<PAGE>
 
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                  FORM 10-K/A

(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, 1997.

     OR

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

For the transition period from           to            .

                         Commission file number: 0-25356

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

                                   P-Com, Inc.

             (Exact name of Registrant as specified in its charter)
                              --------------------

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

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

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

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

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

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

Securities registered pursuant to Section 12(g) of the Act:  Common Stock,
                                                             $0.0001 par value.

         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/A or any
amendment to this Form 10-K/A. [ ]

         The aggregate market value of the voting stock held by non-affiliates
of the Registrant, as of March 23, 1998, was approximately $608,324,698 (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 23, 1998, approximately 43,079,418 shares of the Registrant's
Common Stock, $0.0001 par value, were outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE.

     Portions of the Registrant's Proxy Statement for the 1997 Annual Meeting of
Stockholders to be held on May 19, 1998 are incorporated by reference into Part
III.

================================================================================
<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 Operating Results" and elsewhere in this Annual Report
on Form 10-K/A. Unless otherwise indicated, all information relating to share
prices and number of shares in this Annual Report on Form 10-K/A reflect a 
2-for-1 forward stock split in the form of a 100% stock dividend on 
September 26, 1997.

     P-Com supplies equipment and services for access to worldwide
telecommunications and broadcast networks. The Company's Tel-Link(R) systems are
used as wireless digital links in applications that include interconnecting base
stations and mobile switching centers in microcellular and personal
communications services ("PCN/PCS") networks and for providing local telephone
company ("telco") connectivity in the local loop. The integrated architecture
and high software content of the Company's systems are designed to offer
cost-effective, high-performance products with a high degree of flexibility and
functionality. Additionally, the Company offers turnkey microwave relocation
services, engineering, program management, installation and maintenance of
communication systems to new licensees of radio spectrum who first remove
existing users from the frequencies before implementing new systems and provides
equipment for wireless network access applications. The Company is currently
field testing and further developing a range of point-to-multipoint radio
systems for use in both the telecommunications and broadcast industries.

     P-Com's Tel-Link(R) wireless radios utilize a common architecture for
systems in multiple 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, 38 GHz and 50 GHz. The Company's systems are designed to be highly
reliable, cost effective and simple to install and maintain. Software embedded
in the Company's systems allows the user to easily configure and adjust system
settings such as frequency, power and capacity with minimal manual tuning and
mechanical adjustments. The Company also markets a full line of Windows and
SNMP- based software products that are complementary to its systems as
sophisticated diagnostic, maintenance and system configuration tools.

     The Company's radio systems are sold internationally through strategic
partners, system providers, original equipment manufacturers ("OEMs") and
distributors as well as directly to end-users, and domestically primarily
through its direct sales force. The Company's radio system customers include
Advanced Radio Telecom, Corp. ("ART"), Bosch Telecom GmbH, Grupo Iusacell S.A.
de C.V., Lucent Technologies, Inc. (including the entities formerly known as
AT&T Network Systems Deutschland GmbH and AT&T Network Systems Nederland BV),
Mercury Communications Ltd., Mercury Personal Communications, Orange Personal
Communications Ltd., Italtel S.p.A. (formerly known as Siemens
Telecommunicazioni, S.p.A.), Ericsson, Ltd., Fujitsu Limited, Northern Telecom,
Ltd. and WinStar Wireless, Inc. (collectively with its subsidiary WinStar
Equipment Corp., "WinStar"). The Company's customers for microwave relocation
services include Sprint Spectrum, AT&T Wireless, PrimeCo Personal
Communications, BellSouth, Omnipoint and South Carolina Public Service Authority
("SCPSA").

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

Background

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

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

                                       1.
<PAGE>
 
establish PCN/PCS networks to provide a broad range of mobile wireless
communications similar to these enhanced cellular services. These microcellular
upgrades to existing systems and new PCN/PCS networks require the establishment
of additional, interconnected base stations.

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

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

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

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

The P-COM Solution

   Existing Products and Services

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

                                       2.
<PAGE>
 
     The following diagram illustrates the use of the Company's radio systems to
connect base stations in a PCN/PCS application; the Company's systems are used
in a similar manner in cellular networks.














     The following diagram shows the use of the Company's systems in a PTO/local
loop application to establish short-haul radio connections for telco service
from a high capacity communications infrastructure.













     The Company believes its current solutions offer the following benefits:

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

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

     High Level of Software Functionality. The Tel-Link(R) architecture is
designed to provide the Company's customers with a high level of functionality
to facilitate operation of the systems. The configuration of the Company's
systems,

                                       3.
<PAGE>
 
including setting the system's power and frequency and upgrading its capacity,
can be performed via the keypad located on the IDU. The Company also offers
proprietary Windows and SNMP-based software tools that permit a user to perform
system configuration from a personal computer attached directly to the IDU or
from any remote location accessed through a network management system. The
capacity of the Company's systems can be upgraded through software, providing a
greater degree of flexibility for customers. In contrast, conventional
millimeter wave systems typically require mechanical adjustments and manual
tuning on both the IDU and ODU, and their capacities cannot be upgraded using
software.

     Cost-effective Maintenance. The ease of maintenance of the Tel-Link(R)
systems is primarily due to the software embedded in the system and its software
tools. The Company includes a significant amount of the system's circuitry in
the IDU where system reliability is increased due to less demanding temperature
extremes and maintenance is easier to perform. Most conventional systems contain
more circuitry in the ODU, which exposes the circuitry to a wider temperature
range. This may require that more maintenance take place in the ODU, which is
typically more difficult to access. Use of the Company's proprietary maintenance
software tools can be on-site at the IDU or from any remote location through a
network management system. These tools allow the user to read the status of
numerous radio parameters and to change settings and configurations if desired.
Maintenance tools offered with the Tel-Link(R) systems include in-service
performance monitoring and analysis, system alarm reporting and IDU and ODU
temperature readings.

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

   Products Under Development

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








<TABLE>
<CAPTION>

P-Com, Inc. Point-to-Multipoint products as of December 31, 1997

------------------------------------ ------------------ ---------------------- --------------------
                                                                                Modulation Scheme &
                 Frequency              Interfaces      Subscriber Data Rates   Access Method
------------------------------------ ------------------ ---------------------- --------------------
<S>                                     <C>              <C>                    <C>

</TABLE>

                                       4.
<PAGE>
 
<TABLE>
<CAPTION>
<S>                                     <C>              <C>                    <C>
------------------------------------ ------------------ ---------------------- --------------------
10 GHz Systems*                             E0           64 Kbps to 20 Mb/s      Up to 64 QAM,
    Hub Radius:     up to 6 miles           E1           TDM                     TDMA
                                            E3
------------------------------------ ------------------ ---------------------- --------------------
24 GHz Systems                              DS0          64 Kbps to 155 Mb/s     Up to 64 QAM,
    Hub Radius:     up to 4 miles          ISDN          ATM & TDM               FDMA, TDMA
                                            DS1
                                        Frame Relay
                                         MPEG - 2
                                          10BaseT
                                          DS - 3
                                         155 Mbps
------------------------------------ ------------------ ---------------------- --------------------
26 GHz Systems*                             E0           64 Kbps to 20 Mb/s      Up to 64 QAM,
    Hub Radius:     up to 3.5 miles         E1           TDM                     TDMA
                                            E3
------------------------------------ ------------------ ---------------------- --------------------
28 GHz Systems*                             DS0          64 Kbps to 155 Mb/s     Up to 64 QAM,
    Hub Radius:     up to 3.5 miles        ISDN          ATM & TDM               FDMA, TDMA
                                            DS1
                                        Frame Relay
                                         MPEG - 2
                                          10BaseT
                                          DS - 3
                                         155 Mbps
------------------------------------ ------------------ ---------------------- --------------------
38 GHz Systems*                             DS0          64 Kbps to 155 Mb/s     Up to 64 QAM,
    Hub Radius:     up to 3 miles          ISDN          ATM & TDM               FDMA, TDMA
                                            DS1
                                        Frame Relay
                                         MPEG - 2
                                          10BaseT
                                          DS - 3
                                         155 Mbps
------------------------------------ ------------------ ---------------------- --------------------
</TABLE>
--------------------
*  Not currently available for shipment; prototype under development.

The P-COM Strategy

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

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

     Provide Ancillary Services in RF Engineering and System Construction. The
Company recently entered the market for relocation services for new licensees of
radio frequency spectrum. These services, which move existing users of a
specific radio frequency in order to clear the path for a new user, allow the
new licensees to outsource the relocation effort to P-Com. The Company believes
this service business will provide it with many strategic advantages, including
allowing it to develop strong relationships with decision makers early in the
network buildout process. This business unit has expanded to also provide
engineering, program management, installation and maintenance of communications
systems.

     Continue to Expand Worldwide Presence. The Company is focused on expanding
its presence internationally and further establishing its market position in the
United States. To date, the market opportunities for the Company's systems have
been greater abroad, as the markets for PCN/PCS and microcellular networks and
local loop access have developed at a faster rate than in the United States. The
Company intends to continue its international focus by meeting international

                                       5.
<PAGE>
 
telecommunications standards where appropriate and using strategic alliances to
penetrate international markets. The Company has met the standards established
by the European Telecommunications Standards Institute ("ETSI") and achieved
regulatory approval for certain of its systems in many countries including,
Australia, the Czech Republic, France, Germany, Greece, Hungary, Italy, Mexico,
Spain, the United Kingdom, and the United States. The process for additional
regulatory approvals for certain systems is underway in numerous other
countries, including Belgium, China and Switzerland. The Company's management
team consists of a group of highly-experienced telecommunications executives
from Italy, the United Kingdom and the United States. The Company maintains
offices throughout the world, has acquired numerous companies throughout the
world, and will continue to open offices in new geographic areas as needed in
order to support sales and customer support efforts.

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

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

     Position P-Com for Emerging Applications and Markets. The Company intends
to market its systems for applications other than microcellular, PCN/PCS and
local loop services and to explore emerging geographic markets. Many growing
businesses and local government organizations are choosing to install, maintain
and manage their own telecommunications infrastructures and only interface with
a PTO where a connection to the public network is required. As the voice, data
and video traffic within an organization increases, this approach becomes more
cost-effective than leasing these intracompany services from a PTO. The Company
believes that additional markets may develop abroad, as the implementation of
the communications infrastructure upgrades in emerging countries increasingly
bypasses traditional wired networks and moves directly to a cost-effective
wireless network.

     Acquire Companies with Complementary Products and Services. The Company
believes that acquisitions of companies with complementary products and services
will allow the Company to expand the products and services that it offers to
both its own customer base and to the customer bases of the acquired companies.
The Company has acquired companies that offer spread spectrum radios,
point-to-multipoint distribution systems currently under development, microwave
relocation and system construction, wire-line access systems including advanced
frame relay network management products and integrated services access
platforms, engineering, program management and installation of wireless
communications, cable and fiber optic systems. The Company recently acquired RT
Masts Limited ("RT Masts"), a company based in England and Telematics, Inc.
("Telematics"), a company based in Virginia that supply, install and maintain
telecommunications systems and services, including antennae covering high
frequency, medium frequency and microwave systems, and also manage the
construction of radio system sites, as well as the construction of towers and
the installation of radios and antennae at system sites. In addition, on March
28, 1998, the Company acquired substantially all of the assets of the Wireless
Communications Group of Cylink Corporation, a Sunnyvale, California-based
company. The Wireless Communications Group designs, manufactures and markets
spread spectrum radio products for voice and data applications in both domestic
and international markets.

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

Technology

                                       6.
<PAGE>
 
     The Company believes its approach to millimeter wave radio systems and
spread spectrum microwave is significantly different from most conventional
approaches. Through the use of its proprietary digital signal processing,
frequency converter and antenna interface technology, and its proprietary
software and custom application-specific integrated circuits, the Company offers
a highly-integrated, feature-rich system. This integration is designed to result
in reliability and cost advantages. The microprocessors and embedded software in
both the IDU and ODU enclosures enable flexible customization to the user's
specific telecommunications network requirements.

   Millimeter Wave and Microwave Technology

     Wireless transmission of voice, data and video traffic has become a
desirable alternative to wired solutions due to its advantages in the ease and
cost of implementation and maintenance. Since high frequency transmissions are
best suited for shorter distances, microwave radio frequencies are typically
used for communications links of 15 to 50 miles and millimeter wave radio
frequencies for transmissions of up to 15 miles. In addition, the cost of
millimeter wave radio systems is generally less than that of microwave radio
systems.

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














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

     The spread spectrum products use quadrature phase shift keying ("QPSK") or
quadrature amplitude modulation ("QAM") in the IDU. This signal is upconverted
into a microwave or millimeter wave frequency in the ODU. This signal is then
routed to the antenna to be broadcast. 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.

                                       7.
<PAGE>
 
     P-Com's architecture is designed to achieve reliability, cost, installation
and maintenance benefits over conventional approaches. The Company employs a
common architecture in the ODU for all stages of the system other than the
frequency converter used to establish the millimeter wave frequency at which the
system operates. In contrast, conventional millimeter wave systems often use
different designs for several components of the ODU for each different frequency
band. Third, the final transmit and receive frequencies are electronically
tunable either from the IDU or from a remote location using a network management
system. In contrast, many conventional approaches employ a Gunn oscillator to
generate the transmit millimeter wave frequency source and a second Gunn
oscillator to receive the millimeter wave transmission from the remote end.
These devices must be manually tuned and adjusted to achieve proper operation.
The Company believes that the Gunn oscillator technology that is typically used
in conventional approaches is inherently less reliable than P-Com's proprietary
frequency converter technology. Finally, in P-Com's systems, the IDU and ODU are
connected with a single coaxial cable, in contrast to many conventional systems
that require multiple cable connections.

   P-Com System Architecture

     The Company's millimeter wave and spread spectrum microwave radios comprise
three primary assemblies: the IDU, the ODU and the antenna. The IDU houses the
digital signal processing and the modem functions, and interfaces to the ODU via
a single coaxial cable. The ODU, a radio frequency (RF) enclosure, establishes
the specific transmit and receive frequencies and houses the proprietary P-Com
frequency converter. The antenna interfaces directly to the ODU via a
proprietary P-Com waveguide transition technology. The following diagram
illustrates a typical P-Com Tel-Link(R) radio system:



















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

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

     Outdoor Unit (ODU). The ODU consists of a lightweight, compact, integrated
RF electronics enclosure which attaches to an antenna. The RF enclosure contains
the electronics that convert and amplify the modulated signal received from the
IDU. Typically, the ODU is installed outdoors on a tower or rooftop. The RF
enclosure is connected to the antenna with the Company's proprietary waveguide
transition that requires no alignment, tools or special techniques. It is
secured to the antenna with quick release clips that typically allow an
installer to replace the complete unit in less than five minutes. In

                                       8.
<PAGE>
 
addition, since the antenna mount is independent of the RF enclosure,
replacement of the RF enclosure requires no realignment of the antenna.

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

Products and Services

   Current Products

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

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

                                       9.
<PAGE>
 
<TABLE>
<CAPTION>

P-Com, Inc. Products as of December 31, 1997
-------------------------------------- ---------- --------------------- -----------------------
                                                      Number of Lines;         Number of
             Frequency                  Standard        Data Rates         Voice Channels
-------------------------------------- ---------- --------------------- -----------------------
<S>                                    <C>          <C>                  <C>
  Spread Spectrum:                                                      
--------------------------------------                                  
                                                                        
     2.4 GHz Systems                   E1            1, 2*, 3*, 4*       30, 60, 90, 120
         Distance: Up to 50 miles      T1            1, 2*, 3*, 4*       24, 48, 72, 96
         List Price: $15,000-$62,000   Data          56 Kbps-2 Mbps     
-------------------------------------- ---------- --------------------- -----------------------
     5.7 GHz Systems                   E1            1, 2*, 3*, 4*       30, 60, 90, 120
         Distance: Up to 35 miles      T1            1, 2*, 3*, 4*       24, 48, 72, 96
         List Price: $19,000-$70,000   Data          56 Kbps-2 Mbps     
-------------------------------------- ---------- --------------------- -----------------------
  Licensed Frequencies:                                                 
--------------------------------------                                  
     7 GHz Systems                     E1            1, 2, 4, 8, 16      30, 60, 120, 240, 480
         Distance: Up to 35 miles      E3*           1                   480
         List Price: $32,000-$94,000   T1+           1, 4, 8, 16         24, 96, 192, 384
                                       T3+           1                   672
                                       Data++        3 x 64 Kbps        
-------------------------------------- ---------- --------------------- -----------------------
     13/14/15 GHz Systems              E1            1, 2, 4, 8, 16      30, 60, 120, 240, 480
         Distance: Up to 15 miles      E3*           1                   480
         List Price: $30,000-$93,000   T1+           1, 4, 8, 16         24, 96, 192, 384
                                       T3+           1                   672
                                       Data++        3 x 64 Kbps        
-------------------------------------- ---------- --------------------- -----------------------
     18/23/26 GHz Systems              E1            1, 2, 4, 8, 16      30, 60, 120, 240, 480
         Distance: Up to 10 miles      E3*           1                   480
         List Price: $27,000-$82,000   T1            1, 4, 8, 16         24, 96, 192, 384
                                       T3            1                   672
                                       Data++        3 x 64 Kbps        
-------------------------------------- ---------- --------------------- -----------------------
     38 GHz Systems                    E1            1, 2, 4, 8, 16      30, 60, 120, 240, 480
         Distance: Up to 6 miles       E3*           1                   480
         List Price: $24,000-$73,000   T1            1, 4, 8, 16         24, 96, 192, 384
                                       T3            1                   672
                                       Data          3 x 64 Kbps        
-------------------------------------- ---------- --------------------- -----------------------
     50 GHz Systems                    E1            1, 2, 4, 8*, 16*    30, 60, 120, 240, 480
         Distance: Up to 3 miles       Data++        3 x 64 Kbps        
         List Price: $30,000-$75,000                                    
-------------------------------------- ---------- --------------------- -----------------------
</TABLE>

*    Not currently available for shipment; prototypes under development.

+    Not currently available for shipment; prototypes to be developed based on
     customer demand, if any.

++   Currently available for shipment; no orders yet received.

                                      10.
<PAGE>
 
     Wire-line Access Products. The Company's wire-line access products are
designed and manufactured by Control Resources Corporation. They are based on
advanced architectures to provide proactive management, real time and historic
performance data capture and flexible cost effective configurations for complex
network requirements. Current NetPath products operate from 56 Kbps DDS service
through 1.544 Mbps T1 service. The NetPath integrated access platform product
can support multiple high speed access links and can internally transfer data at
up to 1 Gbps. Products are managed using Telnet, VT100 and SNMP and have
integrated ISDN interfaces and analog modems. The following products are
currently being shipped, or are currently available for shipment:

     ------------------------------------------------------------------------
         Product              Application                Access rates
     ------------------------------------------------------------------------
       NetPath 64        Managed Frame Relay Access      56 and 64 Kbps
       NetPath 100       Managed Frame Relay Access      F/T1 to T1
       NetPath 400       Integrated Access               1 to 4 T1
     ------------------------------------------------------------------------


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

   Products Under Development

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

To date, no point-to-multipoint systems have been shipped for revenue.

