<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                 ---------------
                                    FORM 10-K
(Mark One)
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934 [NO FEE REQUIRED]

For the fiscal year ended      December 31, 1996
                          ---------------------------
         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 or any
amendment to this Form 10-K. [ ]

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant, as of March 21, 1997, was approximately $511,959,763 (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 21, 1997, approximately 19,885,650 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, 1997 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.

         P-COM, Inc. (referred to herein, together with its majority-owned and
wholly-owned subsidiaries, as "P-COM" or the "Company") designs, manufactures
and markets short-haul millimeter wave radio systems and spread spectrum
microwave radio systems and services for use in the worldwide wireless
telecommunications market. The Company's Tel-Link(R) systems are used as digital
links in applications that include interconnecting base stations and mobile
switching centers in microcellular and personal communications services
("PCN/PCS") networks and 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.

         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, 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-based
software products that are complementary to its systems as sophisticated
diagnostic, maintenance and system configuration tools.

         The Company's 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 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, Norweb plc, Orange
Personal Communications Ltd., Pacific Bell Mobile Services, Itatel S.p.A.
(formerly known as Siemens Telecommunicazioni, S.p.A.), Southwestern Bell
Technology Resources, Inc., Ericsson, Ltd., Fujitsu Limited, Northern Telecom,
Ltd. and WinStar Wireless, Inc. ("Winstar").

         P-COM received its initial ISO 9001 registration in December 1993, 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 and Geritel facility
in Italy in 1996. The Company is in the process of ISO 9001 registration for its
other facilities outside of the United States.

Background

         In recent years, there has been an increase in consumer demand for
mobile high performance voice, data and facsimile communications. This trend,
coupled with regulatory changes in the United States (including passage of the
Telecommunications Reform Bill of 1996) and abroad and technological advances,
has led to significant growth in the number of subscribers for existing wireless
telecommunications systems and the emergence of new wireless applications.

         Cellular service has been one of the faster growing segments of the
wireless telecommunications market. The United States Department of Commerce
estimates that there were approximately 80 million cellular subscribers
worldwide as of the end of 1995 as compared to approximately 52 million as of
the end of 1994. Moreover,
<PAGE>

intensified competition among service providers is resulting in declining costs
to end-users as well as new types of service offerings. In response to the
increase in subscribers, existing cellular service providers in densely
populated urban areas are expanding the capacity of their existing cellular
systems by incorporating microcellular networks that divide cells into several
smaller radius cells in order to maintain service quality and availability. At
the same time, other telecommunications service providers are beginning to
establish PCN/PCS networks to provide a broad range of wireless voice, data and
facsimile communications services from remote locations using a single device.
These PCN/PCS networks require the establishment of new, interconnected base
stations. Internationally, PCN markets are currently being implemented, and in
the United States, PCS licenses are currently being auctioned by the Federal
Communications Commission.

         Recently, there has been a worldwide trend toward privatization of
public telephone operators ("PTOs") and deregulation of local loop services.
This has resulted in increased spending by existing PTOs and increased
competition through the emergence of new companies providing telephone service.
In addition, existing companies in other industries, such as public utilities
and cable TV providers, are entering the telecommunications business. In Europe,
this competition has been most intense in the local loop service market. While
the long distance market in the United States has been most competitive due to
the breakup of AT&T, the local loop market is experiencing accelerating
competition resulting from increasing deregulation of this market (including
passage of the Telecommunications Reform Bill of 1996). As companies enter this
market, they must establish an infrastructure to deliver local telephone
services. These local loop services can be more efficiently partitioned and
distributed using numerous short distance connections. Utilization of wired
networks for this purpose is limited by their fixed access points and high cost
to install, upgrade and maintain. Wireless technology offers a solution that can
in many cases be implemented faster and more cost-effectively than traditional
wired approaches.

         Millimeter wave systems have been increasingly utilized for short-haul
wireless connections. While long distance wireless connectivity must be
implemented using low frequency systems, short-haul applications can be
implemented using lower cost, higher frequency systems, as these applications do
not require the longer transmission distances possible at lower frequencies. The
lower end of the 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
reutilized beyond relatively small geographic areas such as those covered by
existing cellular systems. 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. For example, cellular, PCN/PCS and local
loop service applications are being assigned millimeter wave frequency bands.

                                      LOGO

                                       2
<PAGE>

         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

         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. The
Company markets its systems to cellular and PCN/PCS service providers
implementing microcellular networks and to companies offering local loop
services. The diagram below illustrates the use of the Company's systems to
connect base stations in a PCN/PCS application; the Company's systems are used
in a similar manner in cellular networks. This diagram also 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.


                                      LOGO

                                       3
<PAGE>

     The Company believes its systems 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
spread spectrum 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 spread spectrum microwave bands.
Currently, the Company is shipping 2.4 GHz, 5.7 GHz, 13 GHz, 15 GHz, 23 GHz, 38
GHz and 50 GHz systems, and has developed prototypes of a 7 GHz, 13 GHz, and
24/26 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 most conventional systems, and are
software-configurable, requiring minimal manual tuning and mechanical
adjustments during installation.

     High Level of Software Functionality. The Tel-Link(R) architecture is
     ------------------------------------
designed to provide the Company's customers with a high level of functionality
to facilitate operation of the systems. The configuration of the Company's
systems, including setting the system's power and frequency and upgrading its
capacity, can be performed via the keypad located on the IDU. The Company also
offers proprietary Windows-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.

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. The following are the key elements of its strategy to achieve
this objective:

     Focus on Millimeter Wave and Spread Spectrum Microwave Market. The Company
     -------------------------------------------------------------
designed 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 spread spectrum
microwave

                                       4
<PAGE>

frequencies. The Company currently ships 2.4 GHz, 5.7 GHz, 13 GHz,
15 GHz, 23 GHz, 38 GHz and 50 GHz systems, and has developed prototypes of a 7
GHz, 13 GHz, and 24/26 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.

     Expand Worldwide Presence. The Company is focused on expanding its presence
     -------------------------
internationally and further establishing its market position in the United
States. To date, the market opportunities for the Company's systems have been
greater abroad, as the markets for PCN/PCS and microcellular networks and local
loop access have developed at a faster rate than in the United States. The
Company intends to continue its international focus by meeting international
telecommunications standards where appropriate and using strategic alliances to
penetrate international markets. The Company has met the standards established
by the European Telecommunications Standards Institute ("ETSI") and achieved
regulatory approval for its 38 GHz systems in Australia, the Czech Republic,
France, Germany, Greece, Hungary, Italy, Mexico, Spain, the United Kingdom and
the United States. In addition, the Company has met ETSI standards and received
regulatory approval for its 23 GHz systems in Australia, France, Germany,
Hungary, Mexico, the United Kingdom and the United States. The process for
additional regulatory approvals for these systems is underway in numerous other
countries, including Belgium 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 has established and
staffed a sales and customer support facility in the United Kingdom that serves
as a base for the European market, and a customer support facility in Germany.
The Company acquired a 51% interest in Geritel S.p.A. in April 1996, which has
operations in Italy and France and has recently acquired a 100% interest in
Technosystem, S.p.A., which has operations in Italy and Poland.

     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-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.

     Acquisition of Companies with Complementary Products and Services. In
     -----------------------------------------------------------------
August 1996, the Company acquired Atlantic Communication Sciences, Inc. ("ACS"),
a company with expertise in the development of spread spectrum radios. The
Company believes that its acquisition of ACS and other companies with
complementary products and services (such as those described below under
"--Recent Developments") will allow the Company to rapidly expand

                                       5
<PAGE>

the products and services that it offers to both its own customer base and to
the customer bases of the acquired companies. The Company intends to continue
its focus on the acquisition of entities with complementary products and
services in order to capitalize on the various synergies that may exist between
the Company and such entities.

Technology and Products

   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.

                                    [LOGO]


     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.
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. 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.


                                       6
<PAGE>


     P-COM believes that its millimeter wave technology is currently
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.


     P-COM's architecture is designed to achieve reliability, cost, installation
and maintenance benefits over conventional approaches. First, the Company
incorporates the modulator and demodulator into the IDU rather than leaving
these functions to be performed in the ODU. The Company believes this results in
improved reliability over conventional approaches where the
modulator/demodulator circuits are subject to more demanding environmental
extremes. This also reduces required maintenance of the ODU, which is typically
more difficult to access. Second, 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 tuneable either from
the IDU or from a remote location using a network management system. In
contrast, most 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 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 P-COM radio system:


                                    [LOGO]


                                       7
<PAGE>

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

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

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

     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 (1, 2 or 4 lines; 8 or 16
lines) 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
--------

     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, Ireland, Israel, Italy,
Japan, Malaysia, Mexico, Saudi Arabia, Scotland, South Africa, Spain,
Switzerland, Taiwan Thailand, Turkey, the United States and Venezuela. The
following table provides certain information about the 2.4 GHz, 5.7 GHz, 7 GHz,
13 GHz, 15 GHz, 18 GHz, 23 GHz, 26 GHz, 38 GHz and 50 GHz 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 radios.
Most of these configurations are currently being shipped to customers.

