<PAGE>
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K


[X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

        FOR THE FISCAL YEAR ENDED DECEMBER 28, 1997
 
                                       OR

[_]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXHANGE ACT OF 1934

        FOR THE TRANSITION PERIOD FROM _____ TO

                        COMMISSION FILE NUMBER 000-21507

                          POWERWAVE TECHNOLOGIES, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


          DELAWARE                                           11-2723423
  (STATE OR OTHER JURISDICTION OF                         (I.R.S. EMPLOYER
  INCORPORATION OR ORGANIZATION)                           IDENTIFICATION NO.)

                               2026 MCGAW AVENUE
                            IRVINE, CALIFORNIA 92614
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, ZIP CODE)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (714) 757-0530

       SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:  NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                              TITLE OF EACH CLASS:
                              ------------------- 
                         COMMON STOCK, PAR VALUE $.0001

          Indicate by check mark whether the Registrant:  (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90
days.        YES    [X]       NO  [_]
              
          Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part of this Form 10-K or any amendment
to this form 10-K [X]

          As of February 25, 1998, the aggregate market value of the voting
stock of the Registrant held by non-affiliates of the Registrant was
$201,814,034 computed using the closing price of $16.625 per share of Common
Stock on February 25, 1998 as reported by Nasdaq, based on the assumption that
directors and officers and more than 10% shareholders are affiliates.  As of
February 25, 1998, the number of outstanding shares of Common Stock, par value
$.0001 per share, of the Registrant was 17,130,873.

          Information required by Part III is incorporated by reference to
portions of the Registrant's Proxy Statement for the 1997 Annual Meeting of
Shareholders, which will be filed with the Securities and Exchange Commission
within 120 days after the close of the 1997 fiscal year.
<PAGE>
 
This Annual Report on Form 10-K contains certain forward-looking statements, the
realization of which may be impacted by certain important factors which are
discussed in "Additional Factors That May Affect Future Results," under Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

                                     PART I

ITEM 1.  BUSINESS

GENERAL

  Powerwave Technologies, Inc. ("Powerwave" or the "Company") was incorporated
in Delaware in January 1985 under the name Milcom International, Inc. and
changed its name to Powerwave Technologies, Inc. in June 1996.  Powerwave
designs, manufactures and markets ultra-linear radio frequency ("RF") power
amplifiers for use in the wireless communications market.  The Company's
amplifiers, which are key components in wireless communications networks,
increase the signal strength of wireless transmissions while reducing
interference, or "noise."  The reduction of noise enables wireless service
providers to offer improved service to subscribers by offering clearer call
connections with less interference.  Increasing the signal strength of wireless
transmissions also improves service by reducing the number of interrupted or
dropped calls.

  Powerwave manufactures both single and multi-carrier amplifiers, with a
primary focus on multi-carrier products.  Multi-carrier amplifiers integrate the
functions of several RF power amplifiers and cavity filters within a single
unit, thereby reducing service providers' equipment and maintenance costs and
space requirements while providing increased call capacity.  The Company's
products are currently being utilized in cellular and personal communications
services ("PCS") base stations in both digital and analog-based networks.  The
Company's products support a wide range of digital and analog transmission
protocols including CDMA, TDMA, GSM, AMPS and TACS.  The Company also produces
power amplifiers for the land mobile radio ("LMR") market (also known as
specialized mobile radio or "SMR"), which is characterized as a two-way radio
market with devices commonly utilized by police and emergency personnel and the
business dispatch marketplace.

  Powerwave was formed in 1985 to develop a line of high-power RF amplifiers
suitable for use with VHF/UHF, AM/FM transceivers.  In addition, the Company
offered products for use in the LMR industry.  For the next several years, the
Company continued product development in the land mobile radio industry,
broadening its product offerings and selling to a diversified customer base.  In
late 1994, Powerwave developed a multi-carrier linear RF amplifier which could
be utilized in the transmission of radio signals for cellular base stations.  In
1995, the Company began supplying multi-carrier linear RF amplifiers for
installation in base stations utilized in the deployment of two new digital
cellular networks utilizing CDMA technology in South Korea. These new South
Korean digital cellular networks began operating during 1996 with two
independent service providers offering nationwide coverage.  In 1996, Powerwave
began development of a single carrier RF power amplifier for use in PCS network
base stations.  During 1997, the Company began supplying single carrier RF power
amplifiers for use in the deployment of three new digital PCS networks utilizing
CDMA technology in South Korea.  These new South Korean PCS networks began
operating on October 1, 1997, with three independent service providers offering
limited coverage within South Korea.  At year-end 1997 it has been reported that
combined approximately 5 million subscribers were using the digital CDMA
cellular and PCS networks in South Korea.  The Company's customers in the South
Korean market include Hyundai Electronics Industries Co. ("Hyundai"), LG
Information & Communications, Ltd. ("LGIC") and Samsung Electronics Co. Ltd.
("Samsung").

  The Company's three South Korean customers account for a substantial majority
of the Company's net sales.  Although the Company is attempting to expand its
customer base, the Company expects that a limited number of customers will
continue to represent a substantial portion of the Company's net sales for the
foreseeable future.  The Company believes that its future success depends upon
its ability to broaden its customer base.  For the fiscal year ended December
28, 1997, the Company's three largest customers, Hyundai, LGIC and Samsung, each
of which accounted for more than 9% of the Company's net sales, accounted for
approximately 83% of the Company's net sales in the aggregate.  For 1997,
Hyundai, LGIC and Samsung purchased products for implementation in both the
South Korean digital cellular networks and the new digital PCS networks.  The
Company expects that sales to these 

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<PAGE>
 
customers of products for use in the South Korean cellular and PCS networks will
decline due to the current unstable economic conditions within South Korea and
Asia in general. In addition, the Company expects that sales for the South
Korean digital cellular networks will decline as those networks near completion,
which is currently expected to occur in the next year. The Company currently
believes that the final completion of the buildout of the South Korean wireless
networks is dependent upon a stabilization of economic conditions within South
Korea. It is currently anticipated that future deployments of both the cellular
and PCS networks will be delayed until economic conditions firmly stabilize in
the region. The Company is unable to predict when that will occur. The foregoing
forward-looking statements involve risks and uncertainties that could cause
actual results to differ materially. See "Additional Factors That May Affect
Future Results - Customer Concentration; Reliance Upon South Korean Market and
Growth of Wireless Services Market; and Risks of Doing Business in International
Markets" under Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

  A limited number of large original equipment manufacturers ("OEMs") account
for a majority of RF power amplifier purchasers in the wireless equipment
market, and the Company's success will be dependent upon its ability to
establish and maintain relationships with these types of customers.  There can
be no assurance that a major customer will not reduce, delay or eliminate its
purchases from the Company, which could have a material adverse effect on the
Company's business, results of operations and financial condition.  See
"Additional Factors That May Affect Future Results - Customer Concentration"
under Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

  In recent periods, Powerwave's revenues have continued to increase
significantly, primarily as a result of increasing sales to three customers
supplying the South Korean marketplace.  The Company believes that the current
period of continued economic uncertainty within South Korea will result in
either postponed, rescheduled or possibly cancelled orders with the Company's
South Korean customers.  The Company is attempting to expand its customer base
outside of the South Korean market as it pursues additional opportunities within
the wireless infrastructure equipment market.  The Company has experienced, and
expects to continue to experience, declining average sales prices for both its
multi-carrier and single carrier amplifier products.  Wireless infrastructure
equipment manufacturers have come under increasing price pressure from wireless
service providers, which in turn has resulted in downward pricing pressure on
the Company's products.  In addition, any reduction in demand from the Asian
market could increase competition to sell products in the remaining markets,
thereby further increasing pricing pressures in the global market.
Consequently, the Company believes that in order to maintain or improve existing
gross margins in the near term, it must achieve manufacturing cost reductions,
and in the long term it must develop new products that incorporate advanced
features and that generate higher gross margins.  The foregoing forward-looking
statements involve risks and uncertainties that could cause actual results to
differ materially.  See "Additional Factors That May Affect Future Results -
Customer Concentration; Reliance Upon South Korean Market and Growth of Wireless
Services Market; Declining Average Sales Prices; and Risks of Doing Business in
International Markets" under Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

SIGNIFICANT BUSINESS DEVELOPMENTS IN FISCAL 1997

  On January 3, 1997, the underwriters of the Company's initial public offering
of Common Stock (the "IPO") exercised their option to purchase an additional
360,000 shares of Common Stock directly from the Company at a price of $11.50
per share, less underwriting discounts and commissions of $.805 per share.  The
Company received net proceeds of $3.9 million which were recorded in the first
quarter of Fiscal 1997.

  On June 30, 1997, the Company completed a secondary offering of Common Stock
by selling a total of 3,250,000 shares of Common Stock, which included 750,000
shares sold by the Company and 2,500,000 shares sold by the Selling
Shareholders.  On July 2, 1997, the underwriters exercised their option to
purchase an additional 487,500 shares of Common Stock (with 250,000 shares sold
by the Company and the remaining 237,500 sold by the Selling Shareholders),
bringing the total number of shares of Common Stock sold in this secondary
offering to 3,737,500 shares, of which a total of 1,000,000 shares were sold by
the Company and the remaining 2,737,500 shares were sold by the Selling
Shareholders. The price to the public of the Common Stock was $22.00 per share,
less underwriter's discounts and commissions of $1.10 per share.  The Company
received net proceeds after 

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expenses of approximately $20.6 million from the sale of shares in the secondary
offering. The proceeds were invested in short-term, investment-grade money
market instruments. The Company did not receive any of the proceeds from the
sale of shares by the Selling Shareholders.

  During the fourth quarter of 1997, Asian countries, including South Korea,
began to experience weaknesses in their currency, banking and equity markets.
The deteriorating economic and currency conditions throughout Asia in December
1997 led South Korea, along with several other countries, to request economic
support from the International Monetary Fund.  During this time, the Company's
South Korean customers continued to order and take delivery of products from the
Company and continued to make timely payments to the Company.  The Company's
sales to its South Korean customers are denominated in US dollars.  The Company
has not experienced any significant delay in payment from its South Korean
customers.

  With the resulting overall market concerns regarding the economic health of
the Asian markets and South Korea in particular, the market price of the
Company's Common Stock suffered a significant decline.  On December 11, 1997,
the Company's Board of Directors authorized the Company to repurchase up to one
million shares of its Common Stock in open market transactions.  The Board of
Directors stated that it took this action in light of the decline in the market
price of the Company's Common Stock.  The Company stated that it intended to
utilize the shares repurchased in its employee stock option programs covering
future option grants.  During the fourth quarter ending December 28, 1997, the
Company repurchased a total of 510,000 shares of its Common Stock at a total
cost of $8.8 million.

  Subsequent to the end of the fourth quarter of 1997, economic and currency
conditions in Asia and South Korea have continued to negatively impact overall
market conditions within South Korea.  Based on recent discussions with the
Company's South Korean customers, Powerwave now believes that the current
prolonged period of continued market uncertainty and economic instability will
result in either postponed, rescheduled or possibly cancelled orders with the
Company's South Korean customers.  The delay or cancellation of orders by the
Company's South Korean customers and the delay or termination of the continued
deployment of the South Korean digital wireless networks would have a material
adverse effect on the Company's business, results of operations and financial
condition. The foregoing forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially.  See
"Additional Factors That May Affect Future Results - Customer Concentration;
Reliance Upon South Korean Market and Growth of Wireless Services Market; and
Risks of Doing Business in International Markets" under Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

INDUSTRY SEGMENTS AND GEOGRAPHIC INFORMATION

  The Company operates in one industry segment:  the design, manufacture and
sale of RF power amplifiers for use in wireless communications networks.  The
Company currently markets its products through its manufacturer's representative
sales force as well as its own internal sales force.  A summary of the Company's
sales by geographic region is incorporated herein by reference from Note 12 of
the Notes to Consolidated Financial Statements.

BUSINESS STRATEGY

  Powerwave's focus on multi-carrier power amplifiers and the experience it has
gained through the implementation of its products in digital cellular networks
have enabled the Company to develop substantial expertise in ultra-linear multi-
carrier power amplifier technology.  The Company has developed the ability to
manufacture ultra-linear multi-carrier RF power amplifiers in a standard,
repeatable manner, thus allowing for increased production and reliability.  For
the expanding PCS markets where less call capacity is currently required,
Powerwave offers high performance single carrier RF power amplifiers.  The
Company has also developed a PCS multi-carrier amplifier to address future
anticipated capacity constraints in the PCS market.  By obtaining components
from numerous leading technology companies, Powerwave believes it is able to
respond quickly and cost-effectively to new transmission protocols and design
specifications.  The manufacturability of the Company's existing RF power
amplifier designs has allowed it to increase its manufacturing productivity
while reducing its product costs.  The Company believes that its ability to
cost-effectively manufacture commercial quantities of RF 

                                       3
<PAGE>
 
power amplifiers represents a competitive advantage over other third-party
manufacturers of RF power amplifiers. If the Company's outstanding customer
orders were to be significantly reduced, the resulting loss of volume purchasing
could adversely effect the Company's low cost competitive advantage, which would
negatively affect the Company's business, results of operations and financial
condition. The foregoing forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially. See
"Additional Factors That May Affect Future Results - Declining Average Sales
Prices and No Assurance of Product Manufacturability, Quality or Reliability"
under Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

  The Company's strategic objective is to be the leading third-party supplier of
high performance RF power amplifiers used in digital and analog wireless
networks worldwide.  The Company's strategy includes the following key elements:
(i) provide leading technology to the RF amplifier industry through continued
investment in research and development; (ii) leverage its position as a leading
multi-carrier amplifier supplier; (iii) continue to expand relationships with
both leading wireless network operators as well as original equipment
manufacturers of wireless networks; (iv) continue the development and marketing
of both single and multi-carrier amplifier products for PCS networks; and (v)
maintain its focus on the quality, reliability and manufacturability of its RF
amplifier products.

MARKETS

  Powerwave sells its RF power amplifier products into various segments of the
wireless communications market.  The Company's primary focus is on the cellular
and PCS markets and during 1997 the Company derived approximately 61% of its
revenues from the cellular market and approximately 34% from the PCS market.
The following describes the primary segments of the wireless communications
market to which the Company sells its products:

  Cellular and PCS.  Cellular networks utilize a number of base stations with
high power antennas to serve a geographical region.  Each region is broken down
into a number of smaller geographical areas, or "cells."  Each cell has its own
base station which uses wireless technology to receive subscribers calls and
transmit those calls through the wireline public switched telephone network
("PSTN").  Cellular networks operate within the 800 and 900 MHz bandwidths of
the radio spectrum.  PCS networks operate in a substantially similar manner as
cellular networks, except that PCS networks operate at 1800 and 1900 MHz
bandwidths and utilize only digital transmission protocols.  Transmissions at
the higher frequencies utilized by PCS networks have shorter transmission waves
as compared to cellular frequency transmissions, which limit the distances PCS
transmissions can travel without significant degradation.  Lower frequency
signals penetrate into buildings and other obstacles better than higher
frequency signals.  Therefore, PCS networks operating at the higher frequency
ranges will require smaller operating cells and more base stations than existing
cellular networks to cover the same total geographic region.  Additionally, due
to the smaller geographical cell size utilized in PCS networks, PCS base
stations will operate at lower power levels as compared to existing cellular
networks.

  In analog cellular networks, each base station is allocated a certain number
of frequency channels, each of which can carry only one call at a time. As such,
a base station utilizing traditional amplification technology cannot transmit or
receive more calls than it has available channels at any given time.
Originally, cellular base stations in analog networks used single carrier power
amplifiers for each frequency channel allocated to the cell.  Many analog
cellular networks are now beginning to utilize a process known as adaptive
channel allocation in order to increase network capacity.  In adaptive channel
allocation, which is optimized with multi-carrier amplifiers, unused channels in
cells are temporarily reallocated to augment more heavily utilized adjacent
cells.  The signals are amplified simultaneously through a multi-carrier power
amplifier which allows for the simultaneous amplification of all channels within
a base station.  Multi-carrier amplifiers require significantly higher linearity
than do single carrier designs, but do not require separate, high-maintenance,
tunable cavity filters.  By eliminating the need for separate cavity filters for
each channel, multi-carrier amplifiers reduce overall deployment and maintenance
costs associated with base stations.  While adaptive channel allocation using
multi-carrier linear amplifiers has increased the capacity of analog networks,
many service providers still require additional capacity to serve the increased
flow of transmissions through their networks.  This has led many service
providers to begin to move from analog networks to digital networks.

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<PAGE>
 
  In digital networks, calls are segmented and transmitted across the entire
bandwidth of allocated spectrum, rather than in single channels of that
spectrum.  The calls are then reassembled when received at the base station or
cellular phone.  While using the entire bandwidth of allocated spectrum results
in greater system capacity, there is a greater likelihood that even minimal
background noise will result in interrupted or dropped calls.  Accordingly,
ultra-linear amplification is even more critical in digital networks than in
their analog counterparts.  Powerwave provides ultra-linear multi-carrier RF
amplifiers which are located in base stations and work to increase the signal
strength of outgoing transmissions.  Powerwave's single carrier and multi-
carrier RF amplifiers work in base stations with a variety of other
sophisticated electronic equipment, including receivers, radios and oscillators.

  Land Mobile Radio.  Powerwave has been manufacturing power amplifiers for the
LMR market since 1985.  LMR is commonly associated with two-way communication
devices used by police and emergency personnel and the business dispatch
marketplace.  While the domestic market has remained relatively static in the
past few years, the Company believes there are opportunities in certain parts of
the international market, where the installation of more expensive cellular and
PCS systems is not cost-justified.  In addition, various companies continue to
design new products which utilize the frequencies traditionally allocated to the
LMR market in an attempt to compete with both cellular and PCS system operators.
There can be no assurance that such companies will achieve commercial success
or, even if they are successful, whether Powerwave will be able to sell RF
amplifiers into such new markets.

PRODUCTS

  Powerwave designs and manufactures both single and multi-carrier RF power
amplifiers which are sold into the cellular and PCS markets.  The Company's
primary focus has been multi-carrier amplifiers, which are primarily sold to the
more mature cellular markets where the multi-carrier products' ability to
increase system capacity is currently growing in demand. During 1997, Powerwave
began shipping single carrier RF power amplifiers for PCS networks, principally
in the South Korean market.  Globally, PCS networks are characterized as
networks for which service providers have recently begun to establish service
and accordingly are principally concerned with coverage as opposed to system
capacity.  The Company also designs and manufactures single carrier RF power
amplifiers which are sold into the LMR markets.

  MCA SERIES.  The MCA Series offers ultra-linear multi-carrier power amplifier
technology for CDMA, TDMA and GSM digital cellular systems positioned between
800-960 MHz, as well as analog systems utilizing AMPS and  TACS protocols.
Powerwave's ultra-linear multi-carrier RF amplifiers utilize a single
feedforward loop, which allows greater operating efficiency and requires less
electrical current than competing multi-loop designs.  The Company's amplifiers
employ a microprocessor based feedforward loop design which results in improved
tracking between the pilot tone and the actual signal and reduces interference.
Powerwave's multi-carrier design also utilizes an actively switched output
combiner (3 or 4 way), which allows any number of amplifiers to be "hot-swapped"
without a significant loss of power.  This design also allows for true cold
standby switching of a standby amplifier, thereby providing network operators
with a backup redundancy solution for even greater reliability.  These
amplifiers are designed to be installed in racks of three or four amplifiers.
Smart combiner paralleling units allow for both higher power as well as system
redundancy, which is the ability of the system to remain operational in the
event of the failure of one or more of the paralleled amplifiers.  All MCA
series multi-carrier amplifiers provide remote status/fault monitoring
capabilities.

  Powerwave offers various versions of its cellular MCA series multi-carrier RF
amplifiers providing 25, 40 or 50 Watts (W) average power with maximum
distortion of up to -65dBc.  Up to 4 units can be combined in parallel utilizing
the Company's fully redundant smart combiner racks for various effective average
power ratings.

  PCS SERIES.  The PCS Series offers both single and multi-carrier amplifiers
for use in PCS networks that operate in the international DCS-1800 frequency of
1.8 gigahertz (GHz) and the United States PCS band at 1.9GHz.  Typical system
applications include CDMA, TDMA, and GSM protocols with output power ranging
from 5W to 100W.  The PCS Series of multi-carrier amplifiers offers similar
power combining, system redundancy, and remote status/fault monitoring
capabilities as the Company's MCA Series.

                                       5
<PAGE>
 
  LMR SERIES.  The LMR Series is the Company's standard single carrier analog
amplification product for LMR, paging, repeater and trunking applications.
These amplifiers operate in discreet bands within the 30 MHz to 960 MHz
frequency range with input powers ranging from 10 milliwatts to 30W and produce
output powers ranging from 30W to 250W.  These amplifiers have been designed for
simple installation and maintenance and are fully modular for serviceability in
the field.  The Company also provides broadband amplifiers for both digital and
analog applications which can be used as building blocks in larger amplification
systems or used as stand-alone amplifiers.