   Services

     P-Com, through its P-Com Network Services subsidiary ("Network Services"),
provides turnkey relocation of microwave links from spectrum reallocated by the
FCC for emerging technologies and applications. The providers of these emerging
technologies and applications, which include PCS licensees, must first relocate
the existing user or users to a comparable location on the frequency spectrum.
This relocation process requires substantial attention from radio engineering
personnel, and many service providers lack sufficient personnel resources to
both relocate existing users and build out a new network. Many providers seek to
outsource this relocation responsibility to a third-party, such as Network
Services. Network Services, which (through its predecessor) signed its first PCS
microwave relocation contract in January 1995, to date has performed microwave
relocation services on more than 1,000 paths.

     Network Services provides three principal microwave relocation services:
market and system analysis which involves the collection of data on the various
existing paths in a particular area, as well as the potential cost of comparable
paths for relocation; negotiation services which involves negotiations with
existing users of spectrum on behalf of the PCS licensee in order to agree on
the parameters of a new path; and program management which involves managing the
complete physical construction of a relocation path, including the procurement
of equipment and building permits, and installation and testing of the new
system; as well as turnkey relocation encompassing all of the above. Network
Services has expanded its service offerings through the acquisitions of RT Masts
and Telematics, which engage in the management of construction of radio system
sites, as well as construction of towers and the installment of radios and
antennae at system sites.

     Network Services' principal service is turnkey microwave relocation
services in which Network Services conducts all system analysis, negotiation,
and implementation and delivers to its client fully cleared spectrum.

     Network Services' customers include Sprint Spectrum, AT&T Wireless, PrimeCo
Personal Communications, BellSouth, Omnipoint, and SCPSA.

     Additionally, P-Com is expanding its service offerings to include such
services as network and path design, installation, and maintenance of the
service provider's network.

                                      11.
<PAGE>
 
Sales and Marketing

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

     The Company currently engages in a lengthy sales process that commences
with the solicitation of bids by prospective customers. If the Company is
selected to proceed further, the Company may provide systems for incorporation
into system trials or may proceed directly to contract negotiations. If system
trials are required and successfully completed, the Company then negotiates a
contract with the customer to set technical and commercial terms of sale. These
terms of sale govern the purchase orders issued by the customer as the network
is deployed. The Company anticipates that it will increasingly rely upon OEMs
and system providers during the sales process, and will therefore have less
direct contact during this process with end-users.

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

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

Customers

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

   Network Operators

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

   System Providers

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

                                      12.
<PAGE>
 
     The following list represents certain customers from which the Company has
generated revenues since the beginning of 1997:

       ------------------------------------------------------------------------
            International                         Domestic
       ------------------------------------------------------------------------
        Bosch Telecom GmbH                   Advanced Radio Telecom Corporation
        Ericsson Limited                     AT&T Wireless
        Esmartel House                       Bell Atlantic
        Fareastone                           Bell South
        Ficomp System, Inc.                  Digital Transmission System
        Fujitsu Limited                      FM Associates
        Gentec                               Horizon Technologies
        GMA Network                          Omnipoint
        Grupo Iusacell S.A. de C.V.          PrimeCo Personal Communications
        Jonmag Group                         Southwestern Bell Corp.
        Lucent Technologies                  Sprint Spectrum
        Mercury Communications Limited       Telecom Securicor Cellular Radio
        Mercury Personal Communications      Teleport Communications Group
        Northern Telecom Limited             Tellabs Operations, Inc.
        Orange Personal Communications       WinStar Wireless, Inc.
        Siemens (Italtel) Limited
        Spectrum Network Systems
        TSY Poland
       ------------------------------------------------------------------------


     For the year ended December 31, 1997, approximately seventy-five customers
accounted for substantially all of the Company's sales, and two customers, each
of which individually accounted for over 10% of the Company's 1997 sales,
accounted for over 27% of the Company's sales. In 1996, the Company had five
customers which individually accounted for over 10% of the Company's sales.
Sales to Orange Personal Communications Ltd. and WinStar accounted for
approximately 16% and 11% of the Company's sales, respectively, in 1997. Sales
to Orange Personal Communications Ltd., WinStar, Bosch Telecom GmbH, Ericsson
Limited and ART accounted for approximately 18%, 12%, 11%, 11% and 11% of the
Company's sales, respectively, in 1996. As of December 31, 1997, seven customers
accounted for over 64% of the Company's backlog scheduled for shipment in the
twelve months subsequent to December 31, 1997. The Company anticipates that, at
least for the near term, it will continue to sell its radio systems to an
expanding, but still relatively small, group of customers. Many of the Company's
customers are implementing new networks and may require additional capital to
implement fully their planned networks, e.g. Fareastone, Mercury Personal
Communications, Orange Personal Communications, Advanced Radio Telecom
Corporation and WinStar Wireless, Inc. The Company's ability to achieve or
increase its sales in the future will depend in significant part upon its
ability to obtain and fulfill orders from existing and new customers and
maintain relationships with and provide support to existing and new customers.
Equally important is its ability to manufacture systems on a timely and
cost-effective basis and to meet stringent customer performance and shipment
delivery dates. As a result, any cancellation, reduction or delay in orders by
or shipments to any customer, as a result of manufacturing difficulties or
otherwise, or the inability of any customer to finance its purchases of the
Company's radio systems may have a material adverse effect upon the Company's
business, financial condition and results of operations. Orders for the
Company's products have typically been strongest towards the end of the calendar
year. To the extent that this trend continues, the Company's results of
operations will fluctuate from quarter to quarter. There can be no assurance
that the Company's sales will increase in the future or that the Company will be
able to retain and support existing customers or to attract new customers.

     The Company's backlog was approximately $65.2 million as of December 31,
1997, as compared to approximately $58.4 million as of December 31, 1996. The
increase is primarily due to the expansion of the Company's international
market. The Company includes in backlog only those firm customer commitments to
be shipped within the following twelve months. A significant portion of the
Company's backlog scheduled for shipment in the twelve months subsequent to
December 31, 1997 can be canceled since orders are often made substantially in
advance of shipment, and some of the Company's contracts provide that orders may
be canceled 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.

                                      13.
<PAGE>
 
Manufacturing

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

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

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

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

Research and Development

     The Company has a continuing research and development program in order to
enhance its existing systems and related software tools and to introduce new
systems. The Company invested approximately $29.1 million, $20.2 million and
$12.3 million in 1997, 1996 and 1995, respectively, in research and development
efforts and expects to continue to invest significant resources in research and
development, including new product development and acquisitions.

     The Company's research and development efforts can be classified into three
distinct efforts: (1) increasing the functionality of its point-to-point radio
systems under development by adding additional frequencies and capacities to its
product portfolio, modifying its network management system software offering,
and developing other advancements to its point-to-point radio systems under
development; (2) developing new products based on its core technologies, such as
a point-to-multipoint product offering for applications such as cable or fiber
replacements; and (3) integrating new functionality to extend the reach of its
products into the customers' networks, such as access technology which allows
the customer to manage telecommunications services at its site and integrate
voice, data, video and facsimile in one offering,

                                      14.
<PAGE>
 
such as the Company's NetPath integrated access product. There can be no
assurance that the Company will continue to focus on these areas or that current
efforts will result in new product introductions or modifications to existing
products.

     The wireless communications market is subject to rapid technological
change, frequent new product introductions and enhancements, product
obsolescence, changes in end-user requirements and evolving industry standards.
The Company's ability to be competitive in this market will depend in
significant part upon its ability to develop successfully, introduce and sell
new systems and enhancements and related software tools on a timely and
cost-effective basis that respond to changing customer requirements. The Company
has experienced and may continue to experience delays from time to time in
completing development and introduction of new systems, enhancements or related
software tools. There can be no assurance that errors will not be found in the
Company's systems after commencement of commercial shipments, which could result
in the loss of or delay in market acceptance. The inability of the Company to
introduce in a timely manner new systems, enhancements or related software tools
that contribute to sales could have a material adverse effect on the Company's
business, financial condition and results of operations.

Competition

     The wireless communications market is intensely competitive. The Company's
wireless-based radio systems compete with other wireless telecommunications
products and alternative telecommunications transmission media, including copper
and fiber optic cable. The Company has experienced increasingly intense
competition worldwide from a number of leading telecommunications companies that
offer a variety of competitive products and services and broader
telecommunications product lines, including Adtran, Inc., Alcatel Network
Systems, California Microwave, Inc., Digital Microwave Corporation, Ericsson
Limited, Harris Corporation--Farinon Division, Nokia Telecommunications, Innova
Corp., Philips T.R.T., and Western Multiplex Corporation, many of which have
substantially greater installed bases, financial resources and production,
marketing, manufacturing, engineering and other capabilities than the Company.
The Company faces actual and potential competition not only from these
established companies, but also from start-up companies that are developing and
marketing new commercial products and services. The Company may also face
competition in the future from new market entrants offering competing
technologies. In addition, the Company's current and prospective customers and
partners, certain of which have access to the Company's technology or under some
circumstances are granted the right to use the technology for purposes of
manufacturing, have developed, are currently developing or could develop the
capability to develop or manufacture products competitive with those that have
been or may be developed or manufactured by the Company. The Company's results
of operations may depend in part upon the extent to which these customers elect
to purchase from outside sources rather than develop and manufacture their own
radio systems. There can be no assurance that such customers will rely on or
expand their reliance on the Company as an external source of supply for their
radio systems. The principal elements of competition in the Company's market and
the basis upon which customers may select the Company's systems include price,
performance, software functionality, ability to meet delivery requirements and
customer service and support. There can be no assurance that the Company will be
able to compete effectively with respect to such elements. Recently, certain of
the Company's competitors have announced the introduction of competitive
products, including related software tools, and the acquisition of other
competitors and competitive technologies. The Company expects its competitors to
continue to improve the performance and lower the price of their current
products and to introduce new products or new technologies that provide added
functionality and other features. New product introductions and enhancements by
the Company's competitors could cause a significant decline in sales or loss of
market acceptance of the Company's systems or intense price competition, or make
the Company's systems or technologies obsolete or noncompetitive. The Company
has experienced significant price competition and expects such price competition
to intensify, which may materially adversely affect its gross margins and its
business, financial condition and results of operations. The Company believes
that to be competitive, it will continue to be required to expend significant
resources on, among other items, new product development and enhancements. In
marketing its systems, the Company will face competition from vendors employing
other technologies that may extend the capabilities of their competitive
products beyond their current limits, increase their productivity or add other
features. There can be no assurance that the Company will be able to compete
successfully in the future.

Government Regulation

     Radio communications are subject to extensive regulation by the United
States and foreign laws and international treaties. The Company's systems must
conform to a variety of domestic and international requirements established to,
among other things, avoid interference among users of radio frequencies and to
permit interconnection of equipment. Each country has a different regulatory
process. Historically, in many developed countries, the limited availability of
frequency spectrum has inhibited the growth of wireless telecommunications
networks. In order for the Company to operate in a foreign jurisdiction, it must
obtain regulatory approval for its systems and comply with different regulations
in each jurisdiction. Regulatory bodies worldwide are continuing the process of
adopting new standards for wireless communication

                                      15.
<PAGE>
 
products. The delays inherent in this governmental approval process may cause
the cancellation, postponement or rescheduling of the installation of
communications systems by the Company and its customers, which in turn may have
a material adverse effect on the sale of systems by the Company to such
customers. The failure to comply with current or future regulations or changes
in the interpretation of existing regulations could result in suspension or
cessation of operations. Such regulations or such changes could require the
Company to modify its products and incur substantial costs to comply with such
time-consuming regulations and changes. In addition, the Company is also
affected to the extent that domestic and international authorities regulate the
allocation and auction of the radio frequency spectrum. Equipment to support new
services can be marketed only if permitted by suitable frequency allocations,
auctions and regulations, and the process of establishing new regulations is
complex and lengthy. To the extent PCS operators and others are delayed in
deploying these systems, the Company could experience delays in orders. Failure
by the regulatory authorities to allocate suitable frequency spectrum could have
a material adverse effect on the Company's business, financial condition and
results of operations. In addition, delays in the radio frequency spectrum
auction process in the United States could delay the Company's ability to
develop and market equipment to support new services. These delays could have a
material adverse effect on the Company's business, financial condition and
results of operations.

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

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 four U.S. patents, which number will
increase upon consummation of the acquisition of the wireless communications
group of Cylink Corporation. (See note 10 of Notes to Consolidated Financial
Statements.) The Company generally enters into confidentiality and nondisclosure
agreements with its service providers, customers and others, and attempts to
limit access to and distribution of its proprietary rights. The Company also
enters into software license agreements with its customers and others. However,
there can be no assurance that such measures will provide adequate protection
for the Company's trade secrets or other proprietary information, that disputes
with respect to the ownership of its intellectual property rights will not
arise, that the Company's trade secrets or proprietary technology will not
otherwise become known or be independently developed by competitors or that the
Company can otherwise meaningfully protect its intellectual property rights.
There can be no assurance that any patent owned by the Company will not be
invalidated, circumvented or challenged, that the rights granted thereunder will
provide competitive advantages to the Company or that any of the Company's
pending or future patent applications will be issued with the scope of the
claims sought by the Company, if at all. Furthermore, there can be no assurance
that others will not develop similar products or software, duplicate the
Company's products or software or design around the patents owned by the Company
or that third parties will not assert intellectual property infringement claims
against the Company. In addition, there can be no assurance that foreign
intellectual property laws will adequately protect the Company's intellectual
property rights abroad. The failure of the Company to protect its proprietary
rights could have a material adverse effect on its business, financial condition
and results of operations.

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

Employees

    As of December 31, 1997, the Company had a total of 754 employees, including
357 in operations, 171 in research and development, 77 in sales and marketing,
45 in quality assurance and 104 in administration. The Company believes

                                      16.
<PAGE>
 
its future results of operations will depend in large part on its ability to
attract and retain highly skilled employees. None of the Company's employees are
represented by a labor union, and the Company has not experienced any work
stoppages. The Company considers its employee relations to be good.

ITEM 2. PROPERTIES.

<TABLE>
<CAPTION>
 ------------------------- ------------------------ -------------- ------------------------
     Location of Leased            Functions        Square Footage          Date
          Facility                                                      Lease Expires
 ------------------------- ------------------------ -------------- ------------------------
<S>                         <C>                      <C>               <C>
 HEADQUARTERS                   Administration
                            Sales/Customer Support      61,000          November 2005
 Campbell, CA                     Engineering
 USA                             Manufacturing
 ------------------------- ------------------------ -------------- ------------------------
 Campbell, CA                    Manufacturing          25,000           August 2002
 ------------------------- ------------------------ -------------- ------------------------
 San Jose, CA                      Warehouse            34,000          December 1999
 ------------------------- ------------------------ -------------- ------------------------
 Redditch, England          Sales/Customer Support       5,500            June 2005
 ------------------------- ------------------------ -------------- ------------------------
 Burminghamshire, England    Research/Development        3,000          October 1999
 ------------------------- ------------------------ -------------- ------------------------
 Redditch, England                 Warehouse             6,800         September 1999
 ------------------------- ------------------------ -------------- ------------------------
 Redditch, England                 Warehouse             4,000            June 1998
 ------------------------- ------------------------ -------------- ------------------------
 Solihull, England             Customer Support          2,200            May 1998
 ------------------------- ------------------------ -------------- ------------------------
                                                                       September 2000
                                                                   (may be canceled with a
 Frankfurt, Germany                Warehouse            11,000     six month advance notice)
 ------------------------- ------------------------ -------------- ------------------------
 Melbourne, Florida          Research/Development        5,000          December 2001
 ------------------------- ------------------------ -------------- ------------------------
 Beijing, China             Sales/Customer Support       2,300           August 1999
 ------------------------- ------------------------ -------------- ------------------------
</TABLE>

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

      Technosystem S.p.A. ("Technosystem") maintains its corporate headquarters
in Rome, Italy. This leased facility, totaling approximately 27,000 square feet,
contains corporate administration, sales and customer support, engineering and
manufacturing functions. The lease agreement for this headquarters facility
expires in October 2001. In addition, Technosystem leases an approximately 2,000
square feet warehouse located in Rome, Italy. The warehouse is held under a
lease agreement that expires in June 2001.

      Network Services maintains its corporate headquarters in Vienna, Virginia.
This leased facility, totaling approximately 15,000 square feet, contains
corporate administration, sales and customer support functions. The lease
agreement for this headquarters facility expires in April 2002. Network Services
also maintains a sales and customer support facility in Harlow, Essex, UK. The
Harlow facility is approximately 8,000 square feet and is held under a lease
agreement that expires in September 2007.

      Control Resources Corporation ("CRC") maintains its corporate headquarters
in Fair Lawn, New Jersey. This leased facility, totaling approximately 44,000
square feet, contains corporate administration, sales and customer support,
engineering and manufacturing functions. The lease agreement for this
headquarters facility expires in March, 2005.

                                      17.
<PAGE>
 
      Telematics, Inc. ("Telematics") maintains its facility in Sterling,
Virginia. This leased facility, totaling approximately 15,000 square feet,
contains administration, sales and customer support functions. The lease
agreement for this facility expires in December 1998. The lease will be
automatically renewable on a year-to-year basis after December 1998.

      RT Masts maintains its facility in Northants England. This facility,
totaling approximately 10,000 square feet, contains administration, sales and
customer support functions. RT Masts owns half of the facility (approximately
5,000 square feet) and leases the other half (approximately 5,000 square feet).
The lease agreement will expire in August 2011.

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

ITEM 3. LEGAL PROCEEDINGS

      The Company is involved in claims and disputes in the ordinary course of
business; however none of such matters is currently material to the Company's
operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

      None.

                                      18.
<PAGE>
 
EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of the Company, their ages as of March 31, 1998, and
their positions and their backgrounds are as follows:

         Name                 Age           Position
         ----                 ---           --------
  George P. Roberts.........  65    Chairman of the Board and Chief Executive
                                    Officer

  Pier Antoniucci...........  56    President and Chief Operating Officer

  Michael J. Sophie.........  40    Chief Financial Officer, Vice President,
                                    Finance and Administration

  John R. Wood..............  42    Senior Vice President, Advanced Technologies

  Kenneth E. Bean, III......  41    Senior Vice President, Quality Assurance

  Alan Wright...............  48    Executive Vice President, Operations



Background

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

     Mr. Roberts is a founder of the Company and has served as Chief Executive
Officer and Director since October 1991. From October 1991 through December
1996, Mr. Roberts served as President of the Company. Since September 1993, he
has also served as Chairman of the Board of Directors. From May 1989 to August
1991, Mr. Roberts was Chief Operating Officer for Digital Microwave Corporation,
a wireless communications company. From October 1984 to May 1989, Mr. Roberts
was President of American Satellite Company, a wholly owned subsidiary of
Contel, an independent telecommunications company. Mr. Roberts holds a B.S. in
Electrical Engineering from the University of Arizona and has completed graduate
business studies at the University of Arizona and the University of California
at Los Angeles.

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

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

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

     Mr. Bean was appointed Senior Vice President of Quality Assurance of the
Company in January 1997. From August 1995 to January 1997, Mr. Bean served as
Vice President, Manufacturing of the Company. From September 1992 to June

                                      19.
<PAGE>
 
1995, Mr. Bean was Director of Quality Assurance of the Company. From June 1989
to March 1992, Mr. Bean was a Senior Quality Field Engineer at TRW Space and
Defense, a provider of satellite communications equipment. From January 1989 to
June 1989, Mr. Bean was a Senior Quality Engineer at Eaton, a manufacturer of
microwave components for various telecommunications applications, and from
October 1987 to January 1989, Mr. Bean was a Quality Manager at Gamma Microwave,
a wireless component manufacturer. Mr. Bean holds a B.A. in Industrial Arts with
a minor in Business from San Jose State University.