                                       8
<PAGE>

<TABLE>
<CAPTION>

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

      Frequency                     Standard                Number of Lines           Number of Voice Channels
--------------------------------------------------------------------------------------------------------------------------
<S>                                <C>                    <C>                        <C>
  2.4 GHz Systems                      E1                     1, 2, 3                         30, 60, 90
      Distance: Up to 50 miles         T1                     1,2, 3, 4                       24, 48, 72, 96
      (Spread Spectrum)                Data                   1                               56Kbps->2.0Mbps
      List Price:
      $16,000-$40,000
--------------------------------------------------------------------------------------------------------------------------
  5.7 GHz Systems                      E1*                    1, 2, 3                         30, 60, 90
      Distance: Up to 30 miles         T1*                    1,2, 3, 4                       24, 48, 72, 96
      (Spread Spectrum)                Data*                  1                               56Kbps->2.0Mbps
      List Price:
      $20,000-$50,000
--------------------------------------------------------------------------------------------------------------------------
  7 GHz Systems                        E1                     1, 2, 4, 8, 16                  30, 60, 120, 240, 480
     Distance: Up to 35 miles          E3*                    1                               480
     List Price:                       T1+                    1, 4, 8, 16                     24, 96, 192, 384
     $32,000-$94,000                   T3+                    1                               672
                                       Data++                 Various Data Rates              N/A
--------------------------------------------------------------------------------------------------------------------------
  13/15 GHz Systems                    E1                     1, 2, 4, 8, 16                  30, 60, 120, 240, 480
     Distance: Up to 15 miles          E3*                    1                               480
     List Price:                       T1+                    1, 4, 8, 16                     24, 96, 192, 384
     $30,000-$93,000                   T3+                    1                               672
                                       Data++                 Various Data Rates              N/A
--------------------------------------------------------------------------------------------------------------------------
  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:                         T1                     1, 4, 8, 16                     24, 96, 192, 384
   $27,000-$82,000                     T3                     1                               672
                                       Data++                 Various Data Rates              N/A
--------------------------------------------------------------------------------------------------------------------------
  38 GHz Systems                       E1                     1, 2, 4, 8, 16                  30, 60, 120, 240, 480
   Distance: Up to 6 miles             E3*                    1                               480
   List Price:                         T1                     1, 4, 8, 16                     24, 96, 192, 384
   $24,000-$73,000                     T3                     1                               672
                                       Data                   Various Data Rates              N/A
--------------------------------------------------------------------------------------------------------------------------
  50 GHz Systems                       E1                     1, 2, 4, 8*, 16*                30, 60, 120, 240, 480
   Distance: Up to 3 miles             Data++                 Various Data Rates              N/A
   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.

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 England, France, Germany, Italy and Mexico, and
has worldwide OEM agreements with Lucent Technologies, Fujitsu and Itatel. 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.

                                       9
<PAGE>

     The Company's current sales process is a typically lengthy one 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 millimeter wave 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 customers currently are grouped within two general
categories: end-users, 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 end-users, that in
turn provide communications services directly to consumers. Certain customers
may act as both end-users and system providers depending on the circumstances.

End-users
---------

     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.

                                       10
<PAGE>

     During fiscal 1996, the Company shipped its millimeter wave systems
primarily to the following end-users and system providers:

    End-users                                  System Providers
--------------------                    ----------------------------------------
Advanced Radio Telecom Corp.            Bosch Telecom GmbH
Grupo Iusacell S.A. de C.V.             Itatel S.p.A. (formerly known as Siemens
Mercury Communications Ltd.             Telecommunicazioni S.p.A.)
Mercury Personal Communications         Ericsson, Ltd.
Orange Personal Communications Ltd.     Northern Telecom, Ltd.
WinStar Wireless, Inc.                  Lucent Technologies


     For the year ended December 31, 1996, approximately thirty-two customers
accounted for substantially all of the Company's sales, and six customers, each
of which individually accounted for over 10% of the Company's 1996 sales,
accounted for over 79% of the Company's sales. Sales to Bosch Telecom GmbH,
Ericsson Limited, ART, WinStar, Orange Personal Communications Ltd., and Itatel
accounted for approximately 14%, 14%, 14%, 14%, 13% and 10% of the Company's
sales, respectively, in 1996. Sales to AT&T, Orange Personal Communications
Ltd., Itatel and WinStar accounted for approximately 24%, 22%, 12% and 22% of
the Company's sales, respectively, in 1995. Sales to Grupo Iusacell S.A. de
C.V., Orange Personal Communications Ltd., Mercury Communications Ltd., and
Elettronica Industriale S.p.A. accounted for approximately 24%, 15%, 12% and 11%
of the Company's sales, respectively, in 1994. As of December 31, 1996, seven
customers accounted for over 95% of the Company's backlog scheduled for shipment
in the twelve months subsequent to December 31, 1996. The Company anticipates
that, at least for the near term, it will continue to sell its radio systems to
a changing, but still relatively small, group of customers. Some companies
implementing new networks (e.g., ART and Winstar which accounted for a
significant portion of the Company's backlog as of December 31, 1996) are at
early stages of development and may require additional capital to implement
fully their planned networks. 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, its ability to
manufacture systems 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 difficulties or otherwise, or the
inability of any customer to finance its purchases of the Company's radio
systems may have a material adverse effect upon the Company's business,
financial condition and results of operations. There can be no assurance that
the Company's sales will increase in the future or that the Company will be able
to retain and support existing customers or to attract new customers.

     The Company's backlog was approximately $53.8 million as of December 31,
1996, as compared to approximately $42.4 million as of December 31, 1995. The
change is primarily due to increased domestic orders from two customers. The
Company includes in backlog only those firm customer commitments to be shipped
within the following twelve months. Most of the Company's backlog scheduled for
shipment in the twelve months subsequent to December 31, 1996 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.

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 assist in the
reduction of its manufacturing costs, 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

                                       11
<PAGE>

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
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.

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 experiences intense competition worldwide
from a number of leading telecommunications companies that offer a variety of
competitive products and broader telecommunications product lines, including
Digital Microwave Corporation, California Microwave, Inc., Alcatel Network
Systems, Philips T.R.T., Adtran, Inc., Western Multiplex Corporation, Cylink
Corporation, Larus Corporation, Ericsson Limited, Harris Corporation -- Farinon
Division and Nokia Telecommunications, most 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

                                       12
<PAGE>

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 future 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 expects to continue to
experience significant price competition that may materially adversely affect
its gross margins and its 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. In order for the Company to operate in a foreign jurisdiction, it must
obtain regulatory approval for its systems and comply with such regulations.
Regulatory bodies worldwide are continuing the process of adopting new standards
for wireless communication products. The delays inherent in this governmental
approval process may cause the cancellation, postponement or rescheduling of the
installation of communications systems by the Company and its customers, which
in turn may have a material adverse effect on the sale of systems by the Company
to such customers. The failure to comply with current or future regulations
could result in suspension or cessation of operations. Such regulations could
require the Company to change the features of its radio systems and incur
substantial costs to comply with such time-consuming regulations. 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
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

                                       13
<PAGE>

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.

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 $17.5 million, $10.6 million and
$6.9 million in 1996, 1995 and 1994, respectively, in research and development
efforts and expects to continue to invest significant resources in research and
development, including new product development and acquisition.

     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.

Intellectual Property

     The Company believes that any success of its business will depend more on
the technical competence, creativity and marketing abilities of its employees
than on patents, trademarks and other intellectual property rights.
Nevertheless, the Company has a policy of seeking patents when appropriate on
inventions resulting from its ongoing research and development and manufacturing
activities. The Company currently holds one U.S. patent and has three patent
applications on file at the U.S. Patent and Trademark Office. The Company's
patent expires in 2010.

     The Company attempts to protect its intellectual property rights through
patents, trademarks, trade secrets and other measures. 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.

                                       14
<PAGE>

     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 or invalidity 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, 1996, the Company had a total of 251 employees,
including 83 in operations, 80 in research and development, 41 in sales and
marketing, 18 in quality assurance and 29 in administration. The Company
believes its future results of operations will depend in large part on its
ability to attract and retain highly skilled employees. None of the Company's
employees are represented by a labor union, and the Company has not experienced
any work stoppages. The Company considers its employee relations to be good.

ITEM 2. PROPERTIES.

<TABLE>
<CAPTION>

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

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

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

Campbell, CA                      Warehouse                   5,000                  July 1997

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

Ridditch, England          Sales/Customer Support             5,000                  June 2005

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

Ridditch, England           Research/Development              3,000              December 30, 1999

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

Ridditch, England                 Warehouse                   6,800               September 1997

------------------------- -------------------------- ------------------------ ------------------------
                                                                                   December 1997
Frankfurt, Germany                Warehouse                   1,000            (may be canceled with
                                                                                a six month advance
                                                                                      notice)
------------------------- -------------------------- ------------------------ ------------------------

Melbourne, Florida          Research/Development              5,000                November 2001

------------------------- -------------------------- ------------------------ ------------------------
</TABLE>

     Geritel owns and maintains its corporate headquarters in Tortona, Italy.
This facility is approximately 36,000 square feet and 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.

                                       15
<PAGE>

     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 not subject to any legal proceedings that, if adversely
determined, would cause a material adverse effect on the Company's financial
condition, business or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

     None.

                                       16
<PAGE>

EXECUTIVE OFFICERS OF THE REGISTRANT

     The executive officers of the Company, their ages as of March 22, 1997, and
their positions are as follows:
<TABLE>
<CAPTION>


     Name                                               Age      Position
<S>                                                     <C>     <C>
     George P. Roberts............................       64      Chairman of the Board and Chief
                                                                  Executive Officer
     Pier Antoniucci..............................       55      Chief Operating Officer and President
     Michael Sophie...............................       39      Chief Financial Officer, Vice
                                                                  President, Finance and Administration
     John Wood....................................       41      Senior Vice President, Engineering
     Kenneth E. Bean, II..........................       40      Vice President, Operations
</TABLE>

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 to 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 -- 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 June 1996, 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.

                                       17
<PAGE>

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

                                       18
<PAGE>

                                     PART II
                                     -------

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

        The Company's Common Stock is traded on the Nasdaq National Market under
the symbol PCMS. The following table sets forth the range of high and low
closing sale prices, as reported on the Nasdaq National Market for each quarter
since the consummation of the Company's initial public offering on March 3,
1995. At March 21, 1996, the Company had approximately 175 holders of record of
its Common Stock and approximately 19,885,650 shares outstanding.
<TABLE>
<CAPTION>
                                                                         Price Range of
                                                                         Common Stock(1)
                                                                        ---------------
                                                                       High         Low
                                                                       ----         ---
<S>                                                                   <C>       <C>
    Year Ending December 31, 1995
       First Quarter (from March 3, 1995).............................$12.50       $9.38
       Second Quarter..................................................10.88        8.63
       Third Quarter...................................................22.63        9.25
       Fourth Quarter..................................................21.57       16.00

    Year Ending December 31, 1996
       First Quarter..................................................$20.13      $14.00
       Second Quarter..................................................36.00       19.50
       Third Quarter...................................................35.88       18.88
       Fourth Quarter..................................................33.75       20.31
</TABLE>
     --------------------
     (1) The price per share of Common Stock has been adjusted to reflect a
         2-for-1 stock split effected through a 100% stock dividend paid by
         the Company on October 27, 1995.

     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.

