##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)

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



For the Quarterly Period Ended March 31, 2005



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 000-30189



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VYYO INC.

(Exact name of registrant as specified in its charter)



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



|                                                        |  |           
|------------------------------------------------------- |  | ----------
|4015 Miranda Avenue, First Floor, Palo Alto, California |  | 94304     
|(Address of Principal Executive Offices)                |  | (Zip Code)



Registrants
telephone number, including area code (650) 319-4000



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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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).    Yes ̈No  x



As of May 10, 2005, there were
15,301,555 shares of Common Stock outstanding.



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##### Table of Contents

INDEX



VYYO INC.



|                                                                                              |  |                                                                                                      |  |         
|--------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------- |  | --------
|                                                                                              |  |                                                                                                      |  | Page No.
|PART I.
FINANCIAL INFORMATION                                                                 |  |                                                                                                     
|                                                                                              | 
|Item 1.
Condensed Consolidated Financial Statements (Unaudited)                               |  |                                                                                                     
|                                                                                              |  |                                                                                                     
|                                                                                              |  | Condensed Consolidated Balance SheetsMarch 31, 2005 and December 31, 2004                           |  | 3       
|                                                                                              |  |                                                                                                     
|                                                                                              |  | Condensed Consolidated Statements of Operationsthree months ended March 31, 2005 and March 31, 2004 |  | 4       
|                                                                                              |  |                                                                                                     
|                                                                                              |  | Condensed Consolidated Statements of Cash Flowsthree months ended March 31, 2005 and March 31, 2004 |  | 5       
|                                                                                              |  |                                                                                                     
|                                                                                              |  | Notes to Condensed Consolidated Financial Statements                                                 |  | 6       
|                                                                                              | 
|Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 18                                                                                                  
|                                                                                              | 
|Item 3.
Quantitative and Qualitative Disclosures About Market Risk                            |  | 38                                                                                                  
|                                                                                              | 
|Item 4.
Controls and Procedures                                                               |  | 39                                                                                                  
|                                                                                              | 
|PART II.
OTHER INFORMATION                                                                    |  |                                                                                                     
|                                                                                              | 
|Item 1.
Legal Proceedings                                                                     |  | 39                                                                                                  
|                                                                                              | 
|Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 39                                                                                                  
|                                                                                              | 
|Item 3.
Defaults upon Senior Securities                                                       |  | 40                                                                                                  
|                                                                                              | 
|Item 4.
Submission of Matters to a Vote of Security Holders                                   |  | 40                                                                                                  
|                                                                                              | 
|Item 5.
Other Information                                                                     |  | 41                                                                                                  
|                                                                                              | 
|Item 6.
Exhibits                                                                              |  | 41                                                                                                  
|                                                                                              | 
|SIGNATURES                                                                                    |  | 42                                                                                                  



2



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##### Table of Contents

Part I. Financial Information

Item 1. Condensed Consolidated Financial Statements



Vyyo Inc.

Condensed Consolidated Balance Sheets

(In Thousands)



