<PAGE>

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                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

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

                               FORM 10-K/A

                             Amendment No. 1

(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, 1999

                                      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)

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

<TABLE>
     <S>                                  <C>
                   Delaware                            77-0289371
           (State of Incorporation)        (IRS Employer Identification No. )
</TABLE>

           3175 S. Winchester Boulevard, Campbell, California 95008
              (Address of principal executive offices) (Zip Code)

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

           Securities Registered Pursuant To Section 12 Of The Act:

<TABLE>
<CAPTION>
                                             Name of each exchange on which
             Title of each class                       registered
             -------------------             ------------------------------
     <S>                                  <C>
                     None                                 None
</TABLE>

           Securities Registered Pursuant To Section 12 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 13, 2000, was approximately $1,739,347,465 (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 13, 2000, approximately 76,877,000 shares of the Registrant's
Common Stock, $0.0001 par value, were outstanding.

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<PAGE>

                                    PART I

ITEM 1. BUSINESS

   The following Business section contains forward-looking statements which
involve risks and uncertainties. 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.

Overview

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

Industry Background

 The Growing Demand for Communications Services

   The continuing rapid growth of Internet services for progressively numerous
applications is creating demands for expanded and enhanced network services.
Increasingly large amounts of data must be quickly, economically, and reliably
handled by networks. BWA (Broadband Wireless Access) is an efficient and
economical means of meeting these growing demands, and it is therefore
becoming increasingly important. The rapid growth being experienced in the
Internet portion of P-Com's market does not, however, necessarily translate
into P-Com growth. The effect of P-Com's focus on development of Point-to-
Multipoint systems for the BWA market, combined with the deliberate and
somewhat conservative approach by the new BWA system providers as they
evaluate and gain experience with Point-to-Multipoint systems has actually
resulted in a decline in P-Com's revenues. In addition, much Internet
communication is transported over wired networks, whereas P-Com's products are
for wireless access to the wired internet.

 Global Privatization and Deregulation: Stimuli to Broadband Wireless Access
 Growth

   Privatization of former governmental telecommunications monopolies, and
deregulation of telecommunications markets, on a global basis, are creating
unprecedented competition in telecommunications markets. New network services
providers are rushing to create integrated, digital networks to meet the
growing demands for efficient, economical telecommunications services.
Deployment of broadband access technologies is a fast, scalable, reliable, and
economical means of enabling these new competitors to create their new
infrastructures. It is also an effective means whereby incumbent network
service providers can supplement their existing networks as demands dictate.
In the United States, incumbent RBOC telephone companies were, until recently,
the exclusive providers of the copper wire interconnection network that
connected subscribers to the Public Switched Telephone Network ("PSTN"),
commonly known as the "last mile." The Telecommunications Act of 1996, which
required incumbent telephone companies to lease portions of their networks,
including the last mile, to Competitive Local Exchange Carriers ("CLECs"),
served to create a significantly competitive telecommunications industry
within the United States. Adding to this competitive environment is the
struggle

                                       1
<PAGE>


between telephone companies and cable operators to expand their service
offerings into each other's markets. To provide services, CLECs can either
lease from incumbent telecommunication companies the access services to
connect their customers, or they can build their own access services.
Constructing landline access is very costly and time-consuming; deployment of
BWA is relatively quick, efficient, and economical, because it is wireless.
Additionally, BWA is scalable, and can be re-deployed in other areas if
conditions so dictate, thereby protecting investment.

   Deregulation and competition similar to that experienced in the United
States is occurring in most regions of the world. Network service providers
are seeking to differentiate their services from the "commodity" status of
telecommunications by deploying integrated, digital, high-speed access
services. As a result, BWA is very much in current demand, although many
competitors vie for this market around the world.

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

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

 Network Architecture Bottlenecks

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

 Wireless Access Solutions

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

                                       2
<PAGE>


   Point-to-Point Wireless BWA is dedicated link wireless technology enabling
symmetrical data services between a subscriber and the network. For each new
subscriber using this service, the network service provider provides a
separate, new set of dedicated equipment. Even providers who offer Point-to-
Multipoint services intend to use Point-to-Point technology for those
customers with very high capacity requirements. Back-hauls between mobile
wireless towers and the mobile switching office is a typical application for
this service. As mobile services continue to grow, mobile service providers
will have to continue to scale down existing cells into smaller ones to reuse
precious spectrum. With each such scale-back comes opportunity for new
wireless Point-to-Point applications because of the need for more backhauls.
Mobile wireless access to the numerous and growing Internet-based applications
is fueling growth in this segment of the wireless market.

The P-Com Solution

 Range of Product Choices

   P-Com offers access providers around the world a range of wireless systems
that encompass Point-to-Multipoint BWA, Point-to-Point BWA access, and Spread
Spectrum systems. P-Com's systems utilize a common architecture in the
millimeter wave and spread spectrum microwave frequencies, including 2.4 GHz,
5.7 GHz, 7 GHz, 13 GHz, 14 GHz, 15 GHz, 18 GHz, 23 GHz, 24 GHz, 26 GHz, 28
GHz, 31 GHz, 38 GHz, and 50 GHz. Both FDMA (Frequency Division Multiple
Access) and TDMA (Time Division Multiple Access) technologies are designed
into our systems.

   P-Com first produced and marketed its Point-to-Point systems in 1993. P-
Com's Point-to-Multipoint systems became commercially available in 1999, and
P-Com's Spread Spectrum Systems became available through P-Com's acquisition
of Cylink assets in 1998. In 1999, the revenue mix reflects P-Com's
introduction of the Point-to-Multipoint product line, with revenues for the
Point-to-Multipoint, Point-to-Point, and Spread Spectrum systems of 1.1%,
59.0%, and 11.3%, respectively.

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

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

   Access providers determine from studies of their market whether to provide
a Point-to-Multipoint or Point-to-Point system, or a combination of both, to
best meet their business plan objectives. Additionally, access providers
determine if TDMA or FDMA, or a combination of both, best satisfies their
engineering requirements. Although TDMA appears to offer the most cost
effective use of bandwidth, FDMA has the advantage of being easier to deploy
and allows providers to better guarantee service levels to their customers.
The market is still too young to determine which will be the eventual dominant
technology either throughout the world or in specific geographic regions. As a
result, P-Com has elected to offer both FDMA and TDMA.

   There are many companies entering the point-to-multipoint market. As a
result the competitive landscape is in constant change. Therefore all
companies in this market must be aware and able to react to product
developments to remain competitive. Developments could involve lower cost
solutions or more product features.

   P-Com provides both Point-to-Multipoint and Point-to-Point systems in a
broad range of frequencies, as stated above. P-Com's competitors' generally
provide either point-to-multipoint or point-to-point, but seldom both. P-Com
systems provide both TDMA and FDMA capability. Through provision of such a
broad range of

                                       3
<PAGE>


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

   Software embedded in P-Com's systems allows the user to easily configure
and adjust system settings such as frequency, power, and capacity without
manual tuning and mechanical adjustments. We also provide a full line of
Windows and SNMP-based software products that are complementary to our systems
as sophisticated diagnostic, maintenance, network management, and system
configuration tools.

   Common to all BWA systems like those provided by P-Com are certain
limitations. Among the more common of these limitations are the requirement
for line-of-sight between the base station and the remote sites; signal fade
due to weather conditions like rain, fog, and snow; spacing between the base
station and the remotes; signal transmit/receive power levels; poor
performance if there is improper antenna alignment; and adjacent cell
interference due to improper power levels. Careful and professional execution
of engineering of path and site surveys, and of installation and testing
procedures, can usually mitigate most of the problems associated with such
potential limiting factors.

   The diagram below illustrates the use of P-Com systems in a Point-to-
Multipoint application to establish short-haul, high-speed BWA:

                             [GRAPH APPEARS HERE]

                                       4
<PAGE>

   The following diagram illustrates the use of P-Com systems in a short-haul
Point-to-Point telecom access application:


                             [GRAPH APPEARS HERE]


   The diagram below illustrates the use of P-Com systems in the connection of
base stations in a cellular or PCN/PCS application:


                             [GRAPH APPEARS HERE]

                                    (LOGO)




                                       5
<PAGE>

Services

   Through P-Com's network services group, P-Com Network Services (Network
Services), P-Com provides either turn-key or individual telecommunications
services. Network Services can perform and manage almost every aspect of wired
or wireless system build-outs, from initial system and path planning through
network optimization and maintenance. Also provided are tower design,
fabrication, and construction services. For the switching environment, Network
Services offers all the resources needed for the installation of central
office equipment.

   Network Services has managed the design and construction of both wired and
wireless telecommunications systems of various sizes and complexity in the
United States, the United Kingdom, Italy, and some twenty-five other countries
around the world.

 Manufacturing and Testing

   P-Com received its initial ISO 9001 registration for Campbell, California
facility in December, 1993, and was subsequently recertified. Its ISO 9001
registration for its United Kingdom sales and customer support facility was
received in 1996; the ISO 9001 registration for our Geritel facility in Italy
was received in 1996.

   Once a system reaches commercial status, P-Com contracts with one or more
of several certified turn-key fabricators to build systems in commercial
quantities. Utilization of such fabricators relieves P-Com of expensive
investments in manufacturing facilities and enables P-Com to quickly scale to
meet varying customer demands and changes in technology.

   Manufactured systems are tested by P-Com prior to shipment to its
customers. Testing includes the complete IDU-ODU assembly (InDoor Unit--
OutDoor Unit), thereby providing customers completely tested end-to-end
systems as opposed to independent testing of IDUs and ODUs.

 Sales Channels and P-Com Customers

   P-Com's wireless access systems are sold internationally and domestically
through strategic partners, systems providers, original equipment
manufacturers (OEMs), and distributors as well as directly.

   P-Com Customers include:

<TABLE>
           <S>            <C>
           Ailec          Lucent Technologies
           BellAtlantic   Mercury One-2-One
           Bosch Telecom  Motorola
           Capital Lane   Orange Personal Communications
           Comtel         Siemens
           Embratel       Tellabs
           Ericsson       WinStar Communications
</TABLE>

   During 1999, sales to Orange Personal Communications Services, Bosch
Telecom, and WinStar Communications accounted for approximately 20%, 13% and
11% of our total sales, respectively. We expect that sales to relatively few
customers will continue to account for a high percentage of our sales in the
foreseeable future. Although the composition of the group comprising our
largest customers may vary from period to period, the loss of a significant
customer or a major reduction in orders by any significant customer, including
reductions due to market, economic or competitive conditions in the
telecommunications industry, may have a material adverse effect on our
business, financial condition and results of operations. While we generally
enter into written agreements with our major customers, they do not provide
for minimum purchase commitments. Our ability to maintain or increase our
sales in the future will depend, in part upon our ability to obtain orders
from new customers as well as the financial condition and success of our
customers, the telecommunication industry and the economy in general.

                                       6
<PAGE>


   We operate in two segments: Product Sales and Service Sales. The Product
Sales segment consists of organizations located primarily in the United
States, the United Kingdom, and Italy, which develop, manufacture and/or
market network access systems for use in the worldwide wireless
telecommunications market. The Service Sales segment consists of organizations
primarily located in the United States, the United Kingdom and Italy, which
provide comprehensive network services including system and program planning,
and management, path design, and installation for the wireless communications
market. See Note 14 to the Financial Statements for additional information
regarding the operations of our operating segments, as well as the allocation
of sales by geographic customer destination.

   The Company's backlog was approximately $32.6 million as of December 31,
1999, as compared to approximately $75.0 million as of December 31, 1998. The
decrease is due to the timing of purchase orders received from the Company's
largest customers relating to ongoing contracts. 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, 1999
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 P-Com Strategy

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

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

   Provide Ancillary Services in RF Engineering and System Construction. P-Com
offers engineering, path design, program management, installation, and
maintenance services. We believe such services provide us with many strategic
advantages, including allowing development of strong relationships with
decision-makers at an early stage, and continuation of such relationships
throughout the system build-out.

   Continue to Expand Worldwide. P-Com conducts a majority of its business
abroad. We have met the standards established by the European
Telecommunications Standards Institute (ETSI) and achieved regulatory approval
for our systems in Argentina, Australia, Austria, Brazil, Canada, China, the
Czech Republic, France, Germany, Greece, Hungary, Italy, Japan, Mexico, Spain,
the United Kingdom, as well as those required by the United States. We
maintain offices throughout the world.

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

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

                                       7
<PAGE>

Technology

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

   Wireless transmission of voice, data and video traffic has become a
desirable alternative to wired solutions due to its advantages in the ease and
cost of implementation and maintenance. Because high frequency transmissions
are best suited for 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.

   P-Com's Point-to-Point technology uses four-level (FSK) modulation which is
spectrally efficient and very impervious to interference. This robust quality
results in improved frequency reuse distances which is beneficial to operators
of large-scale Point-to-Point radio network deployments.

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

   P-Com's Point-to-Point and Spread Spectrum microwave radios 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 wave guide transition technology. The following
diagram illustrates a typical P-Com Tel-Link(R) point-to-point radio system:


                             [GRAPH APPEARS HERE]




                                       8
<PAGE>

   We believe our 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 down converter 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.

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

   P-Com's architecture is designed to achieve reliability, cost, installation
and maintenance benefits over conventional approaches. The Company employs a
common architecture in the ODU for all stages of the system other than the
frequency converter used to establish the millimeter wave frequency at which
the system operates. 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's Point-to-Multipoint radios take advantage of all the existing
technologies, and provide further software configurable options. The system is
comprised of Base Station equipment transmitting to many Remote Terminals
within a sector. This "downlink" carries ATM cells over the air. The return,
or up-link from the Remote to the Base Station, can operate in either FDMA or
TDMA mode. This gives the network service provider the option of selecting the
most efficient transmission method for the type of traffic to be carried. FDMA
is efficient for constant bit rate, high-capacity traffic, while TDMA is more
suitable for fractional rate, or bursty type data. The system can uniquely
operate concurrently in both modes within the sector thereby providing the
network access operator the flexibility to design systems that uniquely match
the specific traffic profiles within individual sectors.

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

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

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

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

                                       9
<PAGE>

 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 $32.4 million, $38.9 million and
$27.9 million in 1999, 1998 and 1997, 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 two
distinct efforts: (1) increasing the functionality of its point-to-point and
point-to-multipoint radio systems under development by adding additional
frequencies and capacities to its product portfolio, modifying its network
management system software offering, and developing other advancements to its
radio systems under development, and (2) integrating new functionality to
extend the reach of its products into the customers' networks, such as access
technology which allows the customer to manage telecommunications services at
its site and integrate voice, data, video and facsimile in one offering. There
can be no assurance that current efforts will result in new product
introductions or modifications to existing products. The wireless
communications market is subject to rapid technological change, frequent new
product introductions and enhancements, product obsolescence, changes in end-
user requirements and evolving industry standards. The Company's ability to be
competitive in this market will depend in significant part upon its ability to
develop successfully, introduce, and sell new systems and enhancements and
related software tools on a timely and cost effective basis that respond to
changing customer requirements. The Company has experienced and may continue
to experience delays from time to time in completing development and
introduction of new systems, and enhancements or related software tools. There
can be no assurance that errors will not be found in the Company's systems
after commencement of commercial shipments, which 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.

 Sales And Marketing

   P-Com's sales and marketing efforts are headquartered in the Company's
executive offices in Campbell, California. The Company has sales and customer
support facilities in the United Kingdom and Germany that serve as bases for
the European market. 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 also has sales offices or
personnel located in China, Singapore, France and Poland. In addition, the
Company has established agent relationships in numerous other countries in the
Asia/Pacific region, the mid-East, South America, and Europe. In the United
States, the Company utilizes both direct sales and OEM channels.

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

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

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

                                      10
<PAGE>

 Competition

   The worldwide wireless communications market is very competitive. P-Com'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 increasing
competition worldwide from a number of leading telecommunications companies
that offer a variety of competitive products and services, including Alcatel
Network Systems, Spectra Point, Floware, Digital Microwave, Ericsson, Harris-
Farinon Division, Nokia, Nortel/BNI, SIAE, Hughes Network Systems, and Western
Multiplex Corporation, many of which have substantially greater installed
bases, financial resources and production, marketing, manufacturing,
engineering and other capabilities than P-Com. The Company faces actual and
potential competition not only from these established companies, but also from
start-up companies that are developing and marketing new commercial products
and services, such as DSL. The Company may also face competition in the future
from new market entrants offering competing technologies. The Company's
results of operations may depend in part upon the extent to which these
customers which choose to rely on wireless strategies elect to purchase from
outside sources rather than develop and manufacture their own radio systems.
There can be no assurance that such customers will rely on or expand their
reliance on the Company as an external source of supply for their radio
systems. 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, and ability to meet delivery
requirements and customer service and support. 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.

   Because network services provided by the Company are provided primarily to
the same companies who are customers of the Company's wireless-based radio
systems, competitors in this market segment include some of 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 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

                                      11
<PAGE>

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.

 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
Wireless 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.

                                      12
<PAGE>

Employees

   During January, February, April and July of 1999, the Company laid off
approximately 74 employees from its Campbell facilities, 18 employees from its
Redditch facilities, and 4 employees from its Florida 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.

   As of December 31, 1999, P-Com had a total of 901 employees, including 489
in Operations, 133 in Research and Development, 87 in Sales and Marketing, 23
in Quality Assurance, and 169 in Administration. P-Com believes our future
results of operations will depend in large part on our ability to attract and
retain highly skilled employees. None of the Company's employees are
represented by a labor union, and we have not experienced any work stoppages.

ITEM 2. PROPERTIES.

<TABLE>
<CAPTION>
     Location of                                       Square          Date Lease
 Leased Facility (1)            Functions              Footage          Expires
 -------------------            ---------              -------         ----------
 <S>                      <C>                          <C>           <C>
 HEADQUARTERS
  Campbell, CA                Administration           61, 000       September 2005
  USA                     Sales/Customer Support
                               Engineering
                              Manufacturing

  Campbell, CA                Manufacturing             25,000       September 2002

  San Jose, CA                  Warehouse               34,000       September 2000

  Redditch, England       Sales/Customer Support         5,500         June 2005

  Watford, England         Research/Development          7,500         April 2008

  Redditch, England             Warehouse                6,800       September 2004

  Vienna, VA                  Administration            15,000         April 2002
                          Sales/Customer Support

  Sterling, VA                Administration            15,000       September 2000

  Orange, CA                    Warehouse                3,400         April 2000

  Northants, England          Administration             5,290        August 2011
                          Sales/Customer Support

  Essex, England              Administration             8,000       September 2007
                          Sales/Customer Support

  Fair Lawn, NJ               Administration            43,700         June 2005
                          Sales/Customer Support
                               Engineering
                              Manufacturing

  Frankfurt, Germany         Warehouse/Sales            11,000       September 2000
                           and Customer Support

  Melbourne, Florida       Research/Development         36,250         June 2001

  Beijing, China          Sales/Customer Support         3,500         March 2000

  Mexico City, Mexico     Sales/Customer Support         4,050       Month to Month
                              Administration

  Rome, Italy (2)         Sales/Customer Support        27,000        October 2001
                               Engineering
                              Manufacturing

  Rome, Italy (2)               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.

(2) Leased properties located in Rome, Italy pertain to the operations of
    Technosystem, which was sold in February 2000. Leases related to these
    properties were assumed by the buyer at the time of the sale.