                                       19
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>


                                                            Year Ended December 31,
                                            1996         1995        1994        1993       1992
                                            ----         ----        ----        ----       ----
                                                       (in thousands, except per share data)
<S>                                       <C>         <C>        <C>         <C>         <C>
STATEMENT OF OPERATIONS DATA:
Sales ..................................   $ 97,515   $ 42,805   $  9,238    $    738    $     --
Cost of sales ..........................     56,274     24,573      5,509         730          --
                                           --------   --------   --------    --------    --------
Gross profit ...........................     41,241     18,232      3,729           8          --
                                           --------   --------   --------    --------    --------
Operating expenses:
     Research and development ..........     17,477     10,645      6,872       4,782       1,782
     Selling and marketing .............      5,529      3,321      1,947         906         192
     General and administrative ........      4,344      1,856      1,483         718         425
                                           --------   --------   --------    --------    --------
       Total operating expenses ........     27,350     15,822     10,302       6,406       2,399
                                           --------   --------   --------    --------    --------
Income (loss) from operations ..........     13,891      2,410     (6,573)     (6,398)     (2,399)
Interest and other income (expense), net      1,239        313       (107)         12          84
                                           --------   --------   --------    --------    --------
Income (loss) before income taxes ......     15,130      2,723     (6,680)     (6,386)     (2,315)
Provision for income taxes .............      1,062        138         --          --          --
                                           --------   --------   --------    --------    --------
Net income (loss) ......................   $ 14,068   $  2,585   $ (6,680)   $ (6,386)   $ (2,315)
                                           ========   ========   ========    ========    ========
Net income (loss) per share (1) ........   $   0.74   $   0.16   $  (0.59)
                                           ========   ========   ========
Weighted average common and
   common equivalent shares (1).........     19,092     16,246     11,376
                                            ========   ========   ========    ========    ========

<CAPTION>


                                                               December 31,
                                             1996         1995        1994        1993        1992
                                             ----         ----        ----        ----        ----
                                                              (in thousands)
BALANCE SHEET DATA:
Cash and cash equivalents .............   $ 41,857   $  7,655    $  1,294    $  3,560    $  1,010
Working capital .......................     91,335     34,334         756       2,878       1,708
Total assets ..........................    140,243     54,020       9,485       5,535       2,568
Long-term debt ........................         --         --       3,353         559         174
Retained earnings (accumulated deficit)      1,131    (12,937)    (15,522)     (8,842)     (2,456)
Stockholders' equity ..................    112,190     41,750       1,694       3,358       2,049
</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. Net loss per share for the
     years ended December 31, 1993 and 1992 is not considered meaningful and
     is not presented herein.

                                       20
<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 Form 10-K.

Results of Operations

Overview

         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 when it began commercial shipments of
its first product, a 38 GHz radio system and related software tools. In
September 1994, the Company began commercial shipments of its second product, a
50 GHz radio system and related software tools. In January 1995, the Company
began commercial shipments of a 23 GHz radio system and related software tools.
In June 1996, the Company began commercial shipments of a 15 GHz radio system
and related software tools. In September 1996, the Company began commercial
shipments of 2.4 GHz and 5.7 GHz spread spectrum radio systems and related
software (through an acquisition referred to below). In November 1996, the
Company began commercial shipments of a 13 GHz radio system and related
software. From October 1993 through December 31, 1996, the Company generated
sales of approximately $150.3 million from approximately forty-five customers,
of which $97.5 million, or 65% of such amount, was generated in the twelve
months ended December 31, 1996. From inception to the end of fiscal 1996, the
Company has generated cumulative profits of approximately $1.1 million. Although
the Company has experienced a significant percentage growth in sales and gross
profit from fiscal 1993 through December 31, 1996, the Company does not believe
prior growth rates are indicative of future operating results. Due to the
Company's very 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 the year ended
December 31, 1996, both the Company's sales and its operating expenses
(particularly research and development expenses to support new product
development) 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 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 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, although the Company achieved
profitability for the year ended December 31, 1996, 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 increase has included the leasing of
new space, the opening of branch offices in the United Kingdom and Germany, the
acquisitions of all or majority interests in Geritel S.p.A., Atlantic
Communication Sciences, Inc. ("ACS"), Technosystem S.p.A. and Columbia Spectrum
Management L.P. ("CSM") (see discussion of acquisitions below), significant
investments in research and development to support product development and the
hiring of additional personnel in all functional areas, including in finance,
manufacturing and operations, and has resulted in significantly higher operating
expenses. The Company achieved break-even results during the second quarter of
1995, and the Company generated net income of $2.6 million and $14.1 million in
1995 and 1996, respectively. 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. Expansion of the Company's operations and its
acquisitions has caused and is continuing to impose a significant strain on the
Company's management, financial, manufacturing and other resources. 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. There can be no
assurance that significant problems in these areas will not occur. Any failure
to expand these areas and implement and improve such systems, procedures and
controls could have a material adverse affect on the Company's business,

                                       21
<PAGE>

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
acquired companies 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. For risk factors associated with the Company's expansion of
operations, please see "Certain Factors Affecting Operating Results -- No
Assurance of Successful Expansion of Operations; Management of Growth."

Years Ended 1996, 1995 and 1994

         Sales. Sales consist of revenues from radio systems and related
         -----
software tools. 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) and 13 GHz radio
systems commencing in November 1996. In 1996, 1995 and 1994, sales were
approximately $97.5 million, $42.8 million, and $9.2 million, respectively. The
increased sales from the periods in 1995 to 1996 and from 1994 to 1995 were
primarily due to increased volume of 38 and 23 GHz radio systems to new and
existing customers. There can be no assurance that sales of the Company's radio
systems will increase or that such systems will achieve market acceptance. The
Company provides significant volume price discounts to its customers, 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 1996, 1995 and 1994, gross profit
was $41.2 million, $18.2 million and $3.7 million, respectively, or 42.3%, 42.6%
and 40.4% of sales, respectively. The improvement in gross profit as a
percentage of sales from the periods in 1994 to 1995 is due to product design
improvements and economies of scale, but there can be no assurance that such
improvements will continue. The decrease of gross profit percentage from the
periods in 1995 to 1996 was due to new product introductions in the first and
third quarters and related production inefficiencies.

         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 order 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. In accordance with Financial
Accounting Standards Board Statement

                                       22
<PAGE>

No. 86, the Company's policy is to capitalize internal software development
costs on a project at the time when the technological feasibility of such
project has been achieved. The Company's software development costs subject to
capitalization have not been significant to date and, as a result, have been
expensed during the periods incurred.

         In 1996, 1995 and 1994, research and development expenses were
approximately $17.5 million, $10.6 million and $6.9 million, respectively. The
increase of research and development expenses from 1995 to 1996 and from 1994 to
1995 was due to increased staffing as the Company concentrated on new product
development. 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 1997 will continue to increase
in absolute dollars as compared to 1996.

         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 1996, 1995 and 1994, sales and marketing expenses were $5.5
million, $3.3 million and $1.9 million, respectively. 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 1997 will continue to increase in absolute dollars as compared
to 1996.

         General and Administrative. Expenses consist primarily of salaries and
         --------------------------
other expenses for management, finance, accounting, legal and other professional
services. In 1996, 1995 and 1994, general and administrative expenses were $4.3
million, $1.9 million and $1.5 million, respectively. The increase in general
and administrative expenses of $2.5 million from 1995 to 1996 is related to
expansion of the Company's business as well as goodwill amortization associated
with acquisitions of Geritel and ACS. 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 1997 as
compared to 1996, 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), Net. Interest and other income
         ----------------------------------------
(expense), net consists primarily of interest income generated from the
investment of cash received from financing activities in 1996, 1995 and 1994,
partially offset by interest expense accrued on the Company's bank line of
credit and equipment lease lines. In 1996, 1995 and 1994, interest and other
income (expense), net were $1.2 million, $0.3 million and $(0.1) million,
respectively. To date, contracts negotiated in foreign currencies have been
limited to 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, 1996, the Company had forward
exchange contracts valued at approximately $25.0 million.

         Income Tax Provision. The Company's effective tax rates for 1996 and
         --------------------
1995 were 7% and 5%, respectively. The Company did not provide for income taxes
in 1994 due to operating losses incurred in that year. 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 the result of exhausting the net operation loss and the
credit carryover, as well as the expansion of the operations into Europe, the
Company expects the effective tax rate to increase in the future.

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 $96.8 million from the Company's initial and two follow-on public
offerings of its Common Stock, three preferred stock financings aggregating
approximately $17.0 million, and borrowings under its bank lines of credit and
equipment lease arrangements.

                                       23
<PAGE>

         In 1996, operating activities used $3.1 million primarily due to
increases in accounts receivable and inventory of $19.4 million and $12.5
million, respectively, which were partially offset by net income of $14.1
million and increases in accounts payable of $10.3 million and depreciation and
amortization expense of $4.8 million.

         During 1996, cash used in investing activities totaled $16.3 million
for the acquisition of Geritel and for capital equipment purchases, consisting
primarily of tools and lab equipment used in engineering and manufacturing,
computer hardware, leasehold improvements and office equipment.

         Financing activities in 1996 consisted primarily of issuance of Common
Stock from a follow-on public offering in May 1996 which raised net proceeds of
approximately $52.5 million and issuance of Common Stock upon exercise of stock
options and employee stock purchase plans valued at approximately $2.1 million,
partially offset by payments of approximately $1.0 million to retire notes
payable by Geritel.

         At December 31, 1996, the Company had working capital of approximately
$91.3 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, 1996
consisted of approximately $41.9 million of cash and cash equivalents. Effective
March 3, 1997, the Company entered into a line of credit agreement with Union
Bank of California which provides for borrowings up to $17.5 million. The line
of credit expires on March 3, 1998. It replaces the prior line of credit with
Silicon Valley Bank. As of December 31, 1996, the Company did not have any
borrowings outstanding under such line with Silicon Valley Bank.

