorized antennae and their associated communications equipment. Each
sector subsystem covers from 15 to 90 degrees of azimuth with additional sector
subsystems providing up to 360 degrees of coverage. The diagram below
illustrates the potential use of the Company's point-to-multipoint system to
connect end-users to a hub station:



                             [DIAGRAM APPEARS HERE]

                                       5
<PAGE>

P-COM, INC. POINT-TO-MULTIPOINT PRODUCTS AS OF DECEMBER 31, 1998


<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
                     FREQUENCY                        INTERFACES    SUBSCRIBER DATA RATES   MODULATION SCHEME & ACCESS
                                                                                                      METHOD
-----------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>           <C>                     <C>
10 GHZ SYSTEMS*                                           E0         64 KBPS TO 20 MB/S            UP TO 64 QAM,
   Hub Radius: up to 6 miles                              E1         TDM                           TDMA
                                                          E3
-----------------------------------------------------------------------------------------------------------------------
24 GHZ SYSTEMS                                            DS0       64 KBPS TO 155 MB/S            UP TO 64 QAM,
   HUB RADIUS: UP TO 4 MILES                             ISDN       ATM & TDM                      FDMA, TDMA
                                                          DS1
                                                      Frame Relay
                                                       MPEG - 2
                                                        10BaseT
                                                        DS - 3
                                                       155 Mbps
-----------------------------------------------------------------------------------------------------------------------
26 GHZ SYSTEMS*                                          E0 64      KBPS TO 20 MB/S                UP TO 64 QAM,
   Hub Radius: up to 3.5 miles                           E1         TDM                            TDMA
                                                         E3
-----------------------------------------------------------------------------------------------------------------------
28/31 GHZ SYSTEMS*                                        DS0       64 KBPS TO 155 MB/S            UP TO 64 QAM,
   HUB RADIUS: UP TO 3.5 MILES                           ISDN       ATM & TDM                      FDMA, TDMA
                                                          DS1
                                                      Frame Relay
                                                       MPEG - 2
                                                        10BaseT
                                                        DS - 3
                                                       155 Mbps
-----------------------------------------------------------------------------------------------------------------------
38 GHZ SYSTEMS                                            DS0       64 KBPS TO 155 MB/S            UP TO 64 QAM,
   HUB RADIUS:UP TO 3 MILES                              ISDN       ATM & TDM                      FDMA, TDMA
                                                          DS1
                                                      Frame Relay
                                                       MPEG - 2
                                                        10BaseT
                                                        DS - 3
                                                       155 Mbps
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

 -------------
*   Not currently available for shipment; prototype under development.


The P-Com Strategy

   The Company's goal is to become a leading supplier of high performance radio
systems (point-to-point and point-to-multipoint) operating in millimeter wave
and spread spectrum microwave frequency bands, as well as related service
offerings such as microwave relocation, installation and path design. The
following are the key elements of its strategy to achieve this objective:

     Focus on Millimeter Wave and Spread Spectrum Microwave Market. The Company
is designing its products specifically for the millimeter wave and spread
spectrum microwave frequency band. The Company's core architecture is designed
to optimize its systems for operation at millimeter wave and microwave
frequencies. The Company currently ships 2.4 GHz, 5.7 GHz, 7 GHz, 13 GHz, 14
GHz, 15 GHz, 18 GHz, 23 GHz, 26 GHz, , 28 GHz, 31 GHZ, 38 GHz and 50 GHz
systems. The Company is selling its systems primarily to cellular and PCN/PCS
service providers who are implementing microcellular networks using Code
Division Multiple Access (CDMA), Groupe Speciale Mobile (GSM), Time Division
Multiple Access (TDMA) and Extended Time Division Multiple Access (E-TDMA), PTO
companies offering local loop services and service companies providing
alternative access are also users.

                                       6
<PAGE>

   Provide Ancillary Services in RF Engineering and System Construction. The
Company offers turnkey microwave relocation services. These services move
existing users of a specific radio frequency in order to clear the path for new
users. In addition, the Company offers engineering, path design, program
management, installation and maintenance. The Company believes this service
business will provide it with many strategic advantages, including allowing it
to develop strong relationships with decision makers early and maintain these
relationships throughout the network buildout process.

   Continue to Expand Worldwide Presence. The Company is focused on expanding
its presence internationally and further establishing its market position in the
United States. To date, the market opportunities for the Company's systems have
been greater abroad, as the markets for PCN/PCS and microcellular networks and
local loop access have developed at a faster rate than in the United States. The
Company intends to continue its international focus by meeting international
telecommunications standards where appropriate and using strategic alliances to
penetrate international markets. The Company has met the standards established
by the European Telecommunications Standards Institute ("ETSI") and achieved
regulatory approval for certain of its systems in many countries including,
Australia, the Czech Republic, France, Germany, Greece, Hungary, Italy, Mexico,
Spain, the United Kingdom, and the United States. The process for additional
regulatory approvals for certain systems is underway in numerous other
countries, including Belgium, China and Switzerland. The Company's management
team consists of a group of highly-experienced telecommunications executives
from Italy, the United Kingdom and the United States. The Company maintains
offices throughout the world, has acquired numerous companies throughout the
world, and will continue to open offices in new geographic areas as needed in
order to support sales and customer support efforts.

   Build and Sustain Manufacturing Cost Advantage. The Company has designed its
system architecture to reduce the number of components incorporated in each
system and to permit the use of common components across the range of the
Company's products. The Company believes this will assist in the reduction of
its manufacturing costs by permitting volume component purchases and enabling a
standardized manufacturing process. The Company utilizes contract manufacturers
to service its volume requirements, reserving its internal manufacturing
capabilities to produce initial quantities of new products prior to commencement
of volume shipments and to respond to special customer requirements regarding
specifications or delivery.

   Leverage and Maintain Software Leadership. The Company seeks to differentiate
its systems through the proprietary software embedded in the IDU and ODU and its
Windows and SNMP-based software tools. This software is designed to allow  the
Company to deliver to customers a high level of functionality in a system that
can be easily configured by the user to meet particular needs. In addition, the
embedded software enables the capacity of the Company's systems to be easily
upgraded. Software tools are also offered to facilitate network management of
the system. The Company intends to continue its focus on software development in
order to support increasing levels of functionality, ease of configuration and
use of the Company's systems.

   Position P-Com for Emerging Applications and Markets. The Company intends to
market its systems for applications other than microcellular, PCN/PCS and local
loop services and to explore emerging geographic markets. Many growing
businesses and local government organizations are choosing to install, maintain
and manage their own telecommunications infrastructures and only interface with
a PTO where a connection to the public network is required.

   As the voice, data and video traffic within an organization increases, this
approach becomes more cost-effective than leasing these intracompany services
from a PTO. The Company believes that additional markets may develop abroad, as
the implementation of the communications infrastructure upgrades in emerging
countries increasingly bypasses traditional wired networks and moves directly to
a cost-effective wireless network.

   Acquire Companies with Complementary Products and Services. The Company
believes that acquisitions of companies with complementary products and services
will allow the Company to expand the products and services that it offers to
both its own customer base and to the customer bases of the acquired companies.
The Company has acquired companies that offer spread spectrum radios, point-to-
multipoint distribution systems currently under development, microwave
relocation and system construction, wire-line access systems including advanced
frame relay network management products and integrated services access
platforms, engineering, program management and installation of wireless
communications, cable and fiber optic systems. On March 28, 1998, the Company
acquired substantially all of the assets of the Wireless Communications Group of
Cylink Corporation, a Sunnyvale, California-based company (the "Cylink Wireless
Group"). The Cylink Wireless Group designs, manufactures and markets spread
spectrum radio products for voice and data applications in both domestic and
international markets. In July 1998, the Company acquired the assets of Cemetel
S.r.L., an Italian company engaged in the supply of engineering services to
wireless telecommunication providers in Italy. This acquisition was not material
to the Company's financial statements.

                                       7
<PAGE>

   Ongoing Development of Point-to-Multipoint Systems. The Company is continuing
to pursue development of point-to-multipoint radio systems for use in both the
telecommunications and broadcast industries. Incorporated into networks, these
systems are being designed to deliver broadband digital services offering
telephony, high-speed two-way data, video conferencing, Internet access, and
broadband video services. The systems are being designed to allow alternative
access to local circuit, packet and cell switching facilities within
metropolitan areas. The Company believes that the point-to-multipoint solution
will provide high-bandwidth alternatives to traditional network access methods.
It is intended that this capability, along with the Company's cell modeling
capability, will allow the wireless carriers to increase traffic capacity and
revenues.

Technology

   The Company believes its approach to millimeter wave radio systems and spread
spectrum microwave is significantly different from most conventional approaches.
Through the use of its proprietary digital signal processing, frequency
converter and antenna interface technology, and its proprietary software and
custom application-specific integrated circuits, the Company offers a highly-
integrated, feature-rich system. This integration is designed to result in
reliability and cost advantages. The microprocessors and embedded software in
both the IDU and ODU enclosures enable flexible customization to the user's
specific telecommunications network requirements.

   MILLIMETER WAVE AND MICROWAVE TECHNOLOGY

   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. Since high frequency transmissions are best
suited for shorter distances, 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. In addition, the cost of millimeter wave radio
systems and spread spectrum ISM band systems are generally less than that of
microwave radio systems.

   Most conventional millimeter wave radio systems use technology that is very
similar to microwave radio technology, except that a millimeter wave frequency
source is used at the final stage instead of a lower frequency microwave source.
As depicted below, when transmitting, the IDU, which is the radio system's
interface to the end-user's equipment, sends an unmodulated digital transmit
signal to the ODU. In the ODU, this signal directly modulates a transmit Gunn
oscillator which has its final frequency controlled by a synthesizer. The
signal, now at the desired millimeter wave frequency, 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 mixed in a receive converter
with a receive millimeter wave frequency source, typically a Gunn oscillator
which has its frequency controlled by a synthesizer. The signal is then routed
through an intermediate frequency (IF) converter, demodulated, and the resultant
signal is then sent to the IDU where it is directed to the end-user's equipment.


                             [DIAGRAM APPEARS HERE]

                                       8
<PAGE>

P-Com believes that its millimeter wave technology is significantly different
from that contained in most conventional systems. When transmitting, the
Company's IDU sends an already-modulated, 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 downconverter with the same frequency source that was used when
transmitting. The signal is passed through the same IF processor to the IDU
where it is demodulated and sent to the end-user's equipment.

   The 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 upconverted into a microwave
frequency in the ODU, or in the case of some Airlink 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. In contrast, conventional millimeter wave systems often use
different designs for several components of the ODU for each different frequency
band. Third, the final transmit and receive frequencies are electronically
tunable either from the IDU or from a remote location using a network management
system. In contrast, many conventional approaches employ a Gunn oscillator to
generate the transmit millimeter wave frequency source and a second Gunn
oscillator to receive the millimeter wave transmission from the remote end.
These devices must be manually tuned and adjusted to achieve proper operation.
The Company believes that the Gunn oscillator technology that is typically used
in conventional approaches is inherently less reliable than P-Com's proprietary
frequency converter technology. 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 SYSTEM ARCHITECTURE

   The Company's millimeter wave and spread spectrum microwave radios comprise
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 waveguide transition technology. The following diagram
illustrates a typical P-Com Tel-Link(R) radio system:


                            [DIAGRAM APPEARS HERE]

                                       9
<PAGE>

   Indoor Unit (IDU) and Software. The IDU is the interface to the user's
network. It is an indoor mounted assembly that contains baseband electronics,
including the functions of line interface, digital signal processing,
modulation/demodulation and intermediate frequency generation. The IDU also
includes the alarm and diagnostic, service channel and telecommunications
network management interfaces. Finally, the IDU contains the capability to set
the system capacity, frequency synthesizer and power output of the radio; no
access to the ODU is required.

   The configuration of the Company's systems, including the setting of the
system's power, frequency and capacity, is performed via the keypad located on
the IDU. The Company also offers proprietary Windows and SNMP-based software
tools that permit a user to perform system configuration from a personal
computer attached directly to the IDU or from any remote location accessed
through a network management system. In contrast, conventional millimeter wave
systems typically require mechanical adjustments and manual tuning, which
involves sending maintenance personnel to the radio location. The software
embedded in the Company's systems also allows the easy upgrade of system
capacity; minimal hardware changes are required.

   Outdoor Unit (ODU). The ODU consists of a lightweight, compact, integrated RF
electronics enclosure which attaches to an antenna. The RF enclosure contains
the electronics that convert and amplify the modulated signal received from the
IDU. Typically, the ODU is installed outdoors on a tower or rooftop. The RF
enclosure is connected to the antenna with the Company's proprietary waveguide
transition that requires no alignment, tools or special techniques. It is
secured to the antenna with quick release clips that typically allow an
installer to replace the complete unit in less than five minutes. In addition,
since the antenna mount is independent of the RF enclosure, replacement of the
RF enclosure requires no realignment of the antenna. Airlink products, which
operate at lower frequencies than Tel-Link systems, utilize cost-effective
coaxial connections between the antenna and terminal.

   IDU-ODU Interconnection. The single coaxial cable connecting the Company's
IDU and ODU carries transmit and receive signals as well as DC power. This cable
can reach up to 1,000 feet without requiring additional amplification or a
setting for a specific length. No specific matching is required between the ODU
and IDU: any IDU within a particular capacity range will operate to full
specification with any ODU within that capacity range, irrespective of the
frequency band in which the ODU operates. Many conventional systems require
multiple cable connections, distance-specific settings and specific matching
between the IDU and the ODU.

Products and Services

   Current Products

   Tel-Link(R) Products. The Company's products are based on a common system
architecture and are designed to carry various combinations of voice, data and
video traffic and to be easily configurable based on the needs of its customers.
The Tel-Link(R) systems operate at both E1 and T1/T3 data rates, as well as
lower data rates. E1 is an international standard data rate operating at 2.048
megabits per second that carries 30 duplex voice circuits and T1 is a U.S.
standard data rate operating at 1.544 megabits per second that carries 24 duplex
voice circuits. T3 is a U.S. standard data rate operating at 44.736 megabits per
second that carries 672 duplex voice circuits. The Company is also developing
prototypes for Tel-Link(R) systems that operate at E3 data rates. E3 is an
international standard data rate operating at 34.368 megabits per second that
carries 480 duplex voice circuits. Typical transmission distances for the
Company's systems range from one to fifty miles, depending on the specific
frequency at which the system operates, antenna size and local climate
conditions.

   Airlink Products. Airlink products operate at data rates between 19.2 kbps
and 2.048 Mbps at 2.4 GHz and 5.8 GHz.

   All of the Company's systems currently being shipped are designed to operate
in millimeter wave and spread spectrum microwave frequency bands. The Company's
systems have been shipped for network use or use in system trials in Australia,
Belgium, Bulgaria, Canada, Chile, China, Columbia, the Czech Republic, England,
France, Germany, Hong Kong, India, Indonesia, Ireland, Israel, Italy, Japan,
Malaysia, Mexico, Philippines, Saudi Arabia, Scotland, South Africa, Spain,
Switzerland, Taiwan, Thailand, Turkey, the United States, Venezuela and Vietnam.
The table on the following page provides certain information about the systems
currently being marketed by the Company, the list price range of such systems,
their transmission distances, the number of lines each system is designed to
offer and the maximum number of voice channels each system is designed to
support. List prices for each system are single quantity prices for one radio
link consisting of two radios. The Company typically offers substantial volume
price discounts. The higher end of the list prices represent prices for higher
capacity redundant radios. Most of these configurations are currently being
shipped to customers.

                                       10
<PAGE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
                                 P-COM, INC. PRODUCTS AS OF DECEMBER 31, 1998
==================================================================================================================
                                                                     NUMBER OF LINES;          NUMBER OF
                      FREQUENCY                          STANDARD       DATA RATES          VOICE CHANNELS
------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>         <C>                 <C>
SPREAD SPECTRUM:
 2.4 GHz SYSTEMS                                         E1            1, 2*, 3*, 4*          30, 60, 90, 120
   Distance: Up to 50 miles                              T1            1, 2*, 3*, 4*          24, 48, 72, 96
   List Price: $15,000-$62,000                           Data          19.2 Kbps-2 Mbps
------------------------------------------------------------------------------------------------------------------
 5.7 GHZ SYSTEMS                                         E1            1, 2*, 3*, 4*          30, 60, 90, 120
   Distance: Up to 35 miles                              T1            1, 2*, 3*, 4*          24, 48, 72, 96
   List Price: $19,000-$70,000                           Data          56 Kbps-2 Mbps
------------------------------------------------------------------------------------------------------------------
LICENSED FREQUENCIES:
 7 GHz SYSTEMS                                           E1            1, 2, 4, 8, 16        30, 60, 120, 240, 480
   Distance: Up to 35 miles                              E3*           1                     480
   List Price: $32,000-$94,000                           T1+           1, 4, 8, 16           24, 96, 192, 384
                                                         T3+           1                     672
                                                         Data++        3 x 64 Kbps
------------------------------------------------------------------------------------------------------------------
 13/14/15 GHZ SYSTEMS                                    E1            1, 2, 4, 8, 16       30, 60, 120, 240, 480
   Distance: Up to 15 miles                              E3*           1                    480
   List Price: $30,000-$93,000                           T1+           1, 4, 8, 16          24, 96, 192, 384
                                                         T3+           1                    672
                                                         Data++        3 x 64 Kbps
------------------------------------------------------------------------------------------------------------------
 18/23/26 GHZ SYSTEMS                                    E1            1, 2, 4, 8, 16       30, 60, 120, 240, 480
    Distance: Up to 10 miles                             E3*           1                    480
    List Price: $27,000-$82,000                          T1            1, 4, 8, 16          24, 96, 192, 384
                                                         T3            1                    672
                                                         Data++        3 x 64 Kbps
------------------------------------------------------------------------------------------------------------------
 38 GHZ SYSTEMS                                          E1            1, 2, 4, 8, 16       30, 60, 120, 240, 480
    Distance: Up to 6 miles                              E3*           1                    480
    List Price: $24,000-$73,000                          T1            1, 4, 8, 16          24, 96, 192, 384
                                                         T3            1                    672
                                                         Data          3 x 64 Kbps
------------------------------------------------------------------------------------------------------------------
 50 GHZ SYSTEMS                                          E1            1, 2, 4, 8*, 16*    30, 60, 120, 240, 480
    Distance: Up to 3 miles                              Data++        3 x 64 Kbps
    List Price: $30,000-$75,000
------------------------------------------------------------------------------------------------------------------
</TABLE>
----------------------
*       Not currently available for shipment; prototypes under development.
+       Not currently available for shipment; prototypes to be developed based
        on customer demand, if any.
++      Currently available for shipment; no orders yet received.


          Wireline Access Products. The Company's wireline access products are
designed and manufactured by the wholly-owned subsidiary, Control Resources
Corporation. They are based on advanced architectures to provide proactive
management, real time and historic performance data capture and flexible cost
effective configurations for complex network requirements. Current NetPath
products operate from 56 Kbps DDS service through 1.544 Mbps T1 service. The
NetPath integrated access platform product can support multiple high speed
access links and can internally transfer data at up to 1 Gbps. Products are
managed using Telnet, VT100 and SNMP and have integrated ISDN interfaces and
analog modems. The following products are currently being shipped or are
currently available for shipment:

<TABLE>
<CAPTION>
      ---------------------------------------------------------------------------------------------------------
               PRODUCT                               APPLICATION                           ACCESS RATES
      ---------------------------------------------------------------------------------------------------------
            <S>                               <C>                                         <C>
            NetPath 64                        Managed Frame Relay Access                  56 and 64 Kbps
            NetPath 100                       Managed Frame Relay Access                  F/T1 to T1
            NetPath 400                       Integrated Access                           1 to 4 T1
      ---------------------------------------------------------------------------------------------------------
</TABLE>

                                       11
<PAGE>

   Technosystem Products. The Company also designs, manufactures and markets
equipment transmitters and transponders for television and radio broadcasting
through its subsidiary, Technosystem, S.p.A. The range of products include
audio/video modulators, converters, amplifiers, transponders, transmitters and
microwave links.

 Products Under Development

   Point-to-Multipoint Communications Systems. P-Com is currently field testing
point-to-multipoint systems to provide bandwidth management, increased spectral
efficiency, comprehensive network management, increased user and network
interfaces, and lower cost. The system is being developed to be highly scalable,
and to accommodate hub and remote site growth. The Company intends to offer cost
effective, highly efficient modulation schemes such as 32 and 64 QAM at
millimeter wave frequencies. There can be no assurance that the Company will be
able to successfully develop the point-to-multipoint systems or that such
products will achieve market acceptance. To date, no point-to-multipoint systems
have been shipped for revenue.

 Services

   P-Com, through its P-Com Network Services subsidiary ("Network Services"),
provides telecommunication service offerings covering the complete spectrum,
available as a turn-key package or as individual services. Network Services
performs and manages every aspect of wired or wireless system build-outs, from
initial system and path planning through network optimization and maintenance.
Network services also provides tower design, fabrication and construction. For
the switching environment, Network Services offers all the resources necessary
for the installation of central office equipment.

   Network Services' professional staff have managed the design and construction
of both wired and wireless telecommunications systems of all sizes and
complexity throughout the United States, United Kingdom, Italy and in some 25
countries around the world. Network Services has an operational presence
throughout the United States, United Kingdom and Italy with over 350 personnel
dedicated to serving our customer requirements. Network Services' customers are
comprised of some of the largest telecommunications companies in the world
including AT&T, BellSouth, Bell Atlantic, Sprint, Winstar, Orange PCS, Cellnet,
Mercury 1-2-1, and WIND. Other customers also include major communications
equipment manufacturers including Alcatel, NEC, Harris, Ericsson, Tellabs and
others.

 Sales And Marketing

   The Company's sales and marketing efforts are headquartered in the Company's
executive offices in Campbell, California. The Company has established and
staffed a sales and customer support facility in the United Kingdom that serves
as a base for the European market. Internationally, the Company uses a variety
of sales channels, including system providers, OEMs, dealers and local agents,
as well as selling directly to its customers. The Company has sales offices or
personnel located in China, England, France, Germany, Italy, Mexico, Poland,
Turkey and United Arab Emirates, and has worldwide OEM agreements with Lucent
Technologies, Fujitsu and Italtel. In addition, the Company has established
agent relationships in numerous other countries in the Asia/Pacific region and
in South America and Europe. In the United States, the Company utilizes both
direct sales and OEM channels.

   The Company currently engages in a lengthy sales process that commences
with the solicitation of bids by prospective customers. If the Company is
selected to proceed further, the Company may provide systems for incorporation
into system trials or may proceed directly to contract negotiations. If 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 anticipates that it will increasingly rely upon OEMs
and system providers during the sales process, and will therefore have less
direct contact during this process with end-users.

   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.

                                       12
<PAGE>

Customers

   The Company's principal customers currently include network operators, which
incorporate the Company's systems into networks to deliver communications
services directly to consumers, and system providers, which incorporate the
Company's systems into networks to be sold to network operators, that in turn
provide communications services directly to consumers. Certain customers may act
as both network operators and system providers depending on the circumstances.

 Network Operators

   These users include regulated and non-regulated providers of wireless voice,
data and video services to corporate and individual customers. Current and
potential applications include cellular and PCN/PCS networks (CDMA, TDMA, GSM
and E-TDMA), PTO/local loop service, network interconnections and access to long
distance networks. For cellular and PCN/PCS applications, users of P-Com's
systems in a single cellular service area may include multiple PCN/PCS
providers, wireline cellular service operators, non-wireline cellular service
operators and alternate service providers.

 System Providers

   These customers provide engineering and installation services for their
customers, which consist of cellular service providers, private corporations,
utilities and local government entities. Current and potential applications
include supervisory control systems for water, electric and gas companies, local
area networks for private corporations and educational institutions, and
voice/data/video networks for government users (police, fire, safety). These in-
country system providers accomplish the network design and provide the field
effort necessary to install, commission and maintain the Company's millimeter
wave and spread spectrum microwave systems. System providers are also
extensively used by PTOs and cellular and PCN companies in Eastern Europe,
Russia, China and other developing countries.

   The following list represents certain customers from which the Company has
generated revenues since the beginning of 1998:

<TABLE>
<CAPTION>
             INTERNATIONAL                                                   DOMESTIC
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>
  Bosch Telecom GmbH                                                  Advanced Radio Telecom Corporation
  Cable and Wireless Communication                                    AT&T Wireless Services
  Ericsson Limited                                                    Bell Atlantic Corp.
  Esmartel House                                                      Bellsouth Mobility
  Fareastone                                                          FM Associates
  Ficomp System, Inc.                                                 Horizon Technologies, LLC
  Fujitsu Limited                                                     IBM
  Gentec                                                              Larscom Incorporated
  GMA Network                                                         Lucent Technologies, Inc.
  Jonmag Group                                                        PrimeCo Personal Communications
  Lucent Technologies International, Inc.                             Sprint Spectrum
  Mercury One-2-One Personal                                          Teleport Communications Group
    Communications                                                    Tellabs Operations, Inc.
  Norweb Communications                                               WinStar Communications, Inc.
  Orange Personal Communications
    Services
  Siemens (Italtel) Limited
  Transasia Telecommunications
  Teleport Communications Group
  TSY Poland
=========================================================================================================================
</TABLE>

                                       13
<PAGE>

   For the year ended December 31, 1998, approximately two hundred customers
accounted for substantially all of the Company's sales, and one customer
individually accounted for over 10% of the Company's 1998 sales. In 1997, the
Company had two customers, which individually accounted for over 10% of the
Company's sales. Sales to Orange Personal Communications Services accounted for
approximately 23% of the Company's sales in 1998, and sales to Orange Personal
Communications Services and WinStar Wireless, Inc. accounted for approximately
15% and 11% of the Company's sales, respectively, in 1997. As of December 31,
1998, six customers accounted for over 59% of the Company's backlog scheduled
for shipment in the twelve months subsequent to December 31, 1998. The breakdown
of net sales by geographic customer destination are as follows (in thousands):

<TABLE>
<CAPTION>

                                                      1998          1997           1996
                                                      ----          ----           ----
                 <S>                              <C>             <C>           <C>
                 Sales:
                   United States                    $ 41,597       $ 70,312       $ 39,530
                   United Kingdom                     71,399         69,201         52,415
                   Europe                             44,790         45,061         25,170
                   Africa                             19,104          6,323             --
                   Asia                               18,322         15,548          3,422
                   Other geographic region              (268)        14,257            416
                                                    --------       --------       --------
                     Totals                         $194,944       $220,702       $120,953
                                                    ========       ========       ========
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

   The Company anticipates that, at least for the near term, it will continue to
sell its radio systems to an expanding, but still relatively small, group of
customers. Many of the Company's customers are implementing new networks and may
require additional capital to implement fully their planned networks, e.g.
Fareastone, Mercury One-2-One Personal Communications, Orange Personal
Communications Services and WinStar Wireless, Inc. The Company's ability to
achieve or increase its sales in the future will depend in significant part upon
its ability to obtain and fulfill orders from existing and new customers and
maintain relationships with and provide support to existing and new customers.
Equally important is its ability to manufacture systems on a timely and cost-
effective basis and to meet stringent customer performance and shipment delivery
dates. As a result, any cancellation, reduction or delay in orders by or
shipments to any customer, as a result of manufacturing difficulties or
otherwise, or the inability of any customer to finance its purchases of the
Company's radio systems may have a material adverse effect upon the Company's
business, financial condition and results of operations. There can be no
assurance that the Company's sales will increase in the future or that the
Company will be able to retain and support existing customers or to attract new
customers.

   Orders for the Company's products have typically been strongest towards the
end of the year.  This trend continued in 1998 even though sales in the second
half of the year declined when compared with the comparable period of 1997.  To
the extent that this trend continues in the future, the Company's results of
operations will fluctutate from quarter to quarter.

   The Company's backlog was approximately $75.0 million as of December 31,
1998, as compared to approximately $65.2 million as of December 31, 1997. The
increase is primarily due to the expansion of the Company's presence in its
international market. 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, 1998 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. In addition, the Company's customers have increasingly
been requiring shipment of products at the time of ordering rather than
submitting purchase orders far in advance of expected dates of product shipment.

   The Company also provides to its customers significant volume price
discounts, which are expected to lower the average selling price of a particular
product line as more units are sold. Likewise, the Company expects that the
average selling price of a particular product line will also decline as such
product matures, and as competition increases. Accordingly, the Company's
ability to maintain or increase sales will depend upon many factors, including
its ability to increase unit sales volumes of its systems and to introduce and
sell systems at prices sufficient to compensate for reduced revenues resulting
from declines in the average selling price of the Company's more mature
products. Last, most of the Company's sales are made to customers located
outside the United States, which introduces additional risks such as ecomonic
turmoil and currency fluctuations. For a more detailed analysis of risks
attendant to foreign operations, see Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Uncertainty in
International Operations."

                                       14
<PAGE>

Manufacturing

   The Company's manufacturing objective is to produce systems that conform to
P- Com's specifications at the lowest possible manufacturing cost. The Company
has designed its system architecture to reduce the number of components
incorporated in each system and to permit the use of common components across
the range of the Company's products. P-Com believes this will reduce its
manufacturing costs by permitting volume component purchases and enabling a
standardized manufacturing process. Where appropriate, the Company has developed
component designs internally to seek to obtain higher performance from its
systems at a lower cost. The Company is engaged in an effort to increase the
standardization of its manufacturing process in order to permit it to more fully
utilize contract manufacturers.

   As part of its program to reduce the cost of its radio systems and to support
an increase in the volume of orders, the Company first began to utilize contract
manufacturers to produce its systems, components and subassemblies in the fourth
quarter of 1994, and expects to rely increasingly on such manufacturers in the
future. Currently, these contract manufacturers are Remec, Inc., Sanmina
Corporation, SPC Electronics Corp., Senior Systems Technology, Inc., GSS Array
Technology and Celeritek, Inc.

   The Company also relies on outside vendors to manufacture certain components
and subassemblies used in the production of the Company's radio systems. Certain
components, subassemblies and services necessary for the manufacture of the
Company's systems are obtained from a sole supplier or a limited group of
suppliers. In particular, Eltel Engineering S.r.L. and Associates, Milliwave and
Xilinx, Inc. are sole source or limited source suppliers for critical components
used in the Company's radio systems. The Company intends to reserve its internal
manufacturing capacity for new products and products manufactured in accordance
with a customer's custom specifications or expedited delivery schedule.
Therefore, the Company's internal manufacturing capability for standard products
is very limited, and the Company intends to rely on contract manufacturers for
high volume manufacturing. There can be no assurance that the Company's internal
manufacturing capacity and that of its contract manufacturers will be sufficient
to fulfill the Company's orders. 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 the
Company's business, financial condition and operating results.

   The Company's reliance on contract manufacturers and on sole suppliers or a
limited group of suppliers and the Company's increasing reliance on
subcontractors involves several risks, including a potential inability to obtain
an adequate supply of finished radio systems and required components and
subassemblies, and reduced control over the price, timely delivery, reliability
and quality of finished radio systems, components and subassemblies. The Company
does not have long-term supply agreements with most of its manufacturers or
suppliers. In addition, the Company has from time to time experienced and may in
the future continue to experience delays in the delivery of and quality problems
with radio systems and certain components and subassemblies from vendors.
Manufacture of the Company's radio systems and certain of these components and
subassemblies is an extremely complex process, and there can be no assurance
that delays caused by contract manufacturers and suppliers will not occur in the
future. Certain of the Company's suppliers have relatively limited financial and
other resources. Although the Company intends to qualify alternative sources and
has the ability to manufacture its finished radio systems in limited quantities
and certain of such components internally, any inability to obtain timely
deliveries of components and subassemblies of acceptable quality or any other
circumstance that would require the Company to seek alternative sources of
supply, or to manufacture its finished radio systems or such components and
subassemblies internally could delay the Company's ability to ship its systems.
Any such delay could damage relationships with current or prospective customers
and could therefore have a material adverse effect on the Company's business,
financial condition and operating results.

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 $41.5 million, $29.1 million and
$20.2 million in 1998, 1997 and 1996, respectively, in research and development
efforts and expects to continue to invest significant resources in research and
development, including new product development and acquisitions.

   The Company's research and development efforts can be classified into three
distinct efforts: (1) increasing the functionality of its point-to-point 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 point-to-point radio systems under
development; (2) developing new products based on its core technologies, such as
a point-to-multipoint product offering for applications such as cable or fiber
replacements; and (3) 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, such as the Company's NetPath
integrated access product. There can be no assurance that the Company will
continue to focus on these areas or that current efforts will result in new
product introductions or modifications to existing products.

                                       15
<PAGE>

   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, 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 could 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.

Business and Geographic Segments

   In 1998, the Company adopted the Statement of Finanical Accounting Standards
("SFAS") No. 131, "Disclosures About Segments of an Enterprise and Related
Information." SFAS No. 131 establishes standards for reporting information about
operating segments in annual financial statements and requires selected
information about operating segments in interim financial reports issued to
stockholders. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decisionmaker in deciding how to allocate
resources and in assessing performance. The Company's chief operating
decisionmaker directs the allocation of resources to operating segments based on
the profitability and cash flows of each respective segment. Operating segments
are the individual reporting units within the Company. These units are managed
separately, and it is at this level where the determination of resource
allocation is made.

   The units have been aggregated based on operating segments that have similar
economic characteristics and meet the aggregation criteria of 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 an
organization primarily located in the United States, the United Kingdom, and
Italy which provides comprehensive network services including system and program
planning and management, path design, and installation for the wireless
communications market.

   For additional information regarding Business and Geographic Segments, see
Note 9 of Notes to the Consolidated Financial Statements.

Competition

   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 has experienced increasingly intense
competition worldwide from a number of leading telecommunications companies that
offer a variety of competitive products and services and broader
telecommunications product lines, including Adtran, Inc., Alcatel Network
Systems, Bosch Telekom, California Microwave, Inc., Digital Microwave
Corporation, Ericsson Limited, Harris Corporation--Farinon Division, NEC, Nokia
Telecommunications, Nortel/BNI, Philips T.R.T., SIAE, Siemens and Western
Multiplex Corporation, many of which have substantially greater installed bases,
financial resources and production, marketing, manufacturing, engineering and
other capabilities than the Company. 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 face competition in the future from new market
entrants offering competing technologies.  In addition, the Company's current
and prospective customers and partners, certain of which have access to the
Company's technology or under some circumstances are granted the right to use
the technology for

                                       16
<PAGE>

purposes of manufacturing, have developed, are currently developing or could
develop the capability to develop or manufacture products competitive with those
that have been or may be developed or manufactured by the Company. The Company's
results of operations may depend in part upon the extent to which these
customers 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. 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 funtionality, ability to
meet delivery requirements and customer service and support. There can be no
assurance that the Company will be able to compete effectively with respect to
such elements. 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. In marketing its
systems, the Company will face competition from vendors employing other
technologies that may extend the capabilities of their competitive products
beyond their current limits, increase their productivity or add other features.
There can be no assurance that the Company will be able to compete successfully
in the future.

     Since network services provided by the Company are provided primarily to
the same customers as sales of the Company's wireless-based radio systems,
competitors in this market segment include the same companies already discussed
above. Competition for network services also is provided by a number of smaller
companies that specialize in providing such services.

Government Regulation

   Radio communications are subject to extensive regulation by the United States
and foreign laws 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 the 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 a material adverse effect on 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. 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. These delays 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 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.

                                       17
<PAGE>

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 eight 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.
A variety of third parties have alleged that  the Cylink Wirless Group's
products may be infringing their intellectual property rights.  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

   During September and October 1998, the Company laid off approximately 121
employees from its Campbell facilities and 16 employees from its Redditch
facilities. All employees were properly notified of the impending layoff in
advance and were given severance pay. Each functional vice president submitted a
list of eligible employees for the reduction in force to the Human Resources
Department where a summary list was prepared. Between November 1998 and February
1999, the Company laid off approximately 35 additional employees from its
Campbell facilities.

   As of December 31, 1998, the Company had a total of 995 employees, including
498 in operations, 176 in research and development, 135 in sales and marketing,
39 in quality assurance and 147 in administration. The Company believes its
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 the Company has not experienced any work
stoppages. The Company considers its employee relations to be good.

                                       18
<PAGE>

ITEM 2. PROPERTIES.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
      Location of Leased               Functions          Square Footage             Date
         Facility (1)                                                           Lease Expires
--------------------------------------------------------------------------------------------------
<S>                              <C>                      <C>              <C>
HEADQUARTERS                         Administration
                                 Sales/Customer Support           61,000       September 2000
Campbell, CA                          Engineering
USA                                  Manufacturing
--------------------------------------------------------------------------------------------------
Campbell, CA                         Manufacturing                25,000       September 2002
--------------------------------------------------------------------------------------------------

San Jose, CA                           Warehouse                  34,000        December 1999
--------------------------------------------------------------------------------------------------
Redditch, England                Sales/Customer Support            5,500          June 2005
--------------------------------------------------------------------------------------------------

Watford, England                  Research/Development             7,500         April 2008
--------------------------------------------------------------------------------------------------
Redditch, England                      Warehouse                   6,800       September 1999
--------------------------------------------------------------------------------------------------
                                     Administration
Vienna, VA                       Sales/Customer Support           15,000         April 2002
--------------------------------------------------------------------------------------------------
Sterling, VA                         Administration               15,000       September 1999
--------------------------------------------------------------------------------------------------
Orange, CA                             Warehouse                   3,400         April 1999
--------------------------------------------------------------------------------------------------
                                     Administration
Northants, England               Sales/Customer Support            5,290         August 2011
--------------------------------------------------------------------------------------------------
                                     Administration
Essex, England                   Sales/Customer Support            8,000       September 2007
--------------------------------------------------------------------------------------------------
                                     Administration
                                 Sales/Customer Support
                                      Engineering
Fair Lawn, NJ                        Manufacturing                43,700          June 2005
--------------------------------------------------------------------------------------------------
                                                                               September 2000
                                                                           (may be canceled with a
Frankfurt, Germany                     Warehouse                  11,000      six month advance
                                                                                   notice)
--------------------------------------------------------------------------------------------------
Melbourne, Florida                Research/Development            36,250         June 2001
--------------------------------------------------------------------------------------------------
Beijing, China                   Sales/Customer Support            3,500         March 2000
--------------------------------------------------------------------------------------------------
Dubai, United Arab Emirates      Sales/Customer Support            4,000        October 1999
--------------------------------------------------------------------------------------------------
Mexico City, Mexico              Sales/Customer Support            4,050          May 1999
--------------------------------------------------------------------------------------------------
Singapore, Singapore             Sales/Customer Support            1,050       September 2000
--------------------------------------------------------------------------------------------------
                                     Administration
Rome, Italy                      Sales/Customer Support           27,000        October 2001
                                      Engineering
                                     Manufacturing
--------------------------------------------------------------------------------------------------
Rome, Italy                            Warehouse                   2,000          June 2001
--------------------------------------------------------------------------------------------------
</TABLE>

(1)   All locations support product sales except Vienna, VA.; Sterling, VA.;
Northants, England; and Essex, England which support service sales.

   P-Com Italia ("Geritel") owns and maintains its corporate headquarters in
Tortona, Italy. This facility, approximately 36,000 square feet, contains
design, test, manufacturing, mechanical and warehouse functions. Geritel also
maintains a sales and sales support facility in France. The French sales and
sales support facility is approximately 950 square feet.

   Cemetel S.p.A. owns and maintains its corporate headquarters in Carsoli,
Italy. This facility, approximately 28,800 square feet, contains corporate,
administration, sales, customer support, engineering and warehousing facilities.

   The Company's facilities are fully utilized. The Company believes that these
facilities are adequate to meet its current and foreseeable requirements or that
suitable additional or substitute space will be available as needed.

                                       19
<PAGE>

ITEM 3. LEGAL PROCEEDINGS

   State Actions

   On September 23, 1998, a putative class action complaint was filed in the
Superior Court of California, County of Santa Clara, by Leonard Vernon and Gayle
M. Wing on behalf of themselves and other P-Com stockholders who purchased or
otherwise acquired its common stock between April 15, 1997 and September 11,
1998. The plaintiffs allege various state securities laws violations by P-Com
and certain of its officers and directors. The complaint seeks unquantified
compensatory, punitive and other damages, attorneys' fees and injunctive and/or
equitable relief.

   On October 16, 1998, a putative class action complaint was filed in the
Superior Court of California, County of Santa Clara, by Terry Sommer on behalf
of herself and other P-Com stockholders who purchased or otherwise acquired
common stock between April 1, 1998 and September 11, 1998. The plaintiff alleges
various state securities laws violations P-Com and certain of its officers. The
complaint seeks unquantified compensatory and other damages, attorneys' fees and
injunctive and/or equitable relief.

   On October 20, 1998, a putative class action complaint was filed in the
Superior Court of California, County of Santa Clara, by Leo Rubin on behalf of
himself and other stockholders who purchased or otherwise acquired its common
stock between April 15, 1997 and September 11, 1998. This complaint is identical
in all relevant respects to that filed on September 23, 1998, which is described
above, other than the fact that the plaintiffs are different.

   On October 26, 1998, a putative class action complaint was filed in the
Superior Court of California, County of Santa Clara, by Betty B. Hoigaard and
Steve Pomex on behalf of themselves and other P-Com stockholders who purchased
or otherwise acquired its common stock between April 15, 1997 and September 11,
1998. This complaint is identical in all relevant respects to that filed on
September 23, 1998, which is described above, other than the fact that the
plaintiffs are different.

   On October 27, 1998, a putative class action complaint was filed in the
Superior Court of California, County of Santa Clara, by Judith Thurman on behalf
of herself and other P-Com stockholders who purchased or otherwise acquired its
common stock between April 15, 1997 and September 11, 1998. This complaint is
identical in all relevant respects to that filed on September 23, 1998, which is
described above, other than the fact that the plaintiffs are different.

   On December 3, 1998, the Superior Court of California, County of Santa Clara,
entered an order consolidating all of the above complaints. On January 15, 1999,
the plaintiffs filed a consolidated amended class action complaint superceding
all of the foregoing complaints. On March 1, 1999, defendants filed a demurrer
to the consolidated amended complaint and each cause of action stated therein.
The demurrer is set for hearing by the court on May 13, 1999.

 Federal Actions

   On November 13, 1998, a putative class action complaint was filed in the
United States District Court, Northern District of California, by Robert Schmidt
on behalf of himself and other P-Com stockholders who purchased or otherwise
acquired its common stock between April 15, 1997 and September 11, 1998. The
plaintiff alleged violations of the Securities Exchange Act of 1934 by P-Com and
certain of its officers and directors. The complaint sought unquantified
compensatory damages, attorneys' fees and injunctive and/or equitable relief. On
January 26, 1999, the plaintiff voluntarily dismissed the Schmidt action. The
court entered an order dismissing the action without prejudice on January 29,
1999.

   On December 3, 1998, a putative class action complaint was filed in the
United States District Court, Northern District of California, by Robert Dwyer
on behalf of himself and other P-Com stockholders who purchased or otherwise
acquired its common stock between April 15, 1997 and September 11, 1998. The
plaintiff alleged violations of the Securities Exchange Act of 1934 by P-Com and
certain of its officers and directors. The complaint sought unquantified
compensatory damages, attorneys' fees and injunctive and/or equitable relief. On
December 22, 1998 and February 2, 1999, the plaintiff sought to voluntarily
dismiss this action. On February 11, 1999, the court entered an order dismissing
the action without prejudice.