  The Company's multi-carrier power amplifiers range in price from $5,000 to
$15,000 per amplifier, based upon the specification requirements.  The Company's
single carrier amplifiers range in price from $500 to $6,000 per amplifier
depending upon product type and specifications.  The Company also sells racks to
install and combine multiple amplifiers, ranging in price from $1,000 to $5,000,
depending upon specifications.

CUSTOMERS

  The Company sells its products to customers worldwide.  During 1997, sales to
Hyundai, LGIC and Samsung accounted for approximately 83% of total sales. Each
of these customers accounted for more than 9% of the Company's net sales for
fiscal 1997.  The loss of any one of these customers, or a significant loss,
reduction or rescheduling of orders from any of these customers, would have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Additional Factors That May Affect Future Results -
Customer Concentration; Reliance Upon South Korean Market and Growth of Wireless
Services Market" under Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

  The Company also sells to a variety of wireless equipment suppliers, including
ADC Wireless Systems, Inc., AT&T Wireless Services, BellSouth Cellular Corp.,
Metawave Communications Corporation, Motorola Corporation, Nokia
Telecommunications Inc., Northern Telecom Limited and Uniden America
Corporation.

MARKETING AND DISTRIBUTION, INTERNATIONAL SALES

  Powerwave sells its products through a highly technical direct sales force and
through independent sales representatives.  Direct sales personnel are assigned
to geographic territories and, in addition to sales responsibilities, manage
networks of independent sales representatives within the United States.  The
Company utilizes a network of independent sales representatives selected for
their familiarity with potential customers of the Company and knowledge of the
wireless infrastructure equipment market.  Both the direct sales personnel and
independent sales representatives generate product sales, provide product and
customer service, and provide customer feedback for product development.  In
addition, the sales personnel and independent sales representatives receive
support from the Company's marketing, product support and customer service
departments.

  The Company's marketing efforts are focused on establishing and developing
long-term relationships with potential customers.  Sales cycles for certain of
the Company's products, particularly its base station power amplifiers, are
lengthy, typically ranging from 6 to 18 months.  As is customary in the
industry, sales are made through standard purchase orders which can be subject
to cancellation, postponement or other types of delays.  While certain customers
provide the Company with forecasted needs, they are not bound by such forecasts
and the Company does not recognize orders until actual purchase orders are
received from the customer.

  International sales of the Company's products amounted to approximately 67%,
77%, and 86% of net sales for the years ended December 31, 1995, December 29,
1996 and December 28, 1997, respectively.  Foreign sales of some of the
Company's products are subject to national security and export regulations and
may require the Company to obtain a permit or license.  In recent years, the
Company has not experienced any material difficulty in obtaining required
permits or licenses.  Foreign sales also subject the Company to risks related to
political upheaval and economic downturns in foreign nations and regions, such
as the economic downturn in the Asian and South Korean markets at the end of
1997.  In addition, the Company's foreign customers typically pay for the
Company's products with U.S. dollars.  As such, a strengthening of the U.S.
dollar as compared to a foreign customer's local currency effectively increases
the cost of the Company's products for that customer, thereby making the
Company's products less attractive to such customers.  The foregoing forward-
looking statements involve risks and 

                                       6
<PAGE>
 
uncertainties that could cause actual results to differ materially. See
"Additional Factors That May Affect Future Results - Risks of Doing Business in
International Markets" under Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

SERVICE AND WARRANTY

  The Company's warranties vary by product type and typically cover defects in
materials and workmanship for a period from one to five years.  Warranty
obligations and other maintenance services for the Company's products are
performed by the Company in Irvine, California and Seoul, South Korea.  The
Company currently has service employees located in South Korea and utilizes its
South Korean sales representative location to provide service support for the
Asian region.

PRODUCT DEVELOPMENT

  Powerwave intends to continue to dedicate significant resources to the
research and development of new methods to improve amplifier performance,
including reduced noise and increased power in the RF amplification process.
The Company's development efforts also seek to reduce the cost and increase the
manufacturing efficiency of existing products.  The Company's research and
development staff consisted of 76 people as of December 28, 1997.  Expenditures
for research and development amounted to approximately $2.3 million in 1995, and
$5.8 million in 1996 and $11.5 million in 1997.  The foregoing forward-looking
statements involve risks and uncertainties that could cause actual results to
differ materially.  See "Additional Factors That May Affect Future Results -
Rapid Technological Change; Dependence on New Products" under Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

COMPETITION

  The wireless communications infrastructure equipment industry is extremely
competitive and is characterized by rapid technological change, new product
development and product obsolescence, evolving industry standards and
significant price erosion over the life of a product.  The principal elements of
competition in the Company's market include performance, functionality,
reliability, pricing, quality, the ability to design products which can be
efficiently manufactured in volume production, time-to-market delivery
capabilities and standards compliance.  While the Company believes that overall
it competes favorably with respect to the foregoing elements, there can be no
assurance that it will be able to continue to do so.

  Currently, the Company competes primarily with Avantek (a division of Hewlett
Packard), AML Communications, Inc., M/A-COM, Inc. (a subsidiary of AMP, Inc.),
Microwave Power Devices, Inc. and Spectrian Corporation, in addition to the
amplifier manufacturing operations captive within certain of the leading
wireless infrastructure OEMs.  Certain of the Company's current and potential
competitors have significantly greater financial, technical, manufacturing,
sales, marketing and other resources than the Company and have achieved greater
name recognition for their existing products and technologies than has the
Company.  There can be no assurance that the Company will be able to
successfully increase its market penetration or its overall share of the
amplifier marketplace.  The Company's results of operations could be adversely
impacted if it is unable to effectively increase its share of the amplifier
marketplace.

  The Company's success depends in part upon the rate at which wireless
infrastructure OEMs incorporate the Company's products into their systems.  The
Company believes that a substantial portion of the present worldwide production
of amplifiers is captive within the internal manufacturing operations of a small
number of wireless infrastructure OEMs and that these amplifiers are offered for
sale as part of their wireless systems.  These OEMs include, among others, LM
Ericsson Telephone Company ("Ericsson"), Lucent Technologies Incorporated
("Lucent"), Motorola Corporation ("Motorola"), Nokia Telecommunications
("Nokia") and Northern Telecom Limited ("Nortel").  In addition, Samsung, a
significant customer of the Company, manufactures power amplifiers in addition
to purchasing such products from the Company.  LGIC, another significant
customer of the Company, announced in February 1997 that it entered into a
relationship with Spectrian Corporation under which Spectrian Corporation will
transfer technology to manufacture certain amplifier products to LGIC.  The
Company believes 

                                       7
<PAGE>
 
that OEMs, as well as other customers of the Company, continuously evaluate
whether to manufacture their own RF power amplifiers rather than purchase them
from third-party vendors such as the Company. These and other large
manufacturers of wireless infrastructure equipment could also determine to offer
and sell their RF power amplifiers to other OEMs or customers of the Company and
compete directly with the Company. In addition, these or other OEMs may enter
into joint ventures or strategic relationships with the Company's competitors,
in which event the Company's ability to sell products to such OEMs could be
reduced or eliminated. The Company's results of operations, net sales and
profitability could be adversely impacted if certain OEMs were to actively
market amplifier products in direct competition with the Company or manufacture
amplifiers internally or enter into joint ventures or other strategic
relationships with the Company's competitors. The foregoing forward-looking
statements involve risks and uncertainties that could cause actual results to
differ materially. See "Additional Factors That May Affect Future Results -
Internal Production Capabilities of OEMs" under Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

  The Company has experienced significant price competition and expects price
competition in the sale of RF power amplifiers to increase.  No assurance can be
given that the Company's competitors will not develop new technologies or
enhancements to existing products or introduce new products that will offer
superior price or performance features.  The Company expects its competitors to
offer new and existing products at prices necessary to gain or retain market
share.  Certain of the Company's competitors have substantial financial
resources, which may enable them to withstand sustained price competition or a
downturn in the market better than the Company.  There can be no assurance that
the Company will be able to compete successfully in the pricing of its products,
or otherwise, in the future. The foregoing forward-looking statements involve
risks and uncertainties that could cause actual results to differ materially.
See "Additional Factors That May Affect Future Results - Declining Average Sales
Prices" under Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

BACKLOG

  The Company's backlog of orders was approximately $45.9 million on December
28, 1997 compared to approximately $37.2 million on December 29, 1996.  A
substantial portion of the backlog at December 28, 1997 is attributable to
orders from customers for the South Korean market.  Based upon recent
discussions with its South Korean customers, the Company now believes that the
current prolonged period of continued economic and market uncertainty within
South Korea will result in either postponed, rescheduled or possibly cancelled
orders with the Company's South Korean customers.  Such postponements or
cancellations will significantly reduce the amount of the Company's backlog of
orders.  The Company includes in its backlog all the accepted product purchase
orders with respect to which a delivery schedule has been specified for product
shipment within six months.  Product orders in the Company's backlog are subject
to changes in delivery schedules or to cancellation at the option of the
purchaser without significant penalty.  The Company regularly reviews its
backlog of orders to ensure that it adequately reflects product orders expected
to be shipped within a six-month period.  The Company makes adjustments as
customer delivery schedules change as well as in response to changes in the
Company's production schedule.  Accordingly, the Company stresses that although
useful for scheduling production, backlog as of any particular date may not be a
reliable indicator of sales for any future period.

MANUFACTURING AND SUPPLIERS

  The Company's headquarters and manufacturing facility is located in Irvine,
California.  The Company's manufacturing process involves the assembly of
numerous individual components and precise fine-tuning by technically oriented
production personnel.  The parts and materials used by the Company consist
primarily of printed circuit boards, specialized subassemblies, fabricated
housings, relays, and small electric circuit components, such as integrated
circuits, semiconductors, resistors and capacitors.

  The Company currently procures, and expects to continue to procure, certain
components from single source manufacturers due to unique component designs as
well as certain quality and performance requirements.  In addition, in order to
take advantage of volume pricing discounts, the Company purchases certain
customized components from single sources.  The Company has experienced, and may
in the future experience, shortages of 

                                       8
<PAGE>
 
single source components. In such event, the Company may have to make
adjustments to both product designs and production schedules which could result
in delays in production and delivery of products. Such delays could have an
adverse affect on the Company's operating results and financial condition. The
foregoing forward-looking statements involve risks and uncertainties that could
cause actual results to differ materially. See "Additional Factors That May
Affect Future Results - Dependence on Single Sources for Key Components" under
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations."

  The Company has received ISO 9001 certification, a uniform worldwide quality-
control standard.  Numerous customers and potential customers throughout the
world, particularly in Europe, require that their suppliers be ISO certified.
In addition, many such customers require that their suppliers purchase
components only from subcontractors that are ISO certified.

INTELLECTUAL PROPERTY

  The Company relies primarily upon trade secrets to protect its intellectual
property.  The Company generally enters into confidentiality and non-disclosure
agreements with its employees and limits access to and distribution of its
proprietary information.  In addition, the Company has applied for a U.S. patent
for its proprietary implementation of feedforward technology and regularly
examines various aspects of its technology for possible patent applications.
The Company believes that its success depends upon the knowledge and experience
of its management and technical personnel and its ability to market its existing
products and to develop new products.

  The Company's ability to compete successfully and achieve future revenue
growth will depend, in part, on its ability to protect its proprietary
technology and operate without infringing upon the rights of others.  There can
be no assurance that these measures will successfully protect the Company's
intellectual property or that the Company's intellectual property or proprietary
technology will not otherwise become known or be independently developed by
competitors.  In addition, the laws of certain countries in which the Company's
products are or may be sold may not protect the Company's products and
intellectual property rights to the same extent as the laws of the United
States.  The inability of the Company to protect its intellectual property and
proprietary technology could have a material adverse effect on its business,
results of operations and financial condition. As the number of patents,
copyrights and other intellectual property rights in the Company's industry
increases, and as the coverage of these rights and the functionality of the
products in the market further overlap, the Company believes that its products
may increasingly become the subject of infringement claims.  The Company may in
the future be notified that it is infringing upon certain patent or other
intellectual property rights of others.  Although the Company has not received
any such notification to date and there are no pending or threatened
intellectual property lawsuits against the Company, there can be no assurance
that such litigation or infringement claims will not occur in the future.  Such
litigation or claims could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
results of operations and financial condition.  A third party claiming
infringement may also be able to obtain an injunction or other equitable relief,
which could effectively block the ability of the Company or its customers to
distribute, sell or import into the United States allegedly infringing products.
If it appears necessary or desirable, the Company may seek licenses under
patents or other rights from third parties covering intellectual property that
the Company is allegedly infringing.  No assurance can be given, however, that
any such licenses could be obtained on terms acceptable to the Company, if at
all.  The failure to obtain the necessary licenses or other rights could have a
material adverse effect on the Company's business, results of operations and
financial condition.

EMPLOYEES

  As of December 28, 1997, the Company had 442 full and part-time employees,
including 76 in research and development, 13 in sales and marketing and 38 in
corporate and administration.  None of the Company's employees are represented
by a union.  The Company believes that its relations with its employees are
good.


ITEM 2.  PROPERTIES

                                       9
<PAGE>
 
  The Company's Irvine, California headquarters and manufacturing facility
occupy a 105,000 square foot building under a lease expiring in 2006.  The
Company believes that its current facilities provide adequate expansion
capabilities for its operations.  The Company sublet to an unrelated party
approximately 27,000 square feet until October 1997, at which time the sublease
expired and the Company retook possession of this space.

ITEM 3.  LEGAL PROCEEDINGS

  The Company is not currently a party to any material litigation.  The Company
is, from time to time, a party to routine litigation incidental to its business,
none of which, individually or in the aggregate, is expected to have a material
adverse effect on the Company.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 No matters were submitted to a vote of security holders during the fourth
quarter of 1997.


                                    PART II

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

  (a) Powerwave's Common Stock is quoted on the Nasdaq National Market System
under the symbol PWAV.  Set forth below are the high and low sales prices as
reported by Nasdaq for the Company's Common Stock for the periods indicated.
<TABLE>
<CAPTION>
                                                  High          Low
                                                -------       -------
<S>                                             <C>           <C>
Fiscal Year 1996
----------------
 
December 6, 1996 through December 29, 1996      $16 1/4       $11
 
Fiscal Year 1997
----------------
 
First Quarter Ended March 30, 1997              $25           $14
Second Quarter Ended June 29, 1997              $23 7/8       $14 1/2
Third Quarter Ended September 28, 1997          $45 1/4       $21 3/8
Fourth Quarter Ended December 28, 1997          $49           $13 1/8
</TABLE>

  There were approximately 55 security holders of record as of February 2, 1998.
The Company believes there are approximately 2,000 shareholders of the Company's
Common Stock held in street name.  The Company has not paid any dividends to
date and does not anticipate paying any dividends on the Common Stock in the
foreseeable future.  The Company anticipates that all future earnings will be
retained to finance future growth.  The Company's bank credit agreement
currently restricts the Company from paying cash dividends without the prior
written consent of the bank.

  (b) From time to time during fiscal 1997, the Company issued an aggregate
total of 510,334 shares of Common Stock to officers, directors and employees
upon the exercise of stock options granted prior to fiscal 1997 under the
Company's 1995 Stock Option Plan (the "1995 Plan") and 1996 Stock Incentive Plan
(the "1996 Plan") at prices ranging from $2.47 to $11.50 per share.  The Company
received aggregate proceeds of approximately $1,638,409 from these exercises.

  From time to time during fiscal 1997, the Company issued an aggregate total of
435,050 nonqualified stock options to purchase Common Stock pursuant to the
Company's 1995 Plan, 1996 Plan and 1996 Director Stock Option Plan to officers,
directors and employees of the Company, of which no options were exercised.  Of
this total, 131,750 options were granted pursuant to the 1995 Plan, 288,300
options were granted pursuant to the 1996 Plan, 

                                       10
<PAGE>
 
and 15,000 options were granted pursuant to the 1996 Director Stock Option.
Exemption from the registration provisions of the Securities Act of 1933 (the
"Act") is claimed, among other exemptions, with respect to the grant of options
referred to above, on the basis that the grant of options did not involve a
"sale" of securities and, therefore, registration thereof was not required and,
with respect to the exercise of options referred to above, on the basis that
such transactions met the requirements of Rule 701 as promulgated under Section
3(b) of the Act.

  During fiscal 1997 the Company utilized approximately $6.9 million of the net
proceeds from its December 6, 1996 IPO for capital expenditures.  The Company
also utilized $8.8 million of the proceeds to repurchase shares of its Common
Stock in open market transactions.  These repurchases began in December 1997.
The remaining net proceeds from the IPO of $6.5 million have been invested in
short-term, investment-grade money market instruments.  The $20.6 million of net
proceeds from the Company's secondary Common Stock offering on June 30, 1997,
have also been invested in short-term, investment-grade money market
instruments.

ITEM 6.  SELECTED FINANCIAL DATA

  The Company's consolidated statements of income data for the fiscal years
ended December 28, 1997, December 29, 1996, and December 31, 1995 and balance
sheet data as of December 28, 1997 and December 29, 1996 included herein have
been audited by Deloitte & Touche LLP, independent auditors.  The information
set forth below is not necessarily indicative of the results of future
operations and should be read in conjunction with the consolidated financial
statements and notes thereto appearing elsewhere in this Annual Report on Form
10-K.

<TABLE>
<CAPTION>
 
                                                                              Year Ended
                                              -----------------------------------------------------------------------------
                                                December 28,     December 29,   December 31,    December 31,   December 31,
                                                    1997             1996           1995            1994           1993
                                              ----------------   ------------   -------------   ------------   ------------
                                                                  (in thousands, except per share date)
                                              
<S>                                           <C>                <C>            <C>             <C>            <C>
OPERATIONS DATA:
Net sales                                             $119,709        $60,331        $36,044         $22,861         $8,717
Gross profit                                            48,682         25,561         13,331           8,395          2,150
Operating income                                        23,257         12,435          7,563           4,875            623
Net income                                            $ 16,191        $ 7,622        $ 4,480         $ 2,946         $  351
Net income and pro forma net
    income per share - basic (1)                          $.95           $.54           $.32
Net income and pro forma
    net income per share - diluted (1)                    $.92           $.52           $.31
Weighted average and pro forma
    weighted average common shares -
    basic (1)                                           16,958         14,181         14,063
Weighted average and pro forma
    weighted average common shares -
    diluted (1)                                         17,436         14,606         14,475
 
BALANCE SHEET DATA:
Cash and cash equivalents                             $ 67,433        $32,386        $ 5,861         $ 3,030         $  359
Working capital                                         67,511         33,243          9,640           3,486            679
Total assets                                           101,683         46,932         16,463           9,551          4,446
Long-term debt                                             659            520            138             176             56
Series A Convertible Preferred Stock                         -              -         14,498               -              -
Total shareholders' equity (deficit)                  $ 75,480        $36,843        $(3,878)        $ 4,142         $1,196
</TABLE>

(1) 1995 and 1996 shares outstanding give effect to the conversion of 3,375,900
shares of Series A Convertible Preferred Stock into 5,063,850 shares of Common
Stock and the reversal of accrued dividends payable thereon which occurred upon
the completion of the Company's initial public offering of Common Stock on
December 6, 1996.  See Note 1 of the notes to the consolidated financial
statements.

                                       11
<PAGE>
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

  The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto.


RESULTS OF OPERATIONS

  The following table summarizes the Company's results of operations as a
percentage of net sales for the fiscal years ended December 28, 1997, December
29, 1996 and December 31, 1995.

