<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q


(Mark One)

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

          For the Quarterly Period Ended September 30, 2001
                                         ------------------

                                       or

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

           For the transition period from ___________ to ____________


                         Commission File Number 0-30189
                                                -------

                                    VYYO INC.
                                    ---------
             (Exact name of registrant as specified in its charter)


               Delaware                                 94-3241270
               --------                                 ----------
   (State or other jurisdiction of       (I.R.S. Employer Identification Number)
    incorporation or organization)


     20400 Stevens Creek Boulevard, 8/th/ Floor, Cupertino, California 95014
     -----------------------------------------------------------------------
     (Address of Principal Executive Offices)           (Zip Code)


        Registrant's telephone number, including area code (408) 863-2300


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 _______
         ---

As of September 30, 2001, there were 36,972,713 shares of Common Stock ($0.0001
par value) outstanding.

<PAGE>

                                      INDEX

                                    VYYO INC.

<TABLE>
<CAPTION>
                                                                                            Page No.
                                                                                            -------
<S>                                                                                         <C>
PART I. FINANCIAL INFORMATION
-----------------------------

Item 1. Condensed Consolidated Financial Statements (Unaudited)

        Condensed consolidated balance sheets-December 31, 2000
         and September 30, 2001...........................................................      3

        Condensed consolidated statements of operations-three and nine months
         ended September 30, 2000 and 2001 ...............................................      4

        Condensed consolidated statements of cash flows-nine months
         ended September 30, 2000 and September 30, 2001 .................................      5

        Notes to condensed consolidated financial statements .............................      6

Item 2. Management's Discussion and Analysis of Financial Condition
        and Results of Operations ........................................................      9

Item 3. Quantitative and Qualitative Disclosures About Market Risk .......................     22

PART II.  OTHER INFORMATION
---------------------------

Item 1. Legal Proceedings ................................................................     23

Item 2. Changes in Securities and Use of Proceeds.........................................     23

Item 3. Defaults upon Senior Securities ..................................................     24

Item 4. Submission of Matters to a Vote of Security Holders ..............................     24

Item 5. Other Information ................................................................     24

Item 6. Exhibits and Reports on Form 8-K .................................................     24

SIGNATURE. ...............................................................................     25
</TABLE>

                                       2



<PAGE>

Part I.  Financial Information
Item 1. Condensed Consolidated Financial Statements

                                    Vyyo Inc.
                      Condensed Consolidated Balance Sheets
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                             December 31,   September 30,
                                                             ------------   -------------
                                                                 2000           2001
                                                                 ----            ----
                                                               (Note 1)      (Unaudited)
<S>                                                          <C>            <C>
Assets
------
Current Assets
--------------
Cash and cash equivalents                                    $  33,991        $  17,407
Short-term investments                                          93,914           70,559
Accounts receivable, net                                         2,890            1,635
Inventory                                                        6,006            2,056
Other current assets                                             2,382            1,156
                                                             ---------        ---------
  Total current assets                                         139,183           92,813

Property and equipment, net                                      3,984            2,078

                                                             ---------        ---------
                                                             $ 143,167        $  94,891
                                                             =========        =========


Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities
-------------------
Accounts payable                                             $   6,242        $   2,972
Accrued liabilities                                              9,345            7,204
Accrued restructuring charges                                       --            4,797
                                                             ---------        ---------
  Total current liabilities                                     15,587           14,973

Commitments and Contingencies

Stockholders' Equity
--------------------
Common stock (37,762 and 36,973 shares issued and              239,613          227,437
outstanding at December 31, 2000 and September 30, 2001,
respectively)
Notes receivable from stockholders                              (2,834)            (547)
Deferred stock compensation                                     (8,100)            (900)
Other comprehensive income                                         289            1,155
Accumulated deficit                                           (101,388)        (147,227)
                                                             ---------        ---------
  Total stockholders' equity                                   127,580           79,918

                                                             ---------        ---------
                                                             $ 143,167        $  94,891
                                                             =========        =========
</TABLE>

See Notes to Condensed Consolidated Financial Statements

Note 1: The condensed consolidated balance sheet at December 31, 2000 has been
derived from audited financial statements at that date but does not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements.

                                       3

<PAGE>

                                    Vyyo Inc.
                 Condensed Consolidated Statements of Operations
                      (In Thousands Except Per Share Data)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                    Three Months Ended              Nine Months Ended
                                                                    -----------------               -----------------
                                                                       September 30,                   September 30,
                                                                       -------------                   -------------
                                                                    2000            2001            2000             2001
                                                                    ----            ----            ----             ----
<S>                                                               <C>             <C>             <C>             <C>
Net revenues                                                      $  4,465        $  2,859        $  9,321        $  4,889

Cost of revenues [1]                                                 3,086           3,207           6,576          13,264
                                                                  --------        --------        --------        --------

Gross profit (loss)                                                  1,379            (348)          2,745          (8,375)


Operating Expenses
------------------
Research and development                                             3,957           2,740           8,589          12,670
Sales and marketing                                                  2,350           1,564           5,893           6,145
General and administrative                                           2,095             895           5,914           5,478
Restructuring charge                                                     -           6,161               -          11,562
Charge for stock compensation                                        2,670             596          12,607           6,034
                                                                  --------        --------        --------        --------
Total operating expenses                                            11,072          11,956          33,003          41,889
                                                                  --------        --------        --------        --------

Operating loss                                                      (9,693)        (12,304)        (30,258)        (50,264)

Interest and other income (expense), net                             1,446           1,236           2,623           4,425
                                                                  --------        --------        --------        --------

Net loss                                                          $ (8,247)       $(11,068)       $(27,635)       $(45,839)
                                                                  ========        ========        ========        ========

Net Loss Per Share:
  Basic and diluted                                               $  (0.23)       $  (0.30)       $  (0.89)       $  (1.25)
                                                                  ========        ========        ========        ========

  Shares used in per share computation - basic and
  diluted                                                           35,707          36,753          30,949          36,798
                                                                  ========        ========        ========        ========
</TABLE>

[1]  Costs of revenues for the nine months ended September 30, 2001, includes
     $8.67 million of charges for inventory and purchase commitments

See Notes to Condensed Consolidated Financial Statements

                                       4

<PAGE>

                                    Vyyo Inc.
                 Condensed Consolidated Statements of Cash Flows
                                 (In Thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                     Nine Months Ended
                                                                     -----------------
                                                                       September 30,
                                                                       ------------
                                                                     2000         2001
                                                                     ----         ----
<S>                                                              <C>          <C>
Operating Activities:
--------------------

Net loss for the period                                          $ (27,635)   $ (45,839)
Adjustments to reconcile net loss to net cash
  used in operating activities:
  Depreciation and other                                               824        4,229
  Stock based compensation                                          12,607        6,034
  Changes in operating assets and liabilities:
    Accounts receivable                                             (1,768)       1,255
    Inventory                                                       (2,622)       3,950
    Other assets                                                    (1,451)       1,226
    Accounts payable                                                 2,224       (3,270)
    Accrued liabilities                                              6,630        2,656
                                                                 ---------    ---------

Net cash used in operating activities                              (11,191)     (29,759)
                                                                 ---------    ---------

Investing Activities:
--------------------
Purchases of property and equipment                                 (2,383)      (2,359)
Purchases of short term investments                                (61,026)     (11,483)
Proceeds from sale of short term investments                         2,042       35,704
Proceeds from sale of property and equipment                             8           36
                                                                 ---------    ---------

Net cash provided by (used in) investing activities                (61,359)      21,898
                                                                 ---------    ---------

Financing Activities:
--------------------
Repayment of short-term debt obligations                            (2,371)           -
Proceeds from stockholder note                                       1,170            -
Issuance of common stock                                           147,014          334
Repurchase of stock                                                      -       (9,057)
                                                                 ---------    ---------

Net cash provided by (used in) financing activities                145,813       (8,723)
                                                                 ---------    ---------

Increase (Decrease) in cash and cash equivalents                    73,263      (16,584)
Cash and cash equivalents at beginning of period                     5,036       33,991
                                                                 ---------    ---------
Cash and cash equivalents at end of period                       $  78,299    $  17,407
                                                                 =========    =========
</TABLE>

See Notes to Condensed Consolidated Financial Statements

                                       5

<PAGE>

                                    Vyyo Inc.
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

1.  Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Vyyo
Inc. ("Vyyo" or the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
interim period are not necessarily indicative of the results that may be
expected for the full year. For further information, refer to the consolidated
financial statements and notes thereto for the year ended December 31, 2000,
included in the annual report on Form 10-K for the year ended December 31, 2000,
filed with the Securities and Exchange Commission.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from these estimates.