                                      13
<PAGE>

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

ITEM 3. LEGAL PROCEEDINGS

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

   On December 3, 1998, the Superior Court of California, County of Santa
Clara, entered an order consolidating all of the above complaints. On January
15, 1999, the plaintiffs filed a consolidated amended class action complaint.

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

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

   None.

              EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT

   The executive officers and directors of the Company, their ages as of March
29, 2000, and their positions and their backgrounds are as follows:

<TABLE>
<CAPTION>
   Name                     Age                     Position
   ----                     ---                     --------
   <C>                      <C> <S>
   George P. Roberts.......  67 Chairman of the Board and Chief Executive
                                Officer
   James J. Sobczak........  58 President and Chief Operating Officer, Director
   Robert E. Collins.......  53 Chief Financial Officer, Vice President
   John R. Wood............  44 Senior Vice President, Advanced Technologies
   Brian T. Josling........  57 Director
   John A. Hawkins.........  39 Director
   M. Bernard Puckett......  54 Director
</TABLE>

Background

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

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

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

                                      14
<PAGE>


   Mr. Collins has served as Vice President and Chief Financial Officer since
April 1999. From 1998-1999 he served as Vice President and Chief Financial
Officer of Bell Sports, a major manufacturer of bicycle and auto racing
helmets. From 1995 to 1998 Mr. Collins was Vice President and Chief Financial
Officer of Zilog, Inc. a semiconductor company.

   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.

   Mr. Josling has served as Director of the Company since September 1999.
From 1994 to present, he serves as Chairman of the Board and Chief Technology
Officer of Aval Communiations, a telecommunications corporation, and also
serves as Corporate Director for BC Rail Properties, Ltd, The Angus Reid
Group, MK Telecom Network, Inc.

   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.

   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.

Board Committees and Meetings

   The Board of Directors held ten (10) meetings and acted by unanimous
written consent 18 times during the fiscal year ended December 31, 1999. 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 portion of 1999.

   The Audit Committee currently consists of two directors, Mr. Josling and
Mr. Puckett, and is primarily responsible for approving the services performed
by the Company's independent 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 1999.

   The Compensation Committee currently consists of two directors, Mr. Hawkins
and Mr. Puckett, and is primarily responsible for reviewing and approving the
Company's general compensation policies and setting compensation levels for
the Company's executive officers. The Compensation Committee also has the
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 held one (1) meetings and acted
by unanimous written consent 8 times during 1999.

Director Compensation

   Non-employee 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.

                                      15
<PAGE>

                                    PART II

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

   Our Common Stock is quoted in the Nasdaq National Market under the symbol
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 in 1998 and
1999.

   At March 13, 2000, we had approximately 460 holders of record of its Common
Stock.

<TABLE>
<CAPTION>
                                                                Price Range of
                                                                 Common Stock
                                                                ---------------
                                                                 High     Low
                                                                ------- -------
   <S>                                                          <C>     <C>
   Year Ended 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

   Year Ended December 31, 1999
     First Quarter............................................. $ 10.38 $  3.31
     Second Quarter............................................    7.72    3.75
     Third Quarter.............................................    8.00    3.69
     Fourth Quarter............................................   10.00    4.56
</TABLE>

Recent Sales of Unregistered Securities

   On December 22, 1998, we issued to Castle Creek Technology Partners LLC,
Capital Ventures International and Marshall Capital Management, Inc., 5,500,
5,000, and 4,500 shares, respectively, our 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.

   On June 22, 1999, the State of Wisconsin Investment Board purchased
5,034,000 shares of our Common Stock for $3.97 per share as part of a private
placement in which other, unaffiliated investors purchased an additional
$20,000,000 of Common Stock at the same price and on the same terms. The price
was calculated as 92.5% of the mean averaged of the closing sale prices of our
Common Stock for the 15 consecutive trading days ended on and including June
17, 1999.

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


                                      16
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA.

<TABLE>
<CAPTION>
                                          Year Ended December 31,
                             ---------------------------------------------------
                                            1998
                               1999     (restated)(2)   1997      1996    1995
                             ---------  ------------- --------  -------- -------
                                   (in thousands, except per share data)
<S>                          <C>        <C>           <C>       <C>      <C>
STATEMENT OF OPERATIONS
 DATA:
Sales:
 Product...................  $ 116,409    $118,948    $169,453  $101,853 $52,856
 Service...................     40,470      43,597      30,157    19,100  11,607
                             ---------    --------    --------  -------- -------
   Total sales.............    156,879     162,545     199,610   120,953  64,463
                             ---------    --------    --------  -------- -------
Cost of sales:
 Product...................    107,378      93,829      96,948    60,362  29,949
 Service...................     28,274      30,777      18,968    13,696   7,507
                             ---------    --------    --------  -------- -------
   Total cost of sales.....    135,652     124,606     115,916    74,058  37,456
                             ---------    --------    --------  -------- -------
 Gross profit..............     21,227      37,939      83,694    46,895  27,007
                             ---------    --------    --------  -------- -------
Operating expenses:
 Research and
  development..............     32,431      38,882      27,854    20,163  12,284
 Selling and marketing.....     17,135      19,224      12,795     7,525   4,837
 General and
  administrative...........     25,179      24,260      11,029    10,178   5,573
 Goodwill amortization.....      6,547       5,023       1,380       105     --
 Restructuring charges.....      3,300       4,332         --        --      --
 Acquired in-process
  research and
  development(2)...........        --       15,442         --        --      --
                             ---------    --------    --------  -------- -------
   Total operating
    expenses...............     84,592     107,163      53,058    37,971  22,694
                             ---------    --------    --------  -------- -------
Income (loss) from
 operations................    (63,365)    (69,224)     30,636     8,924   4,313
Interest expense...........     (8,175)     (8,652)     (1,811)      --      --
Other income (expense),
 net.......................     (2,537)      1,446       1,988       906     167
                             ---------    --------    --------  -------- -------
Income (loss) from
 continuing operations
 before income taxes and
 extraordinary item........    (74,077)    (76,430)     30,813     9,830   4,480
Provision (benefit) for
 income taxes..............      1,407     (11,501)     11,018       956     761
                             ---------    --------    --------  -------- -------
Income (loss) from
 continuing operations
 before extraordinary
 item......................    (75,484)    (64,929)     19,795     8,874   3,719
                             ---------    --------    --------  -------- -------
Discontinued Operations(2):
 Loss from operations......    (13,903)     (2,869)       (904)      --      --
 Loss on disposal..........    (26,901)        --          --        --      --
                             ---------    --------    --------  -------- -------
                               (40,804)     (2,869)       (904)      --      --
                             ---------    --------    --------  -------- -------
Extraordinary gain on
 retirement of notes.......     13,239       5,333         --        --      --
                             ---------    --------    --------  -------- -------
Net income (loss)..........  $(103,049)   $(62,465)   $ 18,891  $  8,874 $ 3,719
                             ---------    --------    --------  -------- -------
Net income (loss)
 applicable to Common
 Stockholders:
 Net income (loss).........  $(103,049)   $(62,465)   $ 18,891  $  8,874 $ 3,719
 Charge related to
  Preferred Stock
  discount.................                 (1,839)        --        --      --
 Loss on conversion of
  Preferred Stock to
  Common Stock.............    (18,521)        --          --        --      --
                             ---------    --------    --------  -------- -------
Net income (loss)
 applicable to Common
 Stockholders..............  $(121,570)   $(64,304)   $ 18,891  $  8,874 $ 3,719
                             =========    ========    ========  ======== =======
Basic income (loss) per
 share(1):
 Income (loss) from
  continuing operations....  $   (1.32)   $  (1.50)   $   0.47  $   0.23 $  0.11
 Loss from discontinued
  operations...............      (0.72)      (0.07)      (0.02)      --      --
 Extraordinary gain on
  retirement of notes......       0.23        0.12         --        --      --
 Charges related to
  Preferred Stock discount
  and Loss on Conversion
  of Preferred Stock.......      (0.32)      (0.04)        --        --      --
                             ---------    --------    --------  -------- -------
 Net income (loss) per
  share applicable to
  Common Stockholders......  $   (2.13)   $  (1.49)   $   0.45  $   0.23 $  0.11
                             =========    ========    ========  ======== =======
Diluted income (loss) per
 share(1):
 Income (loss) from
  continuing operations....  $   (1.32)   $  (1.50)   $   0.44  $   0.22 $  0.11
 Loss from discontinued
  operations...............      (0.72)      (0.07)      (0.02)      --      --
 Extraordinary gain on
  retirement of Notes......       0.23        0.12         --        --      --
Charges related to
 Preferred Stock discount
 and Loss on Conversion of
 Preferred Stock...........      (0.32)      (0.04)        --        --      --
                             ---------    --------    --------  -------- -------
   Diluted net income
    (loss) per share
    applicable to common
    stockholders...........  $   (2.13)   $  (1.49)   $   0.42  $   0.22 $  0.11
                             =========    ========    ========  ======== =======
Shares used in per share
 computations:
 Basic.....................     56,995      43,254      42,175    38,762  32,645
                             =========    ========    ========  ======== =======
 Diluted...................     56,995      43,254      44,570    40,607  34,853
                             =========    ========    ========  ======== =======
</TABLE>



                                       17
<PAGE>

<TABLE>
<CAPTION>
                                               December 31,
                               -----------------------------------------------
                                 1999       1998      1997     1996     1995
                               ---------  --------  -------- --------  -------
                                              (in thousands)
<S>                            <C>        <C>       <C>      <C>       <C>
BALANCE SHEET DATA:
Cash and cash equivalents....  $  11,629  $ 29,241  $ 88,145 $ 42,226  $ 8,871
Working capital..............     31,984    78,967   196,279   90,811   38,473
Total assets.................    213,640   315,217   305,521  155,452   62,964
Long-term debt...............     39,858    97,769   101,690      914      491
Mandatorily Redeemable
 Preferred Stock.............        --     13,559       --       --       --
Mandatorily Redeemable Common
 Stock Warrants..............        --      1,839       --       --       --
Retained earnings
 (accumulated deficit).......   (148,973)  (45,924)   18,380     (511)  (9,360)
Stockholders' equity.........     89,215    99,409   148,297  112,479   47,258
</TABLE>
--------
(1) See Note 1 of Notes to Consolidated Financial Statements for an
    explanation of the method used to determine share and per share amounts.

(2) The financial information presented in this Annual Report on Form 10-K has
    been restated to include (a) the operating results of Control Resources
    Corporation, which was acquired in a pooling-of-interests transaction on
    May 29, 1997; (b) RT Masts Limited and Telematics, Inc., which were
    acquired in pooling-of-interests transactions on November 27, 1997, (c) to
    revise the accounting treatment of certain contracts with a major
    customer, the net effect of which was to reduce 1998 revenue and pretax
    income by $7.1 million and to reduce the first quarter of 1999 revenue and
    pretax income by $0.9 million; and (d) the decision to report the
    divestiture of our wholly owned Italian subsidiary Technosystem as a
    discontinued operation resulting in this business segment no longer being
    included in the our financial statements on a line item basis, but instead
    shown separately as a discontinued operation. See Notes 2, 3 and 8 to the
    Consolidated Financial Statements.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS.

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

Overview

   We supply equipment and services for access to worldwide telecommnications
and broadcast networks. We founded the Company in April 1991 to develop,
manufacture, market and sell millimiter wave radio systems for wireless
networks. Currently, we ship 2.4 GHz and 5.7 GHz spread spectrum radio
systems, as well as 7 GHz, 13 GHz, 14 GHz, 15 GHz, 18 GHz, 23 GHz, 26 GHz, 38
GHz and 50 GHz radio systems. We also provides software and related services
for these products. Additionally, we offer turnkey microwave relocation
services, engineering, path design, program management, installation and
maintenance of communication systems to network service providers. Our point-
to-multipoint radio system for use in the telecommunications industry has
reached the production stage and shipments resulted in production revenues
beginning in the fourth quarter of 1999. We anticipate that our ability to
generate future revenues and profits will depend in large part on the success
of the point-to-multipoint product line.

   The net loss for 1999 included unusual charges of $36.5 million which were
related to our Product segment. The net loss in 1998 included restructuring
and other charges of $26.6 million and acquired in-process research and
development charges of approximately $15.4 million related to the acquisition
of the assets of the Cylink Wireless Group from Cylink Corporation. The net
losses in 1999 and 1998 were primarily due to the worldwide downturn in the
telecommunications equipment market as a whole which began in the second half
of 1998, in

                                      18
<PAGE>

part due to the economic turmoil in Asia. We experienced a sharp decrease in
sales beginning in September 1998, and began a cost reduction program shortly
thereafter.

   We amended, and pursuant to those amendments have revised, our 1998 and
first quarter of 1999 financial statements to revise the accounting treatment
of certain contracts with a major customer. Under a joint license and
development contract, we recognized $10.5 million of revenue in 1998 and $1.5
million in the first quarter of 1999 of this $12 million contract on a
percentage of completion basis. As previously disclosed, we determined that a
related Original Equipment Manufacturer ("OEM") agreement which provided for
subsequent payments of $8 million to this customer, specifically earmarked for
marketing our products manufactured for this customer, should have offset a
portion of the revenue recognized previously. The net effect of this
restatement was to reduce 1998 revenue and increase pretax loss by $7.1
million and to reduce 1999 revenue and increase 1999 pretax loss by $0.9
million.

   In March 1998, we recorded a charge for purchased in-process research and
development (IPR&D) in a manner consistent with widely recognized appraisal
practices at the date of acquisition. In the fourth quarter 1998 we became
aware of 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, the 1998 first quarter charge
for acquired IPR&D was decreased from $33.9 to $15.4 million. The result of
this restatement is a decrease of $18.5 million in IPR&D charge with a
corresponding increase in goodwill and other intangible assets.

Years Ended 1999, 1998 and 1997

   Sales. Sales consist of revenues from radio systems and service offerings.

   In 1999, 1998 and 1997, sales were approximately $156.9 million, $162.5
million, and $199.6 million, respectively. The 3.5% decrease in sales from
1998 to 1999 was primarily due to the downturn in the telecommunications
equipment market.

   The 18.6% decrease in sales from 1997 to 1998 was primarily due to the
market slowdown for our 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 1998,
the Tel-Link product line contributed approximately 58.2% of our total sales,
compared to approximately 77.6% of our total sales in 1997.

   During 1999, the Tel-Link Point-to-Point product line contributed
approximately 59.0% of our total sales, compared to approximately 58.2% of our
sales during 1998 and 77.6% during 1997. The Spread Spectrum product line
contributed approximately 11.3% of our total sales during 1999, compared to
approximately 10.6% of our sales during 1998 and 0% during 1997. While our
Point-to-Multipoint Tel-Link product line, which was introduced in late fourth
quarter 1999, contributed only approximately $1.1 million of sales in 1999, we
are experiencing strong indications of interest in this product line which we
expect will result in increased sales in 2000.

   Sales to Orange Personal Communications Services accounted for
approximately 20%, 24% and 15% of total sales in 1999, 1998 and 1997,
respectively. Sales to WinStar Communications accounted for approximately 13%
and 11% of total sales in 1999 and 1997. Sales to Bosch Telecom accounted for
approximately 13% of total sales in 1999.

   Product sales for 1999 decreased approximately $2.5 million or 2.1% during
the year as compared to a decrease of approximately $50.5 million or 29.8%
during 1998. Product sales represented approximately 74.2%, 73.2% and 84.9% of
sales in 1999, 1998 and 1997, respectively. The decrease in product sales in
1998 was primarily due to the continued slowdown in the telecommunication
equipment industry and declining prices as a result of the Pacific Rim
currency crisis and surplus capacity in the industry.

   Service sales for 1999 decreased approximately $3.1 million or 7.2% from
the prior year as compared to an increase of approximately $13.4 million or
44.6% during 1998. Service sales represented 25.8%, 26.8% and

                                      19
<PAGE>

15.1% of total sales in 1999, 1998 and 1997, respectively. The increase in
service sales as a percentage of total sales in 1998 was primarily due to
increased presence in international markets through acquisitions in the United
Kingdom and Italy.

   Historically, we have generated a majority of our sales outside of the
United States. During 1999, we generated approximately 30.8% of our sales in
the US, 34.5% in the United Kingdom, 18.0% in Europe excluding the UK, 6.1% in
Asia, and 10.7% in other geographic regions. During 1998, we generated
approximately 25.6% of our sales in the US, 43.9% in the United Kingdom, 7.5%
in Europe excluding the UK, 11.8% in Africa, 11.3% in Asia and 16.7% in other
geographic regions. During 1997, we generated approximately 35.2% of our sales
in the US, 34.7% in the United Kingdom, 11.9% in Europe excluding the UK, 3.2%
in Africa, 7.8% in Asia and 7.1% in other geographic regions.


   Many of our largest customers use our 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 area or a market. Consequently, the customer may have
different requirements from year to year and may vary its purchases from us
accordingly.

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

   Gross Profit. Cost of sales consists primarily of costs related to
materials, labor and overhead, and freight and duty. In 1999, 1998 and 1997,
gross profits were $21.2 million, $37.9 million and $83.7 million,
respectively, or 13.5%, 23.3% and 41.9% of sales, respectively.

   In 1999 and 1998, product gross margins were affected by inventory and
other related charges of $21.4 million and $16.9 million, respectively. (See
Restructuring and Other Charges below.) Normalized product gross profit as a
percentage of product sales, not including the effect of the inventory charges
described above, was approximately 27.2%, 33.7% and 41.9% in 1999, 1998 and
1997, respectively. In 1999, the decrease in such normalized product gross
profit percentage was due to manufacturing variances and declining average
selling prices which generated lower margins. In 1998, 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.

   Service gross profit as a percentage of service sales was approximately
30.1%, 29.4% and 37.1% in 1999, 1998, and 1997, respectively. The decrease in
service gross profit percentage in 1998 was due to increased price competition
and changes in the service offering mix.

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

   In 1999, 1998 and 1997, research and development expenses were
approximately $32.4 million, $38.9 million and $27.9 million, respectively. As
a percentage of sales, research and development expenses

                                      20
<PAGE>

decreased from 23.9% in 1998 to 20.7% in 1999, primarily due to our point-to-
multipoint development project, which was completed in the fourth quarter of
1999, resulting in reduced spending for this project as compared to the prior
year. The increase in research and development expenses as a percentage of
sales from 14.0% in 1997 to 23.9% in 1998 was primarily due to our 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 our engineering efforts to develop a point-to-multipoint
product.

   Selling and Marketing. Selling and Marketing expenses consist of salaries,
sales commissions, travel expenses, customer service and support expenses and
costs related to advertising and trade shows. In 1999, 1998 and 1997, sales
and marketing expenses were $17.1 million, $19.2 million and $12.8 million,
respectively. As a percentage of sales, selling and marketing expense
decreased from 11.8% in 1998 to 10.9% in 1999, primarily due to a reduction in
spending during 1999. The decrease in actual spending in 1999 was due to the
Company implementing a cost reduction program which included personnel
reductions and the closure of sales offices in the United Arab Emirates and
Mexico. As a percentage of sales, selling and marketing expense increased from
6.4% in 1997 to 11.8% in 1998, primarily due to a lower level of sales in 1998
and the expansion and start-up of our international sales and marketing
organization, including opening sales offices in the United Arab Emirates,
Singapore, China, and Mexico.