<TABLE>
<CAPTION>
 
                                             As a Percentage of Net Sales
                                     ---------------------------------------------
                                                   Fiscal Year Ended
                                     ---------------------------------------------
                                     DECEMBER 28,    DECEMBER 29,    DECEMBER 31,
                                         1997            1996            1995
                                     -------------   -------------   -------------
<S>                                  <C>             <C>             <C>
Net sales                               100.0%          100.0%          100.0%
Cost of sales                            59.3            57.6            63.0
                                        -----           -----           -----
Gross profit                             40.7            42.4            37.0
Operating expenses:
     Sales and marketing                  7.6             7.2             4.3
     Research and development             9.6             9.6             6.3
     General and administrative           4.1             5.0             5.4
                                        -----           -----           -----
Total operating expenses                 21.3            21.8            16.0
                                        -----           -----           -----
 
Operating income                         19.4            20.6            21.0
Other Income (expense)                    2.2             0.8             0.1
                                        -----           -----           -----
 
Income before income taxes               21.6            21.4            21.1
Provision for income taxes                8.1             8.8             8.7
                                        -----           -----           -----
 
Net income                               13.5%           12.6%           12.4%
                                        =====           =====           =====
</TABLE>

YEARS ENDED DECEMBER 28, 1997 AND DECEMBER 29, 1996


Net Sales

  The Company's net sales are primarily from the sale of RF power amplifiers for
use in wireless communications networks.  Sales increased by 98.4% from $60.3
million for the year ended December 29, 1996 to $119.7 million for the year
ended December 28, 1997.  The growth in revenue was primarily attributable to
shipments of the Company's new single carrier PCS amplifier products (which
began volume shipments in the second quarter of fiscal 1997), as well as
increased sales of the Company's cellular multi-carrier amplifiers.  For 1997,
the Company's single carrier PCS amplifiers were being utilized in the
deployment of the new PCS networks being built in South Korea and a majority of
the Company's cellular multi-carrier amplifiers sold during the year were being
utilized in the continued deployment of the digital cellular CDMA networks in
South Korea.  The Company's cellular multi-carrier amplifiers are also being
used in cellular systems of wireless network operators in the North American and
international markets outside of Asia.  The Company currently estimates that the
deployment of the digital cellular CDMA networks in South Korea is approximately
70% completed and that the initially planned deployment of the PCS networks
within South Korea is approximately 30% completed.  Given the current unstable
economic environment within South Korea and Asia in general, the Company is
unable to estimate the level of future deployments of these networks or when
such deployments can be expected to be completed.  The reduction or stoppage of
these deployments will have an adverse effect on the Company's business, results
of operations and financial condition.  For additional discussion of the risks
associated with the Company's South Korea business, see "Additional Factors That
May Affect Future Results - Customer Concentration; Reliance Upon South Korean
Market and Growth of Wireless Services Market; and Risks of Doing Business in
International Markets."

                                       12
<PAGE>
 
  For the year ended December 28, 1997, cellular multi-carrier amplifiers
(including racks) accounted for approximately 61.0% of revenues or $73.1
million, compared to approximately 79.5% or $48.0 million for fiscal 1996. Sales
of amplifiers and associated products for PCS networks (consisting mainly of
single-carrier amplifiers) accounted for approximately 33.7% of revenues or
$40.4 million in 1997 compared to 1.1% or $0.7 million for 1996. LMR and paging
amplifiers accounted for approximately 5.2% of revenues or $6.2 million for
1997, compared to approximately 10.8% or $6.5 million for 1996.  Air-to-ground
amplifiers accounted for no revenues  during 1997 compared to 8.6% of revenues
or $5.2 million for 1996.  In January 1997, In-Flight Phone Corporation, one of
the Company's major customers for air-to-ground amplifiers during 1996, filed
for Chapter 11 Bankruptcy protection.  The Company had previously fully reserved
its accounts receivable exposure to this customer and this bankruptcy filing has
not had any material impact on the Company's business, results of operations or
financial condition.

  Total international sales, primarily to three customers in South Korea,
accounted for 86.2% of revenues for 1997, compared with 77.2% for 1996. Total
sales to customers in South Korea for 1997 accounted for approximately 83.0% of
revenues or $99.3 million, which was a 117% increase over 1996 South Korean
sales of $45.8 million or 75.8% of 1996 total sales.  This growth in 1997 South
Korean revenues was largely due to the ramp-up of products for deployment in the
new PCS networks in South Korea which began deployment during 1997.  Breaking
down the total sales to South Korea for 1997, approximately 60% of South Korean
sales or $59.4 million were for multi-carrier cellular products, with the
remaining 40% or $39.8 million for single carrier PCS products.  As a
comparison, for 1996 total sales of PCS products to South Korea accounted for
approximately 1% of South Korean sales or $0.5 mi1lion, with the remaining 99%
or $45.0 million coming in the form of multi-carrier cellular products.  For
further discussion of the risks associated with the Company's sales to its
customers in South Korea, see "Additional Factors That May Affect Future Results
- Customer Concentration; Reliance upon South Korean Market and Growth of
Wireless Services Market."

Gross Profit

  Cost of sales consists primarily of raw materials, assembly and test labor,
overhead, warranty costs and royalties.  Gross profit margins for 1996 and 1997
were 42.4% and 40.7% respectively. The decrease in gross margins was primarily
attributable to the introduction and volume shipments of the new single carrier
PCS products which have lower prices and gross margins.  The Company anticipates
that its sales of single carrier amplifiers for both PCS and cellular networks,
which have lower sales prices and lower gross margins, will continue to account
for a measurable portion of revenues which will accordingly impact the Company's
total gross margins. While the Company continues to strive for manufacturing
cost reductions to offset pricing pressures on its products, there can be no
assurance that these cost reduction efforts will continue to keep pace with
price declines.  If the Company is unable to continue to obtain cost reductions,
its gross margins and profitability will be adversely affected.  For a
discussion of the effects of declining average sales prices on the Company's
business, see "Additional Factors That May Affect Future Results - Declining
Average Sales Prices.

  The wireless communications infrastructure equipment industry is extremely
competitive and is characterized by rapid technological change, new product
development and product obsolescence, evolving industry standards and
significant price erosion over the life of a product.  In addition with expected
slowdowns in demand for wireless infrastructure equipment from the Asian
markets, pricing competition among suppliers to the remaining world markets is
expected to intensify.  Due to these competitive pressures, the Company expects
that the average sales prices of its products will continue to decrease.  The
Company has introduced new products at lower sales prices which has impacted the
average sales prices of the Company's products. Future pricing actions by the
Company and its competitors may also adversely impact the Company's gross profit
margins and profitability, which could also result in decreased liquidity and
adversely affect the Company's business, results of operations and financial
condition. For a discussion of the impact of new products on the Company's
business, see "Additional Factors That May Affect Future Results - Rapid
Technological Change; Dependence on New Products."

                                       13
<PAGE>
 
Operating Expenses

  Sales and marketing expenses consist primarily of sales commissions, salaries
and other expenses for sales and marketing personnel, travel expenses, reserves
for credit losses and trade show expenses.  Sales and marketing expenses
increased by 107.4% from $4.4 million for the year ended December 29, 1996, to
$9.1 million for the year ended December 28, 1997.  Sales and marketing expenses
as a percentage of sales were 7.2% and 7.6%, respectively.  The increase in
sales and marketing expenses during 1997 was primarily attributable to increases
in the sales and marketing staff and increased sales commissions related to
increased product sales.

  Research and development expenses include ongoing amplifier design and
development expenses, as well as those design expenses associated with reducing
the cost and improving the manufacturability of existing amplifiers.  Research
and development expenses increased by 99.0% from $5.8 million for the year ended
December 29, 1996,  to $11.5 million for the year ended December 28, 1997.
Research and development expenses as a percentage of sales were 9.6% and 9.6%,
respectively.  The increase in actual research and development expenses during
1997 was primarily attributable to increased staffing and associated engineering
costs related to continued new product development, including the Company's new
single carrier PCS amplifiers and its higher powered multi-carrier linear RF
power amplifiers for cellular networks and ongoing product enhancements for both
cellular and PCS products.  The Company intends to continue to emphasize
investment in research and development programs in future periods with current
programs covering both PCS and cellular products.

  General and administrative expenses consist primarily of salaries and other
expenses for management, finance, facilities maintenance and human resources.
General and administrative expenses increased by 63.5% from $3.0 million for the
year ended December 29, 1996 to $4.9 million for the year ended December 28,
1997.  General and administrative expenses as a percentage of sales were 5.0%
and 4.1%, respectively.  The increase in actual general and administrative
expenses during 1997 was primarily attributable to increased staffing costs
associated with supporting the Company's increased revenues and personnel.

Other Income

  The Company earned other income of $2.6 million in 1997 compared to $.5
million for 1996.  Other income consists primarily of interest income, net of
any interest expense.  The increase in net interest income is attributable to
the larger cash balances the Company maintained during 1997 compared to the cash
balances maintained during 1996.  The larger cash balances were due to the
Company's initial public offering in December 1996 and its secondary Common
Stock offering in June 1997, as well as cash flow generated from operations.
The larger cash balances were invested in short-term, investment-grade money
market instruments.

Provision for Income Taxes

  The Company's effective tax rate was 41.0% and 37.4% for the years ending
December 29, 1996 and December 28, 1997, respectively.  The decrease in the
Company's effective tax rate was due to tax benefits from increased
international sales.

YEARS ENDED DECEMBER 29, 1996 AND DECEMBER 31, 1995

Net Sales

  Net Sales increased by 67.4% from $36.0 million for the year ended December
31, 1995 to $60.3 million for the year ended December 29, 1996.  The growth in
revenue was primarily attributable to increased demand for cellular multi-
carrier amplifiers, partially offset by a decrease in sales of LMR and paging
amplifiers.  Fiscal 1996 saw continued growth in the demand for cellular multi-
carrier amplifiers by the Company's South Korean customers as they continued
deployment of the digital cellular CDMA networks in South Korea.  For the year
ended 1996, cellular multi-carrier amplifiers (including racks) accounted for
approximately 79.5% of revenues or $48.0 million, compared to approximately
54.5% or $19.6 million for 1995.  LMR and paging amplifiers accounted for
approximately 10.8% or $6.5 million of revenues for 1996, compared to
approximately 29.1% or $10.5 million of 

                                       14
<PAGE>
 
revenues for 1995. Air-to-ground amplifiers accounted for approximately 8.6% or
$5.2 million for fiscal 1996, compared to 15.4% or $5.6 million for 1995. PCS
products accounted for 1.1% of revenues or $0.7 million in 1996 compared to none
for 1995. International sales accounted for 77.2% of revenues for 1996, compared
with 67.1% for 1995.

Gross Profit

  Gross profit margins for 1995 and 1996 were 37.0% and 42.4%, respectively.
The increase in gross margins during 1996 was primarily attributable to
reductions in manufacturing costs and a shift in sales mix to cellular, multi-
carrier amplifiers which achieved a higher percentage of sales, generating
improved gross margins.

Operating Expenses

  Sales and marketing expenses increased by 180.3% from $1.6 million for the
year ended December 31, 1995 to $4.4 million for the year ended December 29,
1996.  Sales and marketing expenses as a percentage of sales were 4.3% and 7.2%,
respectively.  The increase in sales and marketing expenses during 1996 was
primarily attributable to increases in the sales and marketing staff and sales
commissions related to increased product sales.  In addition, during 1996 a
North American manufacturer's sales representative organization was established.

  Research and development expenses increased by 156.2% from $2.3 million for
the year ended December 31, 1995 to $5.8 million for the year ended December 29,
1996.  Research and development expenses as a percentage of sales were 6.3% and
9.6%, respectively.  The increase in research and development expenses during
1996 was primarily attributable to increased staffing and associated engineering
costs related to continued new product development, including the Company's
second generation multi-carrier linear RF amplifier for cellular networks and
ongoing product enhancements.  In addition, during the second quarter of 1996,
the Company initiated its ongoing  research and development work on amplifier
products for the rapidly developing PCS market.

  General and administrative expenses increased by 52.7% from $2.0 million for
the year ended December 31, 1995 to $3.0 million for the year ended December 29,
1996.  General and administrative expenses as a percentage of sales were 5.4%
and 5.0%, respectively.  The increase in actual general and administrative
expenses during 1996 was primarily attributable to increased staffing costs
associated with supporting the Company's increased revenues and personnel.  In
addition, during 1996 there were significant expenses associated with an upgrade
of the Company's computer systems and controls.

Other Income

  The Company earned net interest income of $.5 million in 1996 compared to
$32,000 for 1995.  The increase in interest income is attributable to the larger
cash balances the Company maintained during 1996 which were invested in short-
term money market instruments.

Provision for Income Taxes

  The Company's effective tax rate was 41.0% for both years ending December 31,
1995 and December 29, 1996.

LIQUIDITY AND CAPITAL RESOURCES

  The Company has historically financed its operations primarily through a
combination of cash on hand, cash provided from operations, equipment lease
financings, available borrowings under its bank line of credit and both private
and public equity offerings.  As of December 28, 1997, the Company had working
capital of $67.5 million, including $67.4 million in cash and cash equivalents
as compared with working capital of $33.2 million and cash and cash equivalents
of $32.4 million at December 29, 1996.  The increase in cash balances from 1996
to 1997 is primarily attributable to the sale of the over-allotment common
shares in January 1997 related to the Company's IPO which raised $3.9 million,
the Company's secondary offering of Common Stock in June 1997 which raised
approximately $20.6 million, and cash flow from operations.

                                       15
<PAGE>
 
  Cash provided by operations was approximately $.9 million, $11.2 million and
$22.8 million in 1995, 1996, and 1997, respectively. The significant increases
in cash generated from operations during both 1996 and 1997 was primarily a
result of increased profitability, as well as improved inventory and working
capital management associated with the Company's increasing revenue base.

  On October 10, 1995, the Company and certain shareholders entered into a Stock
Purchase Agreement with two venture capital fund investors in which the Company
sold a total of 3,375,900 shares of Series A Convertible Preferred Stock at an
aggregate price of $15.0 million.  As part of these transactions, the Company
subsequently purchased 5,063,850 shares of its Common Stock from certain
shareholders for an aggregate price of $12.5 million.  The Company received net
proceeds from this transaction of $2.0 million. This Series A Convertible
Preferred Stock was converted into Common Stock, at a rate of one and one-half
(1.5) shares of Common Stock for each Series A Convertible Preferred Stock, due
to the successful completion of the December 1996 IPO.  A total of 5,063,850
Common Shares were issued upon conversion.

  Capital expenditures were approximately $3.8 million and $6.9 million in 1996
and 1997, respectively, of which approximately $.7 million was financed through
capital leases in 1996 and $.8 million in 1997.  The Company relocated its
headquarters and manufacturing operations to a new leased facility in July 1996.
Leasehold improvements and capital expenditures associated with this facility
totaled approximately $2.0 million and were substantially completed during the
third quarter of 1996.  The remainder of capital spending in 1996 and the
majority of capital spending in 1997 largely represents spending on electronic
test equipment utilized in both the Company's manufacturing and research and
development areas.

  On May 30, 1996, the Company entered into a $5 million unsecured committed
revolving credit agreement which expired, unused, on May 31, 1997.  On August
21, 1997, the Company entered into a new $10 million unsecured revolving credit
agreement.  This credit agreement contains covenants regarding certain financial
ratios and activities of the Company.  The Company is required to pay a
commitment fee equal to .1% per annum on the average daily unused portion of the
facility.  The commitment fee is payable quarterly in arrears.  The agreement
allows the Company to borrow at the bank's reference rate (8.5% at December 28,
1997) or the bank's LIBOR rate plus 1.25% per annum, all at the Company's
option.  Effective December 11, 1997, the Company amended the credit agreement
to allow for repurchases of the Company's Common Stock by the Company in amounts
up to $25 million.  The Company was in compliance with all covenants at December
28, 1997 and no amounts were outstanding under the facility.  The agreement
terminates on July 31, 1998.

  On December 11, 1997 the Company's Board of Directors authorized the Company
to repurchase up to one million shares of its Common Stock in open market
transactions.  The Company plans to utilize the repurchased shares in its
employee stock option programs covering future option grants.  During the fiscal
fourth quarter ended December 28, 1997, the Company repurchased a total of
510,000 shares of its Common Stock at a total cost of $8.8 million.

  The Company had cash and cash equivalents of $67.4 million at December 28,
1997, compared with $32.4 million at December 29, 1996.  The Company regularly
reviews its cash funding requirements and attempts to meet those requirements
through a combination of cash on hand, cash provided by operations, available
borrowings under any credit facilities, financing through equipment lease
transactions, and possible future public or private debt and/or equity
offerings.  The Company invests its excess cash in short-term, investment-grade
money market instruments.

  The Company believes that existing cash balances, funds expected to be
generated from operations and borrowings under its bank line of credit will
provide the Company with sufficient funds to finance its operations for at least
the next 12 months.  The Company has utilized lease financing for equipment used
in its manufacturing and research and development operations and expects to
continue to do so in the future.  In the future, the Company may require
additional funds to support its working capital requirements or for other
purposes, and may seek to raise such additional funds through the sale of public
or private equity and/or debt financings or from other sources.  No 

                                       16
<PAGE>
 
assurance can be given that additional financing will be available or that, if
available, such financing will be obtainable on terms favorable to the Company
or its shareholders when the Company may require it.

DISCLOSURE ABOUT FOREIGN CURRENCY RISK

  The majority of the Company's revenues are derived from international sources,
with the Company's customers in South Korea accounting for the significant
majority of such revenues.  While the Company currently invoices all of its
customers in U.S. dollars, changes in the value of the U.S. dollar versus the
local currency in which the Company's products are sold, along with the economic
and political conditions of such foreign countries, could adversely affect the
Company's business, results of operations and financial condition.  In addition,
the weakening of an international customer's local currency and banking market
may negatively impact such customer's ability to meet their payment obligations
to the Company.  While the Company currently believes that its international
customers have the ability to meet all of their obligations to the Company,
there can be no assurance that they will continue to be able meet such
obligations.  The Company regularly monitors the credit worthiness of its
international customers and makes credit decisions based on both prior sales
experience with such customers as well as current financial performance and
overall economic conditions.  Due to competitive reasons, the Company may decide
in the future to offer certain foreign customers extended payment terms and/or
sell certain products or services in the local currency of such customers.

  Certain countries in Asia, including South Korea, have recently experienced
weaknesses in their currencies, banking systems and equity markets.  These
weaknesses have adversely affected South Korean wireless service operators'
demand for the Company's products.  The Company's foreign customers pay for the
Company's products with U.S. dollars.  As such, the recent strengthening of the
U.S. dollar as compared to such foreign currencies as the South Korean Won, has
effectively increased the cost of the Company's products by as much as 100% or
more for its South Korean customers.  The significant increase in the local
currency based cost of such products makes them less attractive to such
customers.  Accordingly, changes in exchange rates, and in particular a
strengthening of the U.S. dollar, may negatively impact the Company's future
sales and gross margins.  For further discussion of the risks associated with
the Company's international sales, see "Additional Factors That May Affect
Future Results - Risks of Doing Business in International Markets."

YEAR 2000 COMPLIANCE

  In the next two years, many companies will face a potentially serious
information systems (computer) problem because many software applications and
operational programs written in the past may not properly recognize calendar
dates beginning in the Year 2000.  This problem could force computers to either
shut down or provide incorrect data or information.  The Company has examined
its computer systems and contacted its software providers to determine whether
the Company's software applications are compliant with the Year 2000.
Subsequent to December 28, 1997, the Company has completed the last upgrade to
its computer operating system such that the Company has now been assured by its
software providers that its computer systems are fully compliant with the Year
2000.  It is not possible to quantify the aggregate cost to the Company of such
upgrades since they were part of the software and hardware providers normal
upgrades to the Company's systems.   While the Company believes that its systems
are fully Year 2000 compliant, the Company intends to continue to review its
information systems for any possible problems as well as monitor its key
customers and suppliers for any impact that the Year 2000 may have on their
information systems which could then impact the Company.  Software sold with the
Company's products is Year 2000 compliant.  The Company does not currently
anticipate that the Year 2000 programming issue will have a material impact on
its business, results of operations or financial condition.

NEW ACCOUNTING PRONOUNCEMENTS

  In June 1997, the FASB issued FASB No. 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and display of comprehensive income
and its components (revenue, expenses, gains and losses) in a full set of
general-purpose financial statements.  The Company will adopt SFAS No. 130 in
its fiscal year 1998.

                                       17
<PAGE>
 
  In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of
Enterprise and Related Information," which changes the way public companies
report information about operating segments.  SFAS No. 131, which is based on
the management approach to segment reporting, establishes requirements to report
selected segment information quarterly and to report entity-wide disclosures
about products and services, major customers and the material countries in which
the entity holds assets and reports revenue.  Management is reviewing the impact
of this statement on its reporting of segment information.  The Company will
adopt SFAS No. 131 in its fiscal year 1998.

ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS

  Future operating results may be impacted by a number of factors that could
cause actual results to differ materially from those stated herein, which
reflect management's current expectations.  These factors include worldwide and
regional economic and political conditions, industry specific factors, the
Company's ability to add new customers to reduce its dependence on existing
customers, the Company's ability to finance its activities and maintain its
financial liquidity, the Company's ability to timely develop and produce
commercially viable products at competitive prices, the Company's ability to
produce products which meet the quality standards of both existing and potential
new customers, the ability of the Company's products to operate and be
compatible with various OEMs' base station equipment, the availability and cost
of components, the Company's ability to manage expense levels, and the Company's
ability to accurately anticipate customer demand.