     Mr. Wright was appointed Executive Vice President of Operations of the
Company in October 1997. From September 1993 to October 1997, Mr. Wright was a
private investor. From February 1992 to September 1993, Mr. Wright served as
Director of Product Integrity at StrataCom, Inc. From 1987 to 1991, Mr. Wright
was Vice President, Manufacturing at Digital Microwave Corporation. From 1977 to
1987, Mr. Wright served in various management positions at ROLM Corporation. Mr.
Wright holds a B.Sc. in Electrical/Electronic Engineering from Leeds University
in Leeds, England.

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

     The Company's Common Stock is traded on the Nasdaq National Market under
the symbol PCMS. The following table sets forth the range of high and low
closing sale prices, as reported on the Nasdaq National Market for each quarter
since the consummation of the Company's initial public offering on March 3,
1995. At March 23, 1998, the Company had approximately 327 holders of record of
its Common Stock and approximately 43,079,352 shares outstanding.

                                                      Price Range of
                                                     Common Stock (1)
                                                     ----------------
                                                       High      Low
                                                       ----      ---

         Year Ended December 31, 1995
           First Quarter (from March 3, 1995)       $  6.25    $  4.69
           Second Quarter                              5.44       4.18
           Third Quarter                              11.32       4.63
           Fourth Quarter                             10.79       8.00

         Year Ended December 31, 1996
           First Quarter                            $ 10.07    $  7.00
           Second Quarter                             18.00       9.75
           Third Quarter                              17.94       9.44
           Fourth Quarter                             16.88      10.16

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

--------------------
(1)  The price per share of Common Stock has been adjusted to reflect the
     2-for-1 stock split effected on October 27, 1995 and an additional 2-for-1
     stock split effected on September 26, 1997.

     To date, the Company has not paid any cash dividends on shares of its
Common Stock. The Company currently anticipates that it will retain any
available funds for use in the operation of its business, and does not
anticipate paying any cash dividends in the foreseeable future. In addition, the
terms of the Company's line of credit agreement prohibit the Company from paying
any dividends without the prior approval of the bank.

     On November 28, 1997, the Company completed the issuance of 248,215 shares
of its common stock (the "Shares") to the security holders of Telematics, Inc.
("Telematics"), a Virginia corporation in exchange for all the issued and
outstanding equity securities of Telematics. The Shares were issued pursuant to
the exemption from the registration requirements of the Securities Act of 1933,
as amended, provided by Rule 4(2). 24,822 of the Shares are being held in escrow
as collateral for all obligations of the security holders of Telematics pursuant
to the Purchase Agreement and the provisions of an escrow agreement.

                                      20.
<PAGE>
 
ITEM 6. SELECTED FINANCIAL DATA.

<TABLE>
<CAPTION>
                                                         Year Ended December 31,
                                             1997       1996       1995       1994        1993
                                           --------   --------   --------   --------    --------
                                                  (in thousands, except per share data)
<S>                                        <C>        <C>        <C>        <C>         <C>     
Statement of Operations Data:
Sales                                      $220,702   $120,953   $ 64,463   $ 29,600    $ 19,135
Cost of sales                               129,235     74,058     37,456     18,814      12,045
                                           --------   --------   --------   --------    --------
Gross profit                                 91,467     46,895     27,007     10,786       7,090
                                           --------   --------   --------   --------    --------
Operating expenses:
  Research and development                   29,127     20,163     12,284      7,978       6,313
  Selling and marketing                      15,696      7,525      4,837      3,275       2,121
  General and administrative                 16,948     10,283      5,573      4,903       3,589
                                           --------   --------   --------   --------    --------
    Total operating expenses                 61,771     37,971     22,694     16,156      12,023
                                           --------   --------   --------   --------    --------
Income (loss) from operations                29,696      8,924      4,313     (5,370)     (4,933)
Interest and other income (expense), net        247        906        167       (249)       (169)
                                           --------   --------   --------   --------    --------
Income (loss) before income taxes            29,943      9,830      4,480     (5,619)     (5,102)
Provision for income taxes                   11,052        956        761        338         223
                                           --------   --------   --------   --------    --------
Net income (loss)                          $ 18,891   $  8,874   $  3,719   $ (5,957)   $ (5,325)
                                           ========   ========   ========   ========    ========
Net income (loss) per share: (1)
Basic                                      $   0.45   $   0.23   $   0.11   $  (1.08)   $  (0.98)
                                           ========   ========   ========   ========    ========
Diluted                                    $   0.43   $   0.22   $   0.11   $  (1.08)   $  (0.98)
                                           ========   ========   ========   ========    ========
Shares used in per share computation:
Basic                                        42,175     38,762     32,645      5,521       5,432
                                           ========   ========   ========   ========    ========
Diluted                                      44,570     40,607     34,853      5,521       5,432
                                           ========   ========   ========   ========    ========

<CAPTION>
                                                               December 31,
                                             1997       1996       1995       1994        1993
                                           --------   --------   --------   --------    --------
                                                              (in thousands)
<S>                                        <C>        <C>         <C>        <C>         <C>    
Balance Sheet Data:
Cash and cash equivalents                  $ 88,145   $ 42,226    $ 8,871    $ 1,593     $ 3,686
Working capital                             174,635     90,811     38,473      3,755       6,015
Total assets                                305,521    155,452     62,964     18,393      11,794
Long-term debt                              101,690        914        491      1,198         804
Retained earnings (accumulated deficit)      18,380       (511)    (9,360)   (13,119)     (6,960)
Stockholders' equity                        148,297    112,479     47,258      6,028       7,171

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

(2)  All financial information presented in this Annual Report on Form 10-K/A
     has been restated to include the operating results of Control Resources
     Corporation ("CRC"), which was acquired in a pooling-of-interests
     transaction on May 29, 1997; and RT Masts Limited ("RT Masts") and
     Telematics, Inc. ("Telematics"), which were acquired in pooling-of-
     interests transactions on November 27, 1997.

                                      21.
<PAGE>
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

     The 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 Operating Results"
contained in this Item 7 and elsewhere in this Annual Report on Form 10-K/A.

Results of Operations

Overview

     P-Com, Inc. (the "Company") supplies equipment and services for access to
worldwide telecommunications and broadcast networks. All financial information
presented in this Annual Report on Form 10-K/A has been restated to include the
operating results of Control Resources Corporation ("CRC"), which was acquired
in a pooling of interests transaction on May 29, 1997; and RT Masts Limited ("RT
Masts") and Telematics, Inc. ("Telematics"), which were acquired in pooling of
interests transactions on November 27, 1997. Currently, the Company ships 2.4
GHz and 5.7 GHz spread spectrum radio systems, as well as 7 GHz, 13 GHz, 14 GHz,
15 GHz, 18 GHz, 23 GHz, 26 GHz, 38 GHz and 50 GHz radio systems, all with
related software. The Company also provides related services for these products.

     The Company was founded in August 1991 to develop, manufacture, market and
sell millimeter wave radio systems for wireless networks. The Company was in the
development stage until October 1993. From October 1993 through December 31,
1997, the Company generated sales of approximately $454.9 million, of which
$220.7 million, or 49% of such amount, was generated in the twelve months ended
December 31, 1997. From inception to the end of 1997, the Company had generated
cumulative profits of approximately $18.4 million. Although the Company has
experienced a significant percentage growth in sales and gross profit from 1993
through December 31, 1997, the Company does not believe prior growth rates are
indicative of future operating results. Due to the Company's limited operating
history and resources, among other factors, there can be no assurance that
profitability or significant revenues on a quarterly or annual basis will occur
in the future. There can be no assurance that the Company's revenues will
continue to remain at or increase from the levels experienced in recent
quarters, or that sales will not decline. The Company intends, however, to
continue to invest significant amounts in its operations, particularly to
support product development and the marketing and sales of recently introduced
products and services, and operating expenses will continue to increase
significantly in absolute dollars. If the Company's sales do not correspondingly
increase, the Company's results of operations would be materially adversely
affected. Accordingly, there can be no assurance that the Company will achieve
profitability in future periods.

     Recently, the Company has significantly expanded the scale of its
operations to support the increases in its sales levels and to address critical
infrastructure and other requirements. This expansion has included the leasing
of additional space, the opening of branch offices and subsidiaries in the
United Kingdom, Germany and Singapore, the acquisitions of all or majority
interests in Geritel S.p.A. ("Geritel"), Atlantic Communication Sciences, Inc.
("ACS"), Technosystem S.p.A. ("Technosystem"), Columbia Spectrum Management L.P.
("CSM"), CRC, Telesys (UK) Limited ("Telesys"), RT Masts and Telematics,
significant investments in research and development to support product
development and services, and the hiring of additional personnel in all
functional areas, including in sales and marketing, finance, manufacturing and
operations. The Company anticipates that its operating expenses will continue to
increase significantly. If the Company's sales do not correspondingly increase,
the Company's results of operations would be materially adversely affected.

Years Ended 1997, 1996 and 1995

      Sales. Sales consist of revenues from radio systems and related software
tools and service offerings. The Company generated revenues from the sale of its
38 GHz radio systems commencing in October 1993, 50 GHz radio systems commencing
in September 1994, 23 GHz radio systems commencing in January 1995, 15 GHz radio
systems commencing in June 1996, 2.4 and 5.7 GHz spread spectrum radio systems
commencing in September 1996 (through the acquisition of ACS), 13 GHz radio
systems commencing in November 1996, 26 GHz radio system commencing in July
1997, 7 and 18 GHz radio systems commencing in September 1997 and service
offerings in March 1997.

                                      22.
<PAGE>
 
     In 1997, 1996 and 1995, sales were approximately $220.7 million, $121.0 
million, and $64.5 million, respectively. The $99.7 million, or 83%, increase 
in sales from 1996 to 1997 was primarily due to increased volume of 38 and 23 
GHz radio systems  to new and existing customers and, to a lesser extent, sales 
from products acquired in acquisitions, and from service offerings. The $56.5 
million, or 88%, increase in sales from 1995 to 1996 was primarily due to a 
strong demand for the 38 and 23 GHz radio systems, and to sales from products 
acquired in acquisitions. In 1997, two customers accounted for 16% and 
11% of sales, respectively. In 1996, five customers each accounted for between 
11% and 18% of sales.

     Product sales for 1997 increased approximately $88.7 million, or 87%, 
during the year, to $190.5 million as compared to an increase of approximately 
$49.0 million, or 93%, during 1996. Product sales represented approximately 
86%, 84%, and 82% of sales in 1997, 1996, and 1995, respectively. Product sales
growth in 1997 was attributable to strong year-over-year growth of the 38 and 23
GHz radio systems, and to the Company's acquisitions. The increase in product 
sales in 1996 was due to a strong demand for the 38 and 23 GHz radio systems, 
and to sales from products acquired in acquisitions.

     Service sales for 1997 increased approximately $11.1 million, or 58%, over
the prior year to $30.2 million, as compared to an increase of approximately
$7.5 million, or 65%, during 1996. Service sales represented 14%, 16%, and 18%
of sales in 1997, 1996, and 1995, respectively. The increase in service sales in
1997 was due to the acquisitions of RT Mast Limited and Telesys Limited, by the
Company's subsidiary, CSM. The increase in service sales for 1996 was due to the
acquisition of CSM. All service sales in 1996 and 1995 were from companies
acquired in 1997 which were accounted for as poolings-of-interests. Under the
pooling-of-interests method of accounting, the consolidated financial statements
are restated to present the results of the combined companies as if they had
been combined since Inception.

     Historically, the Company has generated a majority of its sales outside the
United States. During 1997, the Company generated 32%, 31%, 20%, 3%, and 7% of
its sales from customers in the US, UK, Europe, Africa, and Asia, respectively.
During 1996, the Company generated 33%, 43%, 21%, and 3% of its sales in the US,
UK, Europe, and Asia, respectively. The Company expects to generate a majority
of its sales in international markets in the future. Many of the Company's
largest customers use the Company's product and services to build
telecommunication network infrastructures. These purchases are significant
investments in capital equipment and are required for a phase of the rollout in
a geographic area or a market. Consequently, the customer may have different
requirements from year to year and may vary its purchases from the Company,
accordingly. Sales to customers in the U.S. increased from $40 million in 1996
to approximately $70 million in 1997, primarily due to sales to new customers,
and increased sales to existing customers. Sales to customers in Europe
increased from $25 million in 1996, to approximately $45 million in 1997,
primarily due to the acquisition of Technosystem in February 1997. Sales to
customers in the UK were $69 million in 1997, as compared to $52 million in
1996. This increase was due primarily to the rollout of telecommunications
networks in the U.K. by two of the Company's customers. Sales to customers in
Asia increased from $3 million to $15 million due to the acquisition of the
Cylink Wireless Group, and to new customers in the region. The increase in sales
to customers in Africa, to approximately $6 million in 1997, as compared to zero
in 1996, was due to one new customer.

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

      Gross Profit. The Company's cost of sales consists primarily of costs
related to materials, labor and overhead. In 1997, 1996 and 1995, gross profit
was $91.5 million, $46.9 million and $27.0 million, respectively, or 41.4%,
38.8% and 41.9% of sales, respectively. The improvement in gross profit as a
percentage of sales from 1996 to 1997 was primarily due to product design
improvements, such as reducing the number of components incorporated into each
system and the use of common components across the range of the Company's
products, which increased manufacturing efficiencies and economies of scale. The
decrease of gross profit percentage from 1995 to 1996 was due to new product
introductions in the first and third quarters, and related production
inefficiencies.

     Product gross profit as a percentage of product sales was approximately 
41.7%, 40.9%, and 43.3% in 1997, 1996, and 1995, respectively. The increase in 
product gross profit percentage in 1997 was due to product design improvements 
and economies of scale. The decrease in product gross profit in 1996 was due to 
the Company incurring a lower gross margin at its subsidiary, CRC. CRC
transitioned its product offering from engineering projects to a standardized
off-the-shelf product. Service gross profit as a percentage of service sales for
1997, 1996, and 1995, was approximately 39.8%, 28.3%, and 35.3%, respectively.
The increase in service gross profit in 1997 was due to a unique one-time
project opportunity. The decrease in service gross profit in 1996 was due to
changes in the product mix and service offerings. All service sales in 1996 and
1995 were from companies acquired in 1997 which were accounted for as poolings-
of-interests. Under the pooling-of-interests method of accounting, the
consolidated financial statements are restated to present the results of the
combined companies as if they had been combined since inception.

                                      23.
<PAGE>
 
      The Company has an ongoing program to reduce the costs of manufacturing
its radio systems. As part of this program, the Company has been attempting to
achieve cost reductions principally through engineering and manufacturing
improvements, production economies and utilization of third party subcontractors
for the manufacture of the Company's radio systems and certain components and
subassemblies used in the systems. The Company also is implementing other cost
reduction programs in an effort to maintain gross margins in the future. There
can be no assurance that the Company's ongoing or future programs can be
accomplished or that they will increase gross profits. For risk factors
associated with gross profit, please see "Certain Factors Affecting Operating
Results -- Significant Fluctuations in Results of Operations," "--Declining
Average Selling Prices" and "--No Assurance of Product Quality, Performance and
Reliability."

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

      In 1997, 1996 and 1995, research and development expenses were
approximately $29.1 million, $20.2 million and $12.3 million, respectively. The
increase in research and development expenses was due to increased staffing as
the Company concentrated on new product development, including costs associated
with a new product development by CRC beginning in 1996. The Company intends to
continue to invest significant resources to continue the development of new
systems and enhancements (including additional frequencies and varying operating
features and related software tools) and expects that research and development
expenses in 1998 will continue to increase as compared to 1997.

      Selling and Marketing. Expenses consist of salaries of certain personnel,
investments in international operations, sales commissions, travel expenses,
customer service and support expenses and costs related to advertising and trade
shows. In 1997, 1996, and 1995, sales and marketing expenses were $15.7 million,
$7.5 million and $4.8 million, respectively. As a percentage of sales, selling
and marketing expenses increased from 6% of sales in 1996 to 7% of sales in
1997. Of this 108% increase in absolute dollars, approximately 60% was due to
the expansion of the Company's international sales force, primarily in the UK,
and customer support in the US. The remaining 40% increase in selling and
marketing expenses from 1996 to 1997 was due to the increase in selling and
marketing expenses due to the acquisitions of Technosystem, CSM, and CRC. The
Company intends to continue to invest significant resources to expand its sales
and marketing efforts, including the hiring of additional personnel, and to
establish the infrastructure necessary to support future operations. The Company
expects that such expenses in absolute dollars in 1998 will continue to increase
as compared to 1997. The Company intends to continue to invest significant
resources to expand its sales and marketing efforts, including the hiring of
additional personnel, and to establish the infrastructure necessary to support
future operations. The Company expects that such expenses in absolute dollars in
1998 will continue to increase as compared to 1997.

      General and Administrative. Expenses consist primarily of salaries and
other expenses for management, finance, accounting, legal and other professional
services. In 1997, 1996 and 1995, general and administrative expenses were $16.9
million, $10.3 million and $5.6 million, respectively. The increase in general
and administrative expenses of $6.6 million from 1996 to 1997 is related to
expansion of the Company's business as well as goodwill amortization associated
with acquisitions of Geritel, ACS, Technosystem and CSM. The goodwill is
amortized over the estimated life of acquired assets. The Company expects
general and administrative expenses to continue to increase in absolute dollars
in 1998 as compared to 1997, as the Company continues to expand its operations
and acquire companies. The Company also has incurred and expects to continue to
incur additional significant ongoing expenses as a publicly owned company
related to legal, accounting and other administrative services and expenses.

     Interest and Other Income (Expense). In 1997, interest expense consisted
primarily of interest and fees incurred on borrowings under the Company's
bank line of credit, interest on the principal amount of the Company's
subordinated 4 1/4% convertible promissory notes due 2002, equipment lease
lines and finance charges related to the Company's receivables purchase
agreements. In 1996 and 1995, interest expense consisted primarily of interest
and fees incurred on borrowings under the Company's bank line of credit and
equipment lease lines. In 1997, 1996 and 1995, interest income consisted
primarily of income generated from the Company's cash investments. Other income
(expense) consisted primarily of exchange rate gains and losses and discounts
taken on early payment of invoices.

     In 1997, 1996, and 1995, interest expense was $2.3 million, $0.4 million
and $0.5 million, respectively. The increase in interest expense from 1996 to
1997 was due primarily to increased borrowings on the line of credit and finance
charges on the receivable purchase agreements. In 1997, 1996 and 1995, interest
income and other income (expense), net was $2.6 million, $1.3 million and $0.7
million, respectively. The increase in 1997 and 1998 was due to the increase in
average cash and cash equivalent balances for each of the years.

     Through fiscal 1997, contracts negotiated in foreign currencies have been
limited to British pound sterling contracts, and any impact due to currency
fluctuations has been insignificant. However, the Company may in the future be
exposed to the risk of foreign currency gains or losses depending upon the
magnitude of a change in the value of a local currency in an international
market. The Company has entered into foreign currency hedging transactions to
reduce exposure to foreign exchange risks. As of December 31, 1997, the Company
had forward exchange contracts valued at approximately $21.9 million. The
forward contracts generally have maturities of six months or less.