   General and Administrative. General and administrative expenses consist
primarily of salaries and other expenses for management, finance, accounting,
and legal and other professional services. In 1999, 1998 and 1997, general and
administrative expenses were $25.2 million, $24.3 million and $11.0 million,
respectively. As a percentage of sales, general and administrative expense
increased from 14.9% in 1998 to 16.0% in 1999, primarily due to a charge for
accounts receivable write-offs and reserves of $11.8 million and charges of
$3.3 million for the abandonment of one of our leased facilities in Campbell,
California. Additionally, this increase in general and administrative expenses
as a percentage of sales was due in part to a lower level of sales in 1999 as
compared to 1998. As a percentage of sales, general and administrative expense
increased from 5.5% in 1997 to 14.9% in 1998, primarily due to a lower level
of sales in 1998, increased staffing and other costs resulting from our
international expansion and acquisitions, and a $5.4 million increase in
accounts receivable reserves that were charged to general and administrative
expenses as a result of our recording restructuring and other charges in 1998.

   Goodwill Amortization. Goodwill represents the excess of the purchase price
over the fair value of the net identifiable assets of acquired companies
accounted for as purchase business combinations. Goodwill is amortized based
on a straight-line basis over the period of expected benefit, ranging from 3
to 20 years. In 1999, 1998 and 1997, goodwill amortization was approximately
$6.5 million, $5.0 million, and $1.4 million, respectively. The increase in
goodwill amortization for 1999 as compared to 1998 was due to recording a full
year of amortization expense relating to the acquisition of the assets of the
Cylink Wireless Group on March 28, 1998. The increase in goodwill amortization
from 1997 to 1998 was due to recording a full year of amortization expense for
the acquisitions of and the assets of CSM, a Vienna, Virginia-based
partnership, which was 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.

   We are currently evaluating and revising our business plan for the Cylink
Wireless Group, and based on changes to the Cylink Wireless Group's expected
revenue stream, an evaluation analysis of the recoverability of the goodwill
related to this acquisition may be required. Should a determination be made
which indicates that the goodwill balance is impaired, we may be required to
expense the impaired portion during 2000.

   Restructuring and other Charges. In 1999, we determined that there was a
need to reevaluate our sales forecasts, and to size the business to meet a
decrease in forecasted sales over the next twelve months. The change in
forecast was prompted by the slower than expected recovery in the
telecommunications industry, and resulted in total charges of $36.5 million
during 1999. These charges consisted of $11.8 million in accounts receivable
write-offs and reserves, $3.3 million in facility and fixed asset write-offs
and other related charges, and an increase to inventory reserves and related
charges of approximately $21.4 million.

                                      21
<PAGE>

   In 1998, we approved restructuring plans, which included initiatives to
integrate the operations of acquired companies, consolidate duplicate
facilities, and reduce overhead. Accrued restructuring costs of $4.3 million
were recorded in 1998 relating to these initiatives, including severance and
benefits of approximately $0.6 million, facilities and fixed assets
impairments of approximately $0.9 million, and goodwill write-off of
approximately $2.9 million. In addition, we recorded accounts receivable
reserves of $5.4 million and inventory reserves of $16.9 million (including
$14.5 million in inventory write downs related to our existing core business
and $2.4 million in other charges to inventory relating to the elimination of
product lines).

   The accrued restructuring and other charges and amounts charged against the
accrual as of December 31, 1999 are as follows (in thousands):

<TABLE>
<CAPTION>
                                Accrual At            Expenditures  Accrual At
                               December 31,               and      December 31,
                                   1998     Additions  Write-offs      1999
                               ------------ --------- ------------ ------------
<S>                            <C>          <C>       <C>          <C>
Severance and benefits.......    $   569     $   300    $   (869)    $   --
Facility and fixed asset
 write-offs..................        879       3,000      (3,879)        --
Goodwill impairment..........      2,884         --       (2,884)        --
                                 -------     -------    --------     -------
Total restructuring charges..      4,332       3,300      (7,632)        --
                                 -------     -------    --------     -------
Inventory reserve............     16,922      15,400     (16,142)     16,180
Non-cancellable purchase
 commitments reserve.........        --        6,000      (3,053)      2,947
                                 -------     -------    --------     -------
Total inventory and other
 related charges.............     16,922      21,400     (19,195)     19,127
                                 -------     -------    --------     -------
Accounts receivable reserve..      5,386      11,800      (7,517)      9,669
                                 -------     -------    --------     -------
Total accrued restructuring
 and other unusual charges...    $26,640     $36,500    $(34,344)    $28,796
                                 =======     =======    ========     =======
</TABLE>

   We expect that operating expenses, including research and development,
selling and marketing, and general and administrative costs will decrease as a
percentage of sales in 2000 as a result of the cost reduction plan implemented
in 1999.

   In-Process Research and Development. We had no expenses for acquired in-
process research and development in 1999.

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

   Various factors were considered in determining the amount of the allocation
of the purchase price to IPR&D such as estimating the stage of development of
each IPR&D 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 is
being amortized over the expected revenue stream of the developed products.
The value of the acquired workforce is being amortized on a straight-line
basis over three years, and the remaining identified intangibles, including
core technology and other intangibles are being amortized on a straight-line
basis over ten years.

   During 1998, due to limited staff and facilities, we 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 is not expected to be completed prior to the end of year 2000. The
point-to-point project, discussed above, which was acquired from the Cylink
Wireless Group, was completed during 1998 at an

                                      22
<PAGE>

estimated total cost of $2.0 million. The enhanced Airlink projects were
completed during 1999 at an estimated total cost of $0.6 million.

   If the remaining projects are not successfully developed, our 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.

   Interest Expense. In 1999, 1998, and 1997, interest expense was $8.2
million, $8.7 million and $1.8 million, respectively. For 1999 and 1998,
interest expense consisted primarily of interest and fees incurred on
borrowings under our bank line of credit, interest on the principal amount of
our subordinated 4 1/4% convertible promissory notes due 2002 (the Notes),
equipment leases, contractual penalties for late filing of the registration
statement in connection with the issuance of the Series B Convertible
Preferred Stock and the related warrants, and finance charges related to our
receivables purchase agreements. For 1997, interest expense consisted
primarily of interest accrued on our bank line of credit and equipment lease
lines. Given our current lower debt levels, we expect interest expense to
decrease in 2000.

   Other income (expense), net. In 1999, other income and expense consists
primarily of the final Cylink Wireless purchase price dispute settlement of
$3.3 million. For 1999, 1998 and 1997, interest income consisted primarily of
interest generated from cash maintained in its interest bearing bank accounts.
In 1999, 1998 and 1997, interest income was $0.6 million, $1.5 million and
$1.5 million, respectively. For 1999, 1998 and 1997, we incurred net other
expenses of $3.2 million, $(0.1) million, and $0.5 million.

   Sales contracts negotiated in foreign currencies have been primarily
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. We may in the future be
exposed to the risk of foreign currency gains or losses depending upon the
magnitude of a change in the value of a local currency in an international
market. We have entered into foreign currency hedging transactions to reduce
exposure to foreign exchange risks. As of December 31, 1999, we had forward
exchange contracts valued at approximately $3.5 million. The forward contracts
generally have maturities of six months or less.

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

   In 1999 we recorded an estimated loss on disposal of $26.9 million,
including the write-off of approximately $12.5 million of goodwill, related to
the disposal of Technosystem. Losses from discontinued operations were $8.2
million, $2.9 million and $0.9 million in 1999, 1998 and 1997, respectively.
The divestiture, which was completed in February 2000, is not expected to have
a material impact on future revenues and operational expenses.

   Extraordinary Item. In December 1999, we exchanged an aggregate of $23.8
million of our Notes for an aggregate of 2,359,000 shares of our Common Stock
with a fair market value of $17.8 million. This transaction resulted in an
extraordinary gain of $6.0 million. In January and February of 1999, we
exchanged an aggregate of $25.5 million of our Notes for an aggregate of
2,792,000 shares of our Common Stock with a fair market value of $18.3 million
and recorded an extraordinary gain of $7.2 million. In December 1998, we
exchanged an aggregate of $14.3 million of our Notes for an aggregate of
2,467,000 shares of our Common Stock with a fair market value of $9.0 million,
which resulted in an extraordinary gain of $5.3 million.

   Charge related to preferred stock discount. In 1999 and 1998 we recorded
charges of $18.5 million and $1.8 million, respectively, related to preferred
stock discount increasing the loss attributable to Common

                                      23
<PAGE>

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

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

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

   Provision (Benefit) for Income Taxes. Our effective tax rates for 1999,
1998 and 1997 were 1.4%, 16.9% and 36.9% respectively. Our 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 our sales are to foreign customers, the
majority of our pre-tax income is domestic as most sales originate in the
United States.

Liquidity And Capital Resources

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

   In 1999, we used approximately $29.4 million of cash in operating
activities, primarily due to the net loss of $103.0 million and the non-cash
gain on exchange of Convertible Notes of $13.2 million offset by non-cash
charges for restructuring and other charges aggregating $36.5 million and the
loss on disposal of discontinued operations of $26.9 million. In addition, we
experienced increases in operating cash flow from non-cash depreciation and
amortization, and an increase related to accrued liabilities offset by a
decrease related to accounts receivable.

   During 1999, we used approximately $4.7 million in investing activities
primarily for the acquisition of property and equipment offset by proceeds on
sales of property and equipment of $1.4 million.

   During 1999, we retired approximately $49.3 million of our 4 1/4%
Convertible Subordinated Notes ("Notes") through the issuance of approximately
5.2 million shares of Common Stock. These non-cash exchanges resulted in an
extraordinary gain of approximately $13.2 million.

   In 1999, we generated approximately $17.1 million from financing
activities. We repaid approximately $21.5 million of borrowings under our bank
line of credit and other banking relationships, and received approximately
$38.3 million in net proceeds from a private placement of approximately 10.1
million shares of Common Stock in June.

   At December 31, 1999, we had working capital of approximately $32.0
million. In recent years, we have realized most of our sales near the end of
each quarter, resulting in a significant investment in accounts receivable

                                      24
<PAGE>

at the end of the quarter. We expect that our investments in accounts
receivable and inventories will continue to represent a significant portion of
working capital.

   Our principal sources of liquidity as of December 31, 1999 consisted of
approximately $11.6 million of cash and cash equivalents. At December 31,
1998, we had approximately $29.2 million in cash and cash equivalents. At
December 31, 1999, we had borrowed or had used as security for letters of
credit approximately $27.0 million under our line of credit, which expired on
January 15, 2000. In January 2000, we received approximately $43 million in
net proceeds from a private placement of Common Stock. Approximately
$27 million of the proceeds were used to repay our entire borrowings under the
line of credit. In addition, we entered into a new loan agreement for $12
million. The loan matures on January 31, 2001, subject to annual renewals.
Borrowings under the line are secured by our cash deposits, receivables,
inventory, equipment, investment property and intangibles. The maximum
borrowings under the agreement will be limited to 85% of eligible accounts
receivable, not to exceed $12 million. We issued the lender warrants to
purchase 200,000 shares of common stock at $5.71 per share. The warrants,
which are immediately exercisable and are subject to anti-dilution clauses,
expire on January 31, 2005.

   In addition to the revolving line of credit, our foreign subsidiaries have
lines of credit available from various financial institutions with interest
rates ranging from 8% to 12%. At December 31, 1999, $1.1 million had been
drawn down under these facilities. Subsequent to our year-end these
liabilities were assumed by the purchasers of Technosystem upon the
consummation of its disposition.

   At present, we do not have any material commitments for capital equipment
purchases. However, our future capital requirements will depend upon many
factors, including the repayment of our debt, the development of new radio
systems and related software tools, potential acquisitions, the extent and
timing of acceptance of our radio systems in the market, requirements to
maintain adequate manufacturing facilities, working capital requirements for
our acquired entities, the progress of our research and development efforts,
expansion of our marketing and sales efforts, our results of operations and
the status of competitive products. We believe that cash and cash equivalents
on hand, cash flow from operations and funds available, if any, from our loan
agreement should be adequate to fund our operations in the ordinary course of
business for at least the next twelve months. There can be no assurance,
however, that we will not require additional financing prior to such date to
fund our operations.

   We have in the past and may from time to time in the future sell our
receivables, as part of an overall customer financing program, with immaterial
recourse to the Company. There can be no assurance that we will be able to
locate parties to purchase such receivables on acceptable terms, or at all. To
the extent that our financial resources are insufficient to fund our
activities and to repay our debts, additional funds will be required. There
can be no assurance that any additional financing will be available to us on
acceptable terms, or at all, when required by us. If additional funds are
raised by issuing equity securities, further dilution to the existing
stockholders will result. If adequate funds are not available, we may be
required to delay, scale back or eliminate one or more of its research and
development or manufacturing programs, cease our acquisition activities or
obtain funds through arrangements with partners or others that may require the
Company to relinquish. Accordingly, the inability to obtain such financing
could have a material adverse effect on our business, financial condition and
results of operations.

   We are prohibited by the January 2000 agreement, under which we sold
7,530,642 shares of Common Stock, from issuing, offering or selling any Common
Stock, or other equity security, at any time before we register the 7,530,642
shares for resale, for less than 85% of the average closing sale price of our
shares over the 60 trading days before the new shares are sold. In addition,
the January 2000 investors have a right of first offer if their shares have
not been registered and the new shares are sold for less than $5.71 per share.
We have not yet been able to register the 7,530,642 shares for resale, and in
the recent past we have not been successful in having shares registered for
resale on a timely basis. Therefore these provisions could prevent us from
selling stock to raise funds, regardless of our needs and regardless of the
fairness of the proposed sales.

   For risk factors associated with our future capital requirements, please
see "Rapid Technological Change-- Additional Capital Requirements."

                                      25
<PAGE>

Acquisitions

   On March 28, 1998, we 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 was
ultimately assigned to in-process research and development and expensed in
1998. Developed technology is being amortized over the period of the expected
revenue stream of the developed products of approximately four years. The
value of the acquired workforce is being amortized on a straight-line basis
over three years, and the remaining intangibles, including goodwill and core
technology are being amortized on a straight-line basis over ten years.
Amortization expense related to the acquisition of the Cylink Wireless Group
was $5.2 million for 1999 and $3.7 in 1998.

   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, 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.

Year 2000 Readiness Disclosure and Euro Compliance

   To date, we have not experienced year 2000 problems related to our products
or our external relationships. Accordingly, we do not anticipate incurring
material expenses or experiencing any material operational disruptions as a
result of any year 2000 problems.

   On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing currencies and the
Euro and adopted the Euro as their common legal currency (the "Euro
Conversion"). The impact of the Euro Conversion was not material to the
Company in 1999. The Company is currently unsure of the future impact that the
Euro Conversion will have, particularly as it relates to its European
operations. However, the Company does not anticipate that the Euro Conversion
will have a material adverse effect on its future business, financial
condition, results of operations, or cash flows.

                                      26
<PAGE>

                  CERTAIN RISK FACTORS AFFECTING THE COMPANY

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

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

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.

History of Losses

   From inception to December 31, 1999, the Company had generated an
accumulated deficit of approximately $149.0 million. The decrease in retained
earnings from $18.4 million at December 31, 1997 to an accumulated deficit of
$149.0 million at December 31, 1999 was due primarily to the net loss of $62.5
million in 1998, as well as a net loss of $103.0 million in 1999.

   The net loss in 1999 included a loss on the discontinuation of
Technosystem, S.p.A of $40.8 million and unusual charges of $36.5 million
which were related to the Company's Product Business Segment. The net loss in
1998 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

                                      27
<PAGE>

Wireless Group from Cylink Corporation. The net loss in 1998 and 1999 was
primarily due to the worldwide downturn in the telecommunications equipment
market as a whole which began in the second half of 1998, in part due to the
economic turmoil which began in Asia. The Company experienced a sharp decrease
in its sales beginning in September 1998, as compared to prior quarters. The
Company laid off a portion of its work force in September, October and
November of 1998, as well as in June of 1999, and increased its inventory
reserves and wrote down uncollectible accounts receivable, certain of its
facilities, fixed assets and goodwill in the third quarter of 1998 and in the
second quarter of 1999.

   To date, the Company generated sales of approximately $805.9 million
(including Technosystem S.p.A and Cemetel S.r.l.) since inception. From
inception in October 1993 through December 31, 1996, sales were $234.1 million
or 29.0% of sales to date. For the period from January 1, 1997 through June
30, 1998, the Company entered into a growth stage, resulting in sales of
$336.7 million for this 18 month period or 41.8% of total sales to date. Sales
of $235.1 million or 29.2% of total sales were generated in the 18 month
period from July 1, 1998 through December 31, 1999. The decrease in sales
during the 18 months ended December 31, 1999 was primarily due to the
worldwide downturn in the telecommunications equipment market as a whole,
which began in the second half of 1998, in part due to the economic turmoil
which began in the Pacific Rim countries. There can be no assurance that the
Company's revenue will return to or increase from the levels experienced in
1997 or the first half of 1998, or that sales will not decline.

   In recent periods, the Company has been experiencing higher than historical
price declines. The decline in prices has had a significant downward impact on
the Company's gross margin. The Company expects pricing pressures to continue
for the next several quarters and also expects gross margins to continue to be
below comparable periods for the next several quarters.

   In recent periods, operating expenses increased more rapidly than the
Company had anticipated, and these increases also contributed to net losses.

Customer Concentration

   For 1999 and 1998, approximately two hundred customers accounted for
substantially all of the Company's sales. Sales to Orange Personal
Communications Services accounted for approximately 20%, 24% and 15% of total
sales in 1999, 1998 and 1997, respectively. Sales to WinStar Communications
accounted for approximately 13% and 11% of total sales in 1999 and 1997. Sales
to Bosch Telecom accounted for approximately 13% of total sales in 1999. Many
of the Company's major customers are located in foreign countries, primarily
in the United Kingdom and Continental Europe. 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
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.
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.

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

                                      28
<PAGE>

complex and lengthy. As a result, the timing and amount of sales is often
difficult to predict reliably. The sale and implementation of its products and
services generally involves a significant commitment of senior management, as
well as its sales force and other resources. The sales cycle for its products
and services typically involve technical evaluation and commitment of cash and
other resources and delays often occur. Delays are frequently associated with,
among other things:

  .  customers' seasonal purchasing and budgetary cycles;

  .  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 negotiations 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.

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. 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 increasingly been requiring product shipment
upon ordering rather than submitting purchase orders far in advance of
expected shipment dates. This practice requires the Company to keep inventory
on hand for immediate shipment. Given the variability of customer need and
purchasing power, it is difficult to predict the amount of inventory needed to
satisfy customer demand. If the Company over or under-estimates inventory
requirements, 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. This risk
was realized in the large inventory write-downs in the second quarter of 1999.

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 and stock market analysts'
expectations. Such delays have occurred in

                                      29
<PAGE>

the past due to, for example, unanticipated shipment rescheduling,
cancellations or deferrals by customers, competitive and economic factors,
unexpected manufacturing or other difficulties, delays in deliveries of
components, subassemblies or services by suppliers and failure to receive
anticipated orders. The Company cannot determine whether similar or other
delays might occur in the future, but expect that some or all of such problems
might recur.