Customer Concentration

  A small number of customers account for a substantial majority of the
Company's net sales.  Although the Company is attempting to expand its customer
base, the Company expects that a limited number of customers will continue to
represent a substantial portion of the Company's net sales for the foreseeable
future.  The Company believes that its future success depends upon its ability
to broaden its customer base.  The Company's three largest customers include, in
alphabetical order, Hyundai, LGIC and Samsung.  For the year ended December 28,
1997, these customers, each of which accounted for more than 9% of the Company's
net sales for such period, accounted for approximately 83% of the Company's net
sales.  For fiscal 1996, these same three customers accounted for approximately
75% of the Company's net sales.  Hyundai, LGIC and Samsung currently purchase
products for implementation in the South Korean digital cellular telephone
networks and the South Korean PCS networks. The Company currently believes that
the prolonged period of continued market uncertainty and economic instability in
South Korea and Asia in general, will result in either postponed, rescheduled or
possibly cancelled orders from its South Korean customers.  The delay or
cancellation of orders by the Company's South Korean customers would have a
material adverse effect on the Company's business, results of operations and
financial condition.  The delay or termination of the implementation of the
South Korean digital cellular telephone and PCS networks would have a material
adverse effect on the Company's business, results of operations and financial
condition.  In addition, the Company believes that the South Korean digital
cellular networks are more than 70% completed and that the build-out of these
networks will be completed over the next year.  Due to the current economic
issues, the Company currently believes that the final completion of the build-
out of the South Korean wireless networks is dependent upon a stabilization of
economic, currency and banking conditions within South Korea.  It is currently
anticipated that the continued deployments of both the cellular and PCS digital
networks will be delayed until such time that economic conditions become
stabilized from a long-term perspective.   Accordingly, the Company is unable to
predict when, if ever, these networks will be completed pursuant to the South
Korean wireless network operators' original projections.  In any event, sales
related to these networks are anticipated to decrease significantly.

  A limited number of large OEMs account for a majority of RF power amplifier
purchasers in the wireless infrastructure market, and the Company's success will
be dependent upon its ability to establish and maintain relationships with these
types of customers.  There can be no assurance that a major customer will not
reduce, delay or eliminate its purchases from the Company, which could have a
material adverse effect on the Company's business, results of operations and
financial condition.  In addition, major customers also have significant
leverage and may attempt to change the terms, including pricing, payment and
product delivery schedules, upon which the Company and such customers do
business, thereby adversely affecting the Company's business, results of
operations and financial condition.  Further, one or more of these customers may
determine to manufacture amplifiers internally, thus reducing 

                                       18
<PAGE>
 
or eliminating its purchases from the Company and possibly becoming a direct
competitor of the Company. See "--Internal Amplifier Production Capabilities of
OEMs." As a result, the Company's success will depend upon its ability to expand
its customer base and, in particular, to successfully market its products to
OEMs for wireless networks and have its products chosen over any internally
designed or manufactured products.

  The Company currently sells to its major customers under purchase orders which
are usually placed with short-term delivery requirements.  As such, while the
Company receives periodic order forecasts from its major customers, such
customers have no obligation to purchase the forecasted amounts and may cancel
orders, change delivery schedules or change the mix of products ordered with
minimal notice.  Nonetheless, the Company maintains significant work-in-progress
and raw materials inventory as well as maintaining increased levels of technical
production staff to meet order forecasts.  To the extent its major customers
purchase less than the forecasted amounts or cancel or delay existing purchase
orders, the Company will have higher levels of inventory than otherwise needed,
increasing the risk of obsolescence, and the Company will have increased levels
of production staff to support such forecasted orders.  Such higher levels of
inventory and increased employee levels would reduce the Company's liquidity and
could have a material adverse effect on the Company's business, results of
operations and financial condition.  In addition, in the event the Company's
major customers desire to purchase products in excess of the forecasted amounts,
the Company may not have sufficient inventory or manufacturing capacity to fill
such increased orders, which could have a material adverse effect on the
Company's relationships and future business with its customers.

Reliance upon South Korean Market and Growth of Wireless Services Market

  Three of the Company's customers, Hyundai, LGIC and Samsung, collectively
accounted for approximately 83% of the Company's net sales for fiscal 1997, and
approximately 75% of the Company's net sales for fiscal 1996.  These customers
supply equipment for implementation in the South Korean digital cellular and PCS
networks.  During fiscal 1995, 1996 and 1997, Hyundai, LGIC and Samsung
purchased multi-carrier linear RF power amplifiers for installation in the
build-out of the South Korean digital cellular networks.  The delay or
termination of the continued implementation of the South Korean digital cellular
network would have a material adverse effect on the Company's business, results
of operations and financial condition. In addition, the Company currently
believes that the South Korean digital cellular network is more than 70%
completed and that the build-out phase of this network has begun declining
during 1997 with full deployment originally estimated to be completed by the end
of 1998.  Accordingly, the Company's sales directly related to the South Korean
digital cellular networks are anticipated to decrease significantly over the
same time period.

  In contrast to the South Korean digital cellular networks, the build-out of
the South Korean PCS networks began in the first quarter of 1997. During 1997,
the Company began shipping in volume PCS single carrier amplifiers for use in
the new PCS networks being built in South Korea. Sales to the Company's South
Korean customers for the South Korean PCS networks represented substantially all
of the Company's PCS sales during 1997. The delay, termination or early
completion of the infrastructure build-out of the South Korean PCS networks
would have a material adverse effect on the Company's business, results of
operations and financial condition. Further, even if these networks are
developed as anticipated, there can be no assurance that the Company's PCS
products will achieve market acceptance outside of South Korea, or be capable of
being manufactured at competitive prices in sufficient volumes. In the event
that the Company's PCS products are not timely developed or do not gain market
acceptance or are not capable of being manufactured at competitive costs, the
Company's business, results of operations and financial condition would be
materially adversely affected.

  During the fourth quarter of 1997, certain Asian countries, including South
Korea, began to experience weaknesses in their currencies, banking systems and
equity markets.  The deteriorating economic and currency conditions throughout
Asia led South Korea, along with several other Asian countries, including
Indonesia and Thailand, to request economic support from the International
Monetary Fund in December 1997.  During this time, the Company's South Korean
customers continued to order and take delivery of products from the Company and
continued to make timely payments to the Company for amounts owed.  Subsequent
to the end of the fourth quarter of 1997, economic and currency conditions in
Asia and South Korea have continued to deteriorate which has negatively impacted
overall market conditions within South Korea.  Based on recent discussions with
the Company's South Korean customers, the Company now believes that the current
prolonged period of continued 

                                       19
<PAGE>
 
market uncertainty and economic unstableness will result in either postponed,
rescheduled or possibly cancelled orders with the Company's South Korean
customers.

  The weakness in the South Korean Won has adversely affected South Korean
wireless service operators demand for the Company's products.  The Company's
South Korean customers pay for the Company's products with U.S. dollars.  As
such, the recent strengthening of the U.S. dollar as compared to the South
Korean Won, has increased the effective cost of the Company's products by as
much as 100% or more for its South Korean customers.  This increase in cost to
the Company's South Korean OEM customers is being passed along to the South
Korean wireless service providers in the form of increased costs for
infrastructure equipment.  The significant increase in the local currency cost
of such products makes them less attractive to such customers.  Additionally,
due to the economic problems facing the South Korean banking network, it has
become more difficult for local operating companies to raise additional
financing to support the increased costs of their infrastructure buildout.

  Therefore, the Company currently believes that the completion of the buildout
of the South Korean wireless networks is dependent upon a stabilization of
economic, currency and banking conditions within South Korea.  It is currently
anticipated that the continued deployment of both the cellular and PCS digital
networks will be delayed until such time that economic conditions become
stabilized from a long-term perspective.  Accordingly, the Company is unable to
predict when, if ever, these networks will be completed pursuant to to the South
Korean wireless network operators' original build-out projections.  In any
event, sales related to these networks are anticipated to decrease significantly
during 1998.

  Hyundai, LGIC and Samsung also have begun marketing wireless infrastructure
equipment for installation in networks outside of the South Korean market.
There can be no assurance that such customers will be successful in obtaining
new business outside of South Korea or that, if successful, they will continue
to purchase amplifiers from the Company.  Any significant decrease in the
Company's sale of amplifiers to these customers, without an offsetting increase
in sales to other customers, would have a material adverse effect on the
Company's business, results of operations and financial condition.

  A substantial majority of the Company's revenues are derived from the sale of
RF power amplifiers for wireless communications networks, and the future success
of the Company depends to a considerable extent upon the continued growth and
increased availability of cellular and other wireless communications services,
including PCS, in the United States and internationally. There can be no
assurance that either subscriber use or the implementation of wireless
communications services will continue to grow, or that such factors will create
demand for the Company's products. The Company believes that continued growth in
the use of wireless communications services depends on significant reductions in
infrastructure capital equipment cost per subscriber and corresponding
reductions in wireless service pricing. While in the United States the Federal
Communications Commission ("FCC") has adopted regulations requiring local phone
companies to reduce the rates charged to cellular carriers for connection to
their wireline networks, it is anticipated that wireless service rates will
remain higher than rates charged by traditional wireline companies. The growth
in the implementation of wireless communications services is dependent upon both
developed countries, such as the United States, allowing continued deployment of
new networks, and less developed foreign countries deploying wireless
communications networks as opposed to constructing wireline infrastructures.
Foreign countries or local government authorities may decline to construct
wireless communications systems, place moratoriums on building base stations or
terminate or delay construction of such systems for a variety of reasons,
including environmental issues, political unrest, economic downturns, the
availability of favorable pricing for other communications services, the
availability and cost of related equipment or other delays in the implementation
of these systems, in which event demand for the Company's products will be
similarly reduced or delayed, which would materially adversely affect the
Company's business, results of operations and financial condition. See "--Risks
of Doing Business in International Markets."

Risks of Doing Business in International Markets

  For the fiscal years 1995, 1996 and 1997, international revenues accounted for
approximately 67%, 77% and 86%, respectively, of the Company's net sales.  The
Company expects that international revenues will continue to account for a
significant percentage of the Company's net sales for the foreseeable future.
As a result, the Company 

                                       20
<PAGE>
 
is subject to various risks, including political and economic instability, the
difficulty of administering business globally, compliance with multiple and
potentially conflicting regulatory requirements such as export requirements,
tariffs and other barriers, differences in intellectual property protections,
health and safety requirements, difficulties in staffing and managing foreign
operations, longer accounts receivable cycles, currency exchange fluctuations,
restrictions against the repatriation of earnings, export control restrictions,
overlapping or differing tax structures, political and economic instability and
general trade restrictions. If any of these risks materializes, it could have a
material adverse effect on the Company's business, results of operations and
financial condition. In particular, a large portion of the Company's existing
customers and potential new customers are servicing new markets in developing
countries that the Company's customers expect will deploy wireless
communications networks as an alternative to the construction of a wireline
infrastructure. If such countries decline to construct wireless communication
systems, or construction of such systems are delayed for any of a variety of
reasons, including business and economic conditions and changes in economic
stability due to factors such as increased inflation and political turmoil, such
delays could have a material adverse effect on the Company's business, results
of operations and financial condition. In recent years, a substantial majority
of the Company's net sales resulted from the sale of products to three companies
in South Korea, where future sales are dependent upon favorable business and
economic conditions, as well as trade relations with the United States and a
lack of political conflicts with North Korea.

  During the last few months, economic conditions have deteriorated throughout
the Asia-Pacific region, causing reductions in local exchange rates throughout
the region and general financial market uncertainty. Countries in Asia,
including South Korea, have recently experienced weaknesses in their currencies,
banking systems and equity markets.  These weaknesses have adversely affected
both the Company's South Korean customers' demand for the Company's products and
their ability to pay for the products in U.S. dollars.  The Company's foreign
customers pay for the Company's products with U.S. dollars.  As such, the recent
strengthening of the U.S. dollar as compared to such foreign currencies as the
South Korean Won, has effectively increased the local currency price of the
Company's products by as much as 100% or more for its South Korean customers.
The significant increase in the local currency cost of such products makes them
less attractive to such customers.  Additionally, due to the economic problems
facing the South Korean banking system, it has become more difficult for South
Korean operating companies to raise additional US dollar financing to support
the increased costs of purchasing the Company's products.  Accordingly, changes
in exchange rates, and in particular a strengthening of the U.S. dollar, may
negatively impact the Company's future sales, gross margins, results of
operations and financial condition.

  In addition, during the last six months, there have been press reports of
deteriorating living conditions within North Korea, which could lead to civil
unrest possibly resulting in potential military conflicts with South Korea.
There have also been press reports of military conflicts between North and South
Korea, which could potentially escalate into a large scale conflict.  Any
conflict, either political or military, between North and South Korea could have
a material adverse impact on the Company's business, results of operations and
financial condition.   Any significant change in the South Korean economy or the
deterioration of United States trade relations or the economic or political
stability of other foreign locations in which the Company sells its products
would have a material adverse effect on the Company's business, results of
operations and financial condition.

  The Company's foreign sales are generally invoiced in U.S. dollars.
Accordingly, the Company does not currently engage in foreign currency hedging
transactions.  However, as the Company further expands its international
operations, the Company may be paid in foreign currencies and exposure to losses
in foreign currency transactions may increase.  The Company may choose to limit
such exposure by the purchase of forward foreign exchange contracts or similar
hedging strategies.  There can be no assurance that a currency hedging strategy
would be successful in avoiding exchange-related losses.  In addition, if the
relative value of the U.S. dollar in comparison to the currency of the Company's
foreign customers should increase, the resulting effective price increase of the
Company's products to such foreign customers could result in decreased sales
which could have a material adverse impact on the Company's business, results of
operations and financial condition. The increasing value of the U.S. dollar in
comparison of the weakening of an international customer's local currency and
associated weakening of such customer's local banking system, may negatively
impact such customer's ability to meet their payment obligations to the Company.
During a time of uncertain economic and banking conditions, such as the current
situation in South Korea, there can be no assurance that such customers will
continue to be able meet such 

                                       21
<PAGE>
 
obligations. The Company regularly monitors the credit worthiness of its
international customers and makes credit decisions based on both prior sales
experience with such customers as well as current financial performance and
overall economic conditions. Due to competitive reasons, the Company may decide
in the future to offer certain foreign customers extended payment terms and or
sell certain products or services in the local currency of such customers. If
the Company's international customers default on payment terms or are unable to
make payment to the Company in U.S. dollars, the resulting payment shortages
would have a material adverse impact on the Company's business, results of
operations and financial condition.

Fluctuations in Quarterly Results

  The Company has experienced, and expects to continue to experience,
significant fluctuations in sales and operating results from quarter to quarter.
Quarterly results fluctuate due to a number of factors, any of which could have
a material adverse effect on the Company's business, results of operations and
financial condition.  In particular, the Company's quarterly results of
operations can vary due to the timing, cancellation, or rescheduling of customer
orders and shipments; cancellations or rescheduling of customer orders and
shipments due to economic slowdowns in the Company's customers' operating
regions, such as South Korea; variations in manufacturing capacities,
efficiencies and costs; the availability and cost of components; capacity and
production constraints associated with single source component suppliers; the
timing, availability and sale of new products by the Company; product failures
and associated in-field service support costs; changes in the mix of products
having differing gross margins; warranty expenses; changes in average sales
prices; long sales cycles associated with the Company's products; and variations
in product development and other operating expenses.  The Company's quarterly
revenues are also affected by volume discounts given to certain customers for
large volume purchases over a given period of time.  In addition, the Company's
quarterly results of operations are influenced by competitive factors, including
pricing, availability and demand for the Company's and competing amplifier
products.  A large portion of the Company's expenses are fixed  and difficult to
reduce in a short period of time.  If net sales do not meet the Company's
expectations, the Company's fixed expenses would exacerbate the effect of such
net sales shortfall.  Furthermore, announcements by the Company or its
competitors regarding new products and technologies could cause customers to
defer purchases of the Company's products.  In addition, while the Company
receives periodic order forecasts from its major customers, such customers have
no binding obligation to purchase the forecasted amounts.  See "--Customer
Concentration."  Order deferrals and cancellations by the Company's customers,
declining average sales prices, changes in the mix of products sold, delays in
the Company's introduction of new products and longer than anticipated sales
cycles for the Company's products have in the past adversely affected the
Company's quarterly results of operations.  There can be no assurance that the
Company's quarterly results of operations will not be similarly adversely
affected in the future.

  Due to the foregoing factors, the Company believes that period-to-period
comparisons of its operating results are not necessarily meaningful and that
such comparisons cannot be relied upon as indicators of future performance.
There can be no assurance that the Company will maintain its current
profitability in the future or that future revenues and operating results will
not be below the expectations of public market analysts and investors.  In
either case, the price of the Company's Common Stock could be materially
adversely affected.  See "--Possible Volatility of Stock Price."

Declining Average Sales Prices

  The Company has experienced, and expects to continue to experience, declining
average sales prices for its products.  Wireless infrastructure OEMs have come
under increasing price pressure from cellular service providers and PCS service
providers, which in turn has resulted in downward pricing pressure on the
Company's products.  In addition, competition among third-party suppliers has
increased the downward pricing pressure on the Company's products.  Since
wireless infrastructure OEMs frequently negotiate supply arrangements far in
advance of delivery dates, the Company must often commit to price reductions for
its products before it knows how, or if, cost reductions can be obtained.  In
addition, average sales prices are affected by price discounts negotiated for
large volume purchases by certain customers over a given period of time.  To
offset declining average sales prices, the Company believes that in the near
term it must achieve manufacturing cost reductions, and in the longer term the
Company must develop new products that incorporate advanced features and that
can be manufactured at lower cost 

                                       22
<PAGE>
 
or sold at higher average sales prices. If, however, the Company is unable to
achieve such cost reductions or product improvements, the Company's gross
margins would decline, and such decline could have a material adverse effect on
the Company's business, results of operations and financial condition.

  During the fourth quarter of 1997, countries in Asia, including South Korea,
began to experience weaknesses in their currencies, banking systems and equity
markets.  Subsequent to the end of the fourth quarter, economic and currency
conditions in Asia and South Korea have continued to deteriorate which has
negatively impacted market conditions within South Korea.  Based on recent
discussions with the Company's South Korean customers, the Company now believes
that the current prolonged period of continued market uncertainty and economic
instability will result in  postponed, rescheduled or possibly cancelled orders
with the Company's South Korean customers.  If the Company's outstanding orders
with its South Korean customers or any other major customers are significantly
reduced, delayed or cancelled, the resulting loss of volume purchasing could
adversely effect the Company's ability to achieve manufacturing cost reductions
in the form of price discounts for large volume purchases of components.  Any
reduction in the Company's ability to obtain manufacturing cost reductions would
have a material adverse affect on the Company's business, results of operations
and financial condition.

  Due to the economic problems facing Asia, the Company currently anticipates
that demand for wireless infrastructure equipment throughout Asia may decrease
during 1998.  Any possible reduction in demand could cause suppliers of wireless
infrastructure equipment, including RF power amplifiers, to increase their sales
and marketing efforts in the remaining markets outside of Asia.  Any possible
increase in competition in the sale of RF power amplifiers could cause increased
price competition which could lead to further declining average sales prices for
the Company's product.  If the Company is unable to offset further declining
average sales prices of its products through cost reductions or product
improvements, the Company's gross margins would decline, and such decline could
have a material adverse effect on the Company's business, results of operations
and financial condition.

  In the fourth quarter of 1996, the Company introduced single carrier
amplifiers for PCS networks, and such products have accounted for an increasing
percentage of the Company's net sales during 1997.  Since that time, sales of
single carrier amplifiers have been subject to intense price competition and
tend to carry lower gross margins than multi-carrier amplifier products.  In
addition, while the Company has increased the production level of its single
carrier PCS products, the Company has had difficulty reducing the cost of
materials for such products during this ramp-up.  In the event that the Company
is unable to reduce the manufacturing costs of its single carrier amplifiers and
such amplifiers continue to account for a significant percentage of net sales,
the Company's overall gross margins will be materially adversely affected.

Management of Growth; Dependence Upon Key Personnel

  The growth in the Company's business has placed, and is expected to continue
to place, a significant strain on the Company's management and operations.  The
Company's ability to compete effectively and to manage future expansion of its
operations, if any, will require the Company to continue to improve its
financial and management controls, reporting systems and procedures on a timely
basis and effectively expand, train and manage its work force.  In particular,
the Company must carefully manage production and inventory levels and product
quality to meet increasing product demand and new product introductions.
Inaccuracies in demand forecasts or abrupt changes in customer orders in the
environment in which the Company operates can quickly result in either
insufficient or excessive inventories and disproportionate overhead expenses.
Any degradation in product quality could adversely impact production rates,
product delivery schedules and overhead expenses associated with product
support.  The Company continues to implement a number of new financial and
management controls, reporting systems and procedures.  The Company has recently
hired a significant number of employees, including engineers, production
technicians and sales and marketing employees to meet demand forecasts.  In the
event that the Company's new personnel are unable to work effectively as a team
or achieve desired production levels and product quality or if the Company's
demand forecasts are incorrect, or the Company's customers cancel or delay
existing orders, the Company's business, results of operations and financial
condition could be materially adversely affected.  There can be no assurance
that the Company will be able to continue to attract and retain qualified
personnel necessary for the development of its business.  The Company's failure
to manage growth effectively would have a material adverse effect on the
Company's business, results of operations and financial condition.