Net Loss Per Share

Basic and diluted net losses per share are presented in accordance with SFAS No.
128, "Earnings per Share" ("SFAS 128"), for all periods presented.

2.  Inventory

Inventory is comprised of the following (in thousands):

                                                   December 31,    September 30,
                                                      2000             2001
                                                      ----           ------
                                                                    (Unaudited)

                      Raw material                 $      2,890    $           -
                      Work in process                       809              244
                      Finished goods                      2,307            1,812
                                                   ------------    -------------
                                                   $      6,006    $       2,056
                                                   ============    =============

3.  Accrued Liabilities

Accrued liabilities consist of the following (in thousands):



                                                   December 31,    September 30,
                                                      2000             2001
                                                      ----             ----
                                                                    (Unaudited)

                      Compensation and benefits    $      4,220    $       2,715
                      Withholding tax                       742            1,099
                      Warranty                            1,103            1,222
                      Royalties                             658              872
                      Severance pay                         644              706
                      Other                               1,978              590
                                                   ------------    -------------
                                                   $      9,345    $       7,204
                                                   ============    =============


                                      6

<PAGE>

4.  Accrued Restructuring Charges

In the third quarter of 2001, the Company continued to implement a restructuring
program to reduce operating expenses due to the continuing slowdown in the
telecommunication sector and the general economy. The Company recorded charges
of $6.2 million in the third quarter, in addition to the $5.4 million recorded
in the first two quarters of 2001. Included in these charges are costs related
to excess facilities and severance. The restructuring program in the third
quarter of 2001 resulted in a reduction in force of approximately 70%. The
restructuring charge and its utilization are summarized as follows as of
September 30, 2001:

                                         Cumulative
                                       Restructuring                   To be
                                          charge        Utilized      Utilized
                                       -------------  ------------   ---------
             Facilities                $       7,451  $      5,200   $   2,251
             Severance and other               4,111         1,565       2,546
                                       -------------  ------------   ---------
                                       $      11,562  $      6,765   $   4,797
                                       =============  ============   =========



5.  Contingencies

Patent Matter

In early 1999 and in April 2000, the Company received written notices from
Hybrid Networks, Inc. ("Hybrid"), a competitor, in which Hybrid claimed to have
patent rights in certain technology and requested that the Company review its
products in light of eleven of Hybrid's issued patents. The Company, with the
advice of counsel, believes these patents are invalid or are not infringed by
the Company's products. However, Hybrid may pursue litigation with respect to
these or other claims. The results of any litigation are inherently uncertain.
Any successful infringement claim or litigation against the Company could have a
significant adverse impact on the Company's operating results, cash flows and
financial condition.

Common Stock Repurchase Program

In December 2000, the Company's board of directors authorized the repurchase of
up to 4 million shares of Vyyo's common stock. In March 2001, the Company's
board of directors approved an increase in the number of shares it may purchase
under its repurchase program by 6 million shares. The Company repurchased and
retired 1.3 million shares in open market transactions for a total cost of $9.1
million in the quarter ended March 31, 2001. There was no share repurchase
activity in the quarters ended June 30 and September 30, 2001.

Shareholder's Note Receivable

In the first quarter of 2001, the Company amended a promissory note in the
amount of $2,834,163 issued to the Company by an officer to (i) make the note
non-recourse to the assets of the issuer of the note other than the underlying
collateral, (ii) reduce the interest rate and delay the due date for payment of
interest until the maturity date of the note, and (iii) secure the note solely
with the underlying shares of common stock purchased with the note proceeds. In
the third quarter of 2001, in connection with this amendment, the Company
recorded an additional charge for stock compensation of $296,000 related to a
decrease in the fair market value of the underlying collateral. The charge for
stock compensation was $2.3 million in the first half of 2001. Subsequent to
September 30, 2001, the Company agreed to cancel the promissory note in exchange
for redelivery to the Company of the shares securing the promissory note. See
note 8.

6.  Comprehensive Income

Total comprehensive income was $222,000 and $866,000 for the first three and
nine months of 2001, respectively, compared to a comprehensive loss of $9,000
and a comprehensive income of $8,000 for the first three and nine months of
2000, respectively.


                                      7

<PAGE>

7.     New Accounting Pronouncements

In June 1998, the Financial Accounting Standard Board (FASB) issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS
133) which establishes accounting and reporting standard for derivatives
instruments and hedging activities. The statement requires recognition of all
derivatives at fair value in the financial statements. FASB Statement No. 137
"Accounting for Derivative Instruments and Hedging Activities Deferral of the
Effective Date of FASB Statement No. 133" an amendment of FASB Statement No.
133, defers implementation of SFAS No. 133 until fiscal years beginning after
June 15, 2000. The Company has adopted the standard effective January 1, 2001.
The adoption of SFAS 133 did not affect the Company's financial condition or
results of operations.

In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards (SFAS) No. 141, Business Combinations, and SFAS
No. 142, Goodwill and Other Intangible Assets. The new rules require business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method of accounting and goodwill acquired after this date will no
longer be amortized, but will be subject to annual impairment tests. All other
intangible assets will continue to be amortized over their estimated useful
lives. As the Company has not completed any business combinations through
September 30, 2001, the Company believes that these standards will not have a
material impact on its financial position or operating results.

8.     Subsequent Events

In October 2001, in connection with the departure of the Company's Chief
Executive Officer, the Company (i) granted options to such officer to purchase
800,000 shares of common stock at an exercise price of $0.01 per share, (ii)
canceled all of such officer's currently outstanding options, (iii) agreed to
cancel the non-recourse promissory note previously issued by such officer to the
Company (see note 5) in exchange for redelivery to the Company of 370,000 shares
of common stock securing the note, and (iv) agreed to extend a loan to such
officer of up to $1,000,000 upon the request of such officer. If drawn upon,
this loan would be due on January 1, 2006, or earlier upon sales of the
Company's shares held by such officer or upon certain other circumstances. The
loan would be secured solely by the options held by such officer and the shares
of the Company's common stock underlying these options.

In August 2001, the board approved, subject to stockholder approval, a 1-for-3
reverse stock split of the Company's outstanding common stock. A special meeting
of stockholders to vote on the reverse stock split is scheduled for November 13,
2001.

                                       8

<PAGE>

Item 2.           Management's Discussion and Analysis of Financial Condition
                  and Results of Operations

         The following information should be read in conjunction with the
condensed consolidated interim financial statements and the notes thereto in
Part I, Item 1 of this Quarterly Report and with Management's Discussion and
Analysis of Financial Condition and Results of Operations for the year ended
December 31, 2000, contained in Vyyo's Annual Report (Form 10-K) for the year
ended December 31, 2000, filed with the Securities and Exchange Commission. The
matters addressed in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, with the exception of the historical
information presented, contain forward-looking statements involving risks and
uncertainties. Vyyo's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including, without limitation, those set forth under the heading "Certain
Factors That May Affect Future Results" following this Management's Discussion
and Analysis section, and elsewhere in this report.