Expenses

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

Volatility of Operating Results

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

  .  new product introductions and enhancements and related costs;

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

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

  .  manufacturing efficiencies and costs;

  .  customer confusion due to the impact of actions of competitors;

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

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

  .  operating and new product development expenses;

  .  product discounts;

  .  accounts receivable collection;

  .  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 thereof;

  .  use of different distribution and sales channels;

  .  fuctuations in foreign currency exchange rates;

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

  .  warranty and customer support expenses;

  .  severance costs;

  .  consolidation and other restructuring costs;

  .  the pending stockholder class action lawsuit;

  .  the need for additional financing;

  .   customization of systems;

                                      30
<PAGE>

  .   general economic and political conditions; and

  .   natural disasters.

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

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

   The Company incurred a net loss for each of the quarters in 1998 and 1999.
The Company may also incur operating and net losses in subsequent periods,
especially if market conditions continue to be weak. 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 further
restructuring charges, inventory write-downs and provisions for the impairment
of long-lived assets.

Acquisition Related Risks

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

   From April 1996 through 1998, the Company acquired nine complementary
companies and businesses. Integration and management of these companies into
the Company's business is ongoing. Some of these acquisitions have not
resulted in the benefits originally anticipated and two of these companies,
Technosystem S.p.A. and Cemetel S.r.l. were divested in February, 2000 and the
Company is exploring the possibility of disposing of Control Resources
Corporation. 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;

  .  difficulty in maintaining uniform standards, controls, procedures and
     policies;

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

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

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

   While we have now integrated the acquired businesses, we may continue to
encounter problems related to the management of these companies. Overcoming
existing and potential problems may entail increased costs, additional
investment and diversion of management attention and other resources, or
require divestment of one or more business units, which may adversely affect
our business, financial condition and operating results. In this regard, we
are contemplating the sale of three business units, Technosystem, Cemetel
S.r.l., and Control Resources Corporation (CRC), which primarily represented
non-core business products, such as broadcast equipment and network monitoring
equipment. Through December 31, 1999 the negative impact on the financial
statements of Technosystem was $44.6 million, including a loss on disposal of
$26.9 million. The impact on the financial statements on the divestitures on
future revenues and operational expenses is not expected to be

                                      31
<PAGE>


material. In addition, we have written off assets of several of our other
acquired companies for which the acquisitions have not worked out as
originally anticipated.

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


 Accounting Issues Related to Acquisitions

   It is anticipated that beginning in late 2000, all business acquisitions
must be accounted for under the purchase method of accounting for financial
reporting purposes. All of the Company's past acquisitions, except the
acquisitions of CRC, RT Masts and Telematics, 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.

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,
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 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 and
June 1999. 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 infrastructure and other requirements. This
expansion included leasing additional space, opening branch offices and
subsidiaries in the United Kingdom, Italy, Germany, Mexico, the United Arab
Emirates, China and Singapore, opening design centers in the United

                                      32
<PAGE>

Kingdom and the United States, acquiring a large amount of inventory and
funding accounts receivable, and acquiring nine businesses. The Company has
since closed the offices in Mexico and the United Arab Emirates. 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.

   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 is 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 management may be further adversely impacted in
the future by start-up costs associated with the initial production and
installation of these new products. Start-up costs may include additional
manufacturing overhead, additional allowance for doubtful accounts, inventory
and warranty reserve requirements and the creation of service and support
organizations. Additional inventory on hand for new product development and
customer service requirements also increases the risk of further inventory
write-downs.

   If the market for the Company's older products rebounds, the Company also
might choose to similarly build up (or build back) its infrastructure,
inventory, personnel, and other items, which would involve similar risks.

   Expansion of its operations and acquisitions in prior periods have caused
and continue to impose a significant strain on the Company's management,
financial, manufacturing and other resources and have disrupted its normal
business operations. The Company's ability to manage any possible future
growth may depend upon significant expansion of its executive, manufacturing,
accounting and other internal management systems and the implementation of a
variety of systems, procedures and controls, including improvements 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 efficiently coordinate activities in its
companies and facilities in Italy, the United Kingdom, California, New Jersey,
Florida, Virginia, 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, cultures, and language barriers.
Additionally, the products and associated marketing and sales processes differ
for each acquisition.

   Any failure to coordinate and improve systems, procedures and controls,
including improvements relating to inventory control and coordination with its
subsidiaries, at a pace consistent with the Company's business, could cause
continued inefficiencies, additional operational 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.

                                      33
<PAGE>

Decline in Selling Prices

   The Company believes that average selling prices and possibly gross margins
for its systems and services will tend to decline in both the near and the
long term. 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 or fails to
achieve increase sales of new products at a higher average selling price, then
the Company would be unable to offset declining average selling prices. If the
Company is unable to offset declining average selling prices, its gross
margins will decline.

Accounts Receivable

   The Company is subject to credit risk in the form of trade account
receivables. The Company is often 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's current credit policy on
customers both domestically and internationally requires letters of credit
and/or down payments for those customers deemed to be a high risk and open
credit for customers which are deemed creditworthy and have a history of
timely payments with the Company. The Company's current credit policy
typically allows payment terms between 30 and 90 days depending upon the
customer and the cultural norms of the region. 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. In 1999, the Company recorded
charges of $11.8 million for accounts receivable write-offs and reserves. Such
difficulties may continue in the future, which could have a further material
adverse effect on its business, financial condition and results of operations.

Product Quality, Performance and Reliability

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

   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 and its Geritel facility in Italy in 1996. 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 prepares its financial statements in conformity with United
States generally accepted accounting principles ("GAAP"). GAAP is subject to
interpretation by the American Institute of Certified Public

                                      34
<PAGE>

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 the Company's reported results, and
may even affect its reporting of transactions completed before a change is
announced. Accounting policies affecting many other aspects of the Company's
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 the Company's reported financial results or in the way it
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 the Company's systems fails to grow, or grows more slowly
than anticipated, the Company's business, financial condition and results of
operations will be materially adversely affected.

   Certain sectors of the communications market will require the development
and deployment of an extensive and expensive communications infrastructure. In
particular, the establishment of PCN/PCS networks will require very large
capital 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 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
the Company's systems. Existing customers may not continue to include the
Company's systems in their products, systems or networks in the

                                      35
<PAGE>

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

Intensely Competitive Industry

   The wireless communications market is intensely competitive. The Company's
wireless-based radio systems compete with other wireless telecommunications
products and alternative telecommunications transmission media, including
copper and fiber optic cable. The Company is experiencing intense competition
worldwide from a number of leading telecommunications companies. Such
companies offer a variety of competitive products and services and broader
telecommunications product lines, and include Adtran, Inc., Alcatel Network
Systems, Bosch Telekom, Adaptive Broadband, 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 products. 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 the Company's competitors could cause a decline in sales or
loss of market acceptance of its systems. New offerings could also make the
Company's systems, services or technologies obsolete or non-competitive. In
addition, the Company is experiencing significant price competition and
expects such competition to intensify.

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

Uncertainty in International Operations

   In doing business in international markets, the Company faces economic,
political and foreign currency fluctuations that are more volatile than those
commonly experienced in the United States and other areas. Most of the
Company's sales to date have been made to customers located outside of the
United States. In addition, to date,

                                      36
<PAGE>


the Company has acquired three companies based in Italy, Technosystem S.p.A.,
Cemetel S.r.l., and P-Com Italia S.p.A., and two United Kingdom-based
companies, RT Masts and Telesys Limited, as well as the acquisition of the
assets of the Cylink Wireless Group, a division with substantial international
operations. Many of these acquired companies sell their products and services
primarily to customers in Europe, the Middle East and Africa. In February
2000, the Company sold Technosystem S.p.A. and Cemetel S.r.l. at a significant
loss.

   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;

  .  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.

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

   Some of the Company's potential markets include developing countries that
may deploy wireless communications networks as an alternative to the
construction of a limited wired infrastructure. These countries

                                      37
<PAGE>

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

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

Extensive Government Regulation

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

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

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

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

Additional Capital Requirements

   Our future capital requirements will depend upon many factors, including
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 status of competitive products.
Additional financing may not be available in the future on acceptable terms or
at all. The continued existence of a substantial amount of debt could also
severely limit our ability to

                                      38
<PAGE>


raise additional financing. In addition, given the recent price for our common
stock, if we raise additional funds by issuing equity securities, significant
dilution to our stockholders could result.

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

   We are prohibited by the agreement under which we privately sold 7,530,642
shares of Common Stock in January 2000 from issuing, offering or selling any
Common Stock or other equity security for less than 85% of the average closing
sale price of our Common Stock over the 60 trading days before the sale of the
new shares, if we have not then registered the 7,530,642 shares for resale. We
have not yet registered the 7,530,642 shares for resale, and we may not be
able to find a buyer for our shares except at a price below that 85%
threshold. Therefore, we would not be able to sell shares without all the
January 2000 investors' consent, unless we achieve registration of their
shares or unless the new sale price exceeds the 85% threshold. The January
2000 investors also have a 20-day right of first offer against the sale of new
shares for less than $5.71 per share, until their 7,530,642 shares are
registered for resale.

Class Action Litigation

   A putative consolidated class action complaint in the Superior Court of
California, County of Santa Clara, on behalf of P-Com stockholders who
purchased or otherwise acquired its Common Stock between April 15, 1997 and
September 11, 1998, alleges various state securities laws violations by the
Company and certain of its officers and directors. The state court complaint
seeks unquantified compensatory, punitive and other damages, attorneys' fees
and injunctive and/or equitable relief.

   An unfavorable outcome in securities law class action litigation 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 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 the Company's business, 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.

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

   Even if the Company's intellectual property rights are adequately
protected, litigation may be necessary to enforce patents, copyrights and
other intellectual property rights, to protect the Company's trade secrets, to

                                      39
<PAGE>

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 Cylink Wireless 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 the
Company's 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 the Company. If any claims or
actions are asserted against the Company, the Company may seek a license under
a third party's intellectual property rights. However, such a license may not
be available under reasonable terms or at all.

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 the 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 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 intends 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 the
Company's employee base could all materially adversely affect the Company's
business.

Volatility of Stock Price

   In recent years, the stock market in general, and the market for shares of
small capitalization 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 emerging countries' economies, sales by
competitors, including sales to its customers, sales of its common stock into
the public market, including by members of management, developments in its
relationships with customers, partners, lenders, distributors and suppliers,
shortfalls or changes in revenues, gross margins, earnings or losses or other
financial results that differ from analysts' expectations (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

   As of December 31, 1999, its total indebtedness including current
liabilities was approximately $124.4 million and its stockholders' equity was
approximately $89.2 million. The Company's ability to make scheduled payments
of the principal and interest on indebtedness will depend on future
performance, which is

                                      40
<PAGE>

subject in part to economic, financial, competitive and other factors beyond
its control. There can be no assurance that the Company will be able to make
payments on its debt in the future.

Dividends

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

Change of Control Inhibition

   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 3% of the outstanding shares of common stock. As a practical
matter, 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 ("poison
pill") plan, certificate of incorporation, equity incentive plans, bylaws and
Delaware law, may have a significant effect in delaying, deferring or
preventing a change in control of the Company and may adversely affect the
voting and other rights of other holders of common stock.

   The rights of the holders of Common Stock will be subject to, and may be
adversely affected by, the rights of any other preferred stock that may be
issued in the future, including the Series A junior participating preferred
stock that may be issued pursuant to the stockholder rights ("poison pill")
plan, upon the occurrence of certain triggering events. In general, the
stockholder rights plan provides a mechanism by which the share position of
anyone that acquires 15% or more of the Common Stock will be substantially
diluted. 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.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   The Company has international sales and facilities and is, therefore,
subject to foreign currency rate exposure. Historically, its international
sales have been denominated in British pounds sterling or United States
dollars. 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 objective 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 nine 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, 1999, the Company had forward
contracts to sell approximately $3.5 million in British pounds. 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

                                      41
<PAGE>

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, 1999, 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 1998, 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 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. Borrowings under the Company's loan
agreement entered into in January 2000 are subject to interest at the greater
of 8% or prime rate plus 2%. An increase in prime rate would not be material
to the Company's financial condition or results of operations. If the Company
were not able to renew its existing loan agreement, which matures on January
31, 2001, it is possible that any replacement lending facility obtained by the
Company might be more subject to interest rate changes.

                                      42
<PAGE>

ITEM 8. FINANCIAL STATEMENTS

                                  P-COM, INC.

                 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
                          FINANCIAL STATEMENT SCHEDULE

<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
<S>                                                                        <C>
FINANCIAL STATEMENTS:

  Report of Independent Accountants.......................................  44

  Consolidated Balance Sheets at December 31, 1999 and 1998...............  45

  Consolidated Statements of Operations for the years ended December 31,
   1999, 1998, and 1997...................................................  46

  Consolidated Statements of Stockholders' Equity for the years ended
   December 31, 1999, 1998, and 1997......................................  47

  Consolidated Statements of Cash Flows for the years ended December 31,
   1999, 1998 and 1997....................................................  48

  Notes to Consolidated Financial Statements..............................  49

FINANCIAL STATEMENT SCHEDULE:

  Schedule II--Valuation and Qualifying Accounts..........................  72
</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.

                                       43
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

To The Board Of Directors And Stockholders Of P-Com, Inc.

   In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of P-Com, Inc. and its subsidiaries at December 31, 1999 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. In addition, in our
opinion, the financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements and financial statement schedule
based on our audits. We conducted our audits of these statements in accordance
with auditing standards generally accepted in the United States 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.

                                          PricewaterhouseCoopers LLP

San Jose, California
March 30, 2000

                                      44
<PAGE>

                                  P-COM, INC.

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

<TABLE>
<CAPTION>
                                                             December 31,
                                                        -----------------------
                                                          1999         1998
                                                        ---------  ------------
                                                                    (restated)
                                                                   (See Note 2)
<S>                                                     <C>        <C>
                        ASSETS

Current assets:
  Cash and cash equivalents............................ $  11,629    $ 29,241
  Accounts receivable, net of allowances of $14,899 and
   $9,591 respectively.................................    38,935      51,392
  Inventory............................................    46,849      79,026
  Prepaid expenses and notes receivable................    15,987      21,949
  Net assets of discontinued operations................     3,151         --
                                                        ---------    --------
    Total current assets...............................   116,551     181,608
Property and equipment, net............................    36,626      52,086
Deferred income taxes..................................     9,858       9,678
Goodwill and other assets..............................    50,605      71,845
                                                        ---------    --------
                                                        $ 213,640    $315,217
                                                        =========    ========
         LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable..................................... $  34,275    $ 39,618
  Accrued employee benefits............................     2,894       3,345
  Other accrued liabilities............................    15,841      10,318
  Deferred contract obligation.........................     8,000       3,000
  Notes payable........................................    23,557      46,360
                                                        ---------    --------
    Total current liabilities..........................    84,567     102,641
                                                        ---------    --------
Other long term liabilities............................     3,542      12,119
                                                        ---------    --------
Convertible Subordinated Notes.........................    36,316      85,650
                                                        ---------    --------
Series B Mandatorily Redeemable Convertible Preferred
 Stock.................................................       --       13,559
                                                        ---------    --------
Mandatorily Redeemable Common Stock Warrants...........       --        1,839
                                                        ---------    --------
Commitments and contingent liabilities (Notes 12 and
 16)

Stockholders' equity:
  Series A Preferred Stock.............................       --          --
  Common Stock, $0.0001 par value; 95,000 shares
   authorized; 67,400 and 45,870 shares issued and
   outstanding at December 31, 1999 and 1998,
   respectively........................................         7           5
  Additional paid-in capital...........................   238,721     145,246
  Accumulated deficit..................................  (148,973)    (45,924)
  Accumulated other comprehensive income (loss)........      (540)         82
                                                        ---------    --------
    Total stockholders' equity.........................    89,215      99,409
                                                        ---------    --------
                                                        $ 213,640    $315,217
                                                        =========    ========
</TABLE>

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

                                       45
<PAGE>

                                  P-COM, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                   Year Ended December 31,
                                               --------------------------------
                                                 1999         1998       1997
                                               ---------  ------------ --------
                                                           (restated)
                                                          (See Note 2)
<S>                                            <C>        <C>          <C>
Sales:
 Product.....................................  $ 116,409    $118,948   $169,453
 Service.....................................     40,470      43,597     30,157
                                               ---------    --------   --------
   Total sales...............................    156,879     162,545    199,610
                                               ---------    --------   --------
Cost of sales:
 Product.....................................    107,378      93,829     96,948
 Service.....................................     28,274      30,777     18,968
                                               ---------    --------   --------
   Total cost of sales.......................    135,652     124,606    115,916
                                               ---------    --------   --------
Gross profit.................................     21,227      37,939     83,694
                                               ---------    --------   --------
Operating expenses:
 Research and development....................     32,431      38,882     27,854
 Selling and marketing.......................     17,135      19,224     12,795
 General and administrative..................     25,179      24,260     11,029
 Goodwill amortization.......................      6,547       5,023      1,380
 Restructuring charge........................      3,300       4,332        --
 Acquired in-process research and
  development................................        --       15,442        --
                                               ---------    --------   --------
   Total operating expenses..................     84,592     107,163     53,058
                                               ---------    --------   --------
Income (loss) from continuing operations.....    (63,365)    (69,224)    30,636
Interest expense.............................     (8,175)     (8,652)    (1,811)
Other income (expense), net..................     (2,537)      1,446      1,988
                                               ---------    --------   --------
Income (loss) from continuing operations
 before income taxes and extraordinary item..    (74,077)    (76,430)    30,813
Provision (benefit) for income taxes.........      1,407     (11,501)    11,018
                                               ---------    --------   --------
Income (loss) from continuing operations
 before extraordinary item...................    (75,484)    (64,929)    19,795
                                               ---------    --------   --------
Discontinued operations:
 Loss from operations........................    (13,903)     (2,869)      (904)
 Loss on disposal............................    (26,901)        --         --
                                               ---------    --------   --------
                                                 (40,804)     (2,869)      (904)
                                               ---------    --------   --------
Extraordinary gain on retirement of Notes....     13,239       5,333        --
                                               ---------    --------   --------
 Net income (loss)...........................  $(103,049)   $(62,465)  $ 18,891
                                               =========    ========   ========
Net income (loss) applicable to Common
 Stockholders:
 Net income (loss)...........................  $(103,049)   $(62,465)  $ 18,891
 Charge related to Preferred Stock
  discount...................................        --       (1,839)       --
 Loss on conversion of Preferred Stock to
  Common Stock...............................    (18,521)        --         --
                                               ---------    --------   --------
 Net income (loss) applicable to Common
  Stockholders...............................  $(121,570)   $(64,304)  $ 18,891
                                               =========    ========   ========
Basic income (loss) per share:
 Income (loss) from continuing operations....  $   (1.32)   $  (1.50)  $   0.47
 Loss from discontinued operations...........      (0.72)      (0.07)     (0.02)
 Extraordinary gain on retirement of Notes...       0.23        0.12        --
 Charges related to Preferred Stock discount
  and loss on Conversion of Preferred Stock
  to Common Stock............................      (0.32)      (0.04)       --
                                               ---------    --------   --------
Basic net income (loss) per share applicable
 to common stockholders......................  $   (2.13)   $  (1.49)  $   0.45
                                               =========    ========   ========
Diluted income (loss) per share:
 Income (loss) from continuing operations....  $   (1.32)   $  (1.50)  $   0.44
 Loss from disposal of discontinued
  operations.................................      (0.72)      (0.07)     (0.02)
 Extraordinary gain on retirement of Notes...       0.23        0.12        --
 Charges related to Preferred Stock discount
  and loss on Conversion of Preferred Stock
  to Common Stock............................      (0.32)      (0.04)       --
                                               ---------    --------   --------
Diluted Net income (loss) per share
 applicable to Common Stockholders...........  $   (2.13)   $  (1.49)  $  (0.42)
                                               =========    ========   ========
Shares used in per share computations:
 Basic.......................................     56,995      43,254     42,175
                                               =========    ========   ========
 Diluted.....................................     56,995      43,254     44,570
                                               =========    ========   ========
</TABLE>