   All of these proceedings are at a very early stage and the Company is unable
to speculate as to their ultimate outcomes. However, the Company believes the
claims in the complaints are without merit and intend to defend against them
vigorously. An unfavorable outcome in any or all of them could have a material
adverse effect on the Company's business, prospects, financial condition and
results of operations. Even if all of the litigation is resolved in the
Company's 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 the Company's business, prospects, financial
condition and results of operations.

                                       20
<PAGE>

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

   None.

EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT

   The executive officers and directors of the Company, their ages as of March
31, 1999, and their positions and their backgrounds are as follows:

<TABLE>
<CAPTION>
                          NAME                                AGE                        POSITION
                          ----                                ---                        --------
<S>                                                        <C>         <C>
George P. Roberts.......................................       66      Chairman of the Board and Chief Executive Officer

Pier Antoniucci.........................................       57      President and Chief Operating Officer

Michael J. Sophie.......................................       41      Chief Financial Officer, Vice President, Finance and
                                                                       Administration

John R. Wood............................................       43      Senior Vice President, Advanced Technologies

Kenneth E. Bean, III....................................       42      Senior Vice President, Quality Assurance

Gill Cogan..............................................       47      Director

John A. Hawkins.........................................       38      Director

M. Bernard Puckett......................................       53      Director

James J. Sobczak........................................       57      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. From May 1989 to August
1991, Mr. Roberts was Chief Operating Officer for Digital Microwave Corporation,
a wireless communications company. From October 1984 to May 1989, Mr. Roberts
was President of American Satellite Company, a wholly owned subsidiary of
Contel, an independent telecommunications company. Mr. Roberts holds a B.S. in
Electrical Engineering from the University of Arizona and has completed graduate
business studies at the University of Arizona and the University of California
at Los Angeles.

   Mr. Antoniucci was appointed President of the Company in January 1997. Mr.
Antoniucci was also appointed and has served as Chief Operating Officer since
July 1996. From July 1995 to January 1997, Mr. Antoniucci served as Executive
Vice President of the Company. From December 1992 to June 1995, Mr. Antoniucci
served as Senior Vice President, Marketing and Sales of the Company. From
September 1992 to November 1992, Mr. Antoniucci was Vice President, Purchasing
for Alcatel-Telettra, a manufacturer of telecommunications products. From July
1986 to August 1992, Mr. Antoniucci was President of Granger-Telettra J.V., a
provider of digital microwave systems located in the United States that resulted
from the acquisition of Granger by Telettra. From October 1972 to June 1986, Mr.
Antoniucci served in various management positions at Telettra, including Vice
President of the E.F.I. Business Unit, Vice President of the Telecom
Infrastructure Business Unit and Project Manager at Telettra/Ford Aerospace.
Telettra was an Italian manufacturer of telecommunications products that was
subsequently acquired by Alcatel Network Systems. Mr. Antoniucci holds a
doctorate in Electrical Engineering from Bologna University in Bologna, Italy.

   Mr. Sophie was appointed Chief Financial Officer of the Company in April 1996
and has served as Vice President, Finance and Administration of the Company
since September 1993. Mr. Sophie also served as Controller from September 1993

                                       21
<PAGE>

through December 1996. From December 1989 to August 1993, Mr. Sophie was Vice
President, Finance and Administration of the Loral Fairchild Imaging Sensors
Division, a manufacturer of CCDs and cameras. From December 1982 to December
1989, Mr. Sophie served in various financial positions at Avantek, a
telecommunications company, including Division Controller and Group Controller.
Prior to December 1982, Mr. Sophie held various financial positions for IBM and
Fairchild Semiconductor and Signetics, two semiconductor manufacturers. Mr.
Sophie holds an MBA from the University of Santa Clara and a B.S. in Business
Administration from California State University, Chico.

   Mr. Wood was appointed Senior Vice President of Advanced Technologies of the
Company in January 1997. From April 1993 to January 1997, Mr. Wood served as
Vice President, Engineering for the Company. From August 1992 to March 1993, Mr.
Wood served as Director of Systems Engineering for the Company. From June 1990
to July 1992, Mr. Wood was Manager of Transmission Engineering for Mercury
Personal Communications, a British telecommunications company. From September
1976 to May 1990, Mr. Wood held various technical and management positions at
Marconi Communications, a British telecommunications equipment manufacturing
company. Mr. Wood holds a B.Sc. in Physics and Electronics from Manchester
University in Manchester, England.

   Mr. Bean was appointed Senior Vice President of Quality Assurance of the
Company in January 1997. From August 1995 to January 1997, Mr. Bean served as
Vice President, Manufacturing of the Company. From September 1992 to June 1995,
Mr. Bean was Director of Quality Assurance of the Company. From June 1989 to
March 1992, Mr. Bean was a Senior Quality Field Engineer at TRW Space and
Defense, a provider of satellite communications equipment. From January 1989 to
June 1989, Mr. Bean was a Senior Quality Engineer at Eaton, a manufacturer of
microwave components for various telecommunications applications, and from
October 1987 to January 1989, Mr. Bean was a Quality Manager at Gamma Microwave,
a wireless component manufacturer. Mr. Bean holds a B.A. in Industrial Arts with
a minor in Business from San Jose State University.

   Mr. Cogan has served as a Director of the Company since November 1993. Since
January 1994, Mr. Cogan has been a Principal of Weiss, Peck & Greer, L.L.C., an
investment company, and since 1990, he has been a general partner of Weiss, Peck
& Greer Venture Partners, L.L.C., a private venture capital investment firm.
From August 1986 to November 1990, Mr. Cogan was a partner of Adler & Company, a
venture capital group specializing in technology-related investments. From 1983
to 1985, Mr. Cogan was Chairman and Chief Executive Officer of Formtek, an
imaging and data management computer company. Mr. Cogan serves as a director of
Electronics for Imaging, Inc., Integrated Packaging Assembly Corporation and
several private companies. Mr. Cogan holds a B.S. in Physics and an M.B.A. from
the Graduate School of Management at the University of California--Los Angeles.

   Mr. Puckett has served as a Director of the Company since May 1994. From June
1995 to January 1996, he was President and Chief Executive Officer of Mobile
Telecommunication Technologies Corp. ("Mtel"), a telecommunications corporation.
From January 1994 to May 1995, Mr. Puckett was President and Chief Operating
Officer of Mtel. From June 1993 to December 1993, Mr. Puckett was Senior Vice
President, Corporate Strategy and Development for IBM. Between September 1967
and June 1993, Mr. Puckett served in various management and marketing positions
at IBM. Mr. Puckett currently serves as a director of Nielson Media Research
(formerly known as Cognizant Corp.), R.R. Donnelley & Sons and Software.com. Mr.
Puckett holds a B.S. in Mathematics from the University of Mississippi.

   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. From May 1992 to July 1995, he was a
general partner of certain venture capital funds associated with Burr, Egan,
Deleage & Co., a venture capital company. From November 1987 to May 1992, Mr.
Hawkins was an Associate with Burr, Egan, Deleage & Co. He is currently a
limited partner of certain venture capital funds associated with Burr, Egan,
Deleage & Co. Mr. Hawkins serves as a director of PixTech, Inc., a manufacturer
of flat panel displays, and several private companies. Mr. Hawkins holds an
M.B.A. from the Harvard Graduate School of Business Administration and a B.A. in
English Literature from Harvard University.

   Mr. Sobczak has served as a Director of the Company since April 1997. Since
1991, Mr. Sobczak has been 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.
Additionally, since 1993, Mr. Sobczak has taught graduate courses in
telecommunications at the University of Pittsburgh and, from 1993 to 1995, was a
lecturer in the Carnegie Mellon University executive education program. Between
1970 and 1990, he served in various management and marketing positions at Bank
of America, Ford Motor Co., Contel ASC and Westinghouse Communications. Mr.
Sobczak serves on the Board of Directors of one private company. Mr. Sobczak
holds an M.B.A. and a B.S. in Electrical Engineering from the University of
Detroit.



                                       22
<PAGE>

Board Committees and Meetings

   The Board of Directors held fifteen (15) meetings and acted by unanimous
written consent three (3) times during the fiscal year ended December 31, 1998
(the "1998 Fiscal Year"). 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 the 1998 Fiscal Year.

   The Audit Committee currently consists of two directors, Mr. Cogan and Mr.
Puckett, and is primarily responsible for approving the services performed by
the Company's independent auditors and reviewing their reports regarding the
Company's accounting practices and systems of internal accounting controls. The
Audit Committee held four (4) meetings during the 1998 Fiscal Year.

   The Compensation Committee currently consists of two directors, Mr. Cogan and
Mr. Hawkins, 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 exclusive
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 acted by unanimous written consent
twenty-two (22) times during the 1998 Fiscal Year.

Director Compensation

   Board members do not receive cash compensation for their services as
directors.

   Under the Automatic Option Grant Program 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 director any time after February 1, 1996 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 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.

   On May 18, 1998, the date of the 1998 Annual Stockholders Meeting, each of
the non-employee Board members, Messrs. Cogan, Hawkins, Puckett and Sobczak,
received an automatic option grant to purchase 4,000 shares of Common Stock. The
exercise price per share in effect under each such option was $19.25, the fair
market value per share of Common Stock on the grant date. Each of the options
was immediately exercisable for all the option shares, but any shares purchased
under the option would be subject to repurchase by the Company, at the exercise
price paid per share, upon the optionee's cessation of Board service prior to
vesting in those shares. The shares subject to each option grant was to vest in
a series of eight (8) successive equal quarterly installments upon the
optionee's completion of each successive three (3)-month period of Board service
over the twenty-four (24)-month period measured from the grant date.

   On July 31, 1998, each of the option grants made under the Automatic Grant
Program on May 18, 1998 with an exercise price of $19.25 per share was
cancelled, and a new option for 4,000 shares was granted to each of the four
non-employee Board members with an exercise price of $5.8125 per share, the fair
market value per share of Common Stock on the grant date of the new option. Due
to the decrease in its share price, the competition for our directors' time and
the significant effort and commitment expended by the Company's directors on its
behalf, the Board believed that it was in the best interest of the Company to
incentivize its non-employee Board members by providing them with a continuing
opportunity to acquire shares of Common Stock at the current fair market value
of such shares. Each of the new options 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 exercise price paid per share, upon the
optionee's cessation of Board service prior to vesting in those shares. The
shares subject to each new option will vest in a series of eight (8) successive
equal quarterly installments upon the optionee's completion of each successive
three (3)-month period of Board service over the twenty-four (24)-month period
measured from the July 31, 1998 grant date.

                                       23
<PAGE>

PART II
-------

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

The Company's Common Stock is traded on the Nasdaq National Market under the
symbol PCMS. The following table sets forth the range of high and low closing
sale prices, as reported on the Nasdaq National Market for each quarter since
the consummation of the Company's initial public offering on March 3, 1995. At
March 18, 1999, the Company had approximately 550 holders of record of its
Common Stock and approximately 48,944,270 shares outstanding.

<TABLE>
<CAPTION>
                                                                                     Price Range of
                                                                                      Common Stock
                                                                                   High             Low
                                                                                   ----             ---
<S>                                                                              <C>             <C>
Year Ending December 31, 1996
     First Quarter                                                                $10.07           $ 7.00
     Second Quarter                                                                18.00             9.75
     Third Quarter                                                                 17.94             9.44
     Fourth Quarter                                                                16.88            10.16

Year Ending December 31, 1997
     First Quarter                                                                $19.44           $13.00
     Second Quarter                                                                17.41            12.69
     Third Quarter                                                                 26.13            16.13
     Fourth Quarter                                                                29.38            13.63

Year Ending December 31, 1998
     First Quarter                                                                $21.13           $15.56
     Second Quarter                                                                20.50             8.88
     Third Quarter                                                                  8.81             2.38
     Fourth Quarter                                                                 4.38             2.50
</TABLE>

Recent Sales of Unregistered Securities

   On December 22, 1998, the Company issued to Castle Creek Technology Partners
LLC, Capital Ventures International and Marshall Capital Management, Inc.,
5,500, 5,000, and 4,500 shares, respectively, of its Series B Preferred Stock
and warrants to purchase 455,494, 414,086, and 372,677 shares, respectively, of
Common Stock for an aggregate purchase price of $15,000,000. The conversion
price of the Series B Preferred Stock is equal to the lower of $5.46 per share
or 101% of the lowest three-day average closing bid prices for the Common Stock
during the fifteen consecutive day trading period immediately prior to such
conversion. The sale was arranged by Paine Webber Incorporated which received a
placement fee. The Series B Prefered Stock was issued in a non-public offering
pursuant to transactions exempt under section 4(2) of the Securities Act.

   To date, the Company has not paid any cash dividends on shares of its Common
Stock. The Company currently anticipates that it will retain any available funds
for use in the operation of its business, and does not anticipate paying any
cash dividends in the foreseeable future. In addition, the terms of several of
the Company's agreements prohibit the Company from paying any dividends without
the prior approval of the other parties named therein. The Series B Preferred
Stock accrues a 6% premium per year, payable upon conversion or redemption in
cash or Common Stock at the option of the Company. To date, no premiums have
been paid.

                                       24
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA.

<TABLE>
<CAPTION>
                                                                                    Year Ended December 31,
                                                                      1998        1997       1996        1995        1994
                                                                    ---------   --------   ---------   ---------   ---------
<S>                                                                 <C>         <C>        <C>         <C>         <C>
                                                                             (in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:

Sales:
  Product                                                           $151,347    $190,545   $101,853     $52,856    $ 19,198
  Service                                                             43,597      30,157     19,100      11,607      10,402
                                                                    --------    --------   --------     -------    --------
    Total sales                                                      194,944     220,702    120,953      64,463      29,600
                                                                    --------    --------   --------     -------    --------

Cost of sales:
  Product                                                            113,498     110,267     60,362      29,949      11,517
  Service                                                             30,777      18,968     13,696       7,507       7,297
                                                                    --------    --------   --------     -------    --------
    Total cost of sales                                              144,275     129,235     74,058      37,456      18,814
                                                                    --------    --------   --------     -------    --------

  Gross profit                                                        50,669      91,467     46,895      27,007      10,786
                                                                    --------    --------   --------     -------    --------
Operating expenses:
  Research and development                                            41,473      29,127     20,163      12,284       7,978
  Selling and marketing                                               22,020      15,696      7,525       4,837       3,275
  General and administrative                                          24,965      14,741     10,178       5,573       4,903
  Goodwill amortization                                                6,692       2,207        105          --          --
  Restructuring charges                                                4,332          --         --          --          --
  Acquired in-process research and
    development                                                       15,442          --        --           --          --
                                                                    --------    --------   --------     -------    --------
    Total operating expenses                                         114,924      61,771     37,971      22,694      16,156
                                                                    --------    --------   --------     -------    --------
Income (loss) from operations                                        (64,255)     29,696      8,924       4,313      (5,370)
Interest and other income (expense), net                              (7,903)        247        906         167        (249)
                                                                    --------    --------   --------     -------    --------
Income (loss) before extraordinary
  item and income taxes                                              (72,158)     29,943      9,830       4,480      (5,619)
Provision (benefit) for income taxes                                 (11,501)     11,052        956         761         338
                                                                    --------    --------   --------     -------    --------
Income (loss) before extraordinary item                              (60,657)     18,891      8,874       3,719      (5,957)
Extraordinary item: retirement of Notes                                5,333          --         --          --          --
                                                                    --------    --------   --------     -------    --------
Net income (loss)                                                    (55,324)     18,891      8,874       3,719      (5,957)
Charge related to preferred stock discount                            (1,839)         --         --          --          --
                                                                    --------    --------   --------     -------    --------
Net income (loss) applicable to holders
  of Common Stock                                                   $(57,163)   $ 18,891   $  8,874     $ 3,719    $ (5,957)
                                                                    =========   ========   ========     =======    ========
Basic income (loss) per share (1):
  Income (loss) before extraordinary item                           $  (1.44)   $   0.45   $   0.23     $  0.11    $  (1.08)
  Extraordinary item                                                    0.12          --         --          --          --
                                                                    --------    --------   --------     -------    --------
  Net income (loss)                                                 $  (1.32)   $   0.45   $   0.23     $  0.11    $  (1.08)
                                                                    ========    ========   ========     =======    ========
Diluted income (loss) per share (1):
  Income (loss) before extraordinary item                           $  (1.44)   $   0.43   $   0.22     $  0.11    $  (1.08)
  Extraordinary item                                                    0.12          --         --          --          --
                                                                    --------    --------   --------     -------    --------
  Net income (loss)                                                 $  (1.32)   $   0.43   $   0.22     $  0.11    $  (1.08)
                                                                    ========    ========   ========     =======    ========
Shares used in per share computation:
Basic                                                                 43,254      42,175     38,762      32,645       5,521
                                                                    ========    ========   ========     =======    ========
Diluted                                                               43,254      44,570     40,607      34,853       5,521
                                                                    ========    ========   ========     =======    ========
<CAPTION>
                                                                                         December 31,
                                                                        1998        1997       1996        1995        1994
                                                                    --------    --------   --------     -------    --------
                                                                                        (in thousands)
<S>                                                                 <C>         <C>        <C>         <C>         <C>
BALANCE SHEET DATA:
Cash and cash equivalents                                           $ 29,241    $ 88,145   $ 42,226     $ 8,871    $  1,593
Working capital                                                       81,108     174,635     90,811      38,473       3,755
Total assets                                                         314,358     305,521    155,452      62,964      18,393
Long-term debt                                                        92,769     101,690        914         491       1,198
Mandatorily Redeemable Preferred Stock                                13,559          --         --          --          --
Retained earnings (accumulated deficit)                              (36,944)     18,380       (511)     (9,360)    (13,119)
Stockholders' equity                                                 106,550     148,297    112,479      47,258       6,028
</TABLE>

-------------
(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation
    of the method used to determine the number of shares used to compute share
    and per share amounts.

(2) All financial information presented in this Annual Report on Form 10-K has
    been restated to include the operating results of Control Resources
    Corporation ("CRC"), which was acquired in a pooling-of-interests
    transaction on May 29, 1997; and

                                       25
<PAGE>

    RT Masts Limited ("RT Masts") and Telematics, Inc. ("Telematics"), which
    were acquired in pooling-of-interests transactions on November 27, 1997.


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.

Results Of Operations

The following information reflects a change in the original accounting for the
purchase price allocation for the March 1998 acquisition of the Wireless
Communications Group of Cylink Corporation (the Cylink Wireless Group) and
amortization of the related goodwill and other intangible assets purchased for
the nine months since the acquisition.

Overview

   P-Com, Inc. (the "Company") supplies equipment and services for access to
worldwide telecommunications and broadcast networks. All financial information
presented in this Annual Report on Form 10-K has been presented to include the
operating results of Control Resources Corporation ("CRC"), which was acquired
in a pooling-of-interests transaction on May 29, 1997; and RT Masts Limited ("RT
Masts") and Telematics, Inc. ("Telematics"), which were acquired in pooling-of-
interests transactions on November 27, 1997. Currently, the Company ships 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 radio systems, and the Company
also provides software and related services for these products. Additionally,
the Company offers turnkey microwave relocation services, engineering, path
design, program management, installation and maintenance of communication
systems to network service providers. The Company is currently field testing and
further developing a range of point-to-multipoint radio systems for use in both
the telecommunications and broadcast industries.

   The Company was founded in August 1991 to develop, manufacture, market and
sell millimeter wave radio systems for wireless networks. The Company was in the
development stage until October 1993. From October 1993 through December 31,
1998, the Company generated sales of approximately $649.8 million, of which
$415.6 million, or 64% of such amount, was generated in the twenty-four months
ended December 31, 1998. From inception to the end of 1998, the Company had
generated an accumulated deficit of approximately $38.8 million. The decrease in
retained earnings from $18.4 million in 1997 to an accumulated deficit of $38.8
million in 1998 was due primarily to the net loss of $55.3 million in 1998 which
included restructuring and other charges of $26.6 million and acquired in-
process research and development expenses of approximately $15.4 million related
to the acquisition of the assets of the Cylink Wireless Group. For additional
information regarding the acquisition, please see "Results of Operations-
Acquisitions". In addition to these charges, the net loss was also due to a
downturn and slowdown in the telecommunications equipment industry as a whole in
the second half of the year, in part due to the economic turmoil in Asia. The
Company experienced a sharp decrease in its sales beginning in June 1998, as
compared to prior quarters, and began a cost reduction program shortly
thereafter. The Company laid off a portion of its work force in September,
October and November 1998 and increased its inventory reserves and allowance for
doubtful accounts and wrote down certain of its facilities, fixed assets and
goodwill in the third quarter of 1998.

   Due to many factors, including the Company's limited operating history and
limited resources, there can be no assurance that profitability or significant
revenues on a quarterly or annual basis will occur in the future. During 1997
and the first half of 1998, both the Company's sales and operating expenses
increased rapidly. During the remainder of 1998, the Company's operating
expenses continued to increase, while the Company's sales declined sharply.
There can be no assurance that the Company's revenues will continue to remain at
or increase from the levels experienced in 1997 or in the first half of 1998 or
that sales will not decline. In fact, during the third quarter of 1998, the
Company experienced a significant decrease in sales. Although the fourth quarter
showed an improvement, the Company had not recovered from the downturn and sales
remained sluggish. In recent quarters, the Company has been experiencing higher
than normal price declines. The declines in prices have a downward impact on the
Company's gross margin. There can be no assurance that such pricing pressure
will not continue in future quarters. Though the Company is taking measures to
reduce operating expenses, the Company intends to continue to invest in its
operations, particularly to support product development and the marketing and
sales of recently introduced products. As such, there can be no assurance that
operating expenses will not continue to increase in 1999 as compared to 1998. If
the Company's sales do not correspondingly increase, the Company's results of
operations would continue to be materially adversely affected.

                                       26
<PAGE>

Accordingly, there can be no assurance that the Company will achieve
profitability in future periods. The Company is subject to all of the risks
inherent in the operation of a new business enterprise, and there can be no
assurance that the Company will be able to successfully address these risks.

   During the second half of 1997 and the first half of 1998, the Company
significantly expanded the scale of its operations to support potential market
opportunities and to address critical infrastructure and other requirements.
This expansion included the opening of sales offices in the United Arab
Emirates, Singapore, China and Mexico, the acquisition of the assets of the
Cylink Wireless Group, significant investments in research and development to
support product development and services, and the hiring of additional personnel
in all functional areas, including sales and marketing, finance, manufacturing
and operations. Because the Company's sales did not correspondingly increase
during the second half of the year, the Company's results of operations were
materially adversely affected and the cost reduction program was initiated. The
Company raised gross proceeds of $15 million through the issuance of convertible
preferred stock and warrants in December 1998. The Company retired approximately
$40 million of its 4 1/4% convertible promissory notes between December 1998 and
February 1999 through the issuance of 5,279,257 shares of Common Stock.

Years Ended 1998, 1997 And 1996

   Sales.  Sales consist of revenues from radio systems and bundled software
tools and service offerings. The Company generated revenues from the sale of its
38 GHz radio systems commencing in October 1993, 50 GHz radio systems commencing
in September 1994, 23 GHz radio systems commencing in January 1995, 15 GHz radio
systems commencing in June 1996, 2.4 and 5.7 GHz spread spectrum radio systems
commencing in September 1996, 13 GHz radio systems commencing in November 1996,
26 GHz radio system commencing in July 1997, 7 and 18 GHz radio systems
commencing in September 1997 and service offerings in March 1997. In 1998, the
Company generated revenues from the sale of its 1U (one unit, approximately 1.75
inches in height) enhanced IDU and 28 GHz radio system commencing in April 1998,
Cluster Network Manager commencing in May 1998, SNMP commencing in June 1998,
Airpro commencing in October 1998, and NMS Proxy Controller commencing in
November 1998.

   In 1998, 1997 and 1996, sales were approximately $194.9 million, $220.7
million, and $121.0 million, respectively. The 12% decrease in sales from 1997
to 1998 was primarily due to the market slowdown for the Company's Tel-Link
product line and a downturn and slowdown in the telecommunication equipment
industry segment, due in particular to the economic turmoil in Asia and surplus
capacity in the industry.  During 1997, the Tel-Link product line contributed
approximately $154.9 million or 70.2% of the Company's total sales of
approximately $220.7 million.  During 1998, the Tel-Link product line
contributed approximately $101.7 million or 52.2% of the Company's total sales
of approximately $194.9 million.  For the first half of 1998, the Tel-Link
product line contributed approximately $78.1 million or 64.0% of the Company's
total sales of approximately $122.1 million.  Tel-Link product line sales for
the second half of 1998 decreased to approximately $23.6 million or 32.4% of the
Company's total sales of approximately $72.8 million.  The increase in sales
from 1996 to 1997 was primarily due to increased volume of 38 and 23 GHz radio
systems to new and existing customers and, to a lesser extent, sales from
products acquired in recent acquisitions, and from service offerings. In 1998,
one customer accounted for 23% of sales. In 1997, two customers accounted for an
aggregate of 26% of sales.

   Product sales for 1998 decreased approximately $39.2 million or 21% during
the year as compared to an increase of approximately $88.7 million or 87% during
1997. Product sales represented approximately 78%, 86% and 84% of sales in 1998,
1997 and 1996, respectively. The decrease in product sales in 1998 was primarily
due to the slowdown in the telecommunication equipment industry in the second
half of the year and declining prices as a result of the Pacific Rim currency
crisis and surplus capacity in the industry. Product sales growth in 1997 was
attributable to strong year-over-year growth of the 38 and 23 GHz radio systems
and to the Company's acquisitions. Service sales for 1998 increased
approximately $13.4 million or 45% over the prior year as compared to
approximately $11.1 million or 58% during 1997. Service sales represented 22%,
14% and 16% of sales in 1998, 1997 and 1996 respectively. The increase in
service sales in 1998 was primarily due to increased presence in international
markets through acquisitions in the United Kingdom and Italy and from
introductions to new customers by the sales force. The increase in service sales
in 1997 was due to the acquisition of CSM. All service sales in 1996 were from
acquisitions in 1997 and 1998 which were accounted for as poolings-of-interest.
Under the pooling-of-interests method of accounting, the consolidated financial
statements are restated to present the results of the combined companies as if
they had been combined since inception.  Since the Company is not currently
contemplating further acquisitions, service sales as a percentage of total sales
are not expected to fluctuate significantly in the future.

   Historically, the Company has generated a majority of its sales outside of
the United States. During 1998, the Company generated 21%, 37%, 23%, 10% and 9%
of its sales in the US, the UK, Europe, Africa, and Asia, respectively. During
1997, the Company generated 32%, 31%, 20%, 3% and 7% of its sales in the US, the
UK, Europe, Africa, and Asia, respectively. The Company expects to generate a
majority of its sales in international markets in the future.

                                       27
<PAGE>

   Many of the Company's largest customers use the Company's product 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 areas or a market. Consequently, the customer may have
different requirements from year to year and may vary its purchases from the
Company accordingly.

   The decrease in sales to US customers from approximately $70 million in 1997
to approximately $42 million in 1998 is due primarily to lower sales to three
customers who purchased an aggregate of approximately $43 million in 1997 and
approximately $4 million in 1998. This was partially offset by sales to other
new and existing customers in the US during the year primarily due to the sales
generated from acquisitions made in 1997 and 1998. Sales to customers in the UK
of $71 million in 1998 and to customers in Europe of $45 million in 1998 were
relatively flat from 1997 to 1998. However, lower sales from one customer in the
UK were offset by increased sales from several other customers in the UK. The
increase in sales to customers in Africa in 1998 from approximately $19 million
as compared to approximately $6 million in 1997 is due to increased demand by
one customer. Sales to customers in Asia increased by approximately 18% to $18
million from $15 million due to the acquisition of the Cylink Wireless Group and
to new customers in the area. Sales to customers in Asia during the second half
of 1998 decreased by 35% as compared to the first half of the year.

   There can be no assurance that sales of the Company's radio systems or
services will increase or that such systems or services will achieve market
acceptance. The Company provides to its customers significant volume price
discounts, which are expected to lower the average selling price of a particular
product line as more units are sold. In addition, the Company expects that the
average selling price of a particular product line will also decline as such
product matures, and as competition increases in the future. Accordingly, the
Company's ability to maintain or increase sales will depend upon many factors,
including its ability to increase unit sales volumes of its systems and to
introduce and sell systems at prices sufficient to compensate for reduced
revenues resulting from declines in the average selling price of the Company's
more mature products. To date, most of the Company's sales have been made to
customers located outside the United States. For risk factors associated with
customer concentration, declining average selling prices, results of operations
and international sales, please see "Certain Factors Affecting the Company--
Customer Concentration," "-- Fluctuations in Operating Results," and  "Decline
in Selling Prices."

   Gross Profit. The Company's cost of sales consists primarily of costs related
to materials, labor and overhead, and freight and duty. In 1998, 1997 and 1996,
gross profits were $50.7 million, $91.5 million and $46.9 million, respectively,
or 26.0%, 41.4% and 38.8% of sales, respectively. The decline in gross profit as
a percentage of sales from 1997 to 1998 was primarily due to declining average
selling prices, increased service sales which generated lower margins than
service sales in the prior year, and one-time inventory write-downs of
approximately $16.9 million. The improvement in gross profit as a percentage of
sales from 1996 to 1997 was primarily due to product design improvements, such
as reducing the number of components incorporated into each system and the use
of common components across the range of the Company's products, which increased
manufacturing efficiencies and economies of scale.

   Product gross profit as a percentage of product sales was approximately
25.0%, 41.7% and 40.9% in 1998, 1997 and 1996, respectively.  Approximately two
thirds of the decrease in product gross profit percentage in 1998 was due to
one-time inventory write-downs of approximately $16.9 million (including $14.5
million in inventory write downs related to the Company's existing core business
and $2.4 million in other one-time charges to inventory relating to the
elimination of product lines).  The remaining one-third of the decrease in
product gross profit percentage was due to several factors, including a
declining average selling price, changes in the product mix, excess capacity due
to the market slow down, product conversion costs and other manufacturing
variances.  The increase in product gross profit percentage in 1997 was due to
product design improvements and economies of scale. Service gross profit as a
percentage of service sales  was approximately 29.4%, 39.8% and 28.3% in 1998,
1997, and 1996, respectively. The decrease in service gross profit percentage in
1998 was due to increased price competition and changes in the service offering
mix. The increase in service gross profit  in 1997 was due to a high demand for
microwave engineering installation and relocation projects as a result of PCS
build-outs stemming from PCS license auctions by the FCC in 1995.

   The Company has an ongoing program to reduce the costs of manufacturing its
radio systems. As part of this program, the Company has been attempting to
achieve cost reductions principally through engineering and manufacturing
improvements, production economies and utilization of third party subcontractors
for the manufacture of the Company's radio systems and certain components and
subassemblies used in the systems. The Company is also implementing other cost
reduction programs in an effort to maintain gross margins in the future. There
can be no assurance that the Company's ongoing or future programs can be
accomplished or that they will increase gross profits. For risk factors
associated with gross profit, please see "Certain Factors Affecting the Company
"--Fluctuations in Operating Results" and "--Decline in Selling Prices," and
"Product Quality, Performance and Reliability."

                                       28
<PAGE>

   Research and Development. Expenses consist primarily of costs associated with
personnel and equipment. The Company's research and development activities
include the development of additional frequencies and varying operating features
and related software tools. 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.

   In 1998, 1997 and 1996, research and development expenses were approximately
$41.5 million, $29.1 million and $20.2 million, respectively. As a percentage of
sales, research and development expenses increased from 13% in 1997 to 21% in
1998. The increase in research and development expenses as a percentage of sales
from 1997 to 1998 was primarily due to the Company's sales decline and the
significant investment in research and development to support product
development and services, including the costs associated with new product
development due to the acquisition of the Cylink Wireless Group in March of 1998
and the Company's engineering efforts to develop a point-to-multipoint product.
The increase in research and development expenses from 1996 to 1997 was
primarily due to increased staffing as the Company concentrated on new product
development, including costs associated with new product development by CRC
beginning in 1996. Though the Company is taking measures to reduce expenses
where appropriate, the Company intends to continue investing resources for the
development of new systems and enhancements (including additional frequencies
and various operating features and related software tools). As such, there can
be no assurance that research and development expenses will not continue to
increase in 1999 as compared to 1998.

   Selling and Marketing. Expenses consist of salaries, investments in
international operations, sales commissions, travel expenses, customer service
and support expenses and costs related to advertising and trade shows. In 1998,
1997 and 1996, sales and marketing expenses were $22.0 million, $15.7 million
and $7.5 million, respectively. As a percentage of sales, selling and marketing
expense increased from 7% in 1997 to 11% in 1998, primarily due to a lower level
of sales in 1998 and the expansion and start-up of the Company's international
sales and marketing organization, including opening sales offices in the United
Arab Emirates, Singapore, China, and Mexico. As a percentage of sales, selling
and marketing expenses increased from 6% of sales in 1996 to 7% of sales in
1997. Of this 108% increase in absolute dollars, approximately 60% was due to
the expansion of the Company's international sales force, primarily in the UK,
and customer support in the US. The remaining 40% increase in selling and
marketing expenses from 1996 to 1997 was due to the increase in selling and
marketing expenses resulting from the 1997 acquisitions of Technosystem, CSM and
CRC. Though the Company is taking measures to reduce expenses where appropriate,
the Company intends to continue investing resources to expand its sales and
marketing efforts, including the hiring of additional personnel, and to
establish the infrastructure necessary to support future operations. As such,
there can be no assurance that sales and marketing expenses will not continue to
increase in 1999 as compared to 1998.

   General and Administrative. Expenses consist primarily of salaries and other
expenses for management, finance, accounting, and legal and other professional
services. In 1998, 1997 and 1996, general and administrative expenses were $25.0
million, $14.7 million and $10.2 million, respectively. As a percentage of
sales, general and administrative expense increased from 7% in 1997 to 13% in
1998, primarily due to a lower level of sales in 1998, increased staffing and
other costs resulting from the Company's international expansion, acquisitions,
and a $5.4 million increase in accounts receivable reserves that were charged to
general and administrative expenses as a result of the Company recording
restructuring and other one-time charges during the third quarter of 1998. The
increase in general and administrative expenses from 1996 to 1997 is related to
the expansion of the Company's business associated with the acquisitions of
Geritel S.p.A., Atlantic Communication Sciences, Inc., Technosystem S.p.A.
("Technosystem"), and Columbia Spectrum Management, L.P. ("CSM"). In addition,
the Company also incurred and expects to continue to incur additional
significant ongoing expenses as a publicly owned company related to legal,
accounting and other administrative services and expenses, including its class
action litigation. The Company expects general and administrative expenses to
continue to increase in absolute dollars in 1999 as compared to 1998.

   Goodwill Amortization. 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 based on the expected
revenue stream or on a straight-line basis over the period of expected benefit,
ranging from 3 to 20 years. In 1998, 1997 and 1996, goodwill amortization was
approximately $6.7 million, $2.2 million, and $105,000, respectively. The
increase in goodwill amortization from 1997 to 1998 was due to the Company
recording a full year of amortization expense for the acquisitions of
Technosystem, a Rome, Italy-based company and the assets of CSM, a Vienna,
Virginia-based partnership, which were acquired in February 1997 and March 1997,
respectively, and recording nine months of amortization for the acquisition of
the Cylink Wireless Group which took place in March 1998.

   Acquired In-Process Research and Development ("IPR&D"). 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

                                       29
<PAGE>

("Cylink Wireless Group"), a Sunnyvale, California-based company, for $46.0
million in cash and $14.5 million in a short-term, non-interest bearing
unsecured subordinated promissory note due July 6, 1998. Subsequent to the
purchase and before the $14.5 million note was due, the Company determined that
$4.8 million of accounts receivable acquired from Cylink Wireless Group, were
uncollectible. As a result, the Company withheld payment of $4.8 million of the
promissory note. The $4.8 million promissory note holdback is being disputed by
Cylink Wireless Group and is in arbitration. See Note 13 of Notes to
Consolidated Financial Statements. The Cylink Wireless Group designs,
manufactures and markets spread spectrum radio products for voice and data
applications in both domestic and international markets. The acquisition of the
accounts receivable on April 1, 1998 was recorded in the second quarter of 1998.
The Company accounted for this acquisition based on the purchase method of
accounting. The results of the Cylink Wireless Group have been included since
the date of acquisition.

   The amount allocated to IPR&D and intangible assets in the first quarter of
1998 was made in a manner consistent with widely recognized appraisal practices
at the date of acquisition. Subsequent to this time, the Company became aware of
some new information which brought into question the traditional appraisal
methodology, and the Company revised its purchase price allocation based upon a
more current and preferred methodology. As a result of computing IPR&D using
the more current and preferred methodology, the Company, decided to revise the
amount originally allocated to IPR&D. As such, the Company restated its first,
second, and third quarters in the 1998 consolidated financial statements to
reflect this significant decrease in its IPR&D charge and related increase in
goodwill and other intangible assets. As a result, the first quarter charge for
acquired IPR&D was decreased from $33.9 million previously recorded to $15.4
million, a decrease of $18.5 million with a corresponding increase in goodwill
and other intangible assets and related amortization in subsequent quarters.

   Among the factors considered in determining the amount of the allocation of
the purchase price to in-process research and development were various factors
such as estimating the stage of development of each in-process research and
development project at the date of acquisition, estimating cash flows resulting
from the expected revenues generated from such projects, and discounting the net
cash flows. In addition, other factors were considered in determining the value
assigned to purchased in-process technology such as research projects in areas
supporting products which address the growing third world markets by offering a
new point-to-multipoint product, a faster, less expensive more flexible point-
to-point product, and the development of enhanced Airlink products acquired from
the Cylink Wireless Group, consisting of a Voice Extender, Data Metro II, and
RLL Encoding products. At the time of acquisition, these projects were estimated
to be 60%, 85%, and 50% complete, respectively. The Company expects to begin to
benefit from these projects in early 1999. If none of these projects is
successfully developed, the Company's sales and profitability may be materially
adversely affected in future periods. Additionally, the failure of any
particular individual project in-process could impair the value of other
intangible assets acquired. In process research and development had no future
use at the date of acquisition and technological feasibility had not been
established.

   During the second quarter of 1998, due to limited staff and facilities, the
company delayed the research project for the new narrowband point-to-multipoint
project acquired from the Cylink Wireless Group and focused available resources
on the broadband point-to-multipoint project which is targeted for a larger
addressable market. The narrowband point-to-multipoint project has a total
remaining expected development cost of approximately $2.4 million and, due to
the allocation of resources discussed above, is not expected to be completed
prior to the year 2000. Currently, the narrowband point-to-multipoint project is
approximately 60% complete. The point-to-point project, discussed above, which
was acquired from the Cylink Wireless Group, was completed during the third
quarter of 1998 at an estimated total cost of $2.0 million. The enhanced Airlink
projects were completed during the first quarter of 1999 at an estimated total
cost of $0.6 million.

   The Company acquired the assets of the Cylink Wireless Group to extend the
Company's existing product line and distribution channels and to provide the
Company with additional technology and products under development. The Wireless
Group's existing product line and distribution channels provided immediate
benefit to P-COM's business and the technology and products under development
were expected to provide further revenue opportunities in the expanding markets
of Asia and Latin America. The purchase price for the Cylink Wireless Group was
based on the fair value as determined by two willing independent parties. The
value for the intangible assets was determined in a manner consistent with
widely recognized appraisal practices. Goodwill represents the excess of the
purchase price over the fair value of the net assets acquired. As the dominant
supplier of spread spectrum radios in Asia and Latin America, the established
relationships provided by the acquisition significantly improved the Company's
penetration of these markets. The Company believes that the in-process research
and development at the time of the acquisition constituted a significant part of
the Wireless Group's value. In particular, in certain markets the frequency
spectrum used by the Airlink products is becoming increasingly saturated. The
Viper product offered the Wireless Group's customer a migration path into new
frequency bands. The Company does not believe that it could have developed such
products internally or purchased them elsewhere for less.

   Restructuring and other One-Time Costs. During 1998, the Company incurred
restructuring and other one-time charges of $4.3 million, consisting of
severance benefits, and impairments of facilities, fixed assets, and goodwill.
These restructuring and other one-time charges resulted from the consolidation
of certain of the Company's facilities.

                                       30
<PAGE>

   In addition, the Company recorded inventory reserves of $16.9 million
(including $14.5 million in inventory write downs related to the Company's
existing core business and $2.4 million in other one-time charges to inventory
relating to the elimination of product lines) which were charged to costs of
goods sold, and accounts receivable reserves of $5.4 million which were charged
to general and administrative expenses. The Company recorded these charges in
the third quarter of 1998 primarily in response to a sudden slowdown in receipt
of purchase orders from customers and the increased credit risk.

   The $4.3 million restructuring charge consisted primarily of severance and
benefits of approximately $0.6 million, facilities and fixed assets impairments
of approximately $0.9 million, and goodwill write-offs of approximately $2.9
million.

   To attempt to offset the decrease in sales, the Company laid off
approximately 121 employees from the Campbell facilities and 16 employees from
its Redditch, UK facilities during September and October 1998, incurring costs
of approximately $0.6 million. All employees were properly notified of the
impending layoff in advance and were given severance pay. Each functional vice
president submitted a list of eligible employees for the reduction in force to
the Human Resources Department where a summary list was prepared. Between
November 1998 and February 1999, the Company laid off approximately 35
additional employees from the Campbell facilities.  The employee lay-offs
described above resulted in a reduction of costs of approximately $0.6 million
per quarter, which includes approximately $0.2 million in cost of sales, $0.2
million in research and development, $0.1 million in sales and marketing, and
$0.1 million in general and administrative expense.

   Due to the slowdown in sales, the Company combined certain operations and
closed its Telesys and Advanced Wireless facilities, incurring costs of
approximately $0.9 million. Some of the employees were transferred to other
business units while others were included in the reduction in force. Facilities
expenses, such as rent expense, were expensed, and certain fixed assets at
closed locations were written down. In addition, goodwill created through
acquisitions of these business units was written off in the restructuring
charge. During 1998, the Company's operations in Florida were moved into more
suitable facilities and the Company expensed the remaining lease payments on the
original building.

On April 30, 1996, the Company acquired for cash a 51% interest in Geritel,
which increased to 67% over the next two years as the company exercised its
option to acquire an additional 16% of Geritel's equity capital on terms
specified in the acquisition agreement. During the quarter ended September 30,
1998, the Company sold a piece of Geritel's business to a former owner and the
remaining business became a wholly owned subsidiary of the Company. The piece
that was sold was not deemed to be of long-termed strategic value to the
Company, but it did generate revenue and positive cash flow from sales to
unaffiliated companies. The piece retained by the Company had developed
proprietary technology and products subsequent to the acquisition that
principally were used for internal consumption. Consequently, the remaining
business generated negative cash flow because revenue from internal sales did
not recover the cost of research and development and other operating costs.
Since Geritel is expected to generate negative cash flow for the foreseeable
future, the Company determined that the unamortized goodwill booked as part of
the original purchase price was impaired. Accordingly, the Company recorded an
impairment charge of $1.6 million to reduce the carrying amount of this goodwill
to its net realizable value. Gerital's remaining assets were not significant and
were not tested for impairment.

   In addition to the impairment charge associated with the Geritel goodwill,
the Company also recorded an impairment charge of $1.2 million associated with
the goodwill booked in connection with the ACS acquisition.  This impairment was
triggered by the acquisition of the Cylink Wireless Group, whose products
superceded those of ACS.  The Company determined that they would no longer
operate ACS as a separate business because the Cylink Wireless Group had a
broader and superior product offering.  As a result of the negative cash flows
associated with ACS, the Company recorded an impairment charge of $1.2 million
to reduce the carrying value of this goodwill to its net realizable value.   The
remaining assets of ACS were not significant, and were not tested for
impairment.