Overview

         We supply broadband wireless access systems used by telecommunications
service providers to deliver wireless, high-speed data connections to business
and residential subscribers. We sell our systems directly to service providers,
as well as to system integrators that deploy our systems as part of their
end-to-end network solutions for service providers. We have incurred significant
losses since our inception, and we expect to continue to incur net losses for
the foreseeable future. We incurred net losses of approximately $45.8 million
for the nine months ended September 30, 2001. As of September 30, 2001, our
accumulated deficit was approximately $147.2 million.

Results of Operations

Net Revenues.

         Net revenues include product revenues and technology development
revenues. Product revenues are derived primarily from sales of hubs and modems
to telecommunications service providers and to system integrators. Product
revenues are generally recorded when products are shipped, provided there are no
customer acceptance requirements and we have no additional performance
obligations. We accrue for estimated sales returns or exchanges and product
warranty and liability costs upon recognition of product revenues.

         Our revenue is concentrated among relatively few customers. Though our
principal revenue-generating customers are likely to vary on a quarterly basis,
we anticipate that our revenues will remain concentrated among a few customers
for the foreseeable future.

         Net revenues decreased by 36% from $4.5 million in the third quarter of
2000 to $2.9 million in the third quarter of 2001 and by 48% from $9.3 million
in the first nine months of 2000 to $4.9 million in the first nine months of
2001. Technology development revenues were $480,000 in the first nine months of
2000. There were no technology development revenues in the first nine months of
2001. The decrease in revenues primarily reflects a slowdown in the global
economy, reduction of capital spending and further tightening of financial
markets in the telecommunication industry, which has reduced our potential
customers' ability to secure financing and purchase equipment.

 Cost of Revenues.

         Cost of revenues consists of component and material costs, direct labor
costs, warranty costs, royalties in connection with Israeli government incentive
programs and overhead related to manufacturing our products.

         Cost of revenues increased from $3.1 million in the third quarter of
2000 to $3.2 million in the third quarter of 2001. Cost of revenues was $6.6
million in the first nine months of 2000 compared with $13.3 million in the
first nine

                                       9

<PAGE>

months of 2001. Cost of revenues in the three and nine months ended
September 30, 2001 included charges of approximately $760,000 and $8.7 million,
respectively, for excess inventory and purchase commitments.

Research and Development Expenses.

         Research and development expenses consist primarily of personnel,
facilities, equipment, supplies, and funding of external projects for our
research and development activities. These expenses are charged to operations as
incurred. Our research and development expenses decreased from $4.0 million in
the third quarter of 2000 to $2.7 million in the third quarter of 2001. These
decreases were due to reductions in the workforce in the second and third
quarters of 2001. Research and development expenses increased from $8.6 million
in the first nine months of 2000 to $12.7 million in the first nine months of
2001. These increases were due to increases in the number of research and
development personnel and related activities in the first two quarters of 2001,
a one time charge, and related costs of faci1ities.

Sales and Marketing Expenses.

         Sales and marketing expenses consist of salaries and related costs of
sales and marketing employees, consulting fees and expenses for travel, trade
shows, promotional and marketing activities. Sales and marketing expenses
decreased from $2.4 million in the third quarter of 2000 to $1.6 million in the
third quarter of 2001. Sales and marketing expenses increased from $5.9 million
in the first nine months of 2000 to $6.1 million in the first nine months of
2001. The increase in sales and marketing expenses was primarily due to an
increase in the number of sales and marketing personnel and increased sales
efforts into emerging markets in the first two quarters of 2001.

 General and Administrative Expenses.

         General and administrative expenses consist primarily of personnel and
related costs for general corporate functions, including finance, accounting,
business development, legal and administration. General and administrative
expenses decreased from $2.1 million in the third quarter of 2000 to $895,000 in
the third quarter of 2001. General and administrative expenses decreased from
$5.9 million in the first nine months of 2000 to $5.5 million in the first nine
months of 2001. The quarter over quarter decrease in general and administrative
expenses was primarily due to reduction in compensation related expenses.

Restructuring Charges.

         Restructuring charges were $11.6 million for the first nine months of
2001 as result of a company-wide restructuring program. The Company recorded
$6.2 million of restructuring charges in the third quarter of 2001 related
mainly to workforce reduction and write-off of excess facilities.

 Charge for Stock Based Compensation.

         Charge for stock based compensation included amortization of deferred
stock compensation as well as stock compensation charges incurred in connection
with modifications of stock awards in 2001.

 Interest and Other Income (Expense), Net.

         Interest income and other income (expense) includes interest and
investment income, foreign currency remeasurement gains and losses offset by
interest expense related to bank loans and convertible notes. Net interest
income for the third quarter of 2000 was $1.4 million compared to $1.2 million
in the third quarter of 2001. Net interest income was $2.6 million in the first
nine months of 2000 compared to a net interest income of $4.4 million in the
first nine months of 2001. Substantially all of the interest and other income in
the first nine months of 2001 are represented by interest income on our cash and
short-term investment balances. The Company repaid all of its outstanding loans
in the second quarter of 2000. Interest and other income increased due to the
higher average balance of invested cash equivalents and short-term investments.
Interest income is expected to decline in future quarters due to a decline in
cash balances and interest rates.

                                       10

<PAGE>

 Income Taxes.


         As of December 31, 2000, the Company had approximately $32 million of
Israeli net operating loss carryforwards and $13 million of United States
federal and state net operating loss carryforwards. The Israeli net operating
loss carryforwards have no expiration date and have not been recorded as tax
assets because the losses are expected to be utilized during a tax exempt
period. The United States net operating loss carryforwards expire in various
amounts between the years 2004 and 2020. We have provided a full valuation
allowance against our United States deferred tax assets, as the future
realization of the tax benefit is not sufficiently assured.

Liquidity And Capital Resources

         As of September 30, 2001, we had $88 million of cash, cash equivalents
and short-term investments. In the first nine months of 2000, cash used in
operations was $11.2 million, comprised of our net loss of $27.6 million,
partially offset by non-cash charges of $13.4 million and an increase in working
capital accounts of $3.0 million. In the first nine months of 2001, cash used in
operations was $29.8 million, comprised of our net loss of $45.8 million,
partially offset by non-cash charges of $10.3 million for stock compensation
charges, depreciation and asset write-down and increase in working capital
accounts of $5.7 million.

         Investing activities in the first nine months of 2001, excluding
purchases and proceeds from short-term investments, amounted to approximately
$2.3 million for investments in property and equipment.

         Cash used in financing activities in the first nine months of 2001 was
$8.7 million, mainly comprised of stock repurchases in the amount of $9.1
million, partially offset by proceeds from stock option exercises.

         Our capital requirements depend on numerous factors, including market
acceptance of our products, the resources we devote to developing, marketing,
selling and supporting our products, the timing and extent of establishing
additional international operations and other factors. We expect to continue to
devote substantial capital resources to fund our research and development and
our sales and marketing activities as well as general corporate activities. We
expect that our cash and investment balances will be sufficient to meet our
working capital and capital expenditure needs for at least the next 12 months.
After that, we may need to raise additional funds for a number of uses. We may
not be able to obtain additional funds on acceptable terms, or at all.

New Accounting Pronouncements

         In June 1998, the Financial Accounting Standard Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133) which establishes accounting and reporting standard for
derivatives instruments and hedging activities. The statement requires
recognition of all derivatives at fair value in the financial statements. FASB
Statement No. 137 "Accounting for Derivative Instruments and Hedging Activities
Deferral of the Effective Date of FASB Statement No. 133" an amendment of FASB
Statement No. 133, defers implementation of SFAS No. 133 until fiscal years
beginning after June 15, 2000. The Company has adopted the standard effective
January 1, 2001. The adoption of SFAS 133 did not affect the Company's financial
condition or results of operations.