         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
Geritel, ACS, Technosystem and CSM, the progress of the Company's research and
development efforts, expansion of the Company's marketing and sales efforts, the
Company's results of operations and the status of competitive products. The
Company believes that cash and cash equivalents on hand, cash flow from
operations, if any, and funds available from the Company's bank line of credit
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. Additionally, the Company recently formed a wholly-owned financing
subsidiary for the purpose of offering leasing options to customers. If
successful, this strategy may result in the formation of significant long-term
receivables and would require the use of substantial amounts of working capital.
To the extent that the Company's financial resources are insufficient to fund
the Company's activities, additional finds 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 April 30, 1996, the Company acquired a 51% interest in Geritel
S.p.A. ("Geritel"), a Tortona, Italy based company, with additional operations
in France, for $3.1 million in cash. In connection with the transaction, the
Company made an initial cash payment of $1.0 million at the closing and $325,000
in the third quarter of 1996. The

                                       24
<PAGE>

Company will pay an additional $975,000 over three quarters in 1997. In
addition, the Company was also granted a two-year option to acquire an
additional 16% of the equity capital of Geritel on terms specified in the
acquisition agreement. Geritel develops, sells and installs microwave
transmission systems and owns mountain top sites for antenna location. The
Company accounted for the stock acquisition based on the purchase method of
accounting and the results of operations of Geritel are included in the
Company's consolidated results for all periods subsequent to the date of
acquisition.

         On August 23, 1996, the Company acquired Atlantic Communication
Sciences, Inc., a manufacturer of telecommunications equipment, with domestic
operations in Florida, by purchasing 100% of the company's assets in exchange
for 70,000 shares of P-COM Common Stock valued at $1,698,000. In addition, the
former securityholders of ACS may receive up to an aggregate of 74,500
additional shares of P-COM Common Stock over the next three years, subject to
the attainment of certain milestones and the satisfaction of certain
indemnification obligations as set forth in the asset purchase agreement. The
transaction was accounted for using the purchase method; accordingly, the
purchase price was allocated to the assets acquired and liabilities assumed
based on their estimated fair market values at the date of acquisition. This
purchase price allocation resulted in the recording of goodwill totaling
$1,247,000 which is being amortized over a period of five years. The purchase
price is subject to increase through the issuance of up to 74,500 shares of
P-COM Common Stock in the event that ACS achieves certain technical milestones
and are subject to certain indemnification obligations. In the event the shares
are issued for these technical milestones, the goodwill balance will be
increased accordingly.

         On February 24, 1997, the Company acquired 100% of the equity of
Technosystem S.p.A. ("Technosystem"), a Rome, Italy-based company, with
additional operations in Poland for $3.3 million. The Company has made a cash
payment of $2.6 million and an additional payment of $0.7 million will be due on
March 31, 1998, subject to certain indemnification obligations of the former
Technosystem securityholders 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 it is not anticipated that this
accounting treatment will have a material adverse effect on the financial
results of the Company for the year ended December 31, 1997.

         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 $8.0 million in cash and 398,306 shares of Common Stock valued at $14.5
million. In addition, the former partners of CSM may receive up to an additional
$1,500,000 in cash (as part of such $8.0 million amount) over the next two
years, subject to the satisfaction of certain indemnification obligations, and
the 398,306 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 it is not
anticipated that this accounting treatment will have a material adverse effect
on the financial results of the Company for the year ended December 31, 1997.

         There can be no assurance that any operations of Geritel, ACS,
Technosystem or CSM will be profitable after the acquisitions. Moreover, there
can be no assurance that the anticipated benefits of the Geritel, ACS,
Technosystem and CSM acquisitions will be realized. The process of integrating
the operations of Geritel, ACS, Technosystem and CSM 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

Very Limited Operating History

         The Company 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 1996, the Company has generated cumulative
profits of approximately $1.1 million. In the 39 months from October 1993
through December

                                       25
<PAGE>

31, 1996, the Company generated sales of approximately $150.3 million, of which
$97.5 million, or 65% of such amount, was generated in the full year ended
December 31, 1996. Although the Company has experienced a significant percentage
growth in sales and gross profit from fiscal 1993 through December 31, 1996, the
Company does not believe prior growth rates are indicative of future operating
results. Due to the Company's very 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 1996, both the Company's sales and operating expenses (particularly
research and development expenses to support new product development) 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 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 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, although the Company achieved break-even profitability
for the first time in the quarter ended June 30, 1995 and profitability for the
first time for the year ended December 31, 1995, 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. See "Results of Operations."

Significant Customer Concentration

         To date, approximately forty-five customers have accounted for all of
the Company's sales. For 1996, six customers accounted for 79% of the Company's
sales, and as of December 31, 1996, six customers accounted for most of the
Company's backlog scheduled for shipment in the twelve months subsequent to
December 31, 1996. In 1995, five customers accounted for 89% of the Company's
sales. The Company anticipates that it will continue to sell its radio systems
to a changing, but still relatively small, group of customers. Some companies
implementing new networks are at early stages of development and may require
additional capital to fully implement their planned networks. 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 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 radio systems may
materially adversely affect the Company's business, financial condition and
results of operations. There can be no assurance that the Company's sales will
increase in the future or that the Company will be able to support or attract
customers. See "Results of Operations."

Significant Fluctuations in Results of Operations

         The Company has experienced and may 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. 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. The Company has at times failed to receive
expected orders, and delivery schedules have been deferred as a result of
changes in customer requirements, among other factors. As a result, the
Company's operating results for a particular period have in the past been and
may in the future be materially adversely affected by a delay, rescheduling or
cancellation of even one purchase order. 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 order, 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, 1996 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. Furthermore,
most of the Company's sales in recent quarters have been realized near the end
of such quarter. Accordingly, a delay in a shipment near the end of a particular
quarter, as the Company has been experiencing, due to, for example, an
unanticipated shipment rescheduling, a cancellation or deferral by a customer,
competitive or economic factors,

                                       26
<PAGE>

unexpected manufacturing or other difficulties, delays in deliveries of
components, subassemblies or services by suppliers (one of which, SPC
Electronics Corp., is located in Japan and has caused significant delays of its
deliveries to the Company), 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.

         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 and technologies could cause
customers to defer or cancel purchases of the Company's systems, which would
materially adversely affect the Company's business, financial condition and
results of operations. Additional factors that have caused and may 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 systems and related
software tools sold; operating and new product development expenses; product
discounts; changes in pricing by the Company, its customers or suppliers;
inventory obsolescence; seasonality; natural disasters; market acceptance and
the timing of availability of new products by the Company or its customers;
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; 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 by competitive factors, including the pricing and
availability of, and demand for, competitive products. The Company expects to
continue to expend significant resources with respect to the development, any
ramp-up of production and anticipated commercial shipments of its newest
products and expects its gross margins to be adversely affected due to the
start-up inefficiencies associated with these products, among other factors. 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. See "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 manufacturers
in the future. The Company also relies on outside vendors to manufacture certain
other components and subassemblies. 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,
Milliwave, Scientific Atlanta, and Xilinx, Inc. each are sole source suppliers
for critical components used in the Company's radio systems. 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
contract manufacturers and suppliers 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. Manufacture of the Company's radio
systems 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 delays in the delivery of and quality problems
with radio systems and certain components and subassemblies from vendors.
Certain of the Company's suppliers have relatively limited financial and other

                                       27
<PAGE>

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 radio systems 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 operating results.

No Assurance of Successful Expansion of Operations; Management of Growth

         Recently, the Company has significantly increased the scale of its
operations to support the increases in its sales levels that have occurred and
to address critical infrastructure and other requirements. This increase has
included the leasing of new space, the opening of branch offices in the United
Kingdom, Germany and Singapore, the acquisition of a majority interest in
Geritel, and the acquisitions of ACS, Technosystem and CSM, significant
investments in research and development to support product development,
including the new products recently introduced, and the hiring of additional
personnel, including in sales and marketing, manufacturing and operations and
finance and has resulted in significantly higher operating expenses. 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 "--Very Limited Operating
History." Expansion of the Company's operations has caused and is continuing to
impose a significant strain on the Company's management, financial,
manufacturing and other resources. 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. In addition, the Company must establish and improve a
variety of systems, procedures and controls to more efficiently coordinate its
activities in its acquired companies in Rome and Milan Italy, France, Poland,
Florida and Virginia. In addition, the Company must establish and improve a
variety of systems, procedures and controls to more effectively coordinate its
activity in acquired companies (including their facilities) in Italy, France,
Poland, Florida and Virginia and their respective offices and customer bases.
There can be no assurance that significant problems in these areas will not
occur. Any failure to expand these areas and implement and improve such systems,
procedures and controls 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 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
may continue to experience significant fluctuations in its revenues, costs, and
gross margins, and therefore its results of operations. See "Results of
Operations."

Declining Average Selling Prices

         The Company believes that average selling prices and gross margins for
its systems 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

                                       28
<PAGE>

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. See "Results of Operations."

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. 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, a 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.

         To date, most of the Company's sales have been to customers located
outside the United States. In addition, in 1996, the Company recently acquired a
51% interest in Geritel and a 100% interest in Technosystem. Both companies are
located in Europe and sell products primarily to customers in Europe. The
Company's future results of operations will be dependent in significant part on
its ability to penetrate the telecommunications market in the United States and
foreign countries in which the Company has not yet established a meaningful
presence. There can be no assurance that the Company will be successful in
penetrating these additional markets.

         Certain of the Company's current and prospective customers are
currently utilizing competing technologies such as fiber optic and copper cable,
particularly in the local loop access market. To successfully displace existing
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 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

                                       29
<PAGE>

         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. The Company experiences intense competition worldwide from a number of
leading telecommunications companies that offer a variety of competitive
products and broader telecommunications product lines, including Digital
Microwave Corporation, California Microwave, Inc., Alcatel Network Systems,
Ericsson Limited, Harris Corporation -- Farinon Division and Nokia
Telecommunications, most of which have substantially greater installed bases,
financial resources and production, marketing, manufacturing, engineering and
other capabilities than the Company. The Company also faces competition from
startup companies. 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 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.
Certain of such customers and partners have access to the Company's technology
or are granted the right to use the technology for purposes of manufacturing
under defined circumstances. The Company's future 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.
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. Within the near future, 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, that may or
may not be comparable to the Company's products, which could cause a significant
decline in sales or loss of market acceptance of the Company's systems, or make
the Company's systems or technologies obsolete or noncompetitive. The Company
expects to continue to experience significant price competition that 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. 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 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 successfully develop, introduce and sell
new systems and enhancements and related software tools on a timely and
cost-effective basis that respond to changing customer requirements. Any success
of the Company in developing new and enhanced systems 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 may continue to
experience delays from time to time in completing development and introduction
of new systems and related software tools. 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. 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, in 1996, the Company acquired a 51%
interest in Geritel and a 100% interest in Technosystem which are located in
Europe, will sell their products primarily to customers in Europe. The Company
anticipates that international sales will continue to account for at least a
majority of its sales for the foreseeable future. The Company's international
sales may be denominated in foreign or United States currencies. A decrease in
the value of

                                       30
<PAGE>

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. 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, including Geritel and Technosystem, 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 possibility of difficulty in accounts receivable
collections. Many of the Company's customer purchase 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.