                                       23
<PAGE>
 
  Due to the specialized nature of the Company's business, the Company is highly
dependent on the continued services of, and on its ability to attract and
retain, qualified technical, marketing and managerial personnel.  Competition
for such personnel, particularly qualified engineers, is intense, and the loss
of a significant number of such persons, as well as the failure to recruit and
train additional technical personnel in a timely manner, could have a material
adverse effect on the Company's business, results of operations and financial
condition.

Dependence on Single Sources for Key Components

  The Company currently procures, and expects to continue to procure, certain
components from single source manufacturers due to unique component designs as
well as certain quality and performance requirements.  In addition, in order to
take advantage of volume pricing discounts, the Company purchases certain
customized components for its products from single sources.  The Company has
experienced, and may in the future experience, shortages of single-sourced
components.  In such event, the Company may have to make adjustments to both
product designs and production schedules.  If such single-sourced components
were to become unavailable in sufficient quantities or were to become available
only on terms unsatisfactory to the Company, the Company would be required to
purchase comparable components from other sources and "retune" its products to
function properly with the replacement components or redesign its products to
use other components, either of which could result in delays in production and
delivery.  If for any reason the Company could not obtain comparable replacement
components in sufficient volume from other sources or could not expeditiously
retune its products to operate with the replacement components, or redesign its
products to use other components, the Company's business, results of operations
and financial condition could be adversely affected.  In addition, if the
Company were unable to obtain sufficient quantities of single-sourced components
used in the manufacture of its RF power amplifiers, resulting delays or
reductions in product shipments could occur and could have a material adverse
affect on the Company's business, results of operations and financial condition,
including a material adverse effect on the Company's relationships with its
customers as well as potential customers.

  Due to the Company's reliance on certain single-sourced customized components,
if the Company experiences an abrupt reduction in customer demand, the Company
may end up with excess inventories of such components due to the nature of the
volume purchasing agreements that the Company enters to obtain component cost
reductions.  If the Company is unable to utilize such components in a timely
manner and is unable to sell such components due to their customized nature, the
resulting negative impact on the Company's liquidity and resulting increased
inventory levels could have a material adverse effect on the Company's business,
results of operations and financial condition.

Competition

  The wireless infrastructure equipment industry is extremely competitive and is
characterized by rapid technological change, new product development, product
obsolescence, evolving industry standards and significant price erosion over the
life of a product.  The principal elements of competition in the Company's
market include performance, functionality, reliability, pricing, quality, the
ability to design products which can be efficiently manufactured in volume
production, time-to-market delivery capabilities and standards compliance.
While the Company believes that overall it competes favorably with respect to
the foregoing elements, there can be no assurance that it will be able to
continue to do so.

  Currently, the Company competes primarily with Avantek (a division of Hewlett-
Packard), AML Communications, Inc., M/A-COM, Inc. (a subsidiary of AMP, Inc.),
Microwave Power Devices, Inc. and Spectrian Corporation, in addition to the
amplifier manufacturing operations captive within certain of the leading
wireless infrastructure OEMs.  Certain of the Company's current and potential
competitors have significantly greater financial, technical, manufacturing,
sales, marketing and other resources than the Company and have achieved greater
name recognition for their existing products and technologies than has the
Company.

  The Company's success depends in part upon the rate at which wireless
infrastructure OEMs incorporate the Company's products into their systems.  The
Company believes that a substantial portion of the present worldwide production
of amplifiers is captive within the internal manufacturing operations of a small
number of wireless 

                                       24
<PAGE>
 
infrastructure OEMs and that the amplifiers manufactured by these OEMs are
offered for sale as part of their wireless systems. These OEMs include, among
others, LM Ericsson Telephone Company ("Ericsson"), Lucent Technologies
Incorporated ("Lucent"), Motorola Corporation ("Motorola"), Nokia Corporation
("Nokia") and Northern Telecom Limited ("Nortel"). In addition, Samsung, a
significant customer of the Company, manufacturers power amplifiers in addition
to purchasing such components from the Company. The Company believes that these
OEMs, as well as other customers of the Company, continuously evaluate whether
to manufacture their own RF power amplifiers rather than purchase them from
third-party vendors such as the Company. These and other large manufacturers of
wireless infrastructure equipment could also determine to offer and sell their
power amplifiers to other OEMs or customers of the Company and compete directly
with the Company. In addition, these or other OEMs may enter into joint ventures
or strategic relationships with the Company's competitors, in which event the
Company's ability to sell products to such OEMs could be reduced or eliminated.
See "--Internal Amplifier Production Capabilities of OEMs."

  The Company has experienced significant price competition and expects price
competition in the sale of RF power amplifiers to increase.  No assurance can be
given that the Company's competitors will not develop new technologies or
enhancements to existing products or introduce new products that will offer
lower prices or superior performance features.  The Company expects its
competitors to offer new and existing products at prices necessary to gain or
retain market share.  Several of the Company's competitors have substantial
financial resources, which may enable them to withstand sustained price
competition or a downturn in the market.  There can be no assurance that the
Company will be able to compete successfully in the pricing of its products, or
otherwise, in the future.

Rapid Technological Change; Dependence on New Products

  The markets in which the Company and its customers compete are characterized
by rapidly changing technology, evolving industry standards and communications
protocols, and continuous improvements in products and services.  The Company's
future success depends on its ability to enhance its current products and to
develop and introduce in a timely manner new products that keep pace with
technological developments, industry standards and communications protocols,
compete effectively on the basis of price, performance and quality, adequately
address OEM customer and end-user customer requirements and achieve market
acceptance.  The Company believes that to remain competitive in the future it
will need to continue to develop new products, which will require the investment
of significant financial resources in new product development.  During fiscal
1997, the Company continued to invest significant resources in the development
and manufacture of RF power amplifiers for PCS networks and expects to continue
to invest significant resources in this area.  There can be no assurance that
the deployment of PCS networks will not be delayed or that the Company's PCS-
based products will achieve widespread market acceptance or be capable of being
manufactured at competitive prices in sufficient volumes.  In the event the
Company's PCS products are not timely and economically developed or are not
produced in sufficient quantities or do not gain widespread market acceptance,
the Company's business, results of operations and financial condition would be
materially adversely affected.

  In addition to its PCS development efforts, the Company continues to develop
improvements and additions to its cellular line of amplifier products, including
the Company's next-generation multi-carrier linear cellular amplifier. Any
delays in commencement of commercial shipments of these products may result in
customer dissatisfaction and delay or loss of product revenues, which could have
a material adverse effect on the Company's business, results of operations and
financial condition.  No assurance can be given that the Company's product
development efforts will be successful, or that its new products will achieve
customer acceptance or that its customers' products and services will achieve
market acceptance.  If a significant number of development projects do not
result in manufacturable new products or product enhancements within anticipated
time-frames, the Company's business, results of operations and financial
condition could be materially adversely affected.  Any failure by the Company to
anticipate or respond adequately to technological developments and customer
requirements, or any significant delays in product development, introduction or
deliveries, could result in a loss of competitiveness and reduced net sales.
While the Company maintains an active development program to attempt to improve
its product offerings, there can be no assurance that such efforts will be
successful or that other companies or institutions will not develop and
commercialize products based on new technologies that are superior in

                                       25
<PAGE>
 
performance or cost-effectiveness to the Company's products.  There can also be
no assurance that the Company's products will not be rendered obsolete by the
introduction and acceptance of new communications protocols.

No Assurance of Product Manufacturability, Quality or Reliability

  Manufacturing the Company's products is an extremely complex process and
requires significant time and expertise to tune the products to meet customers'
specifications.  The ability of the Company to cost-effectively manufacture its
RF power amplifier products in volume is substantially dependent upon the
Company's ability to tune these products to meet specifications in an efficient
manner.  In this regard, the Company is dependent upon its staff of trained
technicians and engineers.  If the Company is unable to design its products to
minimize the manual tuning process or if the Company were unable to attract
additional trained technicians, or were to lose the services of a number of its
trained technicians, the Company's business, results of operations and financial
condition would be materially adversely affected.  The Company has been required
to replace certain components in some of its products in accordance with
warranty provisions under which the products were sold.  The Company recently
introduced single carrier RF power amplifiers for PCS networks and anticipates
that it will continue to introduce new-generation RF power amplifiers products
for both cellular and PCS networks.  Companies involved in the development and
manufacture of new products which contain complex technologies often encounter
difficulties in performance and reliability and encounter delays in product
introduction and volume shipments.  The Company believes that customers will
demand increasingly stringent product performance, quality and reliability.  The
Company has in the past experienced, and may from time to time in the future
experience, quality problems with its products.  If any of these problems were
to occur on a significant level, the Company could experience increased costs,
delays in or cancellations of, or rescheduling of, orders or deliveries and
product returns, any of which could damage relationships with current customers
and have a material adverse effect on the Company's business, results of
operations and financial condition.   There can be no assurance that the
Company's product designs will continue to be successful or will keep pace with
technological developments, evolving industry standards and communications
protocols, and allow for continuous improvements in product quality and meet the
quality standards of customers.  Any potential design problems could damage
relationships with both existing and prospective customers and, in particular,
could limit the Company's ability to market its products to large OEMs, many of
which manufacture power amplifiers internally and have stringent quality control
standards.  See "--Internal Amplifier Production Capabilities of OEMs."

Internal Amplifier Production Capabilities of OEMs

  Many of the leading wireless infrastructure equipment manufacturers internally
manufacture their own RF power amplifiers, and the Company believes that its
existing customers continuously evaluate whether to manufacture their own
amplifiers.  Certain customers of the Company have produced internally designed
amplifiers in an attempt to replace products manufactured by the Company.  The
Company expects that this practice will continue.  In addition, LGIC, one of the
Company's customers, has entered into a joint venture manufacturing arrangement
with one of the Company's competitors.  In the event that customers of the
Company do manufacture their own amplifiers, such customers could reduce or
eliminate their purchases of the Company's products.  There can be no assurance
that the Company's current customers will continue to rely, or expand their
reliance, on the Company as an external source of supply for their RF power
amplifiers, or that other wireless telecommunications OEMs such as Lucent,
Ericsson, Motorola, Nokia and Nortel will become and remain customers of the
Company.  OEMs with internal manufacturing capabilities could also sell
amplifiers externally to other OEMs, thereby competing directly with the
Company.  In addition, even if the Company were successful in selling its
products to these OEMs, it is anticipated that such OEMs would demand price and
other concessions based on their ability to manufacture amplifiers internally.
There can be no assurance that the Company will continue to enter into supply
contracts with OEMs on terms that are acceptable to the Company, if at all, or
that such contracts will not be terminated on short notice.  Any significant
loss of sales to current customers, not offset by sales to other customers,
would have a material adverse effect on the Company's business, results of
operations and financial condition.  If, for any reason, the Company's major
customers decide to produce their RF power amplifiers internally or through
joint ventures with other competitors, or require the Company to participate in
joint venture manufacturing with such OEM, the Company's business, results of
operations and financial condition could be materially adversely affected.

                                       26
<PAGE>
 
  The Company's customers and other wireless infrastructure equipment
manufacturers are protective of their intellectual property, which may
contribute to certain manufacturers deciding to not seek RF power amplifiers
from external sources.  While the Company takes measures to ensure the
confidentiality of intellectual property disclosed to the Company by its
customers or developed by the Company for such customers, the appearance of a
close working relationship with a particular customer may adversely affect the
Company's ability to establish or maintain a relationship with, or sell products
to, competitors of the particular customer.  If the Company's major customers
decide not to purchase products from the Company due to the Company's
relationship to other customers, the Company's business, results of operations
and financial condition could be materially adversely affected.

Proprietary Technology; Risk of Third-Party Claims of Infringement

  The Company relies primarily upon trade secrets to protect its intellectual
property.  The Company generally enters into confidentiality and non-disclosure
agreements with its employees and limits access to and distribution of its
proprietary information.  In addition, the Company has applied for a U.S. patent
for its proprietary implementation of feedforward technology and regularly
examines various aspects of its technology for possible patent applications.
The Company believes that its success depends upon the knowledge and experience
of its management and technical personnel and its ability to market its existing
products and to develop new products.

  The Company's ability to compete successfully and achieve future revenue
growth will depend, in part, on its ability to protect its proprietary
technology and operate without infringing upon the rights of others.  There can
be no assurance that the Company will be able to successfully protect its
intellectual property or that the Company's intellectual property or proprietary
technology will not otherwise become known or be independently developed by
competitors.  In addition, the laws of certain countries in which the Company's
products are or may be sold may not protect the Company's products and
intellectual property rights to the same extent as the laws of the United
States.  The inability of the Company to protect its intellectual property and
proprietary technology could have a material adverse effect on its business,
results of operations and financial condition.  As the number of patents,
copyrights and other intellectual property rights in the Company's industry
increases, and as the coverage of these rights and the functionality of the
products in the market further overlap, the Company believes that its products
may increasingly become the subject of infringement claims.  The Company may in
the future be notified that it is infringing upon certain patent or other
intellectual property rights of others.  Although the Company has not received
any such notification to date and there are no pending or threatened
intellectual property lawsuits against the Company, there can be no assurance
that such litigation or infringement claims will not occur in the future.  Such
litigation or claims could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
results of operations and financial condition.  A third party claiming
infringement may also be able to obtain an injunction or other equitable relief,
which could effectively block the ability of the Company or its customers to
distribute, sell or import into the United States allegedly infringing products.
If it appears necessary or desirable, the Company may seek licenses under
patents or other rights from third parties covering intellectual property that
the Company is allegedly infringing.  No assurance can be given, however, that
any such licenses could be obtained on terms acceptable to the Company, if at
all.  The failure to obtain the necessary licenses or other rights could have a
material adverse effect on the Company's business, results of operations and
financial condition.

Risks Associated with Developing Technologies; Product Liability

  If wireless telecommunications systems or other systems or devices that rely
on or incorporate the Company's products are determined, perceived or alleged to
create a health risk, the Company could be named as a defendant, and held
liable, in product liability lawsuits commenced by individuals alleging that the
Company's products harmed them.  The occurrence of any such event could have a
material adverse effect on the Company's business, results of operations and
financial condition.  Any alleged health or environmental risk could also lead
to a delay or prohibition against the installation of wireless networks which
could have a material adverse effect on the Company's business, results of
operations and financial condition.  In addition, an inability to maintain
insurance at an acceptable cost or to otherwise protect against potential
product liability could inhibit the commercialization of the Company's products
and have a material adverse effect on the Company's business, results of
operations and 

                                       27
<PAGE>
 
financial condition.  Further, the installation of base stations
for wireless networks may be delayed or prohibited by various environmental
regulations.  Any such delay or prohibition would have a material adverse effect
on the Company's business, results of operations and financial condition.

Environmental Regulations

  The Company is subject to a variety of local, state and federal government
regulations relating to the storage, discharge, handling, emission, generation,
manufacture and disposal of toxic or other hazardous substances used to
manufacture the Company's products.  Certain of the Company's products are also
subject to regulation of emissions by the FCC and similar government agencies.
The Company believes that it is currently in compliance in all material respects
with such regulations and that it has obtained all necessary environmental
permits and licenses to conduct its business.  The failure to comply with
current or future regulations could result in the imposition of substantial
fines on the Company, suspension of production, alteration of its manufacturing
processes or cessation of operations.  Corrective action may require the Company
to acquire expensive remediation equipment or to incur substantial expenses.
Any failure by the Company to control the use, disposal, removal or storage of,
or to adequately restrict the discharge of, or assist in the cleanup up,
hazardous or toxic substances, could subject the Company to significant
liabilities, including joint and several liability under certain statutes.  The
imposition of such liabilities could materially adversely affect the Company's
business, results of operations and financial condition.  In addition, the
installation of base stations by wireless service providers may be delayed or
restricted by various environmental regulations, land use restrictions and
zoning ordinances.  Any such delay or restriction could have a material adverse
effect on the Company's business, results of operations and financial condition.

Government Regulation of Communications Industry

  Radio frequency transmissions and emissions, and certain equipment used in
connection therewith, are regulated in the United States, Canada and
internationally.  Regulatory approvals generally must be obtained by the Company
in connection with the manufacture and sale of its products, and by the
Company's customers to operate the Company's products.  The FCC has adopted new
regulations that impose more stringent radio frequency emissions standards on
the communications industry and there can be no assurance that the Company and
its customers will not be required to alter the manner in which radio signals
are transmitted or otherwise alter the equipment transmitting such signals,
which could materially adversely affect the Company's products and markets. The
Company is also subject to regulatory requirements in international markets
where the Company is less prominent than local competitors and may have fewer
opportunities to participate in the formation of regulatory and standards
policies.  The enactment by federal, state, local or international governments
of new laws or regulations or a change in the interpretation of existing
regulations could adversely affect the market for the Company's products.
Although recent liberalization of international communications industries along
with recent radio frequency spectrum allocations made by the FCC have increased
the potential demand for the Company's products by providing users of those
products with opportunities to establish new PCS networks, there can be no
assurance that the trend toward deregulation and current regulatory developments
favorable to the promotion of new and expanded wireless services will continue
or that other future regulatory changes will have a positive impact on the
Company. The increasing demand for wireless communications has exerted pressure
on regulatory bodies worldwide to adopt new standards for such products,
generally following extensive investigation and deliberation over competing
technologies.  The delays inherent in this governmental approval process have in
the past caused, and may in the future cause, the cancellation, postponement or
rescheduling of the installation of communications systems by the Company's
customers.  These delays could have a material adverse effect on the Company's
business, results of operations and financial condition.

Possible Volatility of Stock Price

  The stock market has from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies, and the market prices for securities of technology
companies have been especially volatile.  These broad market fluctuations have
and may continue to adversely affect the market price of the Company's Common
Stock.  Factors such as fluctuations in the Company's results of operations,
failure of such results of operations to meet the expectations of stock market
analysts and investors, 

                                       28
<PAGE>
 
changes in the economic outlook of the markets into which the Company sells it
products (such as South Korea), change in stock market analyst recommendations
regarding the Company and or its competitors, the timing and announcements of
technological innovations or new products by the Company, or its competitors,
developments with respect to patents and proprietary rights, timing and
announcements of developments related to the Company's customers, results of
operations of certain of the Company's competitors, government regulation,
political or economic instability in countries in which the Company sells its
products, changes in the wireless communications industry generally and general
market conditions may have a significant adverse effect on the market price of
the Company's Common Stock.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


Index to Financial Statements/Schedule:


<TABLE>
<CAPTION>
Consolidated Financial Statements                                                                          Page(s)
--------------------------------------------------------------------------------------------          -----------------
 
<S>                                                                                                   <C>
Independent Auditors' Report                                                                                      30
Consolidated Balance Sheets - December 28, 1997 and December 29, 1996                                             31
Consolidated Statements of Income - Three years ended December 28, 1997                                           32
Consolidated Statements of Shareholders' Equity (Deficit) - Three years ended
     December 28, 1997                                                                                            33
Consolidated Statements of Cash Flows - Three years ended December 28, 1997                                       34
Notes to Consolidated Financial Statements                                                                     35-46
 
Financial Statement Schedule
Schedule II-Valuation and Qualifying Accounts - Three years ended
     December 28, 1997                                                                                            53
</TABLE>

Exhibit 11.1 - Computation of Net Income per Share


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

 Not Applicable.

                                       29
<PAGE>
 
INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Shareholders of
Powerwave Technologies, Inc.:


  We have audited the accompanying consolidated balance sheets of Powerwave
Technologies, Inc. (the "Company") as of December 28, 1997 and December 29,
1996, and the related consolidated statements of income, shareholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 28, 1997.  Our audits also included the financial statement schedule
listed in Item 8.  These financial statements and financial statement schedule
are the responsibility of the Company's management.  Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.


  We conducted our audits in accordance with generally accepted auditing
standards.  Those standards 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.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.


  In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 28, 1997
and December 29, 1996, and the results of its operations and its cash flows for
each of the three years in the period ended December 28, 1997, in conformity
with generally accepted accounting principles.  Also, in our opinion, such
financial statement schedule, when considered in relation to the financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.



Deloitte & Touche LLP



Costa Mesa, California
January 14, 1998

                                       30
<PAGE>
 
                          POWERWAVE TECHNOLOGIES, INC.