                                      24.
<PAGE>
 
      Income Tax Provision. The Company's effective tax rates for 1997, 1996 and
1995 were 36.9%, 9.7% and 17.0% respectively. The Company's effective tax rate
is less than the combined federal and state statutory rate due principally to
net operating loss credit carryforwards available to offset taxable income. As a
result of exhausting the net operation loss and the credit carryover, as well as
the expansion of the operations into Europe where the Company is taxed at a
higher rate, the Company expects the 1997 effective tax rate to reflect the
future results. Though most of the Company's sales are to foreign customers, the
majority of the Company's pre-tax income is domestic as most sales take place in
the United States and then title transfers to the foreign customers.

Liquidity and Capital Resources

      Since its inception in August 1991, the Company has financed its
operations and met its capital requirements through net proceeds of
approximately $89.5 million from the Company's initial and two follow-on public
offerings of its Common Stock, three preferred stock financings aggregating
approximately $17.2 million, a convertible debt offering with net proceeds of
approximately $97.5 million and borrowings under its bank lines of credit and
equipment lease arrangements.

      In 1997, the Company used approximately $12.5 million in operating
activities, primarily due to increases in accounts receivable, prepaid expenses,
other accrued liabilities, other assets, and inventory of $19.4 million, $1.7
million, $4.7 million, $5.1 million and $20.8 million, respectively, and a
decrease in notes receivable of $1.8 million, partially offset by increases in
accounts payable, income taxes payable, and accrued employee benefits of $4.4
million, 3.9 million, and $2.0 million, respectively. These net uses of cash
were partially offset further by net income of $18.9 million and depreciation
and amortization expense of $8.2 million.

      During 1997, the Company expended approximately $27.8 million in investing
activities consisting of approximately $3.1 million to purchase Technosystem and
$7.8 million to purchase CSM, and $16.9 million to acquire capital equipment.

      In 1997, the Company generated approximately $88.1 million in financing
its activities. The Company received approximately $97.5 million from its
convertible debt offering, and approximately $4.0 million from issuing Common
Stock pursuant to the Company's stock option and employee stock purchase plans.
This was partially offset by payments of approximately $12.7 million to retire
borrowing under the bank line of credit and approximately $0.7 million to retire
a portion of the bank debt of Technosystem and Geritel.

      At December 31, 1997, the Company had working capital of approximately
$174.6 million. In recent quarters, most of the Company's sales have been
realized near the end of each quarter, resulting in a significant investment in
accounts receivable at the end of the quarter. The Company expects that its
investments in accounts receivable and inventories will continue to represent a
significant portion of working capital. Significant investments in accounts
receivable and inventories may subject the Company to increased risks which
could materially adversely affect the Company's business, financial condition
and results of operations.

     The Company's principal sources of liquidity as of December 31, 1997 
consisted of approximately $88.1 million of cash and cash equivalents. The 
Company's principal sources of liquidity as of December 31, 1996 consisted of 
approximately $42.2 million of cash and cash equivalents. On March 3, 1997 the 
Company entered into an unsecured line of credit agreement with Union Bank of 
California which provided for borrowings of up to $17.5 million. The line of 
credit expired on March 31, 1998 or upon demand by the bank. Borrowings under 
the line bore interest at either a base interest rate or a variable interest 
rate. The agreement required the Company to comply with certain financial 
covenants including the maintenance of specified minimum ratios. On September 
17, 1997 the line of credit agreement was amended to provide for borrowings of 
up to $20 million, and on October 31, 1997, the loan agreement was amended to 
provide for borrowings of up to $25 million. On November 10, 1997, the Company 
terminated the line of credit agreement.

     On November 5, 1997, the Company issued $100,000,000 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 a 
conversion price of $27.46 per share, at any time. The Notes are redeemable by 
the Company, beginning on November 5, 2000, upon 30 days notice, subject to a 
declining redemption price. Interest on the Notes will be paid semi-annually on 
May 1, and November 1 of each year. The Notes are subordinated to $0.8 million 
of indebtedness outstanding at December 31, 1997.


                                      25.
<PAGE>
 
      At present, the Company does not have any material commitments for capital
equipment purchases. However, the Company's future capital requirements will
depend upon many factors, including the development of new radio systems and
related software tools, potential acquisitions, the extent and timing of
acceptance of the Company's radio systems in the market, requirements to
maintain adequate manufacturing facilities, working capital requirements for the
Company's acquired entities, the progress of the Company's research and
development efforts, expansion of the Company's marketing and sales efforts, the
Company's results of operations and the status of competitive products. The
Company believes that cash and cash equivalents on hand, and cash flow from
operations, if any, will be adequate to fund its operations in the ordinary
course of business for at least the next twelve months. There can be no
assurance, however, that the Company will not require additional financing prior
to such date to fund its operations. The Company has in the past and may from
time to time in the future sell its receivables, as part of an overall customer
financing program, with immaterial recourse to the Company. There can be no
assurance that the Company will be able to locate parties to purchase such
receivables on acceptable terms, or at all. To the extent that the Company's
financial resources are insufficient to fund the Company's activities,
additional funds will be required. There can be no assurance that any additional
financing will be available to the Company on acceptable terms, or at all, when
required by the Company. If additional funds are raised by issuing equity
securities, further dilution to the existing stockholders will result. If
adequate funds are not available, the Company may be required to delay, scale
back or eliminate one or more of its research and development or manufacturing
programs, cease its acquisition activities or obtain funds through arrangements
with partners or others that may require the Company to relinquish rights to
certain of its technologies or potential products or other assets that the
Company would not otherwise relinquish. Accordingly, the inability to obtain
such financing could have a material adverse effect on the Company's business,
financial condition and results of operations. For risk factors associated with
the Company's future capital requirements, please see "Certain Factors Affecting
Operating Results -- Future Capital Requirements."

Acquisitions

      On February 24, 1997, the Company acquired 100% of the equity of
Technosystem, a Rome, Italy-based company, with additional operations in Poland,
for $3.3 million. The Company paid $2.6 million in cash and an additional
payment of $0.7 million will be due on March 31, 1998, subject to certain
indemnification obligations of the former Technosystem security holders as set
forth in the securities purchase agreement. Technosystem designs, manufactures
and markets equipment for transmitters and transponders for television and radio
broadcasting. The range of products include audio/video modulators, converters,
amplifiers, transponders, transmitters and microwave links. The Company
accounted for the acquisition based on the purchase method of accounting and the
results of operations of Technosystem are included in the Company's consolidated
results for all periods subsequent to the date of acquisition.

      On March 7, 1997, the Company acquired substantially all of the assets of
CSM, a Vienna, Virginia-based company, for $8.0 million in cash and 796,612
shares of P-Com, Inc. Common Stock valued at $14.5 million. As of the 
acquisition date, the Company paid $6.5 million of the $8.0 million cash
payment, and the former partners of CSM may receive up to an additional
$1,500,000 in cash over the next two years, subject to the satisfaction of
certain indemnification obligations, and the 796,612 shares issued to the former
partners may either increase or decrease in an amount of up to 15%, as
determined pursuant to the terms of the asset purchase agreement. 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 the acquisition based on the
purchase method of accounting, and the results of operations of CSM are included
in the Company's consolidated results for all periods subsequent to the date of
acquisition.

      On May 29, 1997, the Company acquired all of the outstanding shares of
capital stock of CRC, a provider of integrated network access devices to network
service providers, in exchange for 1,502,956 shares of P-Com Common Stock that
were issued or are issuable to former CRC security holders in a stock-for-stock
merger. CRC, located in Fair Lawn, New Jersey, manufactures products used by the
communications industry to connect end user sites to a range of communications
services. CRC's NetPath product line enables network service providers to offer
their customers a

                                      26.
<PAGE>
 
migration path from entry-level data services to cost-effective integrated
delivery of voice, video and Internet access. The NetPath product line also
supports the network service provider's introduction of new technologies
including asynchronous transfer mode and frame relay.

      On August 18, 1997, the Company acquired all of the outstanding shares of 
capital stock of Telesys Limited, a United Kingdom-based company. The 
acquisition was not material to the Company's business, financial condition, or 
results of operations.

      On November 27, 1997, the Company acquired all of the outstanding shares
of capital stock of RT Masts, a United Kingdom-based company and Telematics, a
Virginia-based company, in exchange for 766,151 and 248,215 shares of P-Com
Common Stock, respectively. RT Masts, located in Wellingborough,
Northhamptonshire, U.K. and Telematics, located in Herndon, Virginia, supply,
install and maintain telecommunications systems and structures including
antennas covering high frequency, medium frequency and microwave systems. Both
companies manage the construction of radio system sites, as well as construction
of towers and install radios and antennas at system sites.

      There can be no assurance that any operations of the Company's acquired
entities will be profitable after the acquisitions. Moreover, there can be no
assurance that the anticipated benefits of such acquisitions will be realized.
The process of integrating the operations of the Company's acquired entities
into the Company's operations may result in unforeseen operating difficulties
and could absorb significant management attention, expenditures and reserves
that would otherwise be available for the ongoing development of the Company's
business.


CERTAIN FACTORS AFFECTING OPERATING RESULTS

Significant Fluctuations in Results of Operations

      The Company has experienced and will in the future continue to experience
significant fluctuations in sales, gross margins and operating results. The
procurement process for most of the Company's current and potential customers is
complex and lengthy, and the timing and amount of sales is difficult to predict
reliably. The sale and implementation of the Company's products and services
generally involves a significant commitment of the Company's senior management,
sales force and other resources. The sales cycle for the Company's products and
services typically involves a significant technical evaluation and commitment of
cash and other resources, with the attendant delays frequently associated with,
among other things: (i) existing and potential customers' seasonal purchasing
and budgetary cycles; (ii) educating customers as to the potential applications
of, and product-life cost savings associated with, using the Company's products
and services; (iii) complying with customers' internal procedures for approving
large expenditures and evaluating and accepting new technologies that affect key
operations; (iv) complying with governmental or other regulatory standards; (v)
difficulties associated with each customer's ability to secure financing; and
(vi) negotiating purchase and service terms for each sale. Orders for the
Company's products have typically been strongest towards the end of the calendar
year. To the extent that this trend continues, the Company's results of
operations will fluctuate from quarter to quarter.

      In addition, a single customer's order scheduled for shipment in a quarter
can represent a significant portion of the Company's potential sales for such
quarter. There can be no assurance that the Company will be able to obtain such
large orders from single customers in the future. 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 in the past been and will in the future be materially adversely affected by
a delay, rescheduling or cancellation of even one purchase order. Much of the
anticipated growth in telecommunications infrastructure, if any, is expected to
result from the entrance of new service providers, many of which do not have the
financial resources of existing service providers. To the extent these new
service providers are unable to adequately finance their operations, they may
cancel orders. Moreover, purchase orders are often received and accepted
substantially in advance of shipment, and the failure to reduce actual costs to
the extent anticipated or an increase in anticipated costs before shipment could
materially adversely affect the gross margins for such orders, and as a result,
the Company's results of operations. Moreover, most of the Company's backlog
scheduled for shipment in the twelve months subsequent to December 31, 1997 can
be canceled since orders are often made substantially in advance of shipment,
and the Company's contracts typically provide that orders may be canceled with
limited or no penalties. As a result, 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. Furthermore, 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, as the Company has been

                                      27.
<PAGE>
 
experiencing recently, due to, for example, an unanticipated shipment
rescheduling, a cancellation or deferral by a customer, competitive or economic
factors, unexpected manufacturing or other difficulties, delays in deliveries of
components, subassemblies or services by suppliers, or the failure to receive an
anticipated order, may cause sales in a particular quarter to fall significantly
below the Company's expectations and may materially adversely affect the
Company's operating results for such quarter.

      In connection with its efforts to ramp-up production of products and
services, the Company expects to continue to make substantial capital
investments in equipment and inventory, recruit and train additional personnel
and possibly invest in additional manufacturing facilities. The Company
anticipates that these expenditures will be made in advance of, and in
anticipation of, increased sales and, therefore, that its gross margins will be
adversely affected from time-to-time due to short-term inefficiencies associated
with the addition of equipment and inventory, personnel or facilities, and that
each cost category may increase as a percentage of revenues from time-to-time on
a periodic basis. In addition, as the Company's customers increasingly require
shipment of products at the time of ordering, the Company must forecast demand
for each quarter and build up inventory accordingly. Though the Company is not 
currently considering any restructuring charges, inventory write-downs, or 
provisions for the impairment of long-lived assets, such increases in inventory
could materially adversely affect the Company's operations, if such inventory
were not utilized or becomes obsolete.

      A large portion of the Company's expenses are fixed and difficult to
reduce should revenues not meet the Company's expectations, thus magnifying the
material adverse effect of any revenue shortfall. Furthermore, announcements by
the Company or its competitors of new products, services and technologies could
cause customers to defer or cancel purchases of the Company's systems and
services, which would materially adversely affect the Company's business,
financial condition and results of operations. Additional factors that have
caused and will continue to cause the Company's sales, gross margins and results
of operations to vary significantly from period to period include: new product
introductions and enhancements, including related costs; the Company's ability
to manufacture and produce sufficient volumes of systems and meet customer
requirements; manufacturing capacity, efficiencies and costs; mix of sales
through direct efforts or through distributors or other third parties; mix of
systems and related software tools sold and services provided; operating and new
product development expenses; product discounts; accounts receivable collection,
in particular those acquired in recent acquisitions, especially outside of the
United States; changes in pricing by the Company, its customers or suppliers;
inventory write-offs, as the Company recently experienced in the second and
third quarters for a relatively immaterial amount in each such quarter, which
the Company may experience again in the future; inventory obsolescence; natural
disasters; market acceptance by the Company's customers and the timing of
availability of new products and services by the Company or its competitors;
acquisitions, including costs and expenses; usage of different distribution and
sales channels; fluctuations in foreign currency exchange rates; delays or
changes in regulatory approval of its systems and services; warranty and
customer support expenses; customization of systems; and general economic and
political conditions. In addition, the Company's results of operations have been
and will continue to be influenced significantly by competitive factors,
including the pricing and availability of, and demand for, competitive products
and services. All of the above factors are difficult for the Company to
forecast, and these or other factors could materially adversely affect the
Company's business, financial condition and results of operations. As a result,
the Company believes that period-to-period comparisons are not necessarily
meaningful and should not be relied upon as indications of future performance.
Due to all of the foregoing factors, it is likely that in some future quarter
the Company's operating results will be below the expectations of public market
analysts and investors. In such event, the price of the Company's Common Stock
may be materially adversely affected.

Significant Customer Concentration

      For the year ended December 31, 1997, approximately seventy-five customers
accounted for substantially all of the Company's sales, and two customers, each
of which individually accounted for over 10% of the Company's 1997 sales,
accounted for over 27% of the Company's sales. In 1996, the Company had five
customers which individually accounted for over 10% of the Company's sales.
Sales to Orange Personal Communications Ltd. and WinStar accounted for
approximately 16% and 11% of the Company's sales, respectively, in 1997. Sales
to Orange Personal Communications Ltd., WinStar, Bosch Telecom GmbH, Ericsson
Limited and ART accounted for approximately 18%, 12%, 11%, 11% and 11% of the
Company's sales, respectively, in 1996. As of December 31, 1997, seven customers
accounted for over 64% of the Company's backlog scheduled for shipment in the
twelve months subsequent to December 31, 1997. The Company anticipates that it
will continue to sell its products and services to a changing but still
relatively small group of customers. Several of the Company's subsidiaries are
dependent on one or a few customers. Some companies implementing new networks
are at early stages of development and may require additional capital to fully
implement their planned networks.

                                      28.
<PAGE>
 
The Company's ability to achieve sales in the future will depend in significant
part upon its ability to obtain and fulfill orders from, maintain relationships
with and provide support to existing and new customers, to manufacture systems
in volume on a timely and cost-effective basis and to meet stringent customer
performance and other requirements and shipment delivery dates, as well as the
condition, working capital availability and success of its customers. As a
result, any cancellation, reduction or delay in orders by or shipments to any
customer, as a result of manufacturing or supply difficulties or otherwise, or
the inability of any customer to finance its purchases of the Company's products
or services, as has been the case with certain customers historically, may
materially adversely affect the Company's business, financial condition and
results of operations. In addition, financial difficulties of any existing or
potential customers may limit the overall demand for the Company's products and
services (for example, certain potential customers in the telecommunications
industry have been reported to have undergone financial difficulties and may
therefore limit their future orders). In addition, acquisitions in the
communications industry are common, which further concentrates the customer base
and may cause orders to be delayed or cancelled. There can be no assurance that
the Company's sales will increase in the future or that the Company will be able
to support or attract customers.

Acquisitions

      Since April 1996, the Company has acquired eight complementary companies
and businesses. Integration of these companies into the Company's business is
currently ongoing, and no assurance may be made that the Company will be able to
successfully complete this process. Risks commonly encountered in such
transactions include the difficulty of assimilating the operations and personnel
of the combined companies, the potential disruption of the Company's ongoing
business, the inability to retain key technical and managerial personnel, the
inability of management to maximize the financial and strategic position of the
Company through the integration of acquired businesses, additional expenses
associated with amortization of acquired intangible assets, dilution of existing
stockholders, the maintenance of uniform standards, controls, procedures, and
policies, the impairment of relationships with employees and customers as a
result of any integration of new personnel, risks of entering markets in which
the Company has no or limited direct prior experience, and operating companies
in different geographical locations with different cultures. All of the
Company's acquisitions to date (the "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 as set forth in the Company's consolidated financial statements. This
amortization expense may have a significant effect on the Company's financial
results. There can be no assurance that the Company will be successful in
overcoming these risks or any other problems encountered in connection with such
acquisitions, or that such transactions will not materially adversely affect the
Company's business, financial condition, or results of operations.

      As part of its overall strategy, the Company plans to continue to acquire
or invest in complementary companies, products or technologies and to enter into
joint ventures and strategic alliances with other companies. The Company is
currently pursuing numerous acquisitions; however, except as set forth in this 
Annual Report on Form 10 K/A, no material acquisition has become the subject of
any definitive agreement, letter of intent or agreement in principle. The
Company is unable to predict whether and when any prospective acquisition
candidate will become available or the likelihood that any acquisition will be
completed. The Company competes for acquisition and expansion opportunities with
many entities that have substantially greater resources than the Company. There
can be no assurance that the Company will be able to successfully identify
suitable acquisition candidates, complete acquisitions, or expand into new
markets. Once integrated, acquired businesses may not achieve comparable levels
of revenues, profitability, or productivity as the existing business of the
Company or otherwise perform as expected. In addition, as commonly occurs with
mergers of technology companies, during the pre-merger and integration phases,
aggressive competitors may undertake formal initiatives to attract customers and
to recruit key employees through various incentives. If the Company proceeds
with one or more significant acquisitions in which the consideration consists of
cash, a substantial portion of the Company's available cash could be used to
consummate the acquisitions. Many business acquisitions must be accounted for as
a purchase for financial reporting purposes. Most of the businesses that might
become attractive acquisition candidates for the Company are likely to have
significant goodwill and intangible assets, and acquisition of these businesses,
if accounted for as a purchase, would typically result in substantial
amortization of goodwill charges to the Company. The occurrence of any of these
events could have a material adverse effect on the Company's workforce,
business, financial condition and results of operations.