         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 equipment must
conform to a variety of domestic and international requirements. 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. The
delays inherent in this governmental approval process may cause the
cancellation, postponement or rescheduling of the installation of communications
systems by the Company's 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 radio systems 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 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 to operate in
compliance with such regulations. Such modifications could be extremely
expensive and time-consuming.




No Assurance of Product Quality, Performance and Reliability

                                       31
<PAGE>

         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's United Kingdom branch office and Geritel
have been approved for ISO 9001 registration, and other facilities will also be
undergoing an ISO 9001 registration and there is no assurance that such
registration will be achieved.

Acquisitions

         On April 30, 1996, the Company acquired a 51% interest in Geritel, a
manufacturer of telecommunications equipment, with operations in Italy and
France for $3.1 million. In connection with the acquisition, the Company assumed
approximately $3.2 million in total liabilities. On August 23, 1996, the Company
purchased substantially all of the assets and assumed certain enumerated
liabilities of ACS, a manufacturer of wireless communications products located
in Florida in exchange for 70,000 shares of P-COM Common Stock. On February 24,
1997, the Company acquired Technosystem, a European manufacturer of
telecommunications equipment located in Italy with additional operations in
Poland for $3.3 million. In connection with the acquisition, the Company assumed
approximately $12.0 million in total liabilities. On March 7, 1997, the Company
acquired substantially all of the assets of CSM, a provider of turnkey
relocation services for microwave paths over spectrum allocated by the Federal
Communications Commission for Personal Communications Services and other
emerging technologies for $8.0 million in cash and 398,306 shares of P-COM
Common Stock. There can be no assurance that any of the operations of Geritel,
ACS, Technosystem or CSM will be profitable after the acquisitions. Moreover,
there can be no assurance that the anticipated benefits of the above
acquisitions will be realized. The process of integrating the operations of
Geritel, ACS, Technosystem and CSM 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.

         In the future the Company will pursue acquisitions of complementary
product lines, technologies or businesses. Future acquisitions by the Company
could result in potentially dilutive issuances of equity securities, the
incurrence of debt and contingent liabilities and amortization expenses related
to goodwill and other intangible assets, which could materially adversely affect
any Company profitability. In addition, acquisitions such as Geritel, ACS,
Technosystem and CSM, involve numerous risks, including difficulties in the
assimilation of the operations, technologies and products of the acquired
companies, the diversion of management's attention from other business concerns,
risks of entering markets in which the Company has no or limited direct prior
experience, and the potential loss of key employees of the acquired company. In
the event that any futures acquisitions do occur, however, there can be no
assurance as to the effect thereof on the Company's business, financial
condition or operating results.

Future Capital Requirements

         The Company's future capital requirements will depend upon many
factors, including the development of new radio systems 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. 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 to certain of its technologies or potential products or other
assets. Accordingly, the

                                       32
<PAGE>

inability to obtain such financing could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Results
of Operations."

Uncertainty Regarding Protection of Proprietary Rights

         The Company attempts to protect its intellectual property rights
through patents, trademarks, trade secrets and a variety of other measures.
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 protect the Company's intellectual
property rights and 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. 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.

Volatility of Stock Price

         The Company's initial public offering ("IPO") was completed in March
1995, and its follow-on offerings were completed in August 1995 and May 1996.
The market price of the Company's Common Stock has fluctuated significantly
since the Company's IPO. 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, 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

                                       33
<PAGE>

revenues, gross margins, earnings or losses or other financial results from
analysts' expectations, 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 addition, 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. See "Item 5 -- Market for Registrant's Common Equity and Related
Stockholder Matters."

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 10% 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 certain provisions of the
Company's 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.

Possible Adverse Effect on Market Price for Common Stock of Shares Eligible for
Future Sale After the Offering

         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 and shares of unregistered stock,
including those shares issued in connection with the acquisitions of ACS and
CSM, and option shares registered on the Company's registration statements
covering employee compensation plans are also eligible for immediate sale in the
public market at any time. Most of the other shares of the Company's Common
Stock are not restricted and are freely tradeable in the public market.

                                       34
<PAGE>

ITEM 8. FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                                   P-COM, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                                  PAGE
                                                                                  ----
<S>                                                                              <C>
Report of Independent Accountants ..............................................   36
Consolidated Balance Sheets at December 31, 1996 and 1995 ......................   37
Consolidated Statements of Operations for the years ended December 31, 1996,
   1995, and 1994 ..............................................................   38
Consolidated Statements of Stockholders' Equity for the years ended December 31,
   1996, 1995, and 1994 ........................................................   39
Consolidated Statements of Cash Flows for the years ended December 31, 1996,
   1995 and 1994 ...............................................................   40
Notes to Consolidated Financial Statements .....................................   41

</TABLE>

                                       35
<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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, 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, 1997 (except for Note 9
which is as of March 7, 1997)

                                       36
<PAGE>

                                   P-COM, INC.

                           CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>


                                                                                     DECEMBER 31,
                                                                                   1996        1995
                                                                                   ----        ----
<S>                                                                              <C>       <C>
ASSETS
Current assets:
     Cash and cash equivalents ...............................................   $ 41,857   $  7,655
     Accounts receivable, net of allowance for doubtful
       accounts of $580 in 1996 and $35 in 1995 ..............................     39,672     19,896
     Notes receivable ........................................................      2,513         --
     Inventory ...............................................................     28,921     15,363
     Prepaid expenses ........................................................      5,806      3,690
                                                                                 --------   --------
       Total current assets ..................................................    118,769     46,604
Property and equipment, net ..................................................     18,969      7,304
Other assets .................................................................      2,505        112
                                                                                 --------   --------
                                                                                 $140,243   $ 54,020
                                                                                 ========   ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable ........................................................   $ 21,667   $ 10,689
     Accrued employee benefits ...............................................      1,378        760
     Other accrued liabilities ...............................................      1,391        821
     Income taxes payable ....................................................      2,494         --
     Notes payable ...........................................................        504         --
                                                                                 --------   --------
       Total current liabilities .............................................     27,434     12,270
                                                                                 --------   --------

Minority interest ............................................................        619         --
                                                                                 --------   --------

Commitments (Note 7)

Stockholders' equity:
     Preferred stock, $0.0001 par value, 2,000,000 shares
       authorized; no shares outstanding .....................................         --         --
     Common Stock, $0.0001 par value; 30,000,000 shares authorized; 19,238,013
       and 16,582,924 shares issued and outstanding at December 31, 1996 and
       1995, respectively ....................................................          2          2
     Additional paid-in capital ..............................................    110,984     54,685
     Retained earnings (accumulated deficit) .................................      1,131    (12,937)
     Cumulative translation adjustment .......................................         73         --
                                                                                 --------   --------
       Total stockholders' equity ............................................    112,190     41,750
                                                                                 --------   --------
                                                                                 $140,243   $ 54,020
                                                                                 ========   ========
</TABLE>



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

                                       37
<PAGE>


                                   P-COM, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>

                                                   YEAR ENDED DECEMBER 31,
                                               1996         1995          1994
                                               ----         ----          ----
<S>                                         <C>          <C>          <C>
Sales ...................................    $ 97,515     $ 42,805     $  9,238
Cost of sales ...........................      56,274       24,573        5,509
                                             --------     --------     --------
 Gross profit ...........................      41,241       18,232        3,729
                                             --------     --------     --------
Operating expenses:
 Research and development ...............      17,477       10,645        6,872
 Selling and marketing ..................       5,529        3,321        1,947
 General and administrative .............       4,344        1,856        1,483
                                             --------     --------     --------
    Total operating expenses ............      27,350       15,822       10,302
                                             --------     --------     --------
Income (loss) from operations ...........      13,891        2,410       (6,573)
Interest and other income ...............       1,310          614           62
Interest expense ........................         (71)        (301)        (169)
                                             --------     --------     --------
Income (loss) before income taxes .......      15,130        2,723       (6,680)
Provision for income taxes ..............       1,062          138           --
                                             --------     --------     --------
Net income (loss) .......................    $ 14,068     $  2,585     $ (6,680)
                                             ========     ========     ========

Net income (loss) per share .............    $   0.74     $   0.16     $  (0.59)
                                             ========     ========     ========
Weighted average common and common
 equivalent shares ......................      19,092       16,246       11,376
                                             ========     ========     ========
</TABLE>