         In July 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards (SFAS) No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. The new
rules require business combinations initiated after June 30, 2001 to be
accounted for using the purchase method of accounting and goodwill acquired
after this date will no longer be amortized, but will be subject to annual
impairment tests. All other intangible assets will continue to be amortized over
their estimated useful lives. As the Company has not completed any business
combinations through September 30, 2001, the Company believes that these
standards will not have a material impact on its financial position or operating
results.

                                       11

<PAGE>

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTs

          This Form 10-Q contains forward-looking statements concerning our
existing and future products, markets, expenses, revenues, liquidity,
performance and cash needs as well as our plans and strategies. These
forward-looking statements involve risks and uncertainties and are based on
current management expectations. Many factors could cause actual results and
events to differ significantly from the results anticipated by us and described
in these forward looking statements, including but not limited to the following
risk factors.

If broadband wireless technology or our implementation of this technology is not
broadly accepted, or if the telecommunications equipment market does not improve
and grow, we will not be able to sustain or expand our business.

         Our future success depends on high-speed wireless communications
products gaining market acceptance as a means to provide voice and data
communications services. Because these markets are relatively new and unproven,
it is difficult to predict which market segments will develop or expand. We have
particularly depended on the timing and extent of rollouts of broadband wireless
access systems by the major telecommunications service providers in the United
States. The largest MMDS license holder in the US, Sprint, has recently
announced that it is suspending any new deployments and acquisition of new
customers. The service providers have recently ceased, delayed or reduced these
rollouts and may further delay or reduce rollouts in the future. We have
recently invested and expect to continue to invest significant time and
resources in the development of new products for this market. In the event that
service providers adopt technologies other than the high-speed access and other
than wireless technologies that we offer or if they delay further their
deployment of high speed wireless communication products, we will not be able to
sustain or expand our business.

         Service providers continually evaluate alternative technologies,
including digital subscriber line, fiber and cable. Should service providers or
systems integrators that we may sell products to in the future cease to
emphasize systems that include our products, choose to emphasize alternative
technologies or promote systems of our competitors, our business would be
seriously harmed.

         In addition, in 2001, the market for telecommunications equipment has
significantly declined, which has adversely affected the entire
telecommunications industry, including service providers, systems integrators
and equipment providers, and has reduced the business outlook and visibility of
the industry. In connection with the deterioration of global economic
conditions, many of our customers and potential customers are also currently
unable to obtain debt or equity financing for deployment of their wireless
access networks and therefore do not currently have adequate capital resources
to purchase our products. If the telecommunications market, and in particular
the market for broadband access equipment, does not improve and grow, our
business would be substantially harmed.

If the communications and Internet industries do not continue to grow and evolve
in a manner favorable to our business strategy or us, our business may be
seriously harmed.

         Our future success is dependent upon the continued growth of the
communications industry and, in particular, the Internet. The growth of the
global communications and Internet industries has recently slowed significantly
and these industries continue to evolve rapidly. It is difficult to predict
growth rates or future trends in technology development. In addition, the
deregulation, privatization and economic globalization of the worldwide
communications market, which resulted in increased competition and escalating
demand for new technologies and services, may not continue in a manner favorable
to us or our business strategies. In addition, the growth in demand for Internet
services and the resulting need for high-speed or enhanced communications
products may not continue at its current rate or at all.

The loss of one or more of our key customers would result in a loss of a
significant amount of our revenues.

         A relatively small number of customers account for a large percentage
of our revenues. In the third quarter of 2001, one customer accounted for
approximately 74% of our revenues, and in the first nine months of 2001, two of
our customers accounted for approximately 62% of our revenues, and we expect
that we will continue to depend

                                       12

<PAGE>

on a limited number of customers for a substantial portion of our revenues in
future periods. In addition, most of our customers are not obligated by
long-term agreements to purchase our systems, and the agreements we have entered
into do not obligate our customers to purchase a minimum number of systems. Our
customers can generally cancel or reschedule orders on short notice and
discontinue using our systems at any time. The loss of a major customer or the
reduction, delay or cancellation of orders from one or more of our customers,
could seriously harm our ability to sustain revenue levels, which would
seriously harm our operating results. In addition, many of our customers are
dependent on obtaining funding for their deployments. The continued inability of
our customers to obtain such funding will adversely affect their deployments,
which would adversely affect our business.

The potential effects of regulatory actions could impact spectrum allocation and
frequencies worldwide and cause delays or otherwise negatively impact the growth
and development of the broadband wireless industry.

         Countries worldwide are considering or are in the process of allocating
frequencies for fixed wireless applications, but not all markets have done so.
In addition, in October 2001, the United States Federal Communications
Commission indicated that existing MMDS license holders may be able in the
future to deploy mobile services using the MMDS frequencies. If service
providers in the US will use mobile technology such as 3G cellular technology in
the MMDS band, it will harm our business as Vyyo's current technology does not
support mobile services. If the United States and/or other countries do not
provide sufficient spectrum for fixed wireless applications or reallocate
spectrum in the fixed wireless frequency bands for other purposes, our customers
may delay or cancel deployments in fixed broadband wireless, which could
seriously harm our business. Internationally, there has been delay in the
allocation of 3.5Ghz licenses. Any further delays will adversely affect our
customers' deployments and could significantly harm our business.

We have a history of losses, expect future losses and may never achieve or
sustain profitability.

         We have incurred significant losses since our inception, and we expect
to continue to incur net losses for the foreseeable future. We incurred net
losses of approximately $35.2 million in 2000 and $45.8 million in the first
nine months of 2001. As of September 30, 2001, our accumulated deficit was
approximately $147.2 million. In response to the significant decline in our
business and revenues in the first nine months of 2001, we have decreased our
operating expenses; however, our expenses will continue to be significantly
greater than our gross margin on revenues for the foreseeable future. Our
revenues and gross margins may not grow or even continue at their current level.
If our revenues do not rapidly increase or if our gross margins do not increase
or if our expenses increase at a greater pace than our revenues, we will never
become profitable.

Our quarterly operating results fluctuate, which may cause our share price to
decline.

         Our quarterly operating results have varied significantly in the past
and are likely to vary significantly in the future. In the first quarter of
2001, we experienced a particularly significant decline in revenues and increase
in negative margin from prior quarters. These variations result from a number of
factors, including:

   .    the uncertain timing and level of market acceptance for our systems and
        the uncertain timing and extent of rollouts of wireless broadband access
        systems by the major service providers;

   .    reductions in pricing by us or our competitors;

   .    the mix of products sold by us and the mix of sales channels through
        which they are sold;

   .    the ability of our existing and  potential  direct  customers to obtain
        financing for the  deployment  of broadband  wireles access systems;

        global economic conditions;

   .    the effectiveness of our system integrator customers in marketing and
        selling their network systems equipment; and

   .    changes in the prices or delays in deliveries of the components we
        purchase or license.

                                       13

<PAGE>

     A delay in the recognition of revenue, even from one customer, may have a
significant negative impact on our results of operations for a given period.
Also, because only a small portion of our expenses vary with our revenues, if
revenue levels for a quarter fall below our expectations, we will not be able to
timely adjust expenses accordingly, which would harm our operating results in
that period. We believe that period-to-period comparisons of our results of
operations are not meaningful and should not be relied upon as indicators of
future performance. If our operating results fall below the expectations of
investors in future periods, our share price will likely decline.

Competition may result in lower average selling prices and we may be unable to
reduce our costs at offsetting rates, which may impair our ability to achieve
profitability.