   In the third quarter of 1998, the Company determined there was a significant
and sudden downturn in sales for the telecommunications industry which required
a review of the Company's inventory on hand and resulted in an increase to
inventory reserves of approximately $16.9 million.  This sudden downturn was
evidenced by a dramatic decrease in the Company's revenues of 52% as compared
with the second quarter of 1998 and further evidenced by significant declines in
the revenues of several of the Company's competitors.

   The inventory reserves included an excess and obsolete reserve of
approximately $4.5 million related to the point-to-point microwave radio
inventory, primarily for 23 GHz and 38 GHz frequencies, used worldwide. The
Company makes no distinction or categorization between excess and obsolete
inventory at this time. As customer demand is not anticipated to consume the
inventory on hand within the next twelve months, the Company will continue to
attempt to sell the inventory and will dispose of it when it is deemed to be
unsaleable.

                                       31
<PAGE>

   The inventory reserves also included $2.0 million for the write-off of
inventory relating to overlap between the Cylink Wireless Group product line and
the existing P-Com product line at the single T1/E1 (1.5-2.0 mbs) capacity and
2.4 and 5.7 GHz frequency.  With lower demand and increased competition, the
Company needed to consolidate product lines to reduce expenses.

   Additionally, the reserve included $4.3 million for the rework of excess
semi-custom finished goods that were configured for specific customer
applications or geographical regions. The Company's inventory levels were driven
based upon forecasted continuing growth expectations worldwide. It is not
customary to rework semi-custom finished goods and frequencies, however, it can
be less expensive than purchasing new equipment and can reduce cash outlays for
inventory. The types of rework which can be performed include changing power
supplies, changing interface connectors, adding or reducing functionality
through daughter cards, and changing frequency bands by replacing filters or
synthesizers. All of this rework represents an attempt to consume inventory and
improve cash flows. The costs required to perform the rework include costs for
material, assembly, and re-testing of the inventory by the Company's suppliers.

   The reserve also includes $1.1 million for products that have been rendered
obsolete because they have been redesigned and are old revisions, and a general
inventory reserve of approximately $5.0 million for potential excess inventory
caused by the slowdown in the industry.  These reserves are primarily for the
Tel-Link point-to-point microwave radio inventory covering 7GHz, 15GHZ, 23GHz,
and 38GHz frequencies for components, subassemblies, and semi-finished goods in
which the probability for usage or the ability to rework the inventory and sell
it to customers has been deemed unlikely.

   The accrual balance for the inventory reserve, shown below, represents the
charge to the balance sheet contra-account for excess and obsolete inventory.
The remaining accrual balance will be relieved when the Company deems that the
inventory is not suitable for rework and is otherwise unsaleable. During the
fourth quarter of 1998 and the first quarter of 1999, the Company relieved
approximately $7.4 million and $4.4 million, respectively, of the inventory
reserve. The Company anticipates that the remaining balance will be relieved
during 1999.

   With the sudden and unexpected downturn in the microwave radio sector, the
Company determined that an additional $5.4 million of accounts receivable
reserve was needed.  The Company's experience over the last several years had
been one of an environment in which microwave radio sales were increasing and
expanding worldwide.  During the third quarter of 1998, the Company experienced
a weakness in the market which resulted in cancelled purchase orders, and the
stronger dollar caused the Company's customers to delay payments on equipment
that had already been shipped.  The Company has over 200 customers worldwide
with business levels ranging from a few thousand to millions of dollars.  The
Company's credit policy on customers both domestically and internationally
requires letters of credit and down payments for those customers deemed to be a
high risk and open credit for customers which are deemed credit worthy and have
a history of timely payments with the Company.  The Company's credit policy
typically allows payment terms between 30 and 90 days depending upon the
customer and the cultural norms of the region.  The Company's collection process
escalates from the collections department to the sales force to senior
management within the Company as needed.  Outside collection agencies and legal
resources are also utilized where appropriate.

   The ending accrual balance for the accounts receivable reserve of $1.8
million, shown below, represents the charge to the balance sheet contra-account,
allowance for doubtful accounts. In the fourth qurter of 1998 and the first
quarter of 1999, the Company elected to write off approximately $3.6 million and
$1.8 million of uncollectible accounts receivable, respectively.

   The Company expects to benefit from these restructuring and other one-time
charges in future quarters by reducing fixed costs and future cash requirements.

   The accrued restructuring and other one-time charges and amounts charged
against the accrual as of December 31, 1998, are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                             Beginning     Expenditures     Remaining
                                                                              Accrual     and Write-offs     Accrual
<S>                                                                         <C>         <C>               <C>
       Severance and benefits                                                 $   568         $   (568)     $    --
       Facilities and fixed asset write-offs                                      879             (519)         360
       Goodwill impairment                                                      2,884           (2,884)          --
                                                                              -------         --------      -------
       Total restructuring charges                                              4,331           (3,971)         360
       Inventory reserve                                                       16,922           (7,360)       9,562
       Accounts receivable reserve                                              5,386           (3,609)       1,777
                                                                              -------         --------      -------
       Total accrued restructuring and other one-time charges                 $26,639         $(14,940)     $11,699
                                                                              =======         ========      =======
</TABLE>

  Interest and Other Income (Expense). For 1998, interest expense, consisted
primarily of interest and fees incurred on borrowings under the Company's bank
line of credit, interest on the principal amount of the Company's subordinated 4
1/4%

                                       32
<PAGE>

convertible promissory notes due 2002 (the "Notes"), equipment leases and
finance charges related to the Company's receivables purchase agreements. For
1998, 1997 and 1996, interest income consisted primarily of income generated
from the Company's cash investments. For 1997 and 1996, interest expense
consisted primarily of interest accrued on the Company's bank line of credit and
equipment lease lines. In 1998, 1997 and 1996, interest income and other income
(expense), were $1.1 million, $2.6 million and $2.5 million, respectively. In
1998, 1997, and 1996, interest expense was $9.0 million, $2.3 million and $1.6
million, respectively. During 1998, sales contracts negotiated in foreign
currencies were limited to British Pound Sterling contracts and Italian Lira
contracts, and any balance sheet impact to date due to currency fluctuations in
British Pound Sterling or Italia Lira has been insignificant. However, the
Company has experienced payment delays on equipment that had already been
shipped due in part to currency fluctuations. The Company 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. The Company has entered into foreign currency hedging transactions to
reduce exposure to foreign exchange risks. As of December 31, 1998, the Company
had forward exchange contracts valued at approximately $26.1 million. The
forward contracts generally have maturities of six months or less.

   Extraordinary Item. In December 1998, the Company exchanged an aggregate of
$14.3 million of its Notes for an aggregate of 2,467,000 shares of its Common
Stock with a fair market value of $9.0 million. These transactions resulted in
an extraordinary gain of $5.3 million. In January and February of 1999, the
Company exchanged an additional aggregate of $25.5 million of these Notes for an
aggregate of 2,792,257 shares of its Common Stock with a fair market value of
$18.3 million and will record an additional extraordinary gain of $7.3 million
in the first quarter of 1999.

   Charge related to preferred stock discount. In December 1998, the Company
completed a private placement of 15,000 shares of a newly designated Series B
convertible participating preferred stock and warrants to purchase up to
1,242,257 shares of Common Stock for $15 million. As such, in the fourth quarter
of 1998, the Company's earnings (loss) per share calculation included the fair
value of the warrants issued and the accretion of the Series B preferred stock
to its fair value. During the period of conversion of the Series B preferred
stock, the Company is required to recognize in its earnings (loss) per share
calculation any accretion of the Series B preferred stock to its redemption
value as a dividend to the holders of the Series B preferred stock.
Consequently, the Company recorded a charge of approximately $1.8 million to its
accumulated deficit for the fourth quarter of fiscal 1998 as a result of the
accounting treatment for issuance of the related warrants.

   Provision (Benefit) for Income Taxes. The Company's effective tax rates for
1998, 1997 and 1996 were 16.9%, 36.9% and 9.7% respectively. The Company's
effective tax rate is less than the combined federal and state statutory rate
due principally to net operating losses and loss credit carry forwards available
to offset taxable income. Though most of the Company's sales are to foreign
customers, the majority of the Company's pre-tax income is domestic as most
sales take place in the United States and then title transfers to the foreign
customers.

Liquidity And Capital Resources

   Since its inception in August 1991, the Company has financed its operations
and met its capital requirements through net proceeds of approximately $89.5
million from the Company's initial and two follow-on public offerings of its
Common Stock, four preferred stock financings aggregating approximately $32.2
million, including a $15 million preferred stock financing in 1998, Notes with
net proceeds of approximately $97.5 million in 1997 and borrowings under its
bank lines of credit and equipment lease arrangements.

   In 1998, the Company used approximately $37.8 million in operating
activities, primarily due to the net loss (excluding non-cash charges for
acquired in-process research and development of $15.4 million offset by an
extraordinary gain on the retirement of the Notes of $5.3 million) of
approximately $45.2 million and increases in deferred taxes, inventory and
prepaid expense of $8.0 million, $15.0 million and $9.0 million, respectively,
and by decreases in accounts payable and income taxes payable of $1.4 million
and $6.4 million, respectively, offset by depreciation and goodwill amortization
of $11.5 million and $6.8 million, respectively, an increase in other accrued
liabilities of $2.7 million and a decrease in accounts receivable and other
assets of $24.8 million and 2.7 million, respectively.

   During 1998, the Company used approximately $90.6 million in investing
activities consisting of approximately $58.2 million on acquisitions, including
the assets of the Cylink Wireless Group, and $29.2 million to acquire property
and equipment.

   In 1998, the Company generated approximately $67.6 million from financing
activities. The Company received approximately $46.1 million from borrowings
under its bank line of credit, approximately $2.0 million under other banking
relationships, principally with the Company's subsidiaries in Italy,
approximately $1.6 million from the proceeds of a sale leaseback transaction,
approximately $13.6 million from the sale of preferred stock and warrants, net
of expenses, and

                                       33
<PAGE>

approximately $4.5 million from issuing Common Stock pursuant to the Company's
stock option and employee stock purchase plans.

   The result of these activities is that the company experienced a significant
decrease in cash and cash equivalents in 1998.  If this trend continues, the
Company's ability to invest in acquisitions will be negatively impacted, which
could slow the Company's growth rate and hurt the Company's competitive
position.

   At December 31, 1998, the Company had working capital of approximately $81.1
million. In recent quarters, most of the Company's sales have been realized near
the end of each quarter, resulting in a significant investment in accounts
receivable at the end of the quarter. The Company expects that its investments
in accounts receivable and inventories will continue to represent a significant
portion of working capital. Significant investments in accounts receivable and
inventories have subjected and may continue to subject the Company to increased
risks which could materially adversely affect the Company's business, financial
condition and results of operations.

   The Company's principal sources of liquidity as of December 31, 1998
consisted of approximately $29.2 million of cash and cash equivalents. At
December 31, 1997, the Company had approximately $88.1 million in cash and cash
equivalents. In addition, the Company entered into a new revolving line of
credit agreement on May 15, 1998 as amended that provided for borrowings of up
to $50.0 million. At December 31, 1998, the Company had borrowed or had used as
security for letters of credit approximately $50 million under the line of
credit. The revolving commitment, as amended, is reduced from $50 million to $40
million on August 15, 1999 and to $30 million on October 15, 1999 until maturity
on January 15, 2000. Borrowings under the line are secured by all of the assets
of the Company and its subsidiaries and bear interest at a fluctuating interest
rate per annum that is 3% above a rate determined by Union Bank of California's
announced commercial lending rate as in effect from time to time subject to
adjustment under certain circumstances as provided in the line of credit
agreement. This interest rate may increase an additional 5% in the event any
default is continuing under the bank credit agreement. The line-of-credit
agreement requires the Company to comply with certain financial covenants which
include maintaining (i) minimum tangible net worth, (ii) minimum profitability,
(iii) minimum consolidated EBITDA, (iv) maximum consolidated capital
expenditures and (v) minimum ratio of consolidated quick assets to consolidated
current liabilities. Amendments to the bank credit agreement have allowed the
Company to remain in compliance with the debt covenants through March 31, 1999.
While the amendments to the covenants have been structured based on the
Company's business plan that would allow the Company to continue to be in
compliance with such covenants through January 15, 2000, the Company's business
plan includes provisions for the infusion of approximately $15 million of
capital during the second quarter of 1999 based on preliminary discussions with
potential investors and the Company's desire to solidify its equity base to
support future growth. The Company does not currently have commitments from any
potential investors. Should the Company not meet its business plan, or should
the Company not be able to raise adequate capital, it is possible that an event
of default will occur under the line-of-credit agreement. If a default is
declared by the lenders, cross defaults will be triggered on the Company's
outstanding 4 1/4% Convertible Subordinated Notes and other debt instruments
resulting in accelerated repayments of such debts, and the holders of all
outstanding Series B Preferred Stock would have the right to have their stock
redeemed by the Company. Management believes, in the event that the Company
fails to fully meet its business plan, the Company has adequate alternatives
available to remedy any negative consequences arising from a potential default
under the agreement which may include, but are not limited to additional capital
infusions through the sale of stock, revenue generated from the licensing of
technology and the divestiture of certain business units. However, there can be
no assurance that the Company will be able to implement these plans or that it
will be able to do so without a material adverse effect on the Company's
business, financial condition or results of operation. In addition, the Company
could be restricted in its ability to use more flexible registration statements
to issue securities and could be delisted by the Nasdaq National Market. Such
events would materially adversely affect the Company's business, financial
condition and results of operations. Management has implemented plans designed
to reduce the Company's cash requirements through a combination of reductions in
components of working capital, equipment purchases and operating expenditures.
However, there can be no assurance that the Company will be able to implement
these plans or that it will be able to do so without a material adverse effect
on the Company's business, financial condition or results of operations.

   In addition to the revolving line of credit, the Company's foreign
subsidiaries have lines of credit available from various financial institutions
with interest rates ranging from 8% to 12%.  At December 31, 1998, $3.8 million
had been drawn down under these facilities.  Generally, these foreign credit
lines do not require commitment fees or compensating balances and are cancelable
at the option of the Company or the financial institution.

   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 at any time. The Notes are
redeemable by the Company, beginning on November 5, 2000, upon 30 days notice,
subject to a declining redemption price. Interest on the Notes will be paid
semi-annually on May 1 and November 1 of each year. An event of default could
occur if the Company defaults under any of its debt instruments with the
principal amount of $15 million or more.  Such default would trigger the
acceleration of the Notes causing the Notes to become

                                       34
<PAGE>

due and payable immediately. On December 30 and 31, 1998, the Company issued
2,467,000 shares of Common Stock in exchange for $14.4 million of Notes and
recorded an extraordinary gain of $5.3 million. On January 4 and February 2,
1999, the Company issued an additional 2,792,257 shares of Common Stock in
exchange for $25.5 million of Notes and will record an extraordinary gain of
$7.3 million in the first quarter of 1999.

   At present, the Company does not have specific long-term plans to seek
alternative liquidity sources upon the maturity of its line of credit on January
15, 2000.  If the Company is successful in reducing components of working
capital, equipment purchases and operating expenses, it may be able to operate
its business on a break-even or positive cash-flow basis.  Other alternatives
for liquidity sources may include, but are not limited to, additional capital
infusions through the sale of stock, the licensing of technology or the
divestiture of certain business units.

   At present, the Company does not have any material commitments for capital
equipment purchases. However, the Company's future capital requirements will
depend upon many factors, including the repayment of its debt, the development
of new radio systems and related software tools, potential acquisitions, the
extent and timing of acceptance of the Company's radio systems in the market,
requirements to maintain adequate manufacturing facilities, working capital
requirements for the Company's acquired entities, the progress of the Company's
research and development efforts, expansion of the Company's marketing and sales
efforts, the Company's results of operations and the status of competitive
products. The Company believes that cash and cash equivalents on hand, cash flow
from operations and funds available, if any, from the Company's bank line of
credit are adequate to fund its operations in the ordinary course of business
for at least the next twelve months. There can be no assurance, however, that
the Company will not require additional financing prior to such date to fund its
operations. Specifically, given the Company's obligations to repay its bank and
other debt and its obligation to fulfill its business plan, the Company intends
to raise additional capital.

   The Company has in the past and may from time to time in the future sell its
receivables, as part of an overall customer financing program, with immaterial
recourse to the Company. There can be no assurance that the Company will be able
to locate parties to purchase such receivables on acceptable terms, or at all.
To the extent that the Company's financial resources are insufficient to fund
the Company's activities and to repay its debts, additional funds will be
required. There can be no assurance that any additional financing will be
available to the Company on acceptable terms, or at all, when required by the
Company. If additional funds are raised by issuing equity securities, further
dilution to the existing stockholders will result. If adequate funds are not
available, the Company may be required to delay, scale back or eliminate one or
more of its research and development or manufacturing programs, cease its
acquisition activities or obtain funds through arrangements with partners or
others that may require the Company to relinquish rights to certain of its
technologies or potential products or other assets that the Company would not
otherwise relinquish. Accordingly, the inability to obtain such financing could
have a material adverse effect on the Company's business, financial condition
and results of operations. For risk factors associated with the Company's future
capital requirements, please see "Rapid Technological Change--Additional
Capital Requirements."

   Future capital requirements will depend upon many factors, including the
repayment of its debt, the development of new products and related software
tools, potential acquisitions, maintenance of adequate manufacturing facilities
and contract manufacturing agreements, progress of research and development
efforts, expansion of marketing and sales efforts, and the 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
indebtedness incurred through the issuance of the Company's Notes, the
incurrence of debt under the Company's bank line of credit and the rights of the
holders of the Series B Preferred Stock may affect the Company's ability to
raise additional financing. The Series B Preferred Stock restricts the rights of
Common Stock Shareholders, but even if these restrictions were lifted, the
substantial amount of indebtedness incurred by the Company makes additional debt
financing problematic.  Given the recent price for its Common Stock, if
additional funds are raised by issuing equity securities, significant dilution
to its stockholders could result.

   The Company has, however, recently retired approximately $40 million of its
Notes in exchange for approximately 5.3 million shares of its Common Stock. As
the Company's Notes were exchanged for an average of approximately 68% of face
value between December 30, 1998 and February 2, 1999, certain holders of these
Notes desired to exchange the notes for Common Stock. By retiring the debt at a
significant discount from its face value, the Company realized an immediate
improvement to its balance sheet, and expects to improve future earnings and
cash flow by reducing interest expense. The Company may exchange additional
Notes for shares of Common Stock or, alternatively, refinance or exchange the
remainder of the Notes and/or the bank debt or exchange the Notes for other
forms of securities. The Company has also recently issued 15,000 shares of
Series B Preferred Stock and warrants to purchase up to 1,242,257 shares of its
Common Stock in exchange for a $15 million investment. These transactions have
had and may continue to have a substantial dilutive effect on its stockholders
and may make it difficult for the Company to obtain additional future financing,
if needed.

Acquisitions

                                       35
<PAGE>

   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 (the Cylink Wireless Group). The acquisition was accounted
for as a purchase business combination in accordance with Accounting Principles
Board ("APB") Opinion No. 16. Under the purchase method of accounting, the
purchase price was allocated to the net tangible and identifiable intangible
assets acquired and liabilities assumed based on their estimated fair values at
the date of the acquisition with any excess recorded as goodwill. Results of
operations for the Cylink Wireless Group have been included with those of the
Company for periods subsequent to the date of acquisition.

   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 has
been assigned to in-process research and development and expensed upon the
consummation of the acquisition. The Company initially recorded a $33.9 million
charge for purchased in-process research and development in March 1998 based
upon a purchase price allocation which was made in a manner consistent with
widely recognized appraisal practices. In September 1998, subsequent to the
filing of the Form 10-Q in May 1998 covering the Company's quarter ended on
March 31, 1998, the Company adjusted the allocation of the purchase price
related to the acquisition of the Cylink Wireless Group based on a more current
and preferred methodology. The result is a lesser charge to income for in-
process technology and a higher recorded value of goodwill and other intangible
assets.


                                       36
<PAGE>

   Among the factors considered in determining the amount of the allocation of
the purchase price to in-process research and development were various factors
such as estimating the stage of development of each in-process research and
development project at the date of acquisition, estimating cash flows resulting
from the expected revenues generated from such projects, and discounting the net
cash flows, in addition to other assumptions. Developed technology will be
amortized over the period of the expected revenue stream of the developed
products of approximately four years. The value of the acquired workforce will
be amortized on a straight-line basis over three years, and the remaining
identified intangibles, including goodwill and core technology will be amortized
on a straight-line basis over ten years. Amortization expense related to the
acquisition of the Cylink Wireless Group was $3.7 million for 1998.

   In addition, other factors were considered in determining the value assigned
to purchased in-process technology such as research projects in areas supporting
products which address the growing third world markets by offering a new point-
to-multi-point product, a faster, less expensive more flexible point-to-point
product, and the development of enhanced Airlink products, consists of a Voice
Extender, Data Metro II, and RLL encoding products.

   If none of these projects are successfully developed, the Company's sales and
profitability may be materially adversely affected in future periods.
Additionally, the failure of any particular individual project in process could
impair the value of other intangible assets acquired. The Company expects to
begin to benefit from the purchased in-process technology in 1999.

CERTAIN FACTORS AFFECTING THE COMPANY

Risks Related to the Series B preferred stock

   Please note that on June 4, 1999, we exchanged 5,134,795 shares of our common
stock for all 15,000 shares of our outstanding Series B preferred stock.

   The common stock sold in this offering may significantly increase the supply
of our common stock on the public market, which may cause our stock price to
decline.

   The conversion of the Series B preferred stock, the exercise of the warrants
and sale of the common stock into the public market could materially adversely
affect the market price of the common stock. Substantially all of the shares of
our common stock are eligible for immediate and unrestricted sale in the public
market at any time, including the approximately 5.3 million shares of common
stock we issued in exchange for approximately $40 million of our 4 1/4%
convertible promissory notes which were issued to investors other than the
selling stockholders. Once the registration statement of which this prospectus
forms a part is declared effective, all shares of common stock issuable upon
conversion of the Series B preferred stock and exercise of the warrants will be
eligible for immediate and unrestricted resale into the public market. The
presence of these additional shares of common stock in the public market may
further depress the stock price.

   Our preferred stock financing may result in substantial dilution to holders
of our common stock.

   The agreements with the purchasers of the Series B preferred stock and
warrants contain terms and covenants that could result in substantial dilution
to our stockholders. The Series B preferred stock converts into shares of
common stock at the lesser of fixed or variable rates based on future events
and future trading prices of our common stock. As of June 3, 1999, the
conversion price was $4.38 per share because the fixed conversion price was
higher than variable conversion price on that date, which is average of the
three lowest closing bid prices for our common stock over the fifteen trading
days immediately preceding June 3, 1999.

   If all shares of the Series B preferred stock converted into common stock
at that conversion price, we would be obligated to issue 3,424,658 shares of
common stock to the holders of the Series B preferred stock which would
represent 6.99% of our common stock outstanding after that issuance.  In
addition, if we pay the premium that has accrued on the Series B preferred stock
between December 22, 1999 and June 3, 1999 by issuing common stock, we would
issue an aggregate of 91,762 additional shares of common stock to the selling
stockholders.  These shares of common stock, when combined with the shares of
common stock issued upon conversion of the Series B preferred stock, would
represent 7.2% of our outstanding common stock.

   The conversion price will never exceed $5.46 per share, which was above the
closing price of our stock on June 3, 1999 of $4.75 per share, but the
conversion price can decrease significantly.  Due to the variable conversion
price, we do not know the number of shares of common stock that we will actually
issue upon conversion of the Series B preferred stock.  In addition, the
conversion price can decrease at any time if certain events occur, which would
lead to more shares of common stock being issued upon conversion and additional
dilution of our existing stockholders.

   The following table sets forth the number of shares of common stock issuable
upon conversion of the outstanding Series B preferred stock, other than shares
issuable in respect of accrued premium and any default amounts, and the
percentage ownership that each represents assuming:

                                       37
<PAGE>

 . the market price of the common stock is 25%, 50%, 75% and 100% of the market
  price of the common stock on June 3, 1999, which was $4.75 per share;
 . the variable conversion price feature of the preferred stock that was in
  effect;
 . the maximum conversion prices of the preferred stock was not adjusted as
  provided in our certificate of incorporation or the amount of shares issuable
  is otherwise limited by the transaction agreements;

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
           Percent of                                     Series B
          Market Price                                Preferred Stock(1)
-----------------------------------------------------------------------------------------------
                                               Shares                        %(2)
                                             Underlying
-----------------------------------------------------------------------------------------------
<S>                                        <C>                                <C>
          25%($1.1875)                     12,631,579(2)                      20.5%
-----------------------------------------------------------------------------------------------
          50%($2.375)                       6,315,789                         11.4%
-----------------------------------------------------------------------------------------------
          75%($3.5625)                      4,210,526                         7.9%
-----------------------------------------------------------------------------------------------
          100%($4.75)                       3,157,895                         6.1%
-----------------------------------------------------------------------------------------------
</TABLE>

     (1) On June 3, 1999, there were 48,966,750 shares of common stock and
         15,000 of Series B preferred stock outstanding.
     (2) Limitations in the transaction agreements and the certificate of
         incorporation may preclude these levels of beneficial ownership from
         being achieved.

   Notably, the lower the conversion price at which conversions of the Series B
preferred stock occur, the lower the percentage ownership of our stock by our
existing stockholders after those conversions.

   In addition, the warrants and, potentially, our 4 1/4% convertible promissory
notes are subject to anti-dilution protection. That protection may result in the
issuance of more shares than originally anticipated if we issue securities at
less than market value or the applicable exercise price, which may occur as a
result of conversion of the Series B preferred stock. These factors may result
in substantial future dilution to the holders of our common stock.

   If our stockholders approve the proposal to waive the 20% limit, the dilution
caused by conversions of Series B preferred stock may be extreme and could
result in a change of control.

   A restriction in the Series B preferred stock financing documents currently
limits the number of shares of our common stock issuable upon conversion of the
Series B preferred stock and the warrants to 8,663,895 shares.  We will
recommend to our stockholders that they approve a proposal that would remove
this restriction.  If our stockholders approve the proposal, there would be no
upper limit on the number of shares of our common stock that may be issued upon
conversion of the Series B preferred stock and upon exercise of the warrants.
Indeed, if the restriction is removed, enough shares may be issued upon
conversion of the Series B preferred stock and upon exercise of the warrants
that we may undergo a change in control.  Further, once the restriction is
removed, the risk of dilution to our existing holders of common stock is
increased due to the increased and potentially unlimited number of shares of
common stock that can possibly be issued upon conversion of the Series B
preferred stock and upon exercise of the warrants.

   Our preferred stock financing may make it more difficult or expensive for us
to obtain additional funds in the future, which may cause us to default under
our credit agreements triggering cross-defaults on our outstanding 4-1/4%
Convertible Subordinated Notes and redemption of the Series B Preferred Stock.

   The Series B preferred stock financing documents contain restrictions on our
ability to issue certain securities and the terms upon which we can enter into
loan agreements. In addition, the variable conversion, redemption and cash
payment provisions of the Series B preferred stock will impact the decision of
third parties whether to lend to or invest in us and on what terms. Further, we
may need the consent of the initial purchasers of the Series B preferred stock
to issue certain securities in order to raise capital. These factors may make it
difficult to, or prevent us from, obtaining funds when needed in the future, or
force us to obtain additional funds on less attractive terms than would
otherwise be available. Our business plan includes provisions for an infusion of
approximately $15 million of additional capital during the second quarter of
1999. We do not currently have commitments from any potential investors, and
there can be no assurance that we will be able to raise additional capital. If
the restrictions contained in the Series B preferred stock financing documents
prevent us from obtaining the financing required by our credit agreements, we
will be in default under our credit agreements and in cross-default under the
Series B financing documents, which could have a material adverse effect on our
business, financial condition, prospects and stock price.

                                       38
<PAGE>

   Our preferred stock may require us to make significant cash payments,
diverting resources away from our business, causing us to sell key operational
assets or rendering us unable to pay our debts.

   The Series B financing documents require significant cash payments upon the
occurrence of certain events, even if we do not have cash available to make
these payments.  Certain of these cash payments result from particular events
happening and other cash payments result from a redemption of the Series B
preferred stock at the holder's option.  There is no ceiling on the amount of
cash payments resulting from such a redemption.

   Event-based payments

   One example of event-based cash payments is the cash payments that must be
made because this registration statement was not declared effective before April
22, 1999.  The registration rights agreement requires that the registration
statement of which this prospectus is a part be declared effective by the SEC on
or prior to April 22, 1999.  For each day after April 22, 1999 that the
registration statement is not declared effective, we are required to make cash
payments to the selling stockholders.

   In addition, if certain events occur, regardless of whether those events are
within our control, we are obligated to make cash payments to the holders of the
Series B preferred stock until that event no longer exists. The amount of these
payments would be 3% of the aggregate face amount of the Series B preferred
stock originally issued plus any accrued but unpaid premium the first week and
5% each week thereafter. The 3% amount would be at least $450,000 and the 5%
amount would be at least $750,000. Thus, if that event persisted for 2 weeks, we
would be required to pay at least $1,200,000, if that event persisted for 3
weeks, we would be required to pay at least $1,950,000, and so on.

   Also, if we fail to timely issue the number of common shares required by any
conversion notice provided to us by a holder, we must make daily cash payments
to that holder until we have issued all shares required by the conversion
notice. The daily cash payment would be in an amount equal to 1% of the face
amount of each share of Series B preferred stock that is included in the
conversion notice but for which shares of common stock were not issued. For
example, if we received a conversion notice from a holder requesting conversion
of 1,000 shares of Series B preferred stock and we did not timely issue the
stock, for each day after the last day to timely issue that common stock until
we actually issued it, we would owe that holder $10,000. Continuing this
example, if we issued the shares 7 days after the last day permitted to avoid
payments, we would owe that holder $70,000.

   Redemption payments

   If certain events occur which are deemed to be within our control, we are
obligated to redeem all outstanding shares of Series B preferred stock for cash
in an amount significantly in excess of the original issue price.  If all of the
presently outstanding Series B preferred stock were outstanding on the
redemption date, the aggregate amount of redemption payments would be at least
$19,950,000, but could be much higher if the market price of our stock increases
significantly.  For example, if the redemption occurred on June 30, 1999 and our
stock price was three times the highest possible conversion price, or
approximately $18 per share, the aggregate redemption payments would exceed
$46,300,000.

   Consequences of cash payment provisions

   If we do not timely make the cash payments required by the Series B financing
documents, the amount of those payments will accrue default interest at an
annual rate of 18%. Making those payments may divert funds away from and thus
adversely affect our business, financial condition and results of operations. If
we do not have the funds available to make cash payments or redemption payments,
we may have to sell key operational assets or become unable to pay our debts.
Either of those event would have a material adverse effect on our business,
financial condition, prospects and stock price.

   If our credit agreement or Section 160 of the Delaware General Corporation
Law prevent redemption or cash payments, we may be required to sell important
operating assets, license our intellectual property or issue securities having
onerous terms, which would materially adversely affect our business, financial
condition and operating results.

   In the event our credit agreement prevents redemptions of the Series B
preferred stock or cash payments called for by the terms of the Series B
preferred stock, we are required to use our reasonable best efforts to take all
reasonably necessary steps permitted by the Series B financing documents to
permit further redemptions and cash payments.  Similarly, in the event DGCL
Section 160 prevents redemptions of the Series B preferred stock, we are
required to use our best efforts to take all necessary steps permitted by the
Series B financing documents to remedy our capital structure to permit further
redemptions.  To fulfill these requirements, we may need to alter our capital
structure by turning fixed or financial assets into liquid assets or otherwise
obtaining additional capital.  Those liquid assets would augment our capital for
purposes of DGCL Section 160 and may permit us to amend our credit agreement to
permit additional payments to the holders of Series B preferred stock.  Methods
by which we

                                       39
<PAGE>

might be required to generate liquid assets include selling off important
operating assets, which may include divestiture of entire divisions or
subsidiaries, or licensing our intellectual property to third parties to raise
cash, which may be to the long-term detriment of our business. Additionally, we
may be required to raise capital by selling securities that impair our ability
to operate our business, are prohibitively expensive or otherwise have onerous
terms. Any of these actions could materially adversely affect our business,
operating results and financial condition.

   Our preferred stock financing may make it more difficult for us to engage in
merger and acquisition activities, rendering us unable to complete transactions
that would be beneficial to our stockholders.

   The Series B preferred stock financing agreements could also render merger
and acquisition activities more difficult.  In addition, we cannot transfer all
or substantially all of our assets without the approval of each initial holder
of Series B preferred stock.  The Series B preferred stock financing agreements
and this approval right may require us to ensure that certain terms that are
favorable to the selling stockholders be included in any merger or acquisition
transaction.  Certain provisions of the Series B preferred stock may prohibit us
from accounting for any acquisition by or of us as a pooling of interests
transaction.  These terms would likely increase the cost of the transaction to
us or the potential acquirer or otherwise be unacceptable to the potential
acquirer.  As such, these provisions may result in our stockholders receiving
decreased consideration for their stock in such a transaction or prevent such a
transaction from occurring.

   The Series B preferred stock may cause us to no longer be listed on the
Nasdaq National Market, which would permit our lenders to declare a default,
which might force us to sell key operational assets or render us insolvent.

   Nasdaq may determine that the Series B preferred stock violates its rules

   Nasdaq recently published a document that sets forth its position on how
certain of the Nasdaq Marketplace Rules, including rules relating to shareholder
approval, voting rights, minimum bid price, listing of additional shares, change
in control and Nasdaq's discretionary authority, apply to securities having
variable conversion features, such as the Series B preferred stock.
Notwithstanding the guidance provided in the Nasdaq document, it remains unclear
how the Nasdaq Marketplace Rules will be applied to the Series B preferred stock
and whether Nasdaq will exercise its discretionary authority to adversely affect
us. Nasdaq may determine that we violate one or more of its rules, or that
securities akin to the Series B preferred stock are contrary to the public
interest or the interests of investors, which could lead to our stock being
involuntarily delisted from the Nasdaq National Market.

   If our stock price drops, we may violate Nasdaq's minimum bid price rule

   The resale of our common stock under this prospectus result in downward
pressure on the market price of our common stock. If the price of our common
stock falls below $1.00 per share, we may be dislisted from the Nasdaq National
Market. Rule 4450(a)(5) of the Nasdaq Marketplace Rules requires that an issuer
listed on the Nasdaq National Market maintain a minimum bid price of $1 per
share. Pursuant to Rule 4480(a), an issuer can be delisted from the Nasdaq
National Market for failure to maintain compliance with Rule 4450.

   If our stockholders do not approve the proposal to waive the 20% rule, we may
be required to voluntarily delist our stock from the Nasdaq National Market and
list it on an over-the-counter bulletin board.

   If we do not obtain the approval of our stockholders before June 22, 1999
and this failure prevents us from honoring conversions, any selling stockholder
who is prevented from converting has a right to force us to list our stock on an
over-the counter bulletin board or an exchange that does not have a rule as
restrictive on conversions of the Series B preferred stock and exercise of
warrants as Nasdaq's 20% rule.  If our common stock were traded on an over-the-
counter bulletin board, our common stock may be subject to reduced liquidity and
reduced analyst coverage, our ability to raise capital in the future may be
inhibited, and our business, financial condition and results of operations could
be materially adversely affected.

   Effects of being delisted

   If our common stock is listed on an over-the-counter bulletin board rather
than on a national exchange, our lenders will have the right to declare us in
default under our credit agreement and note indenture.  If our lenders elect to
declare a default, that default would cause acceleration of those debts and
redemption of the Series B preferred stock, which may render us insolvent or
force us to sell key operating assets or license vital technology to third
parties.  No longer being listed on Nasdaq would have a material adverse affect
on our business, financial condition and operating results.

                                       40
<PAGE>

   If our stockholders do not approve the proposal to waive the 20% rule, we
will suffer a number of adverse consequences, and our business, financial
condition and operating results will be materially adversely affected.

   We could be forced to redeem the Series B preferred stock at a premium

   If we do not obtain the approval of our stockholders before June 22, 1999
and this event is deemed to be within our control, the selling stockholders can
elect to have us redeem their Series B preferred stock.  If we do not obtain the
approval of our stockholders before June 22, 1999 and this event is deemed not
to be within our control, we must make significant cash payment to the selling
stockholders.

   We may be required to continue to try to obtain the approval at our
significant expense

   If we do not obtain the approval of our stockholders before June 22, 1999,
we may be obligated to continue to attempt to obtain the approval.  Those
attempts likely would involve preparing and filing a proxy statement for a
special meeting of stockholders, holding a special meeting of stockholders,
engaging a proxy solicitation firm and other actions.  Those attempts would
involve significant expenditures by us and would likely divert resources away
from our business.

   We will be obligated to make cash payments

   If we do not obtain the approval of our stockholders before June 22, 1999,
we are obligated to make cash payments to the holders of the Series B preferred
stock until that event no longer exists.  The amount of these payments would be
3% of the aggregate face amount of the Series B preferred stock originally
issued plus any accrued but unpaid premium the first week and 5% each week
thereafter.  The 3% amount would be at least $450,000 and the 5% amount would be
at least $750,000.  Thus, if that event persisted for 2 weeks, we would be
required to pay at least $1,200,000, if that event persisted for 3 weeks, we
would be required to pay at least $1,950,000, and so on.

   The conversion price may be adjusted downward

   If we do not obtain the stockholder vote on or before June 22, 1999, the
conversion price will be the lower of the conversion price that would otherwise
be in effect and the average of the five lowest closing bid prices for our
common stock during the period beginning on June 22, 1999 and ending on the date
we obtain the stockholder approval.

   The selling stockholders can require us to delist from the Nasdaq National
Market and list our common stock on the over-the-counter electronic bulletin
board

   Please see the discussion in the risk factor entitled "The Series B
preferred stock may cause us to be delisted from the Nasdaq National Market,
which would permit our lenders to declare a default, which might force us to
sell key operational assets or render us insolvent" above.

   Effects of failing to obtain the stockholder vote on or before June 22,
1999

   As set forth above, if we fail to obtain the stockholder vote on or before
June 22, 1999, we may be forced to redeem the Series B preferred stock, expend
sums to continue to seek to obtain the vote, make significant cash payments,
suffer a reduced conversion rate and delist our stock.  In sum, failing to
obtain the stockholder vote on or before June 22, 1999 would have a material
adverse effect on our business, financial condition and operating results.

   Our preferred stock financing may result in adverse accounting charges,
which could adversely affect our results of operations and stock price

   The redemption rights, liquidated damages provisions and other terms of the
Series B preferred stock, and the cross default provisions in our debt financing
agreements could, under certain circumstances, lead to a significant accounting
charge to earnings and materially adversely affect our financial condition and
results of operations.  This potential charge and other future charges relating
to the provisions of the financing agreements may materially adversely affect
our earnings per share and the market price of our common stock both currently
and in future periods.

                                       41
<PAGE>

FACTORS RELATED TO THE COMPANY AND OUR BUSINESS

History of Losses

   From the Company's inception to the end of fiscal 1998, the Company generated
a cumulative net loss of approximately $38.8 million. From the end of 1997
through the end of 1998, the Company's net loss was due primarily to (i) an
acquired in-process research and development charge of approximately $15.4
million recorded in the first quarter of 1998 related to the acquisition of the
Cylink Wireless Group and (ii) a net loss of $39.2 million in the third quarter
of 1998, which included restructuring and other one-time charges of $26.6
million consisting of a $16.9 million charge to cost of goods sold (including
$14.5 million in inventory write downs related to the Company's existing core
business and $2.4 million in other one-time charges to inventory relating to the
elimination of product lines), a $5.4 million charge to general and
administrative expenses for increased accounts receivable reserves and a $4.3
million charge (including severance benefits, facilities and fixed assets
impairments and goodwill impairments) to restructuring and other one-time
charges.

   From October 1993 through December 31, 1998, the Company generated sales of
approximately $649.8 million, of which $415.6 million or 65.0% was generated in
the two years ended December 31, 1998. However, the Company does not believe
such growth rates are indicative of future operating results. During the third
and fourth quarter of 1998, the Company experienced a significant decrease in
sales. This decrease in revenue was principally the result of the market
slowdown for the Company's Tel-Link product line and for the industry segment in
general, in particular the economic turmoil in Asia. Net sales in 1998 decreased
by $25.8 million from the prior year. Sales for P-COM (excluding companies
acquired in 1997 and 1998) decreased from approximately $157 million in 1997 to
approximately $93 million in 1998 due to lower demand in the last half of 1998
for its Tel-Link product line. This sales decrease was partially offset by sales
increases in companies acquired in 1998 and 1997. During 1998, the Company
acquired Cylink which contributed approximately $25 million to 1998 sales.
Neither company contributed to sales in 1997. During 1997, the Company acquired
Technosystem which contributed approximately $26 million to 1998 sales and $21
million to 1997 sales, and CSM, which contributed approximately $44 million to
1998 sales and $30 million to 1997 sales. CRC, which was acquired in 1997,
showed a sales decrease from approximately $12 million in 1997 to approximately
$7 million in 1998. The Company expects sales growth in the near future to be
significantly below recent comparable periods of growth. In recent quarters, the
Company also experienced higher than historical product price declines. The
decline in prices, along with one-time inventory write-downs, has had a
significant downward impact on its gross margin. The Company expects pricing
pressures to continue for the next several quarters and also expects gross
margins as a percentage of revenues to continue to be below comparable periods
for the next several quarters.

   During 1997 and 1998, operating expenses increased more rapidly than the
Company had anticipated, and these increases also contributed to net losses. The
Company plans to continue the Company's investments in operations, particularly
to support product development and the marketing and sales of recently
introduced products. In parallel, the Company has undertaken cost-cutting
efforts in other areas. However, if sales do not increase, the Company's results
of operations, business and financial condition may continue to be materially
adversely affected. Accordingly, the Company may not achieve profitability for
the next several quarters.

Customer Concentration

   In 1998, one customer, Orange Personal Communications Ltd., accounted for 23%
of the Company's 1998 sales. During 1998, four customers accounted for
approximately 42% of the Company's sales and as of December 31, 1998, six
customers accounted for approximately 59% of the backlog scheduled for shipment
in the twelve months subsequent to December 31, 1998. Many of the Company's
major customers are located in foreign countries, primarily in the United
Kingdom and Europe. The Company anticipates continuing to sell products and
services to existing customers and adding new customers, many of which the
Company expects to continue to be located outside of the United States.

   Similarly, several of the Company's subsidiaries are dependent on a few
customers. 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.

   If the Company's customers cannot finance their purchases of the Company's or
its subsidiaries products or services, then 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. Specifically, both current
customers and potential future customers in the telecommunications industry have
reportedly undergone financial difficulties and may therefore limit their future
orders. The Company's ability to achieve sales in the future will depend in
significant part upon the Company's ability to:

                                       42
<PAGE>

 .  obtain and fulfill orders from, maintain relationships with and provide
   support to existing and new customers;
 .  manufacture systems in volume on a timely and cost-effective basis; and
 .  meet stringent customer performance and other requirements and shipment
   delivery dates.

   The Company's success will also depend in part on the financial condition,
working capital availability and success of the Company's customers. As a
result, 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 will 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. No assurance can be given that the Company's sales will increase
in the future or that the Company will be able to support or attract customers.