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

                                       38
<PAGE>

                                   P-COM, INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                                            RETAINED
                                                                                              ADDITIONAL    EARNINGS    CUMULATIVE
                                                     PREFERRED STOCK       COMMON STOCK        PAID-IN    (ACCUMULATED  TRANSLATION
                                                    SHARES     AMOUNT    SHARES     AMOUNT     CAPITAL      DEFICIT)    ADJUSTMENT
                                                    ------     ------    ------     -----      -------      -------     ----------
<S>                                               <C>          <C>      <C>         <C>     <C>          <C>             <C>
Balance at December 31, 1993 ..................    7,936,458    $  1    1,580,002    $ -     $   12,199   $   (8,842)   $    --
Issuance of Common Stock upon exercise of stock
 options, net of repurchases ..................           --       -      145,378      --            23           --         --
Issuance of Common  Stock in exchange
 for services..................................           --       -       17,056      --            26           --         --
Issuance of Preferred Stock, net of
 issuance costs................................    1,666,714       -           --      --         4,967           --         --
Net loss ......................................           --       -           --      --            --       (6,680)        --
                                                   ---------    ----    ---------     ---    ----------   ----------    -------
Balance at December 31, 1994 ..................    9,603,172       1    1,742,436      --        17,215      (15,522)        --
Issuance of Common Stock in public stock
 offerings, net of issuance cost ..............           --       -    4,630,000       1        36,950           --         --
Conversion  of  Preferred Stock into Common
 Stock upon initial public offering ...........   (9,603,172)     (1)   9,603,172       1            --           --         --
Issuance of Common Stock upon exercise of stock
 options and warrants, net of repurchases......           --       -      472,730      --            71           --         --
Issuance of Common Stock upon exercise
 of warrants ..................................           --       -      108,652      --            --           --         --
Issuance of options and warrants in
 exchange for services ........................           --       -           --      --           284           --         --
Issuance of Common Stock under employee stock
 purchase plan ................................           --       -       25,934      --           165           --         --
Net income ....................................           --                   --      --            --        2,585         --
                                                   ---------    ----    ---------     ---    ----------   ----------    -------
Balance at December 31, 1995 ..................           --       -   16,582,924       2        54,685      (12,937)        --
Issuance  of Common Stock in public
 offerings, net of issuance costs .............           --       -    2,098,485      --        52,531           --         --
Issuance of Common Stock upon
 exercise of stock options ....................           --       -      392,204      --         1,353           --         --
Issuance  of  Common  Stock  for the
 purchase of ACS ..............................           --       -       70,000      --         1,698           --         --
Issuance of Common Stock under
 employee stock purchase plan .................           --       -       94,400      --           717           --         --
Cumulative translation adjustment .............           --       -           --      --           --            --         73
Net income ....................................           --       -           --      --           --        14,068         --
                                                   ---------    ----    ---------     ---    ----------   ----------    -------
Balance at December 31, 1996 ..................           --  $    -   19,238,013    $  2   $  110,984    $    1,131    $    73
                                                   =========    ====   ==========    ====   ==========    ==========    =======
</TABLE>


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

                                       39
<PAGE>

                                   P-COM, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                        (IN THOUSANDS, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>
                                                                       YEAR ENDED DECEMBER 31,
                                                                    1996         1995        1994
                                                                    ----         ----        ----
<S>                                                             <C>         <C>         <C>
Cash flows from operating activities:
  Net income (loss) .............................................   $ 14,068    $  2,585    $ (6,680)
  Adjustments to reconcile net income (loss) to net cash used in
   operating activities, net of effect of acquisitions:
   Depreciation and amortization ................................      4,777       1,081         510
   Change in minority interest ..................................        619          --          --
   Non-cash charges .............................................         --         284          26
   Change in assets and liabilities:
     Accounts receivable ........................................    (19,375)    (15,327)     (3,879)
     Notes receivable ...........................................     (2,513)         --          --
     Inventory ..................................................    (12,538)    (13,469)     (1,662)
     Prepaid expenses ...........................................     (2,079)     (3,643)        (33)
     Other assets ...............................................        406         (31)        (11)
     Accounts payable ...........................................     10,274       8,116       1,619
     Accrued employee benefits ..................................        526          12         430
     Other accrued liabilities ..................................        230         190         520
     Income taxes payable .......................................      2,494          --          --
                                                                     -------     -------      ------
       Net cash used in operating activities ....................     (3,111)    (20,202)     (9,160)
                                                                     -------     -------      ------
Cash flows from investing activities:
  Acquisition of property and equipment .........................    (13,632)     (6,785)       (209)
  Acquisition of Geritel S.p.A., net ............................     (2,714)         --          --
                                                                     -------     -------      ------
       Net cash used in investing activities ....................    (16,346)     (6,785)       (209)
                                                                     -------     -------      ------
Cash flows from financing activities:
  Payments on capitalized lease obligations .....................         --      (1,229)       (497)
  (Payments) proceeds of notes payable ..........................     (1,015)     (2,610)      2,610
  Net proceeds from issuance of stock ...........................     54,601      37,187       4,990
                                                                     -------     -------      ------
       Net cash provided by financing activities ................     53,586      33,348       7,103
                                                                     -------     -------      ------

Effect of exchange rate changes on cash .........................         73          --          --

Net increase (decrease) in cash and cash equivalents ............     34,202       6,361      (2,266)

Cash and cash equivalents at the beginning of the period ........      7,655       1,294       3,560
                                                                     -------     -------      ------
Cash and cash equivalents at the end of the period ..............   $ 41,857    $  7,655    $  1,294
                                                                    ========    ========    ========
Supplemental cash flow disclosures:
  Cash paid for income taxes ....................................   $    217    $    190    $     --
                                                                    ========    ========    ========
  Cash paid for interest ........................................   $     66    $    101    $     69
                                                                    ========    ========    ========
  Stock issued in connection with the acquisition of ACS ........   $  1,698    $     --    $     --
                                                                    ========    ========    ========
  Equipment acquired under capital lease obligations ............   $     --    $     --    $  1,698
                                                                    ========    ========    ========
  Stock issued in exchange for services .........................   $     --    $     --    $  1,698
                                                                    ========    ========    ========
  Stock options and warrants for services .......................   $     --    $    284    $  1,698
                                                                    ========    ========    ========
</TABLE>


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

                                       40
<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. 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.

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 majority owned subsidiary in Italy is
the local currency. Assets and liabilities of this subsidiary 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.

Cash and cash equivalents
-------------------------

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

Revenue recognition
-------------------

Revenue from product sales is recognized upon shipment of the product provided
no significant obligations remain and collectibility is probable. Provisions for
estimated warranty repairs, returns and allowances are recorded at the

                                       41
<PAGE>

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 seven 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 by the estimated
shortfall of undiscounted cash flows.

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.

Concentration of credit risk
----------------------------

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, 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, 1996 and 1995 amounts due from these customers represented 58% and 35%,
respectively, of accounts receivable. Any gains and/or losses incurred on the
settlement of these

                                       42
<PAGE>

receivables are included in the financial statements as they occur and have been
immaterial to date. As of December 31, 1996 and 1995, the balance due in British
pounds was (pound)14,600,501 and (pound)4,300,000, respectively, and was
translated at $1.65 and $1.57, respectively, per British pound. The Company
intends to bill its customers in U.S. dollars whenever possible.

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.

At December 31, 1996 and 1995, approximately 69% and 62%, respectively, of trade
accounts receivable represents amounts due from four customers.

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
objectives of these contracts is to neutralize the impact of foreign currency
exchange rate movements on the Company's operating results. The gains and losses
on forward exchange contracts are included in earnings when the underlying
foreign currency denominated transaction is recognized.

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

Net income (loss) per share
---------------------------

Net income (loss) per share is computed using the weighted average number of
common and common equivalent shares outstanding during the periods presented.
Common equivalent shares consist of Convertible Preferred Stock (using the if
converted method) and stock options and warrants (using the treasury stock
method). Common equivalent shares from stock options and warrants are excluded
from the computation if their effect is antidilutive, except that, pursuant to
the Securities and Exchange Commission Staff Accounting Bulletin, common and
common equivalent shares issued from January 1, 1994 through the closing of the
Company's Offering on March 9, 1995 have been included in the computation using
the treasury stock method as if they were outstanding for all periods prior to
the initial public offering. Furthermore, in accordance with staff policy,
common equivalent shares from Convertible Preferred Stock that converted into
Common Stock upon the closing of the Offering are included using the if
converted method.

Recently issued accounting pronouncements
-----------------------------------------

The Company has adopted Statement of Financial Accounting Standards No. 121
("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long
Lived Assets to be Disposed of." SFAS 121 requires recognition of impairment of
long-lived assets in the event the net book value of such assets exceeds the
future undiscounted cash flows attributable to such assets. SFAS 121 is
effective for fiscal years beginning after December 15, 1995. Adoption of SFAS
121 has not had a material impact on the Company's financial position or results
of operations.

The Company has also adopted Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation," which establishes a
fair value method of accounting for stock based compensation plans, and requires
additional disclosures for those companies who elect not to adopt the new method
of accounting. The Company has elected to continue to measure compensation costs
using the intrinsic value method prescribed by

                                       43
<PAGE>

APB Opinion No. 25, "Accounting for Stock Issued to Employees" and to comply
with the pro forma disclosure requirements of SFAS 123 (See Note 5). As such,
adoption of SFAS 123 has had no impact on the Company's financial statements.

NOTE 2 -- BALANCE SHEET COMPONENTS (IN THOUSANDS):

                                                             DECEMBER 31,
                                                         1996             1995
                                                         ----             ----

Inventory:
      Raw materials ............................       $  6,286        $  6,613
      Work-in-process ..........................         15,670           6,418
      Finished goods ...........................          6,965           2,332
                                                       ========        ========
                                                       $ 28,921        $ 15,363
                                                       ========        ========

Property and equipment:
      Tooling and test equipment ...............       $ 18,784        $  5,818
      Computer equipment .......................          2,014           1,266
      Furniture and fixtures ...................          1,749             979
      Land and buildings .......................          1,167              --
      Construction-in-process ..................          1,794           1,068
                                                       --------        --------
                                                         25,508           9,131
      Less accumulated depreciation ............         (6,539)         (1,827)
                                                       --------        --------
                                                       $ 18,969        $  7,304
                                                       ========        ========


NOTE 3 -- 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.

Common Stock
------------

In March 1995, the Company received net proceeds of $26.1 million from the sale
of 3,910,000 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 720,000 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 2,098,485
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.

                                       44
<PAGE>

NOTE 4 -- ACQUISITIONS:

On April 30, 1996, the Company acquired a 51% interest in Geritel, a Tortona,
Italy-based manufacturer of telecommunications equipment, with additional
operations in France. The Company accounted for the stock acquisition based on
the purchase method of accounting and the results of operations of Geritel are
included in the Company's consolidated results for all periods subsequent to the
date of acquisition. The purchase price of Geritel comprised the following (in
thousands):

                       Cash payment ............   $2,300
                       Additional cash committed      340
                       Expenses ................      446
                                                   ------
                                                   $3,086
                                                   ======

On August 23, 1996, the Company acquired the assets of Atlantic Communication
Sciences, Inc. ("ACS"), a Florida based manufacturer of telecommunications
equipment, in exchange for 70,000 shares of P-COM Common Stock valued at
$1,698,000. The Company accounted for the acquisition based on the purchase
method of accounting and the results of operations of ACS are included in the
Company's consolidated results for all period subsequent to the date of
acquisition.