|                                                                                                                                                                                                 |  |               |          |   |                  |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- | -------- | - | ---------------- | - | -------- | -
|                                                                                                                                                                                                 |  | March 31,2005 |          |   | December 31,2004 |  
|                                                                                                                                                                                                 |  | (Unaudited)   |          |   |                  |  
|Assets                                                                                                                                                                                           |  |               |          |   |                  |   |          |  
|                                                                                                                                                                                                 |  |              
|CURRENT ASSETS:                                                                                                                                                                                  |  |               |          |   |                  |   |          |  
|Cash and cash equivalents                                                                                                                                                                        |  | $             | 2,201    |   |                  | $ | 5,512    |  
|Short-term investments                                                                                                                                                                           |  |               | 32,063   |   |                  |   | 36,700   |  
|Accounts receivable, net                                                                                                                                                                         |  |               | 724      |   |                  |   | 1,037    |  
|Inventories (note 2)                                                                                                                                                                             |  |               | 3,500    |   |                  |   | 3,299    |  
|Other                                                                                                                                                                                            |  |               | 1,208    |   |                  |   | 777      |  
|                                                                                                                                                                                                 |  |               |          |   |                  |   |          |  
|Total current assets                                                                                                                                                                             |  |               | 39,696   |   |                  |   | 47,325   |  
|                                                                                                                                                                                                 |  |              
|PROPERTY AND EQUIPMENT, net                                                                                                                                                                      |  |               | 1,554    |   |                  |   | 1,252    |  
|EMPLOYEE RIGHTS UPON RETIREMENT FUNDED                                                                                                                                                           |  |               | 759      |   |                  |   | 792      |  
|INTANGIBLE ASSETS (note 3)                                                                                                                                                                       |  |               | 6,293    |   |                  |   | 6,802    |  
|                                                                                                                                                                                                 |  |               |          |   |                  |   |          |  
|Total assets                                                                                                                                                                                     |  | $             | 48,302   |   |                  | $ | 56,171   |  
|                                                                                                                                                                                                 |  |               |          |   |                  |   |          |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                             |  |               |          |   |                  |   |          |  
|CURRENT LIABILITIES:                                                                                                                                                                             |  |               |          |   |                  |   |          |  
|Accounts payable                                                                                                                                                                                 |  | $             | 1,862    |   |                  | $ | 1,934    |  
|Accrued liabilities (note 5)                                                                                                                                                                     |  |               | 6,433    |   |                  |   | 7,545    |  
|                                                                                                                                                                                                 |  |               |          |   |                  |   |          |  
|Total current liabilities                                                                                                                                                                        |  |               | 8,295    |   |                  |   | 9,479    |  
|                                                                                                                                                                                                 |  |               |          |   |                  |   |          |  
|LIABILITY FOR EMPLOYEE RIGHTS UPON RETIREMENT                                                                                                                                                    |  |               | 1,439    |   |                  |   | 1,453    |  
|                                                                                                                                                                                                 |  |              
|CONTINGENCY (note 7)                                                                                                                                                                             |  |               |          |   |                  |   |          |  
|                                                                                                                                                                                                 |  |              
|SHAREHOLDERS EQUITY:                                                                                                                                                                            |  |               |          |   |                  |   |          |  
|Common share, $0.0001 par value and paid in capital; 55,000,000 shares authorized; 15,294,055 and 15,232,420 shares issued and outstanding at
March 31, 2005 and December 31, 2004, respectively |  |               | 242,898  |   |                  |   | 242,956  |  
|Notes receivable from shareholders                                                                                                                                                               |  |               | (1,000   | ) |                  |   | (1,037   | )
|Accumulated other comprehensive loss                                                                                                                                                             |  |               | (134     | ) |                  |   | (222     | )
|Accumulated deficit                                                                                                                                                                              |  |               | (203,196 | ) |                  |   | (196,458 | )
|                                                                                                                                                                                                 |  |               |          |   |                  |   |          |  
|Total shareholders equity                                                                                                                                                                       |  |               | 38,568   |   |                  |   | 45,239   |  
|                                                                                                                                                                                                 |  |               |          |   |                  |   |          |  
|Total liabilities and shareholders equity                                                                                                                                                       |  | $             | 48,302   |   |                  | $ | 56,171   |  
|                                                                                                                                                                                                 |  |               |          |   |                  |   |          |  



The accompanying
notes are an integral part of these Condensed Consolidated Financial Statements.



3



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##### Table of Contents

Vyyo Inc.