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 involves 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;
 .  education of customers as to the potential applications of its products and
   services, as well as related product-life cost savings;
 .  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; and
 .  price decreases required to secure purchase orders.

   A single customer's order scheduled for shipment in a quarter can represent a
large portion of the Company's potential sales for such quarter. The Company has
at times failed to receive expected orders, and delivery schedules have been
deferred as a result of changes in customer requirements and commitments, among
other factors. As a result, the Company's operating results for a particular
period have been and could in the future be materially adversely affected by a
delay, rescheduling or cancellation of even one purchase order. In addition, the
Company's operating results may be affected by an inability to obtain such large
orders from single customers in the future, some difficulties of this nature
have occurred in the past and the Company believes they will occur in the
future.

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 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. Indeed, most of the backlog scheduled for shipment in the twelve
months subsequent to December 31, 1998 can be cancelled. As a result, backlog
does not necessarily indicate future sales for any particular period. In
addition, 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.

Inventory

   The Company's customers have also 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 hard to predict the amount of inventory

                                       43
<PAGE>

needed to satisfy customer demand. If the Company over- or under-estimates
inventory requirements, its results of operations could continue to be adversely
affected. In particular, increases in inventory could materially adversely
affect operations if such inventory is not used or becomes obsolete.

Shipment Delays

   Most of the Company's sales in recent quarters have been realized near the
end of each quarter. Accordingly, 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 expectations. Such delays have occurred
in the past due to, for example, unanticipated shipment rescheduling, pricing
concessions to customers, 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.

Expenses

   Magnifying the effects of any revenue shortfall, a material portion of the
Company's expenses are fixed and difficult to reduce should revenues not meet
expectations. The failure to reduce actual costs to the extent anticipated, or
an increase in anticipated costs before shipment of an order or orders could
affect the gross margins for such orders. If the Company or its competitors
announce new products, services and technologies, it could cause customers to
defer or cancel purchases of its 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 Asia and Latin America, resulting in overcapacity;
 .  ability to manufacture and produce sufficient volumes of systems and meet
   customer requirements;
 .  manufacturing efficiencies and costs;
 .  customer confusion due to impact of actions of competitors;
 .  variations in mix of sales through direct efforts or through distributors or
   other third parties;
 .  variations in 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 expenses;
 .  product discounts;
 .  accounts receivable collection, in particular those acquired in recent
   acquisitions;
 .  changes in its pricing or customers' or 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;
 .  acquisitions, including costs and expenses;
 .  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 lawsuits;
 .  need for additional financing;
 .  customization of systems;
 .  general economic and political conditions; and
 .  natural disasters.

   The Company's results of operations have been and will continue to be
influenced by competitive factors, including pricing, availability and demand
for other competitive products and services. All of the above factors are
difficult for the Company to forecast, and could materially adversely affect its
business, financial condition and results of operations. The Company believes
that period-to-period comparisons are thus not necessarily meaningful and should
not be relied upon as indications of future performance.

   Because of all of the foregoing factors, in some future quarter or quarters
the Company's operating results may continue to be below those projected by
public market analysts, and the price of its common stock may continue to be
materially adversely

                                       44
<PAGE>

affected. Because of lack of order visibility and the current trend of order
delays, deferrals and cancellations, the Company cannot assure you that it will
be able to achieve or maintain its current or recent historical sales levels.

   The Company incurred a net loss for each of the quarters in 1998. Should
current market conditions continue to deteriorate, the Company may also incur
operating and net losses in subsequent periods. Additionally, management
continues to evaluate market conditions in order to assess the need to take
further action to more closely align the Company's cost structure with
anticipated revenues. Any subsequent actions could result in restructuring
charges, inventory write-downs and provisions for the impairment of long-lived
assets, which could materially adversely affect the Company's business,
financial condition and results of operations.

ACQUISITION RELATED RISKS

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

   Since April 1996, the Company has acquired nine complementary companies and
businesses. Integration and management of these companies into the Company's
business is ongoing. 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 associated with amortization of acquired intangible
   assets;
 .  dilution to existing stockholders;
 .  maintenance of uniform standards, controls, procedures and policies;
 .  impairment of relationships with employees and customers as 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
   cultures.

   The Company may not be successful in overcoming any or all of these risks or
any other problems encountered in connection with such 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, in particular, goodwill.

   The Company may have to acquire new businesses

   As part of its overall strategy, the Company plans to continue acquisitions
of or investments in complementary companies, products or technologies and to
continue entering into joint ventures and strategic alliances with other
companies. Its success in future acquisition transactions may, however, be
limited. The Company competes for acquisition and expansion opportunities
against many entities that have substantially greater resources. The Company may
not be able to successfully identify suitable candidates, pay for or complete
acquisitions, or expand into new markets. Once integrated, acquired businesses
may not achieve comparable levels of revenues, profitability, or productivity to
its existing business, or the stand alone acquired company, or otherwise perform
as expected. Also, as commonly occurs with mergers of technology companies
during the pre-merger and integration phases, aggressive competitors may also
undertake formal initiatives to attract customers and to recruit key employees
through various incentives. Moreover, if the Company proceeds with acquisitions
in which the consideration consists of cash, a substantial portion of its
limited cash could be used to consummate its acquisitions, as was the case with
the acquisition of the Cylink Wireless Group. The occurrence of any of these
events could have a material adverse effect on the Company's workforce,
business, financial condition and results of operations. See "-Management of
Growth."

ACCOUNTING ISSUES RELATED TO ACQUISITIONS

   In addition, many business acquisitions must be accounted for under the
purchase method of accounting for financial reporting purposes. Many of the
attractive acquisition candidates are technology companies which tend to have
insignificant amounts of tangible assets and significant intangible assets, and
the acquisition of these businesses would typically result in substantial
charges related to the amortization of such intangible assets. For example, all
of the Company's past acquisitions to date, except the acquisitions of Control
Resources Corporation, RT Masts Limited and Telematics, Inc. have been accounted
for under the purchase method of accounting, and as a result, a significant
amount of goodwill is being amortized. This amortization expense may have a
significant effect on the Company's financial results.

                                       45
<PAGE>

   The Company recognized an in-process research and development charge of
approximately $33.9 million in March 1998 as a result of the acquisition of the
assets of the Cylink Wireless Group. Subsequent to the filing of the Quarterly
Report on Form 10-Q for the first quarter of 1998, the Company adjusted the
allocation of the purchase price related to the acquisition of the Cylink
Wireless Group, which included decreasing the in-process research and
development charge from $33.9 million to $15.4 million. The result is a lesser
charge to income for in-process technology and a higher recorded value of
goodwill and other intangible assets.

CONTRACT MANUFACTURERS AND LIMITED SOURCES OF SUPPLY

   The Company's internal manufacturing capacity is very limited. The Company
uses contract manufacturers 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. In particular, Eltel Engineering S.r.L. and Associates, Milliwave
and Xilinx, Inc. are sole source or limited source suppliers for critical
components used in its radio systems.

   The Company's reliance on contract manufacturers and on sole suppliers or a
limited group of suppliers and increasing reliance on contract manufacturers and
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,
which could damage relationships with current or prospective customers and
materially adversely affect its business, financial condition and results of
operations.

MANAGEMENT OF GROWTH

   Recently, in response to market declines and poor performance in its sector
generally and its lower than expected performance over the last several
quarters, the Company introduced measures to reduce operating expenses,
including reductions in its workforce in July, September and November 1998.
However, prior to such measures, the Company had significantly expanded the
scale of its operations to support then anticipated continuing increased sales
and to address critical infrastructure and other requirements. This expansion
included leasing additional space, opening branch offices and subsidiaries in
the United Kingdom, Italy, Germany, Mexico, United Arab Emirates, China and
Singapore, opening design centers in the United Kingdom and the United States,
acquiring a large amount of inventory and funding accounts receivable, and
acquiring nine businesses. The Company had also invested significantly in
research and development to support product development and services. Further,
the Company had hired additional personnel in all functional areas, including in
sales and marketing, manufacturing and operations and finance. The Company
experienced significantly higher operating expenses than in prior years as a
result of this expansion. A material portion of these expenses remain
significant fixed costs.

   In addition, to prepare for the future, the Company is required to continue
to invest resources in its acquired and new businesses. Currently, the Company
is devoting significant resources to the development of new products and
technologies and are 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 these new
products. Accordingly, in addition to the effect its recent performance has had
on gross profit margin and inventory levels, its gross profit margin and
inventory levels 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. Additional
inventory on hand for new product development and customer service requirements
also increases the risk of inventory write-downs. Based on the foregoing, if its
sales do not increase, its results of operations will continue to be materially
adversely affected.

                                       46
<PAGE>

   Expansion of its operations and acquisitions have caused and continue to
impose a significant strain on the Company's management, financial,
manufacturing and other resources and have disrupted its normal business
operations. The Company's ability to manage any possible future growth may
depend upon significant expansion of its manufacturing, accounting and other
internal management systems and the implementation of a variety of systems,
procedures and controls, including improvements relating to inventory control.
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 also more efficiently
coordinate activities in its companies and facilities in Rome and Milan, Italy,
France, Poland, the United Kingdom, Mexico, United Arab Emirates, New Jersey,
Florida, Virginia, Washington and elsewhere. For a number of reasons, the
Company has in the past experienced and may continue to experience significant
problems in these areas. For example, the Company has experienced difficulties
due to the acquired businesses utilizing differing business and accounting
systems, currencies, and a variety of unique customs, culture, and language
barriers. Additionally, the products and associated marketing and sales
processes differ for each acquisition. As a result of the foregoing, as well as
difficulty in forecasting revenue levels, the Company will continue to
experience fluctuations in revenues, costs, and gross margins.

   Any failure to implement efficiently, coordinate and improve systems,
procedures and controls, including improvements relating to inventory control
and coordination with its subsidiaries, at a pace consistent with its business,
could cause continued inefficiencies, additional operational complexities and
expenses, greater risk of billing delays, inventory write-downs and financial
reporting difficulties. Such problems could have a material adverse effect on
its business, financial condition and results of operations.

   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 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 decline in the long term. 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.

   If the Company cannot develop new products in a timely manner, fails to
achieve customer acceptance or does not generate higher average selling prices,
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.


ACCOUNT RECEIVABLES

   The Company is subject to credit risk in the form of trade account
receivables. The Company may in certain circumstances 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. In
addition, many of its foreign customers are granted longer payment terms than
those typically existing in the United States. The Company typically does not
require collateral or other security to support customer receivables, but in
some instances the Company has required down payments or letters of credit from
a customer before booking their order. The Company has had difficulties in the
past 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. The days sales outstanding of receivables have also
recently increased. Such difficulties may continue in the future, which could
have a material adverse effect on its business, financial condition and results
of operations.

                                       47
<PAGE>

   The Company's bank line of credit currently permits the Company to sell up to
$25 million of its receivables at any one time to a limited group of purchasers
on a non-recourse basis. The Company has in the past utilized such sales and may
continue from time to time to sell its receivables, as part of an overall
customer financing program. However, the Company may not be able to locate
parties to purchase such receivables on acceptable terms or at all.

PRODUCT QUALITY, PERFORMANCE AND RELIABILITY

   The Company has limited experience in producing and manufacturing systems and
contracting for such manufacture. customers require very demanding
specifications for quality, performance and reliability. As a consequence,
problems may occur with respect to the quality, performance and reliability of
its systems or related software tools. If such problems occur, the Company could
experience increased costs, delays or cancellations or reschedulings 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 its business, financial condition and results of operations.

   In addition, to maintain its ISO 9001 registration, the Company must
periodically undergo certification assessment. Failure to maintain such
registration could materially adversely affect its business. The Company
completed ISO 9001 registration for its United Kingdom sales and customer
support facility in 1996, its Geritel facility in Italy in 1996, and its
Technosystem facility in Italy in 1997. Other facilities are also attempting to
obtain ISO 9001 registration. Such registrations may not be achieved and the
Company may be unable to maintain those registrations the Company has already
completed. Any such failure could have a material adverse effect on its
business, financial condition and results of operations.

CHANGES IN FINANCIAL ACCOUNTING STANDARDS

   The Company prepare its financial statements in conformity with generally
accepted accounting principles ("GAAP"). GAAP is subject to interpretation by
the American Institute of Certified Public Accountants, the Securities and
Exchange Commission and various bodies formed to interpret and create
appropriate accounting policies. A change in these policies can have a
significant effect on its reported results, and may even affect its reporting of
transactions completed before a change is announced. Accounting policies
affecting many other aspects of its business, including rules relating to
software and license revenue recognition, purchase and pooling-of-interests
accounting for business combinations, employee stock purchase plans and stock
option grants have recently been revised or are under review by one or more
groups. Changes to these rules, or the questioning of current practices, may
have a material adverse effect on its reported financial results or in the way
the Company conducts its business.

   In addition, the preparation of financial statements in conformity with GAAP
requires the Company to make estimates and assumptions that affect the recorded
amounts of assets and liabilities, disclosure of those assets and liabilities at
the date of the financial statements and the recorded amounts of expenses during
the reporting period. A change in the facts and circumstances surrounding these
estimates could result in a change to the estimates and impact future operating
results.

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 its systems fails to grow, or grows more slowly than anticipated,
its 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 expenditures. 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--use of its systems in conjunction with the provision of
alternative wireless access in competition with the existing wireline local
exchange providers--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

                                       48
<PAGE>

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 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 its
systems. Existing customers may not continue to include its 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 its currently available radio systems or to develop other commercially
acceptable radio systems would materially adversely affect us. 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 broader telecommunications
product lines, and include Adtran, Inc., Alcatel Network Systems, Bosch Telekom,
California Microwave, Inc., Digital Microwave Corporation (which has recently
acquired other competitors, including Innova International Corp. and MAS
Technology, Ltd.), Ericsson Limited, Harris Corporation-Farinon Division, Larus
Corporation, Lucent T.R.T., NEC, Nokia Telecommunications, Nortel/BNI, Philips
T.R.T., SIAE, Siemens, Utilicom 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. In early 1998, the Company acquired the Cylink Wireless Group
which competes with a large number of companies in the wireless communications
markets, including U.S. local exchange carriers and foreign telephone companies.
The most significant competition for Cylink Wireless Group's products in the
wireless market is from telephone companies that offer leased line data
services. 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. Nokia and Ericsson have
recently developed new competitive radio systems.

   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 its 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 are experiencing
significant price competition and expect such competition to intensify.

   The Company believes that to be competitive, the Company 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.

                                       49
<PAGE>

RAPID TECHNOLOGICAL CHANGE

   Rapid technological change, frequent new product introductions and
enhancements, product obsolescence, changes in end-user requirements 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 point-to-
multipoint radio systems. Any success in developing new and enhanced systems,
including point-to-multipoint systems, and related software tools will depend
upon a variety of factors. Such factors include:

   .  new product selection;

   .  integration of various elements of complex technology;

   .  timely and efficient implementation of manufacturing and assembly
      processes and cost reduction programs;

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

   .  development and introduction of competitive systems; and

   .  timely and efficient completion of system design.

   The Company has experienced and continues to experience delays in customer
procurement and in completing development and introduction of new systems and
related software tools, including products acquired in acquisitions. Moreover,
the Company may not be successful in selecting, developing, manufacturing and
marketing new systems or enhancements or related software tools. Also, errors
could be found in the Company's systems after commencement of commercial
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. The Company's inability to introduce in a timely manner new systems
or enhancements or related software tools that contribute to sales could have a
material adverse effect on its business, financial condition and results of
operations.

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 and other areas. Most of the Company's
sales to date have been made to customers located outside of the United States.
The Company has also acquired three Italy-based companies, two United Kingdom-
based companies and four U.S. companies with substantial international
operations. These companies sell their products and services primarily to
customers in Europe, the Middle East and Africa. The Company anticipates that
international sales will continue to account for a majority of its sales for the
foreseeable future.

   Historically, the Company's international sales have been denominated in
British pounds sterling or United States dollars. With recent acquisitions of
foreign companies, certain of the Company's international sales are denominated
in other foreign currencies, including Italian Lira. A decrease in the value of
foreign currencies relative to the United States dollar could result in
decreased margins from those transactions. For international sales that are
United States dollar-denominated, such a decrease could make its systems less
price-competitive and could have a material adverse effect upon its financial
condition. The Company has in the past mitigated currency exposure to the
British pound sterling through hedging measures. However, any future hedging
measures may be limited in their effectiveness with respect to the British pound
sterling and other foreign currencies. Additional risks are inherent in the
Company's international business activities. Such risks include:

   .  changes in regulatory requirements;

   .  costs and risks of localizing systems in foreign countries;

   .  delays in receiving 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;

   .  the difficulty in accounts receivable collections; 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.

                                       50
<PAGE>

   In many cases, local regulatory authorities own or strictly regulate
international telephone companies. Established relationships between government
owned or 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 identified, to form
and maintain strong relationships 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 its
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 other 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 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, foreign
laws 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. 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 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 its results. In addition, delays in the radio frequency
spectrum auction process in the United States could delay its ability to develop
and market equipment to support new services.

   The Company operate 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 its
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 extremely
expensive and time-consuming.

ADDITIONAL CAPITAL REQUIREMENTS

   Future capital requirements will depend upon many factors, including the
repayment of its debt, the development of new products and related software
tools, potential acquisitions, maintenance of adequate manufacturing facilities
and contract manufacturing agreements, progress of research and development
efforts, expansion of marketing and sales efforts, and the status of competitive
products. Additional financing may not be available in the future on acceptable
terms, or at all. The continued

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existence of a substantial amount of indebtedness incurred through the issuance
of the Company's Notes, the incurrence of debt under the Company's bank line of
credit and the rights of the holders of the Series B Preferred Stock may affect
the Company's ability to raise additional financing. The Series B Preferred
Stock restricts the rights of Common Stock Shareholders, but even if these
restrictions were lifted, the substantial amount of indebtedness incurred by the
Company makes additional debt financing problematic. Given the recent price for
its Common Stock, if additional funds are raised by issuing equity securities,
significant dilution to its stockholders could result.

   The Company has, however, recently retired approximately $40 million of its
Notes in exchange for approximately 5.3 million shares of its Common Stock. As
the Company's Notes were exchanged for an average of approximately 68% of face
value between December 30, 1998 and February 2, 1999, certain holders of these
Notes desired to exchange the notes for Common Stock. By retiring the debt at a
significant discount from its face value, the Company realized an immediate
improvement to its balance sheet, and expects to improve future earnings and
cash flow by reducing interest expense. The Company may exchange additional
Notes for shares of Common Stock or, alternatively, refinance or exchange the
remainder of the Notes and/or the bank debt or exchange the Notes for other
forms of securities. The Company has also recently issued 15,000 shares of
Series B Preferred Stock and warrants to purchase up to 1,242,257 shares of its
Common Stock in exchange for a $15 million investment. These transactions have
had and may continue to have a substantial dilutive effect on its stockholders
and may make it difficult for the Company to obtain additional future financing,
if needed.

   If adequate funds are not available, the Company may be required to
restructure or refinance its debt or delay, scale back or eliminate research and
development, acquisition or manufacturing programs. The Company may also need to
obtain funds through arrangements with partners or others that may require the
Company to relinquish rights to certain of its technologies or potential
products or other assets.

CLASS ACTION LITIGATION

 State Actions

   On September 23, 1998, a putative class action complaint was filed in the
Superior Court of California, County of Santa Clara, by Leonard Vernon and Gayle
M. Wing on behalf of themselves and other P-Com stockholders who purchased or
otherwise acquired its Common Stock between April 15, 1997 and September 11,
1998. The plaintiffs allege various state securities laws violations by P-Com
and certain of its officers and directors. The complaint seeks unquantified
compensatory, punitive and other damages, attorneys' fees and injunctive and/or
equitable relief.

   On October 16, 1998, a putative class action complaint was filed in the
Superior Court of California, County of Santa Clara, by Terry Sommer on behalf
of herself and other P-Com stockholders who purchased or otherwise acquired its
Common Stock between April 1, 1998 and September 11, 1998. The plaintiff alleges
various state securities laws violations P-Com and certain of its officers. The
complaint seeks unquantified compensatory and other damages, attorneys' fees and
injunctive and/or equitable relief.

   On October 20, 1998, a putative class action complaint was filed in the
Superior Court of California, County of Santa Clara, by Leo Rubin on behalf of
himself and other stockholders who purchased or otherwise acquired its Common
Stock between April 15, 1997 and September 11, 1998. This complaint is identical
in all relevant respects to that filed on September 23, 1998, which is described
above, other than the fact that the plaintiffs are different.

   On October 26, 1998, a putative class action complaint was filed in the
Superior Court of California, County of Santa Clara, by Betty B. Hoigaard and
Steve Pomex on behalf of themselves and other P-Com stockholders who purchased
or otherwise acquired its Common Stock between April 15, 1997 and September 11,
1998. This complaint is identical in all relevant respects to that filed on
September 23, 1998, which is described above, other than the fact that the
plaintiffs are different.

   On October 27, 1998, a putative class action complaint was filed in the
Superior Court of California, County of Santa Clara, by Judith Thurman on behalf
of herself and other P-Com stockholders who purchased or otherwise acquired its
Common Stock between April 15, 1997 and September 11, 1998. This complaint is
identical in all relevant respects to that filed on September 23, 1998, which is
described above, other than the fact that the plaintiffs are different.

   On December 3, 1998, the Superior Court of California, County of Santa Clara,
entered an order consolidating all of the above complaints. On January 15, 1999,
the plaintiffs filed a consolidated amended class action complaint superseding
all of the foregoing complaints. On March 1, 1999, defendants filed a demurrer
to the consolidated amended complaint and each cause of action stated therein.
The demurrer is set for hearing by the court on May 13, 1999.

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<PAGE>

 Federal Actions

   On November 13, 1998, a putative class action complaint was filed in the
United States District Court, Northern District of California, by Robert Schmidt
on behalf of himself and other P-Com stockholders who purchased or otherwise
acquired its Common Stock between April 15, 1997 and September 11, 1998. The
plaintiff alleged violations of the Securities Exchange Act of 1934 by P-Com and
certain of its officers and directors. The complaint sought unquantified
compensatory damages, attorneys' fees and injunctive and/or equitable relief. On
January 26, 1999, the plaintiff voluntarily dismissed the Schmidt action. The
court entered an order dismissing the action without prejudice on January 29,
1999.

   On December 3, 1998, a putative class action complaint was filed in the
United States District Court, Northern District of California, by Robert Dwyer
on behalf of himself and other P-Com stockholders who purchased or otherwise
acquired its Common Stock between April 15, 1997 and September 11, 1998. The
plaintiff alleged violations of the Securities Exchange Act of 1934 by P-Com and
certain of its officers and directors. The complaint sought unquantified
compensatory damages, attorneys' fees and injunctive and/or equitable relief. On
December 22, 1998 and February 2, 1999, the plaintiff sought to voluntarily
dismiss this action. On February 11, 1999, the court entered an order dismissing
the action without prejudice.

   All of these proceedings are at a very early stage and the Company is unable
to speculate as to their ultimate outcomes. However, the Company believes the
claims in the complaints are without merit and intends to defend against them
vigorously. An unfavorable outcome in any or all of them could have a material
adverse effect on its business, prospects, financial condition and results of
operations. Even if all of the litigation is resolved in its 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 its
business, prospects, financial condition and results of operations.

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. For example, its trade secrets or proprietary technology may
otherwise become known or be independently developed by competitors, and the
Company may not be able to otherwise meaningfully protect intellectual property
rights.

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

   Even if the Company's intellectual property rights are adequately protected,
litigation may also be necessary to enforce patents, copyrights and other
intellectual property rights, to protect its trade secrets, to determine the
validity of and scope of proprietary rights of others or to defend against
claims of infringement or invalidity. The Company has, through its acquisition
of the Cylink Wireless Group, been put on notice from a variety of third parties
that the Group's products may be infringing the intellectual property rights of
other parties. Any such intellectual property litigation could result in
substantial costs and diversion of resources and could have a material adverse
effect on its business, financial condition and results of operations.
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 us. If any claims or actions are
asserted against us, 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.

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 whom would be difficult to replace. Future operating results also depend upon
ability to attract and retain such specially qualified management,
manufacturing, quality assurance, engineering, marketing, sales and support
personnel. Competition for such personnel is intense, and the Company may not be
successful in attracting or retaining

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<PAGE>

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 intend to pursue 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, its
inability to attract and retain skilled employees as needed or the inability of
its officers and key employees to expand, train and manage its employee base
could all materially adversely affect its business.

YEAR 2000

   Numerous computer systems and software products are coded to accept only two
digit entries in the date code field. Beginning in the year 2000, these date
code fields will have to distinguish 21st Century dates from 20th Century dates.
As a result in less than a year, computer systems and/or software used by many
companies may need to be upgraded to comply with such Year 2000 ("Y2K")
requirements.

   P-Com's compliance efforts to date have emphasized product and infrastructure
compliance. Vendor compliance has been addressed at several locations.

   Products

   The inability of any of the Company's products to properly manage and
manipulate data in the Year 2000 could result in increased warranty costs,
customer satisfaction issues, potential lawsuits and other material costs and
liabilities. P-Com has completed testing of all products in its radio products
operations. There can be no assurance that its testing procedures detect every
potential Y2K complication. Products were tested according to various product-
specific standards. Based on these tests, all products in the Tel Link, Air
Link, and Spread Spectrum product lines have been found to be compliant in all
material respects. At the CRC facility, all products in the current line of Net
Path, Rivets, Network Series and Recovery Series product lines have been tested
and found to be compliant in all material respects. There can be no assurance,
however, that its testing procedures detect every potential Y2K complication.
CRC supports several older modem systems. These systems have not been tested for
Y2K compliance. Any complications which arise as a result of an untested modem
system's potential Y2K failures could result in increased warranty costs,
customer satisfaction issues, potential lawsuits and other material costs and
liabilities. Products produced at the Technosystem facility, the radio & TV
broadcast products and the one way point to multipoint products under
development, have been tested and are Y2K compliant in all material respects.
There can be no assurance that our testing procedures detect every potential Y2K
complication. The equipment manager utilized by the transmission equipment
manufactured at Technosystem is not Y2K compliant. The equipment manager is an
additional device which customers may purchase and attach to the transmission
system to verify that the transmission device is running properly.  The
transmitters will continue to function properly even if the equipment manager
fails.  However, if the equipment manager fails, it will not perform its error
detection function properly.  The Y2K limitation contained in the equipment
manager can be corrected by shutting the device off on January 1, 2000 and
turning it on again.  By July 1, 1999 the Company will notify customers who have
purchased the equipment manager of its Y2K limitation and the remedial
procedures which must be implemented on January 1, 2000. Any complications which
arise as a result of the equipment manager's potential Y2K failures could result
in increased warranty costs, customer satisfaction issues, potential lawsuits
and other material costs and liabilities. In 1998, the sales of radio products
represented approximately 60% of P-Com's net sales while CRC and Technosystem's
products represented approximately 4% and 14%, respectively. The Company's
network services division in Virginia represented approximately 22% of P-Com's
net sales in 1998. The Virginia division does not manufacture any products; it
provides services to networks. Y2K failures in the Company's products could
materially adversely affect the Company's results of operations.

   Infrastructure.

   The failure of any internal system to achieve Y2K readiness could result in
material disruption to the Company's operations. While we have completed
evaluations of several of our internal systems and are in the process of
completing internal system review, we cannot be assured that our testing
procedures will detect every potential Y2K related failure at each of the
facilities listed below.

   CA, FL, Italy, UK, Germany, Italy

   In November of 1998, the Company installed a new internal manufacturing
resource planning business system (MRP) that is Y2K ready.  The cost of the
upgrade was approximately $250,000.  The Company's MRP system facilitates
accounting

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and manufacturing functions at all of the Company's California sites and the
Redditch, UK site. At the Tortona, Italy location, the MRP system facilitates
manufacturing functions only. The November 1998 Y2K upgrade corrected Y2K
limitations in the MRP system at each site at which it is utilized. The
Company's Florida, Watford, UK, and Frankfurt, Germany sites do not utilize the
MRP system. P-Com's Tortona, Italy facility utilizes an Italian business system
for its accounting operations. This system is not Y2K compliant. The Company is
in the process of purchasing a Y2K compliant system which will replace the
deficient system. The cost of the new system is $85,000. The new system should
be fully operational by December 31, 1999. However, the Company is devising a
plan to ensure that accounting functions are performed manually in the event the
new system is not fully operational by December 31, 1999. Since the Company is
the only customer serviced by the Tortona, Italy site, and since the Company is
in the process of identifying an alternative source supplier in the event the
new accounting system is not installed by December 31, 1999, a failure in the
present system would have a minimal impact on the Company's customers. Since
November of 1998, P-Com has completed an evaluation of many of its internal
systems. Most of its internal systems have been found to be compliant, however
we cannot guarantee that Y2K related complications will not arise. The HP UX
operating system should receive a Y2K patch by the end of June 1999. The Server
Operating Systems (Novell) should receive Y2K patches by the end of September
1999. Y2K verification procedures are currently underway to determine the
compliance status of phone systems, ATE stations and personal computers.
Verification of phone systems and ATE stations is estimated to be completed by
the end of June 1999. Verification of personal computers is estimated to be
completed by the end of September 1999. The Company's customer service database
and QA Database are noncompliant; upgrades of these two systems is scheduled to
be completed by the end of June 1999. Any unforeseen circumstances which cause
delay in upgrading any of the above systems could result in increased warranty
costs, potential customer dissatisfaction, delayed production and/or supply,
lawsuits and other material costs and liabilities.

   Network Services (Vienna, VA)

   With the exception of personal computers, the internal systems at Network
Services in Vienna, Virginia have been tested and found to be compliant in all
material respects, however there can be no assurance that Y2K related
complications will not arise. Verification of the Y2K status of personal
computers is currently in progress and is estimated to be completed by the end
of June 1999. Any unforeseen circumstances which cause delay in upgrading any of
the above systems could result in increased warranty costs, potential customer
dissatisfaction, delayed production and/or supply, lawsuits and other material
costs and liabilities.

   CRC Control Resources (Fair Lawn, NJ)

   Most of CRC's internal systems have been tested and many have been found to
be compliant, however there can be no assurance that Y2K related complications
will not arise. The MRP Business System Proprietary Server OS Novell 3.11, and
Corporate Server, Mail System are noncompliant and are scheduled to be replaced
by the end of September 1999. The Defect Control System is noncompliant and is
scheduled to be replaced by the end of December 1999. Verification of the
compliance status of personal computers is in progress and is scheduled to be
completed by the end of June 1999. Any unforeseen circumstances which cause
delay in upgrading any of the above systems could result in increased warranty
costs, potential customer dissatisfaction, delayed production and/or supply,
lawsuits and other material costs and liabilities.

   Technosystem (Rome, Italy)

   The ERP business system has been found to be compliant, however there can be
no assurance that Y2K related complications will not arise. The financial
administration system is noncompliant and replacement is scheduled to be
completed by the end of September 1999. Verification of the Y2K compliance
status of all other internal systems is currently underway and is estimated to
be completed by the end of June 1999. Any unforeseen circumstances which cause
delay in upgrading any of the above systems could result in increased warranty
costs, potential customer dissatisfaction, delayed production and/or supply,
lawsuits and other material costs and liabilities.

   Vendors.

   The Company has identified two single source suppliers whose failure to
obtain Y2K compliance could potentially impact customers.  Since the Company has
not yet obtained assurances of Y2K compliance from these suppliers the impact of
potential Y2K limitations experienced by these companies is merely speculative
at this time.  The potential impact will only become manifest, however, if both
the single source supplier and an alternative source supplier experience Y2K
related failures. One of the two identified suppliers provides a product which
the Company uses in production of DS-3 IDUs; if this supplier were to experience
a Y2K failure, production of the product would be slowed.  Sales of DS-3 IDUs
make up 3-4% of the Company's sales revenue.  The additional identified supplier
produces a product which will be utilized in the production of the Company's

                                       55
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Encore product which is scheduled to begin in a limited capacity in the third
quarter of 1999; if this supplier experienced a Y2K related complication, Encore
production would be affected.

   Since the Company is cognizant of the risk posed by single source or large
volume suppliers that may not be addressing their Y2K readiness. The Company has
endeavored to minimize this risk by implementing a four phase plan.  First, all
single source suppliers and large volume vendors were identified.  Then, in
April 1999, the Company sent requests for Y2K compliance assurances to suppliers
so identified.  The Company will review supplier's responses to our requests and
continue to pursue assurances and/or receipt of a remedy from noncompliant
suppliers. Even if assurances are received from third parties, there remains a
risk that failure of systems and products of other companies on which the
Company relies could have a material adverse effect on the Company's business,
condition and results of operations. Since the Company has always followed the
practice of alternative and multi-sourcing our single source and large volume
suppliers, we believe most products and services we order will be available from
an alternative source in the event a single source or large volume supplier
experiences a Y2K failure.  However, we cannot be assured that reasonable
alternative suppliers or contractors will be available. Even if assurances are
received from third parties and/or alternative source suppliers are identified,
a risk remains that failures of systems and products of other companies on which
we rely could have a material adverse effect on our business, condition and
results of operations.

   Critical suppliers are currently being identified at the California, Florida,
United Kingdom, Germany and Italy sites. Six critical suppliers have been
identified at Network Services in Vienna, Virginia. Three have been evaluated
and found to be compliant, however we cannot be certain that Y2K failures will
not affect these suppliers. The remaining suppliers are scheduled to be
evaluated by the end of June 1999. CRC has identified its critical suppliers.
Evaluations are scheduled to be completed by the end of September 1999. There
are three critical suppliers for the Technosystem product line. Evaluation of
these suppliers is scheduled to be completed by the end of September 1999.
Subject to Board approval, the proposed Y2K project management office should
establish and implement a vendor management strategy to ensure compliance of its
vendors. The plan should provide for onsite audits of critical suppliers and
creation and execution of compliance agreements.

   Year 2000 Obligations: Potential Exposure

   In April 1999, the Company will establish a year 2000 limited warranty
which will cover products which have been tested and certified as Y2K compliant
by the Company.  The warranty will be posted on the website and will be sent to
customers in response to requests for Y2K assurances.  Under the warranty, the
Company will repair or replace the Y2K certified product which experiences a Y2K
limitation.  The warranty specifically disclaims liability for all consequential
and incidental damages resulting from a Y2K complication experienced by a Y2K
certified product.

   The Company's exposure in the event of Y2K complications may be impacted by
Y2K provisions contained in outstanding agreements. For example, the Company's
bank line of credit, as amended, obligates the Company to perform act to ensure
the Y2K compliance of its systems and adopt a remediation plan if necessary by
September 30, 1999.

   Budget

   The Company's budget for the Y2K Program is approximately $2.0 million and
will be submitted to the Board of Directors for approval. To date the Company
has spent $357,900 on Y2K related expenses.  This figure incorporates the
following expenses: 1) $250,000 in November 1998 to upgrade the MRP business
system utilized by the California, Redich, UK and Tortona, Italy sites;  2)
$24,000 in March 1999 to Y2K Consultants;  3) $3,000 through March 1999 in legal
expenses; 4) $4,000 through March 1999 in travel expenses to the Company's non-
California sites for the purpose of assessing Y2K compliance; 5) $4,000 through
March 1999 on miscellaneous items including maintenance of the Y2K website and
vendor compliance mailings; and 6) $75,600 through March 1999 in employee
salaries.

   The Company anticipates expending an additional $1,267,400 on Y2K related
costs.  The anticipated expenditures breakdown as follows: 1) $100,000 on
hardware replacement and/or upgrades; 2) $100,000 on software replacement and/or
upgrades; 3) $500,000 on Y2K Consultant fees and temporary employees; 4) $61,000
on legal fees; 5) $50,000 on travel to non-California Company sites for the
purpose of assessing Y2K compliance; 6) $400,000 on employee salaries; and 7)
$56,400 on miscellaneous Y2K related expenses including the Y2K website and all
Y2K correspondence.

   The foregoing statements are based upon management's best estimates at the
present time, which were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources, third party
modification plans and other factors. There can be no guarantee that these
estimates will be achieved and actual results could differ materially from

                                       56
<PAGE>

those anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct all relevant computer codes, the
nature and amount of programming required to upgrade or replace each of the
affected programs, the rate and magnitude of related labor and consulting costs
and the success of the Company's external customers and suppliers in addressing
the Y2K issue. The Company's evaluation is on-going and it expects that new and
different information will become available to it as that evaluation continues.
Consequently, there is no guarantee that all material elements will be Y2K ready
in time.

   Year 2000 Project Management Plan

   P-Com has utilized Y2K consultants to audit its revenue generating facilities
which are located in California, and Tortona, Italy, and its subsidiaries CRC in
New Jersey and Technosystem in Rome, Italy. The consultants' both reviewed P-
Com's Y2K compliance efforts to date and identified areas warranting further
review. Based on the consultants' recommendations, P-Com has embarked on a
global program to address its readiness for the century change. The Company will
create a Y2K project management office. A project manager will direct the office
and supervise its functions. The Y2K project manager and the office's staff will
be responsible for among other tasks, business and continuity planning, vendor
compliance management, creating and maintaining an inventory of Y2K action
items, establishing and publishing standards, and maintaining a document
archive. The Y2K project management office will also be responsible for creating
and managing a contingency plan which is scheduled to be established and
implemented by the end of June 1999. P-Com has not yet established a
comprehensive contingency plan, however with the help of our consultants, we
have identified the issues which such a plan must address.

VOLATILITY OF STOCK PRICE

   In recent years, the stock market in general, and the market for shares of
small capitalization and technology stocks in particular, have experienced
extreme price fluctuations. Such fluctuations have often been unrelated to the
operating performance of 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 Asia/Pacific region, 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 (as recently experienced),
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. Such fluctuations could continue to materially adversely affect the
market price of its Common Stock.

SUBSTANTIAL AMOUNT OF DEBT

   In November 1997, through a private placement of the Company's Notes, the
Company incurred $100 million of indebtedness. In December 1998, January 1999
and February 1999, the Company retired approximately $40 million of such
indebtedness in exchange for approximately 5.3 million shares of its Common
Stock. As of December 31, 1998, its total indebtedness including current
liabilities was approximately $192.4 million and its stockholders' equity was
approximately $106.6 million.

   The Company's bank line of credit provides for borrowings of approximately
$50 million, which as of December 31, 1998 had been almost fully utilized. In
addition, the revolving commitment, as amended, is reduced from $50 million to
$40 million on August 15, 1999 and to $30 million on October 15, 1999 until
maturity on January 15, 2000. The line of credit requires the Company to comply
with several financial covenants, including the maintenance of specific minimum
ratios. At periods in time since June 30, 1998, the Company has amended its
existing bank line of credit to prevent defaults with respect to several
covenants. Had these amendments not been made, the Company would have defaulted
on those covenants in its bank line, which would have triggered cross defaults
in the Notes, preferred stock instruments and other debt. While the amendments
to the covenants have been structured based on the Company's business plan that
would allow the Company to continue to be in compliance with such covenants
through January 15, 2000, the Company's business plan includes provisions for
the infusion of approximately $15 million of capital during the second quarter
of 1999 based on preliminary discussions with potential investors and the
Company's desire to solidify its equity base to support future growth. The
Company does not currently have commitments from any potential investors. There
can be no assurance that the Company will be able to raise additional capital.
Should the Company not meet its business plan, or should the Company not be able
to raise adequate Capital, it is possible that an event of default will occur
under the line-of-credit agreement. If a default is declared by the lenders,
cross defaults will be triggered on the Company's outstanding 4 1/4% Convertible
Subordinated Notes and other debt instruments resulting in accelerated
repayments of such debts, and the holders of all outstanding Series B Preferred
Stock would have the right to have

                                       57
<PAGE>

their stock redeemed by the Company. Management believes, in the event
alternatives available to remedy any negative consequences arising from a
potential default under the agreement. However, there can be no assurance that
the Company will be able to implement these plans or that it will be able to do
so without a material adverse effect on the Company's business, financial
condition or results of operations. In addition, the Company could be restricted
in its ability to use more flexible registration statements to issue securities
and could be delisted by the Nasdaq National Market. Such events would
materially adversely affect the Company's business, financial condition and
results of operations.

   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 or
restructure or refinance its debt in the future, if necessary.

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. The Company is,
however, required to pay a 6% per year premium on the Series B preferred stock,
payable in cash or common stock at its option. 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.

CHANGE OF CONTROL

   Members of the Company's board of directors and executive officers, together
with members of their families and entities that may be deemed affiliates of or
related to such persons or entities, beneficially own approximately 6% of the
outstanding shares of common stock. Accordingly, these stockholders are able to
influence the election of the members of its board of directors and influence
the outcome of corporate actions requiring stockholder approval, such as mergers
and acquisitions.

   This level of ownership, together with the stockholder rights agreement,
certificate of incorporation, privileges of the Series B preferred stock, equity
incentive plans, bylaws and Delaware law, may have a significant effect in
delaying, deferring or preventing a change in control of P-Com 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 the holders of the Series B preferred stock
and 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 agreement upon the occurrence of certain triggering events.
In general, the stockholder rights agreement provides a mechanism by which its
board of directors and stockholders may act to substantially dilute the share
position of any takeover bidder that acquires 15% or more of its Common Stock.
The issuance of the Series B preferred stock or the future issuance of the
Series A preferred 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.

SERIES B PREFERRED STOCK FINANCING

   In December 1998, the Company raised gross proceeds of $15 million through
the issuance of 15,000 shares of a newly designated Series B convertible
participating preferred stock and warrants to purchase up to 1,242,257 shares of
Common Stock. The issuance of the Series B preferred stock and warrants provided
the Company with additional working capital required to fund continuing
operations. However, the agreements with the purchasers of the Series B
preferred stock and warrants contain terms and covenants that could result in
substantial dilution to its stockholders, could render future financings and
loans and merger and acquisition activities more difficult and could require the
Company to expend substantial amounts of cash, even if unavailable at the time
such expenditure was required.

   Certain covenants that the Company made in connection with the issuance of
the Series B preferred stock may also have the effect of limiting its ability to
obtain additional financing and issue other securities. The Company has agreed,
until December 22, 1999, not to issue or agree to issue any equity securities at
a price less than fair market value or any variably priced securities, subject
to limited exceptions. In addition, the terms of the Series B preferred stock
financing agreements prohibit the Company from, among other things, altering,
changing or otherwise adversely affecting the terms of the Series B preferred
stock; creating or issuing any senior or pari passu securities; or redeeming or
paying any dividend on any junior securities.

                                       58
<PAGE>

   The terms of the Series B preferred stock financing agreements also include
mandatory redemption features and payment provisions that are triggered in the
event the Company fails to satisfy certain obligations. Holders of the Series B
preferred stock may require redemption of their shares at a substantial premium,
plus a default interest rate, if applicable, upon the occurrence of certain
events deemed within its control. Upon the occurrence of certain other events
deemed outside of its control, including among others, its failure to obtain
stockholder approval (which the Company must solicit at its expense) of the
potential issuance of more than 20% of the Common Stock outstanding on December
22, 1998, or 8,707,488 shares, at a price less than the greater of book value or
fair market value may be required to make significant payments to the holders of
Series B preferred stock and warrants. All such payments are capped at
$4,950,000 plus a default interest rate, if applicable, and are in lieu of
redemption for these provisions. If the holders of Series B preferred stock
demand redemption or if the Company is required to make significant payments to
such stockholders, the Company may not be able to fund such redemption or
payments, and even if funding is available, the expenditures required to fund
such redemption or payments could have a material adverse effect on its
financial condition.