     We expect that price competition among broadband wireless access systems
suppliers will reduce our gross margins in the future. We anticipate that the
average selling prices of broadband wireless access systems will continue to
decline as product technologies mature. Since we do not manufacture our own
systems, we may be unable to reduce our manufacturing costs in response to
declining average per unit selling prices. Our competitors may be able to
achieve greater economies of scale and may be less vulnerable to the effects of
price competition than we are. These declines in average selling prices will
generally lead to declines in gross margins and total profitability for these
systems. If we are unable to reduce our costs to offset declines in average
selling prices, we may not be able to achieve or maintain profitability.

Competition may decrease our market share, net revenues and gross margins, which
may cause our stock price to decline.

     The market for broadband access systems is intensely competitive, rapidly
evolving and subject to rapid technological change. Many of our competitors and
potential competitors have substantially greater financial, technical,
distribution, marketing and other resources than we have and, therefore, may be
able to respond more quickly to new or changing opportunities, technologies and
other developments. In addition, many of our competitors have longer operating
histories, greater name recognition and established relationships with system
integrators and service providers. Our primary competitors are Hybrid Networks,
Inc., Alvarion Inc. (the merged entity of BreezeCOM Ltd and Floware Wireless
Systems Ltd.), and Spike, in both the MMDS and 3.5Ghz markets. In addition,
well-capitalized companies such as Cisco Systems, Alcatel and other vendors have
announced plans to enter, or are potential entrants into, the broadband wireless
market. Most of these competitors have existing relationships with one or more
of our prospective customers. We also face competition from technologies such as
digital subscriber line, fiber and cable. We may not be able to compete
successfully against our current and future competitors, and competitive
pressures may seriously harm our business.

Undetected hardware defects or software errors may increase our costs and impair
the market acceptance of our systems.

     Our systems may contain undetected defects or errors. This may result
either from defects in components supplied by third parties or from errors or
defects in our software or hardware that we have failed to detect. We have in
the past experienced, and may experience from time to time in the future,
defects in new or enhanced products and systems after commencement of commercial
shipments, or defects in deployed systems. Our customers integrate our systems
into their networks with components from other vendors. Accordingly, when
problems occur in a network system it may be difficult to identify the component
that caused the problem. Regardless of the source of these defects or errors, we
will need to divert the attention of our engineering personnel from our product
development efforts to address the defect or error. We have incurred in the past
and may again incur significant warranty and repair costs related to defects or
errors, and we may also be subject to liability claims for damages related to
these defects or errors. The occurrence of defects or errors, whether caused by
our systems or the components of another vendor, may result in significant
customer relationship problems and injury to our reputation and may impair the
market acceptance of our systems.

                                       14

<PAGE>

We depend on contract manufacturers and third party equipment suppliers, and
these manufacturers and suppliers may be unable to fill our orders on a timely
basis, which would result in delays that could seriously harm our results of
operations.

     We currently have relationships with two contract manufacturers for the
manufacturing of our systems, which are located in Israel. These relationships
may be terminated by either party with little or no notice. If our manufacturers
are unable or unwilling to continue manufacturing our systems in required
volumes, we would have to identify qualified alternative manufacturers, which
would result in delays that could cause our results of operations to suffer. Our
limited experience with these manufacturers does not provide us with a reliable
basis on which to project their ability to meet delivery schedules, yield
targets or costs. If we are required to find alternative manufacturing sources,
we may not be able to satisfy our production requirements at acceptable prices
and on a timely basis, if at all. Any significant interruption in supply would
affect the allocation of systems to customers, which in turn could seriously
harm our business. In addition, we currently have no formal agreement or
relationship with a manufacturer for our modem products. Although we have
sufficient inventory of modems on hand to fulfill anticipated demand for the
foreseeable future, should our supply of modems be insufficient to meet future
demand, our inability to identify and enter into a relationship with a
manufacturer for our modems could harm our business.

     In the first nine months of 2001, we began to focus our resources on direct
sales to service providers. Such direct sales will require us to resell to
service providers equipment manufactured by third party suppliers and to
integrate this equipment with the equipment we manufacture. We currently have no
formal relationship with any third party supplier. If we are unable to establish
relationships with suppliers, or if these suppliers are unable to provide
equipment that meets the specifications of our customers on the delivery
schedules required by our customers, and at acceptable prices, our business
would be substantially harmed.

We obtain some of the components included in our systems from a single source or
a limited group of suppliers, and the loss of any of these suppliers could cause
production delays and a substantial loss of revenue.

     We currently obtain key components from a limited number of suppliers. Some
of these components, such as semiconductor components for our wireless hubs, are
obtained from a single source supplier. We generally do not have long-term
supply contracts with our suppliers. These factors present us with the following
risks:

  . delays in delivery or shortages in components could interrupt and delay
    manufacturing and result in cancellation of orders for our systems;

  . suppliers could increase component prices significantly and with immediate
    effect;

  . we may not be able to develop alternative sources for system components, if
    or as required in the future;

  . suppliers could discontinue the manufacture or supply of components used in
    our systems. In such event, we might need to modify our systems, which may
    cause delays in shipments, increased manufacturing costs and increased
    systems prices; and

  . we may hold more inventory than is immediately required to compensate for
    potential component shortages or discontinuation.

The occurrence of any of these or similar events would harm our business.

Delays and shortages in the supply of components from our suppliers could reduce
our revenues or increase our cost of revenue

     Delays and shortages in the supply of components are typical in our
industry. We have experienced minor delays and shortages on more than one
occasion in the past. In addition, any failure of necessary worldwide
manufacturing capacity to rise along with a rise in demand could result in our
subcontract manufacturers allocating available capacity to larger customers or
to customers that have long-term supply contracts in place. Our inability

                                       15

<PAGE>

to obtain adequate manufacturing capacity at acceptable prices, or any delay or
interruption in supply, could reduce our revenues or increase our cost of
revenue and could seriously harm our business.


We have a limited operating history in the broadband point-to-multipoint
wireless access market, which may limit an investor's ability to evaluate our
business.

     The broadband wireless access market is only beginning to emerge. We began
commercial shipments of our first-generation broadband wireless access system in
the first quarter of 1999, and we began commercial shipments of our
second-generation wireless access system in the fourth quarter of 1999. Our
second-generation wireless access system is based on the cable industry's
standard set of communications rules, or protocols, that we have adapted for use
in wireless applications. Therefore, the success of our business will be
entirely dependent upon the success of our wireless products generally, and our
new wireless products in particular. We have a very limited operating history in
the broadband wireless access market upon which to evaluate our future
prospects, and the revenue and income potential of our business and market are
unproven. Our limited operating history in this market may limit an investor's
ability to evaluate our prospects due to:

  . our limited historical financial data from our wireless products;

  . our unproven potential to generate profits; and

  . our limited experience in addressing emerging trends that may affect our
    business.

As a young company, we face risks and uncertainties relating to our ability to
implement our business plan successfully.

If we do not develop new systems and system features in response to customer
requirements or in a timely way, customers may not buy our products, which would
seriously harm our business.

     The broadband wireless access industry is rapidly evolving and subject
to technological change and innovation. We may experience design or
manufacturing difficulties that could delay or prevent our development,
introduction or marketing of new systems and enhancements, any of which could
cause us to incur unexpected expenses or lose revenues. If we are unable to
comply with diverse, new or varying governmental regulations or industry
standards in each of the many worldwide markets in which we compete, we may not
be able to respond to customers in a timely manner, which would harm our
business.

If we do not effectively manage our costs in response to the decline in the
business outlook, our business could be substantially harmed.

     Although we have recently reduced our operations in response to the decline
in our business outlook, we will need to continue to monitor closely our costs
and expenses. If the market and our business does not expand, we may need to
reduce further our operations.

Because we operate in international markets, we are exposed to additional risks
which could cause our international sales to decline and our foreign operations
to suffer.