The allocation of the purchase price in these acquisitions was as follows (in
thousands):

                                       Geritel       ACS     Total
                                       -------       ---     -----
             Goodwill .............   $ 1,100    $ 1,347   $ 2,447
             Current assets .......     1,247        243     1,490
             Non-current assets ...       395         22       417
             Property and equipment     2,659         86     2,745
             Liabilities assumed ..    (2,315)        --    (2,315)
                                      -------    -------   -------
                                      $ 3,086    $ 1,698   $ 4,784
                                      =======    =======   =======

NOTE 5 -- EMPLOYEE BENEFIT PLANS:

At December 31, 1996, 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:

                                              1996              1995
                                              ----              ----
Net income               As reported       $  14,068        $    2,585
                         Pro forma         $  10,450        $      734

Net income per share     As reported       $    0.74        $     0.16
                         Pro forma         $    0.56        $     0.05

                                       45
<PAGE>

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 1,647,944 shares of Common
Stock authorized for issuance under the 1992 Plan, the 1995 Plan authorizes the
Board of Directors to issue an additional 320,000 shares of Common Stock in
1995, and 800,000 shares of Common Stock in 1996. 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 1996 Annual
Meeting of Stockholders, participants will automatically receive an option to
purchase 20,000 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 2,000 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
2,000 share option will vest in eight successive equal quarterly installments
upon the optionee's completion of each successive 3-month period of Board
service over the 24-month period measured from the grant date.

The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes option-pricing model with the following assumptions used for
grants in 1996 and 1995, respectively: expected volatility of 57 percent for all
years; weighted average risk-free interest rates of 6.0% and 6.4%, and weighted
average expected lives of 4.11 years and 2.88 years.

                                       46
<PAGE>

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

<TABLE>
<CAPTION>
                                               1996                          1995
                                   ------------------------------ -----------------------------
                                                     WEIGHTED                       WEIGHTED
                                      SHARES          AVERAGE       SHARES          AVERAGE
                                                   EXERCISE PRICE                EXERCISE PRICE

<S>                               <C>            <C>            <C>              <C>
Outstanding at beginning of year    1,427,436    $     6.16       1,017,462      $         0.47
Granted ........................    1,082,250         19.94        871,022               10.09
Exercised ......................     (392,204)         3.45        (316,292)               0.23
Forfeited ......................     (228,138)         9.47        (144,756)               2.76
                                    ---------                     ---------
Outstanding at end of year .....    1,889,344         14.28      1,427,436                6.16
                                    =========                     =========
Options exercisable at year-end     1,762,142                     1,416,836

Weighted-average fair value of
options granted during the year     $    9.56                     $    4.22

</TABLE>

The following table summarizes information about stock options outstanding and
exercisable at December 31, 1996:

<TABLE>
<CAPTION>
                                      OPTIONS OUTSTANDING                        OPTIONS EXERCISABLE
                       -------------------------------------------------- -----------------------------------
                                            WEIGHTED
     RANGE OF              SHARES           AVERAGE           WEIGHTED-        SHARES       WEIGHTED-
  EXERCISE PRICES      OUTSTANDING AT     REMAINING           AVERAGE      EXERCISABLE AT   AVERAGE
                          12/31/96       CONTRACTUAL      EXERCISE PRICE      12/31/96     EXERCISE PRICE
                                             LIFE
 <S>                  <C>              <C>               <C>            <C>                <C>
 $  0.02  -    9.50         625,667              7.4         $  3.90          625,667          $  3.90
   13.13  -   19.50         939,077              9.2           17.25          911,875            17.27
   20.13  -   29.75         286,900              9.4           24.93          186,900            25.03
   30.25  -   34.00          37,700              8.8           31.50           37,700            31.50
                       ------------                                      ------------
                          1,889,344                                         1,762,142
                       ============                                      ============

</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 300,000 shares of
Common Stock has been reserved for issuance under the Purchase Plan, as amended
at the May 1996 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 94,400 shares and
25,934 shares in 1996 and 1995, respectively.

The fair value of the employees' purchase rights was estimated using the
Black-Scholes model with the following assumptions for 1996 and 1995,
respectively: expected volatility of 57 percent for all years; weighted-average
risk-free interest rates of 5.0% and 6.4%; and weighted-average expected lives
of 0.7 years and 1.2 years. The weighted-average fair value of those purchase
rights granted in 1996 and 1995 was $3.10 and $2.20, respectively.

                                       47
<PAGE>

NOTE 6 -- INCOME TAXES:

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

                                                  Year ended December 31,
                                               1996        1995       1994
                                               ----        ----       ----
        Domestic                             $15,460      $2,723    $(6,680)
        Foreign                                 (330)         --         --
                                             -------      ------    -------
                                             $15,130      $2,723    $(6,680)
                                             =======      ======    =======

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

                                                  Year ended December 31,
                                               1996        1995       1994
                                               ----        ----       ----

        Current:
                Federal                       $2,738     $   138    $   --
                State                             35          --        --
                                             -------      ------    -------
                        Total                  2,773         138        --

        Deferred:
                Federal                       (1,617)         --        --
                State                            (94)         --        --
                                             -------      ------    -------
                        Total                 (1,711)         --        --
                                             -------      ------    -------
        Total                                 $1,062     $   138    $   --
                                             =======     =======    =======

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


                                                        December 31,
                                               1996        1995       1994
                                               ----        ----       ----

        Net operating loss carryforwards      $  --       $3,146    $4,280
        Credit carryforwards                     --        1,364    $1,250
        Capitalized research and development
         costs                                  335          482       615
        Start-up costs                          376          429       609
        Reserves and other                    1,000          494       187
                                             -------      ------    -------
                                              1,711        5,915     6,941
        Valuation allowance                       0       (5,915)   (6,941)
                                             =======      ======    ======
                                              $1,711       $  --    $   --
                                             =======      ======    ======

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

                                                      Year ended December 31,
                                                          1996      1995
                                                           ----      ----
        U.S. federal statutory rate ..................     35.0%    35.0%
        State income taxes, net of federal tax benefit      6.0      5.1
        Change in valuation allowance ................    (39.1)   (35.0)
        Other, net ...................................      5.1       --
                                                           ----     ----
                                                            7.0%     5.1%
                                                           ====     ====
                                       48
<PAGE>

NOTE 7 -- 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, 1996
are as follows (in thousands):

          Year ending December 31,

        1997...............................        $  914
        1998...............................           908
        1999...............................           941
        2000...............................           855
        Thereafter.........................           345
                                                  -------
                                                   $3,963
                                                  =======

Rent expense for all operating leases was approximately $1,369,000, $467,000 and
$222,000 in 1996, 1995, and 1994, respectively.

NOTE 8 -- GEOGRAPHIC SALES AND MAJOR CUSTOMERS:

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

                                                      Year ended December 31,
                                                 1996         1995         1994
                                                 -----        ----         ----
      Europe                                       62%          70%          60%
      North America                                34           29           16
      Middle East                                   3           --           --
      Central and South America                     1            1           24
                                                  ---          ---          ---
                                                  100%         100%         100%
                                                  ===          ===          ===

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,
                                             1996           1995           1994
                                              -----          ----           ----
      Customer A                               14%            --             --
      Customer B                               --             24%            --
      Customer C                               --             --             11%
      Customer D                               --             --             24
      Customer E                               --             --             12
      Customer F                               13             22             15
      Customer G                               10             12             --
      Customer H                               14             22             --
      Customer I                               14             --             --
      Customer J                               14             --             --

                                       49
<PAGE>

NOTE 9 -- SUBSEQUENT EVENTS (UNAUDITED):

The Company entered into a new revolving line of credit agreement on March 3,
1997 that provides for borrowings of up to $17,500,000. The line of credit
expires on March 31, 1998. Borrowings under the line are secured and bear
interest at either a base interest rate or a variable interest rate. The
agreement requires the Company to comply with certain financial covenants
including the maintenance of specified minimum ratios.

On February 24, 1997, the Company acquired 100% of the equity of Technosystem
S.p.A. ("Technosystem"), a Rome, Italy-based company, with additional operations
in Poland for $3.3 million. The Company has made a cash payment of $2.6 million
and an additional payment of $0.7 million will be due on March 31, 1998, subject
to certain indemnification obligations of the former Technosystem
securityholders, 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 it is not anticipated that this accounting treatment will have a
material adverse effect on the financial results of the Company for the year
ended December 31, 1997.

On March 7, 1997, the Company acquired substantially all of the assets of
Columbia Spectrum Management, L.P., a Vienna, Virginia-based company, for $8.0
million in cash and 398,306 shares of Common Stock valued at $14.5 million. In
addition, the former partners of CSM may receive up to an additional $1,500,000
in cash (as part of such $8.0 million cash amount) over the next two years,
subject to the satisfaction of certain indemnification obligations, and the
398,306 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 it is not
anticipated that this accounting treatment will have a material adverse effect
on the financial results of the Company for the year ended December 31, 1997.


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

         Not applicable.

                                       50
<PAGE>

                                    PART III
                                    --------

ITEM 10. 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 1997 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 Annual Report.

ITEM 11. 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 1997 Annual Meeting of Stockholders and is incorporated herein
by reference.

ITEM 12. 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 1997 Annual
Meeting of Stockholders and is incorporated herein by reference.

ITEM 13. 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 1997 Annual
Meeting of Stockholders and is incorporated herein by reference.

                                       51
<PAGE>

                                     PART IV
                                     -------

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

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

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

<TABLE>
<CAPTION>

         Form 10K
         Page Number
         -----------
         <S>                                                                           <C>
         Report of Independent Accountants .........................................   36

         Consolidated Balance Sheets at December 31, 1996 and 1995 .................   37

         Consolidated Statements of Operations for the
          years ended December 31, 1996, 1995 and 1994 .............................   38

         Consolidated Statements of Stockholders'
          Equity for the years ended December 31,
          1996, 1995, and 1994 .....................................................   39

         Consolidated Statements of Cash Flows for
          the years ended December 31, 1996,
          1995 and 1994 ............................................................   40

         Notes to Consolidated Financial Statements ................................   41

         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.
</TABLE>

(b)      Reports on Form 8-K
         None.

(c)      Exhibits - See Exhibit list below.