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

                                       46
<PAGE>

                                  P-COM, INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (In thousands)

<TABLE>
<CAPTION>
                                                     Retained    Accumulated
                          Common Stock  Additional   Earnings       Other
                          -------------  Paid-In   (Accumulated Comprehensive Comprehensive
                          Shares Amount  Capital     Deficit)   Income (Loss) Income (Loss)
                          ------ ------ ---------- ------------ ------------- -------------
<S>                       <C>    <C>    <C>        <C>          <C>           <C>
Balance at December 31,
 1996...................  40,837  $ 4    $112,913   $    (511)     $    73
Conversion of
 shareholder's loan to
 equity by Geritel......     --    --         368         --
Issuance of Common Stock
 for the purchase of
 CSM....................     797   --      14,500         --
Issuance of Common Stock
 upon exercise of stock
 options and warrants...     878   --       2,912         --
Cumulative translation
 adjustment.............     --    --         --          --        (1,895)     $  (1,895)
Issuance of Common Stock
 under employee stock
 purchase plan..........     152   --       1,042         --
Net income..............     --    --         --       18,891                      18,891
                                                                                ---------
Comprehensive income....                                                        $  16,996
                          ------  ---    --------   ---------      -------      =========
Balance at December 31,
 1997...................  42,664    4     131,735      18,380       (1,822)
Issuance of Common Stock
 upon exercise of stock
 options and warrants...     499   --       2,651         --
Issuance of Common Stock
 under employee stock
 purchase plan..........     240   --       1,842         --
Issuance of Common Stock
 upon retirement of
 Convertible
 subordinated Notes due
 2002...................   2,467    1       9,018         --
Charge related to
 Preferred Stock
 discount...............     --    --                  (1,839)
Cumulative translation
 adjustment.............     --    --         --          --         1,904          1,904
Net loss (restated)(See
 Note 2)................     --    --         --      (62,465)                    (62,465)
                                                                                ---------
Comprehensive loss
 (restated).............                                                        $ (60,561)
                          ------  ---    --------   ---------      -------      =========
Balance at December 31,
 1998 (restated)
 (See Note 2)...........  45,870    5     145,246     (45,924)          82
Issuance of Common
 Stock, net of issuance
 costs..................  10,068    1      38,274
Issuance of Common Stock
 in exchange for
 convertible notes......   5,171   --      36,095
Charge to Common
 stockholders resulting
 from the conversion of
 redeemable Preferred
 Stock to redeemable
 Common Stock...........                  (10,190)
Charge to Common
 stockholders resulting
 from repricing of
 warrants...............                   (2,000)
Charge to Common
 stockholders resulting
 from penalties due to
 certain Common
 stockholders...........                   (6,331)
Issuance of Common Stock
 and Common Stock
 warrants in
 satisfaction of
 penalties due to
 certain Common
 stockholders...........     220   --       4,886
Reclassification of
 Mandatorily redeemable
 Common Stock and Common
 Stock Warrants
 resulting from the
 cancellation of
 redemption rights......   5,135    1      29,007
Issuance of Common Stock
 upon exercise of stock
 options................     725   --       3,016
Issuance of Common Stock
 under employee stock
 purchase plan..........     211   --         718
Cumulative translation
 adjustment.............                                              (622)          (622)
Net loss................                             (103,049)                   (103,049)
                                                                                ---------
Comprehensive loss......                                                        $(103,671)
                          ------  ---    --------   ---------      -------      =========
Balance at December 31,
 1999...................  67,400  $ 7    $238,721   $(148,973)     $  (540)
                          ======  ===    ========   =========      =======
</TABLE>

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

                                       47
<PAGE>

                                  P-COM, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                   Year Ended December 31,
                                                 -----------------------------
                                                   1999       1998      1997
                                                 ---------  --------  --------
                                                         (restated)
<S>                                              <C>        <C>       <C>
Cash flows from operating activities:
  Net income (loss)............................. $(103,049) $(62,465) $ 18,891
  Adjustments to reconcile net income (loss) to
   net cash used in operating activities, net of
   effect of acquisitions:
    Loss on disposal of discontinued
     operations.................................    26,901       --        --
    Depreciation................................    11,783    11,544     6,013
    Amortization of goodwill and other
     intangible assets..........................     7,798     6,827     2,207
    Loss on sale of property and equipment......     2,157       --        --
    Change in minority interest.................       --       (604)      (15)
    Deferred income taxes.......................      (180)   (7,981)       14
    Acquired in-process research and development
     expenses...................................       --     15,442       --
    Restructuring charges.......................     3,300       --        --
    Inventory charge............................    11,800       --        --
    Accounts receivable charge..................    21,400       --        --
    Gain on exchange of convertible notes.......   (13,239)   (5,333)      --
  Change in assets and liabilities:
    Accounts receivable.........................   (13,395)   23,905   (19,375)
    Inventory...................................       563   (15,016)  (20,807)
    Prepaid expenses and notes receivable.......     3,800    (9,109)      110
    Other assets................................       295     2,684    (5,111)
    Accounts payable............................         1    (1,390)    4,443
    Accrued employee benefits...................       362      (585)    1,967
    Other accrued liabilities...................    12,478     2,709    (4,746)
    Deferred contract obligation................       --      8,000       --
    Income taxes payable........................    (2,189)   (6,409)    3,915
                                                 ---------  --------  --------
  Net cash used in operating activities.........   (29,414)  (37,781)  (12,494)
                                                 ---------  --------  --------
Cash flows from investing activities:
    Acquisition of property and equipment.......    (6,054)  (29,187)  (16,922)
    Proceeds from sale of property and
     equipment..................................     1,373       --        --
    Acquisitions, net of cash received..........       --    (61,398)  (10,855)
                                                 ---------  --------  --------
  Net cash used in investing activities.........    (4,681)  (90,585)  (27,777)
                                                 ---------  --------  --------
Cash flows from financing activities:
  Proceeds (repayments) of notes payable........   (21,525)   46,067   (12,651)
  Proceeds from issuance of common stock, net of
   expenses.....................................    38,274       --        --
  Proceeds from exercise of stock options and
   warrants.....................................     3,734     4,493     3,955
  Proceeds (repayments) from long-term obliga-
   tions........................................    (3,378)    1,882      (719)
  Proceeds from convertible debt offering, net
   of expenses..................................       --        --     97,500
  Proceeds from issuance of preferred stock and
   warrants, net................................       --     13,559       --
  Proceeds from sale-leaseback transaction......       --      1,557       --
                                                 ---------  --------  --------
Net cash provided by financing activities.......    17,105    67,558    88,085
                                                 ---------  --------  --------
Effect of exchange rate changes on cash.........      (622)    1,904    (1,895)
                                                 ---------  --------  --------
Net increase (decrease) in cash and cash
 equivalents....................................   (17,612)  (58,904)   45,919
Cash and cash equivalents at the beginning of
 the year.......................................    29,241    88,145    42,226
                                                 ---------  --------  --------
Cash and cash equivalents at the end of the
 year........................................... $  11,629  $ 29,241  $ 88,145
                                                 =========  ========  ========
</TABLE>

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

                                       48
<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.

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 wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.

 Foreign currency translation

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

 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 included in long-term debt was
approximately 74% of par or $21.7 million at December 31, 1999. The estimated
fair value of all other financial instruments at December 31, 1999 and 1998
approximated cost.

 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.

                                      49
<PAGE>

                                  P-COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 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.

Research and development and software development costs

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

 Goodwill

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

 Impairment of long-lived assets

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

 Comprehensive income (loss)

   The Company has adopted SFAS 130, "Reporting Comprehensive Income". Under
SFAS 130, the Company is required to display comprehensive income and its
components as part of the Company's full set of financial statements. The
measurement and presentation of net income did not change. Comprehensive
income comprises net income and other comprehensive income. Other
comprehensive income includes certain changes in equity of the Company that
are excluded from net income. Specifically, SFAS 130 requires unrealized gains
and losses on the Company's foreign currency translation, which were reported
separately in stockholders' equity, to be included in accumulated other
comprehensive income. Comprehensive income (loss) in 1999, 1998 and 1997 has
been reflected in the Consolidated Statements of Stockholders' Equity.

 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.

                                      50
<PAGE>

                                  P-COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 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).

 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 several customers have been denominated in British pounds,
and at December 31, 1999 and 1998 amounts due from these customers represented
28% and 49%, respectively, of accounts receivable. Any gains and/or losses
incurred on the settlement of these receivables are included in the financial
statements as they occur.

   The Company extends credit terms to international customers of up to 120
days, which is consistent with local business practices. The Company performs
on-going credit evaluations of its customers' financial condition to determine
the customer's credit worthiness. Sales are then generally made either on 30
to 90 day payment terms, COD or letters of credit.

   At December 31, 1999 and 1998, approximately 43% and 75%, respectively, of
trade accounts receivable represents amounts due from three and four
customers, respectively. The Company has an agreement with certain banks to
sell, without recourse, certain of its trade accounts receivable. During 1999
and 1998, the Company sold approximately $12 million and $57 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 1999, 1998, and 1997, there were no material gains or losses on
accounts receivable sold without recourse.

   The following table summarizes the percentage of sales to Company's
significant customers with sales of 10% or more:

<TABLE>
<CAPTION>
                                                                    Year ended
                                                                   December 31,
                                                                  ----------------
                                                                  1999  1998  1997
                                                                  ----  ----  ----
                                                                    (restated)
   <S>                                                            <C>   <C>   <C>
   Customer A....................................................  20%   25%   15%
   Customer B....................................................  11    --    11
   Customer C....................................................  13    --    --
</TABLE>

 Off-balance sheet risk

   The Company enters into foreign forward exchange contracts to reduce the
impact of currency fluctuations on 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.


                                      51
<PAGE>

                                  P-COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   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, 1999 and 1998, the Company had forward exchange contracts
to sell approximately $3.5 million and $26.1 million in British pounds,
respectively. The fair value of forward exchange contracts, which is
determined based on a comparison of the exchange rate per the contract and the
market exchange rate on December 31, 1999, approximates cost. The Company does
not anticipate any material adverse effect on its financial position resulting
from the use of these instruments.

Reclassifications

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

NOTE 2--RESTATEMENT OF FINANCIAL STATEMENTS

   The Company has revised its 1998 and first quarter of 1999 financial
statements to revise the accounting treatment of certain contracts with a
major customer. Under a joint license and development contract, the Company
recognized $10.5 million of revenue in 1998 and $1.5 million in the first
quarter of 1999 of this $12 million contract on a percentage of completion
basis. As previously disclosed, the Company determined that a related Original
Equipment Manufacturer ("OEM") agreement which provided for subsequent
payments of $8 million to this customer specifically earmarked for marketing
the Company's products manufactured for this customer, should have offset a
portion of the revenue recognized previously. As of December 31, 1999, payment
obligations of $8 million under this contract remained outstanding. The net
effect of this restatement was to reduce 1998 revenue and increase pretax loss
by $7.1 million and to reduce the first quarter of 1999 revenue and increase
1999 pretax loss by $0.9 million.

   In March 1998, the Company recorded a charge for purchased in-process
research and development (IPR&D) in a manner consistent with widely recognized
appraisal practices at the date of acquisition. In the fourth quarter 1998 the
Company became aware of 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, the 1998
first quarter charge for acquired IPR&D was decreased from $33.9 to
$15.4 million. The result of this restatement was a decrease of $18.5 million
in IPR&D charge with a corresponding increase in goodwill and other intangible
assets.

NOTE 3--DISCONTINUED OPERATION

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

                                      52
<PAGE>

                                  P-COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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

<TABLE>
<CAPTION>
                                                    Year Ended December 31,
                                                   ---------------------------
                                                     1999      1998     1997
                                                   --------  --------  -------
   <S>                                             <C>       <C>       <C>
   Sales.......................................... $  6,483  $ 25,258  $21,092
                                                   ========  ========  =======
   Loss before income taxes....................... $(13,903) $ (2,869) $  (870)
   Provision for income taxes.....................      --        --        34
                                                   --------  --------  -------
     Net loss..................................... $(13,903) $ (2,869) $  (904)
                                                   ========  ========  =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                                    December 31,
                                                                        1999
                                                                    ------------
   <S>                                                              <C>
   Current assets..................................................   $17,962
   Land, buildings and equipment, net..............................     3,832
   Other assets....................................................       453
                                                                      -------
     Total assets..................................................    22,247
                                                                      -------
   Current liabilities.............................................    12,369
   Long-term borrowings............................................       982
                                                                      -------
     Total liabilities.............................................    13,351
                                                                      -------
   Accrual for loss on disposal of discontinued operations.........     3,151
                                                                      -------
   Net assets of discontinued operations...........................   $ 5,745
                                                                      =======
</TABLE>

NOTE 4--NET LOSS PER SHARE

   For purpose of computing diluted net loss per share, weighted average
common share equivalents do not include stock options with an exercise price
that exceeds the average fair market value of the Company's Common Stock for
the period because the effect would be antidilutive. For the year ended
December 31, 1999, options to purchase approximately 1,715,000 shares of
Common Stock were excluded from the computation. For the year ended December
31, 1999, the assumed conversion of the 4 1/4% Convertible Subordinated Notes
("Notes") into 5,949,000 shares of Common Stock was not included in the
computation of diluted net loss per share because 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 of shares):

<TABLE>
<CAPTION>
                                                       Year Ended December 31,
                                                       -----------------------
                                                        1999    1998    1997
                                                       ------- ------- -------
   <S>                                                 <C>     <C>     <C>
   Denominator for basic net income (loss) per common
    share.............................................  56,995  43,254  42,175
   Effect of dilutive securities:
     Stock options and warrants.......................     --      --    1,826
     Convertible Subordinated Notes...................     --      --      569
                                                       ------- ------- -------
   Denominator for diluted net income (loss) per
    common share......................................  56,995  43,254  44,570
                                                       ======= ======= =======
</TABLE>

                                      53
<PAGE>

                                  P-COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


5--BALANCE SHEET COMPONENTS:

   Inventory consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                  December 31,
                                                                 ---------------
                                                                  1999    1998
                                                                 ------- -------
   <S>                                                           <C>     <C>
   Raw materials................................................ $22,484 $16,395
   Work-in-process..............................................  16,019  42,995
   Finished goods...............................................   8,346  19,636
                                                                 ------- -------
                                                                 $46,849 $79,026
                                                                 ======= =======
</TABLE>

   Property and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                               December 31,
                                                             ------------------
                                                               1999      1998
                                                             --------  --------
   <S>                                                       <C>       <C>
   Tooling and test equipment............................... $ 44,910  $ 52,718
   Computer equipment.......................................   10,432     9,210
   Furniture and fixtures...................................    5,860     7,220
   Land and buildings.......................................    2,837     3,506
   Construction-in-process..................................    5,848     4,878
                                                             --------  --------
                                                               69,887    77,532
   Less--accumulated depreciation and amortization..........  (33,261)  (25,446)
                                                             --------  --------
                                                             $ 36,626  $ 52,086
                                                             ========  ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                                December 31,
                                                              -----------------
                                                                1999     1998
                                                              --------  -------
   <S>                                                        <C>       <C>
   Goodwill:
     Technosystem............................................      --    15,850
     ASM.....................................................   22,295   22,295
     Cylink..................................................   34,261   34,261
     Cemetel S.r.l. .........................................    4,360    4,360
                                                              --------  -------
                                                                60,916   76,766
   Less--accumulated amortization............................  (12,474)  (7,698)
                                                              --------  -------
     Net goodwill............................................   48,442   69,068
   Other assets..............................................    2,163    2,777
                                                              --------  -------
                                                              $ 50,605  $71,845
                                                              ========  =======
</TABLE>

   During 1999, the Company announced its intent to dispose of Technosystem,
resulting in a goodwill write-down of $12.5 million.

                                      54
<PAGE>

                                  P-COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Other accrued liabilities consist of (in thousands):
<TABLE>
<CAPTION>
                                                                  December 31,
                                                                 ---------------
                                                                  1999    1998
                                                                 ------- -------
   <S>                                                           <C>     <C>
   Accrued warranty............................................. $ 3,060 $   383
   Purchase commitment..........................................   4,047     413
   Interest Payable.............................................   1,490     708
   Lease obligations............................................   1,364     315
   Income taxes payable.........................................   2,098   2,843
   Other........................................................   3,782   5,656
                                                                 ------- -------
                                                                 $15,841 $10,318
                                                                 ======= =======
</TABLE>

   Other long term liabilities consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                  December 31,
                                                                 --------------
                                                                  1999   1998
                                                                 ------ -------
   <S>                                                           <C>    <C>
   Deferred contract obligation, long term portion.............. $  --  $ 5,000
   Other........................................................  3,542   7,119
                                                                 ------ -------
                                                                 $3,542 $12,119
                                                                 ====== =======
</TABLE>

NOTE 6--BORROWING 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 and at $24.97 per
share subsequent to March 1999. 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 is paid semi-annually on May 1 and
November 1 of each year. In 1999 and 1998, the Company issued Common Stock in
exchange for a portion of these Notes and recorded extraordinary gains as
follows:

   A summary of Convertible Subordinated Note activity is as follows:

<TABLE>
<CAPTION>
                                                                     Gain on
                                             Amount   Shares Issued Conversion
                                             ------   ------------- ----------
                                           (millions)  (thousands)  (millions)
   <S>                                     <C>        <C>           <C>
   Issuance of $100 million in
    Convertible Subordinated Notes in
    November 1997........................    $100.0         --        $ --
                                             ------       -----       -----
   Balance at December 31, 1997..........     100.0         --          --
   Conversion of Notes in December 1998..     (14.4)      2,467         5.3
                                             ------       -----       -----
   Balance at December 31, 1998..........      85.6       2,467         5.3
   Conversion of Notes in January and
    February 1999........................     (25.5)      2,812         7.3
   Conversion of Notes in December 1999..     (23.8)      2,359         6.0
                                             ------       -----       -----
   Balance at December 31, 1999..........    $ 36.3       7,638       $18.6
                                             ======       =====       =====
</TABLE>

   The Company entered into a revolving line-of-credit agreement on May 15,
1998, as amended, that provided for borrowings of up to $50.0 million. The
maximum revolving commitment, as amended, had been reduced to $30.0 million
until maturity on January 15, 2000. At December 31, 1999, the Company had been
advanced approximately $23.6 million and had used the remaining $3.4 million
to secure letters of credit under such line. In January 2000, the balance was
paid in full and the line-of-credit agreement was terminated (See note 17).