     Sales outside of North America accounted for approximately 18% of our
revenues in 2000 and 12% of our revenues in the first nine months of 2001. We
expect that international sales may account for a substantial portion of our
revenues in future periods. In addition, we maintain research and development
facilities in Israel. Our reliance on international sales and operations exposes
us to foreign political and economic risks, which may impair our ability to
generate revenues. These risks include:

  . economic and political instability;

  . our international customers' ability to obtain financing to fund their
    deployments

  . changes in regulatory requirements and licensing frequencies to service
    providers;

                                       16

<PAGE>

  . import or export licensing requirements and tariffs;

  . trade restrictions; and

  . more limited protection of intellectual property rights.

     Any of the foregoing difficulties of conducting business internationally
could seriously harm our business.

We depend on our key personnel, in particular Davidi Gilo, our Chairman of the
Board and Chief Executive Officer, Michael Corwin, our President and Chief
Operating Officer, and Menashe Shahar, our Chief Technical Officer, the loss of
any of whom could seriously harm our business.

     Our future success depends in large part on the continued services of our
senior management and key personnel. In particular, we are highly dependent on
the service of Davidi Gilo, our Chairman of the Board and Chief Executive
Officer, Michael Corwin, our President and Chief Operating Officer, and Menashe
Shahar, our Chief Technical Officer. We do not carry key person life insurance
on our senior management or key personnel. Any loss of the services of Davidi
Gilo, Michael Corwin, Menashe Shahar, other members of senior management or
other key personnel could seriously harm our business.

If we choose to acquire new businesses, products or technologies, we may not be
able to successfully integrate an acquired business in a cost-effective and
non-disruptive manner and realize anticipated benefits.

     We may make investments in complementary companies, products or
technologies. We may also acquire companies or technologies that are not
complementary or related to our current business. If we acquire a company, we
may have difficulty integrating that company's personnel, operations, products
and technologies. These difficulties may disrupt our ongoing business, distract
our management and employees and increase our expenses. Moreover, the
anticipated benefits of any acquisition may not be realized. Future acquisitions
could result in dilutive issuances of equity securities, the incurrence of debt,
contingent liabilities or amortization expenses related to goodwill and other
intangible assets and the incurrence of large and immediate write-offs, any of
which could seriously harm our business.

Third parties may bring infringement claims against us that could harm our
ability to sell our products and result in substantial liabilities.

     We expect that we will increasingly be subject to license offers and
infringement claims as the number of products and competitors in our market
grows and the functionality of products overlaps. In this regard, in early 1999,
and again in April 2000, we received written notices from Hybrid Networks in
which Hybrid claimed to have patent rights in certain technology. Hybrid
requested that we review our products in light of 11 of Hybrid's issued patents.

     Third parties, including Hybrid, could assert, and it could be found, that
our technologies infringe their proprietary rights. We could incur substantial
costs to defend any litigation, and intellectual property litigation could force
us to do one or more of the following:

  .  obtain licenses to the infringing technology;

  .  pay substantial damages under applicable law;

  .  cease the manufacture, use and sale of infringing products; or

  .  expend significant resources to develop non-infringing technology.

     Accordingly, any infringement claim or litigation against us could
significantly harm our business, operating results and financial condition.

                                       17

<PAGE>

If we fail to adequately protect our intellectual property, we may not be able
to compete.

     Our success depends in part on our ability to protect our proprietary
technologies. We rely on a combination of patent, copyright and trademark laws,
trade secrets and confidentiality and other contractual provisions to establish
and protect our proprietary rights. Our pending or future patent applications
may not be approved and the claims covered by such applications may be reduced.
If allowed, our patents may not be of sufficient scope or strength, others may
independently develop similar technologies or products, duplicate any of our
products or design around our patents, and the patents may not provide us
competitive advantages. Litigation, which could result in substantial costs and
diversion of effort by us, may also be necessary to enforce any patents issued
or licensed to us or to determine the scope and validity of third-party
proprietary rights. Any such litigation, regardless of outcome, could be
expensive and time consuming, and adverse determinations in any such litigation
could seriously harm our business.

Because of our long product development process and sales cycle, we may incur
substantial expenses without anticipated revenues that could cause our operating
results to fluctuate.

     A customer's decision to purchase many of our systems typically involves a
significant technical evaluation, formal internal procedures associated with
capital expenditure approvals and testing and acceptance of new systems that
affect key operations. For these and other reasons, the sales cycle associated
with our systems can be lengthy and subject to a number of significant risks
over which we have little or no control. Our next-generation systems may have
even longer sales cycles and involve demonstrations, field trials and other
evaluation periods, which will further lengthen the sales cycle. Because of the
growing sales cycle and the likelihood that we may rely on a concentrated number
of customers for our revenues, our operating results could be seriously harmed
if such revenues do not materialize when anticipated, or at all.

We may need to raise additional capital in the future, and if we are unable to
secure adequate funds on terms acceptable to us, we may not be able to execute
our business plan.

     We expect that the net proceeds from our initial public offering completed
in May 2000, and our secondary public offering completed in September 2000, will
be sufficient to meet our working capital and capital expenditure needs for at
least the next 12 months. After that, we may need to raise additional funds for
a number of uses, including:

  .  expanding research and development programs;

  .  hiring additional qualified personnel;

  .  implementing further marketing and sales activities; and

  .  acquiring complementary technologies or businesses.

     We may have to raise funds even sooner in order to fund more rapid
expansion, to respond to competitive pressures or to otherwise respond to
unanticipated requirements. If we raise additional funds through the issuance of
equity or convertible debt securities, the percentage ownership of our existing
stockholders will be reduced. We may not be able to obtain additional funds on
acceptable terms, or at all. If we cannot raise needed funds on acceptable
terms, we may not be able to increase our ongoing operations and complete our
planned expansion, take advantage of acquisition opportunities, develop or
enhance systems or respond to competitive pressures. This potential inability to
raise funds on acceptable terms could seriously harm our business.

                                       18

<PAGE>

Government regulation and industry standards may increase our costs of doing
business, limit our potential markets or require changes to our business model.

     The emergence or evolution of regulations and industry standards for
broadband wireless products, through official standards committees or widespread
use by operators, could require us to modify our systems, which may be expensive
and time-consuming, and to incur substantial compliance costs. Radio frequencies
are subject to extensive regulation under the laws of the United States, foreign
laws and international treaties. Each country has different regulations and
regulatory processes for wireless communications equipment and uses of radio
frequencies. Failure by the regulatory authorities to allocate suitable,
sufficient radio frequencies to potential customers in a timely manner could
result in the delay or loss of potential orders for our systems and seriously
harm our business.

     We are subject to export control laws and regulations with respect to all
of our products and technology. We are subject to the risk that more stringent
export control requirements could be imposed in the future on product classes
that include products exported by us, which would result in additional
compliance burdens and could impair the enforceability of our contract rights.
We may not be able to renew our export licenses as necessary from time to time.
In addition, we may be required to apply for additional licenses to cover
modifications and enhancements to our products. Any revocation or expiration of
any requisite license, the failure to obtain a license for product modifications
and enhancements, or more stringent export control requirements could seriously
harm our business.

Because our management has the ability to control stockholder votes, the premium
over market price that an acquirer might otherwise pay may be reduced and any
merger or takeover may be delayed.

     Our management collectively own a substantial percentage of our outstanding
common stock. As a result, these stockholders, acting together, will be able to
control the outcome of all matters submitted for stockholder action, including:

     .    electing members to our board of directors;

     .    approving significant change-in-control transactions;

     .    determining the amount and timing of dividends paid to themselves and
          to our public stockholders; and

     .    controlling our management and operations.

     This concentration of ownership may have the effect of impeding a merger,
consolidation, takeover or other business consolidation involving us, or
discouraging a potential acquirer from making a tender offer for our shares.
This concentration of ownership could also negatively affect our stock's market
price or decrease any premium over market price that an acquirer might otherwise
pay.

Because the Nasdaq National Market is likely to continue to experience extreme
price and volume fluctuations, the price of our stock may decline.