<TABLE>
<CAPTION>
              Number                  Description
              ------         ------------------------------------------------------------------------------
<S>          <C>            <C>
              2.1(6)         Agreement  dated April 15,  1996,  by and among the Company, Mr. Giovanni
                             Marciano and certain other parties named thereunder.
              2.2(7)         Asset  Purchase  Agreement  dated as of August 2, 1996,  by and  between the
                             Company,  Atlantic Communication  Sciences,  Inc. and Edward C. Gerhardt, L.
                             Roger Sanders,  Charles W. Richards,  IV, Grover W. Brower, William M. Koos,
                             Jr., Larry W. Koos,  Koos Technical  Services,  Inc., the Edward C. Gerhardt
                             Trust U/A dated June 22, 1988 and the L. Roger Sanders  Revocable Trust, U/A
                             dated June 18, 1991.
              2.2A(8)        Asset  Purchase  Agreement  revised as of August 23, 1996 by and between the
                             Company,  Atlantic Communication  Sciences,  Inc. and Edward C. Gerhardt, L.
                             Roger Sanders,  Charles W. Richards,  IV, Grover W. Brower, William M. Koos,
                             Jr., Larry W. Koos,  Koos Technical  Services,  Inc., the Edward C. Gerhardt
                             Trust,  U/A dated June 22, 1988 and the L. Roger  Sanders  Revocable  Trust,
                             U/A dated June 18, 1991.
              3.2(3)         Restated Certificate of Incorporation filed on March 9, 1995.

</TABLE>

                                       52
<PAGE>

<TABLE>
<CAPTION>
              Number                  Description
              ------         ------------------------------------------------------------------------------
              <S>          <C>
              3.3(1)         Bylaws of the Company.
              4.1(1)         Form of Common Stock Certificate.
              4.3(1)         Restated Investor Rights Agreement dated January
                             11, 1995, by and among the Company and the parties
                             thereto.
              4.4(1)         Form of Warrant to Purchase Common Stock of the
                             Company, forms of Letter Agreements amending
                             Warrant to Purchase Common Stock and list of
                             holders thereof.
              4.5(1)         Warrant  Purchase  Agreement  dated  November  9, 1992,
                             by and  between the Company and Dominion Ventures,
                             Inc. ("Dominion");  Series A Preferred Stock
                             Warrant dated January 8, 1992 issued to Dominion.
              4.6(1)         Warrant Purchase Agreement dated June 23, 1993 by
                             and between the Company and Dominion; Series B
                             Preferred Stock Warrant dated June 23, 1993 issued
                             to Dominion.
              4.7(1)         Letter  Agreement  dated June 23,  1993,  by and
                             between  the  Company  and Dominion.
              4.8(1)         Series C Preferred Stock Warrant dated January 10,
                             1995, issued to ATTI.
              4.9(3)         Amendment  and Consent  dated as of July 28, 1995,
                             by and among the Company and the parties thereto.
              4.10(6)        Second  Amendment  and  Consent  dated as of April 15,
                             1996 by and among the Company and the parties thereto.
              *10.1(1)       Purchase  Order  issued by AT&T  Network  Systems
                             Deutschland  GmbH,  dated December 7, 1994.
              *10.2(1)       Purchase  Order  issued by AT&T  Network  Systems
                             Deutschland  GmbH,  dated December 19, 1994.
              *10.3(1)       Master OEM  Agreement  dated January 1, 1995, by
                             and between the Company and AT&T Corp.
              *10.4(1)       Purchase Order issued by AT&T Network Systems
                             Nederland BV, dated December 9, 1994.
              *10.5(1)       Amendment to Purchase Order issued by AT&T Network
                             Systems Nederland BV, dated December 22, 1994.
              *10.6(1)       NSD Master Purchase Order issued by AT&T Network
                             Systems Deutschland GmbH, dated December 23, 1994.
              *10.7(1)       Purchase Agreement dated August 29, 1994, by and
                             between the Company and Harris Corporation --
                             Farinon Division.
              *10.8(1)       Contract for Supply of 50 GHz Radio dated June 4,
                             1994, by and between the Registrant and Mercury
                             Communications Ltd.
              *10.9(1)       Manufacturing  Agreement dated July 13, 1994, by
                             and between the Company and SPC.
              *10.10(1)      Manufacturing Agreement dated April 20, 1994, by
                             and between the Company and Comptronix Corporation
                             (assigned to Sanmina Corporation).
              *10.11(1)      Agreement  dated  November 11, 1994,  by and between
                             the Company and WinStar Wireless, Inc.
              10.12(1)       Master Lease Agreement dated November 9, 1992, by
                             and between the Company and Dominion; First
                             Amendment to Master Lease Agreement dated June 23,
                             1993, by and between the Company and Dominion.
              10.13(1)       Master Equipment Lease entered into by and between
                             the Company and Phoenix Leasing Incorporated on
                             August 10, 1994.
              10.14(1)       Commitment Letter dated January 10, 1995, by and
                             between the Company and Applied Telecommunications
                             Technologies, Inc. ("ATTI"), including form of
                             Master Lease to be entered into between the Company
                             and ATTI.
              10.15(1)       Amended and Restated Business Loan Agreement dated
                             October 24, 1994, by and between the Company and
                             Silicon Valley Bank ("SVB"); Foreign Accounts
                             Receivable Business Loan Agreement dated October
                             24, 1994, by

</TABLE>

                                       53
<PAGE>

<TABLE>
<CAPTION>
              Number                  Description
              ------         ------------------------------------------------------------------------------
              <S>          <C>
                             and between the Company and SVB;
                             Foreign Accounts Receivable Promissory Note, dated
                             October 24, 1994, executed by the Company in favor
                             of SVB; Commercial Security Agreement dated October
                             24, 1994, by and between the Company and SVB; Form
                             of Borrower Agreement entered into by and between
                             the Company and SVB on November 7, 1994; and Waiver
                             of Financial Covenants and Consent to offering,
                             executed by SVB on January 10, 1995.
              10.15A(3)      Commitment  Letter dated August 1, 1995 by and between
                             Silicon  Valley Bank and the Company.
              10.15B(4)      Commitment  Letter dated  October 20, 1995,  by and
                             between  Silicon  Valley Bank and the Company.
              10.15C(11)     Loan Modification Agreement dated February 27, 1996
                             by and between Silicon Valley Bank and the Company.
              10.15D(8)      Accounts Receivable Purchase Agreement dated
                             September 26, 1996 by and between the Company and
                             Silicon Valley Bank.
              10.16(1)       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.
              10.16A(7)      1995 Stock Option/Stock Issurance 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.
              10.17A(7)      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.
              10.19(1)       Confidential  Severance  Agreement  dated April 13,
                             1992, by and between the Company and Mr.  George P.
                             Roberts;  Amendment  to  Confidential  Severance
                             Agreement dated May 20, 1994, by and between the
                             Company and Mr. Roberts.
              10.20(1)       Form of Settlement Agreement and Mutual Release
                             dated January 11, 1995 by and between the Company,
                             Mr. Gideon Ben-Efraim and certain members of Mr.
                             Ben-Efraim's family.
              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
                             Itatel.
              10.23(3)       Sublease  dated  May 1,  1995  by and  between  the
                             Company  and  Medallion Mortgage Company.
              10.24(4)       Lease dated  August 4, 1995 by and between  P-COM
                             United  Kingdom,  Inc. and Capital  Counties  plc;
                             Rent  Deposit  Deed dated  August 4,  1995,  by and
                             between P-Com United Kingdom, Inc. and Capital Counties plc.
              10.25(2)       Underwriting  Agreement  dated  March 2, 1995 by and
                             between the Company and the underwriters named therein.
              10.26(5)       Underwriting  Agreement dated August 17, 1995 by and
                             between the Company and the underwriters named therein.
              10.27(9)       Lease dated  November 11, 1995 by and between the
                             Company,  Inc. and Johann Birkart, Internationale
                             Spedition GmbH & Co.
              10.28(9)       Settlement  Agreement,   General  Release  and
                             Consulting  Agreement  dated October 12, 1995 by and
                             between the Company and Jeffrey R. Watts.
              10.29(10)      Underwriting  Agreement  dated May 16,  1996 by and
                             between the Company and the underwriters named therein.
</TABLE>

                                       54
<PAGE>

<TABLE>
<CAPTION>
              Number                  Description
              ------         ------------------------------------------------------------------------------
              <S>          <C>
              11.1           Computation of Net Income (Loss) Per Share.
              21.1           List of subsidiaries of the Registrant.
              23.1           Consent of Price Waterhouse LLP, Independent Accountants.
              24.1           Power of Attorney (see page 57).
              27             Financial Data Schedule
</TABLE>
----------------
<TABLE>
<S>      <C>

(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 for the quarterly period
         ended September 30, 1995.

(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 included in
         the Company's Annual Report on Form 10-K for the annual period ended
         December 31, 1995.

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

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

</TABLE>

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

                                       55
<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 March
31, 1997.

                                   P-COM, INC.


Date: March 31, 1997               By:  /s/ George P. Roberts
                                        ------------------------
                                   George P. Roberts
                                   Chairman of the Board and Chief
                                    Executive Officer (Principal Executive
                                    Officer)


                                   By:  /s/ Michael Sophie
                                        ------------------------
                                   Michael Sophie
                                   Chief Financial Officer and Vice President,
                                    Finance and Administration (Principal
                                    Financial and Accounting Officer)

                                       56
<PAGE>

                                POWER OF ATTORNEY
                                -----------------

         KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints George P. Roberts and Michael Sophie and
each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Report on Form 10-K, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.

         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: March 31, 1997        By  /s/ George P. Roberts
                                ---------------------
                                George P. Roberts
                                Chairman of the Board and
                                Chief Executive Officer



Date: March 31, 1997        By: /s/ Michael Sophie
                                ------------------
                                Michael Sophie
                                Chief Financial Officer, Vice President,
                                Finance and Administration


Date: March 31, 1997        By: /s/ Gill Cogan
                                --------------
                                Gill Cogan
                                Director of the Company


Date: March 31, 1997        By: /s/ John A. Hawkins
                                -------------------
                                John A. Hawkins
                                Director of the Company


Date: March 31, 1997        By: /s/ M. Bernard Puckett
                               ----------------------
                               M. Bernard Puckett
                               Director of the Company

                                       57