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
 
                                                                 DECEMBER 28,    DECEMBER 29,
ASSETS:                                                              1997            1996
                                                                 -------------   -------------
<S>                                                              <C>             <C>
Current Assets:
     Cash and cash equivalents                                   $ 67,433,168    $ 32,386,331
     Accounts receivable, net of allowance for doubtful
          accounts of $769,068 and $485,368 at December 28,
          1997 and December 29, 1996, respectively                 11,967,327       3,324,699
     Inventories, net                                               8,844,177       4,707,545
     Prepaid expenses and other current assets                      1,221,426         327,816
     Deferred tax assets                                            3,082,977       1,875,572
                                                                 ------------    ------------
          Total current assets                                     92,549,075      42,621,963
Property and equipment                                             11,019,767       5,211,764
Accumulated depreciation and amortization                          (2,643,022)     (1,011,132)
                                                                 ------------    ------------
      Net property and equipment                                    8,376,745       4,200,632
                                                                 ------------    ------------
Other assets                                                          757,235         109,606
                                                                 ------------    ------------
TOTAL ASSETS                                                     $101,683,055    $ 46,932,201
                                                                 ============    ============
 
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
     Accounts payable                                            $  9,607,335    $  3,588,885
     Accrued expenses and other liabilities                        10,249,125       3,878,396
     Current portion of long-term debt                                507,140         253,747
     Income taxes payable                                           4,674,027       1,658,019
                                                                 ------------    ------------
          Total current liabilities                                25,037,627       9,379,047
 
Deferred tax liabilities                                              289,426         189,432
Long-term debt                                                        658,630         520,399
Other non - current liabilities                                       217,720               -
                                                                 ------------    ------------
 
TOTAL LIABILITIES                                                  26,203,403      10,088,878
                                                                 ------------    ------------
 
 
Shareholders' Equity:
Preferred Stock, $.0001 par value, 5,000,000 shares
     authorized and no shares outstanding                                   -               -
Common Stock, $.0001 par value, 40,000,000 shares
     Authorized, 17,773,713 shares issued and 17,263,713
     Outstanding at December 28, 1997, and 15,862,497
     Shares issued and outstanding at December 29, 1996            64,800,529      33,570,573
Retained earnings                                                  31,695,283      15,504,130
Less treasury stock at cost                                       (21,016,160)    (12,231,380)
                                                                 ------------    ------------
     Total shareholders' equity                                    75,479,652      36,843,323
                                                                 ------------    ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                       $101,683,055    $ 46,932,201
                                                                 ============    ============
 
</TABLE>



   The accompanying notes are an integral part of these financial statements

                                       31
<PAGE>
 
                         POWERWAVE TECHNOLOGIES, INC.
                       CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
 
                                                              YEAR ENDED
                                              ------------------------------------------
                                              DECEMBER 28,   DECEMBER 29,   DECEMBER 31,
                                                  1997           1996           1995
                                              ------------   ------------   ------------
<S>                                           <C>            <C>            <C>
 
Net sales                                     $119,709,158    $60,330,864    $36,044,438
Cost of sales                                   71,027,055     34,770,160     22,713,227
                                              ------------    -----------    -----------
Gross profit                                    48,682,103     25,560,704     13,331,211
Operating expenses:
     Sales and marketing                         9,053,424      4,364,834      1,557,282
     Research and development                   11,482,562      5,770,523      2,252,254
     General and administrative                  4,888,785      2,990,580      1,958,228
                                              ------------    -----------    -----------
Total operating expenses                        25,424,771     13,125,937      5,767,764
                                              ------------    -----------    -----------
 
Operating income                                23,257,332     12,434,767      7,563,447
Other income, net                                2,601,350        483,696         32,237
                                              ------------    -----------    -----------
 
Income before income taxes                      25,858,682     12,918,463      7,595,684
Provision for income taxes                       9,667,529      5,296,569      3,115,648
                                              ------------    -----------    -----------
 
Net income                                    $ 16,191,153    $ 7,621,894    $ 4,480,036
                                              ============    ===========    ===========
 
Basic earnings per share
    (Pro forma for 1995)                             $0.95          $0.54          $0.32
 
Diluted earnings per share
    (Pro forma for 1995)                             $0.92          $0.52          $0.31
 
Weighted average common shares - basic
    (Pro forma for 1995)                        16,958,262     14,181,179     14,062,497
 
Weighted average common shares - diluted
    (Pro forma for 1995)                        17,436,051     14,606,372     14,475,478
 
</TABLE>



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

                                       32
<PAGE>
 
                          POWERWAVE TECHNOLOGIES, INC.


           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
 
                                                                                                                         
                                                                                                                         Total
                                               Common Stock               Treasury Stock                             Shareholders'
                                        --------------------------   -------------------------                           Equity
                                          Shares         Amount       Shares        Amount       Retained Earnings     (Deficit)
                                        -----------   ------------   ---------   -------------   -----------------   --------------
<S>                                     <C>           <C>            <C>         <C>             <C>                 <C>
 
Balance at January 1, 1995              13,949,997    $   740,000            -   $          -          $ 3,402,200    $  4,142,200
 
Repurchase of Common
    Stock                               (5,063,850)      (268,620)   5,063,850    (12,231,380)                   -     (12,500,000)
Net income                                       -              -            -              -            4,480,036       4,480,036
                                        ----------    -----------    ---------   ------------    -----------------    ------------
Balance at December 31, 1995             8,886,147        471,380    5,063,850    (12,231,380)           7,882,236      (3,877,764)
 
Issuance of Common Stock
    related to the exercise of
     stock options                         112,500        300,000            -              -                    -         300,000
Issuance of Common Stock
    related to the IPO, net              1,800,000     18,301,000            -              -                    -      18,301,000
Conversion of Preferred Stock
    to Common Stock                      5,063,850     14,498,193            -              -                    -      14,498,193
Net income                                       -              -            -              -            7,621,894       7,621,894
                                        ----------    -----------    ---------   ------------    -----------------    ------------
Balance at December 29, 1996            15,862,497     33,570,573    5,063,850    (12,231,380)          15,504,130      36,843,323
 
Issuance of Common Stock
    related to the exercise of
     stock options                         510,334      1,638,412            -              -                    -       1,638,412
Tax benefit related to
    stock option exercises                       -      4,459,130            -              -                    -       4,459,130
Compensation expense related
    to stock option grants                       -         38,850            -              -                    -          38,850
Issuance of Common Stock
    related to the Employee Stock
     Purchase Plan                          40,882        399,618            -              -                    -         399,618
Tax benefit related to the
    sale of shares purchased under
     the Employee Stock Purchase
     Plan                                        -        199,801            -              -                    -         199,801
Exercise of over-allotment,
    related to the IPO, net                360,000      3,884,019            -              -                    -       3,884,019
Issuance of Common Stock
    related to the secondary
     offering, net                       1,000,000     20,610,126            -              -                    -      20,610,126
Repurchases of  Common
    Stock                                 (510,000)             -      510,000     (8,784,780)                   -      (8,784,780)
Net income                                       -              -            -              -           16,191,153      16,191,153
                                        ----------    -----------    ---------   ------------    -----------------    ------------
Balance at December 28, 1997            17,263,713    $64,800,529    5,573,850   $(21,016,160)         $31,695,283    $ 75,479,652
                                        ==========    ===========    =========   ============    =================    ============
 
</TABLE>
   The accompanying notes are an integral part of these financial statements.

                                       33
<PAGE>
 
                         POWERWAVE TECHNOLOGIES, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
 
                                                           DECEMBER 28,    DECEMBER 29,    DECEMBER 31,
                                                               1997            1996            1995
                                                           -------------   -------------   -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                        <C>             <C>             <C>
  Net income                                                $16,191,153     $ 7,621,894    $  4,480,036
  Adjustments to reconcile net income to net
   cash provided by operating activities:
  Depreciation and amortization                               1,682,660         656,733         353,929
  Provision for doubtful accounts                               283,700         362,836         112,532
  Provision for inventory reserves                            1,116,835         609,254         490,583
  Deferred income taxes                                      (1,107,411)       (654,658)       (609,927)
  Compensation costs related to options                          38,850               -               -
  Changes in assets and liabilities:
   Accounts receivable                                       (8,926,328)       (583,545)     (1,788,298)
   Inventories                                               (5,253,467)       (592,538)     (1,938,818)
   Income tax refund receivable                                       -         609,550        (609,550)
   Prepaid expenses and other current assets                   (893,610)       (312,653)        (48,730)
   Accounts payable                                           6,018,450          80,787       2,066,914
   Accrued expenses and other liabilities                     6,588,449       1,797,950         737,138
   Other assets                                                (647,629)        (57,307)              -
   Income taxes payable                                       7,674,939       1,658,019      (2,304,855)
                                                            -----------     -----------    ------------
Net cash provided by operating activities.                   22,766,591      11,196,322         940,954
                                                            -----------     -----------    ------------
 
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment                         (6,901,692)     (3,791,572)       (537,909)
  Sale of short-term investments                                      -               -         494,795
                                                            -----------     -----------    ------------
  Net cash used in investing activities.                     (6,901,692)     (3,791,572)        (43,114)
                                                            -----------     -----------    ------------
 
CASH FLOW FROM FINANCING ACTIVITIES:
  Principal payments on long-term debt                         (412,967)       (133,747)        (65,459)
  Proceeds from sale of property and equipment                1,847,510         703,543               -
  Decrease in amounts due to shareholders                             -         (50,000)              -
  Issuance of Preferred Stock                                         -               -      14,498,193
  Issuance of Common Stock                                   24,893,763      18,301,000               -
  Repurchase of Common Stock                                 (8,784,780)              -     (12,500,000)
  Proceeds from exercise of stock options                     1,638,412         300,000               -
                                                            -----------     -----------    ------------
 Net cash provided by financing activities                   19,181,938      19,120,796       1,932,734
                                                            -----------     -----------    ------------
 
NET INCREASE IN CASH AND
  CASH EQUIVALENTS                                           35,046,837      26,525,546       2,830,574
CASH AND CASH EQUIVALENTS, beginning                         32,386,331       5,860,785       3,030,211
                                                            -----------     -----------    ------------
CASH AND CASH EQUIVALENTS, ending                           $67,433,168     $32,386,331    $  5,860,785
                                                            ===========     ===========    ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
  Interest                                                  $    99,961     $    18,393    $     56,783
                                                            ===========     ===========    ============
  Income taxes                                              $ 3,100,000     $ 3,809,000    $  6,665,000
                                                            ===========     ===========    ============
NON CASH ITEMS:
Acquisition of property and equipment
  through capital lease                                     $   804,591     $   703,543               -
                                                            ===========     ===========
Conversion of Preferred Stock to Common Stock                         -     $14,498,193               -
                                                                            ===========
Tax benefit related to stock option exercises               $ 4,459,130               -               -
                                                            ===========
Tax benefit related to sale of shares purchased under
  the Employee Stock Purchase Plan                          $   199,801               -               -
                                                            ===========
</TABLE>
   The accompanying notes are an integral part of these financial statements.

                                       34
<PAGE>
 
                          POWERWAVE TECHNOLOGIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.   NATURE OF OPERATIONS


  Powerwave Technologies, Inc.  (the "Company") is a Delaware corporation
engaged in the design, manufacture and sale of radio frequency ("RF") power
amplifiers and related electronic equipment for use in the wireless
communications market.  The Company manufactures both single carrier and multi-
carrier amplifiers, with a focus on multi-carrier products.  The Company's
products are currently being utilized in both cellular and PCS base stations in
both digital and analog-based networks.  The Company's products support a wide
range of digital and analog transmission protocols.  The Company also produces
RF power amplifiers for the land mobile radio ("LMR") market, which is
characterized as a two-way radio market with devices commonly utilized by police
and emergency personnel and the business dispatch marketplace.



NOTE 2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Basis of Presentation


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


Fiscal Year


  The Company operated on a calendar fiscal year basis through fiscal 1995.
Commencing with fiscal year 1996, the Company adopted a 52/53 week accounting
fiscal year.   Beginning in 1996, the Company's fiscal year ends on the Sunday
closest to December 31.  Fiscal year 1996 ended on December 29, 1996 and fiscal
year 1997 ended on December 28, 1997.  Fiscal year 1998 will end on January 3,
1999.


Cash and Cash Equivalents


  Cash and cash equivalents generally consist of cash, time deposits, commercial
paper, money market preferred stocks, money market funds and other money market
instruments.  The Company invests its excess cash in only investment grade money
market instruments from a variety of industries and, therefore, bears minimal
risk.  Securities with maturity dates all have original maturity dates of three
months or less.  Such investments are stated at cost, which approximates fair
value.


Accounts Receivable


  The Company performs ongoing credit evaluations of its customers and generally
does not require collateral.  The Company maintains reserves for potential
credit losses and such losses have been within management's expectations.


Inventories


  Inventories are stated at the lower of cost, determined on a first-in, first-
out basis, or market.  The Company periodically reviews inventory quantities on
hand and provides reserves for obsolete inventory based primarily on current
production requirements and forecasted product demand.

                                       35
<PAGE>
 
Property and Equipment


  Property and equipment are stated at cost.  The Company depreciates these
assets using the straight-line method over the estimated useful lives of the
various classes of assets, as follows:


          Machinery and equipment             2 to 5 years
          Office furniture and equipment      3 to 5 years
          Leasehold improvements              7 to 10 years
          Property under capital leases       3 to 5 years


Accounting for Stock-Based Compensation


  SFAS No. 123, Accounting for Stock-Based Compensation, requires disclosure of
the fair value method of accounting for stock options and other equity
instruments.  Under the fair value method, compensation cost is measured at the
grant date based on the fair value of the award and is recognized over the
service period which is usually the vesting period. The Company has chosen,
under the provisions of SFAS 123, to continue to account for employee stock-
based transactions under Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees.  The Company has disclosed in Note 9
to the financial statements pro forma basic and diluted net income and earnings
per share as if the Company had applied the new method of accounting.


Income Taxes


  The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes, which requires that the Company recognize deferred
tax liabilities and assets based on the differences between the financial
statement carrying amounts and the tax bases of assets and liabilities, using
enacted tax rates in effect in the years the differences are expected to
reverse.  Deferred income tax benefits result from the recognition of temporary
differences between financial statement and income tax reporting of income and
expenses.


Revenue Recognition


  The Company recognizes revenue from product sales at the time of shipment.
The Company also offers its customers, on a limited basis, a right of return on
sales and records an estimate of such returns at the time of product delivery
based on historical experience.


Stock Split


  In October 1995, the Company's shareholders approved a 9,300-for-one stock
split of the Company's Common Stock.  The Company also changed the number of
common shares authorized from 1,000 shares to 20,000,000 shares and the par
value per share from $1 per share to $.0001 per share.  All Common Stock
information included in the accompanying consolidated financial statements has
been restated to reflect such stock split.


  In October 1996, the Company's Board of Directors approved a 3-for-2 stock
split of the Company's Common Stock effective October 8, 1996, and increased the
number of shares of authorized Common Stock to 40,000,000.  All share and per
share information relating to Common Stock and conversion amounts relating to
Series A Convertible Preferred Stock ("Series A Preferred Stock") and stock
options included in the accompanying consolidated financial statements and
footnotes have been restated to reflect the stock split for all periods
presented.


Earnings Per Share and Pro Forma Earnings Per Share


  The Company has adopted SFAS No. 128, Earnings per Share, which replaces the
presentation of "Primary" earnings per share with "Basic" earnings per share and
the presentation of "Fully Diluted" earnings per share with "Diluted" earnings
per share.  Prior periods have been restated to reflect the change in
presentation.

                                       36
<PAGE>
 
  Basic earnings per share and pro forma basic earnings per share amounts are
based upon the weighted average number of common shares outstanding and the pro
forma conversion of preferred stock into common stock up to the date of such
conversion.  Diluted earnings per share and pro forma diluted earnings per share
amounts are based upon the weighted average number of common and potential
common shares for each period presented and the pro forma conversion of
preferred stock into common stock up to the date of such conversion.  Potential
common shares include stock options using the treasury stock method.


Use of Estimates


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


Customer Concentrations and International Sales


  The Company's product sales have historically been concentrated in a small
number of customers.  During the years ended December 28, 1997, December 29,
1996 and December 31, 1995 sales to three customers (four customers for year
ended December 29, 1996) totaled $99.3 million, $50.3 million and $20.7 million
or 83%, 83% and 58% of net sales, respectively.


  During the years ended December 28, 1997, December 28, 1996 and December 31,
1995 total international sales, which were primarily to the South Korean market,
were $103.2 million, $46.6 million and $24.2 million respectively. The Company
currently believes that the prolonged period of continued market uncertainty and
economic instability in South Korea and Asia in general, will result in either
postponed, rescheduled or possibly cancelled orders from its South Korean
customers.  The delay or cancellation of orders by the Company's South Korean
customers would have a material adverse effect on the Company's business,
results of operations and financial condition.


Supplier Concentrations


  Certain of the Company's products utilize components that are available in the
short-term only from a single or a limited number of sources.  In addition, in
order to take advantage of volume pricing discounts, the Company purchases
certain customized components for its power amplifiers from single sources.  Any
inability to obtain single sourced components in the amounts needed on a timely
basis or at commercially reasonable prices could result in delays in product
introductions or interruption in product shipments or increases in product
costs, which could have a material adverse effect on the Company's business,
operating results and financial condition until alternative sources could be
developed.


New Accounting Pronouncements


  For the fiscal years beginning after December 28, 1997, the Company will adopt
SFAS No. 130, Reporting Comprehensive Income and SFAS No. 131 Disclosures About
Segments of an Enterprise and Related Information. The Company is reviewing the
impact of such statements on its financial statements.

                                       37
<PAGE>
 
NOTE 3.  INVENTORIES


 Inventories consist of the following at December 28, 1997 and December 29,
1996:

<TABLE>
<CAPTION>
 
                                                         1997            1996
                                                       ----------     -----------
<S>                                                  <C>              <C>
                                                       
     Parts and components                              $ 3,167,318     $ 3,178,401
     Work-in-process                                     3,950,323       1,345,035
     Finished goods                                      1,726,536         184,109
                                                       -----------     -----------
     Total                                             $ 8,844,177     $ 4,707,545
                                                       ===========     ===========
 
</TABLE> 
NOTE 4.  PROPERTY AND EQUIPMENT

 
 Property and equipment consist of the following at December 28, 1997 and
December 29, 1996:
<TABLE> 
<CAPTION> 
                                                         1997            1996
                                                       -----------     -----------
<S>                                                  <C>              <C> 
     Machinery and equipment                           $ 7,775,801     $ 2,500,455
     Office furniture and equipment                      1,832,440       1,413,881
     Leasehold improvements                              1,312,642       1,281,870
     Construction in progress                               98,884          15,558
                                                       -----------     -----------
                                                        11,019,767       5,211,764
     Less accumulated depreciation       
        and amortization                                (2,643,022)     (1,011,132)
                                                       -----------     -----------
     Net property and equipment                        $ 8,376,745     $ 4,200,632
                                                       ===========     ===========
</TABLE>

  Included in property and equipment are assets under capital lease of
$1,569,687 and $867,134 at December 28, 1997 and December 29, 1996,
respectively.  Accumulated amortization of assets under capital lease was
$371,451 and $123,836 at December 28, 1997 and December 29, 1996, respectively.

  In 1997 and 1996 the Company entered into sale-leaseback transactions for
certain equipment.  In 1997 the Company received proceeds of $1,831,143 for
equipment that it subsequently leased back under capital and operating leases.
The amounts leased back under capital and operating leases were $804,591 and
$1,026,552, respectively.  In 1996 proceeds totaled $703,543 for equipment that
was subsequently leased back under capital leases.


NOTE 5.  FINANCING ARRANGEMENTS


  On May 30, 1996, the Company entered into a $5 million unsecured committed
revolving credit agreement which allowed the Company to borrow at the bank's
reference rate. This credit agreement expired, unused, on May 31, 1997.  On
August 21, 1997, the Company entered into a new $10 million unsecured revolving
credit agreement.  The credit agreement contains covenants regarding certain
financial ratios and activities of the Company.  The Company is required to pay
a commitment fee equal to .1% per annum on the average daily unused portion of
the facility.  The commitment fee is payable quarterly in arrears.  The
agreement allows the Company to borrow at the bank's reference rate (8.5% at
December 28, 1997) or the bank's LIBOR rate plus 1.25% per annum, all at the
Company's option. Effective December 11, 1997, the Company amended the credit
agreement to allow the Company to repurchase up to $25 million worth of its
Common Stock.  The Company was in compliance with all covenants at December 28,
1997 and no amounts were outstanding under the facility.  The agreement
terminates on July 31, 1998.

                                       38
<PAGE>
 
NOTE 6.   SHAREHOLDERS' EQUITY


Preferred Stock


  During October 1995, the Company sold 3,375,900 shares of Series A Preferred
Stock at $4.44 per share and raised net proceeds of $14,498,193.  The Company
then used a portion of the proceeds to purchase 5,063,850 shares of the
Company's Common Stock at $2.47 per share from the shareholders.  A total of
$12,500,000 was paid to Shareholders to purchase such shares.  These shares are
being held as treasury stock by the Company as of December 29, 1996 and December
28, 1997. The Series A Preferred Stock shares were convertible, at the holder's
option, into shares of Common Stock on a 1 to 1.5 share basis (adjusted for the
October 1996 stock split).  Upon completion of the Company's initial public
offering in December 1996, the Series A Preferred Stock was automatically
converted into Common Stock.  The Series A Preferred Stock carried a dividend
rate of 12% per annum which accrued beginning in January 1996.  Per the terms of
the Series A Preferred Stock, such accrued dividends were canceled upon
completion of the Company's IPO and the corresponding accrued dividends
reversed.