   The Series B preferred stock is convertible into shares of its Common Stock
at variable rates based on future trading prices of its Common Stock and events
that may occur in the future. The number of shares of Common Stock that may
ultimately be issued upon conversion is therefore presently indeterminable and
could fluctuate significantly based on the issuance by the Company of other
securities. Also, the warrants are subject to anti-dilution protection and thus
may require the issuance of more shares than originally anticipated. These
factors may result in substantial future dilution to the holders of its Common
Stock.

   In addition to the foregoing, the redemption rights, liquidated damages
provisions, cross default provisions to its debt instruments and other terms of
the Series B preferred stock, under certain circumstances, could lead to a
significant accounting charge to earnings and could materially adversely affect
its business, results of operations and financial condition. The Series B
preferred stock will be classified as mandatorily redeemable preferred stock. As
a result, in the fourth quarter of 1998, the Company recognized in its earnings
(loss) per share calculation the fair value of warrants issued and the accretion
of the Series B preferred stock to its fair value. During the period of
conversion of the Series B preferred stock, the Company will be required to
recognize in its earnings (loss) per share calculation any accretion of the
Series B preferred stock to its redemption value as a dividend to the holders of
the Series B preferred stock. Consequently, the Company took a charge of
approximately $1.8 million to its accumulated deficit for the fourth quarter of
fiscal 1998 as a result of the accounting treatment for issuance of the related
warrants. Such charge and potential other future charges relating to the
provisions of the Series B preferred stock financing agreements may adversely
affect its earnings (loss) per share and the market price of its Common Stock
and may continue to do so. The convertibility features of such Series B
preferred stock and subsequent sales of the Common Stock underlying both it and
the warrants could materially adversely affect its valuation and the market
trading price of its shares of Common Stock.

   We issued and sold 15,000 shares of a newly designated Series B preferred
stock and warrants to purchase 1,242,257 shares of common stock to the selling
stockholders in December 1998 for gross proceeds of $15 million.  Our board of
directors decided that it was in our best interests to issue the Series B
preferred stock because:

 .  we needed additional capital to fund our operations, and the consequences of
   not obtaining additional capital, namely defaulting on our credit agreement
   and cross-defaulting on our other debt, which would accelerate repayment of
   the debt and likely render us unable to pay our debts, would have caused
   immediate and irreparable damage to us;

 .  the Series B preferred stock does not require us to pay cash dividends and
   permits us to pay accrued premium through the issuance of additional shares
   of common stock or cash, at our option;

 .  so long as our common stock trades at prices at or in excess of $5.46 per
   share, the Series B preferred stock will be convertible into common stock at
   a price of $5.46, which is 181% of the closing price of our common stock on
   the day the Series B preferred was issued;

 .  due to our financial position and business prospects at the time of issuance
   of the Series B preferred stock, additional capital was not available to us
   in the necessary time frame, except on terms less favorable to us than the
   Series B preferred stock; and

 .  the board determined that, compared with the immediate and irreparable damage
   to us that would have resulted if we did not raise additional capital,
   issuing the Series B preferred stock was in our best interests.

                                       59
<PAGE>

   On June 4, 1999, we exchanged 5,134,795 shares of our common stock for all
15,000 shares of our outstanding Series B Preferred Stock, such that no shares
of Series B preferred stock remained outstanding.  We also exchanged outstanding
warrants to purchase 1,242,257 shares of common stock, which were held by the
selling stockholders, for new warrants having the terms set forth below.  On
June 14, 1999 the certificate of designations for the Series B preferred stock
was eliminated pursuant to Section 151(g) of the Delaware General Corporation
Law, and the Series B preferred stock is no longer authorized.



     The following chart briefly summarizes the features of the Series B
preferred stock, which are described in greater detail below:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Feature                                                             Description
-------------------------------------------------------------------------------------------------------------------
<S>                              <C>
Conversion price                 Beginning on May 15, 1999, the conversion price is set the lesser of:
                                 .  $5.46 per share; and
                                 .  101% of the lowest average closing bid prices our common stock over any 3
                                    consecutive days during the 15 consecutive day period ending on the day prior
                                    to the applicable conversion date.
                                 Certain events set forth below can cause conversion prices calculated on other
                                 bases to apply.
-------------------------------------------------------------------------------------------------------------------
Mandatory redemption             Upon the occurrence of certain events deemed to be within our control, each then
                                 outstanding share of the Series B preferred stock is redeemable at a holder's
                                 option at the greater of $1,330 per share, plus a 6% per year premium and any
                                 default interest, or a redemption formula amount per share.  The redemption
                                 formula amount is equal to:
                                 .  the highest closing bid price for our common stock during the period beginning
                                    on the date of the holder's redemption notice and ending on the date of
                                    redemption, multiplied by
                                 .  the sum of the original issue price, plus a 6% per year premium and any
                                    default interest due, and divided by
                                 .  the conversion price in effect on the date of the redemption notice.
-------------------------------------------------------------------------------------------------------------------
Cash payments/total amount       Upon the occurrence of certain events set forth below, we are required to make
capped                           significant cash payments to the holders of the Series B preferred stock.  All
                                 cash payments required to be made as a result of such an event, together with all
                                 cash payments required to be made in respect of conversion defaults, as described
                                 below, and under the registration statement for delays or gaps in the
                                 effectiveness of the registration statement, are capped at a total amount of
                                 $1,333 per share plus default interest, if applicable.
-------------------------------------------------------------------------------------------------------------------
Premium                          We are required to pay, upon conversion of the Series B preferred stock, a 6% per
                                 year premium on the Series B preferred stock, payable in cash or common stock at
                                 our option.  If the premium is paid in common stock, the cash amount of premium
                                 will be converted into a number of shares of common stock at the conversion price
                                 then in effect.  Similarly, we are required to pay, upon redemption of the Series
                                 B preferred stock, a 6% per year premium on the Series B preferred stock, payable
                                 in cash.  Premium accrues from December 22, 1998 until the date of conversion or
                                 redemption thereof.
-------------------------------------------------------------------------------------------------------------------
Optional redemption              So long as:
                                 .  an event pursuant to which the holders of Series B preferred stock are
                                    entitled to redemption or an event requiring us to make a cash payment as
                                    described above has not occurred, or
                                 .  if the event has occurred in the past, it has been cured for at least the six
                                    immediately preceding consecutive months without the occurrence of any other
                                    like event,
                                 then the Series B preferred stock is redeemable at our option in certain limited
                                 circumstances for redemption amounts varying from 115% to 160% of the original
                                 issue price of the Series B preferred stock, plus a 6% premium per year and
                                 default interest, if applicable.
-------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       60
<PAGE>

<TABLE>
<CAPTION>
Feature                          Description
-----------------------------------------------------------------------------------------------------------------------
<S>                              <C>

Change of control                If we merge with a public company meeting certain threshold criteria, the holders
                                 of the Series B preferred stock will be entitled to receive in the merger the
                                 consideration they would have received had they converted their stock the day
                                 before the public announcement of the merger.  If we merge with a private company
                                 or a public company not meeting the threshold criteria, the holders of the Series
                                 B preferred stock will be entitled, at their option:
                                 .  to retain their preferred stock, which will thereafter convert into common
                                    stock of the surviving company, or
                                 .  receive either the consideration they would have received had they converted
                                    their stock the day before the public announcement of the merger or receive
                                    $1,250 per share of Series B preferred stock then outstanding, up to an aggregate
                                    of $18,750,000, in cash, plus any accrued and unpaid premium and, if applicable,
                                    default interest.
-----------------------------------------------------------------------------------------------------------------------
Vote of stockholders/            We will ask our stockholders to approve the issuance of more than 20% of our
19.9% limit                      outstanding common stock on conversion of the Series B preferred stock and
                                 exercise of the warrants issued in connection with the Series B preferred stock
                                 as required under Rule 4460(i) of the Nasdaq Marketplace Rules.  Until the
                                 approval is obtained, such issuances are capped at 19.9% of our outstanding
                                 common stock on December 22, 1998.  If our stockholders do not approve these
                                 issuances by June 22, 1999,
                                 .  we may be obligated to immediately redeem all outstanding shares of Series B
                                    preferred stock for a cash payment, or
                                 .  we will be obligated to make cash payments to the holders of Series B
                                    preferred stock,
                                 .  the conversion price may be adjusted downward,
                                 .  the holders of the Series B preferred stock may require us to list our common
                                    stock on the over-the-counter electronic bulletin board, and
                                 the holders of the Series B preferred stock may require us to continue to seek
                                 stockholder approval of the conversion and exercise of those securities, which
                                 could be expensive for us.
-----------------------------------------------------------------------------------------------------------------------
Automatic conversion at          Subject to the 19.9% limit, if then in effect, and the 4.9% limit, and assuming
 maturity                        certain conditions set forth below are satisfied, all outstanding shares of
                                 Series B preferred stock will automatically convert into common stock on December
                                 22, 2001.
-----------------------------------------------------------------------------------------------------------------------
Default interest                 If we fail to timely pay any amounts owed to the holders of the Series B
                                 preferred stock, then we must pay the holders default interest at rate equal to
                                 the lesser of 18% per annum or the highest interest rate permitted by applicable
                                 law.
-----------------------------------------------------------------------------------------------------------------------
Protective provisions            We have agreed:
                                 .  until December 22, 1999, not to issue or agree to issue any equity securities
                                    at a price less than fair market value or at a variable or re-settable price,
                                    subject to limited exceptions, and
                                 .  not to take certain actions without prior approval by each initial purchaser
                                    of the Series B preferred stock.
-----------------------------------------------------------------------------------------------------------------------
4.9% limitation                  The Series B preferred stock shall not be convertible and the related warrants
                                 may not be exercisable by a holder thereof to the extent that after that
                                 conversion the holder would own in excess of 4.9% of our outstanding common
                                 stock.  However, the 4.9% limit does not prevent any holder from converting all
                                 of its Series B preferred stock or exercising all of its warrants because the
                                 holder can convert or exercise into 4.9% of the outstanding common stock, then
                                 sell all or part of that common stock to permit it to engage in further
                                 conversions or exercises while remaining under the 4.9% limit.
-----------------------------------------------------------------------------------------------------------------------
Liquidation preference           Each share of Series B preferred stock has a liquidation preference over all
                                 other classes of our capital stock in an amount equal to the $1,000 face amount
                                 thereof plus the accrued but unpaid premium and other unpaid amounts with respect
                                 thereto, including without limitation redemption amounts and cash payments with
                                 respect thereto plus any other amounts that may be due from us with respect
                                 thereto through the date of final distribution.
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       61
<PAGE>

     Conversion Price.  The Series B preferred stock is convertible at any time
     ----------------
at a conversion price equal to the lesser of:

     .  a fixed conversion price of $5.46 per share; and
     .  a variable conversion price of 101% of the lowest average closing bid
        prices our common stock over any 3 consecutive days during the 15
        consecutive day period ending on the day prior to the applicable
        conversion date.

These bases for calculating the conversion price provide the holders of Series B
preferred stock with a method from benefiting from particular movements in the
market price of our common stock.  The $5.46 fixed conversion price protects the
holder from increases in the price of our common stock.  The variable conversion
price is designed to permit the holder to take advantage of periods in which our
stock price is depressed below $5.46.

   The result of these alternative bases for calculating the conversion price
is that the conversion price will be at most $5.46 and, to the extent the market
price of our common stock is less than $5.46, will result in additional
dilution.  As of June 3, 1999, the conversion price was $4.38, which was below
the current market price of our stock, and at which price the Series B preferred
stock would have converted into 3,424,658 shares or 6.99% of our outstanding
stock as of June 3, 1999, excluding common stock issued in respect of premium.
There is no minimum conversion price and, therefor, there is no limit on
dilution of our existing stockholders.  However, if a holder seeks to convert
Series B preferred stock at a conversion price below $2.264025 after June 21,
1999, we can pay cash to the holder in the amount the equivalent value of the
common stock the Series B preferred stock would otherwise convert into.  This
right is, of course, only available to us if we have sufficient cash on hand or
credit available to pay the holders the required amounts, which will not always
be the case.  In addition, it is unlikely that our lenders will consent to this
use of cash.  If we have sufficient funds and elect to exercise this right, the
conversion ratio would be no more than $5.46 and no less than $2.264025, which
would limit the dilution that can be suffered by our existing common
stockholders.

   The following table sets forth the number of shares of common stock issuable
upon conversion of the outstanding Series B preferred stock, other than shares
issuable in respect of accrued premium and any default amounts, and the
percentage ownership that each represents assuming:

 .  the market price of the common stock is 25%, 50%, 75% and 100% of the market
   price of the common stock on June 3, 1999, which was $4.75 per share;
 .  the variable conversion price feature of the preferred stock that was in
   effect; and
 .  the maximum conversion prices of the preferred stock was not adjusted as
   provided in our certificate of incorporation or the amount of shares issuable
   is otherwise limited by the transaction agreements.

<TABLE>
<CAPTION>
           Percent of                                        Series B
          Market Price                                  Preferred Stock(1)
-----------------------------------------------------------------------------------------------
<S>                                <C>                                <C>
                                               Shares                         %(2)
                                             Underlying
-----------------------------------------------------------------------------------------------
          25%($1.1875)                      12,631,579(2)                      20.5%
-----------------------------------------------------------------------------------------------
          50%($2.375)                        6,315,789                         11.4%
-----------------------------------------------------------------------------------------------
          75%($3.5625)                       4,210,526                         7.9%
-----------------------------------------------------------------------------------------------
          100%($4.75)                        3,157,895                         6.1%
-----------------------------------------------------------------------------------------------
</TABLE>

     (1) On June 3, 1999, there were 48,966,750 shares of common stock and
         15,000 of Series B preferred stock outstanding.
     (2) Limitations in the transaction agreements and the certificate of
         incorporation may preclude these levels of beneficial ownership from
         being achieved.

                                       62
<PAGE>

     In addition, the foregoing conversion price of the Series B preferred stock
is subject to adjustment upon the occurrence of the following events:

<TABLE>
<CAPTION>
                         Event                                           Applicable Conversion Ratio
-------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>
 Our failure to obtain by June 22, 1999 stockholder       The lesser of
 approval to issue more than 20% of our common stock      .  the conversion price otherwise in effect,
 on conversion of the Series B preferred stock and        .  during the period beginning on June 22, 1999 and
 exercise of the warrants issued in connection with          ending on the date the approval is actually obtained, a
 the Series B preferred stock.                               conversion price equal to the average of the five lowest
                                                             closing bid prices of our common stock during the period
                                                             beginning on the date the approval is required to be
                                                             obtained under the certificate of designations and
                                                             ending on the conversion date; if this period is less
                                                             than five days, the calculation shall instead be the
                                                             average of all of the closing bid prices over the
                                                             period, and
                                                          .  after the date upon which we obtain the approval, a
                                                             conversion price equal to the average of the five lowest
                                                             closing bid prices of our common stock for the period
                                                             beginning on the date the approval is required to be
                                                             obtained under the certificate of designations and
                                                             ending on the date the approval is actually obtained; if
                                                             this period is less than five days, the calculation
                                                             shall instead be the average of all of the closing bid
                                                             prices over the period.
-------------------------------------------------------------------------------------------------------------------
 The registration statement of which this prospectus is   The lesser of
 a part has not been declared effective by June 22,       .  the conversion price otherwise in effect,
 1999.                                                    .  during the period beginning on June 22, 1999 and
                                                             ending on the date the registration statement is
                                                             declared effective, a conversion price equal to the
                                                             average of the five lowest closing bid prices of our
                                                             common stock for the period beginning on June 22, 1999
                                                             and ending on the conversion date; if this period is
                                                             less than five days, the calculation shall instead be
                                                             the average of all of the closing bid prices over the
                                                             period, and
                                                          .  after the date upon the registration statement is
                                                             declared effective, a conversion price equal to the
                                                             average of the five lowest closing bid prices of our
                                                             common stock for the period beginning on June 22, 1999
                                                             and ending on the date the registration statement is
                                                             declared effective; if this period is less than five
                                                             days, the calculation shall instead be the average of
                                                             all of the closing bid prices over the period.
-------------------------------------------------------------------------------------------------------------------
 Our failure to timely deliver common stock upon          That holder can rescind the notice of conversion and
 submission of a notice of conversion by a holder of      convert any shares owned by it at a conversion price
 the Series B preferred stock.                            equal to the lesser of
                                                          .  the conversion price otherwise in effect on the date
                                                             specified in the notice of conversion, and
                                                          .  lowest average closing bid prices our common stock
                                                             over any 3 consecutive days during the 15 consecutive
                                                             day period ending on the earlier of the date the failure
                                                             was cured and the day the holder rescinded the
                                                             conversion notice; if this period is less than 15 days,
                                                             the calculation shall instead be the average of all of
                                                             the closing bid prices over the period.
-------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       63
<PAGE>

<TABLE>
<CAPTION>
                       Event                                              Applicable Conversion Ratio
----------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>
 Our notice to a holder or public announcement that we    The lesser of
 intend not to issue shares of common stock upon          .  the conversion price otherwise in effect on the date
 conversion by a holder of Series B preferred stock.         specified in the notice of conversion, and
 This event will not be triggered by notices or public    .  lowest average closing bid prices our common stock
 announcements with respect to issuances that would          over any 3 consecutive days during the 15 consecutive
 cause that holder to exceed its allocated portion of        day period ending on the date we undertake in writing to
 the 19.9% limit.                                            honor its conversion obligations; if this period is less
                                                             than 15 days, the calculation shall instead be the
                                                             average of all of the closing bid prices over the period.
----------------------------------------------------------------------------------------------------------------------
 Our failure to redeem the Series B preferred stock       Each holders entitled to receive proceeds in the
 after providing to the holders of the Series B           redemption shall be entitled to convert its shares of
 preferred stock a notice of redemption at our option.    Series B preferred stock at the lesser of
                                                          .  the conversion price otherwise in effect and
                                                          .  the average of the closing bid prices for our common
                                                             stock for any three trading days during the period
                                                             beginning on the date of the redemption notice and
                                                             ending on the day the day the redemption was to occur,
                                                             as set forth in the redemption notice.
----------------------------------------------------------------------------------------------------------------------
 Our or any of our subsidiaries' public announcement of   Each holder of Series B preferred stock can elect to
 a merger or consolidation.                               obtain certain benefits of the transaction as though it
                                                          converted it Series B preferred stock on the trading
                                                          date immediately preceding the announcement of the
                                                          transaction at lowest conversion price obtained using
                                                          any of the three bases for calculating the conversion
                                                          price regardless of whether the announcement occurs
                                                          prior to, on or after May 15, 1999.
----------------------------------------------------------------------------------------------------------------------
 Our issuance of securities convertible or exchangeable   The lesser of
 at a conversion, exercise or exchange rate based upon    .  the conversion price otherwise in effect and
 a specific percentage discount from the market price     .  the conversion price representing the greatest
 of the common stock at the time of conversion,              discount from the market price of our common stock
 exercise or exchange or based upon a market-based           applicable to any convertible securities or, as
 rate.                                                       applicable, that market-based rate.
 ---------------------------------------------------------------------------------------------------------------------
 Our issuance of common stock or securities convertible   The lesser of
 or exchangeable into common stock at a fixed             .  the conversion price otherwise in effect and
 conversion, exchange or exercise price less than the     .  that fixed conversion, exchange or exercise price.
 lowest fixed conversion price then in effect.
 ---------------------------------------------------------------------------------------------------------------------
 The sale or other transfer by George Roberts, our        The lesser of
 Chief Executive Officer, or Michael Sophie, our Chief    .  the conversion price otherwise in effect and
 Financial Officer, of securities between December 1,     .  the lowest price at which any trade of our common
 1998 and December 22, 1999 at a price less than the         stock was completed on the principal market for trading
 lowest fixed conversion price in effect on the date         thereof during the 20 days following public announcement
 of the transfer.                                            of the transfer.
 ---------------------------------------------------------------------------------------------------------------------
</TABLE>

   The additional shares issued upon conversion of the Series B preferred stock
would dilute the percentage interest of each of our existing common
stockholders, and this dilution would increase as more common shares are issued
due to the impact of the variable conversion price. Each additional issuance of
shares upon conversion or exercise of the warrants would increase the supply of
shares in the market and, as a result, may cause the market price of our common
stock to decrease.

   The effect of this increased supply of common stock leading to a lower market
price may be magnified if there are sequential conversions of Series B preferred
stock. Specifically, the selling stockholders could convert a portion of their
Series B preferred stock and then sell the common stock issued upon conversion,
which likely would result in a drop in our stock price. Then selling
stockholders could convert another portion of their Series B preferred stock at
a lower conversion price because of the decreased stock price, and be issued a
greater number of shares of common stock due to the lower conversion price. If
they then sold those shares common stock, our stock price would likely decrease
again, permitting the holders to do more conversions at a conversion price even
more favorable to them. However, an ever falling market price for our common
stock does not benefit the holders of the Series B preferred stock. If the price
keeps falling, they receive more and more shares with a decreasing

                                       64
<PAGE>

aggregate value. Eventually, if the dilution becomes extreme, the market for our
common stock will tend to become illiquid, which will limit the ability of the
converting holders to sell shares of our common stock even at a very low price.

   A pattern of these partial conversions and sales could increase the aggregate
number of shares of common stock issued upon conversion of the Series B
preferred stock above what it would otherwise be, and could place significant
downward pressure on our stock price. This downward pressure on our stock price
might encourage market participants to sell our stock short, which would put
further downward pressure on our stock price, and further decrease the
conversion price and increase the dilution of our existing common stockholders
upon conversion of the Series B preferred stock.

   4.9% Limit.  The Series B preferred stock is not convertible to the extent
   ----------
the converting selling stockholder would hold in excess of 4.9% of our
outstanding common stock after those conversion. However, the 4.9% limit does
not prevent any holder from converting all of its Series B preferred stock or
exercising all of its warrants because the holder can convert or exercise into
4.9% of the outstanding common stock, then sell all or part of that common stock
to permit it to engage in further conversions or exercises while remaining under
the 4.9% limit. As a result, the 4.9% limit does not prevent any selling
stockholder from selling more than 4.9% of our outstanding common stock.

   Premium.  We are required to pay, upon conversion of the Series B preferred
   -------
stock, a 6% per year premium on the Series B preferred stock, payable in cash or
common stock at our option. If the premium is paid in common stock, the cash
amount of premium will be converted into a number of shares of common stock at
the conversion price then in effect. Similarly, we are required to pay, upon
redemption of the Series B preferred stock, a 6% per year premium on the Series
B preferred stock, payable in cash. Premium accrues from the date of issuance of
the Series B preferred stock until the date of conversion or redemption thereof.

   The aggregate annual premium on all outstanding shares of Series B preferred
stock, if those shares remained outstanding for an entire year, would be
$900,000. If all of the shares of Series B preferred stock remain outstanding
until the third anniversary of the closing, the date upon which the Series B
preferred stock may be required to convert into common stock, we would pay an
aggregate premium of $2,700,000. If we paid the premium in shares of common
stock, then the lower the conversion price, the more shares of our common stock
would be issued to pay the premium. The table below indicates the number of
shares of our common stock that would be paid in respect of the amount of
premium per year and the aggregate premium accruing from the issue date until
the third anniversary thereof at various conversion prices:

<TABLE>
<CAPTION>
                     Conversion Price as a             Number of shares of common stock issued to pay premium
                           Percent of                                    in the amount of:
                        Market Price on
                          June 3, 1999
--------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>                <C>                    <C>                  <C>
                                                       $900,000            %                     $2,700,000            %
--------------------------------------------------------------------------------------------------------------------------
                         25%($1.1875)                   757,895           1.52%                   2,273,684           4.44%
--------------------------------------------------------------------------------------------------------------------------
                         50%($2.375)                    378,947           0.77%                   1,136,842           2.27%
--------------------------------------------------------------------------------------------------------------------------
                         75%($3.5625)                   252,632           0.52%                     757,895           1.52%
--------------------------------------------------------------------------------------------------------------------------
                         100%($4.75)                    189,474           0.39%                     568,421           1.15%
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

     The 4.9% limit on holdings of our common stock by any selling stockholder
and the 19.9% limit on aggregate issuances of common stock in respect of the
Series B preferred stock and the warrants apply to and could limit the number of
shares of our common stock issued to pay the premium.  The 19.9% will not apply
if our stockholder approve issuances of 20% or more of our stock in connection
with the Series B preferred stock and warrants.

     Conversion Defaults.  If, after a holder of Series B preferred stock
     -------------------
provides us with a conversion notice, we do not issue the shares of common stock
issuable pursuant to that conversion notice prior to or on the tenth business
day following the conversion date set forth in the notice, then, on each day
thereafter until we issue to the holder the shares of common stock required by
the conversion notice, we will be required to pay to the holder an amount equal
to 1% of the face amount of the shares of Series B preferred stock set forth in
the conversion notice. The foregoing provision will not be triggered if we do
not issue shares because those issuances would violate the 19.9% limit or the
4.9% limit. If we provide notice to any holder or publicly announces its intent
not to issue shares upon exercise by any holder of Series B preferred stock of
its conversion rights, then, on each day following the tenth day after the
notice or announcement until we retract the notice or announcement, we will be
required to pay to each holder an amount equal to 1% of the face amount of the
shares of Series B preferred stock held by it.

                                       65
<PAGE>

   For example, if we received a conversion notice from a holder requesting
conversion of 1,000 shares of Series B preferred stock and we did not timely
issue the stock, for each day after the last day to timely issue that common
stock until we actually issued it, we would owe that holder $10,000.  Continuing
this example, if we issued the shares 7 days after the last day permitted to
avoid payments, we would owe that holder $70,000.  All payments in respect of
each share of Series B preferred stock described in this paragraph are limited
to the portion of the total amount remaining after taking into account amounts
paid in respect of cash payments in connection with certain events (as described
below) and amounts paid under the registration rights agreement (as described
below).

     Registration.  We are required by the Series B preferred stock financing
     ------------
agreements to register for resale by the selling stockholders and keep
registered at least 150%, and in some instances 200%, of the aggregate number of
shares of common stock into which the Series B preferred stock is convertible
and for which the warrants are exercisable. To help ensure our compliance at all
times, we have chosen to initially register for resale by the selling
stockholders 13 million shares of our common stock. Notwithstanding the
registration of that number of shares, the terms of the Series B preferred stock
financing agreements prohibit us from issuing shares of common stock upon
conversion of the shares of Series B preferred stock or exercise of the warrants
if that issuance would result in any holder's beneficially owning in excess of
4.9% of our then outstanding common stock. In addition, until stockholder
approval is obtained, we are subject to the 19.9% limit.

   Pursuant to the registration rights agreement, we are required to use our
best efforts to cause the registration statement of which this prospectus is a
part to be declared effective as soon as practicable but in any event no later
than April 22, 1999.  Because the registration statement was not declared
effective by April 22, 1999, we will be required to make cash payments to the
selling stockholders in an amount calculated in the following manner:

   .  the aggregate purchase price of shares of Series B preferred stock, the
      common shares issuable upon conversion of which are not immediately
      saleable under an effective registration statement or Rule 144 promulgated
      under the Securities Act of 1933; the aggregate purchase price of shares
      of Series B preferred stock set forth earlier in this paragraph shall
      include shares of that stock that have been converted into common stock,
      if that common stock has not yet been sold; multiplied by
   .  the number of months contained in the period beginning on April 22, 1999
      and ending on the date the registration statement is declared effective;
      for purposes of this calculation, months will be prorated per day for
      partial months; multiplied by
   .  a multiplier equal to 0.01 for the first 30 days after April 22, 1999,
      0.015 for the second 30 days after April 22, 1999, and 0.02 for all days
      thereafter.

   The cash payment for each of these failures will be at most $5,000 per day
during the first 30 days, $7,500 per day during the second 30 days, and $10,000
per day thereafter.  The following chart indicates the amounts that would be
required to be paid to the selling stockholders, assuming all shares of Series B
preferred stock remain outstanding, if the registration statement is not
declared effective for 15, 30, 45, 60 and 75 days after April 22, 1999:

<TABLE>
<CAPTION>
   Days after April 22, 1999 before the registration                       Aggregate payment to
           statement is declared effective                                selling stockholders
-------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>
                          15                                                     $75,000
-------------------------------------------------------------------------------------------------------------------
                          30                                                    $150,000
-------------------------------------------------------------------------------------------------------------------
                          45                                                    $252,500
-------------------------------------------------------------------------------------------------------------------
                          60                                                    $355,000
-------------------------------------------------------------------------------------------------------------------
                          75                                                    $505,000
-------------------------------------------------------------------------------------------------------------------
</TABLE>

   Once the registration is declared effective, sales cannot be made pursuant
to the registration statement by reason of a stop order, our failure to update
the registration statement or any event outside of the control of the selling
stockholders, then we must make cash payments to the selling stockholders in an
amount calculated in the following manner:

   .  the aggregate purchase price of shares of Series B preferred stock, the
      common shares issuable upon conversion of which are not immediately
      saleable under an effective registration statement or Rule 144 promulgated
      under the Securities Act of 1933; the aggregate purchase price of shares
      of Series B preferred stock set forth earlier in this paragraph shall
      include shares of that stock that have been converted into common stock,
      if that common stock has not yet been sold; multiplied by
   .  the number of months (prorated per day for partial months) after the
      registration statement is declared effective that sales cannot be made
      under the registration statement; for purposes of this calculation, months
      will be prorated per day for partial months; multiplied by

                                       66
<PAGE>

   .  a multiplier equal to 0.01 for the first 30 days after April 22, 1999,
      0.015 for the second 30 days after April 22, 1999, and 0.02 for all days
      thereafter.

   The cash payment for each of these failures will be at most $5,000 per day
during the first 30 days, $7,500 per day during the second 30 days, and $10,000
per day thereafter.  The following chart indicates the amounts that would be
required to be paid to the selling stockholders, assuming all shares of Series B
preferred stock remain outstanding, if the selling stockholders are unable to
make sales under the registration statement for 15, 30, 45, 60 and 75 days after
it is declared effective:

<TABLE>
<CAPTION>
         Days after the registration statement                              Aggregate payment to
           is declared effective that sales                                 selling stockholders
            cannot be made pursuant thereto
-------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>
                          15                                                        $75,000
-------------------------------------------------------------------------------------------------------------------
                          30                                                       $150,000
-------------------------------------------------------------------------------------------------------------------
                          45                                                       $252,500
-------------------------------------------------------------------------------------------------------------------
                          60                                                       $355,000
-------------------------------------------------------------------------------------------------------------------
                          75                                                       $505,000
-------------------------------------------------------------------------------------------------------------------
</TABLE>

     All payments in respect of each share of Series B preferred stock under the
registration rights agreement in connection with delays or gaps in effectiveness
of the registration statement are limited to the portion of the total amount
remaining after taking into account amounts paid in respect of cash payments in
connection with certain events (as described below) and amounts paid in respect
of conversion defaults (as described above).

     Automatic Conversion.  Subject to the 19.9% limit, if then in effect, and
     --------------------
the 4.9% limit, and assuming the conditions listed below are satisfied, all
outstanding shares of Series B preferred stock will automatically convert into
common stock on December 22, 2001. These conditions are:

   .  the shares of common stock issuable upon the conversion are
        .  authorized and reserved for issuance,
        .  registered for resale under the Securities Act of 1933, and
        .  listed for trading on the Nasdaq National Market, Nasdaq Small Cap
           Market, New York Stock Exchange or American Stock Exchange,
   .  we have not declared bankruptcy or been the subject of any similar event,
      and
   .  no event has occurred that would give the holders of Series B preferred
      stock the right to elect to have their Series B preferred stock redeemed
      by us.

   If some or all of the Series B preferred stock is not automatically
converted as set forth above because the conversion was prevented by application
of the 19.9% limit or the 4.9% limit, then that Series B preferred stock will
remain subject to automatic conversion as set forth above at the time the 19.9%
limit or the 4.9% limit no longer prevents that conversion.

     Redemption at Holder's Option.  Upon the occurrence of certain events set
     -----------------------------
forth below, if those events are deemed to be within our control, then each then
outstanding share of the Series B preferred stock is redeemable at a holder's
option at the greater of $1,330 per share, plus a 6% per year premium and any
default amounts, or a predetermined redemption formula amount per share. The
redemption formula amount is equal to:

     .  the highest closing bid price for our common stock during the period
        beginning on the date of the holder's redemption notice and ending on
        the date of redemption, multiplied by
     .  the sum of the original issue price, plus a 6% per year premium and any
        default amounts due, and divided by
     .  the conversion price in effect on the date of the redemption notice.

   An event is deemed to be outside of our control if the event is caused by
factors beyond our control notwithstanding that we have used our best efforts to
avoid the occurrence of the event.  An event is deemed to be within our control
if the event was a voluntary choice by us or is otherwise within our control.
If a holder of Series B preferred stock asserts that an event within our control
has occurred, the service of notice of the event is a definitive determination
of the occurrence of the event.  However, that determination will not be
definitive if we, within five business days of receipt of the notice, provide to
the holder a detailed written statement explaining why the event was not within
our control.  If the holder disagrees with us, then whether the event was within
our control will be determined by the courts of the State of Delaware
interpreting the certificate of designations for the Series B preferred stock in
light of the relevant facts.  Separately, if we have used our best efforts to
avoid an event within our control and it nonetheless occurs, provided that no
more than five prior events within our control or events leading to cash
payments have occurred, we can elect to cure the event and, if we do cure the
event, we will avoid the consequences of the event.

                                       67
<PAGE>

   Events which give each holder the right to demand redemption, unless the
event was caused by an act of god or was required by injunction or court of SEC
order, provided that we have used our best efforts to oppose, remove and appeal
the order or injunction:

   .  our failure to obtain on or before June 22, 1999 stockholder approval to
      issue more than 20% of our common stock on conversion of the Series B
      preferred stock and exercise of the warrants issued in connection with the
      Series B preferred stock;
   .  our failure to use our best efforts to obtain effectiveness of the
      registration statement or to obtain the stockholder approval;
   .  our failure to respond to SEC comments on the registration statement or to
      request effectiveness of the registration statement as soon as
      practicable;
   .  our failure to deliver in a timely manner common stock upon submission of
      a notice of conversion, except to the extent the conversion would violate
      the 19.9% limit or the 4.9% limit;
   .  our failure to remove restrictive legends on our common stock when
      required under the securities purchase agreement;
   .  our announcement of our intention not to issue common stock upon
      conversion of the Series B preferred stock or exercise of the warrants,
      except to the extent the conversion or exercise would violate the 19.9%
      limit or the 4.9% limit;
   .  our knowing breach of any material covenant or term in the Series B
      preferred stock financing agreements;
   .  our material breach, as a result of our execution or performance under the
      Series B preferred stock financing agreements, of any agreement to which
      we are or become a party;
   .  our knowing commission of any act or omission that constitutes a breach of
      any representation or warranty in any of the Series B preferred stock
      financing agreements or any officer's certificate given by us in
      connection with the issuance of the Series B preferred stock if the facts
      underlying the breach would have a material adverse effect on us or on a
      holder of the Series B preferred stock with respect to its investment in
      that stock;
   .  our failure to maintain sufficient common stock reserved for conversion of
      the Series B preferred stock or exercise of the warrants to the extent
      only the approval of our board of directors is required to obtain an
      increase in authorized shares;
   .  our knowing and material breach of any agreement involving indebtedness
      for borrowed money or purchase price which results in or which would
      result in acceleration of the maturity of that debt; unless the
      consequences of the breach, including any cross-defaults, are not material
      to us; and
   .  our failure to use best efforts to avoid the occurrence of the events
      described below that could result in cash payments to holders of the
      Series B preferred stock.

   We can avoid a redemption due to the occurrence of an event listed above if

   .  we used our best efforts to avoid the event,
   .  we elect to avoid redemption prior to the cure of the event, if it is
      possible to cure, and
   .  no more than a total of 5 of these events and events leading to cash
      payments (as described below) shall have occurred.

   If we are unable to avoid redemption and are unable to redeem the Series B
preferred stock upon request, we must redeem that portion that is permitted and,
thereafter, use our best efforts to remedy the impairment preventing redemption.
In addition, to the extent set forth below, certain of the foregoing events may
also require us make additional payments, either in cash or additional shares of
common stock or Series B preferred stock.

   If we were forced to redeem all of the shares of Series B preferred stock
on June 22, 1999, December 22, 1999, June 22, 2000 or December 22, 2000 and the
ratio of

   .  the highest closing bid price during the period beginning on the date of
      the redemption notice and ending on the conversion date to
   .  the conversion price in effect on the date of the redemption notice

was 1 to 1, 1.5 to 1, 2 to 1, 3 to 1, 4 to 1, or 5 to 1 and all Series B
preferred stock remained outstanding on those dates, we would be forced to pay
the following aggregate amount to the holders of Series B preferred stock
pursuant to the redemption:

                                       68
<PAGE>

<TABLE>
<CAPTION>
       Redemption Date                  Aggregate Redemption Amount (millions)*
--------------------------------------------------------------------------------------
<S>                              <C>      <C>        <C>      <C>      <C>      <C>
 Ratio of highest closing bid    1 to 1   1.5 to 1   2 to 1   3 to 1   4 to 1   5 to 1
  price to conversion price
--------------------------------------------------------------------------------------
  June 22, 1999                   $19.9      $23.2    $30.9    $46.3    $61.8    $77.3
--------------------------------------------------------------------------------------
 December 22, 1999                $19.9      $23.9    $31.8    $47.7    $63.6    $79.5
--------------------------------------------------------------------------------------
  June 22, 2000                   $19.9      $24.5    $32.7    $49.1    $65.4    $81.8
--------------------------------------------------------------------------------------
 December 22, 2000                $19.9      $25.2    $33.6    $50.4    $67.2    $84.0
--------------------------------------------------------------------------------------
</TABLE>

*Please note that, as described below, our credit agreement limits payments to
redeem shares of Series B preferred stock and cash payments in connection with
certain events (as described below) to no more than approximately $5,000,000 in
the aggregate.  If our credit agreement limits redemption payments, we are
obligated to use our reasonable best efforts to take all reasonably necessary
steps permitted by the Series B financing documents to remove the limitation so
that further redemptions are permitted.

   For example, if the conversion price in effect on the date of the redemption
notice were $5.46 and the highest closing bid price during the period beginning
on the date of the redemption notice and ending on the conversion date were
$10.92, the ratio would be 2 to 1. If the conversion price in effect on the date
of the redemption notice were $5.46 and the highest closing bid price during the
period beginning on the date of the redemption notice and ending on the
conversion date were $16.38, the ratio would be 3 to 1. Lastly, if the
conversion price in effect on the date of the redemption notice were $5.46 and
the highest closing bid price during the period beginning on the date of the
redemption notice and ending on the conversion date were $27.30, the ratio would
be 5 to 1. At lower conversion prices, lower closing bid prices would produce
high ratios. For example, if the conversion price in effect on the date of the
redemption notice were $2.00, a highest closing bid price during the period
beginning on the date of the redemption notice and ending on the conversion date
were $10.00, as opposed to $27.30, would be needed to produce a ratio of 5 to 1.

   Those amounts could be reduced if fewer shares of Series B preferred stock
were outstanding on the redemption date, whether through earlier conversion or
redemption of the shares, or if the holders of the Series B preferred stock
elect not to have all of their shares redeemed.  Those amounts could be
increased if, due to our late payment of the redemption amounts, we must pay
default interest on the amounts, in which case the amount of the default
interest may be magnified based upon the ratio of the highest closing bid price
to the conversion price in effect on the date of the redemption notice.

   If we are unable to purchase all shares of Series B preferred stock which
are subject to redemption notices, we must redeem all shares it is able to
purchase pro rata from the holders of based upon the relative number of shares
set forth in that holder's redemption notice compared to the total number of
shares set forth in all redemption notices.  However, any such inability on our
part will not limit our obligation to purchase all shares set forth in the
redemption notices.  Until we redeem all of those shares, we cannot, without the
consent of each initial holder of Series B preferred stock, enter into any
agreement, consummate any transaction, or otherwise operate in any way outside
the ordinary course of business.  That inability shall be considered a breach of
our obligations with respect to the Series B preferred stock, and each holder
shall have all rights and remedies for damages available at law or under the
certificate of designations, including default interest.

   One reason for such an inability to redeem shares would be that redeeming
all shares of Series B preferred stock set forth in redemption notices would
cause us to violate Section 160 of the Delaware General Corporation Law.
Section 160 prohibits a corporation from redeeming its shares for cash if the
capital of the corporation is impaired or if that redemption would result in the
impairment of the capital of the corporation.  Given that we do not have cash or
other liquid assets beyond that necessary to conduct our business, if we are
required to redeem any significant number of shares of Series B preferred stock,
those redemptions would likely cause and impairment of our capital and be
prohibited by Section 160.  In that case, we are required to:

     .  redeem the greatest number of shares of Series B preferred stock
        possible without violating that section,
     .  use our best effort to take all steps permitted by the Series B
        preferred stock financing agreements in order to remedy our capital
        structure to allow further redemptions without violating that section,
        and not take any actions inconsistent with so remedying our capital
        structure, and
     .  from time to time thereafter as promptly as possible, redeem shares at
        the request of a holder to the greatest extent possible without
        violating that section; with that redemption to be made at the greater
        of the redemption price set forth in the redemption notice or the
        redemption price applicable at the time of the request.

Any inability to redeem shares based upon DGCL Section 160 shall have the
consequences set forth above in connection with any inability on our part to
redeem shares.  In addition and as described in greater detail below, in the
event DGCL Section 160 prevents redemptions, we are required to use our best
efforts to take all necessary steps permitted by the Series B financing
documents to remedy our capital structure.

                                       69
<PAGE>

   Another reason for such an inability to redeem shares would be that redeeming
all shares of Series B preferred stock set forth in redemption notices would
cause us to violate the credit agreement, dated May 15, 1998, between us and
certain lenders, amended as of December 17, 1998, or any extension thereof or
replacement facility that does not affect the rights, privileges and preferences
of the selling stockholders any more than the existing credit agreement. In that
case, we are required to:

     .  redeem the greatest number of shares of Series B preferred stock
        possible without violating those credit agreements,
     .  use our best efforts to take all steps permitted by
          .  the Series B preferred stock financing agreements which would not
             result in a breach thereof and
          .  the credit agreements in order to remedy our capital structure to
             allow further redemptions without violating those credit
             agreements, and
     .  from time to time thereafter as promptly as possible, redeem shares at
        the request of a holder to the greatest extent possible without
        violating those credit agreements.

   Unlike any other inability to redeem, any inability to redeem shares based
upon our credit agreement shall not be a breach of the certificate of
designation and will not give the holders any right to damages or default
interest.  At present, the credit agreement limits the amount we may pay to
redeem Series B preferred stock and the amount of cash payments in connection
with certain events (as described below) to no more than approximately
$5,000,000.  In addition, from time to time, other provisions of the credit
agreement, including the financial covenants contained therein, may prevent us
from making fully honoring redemption notices.