                                      55
<PAGE>

                                  P-COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Borrowings under the line were secured by the assets of the Company and bore
interest at either a base interest rate or a variable interest rate.

   The Company's foreign subsidiaries had lines-of-credit available from
various financial institutions with interest rates ranging from 8% to 12%.
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 7--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").

 Preferred Stock.

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

 Mandatorily Redeemable Convertible Preferred Stock and Warrants.

   In December 1998, the Company completed a private placement of 15,000
shares of the Series B for $1,000 per share and issued manditorily redeemable
warrants to purchase up to 1,242,000 shares of Common Stock at $3.47 per
share. 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 the Series B was
immediately convertible into shares of Common Stock, the discount was
amortized as a reduction of income available to holders of Common Stock in the
amount of $1.8 million upon the issuance of the Series B. The Company did not
record a beneficial conversion feature related to Series B because the
conversion price, using the conversion terms that are most beneficial to the
holder, was greater than the market price of the Common Stock on the date of
issuance.

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

   The manditorily redeemable warrants issued in connection with Series B were
valued at $1,839,000 using the Black-Scholes option-pricing model with the
following assumptions used: expected volatility of 65%; a weighted-average
risk-free interest rate of 4.5% and a weighted-average expected life of 5
years. The initial exercise price for the Common Stock underlying the warrants
was $3.47. In June 1999, in connection with the conversion of the Series B to
Common Stock, the manditorily redeemable warrants were exchanged for 1,242,000
non-mandatorily redeemable warrants having an exercise price of $3.00. As a
result of the exchange and repricing of warrants, the Company recorded a $2.0
million charge to loss attributable to Common Stockholders representing the
difference in fair value of the warrants before and after the exchange and
repricing. The warrants are immediately exercisable until the earlier of: (1)
December 22, 2002, or (2) the date on which the closing of a consolidation,
merger of other business combination with or into another entity pursuant to
which the Company does not survive. In the event the Company merges or
consolidates with any other company, the

                                      56
<PAGE>

                                  P-COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

warrant holders are entitled to similar choices as to the consideration they
will receive in such merger or consolidation as are provided to the holders of
the Series B. In addition, the number of shares issuable upon exercise of the
warrants is subject to an anti-dilution adjustment if the Company sells Common
Stock or securities convertible into or exercisable for Common Stock
(excluding certain issuances such as Common Stock issued under employee,
director or consultant benefit plans) at a price per share less than $3.47
(subject to adjustment). These warrants were subsequently exchanged for Common
Warrants as discussed below.

 Common Stock

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

   In 1998, the Company retired approximately $14.4 million of its Convertible
Subordinated Notes through the issuance of approximately 2,467,000 shares of
Common Stock. In 1999, the Company retired approximately $49.3 million of its
Convertible Subordinated Notes through the issuance of approximately 5,171,000
shares of Common Stock.

   In June 1999, the Company exchanged all 15,000 shares of the Series B for
5,135,000 shares of mandatorily redeemable Common Stock. As a result of this
exchange, the Company recorded a $10.2 million charge to loss attributable to
Common Stockholders representing the difference between the book value of the
Series B and the market value of the mandatorily redeemable common stock net
of incurred premiums and penalties relating to the non-registration of the
Series B. Upon the occurrence of certain events outside the Company's control,
each share of Common Stock was redeemable at the holder's option at the
greater of $4.00 per share or the highest closing price during the period
beginning on the date of the holder's notice to redeem to the date on which
the Company redeems the stock. In connection with the exchange agreements,
each holder of the Series B agreed to waive all premiums which had been
accrued and penalties which had been incurred in connection with the Series B
as of the date of exchange. As discussed above, the Company also exchanged
outstanding mandatorily redeemable warrants to purchase 1,243,000 shares of
Common Stock, which were held by the holders of the Series B for new warrants
to purchase 1,243,000 shares of Common Stock with an exercise price of
$3.00 per share rather than $3.47 per share.

   In November 1999, the Company entered into agreements with the holders of
the mandatorily redeemable Common Stock to eliminate their redemption rights
and their past and future late registration premiums and penalties in exchange
for 212,000 shares of Common Stock issued on November 10, 1999 at $4.72 per
share, warrants to purchase 443,000 shares of Common Stock issued on January
20, 2000 at an exercise price of $8.50 per share, and a $400,000 promissory
note convertible (with interest) into Common Stock at a conversion price of
$4.72 per share. As a result of this transaction, the Company recorded a $6.3
million charge to loss attributable to Common Stockholders representing the
difference between the value of the redemption rights and the market value of
the common stock issued, the fair value of the warrants issued, and the
convertible promissory note net of accrued interest eliminated as part of the
transaction.

                                      57
<PAGE>

                                  P-COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Common Stock Warrants

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

<TABLE>
<CAPTION>
                                                                        Exercise
                                                                Number   Price
                                                                ------  --------
                                                                (in thousands)
   <S>                                                          <C>     <C>
   December 1998--issuance.....................................  1,242   $3.47
   June 1999--cancellation of 1998 warrants.................... (1,242)  $3.47
   June 1999--issuance.........................................  1,242   $3.00
   August 1999--issuance.......................................    180   $5.00
   November 1999--issuance.....................................    443   $8.50
                                                                ------
                                                                 1,865
                                                                ======
</TABLE>

 Stockholder Rights Agreement

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

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

NOTE 8--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 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. The remaining amount
due on the note of $9.7 million was paid in July 1998. The promissory note
holdback was disputed by Cylink Corporation and the dispute was settled during
the third quarter of 1999 for $3.3 million, and recorded as a charge to other
expenses.

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

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

                                      58
<PAGE>

                                  P-COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   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 (dollars in thousands):

<TABLE>
<CAPTION>
                                                             Amount      Life
                                                             -------  ----------
                                                                      (In years)
   <S>                                                       <C>      <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      10
     Developed technology...................................   6,291       4
     Acquired workforce.....................................   1,781       3
     Core technology........................................   2,707      10
                                                             -------
       Total................................................ $58,165
                                                             =======
</TABLE>

   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 is being amortized over the period of the expected revenue stream
of the developed products of approximately four years. The value of the
acquired workforce is being amortized on a straight-line basis over three
years, and the remaining identified intangible assets, including core
technology and goodwill is being amortized on a straight-line basis over ten
years. Amortization expense related to the acquisition of Cylink was $5.2
million and $3.7 million for 1999 and 1998, respectively.

   In addition, other factors were considered in determining the value
assigned to purchased IPR&D, which consisted of 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 and 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. At
the time of acquisition, these projects were estimated to be 60%, 85%, and 50%
complete, respectively.

   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 2000.

                                      59
<PAGE>

                                  P-COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   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 end of 2000. Currently,
the narrowband point-to-multipoint project is approximately 60% complete. The
point-to-point project, discussed above, 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.

   The following table represents unaudited pro forma information assuming the
acquisition had occurred at the beginning of the earliest period presented, as
restated for the revision of the amount of purchase price allocated to in-
process research and development as discussed in Note 2 (in thousands, except
per share data):

<TABLE>
<CAPTION>
                                                        Year Ended   Year Ended
                                                       December 31, December 31,
                                                           1998         1997
                                                       ------------ ------------
   <S>                                                 <C>          <C>
   Sales..............................................   $167,053     $227,567
   Net income (loss)..................................    (69,010)      15,448
   Net Income (loss) per share:
    Basic.............................................   $  (1.60)    $   0.37
    Diluted...........................................      (1.60)        0.35
</TABLE>

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

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

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

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

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

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

                                      60
<PAGE>

                                  P-COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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

   The Company accounted for its acquisitions of CRC, RT Masts and Telematics
as poolings-of-interests and, therefore, all prior period financial statements
presented include the results of these acquired companies as if they had been
combined since inception. The following table represents historical
information of P-Com, CRC, RT Masts and Telematics, prior to their
combination, for the year ended December 31, 1997 (in thousands):

<TABLE>
     <S>                                                                <C>
     Sales:
       P-Com........................................................... $181,665
       CRC.............................................................      713
       RT Masts........................................................   12,035
       Telematics......................................................    5,197
                                                                        --------
                                                                        $199,610
                                                                        ========
     Net income:
       P-Com........................................................... $ 20,375
       CRC.............................................................  (1,254)
       RT Masts........................................................    (537)
       Telematics......................................................      307
                                                                        --------
                                                                        $ 18,891
                                                                        ========
</TABLE>

NOTE 9--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 13,434,000 shares of Common Stock as of December 31, 1999.

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

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

   Options under the Discretionary Option Grant Program may be granted at not
less than 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.

                                      61
<PAGE>

                                  P-COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   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 following table summarizes stock option activity under the Company's
1992 and 1995 Plans (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                         1999          1998           1997
                                     ------------- -------------- --------------
                                     Shares  Price Shares  Price  Shares  Price
                                     ------  ----- ------  ------ ------  ------
<S>                                  <C>     <C>   <C>     <C>    <C>     <C>
Outstanding at beginning of year....  7,862  $6.77  6,006  $12.65 3,778   $ 7.14
Granted.............................  1,453   4.52  6,481    6.20 3,318    16.73
Exercised...........................   (725)  4.16   (499)   5.32  (878)    3.31
Canceled............................ (1,955)  6.73 (4,126)  14.59  (212)   11.41
                                     ------  ----- ------         -----
Outstanding at end of year..........  6,635   6.26  7,862         6,006
                                     ======  ===== ======         =====
Options exercisable at year-end.....  3,909   7.03  2,483         2,970
Weighted-average fair value of
 options granted
 during the year....................         $4.52         $ 2.24         $ 7.54
</TABLE>

   The following table summarizes information about stock options outstanding
and exercisable at December 31, 1999 (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                     Options Outstanding            Options Exercisable
                   ----------------------- -------------------------------------
                                           Weighted-Life
   Range of               Weighted-Average   Exercise           Weighted Average
 Exercise Prices   Shares  Remaining Life      Price     Shares  Exercise Price
 ---------------   ------ ---------------- ------------- ------ ----------------
 <S>               <C>    <C>              <C>           <C>    <C>
 $0.45-0.56......     90        4.5             0.56        90        0.56
  0.94-0.94......      1        4.8             0.94         1        0.94
  1.80-2.10......     76        5.5             1.89        72        1.87
  2.88-3.06......  1,439        8.7             3.00       892        3.00
  3.97-4.75......  1,252        9.0             4.21       329        4.50
  5.00-5.81......  2,061        7.6             5.75     1,112        5.72
  6.31-7.25......    403        6.4             6.86       315        6.99
  8.00-9.94......    699        6.0             9.37       555        9.36
 10.25-12.38.....     32        6.7            12.36        27       12.36
 13.31-16.25.....     86        7.4            13.72        70       13.72
 17.06-21.09.....    494        6.6            18.16       445       18.12
 23.22-23.22.....      2        7.7            23.22         1       23.22
                   -----        ---            -----     -----       -----
                   6,635        7.7             6.26     3,909        7.03
                   =====        ===            =====     =====       =====
</TABLE>

                                      62
<PAGE>

                                  P-COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   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 $5.81 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 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. A total of 1,150,000 shares of Common Stock have been
reserved for issuance under the Purchase Plan, as amended at the May 1997 and
1998 Annual Meetings of Stockholders. Awards and terms are established by the
Company's Board of Directors. The Purchase Plan may be canceled at any time at
the discretion of the Company's Board of Directors prior to its expiration in
December 2004. Under the Plan, the Company sold approximately 211,000, 240,000
and 152,000 shares in 1999, 1998 and 1997, respectively.

                                      63
<PAGE>

                                  P-COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   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>
                                                    1999       1998     1997
                                                  ---------  --------  -------
                                                          (restated)
<S>                                               <C>        <C>       <C>
Net income (loss) applicable to Common
 stockholders
  As reported.................................... $(121,570) $(64,304) $18,891
  Pro forma......................................  (127,685)  (66,473)  11,221
Net income (loss) per share
  As reported--Basic............................. $   (2.13) $  (1.49) $  0.45
  As reported--Diluted...........................     (2.13)    (1.49)    0.42
  Pro forma--Basic............................... $   (2.24) $  (1.54) $  0.27
  Pro forma--Diluted.............................     (2.24)    (1.54)    0.25
</TABLE>

   The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following assumptions
used for grants in 1999, 1998, and 1997, respectively: expected volatility of
96%, 72% and 57%; weighted-average risk-free interest rates of 5.4%, 5.1%, and
6.1% and weighted-average expected lives of 3.28, 2.76, and 3.16 years,
respectively.

   The fair value of the employees' stock purchase rights was estimated using
the Black-Scholes model with the following assumptions for 1999, 1998, and
1997, respectively: expected volatility of 96%, 72% and 57% weighted-average
risk-free interest rates of 4.6%, 5.3%, and 5.3% 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 1999, 1998, and 1997 was $5.74, $1.99, and $3.65,
respectively.

NOTE 10--INCOME TAXES:

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

<TABLE>
<CAPTION>
                                                      Year ended December 31,
                                                     ---------------------------
                                                       1999      1998     1997
                                                     --------  --------  -------
                                                            (Restated)
   <S>                                               <C>       <C>       <C>
   Domestic......................................... $(67,120) $(71,277) $27,260
   Foreign..........................................   (6,957)   (5,153)   3,553
                                                     --------  --------  -------
                                                     $(74,077) $(76,430) $30,813
                                                     ========  ========  =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                              Year ended
                                                              December 31,
                                                        ------------------------
                                                         1999    1998     1997
                                                        ------ --------  -------
   <S>                                                  <C>    <C>       <C>
   Current:
     Federal........................................... $  --  $ (4,727) $ 7,850
     State.............................................     55      (37)     268
     Foreign...........................................  1,532    1,244    2,886
                                                        ------ --------  -------
                                                         1,587   (3,520)  11,004
                                                        ------ --------  -------
</TABLE>

                                      64
<PAGE>

                                  P-COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


<TABLE>
<CAPTION>
                                                            Year ended
                                                            December 31,
                                                      -------------------------
                                                       1999     1998     1997
                                                      ------  --------  -------
   <S>                                                <C>     <C>       <C>
   Deferred:
     Federal.........................................   (135)   (7,410)    (217)
     State...........................................    (45)     (571)     231
                                                      ------  --------  -------
                                                        (180)   (7,981)      14
                                                      ------  --------  -------
       Total......................................... $1,407  $(11,501) $11,018
                                                      ======  ========  =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                               December 31,
                                                             ------------------
                                                               1999      1998
                                                             --------  --------
   <S>                                                       <C>       <C>
   Net operating loss carryforwards......................... $ 24,734  $  7,030
   Credit carryforwards.....................................    2,844     1,833
   In-process research and development......................    5,127     5,527
   Start-up costs...........................................      --         99
   Reserves and other.......................................   26,941     5,988
                                                             --------  --------
                                                               59,646    20,477
   Valuation allowance......................................  (49,788)  (10,799)
                                                             --------  --------
                                                             $  9,858  $  9,678
                                                             ========  ========
</TABLE>

   The Company's net operating loss carryforwards included as a deferred tax
asset above are approximately $67 million and $19 million for 1999 and 1998,
respectively. These operating loss carry forwards will expire between 2005 and
2019 if not utilized beforehand. These amounts do not include stock option
deductions of $2.1 million and $5.1 million for 1999 and 1998, respectively,
which will be credited to paid in capital when realized.

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

   Deferred income taxes reflect the tax consequences on future years of
differences between the tax bases of assets and liabilities and their bases
for financial reporting purposes. In addition, future tax benefits, such as
net operating loss carryforwards, are recognized to the extent that
realization of such benefits is more likely than not. A valuation allowance
has been established for those benefits that management has determined do not
meet the more likely than not criteria.

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

<TABLE>
<CAPTION>
                                                              Year ended
                                                             December 31,
                                                           --------------------
                                                           1999    1998    1997
                                                           -----   -----   ----
   <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
   Change in valuation allowance..........................  35.0    11.9    --
   Benefit from foreign sales corporation.................   --      --    (2.3)
   Research and development tax credit....................   --      --    (7.3)
   Foreign income taxed at different rate.................   1.5     0.8    4.8
   Other, net.............................................  (0.1)    6.7    5.6
                                                           -----   -----   ----
                                                             1.4 % (15.9)% 36.9%
                                                           =====   =====   ====
</TABLE>


                                      65
<PAGE>

                                  P-COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 12--COMMITMENTS:

Obligations Under Capital And Operating Leases

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

<TABLE>
     <S>                                                                 <C>
     Year ending December 31,
     2000............................................................... $1,472
     2001...............................................................  1,432
     2002...............................................................    396
     2003...............................................................     33
                                                                         ------
     Total minimum lease payments.......................................  3,333
     Less: amount representing interest.................................    192
                                                                         ------
     Present value of net minimum lease payments........................ $3,141
                                                                         ======
</TABLE>

   The present value of net minimum lease payments are reflected in the
December 31, 1999 and 1998 balance sheets as a component of other accrued
liabilities and other long term liabilities of $1,364,000 and $1,770,000
respectively.

   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, 1999 are as follows (in thousands):

<TABLE>
     <S>                                                                <C>
     Year ending December 31,
     2000.............................................................. $2,418
     2001..............................................................  1,274
     2002..............................................................    859
     2003..............................................................    192
     2004..............................................................    464
                                                                        ------
                                                                        $5,207
                                                                        ======
</TABLE>

   Rent expense for all operating leases was approximately $3,258,000,
$3,218,000, and $2,205,000 in 1999, 1998, and 1997, respectively.

NOTE 12--SUPPLEMENTAL CASH FLOW INFORMATION:

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

<TABLE>
<CAPTION>
                                                       Year ended December 31,
                                                       -------------------------
                                                         1999     1998    1997
                                                       -------- -------- -------
     <S>                                               <C>      <C>      <C>
     Supplemental cash flow disclosures:
     Cash paid for income taxes....................... $  3,900 $  5,610 $  217
                                                       ======== ======== ======
     Cash paid for interest........................... $  8,717 $    656 $  133
                                                       ======== ======== ======
</TABLE>

                                      66
<PAGE>

                                  P-COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Non-cash transactions

   During 1999 and 1998, the Company exchanged shares of Common Stock for
Convertible Subordinated Notes. In conjunction with these transactions, the
Company recorded extraordinary gains of $13.2 million and $5.3 million for the
years ended December 31, 1999 and 1998, respectively. See Note 6 for
additional information.

   As described more fully in Note 7, the Company exchanged Series B
Convertible Preferred Stock for shares of Mandatorily Redeemable Common Stock
and repriced certain warrants held by the holders of the Series B Convertible
Preferred Stock during June 1999. During November 1999, the Company issued
shares of Common Stock, warrants to purchase additional shares of Common
Stock, and a promissory note convertible into Common Stock in exchange for the
elimination of certain redemption rights and late registration premiums and
penalties. In connection with these transactions, the Company recorded charges
of $18.5 million and $1.8 million for the years ended December 31, 1999 and
1998, respectively, as adjustments to arrive at the net loss applicable to
Common Stockholders. See Note 7 for additional information.

   During 1998 and 1997, the Company issued shares of Common Stock and a
promissory note in conjunction with various acquisitions. The Company also
exchanged a loan payable to stockholder for shares of Common Stock during
1998. See Note 8 for additional information.