NOTE 7.   INCOME TAXES


  The provision for income taxes for the years ended December 28, 1997, December
29, 1996 and December 31, 1995 consists of the following:

<TABLE>
<CAPTION>
 
                                         1997          1996          1995
                                     ------------   -----------   -----------
<S>                                  <C>            <C>           <C>
     Current:
      Federal                        $ 8,865,398    $4,663,553    $2,900,929
      State                            1,909,542     1,287,674       824,646
                                     -----------    ----------    ----------
      Total current provision         10,774,940     5,951,227     3,725,575
     Deferred:
      Federal                           (834,025)     (570,807)     (493,630)
      State                             (273,386)      (83,851)     (116,297)
                                     -----------    ----------    ----------
     Provision for income taxes      $ 9,667,529    $5,296,569    $3,115,648
                                     ===========    ==========    ==========

</TABLE> 
  The difference between income taxes provided in the financial statements and
as required by the federal statutory rate of 35% for the years ended December
28, 1997, December 29, 1996 and December 31, 1995 is as follows:

<TABLE> 
<CAPTION> 
                                             1997          1996          1995
                                          -----------   -----------   -----------
<S>                                       <C>           <C>           <C>
 
     Taxes at federal statutory rate      $9,050,539    $4,521,461    $2,658,489
     State taxes, net                      1,063,502       782,485       460,427
     R&D Tax Credit                         (406,572)      (91,981)            -
     Other                                   (39,940)       84,604        (3,268)
                                          ----------    ----------    ----------
     Provision for income taxes           $9,667,529    $5,296,569    $3,115,648
                                          ==========    ==========    ==========

</TABLE> 
  At December 28, 1997 and December 29, 1996, the Company's net deferred tax
asset was comprised of the following major components:

<TABLE> 
<CAPTION> 
                                                1997          1996
                                             -----------   -----------
<S>                                          <C>           <C>
     Depreciation of property                $ (289,426)   $ (189,432)
     Accruals and reserves                    1,819,658       812,094
     Costs capitalized into inventories       1,147,331       639,496
     State taxes                                115,988       423,982
                                             ----------    ----------
     Net deferred tax asset                  $2,793,551    $1,686,140
                                             ==========    ==========
</TABLE>

                                       39
<PAGE>
 
NOTE 8.   PROFIT-SHARING AND PENSION PLANS

  The Company sponsors a 401(k) profit-sharing plan covering all eligible
employees.  For the year ended December 29, 1996, the Board authorized $595,000
in contributions to the profit-sharing plan.  For the year ended December 28,
1997, the Company anticipates that contributions to the profit-sharing plan will
equal approximately $890,000.


  The 401(k) pension plan provided for Company matching participant
contributions up to a maximum of 10% of each participant's annual contribution
for the year ended December 29, 1996. For fiscal year 1997, the Company amount
of matching contribution was increased to 20% of each participant' annual
contribution.  Employee contributions are limited to 15% of base salary.
Contributions for the years ended December 28, 1997 and December 29, 1996 were
$83,297 and $21,783, respectively.


NOTE 9.   STOCK OPTION PLANS


  1995 Stock Option Plan - Effective December 4, 1995, the Company adopted the
1995 Stock Option Plan (the "1995 Plan"), as amended, to permit executive
personnel, key employees and non-employee members of the Board of Directors of
the Company to participate in ownership of the Company.  The 1995 Plan is
administered by the Compensation Committee of the Company's Board of Directors.
Each option agreement includes a provision requiring the Optionee to consent to
the terms of the agreement.  The 1995 Plan provides for the grant of
nonstatutory stock options under the applicable provisions of the Internal
Revenue Code.  The option price per share may not be less than 85% of the fair
market value of a share of Common Stock on the grant date as determined by the
Company's Board of Directors.  In addition, the exercise price may not be less
than 110% of the fair market value of a share of Common Stock on the grant date,
as determined by the Company's Board of Directors, for any individual possessing
10% or more of the voting power of all classes of stock of the Company.  Options
generally vest at the rate of 25% on the first anniversary date and 2% per month
thereafter and expire no later than ten years after the grant date.  Up to
1,938,615 shares of the Company's Common Stock were reserved for issuance under
the 1995 Plan.  Under an agreement with the Company, certain shareholders have
agreed that, once the Company has issued an initial 1,095,000 shares of Common
Stock under the 1995 Stock Option Plan, any additional shares issued under that
Plan upon an option exercise will be coupled with a pro rata redemption from
those shareholders of an equal number of shares at a redemption price equaling
the option exercise price.  The Company and those certain shareholders have
agreed that this share redemption agreement applies only to the exercise of
options to purchase a total of 843,615 shares of the Company's Common Stock.  As
of December 28, 1997, 610,334 options have been exercised under the 1995 Plan
and there were 1,328,114 options outstanding under the 1995 Plan at a weighted
average exercise price of $5.04.


  1996 Stock Incentive Plan - On October 7, 1996 the Company adopted the 1996
Stock Incentive Plan (the "1996 Plan"), which became effective December 5, 1996.
The 1996 Plan covers an aggregate of 1,500,000 shares of Common Stock plus any
shares which are or become available for grant under the 1995 Plan.  The 1996
Plan provides for the granting of "incentive stock options," within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
nonstatutory options and restricted stock grants to directors, officers,
employees and consultants of the Company, except that incentive stock options
may not be granted to non-employee directors or consultants.  The purpose of the
1996 Plan is to provide participants with incentives which will encourage them
to acquire a proprietary interest in, and continue to provide services to, the
Company.  The 1996 Plan is administered by the Compensation Committee of the
Board of Directors, which has sole discretion and authority, consistent with the
provisions of the 1996 Plan, to determine which eligible participants will
receive options, the time when options will be granted, the terms of options
granted and the number of shares which will be subject to options granted under
the 1996 Plan.  As of December 28, 1997, 12,500 options have been exercised
under the 1996 Plan. There were 340,500 options outstanding under the 1996 Plan
as of December 28, 1997 at a weighted average exercise price of $23.51.

                                       40
<PAGE>
 
  1996 Director Stock Option Plan - On October 7, 1996 the Company adopted the
1996 Director Stock Option Plan (the "Director Plan"), which became effective
December 5, 1996.  The Director Plan provides for the grant by the Company of
options to purchase up to an aggregate of 200,000 shares of Common Stock of the
Company.  The Director Plan provides that each member of the Company's Board of
Directors who is not an employee or paid consultant of the Company automatically
will be eligible to receive options to purchase stock under the Director Plan.
Pursuant to the terms of the Director Plan, each director elected after December
5, 1996 will be granted an initial option under the plan covering 30,000 shares
of Common Stock, which option shall vest in annual installments as to 25% of the
optioned shares over a period of four years from the anniversary date of the
grant.  Furthermore, on December 5, 1996 and on each anniversary date thereof,
each director who shall have been an eligible participant under the Director
Plan for at least six (6) months shall be granted an annual option under the
Director Plan to purchase 5,000 shares of Common Stock.  There were 30,000
options outstanding under the Director Plan as of December 28, 1997 at a
weighted average exercise price of $18.50.


  Employee Stock Purchase Plan - On October 7, 1996, the shareholders of the
Company approved the Employee Stock Purchase Plan (the "Purchase Plan"), which
became effective on December 5, 1996.  The Purchase Plan covers an aggregate of
500,000 shares of Common Stock.  The Purchase Plan, which is intended to qualify
as an "employee stock purchase plan" under Section 423 of the Internal Revenue
Code, is implemented utilizing six-month offerings with purchases occurring at
six month intervals.  The first offering period commenced effective December 5,
1996 and terminated on July 31, 1997.  The second offering period commenced on
August 1, 1997 and will terminate on January 31, 1998.  The Purchase Plan is
administered by the Board of Directors.  Employees are  eligible to participate
if they are employed by the Company for at least 30 hours per week and if they
have been employed by the Company for at least 180 days.  The Purchase Plan
permits eligible employees to purchase Common Stock through payroll deductions,
which may not exceed 15% of an employee's compensation.  The price of Common
Stock purchased under the Purchase Plan will be 85% of the lower of the fair
market value of the Common Stock at the beginning of each six-month offering
period or on the applicable purchase date.  Employees may end their
participation in any offering at any time during the offering period, and
participation ends automatically on termination of employment.  The Board may at
any time amend or terminate the Purchase Plan, except that no such amendment or
termination may adversely affect options previously granted under the Purchase
Plan. The first purchase under the Purchase Plan occurred on July 31, 1997, with
employees purchasing 40,882 shares of the Company's Common Stock. At December
28, 1997 there were rights to purchase approximately 20,000 shares outstanding
under the Purchase Plan.



The following table summarizes activity under the Company's 1995 Plan, 1996 Plan
and Director Plan:

<TABLE>
<CAPTION>
 
 
                                                             Number of Options
                                  Number of    Price Per     Exercisable as of
                                   Shares        Share        Fiscal Year End
                                  ---------   ------------   -----------------
<S>                                <C>         <C>           <C> 
Balance at January 1, 1995                -
         Granted                    562,500    $2.47-$2.71
                                  ---------    $2.47-$2.71
Balance at December 31, 1995        562,500                   219,087
                                                              =======
         Granted                  1,538,400    $2.67-$11.50
         Exercised                 (112,500)   $2.67
         Canceled                   (69,148)   $2.67-$4.67
                                  ---------
Balance at December 29, 1996      1,919,252    $2.47-$11.50   262,490
                                                              =======
         Granted                    435,050    $14.50-$40.56
         Exercised                 (510,334)   $2.47-$11.50
         Canceled                  (145,354)   $2.47-$33.00
                                  ---------
Balance at December 28, 1997      1,698,614    $2.47-$40.56    436,256
                                  =========                    =======
</TABLE> 
At December 28, 1997, 1,317,617 options were available for grant under the all
of the Company's option plans.


                                       41
<PAGE>
 
<TABLE>
<CAPTION>
 
               Options Outstanding
               at December 28, 1997
-------------------------------------------------------------------------
<S>                  <C>                <C>              <C>                <C>                 <C>
                                                         Weighted                               Weighted
                                        Weighted         Average            Options             Average
Range of             Options            Average          Remaining          Exercisable         Exercise
Exercise Prices      Outstanding        Exercise Price   Contractual Life   at Dec. 28, 1997    Price
------------------   ----------------   --------------   ----------------   ----------------    --------
                                                         (years)
$2.47 - 2.71                  632,032           $ 2.58                8.0            250,902      $ 2.57
$4.00 - 4.67                  558,482           $ 4.52                8.5            174,289      $ 4.52
$10.00 - 16.25                201,800           $14.07                8.8             10,665      $11.23
$17.00 - 27.00                120,300           $19.40                8.9                400      $17.00
$28.94 - 40.56                186,000           $31.90                9.8                  -           -
                            ---------                                                -------
Total                       1,698,614           $ 8.98                8.5            436,256      $ 3.57
                            =========                                                =======
</TABLE>

  
  The price at which options were granted during 1995 and 1996 prior to the
Company's IPO were based upon an independent appraisal of the value of the
Company.  The Company is recording compensation expense of approximately
$123,175 relating to the difference between estimated fair market value and the
actual value of 28,425 options granted in September 1996 over the vesting term
of such options.  The first vesting of these options occurred during the third
quarter of fiscal 1997. The Company recorded a total of $38,850 as compensation
expense during fiscal 1997.  All options granted after the Company's IPO are
priced at an exercise price equal to the market price of the Company's Common
Stock on the date of grant.

  The weighted average fair value of options granted during 1997 was $13.81 per
share.  The estimated weighted average fair value of options granted during 1996
was $2.44 per share and during 1995 was $1.33 per share.  Pursuant to SFAS No.
123, the Company has elected to continue using the intrinsic value method of
accounting for stock-based awards granted to employees and directors in
accordance with APB No. 25 and related Interpretations in accounting for its
stock option and purchase plans.  Accordingly, no compensation cost has been
recognized for its stock option plans and its stock purchase plan other than
that described above.  Had compensation cost for the Company's stock option
plans and its stock purchase plans been determined based on the fair value at
the grant dates for awards under those plans consistent with the fair value
method of SFAS No. 123, the Company's net income and diluted earnings per share
for the years ended December 28, 1997 and December 29, 1996 would have been
reduced to the pro forma amounts indicated in the following table:

<TABLE>
<CAPTION>
 
                                                 December 28, 1997    December 29, 1996
                                                 ------------------   ------------------
<S>                                              <C>                  <C>
Net income before taxes
  As reported                                          $25,858,682          $12,918,463
Less:  Net expense per SFAS No. 123                     (2,563,307)          (1,383,951)
                                                       -----------          -----------
Pro forma operating income before taxes                 23,295,375           11,534,512
Less:  Pro forma provision for income taxes             (8,708,463)          (4,729,150)
                                                       -----------          -----------
Pro forma net income                                   $14,586,912          $ 6,805,362
                                                       ===========          ===========
Net income as reported                                 $16,191,153          $ 7,621,894
                                                       ===========          ===========
Diluted earnings per share:
  As reported                                          $      0.92          $      0.52
  Pro forma                                            $      0.84          $      0.47
Weighted average common shares - diluted                17,436,051           14,606,372
                                                       ===========          ===========
</TABLE>

                                       42
<PAGE>
 
  The fair value of options granted under the Company's stock option plans
during 1997 and 1996 was estimated on the date of grant using the Black-Scholes
option-pricing model utilizing the multiple option approach with the following
weighted-average assumptions used:

<TABLE> 
<CAPTION> 
                                                       1997    1996
                                                       -----   -----
   <S>                                                <C>     <C>  
   Weighted average risk-free interest rates           5.52%   6.03%
   Expected years from vest date to exercise date       0.5     1.0
   Expected stock volatility                             89%     83%
   Dividend yield                                      None    None
</TABLE> 

NOTE 10. COMMITMENTS AND CONTINGENCIES


  The Company leases its manufacturing and headquarters facility from a limited
liability company owned by three of the Company's shareholders.  The lease term
commenced on July 15, 1996, and will continue for ten years.  The Company paid
$1,000,000 to the limited liability company as payment for additional tenant
improvements made to the facility at the request of the Company.  The Company
has an option to purchase the facility at fair market value during the lease
term.  The Company also leases equipment from unrelated parties.  Future minimum
lease payments required under operating leases and the present value of future
minimum lease payments for capital leases at December 28, 1997 are as follows:

<TABLE>
<CAPTION>
 
                                           COMMITMENT TO    OPERATING    CAPITALIZED
                                           SHAREHOLDERS      LEASES         LEASES
                                           -------------   -----------   ------------
<S>                                        <C>             <C>           <C>
  Fiscal Year:
     1998                                     $  714,810    $1,034,953    $  582,357
     1999                                        735,937     1,011,032       566,347
     2000                                        757,065       129,864       127,805
     2001                                        778,192         5,087             -
     2002                                        799,320             -             -
     Thereafter                                2,961,356             -             -
                                              ----------    ----------    ----------
  Total future minimum lease payments         $6,746,680    $2,180,936     1,276,509
                                              ==========    ==========
  Less amount representing interest                                         (110,739)
                                                                          ----------
  Present value of future minimum lease payments                           1,165,770
  Less current portion                                                      (507,140)
                                                                          ----------
                                                                         $   658,630
                                                                         ===========
</TABLE> 

  Total rent expense was $2,502,929, $2,108,985 and $996,251 for the years ended
December 28, 1997, December 29, 1996 and December 31, 1995, respectively.

  The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business.  In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
results of operations or the financial condition of the Company.

                                       43
<PAGE>
 
NOTE 11.   EARNINGS PER SHARE
<TABLE> 
<CAPTION> 
                                          1997               1996              1995
                                     ----------------   ----------------   ---------------
<S>                                  <C>                 <C>                <C>        
  Basic:
   Weighted average common
    shares outstanding                 16,958,262         14,181,179          8,998,647
   Pro forma conversion of
    Series A Convertible Preferred
      Stock                                    -                  -           5,063,850
                                      -----------        -----------        -----------
   Weighted average common
    shares - basic
      (Pro forma for 1995)             16,958,262         14,181,179         14,062,497
   Net income                         $16,191,153        $ 7,621,894        $ 4,480,036
                                      -----------        -----------        -----------
   Basic earnings per share
      (Pro forma for 1995)            $       .95        $       .54        $       .32
                                      ===========        ===========        ===========
 
  Diluted:
   Weighted average common
    shares - basic                     16,958,262         14,181,179         14,062,497   
   Potential common shares                477,789            425,193            412,981
                                       ----------         ----------        -----------
   Weighted average common
    shares - diluted
      (Pro forma for 1995)             17,436,051         14,606,372         14,475,478
   Net income                         $16,191,153        $ 7,621,894        $ 4,480,036
                                      -----------        -----------        -----------
   Diluted earnings per share
      (Pro forma for 1995)            $       .92        $       .52        $       .31
                                      ===========        ===========        ===========
</TABLE> 
  The Company has adopted SFAS No. 128, "Earnings Per Share," effective after
December 15, 1997.  As a result, the company's reported earnings per share for
1996 and 1995 have been restated.  The effect of this accounting change on
previously reported earnings per share (EPS) data is as follows:

<TABLE> 
<CAPTION>
 
                                                              1996                 1995
                                                              -----                -----
<S>                                                           <C>                  <C>
                                                                   
   EPS as reported (Primary)                                  $ .52                $ .31
   Effect of SFAS No. 128                                       .02                  .01
                                                              -----                -----
   EPS as restated  (Basic)                                   $ .54                $ .32
                                                              =====                =====
</TABLE>

  For both 1996 and 1995 there is no effect of restating Fully Diluted EPS to
Diluted EPS.


NOTE 12.   GEOGRAPHIC INFORMATION


  The Company operates in one industry segment:  the design, manufacture and
sale of RF power amplifiers for use in wireless communication networks.  The
Company currently markets its products through its manufacturers' representative
sales force as well as its own internal sales force.  All of the Company's
manufacturing and design operations are located at its headquarters facility in
Irvine, California.  The following table summarizes the Company's sales by
region:

<TABLE>
<CAPTION>
 
(In thousands)                                  Domestic   International    Total
---------------------------------------------   --------   -------------   --------
<S>                                             <C>        <C>             <C>
 
Sales for the year ended December 28, 1997       $16,547        $103,162   $119,709
 
Sales for the year ended December 29, 1996       $13,739        $ 46,592   $ 60,331
 
Sales for the year ended December 31, 1995       $11,842        $ 24,202   $ 36,044
</TABLE>

                                       44
<PAGE>
 
NOTE 13.  ROYALTY AGREEMENT


  The Company has a royalty agreement related to the sale of air-to-ground
amplifiers which requires payment of a 10% commission on certain licensed
products.  Total royalty expense was $284,070 and $499,141 for the years ended
December 29, 1996 and December 31, 1995, respectively.  For the years ended
December 29, 1996 and December 31, 1995, sales of the related product
represented, 5% and 14% of net sales, respectively.  The Company had no sales of
the licensed product during 1997.  Therefore, the Company does not have any
royalty commitments beyond December 1996.


NOTE 14.  OTHER INFORMATION


  Accrued expenses and other liabilities consist of the following at December
28, 1997 and December 29, 1996:

<TABLE> 
<CAPTION> 
 
                                                               1997          1996
                                                            -----------   ----------
<S>                                                         <C>           <C>
 
Accrued warranty costs                                      $ 1,740,996   $  871,330
Accrued sales returns                                           359,158      324,586
Accrued payroll and employee benefits                         2,624,572    1,520,119
Other accrued expenses                                        3,660,573    1,162,361
Amounts due for settlement of Common Stock repurchases        1,863,826            -
                                                             ----------   ----------
                                                            $10,249,125   $3,878,396
                                                            ===========   ==========
</TABLE> 

NOTE 15.  RELATED PARTY TRANSACTIONS


  As disclosed in Note 10, the Company leases its manufacturing and office
facility from certain of the Company's shareholders.  Rent paid to the
shareholders was $704,246, $365,472 and $166,782 for the years ended December
28, 1997, December 29, 1996 and December 31, 1995, respectively.


  In August 1995, the Company entered into a Technology License Agreement with
Unique Wireless Developments, L.L.C., a Delaware limited liability company.
Under the agreement, the Company obtained exclusive rights to use certain
amplifier technology for the LMR market in exchange for certain royalties,
including a nonrefundable (with certain exceptions) up-front royalty totaling
$300,000.  A member of the Board of Directors of the Company is Executive Vice
President and Director of ComSpace Corporation, formerly known as Unique
Technologies International, L.L.C., an affiliate of Unique Wireless
Developments, L.L.C.  The Chairman of the Company is also a member of the Board
of Directors of ComSpace Corporation.  During the year ended December 31, 1995,
the Company expensed such royalty payment.  ComSpace Corporation is a customer
of the Company and purchases products from the Company on terms no less
favorable to the Company than could otherwise be obtained from unaffiliated
third parties.  Total sales during fiscal 1997 did not exceed $35,000.