   In the event our credit agreement prevents redemptions of the Series B
preferred stock or cash payments called for by the terms of the Series B
preferred stock, we are required to use our reasonable best efforts to take all
reasonably necessary steps permitted by the Series B financing documents to
permit further redemptions and cash payments.  Similarly, in the event DGCL
Section 160 prevents redemptions of the Series B preferred stock, we are
required to use our best efforts to take all necessary steps permitted by the
Series B financing documents to remedy our capital structure to permit further
redemptions.  To fulfill these requirements, we may need to alter our capital
structure by turning fixed or financial assets into liquid assets or otherwise
obtaining additional capital.  Those liquid assets would augment our capital for
purposes of DGCL Section 160 and may permit us to amend our credit agreement to
permit additional payments to the holders of Series B preferred stock.  Methods
by which we might be required to generate liquid assets include selling off
important operating assets, which may include divestiture of entire divisions or
subsidiaries, or licensing our intellectual property to third parties to raise
cash, which may be to the long-term detriment of our business.  Additionally, we
may be required to raise capital by selling securities that impair our ability
to operate our business, are prohibitively expensive or otherwise have onerous
terms.  Any of these actions could materially adversely affect our business,
operating results and financial condition.

     Cash Payments.  Within 10 business days following notice to us of the
     -------------
occurrence of the events set forth below, we are required to pay to each holder
of the Series B preferred stock its pro rata portion in cash of an amount equal
to 3% the first week and 5% each week thereafter of the aggregate face amount of
Series B preferred stock originally issued until the event no longer exists. The
3% amount would be at least $450,000 and the 5% amount would be at least
$750,000. Thus, if the event persisted for 2 weeks, we would be required to pay
at least $1,200,000, if the event persisted for 3 weeks, we would be required to
pay at least $1,950,000, and so on. The triggering events are:

     .  any event which would have permitted the holder of Series B preferred
        stock to elect to have us redeem their stock but for the fact that
          .  we did not knowingly cause the event to occur,
          .  it was caused by an act of god or was required by injunction or
             court of SEC order, or
          .  was otherwise outside of our control;
     .  the suspension or de-listing of our common stock from trading on the
        Nasdaq National Market System or certain other markets acceptable to the
        initial purchasers of the Series B preferred stock for 5 or more days in
        any 9 month period;
     .  the registration statement of which this prospectus is a part not being
        declared effective by June 22, 1999;
     .  the suspension of the registration statement of which this prospectus is
        a part after its effective date for more than 10 consecutive business
        days or for an aggregate of more than 20 days in any twelve month
        period;
     .  if the approval of our stockholders is required to increase the common
        stock reserved for conversion of the Series B preferred stock or
        exercise of the warrants as required by the Series B preferred stock
        financing agreements, our failure to obtain the approval within 60 days
        or within 120 days in the event of SEC review of the event giving rise
        to the requirement to reserve more shares of common stock;
     .  failure to have declared effective amended or additional registration
        statements that may be required under the Series B preferred stock
        financing agreements within

                                       70
<PAGE>

          .  5 business days of the event giving rise to the need for an amended
             registration statement or
          .  10 business days of the event giving rise to the need for an
             additional registration statement for the resale by the selling
             stockholders of sh ares of common stock;
     .  failure to obtain on or before June 22, 1999 stockholder approval to
        issue more than 20% of our common stock on conversion of the Series B
        preferred stock and exercise of the warrants issued in connection with
        the Series B preferred stock;
     .  our failure to fully honor a conversion of Series B preferred stock or a
        valid exercise of a warrant because we do not have sufficient shares of
        common stock authorized but not outstanding with which to honor the
        conversion or exercise; and
     .  our declaration of or being put into bankruptcy or receivership or
        failure to pay our debts generally as and when due.

   All cash payments required to be made as a result of such an event, together
with all cash payments required to be made in respect of conversion defaults and
under the registration rights agreement in respect of delays or gaps in
effectiveness of the registration statement, are capped at an aggregate of
$1,333 per share plus default interest, or $19,995,000 plus default interest in
the aggregate. In addition, we may be unable to make those cash payments to the
extent that making the payments would cause us to violate the credit agreement,
dated May 15, 1998, between us and certain lenders, amended as of December 17,
1998, or any extension thereof or replacement facility that does not affect the
rights, privileges and preferences of the selling stockholders any more than the
existing credit agreement. In that case, we are required to:

     .  make the greatest cash payments possible without violating those credit
        agreements, and
     .  our best efforts to take all steps permitted by
          .  the Series B preferred stock financing agreements which would not
             result in a breach thereof and
          .  the credit agreements in order to remedy our capital structure to
             allow further cash payments without violating those credit
             agreements.

   Unlike any other inability to make cash payments, any inability to make cash
payments based upon our credit agreement shall not be a breach of the
certificate of designation and will not give the holders any right to damages or
default interest. At present, the credit agreement limits the amount we may pay
to redeem Series B preferred stock and the amount of cash payments in connection
with certain events (as described below) to no more than approximately
$5,000,000. In addition, from time to time, other provisions of the credit
agreement, including the financial covenants contained therein, may prevent us
from making cash payments. However, as described above, in the event our credit
agreement prevents redemptions of the Series B preferred stock or cash payments
called for by the terms of the Series B preferred stock, we are required to use
our reasonable best efforts to take all reasonably necessary steps permitted by
the Series B financing documents to permit further redemptions and cash
payments. See "--Redemption at Holder's Option" above.

     Vote of Stockholders.  We have filed with the Securities and Exchange
Commission a preliminary proxy statement in which our board of directors
recommends to our stockholders that they vote to approve the waiver of Rule
4460(i) of the Nasdaq Marketplace Rules. This rule prohibits us from issuing
more than 20% of our outstanding common stock in a single transaction or group
of related transactions. Conversion of the Series B preferred stock and exercise
of the warrants into common stock at certain conversion prices might trigger the
anti-dilution provisions of our outstanding convertible notes, although we do
not believe this to be the case. Any additional shares of common stock issued
upon conversion of the notes due to this anti-dilution adjustment and any common
stock issued in respect of premium or otherwise may be aggregated with the
shares of common stock issued upon conversion of the Series B preferred stock
and exercise of the warrants for purposes of the 20% rule.

   Currently, due to the 19.9% limitation, the number of shares that can be
issued upon conversion of the Series B preferred stock is 8,663,895.  If our
stockholders approve issuances in excess of 8,663,895 shares, then conversions
of the Series B preferred stock and exercise of the warrants into common stock
may result in our issuing new shares of common stock that represent more than
20% of our previously outstanding common stock.  Indeed, once the shareholder
approval is received, there is no limit on the number of shares that may be
issued upon conversion of the Series B preferred stock.  At low conversion
prices, enough shares may be issued upon conversion of the Series B preferred
stock that, if those shares were voted together, they would be able to exercise
control over us and thereby effect a change in control of us.  The conversions
could result in greater dilution to our present stockholders than could occur if
the approval had not been received and the 19.9% limitation remained in place.
For numeric examples of the level of dilution that would result at certain
conversion prices, see "--Conversion price" above.

   On the other hand, if the stockholder approval sought thereby is not
obtained on or before June 22, 1999,

                                       71
<PAGE>

 .  we will continue to be prohibited by Nasdaq Rule 4460(i) from issuing 20% or
   more of our outstanding common stock on conversion of the Series B preferred
   stock, upon exercise of the warrants, and in respect of premium or otherwise,
 .  we may be obligated to immediately redeem all outstanding shares of Series B
   preferred stock for a cash payment in the manner described in "--Redemption
   at Holders Option" above,
 .  we will be obligated to make cash payments in the manner described in "--Cash
   Payments" above,
 .  the conversion price may be adjusted in the manner described in "--Conversion
   Price" above,
 .  the selling stockholders can require us to list our common stock on the over-
   the-counter electronic bulletin board which, as of the date hereof, has no
   limitation relating to issuance of more than 20% of our common stock or
   similar restriction and, thereafter, require us to honor all requested
   conversions, and
 .  the selling stockholders could require us to continue to seek stockholder
   approval of the conversion and exercise of those securities, which could be
   expensive for us.

   We do not have available the cash resources to satisfy the redemption
obligation set forth in the above list and it is possible that we would not be
able to effectuate the redemption in compliance with applicable law.  If the
stockholder approval is not obtained, compliance with the redemption obligation
would likely have a material adverse effect on our financial condition and
ability to implement our business strategy.  In addition, any delay in payment
will cause the redemption amount to accrue default interest at the rate of the
lesser of 18% per annum or the highest interest rate permitted by applicable law
until paid.

   If our common stock were traded on an over-the-counter bulletin board, our
common stock may be subject to reduced liquidity and reduced analyst coverage,
our ability to raise capital in the future may be inhibited and our business,
financial condition and results of operations could be materially adversely
affected.  In addition, if our common stock is listed on an over-the-counter
bulletin board rather than on a national exchange, we may be in default under
various agreements with our financing sources, investors and stockholders.
Redemption of the Series B preferred stock and any defaults under other
agreements could significantly accelerate our cash expenditures and capital
requirements beyond the levels currently anticipated and would materially
adversely affect our ability to conduct our business.

     Redemption at Our Option.  So long as
     ------------------------

 .  an event pursuant to which the holders of Series B preferred stock are
   entitled to elect to have their shares redeemed or an event requiring us to
   make a cash payment as described above has not occurred, or
 .  if the event has occurred in the past, it has been cured for at least the six
   immediately preceding consecutive months without the occurrence of any other
   like event,

the Series B preferred stock is redeemable at our option in the limited
circumstances set forth below for redemption amounts varying from 115% to 160%
of the original issue price of the Series B preferred stock, plus a 6% premium
per year and default interest, if applicable.  More particularly, the Series B
preferred stock is redeemable:

     .  on three dates between December 22, 1998 and December 22, 1999 for a
        redemption amount varying between 130% and 120% of the original issue
        price of the Series B preferred stock, plus a 6% premium per year and
        any default amounts, provided our common stock is then trading at less
        than $2.264025;
     .  after December 22, 1999 and prior to December 22, 2000, we may redeem
        the Series B preferred stock at the greater of
     .  160% of the original issue price of the Series B preferred stock, plus a
        6% premium per year and any default amounts, and
     .  the amount obtained when sum of the face amount plus a 6% premium per
        year and any default amounts, is divided by the conversion price in
        effect on the date of the redemption notice, and multiplied by the
        highest closing bid price for our common stock during the period
        beginning on the date of the holder's redemption notice and ending on
        the date of redemption;
     .  after December 22, 2000, if the closing bid price for our common stock
        exceeds a 200% of the fixed conversion price (as described above), we
        may redeem the Series B preferred stock at 115% of the original issue
        price of the Series B preferred stock, plus a 6% premium per year and
        any default amounts; or
     .  after December 22, 2000, if we, simultaneously with the redemption,
        close a firm commitment underwriting with a minimum $8.00 per share
        price and a minimum aggregate amount of $30 million, we may redeem the
        Series B preferred stock at the greater of
     .  120% of the original issue price of the Series B preferred stock plus a
        6% premium per year and any default amounts, and
     .  the amount obtained when the sum of the face amount plus a 6% premium
        per year and any default amounts, is divided by the conversion price in
        effect on the date of the redemption notice, and multiplied by the
        highest closing

                                       72
<PAGE>

   bid price for our common stock during the period beginning on the date of the
   holder's redemption notice and ending on the date of redemption.

We must redeem either

 .  all of the Series B preferred stock or
 .  at least $5 million of Series B preferred stock and, at our discretion,
   additional amounts in $1 million increments.

In addition, we are not permitted to deliver an optional redemption notice
unless we have funds available to effect the complete amount of the redemption
in the form of deposits with a financial institution, immediately available
credit facilities, or an agreement with a standby underwriter or qualified buyer
to purchase a sufficient face amount of our securities, or any combination of
these methods.

   If we provide the holders of Series B preferred stock with a notice of
redemption at our option, then fail to redeem the Series B preferred stock,

 .  we forfeit all future redemptions at our option, and
 .  the conversion rate of the Series B preferred stock will be adjusted to equal
   to the lower of
   .  the conversion price otherwise in effect, and
   .  the average of the closing bid prices for our common stock for any three
      trading days during the period beginning on the date of the redemption
      notice and ending on the day the day the redemption was to occur (as set
      forth in the redemption notice).

Protective Provisions.  The Series B preferred stock is senior to the Series A
---------------------
preferred stock and common stock in respect of the right to receive liquidation
preferences. If we liquidate, dissolve or wind up, no distribution shall be made
to the holders of any shares of our capital stock upon liquidation, dissolution
or winding up unless prior thereto the holders shall have received the
liquidation preference as set forth below with respect to each share. The
liquidation preference with respect to a share of preferred stock means an
amount equal to the $1,000 face amount thereof plus the accrued but unpaid
premium and other unpaid amounts with respect thereto, including without
limitation redemption amounts and cash payments with respect thereto plus any
other amounts that may be due from us with respect thereto through the date of
final distribution.

   The Series B preferred stock has no voting power, except as otherwise
provided by applicable law.  However, in the absence of prior approval by the
initial purchasers of the Series B preferred stock, we are prohibited from:

 .  altering or changing the terms of the Series B preferred stock,
 .  altering or changing the terms of any of our capital stock so as to adversely
   affect the Series B preferred stock,
 .  creating or issuing any senior or pari passu securities,
 .  increasing the authorized shares of Series B preferred stock,
 .  redeeming or paying any dividend or distribution on any junior securities,
   subject to limited exceptions,
 .  acting so as to generate taxation under Section 305 of the Internal Revenue
   Code of 1986, as amended, or
 .  selling or transferring all or substantially all of our assets.

     Other than under the circumstances set forth below, the Series B preferred
stock financing documents generally prohibit us from issuing prior to December
22, 1999:

 .  any equity securities at a price less than fair market value; and
 .  any variably or re-set priced equity securities of equity-like securities or
   any security convertible into or exercisable or exchangeable for any equity
   or equity-like securities.
     Notwithstanding the foregoing prohibition, we are permitted in the
     following circumstances to issue any securities:
 .  to the initial purchasers and their assignees pursuant to the Series B
   preferred stock financing documents,
 .  to an industry partner(s) as part of "strategic investments" in us,
 .  in connection with the grant and/or exercise of options by employees,
   consultants or directors,
 .  in connection with direct stock issuances to employees, consultants or
   directors,
 .  in exchange solely for existing securities,
 .  in exchange for Series B preferred stock,
 .  pursuant to the stockholders rights agreement and the Series A preferred
   stock,
 .  in connection with acquisitions of other companies, material technologies or
   business entities,
 .  to equipment lessors or banks as an incentive in connection with an ordinary
   course of business equipment financings or commercial loans which is
   primarily for non-equity financing purposes, and
 .  shares of common stock in accordance with our convertible note indenture and
   the notes thereunder.

                                       73
<PAGE>

   We may need additional funds in the future, and may issue additional
convertible preferred stock or other securities in order to raise those funds.
In that regard, amendments to our bank credit agreement structured covenants
that require that we satisfy our business plan.  Our business plan includes
provisions for an infusion of approximately $15 million of additional capital
during the second quarter of 1999.  This part of our business plan is based upon
preliminary discussions with potential investors and our desire to solidify our
equity base to support future growth.  We do not currently have commitments from
any potential investors, and there can be no assurance that we will be able to
raise additional capital.  We may need the consent of the initial purchasers of
the Series B preferred stock to issue certain securities in order to raise
capital.

     Change of Control.  If we merge with a public company meeting the following
     -----------------
threshold criteria and our common stock will be exchanged for common stock of
the acquiror or its parent company, the holders of the Series B preferred stock
will be entitled to receive in the merger the consideration they would have
received had they converted their stock the day before the public announcement
of the merger at the lowest conversion price obtained using any of the three
bases for calculating the conversion price regardless of whether the
announcement occurs prior to, on or after May 15, 1999. The threshold criteria
are:

 .  the exchange securities are publicly traded,
 .  the average daily trading volume of the exchange securities over the 90 day
   period immediately preceding announcement of the transaction was greater than
   $2,000,000,
 .  the historical 100 day volatility of the exchange securities during the
   period ending on the date of announcement of the transaction is greater than
   50%, and
 .  the last sale price of the exchange securities on the date immediately
   preceding the date on which the transaction is public disclosed is not less
   than 65% of last sale price of the exchange securities on any day during the
   20 day period ending on that date.

   If we merge with a private company or a public company not meeting the
threshold criteria, the holders of the Series B preferred stock will be
entitled, at their option,

 .  to retain their preferred stock, which will thereafter convert into common
   stock of the surviving company, or
 .  receive either
 .  the consideration they would have received had they converted their stock the
   day before the public announcement of the merger or
 .  $1,250 per share of Series B preferred stock then outstanding, in cash, plus
   any accrued and unpaid premium and, if applicable, default interest.

   Notwithstanding the foregoing, we are permitted to acquire other companies
without having to provide special consideration to the holders of the Series B
preferred stock so long as we do not issue more than 20% of our common stock as
merger consideration.  As described below, the holders of the warrants are
entitled to similar protections in the event of our merger or consolidation with
another company.  We are also prohibited from selling or transferring all or
substantially all of our assets without prior approval by the purchasers of the
Series B preferred stock.

     Rank and Participation.  With respect to dividends or as to the
     ----------------------
distribution of assets upon our liquidation, dissolution or winding up, the
Series B preferred stock shall rank:

 .  prior to our common stock;
 .  prior to
 .  any other class of our capital stock now outstanding, and
 .  any class of our capital stock later created unless the stock is issued with
   the consent of the holders of the Series B preferred stock and, by its terms,
   ranks senior to the Series B preferred stock;
 .  in parity with any class of our capital stock later created that is issued
   with the consent of the holders of the Series B preferred stock and, by its
   terms, ranks in parity with the Series B preferred stock; and
 .  junior to any class of our capital stock later created that is issued with
   the consent of the holders of the Series B preferred stock and, by its terms,
   ranks senior to the Series B preferred stock.

   Subject to the rights of any of our securities senior to or in parity with
the Series B preferred stock, each holder of Series B preferred stock shall be
entitled to dividends paid and distributions made to the holders of our common
stock to the same extent as if that holder had already converted its Series B
preferred stock.  Specifically, the holder would be entitled to dividends as if
it held the number of shares of common stock that it would have received had it
converted its shares of Series B preferred stock on the record date for that
dividend or distribution at the conversion price in effect on such date.
Payments of the dividend or distribution to the holders of Series B preferred
stock will be made concurrently with the payment of the distribution or
dividend.

                                       74
<PAGE>

     Warrants.  The warrants are immediately exercisable until December 22,
     --------
2003. The warrants are exercisable by payment of the exercise price or by net
exercise, in which shares of our common stock having a market value equal to the
exercise price are not issued to the warrant holder upon exercise of the warrant
but instead are withheld by us to pay the exercise price. The exercise price for
the common stock underlying the warrant is $3.47 per share, subject to
adjustment as described below. Specifically, the conversion price of the
warrants is subject to anti-dilution adjustment if we sell 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 the conversion price then in
effect, which initially shall be $3.47 per share, such that the adjusted
exercise price will be equal to:

 .  the exercise price in effect immediately prior to the issuance, multiplied by
 .  the sum of
 .  the number of outstanding shares of our common stock immediately prior to the
   issuance, and
 .  the number obtained when the total consideration received by us in exchange
   for the stock issued is divided by the greater of the conversion price then
   in effect or the market price on the day prior to the issuance, divided by
 .  the number of shares of our common stock outstanding after the issuance plus
   the number of shares deemed outstanding by reason of our issuance of options
   or convertible securities exercisable or convertible at less than the option
   price in effect at the time of issuance of those options or convertible
   securities.

   In addition, with respect to any securities we issue that are convertible
into or exercisable for our common stock in accordance with a fluctuating or re-
setting conversion or exercise price or exchange ratio, the anti-dilution
adjustment described above will be made on the date of issuance of those
securities as though:

      .  all holding periods and other conditions to the discounts contained in
         the securities have been satisfied, and
      .  the market price of our common stock on the date of exercise,
         conversion or exchange of the securities was 80% of the market price of
         our common stock on the date the securities were issued.

If there is a change at any time in:

      .  the amount of additional consideration payable to us upon exercise of
         the securities, or
      .  the rate at which the securities are convertible into our common stock,
         other than changes in such rate by reason of provisions designed to
         protect against dilution,

the exercise price of the warrants shall be readjusted to the exercise price
that would have been in effect had such change been in effect at the time the
securities were issued.  The adjustments described in this paragraph will not
be made with respect to securities issued under employee, director or consultant
benefit plans so long as the issuance of the securities is approved by a
majority of our non-employee directors.

   In the event we merge with any other company, the warrantholders are
entitled to similar choices as to the consideration they will receive in the
merger or consolidation as are provided to the holders of the Series B preferred
stock.  If we merge with a public company meeting the threshold criteria set
forth above and our common stock will be exchanged for common stock of the
acquiror or its parent company, the warrant holders will be entitled to receive
in the merger the consideration they would have received had they exercised
their warrants the day before the public announcement of the merger at the
exercise price in effect on that day.  If we merge with a private company or a
public company not meeting the threshold criteria, the warrant holders will be
entitled, at their option,

 .  to retain their warrants, which will thereafter convert into common stock of
   the surviving company, or
 .  receive either
 .  the consideration they would have received had they exercised their warrants
   the day before the public announcement of the merger or
 .  125% of the Black-Scholes amount.

The Black-Scholes amount is the value of an option to purchase one share of
common stock as calculated on the Bloomberg online page using the following
values:

 .  the market price on the day prior to the date of notice of the transaction,
 .  volatility equal to the historical 100 day volatility of the our common stock
   during the period preceding the date of notice of the transaction,
 .  a risk free interest rate equal to the rate on U.S. treasury bill or treasury
   notes having a maturity similar to the term of the warrant on the date of the
   notice of the transaction, and

                                       75
<PAGE>

 .  an exercise price equal to the exercise price on the date of notice of the
   transaction.

   If we declare or make a distribution of assets to our common stockholders,
then the warrant holders will be entitled to exercise their warrants and receive
the amount of those assets that the holder would have been entitled to had it
been a common stockholder on the record date for determining shares entitled to
the distribution.  We have agreed to use our best efforts to list the common
stock issuable upon exercise of the warrants on a major securities exchange so
long as our other common stock is so listed.  The 19.9% limit and the 4.9% limit
apply to shares of common stock issued by exercise of the warrants, and those
shares are aggregated with shares of common stock issued upon conversion of the
Series B preferred stock for purposes of the 19.9% limit and with all shares of
our common stock held by a warrant holder for purposes of the 4.9% limit.

     Anti-Dilution Provisions in our Convertible Notes.  In addition, conversion
     -------------------------------------------------
of the Series B preferred stock and exercise of the warrants, together with
common stock issued to pay premium, at conversion or exercise prices less than
the current market price (as described below) may cause an anti-dilution
adjustment with respect to the conversion price of our 4 1/4% convertible
promissory notes, although we do not believe this to be the case. Specifically,
the conversion price of the notes is subject to anti-dilution adjustment if we
sell common stock or securities initially 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
the conversion price then in effect, such that the adjusted exercise price will
be equal to:

 .  the conversion price in effect immediately prior to the issuance, multiplied
   by
 .  the sum of
 .  the number of outstanding shares of our common stock immediately prior to the
   issuance, and
 .  the number of shares of common stock the consideration received for that
   stock issuance would purchase at the current market price (as set forth
   below); divided by
 .  the sum of
 .  number of shares of our common stock outstanding after the issuance, and
 .  the number of shares common stock actually issued.

   For purposes of the notes, the current market price is defined as the
average of the last sale price of our common stock on the 30 consecutive
business days immediately preceding the relevant issuance of common stock.

     Accounting Charges.  The redemption rights, liquidated damages provisions,
cross default provisions to our debt instruments and other terms of the Series B
preferred stock, under certain circumstances, could lead to a significant
accounting charge to earnings. The Series B preferred stock will be classified
outside of equity as mandatorily redeemable preferred stock. On December 22,
1998, we recognized the fair value of warrants issued and the accretion of the
Series B preferred stock to its fair value. We incurred a charge of
approximately $1.5 million to our accumulated deficit for the fourth quarter of
fiscal 1998 as a result of the accounting treatment for issuance of the related
warrants. During the period of conversion of the Series B preferred stock, we
will be required to recognize in our earnings (loss) per share calculation any
accretion of the Series B preferred stock to its redemption value as a dividend
to the holders of the Series B preferred stock.

The foregoing description is only a summary and you can obtain more detailed
information regarding the terms of the Series B preferred stock and the warrants
by reference to the securities purchase agreement dated as of December 21, 1998
by and among P-Com and the purchasers listed therein, the registration rights
agreement dated as of December 21, 1998 by and among P-Com and the purchasers
listed therein, the warrants issued by us to the purchasers and the Series B
certificate of designation attached to the Current Report on Form 8-K dated as
of December 24, 1998 as Exhibits 10.38, 10.39, 10.40A, 10.40B, and 10.40C, and
3.2D and 3.2E, respectively.

                                       76
<PAGE>

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Disclosure

   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. With
recent acquisitions of foreign companies, certain of its international sales are
denominated in other foreign currencies, including Italian lira. The Company
enters into foreign forward exchange contracts to reduce the impact of currency
fluctuations of anticipated sales to British customers. The objectives of these
contracts is to neutralize the impact of foreign currency exchange rate
movements on the Company's operating results. The gains and losses on forward
exchange contracts are included in earnings when the underlying foreign currency
denominated transaction is recognized.

   The foreign exchange forward contracts described above generally require the
Company to sell foreign currencies for U.S. dollars at rates agreed to at the
inception of the contracts. The forward contracts generally have maturities of
six months or less. These contracts generally do not subject the Company to
significant market risk from exchange rate movements because the contracts are
designed to offset gains and losses on the balances and transactions being
hedged. At December 31, 1998 and 1997, the Company had forward contracts to sell
approximately $26.1 million and $13.3 million in British pounds, respectively.
The fair value of forward exchange contracts approximates cost. The Company does
not anticipate any material adverse effect on its financial position resulting
from the use of these instruments.

   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, 1998, 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. In 1997, a near-term 10% appreciation or depreciation of the
U.S. dollar was also determined to have an insignificant effect. The Company
does not use derivative financial instruments for speculative or trading
purposes.

Interest Rate Risk

   The Company's convertible subordinated 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 Company's revolving
line of credit is subject to interest at either a base interest rate or a
variable interest rate that is within 200 basis points of the base interest
rate.  A 200 basis point increase over the base interest rate would not be
material to the Company's financial condition or results of operations.

                                       77
<PAGE>

ITEM 8.   FINANCIAL STATEMENTS

                                  P-COM, INC.
  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE


<TABLE>
<CAPTION>
                                                                                                                           Page
                                                                                                                          -------

FINANCIAL STATEMENTS:
<S>                                                                                                                       <C>
  Report of Independent Accountants....................................................................................        79

  Consolidated Balance Sheets at December 31, 1998 and 1997............................................................        80

  Consolidated Statements of Operations for the years ended December 31, 1998, 1997, and 1996..........................        81

  Consolidated Statements of Stockholders' Equity for the years ended December 31, 1998, 1997, and 1996................        82

  Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996...........................        83

  Notes to Consolidated Financial Statements...........................................................................        84

FINANCIAL STATEMENT SCHEDULE:

  Schedule II -- Valuation and Qualifying Accounts....................................................................        103
</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.

                                       78
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS
                       ---------------------------------


To The Board Of Directors And Stockholder 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, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedules
listed in the accompanying index present 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 schedules are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards 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 the opinion expressed above.

As described in Notes 1 and  3, on April 20, 1999, the Company obtained an
amendment to its line-of-credit agreement that contains substantial changes to
the debt covenants, including certain covenants which contemplate the Company
raising additional capital.


PricewaterhouseCoopers LLP
San Jose, California

April 20, 1999

                                       79
<PAGE>

                                  P-COM, INC.

                          CONSOLIDATED BALANCE SHEETS
                (In thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                                                     DECEMBER 31,
                                                                                                   1998        1997
                                                                                                 ---------   ---------
<S>                                                                                              <C>         <C>
ASSETS
Current assets:
  Cash and cash equivalents                                                                      $ 29,241    $ 88,145
  Accounts receivable, net of allowance for doubtful accounts of $9,591 in
    1998 and $2,521 in 1997                                                                        50,533      70,883
  Inventory                                                                                        79,026      58,003
  Prepaid expenses and notes receivable                                                            21,949      12,534
                                                                                                 --------    --------
      Total current assets                                                                        180,749     229,565
Property and equipment, net                                                                        52,086      32,313
Deferred income taxes                                                                               9,678       1,697
Goodwill and other assets                                                                          71,845      41,946
                                                                                                 --------    --------
                                                                                                 $314,358    $305,521
                                                                                                 ========    ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                                                               $ 39,618    $ 38,043
  Accrued employee benefits                                                                         3,345       3,930
  Other accrued liabilities                                                                        10,318       6,255
  Income taxes payable                                                                                 --       6,409
  Notes payable                                                                                    46,360         293
                                                                                                 --------    --------
      Total current liabilities                                                                    99,641      54,930
                                                                                                 --------    --------

Long-term debt                                                                                     92,769     101,690
                                                                                                 --------    --------

Minority interest                                                                                      --         604

Series B Mandatorily Redeemable Convertible Preferred Stock                                        13,559          --
                                                                                                 --------    --------
Mandatorily Redeemable Common Stock Warrants                                                        1,839          --
                                                                                                 --------    --------

Commitments (Note 8)

Stockholders' equity:
  Series A Preferred Stock                                                                             --          --
  Common Stock, $0.0001 par value; 95,000,000 shares authorized; 45,869,777 and
    42,664,077 shares issued and outstanding at December 31, 1998 and 1997, respectively                5           4
Additional paid-in capital                                                                        145,246     131,735
Retained earnings (accumulated deficit)                                                           (38,783)     18,380
Accumulated other comprehensive income                                                                 82      (1,822)
                                                                                                 --------    --------
      Total stockholders' equity                                                                  106,550     148,297
                                                                                                 --------    --------
                                                                                                 $314,358    $305,521
                                                                                                 ========    ========
</TABLE>


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

                                       80
<PAGE>

                                  P-COM, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (In thousands, except per share data)


<TABLE>
<CAPTION>
                                                                                 1998        1997        1996
                                                                               ---------   ---------   ---------
<S>                                                                            <C>         <C>         <C>
Sales:
 Product                                                                       $151,347    $190,545    $101,853
 Service                                                                         43,597      30,157      19,100
                                                                               --------    --------    --------
   Total sales                                                                  194,944     220,702     120,953
                                                                               --------    --------    --------

Cost of sales:
 Product                                                                        113,498     110,267      60,362
 Service                                                                         30,777      18,968      13,696
                                                                               --------    --------    --------
   Total cost of sales                                                          144,275     129,235      74,058
                                                                               --------    --------    --------
 Gross profit                                                                    50,669      91,467      46,895
                                                                               --------    --------    --------

Operating expenses:
 Research and development                                                        41,473      29,127      20,163
 Selling and marketing                                                           22,020      15,696       7,525
 General and administrative                                                      24,965      14,741      10,178
 Goodwill amortization                                                            6,692       2,207         105
 Restructuring charge                                                             4,332          --          --
 Acquired in-process research and development                                    15,442          --          --
                                                                               --------    --------    --------
   Total operating expenses                                                     114,924      61,771      37,971
                                                                               --------    --------    --------
Income (loss) from operations                                                   (64,255)     29,696       8,924
Interest expense                                                                 (9,031)     (2,315)     (1,579)
Interest income                                                                   1,626       1,557       1,328
Other income (expense)                                                             (498)      1,005       1,157
                                                                               --------    --------    --------
Income (loss) before extraordinary item and income taxes                        (72,158)     29,943       9,830
Provision (benefit) for income taxes                                            (11,501)     11,052         956
                                                                               --------    --------    --------
Income (loss) before extraordinary item                                         (60,657)     18,891       8,874
Extraordinary item: retirement of Notes                                           5,333          --          --
                                                                               --------    --------    --------
Net income (loss)                                                               (55,324)     18,891       8,874
Charge related to Preferred Stock discount                                       (1,839)         --          --
                                                                               --------    --------    --------
Net income (loss) applicable to holders of Common Stock                        $(57,163)   $ 18,891    $  8,874
                                                                               ========    ========    ========
Basic income (loss) per share:
   Income (loss) before extraordinary item                                     $  (1.44)      $0.45       $0.23
   Extraordinary item                                                              0.12          --          --
                                                                               --------    --------    --------
   Net income (loss)                                                           $  (1.32)      $0.45       $0.23
                                                                               ========    ========    ========
Diluted income (loss) per share:
   Income (loss) before extraordinary item                                     $  (1.44)      $0.43       $0.22
   Extraordinary item                                                              0.12          --          --
                                                                               --------    --------    --------
   Net income (loss)                                                           $  (1.32)      $0.43       $0.22
                                                                               ========    ========    ========

Shares used in per share computations:
   Basic                                                                         43,254      42,175      38,762
                                                                               ========    ========    ========
   Diluted                                                                       43,254      44,570      40,607
                                                                               ========    ========    ========
</TABLE>

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

                                       81
<PAGE>

                                  P-COM, INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                       (In thousands, except share data)

<TABLE>
<CAPTION>


                                                                                                          Accumulated
                                                                                            Retained         Other
                                                         Common Stock        Additional     Earnings        Compre-     Compre-
                                                      -------------------     Paid-In     (Accumulated      hensive     hensive
                                                        Shares     Amount     Capital       Deficit)        Income       Income
                                                      ----------   ------   ----------   -------------   ------------   ---------
<S>                                                   <C>          <C>      <C>          <C>             <C>            <C>
Balance at December 31, 1995                          35,527,028       $3     $ 56,614       $ (9,360)
Issuance of Common Stock in public offerings,
 net of issuance costs                                 4,196,970        1       52,531             --
Issuance of Common Stock for the purchase of
 ACS                                                     140,000       --        1,698             --
Issuance of Common Stock upon exercise of stock
 options and warrants                                    784,408       --        1,353             --
Issuance of Common Stock under employee stock
 purchase plan                                           188,800       --          717
Cumulative translation adjustment                             --       --           --             --        $    73    $     73
Distribution of retained earnings                                                                 (25)
Net income                                                    --       --           --          8,874                      8,874
                                                                                                                        --------
Comprehensive income                                                                                                    $  8,947
                                                      ----------   ------    ---------      ---------    -----------    ========
Balance at December 31, 1996                          40,837,206        4      112,913           (511)            73

Conversion of shareholders' loan to equity by
 Geritel                                                      --       --          368             --

Issuance of Common Stock for the purchase of CSM
                                                         796,612       --       14,500             --
Issuance of Common Stock upon exercise of stock
 options and warrants                                    878,385       --        2,912             --

Cumulative translation adjustment                             --       --           --             --         (1,895)     (1,895)
Issuance of Common Stock under employee stock
 purchase plan                                           151,874       --        1,042             --

Net income                                                    --       --           --         18,891                     18,891
Comprehensive income                                                                                                    $ 16,996
                                                     -----------   ------    ---------       --------    -----------    ========
Balance at December 31, 1997                          42,664,077        4      131,735         18,380         (1,822)
Issuance of Common Stock upon exercise of stock
 options and warrants                                    498,670       --        2,651             --

Issuance of Common Stock under employee stock
 purchases plan                                          240,030       --        1,842             --

Issuance of Common Stock upon retirement of
 Convertible Subordinated Notes due 2002               2,467,000        1        9,018             --

Charge related to Preferred Stock discount                    --       --                      (1,839)
Cumulative translation adjustment                             --       --           --             --          1,904    $  1,904
Net loss                                                      --       --           --        (55,324)                   (55,324)
                                                                                                                        --------
Comprehensive income                                                                                                    $ 53,420
                                                      ----------   ------     --------       --------    -----------    ========
Balance at December 31, 1998                          45,869,777       $5     $145,246       $(38,783)       $    82
                                                      ==========   ======     ========       ========    ===========
</TABLE>

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

                                       82
<PAGE>

                                  P-COM, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (In thousands)


<TABLE>
<CAPTION>
                                                                                    YEAR ENDED DECEMBER 31,
                                                                                  1998        1997        1996
                                                                               ----------   ---------   ---------
<S>                                                                            <C>          <C>         <C>
Cash flows from operating activities:
  Net income (loss)                                                             $(55,324)   $ 18,891    $  8,874
  Adjustments to reconcile net income (loss) to net cash used in
     operating activities, net of effect of acquisitions:
    Depreciation                                                                  11,544       6,013       5,152
    Amortization of goodwill and other intangible assets                           6,827       2,207         105
    Change in minority interest                                                     (604)        (15)        619
    Deferred income taxes                                                         (7,981)         14      (1,711)
    Acquired in-process research and development expenses                         15,442          --          --
    Non-cash effect of retirement of Notes                                        (5,333)         --          --
  Change in assets and liabilities:
    Accounts receivable                                                           24,764     (19,375)    (24,663)
    Inventory                                                                    (15,016)    (20,807)    (14,773)
    Prepaid expenses and notes receivable                                         (9,109)        110      (4,544)
    Other assets                                                                   2,684      (5,111)      1,850
    Accounts payable                                                              (1,390)      4,443      14,499
    Accrued employee benefits                                                       (585)      1,967         526
    Other accrued liabilities                                                      2,709      (4,746)      5,549
    Income taxes payable                                                          (6,409)      3,915       2,590
                                                                                --------    --------    --------
  Net cash used in operating activities                                          (37,781)    (12,494)     (5,927)
                                                                                --------    --------    --------
Cash flows from investing activities:
    Acquisition of property and equipment                                        (29,187)    (16,922)    (14,078)
    Acquisitions, net of cash acquired                                           (61,398)    (10,855)     (2,714)
                                                                                --------    --------    --------
  Net cash used in investing activities                                          (90,585)    (27,777)    (16,792)
                                                                                --------    --------    --------
Cash flows from financing activities:
    Proceeds (payments) of notes payable                                          46,067     (12,651)      1,425
    Proceeds from issuance of Common Stock, net of expenses                        4,493       3,955      54,576
    Proceeds (payments) from long-term debt                                        2,016        (719)         --
    Proceeds from convertible debt offering, net                                      --      97,500          --
    Proceeds from issuance of Preferred Stock and warrants, net                   13,559          --          --
    Proceeds from sale-leaseback transaction                                       1,557          --          --
    Payment of sale-leaseback obligation                                            (134)         --          --
                                                                                --------    --------    --------
  Net cash provided by financing activities                                       67,558      88,085      56,001
                                                                                --------    --------    --------
Effect of exchange rate changes on cash                                            1,904      (1,895)         73
                                                                                --------    --------    --------
Net increase (decrease) in cash and cash equivalents                             (58,904)     45,919      33,355
Cash and cash equivalents at the beginning of the period                          88,145      42,226       8,871
                                                                                --------    --------    --------
Cash and cash equivalents at the end of the period                              $ 29,241    $ 88,145    $ 42,226
                                                                                ========    ========    ========
Supplemental cash flow disclosures:
    Cash paid for income taxes                                                  $  3,900    $  5,610    $    217
                                                                                ========    ========    ========
    Cash paid for interest                                                      $  8,717    $    656    $    133
                                                                                ========    ========    ========
    Stock issued in connection with the acquisitions of CSM & ACS               $     --    $ 14,500    $  1,698
                                                                                ========    ========    ========
    Conversion of shareholder's loan to equity by Geritel                       $     --    $    368    $     --
                                                                                ========    ========    ========
    Exchange of Convertible Subordinated Notes for Common Stock                 $ 14,350    $     --    $     --
                                                                                ========    ========    ========
    Promissory note issued in connection with the acquisition of Cylink         $  9,682    $     --    $     --
                                                                                ========    ========    ========
</TABLE>

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

                                       83
<PAGE>

                                  P-COM, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 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 wave radio
systems for use in the worldwide wireless telecommunications market.

   On April 20, 1999, the Company obtained an amendment to its line-of-credit
agreement, which contains substantial changes to the debt covenants (see Note
3). The covenants were amended to provide for compliance based on the Company's
business plan for 1999, and the Company is in compliance with such covenants
through March 31, 1999. The Company's business plan includes provisions for the
infusion of approximately $15 million of capital during the second quarter of
1999 based on preliminary discussions with potential investors and the Company's
desire to solidify its equity base to support future growth. The Company does
not currently have commitments from any potential investors. Should the Company
not meet its business plan or should the Company not be able to raise adequate
capital, it is possible that an event of default will occur under the line-of-
credit agreement. If a default is declared by the lenders it would trigger cross
defaults on the Company's outstanding 4 1/4% Convertible Subordinated Notes and
other debt instruments, giving rise to acceleration of payments of such debt,
and also giving rise to the rights of holders of all outstanding Series B
Preferred Stock to have their stock redeemed by the Company. Management
believes, in the event that the Company fails to fully meet its business plan,
the Company has adequate alternatives available to remedy any negative
consequences arising from a potential default under the agreement. However,
there can be no assurance that the Company will be able to implement these plans
or that it will be able to do so without a material adverse effect on the
Company's business, financial condition or results of operations.

   Effective May 29, 1997, the Company acquired Control Resources Corporation
("CRC"). Effective November 28, 1997, the Company acquired RT Masts Limited ("RT
Masts") and Telematics, Inc. ("Telematics"), see Note 5. These transactions were
accounted for as poolings-of-interests and accordingly, the consolidated
financial statements for all periods presented include the results of these
acquired companies as if they had been combined since inception.

Summary Of Significant Accounting Policies

   The following is a summary of the Company's significant accounting policies:

   Management's use of estimates and assumptions

   The preparation of financial statements in accordance with generally
accepted accounting principles 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.

   Principles of consolidation

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

   Foreign currency translation

   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 in all periods presented.

   Fair Value of Financial Instruments

   The Company measures its financial assets and liabilities in accordance with
generally accepted accounting principles. The estimated fair value of the
Company's Convertible Subordinated Notes was approximately 63% of par or $53.8
million at December 31, 1998. The estimated fair value of all other financial
instruments at December 31, 1998 and 1997 approximated cost.

                                       84
<PAGE>

   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 recognized upon shipment of the product
provided no significant obligations remain and collectibility is probable.
Provisions for estimated warranty repairs, returns and allowances are recorded
at the time products are shipped. 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, cost being determined on
a first-in, first-out basis.

   Property and equipment

   Property and equipment are stated at cost. 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.

   Software development costs

   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
softwaredevelopment 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 based on the expected revenue stream or on a
straight-line basis over the period of expected benefit ranging from three to
twenty years. The carrying value of goodwill is reviewed periodically based on
the undiscounted cash flows of the entity acquired over the remaining
amortization period. Should this review indicate that goodwill will not be
recoverable, the Company's carrying value of the goodwill will be reduced to its
discounted cash flows value.

   In-process research and development

   The Company recorded a charge for purchased in-process research and
development ("IPR&D") in March 1998 in a manner consistent with widely
recognized appraisal practices at the date of acquisition. Subsequent to this
time, the Company became aware of some new information which brought into
question the traditional appraisal methodology, and revised its purchase price
allocation based upon a more current and preferred methodology. As a result of
computing IPR&D using the more current and preferred methodology, the Company
decided to revise the amount originally allocated to in-process research and
development. As such, the Company has restated its first, second, and third
quarter 1998 consolidated financial statements. As a result, the first quarter
charge for acquired IPR&D was decreased from $33.9 million previously recorded
to $15.4 million, a decrease of $18.5 million with a corresponding increase in
goodwill and other intangible assets and related amortization in subsequent
quarters. Technological feasibility was not established for the expensed IPR&D,
and the expensed IPR&D had no alternative future use. The portion of the
purchase price allocated to goodwill and other intangible assets includes $6.3
million of developed technology, $2.7 million of core technology, $1.8 million
of assembled workforce, and $23.5 million of goodwill.

   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 to market value or discounted cash flow value is required.