     The market price of our shares has been and likely will continue to be
highly volatile and could be subject to wide fluctuations in response to
numerous factors, including the following:

     .    actual or anticipated variations in our quarterly operating results or
          those of our competitors;

     .    announcements by us or our competitors of new products or
          technological innovations;

     .    introduction and adoption of new industry standards;

     .    changes in financial estimates or recommendations by securities
          analysts;


                                       19



<PAGE>

         .  changes in the market valuations of our competitors;

         .  announcements by us or our competitors of significant acquisitions
            or partnerships; and

         .  sales of our common stock.

         Many of these factors are beyond our control and may negatively impact
the market price of our common stock, regardless of our performance. In
addition, the stock market in general, and the market for technology and
telecommunications-related companies in particular, have been highly volatile.
Our common stock may not trade at the same levels of shares as that of other
technology companies and shares of technology companies, in general, may not
sustain their current market prices. In the past, securities class action
litigation has often been brought against a company following periods of
volatility in the market price of its securities. We may be the target of
similar litigation in the future. Securities litigation could result in
substantial costs and divert management's attention and resources, which could
seriously harm our business and operating results.

Our common stock may be delisted from the Nasdaq National Market.

         In order for our common stock to continue to be quoted on the Nasdaq
National Market, we must satisfy various listing maintenance standards
established by Nasdaq, including the requirement that our common stock maintain
a minimum bid price of at least $1.00 per share. Under Nasdaq's listing
maintenance standards, if the closing bid price of our common stock remains
below $1.00 per share for 30 consecutive trading days Nasdaq will issue a
deficiency notice to Vyyo. If the closing bid price subsequently does not reach
$1.00 per share or higher for a minimum of ten consecutive trading days during
the 90 calendar days following the issuance of the deficiency notice from
Nasdaq, Nasdaq may de-list our common stock from trading on the Nasdaq National
Market. As of the date of this report, our stock price has had a closing bid
price below $1.00 for over 30 consecutive trading days. Although Nasdaq recently
announced a temporary waiver of the minimum bid price requirement until January
2002, we will need to meet the requirement when it is reinstated.

         Vyyo has submitted to its stockholders for approval at a special
meeting to be held on November 13, 2001, a one-for-three reverse stock split.
Vyyo believes the reverse stock split is the most effective means to avoid a
delisting of Vyyo's common stock from Nasdaq. If, following the reverse stock
split, the per share price of Vyyo's common stock is and remains above $1.00,
Vyyo will avoid a delisting action by Nasdaq based on the minimum closing bid
price requirement.

         Vyyo cannot predict whether its stockholders will approve the reverse
stock split or, if approved, that the reverse stock split will increase the
market price for our common stock. The history of similar stock split
combinations for companies in like circumstances is varied. The market price per
share of Vyyo common stock following the reverse stock split may not either
exceed or remain in excess of the $1.00 minimum bid price as required by Nasdaq.
The reverse stock split could negatively impact the value of our common stock by
allowing additional downward pressure on the stock price as its relative value
becomes greater following the reverse split. Similarly, a delisting may
negatively impact the value of the stock, since stocks trading on the
over-the-counter market are typically less liquid and trade with larger
variations between the bid and ask price.

         The market price of our common stock will also be based on our
performance and other factors, some of which are unrelated to the number of
shares outstanding. If the reverse stock split is effected and the market price
of our common stock declines, the percentage decline as an absolute number and
as a percentage of Vyyo's overall market capitalization may be greater than
would occur in the absence of a reverse stock split. Furthermore, liquidity of
our common stock could be adversely affected by the reduced number of shares
that would be outstanding after the reverse stock split.

Conditions in Israel affect our operations and may limit our ability to produce
and sell our systems.

         Our final testing and assembly and research and development facilities
are located in Israel. Political, economic and military conditions in Israel
directly affect our operations. Since the establishment of the State of

                                       20

<PAGE>

Israel in 1948, a number of armed conflicts have taken place between Israel and
its Arab neighbors and a state of hostility, varying in degree and intensity,
has led to security and economic problems for Israel. Hostilities within Israel
have continued to escalate over the past several months, which could disrupt our
operations. We could be adversely affected by any major hostilities involving
Israel, the interruption or curtailment of trade between Israel and its trading
partners, a significant increase in inflation, or a significant downturn in the
economic or financial condition of Israel. As a result of the hostilities and
unrest presently occurring within Israel, the future of the peace efforts
between Israel and its Arab neighbors is uncertain. Moreover, several countries
still restrict business with Israel and with Israeli companies. We could be
adversely affected by restrictive laws or policies directed towards Israel or
Israeli businesses.

         One of our directors and many of our employees based in Israel are
currently obligated to perform annual reserve duty and are subject to being
called to active duty at any time under emergency circumstances. Our business
cannot assess the full impact of these requirements on our workforce or business
if conditions should change and we cannot predict the effect on us of any
expansion or reduction of these obligations.

Because substantially all of our revenues are generated in U.S. dollars while a
portion of our expenses are incurred in New Israeli shekels, our results of
operations may be seriously harmed if the rate of inflation in Israel exceeds
the rate of devaluation of the New Israeli shekel against the U.S. dollar.

         We generate substantially all of our revenues in U.S. dollars, but we
incur a substantial portion of our expenses, principally salaries and related
personnel expenses related to research and development, in New Israeli shekels,
or NIS. As a result, we are exposed to the risk that the rate of inflation in
Israel will exceed the rate of devaluation of the NIS in relation to the dollar
or that the timing of this devaluation lags behind inflation in Israel. If the
dollar costs of our operations in Israel increase, our dollar-measured results
of operations will be seriously harmed.

The government programs and benefits we receive require us to satisfy prescribed
conditions. These programs and benefits may be terminated or reduced in the
future, which would increase our costs and taxes and could seriously harm our
business.

         Several of our capital investments have been granted "approved
enterprise" status under Israeli law providing us with certain Israeli tax
benefits. The benefits available to an approved enterprise are conditioned upon
the fulfillment of conditions stipulated in applicable law and in the specific
certificate of approval. If we fail to comply with these conditions, in whole or
in part, we may be required to pay additional taxes for the period in which we
enjoyed the tax benefits and would likely be denied these benefits in the
future. From time to time, the Government of Israel has considered reducing or
eliminating the benefits available under the approved enterprise program. These
tax benefits may not be continued in the future at their current levels or at
all. This termination or reduction of these benefits would increase our taxes
and could seriously harm our business. As of the date hereof, our Israeli
subsidiary has accumulated loss carry-forwards for Israeli tax purposes and
therefore has not enjoyed any tax benefits under its approved enterprise status.

         In May 2000, a committee chaired by the Director General of the Israeli
Ministry of Finance issued its report recommending a major reform in the Israeli
tax system. The proposed tax reform, which could become effective in the near
future and may include certain provisions with retroactive effect as of January
1, 2001, provides for material changes to the current Israeli tax system. Some
of the committee's proposals may have adverse tax consequences for us and for
certain of our stockholders. For example, the committee proposes to eliminate
the existing initial tax exemption with respect to income generated by any of
our approved enterprise facilities. Because we cannot predict whether, and to
what extent, the committee's proposals, or any of them, will eventually be
adopted and enacted into law, we and our stockholders face uncertainties as to
the potential consequences of these tax reform proposals.

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<PAGE>

         In the past, we received grants from the government of Israel through
the Office of the Chief Scientist of the Ministry of Industry and Trade ("Chief
Scientist"), for financing a portion of our research and development
expenditures in Israel. The regulations under which we received these grants
restrict our ability to manufacture products funded by the Chief Scientist, or
to transfer technology funded by the Chief Scientist, outside Israel. We believe
that most of our current products are not based on technology funded by the
Chief Scientist and therefore are not subject to this restriction.