Dependence on Contract Manufacturers; Reliance on Sole or Limited Sources of
Supply

      The Company's internal manufacturing capacity is very limited. The Company
utilizes contract manufacturers such as Remec, Inc., Sanmina Corporation, SPC
Electronics Corp., GSS Array Technology, Celeritek, Inc. and Senior Systems
Technology, Inc. to produce its systems, components and subassemblies and
expects to rely increasingly on these and other

                                      29.
<PAGE>
 
manufacturers in the future. The Company also relies on outside vendors to
manufacture certain other components and subassemblies. There can be no
assurance that the Company's internal manufacturing capacity and that of its
contract manufacturers will be sufficient to fulfill the Company's orders.
Failure to manufacture, assemble and ship systems and meet customer demands on a
timely and cost-effective basis could damage relationships with customers and
have a material adverse effect on the Company's business, financial condition
and operating results. Certain necessary components, subassemblies and services
necessary for the manufacture of the Company's systems are obtained from a sole
supplier or a limited group of suppliers. In particular, Eltel Engineering
S.r.L. and Associates, Milliwave, Scientific Atlanta and Xilinx, Inc. each are
sole source or limited source suppliers for critical components used in the
Company's radio systems.

      The Company's reliance on contract manufacturers and on sole suppliers or
a limited group of suppliers and the Company's increasing reliance on contract
manufacturers and suppliers involves several risks, many of which the Company
has been experiencing, including an inability to obtain an adequate supply of
finished products and required components and subassemblies, and 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 its manufacturers or suppliers. Manufacture of the
Company's products and certain of these components and subassemblies is an
extremely complex process, and the Company has from time to time experienced and
may in the future continue to experience problems in the timely delivery and
quality of products and certain components and subassemblies from vendors.
Certain of the Company's 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 that would require
the Company to seek alternative sources of supply, or to manufacture its
finished products or such components and subassemblies internally, could delay
the Company's ability to ship its systems, which could damage relationships with
current or prospective customers and have a material adverse effect on the
Company's business, financial condition and results of operations.

No Assurance of Successful Expansion of Operations; Management of Growth

      Recently, the Company has significantly expanded the scale of its
operations to support increased sales and to address critical infrastructure and
other requirements. This expansion has included the leasing of additional space,
the opening of branch offices and subsidiaries in the United Kingdom, Italy,
Germany and Singapore, the opening of design centers and manufacturing
operations throughout the world, the acquisition of a significant amount of
inventory (the Company's inventory increased from approximately $32.9 million at
December 31, 1996 to approximately $58.0 million at December 31, 1997) and
accounts receivable, recent acquisitions, significant investments in research
and development to support product development and services, including the
recently introduced products and the development of point-to-multipoint systems,
and the hiring of additional personnel in all functional areas, including in
sales and marketing, manufacturing and operations and finance, and has resulted
in significantly higher operating expenses. Currently, the Company is devoting
significant resources to the development of new products and technologies and is
conducting evaluations of these products and will continue to invest significant
additional resources in plant and equipment, inventory, personnel and other
costs, to begin production of these products and to provide the marketing and
administration, if any, required to service and support these new products.
Accordingly, there can be no assurance that gross profit margin and inventory
levels will not be adversely impacted in the future by start-up costs associated
with the initial production and installation of these new products. These
start-up costs include, but are not limited to, additional manufacturing
overhead, additional allowance for doubtful accounts, inventory and warranty
reserve requirements and the creation of service and support organizations. In
addition, the increases in inventory on hand for new product development and
customer service requirements may increase the risk of inventory write-offs. As
a result, the Company anticipates that its operating expenses will continue to
increase significantly. If the Company's sales do not correspondingly increase,
the Company's results of operations would be materially adversely affected. See
"--Limited Operating History."

      Expansion of the Company's operations and its acquisitions have caused and
are continuing to impose a significant strain on the Company's management,
financial, manufacturing and other resources and have disrupted the Company's
normal business operations. The Company's ability to manage the recent and any
possible future growth, should it occur, will depend upon a significant
expansion of its manufacturing, accounting and other internal management systems
and the implementation and subsequent improvement of a variety of systems,
procedures and controls, including improvements relating to inventory control.
For a number of reasons, the Company has not been able to fully consolidate and
integrate the operations of certain acquired businesses. 

                                      30.
<PAGE>
 
For example, the Company experienced difficulties due to the acquired businesses
utilizing differing business and accounting systems, currencies, and a variety
of unique customs, culture, and language barriers. Additionally, the products 
and associated marketing and sales processes differ for each acquisition. This
inability may cause inefficiencies, additional operational complexities and
expenses and greater risks of billing delays, inventory write-offs and financial
reporting difficulties. The Company must establish and improve a variety of
systems, procedures and controls to more efficiently coordinate its activities
in its acquired (and to be acquired) companies and their facilities in Rome and
Milan, Italy, France, Poland, the United Kingdom, New Jersey, Florida, Virginia
and elsewhere. There can be no assurance that significant problems in these
areas will not re-occur. Any failure to expand these areas and implement and
improve such systems, procedures and controls, including improvements relating
to inventory control, in an efficient manner at a pace consistent with the
Company's business could have a material adverse effect on the Company's
business, financial condition and results of operations. In particular, the
Company must successfully manage the transition to higher internal and external
volume manufacturing, including the establishment of adequate facilities, the
control of 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 its third party manufacturers
and suppliers. Although the Company has substantially increased the number of
its manufacturing personnel and significantly expanded its internal and external
manufacturing capacity, there can be no assurance that the Company will not
experience manufacturing or other delays or problems that could materially
adversely affect the Company's business, financial condition or results of
operations.

      In this regard, any significant sales growth will be dependent in
significant part upon the Company's expansion of its marketing, sales,
manufacturing and customer support capabilities. This expansion will continue to
require significant expenditures to build the necessary infrastructure. There
can be no assurance that the Company's attempts to expand its marketing, sales,
manufacturing and customer support efforts will be successful or will result in
additional sales or profitability in any future period. As a result of the
expansion of its operations and the significant increase in its operating
expenses, as well as the difficulty in forecasting revenue levels, the Company
will continue to experience significant fluctuations in its revenues, costs, and
gross margins, and therefore its results of operations.

Limited Operating History

      P-Com was founded in August 1991 and was in the development stage until
October 1993 when it began commercial shipments of its first product. From
inception to the end of fiscal 1997, the Company generated a cumulative net
profit of approximately $18.4 million. From October 1993 through December 31,
1997, the Company generated sales of approximately $454.9 million, of which
$220.7 million, or 49% of such amount, was generated in the year ended December
31, 1997. The Company does not believe recent growth rates are indicative of
future operating results. Due to the Company's limited operating history and
limited resources, among other factors, there can be no assurance that
profitability or significant revenues on a quarterly or annual basis will occur
in the future. During both 1996 and 1997, both the Company's sales and operating
expenses increased more rapidly than the Company had anticipated. There can be
no assurance that the Company's revenues will continue to remain at or increase
from the levels experienced in 1996 or 1997 or that sales will not decline. The
Company intends to continue to invest significant amounts in its operations,
particularly to support product development and the marketing and sales of
recently introduced products, and operating expenses will continue to increase
significantly in absolute dollars. If the Company's sales do not correspondingly
increase, the Company's results of operations would be materially adversely
affected. Accordingly, there can be no assurance that the Company will achieve
profitability in future periods. The Company is subject to all of the risks
inherent in the operation of a new business enterprise, and there can be no
assurance that the Company will be able to successfully address these risks.

Declining Average Selling Prices

      The Company believes that average selling prices and gross margins for its
systems and services will decline in the long term as such systems mature, as
volume price discounts in existing and future contracts take effect and as
competition intensifies, among other factors. To offset declining average
selling prices, the Company believes that it must successfully introduce and
sell new systems on a timely basis, develop new products that incorporate
advanced software and other features that can be sold at higher average selling
prices and reduce the costs of its systems through contract manufacturing,
design improvements and component cost reduction, among other actions. To the
extent that new products are not developed in a timely manner, do not achieve
customer acceptance or do not generate higher average selling prices, and the
Company is unable to offset declining average selling prices, the Company's
gross margins will decline, and such decline will have a material adverse effect
on the Company's business, financial condition and results of operations.

Trade Account Receivables

      The Company is subject to credit risk in the form of trade account
receivables. The Company may in certain circumstances be unable to enforce a
policy of receiving payment within a limited number of days of issuing bills,

                                      31.
<PAGE>
 
especially in the case of customers that are in the early phases of business
development. In addition, many of the Company's foreign customers are granted
longer terms than those typically existing in the United States. The Company has
experienced difficulties in the past in receiving payment in accordance with the
Company's policies, particularly from customers awaiting financing to fund their
expansion and from customers outside of the United States and the days
outstanding of receivables have increased recently. There can be no assurance
that such difficulties will not continue in the future, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company typically does not require collateral or
other security to support customer receivables. The Company has in the past and
may from time to time in the future sell its receivables, as part of an overall
customer financing program, with immaterial recourse to the Company. There can
be no assurance that the Company will be able to locate parties to purchase such
receivables on acceptable terms, or at all. See "--Significant Fluctuations in
Results of Operations" and "--International Operations; Risks of Doing Business
in Developing Countries."

No Assurance of Product Quality, Performance and Reliability

      The Company has limited experience in producing and manufacturing its
systems and contracting for such manufacture. The Company's customers require
very demanding specifications for quality, performance and reliability. There
can be no assurance that problems will not occur in the future 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 in or cancellations or reschedulings of orders or shipments,
delays in collecting accounts receivable and product returns and discounts, any
of which would have a material adverse effect on the Company's business,
financial condition or results of operations. In addition, in order to maintain
its ISO 9001 registration, the Company periodically must undergo a
recertification assessment. Failure to maintain such registration could
materially adversely affect the Company's business, financial condition and
results of operations. The Company completed ISO 9001 registration for its
United Kingdom sales and customer support facility, its Geritel facility in
Italy in 1996, and its Technosystem facility in Italy in 1997 and other
facilities will also be attempting ISO 9001 registration. There can be no
assurance that such registration will be achieved.

Uncertainty of Market Acceptance

      The future operating results of the Company depend to a significant extent
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. There can be no assurance
that the volume and variety of wireless telecommunications services or the
markets for and acceptance of such services will continue to grow, or that such
services will create a demand for the Company's systems. Because these markets
are relatively new, it is difficult to predict which segments of these markets
will develop and at what rate these markets will grow, if at all. If the
short-haul millimeter wave or spread spectrum microwave wireless 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 would be materially adversely affected. In addition, the Company
has invested a significant amount of time and resources in the development of
point-to-multipoint radio systems. Should the point-to-multipoint radio market
fail to develop, or should the Company's products fail to gain market
acceptance, the Company's business, financial condition and results of
operations could 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.
There can be no assurance that communications providers have the ability to or
will make the necessary investment in such infrastructure or that the creation
of this infrastructure will occur in a timely manner. Moreover, one potential
application of the Company's technology, use of the Company's systems in
conjunction with the provision by wireless telecommunications service providers
of alternative wireless access in competition with the existing wireline local
exchange providers, is dependent on the pricing of wireless telecommunications
services at rates competitive with those charged by wireline telephone
companies. Rates for wireless access are currently substantially higher than
those charged by wireline companies, and there can be no assurance that rates
for wireless access will generally be competitive with rates charged by wireline
companies. If wireless access rates are not competitive, consumer demand for
wireless access will be materially adversely affected. If the Company allocates
its resources to any market segment that does not grow, it may be unable to
reallocate its resources to other market segments in a timely manner, which may
curtail or eliminate its ability to enter such market segments.

      Certain of the Company's current and prospective customers are currently
delivering products and technologies which utilize 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, among many actions, offer systems with superior price/performance
characteristics and extensive customer service and support, supply such systems
on a timely

                                      32.
<PAGE>
 
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 utilizing alternative
technologies in their next generation of systems and networks, which would have
a material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that prospective customers will
design their systems or networks to include the Company's systems, that existing
customers will continue to include the Company's systems in their products,
systems or networks in the future, or that the Company's technology will to any
significant extent 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 the Company's business, financial condition and results of
operations. In addition, there can be no assurance that industry technical
standards will remain the same or, if emerging standards become established,
that the Company will 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 has experienced increasingly intense
competition worldwide from a number of leading telecommunications companies that
offer a variety of competitive products and services and broader
telecommunications product lines, including Adtran, Inc., Alcatel Network
Systems, California Microwave, Inc., Digital Microwave Corporation, Ericsson
Limited, Harris Corporation-Farinon Division, Innova International Corp., Larus
Corporation, Nokia Telecommunications, Philips T.R.T. and Western Multiplex
Corporation, many of which have substantially greater installed bases, financial
resources and production, marketing, manufacturing, engineering and other
capabilities than the Company. The Company faces actual and potential
competition not only from these established companies, but also from start-up
companies that are developing and marketing new commercial products and
services. The Company may also face competition in the future from new market
entrants offering competing technologies. In addition, the Company's current and
prospective customers and partners, certain of which have access to the
Company's technology or under some circumstances are granted the right to use
the technology for purposes of manufacturing, have developed, are currently
developing or could develop the capability to manufacture products competitive
with those that have been or may be developed or manufactured by the Company.
The Company's results of operations may depend in part upon the extent to which
these customers elect to purchase from outside sources rather than develop and
manufacture their own radio systems. There can be no assurance that such
customers will rely on or expand their reliance on the Company as an external
source of supply for their radio systems. The principal elements of competition
in the Company's market and the basis upon which customers may select the
Company's systems include price, performance, software functionality, 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 services, 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 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 significant decline in sales or loss of market acceptance of the Company's
systems, or make the Company's systems, services or technologies obsolete or
noncompetitive. The Company has experienced significant price competition, and
expects such 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 and services, the Company will face
competition from 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. There can be no
assurance that the Company will be able to compete successfully in the future.

Requirement for Response to Rapid Technological Change and Requirement for
Frequent New Product Introductions

      The 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 successfully develop, introduce and sell new systems and
enhancements and related software tools, including its point-to-multipoint
systems currently under development, on a timely and cost-effective basis that
respond to changing customer requirements. Recently, the Company

                                      33.
<PAGE>
 
has been developing point-to-multipoint radio systems. Any success of the
Company in developing new and enhanced systems, including its
point-to-multipoint systems currently under development, and related software
tools will depend upon a variety of factors, including new product selection,
integration of the various elements of its complex technology, timely and
efficient completion of system design, timely and efficient implementation of
manufacturing and assembly processes and its cost reduction program, development
and completion of related software tools, system performance, quality and
reliability of its systems and development and introduction of competitive
systems by competitors. The Company has experienced and is continuing to
experience delays from time to time in completing development and introduction
of new systems and related software tools, including products acquired in the
acquisitions. Moreover, there can be no assurance that the Company will be
successful in selecting, developing, manufacturing and marketing new systems or
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, as
well as significant expenses associated with re-work of previously delivered
equipment. The inability of the Company 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 the Company's business, financial condition
and results of operations.

International Operations; Risks of Doing Business in Developing Countries

      Most of the Company's sales to date have been made to customers located
outside of the United States. In addition, to date, the Company has acquired two
Italy-based companies, Technosystem S.p.A. and Geritel S.p.A., and two United
Kingdom-based companies, RT Masts Limited and Telesys Limited. In addition, the
acquisition of the assets of the Wireless Group of Cylink Corporation (the
"Cylink Wireless Group"), a division with substantial international operations,
is scheduled to be completed on March 28, 1998 and April 1, 1998. The Company
will acquire the assets of the Cylink Wireless Group for $63.0 million,
including $46.0 million in cash, $14.5 million in a short-term, non-interest
bearing, unsecured, promissory note due July 6, 1998, and $2.5 million of direct
acquisition costs. The transaction is expected to be accounted for using the
purchase method; accordingly, the purchase price will be allocated to the assets
acquired and liabilities assumed based on their estimated fair market values at
the date of acquisition.

      These companies currently sell their products and services primarily to
customers in Europe, the Middle East and Africa. The Company anticipates that
international sales will continue to account for a majority of its sales for the
foreseeable future. Historically the Company's international sales have been
denominated in British pounds sterling or United States currencies. With recent
acquisitions of foreign companies, certain of the Company's international sales
may be denominated in other foreign currencies. A decrease in the value of
foreign currencies relative to the United States dollar could result in losses
from transactions denominated in foreign currencies. With respect to the
Company's international sales that are United States dollar-denominated, such a
decrease could make the Company's systems less price-competitive and could have
a material adverse effect upon the Company's business, financial condition and
results of operations. The Company has in the past mitigated its 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 inherent in the Company's international business
activities 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, political and economic
instability, 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 and the difficulty in
accounts receivable collections. 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. There can
be no assurance that any of these factors will not have a material adverse
effect on the Company's business, financial condition and results of operations.

      International telephone companies are in many cases owned or strictly
regulated by local regulatory authorities. Access to such markets is often
difficult due to the established relationships between a government owned or
controlled telephone company and its traditional indigenous suppliers of
telecommunications equipment. 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 significantly limit the Company's
ability to expand its operations and would materially adversely affect the
Company's

                                      34.
<PAGE>
 
business, financial condition and results of 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 such parties could
prevent the Company from generating sales of its products and services in
targeted markets or industries. Moreover, even if such relationships are
established, there can be no assurance that the Company will be able to increase
sales of its products and services through such relationships.

      Some of the Company's potential markets consist of developing countries
that may deploy wireless communications networks as an alternative to the
construction of a limited wired infrastructure. These countries may decline to
construct wireless telecommunications systems or construction of such systems
may be delayed for a variety of reasons, in which event any demand for the
Company's systems in those countries will be similarly limited or delayed. In
doing business in developing markets, the Company may also face economic,
political and foreign currency fluctuations that are more volatile than those
commonly experienced in the United States and other areas.

Extensive 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 unavailability of
frequency spectrum has inhibited the growth of wireless telecommunications
networks. In order for the Company to operate in a 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 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, 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 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 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 and its 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, financial condition and results of operations. The Company might deem
it necessary or advisable to modify its systems and services to operate in
compliance with such regulations. Such modifications could be extremely
expensive and time-consuming.

Future Capital Requirements

      The Company's future capital requirements will depend upon many factors,
including the development of new products and related software tools, potential
acquisitions, requirements to maintain adequate manufacturing facilities and
contract manufacturing agreements, the progress of the Company's research and
development efforts, expansion of the Company's marketing and sales efforts, and
the status of competitive products. There can be no assurance that additional
financing will be available to the Company on acceptable terms, or at all. As a
result of the issuance of the Notes (as defined below), the Company may be
limited in its ability to raise additional debt financing. If additional funds
are raised by issuing equity securities, further dilution to the existing
stockholders will result. If adequate funds are not available, the Company may
be required to delay, scale back or eliminate its research and development,
acquisition or manufacturing programs or obtain funds through arrangements with
partners or others that may require the Company to relinquish rights

                                      35.
<PAGE>
 
to certain of its technologies or potential products or other assets.
Accordingly, the inability to obtain such financing could have a material
adverse effect on the Company's business, financial condition and results of
operations.