                                       85
<PAGE>

   Income taxes

    The Company accounts for income taxes under the liability method, which
recognizes deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the tax bases of assets and
liabilities and their financial statement reported amounts. The measurement of
deferred tax assets is reduced, if necessary, by the amount of any tax benefits
that, based on available evidence, the Company can not determine will more
likely than not be realized.

   Concentration of credit risk

   Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents,
trade accounts receivable, and derivative financial instruments used in hedging
activities. The Company places its cash and 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 seven customers have been denominated in British pounds, and at
December 31, 1998 and 1997 amounts due from these customers represented 49% and
30%, 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 made either on 30 to 90 day
payment terms, COD or letters of credit.

   At December 31, 1998 and 1997, approximately 75% and 47%, respectively, of
trade accounts receivable represents amounts due from four customers. The
Company has an agreement with certain banks to sell, without recourse, certain
of its trade accounts receivable. During 1998 and 1997, the Company sold
approximately $57 million and $12 million, respectively, of its trade accounts
receivable. For this service, the banks received a fee of between 0.5% and 1.0%
plus interest of between 6% and 10% per annum. In 1998, 1997, and 1996, there
were no material gains or losses on accounts receivable sold without recourse.

The following table summarizes the percentage of sales accounted for by the
Company`s significant customers with sales of 10% or more:


<TABLE>
<CAPTION>
                                                                                    Year ended December 31,
                                                                         1998                1997                1996
                                                                         ----                ----                ----
<S>                                                                <C>                 <C>                 <C>
Customer A                                                                23%                 15%                 11%
Customer B                                                                --                  11                  11
Customer C                                                                --                  --                  11
Customer D                                                                --                  --                  11
Customer E                                                                --                  --                  11
</TABLE>

   Off-balance sheet risk

   The Company enters into foreign forward exchange contracts to reduce the
impact of currency fluctuations of sales to British customers. The objective of
these contracts is to neutralize the impact of foreign currency exchange rate
movements on the Company's operating results. The foreign forward exchange
contracts generally require the Company to sell foreign currencies for U.S.
dollars at rates agreed to at the inception of the contracts. The forward
contracts generally have maturities of six months or less.

   The Company considers purchase orders from customers to be firm commitments
for purposes of designating foreign forward exchange contracts as hedges. As
such, gains or losses on a contract are deferred and included in other income
(expense) when the underlying contract is recognized. Losses are not deferred,
however, if it is estimated that deferral would lead to recognizing losses in
later periods. The Company does not enter into speculative forward exchange
contracts.

   At December 31, 1998 and 1997, the Company had forward exchange contracts to
sell approximately $26.1 million and $13.3 million in British pounds,
respectively. The fair value of forward exchange contracts, which was determined
based on a comparison of the exchange rate per the contract and the market
exchange rate on December 31, 1998, approximates cost. The Company does not
anticipate any material adverse effect on its financial position resulting from
the use of these instruments.

                                       86
<PAGE>

   Net income (loss) per share

   Basic net income (loss) per share is computed by dividing net income
applicable to holders of Common Stock (numerator) by the weighted average number
of shares of Common Stock outstanding (denominator) during the period. Diluted
net income (loss) per share, gives effect to all potentially dilutive Common
Stock outstanding during a period such as those relating to stock options,
Notes, Preferred Stock and warrants. In computing diluted net income (loss) per
share, the average stock price for the period is used in determining the number
of shares assumed to be purchased from exercise of stock options. The weighted
average effect of unexercised stock options to purchase 813,596 shares of Common
Stock were excluded from the computation of diluted net loss per share in 1998
as the effect would be antidilutive.

   Following is a reconciliation of the numerators and denominators of the
Basic and Diluted net income (loss) per share computations for the periods
presented (in thousands):


<TABLE>
<CAPTION>
                                                                                  Year Ended December 31,
                                                                           --------------------------------------
                                                                               1998          1997         1996
                                                                           ------------   ----------   ----------
<S>                                                                        <C>            <C>          <C>
                                                                           (in thousands, except per share data)
Income (loss) before extraordinary item                                       $(60,657)      $18,891      $ 8,874
Charge related to preferred stock discount                                      (1,839)           --           --
                                                                              --------       -------      -------
Income (loss) before extraordinary item applicable to holders
  of Common Stock                                                              (62,496)       18,891        8,874
Extraordinary item                                                               5,333            --           --
                                                                              --------       -------      -------
Net income (loss) applicable to holders of Common Stock                        (57,163)       18,891        8,874

Effect of dilutive securities:
  Interest expense on Convertible Subordinated Notes                                --           397           --
                                                                              --------       -------      -------
Numerator for diluted net income (loss) per common share                      $(57,163)      $19,288      $ 8,874
                                                                              ========       =======      =======
Denominator for basic net income (loss) per common share                        43,254        42,175       38,762
Effect of dilutive securities:
  Stock options and warrants                                                        --         1,826        1,845
  Convertible Subordinated Notes                                                    --           569           --
                                                                              --------       -------      -------
Denominator for diluted net income (loss) per common share                      43,254        44,570       40,607
                                                                              ========       =======      =======
Basic income (loss) per share:
  Income (loss) before extraordinary item                                     $  (1.44)      $  0.45      $  0.23
  Extraordinary Item                                                              0.12            --           --
                                                                              --------       -------      -------
  Net income (loss)                                                           $  (1.32)      $  0.45      $  0.23
                                                                              ========       =======      =======

Diluted income (loss) per share:
  Income (loss) before extraordinary item                                     $  (1.44)      $  0.43      $  0.22
  Extraordinary item                                                              0.12            --           --
                                                                              --------       -------      -------
  Net income (loss)                                                           $  (1.32)      $  0.43      $  0.22
                                                                              ========       =======      =======
</TABLE>

   Stock-based Compensation

   The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board No. 25, "Accounting
for Stock Issued to Employees" (APB 25) and complies with the disclosure
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" (SFAS 123). Under APB 25, compensation cost is
recognized based on the difference, if any, on the date of grant between the
fair value of the Company's stock and the consideration received.

                                       87
<PAGE>

   Comprehensive Income

   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 in 1998, 1997, and 1996 has been reflected in the
Consolidated Statements of Stockholders' Equity.

   Recently Issued Accounting Pronouncements

   In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities," effective
beginning in the first quarter of 2000. 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 under SFAS 133. The Company is currently evaluating the impact of
SFAS 133 on its financial position and results of operations.

   In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires
that entities capitalize certain costs related to internal-use software once
certain criteria have been met. The Company is required to implement SOP 98-1
for the year ending December 31, 1999. Adoption of SOP 98-1 is not expected to
have a material impact on the Company's financial position or results of
operations.

   In April, 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-
Up Activities." SOP 98-5, which is effective for fiscal years beginning after
December 15, 1998, provides guidance on the financial reporting of start-up
costs and organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. The Company has expensed these
costs historically, therefore, the adoption of this standard is not expected to
have a material impact on the Company's financial position or results of
operations.

                                       88
<PAGE>

NOTE 2 -- BALANCE SHEET COMPONENTS (in thousands):

<TABLE>
<CAPTION>
                                                                                           December 31,
                                                                                     1998                  1997
                                                                                     ----                  ----
<S>                                                                               <C>                   <C>
Inventory:
 Raw materials                                                                     $ 16,395              $  9,695
 Work-in-process                                                                     42,995                32,472
 Finished goods                                                                      19,636                15,836
                                                                                   --------              --------
                                                                                   $ 79,026              $ 58,003
                                                                                   ========              ========
Property and equipment:
 Tooling and test equipment                                                        $ 52,718              $ 31,603
 Computer equipment                                                                   9,210                 4,950
 Furniture and fixtures                                                               7,220                 4,979
 Land and buildings                                                                   3,506                 1,389
 Construction-in-process                                                              4,878                 3,294
                                                                                   --------              --------
                                                                                     77,532                46,215
Less accumulated depreciation                                                       (25,446)              (13,902)
                                                                                   --------              --------
                                                                                   $ 52,086              $ 32,313
                                                                                   ========              ========
Goodwill and other assets:
Goodwill:
 ACS                                                                               $     --              $  1,347
 Geritel                                                                                 --                 1,306
 Technosystem                                                                        15,850                15,850
 CSM                                                                                 22,295                22,295
 Cylink                                                                              34,261                    --
 Cemetel                                                                              4,360                    --
                                                                                   --------              --------
                                                                                     76,766                40,798
Less accumulated amortization                                                        (8,424)               (2,620)
                                                                                   --------              --------
    Net goodwill                                                                     68,342                38,178
Other assets:                                                                         3,503                 3,768
                                                                                   --------              --------
                                                                                   $ 71,845              $ 41,946
                                                                                   ========              ========
</TABLE>

   During 1998, the Company incurred a restructuring charge, which included an
impairment write down of goodwill related to the acquisition of ACS and Geritel
of approximately $2.9 million, included above.

NOTE 3 -- DEBT ARRANGEMENTS:

   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 at any time. The Notes are
redeemable by the Company, beginning on November 5, 2000, upon 30 days notice,
subject to a declining redemption price. Interest on the Notes will be paid
semi-annually on May 1 and November 1 of each year. On December 30 and 31, 1998,
the Company issued 2,467,000 shares of Common Stock in exchange for $14.4
million of Notes and recorded an extraordinary gain of $5.3 million. On December
30, and December 31, 1998, the closing price of the Company's Common Stock was
$3.50 and $3.98, respectively. On January 4 and February 2, 1999, the Company
issued an additional 2,792,257 shares of Common Stock in exchange for $25.5
million of Notes and will record an extraordinary gain of $7.3 million. On
January 4, 1999 and February 2, 1999, the closing price of the Company's Common
Stock was $3.53 and $8.88, respectively.

   The Company entered into a new revolving line-of-credit agreement on May 15,
1998, as amended during the year, that provided for borrowings of up to $50
million. At December 31, 1998, the Company had been advanced approximately $46.4
million and had used the remaining $3.6 million to secure letters of credit
under such line. The revolving commitment, as amended, is reduced from $50
million to $40 million on August 15, 1999 and to $30 million on October 15, 1999
until maturity on January 15, 2000. Borrowings under the line are secured by the
assets of the Company and bear interest at either a base interest rate or a
variable interest rate. The bank credit agreement requires the Company to comply
with certain financial covenants, including the maintenance of specific minimum
ratios. Amendments to the bank credit agreement have allowed the Company to
remain in compliance with the debt covenants through March 31, 1999. While the
amendments to the covenants have been structured based on the Company's business
plan that would allow the Company to continue to be in compliance with such
covenants through January 15, 2000, non-compliance could cause the Company to be
in default under the bank credit agreement. If a default is declared by the
lenders, cross defaults will be triggered on the Company's outstanding 4 1/4%
Convertible Subordinated Notes and other debt instruments resulting in
accelerated repayments of such debts, and the holders of all outstanding Series
B Preferred Stock would have the right to have their stock redeemed by the
Company.

                                       89
<PAGE>

   The remaining borrowings consist of bank loans and notes payable of $2.2
million, and amounts drawn under lines of credit available to the Company's
foreign subsidiaries, with interest rates ranging from 8% to 12%. The Company's
foreign subsidiaries had lines of credit available from various financial
institutions. At December 31, 1998, $3.8 million had been drawn down under these
facilities. Generally, these foreign credit lines do not require commitment fees
or compensating balances and are cancelable at the option of the Company or the
financial institutions.

NOTE 4 -- CAPITAL STOCK:

   The authorized capital stock of the Company consists of 95 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) and 20,000 shares of which have been designated Series B
Convertible Participating Preferred Stock (the "Series B"), 15,000 shares of
which are issued and outstanding.

   Common Stock. In May 1996, the Company received net proceeds of $52.5 million
from the sale of 4,196,970 shares of Common Stock in a follow-on public
offering.

   Preferred Stock. The Board of Directors has the authority to issue the
remaining 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; however, the Board may not create or issue any
additional shares of Series B or of the remaining authorized but unissued shares
of preferred stock without the consent of the initial purchasers of the Series
B.

   The Series A is not redeemable. Each share of Series A will be entitled to an
aggregate dividend of 10,000 times any dividend declared per share of Common
Stock. In the event of liquidation, the holders of Series A will be entitled to
the greater of a $10,000 per share payment, plus any accrued and unpaid
dividends, or an aggregate payment of 10,000 times any payment to be made per
share of Common Stock, prior to any payment to any holder of Common Stock. Each
share of Series A will have 10,000 votes, voting together with the Common Stock.
In the event of any merger, consolidation or other transaction in which Common
Stock is exchanged, each share of Series A will be entitled to receive 10,000
times the amount received per share of Common Stock.

   Mandatorily Redeemable Convertible Preferred Stock and Warrants. In December
1998, the Company completed a private placement of 15,000 shares of Series B
Mandatorily Redeemable Convertible Preferred Stock (the "Series B") for $1,000
per share and Warrants to purchase up to 1,242,257 shares of Common Stock. A
portion of the proceeds were allocated to the warrants based on their fair value
and accounted for as a discount to the Series B. The remainder of the proceeds
were allocated to the Series B. Because Series B is immediately convertible into
shares of Common Stock, the discount was amortized as a reduction of income
available to holders of Common Stock upon the issuance of 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. The Series B is immediately convertible into shares of Common Stock at
the lower of $5.46 per share and 101% of the lowest three day average closing
bid prices of the Common Stock during the 15 consecutive day trading period
immediately prior to such conversion.  The number of shares of Common Stock that
may ultimately be issued upon conversion is therefore presently indeterminable
and could fluctuate significantly based on the issuance of other securities.
Assuming certain conditions are met, the Series B will automatically convert
into Common Stock on December 22, 2001.

   The Series B is senior to Series A and Common Stock with respect to the right
to receive dividend payments and liquidation preferences. Series B accrues a 6%
per year premium, payable in cash or Common Stock, at the Company's option.
Series B has no voting power, except as otherwise provided by applicable law or
pursuant to certain contractual protections described in the Certificate of
Designations.

   Upon the occurrence of certain events deemed within the Company's control,
each then outstanding share of Series B is redeemable at the holder's option at
the greater of $1,330 per share, plus a 6% per year premium and any default
amounts, or a predetermined redemption formula based on the average of the
closing bid prices for the Company's Common Stock during the period beginning on
the date of the holder's redemption notice and ending on the date of redemption.
In certain circumstances, the Company may be able to avoid redemption if they
cure such events prior to the redemption election by a holder.

   Upon the occurrence of certain other events deemed outside of the Company's
control ("Override Election Events"), the Company is required to make
significant cash payments to the holders of Series B. All cash payments required
to be made as a result of an Override Election Event, together with all cash
payments required to be made under the other Series B financing agreements, are
capped at an aggregate of $1,330 per share plus a default interest rate, if
applicable.

                                       90
<PAGE>

   As long as an event pursuant to which the holders of Series B are entitled to
redeem or an Override Election Event has not occurred (or if such event has
occurred in the past, it has been cured for at least the six immediately
preceding consecutive months without the occurrence of any other such event),
Series B is redeemable at the Company's option in certain limited circumstances
at premiums varying from 115% to 160% of the original issue price of Series B,
plus a 6% premium per year and a default interest rate, if applicable.

   If the Company merges with a public company meeting certain threshold
criteria, the holders of Series B will be entitled to receive in the merger the
consideration they would have received had they converted their stock the day
before the public announcement of the merger. If the Company merges with a
private company or a public company not meeting the threshold criteria, the
holders of Series B will be entitled, at their option, (1) to retain their
preferred stock, which will thereafter convert into common stock of the
surviving company, or (2) receive either the consideration they would have
received had they converted their stock the day before the public announcement
of the merger or receive $1,250 per share of Series B then outstanding, up to an
aggregate of $18.7 million in cash, plus any accrued and unpaid premium and a
default interest rate, if applicable.

   The 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 Warrant is $3.47. The Warrants are
immediately exercisable until the earlier of: (1) December 22, 2003 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
Series B. In addition, the number of shares issuable upon exercise of the
Warrants is subject to 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).

   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") will be 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. In addition, if a person or group
acquires 15% or more of the Company's common Stock (or cash, other securities or
property, at the discretion of the Board of Directors) having a market value 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.

NOTE 5 -- ACQUISITIONS:

   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, non-
interest bearing unsecured subordinated promissory note due July 6, 1998. The
Company has withheld approximately $4.8 million of the short-term promissory
note due to the Company's belief that Cylink Corporation breached various
provisions of the acquisition agreement. In the Asset Purchase Agreement between
the Company and Cylink Corporation, Cylink Corporation agreed to sell certain
assets to the Company, including a specific list of accounts receivable.
Subsequent to the purchase and before the $14.5 million note was due, the
Company determined that approximately $4.8 million of accounts receivable were
uncollectible. Such amount has been excluded from the amount allocated to
accounts receivable purchased. The remaining amount due on the note of $9.7
million was paid in July 1998. The acquisition of the accounts receivable on
April 1, 1998 was recorded in the second quarter of 1998. The promissory note
holdback is being disputed by Cylink Corporation and is in arbitration. See Note
13.

   The Cylink Wireless Group designs, manufactures and markets spread spectrum
radio products for voice and data applications in both domestic and
international markets.

                                       91
<PAGE>

     The Company accounted for this acquisition as a purchase business
combination. The results of the Cylink Wireless Group have been included since
the date of acquisition.

     The total purchase price of the acquisition was as follows (in thousands):

<TABLE>
<S>                                                                                     <C>
         Cash payment                                                                   $46,000
         Short-term promissory note                                                       9,682
         Expenses                                                                         2,483
                                                                                        -------
             Total                                                                      $58,165
                                                                                        =======
</TABLE>

     The allocation of the purchase price, restated for the revision of the
amount allocated to in-process research and development as discussed below, and
as previously reported, was as follows (in thousands):

<TABLE>
<S>                                                                                     <C>
          Accounts receivable, net                                                      $ 4,247
          Inventory                                                                       5,109
          Property and equipment, net                                                       461
          In-process research and development expense                                    15,442
          Current liabilities assumed                                                    (1,355)
          Intangible Assets:
            Goodwill                                                                     23,482
            Developed technology                                                          6,291
            Acquired workforce                                                            1,781
            Core technology                                                               2,707
                                                                                        -------
             Total                                                                      $58,165
                                                                                        =======
</TABLE>

     The following unaudited pro forma information combines the historical sales
and net income (loss) and net income (loss) per share of P-Com and Cylink for
the years ended December 31, 1998 and 1997 in each case as if the acquisition
had occurred at the beginning of the earliest period presented. The results
include amortization of goodwill and other intangible assets related to the
Cylink acquisition, as restated for the revision of the amount of purchase price
allocated to in-process research and development as discussed below, and as
previously reported.

<TABLE>
<CAPTION>
                                                Twelve Months Ended                       Twelve Months Ended
                                                 December 31, 1998                         December 31, 1997
                                               ---------------------                    -----------------------
                                       (In thousands, except per share data)     (In thousands, except per share data)
                                         P-Com         Cylink      Pro Forma        P-Com        Cylink      Pro Forma
                                      ------------   ----------   ------------   -----------   ----------   -----------
<S>                                   <C>            <C>          <C>            <C>           <C>          <C>
Sales                                    $194,944      $ 4,508       $199,452       $220,702     $27,957       $248,659
Net income (loss)                         (57,163)      (4,706)       (61,869)        18,891      (3,443)        15,448
Net Income (loss) per share:
 Basic                                      (1.32)       (0.11)         (1.43)          0.45       (0.08)          0.37
 Diluted                                    (1.32)       (0.11)         (1.43)          0.43       (0.08)          0.35
</TABLE>

     After consideration of recent guidance, which included modification of
widely recognized appraisal practices, the Company has adjusted the allocation
of the purchase price related to the acquisition of the Cylink Wireless Group,
which included decreasing the in-process research and development charge from
$33.9 million as reported in the Company's Quarterly Report on Form 10-Q for its
quarter ended March 31, 1999 to $15.4 million. The result of this restatement is
a lesser charge to income for in-process research and development and a higher
recorded value of goodwill and other intangible assets, resulting in increased
amortization of such goodwill and other intangible assets in future periods.

     In-process research and development had no future use at the date of
acquisition and technological feasibility had not been established.

     Among the factors considered in determining the amount of the allocation of
the purchase price to in-process research and development were various factors
such as estimating the stage of development of each in-process research and
development project at the date of acquisition, estimating cash flows resulting
from the expected revenues generated from such projects, and discounting the net
cash flows, in addition to other assumptions. Developed technology of $6.3
million, will be amortized over the period of the expected revenue stream of the
developed products of approximately four years. The value of the acquired
workforce, $1.8 million, will be amortized on a straight-line basis over three
years, and the remaining identified intangible assets, including core technology
of $2.7 million and goodwill of $23.5 million will be amortized on a straight-
line basis over ten years. Amortization expense related to the acquisition of
Cylink was $3.7 million for fiscal year 1998.

                                       92
<PAGE>

   In addition, other factors were considered in determining the value assigned
to purchased in-process technology such as research projects in areas supporting
products which address the growing third world markets by offering a new point
to multi-point product, a faster, less expensive more flexible point-to-point
product, and the development of enhanced Airlink products, consisting of a Voice
Extender, Data Metro II, and RLL Encoding products.

   If none of these projects are successfully developed, the Company's sales and
profitability may be adversely affected in future periods. Additionally, the
failure of any particular individual project in-process could impair the value
of other intangible assets acquired. The Company expects to begin to benefit
from the purchased in-process technology in 1999.

   During the second quarter of 1998, due to limited staff and facilities, the
Company delayed the research project for the new narrowband point-to-multipoint
project acquired from the Cylink Wireless Group and focused available resources
on the broadband point-to-multipoint project which is targeted for a larger
addressable market. The narrowband point-to-multipoint project is not expected
to be completed prior to the Year 2000. Currently, the narrowband point-to-
multipoint project is approximately 60% complete. The point-to-point project,
discussed above, which was acquired from the Cylink Wireless Group, was
completed during the third quarter of 1998 at an estimated total cost of $2.0
million. The enhanced Airlink projects were completed during the first quarter
of 1999.

   During 1998, the Company acquired the remaining interest in Geritel and the
assets of Cemetel S.p.A., 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 S.p.A. ("Technosystem"), a Rome, Italy-based company, with
additional operations in Poland, 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. The range of products include audio/video modulators, converters,
amplifiers, transponders, transmitters and microwave links.

   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 796,612 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 1,502,956 shares of the Company's Common
Stock that were issued or are issuable to former CRC security holders in a
stock-for-stock merger. CRC, located in Fair Lawn, New Jersey, manufactures
products used by the communications industry to connect end-user sites to a
range of communications services. CRC's NetPath product line enables network
service providers to offer their customers a migration path from entry-level
data services to cost-effective integrated delivery of voice, video and Internet
access. The NetPath product line also supports the network service provider's
introduction of new technologies including asynchronous transfer mode and frame
relay.

   On November 27, 1997, the Company acquired all of the outstanding shares of
capital stock of RT Masts and Telematics in exchange for 766,151 and 248,215
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. Both companies manage the construction of radio system sites,
construction of towers and installation of radios and antennas at system sites.

   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. Sales and net income below show the separate
historical sales and net income of P-Com, CRC, RT Masts and Telematics, prior to
their combination, for the years ended December 31, 1997, and 1996.

                                       93
<PAGE>

<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                                                      (In thousands)
                                                                1997                   1996
                                                        --------------------   --------------------
<S>                                                     <C>                    <C>
Sales:
  P-Com                                                      $202,757               $ 97,515
  CRC                                                             713                  4,338
  RT Masts                                                     12,035                 15,472
  Telematics                                                    5,197                  3,628
                                                             --------               --------
                                                             $220,702               $120,953
                                                             ========               ========
Net income:
  P-Com                                                      $ 20,375               $ 14,068
  CRC                                                          (1,254)                (5,196)
  RT Masts                                                       (537)                   101
  Telematics                                                      307                    (99)
                                                             --------               --------
                                                             $ 18,891               $  8,874
                                                             ========               ========
</TABLE>

NOTE 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
13,434,459 shares of Common Stock as of December 31, 1998.

   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. Options granted under the 1992 Plan
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 85% 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 85% 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 at the May 1997 Annual
Meeting of Stockholders, 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 and 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.

   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 1998, 1997 and 1996, respectively: expected volatility of 72%, 57%
and 57%; weighted-average risk-free interest rates of 5.1%, 6.1% and 6.0%, and
weighted-average expected lives of 2.76, 3.16 and 4.11 years.

                                       94
<PAGE>

   The following table summarizes stock option activity under the Company's 1992
and 1995 Plans.

<TABLE>
<CAPTION>
                                                   1998                      1997                     1996
                                            -----------------        -----------------         ----------------
                                                         Weighted                 Weighted                 Weighted
                                             Shares      Average      Shares      Average      Shares      Average
                                                         Exercise                 Exercise                 Exercise
                                                          Price                    Price                    Price
<S>                                       <C>            <C>        <C>           <C>        <C>           <C>
Outstanding at beginning of year            6,006,039      $12.65    3,778,688      $ 7.14    2,854,872       $3.08
Granted                                     6,480,495        6.20    3,317,712       16.73    2,164,500        9.97
Exercised                                    (498,670)       5.32     (878,385)       3.31     (784,408)       1.73
Forfeited                                  (4,126,144)      14.59     (211,976)      11.41     (456,276)       4.74
                                          -----------               ----------               ----------
Outstanding at end of year                  7,861,720                6,006,039                3,778,688
                                          ===========               ==========               ==========
Options exercisable at year-end             2,482,939                2,970,244                3,524,284
Weighted-average fair value of                  $2.24                    $7.54                    $4.78
 options granted during the year
</TABLE>

     The following table summarizes information about stock options outstanding
and exercisable at December 31, 1998:

<TABLE>
<CAPTION>
                                       Options Outstanding                    Options Exercisable
                                   --------------------------              ------------------------
                                               Weighted-Average     Weighted-                     Weighted
Range of                                          Remaining            Life                       Average
Exercise Prices                     Shares           Life         Exercise Price    Shares     Exercise Price
<S>                                <C>         <C>                <C>              <C>         <C>
$ 0.10  -   0.10                         278          4.7              $ 0.10            278       $ 0.10
  0.45  -   0.56                     107,213          5.5                0.56        107,213         0.56
  0.94  -   0.94                       6,658          5.8                0.94          6,658         0.94
  1.80  -   2.10                     103,020          6.2                1.88         93,490         1.86
  2.88  -   4.31                   2,489,397          9.6                3.04        110,997         3.57
  4.63  -   6.56                   2,836,100          8.4                5.76        495,879         5.51
  7.00  - 10.25                    1,347,395          7.2                8.78        894,855         8.43
 12.38  - 18.28                      924,526          8.6               17.41        752,607        17.66
 19.25  - 23.22                       47,133          8.8               21.23         20,962        21.20
                                   ---------                                       ---------
                                   7,861,720                                       2,482,939
                                   =========                                       =========
</TABLE>

   Repricing. On July 15, 1998, the Plan Administrator implemented an option
cancellation/regrant program for all employees of the Company, excluding the
Company's executive officers and directors. Pursuant to that program, each
participant was given the opportunity to surrender his or her outstanding
options under the 1995 Plan with exercise prices in excess of $5.813 per share
in return for a new option grant for the same number of shares but with an
exercise price of $5.813 per share, the closing selling price per share of
Common Stock as reported on the Nasdaq National Market on July 31, 1998, the
grant date of the new option. Options for a total of 2,746,000 shares with a
weighted average exercise price of $16.45 per share were surrendered for
cancellation, and new options for the same number of shares were granted with an
exercise price of $5.813 per share. The new options granted to employees did not
vest or become exercisable unless the participant continued in the Company's
employ through January 31, 1999. On that date, the option became exercisable for
(i) the number of shares for which the cancelled higher-priced option was
exercisable on July 31, 1998 plus (ii) the number of shares for which the
higher-priced option would have become exercisable over the period from August
1, 1998 to January 31, 1999 had that option not been cancelled. The new option
will become exercisable for the balance of the option shares in a series of
installments, with each such installment to become exercisable on the same date
that installment would have become exercisable under the cancelled higher-priced
option. In addition, each new option will vest and become exercisable on an
accelerated basis in the event the Company were to be acquired by a merger or
asset sale in which those options were not assumed by the successor entity.

  On July 31, 1998, each of the option grants made under the Automatic Option
Grant Program on May 18, 1998 with an exercise price of $19.25 per share was
cancelled, and a new option for 4,000 shares was granted to each of the four
non-employee Board members with an exercise price of $5.8125 per share, the fair
market value per share of Common Stock on the grant date of the new option. Each
of the new options 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 exercise price paid per share, upon the optionee's cessation of Board
service prior to vesting in those shares. The shares subject to each new option
will vest in a series of eight (8) successive

                                       95
<PAGE>

equal quarterly installments upon the optionee's completion of each successive
three (3)-month period of Board service over the twenty-four (24)-month period
measured from the July 31, 1998 grant date.

   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. The initial offering period commenced on the effectiveness
of the Offering. A total of 1,150,000 shares of Common Stock has 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 240,030, 151,874 and 188,800
shares in 1998, 1997 and 1996, respectively.

   The fair value of the employees' purchase rights was estimated using the
Black-Scholes model with the following assumptions for 1998, 1997, and 1996,
respectively: expected volatility of 72%, 57% and 57% weighted-average risk-free
interest rates of 5.3%, 5.3%, and 5.0% and weighted-average expected lives of
0.5, 0.7, and 0.7 years. The weighted-average fair value of those purchase
rights granted in 1998, 1997, and 1996 was $1.99, $3.65, and $1.55,
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 awards under those plans, consistent with the method of SFAS
123, the Company's net income (loss) and net income (loss) per share would have
been reduced to the pro forma amounts indicated below:


<TABLE>
<CAPTION>
                                                                       1998       1997      1996
                                                                     ---------   -------   ------
<S>                                         <C>                      <C>         <C>       <C>
Net income (loss) applicable to
  holders of Common Stock                   As reported              $(57,163)   $18,891   $8,874
                                            Pro forma                $(66,473)   $11,221   $4,883

Net income (loss) per share                 As reported -  Basic     $  (1.32)   $  0.45   $ 0.23
                                            As reported -  Diluted   $  (1.32)   $  0.43   $ 0.22

                                            Pro forma - Basic        $  (1.54)   $  0.27   $ 0.13
                                            Pro forma - Diluted      $  (1.54)   $  0.25   $ 0.12
</TABLE>

NOTE 7 --  INCOME TAXES:

  Income (loss) before extraordinary item and income taxes consists of the
following (in thousands):

<TABLE>
<CAPTION>
                                                                  Year ended December 31,
                                                     1998                  1997                   1996
                                                     ----                  ----                   ----
<S>                                          <C>                    <C>                   <C>
       Domestic                                    $(74,146)               $26,390                $9,962
       Foreign                                        1,988                  3,553                  (132)
                                                   --------                -------                ------
                                                   $(72,158)               $29,943                $9,830
                                                   ========                =======                ======
</TABLE>

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

<TABLE>
<CAPTION>
                                                                Year ended December 31,
                                                              1998        1997       1996
                                                            ---------   --------   --------
<S>                                                         <C>         <C>        <C>
    Current:
      Federal                                               $ (4,727)   $ 7,850    $ 2,543
      State                                                      (37)       268         27
      Foreign                                                  1,244      2,920         97
                                                            --------    -------    -------
                                                              (3,520)    11,038      2,667
                                                            --------    -------    -------
    Deferred:
      Federal                                                 (7,410)      (217)    (1,617)
      State                                                     (571)       231        (94)
                                                            --------    -------    -------
                                                              (7,981)        14     (1,711)
                                                            --------    -------    -------
            Total                                           $(11,501)   $11,052    $   956
                                                            ========    =======    =======
</TABLE>

                                       96
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                   December 31,
                                                                            1998                  1997
                                                                            ----                  ----
<S>                                                                 <C>                    <C>
    Net operating loss carryforwards                                      $  7,030               $ 2,032
    Credit carryforwards                                                     1,833                   615
    In-process research and development                                      5,527                    --
    Start-up costs                                                              99                   202
    Reserves and other                                                       5,988                 1,495
                                                                          --------               -------
                                                                            20,477                 4,344
    Valuation allowance                                                    (10,799)               (2,647)
                                                                          --------               -------
                                                                          $  9,678               $ 1,697
                                                                          ========               =======
</TABLE>

  The Company's net operating loss carryforwards included as a deferred tax
asset above are approximately $19 million and do not include stock option
deductions of $5.1 million and $9.4 million for 1998 and 1997, respectively,
which will be credited to paid in capital when realized.

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

<TABLE>
<CAPTION>
                                                                                    Year ended December 31,
                                                                            1998              1997              1996
                                                                            ----              ----              ----
<S>                                                                   <C>                <C>               <C>
 U.S. federal statutory rate                                               (35.0%)             35.0%             35.0%
 State income taxes, net of federal tax benefit                             (0.3)               1.1               6.0
 Change in valuation allowance                                              11.9                 --             (36.6)
 Benefit from foreign sales corporation                                       --               (2.3)               --
 Research and development tax credit                                          --               (7.3)               --
 Foreign income taxed at different rate                                      0.8                4.8                --

 Other, net                                                                  6.7                5.6               5.3
                                                                         ----------         ----------        ----------
                                                                           (15.9%)             36.9%              9.7%
                                                                         ==========         ==========        ==========
</TABLE>

NOTE 8 -- 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.
Future minimum lease payments required under the lease are as follows (in
thousands):

<TABLE>
<CAPTION>
Year ending December 31,
<S>                                                                                                 <C>
 1999............................................................................................          $  396
 2000............................................................................................             396
 2001............................................................................................             396
 2002............................................................................................             396
 2003............................................................................................              33
                                                                                                           ------
 Total minimum lease payments....................................................................           1,617
 Less: amount representing interest..............................................................             194
                                                                                                           ------
 Present value of net minimum lease payments.....................................................          $1,423
                                                                                                           ======
</TABLE>

   The present value of net minimum lease payments is reflected in the December
31, 1998 balance sheet as components of other accrued liabilities and long-term
debt of $315,000 and $1,108,000, respectively.

                                       97
<PAGE>

   The Company leases its facilities under non-cancelable operating leases. 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, 1997 are as follows (in thousands):

<TABLE>
<CAPTION>
                  Year ending December 31,
                  <S>                                                           <C>
                  1999........................................................  $ 3,853
                  2000........................................................    3,189
                  2001........................................................    2,267
                  2002........................................................    1,569
                  Thereafter..................................................      860
                                                                                -------
                                                                                $11,738
                                                                                =======
</TABLE>

   Rent expense for all operating leases was approximately $3,218,000,
$2,205,000 and $1,369,000 in 1998, 1997, and 1996, respectively.

NOTE 9 -- SEGMENT REPORTING:

   In 1998, the Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for
reporting information about operating segments in annual financial statements
and requires selected information about operating segments in interim financial
reports issued to stockholders. Operating segments are defined as components of
an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision-maker in deciding how to
allocate resources and in assessing performance. The Company's chief operating
decision-maker directs the allocation of resources to operating segments based
on the profitability and cash flows of each respective segment. Operating
segments are the individual reporting units within the Company. These units are
managed separately, and it is at this level where the determination of resource
allocation is made.

   The units have been aggregated based on operating segments that have similar
economic characteristics and meet the aggregation criteria of SFAS 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 an
organization primarily located in the United States, the United Kingdom, and
Italy which provides comprehensive network services including system and program
planning and management, path design, and installation for the wireless
communications market.

   The accounting policies of the operating segments are the same as those
described in the "Summary of Significant Accounting Policies" in Note 1. The
Company evaluates performance based on operating income. Capital expenditures
for long-lived assets are not reported to management by segment and are excluded
as presenting such information is not practical. Additionally, service sales
were not introduced until 1997. As such, the Company's operations by segment are
not shown for 1996. The following tables show the operations of the Company's
operating segments (in thousands):

                                       98
<PAGE>

<TABLE>
<CAPTION>
For the year ended                                               Product    Service
December 31, 1998                                                 Sales      Sales       Total
-----------------------------------------------------------------------------------------------
<S>                                                             <C>         <C>        <C>
Sales                                                           $151,347    $43,597    $194,944
Income (loss) from operations                                    (68,031)     3,776     (64,255)
Depreciation                                                      11,162        382      11,544
Total assets                                                     314,333         25     314,358
Interest expense                                                  (8,897)      (134)     (9,031)

For the year ended                                              Product     Service
December 31, 1997                                                Sales       Sales      Total
-----------------------------------------------------------------------------------------------
Sales                                                           $190,545    $30,157    $220,702
Income from operations                                            24,496      5,200      29,696
Depreciation                                                       5,735        278       6,013
Total assets                                                     305,505         16     305,521
Interest expense                                                  (2,168)      (147)     (2,315)

For the year ended                                              Product     Service
December 31, 1996                                                Sales       Sales      Total
-----------------------------------------------------------------------------------------------
Sales                                                           $101,853    $19,100    $120,953
Income from operations                                             8,773        151       8,924
Depreciation                                                       4,938        214       5,152
Total assets                                                     147,525      7,927     155,452
Interest expense                                                  (1,354)      (225)     (1,579)
</TABLE>

          A reconciliation of Income (loss) from operations to Income (loss)
before extraordinary item and income taxes (in thousands):

<TABLE>
<CAPTION>
                                                                             1998        1997       1996
                                                                           ---------   --------   --------
<S>                                                                        <C>         <C>        <C>
 Income (loss) from operations                                             $(64,255)   $29,696    $ 8,924
  Interest expense                                                           (9,031)    (2,315)    (1,579)
  Interest income                                                             1,626      1,557      1,328
  Other income (expense), net                                                  (498)     1,005      1,157
                                                                           --------    -------    -------
  Income (loss) before extraordinary item and income taxes                 $(72,158)   $29,943    $ 9,830
                                                                           ========    =======    =======
</TABLE>

     The Company's product and service sales by category are as follows (in
thousands):


<TABLE>
<CAPTION>
                                                                             1998       1997       1996
                                                                           --------   --------   --------
<S>                                                                        <C>        <C>        <C>
Microwave radio transmission equipment                                     $119,259   $156,768   $ 97,515
Broadcast equipment                                                          25,258     21,092         --
Network monitoring equipment                                                  6,830     12,685      4,338
Service                                                                      43,597     30,157     19,100
                                                                           --------   --------   --------
   Sales                                                                   $194,944   $220,702   $120,953
                                                                           ========   ========   ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                                              1998        1997        1996
                                                                           ----------   ---------   --------
<S>                                                                        <C>          <C>         <C>
Sales:
   United States                                                            $ 41,597     $ 70,312   $ 39,530
   United Kingdom                                                             71,399       69,201     52,415
   Europe                                                                     44,790       45,061     25,170
   Africa                                                                     19,104        6,323         --
   Asia                                                                       18,322       15,548      3,422
   Other geographic region                                                      (268)      14,257        416
                                                                            --------     --------   --------
     Totals                                                                 $194,944     $220,702   $120,953
                                                                            ========     ========   ========
</TABLE>

                                       99
<PAGE>

<TABLE>
<CAPTION>
                                                                                1998         1997       1996
                                                                            --------     --------   --------
<S>                                                                        <C>          <C>         <C>
 Property, plant, and equipment, net:
   United States                                                            $ 30,726     $ 20,785   $ 17,082
   United Kingdom                                                              9,845        7,632         88
   Italy                                                                      11,317        3,773      3,399
   Other geographic region                                                       198          123         17
                                                                            --------     --------   --------
       Totals                                                               $ 52,086     $ 32,313   $ 20,585
                                                                            ========     ========   ========
</TABLE>


NOTE 10 -- RESTRUCTURING AND OTHER ONE-TIME CHARGES:

   During 1998, the Company incurred restructuring and other one-time charges of
$4.3 million, consisting of severance benefits, and impairments of facilities,
fixed assets, and goodwill. These restructuring and other one-time charges
resulted from the consolidation of certain of the Company's facilities.

   In addition, the Company recorded inventory reserves of $16.9 million
(including $14.5 million in inventory write downs related to the Company's
existing core business and $2.4 million in other one-time charges to inventory
relating to the elimination of product lines) which were charged to costs of
goods sold, and accounts receivable reserves of $5.4 million which were charged
to general and administrative expenses. The Company recorded these charges in
the third quarter of 1998 primarily in response to a sudden slowdown in receipt
of purchase orders from customers and the increased collection risk.

   The $4.3 million restructuring charge consisted primarily of severance and
benefits of approximately $0.6 million, facilities and fixed assets impairments
of approximately $0.9 million, and goodwill write-offs of approximately $2.9
million.

   To attempt to offset the decrease in sales, the Company laid off
approximately 121 employees from the Campbell facilities and 16 employees from
its Redditch, UK facilities during September and October 1998, incurring costs
of approximately $0.6 million. All employees were properly notified of the
impending layoff in advance and were given severance pay. Each functional vice
president submitted a list of eligible employees for the reduction in force to
the Human Resources Department where a summary list was prepared. Between
November 1998 and February 1999, the Company laid off approximately 35
additional employees from the Campbell facilities. These layoffs affected most
business functions and job classes.

   Due to the slowdown in sales, the Company combined certain operations and
closed its Telesys and Advanced Wireless facilities, incurring costs of
approximately $0.9 million. Some of the employees were transferred to other
business units while others were included in the reduction in force. As a result
of the facilities closures, certain fixed assets became idle,  and leased
buildings were abandoned.  The charge of  $0.9 million comprises the write off
of the remaining book value of fixed assets that became idle and were not
recoverable, and lease termination payments associated with abandoned leased
facilities.  The charge does not include any expenses, such as moving expenses
or lease payments that will benefit future operations.

On April 30, 1996, the Company acquired for cash a 51% interest in Geritel,
which increased to 67% over the next two years as the company exercised its
option to acquire an additional 16% of Geritel's equity capital on terms
specified in the acquisition agreement. During the quarter ended September 30,
1998, the Company sold a piece of Geritel's business to a former owner and the
remaining business became a wholly owned subsidiary of the Company. The piece
that was sold was not deemed to be of long-termed strategic value to the
Company, but it did generate revenue and positive cash flow from sales to
unaffiliated companies. The piece retained by the Company had developed
proprietary technology and products subsequent to the acquisition that
principally were used for internal consumption. Consequently, the remaining
business generated negative cash flow because revenue from internal sales did
not recover the cost of research and development and other operating costs.
Since Geritel is expected to generate negative cash flow for the foreseeable
future, the Company determined that the unamortized goodwill booked as part of
the original purchase price was impaired. Accordingly, the Company recorded an
impairment charge of $1.6 million to reduce the carrying amount of this goodwill
to its net realizable value. Gerital's remaining assets were not significant and
were not tested for impairment.

   In addition to the impairment charge associated with the Geritel goodwill,
the Company also recorded an impairment charge of $1.2 million associated with
the goodwill booked in connection with the ACS acquisition. This impairment was
triggered by the acquisition of the Cylink Wireless Group, whose products
superseded those of ACS. The Company determined that they would no longer
operate ACS as a separate business because the Cylink Wireless Group had a
broader and superior product offering. As a result of the negative cash flows
associated with ACS, the Company recorded an impairment charge of $1.2 million
to reduce the carrying value of this goodwill to its net realizable value. The
remaining assets of ACS were not significant, and were not tested for
impairment.