Provisions of our governing documents and Delaware law could discourage
acquisition proposals or delay a change in control.

         Our amended and restated certificate of incorporation and bylaws
contain anti-takeover provisions that could make it more difficult for a third
party to acquire control of us, even if that change in control would be
beneficial to stockholders. Specifically:

         .  our board of directors has the authority to issue common stock and
            preferred stock and to determine the price, rights and preferences
            of any new series of preferred stock without stockholder approval;

         .  our board of directors is divided into three classes, each serving
            three-year terms;

         .  super-majority voting is required to amend key provisions of our
            certificate of incorporation and bylaws;

         .  there are limitations on who can call special meetings of
            stockholders;

         .  stockholders are not able take action by written consent; and

         .  advance notice is required for nominations of directors and for
            stockholder proposals.

         In addition, provisions of Delaware law and our stock option plans may
also discourage, delay or prevent a change of control or unsolicited acquisition
proposals.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

         We are exposed to financial market risks including changes in interest
rates and foreign currency exchange rates. Substantially all of our revenue and
capital spending is transacted in U.S. dollars, although a substantial portion
of the cost of our operations, relating mainly to our personnel and facilities
in Israel, is incurred in New Israeli shekels, or NIS. We have not engaged in
hedging transactions to reduce our exposure to fluctuations that may arise from
changes in foreign exchange rates. In the event of an increase in inflation
rates in Israel, or if appreciation of the NIS occurs without a corresponding
adjustment in our dollar-denominated revenues, our results of operation and
business could be materially harmed.

         As of December 31, 2000, we had cash, cash equivalents and short-term
investments of $127.9 million. As of September 30, 2001, we had cash, cash
equivalents and short-term investments of $88.0 million. Substantially all of
these amounts consisted of corporate and government fixed income securities and
money market funds that invest in corporate and government fixed income
securities that are subject to interest rate risk. We place our investments with
high credit quality issuers and by policy limit the amount of the credit
exposure to any one issuer.

         Our general policy is to limit the risk of principal loss and ensure
the safety of invested funds by limiting market and credit risk. All highly
liquid investments with maturity of less than three months at the date of
purchase are considered to be cash equivalents; all investments with maturities
of three months or greater are classified as available-for-sale and considered
to be short-term investments.

                                       22

<PAGE>

         While all our cash equivalents and short-term investments are
classified as "available-for-sale," we generally have the ability to hold our
fixed income investments until maturity and therefore we would not expect our
operating results or cash flows to be affected to any significant degree by the
effect of a sudden change in market interest rates on our securities portfolio.
We may not be able to obtain similar rates after maturity as a result of
fluctuating interest rates. We do not hedge any interest rate exposures.

Quantitative Interest Rate Disclosure As of December 31, 2000

         If market interest rates were to increase on December 31, 2000
immediately and uniformly by 10 percent, the fair value of the portfolio would
decline by approximately $600,000 or approximately 0.5% of the total portfolio
(approximately 0.4% of total assets). Assuming that the average yield to
maturity on our portfolio at December 31, 2000 remains constant throughout 2001
and assuming that our cash, cash equivalents and short-term investments balances
at December 31, 2000 remain constant for the duration of 2001, interest income
for 2001 would be approximately $7.9 million. Assuming a decline of 10 percent
in the market interest rates at December 31, 2000, interest income for 2001
would be approximately $7.7 million in 2001, which represents a decrease in
interest income of approximately $200,000. The decrease in interest income will
result in a decrease of the same amount to net income and cash flows from
operating activities for the year ended December 31, 2001. These amounts are
determined by considering the impact of the hypothetical interest rates on the
Company's cash equivalents and available-for-sale securities at December 31,
2000, over the remaining contractual lives.

Quantitative Interest Rate Disclosure As of September 30, 2001

         If market interest rates were to increase on September 30, 2001
immediately and uniformly by 10 percent, the fair value of the portfolio would
decline by approximately $230,000 or approximately 0.27% of the total portfolio
(approximately 0.24% of total assets). Assuming that the average yield to
maturity on our portfolio at September 30, 2001, remains constant for the
balance of 2001 and assuming that our cash, cash equivalents and short-term
investments balances at September 30, 2001 remain constant for the balance of
2001, interest income for fourth quarter of 2001 would be approximately $1.3
million. Assuming a decline of 10 percent in the market interest rates at
September 30, 2001, interest income for the fourth quarter of 2001 would decline
by less than $100,000. The decrease in interest income will result in a decrease
of the same amount to net income and cash flows from operating activities for
each of the remaining quarters in 2001. These amounts are determined by
considering the impact of the hypothetical interest rates on the Company's cash
equivalents and available-for-sale securities at September 30, 2001, over the
remaining contractual lives.

PART II.  OTHER INFORMATION

Item 1.    LEGAL PROCEEDINGS

         None.

Item 2.    CHANGES IN SECURITIES AND USE OF PROCEEDS

         On May 2, 2000, we completed an initial public offering of shares of
our common stock, $0.0001 par value. The shares of common stock sold in the
offering were registered under the Securities Act of 1933 on a Registration
Statement on Form S-1 (No. 333-96129). The Registration Statement was declared
effective by the Securities and Exchange Commission on April 3, 2000. The
initial public offering price was $13.50 per share for an aggregate initial
public offering of $104.8 million. After deducting the underwriting discounts
and commissions of $7.3 million and the offering expenses of approximately $2.6
million, the net proceeds to us from the offering were approximately $94.9
million.

         From April 3, 2000, until September 30, 2001, we used approximately
$6.0 million of the net offering proceeds for purchases of property, plant and
equipment, approximately $2.4 million of the net proceeds for repayment of short
term debt obligations, approximately $11.4 million of the net proceeds for
repurchase of our common stock, and approximately $44.9 million of the net
offering proceeds for working capital.

                                       23

<PAGE>

         On September 19, 2000, we completed an underwritten public offering of
our common stock. The shares of common stock sold in the offering were
registered under the Securities Act of 1933 on a Registration Statement on Form
S-1 (No. 333-45132). The Registration Statement was declared effective by the
Commission on September 13, 2000. The public offering price was $31.5625 per
share for an aggregate public offering price of the shares we sold of $55.2
million. After deducting the underwriting discounts and commissions of $2.9
million and the offering expenses of approximately $1.0 million, the net
proceeds to us from the offering were approximately $51.3 million.

         From September 13, 2000, until September 30, 2001, we used none of the
net proceeds from this offering. Our temporary investments of the net proceeds
from both of the offerings have been in cash, cash equivalents and investment
grade, short-term interest bearing securities.

Item 3.         DEFAULTS UPON SENIOR SECURITIES

         None.

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

         None.

Item 5.         OTHER INFORMATION

         On October 22, 2001, John O'Connell, Vyyo's Chief Executive Officer,
and Eran Pilovsky, Vyyo's Chief Financial Officer, resigned from Vyyo to pursue
other career opportunities. Davidi Gilo, Vyyo's Chairman of the Board, was
appointed as Chief Executive Officer and as interim Chief Financial Officer. In
addition, Michael Corwin was appointed as Vyyo's President and Chief Operating
Officer.

Item 6.         EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

         10.38  First Amendment to Employment Agreement of Davidi Gilo with Vyyo
                Inc.

         10.39  First Amendment to Employment Agreement of Stephen P. Pezzola
                with Vyyo Inc.

(b)      Reports on Form 8-K.

         No reports on Form 8-K were filed during the quarter ended September
         30, 2001.

                                       24

<PAGE>

                                    SIGNATURE

         Pursuant to the requirements 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.

Date:  November 2, 2001


VYYO INC.



By:   /s/ Davidi Gilo
    ---------------------------------------------------------
    Davidi Gilo, Acting Chief Financial Officer
    (Duly Authorized Officer and Principal Financial Officer)

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