Uncertainty Regarding Protection of Proprietary Rights

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

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

Dependence on Key Personnel

      The Company's future operating results depend in significant part upon the
continued contributions of its key technical and senior management personnel,
many of whom would be difficult to replace. The Company's future operating
results also depend in significant part upon its ability to attract and retain
qualified management, manufacturing, quality assurance, engineering, marketing,
sales and support personnel. Competition for such personnel is intense, and
there can be no assurance that the Company will be successful in attracting or
retaining such personnel. There may be only a limited number of persons with the
requisite skills to serve in these positions and it may be increasingly
difficult for the Company to hire such personnel over time. The loss of any key
employee, the failure of any key employee to perform in his or her current
position, the Company's inability to attract and retain skilled employees as
needed or the inability of the officers and key employees of the Company to
expand, train and manage the Company's employee base could materially adversely
affect the Company's business, financial condition and results of operations.

      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,
making it more difficult for the Company to retain its employees. Due to this
and other factors, the Company has experienced and may continue to experience
high levels of employee turnover, which could adversely impact the Company's
business, financial condition and results of operations. The Company is
presently addressing these issues and will pursue solutions designed to retain
its employees and to provide performance incentives.

Year 2000 Compliance

                                      36.
<PAGE>
 
      Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, in less
than two years, computer systems and/or software used by many companies may need
to be upgraded to comply with such "Year 2000" requirements. The Company has
commenced, for all its information systems and software contained in the
products it sells, a year 2000 date conversion project to address necessary code
changes, testing and implementation. Significant uncertainty exists concerning
the potential effects associated with such compliance. The Company expects such
modifications will be made on a timely basis and does not believe that the cost
of such modifications will have a material effect on the Company's operating
results. There can be no assurance, however, that the Company and/or its vendors
will be able to modify timely and successfully such products, services and
systems to comply with year 2000 requirements, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.

                                      37.
<PAGE>
 
Substantial Leverage

      In connection with the initial private placement of promissory notes due
2002 (the "Notes") in November 1997, the Company incurred $100 million of
indebtedness. As a result, the Company's total indebtedness and stockholders'
equity, as of December 31, 1997, was approximately $101.7 million and
approximately $148.3 million, respectively. The Company's ability to make
scheduled payments of the principal of, or interest on, its indebtedness will
depend on its future performance, which is subject to economic, financial,
competitive and other factors beyond its control.

Limitations on Dividends

      Since its 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 its 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, the Company's earnings,
financial condition, capital requirements, extent of indebtedness and
contractual restrictions with respect to the payment of dividends.

Volatility of Stock Price

      The Company believes that factors such as announcements of developments
related to the Company's business, announcements of technological innovations or
new products or enhancements by the Company or its competitors, developments in
the Asia/Pacific region, sales by competitors, including sales to the Company's
customers, sales of the Company's Common Stock into the public market, including
by members of management, developments in the Company's relationships with its
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 upon announcement of
third quarter results), regulatory developments, fluctuations in results of
operations and general conditions in the Company's market or the markets served
by the Company's customers or the economy, could cause the price of the
Company's Common Stock to fluctuate, perhaps substantially. 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,
which have often been unrelated to the operating performance of affected
companies. Many companies in the telecommunications industry, including the
Company, have recently experienced historic highs in the market price of their
Common Stock. There can be no assurance that the market price of the Company's
Common Stock will not decline substantially from its historic highs, or
otherwise continue to experience significant fluctuations in the future,
including fluctuations that are unrelated to the Company's performance. Such
fluctuations could materially adversely affect the market price of the Company's
Common Stock.

Global Market Risks

      Countries in the Asia/Pacific region have recently experienced weaknesses
in their currency, banking and equity markets. These weaknesses could adversely
affect demand for the Company's products, the availability and supply of product
components to the Company and, ultimately, the Company's consolidated results of
operations.

Control by Existing Stockholders; Effects of Certain Anti-Takeover Provisions

     Members of the Board of Directors and the executive officers of the
Company, together with members of their families and entities that may be deemed
affiliates of or related to such persons or entities, beneficially own
approximately 5% of the outstanding shares of Common Stock of the Company.
Accordingly, these stockholders are able to influence the election of the
members of the Company's 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 Company's stockholder
rights agreement, 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 the holders of any preferred stock that may be issued in the
future. The issuance of preferred stock could have the effect of making it more
difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. Although the Company has no present plans to issue shares
of preferred stock, the Board of Directors has pre-approved the terms of a
Series A Junior Participating Preferred Stock that may be issued pursuant to the
stockholder rights agreement upon the occurrence of certain triggering events.
In general, the stockholder rights agreement provides a mechanism by which the
Board of Directors and stockholders may act to substantially dilute the share
position of any takeover bidder that acquires 15% or more of the Common Stock.

                                      38.
<PAGE>
 
Possible Adverse Effect on Market Price for Common Stock of Shares Eligible for
Future Sale

     Sales of the Company's Common Stock into the market could materially
adversely affect the market price of the Company's Common Stock. Shares of
Common Stock sold in the initial public offering in March 1995 and follow-on
offerings in August 1995 and May 1996, 1,014,366 shares registered on a shelf
registration statement on Form S-3 effective in February 1998 covering shares of
Common Stock issued in the acquisitions of RT Masts and Telematics, 2,134,590
shares registered on a shelf registration statement on Form S-3 effective in
July 1997 covering shares of Common Stock issued in the acquisitions of Columbia
Spectrum Management L.P. and CRC, 140,000 shares issued in connection with the
acquisition of Atlantic Communication Sciences, Inc., and option shares
registered on the Company's registration statements covering employee
compensation plans are also, or will be in the near future, eligible for
immediate and unrestricted sale in the public market at any time. Substantially
all of the other shares of the Company's Common Stock are not restricted and are
freely tradeable in the public market.

                                      39.
<PAGE>
 
ITEM 8. FINANCIAL STATEMENTS

                                   P-COM, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                           Page
                                                                           ----

Report of Independent Accountants...........................................41

Consolidated Balance Sheets at December 31, 1997 and 1996...................42

Consolidated Statements of Operations for the years ended December 31,
   1997, 1996, and 1995.....................................................43

Consolidated Statements of Stockholders' Equity for the years ended
   December 31, 1997, 1996, and 1995........................................44

Consolidated Statements of Cash Flows for the years ended December 31,
   1997, 1996 and 1995......................................................45

Notes to Consolidated Financial Statements..................................46

                                      40.
<PAGE>
 
                        REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of P-COM, Inc.
and its subsidiaries at December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

PRICE WATERHOUSE LLP

San Jose, California
January 22, 1998 (except for Note 10
which is as of March 28, 1998)

                                      41.
<PAGE>
 
                                   P-COM, INC.

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

<TABLE>
<CAPTION>
                                                              December 31,
                                                            1997         1996
                                                          ---------    ---------
<S>                                                       <C>          <C>      
ASSETS
Current assets:
   Cash and cash equivalents                              $  88,145    $  42,226
   Accounts receivable, net of allowance for doubtful
     accounts of $2,521 in 1997 and $580 in 1996             70,883       48,804
   Notes receivable                                             205        2,013
   Inventory                                                 58,003       32,947
   Prepaid expenses                                          12,329        6,261
                                                          ---------    ---------
     Total current assets                                   229,565      132,251
Property and equipment, net                                  32,313       20,585
Goodwill and other assets                                    43,643        2,616
                                                          ---------    ---------
                                                          $ 305,521    $ 155,452
                                                          =========    =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                       $  38,043    $  27,633
   Accrued employee benefits                                  3,930        1,378
   Other accrued liabilities                                  6,255        7,819
   Income taxes payable                                       6,409        2,494
   Notes payable                                                293        2,116
                                                          ---------    ---------
     Total current liabilities                               54,930       41,440
                                                          ---------    ---------

Long-term debt                                              101,690          914
                                                          ---------    ---------

Minority interest                                               604          619
                                                          ---------    ---------

Commitments (Note 8)

Stockholders' equity:
   Preferred stock, $0.0001 par value, 2,000,000 shares
     authorized; no shares outstanding                         --           --
   Common Stock, $0.0001 par value; 95,000,000 shares
     authorized; 42,664,077 and 40,837,206 shares
     issued and outstanding at December 31, 1997 and
     1996, respectively                                           4            4
   Additional paid-in capital                               131,735      112,913
   Retained earnings (accumulated deficit)                   18,380         (511)
                                                          ---------    ---------
   Cumulative translation adjustment                         (1,822)          73
                                                          ---------    ---------
     Total stockholders' equity                             148,297      112,479
                                                          ---------    ---------
                                                          $ 305,521    $ 155,452
                                                          =========    =========
</TABLE>

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

                                      42.
<PAGE>
 
                                   P-COM, INC.

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

<TABLE> 
<CAPTION> 
                                        Year ended December 31,
                                     1997         1996         1995
                                   --------     --------     --------
<S>                                <C>          <C>          <C> 
Sales

 Product                           $190,545     $101,853     $ 52,856
 Services                            30,157       19,100       11,607
                                   --------     --------     --------
  Total sales                       220,702      120,953     $ 64,463
                                   --------     --------     --------

Cost of sales

 Product                            110,267       60,362       29,949
 Services                           189,968       13,696        7,507
                                   --------     --------     --------
  Total cost of sales               129,235       74,058       37,456
                                   --------     --------     --------

 Gross profit                        91,467       46,895       27,007
                                   --------     --------     --------

Operating expenses:

 Research and development            29,127       20,163       12,284
 Selling and marketing               15,696        7,525        4,837
 General and administrative          16,948       10,283        5,573
                                   --------     --------     --------
  Total operating expenses           61,771       37,971       22,694
                                   --------     --------     --------
Income from operations               29,696        8,924        4,313
Interest expense                     (2,315)        (441)        (467)
Income income                         1,557        1,331          768
Other income (expense),net            1,005       16,157         (134)
                                   --------     --------     --------
Income before income taxes           29,943        9,830        4,480
Provision for income taxes           11,052          956          761
                                   ========     ========     ========
Net income                         $ 18,891     $  8,874     $  3,719
                                   ========     ========     ========

Net income per share:

    Basic                          $   0.45     $   0.23     $   0.11
                                   ========     ========     ========
    Diluted                        $   0.43     $   0.22     $   0.11
                                   ========     ========     ========
</TABLE> 

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

                                      43.
<PAGE>
 
                                   P-COM, INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                                                            Retained
                                                      Preferred Stock         Common Stock      Additional  Earnings     Cumulative
                                                    --------------------  --------------------   Paid-In  (Accumulated  Translation
                                                      Shares      Amount     Shares    Amount    Capital    Deficit)     Adjustment
                                                    -----------   ------  -----------  ------   --------    --------     ----------
<S>                                                  <C>          <C>       <C>        <C>      <C>        <C>           <C>    
Balance at December 31, 1994                         19,206,344   $    2    5,846,052  $   --   $ 19,144   $(13,119)     $    --
                                                                                                                       
Issuance of Common Stock in public stock                                                                               
 offerings, net of issuance cost                             --       --    9,260,000       1     36,950         --           --
Conversion of Preferred Stock into Common Stock                                                                        
 upon initial public offering                       (19,206,344)      (2)  19,206,344       2         --         --           --
Issuance of Common Stock upon exercise of stock                                                                        
 options and warrants                                        --       --      945,460      --         71         --           --
Issuance of Common Stock upon exercise of                                                                              
 warrants                                                    --       --      217,304      --         --         --           --
Issuance of options and warrants in exchange for                                                                       
 services                                                    --       --           --      --        284         --           --
Issuance of Common Stock under employee stock                                                                          
 purchase plan                                               --       --       51,868      --        165         --           --
Distribution of retained earnings                            --       --           --      --         --         40           --
Net income                                                   --       --           --      --         --      3,719           --
                                                    -----------   ------  -----------  ------   --------   --------      -------
Balance at December 31, 1995                                 --       --   35,527,028       3     56,614     (9,360)          --
                                                                                                                       
Issuance of Common Stock in public offerings,                                                                          
 net of issuance costs                                       --       --    4,196,970       1     52,531         --           --
Issuance of Stock for the purchase of ACS                    --       --      140,000      --      1,698         --           --
Issuance of Stock upon exercise of stock                                                                               
 options and warrants                                        --       --      784,408      --      1,353         --           --
Issuance of Common Stock under employee stock                                                                          
 purchase plan                                               --       --      188,800      --        717         --           --
Cumulative translation adjustment                            --       --           --      --         --         --           73
Distribution of retained earnings                           (25)                                                       
Net income                                                   --       --           --      --         --      8,874           --
                                                    -----------   ------  -----------  ------   --------   --------      -------
Balance at December 31, 1996                                 --       --   40,837,206       4    112,913       (511)          73
                                                                                                                       
Conversion of shareholders' loan to equity by Geritel        --       --           --      --        368         --           --
Issuance of Stock for the purchase of CSM                    --       --      796,612      --     14,500         --           --
Issuance of Common Stock upon exercise of stock                                                                        
 options and warrants                                        --       --      878,385      --      2,912         --           --
Cumulative translation adjustment                            --       --           --      --         --         --       (1,895)
Issuance of Common Stock under employee stock                                                                          
 purchase plan                                               --       --      151,874      --      1,042         --           --
Net income                                                   --       --           --      --         --     18,891           --
                                                    -----------   ------  -----------  ------   --------   --------      -------
Balance at December 31, 1997                                 --   $   --   42,664,077  $    4   $131,735   $ 18,380      $(1,822)
                                                    ===========   ======  ===========  ======   ========   ========      =======
</TABLE>

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

                                      44.
<PAGE>
 
                                   P-COM, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (In thousands)

<TABLE>
<CAPTION>
                                                                      Year ended December 31,
                                                                   1997        1996        1995
                                                                 --------    --------    --------
<S>                                                              <C>         <C>         <C>     
Cash flows from operating activities:
  Net income                                                     $ 18,891    $  8,874    $  3,719
  Adjustments to reconcile net income to net cash used in
   operating activities, net of effect of acquisitions:
    Depreciation                                                    6,013       5,152       1,554
    Amortization of goodwill                                        2,207         105          --
    Change in minority interest                                       (15)        619          --
    Non-cash charges                                                   --          --         284
    Change in assets and liabilities:
      Accounts receivable                                         (19,375)    (24,663)    (14,301)
      Notes receivable                                              1,808      (2,513)         --
      Inventory                                                   (20,807)    (14,773)    (13,519)
      Prepaid expenses                                             (1,698)     (2,031)     (3,693)
      Other assets                                                 (5,097)        139          (1)
      Accounts payable                                              4,443      14,499       6,743
      Accrued employee benefits                                     1,967         526          12
      Other accrued liabilities                                    (4,746)      5,549         905
      Income taxes payable                                          3,915       2,590           9
                                                                 --------    --------    --------
        Net cash used in operating activities                     (12,494)     (5,927)    (18,288)
                                                                 --------    --------    --------
Cash flows from investing activities:
  Acquisition of property and equipment                           (16,922)    (14,078)     (7,339)
  Acquisitions, net of cash acquired                              (10,855)     (2,714)         --
        Net cash used in investing activities                     (27,777)    (16,792)     (7,339)
                                                                 --------    --------    --------
Cash flows from financing activities:
  Payments on capitalized lease obligations                            --          --      (1,229)
  Proceeds (payments) of notes payable                            (12,651)      1,425      (3,091)
  Proceeds from stock issuance, net of expenses                     3,955      54,576      37,225
  Payments of long term debt, net                                    (719)         --          --
  Proceeds from convertible debt offering, net                     97,500          --          --
        Net cash provided by financing activities                  88,085      56,001      32,905
                                                                 --------    --------    --------

Effect of exchange rate changes on cash                            (1,895)         73          --
                                                                 --------    --------    --------

Net increase in cash and cash equivalents                          45,919      33,355       7,278

Cash and cash equivalents at the beginning of the period           42,226       8,871       1,593
                                                                 --------    --------    --------
Cash and cash equivalents at the end of the period               $ 88,145    $ 42,226    $  8,871
                                                                 ========    ========    ========
Supplemental cash flow disclosures:
  Cash paid for income taxes                                     $  5,610    $    217    $    352
                                                                 ========    ========    ========
  Cash paid for interest                                         $    656    $    133    $    171
                                                                 ========    ========    ========
  Stock issued in connection with the acquisition of CSM & ACS   $ 14,500    $  1,698    $     --
                                                                 ========    ========    ========
  Stock options and warrants for services                        $     --    $     --    $    284
                                                                 ========    ========    ========
  Conversion of shareholder's loan to equity by Geritel          $    368    $     --    $     --
                                                                 ========    ========    ========
</TABLE>

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

                                      45.
<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. The Company
also markets diagnostic, maintenance and system configuration software tools
that are complementary to its radio systems.

     On January 11, 1995, the Company effected a 1-for-3 reverse stock split. On
October 27, 1995, the Company effected a 2-for-1 forward stock split. On
September 25, 1997, the Company effected a 2-for-1 forward stock split. All
shares and per share amounts have been adjusted retroactively to reflect these
stock splits. In conjunction with an initial public offering of the Company's
Common Stock (the "Offering"), all outstanding shares of Preferred Stock were
converted into Common Stock at the closing of the Offering on March 9, 1995.

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

Summary of significant accounting policies

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

     Management's use of estimates and assumptions

     The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

     Principles of consolidation

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

     Foreign currency translation

     The functional currency of the Company's wholly-owned and majority-owned
foreign subsidiary are the local currencies. Assets and liabilities of these
subsidiaries are translated into U.S. dollars at exchange rates in effect at the
balance sheet date. Income and expense items are translated at average exchange
rates for the period. Accumulated net translation adjustments are recorded in
stockholders' equity. Foreign exchange transaction gains and losses are included
in the results of operations, and were not material in all periods presented.

     Fair Value of Financial Instruments

     The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. The estimated fair value of the
Company's convertible subordinated notes was $119 million at December 31, 1997.
The estimated fair value of all other financial instruments at December 31, 1997
and 1996 was not materially different from the values presented in the
consolidated balance sheets.

     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.

                                      46.
<PAGE>
 
     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.

     Inventory

     Inventory is stated at the lower of cost or market, cost being determined
on a first-in, first-out basis.

     Property and equipment

     Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based upon the useful lives of the assets ranging from
three to seven years. Leasehold improvements are amortized using the
straight-line method based upon the shorter of the estimated useful lives or the
lease term of the respective assets.

     Software development costs

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

     Goodwill

     Goodwill, representing the excess of the purchase price over the fair value
of the net assets of the acquired entities, is being amortized on a
straight-line basis over the period of expected benefit ranging from five to
twenty years. The carrying value of goodwill will be reviewed periodically based
on the undiscounted cash flows of the entity acquired over the remaining
amortization period. Should this review indicate that goodwill will not be
recoverable, the Company's carrying value of the goodwill will be reduced to its
discounted cash flows value.

     Impairment of long-lived assets

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

     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, are not expected to be realized.

     Concentration of credit risk

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

     To date, the Company has sold most of its products in international
markets. Sales to seven customers have been denominated in British pounds and at
December 31, 1997 and 1996 amounts due from these customers represented 30% and
47%, 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 and have been immaterial to date.

     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 and,
generally, requires no collateral from its customers. Sales are then made either
on 30 to 90 day payment terms, COD or letters of credit.

                                      47.
<PAGE>
 
     At December 31, 1997 and 1996, approximately 47% and 56%, respectively, of
trade accounts receivable represents amounts due from four customers. The
Company has an agreement with a bank to sell, without recourse, certain of its
trade accounts receivable. During 1997 and 1996, the Company sold $12 million
and $4 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 1997, 1996 and 1995, there were no material gains or 
losses on accounts receivable sold without recourse.