                                      100
<PAGE>

   In the third quarter of 1998, the Company determined there was a significant
and sudden downturn in sales for the telecommunications industry which required
a review of the Company's inventory on hand and resulted in an increase to
inventory reserves of approximately $16.9 million.  This sudden downturn was
evidenced by a dramatic decrease in the Company's revenues of 52% as compared
with the second quarter of 1998 and further evidenced by significant declines in
the revenues of several of the Company's competitors.

   The inventory reserves included an excess and obsolete reserve of
approximately $4.5 million related to the point-to-point microwave radio
inventory, primarily for 23 GHz and 38 GHz frequencies, used worldwide.  The
Company makes no distinction or categorization between excess and obsolete
inventory at this time.  As customer demand is not anticipated to consume the
inventory on hand within the next twelve months,  the Company will continue to
attempt to sell the inventory and will dispose of it when it is deemed to be
unsaleable.

   The inventory reserves also included $2.0 million for the write-off of
inventory relating to overlap between the Cylink Wireless Group product line and
the existing P-Com product line at the single T1/E1 (1.5-2.0 mbs) capacity and
2.4 and 5.7 GHz frequency.  With lower demand and increased competition, the
Company needed to consolidate product lines to reduce expenses.

   Additionally, the reserve included $4.3 million for the rework of excess
semi-custom finished goods that were configured for specific customer
applications or geographical regions. The Company's inventory levels were driven
based upon forecasted continuing growth expectations worldwide. It is not
customary to rework semi-custom finished goods and frequencies, however, it can
be less expensive than purchasing new equipment and can reduce cash outlays for
inventory. The types of rework which can be performed include changing power
supplies, changing interface connectors, adding or reducing functionality
through daughter cards, and changing frequency bands by replacing filters or
synthesizers. All of this rework represents an attempt to consume inventory and
improve cash flows. The costs required to perform the rework include costs for
material, assembly, and re-testing of the inventory by the Company's suppliers.

   The reserve also includes $1.1 million for products that have been rendered
obsolete because they have been redesigned and are old revisions, and a general
inventory reserve of approximately $5.0 million for potential excess inventory
caused by the slowdown in the industry.  These reserves are primarily for the
Tel-Link point-to-point microwave radio inventory covering 7GHz, 15GHZ, 23GHz,
and 38GHz frequencies for components, subassemblies, and semi-finished goods in
which the probability for usage or the ability to rework the inventory and sell
it to customers has been deemed unlikely.

   The accrual balance for the inventory reserve, shown below, represents the
charge to the balance sheet contra-account for excess and obsolete inventory.
The remaining accrual balance will be relieved when the Company deems that the
inventory is not suitable for rework and is otherwise unsaleable. During the
fourth quarter of 1998, and the first quarter of 1999, the Company relieved
approximately $7.4 million and $4.4 million, respectively, of the inventory
against the reserve. The Company anticipates that the remaining blalnce will be
relieved during 1999.

   With the sudden and unexpected downturn in the microwave radio sector, the
Company determined that an additional $5.4 million of accounts receivable
reserve was needed.  The Company's experience over the last several years had
been one of an environment in which microwave radio sales were increasing and
expanding worldwide.  During the third quarter if 1998, the Company experienced
a weakness in the market which resulted in cancelled purchase orders, and the
stronger dollar caused the Company's customers to delay payments on equipment
that had already been shipped.  The Company has over 200 customers worldwide
with business levels ranging from a few thousand to millions of dollars.  The
Company's credit policy on customers both domestically and internationally
requires letters of credit and down payments for those customers deemed to be a
high risk and open credit for customers which are deemed credit worthy and have
a history of timely payments with the Company.  The Company's credit policy
typically allows payment terms between 30 and 90 days depending upon the
customer and the cultural norms of the region.  The Company's collection process
escalates from the collections department to the sales force to senior
management within the Company as needed.  Outside collection agencies and legal
resources are also utilized where appropriate.

   The ending balance for the accounts receivable reserve of $1.8 million,
shown below, represents the charge to the balance sheet contra-account,
allowance for doubtful accounts. In the fourth quarter of 1998 and the first
quarter of 1999, the Company elected to write off approximately $3.6 million and
$1.8 million of uncollectible accounts receivables, respectively.

   The Company expects to benefit from these restructuring and other one-time
charges in future quarters by reducing fixed costs and future cash requirements.

     The accrued restructuring and other one-time charges and amounts charged
against the accrual as of December 31, 1998, are as follows (in thousands):

                                      101
<PAGE>

<TABLE>
<CAPTION>
                                                                              Beginning     Expenditures     Remaining
                                                                               Accrual     and Write-offs     Accrual
<S>                                                                         <C>         <C>               <C>
       Severance and benefits                                                 $   568         $   (568)     $    --
       Facilities and fixed asset write-offs                                      879             (519)         360
       Goodwill impairment                                                      2,884           (2,884)          --
                                                                              -------         --------      -------
       Total restructuring charges                                              4,331            3,971          360
       Inventory reserve                                                       16,922           (7,360)       9,562
       Accounts receivable reserve                                              5,386           (3,609)       1,777
                                                                              -------         --------      -------
       Total accrued restructuring and other one-time charges                 $26,639         $(14,940)     $11,699
                                                                              =======         ========      =======
</TABLE>

NOTE 11 - CONTINGENCIES

   The Company is a defendant in several class action lawsuits in which the
plaintiffs are alleging various federal and state securities laws violations by
the Company and certain of its officers and directors. The plaintiffs seek
unspecified damages based upon the decrease in market value of shares of the
Company's Common Stock. While management believes the actions are without merit
and intends to defend them vigorously, all of these proceedings are at the very
early stage and the Company is unable to speculate on their ultimate outcomes.
However, the ultimate results of the matters described above could have a
material adverse effect on the Company's results of operations or financial
position either through the defense or results of such litigation.

NOTE 12 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):

   The Company believes that its measurement of the charge related to the fair
value of the in-process research and development ("IPR&D") acquired in its
acquisition of the assets of the Cylink Wireless Group and that was recorded at
the time of the acquisition was made in a manner consistent with widely
recognized appraisal practices that were being utilized at the time of
acquisition. Subsequent to the acquisition, the Company has resolved to adjust
the amount originally allocated to acquired IPR&D and to restate its first,
second, and third quarter 1998 consolidated financial statements. As a result,
the first quarter charge for acquired IPR&D was decreased from $33.9 million
previously recorded to $15.4 million, a decrease of $18.5 million ($12.2
million, net of applicable income taxes) with a corresponding increase in
goodwill and other intangibles and related amortization in subsequent quarters.
Amortization of goodwill and other intangible assets increased $841,000
($556,000, net of applicable income taxes) per quarter for the second, third and
fourth quarters of 1998.

   In addition to the IPR&D adjustment, in the third quarter of 1998, the
Company recorded an adjustment to its income tax benefit of $2.3 million to
reflect, based on facts and circumstances available as of September 30, 1998, a
revised effective tax rate.

   As a result of the Company's decision to restate its first, second and third
quarter 1998 consolidated financial statements, quarterly financial data is
presented as originally reported and as restated below (in thousands, except per
share data):


<TABLE>
<CAPTION>
                                                                  Three Months Ended
                            -----------------------------------------------------------------------------------------------
                            September 30,    September 30,      June 30,        June 30,        March 31,       March 31,
                                 1998             1998            1998            1998            1998            1998
                            (As Restated)    (As Reported)    (As Restated)   (As Reported)   (As Restated)   (As Reported)
                            --------------   --------------   -------------   -------------   -------------   -------------
<S>                         <C>              <C>              <C>             <C>             <C>             <C>
Sales                            $ 30,240         $ 30,240         $63,459         $63,459         $58,637        $ 58,637
Gross profit (deficit)           $(11,461)        $(11,461)        $24,719         $24,719         $25,125        $ 25,125
Net income (loss)                $(40,696)        $(42,122)        $  (210)        $   346         $(5,097)       $(17,249)
Income (loss) per share:
  Basic                          $  (0.94)        $  (0.97)        $  0.00         $  0.01         $ (0.12)       $  (0.40)
  Diluted                        $  (0.94)        $  (0.97)        $  0.00         $  0.01         $ (0.12)       $  (0.40)
</TABLE>

Note 13 - Subsequent Event (unaudited)

    In September 1999, the Company and Cylink Corporation agreed to a resolution
of the $4.8 million promissory note holdback (See Note 5). Under the terms of
the resolution, the Company agreed to pay to Cylink Corporation $3.25 million of
the original disputed amount of $4.8 million. The $3.25 million was accounted
for as an adjustment to the purchase price, increasing goodwill and the related
amortization in future periods.

                                      102
<PAGE>

SCHEDULE II
                                  P-COM, INC.
                       VALUATION AND QUALIFYING ACCOUNTS
                 Years ended December 31, 1996, 1997, and 1998
                                 (in thousands)


<TABLE>
<CAPTION>
                                                                            Additions
                                                                            Charged to
                                                               Balance at   Statement    Deductions    Balance at
                                                               Beginning        of          from         end of
                                                               of Period    Operations    Reserves       Period
                                                               ----------   ----------   -----------   ----------
<S>                                                            <C>          <C>          <C>           <C>
Allowance for doubtful accounts:
  Year ended December 31, 1996                                        257        1,658           --         1,915
  Year ended December 31, 1997                                      1,915          810         (204)        2,521
  Year ended December 31, 1998                                      2,521       10,892       (3,822)        9,591
Sales returns reserves:
  Year ended December 31, 1996                                          0        1,042           --         1,042
  Year ended December 31, 1997                                      1,042        3,743           --         4,785
  Year ended December 31, 1998                                      4,785       13,298       (8,583)        9,500
</TABLE>



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

     Not applicable.

                                      103
<PAGE>

                                   PART III
                                   --------

ITEM 10.   DIRECTORS AND OFFICERS OF THE REGISTRANT.

   The information required by this item relating to the Company's executive
officers and directors is included under the caption "Executive Officers and
Directors" in Part I of this Form 10-K Annual Report.

ITEM 11.   EXECUTIVE COMPENSATION AND RELATED INFORMATION.

   The following table provides certain information summarizing the compensation
earned, by (i) the Company's Chief Executive Officer and (ii) each of the
Company's other four executive officers whose salary and bonus for the fiscal
year ended December 31, 1998 (the "1998 Fiscal Year") was in excess of $100,000
(collectively, the "Named Executive Officers"), for services rendered in all
capacities to the Company and its subsidiaries for each of the last three fiscal
years. No other executive officer who would otherwise have been included in such
table on the basis of salary and bonus earned for the 1998 Fiscal Year resigned
or terminated employment during that fiscal year.

                          SUMMARY COMPENSATION TABLE


<TABLE>
<CAPTION>

                                                                          Annual                    Number of
                                                                       Compensation                 Securities
                                                             --------------------------------   ------------------
                                                                                                    Long-Term
                                                                                                   Compensation
                                                             Year   Salary($)/(1)/   Bonus($)         Awards
               Name and Principal Position                   ----   --------------   --------   ------------------
               ---------------------------
<S>                                                          <C>    <C>              <C>        <C>
George P. Roberts.........................................   1998      366,600             0         450,000
 Chief Executive Officer                                     1997      330,069       358,000         300,000
 and Chairman of the Board of Directors                      1996      250,000       162,500         570,000

Pier Antoniucci...........................................   1998      270,855             0         200,000
 President and Chief                                         1997      244,962       165,000         200,000
 Operating Officer                                           1996      165,769        81,900         300,000

Michael Sophie............................................   1998      195,000             0         200,000
 Chief Financial Officer,                                    1997      175,673       109,000         150,000
 Vice President, Finance and                                 1996      117,308        48,750         220,000
 Administration

John Wood.................................................   1998      141,278             0         45,000
 Senior Vice President, Technology                           1997      147,421        28,980         10,000
                                                             1996      138,000        44,850         10,000

Kenneth E. Bean, II.......................................   1998      107,250             0         90,000
 Senior Vice President, Quality Assurance                    1997      109,462        25,000         60,000
                                                             1996       93,000         30,225             0
</TABLE>

---------------------
/(1)/  Includes amounts deferred under the Company's 401(k) Plan.

                                      104
<PAGE>

Option Grants In 1998 Fiscal Year

    The following table contains information concerning the stock option grants
made to each of the executive officers named in the Summary Compensation Table
for the 1998 Fiscal Year. No stock appreciation rights were granted to these
individuals during such fiscal year.

<TABLE>
<CAPTION>
                                                                         Individual Grant
                                                                         ----------------

                                                                                                  Potential Realizable
                                        Number of     % of Total                              Value at Assumed Annual Rates
                                       Securities      Options                               of Stock Price Appreciation for
                                       Underlying     Granted to                                    Option Term /(1)/
                                         Options      Employees    Exercise                 ---------------------------------
                                         Granted      in Fiscal      Price     Expiration
            Name                          (#)            Year       ($/Sh)        Date           5% ($)              10% ($)
            ----                      ------------    ----------   --------    ----------       --------          ----------
<S>                                   <C>             <C>          <C>         <C>               <C>               <C>
George P. Roberts..................   416,667/(2)/       6.49       3.00        09/17/08         786,118           1,992,179
                                       33,333/(2)/        .52       3.00        09/17/08          62,889             259,372
Pier Antoniucci....................   166,667/(2)/       2.59       3.00        09/17/08         314,448             796,873
                                       33,333/(2)/        .52       3.00        09/17/08          62,889             259,372
Michael Sophie.....................   166,667/(2)/       2.59       3.00        09/17/08         314,448             796,873
                                       33,333/(2)/        .52       3.00        09/17/08          62,889             259,372
John R. Wood.......................    33,245/(2)/        .52       3.00        09/17/08          62,733             158,952
                                       11,755/(2)/        .18       3.00        09/17/08          22,178              56,203
Kenneth E. Bean, II................    42,667/(2)/        .66       3.00        09/17/08          80,499             204,001
                                       47,333/(2)/        .74       3.00        09/17/08          89,302             226,310
</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 grant date
        for all of these options to purchase shares of the Company's Common
        Stock was September 18, 1998.

Aggregated Option Exercises And Fiscal Year-End Values

   The table below sets forth certain information with respect to the Company's
Chief Executive Officer and the other executive officers named in the Summary
Compensation Table concerning the exercise of options during the 1998 Fiscal
Year and unexercised options held by such individuals as of the end of such
fiscal year. No SARs were exercised during the 1998 Fiscal Year, nor were any
SARs outstanding at the end of such fiscal year.

<TABLE>
<CAPTION>
                                                                    Number of Securities              Value of Unexercised
                                                                   Underlying Unexercised            in-the-Money Options at
                                                Aggregate           Options at FY-End(#)                    FY-End(1)
                                   Shares         Value        ------------------------------   ---------------------------------
                                Acquired on     Realized
            Name                Exercise(#)      ($)(2)        Exercisable(3)   Unexercisable   Exercisable($)   Unexercisable($)
            ----                -----------    ---------       --------------   -------------   --------------   ----------------
<S>                             <C>            <C>             <C>              <C>             <C>              <C>
George P. Roberts                    60,000    1,171,875         1,206,457            206,875         712,635           0
Pier Antoniucci                     120,000    1,668,296           507,793            121,875         208,207           0
Michael Sophie                       79,759      781,632           417,770             70,000         201,243           0
John R. Wood                         53,332    1,075,240            98,541              6,459          44,280           0
Kenneth E. Bean, II                   8,194       92,956           137,014             37,918          89,036           0
</TABLE>
__________________
(1) Based on the fair market value of the option shares at the 1998 Fiscal Year-
    end ($3.984 per share based on the closing selling price on the Nasdaq
    National Market as of December 31, 1998) 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 option
    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, 1998, the following number of shares were

                                      105
<PAGE>

    unvested: Mr. Roberts--892,292 shares; Mr. Antoniucci--478,126 shares; Mr.
    Bean--138,542 shares; Mr. Sophie--405,206 shares; and Mr. Wood--59,586
    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,
Pier Antoniucci, President and Chief Operating Officer, and Michael Sophie,
Chief Financial Officer and Vice President, Finance and Administration
(individually, the "Officer" and collectively the "Officers"), each dated
December 15, 1997. 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 (i) both Messrs. Sophie and Antoniucci
and their respective dependents with continued health care coverage for a period
of up to twenty-four (24) months following their termination of employment, and
(ii) 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 the Chief Executive
Officer or any other executive officer named in the Summary Compensation Table
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. The Compensation Committee of the Board of Directors has the
authority as Plan Administrator of the 1995 Plan to provide for the accelerated
vesting of the shares of Common Stock subject to outstanding options held by the
Company's executive officers, whether granted under that plan or any predecessor
plan, in the event their employment were to be terminated (whether involuntarily
or through a forced resignation) following certain changes in control or
ownership of the Company.

Compensation Committee Interlocks And Insider Participation

   The Compensation Committee of the Company's Board of Directors currently
consists of Mr. Cogan and Mr. Hawkins. Neither of these individuals was an
officer or employee of the Company at any time during the 1998 Fiscal Year or at
any other time.

   No current 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.

                                      106
<PAGE>

ITEM 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
February 28, 1999, by (i) all persons who are beneficial owners of five percent
(5%) or more of the Company's Common Stock, (ii) each director and nominee for
director, (iii) the executive officers named in the Summary Compensation Table
of the Executive Compensation and Related Information section of this Annual
Report on Form 10-K 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.


<TABLE>
<CAPTION>
                                                                                                              Percentage
                                                                                                Shares         of Shares
                                                                                             Beneficially    Beneficially
                                     Beneficial Owner                                          Owned (#)       Owned (1)
                                     ----------------                                        -------------   -------------
<S>                                                                                          <C>             <C>
Wellington Management Company, L.L.C./2/..................................................      2,272,400            5.22
   75 State Street
   Boston, MA 02109
Pilgrim Baxter & Associates, Ltd /3/......................................................      3,109,860            7.14
   825 DuPortail Road
   Wayne, PA 19087
State of Wisconsin Investment Board /4/...................................................      2,659,200            6.11
   P.O. Box 7842
   Madison, WI 53707
Entities deemed to be affiliated with
Putnam Investments, Inc. /5/..............................................................      3,353,661            7.70
   One Post Office Square
   Boston, MA 02109
George P. Roberts /6/.....................................................................      1,473,009            3.29
Pier Antoniucci /7/.......................................................................        591,808            1.34
Michael J. Sophie /8/.....................................................................        431,750               *
John R. Wood /9/..........................................................................        164,769               *
Kenneth E. Bean, II /10/..................................................................        143,623               *
M. Bernard Puckett /11/...................................................................        101,332               *
Gill Cogan /12/...........................................................................         58,564               *
John A. Hawkins /13/......................................................................         30,000               *
James J. Sobczak /14/.....................................................................         44,000               *
All current directors and executive officers as a group (9 persons) /15/..................      3,034,055            6.58
</TABLE>

_____________________
*   Less than one percent of the outstanding Common Stock
(1) Percentage of ownership is based on 43,532,000 shares of Common Stock
    outstanding on February 28, 1999. Shares of Common Stock subject to stock
    options that are currently exercisable or will become exercisable within 60
    days after February 28, 1999 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 a Schedule 13G dated  February 8, 1999 filed with the
    Securities and Exchange Commission, Wellington Management Company, L.L.C.
    has reported that as of February 8, 1999 it had shared power to vote or to
    direct the vote of 972,400 shares and shared power to dispose or to direct
    the disposition of all of the shares.
(3) Pursuant to a Schedule 13G/A dated February 13, 1998, filed with the
    Securities and Exchange Commission, Pilgrim Baxter & Associates, Ltd.
    reported that as of December 31, 1997 it had sole voting power over
    2,487,960 shares, shared voting power over all 3,109,860 shares and sole
    dispositive power over all 3,109,860 shares.
(4) Pursuant to a Schedule 13G dated February 1, 1999, filed with the
    Securities and Exchange Commission, the State of Wisconsin Investment Board
    reported that as of February 1, 1999 it had sole voting power over all
    2,659,200 shares and sole dispositive power over all shares.
(5) Pursuant to a Schedule 13G/A dated January 16, 1998, filed with the
    Securities and Exchange Commission, Putnam Investments, Inc., on its own
    behalf and on behalf of Marsh & McLennan Companies, Inc., Putnam Investment
    Management, Inc. and the Putnam Advisory Company, Inc. reported that as of
    January 16, 1998 it had shared voting power over 91,100 shares and shared
    dispositive power over all 3,353,661 shares.

                                      107
<PAGE>

(6)  Includes 1,247,707 shares issuable upon exercise of options that are
     currently exercisable or will become exercisable within 60 days after
     February 28, 1999.
(7)  Includes 530,732 shares issuable upon exercise of options that are
     currently exercisable or will become exercisable within 60 days after
     February 28, 1999.
(8)  Includes 429,436 shares issuable upon exercise of options that are
     currently exercisable or will become exercisable within 60 days after
     February 28, 1999.
(9)  Includes 99,374 shares issuable upon exercise of options that are currently
     exercisable or will become exercisable within 60 days after February 28,
     1999.
(10) Includes 142,430 shares issuable upon exercise of options that are
     currently exercisable or will become exercisable within 60 days after
     February 28, 1999.
(11) Includes 81,332 shares issuable upon exercise of options that are
     currently exercisable or will become exercisable within 60 days after
     February 28, 1999.
(12) Includes 8,000 shares issuable upon exercise of options that are currently
     exercisable or will become exercisable within 60 days after February 28,
     1999.
(13) Includes 30,000 shares issuable upon exercise of options that are
     currently exercisable or will become exercisable within 60 days after
     February 28, 1999.
(14) Includes 44,000 shares issuable upon exercise of options that are
     currently exercisable or will become exercisable within 60 days after
     February 28, 1999.
(15) Includes 2,613,011 shares issuable upon exercise of options that are
     currently exercisable or will become exercisable within 60 days after
     February 28, 1999.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

   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.

   Mr. Roberts' adult son and Mr. Antoniucci's adult daughter each holds a
minority interest in a private company that supplies synthesizers to the Company
for use in its products. To date, the Company has purchased approximately $10.2
million of synthesizers from such supplier, including approximately $965,000 in
1998 which is down from $2.3 million in 1997. Sales of synthesizers to the
Company, for fiscal year 1998, accounted for 62% of the sales of such supplier,
the terms of the Company's purchase agreement with such supplier are no less
favorable to the Company than could be obtained from an unaffiliated third party
supplier. The Company also purchases synthesizers from Geritel, S.p.A.,
Communication Techniques, Inc. and SPC Electronics Corp. at competitive prices
approximately equal to those of such suppler. Each such adult is financially
independent of his or her parent and resides at a different address from his or
her parent.

   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.

                                      108
<PAGE>

PART IV
-------

ITEM 14.    EXHIBITS, FINANCIAL STATEMENT 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 9 of this Annual
     Report on Form 10-K:

Form 10K
<TABLE>
<CAPTION>
                                                                                                                  Page
                                                                                                                  ----
                                                                                                                 Number
                                                                                                                -------
<S>                                                                                                             <C>
FINANCIAL STATEMENTS:
    Report of Independent Accountants........................................................................      79
    Consolidated Balance Sheets at December 31, 1998 and 1997................................................      80
    Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996...............      81
    Consolidated Statements of Stockholders' Equity for the years ended December 31, 1998, 1997, and               82
       1996..................................................................................................
    Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996...............      83
    Notes to Consolidated Financial Statements...............................................................      84
FINANCIAL STATEMENT SCHEDULE:
    Schedule II - Valuation and Qualifying Accounts..........................................................     103
</TABLE>

     All other schedules have been omitted since they are either not required,
     are not applicable, or the required information is shown in the financial
     statements or related notes.

(b)  Reports on Form 8-K

     Report on Form 8-K dated October 5, 1998, regarding the Company's amendment
     to the Rights Agreement between the Company and BankBoston, N.A., as Rights
     Agent, as filed with the Securities and Exchange Commission on October 15,
     1998.

     Report on Form 8-K dated October 22, 1998, regarding the Company's press
     release announcing its earnings for the quarter ended September 30, 1998,
     as filed with the Securities and Exchange Commission on October 23, 1998.

     Report on Form 8-K dated December 21, 1998, regarding the Company's press
     release announcing its agreement to sell a $15 million equity investment to
     three investors, Castle Creek Partners, L.L.C., Marshall Capital Management
     and Heights Capital Management, as filed with the Securities and exchange
     Commission on December 23, 1998.

     Report on Form 8-K dated December 21, 1998, regarding the Company's sale of
     $15 million equity investment to three investors, Castle Creek Partners,
     L.L.C., Marshall Capital Management and Heights Capital Management and the
     departure of one of the Company's executive officers, as filed with the
     Securities and Exchange Commission on December 24, 1998.

     Report on Form 8-K dated December 30, 1998, regarding the Company's
     exchange of an aggregate of $9,150,000 of its 4 1/4% Convertible
     Subordinated Notes due 2002 for an aggregate of 1,670,000 shares of common
     stock, as filed with the Securities and Exchange Commission on December 31,
     1998.

     Report on Form 8-K dated December 31, 1998, regarding the Company's
     exchange of an aggregate of $5,200,000 of its 4 1/4% Convertible
     Subordinated Notes due 2002 for an aggregate of 797,000 shares of common
     stock, as filed with the Securities and exchange commission on January 4,
     1999.

(c)  Exhibits -- See Exhibit list below.

                                      109
<PAGE>

<TABLE>
<CAPTION>
   NUMBER                                                             DESCRIPTION
   ------                                                             ------------
<S>                      <C>
    2.1(6)               Agreement dated April 15, 1996, by and among the Company, Mr. Giovanni Marciano and certain other
                         parties named thereunder.

    2.2(7)               Asset Purchase Agreement dated as of August 2, 1996, by and between the Company, Atlantic
                         Communication Sciences, Inc. and Edward c. Gerhardt, L. Roger Sanders, Charles W. Richards, IV,
                         Grover W. Brower, William M. Koos, Jr., Larry W. Koos, Koos Technical Services, Inc., the Edward C.
                         Gerhardt Trust. U/A dated June 22, 1988 and the L. Roger Sanders Revocable Trust, U/A dated June 18,
                         1991.

    2.2A(8)              Asset Purchase Agreement revised as of August 23, 1996 by and between the Company, Atlantic
                         Communication Sciences, Inc. and Edward C. Gerhardt, L. Roger Sanders, Charles W. Richards, IV,
                         Grover W. Brower, William M. Koos, Jr., Larry W. Koos, Koos Technical Services, Inc., the Edward C.
                         Gerhardt Trust, U/A dated June 22, 1988 and the L. Roger Sanders Revocable Trust, U/A dated June 18,
                         1991.

    2.3(20)              Escrow Agreement dated November 28, 1997, by and among P-Com, Inc., P-Com Field Services Inc.,
                         Telematics Inc. and Daniel N. Carter.

    2.4(20)              Registration Rights Agreement, dated November 17, 1997, by and among P-Com Field Services Inc.,
                         Telematics Inc. and Daniel N. Carter.

    2.5(20)              Escrow Agreement, dated November 28, 1997, by and among P-Com, Inc., P-Com Services (UK) Limited and
                         R T Masts Limited.

    2.6(20)              Securities Purchase Agreement, dated November 17, 1997, by and among P-Com, Inc., P-Com Field
                         Services Inc., Telematics Inc. and Daniel N. Carter.

    2.7(20)              Share Purchase Agreement, dated October 14, 1997, by and among P-Com, Inc., P-Com Services (UK)
                         Limited and R T Masts Limited.

    2.8(21)              Asset Purchase Agreement dated March 13, 1998, by and between P-Com, Inc. and Cylink Corporation

    2.8A(21)             Amendment to the Asset Purchase Agreement dated March 13, 1998 by and between P-Com, Inc. and Cylink
                         Corporation.

    2.8B(21)             Amendment No. 2 to the Asset Purchase Agreement dated March 27, 1998 by and between P-Com, Inc. and
                         Cylink Corporation.

    2.8C(21)             Unsecured Subordinated Promissory Note

    3.2(3)               Restated Certificate of Incorporation filed on March 9, 1995.

    3.2A(14)             Certificate of Amendment of Restated Certificate of Incorporation filed on June 16, 1997.

    3.2B(16)             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(24)             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(24)             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(24)             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.

    3.3(1)               Bylaws of the Company.

   4.1(1)                Form of Common Stock Certificate.

   4.2(19)               Indenture, dated as of November 1, 1997, between the Registrant and State Street Bank and Trust
                         Company of California, N.A., as Trustee.
</TABLE>

                                      110
<PAGE>

<TABLE>
<CAPTION>
   NUMBER                                                             DESCRIPTION
  -------                                                             -----------
<C>                      <S>
   4.4(19)               Registration Rights Agreement, dated as of November 1, 1997 by and among the Registrant and
                         PaineWebber Incorporated, BancAmerica Robertson Stephens, NationsBanc Montgomery Securities, Inc. and
                         Pacific Growth Equities, Inc.
   4.5(17)               Rights Agreement, dated as of October 1, 1997, between the Company and BankBoston, N.A., which
                         includes the form of Certificate of Designation for the Series A Junior Participating Preferred Stock
                         as Exhibit A, the form of Right Certificate as Exhibit B and the Summary of Rights to Purchase
                         Preferred Shares as Exhibit C.
   4.6(23)               First Amendment to the Rights Agreement, dated as of October 5, 1998, between the Company and
                         BankBoston, N.A.
   4.7(24)               Amended and Restated Rights Agreement, dated as of December 18, 1998 between the Company and
                         BankBoston, N.A.
   4.8(24)               Amended and Restated Rights Agreement, dated as of December 21, 1998 between the Company and
                         BankBoston, N.A.
  *10.1(1)               Purchase Order issued by AT&T Network Systems Deutschland GmbH, dated December 7, 1994.
  *10.2(1)               Purchase Order issued by AT&T Network Systems Deutschland GmbH, dated December 19, 1994.
  *10.3(1)               Master OEM Agreement dated January 1, 1995, by and between the Company and AT&T Corp.
  *10.4(1)               Purchase Order issued by AT&T Network Systems Nederland BV, dated December 9, 1994.
  *10.5(1)               Amendment to Purchase Order issued by AT&T Network Systems Nederland BV, dated December 22, 1994.
  *10.6(1)               NSD Master Purchase Order issued by AT&T Network Systems Deutschland GmbH, dated December 23, 1994.
  *10.7(1)               Purchase Agreement dated August 29, 1994, by and between the Company and Harris Corporation--Farinon
                         Division.
  *10.8(1)               Contract for Supply of 50 GHz Radio dated June 4, 1994, by and between the Registrant and Mercury
                         Communications Ltd.
  *10.9(1)               Manufacturing Agreement dated July 13, 1994, by and between the Company and SPC.
 *10.10(1)               Manufacturing Agreement dated April 20, 1994, by and between the Company and Comptronix Corporation
                         (assigned to Sanmina Corporation).
 *10.11(1)               Agreement dated November 11, 1994, by and between the Company and WinStar Wireless, Inc.
  10.12(1)               Master Lease Agreement dated November 9, 1992, by and between the Company and Dominion; First
                         Amendment to Master Lease Agreement dated June 23, 1993, by and between the Company and Dominion.
  10.13(1)               Master Equipment Lease entered into by and between the Company and Phoenix Leasing Incorporated on
                         August 10, 1994.
  10.14(1)               Commitment Letter dated January 10, 1995, by and between the Company and Applied Telecommunications
                         Technologies, Inc. ("ATTI"), including form of Master Lease to be entered into between the Company
                         and ATTI.
  10.15D(18)             Accounts Receivable Purchase Agreement dated December 31, 1997 by  and between the Company and Wells
                         Fargo MCBC Trade Bank N.A.
  10.16(22)              1995 Stock Option/Stock Issuance Plan, as amended.
  10.16A(7)              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 Agreement, as amended.
  10.16B(13)             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 Agreement, as amended.
  10.17(22)              Employee Stock Purchase Plan, as amended.
</TABLE>

                                      111
<PAGE>

<TABLE>
<CAPTION>
   NUMBER                                                             DESCRIPTION
  -------                                                             -----------
<C>                      <S>
  10.18(1)               Form of Indemnification Agreement by and between the Company and each of its officers and directors
                         and a list of signatories.
  10.19A(18)             Service Agreement dated December 15, 1997 by and between the Company and Mr. George P. Roberts.
  10.19B(18)             Service Agreement dated December 15, 1997 by and between theCompany and Mr. Michael J. Sophie.
  10.19C(18)             Service Agreement dated December 15, 1997 by and between the Company and Mr. Pier Antoniucci.
  10.21(1)               Real Property Lease dated December 10, 1993, by and between the Company and Bryan T.D. Trust,
                         pertaining to 3175 S. Winchester Boulevard, Campbell, California 95008.
 *10.22(1)               Low Capacity Digital Radio Product Agreement dated February 13, 1995 by and between the Company and
                         Siemens.
 *10.22A(18)             Low Capacity Digital Radio Agreement dated February 13, 1995 by and between the Company and Itatel.
  10.23(3)               Sublease dated May 1, 1995 by and between the Company and Medallion Mortgage Company.
  10.24(4)               Lease dated August 4, 1995 by and between P-COM United Kingdom, Inc. and Capital Counties plc; Rent
                         Deposit Deed dated August 4, 1995, by and between P-Com United Kingdom, Inc. and Capital Counties plc.
  10.25(2)               Underwriting Agreement dated March 2, 1995 by and between the Company and the underwriters named
                         therein.
  10.26(5)               Underwriting Agreement dated August 17, 1995 by and between the Company and the underwriters named
                         therein.
  10.27(9)               Lease dated November 11, 1995 by and between the Company, Inc. and Johann Birkart, Internationale
                         Spedition GmbH & Co.
  10.30A(11)             Loan Agreement dated March 3, 1997 by and between the Company and Union Bank of California, N.A.
  10.30B(11)             Amendment dated May 7, 1997 to the Loan Agreement dated March 3, 1997 by and between the Company and
                         Union Bank of California, N.A.
  10.30C(13)             Amended and Restated Loan Agreement dated September 17, 1997 by and between the Company and Union
                         Bank of California, N.A.
  10.31(22)              Credit Agreement among P-Com, Inc. as the Borrower, Union Bank of California N.A., as Administrative
                         Agent, Bank of America National Trust and Savings Association as Syndication Agent and the Lenders
                         party hereto dated as of May 15, 1998.
  10.32(22)              Revolving Promissory Note in the principal amount of $25,000,000 dated May 15, 1998.
  10.33(22)              Revolving Promissory Note in the principal amount of $25,000,000 dated May 15, 1998.
  10.34(22)              Subsidiary Guarantee dated as of May 15, 1998.
 *10.35(22)              Joint Development and License Agreement between Siemens Aktiengesellschaft and P-Com, Inc. dated June
                         30, 1998.
   10.36(22)             International Employee Stock Purchase Plan
   10.37(23)             First Amendment to Credit Agreement by and among P-Com, Inc.,  as the Borrower, Union Bank of
                         California N.A., as Administrative Agent, Bank of America National Trust and Savings Association, as
                         Syndication Agent, and the Lenders party thereto, dated as of July 31, 1998.
   10.38(24)             Securities Purchase Agreement dated as of December 21, 1998 by and among the Company and the
                         purchasers listed therein.
   10.39(24)             Registration Rights Agreement dated as of December 21, 1998 by and among the Company and the
                         purchasers listed therein.
   10.40(24)             Form of Warrant to purchase shares of Common Stock
</TABLE>

                                      112
<PAGE>

<TABLE>
<CAPTION>
   NUMBER                                                             DESCRIPTION
  -------                                                             -----------
<C>                      <S>
  10.40A(25)             Warrant to purchase shares of Common Stock, dated as of December 21, 1998, issued by the Company to
                         Castle Creek Technology Partners LLC
  10.40B(25)             Warrant to purchase shares of Common Stock, dated as of December 21, 1998, issued by the Company to
                         Capital Ventures International.
  10.40C(25)             Warrant to purchase shares of Common Stock, dated as of December 21, 1998, issued by the Company to
                         Marshall Capital Management, Inc
   10.41(24)             Second Amendment to Credit Agreement and First Amendment to Security Agreement by and among the
                         Registrant, as the Borrower, Union Bank of California, N.A., as Administrative Agent, Bank of America
                         National Trust and Savings Association, as Syndication Agent, and the lenders party thereto dated as
                         of October 21, 1998.
   10.42(24)             Third Amendment to Credit Agreement by and among the Registrant, as the Borrower, Union Bank of
                         California, N.A., as Administrative Agent, Bank of America National Trust and Savings Association, as
                         Syndication Agent, and the lenders party thereto dated as of December 17, 1998.
   10.43(26)             Fourth Amendment to Credit Agreement and First Amendment to Security Agreement by and among the
                         Registrant, as the Borrower, Union Bank of California, N.A., as Administrative Agent, Bank of America
                         National Trust and Savings Association, as Syndication Agent, and the lenders party thereto dated as
                         of December 28, 1998.
   10.44(26)             Fifth Amendment to Credit Agreement by and among the Registrant, as the Borrower, Union Bank of
                         California, N.A., as Administrative Agent, Bank of America National Trust and Savings Association, as
                         Syndication Agent, and the lenders party thereto dated as of January 29, 1999.
   10.45(27)             Sixth Amendment to Credit Agreement by and among the Registrant, as the Borrower, Union Bank of
                         California, N.A., as Administrative Agent, Bank of America National Trust and Savings Association, as
                         Syndication Agent, and the lenders party thereto dated as of March 31, 1999.
   11.1(26)              Computation of Pro Forma Net Income (Loss) Per Share.
   21.1(26)              List of subsidiaries of the Registrant.
       23.1              Consent of PricewaterhouseCoopers LLP, Independent Accountants.
   24.1(26)              Power of Attorney.
   27.1(26)              Financial Data Schedule
</TABLE>


(1)  Incorporated by reference to identically numbered exhibits included in the
     Company's Registration Statement on FormS-1 (File No. 33-88492) declared
     effective with the Securities and Exchange Commission on March 2, 1995.

(2)  Incorporated by reference to Exhibit 1.1 to 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 identically numbered exhibits 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.

(4)  Incorporated by reference to identically numbered exhibits included in the
     Company's Quarterly Report on Form 10-Q filed with the Securities and
     Exchange Commission on November 1, 1996.

(5)  Incorporated by reference to Exhibit 1.1 to 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.

(6)  Incorporated by reference to identically numbered exhibits included in the
     Company's Registration Statement on Form S-3 declared effective with the
     Securities and Exchange Commission on May 16, 1996 (File No. 333-3558).

(7)  Incorporated by reference to identically numbered exhibits to the Company's
     Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996.

(8)  Incorporated by reference to identically numbered exhibits to the Company's
     Quarterly Report on Form 10-Q for the quarterly period ended September 30,
     1996.

                                      113
<PAGE>

(9)  Incorporated by reference to identically numbered exhibits to the Company's
     Annual Report on Form 10-K for the annual period ended December 31, 1995.

(10)  Incorporated by reference to Exhibit 1.1 to the Company's Registration
      Statement on Form S-3 declared effective with the Securities and Exchange
      Commission on May 16, 1996 (File No. 333-3558).

(11)  Incorporated by reference to identically numbered exhibits to the
      Company's Quarterly Report on Form 10-Q for the quarterly period ended
      March 31, 1996.

(12)  Incorporated by reference to identically numbered exhibits to the
      Company's Quarterly Report on Form 10-Q for the quarterly period ended
      March 31, 1997.

(13)  Incorporated by reference to identically numbered exhibits to the
      Company's Quarterly Report on Form 10-Q for the quarterly period ended
      June 30, 1997.

(14)  Incorporated by reference to Exhibit 3.3 to the Company's Quarterly Report
      on Form 10-Q for the quarterly period ended June 30, 1996.

(15)  Incorporated by reference to identically numbered exhibits to the
      Company's Quarterly Report on Form 10-Q for the quarterly period ended
      September 30, 1997.

(16)  Incorporated by reference to Exhibit 3 to the Company's Quarterly Report
      on Form 10-Q for the quarterly period ended September 30, 1997.

(17)  Incorporated by reference to Exhibit 4 to the Company's Quarterly Report
      on  Form 10-Q for the quarterly period ended September 30, 1997.

(18)  Incorporated by reference to identically numbered exhibits to the
      Company's  Annual Report on Form 10-K for the annual period ended December
      31, 1997.

(19)  Incorporated by reference to identically numbered exhibits included in the
      Company's Registration Statement on Form S-3 (File No. 333-45463) filed
      with the Securities and Exchange Commission on February 2, 1998.

(20)  Previously filed as an exhibit to the Company's Current Report on Form 8-K
      dated December 10, 1997 as filed with the Securities and Exchange
      Commission on November 28, 1997 (File No. 001-13475).

(21)  Incorporated by reference to identically numbered exhibits included in the
      Company's Quarterly Report on Form 10-Q filed with the Securities and
      Exchange Commission on May 15, 1998.

(22)  Incorporated by reference to identically numbered exhibits included in the
      Company's Quarterly Report on Form 10-Q filed with the Securities and
      Exchange Commission on August 14, 1998

(23)  Incorporated by reference to identically numbered exhibits included in the
      Company's Quarterly Report on Form 10-Q filed with the Securities and
      Exchange Commission on November 13, 1997.

(24)  Previously filed as an exhibit to the Company's Current Report on Form 8-K
      dated December 22, 1998 as filed with the Securities and Exchange
      Commission on December 24, 1998 (File No. 000-25356).

(25)  Incorporated by reference to identically numbered exhibits included in the
      Company's Registration Statement on Form S-3 (File No. 333-70937) filed
      with the Securities and Exchange Commission on January 21, 1999.

(26)  Incorporated by reference to identically numbered exhibits included in the
      Company's Annual Report on Form 10-K for the annual period ended December
      31, 1998

(27)  Incorporated by reference to identically numbered exhibits included in the
      Company's Annual Report on Form 10-K for the annual period ended December
      31, 1998 as amended on from 10-K/A filed with the Securities and Exchange
      Commission on May 3, 1999.


*  Confidential treatment granted as to certain portions of these exhibits.

                                      114
<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, on September 24, 1999.

   P-COM, INC.

   Date: September 24, 1999  By   /s/ George P. Roberts
                              ---------------------------------------
                                     George P. Roberts
                                     Chairman of the Board and
                                     Chief Executive Officer


   Date: September 24, 1999  By   /s/ Robert E. Collins
                              ------------------------------------------
                                     Robert E. Collins
                                     Chief Financial Officer, Vice President,
                                     Finance and Administration

                                      115
<PAGE>

POWER OF ATTORNEY


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>
<S>                                            <C>
Date:  September 24, 1999                        By   /s/  George P. Roberts
                                                     -----------------------------------------------
                                                     George P. Roberts
                                                     Chairman of the Board and
                                                     Chief Executive Officer (Principal Executive Officer)

Date:  September 24, 1999                        By   /s/  Robert E. Collins
                                                     -----------------------------------------------
                                                     Robert E. Collins
                                                     Chief Financial Officer, Vice President,
                                                     Finance and Administration (Principal Financial Officer)

Date:  September 24, 1999                        By                        *
                                                     ------------------------------------------------
                                                     Gill Cogan
                                                     Director of the Company

Date:  September 24, 1999                        By                        *
                                                     -----------------------------------------------
                                                     John A. Hawkins
                                                     Director of the Company

Date:  September 24, 1999                        By                        *
                                                     -----------------------------------------------
                                                     M. Bernard Puckett
                                                     Director of the Company

Date:  September 24, 1999                        By                        *
                                                     -----------------------------------------------
                                                     Jame  J. Sobczak
                                                     Director of the Company
</TABLE>

* By George P. Roberts, attorney-in-fact

                                      116