NOTE 13--RECENT ACCOUNTING PRONOUNCEMENTS

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

   In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition," which provides
guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the Securities and Exchange Commission. SAB
101 outlines the basic criteria that must be met to recognize revenue and
provides guidance for disclosures related to revenue recognition policies. SAB
101 is effective for the fiscal quarter beginning April 1, 2000, however
earlier adoption is permitted. The Company has not yet determined the impact,
if any, that adoption will have on the consolidated financial statements.

NOTE 14--SEGMENT REPORTING:

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

                                      67
<PAGE>

                                  P-COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   In August 1999, the Company announced its intent to divest its broadcast
equipment business, Technosystem, and concluded that a measurement date had
occurred. Accordingly, beginning in the third quarter of 1999, this business
is being reported as a discontinued operation and the amounts presented for
prior periods have been reclassified for appropriate comparability. As such,
the segment information shown below does not include Technosystem's financial
information. See Note 3 to the Consolidated Financial Statements. Capital
expenditures for long-lived assets are not reported to management by segment
and are excluded as presenting such information is not practical. The
following tables show the operations of the Company's operating segments (in
thousands):

<TABLE>
<CAPTION>
                                                    Product   Service
   For the year ended December 31, 1999              Sales     Sales    Total
   ------------------------------------             --------  -------  --------
   <S>                                              <C>       <C>      <C>
   Sales........................................... $116,409  $40,470  $156,879
   Income (loss) from operations...................  (67,856)   4,491   (63,365)
   Depreciation....................................   11,010      773    11,783
   Identifiable assets.............................  191,606   22,034   213,640
   Interest expense, net...........................   (8,086)     (89)   (8,175)

<CAPTION>
   For the year ended December 31, 1998
   ------------------------------------
   <S>                                              <C>       <C>      <C>
   Sales........................................... $118,948  $43,597  $162,545
   Income (loss) from operations...................  (73,000)   3,776   (69,224)
   Depreciation....................................   10,528      382    10,910
   Identifiable assets.............................  290,662   24,555   315,217
   Interest expense................................   (8,518)    (134)   (8,652)

<CAPTION>
   For the year ended December 31, 1997
   ------------------------------------
   <S>                                              <C>       <C>      <C>
   Sales........................................... $169,453  $30,157  $199,610
   Income from operations..........................   25,436    5,200    30,636
   Depreciation....................................    5,447      278     5,725
   Identifiable assets.............................  289,884   15,637   305,521
   Interest expense................................   (1,664)    (147)   (1,811)
</TABLE>

   The allocation of sales by geographic customer destination and property,
plant and equipment, net are as follows (in thousands):
<TABLE>
<CAPTION>
                                                       1999     1998     1997
                                                     -------- -------- --------
   <S>                                               <C>      <C>      <C>
   Sales:
     United States.................................. $ 48,248 $ 41,597 $ 70,312
     United Kingdom.................................   54,172   71,399   69,201
     Europe.........................................   28,183   12,123   23,969
     Africa.........................................      --    19,104    6,323
     Asia...........................................    9,489   18,322   15,548
     Other geographic regions.......................   16,787        0   14,257
                                                     -------- -------- --------
       Totals....................................... $156,879 $162,545 $199,610
                                                     ======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
                                                                 1999    1998
                                                                ------- -------
   <S>                                                          <C>     <C>
   Property, plant, and equipment, net:
     United States............................................. $28,751 $30,726
     United Kingdom............................................   2,878   9,845
     Italy.....................................................   4,771  11,317
     Other geographic regions..................................     226     198
                                                                ------- -------
       Totals.................................................. $36,626 $52,086
                                                                ======= =======
</TABLE>

                                      68
<PAGE>

                                  P-COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 15--RESTRUCTURING AND OTHER CHARGES:

   During 1998, the Company's management approved restructuring plans, which
included initiatives to integrate the operations of acquired companies,
consolidate duplicate facilities, and reduce overhead. Accrued restructuring
costs of $4.3 million were recorded in 1998 relating to these initiatives
including severance and benefits of approximately $0.6 million, facilities and
fixed assets impairments of approximately $0.9 million, and goodwill write-off
of approximately $2.9 million. In addition, we recorded accounts receivable
reserves of $5.4 million and inventory reserves of $16.9 million (including
$14.5 million in inventory write downs related to our existing core business
and $2.4 million in other charges to inventory relating to the elimination of
product lines.)

   In 1999, the Company determined that there was a need to reevaluate the
Company's sales forecasts, and to size the business to meet this decrease in
forecasted sales over the next twelve months. The change in forecast was
prompted by the slower than expected recovery in the telecommunications
industry, and resulted in total charges of $36.5 million during the second
quarter of 1999. These charges consisted of $11.8 million in accounts
receivable write-offs and reserves, $3.3 million in facility and fixed asset
write-offs and other related charges, and an increase to inventory reserves
and related charges of approximately $21.4 million.

   The Company determined that accounts receivable write-offs and reserves,
totaling $11.8 million, were necessary after a customer-by-customer review of
all accounts more than 90 days past stated payment terms. This charge is
included general and administrative expenses. All of the accounts reserved or
written-off were in the Product business segment and the majority of these
accounts were for customers of the Company's Tel-Link product lines. These
customers were located predominantly in the emerging markets of Africa and
Asia, which experienced significant economic turmoil beginning in the third
quarter of 1998. The write-off of a single customer receivable in South Africa
accounted for more than half of the charge in 1999. The Company will continue
to pursue collection efforts with all of the reserved accounts and is
attempting to recover its inventory from the South African customer.

   The write-offs and charges for facilities and fixed assets, which were
recorded in general and administrative expenses, resulted from the closure of
sales offices in Mexico and the United Arab Emirates and the consolidation
from three to two facilities in Campbell, California. As a result, certain
fixed assets became idle and leased buildings were abandoned. Approximately
$3.0 million of the charge 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 the abandoned facilities. This amount
does not include expenses, such as moving expenses or lease payments that will
benefit future operations. Additionally, approximately $0.3 million was
recorded for severance costs due to the elimination of 30 positions through an
involuntary reduction in workforce.

   The increase in inventory and related reserves totaled approximately $21.4
million and was charged to Product Cost of Sales. Of this total, approximately
$15.4 million was required for excess and obsolete inventory primarily in the
Company's Tel-Link product lines. Furthermore, the reserves were required
primarily for excess and obsolete finished goods inventory. The Company makes
no distinction between excess and obsolete inventory at this time. Also,
included in the reserve for excess and obsolete inventory was $0.8 million for
the rework of excess semi-custom finished goods that were configured for
specific customer applications or geographic regions. The Company believes
that in some cases it can be less expensive to rework semi-custom finished
goods than to purchase new parts and it can reduce cash outlays for inventory
and improve cash flows. The costs required to perform rework include costs for
material, assembly, and re-testing of inventory by the Company's suppliers.

   Accrued liabilities were increased by $6.0 million for a charge to Product
Cost of Sales for non-cancelable excess inventory purchase commitments, also
related primarily to the Company's Tel-Link product lines. 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.

                                      69
<PAGE>

                                  P-COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The Company has embarked on a program to find buyers for excess and
obsolete inventory at prices below cost and consequently, has scrapped or sold
approximately $3.5 million of this inventory. The Company also is in the
process of attempting to renegotiate the non-cancelable purchase commitments
with its suppliers.

   The accrued restructuring and other charges and amounts charged against the
accrual as of December 31, 1999 are as follows (in thousands):

<TABLE>
<CAPTION>
                                  Beginning            Expenditures  Remaining
                                   Accrual  Additions and Write-offs  Accrual
                                  --------- --------- -------------- ---------
<S>                               <C>       <C>       <C>            <C>
Severance and benefits...........  $   569   $   300     $   (869)    $   --
Facility and fixed asset write-
 offs............................      879     3,000       (3,879)        --
Goodwill impairment..............    2,884       --        (2,884)        --
                                   -------   -------     --------     -------
Total restructuring charges......    4,332     3,300       (7,632)        --
                                   -------   -------     --------     -------
Inventory reserve................   16,922    15,400      (16,142)     16,180
Non-cancellable purchase
 commitments reserve.............      --      6,000       (3,053)      2,947
                                   -------   -------     --------     -------
Total inventory and related
 charges.........................   16,922    21,400      (19,195)     19,127
                                   -------   -------     --------     -------
Accounts receivable reserve......    5,386    11,800       (7,517)      9,669
                                   -------   -------     --------     -------
Total accrued restructuring and
 other charges...................  $26,640   $36,500     $(34,344)    $28,796
                                   =======   =======     ========     =======
</TABLE>

NOTE 16--CONTINGENCIES

   The Company is a defendant in several class action lawsuits in which the
plaintiffs are alleging various 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 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 17--SUBSEQUENT EVENTS

   In January 2000, the Company closed the sale of approximately 7,531,000
shares of common stock at a per share price of $5.71, for an aggregate
purchase price of $43 million. The unregistered shares were priced at a 15%
discount to the average closing sale prices of common stock for the 60
consecutive trading days prior to the signing of the agreement. Until such
shares are registered for resale, the Company is subject to certain
restrictions regarding future sales of common stock, convertible stock and
warrants.

   In addition, in January 2000 the Company entered into a new loan agreement
for $12 million. A portion of the proceeds of the new equity and debt
financings has been used to repay the Company's outstanding indebtedness of
approximately $27 million under its revolving line-of-credit agreement. The
loan matures on January 31, 2001, subject to automatic one-year renewals at
the option of both parties. Borrowings under the line bear interest at the
greater of prime rate plus 2% or 8% per annum. Borrowings under the new
agreement are secured by the United States cash deposits, receivables,
inventory, equipment, investment property and intangibles of the Company. The
maximum borrowings under the agreement will be limited to 85% of eligible
accounts receivable, not to exceed $12 million. In connection with the loan
agreement, the Company issued the lender warrants to purchase 200,000 shares
of common stock at $5.71 per share. The warrants, which are immediately
exercisable and are subject to anti-dilution clauses, expire on January 31,
2005.

                                      70
<PAGE>

                                  P-COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 18--SELECTED QUARTERLY FINANCIAL DATA (Unaudited):

   As a result of the Company's decision to restate its second, third and
fourth quarter 1998 and first quarter 1999 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
                                    --------------------------------------------
                                    March 31  June 30   September 30 December 31
                                    --------  --------  ------------ -----------
<S>                                 <C>       <C>       <C>          <C>
1999 (As Restated)
  Sales(1)......................... $34,768   $ 35,443    $ 40,058    $ 47,469
  Gross profit(1)..................  10,414    (13,186)     10,817      14,041
  Net loss.........................  (6,651)   (54,615)    (36,399)     (5,384)
  Net loss attributable to common
   stockholders....................  (6,651)   (66,805)    (36,399)    (11,715)
  Per common share
    Basic and diluted.............. $ (0.14)  $  (1.29)   $  (0.55)   $  (0.21)

1999 (As Reported)
  Sales(1)......................... $34,768   $ 35,443    $ 40,058    $ 47,469
  Gross profit(1)..................  10,414    (13,186)     10,817      14,041
  Net loss.........................  (5,792)   (54,615)    (36,399)     (5,384)
  Net loss attributable to common
   stockholders....................  (5,792)   (66,805)    (36,399)    (11,715)
  Per common share
    Basic and diluted.............. $ (0.12)  $  (1.29)   $  (0.55)   $  (0.21)

1998 (As Restated)
  Sales(1)......................... $53,355   $ 50,413    $ 23,079    $ 35,698
  Gross profit (deficit)(1)........  22,728     12,447      (6,354)      9,118
  Net loss.........................  (5,097)    (6,263)    (41,197)     (9,908)
  Net loss attributable to common
   stockholders....................  (5,097)    (6,263)    (41,197)    (11,747)
  Per common share
    Basic and diluted.............. $ (0.12)  $  (0.14)   $  (0.95)   $  (0.27)

1998 (As Reported)
  Sales(1)......................... $53,355   $ 56,466    $ 23,580    $ 36,285
  Gross profit (deficit)(1)(2).....  22,728     18,500      (5,853)      9,705
  Net loss(2)......................  (5,097)      (210)    (40,696)     (9,321)
  Net loss attributable to common
   stockholders(2).................  (5,097)      (210)    (40,696)    (11,160)
  Per common share(2)
    Basic and diluted.............. $ (0.12)  $   0.00    $  (0.94)   $  (0.26)
</TABLE>
--------
(1) Quarterly sales and gross profit amounts for each of the four quarters in
    1998 and 1999 reflect a reduction for sales and gross profit attributable
    to Technosystem, which was reclassified to discontinued operations in the
    third quarter of 1999.

(2)  The March 31, 1998 "as reported" amounts include the impact of the
    restatement relating to purchased in-process research and development.
    Prior to this restatement, the originally reported net loss and net loss
    per share were $(17.2) million and $(0.40) per share, respectively. Sales
    and gross profit were not affected by this restatement. See Note 2 for
    additional information.

                                      71
<PAGE>

                                  SCHEDULE II

                                  P-COM, INC.

                       VALUATION AND QUALIFYING ACCOUNTS
                 Years ended December 31, 1997, 1998, and 1999
                                 (in thousands)

<TABLE>
<CAPTION>
                                                 Additions
                                    Balance at  Charged to   Deductions Balance
                                    Beginning    Statement      from    at end
                                     of Year   of Operations  Reserves  of Year
                                    ---------- ------------- ---------- -------
<S>                                 <C>        <C>           <C>        <C>
Allowance for doubtful accounts:
  Year ended December 31, 1997.....   $1,915      $   810     $  (204)  $ 2,521
  Year ended December 31, 1998.....    2,521       10,892      (3,822)    9,591
  Year ended December 31, 1999.....    9,591       11,284      (5,976)   14,899
Sales returns reserves:
  Year ended December 31, 1997.....   $1,042      $ 3,743     $   --    $ 4,785
  Year ended December 31, 1998.....    4,785       13,298      (8,583)    9,500
  Year ended December 31, 1999.....    9,500        7,900      12,900     4,500
</TABLE>

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

   Not applicable.

                                       72
<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, 1999 (the "1999 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.

                          SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                   Number of
                                            Annual Compensation    Securities
                                          ----------------------- ------------
                                                                   Long-Term
                                                                  Compensation
Name and Principal Position          Year Salary ($)(1) Bonus ($)    Awards
---------------------------          ---- ------------- --------- ------------
<S>                                  <C>  <C>           <C>       <C>
George P. Roberts................... 1999    376,000           0          0
 Chief Executive Officer and         1998    366,600           0    450,000
 Chairman of the Board of Directors  1997    330,069     358,000    300,000

Pier Antoniucci..................... 1999    270,000           0          0
 President and Chief Operating
  Officer                            1998    270,855           0    200,000
                                     1997    244,962     165,000    200,000

Michael Sophie...................... 1999    143,077           0          0
 Former Chief Financial Officer,     1998    195,000           0    200,000
 Vice President, Finance and
  Administration                     1997    175,673     109,000    150,000

Robert E. Collins................... 1999    142,308           0    175,000
 Chief Financial Officer,
 Vice President, Finance and
  Administration

John Wood........................... 1999    144,900           0     20,000
 Senior Vice President, Technology   1998    141,278           0     45,000
                                     1997    147,421      28,980     10,000
</TABLE>
--------
(1) Includes amounts deferred under the Company's 401(k) Plan.

Option Grants In 1999 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 1999 Fiscal Year. No stock appreciation rights were granted to these
individuals during such fiscal year.
<TABLE>
<CAPTION>
                                                                             Potential
                                                                         Realizable Value
                                                                         at Assumed Annual
                                                                          Rates of Stock
                                      % of Total                               Price
                          Number of    Options                           Appreciation for
                         Securities   Granted to    Individual Grant      Option Term(1)
                         Underlying   Employees  ----------------------- -----------------
                           Options    in Fiscal    Exercise   Expiration
                         Granted (#)     Year    Price ($/Sh)    Date    5% ($)   10% ($)
                         -----------  ---------- ------------ ---------- ------- ---------
<S>                      <C>          <C>        <C>          <C>        <C>     <C>
John R. Wood............    20,000(2)    1.32        3.97      08/17/09   48,914   126,498
Robert E. Collins.......    19,161(2)    1.32        5.22      04/19/09   62,887   159,369
                           155,839(2)   10.72        5.22      04/19/09  511,470 1,296,166
</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%

                                      73
<PAGE>

   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.

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 1999
and unexercised options held by such individuals as of the end of such fiscal
year. No SARs were exercised during 1999 nor were any SARs outstanding at the
end of such fiscal year.

<TABLE>
<CAPTION>
                                                    Number of Securities
                                      Aggregate    Underlying Unexercised    Value of Unexercised in-the-Money
                            Shares      Value      Options at FY-End (#)           Options at FY-End(1)
                         Acquired on  Realized  ---------------------------- ---------------------------------
  Name                   Exercise (#)  ($)(2)   Exercisable(3) Unexercisable Exercisable ($) Unexercisable ($)
  ----                   ------------ --------- -------------- ------------- --------------- -----------------
<S>                      <C>          <C>       <C>            <C>           <C>             <C>
George P. Roberts.......         0           0    1,313,957       99,375        3,611,218              0
Pier Antoniucci.........    84,744     261,853            0            0                0              0
Michael Sophie..........    54,639     162,015      314,380            0          941,101              0
John R. Wood............         0           0      101,041       23,959          426,719         97,495
Robert E. Collins.......         0           0      175,000            0          634,375              0
</TABLE>
--------
(1) Based on the fair market value of the option shares at the 1999 Fiscal
    Year-end ($8.844 per share based on the closing selling price on the
    Nasdaq National Market as of December 31, 1999) 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, 1999, the following number of shares were unvested: Mr.
    Roberts--544,167 shares; and Mr. Wood--1,225,313 shares; Mr. Collins--
    175,000:

Employment Contracts, Termination Of Employment Arrangements And Change Of
Control Agreements

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

   The Company has entered into severance agreements (the "Agreements") with
George Roberts, Chairman of the Board of Directors and Chief Executive
Officer, James Sobczak, President and Chief Operating Officer, and Robert
Collins, Chief Financial Officer and Vice President, Finance and
Administration (individually, the "Officer" and collectively the "Officers"),
each dated December 15, 1997, September 7, 1999 and April 21, 1999,
respectively. Each of these Agreements provides for the following benefits
should the Officer's employment terminate, either voluntarily or
involuntarily, for any reason within twenty-four (24) months

                                      74
<PAGE>

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

   The Company does not have any existing agreements with 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. Josling and Mr. Hawkins. Neither of these individuals was an
officer or employee of the Company at any time during the 1999 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.

                                      75
<PAGE>

                    REPORT OF THE COMPENSATION COMMITTEE OF
               THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION

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

Compensation Philosophy

   Since the initial public offering of the Company's Common Stock in March
1995, it has been the Committee's policy and objective to provide the
Company's executive officers and other key employees with competitive
compensation opportunities based upon their contribution to the financial
success of the Company, the enhancement of corporate and stockholder values,
the market levels of compensation in effect at companies with which the
Company competes for executive talent and the personal performance of such
individuals. The primary factors that the Committee considered in establishing
the compensation levels of the executive officers for the 1999 fiscal year are
summarized below. The Committee may, however, in its discretion, apply
different factors in setting executive compensation for future fiscal years.