                                       45
<PAGE>
 
NOTE 16.  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
 
                                                  FIRST      SECOND     THIRD     FOURTH
                                                 --------   --------   --------   -------
1997:                                            (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                              <C>        <C>        <C>       <C>
 Net sales                                        $20,243    $27,360    $34,349   $37,758
 Cost of sales                                     11,528     16,857     20,565    22,077
                                                  -------    -------    -------   -------
 Gross profit                                       8,715     10,503     13,784    15,681
 Operating expenses:
  Sales and marketing                               1,581      2,141      2,341     2,990
  Research and development                          2,211      2,385      3,342     3,545
  General and administrative                          943      1,019      1,361     1,567
                                                  -------    -------    -------   -------
 Total operating expenses                           4,735      5,545      7,044     8,102
                                                  -------    -------    -------   -------
 Operating income                                   3,980      4,958      6,740     7,579
 Other income                                         473        571        720       837
                                                  -------    -------    -------   -------
 Income before income taxes                         4,453      5,529      7,460     8,416
 Provision for income taxes                         1,692      2,101      2,760     3,114
                                                  -------    -------    -------   -------
 Net Income                                       $ 2,761    $ 3,428    $ 4,700   $ 5,302
                                                  =======    =======    =======   =======
 Earnings per share - basic                          $.17       $.21       $.27      $.30
 Earnings per share - diluted                        $.17       $.20       $.26      $.29
 Weighted average common shares - basic            16,219     16,275     17,649    17,690
 Weighted average common shares - diluted          16,728     16,856     18,072    18,039
 
<CAPTION> 
 
                                                  FIRST      SECOND     THIRD     FOURTH
                                                 --------   --------   --------   -------
 1996                                            (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                              <C>        <C>        <C>       <C>   
 Net sales                                        $13,807    $15,301    $14,486   $16,736
 Cost of sales                                      8,229      9,000      8,142     9,399
                                                  -------    -------    -------   -------
 Gross profit                                       5,578      6,301      6,344     7,337
 Operating expenses:
  Sales and marketing                               1,056      1,103      1,156     1,050
  Research and development                          1,075      1,375      1,583     1,736
  General and administrative                          612        671        721       987
                                                  -------    -------    -------   -------
 Total operating expenses                           2,743      3,149      3,460     3,773
                                                  -------    -------    -------   -------
 Operating income                                   2,835      3,152      2,884     3,564
 Other income                                          59        120        154       151
                                                  -------    -------    -------   -------
 Income before income taxes                         2,894      3,272      3,038     3,715
 Provision for income taxes                         1,186      1,342      1,246     1,523
                                                  -------    -------    -------   -------
 Net Income                                       $ 1,708    $ 1,930    $ 1,792   $ 2,192
                                                  =======    =======    =======   =======
 
 Earnings per share - basic                           .12        .14        .13       .15
 Earnings per share - diluted                         .12        .13        .12       .15
 Weighted average common shares - basic            14,063     14,063     14,063    14,537
 Weighted average common shares - diluted          14,475     14,475     14,475    14,999
</TABLE>

                                       46
<PAGE>
 
                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT


DIRECTORS


  GREGORY M. AVIS, 39, has been a member of the Company's Board of Directors
since October 1995.  Mr. Avis has been a managing partner of Summit Partners, a
venture capital investment firm, since January 1990.  Mr. Avis also serves on
the Board of Directors of Extended Systems, Inc., Digital Link Corp. and Splash
Technology Holdings, Inc.



  ALFONSO G. CORDERO, 57, one of the founders of the Company, has served as a
director since the Company's inception.  From June 1985 to January 1996, Mr.
Cordero served as Chief Executive Officer of the Company and currently serves as
Chairman of the Company.  Mr. Cordero also serves on the Board of Directors of
ComSpace Corporation, formerly known as Unique Technologies, International,
L.L.C.


  BRUCE C. EDWARDS, 44, joined the Company in February 1996 as President and
Chief Executive Officer and Director.  Mr. Edwards was Executive Vice President,
Chief Financial Officer and Director of AST Research, Inc., a personal computer
company, from July 1994 to December 1995 and Senior Vice President, Finance and
Chief Financial Officer of AST Research, Inc. from March 1988 to July 1994.  Mr.
Edwards currently serves on the Board of Directors of Diamond Multimedia
Systems, Inc. and HMT Technology Corporation.


  DAVID L. GEORGE, 44, has been a member of the Company's Board of Directors
since November 1995.  Mr. George has served as Executive Vice President and
Chief Technical Officer of ComSpace Corporation, formerly known as Unique
Technologies, International, L.L.C., an LMR network company, since February
1994.  Mr. George also serves on the Board of Directors of ComSpace Corporation.
From November 1983 to February 1994, Mr. George served as Vice President,
Director of Operations, Commercial Division of Uniden America.


  EUGENE L. GODA, 61, has been a member of the Company's Board of Directors
since November 1995.  Since June 1997, Mr. Goda has served as Chairman of the
Board, President and Chief Executive Officer of Objectshare Inc., formerly known
as Park Place Digitalk, a software company.  From October 1991 to October 1995,
Mr. Goda served as CEO of Simulation Sciences, Inc., a software company.  From
July 1989 to September 1991, he served as CEO of Meridian Software Systems.


  RICH SHAPERO, 50, has been a member of the Company's Board of Directors since
October 1995.  Mr. Shapero has been a general partner of Crosspoint Venture
Partners, a venture capital investment firm, since April 1993.  From January
1991 to June 1992, he served as Chief Operating Officer of Shiva Corporation, a
network equipment company.



  SAM YAU, 49, has been a member of the Company's Board of Directors since
November 1995.  Mr. Yau served as Chief Executive Officer of National Education
Corporation, an education and training company, from May 1995 to June 1997.
From May 1993 to November 1994, he served as Chief Operating Officer of
Advacare, Inc. and from May 1987 to May 1993 as Senior Vice President, Finance
and Administration of Archive Corporation (now part of Seagate Technologies,
Inc.).


EXECUTIVE OFFICERS


  KEVIN T. MICHAELS, 39, joined the Company in June 1996 as Vice President,
Finance and Chief Financial Officer and was appointed Secretary in June 1996.
Prior to joining the Company, Mr. Michaels worked for AST Research, Inc. for
eight years, most recently as Vice President, Treasurer from October 1995 to
June 1996.  From July 1991 to October 1995 Mr. Michaels was Treasurer of AST
Research, Inc. and from June 1988 to June 1991, he was Assistant Treasurer.

                                       47
<PAGE>
 
  KI Y. NAM, 38, has served as Vice President, New Business Development of the
Company since November 1995.  Mr. Nam has held various positions with the
Company, including Senior Engineer and Vice President, Engineering, since
joining the Company in April 1989.


  WILLIAM L. SAMUELS, 54, joined the Company in October 1997 as Senior Vice
President, Operations. Prior to joining the Company, Mr. Samuels was employed at
Tylan General as Vice President, General Manager from April 1994 to July 1996
and served as Director of Manufacturing Engineering at Quantum Corporation from
April 1991 to April 1994. He also held positions at Allied Signal ranging from
Director of Operations to Vice President, General Manager and Business
Operations Manager from May 1981 to April 1991.


ITEM 11.  EXECUTIVE COMPENSATION


  There is incorporated herein by reference the information required by this
Item included in the Company's Proxy Statement for the 1997 Annual Meeting of
Shareholders under the captions "Executive Compensation," "Compensation
Committee Interlocks and Insider Participation" and "Stock Performance Graph,"
which will be filed with the Securities and Exchange Commission no later than
120 days after the close of the fiscal year ended December 28, 1997.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


  There is incorporated herein by reference the information required by this
Item included in the Company's Proxy Statement for the 1997 Annual Meeting of
Shareholders under the caption "Security Ownership of Beneficial Owners," which
will be filed with the Securities and Exchange Commission no later than 120 days
after the close of the fiscal year ended December 28, 1997.



ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


  There is incorporated herein by reference the information required by this
Item included in the Company's Proxy Statement for the 1997 Annual Meeting of
Shareholders under the caption "Compensation Committee Interlocks and Insider
Participation" which will be filed with the Securities and Exchange Commission
no later than 120 days after the close of the fiscal year ended December 28,
1997.

                                       48
<PAGE>
 
                                    PART IV


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


     (a) Documents filed as a part of this report:


         (1)  Index to Financial Statements

              The financial statements included in Part II, Item 8 of this
              document are filed as part of this Report.

         (2)  Financial Statement Schedules

              The financial statement schedule included in Part II, Item 8 of
              this document is filed as part of this Report.

              All other schedules are omitted as the required information is
              inapplicable or the information is presented in the consolidated
              financial statements or related notes.


Exhibit
Number                           Description
------                           -----------


3.2    Form of Amended and Restated Certificate of Incorporation of the Company
       (incorporated by reference to Exhibit 3.2 to the Company's Registration
       Statement on Form-S-1 (File No. 333-13679) as filed with the Securities
       and Exchange Commission on December 3, 1996).

3.4    Form of Amended and Restated Bylaws of the Company (incorporated by
       reference to Exhibit 3.4 to the Company's Registration Statement on Form-
       S-1 (File No. 333-13679) as filed with the Securities and Exchange
       Commission on December 3, 1996).

4.1    Stockholders' Agreement, dated October 10, 1995, among the Company and
       certain shareholders (incorporated by reference to Exhibit 4.1 to the
       Company's Registration Statement on Form-S-1 (File No. 333-13679) as
       filed with the Securities and Exchange Commission on October 8, 1996).

4.2    Amendment to Stockholders Agreement (incorporated by reference to Exhibit
       4.2 to the Company's Registration Statement on Form-S-1 (File No. 333-
       13679) as filed with the Securities and Exchange Commission on October 8,
       1996).

10.1   Milcom International, Inc. 1995 Stock Option Plan (the "1995 Plan")
       (incorporated by reference to Exhibit 10.1 to the Company's Registration
       Statement on Form-S-1 (File No. 333-13679) as filed with the Securities
       and Exchange Commission on October 8, 1996).*

10.2   Form of Stock Option Agreement for 1995 Plan (incorporated by reference
       to Exhibit 10.2 to the Company's Registration Statement on Form-S-1 (File
       No. 333-13679) as filed with the Securities and Exchange Commission on
       October 8, 1996).*

10.3   Amendment No. 1 to 1995 Stock Option Plan (incorporated by reference to
       Exhibit 10.3 to the Company's Registration Statement on Form-S-1 (File
       No. 333-13679) as filed with the Securities and Exchange Commission on
       October 8, 1996).*

10.3.1 Amendment No. 2 to Plan (incorporated by reference to Exhibit 10.3.1 to
       the Company's Registration Statement on Form-S-1 (File No. 333-28463) as
       filed with the Securities and Exchange Commission on June 4, 1997)

10.4   Powerwave Technologies, Inc. 1996 Stock Incentive Plan (the "1996 Plan")
       (incorporated by reference to Exhibit 10.4 to the Company's Registration
       Statement on Form-S-1 (File No. 333-13679) as filed with the Securities
       and Exchange Commission on October 8, 1996).*

10.5   Form of Stock Option Agreement for 1996 Plan (incorporated by reference
       to Exhibit 10.5 to the Company's Registration Statement on Form-S-1 (File
       No. 333-13679) as filed with the Securities and Exchange Commission on
       October 8, 1996).*

10.6   Form of Restricted Stock Purchase Agreement for 1996 Plan (incorporated
       by reference to Exhibit 10.6 to the Company's Registration Statement on
       Form-S-1 (File No. 333-13679) as filed with the Securities and Exchange
       Commission on October 8, 1996).*

                                       49
<PAGE>
 
Exhibit
Number                            Description
------                            -----------

10.6.1 Amendment No. 1 to 1996 Plan (incorporated by reference to Exhibit 10.6.1
       to the Company's Registration Statement on Form-S-1 (File No. 333-28463)
       as filed with the Securities and Exchange Commission on June 4, 1997).

10.7   Powerwave Technologies, Inc. 1996 Director Stock Option Plan (the
       "Director Plan") (incorporated by reference to Exhibit 10.7 to the
       Company's Registration Statement on Form-S-1 (File No. 333-13679) as
       filed with the Securities and Exchange Commission on October 8, 1996).*

10.8   Form of Stock Option Agreement for Director Plan (incorporated by
       reference to Exhibit 10.8 to the Company's Registration Statement on 
       Form-S-1 (File No. 333-13679) as filed with the Securities and Exchange
       Commission on October 8, 1996).*

10.9   Powerwave Technologies, Inc. Employee Stock Purchase Plan (incorporated
       by reference to Exhibit 10.9 to the Company's Registration Statement on
       Form-S-1 (File No. 333-13679) as filed with the Securities and Exchange
       Commission on October 8, 1996).*

10.9.1 Amendment No. 1 to Employee Stock Purchase Plan (incorporated by
       reference to Exhibit 10.9.1 to the Company's Registration Statement on
       Form-S-1 (File No. 333-28463) as filed with the Securities and Exchange
       Commission on June 4, 1997).

10.10  Series A Convertible Preferred Stock Purchase Agreement, dated October
       10, 1995, among the Company and certain shareholders (incorporated by
       reference to Exhibit 10.10 to the Company's Registration Statement on
       Form-S-1 (File No. 333-13679) as filed with the Securities and Exchange
       Commission on October 8, 1996).

10.11  Redemption Agreement, dated October 10, 1995, among the Company and
       certain shareholders (incorporated by reference to Exhibit 10.11 to the
       Company's Registration Statement on Form-S-1 (File No. 333-13679) as
       filed with the Securities and Exchange Commission on October 8, 1996).

10.12  Registration Rights Agreement, dated October 10, 1995, among the Company
       and certain shareholders (incorporated by reference to Exhibit 10.12 to
       the Company's Registration Statement on Form-S-1 (File No. 333-13679) as
       filed with the Securities and Exchange Commission on October 8, 1996).

10.13  Indemnification Agreement, dated October 10, 1995, between the Company
       and certain shareholders (incorporated by reference to Exhibit 10.13 to
       the Company's Registration Statement on Form-S-1 (File No. 333-13679) as
       filed with the Securities and Exchange Commission on October 8, 1996).*

10.14  Form of Indemnification Agreement (incorporated by reference to Exhibit
       10.14 to the Company's Registration Statement on Form-S-1 (File No. 333-
       13679) as filed with the Securities and Exchange Commission on October 8,
       1996).*

10.16  Standard Industrial/Commercial Single-Tenant Lease-Net, dated July 1,
       1996, between the Company and CNH, LLC, a California limited liability
       company (incorporated by reference to Exhibit 10.16 to the Company's
       Registration Statement on Form-S-1 (File No. 333-13679) as filed with the
       Securities and Exchange Commission on October 8, 1996).

10.17  Business Loan Agreement, dated May 30, 1996 between the Company and Bank
       of America (incorporated by reference to Exhibit 10.17 to the Company's
       Registration Statement on Form-S-1 (File No. 333-13679) as filed with the
       Securities and Exchange Commission on October 8, 1996).

10.18  Agreement, dated February 16, 1996, between the Company and LG
       Information & Communications Ltd. (portions omitted and filed separately
       with the Securities and Exchange Commission pursuant to Rule 406)
       (incorporated by reference to Exhibit 10.18 to the Company's Registration
       Statement on Form-S-1 (File No. 333-13679) as filed with the Securities
       and Exchange Commission on October 8, 1996).

10.19  Agreement, dated July 20, 1995, between the Company and Samsung
       Electronics (portions omitted and filed separately with the Securities
       and Exchange Commission pursuant to Rule 406) (incorporated by reference
       to Exhibit 10.19 to the Company's Registration Statement on Form-S-1
       (File No. 333-13679) as filed with the Securities and Exchange Commission
       on October 8, 1996).

10.20  Technology License Agreement, dated August 30, 1995, between the Company
       and Unique Wireless Developments, L.L.C., a Delaware limited liability
       company (incorporated by reference to Exhibit 10.20 to the Company's
       Registration Statement on Form-S-1 (File No. 333-13679) as filed with the
       Securities and Exchange Commission on October 8, 1996).

                                       50
<PAGE>
 
Exhibit
Number                            Description
------                            -----------

10.21    Separation Agreement and Mutual General Release, dated May 2, 1997,
         between the Company and Peter Manno (incorporated by reference to
         Exhibit 10.21 to the Company's Registration Statement on Form-S-1 (File
         No. 333-28463) as filed with the Securities and Exchange Commission on
         June 4, 1997).

10.22    Credit Agreement, dated as of August 1, 1997, between Powerwave
         Technologies, Inc. and Bank of America NT & SA (incorporated by
         reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-
         Q as filed with the Securities and Exchange Commission on October 31,
         1997).

10.22.1  First Amendment to the Credit Agreement, dated as of December 11, 1997.
11.1     Computation of net income per share.

21.1     Subsidiaries of the registrant.

23.1     Independent Auditor's Consent.

27.1     Financial Data Schedule.

         *Indicates Item 14(a)(3) exhibit.


        (b) Items reported on Form 8-K in Fourth Quarter
 
              On December 11, 1997, Powerwave Technologies, Inc. (the "Company")
        announced that the Board of Directors of the Company authorized the
        Company to repurchase up to one million (1,000,000) shares of Common
        Stock of the Company in open market transactions. All shares of Common
        Stock repurchased by the Company will be utilized by the Company in its
        employee stock option programs covering future option grants.

        (c) Financial Statements Schedule

              Schedule II Valuation and Qualifying Accounts


         Powerwave Technologies and Powerwave are registered trademarks of
         Powerwave Technologies, Inc. The Powerwave Technologies logo is a
         trademark of Powerwave Technologies, Inc.

         All other products or service names mentioned herein may be trademarks
         or registered trademarks of their respective owners.

                                       51
<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, in the City of Irvine,
State of California, on the 27/th/ day of February, 1998.

                                            POWERWAVE TECHNOLOGIES, INC.


                                         By: /s/  Bruce C. Edwards
                                         --------------------------------------
                                                  Bruce C. Edwards
                                         President and Chief Executive Officer

  We, the undersigned directors and officers of Powerwave Technologies, Inc., do
hereby constitute and appoint Bruce C. Edwards and Kevin T. Michaels as our true
and lawful attorney-in-fact and agents with power of substitution, to do any and
all acts and things in our name and behalf in our capacities as directors and
officers and to execute any and all instruments for us and in our names in the
capacities indicated below, which said attorney-in-fact and agent may deem
necessary or advisable to enable said corporation to comply with the Securities
and Exchange Act of 1934, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with this
Annual Report on Form 10-K, including specifically but without limitation, power
and authority to sign for us or any of us in our names in the capacities
indicated below, any and all amendments (including post-effective amendments)
hereto; and we do hereby ratify and confirm all that said attorney-in-fact and
agent, shall 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 in the capacities and on
the dates indicated.


<TABLE>
<CAPTION>

     SIGNATURE                     TITLE                              DATE
     ---------                     -----                              ----
<S>                          <C>                                 <C> 
 
/s/   Bruce C. Edwards      President, Chief Executive           February 27, 1998
-------------------------   Officer and Director (Principal
      Bruce C. Edwards      Executive Officer)
 
/s/   Kevin T. Michaels     Vice President, Finance and          February 27, 1998
-------------------------   Chief Financial Officer (Principal
      Kevin T. Michaels     Accounting Officer)
 
/s/   Alfonso G. Cordero    Chairman of the Board                February 27, 1998
 ------------------------- 
      Alfonso G. Cordero
 
/s/   Gregory M. Avis       Director                             February 27, 1998
 ------------------------- 
      Gregory M. Avis
 
/s/   Eugene L. Goda        Director                             February 27, 1998
 ------------------------- 
      Eugene L. Goda
 
/s/   David L. George       Director                             February 27, 1998
 ------------------------- 
      David L. George
 
/s/   Rich Shapero          Director                             February 27, 1998
 ------------------------- 
      Rich Shapero
 
/s/   Sam Yau               Director                             February 27, 1998
 ------------------------- 
      Sam Yau
</TABLE>

                                       52
<PAGE>
 
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                        Balance at    Charges                     Balance at
                                        Beginning     to Costs                    End of
         Description                    of Period     and Expenses  Deductions    Period
         -----------                    ------------  ------------  ------------  ------
<S>                                       <C>          <C>          <C>          <C> 
Year ended December 28, 1997:
     Allowance for doubtful accounts      $  485,368      751,639   $(467,939)   $  769,068
     Inventory reserves                   $1,401,195   $1,119,914   $  (3,079)   $2,518,030
 
Year ended December 29, 1996:
     Allowance for doubtful accounts      $  122,532   $  376,867   $ (14,031)   $  485,368
     Inventory reserves                   $  791,941   $1,008,000   $(398,746)   $1,401,195
 
Year ended December 31, 1995:
     Allowance for doubtful accounts      $   10,000   $  120,946   $  (8,414)   $  122,532
     Inventory reserves                   $  301,358   $  490,583           -    $  791,941

</TABLE>

                                       53