     Off-balance sheet risk

     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 foreign exchange forward contracts described above generally require
the Company to sell foreign currencies for U.S. dollars at rates agreed to at
the inception of the contracts. The forward contracts generally have maturities
of six months or less. These contracts generally do not subject the Company to
significant market risk from exchange rate movements because the contracts are
designed to offset gains and losses on the balances and transactions being
hedged. 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, 1997 and 1996, the Company had
forward contracts to sell approximately $13.3 million and $25.0 million in
British Pounds, respectively. The fair value of forward exchange contracts,
which was determined based on a comparison of the exchange rate per the
contract and the market exchange rate on December 31, 1997, approximates cost.
The Company does not anticipate any material adverse effect on its financial
position resulting from the use of these instruments.

     Net income per share

     The Company has adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("SFAS 128"). SFAS 128 requires presentation of both
Basic EPS and Diluted EPS on the face of the income statement. Basic EPS, which
replaces primary EPS, is computed by dividing net income available to common
stockholders (numerator) by the weighted average number of common shares
outstanding (denominator) during the period. Unlike the computation of primary
EPS, Basic EPS excludes the dilutive effect of stock options. Diluted EPS
replaces fully diluted EPS and gives effect to all dilutive potential common
shares outstanding during a period. In computing Diluted EPS, the average stock
price for the period is used in determining the number of shares assumed to be
purchased from exercise of stock options rather than the higher of the average
or ending stock price as used in the computation of fully diluted EPS.

     Following is a reconciliation of the numerators and denominators of the
Basic and Diluted EPS computations for the periods presented below (in
thousands):

                                      48.
<PAGE>
 
                                                        Year Ended December 31,
                                                       1997      1996      1995
                                                     -------   -------   -------

Numerator for basic earnings per share - net income  $18,891   $ 8,874   $ 3,719
Effect of dilutive securities:
  Interest expense on convertible notes                  397        --        --
                                                     -------   -------   -------
Numerator for diluted earnings per common share      $19,288   $ 8,874   $ 3,719
                                                     =======   =======   =======

Denominator for basic earnings per common share       42,175    38,762    32,645
Effect of dilutive securities:
  Stock options and warrants                           1,826     1,845     2,208
  Convertible notes                                      569        --        --

                                                     -------   -------   -------
Denominator for diluted earnings per common share     44,570    40,607    34,853
                                                     =======   =======   =======

Income from continuing operations before
  extraordinary items per common share:
  Basic                                              $  0.45   $  0.23   $  0.11
                                                     =======   =======   =======
  Diluted                                            $  0.43   $  0.22   $  0.11
                                                     =======   =======   =======


     Stock-based Compensation

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

     Recently issued accounting pronouncements

     In June 1997, the Financial Accounting Standards Board issued SFAS 130,
"Reporting Comprehensive Income". SFAS 130 establishes the standards for
reporting comprehensive income and its components in a financial statement.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. Examples of items to be included in
comprehensive income, which are excluded form net income, include foreign
currency translation adjustment and unrealized gain or loss on available for
sale securities. The disclosures prescribed by the Statement must be made
beginning with the first quarter of 1998 and requires reclassification of prior
periods for comparative purposes. The Company has not yet determined the impact,
if any, of adopting this new standard.

     In June 1997, the Financial Accounting Standards Board issued SFAS 131
"Disclosures about Segments of an Enterprise and Related Information." This
statement establishes standards for the way companies report information about
operating segments in annual financial statements. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. The disclosures prescribed by SFAS 131 are effective in 1998. In the
initial year of adoption, interim period financial reporting is not required.
The Company has not yet determined the impact, if any, of adopting this new
standard.

                                      49.
<PAGE>
 
NOTE 2 -- BALANCE SHEET COMPONENTS (in thousands):

                                                        December 31,
                                                     1997          1996
                                                  ----------    ----------
              Inventory:

                Raw materials                      $   9,695     $   8,681
                Work-in-process                       32,472        17,229
                Finished goods                        15,836         7,037
                                                  ----------    ----------
                                                   $  58,003     $  32,947
                                                  ==========    ==========

              Property and equipment:
                Tooling and test equipment         $  31,603     $  20,326
                Computer equipment                     4,950         2,754
                Furniture and fixtures                 4,979         2,573
                Land and buildings                     1,389         1,544
                Construction-in-process                3,294         1,817
                                                  ----------    ----------
                                                      46,215        29,014
                Less accumulated depreciation        (13,902)       (8,429)
                                                  ----------    ----------
                                                   $  32,313     $  20,585
                                                  ==========    ==========

NOTE 3 -- Debt Arrangements

     On November 5, 1997, the Company issued $100,000,000 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 a
conversion price of $27.46 per share at any time. The Notes are redeemable by
the Company, beginning on November 5, 2000, upon 30 days notice, subject to a
declining redemption price. Interest on the Notes will be paid semi-annually on
May 1 and November 1 of each year. The Notes are subordinated to $0.8 million of
indebtedness outstanding at December 31, 1997.

     The Company had a revolving line-of-credit agreement, as amended and
restated on October 31, 1997, that provided for borrowings of up to $25.0
million. Borrowings under the line were unsecured and bore interest at either a
base interest rate or a variable interest rate. The agreement required the
Company to comply with certain financial covenants including the maintenance of
specified minimum ratios. On November 10, 1997 the Company paid the outstanding
balance and terminated the line of credit.

NOTE 4 -- CAPITAL STOCK:

     Preferred Stock. Under the Company's Restated Certificate of Incorporation,
the Company is authorized to issue 2,000,000 shares of Preferred Stock, par
value $0.0001 per share. The Board of Directors has the authority, without
action by the stockholders, to designate and issue preferred stock in one or
more series and to designate the dividend rate, voting rights and other rights,
preferences and restrictions of each series. In connection with the Stockholder
Rights Agreement described below, the Board of Directors designated 750,000 of
such shares as series A Junior participating Preferred Stock.

     Common Stock. In March 1995, the Company received net proceeds of $26.1
million from the sale of 7,820,000 shares of Common Stock in the Offering, which
was declared effective by the Securities and Exchange Commission on March 2,
1995. In September 1995, the Company received net proceeds of $10.8 million from
the sale of 1,440,000 shares of Common Stock in a follow-on public offering. In
May 1996, the Company received net proceeds of $52.5 million from the sale of
4,196,970 shares of Common Stock in a follow-on public offering. Earnings per
share for the year ended December 31, 1996 reflects the shares issued on a
weighted average computation from the date of their issuance and therefore does
not include the full dilutive effect of these shares.

     Stockholder Rights Agreement. On September 26, 1997, the Board of Directors
of the Company adopted a Stockholder Rights Agreement (the "Agreement").
Pursuant to the Agreement, rights (the "Rights") will be distributed as a
dividend a the rate of one preferred share purchase right 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 one-
hundredth of one share of Series A Preferred at an exercise price of $125.00
upon certain events. The Rights will expire ten (10) years from the date of the
Agreement is executed by the Company and BankBoston, N.A., the Rights agent.

                                      50.
<PAGE>
 
     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, P-Com is
acquired in a merger or other business combination transaction, or sells 50% or
more of its assets or earning power, each unexercised Right will entitle its
holder to purchase, at the Right's then-current exercise price, a number of the
acquiring company's common shares having a market value at the time of twice the
Right's exercise price. In addition, if a person or group acquires 15% or more
of the Company's common Stock (or cash, other securities or property, at the
discretion of the Board of Directors) having a market value of twice the Right's
exercise price. At any time within ten days after the public announcement that a
person or group has acquired beneficial ownership of 15% of more of the
Company's Common Stock, the Board, in its sole discretion, my redeem the Rights
for $0.0001 per Right.

NOTE 5 -- ACQUISITIONS:

     On February 24, 1997, the Company acquired 100% of the outstanding stock of
Technosystem S.p.A. ("Technosystem"), a Rome, Italy-based company, with
additional operations in Poland, for aggregate proceeds of $3.3 million and the
assumption of long-term debt of approximately $12.7 million in addition to other
liabilities. The Company paid $2.6 million in cash and an additional payment of
$0.7 million will be due on March 31, 1998, subject to certain indemnification
obligations of the former Technosystem security holders, as set forth in the
securities purchase agreement. Technosystem designs, manufactures and markets
equipment for transmitters and transponders for television and radio
broadcasting. The range of products includes audio/video modulators, converters,
amplifiers, transponders and transmitters and microwave links.

     On March 7, 1997, the Company acquired substantially all of the assets of
Columbia Spectrum Management, L.P. ("CSM"), a Vienna, Virginia-based company,
for $7.8 million in cash and 796,612 net 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.

     The total purchase price of the acquisitions of CSM and Technosystem was as
follows (in thousands):

                                   Technosystem      CSM        Total
                                   ------------      ---        -----

     Cash payment..................   $  2,600     $  8,000   $  10,600
     Contingent consideration......        700           --         700
     Issuance of common stock......         --       14,500      14,500
     Expenses......................        471          128         599
                                      --------     --------   ---------
         Total.....................   $  3,771     $ 22,628   $  26,399
                                      ========     ========   =========


     The allocation of the purchase price of the acquisitions of CSM and
Technosystem is as follows (in thousands):

                                         Technosystem        CSM        Total
                                       ----------------  ---------- -----------
     Cash and cash equivalents.........  $       14      $    330   $      344
     Accounts receivable...............       2,704            --        2,704
     Inventory.........................       4,196            53        4,249
     Other current assets..............       1,870            --        1,870
     Property and equipment............         597           222          819
     Non-current assets................         129             5          134
     Intangible assets.................      15,775        22,228       38,003
     Current liabilities assumed.......      (8,824)         (210)      (9,034)
     Long-term debt....................     (12,690)           --      (12,690)
                                       ----------------  ---------- -----------
         Total.........................  $    3,771      $ 22,628   $   26,399
                                       ================  ========== ===========

                                      51.
<PAGE>
 
     The unaudited pro forma combined results of operations of the Company,
Technosystem and CSM for the year ended December 31, 1997 and 1996 after giving
effect to certain pro forma adjustments are as follows (in thousands, except per
share amount):

                                                      1997         1996
                                                      ----         ----

                 Sales........................   $  233,412     $  147,802
                                                 ==========     ==========
                 Net income...................   $   18,031     $   12,158
                                                 ==========     ==========
                 Net income per share
                    Basic.....................   $     0.43     $     0.31
                                                 ==========     ==========
                    Diluted...................   $     0.41     $     0.30
                                                 ==========     ==========

      The foregoing unaudited pro forma results of operations reflect one year's
amortization of goodwill for 1996 and one quarter's amortization of goodwill for
1997 resulting from the acquisition of CSM and Technosystem.

     On May 29, 1997, the Company acquired all of the outstanding shares of
capital stock of CRC a provider of integrated network access devices to network
service providers, in exchange for 1,502,956 shares of P-Com Common Stock that
were issued or are issuable to former CRC security holders in a stock-for-stock
merger. CRC, located in Fair Lawn, New Jersey, manufactures products used by the
communications industry to connect end user sites to a range of communications
services. CRC's NetPath product line enables network service providers to offer
their customers a migration path from entry-level data services to
cost-effective integrated delivery of voice, video and Internet access. The
NetPath product line also supports the network service provider's introduction
of new technologies including asynchronous transfer mode and frame relay.

      On November 27, 1997, the Company acquired all of the outstanding shares
of capital stock of RT Masts, a United Kingdom-based company and Telematics, a
Virginia-based company, in exchange for 766,151 and 248,215 shares of P-Com
Common Stock, respectively. RT Masts, located in Wellingborough,
Northhamptonshire, U.K. and Telematics, located in Herndon, Virginia, supply,
install and maintain telecommunications systems and structure including antennas
covering high frequency, medium frequency and microwave systems. Both companies
manage the construction of radio system sites, construction of towers and
installation of radios and antennas at system sites.

      The Company accounted for its acquisitions of CRC, RT Masts and Telematics
as pooling of interests and, therefore, all prior period financial statements
presented have been restated to present the results of the combined companies as
if they had been combined since inception. The sales and net income (loss) shown
below combine the historical sales and net income (loss) of P-Com, CRC, RT Masts
and Telematics for the years ended December 31, 1997, 1996, and 1995.


                                       Year Ended December 31,
                                       -----------------------
                                    1997         1996         1995
                                 ---------    ---------    ---------
            Sales:
              P-Com              $ 202,757    $  97,515    $  42,805
              CRC                      713        4,338       10,041
              RT Masts              12,035       15,472        5,168
              Telematics             5,197        3,628        6,449
                                 ---------    ---------    ---------
                                 $ 220,702    $ 120,953    $  64,463
                                 =========    =========    =========

            Net income (loss):
              P-Com              $  20,375    $  14,068    $   2,585
              CRC                   (1,254)      (5,196)         237
              RT Masts                (537)         101          133
              Telematics               307          (99)         764
                                 ---------    ---------    ---------
                                 $  18,891    $   8,874    $   3,719
                                 =========    =========    =========


                                      52.
<PAGE>
 
NOTE 6 -- EMPLOYEE BENEFIT PLANS:
 
      At December 31, 1997, the Company had two stock-based compensation plans
which are described below. The Company has adopted the disclosure-only provision
of Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock Based Compensation". Accordingly, no compensation expense has been
recognized for its stock option plan or 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 and
earnings per share would have been reduced to the pro forma amounts indicated
below:

                                                 1997      1996       1995
                                                 ----      ----       ----

   Net income           As reported            $ 18,891   $ 8,874    $ 3,719
                        Pro forma              $ 11,221   $ 4,883    $ 2,100

   Net income per share As reported - Basic    $   0.45   $  0.22    $  0.11
                        Pro forma - Dilutive   $   0.43   $  0.23    $  0.11

                        Pro forma - Basic      $   0.27   $  0.13    $  0.06
                        Pro forma - Dilutive   $   0.25   $  0.12    $  0.06

     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"). In addition to the
3,295,888 shares of Common Stock authorized for issuance under the 1992 Plan,
the 1995 Plan authorizes the Board of Directors to issue an additional 640,000
shares of Common Stock in 1995, 1,600,000 shares of Common Stock in 1996 and
3,000,000 shares of Common Stock in 1997. 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.

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

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

     Options under the Discretionary Option Grant Program may be granted at not
less than 85% of the fair market value per share of Common Stock on the grant
date with exercise periods not to exceed ten years. The Plan Administrator is
authorized to issue tandem stock appreciation rights and limited stock
appreciation rights in connection with the option grants.

     The Stock Issuance Program provides for the sale of Common Stock at a price
not less than 85% of fair market value. Shares may also be issued solely for
services. The administrator has discretion as to vesting provisions, including
accelerations, and may institute a loan program to assist participants with
financing stock purchases. The program also provides certain alternatives to
satisfy tax liabilities incurred by participants in connection with the program.

     Under the Automatic Option Grant Program, as amended at the May 1997 Annual
Meeting of Stockholders, participants will automatically receive an option to
purchase 40,000 shares of Common Stock upon initially joining the Board of
Directors and will receive an additional automatic grant each year at each
annual stockholders' meeting for 4,000 shares. Each option will have an exercise
price per share equal to 100% of the fair market value of the Common Stock on
the grant date. The shares subject to the initial share option and the annual
4,000 share option will vest in eight successive equal quarterly installments
upon the optionee's completion of each successive 3-month period of Board
service over the 24-month period measured from the grant date.

                                      53.
<PAGE>
 
     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 1997, 1996 and 1995, respectively: expected volatility of 57
percent for all years; weighted average risk-free interest rates of 6.1%, 6.0%
and 6.4%, and weighted average expected lives of 3.16, 4.11 and 2.88 years.

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

<TABLE>
<CAPTION>
                                              1997                    1996                    1995
                                     -----------------------   --------------------   --------------------
                                                   Weighted               Weighted                Weighted
                                        Shares      Average    Shares     Average     Shares       Average
                                                   Exercise               Exercise                Exercise
                                                     Price                 Price                   Price
                                      ------------ --------    ---------  ---------   ---------   --------
<S>                                    <C>           <C>       <C>         <C>        <C>         <C>     
Outstanding at beginning of year       3,778,688     $  7.14   2,854,872   $   3.08   2,034,924   $   0.24
Granted                                3,317,712       16.73   2,164,500       9.97   1,742,044       5.05
Exercised                               (878,385)       3.31    (784,408)      1.73    (632,584)      0.12
Forfeited                               (211,976)      11.41    (456,276)      4.74    (289,512)      1.38
                                      ------------             ----------             ---------
Outstanding at end of year             6,006,039       12.65   3,778,688       7.14   2,854,872       3.08
                                      ============             ==========             =========

Options exercisable at year-end        2,970,244               3,524,284              2,833,672

Weighted-average fair value of         $    7.54               $    4.78              $    2.11
    options granted during the year

</TABLE>

     The following table summarizes information about stock options outstanding
and exercisable at December 31, 1997:

<TABLE>
<CAPTION>
                                     Options Outstanding                  Options Exercisable
                       ---------------------------------------------- ---------------------------
                                   Weighted-Average
        Range of                      Remaining      Weighted-Average            Weighted-Average
     Exercise Prices       Shares  Contractual Life  Exercise Price      Shares   Exercise Price
     ---------------    ---------  ----------------  --------------    --------   --------------
     <S>                <C>             <C>           <C>              <C>           <C>   
     $0.05  -    4.75     707,239         7.0           $ 2.33           678,667       $ 2.34
      6.56  -    9.75   1,634,836         8.3             8.66         1,007,095         8.19
     10.06  -   14.88     845,378         8.9            12.94           423,300        12.66
     15.13  -   19.44   2,562,936         9.4            16.95           860,970        17.73
     21.09  -   25.75     255,650         9.8            22.69                --           --
                       ==========                                    ===========
                        6,006,039                                      2,970,244
</TABLE>

     Employee Stock Purchase Plan On January 11, 1995, the Company's Board of
Directors adopted the Employee Stock Purchase Plan (the "Purchase Plan"), which
was approved by stockholders in February 1995. The Purchase Plan permits
eligible employees to purchase Common Stock at a discount through payroll
deductions during successive offering periods with a maximum duration of 24
months. Each offering period shall be divided into consecutive semi-annual
purchase periods. The price at which the Common Stock is purchased under the
Purchase Plan is equal to 85% of the fair market value of the Common Stock on
the first day of the offering period or the last day of the purchase period,
whichever is lower. The initial offering period commenced on the effectiveness
of the Offering. A total of 900,000 shares of Common Stock has been reserved for
issuance under the Purchase Plan, as amended at the May 1997 Annual Meeting 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 151,874, 188,800 and 51,868 shares in 1997, 1996 and
1995, respectively.

     The fair value of the employees' purchase rights was estimated using the
Black-Scholes model with the following assumptions for 1997, 1996 and 1995,
respectively: expected volatility of 57 percent for all years; weighted-average
risk-

                                      54.
<PAGE>
 
free interest rates of 5.3%, 5.0% and 6.4%; and weighted-average expected lives
of 0.7, 0.7 and 1.2 years. The weighted-average fair value of those purchase
rights granted in 1997, 1996 and 1995 was $3.65, $1.55 and $1.10, respectively.