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

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

Cash Compensation

   A key objective of the Company's current executive compensation program is
to position its key executives to earn annual cash compensation (base salary
plus bonus) equaling or exceeding that which the executive would earn at other
peer group companies. During 1999, the Committee reviewed and relied on
technology industry compensation surveys in its assessment of appropriate
compensation levels.

   The fiscal year 1999 base salaries for the named executive officers are
based upon a number of factors, including, without limitation, each
executive's performance and contribution to overall Company performance and
the levels of base salary in effect for comparable positions with the peer
group companies. Base salary decisions are made as part of a formal review
process. Generally, the base salaries of the Company's executive officers for
the 1999 fiscal year ranged from the 10th percentile to the 75th percentile of
the salaries surveyed for comparable positions at the peer group companies. In
defining "peer group companies," the Company considered companies with
revenues between $100 million and $200 million. In comparison to other
companies in the $200 million to $500 million range, the base salaries for the
Company's executive officers ranged from the 10th percentile to the 50th
percentile.

                                      76
<PAGE>

   The annual incentive compensation provided to the Company's executive
officers is in the form of cash bonuses based on the Committee's assessment of
the Company's financial performance for the year and the individual officer's
contribution to that performance. For the 1999 fiscal year, the Committee
determined not to award any cash bonus to the executive officers.

Stock Options

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

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

Chief Executive Officer Performance and Compensation

   In setting the base salary for Mr. Roberts for the 1999 fiscal year, the
Committee sought to achieve two objectives: (i) make his base salary
competitive with the base salaries paid to the chief executive officers of the
same peer group of companies which the Committee surveyed for comparative
compensation purposes for all other executive officers of the Company and (ii)
make a significant percentage of his total compensation package contingent
upon Company performance. For the 1999 fiscal year, the base salary of Mr.
Roberts was set at the 75th percentile of the base salary levels in effect for
those other chief executive officers. In comparison to companies in the range
from $200 million to $500 million in revenues, Mr. Roberts' base salary was
set at the 50th percentile of the base salary levels for those chief executive
officers. As indicated above, the Committee decided not to award any cash
bonus to Mr. Roberts or any other executive officer for the 1999 fiscal year.

   The Committee did not grant Mr. Roberts options to purchase any additional
shares of the Company's Common Stock during the 1999 fiscal year.

   It is the Committee's view that the total compensation package provided Mr.
Roberts for the 1999 fiscal year is competitive with the typical compensation
packages awarded to chief executive officers in the Company's peer group, in
light of the Company's performance.

Compliance with Internal Revenue Code Section 162(m)

   Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to publicly held companies for compensation
exceeding $1 million paid to certain of the corporation's executive officers.
The limitation applies only to compensation that is not considered to be
performance-based. The non-performance based compensation to be paid to the
Company's executive officers for the 1999 fiscal year did not exceed the $1
million limit per officer, nor is it expected that the non-performance based
compensation to be

                                      77
<PAGE>

paid to the Company's executive officers for fiscal 2000 will exceed that
limit. Options granted under the Company's 1995 Plan are structured so that
any compensation deemed paid to an executive officer in connection with the
exercise of those options will qualify as performance-based compensation that
will not be subject to the $1 million limitation. Because it is very unlikely
that the cash compensation payable to any of the Company's executive officers
in the foreseeable future will approach the $1 million limit, the Compensation
Committee has decided at this time not to take any other action to limit or
restructure the elements of cash compensation payable to the Company's
executive officers. The Compensation Committee will reconsider this decision
should the individual compensation of any executive officer ever approach the
$1 million level.

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

                                          Brian T. Josling
                                          Member, Compensation Committee

                                          John A. Hawkins
                                          Member, Compensation Committee

                                      78
<PAGE>

Stock Performance Graph

   The graph depicted below shows a comparison of cumulative total shareholder
returns for the Company, the Dow Jones industrial average and the Standard and
Poors 500 Index.

                  1999 COMPARISON OF CUMULATIVE TOTAL RETURN
       ASSUMES INITIAL INVESTMENT OF $100 AND REINVESTMENT OF DIVIDENDS



--------
(1) The graph covers the period from March 2, 1995, the commencement date of
    the Company's initial public offering of shares of its Common Stock to
    December 31, 1999.

(2) The graph assumes that $100 was invested in the Company on March 2, 1995,
    in the Company's Common Stock and in each index, and that all dividends
    were reinvested. No cash dividends have been declared on the Company's
    Common Stock.

(3) Stockholder returns over the indicated period should not be considered
    indicative of future stockholder returns.

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

                                      79
<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 29, 2000, 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>
   State of Wisconsin Investment Board(2)...........   9,784,800      12.74
    P.O. Box 7842
    Madison, WI 53707
   George P. Roberts(3).............................   1,579,364       2.06
   John R. Wood(4)..................................     147,269         *
   Kenneth E. Bean, II(5)...........................       6,673         *
   M. Bernard Puckett(6)............................      81,332         *
   John A. Hawkins(7)...............................      30,000         *
   James J. Sobczak(8)..............................      44,000         *
   Brian Josling(9).................................      40,000         *
   Robert Collins(10)...............................     175,000         *
   All current directors and executive officers as a
    group (8 persons)...............................   2,103,638       2.74
</TABLE>
--------
  * Less than one percent of the outstanding Common Stock

 (1) Percentage of ownership is based on 76,829,914 shares of Common Stock
     outstanding on February 29, 2000. Shares of Common Stock subject to stock
     options that are currently exercisable or will become exercisable within
     60 days after February 29, 2000 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 2, 2000, filed with the
     Securities and Exchange Commission, the State of Wisconsin Investment
     Board reported that as of February 2, 2000 it had sole voting power over
     all 9,784,800 shares and sole dispositive power over all shares.

 (3) Includes 1,348,957 shares issuable upon exercise of options that are
     currently exercisable or will become exercisable within 60 days after
     February 29, 2000.

 (4) Includes 101,874 shares issuable upon exercise of options that are
     currently exercisable or will become exercisable within 60 days after
     February 29, 2000.

 (5) Includes 2,083 shares issuable upon exercise of options that are
     currently exercisable or will become exercisable within 60 days after
     February 29, 2000.

 (6) Includes 61,332 shares issuable upon exercise of options that are
     currently exercisable or will become exercisable within 60 days after
     February 29, 2000.

 (7) Includes 30,000 shares issuable upon exercise of options that are
     currently exercisable or will become exercisable within 60 days after
     February 29, 2000.

 (8) Includes 44,000 shares issuable upon exercise of options that are
     currently exercisable or will become exercisable within 60 days after
     February 29, 2000.

 (9) Includes 40,000 shares issuable upon exercise of options that are
     currently exercisable or will become exercisable within 60 days after
     February 29, 2000.

(10) Includes 175,000 shares issuable upon exercise of options that are
     currently exercisable or will become exercisable within 60 days after
     February 29, 2000.

(11) Includes 1,803,246.00 shares issuable upon exercise of options that are
     currently exercisable or will become exercisable within 60 days after
     February 29, 2000.

                                      80
<PAGE>

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 none
in 1999 and approximately $965,000 in 1998 and $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 supplier ceased operations in 1999.
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.

                                      81
<PAGE>

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

   (b) See Exhibit list below

<TABLE>
<CAPTION>
   Number                               Description
   ------                               -----------
 <C>        <S>
   2.1(4)   Agreement dated April 15, 1996, by and among the Company, Mr.
             Giovanni Marciano and certain other parties named thereunder.

   2.8(12)  Asset Purchase Agreement dated March 13, 1998, by and between P-
             Com, Inc. and Cylink Corporation

   2.8A(12) Amendment to the Asset Purchase Agreement dated March 13, 1998 by
             and between P-Com, Inc. and Cylink Corporation.

   2.8B(12) Amendment No. 2 to the Asset Purchase Agreement dated March 27,
             1998 by and between P-Com, Inc. and Cylink Corporation.

   2.8C(12) Unsecured Subordinated Promissory Note

   3.2(2)   Restated Certificate of Incorporation filed on March 9, 1995.

   3.2A(7)  Certificate of Amendment of Restated Certificate of Incorporation
             filed on June 16, 1997.

   3.2B(8)  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(15) 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(15) 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(15) 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(11)  Indenture, dated as of November 1, 1997, between the Registrant and
             State Street Bank and Trust Company of California, N.A., as
             Trustee.

   4.4(11)  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(9)   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(14)  First Amendment to the Rights Agreement, dated as of October 5,
             1998, between the Company and BankBoston, N.A.

   4.7(15)  Amended and Restated Rights Agreement, dated as of December 18,
             1998 between the Company and BankBoston, N.A.

   4.8(15)  Amended and Restated Rights Agreement, dated as of December 21,
             1998 between the Company and BankBoston, N.A.

   4.9(30)  Amendment to Amended and Restated Rights Agreement

 *10.3(1)   Master OEM Agreement dated January 1, 1995, by and between the
             Company and AT&T Corp.

 *10.9(1)   Manufacturing Agreement dated July 13, 1994, by and between the
             Company and SPC.
</TABLE>

                                       82
<PAGE>

<TABLE>
<CAPTION>
   Number                                Description
   ------                                -----------
 <C>         <S>
 *10.10(1)   Manufacturing Agreement dated April 20, 1994, by and between the
              Company and Comptronix Corporation (assigned to Sanmina
              Corporation).

  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.

  10.16(13)  1995 Stock Option/Stock Issuance Plan, as amended. 1995 Stock
              Option/Stock Issuance Plan, including forms of Notices of Grant
              of Automatic Stock Option for initial grant and annual grants and
              Automatic Stock Option Agreement, as amended.

  10.17(13)  Employee Stock Purchase Plan, as amended.

  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(10) Service Agreement dated December 15, 1997 by and between the
              Company and Mr. George P. Roberts.

  10.19B(10) Service Agreement dated December 15, 1997 by and between the
              Company and Mr. Michael J. Sophie.

  10.19C(10) 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.

  10.23(2)   Sublease dated May 1, 1995 by and between the Company and
              Medallion Mortgage Company.

  10.24(3)   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.

  10.27(5)   Lease dated November 11, 1995 by and between the Company, Inc. and
              Johann Birkart, Internationale Spedition GmbH & Co.

  10.31(13)  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(13)  Revolving Promissory Note in the principal amount of $25,000,000
              dated May 15, 1998.

  10.33(13)  Revolving Promissory Note in the principal amount of $25,000,000
              dated May 15, 1998.

  10.34(13)  Subsidiary Guarantee dated as of May 15, 1998.

 *10.35(13)  Joint Development and License Agreement between Siemens
              Aktiengesellschaft and P-Com, Inc. dated June 30, 1998.

  10.36(13)  International Employee Stock Purchase Plan

  10.37(14)  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(15)  Securities Purchase Agreement dated as of December 21, 1998 by and
              among the Company and the purchasers listed therein.
</TABLE>

                                       83
<PAGE>

<TABLE>
<CAPTION>
  Number                                Description
  ------                                -----------
 <C>        <S>
 10.39(15)  Registration Rights Agreement dated as of December 21, 1998 by and
             among the Company and the purchasers listed therein.

 10.40A(16) 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(16) Warrant to purchase shares of Common Stock, dated as of December
             21, 1998, issued by the Company to Capital Ventures International.

 10.40C(16) Warrant to purchase shares of Common Stock, dated as of December
             21, 1998, issued by the Company to Marshall Capital Management,
             Inc

 10.41(15)  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(15)  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(17)  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(17)  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(18)  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.

 10.46(18)  Common Stock PIPES Purchase Agreement, dated June 21, 1999,by and
             between P-Com and the Kaufmann Fund.

 10.47(18)  Common Stock PIPES Purchase Agreement, dated June 21, 1999,by and
             between P-Com and Baystar Capital, L.P.

 10.48(18)  Common Stock PIPES Purchase Agreement, dated June 21, 1999,by and
             between P-Com and the Lagunitas Partners,L.P.

 10.49(18)  Common Stock PIPES Purchase Agreement, dated June 21, 1999,by and
             between P-Com and Gruber McBain International.

 10.50(18)  Common Stock PIPES Purchase Agreement, dated June 21, 1999, by and
             between P-Com and Lockheed Martin Corp. Master Retirement Trust.

 10.51(18)  Common Stock PIPES Purchase Agreement, dated June 21, 1999, by and
             between P-Com and Trustees of Hamilton College.

 10.52(18)  Common Stock PIPES Purchase Agreement, dated June 21, 1999, by and
             between P-Com and State of Wisconsin Investment Board.

 10.53(19)  Seventh 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 June
             29, 1999.
</TABLE>

                                       84
<PAGE>

<TABLE>
<CAPTION>
  Number                                Description
  ------                                -----------
 <C>       <S>
 10.54(20) Agreement between P-Com and Marshall Capital Management, Inc., dated
            as of June 4, 1999.

 10.55(21) Agreement between P-com and Castle Creek Technology Partners, LLC,
            dated as of June 4, 1999.

 10.56(22) Agreement between P-Com and Capital Ventures International, dated as
            of June 4, 1999.

 10.57(23) Warrant to purchase shares of Common Stock, dated as of June 4,
            1999, issued by P-Com, Inc. to Marshall Capital Management, Inc.

 10.58(24) Warrant to purchase shares of Common Stock, dated as of June 4,
            1999, issued by P-Com, Inc. to Castle Creek Technology Partners
            LLC.

 10.59(25) Warrant to purchase shares of Common Stock, dated as of June 4,
            1999, issued by P-Com, Inc. to Capital Ventures International.

 10.60(26) Severance Agreement dated April 21, 1999 by and between the Company
            and Robert E. Collins.

 10.61(27) Offer letter dated April 1, 1999 by and between the Company and
            Robert E. Collins.

 10.62(28) Employment Letter Agreement between P-Com, Inc. and James Sobczak,
            dated August 18, 1999.

 10.63(29) Severance Agreement between P-Com, Inc. and James Sobczak, dated
            September 10, 1999.

 10.64(30) Eighth Amendment to Credit Agreement dated August 3, 1999.

 10.65(31) Stock Purchase Warrant agreement between P-Com, Inc. and Castle
            Creek Technology Partners LLC, dated August 11, 1999.

 10.66(32) Stock Purchase Warrant agreement between P-Com, Inc. and Capital
            Ventures International, dated August 11, 1999.

 10.67(33) Stock Purchase Warrant agreement between P-Com, Inc. and Marshall
            Capital Management, Inc., dated August 11, 1999.

 10.68(44) Penalty Settlement agreement between P-Com Inc. and Castle Creek
            Technology Partners, LLC, dated November 16, 1999.

 10.69(44) Penalty Settlement agreement between P-Com Inc. and Marshall Capital
            Management, Inc. dated November 16, 1999.

 10.70(44) Penalty Settlement agreement between P-Com Inc. and Capital Ventures
            International dated November 16, 1999.

 10.71(44) Eighth 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
            August 3, 1999.

 10.72(44) Ninth 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
            November 12, 1999.

 10.73(44) Tenth 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
            December 16, 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      Power of Attorney. (See page 80.)

 27.1(44)  Financial Data Schedule
</TABLE>

                                       85
<PAGE>

--------
 (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 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.

 (3) 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.

 (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).

 (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.

(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.

(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.

(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.

(28) Incorporated by reference to identically numbered exhibit to the
     Company's Current Report on Form 8-K dated June 21, 1999, as filed with
     the Securities and Exchange Commission on June 22, 1999.

(29) Incorporated by reference to Exhibit 48A to the Company's Report on Form
     8-K dated June 4, 1999, as filed with the Securities and Exchange
     Commission on June 8, 1999.

                                      86
<PAGE>

(30) Incorporated by reference to Exhibit 48B to the Company's report Form 8-K
     dated June 4, 1999, as filed with the Securities and Exchange Commission
     on June 8, 1999.

(31) Incorporated by reference to Exhibit 48C to the Company's report on Form
     8-K dated June 4, 1999, as filed with the Securities and Exchange
     Commission on June 8, 1999.

(32) Incorporated by reference to Exhibit 49.A to the Company's report on Form
     8-K dated June 4, 1999, as filed with the Securities and Exchange
     Commission on June 8, 1999.

(33) Incorporated by reference to Exhibit 49.B to the Company's report on Form
     8-K dated June 4, 1999, as filed with the Securities and Exchange
     Commission on June 8, 1999.

(34) Incorporated by reference to Exhibit 49.C to the Company's report on Form
     8-K dated June 4, 1999, as filed with the Securities and Exchange
     Commission on June 8, 1999.

(35) Incorporated by reference to Exhibit 10.46 to the Company's Quarterly
     Report of Form 10-Q for the quarterly period ended March 31, 1999.

(36) Incorporated by reference to Exhibit 10.47 to the Company's Quarterly
     Report of Form 10-Q for the quarterly period ended March 31, 1999.

(37) Incorporated by reference to Exhibit 10.54 to the Company's Quarterly
     Report of Form 10-Q for the quarterly period ended September 30, 1999.

(38) Incorporated by reference to Exhibit 10.55 to the Company's Quarterly
     Report of Form 10-Q for the quarterly period ended September 30, 1999.

(39) Incorporated by reference to Exhibit 10.56 to the Company's Quarterly
     Report of Form 10-Q for the quarterly period ended September 30, 1999.

(40) Incorporated by reference to Exhibit 10.57 to the Company's Quarterly
     Report of Form 10-Q for the quarterly period ended September 30, 1999.

(41) Incorporated by reference to Exhibit 10.58 to the Company's Quarterly
     Report of Form 10-Q for the quarterly period ended September 30, 1999.

(42) Incorporated by reference to Exhibit 10.59 to the Company's Quarterly
     Report of Form 10-Q for the quarterly period ended September 30, 1999.

(43) Incorporated by reference to identically numbered exhibit to the
     Company's Registration statement on Form 8-A/A filed with the Securities
     and Exchange Commission on August 25, 1999.

(44) Incorporated by reference to identically numbered exhibit to the
     Company's Annual Report on Form 10-K for the Annual period ended December
     31, 1999.

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


                                      87
<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.

                                          P-COM, INC.

                                                 /s/ George P. Roberts
                                          By: _________________________________
Date: August 24, 2000                                George P. Roberts
                                              Chairman of the Board and Chief
                                                     Executive Officer





                               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>
             Signature                           Title                  Date
             ---------                           -----                  ----

<S>                                  <C>                           <C>
     /s/ George P. Roberts           Chairman of the Board and     August 24, 2000
____________________________________  Chief Executive Officer
         George P. Roberts            (Principal Executive
                                      Officer and Acting Chief
                                      Financial Officer)

     /s/ Robert E. Collins           (Principal Accounting         August 24, 2000
____________________________________  Officer)
         Robert E. Collins


      /s/ James J. Sobczak           President and Chief           August 24, 2000
____________________________________  Operating Officer, Director
          James J. Sobczak            of the Company

       /s/ Brian Josling             Director of the Company       August 24, 2000
____________________________________
           Brian Josling

      /s/ John A. Hawkins            Director of the Company       August 24, 2000
____________________________________
          John A. Hawkins

     /s/ M. Bernard Puckett          Director of the Company       August 24, 2000
____________________________________
         M. Bernard Puckett
</TABLE>

                                      88