NOTE 7 -- INCOME TAXES:

     Income before income taxes consists of the following (in thousands):

                                         Year ended December 31,
                                     1997          1996         1995
                                     ----          ----         ----

                 Domestic         $  26,390    $    9,962     $  4,286
                 Foreign              3,553          (132)         194
                                  ---------    ----------     --------
                                  $  29,943    $    9,830     $  4,480
                                  =========    ==========     ========


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

                                            Year ended December 31,
                                        1997           1996        1995
                                        ----           ----        ----

                 Current:
                    Federal           $  7,850       $ 2,543      $  597
                    State                  268            27         104
                    Foreign              2,920            97          60
                                      --------       -------      ------
                                        11,038         2,667         761
                                      --------       -------      ------

                 Deferred:
                    Federal               (217)       (1,617)         --
                    State                  231           (94)         --
                                      --------       -------      ------
                                            14        (1,711)         --
                                      --------       -------      ------
                             Total    $ 11,052       $   956      $  761
                                      ========       =======      ======

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

                                                          December 31,
                                                    1997      1996      1995
                                                    ----      ----      ----

     Net operating loss carryforwards            $ 2,032    $ 1,897   $ 3,146
     Credit carryforwards                            615        615     1,364
     Capitalized research and development costs      156        335       482
     Start-up costs                                  202        376       429
     Reserves and other                            1,339      1,000       494
                                                 -------    -------   -------
                                                   4,344      4,223     5,915
     Valuation allowance                          (2,647)    (2,512)   (5,915)
                                                 -------    -------   -------
                                                 $ 1,697    $ 1,711   $    --
                                                 =======    =======   =======

                                      55.
<PAGE>
 
     Reconciliation of the statutory federal income tax rate to the Company's
effective tax rate is as follows:

                                                         Year ended December 31,
                                                             1997         1996
                                                             ----         ----

         U.S. federal statutory rate                         35.0%        35.0%
         State income taxes, net of federal tax benefit       1.1          6.0
         Change in valuation allowance                         --        (36.6)
         Benefit from foreign sales corporation              (2.3)          --
         Research and development tax credit                 (7.3)          --
         Foreign income taxed at different rate               4.8           --
         Other, net                                           5.6          5.0
                                                             ----          --- 
                                                             36.9%         9.4%
                                                             ====          === 


NOTE 8 -- COMMITMENTS:

Lease obligations

      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 operating leases at December
31, 1997 are as follows (in thousands):

             Year ending December 31,

             1998.................................  $    2,934
             1999.................................       2,972
             2000.................................       2,672
             2001.................................       1,813
             Thereafter...........................       3,690
                                                    ----------
                                                    $   14,081
                                                    ==========

Rent expense for all operating leases was approximately$2,205,000, $1,369,000
and $467,000 in 1997, 1996, and 1995, respectively.

NOTE 9 -- GEOGRAPHIC SALES AND MAJOR CUSTOMERS:

The following is a summary of the Company's sales by geographic area:

                                                   Year ended December 31,
                                                 1997       1996        1995
                                               -------    -------     -------
             Europe                                52%        64%         78%
             United States                         33         33          22
             Asia                                   9          3          --
             Africa                                 3         --          --
             Australia                              1         --          --
             Middle East                            1         --          --
             Central and South America              1         --          --
                                               -------    -------     -------
                                                 100%       100%        100%
                                               =======    =======     =======

                                      56.
<PAGE>
 
The following table summarizes the percentage of sales accounted for by the
Company's significant customers with sales of 10% or more:

                                      Year ended December 31,

                                  1997           1996           1995
                                  ----           ----           ----
             Customer A            11%            12%            14%
             Customer B            16             18             14
             Customer C            --             11             --
             Customer D            --             11             --
             Customer E            --             11             --
             Customer F            --             --             10


NOTE 10 -- SUBSEQUENT EVENTS:

      On March 28, 1998, and April 1, 1998, the Company acquired substantially
all of the assets of the Wireless Communications Group of Cylink Corporation, a
Sunnyvale, California-based company, for $46 million in cash and $14.5 million
in a short-term, non interest bearing unsecured subordinated promissory note.
The Wireless Communications Group designs, manufactures and markets spread
spectrum radio products for voice and data applications in both domestic and
international markets. Upon closing of the transaction, the Company will account
for the acquisition based on the purchase method of accounting. The Company
expects to incur acquisition expenses of $2.5 million and a one-time research
and development charge of approximately $15.4 million.

                                      57.
<PAGE>
 
Selected Quarterly Financial Data (Unaudited)

<TABLE>
<CAPTION>
                                              Three Months Ended
                    -----------------------------------------------------------------------------
                    Dec. 31  Sept. 30   June 30  March 31   Dec. 31  Sept. 30   June 30  March 31
                      1997      1997      1997      1997      1996      1996      1996      1996
                      ----      ----      ----      ----      ----      ----      ----      ----
<S>                 <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>    
Sales               $64,226   $51,473   $48,914   $38,144   $33,743   $26,432   $19,788   $17,552

Gross profit        $27,892   $22,304   $20,537   $15,408   $14,570   $11,144   $11,388   $ 7,127

Net income          $ 8,065   $ 5,096   $ 4,201   $ 3,014   $ 6,177   $ 4,149   $ 2,384   $ 1,358

Income per share:
  Basic             $  0.19   $  0.12   $  0.10   $  0.08   $  0.16   $  0.11   $  0.07   $  0.04
  Diluted           $  0.18   $  0.12   $  0.10   $  0.07   $  0.15   $  0.10   $  0.06   $  0.04

</TABLE>

The above financial information does not include the effects of the
pooling-of-interests transactions with CRC, RT Masts and Telematics, except for
the effect of CRC for the three months ended June 30, September 30 and December
31, 1997 and the effect of RT Masts and Telematics for the three months ended
December 31, 1997. If those transactions had been included, the quarterly
results would have been as follows:

<TABLE>
<CAPTION>
                                              Three Months Ended
                    -----------------------------------------------------------------------------
                    Dec. 31  Sept. 30   June 30  March 31   Dec. 31  Sept. 30   June 30  March 31
                      1997      1997      1997      1997      1996      1996      1996      1996
                      ----      ----      ----      ----      ----      ----      ----      ----
<S>                 <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>    
Sales               $64,226   $57,191   $55,058   $44,227   $41,587   $31,780   $25,161   $22,425

Gross profit        $27,892   $24,117   $22,683   $16,775   $16,357   $12,690   $ 9,672   $ 8,176

Net income          $ 8,065   $ 4,036   $ 5,111   $ 1,679   $ 4,892   $ 2,827   $ 1,061   $    94

Income per share:
  Basic             $  0.19   $  0.10   $  0.12   $  0.04   $  0.12   $  0.07   $  0.03   $  --
  Diluted           $  0.18   $  0.09   $  0.12   $  0.04   $  0.11   $  0.07   $  0.03   $  --

</TABLE>

ITEM 10. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

     Not applicable.

                                      58.
<PAGE>
 
                                    PART III

ITEM 11. DIRECTORS AND OFFICERS OF THE REGISTRANT.

     The information required by this item relating to the Company's directors
and nominees and disclosure relating to compliance with Section 16(a) of the
Securities Exchange Act of 1934 is included under the captions "Election of
Directors" and "Compliance with Section 16(a) of the Securities Exchange Act of
1934" in the Company's Proxy Statement for the 1998 Annual Meeting of
Stockholders and is incorporated herein by reference. The information required
by this item relating to the Company's executive officers is included under the
caption "Executive Officers" in Part I of this Form 10-K/A Annual Report.

ITEM 12. EXECUTIVE COMPENSATION.

     The information required by this item is included under the caption
"Executive Compensation and Related Information" in the Company's Proxy
Statement for the 1998 Annual Meeting of Stockholders and is incorporated herein
by reference.

ITEM 13. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The information required by this item is included under the caption
"Ownership of Securities" in the Company's Proxy Statement for the 1998 Annual
Meeting of Stockholders and is incorporated herein by reference.

ITEM 14. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The information required by this item is included under the caption
"Certain Transactions" in the Company's Proxy Statement for the 1998 Annual
Meeting of Stockholders and is incorporated herein by reference.

                                      59.
<PAGE>
 
                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

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

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

     Form 10K

                                                                     Page Number
                                                                     -----------

     Report of Independent Accountants................................    41

     Consolidated Balance Sheets at December 31, 1997 and 1996........    42

     Consolidated Statements of Operations for the
     years ended December 31, 1997, 1996 and 1995.....................    43

     Consolidated Statements of Stockholders'
     Equity for the years ended December 31,
     1997, 1996, and 1995.............................................    44

     Consolidated Statements of Cash Flows for
     the years ended December 31, 1997,
     1996 and 1995....................................................    45

     Notes to Consolidated Financial Statements.......................    46

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

(b)  Reports on Form 8-K

     Report on Form 8-K dated September 26, 1997, regarding the Company's
     adoption of a Rights Plan, as filed with the Securities and Exchange
     Commission on October 14, 1997.

     Report on Form 8-K on October 14, 1997, regarding the Company's press
     release announcing the acquisition of RT Masts Limited, as originally filed
     with the Securities and Exchange Commission on October 14, 1997.

     Report on Form 8-K dated October 16, 1997, regarding the Company's press
     releases announcing a proposed private placement of convertible
     subordinated notes; the Company's earnings for the quarter ended September
     30, 1997; an order for its Italian subsidiary, Technosystem S.p.A. to
     construct a broadcast network in Papua-New Guinea valued at $20 million and
     the Company's release of restated selected consolidated financial data to
     reflect its merger with Control Resources Corporation, as originally filed
     with the Securities and Exchange Commission on October 17, 1997.

     Report on Form 8-K/A dated October 16, 1997, regarding the Consent of
     Independent Accountants, as originally filed with the Securities and
     Exchange Commission on October 30, 1997.

     Report on Form 8-K dated November 5, 1997, regarding the Company's press
     release announcing a private placement of convertible subordinated notes,
     as originally filed with the Securities and Exchange Commission on November
     5, 1997.

                                      60.
<PAGE>
 
     Report on Form 8-K dated November 10, 1997, regarding the Company's
     completion of a private placement of convertible subordinated notes, as
     originally filed with the Securities and Exchange Commission on November
     21, 1997.

     Report on Form 8-K dated November 28, 1997, regarding the Company's press
     release regarding the acquisitions of Telematics, Inc. and RT Masts
     Limited, as originally filed with the Securities and Exchange Commission on
     December 10, 1997.

(c)  Exhibits - See Exhibit list below.

            Number       Description
            ------       -----------

            2.1(6)      Agreement dated April 15, 1996, by and among the
                        Company, Mr. Giovanni Marciano and certain other parties
                        named thereunder.

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

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

            2.3(19)     Escrow Agreement dated November 28, 1997, by and among
                        P-Com, Inc., P-Com Field Services Inc., Telematics Inc.
                        and Daniel N. Carter.

            2.4(19)     Registration Rights Agreement, dated November 17, 1997,
                        by and among P-Com Field Services Inc., Telematics Inc.
                        and Daniel N. Carter.

            2.5(19)     Escrow Agreement, dated November 28, 1997, by and among
                        P-Com, Inc., P-Com Services (UK) Limited and R T Masts
                        Limited.

            2.6(19)     Securities Purchase Agreement, dated November 17, 1997,
                        by and among P-Com, Inc., P-Com Field Services Inc.,
                        Telematics Inc. and Daniel N. Carter.

            2.7(19)     Share Purchase Agreement, dated October 14, 1997, by and
                        among P-Com, Inc., P-Com Services (UK) Limited and R T
                        Masts Limited.

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

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

            3.2B(16)    Certificate of Designation for the Series A Junior
                        Participating Preferred Stock, as filed with the
                        Delaware Secretary of State on October 8, 1997.

            3.3(1)      Bylaws of the Company.

            4.1(1)      Form of Common Stock Certificate.

            4.2(18)     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(18)     Registration Rights Agreement, dated as of November 1,
                        1997 by and among the Registrant and PaineWebber
                        Incorporated, BancAmerica Robertson Stephens,
                        NationsBanc Montgomery Securities, Inc. and Pacific
                        Growth Equities, Inc.

            4.5(17)     Rights Agreement, dated as of October 1, 1997, between
                        the Company and BankBoston, N.A., which includes the
                        form of Certificate of Designation for the Series A
                        Junior Participating Preferred Stock as Exhibit A, the
                        form of Right Certificate as Exhibit B and the Summary
                        of Rights to Purchase Preferred Shares as Exhibit C.

            *10.1(1)    Purchase Order issued by AT&T Network Systems
                        Deutschland GmbH, dated December 7, 1994.

                                      61.
<PAGE>
 
            Number       Description
            ------       -----------

            *10.2(1)    Purchase Order issued by AT&T Network Systems
                        Deutschland GmbH, dated December 19, 1994.

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

            *10.4(1)    Purchase Order issued by AT&T Network Systems Nederland
                        BV, dated December 9, 1994.

            *10.5(1)    Amendment to Purchase Order issued by AT&T Network
                        Systems Nederland BV, dated December 22, 1994.

            *10.6(1)    NSD Master Purchase Order issued by AT&T Network Systems
                        Deutschland GmbH, dated December 23, 1994.

            *10.7(1)    Purchase Agreement dated August 29, 1994, by and between
                        the Company and Harris Corporation -- Farinon Division.

            *10.8(1)    Contract for Supply of 50 GHz Radio dated June 4, 1994,
                        by and between the Registrant and Mercury Communications
                        Ltd.

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

            *10.10(1)   Manufacturing Agreement dated April 20, 1994, by and
                        between the Company and Comptronix Corporation (assigned
                        to Sanmina Corporation).

            *10.11(1)   Agreement dated November 11, 1994, by and between the
                        Company and WinStar Wireless, Inc.

            10.12(1)    Master Lease Agreement dated November 9, 1992, by and
                        between the Company and Dominion; First Amendment to
                        Master Lease Agreement dated June 23, 1993, by and
                        between the Company and Dominion.

            10.13(1)    Master Equipment Lease entered into by and between the
                        Company and Phoenix Leasing Incorporated on August 10,
                        1994.

            10.14(1)    Commitment Letter dated January 10, 1995, by and between
                        the Company and Applied Telecommunications Technologies,
                        Inc. ("ATTI"), including form of Master Lease to be
                        entered into between the Company and ATTI.

            10.15D      Accounts Receivable Purchase Agreement dated December
                        31, 1997 by and between the Company and Wells Fargo MCBC
                        Trade Bank N.A.

            10.16A(7)   1995 Stock Option/Stock Issuance Plan, including forms
                        of Notices of Grant of Automatic Stock Option for
                        initial grant and annual grants and Automatic Stock
                        Option Agreement, as amended.

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

            10.17(1)    Employee Stock Purchase Plan, including forms of Stock
                        Purchase Agreement and Enrollment/Change Form.

            10.17B(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      Service Agreement dated December 15, 1997 by and between
                        the Company and Mr. George P. Roberts.

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

            10.19C      Service Agreement dated December 15, 1997 by and between
                        the Company and Mr. Pier Antoniucci.

            10.21(1)    Real Property Lease dated December 10, 1993, by and
                        between the Company and Bryan T.D. Trust, pertaining to
                        3175 S. Winchester Boulevard, Campbell, California
                        95008.

            *10.22(1)   Low Capacity Digital Radio Product Agreement dated
                        February 13, 1995 by and between the Company and
                        Siemens.

            *10.22A     Low Capacity Digital Radio Agreement dated February 13,
                        1995 by and between the Company and Itatel.

                                      62.
<PAGE>
 
            Number       Description
            ------       -----------

            10.23(3)    Sublease dated May 1, 1995 by and between the Company
                        and Medallion Mortgage Company.

            10.24(4)    Lease dated August 4, 1995 by and between P-COM United
                        Kingdom, Inc. and Capital Counties plc; Rent Deposit
                        Deed dated August 4, 1995, by and between P-Com United
                        Kingdom, Inc. and Capital Counties plc.

            10.25(2)    Underwriting Agreement dated March 2, 1995 by and
                        between the Company and the underwriters named therein.

            10.26(5)    Underwriting Agreement dated August 17, 1995 by and
                        between the Company and the underwriters named therein.

            10.27(9)    Lease dated November 11, 1995 by and between the
                        Company, Inc. and Johann Birkart, Internationale
                        Spedition GmbH & Co.

            10.30A(11)  Loan Agreement dated March 3, 1997 by and between the
                        Company and Union Bank of California, N.A.

            10.30B(11)  Amendment dated May 7, 1997 to the Loan Agreement dated
                        March 3, 1997 by and between the Company and Union Bank
                        of California, N.A.

            10.30C(13)  Amended and Restated Loan Agreement dated September 17,
                        1997 by and between the Company and Union Bank of
                        California, N.A.

            11.1        Computation of Pro Forma Net Income (Loss) Per Share.

            21.1        List of subsidiaries of the Registrant.

            23.1        Consent of PricewaterhouseCoopers LLP, Independent
                        Accountants.

            24.1        Power of Attorney (see page 66).

            27          Financial Data Schedule

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

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

(2)  Incorporated by reference to Exhibit 1.1 to the Company's Registration
     Statement on Form S-1 (File No. 33-88492) declared effective with the
     Securities and Exchange Commission on March 2, 1995.

(3)  Incorporated by reference to identically numbered exhibits included in the
     Company's Registration Statement on Form S-1 (File No. 33-95392) declared
     effective with the Securities and Exchange Commission on August 17, 1995.

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

(5)  Incorporated by reference to Exhibit 1.1 to the Company's Registration
     Statement on Form S-1 (File No. 33-95392) declared effective with the
     Securities and Exchange Commission on August 17, 1995.

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

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

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

(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.

                                      63.
<PAGE>
 
(10) Incorporated by reference to Exhibit 1.1 to the Company's Registration
     Statement on Form S-3 declared effective with the Securities and Exchange
     Commission on May 16, 1996 (File No. 333-3558).

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

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

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

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

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

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

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

(18) Incorporated by reference to identically numbered exhibits 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.

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

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

                                      64.
<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 April 30, 1999. 

                                  P-COM, INC.

Date: April 30, 1999         By:  /s/ George P. Roberts              
                                  -----------------------------------
                                  George P. Roberts
                                  Chairman of the Board and Chief Executive 
                                  Officer (Principal Executive Officer)

Date: April 30, 1999         By:  /s/ Robert E. Collins 
                                  -----------------------------------
                                  Robert E. Collins 
                                  Chief Financial Officer and Vice President, 
                                  Finance and Administration (Principal 
                                  Financial and Accounting Officer)

                                      65.
<PAGE>
 
     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.

Date: April 30, 1999            By  /s/ George P. Roberts              
                                    -----------------------------------
                                    George P. Roberts
                                    Chairman of the Board and
                                    Chief Executive Officer

Date: April 30, 1999            By: /s/ Robert E. Collins 
                                    -----------------------------------
                                    Robert E. Collins 
                                    Chief Financial Officer, Vice President,
                                    Finance and Administration

Date: April 30, 1999            By: /s/     *
                                    -----------------------------------
                                    Gill Cogan
                                    Director of the Company

Date: April 30, 1999            By: /s/     *
                                    -----------------------------------
                                    John A. Hawkins
                                    Director of the Company

Date: April 30, 1999            By: /s/     *
                                    -----------------------------------
                                    M. Bernard Puckett
                                    Director of the Company

Date: April 30, 1999            By: /s/     *
                                    -----------------------------------
                                    James J. Sobczak
                                    Director of the Company

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

                                      66.