Condensed Consolidated Statements of Operations

(In Thousands Except Per Share Data)

(Unaudited)



|                                                       |  |                             |        |   |      |   |        |  
|------------------------------------------------------ |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                       |  | Three Months endedMarch 31, |       
|                                                       |  | 2005                        |        |   | 2004 |  
|REVENUES (note 10)                                     |  | $                           | 704    |   |      | $ | 2,225  |  
|COST OF REVENUES:                                      |  |                             |        |   |      |   |        |  
|Cost of products sold                                  |  |                             | 694    |   |      |   | 997    |  
|Amortization of technology (note 3)                    |  |                             | 92     |   |      |   |       |  
|                                                       |  |                             |        |   |      |   |        |  
|TOTAL COST OF REVENUES                                 |  |                             | 786    |   |      |   | 997    |  
|                                                       |  |                             |        |   |      |   |        |  
|GROSS PROFIT (LOSS)                                    |  |                             | (82    | ) |      |   | 1,228  |  
|                                                       |  |                             |        |   |      |   |        |  
|OPERATING EXPENSES (INCOME):                           |  |                             |        |   |      |   |        |  
|Research and development                               |  |                             | 2,732  |   |      |   | 1,215  |  
|Selling and marketing                                  |  |                             | 2,687  |   |      |   | 1,407  |  
|General and administrative                             |  |                             | 1,476  |   |      |   | 1,421  |  
|Amortization of intangible assets (note 3)             |  |                             | 417    |   |      |   |       |  
|Restructuring adjustments (note 8)                     |  |                             | (315   | ) |      |   | (501   | )
|                                                       |  |                             |        |   |      |   |        |  
|Total operating expenses                               |  |                             | 6,997  |   |      |   | 3,542  |  
|                                                       |  |                            
|OPERATING LOSS                                         |  |                             | (7,079 | ) |      |   | (2,314 | )
|                                                       |  |                            
|INTEREST INCOME, net                                   |  |                             | 76     |   |      |   | 253    |  
|                                                       |  |                             |        |   |      |   |        |  
|LOSS FROM CONTINUING OPERATIONS                        |  |                             | (7,003 | ) |      |   | (2,061 | )
|                                                       |  |                            
|DISCONTINUED OPERATIONS (note 4)                       |  |                             | 265    |   |      |   | (84    | )
|                                                       |  |                             |        |   |      |   |        |  
|LOSS FOR THE PERIOD                                    |  | $                           | (6,738 | ) |      | $ | (2,145 | )
|                                                       |  |                             |        |   |      |   |        |  
|LOSS PER COMMON SHARE -                                |  |                             |        |   |      |   |        |  
|Basic and diluted:                                     |  |                             |        |   |      |   |        |  
|Continuing operations                                  |  | $                           | (0.46  | ) |      | $ | (0.15  | )
|Discontinued operations                                |  |                             | 0.02   |   |      |   | (0.01  | )
|                                                       |  |                             |        |   |      |   |        |  
|                                                       |  | $                           | (0.44  | ) |      | $ | (0.16  | )
|                                                       |  |                             |        |   |      |   |        |  
|WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - |  |                             |        |   |      |   |        |  
|Basic and diluted                                      |  |                             | 15,195 |   |      |   | 13,052 |  
|                                                       |  |                             |        |   |      |   |        |  



The accompanying
notes are an integral part of these Condensed Consolidated Financial Statements.



4



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##### Table of Contents

Vyyo Inc.

Condensed Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)



|                                                                        |  |                             |        |   |      |   |         |  
|----------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------- | -
|                                                                        |  | Three Months endedMarch 31, |       
|                                                                        |  | 2005                        |        |   | 2004 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                   |  |                             |        |   |      |   |         |  
|Loss for the period                                                     |  | $                           | (6,738 | ) |      | $ | (2,145  | )
|Adjustments to reconcile loss to net cash used in operating activities: |  |                             |        |   |      |   |         |  
|Income and expenses not involving cash flows:                           |  |                             |        |   |      |   |         |  
|Depreciation and amortization                                           |  |                             | 761    |   |      |   | 130     |  
|Amortization and charge related to stock compensation, net              |  |                             | (261   | ) |      |   | (547    | )
|Changes in assets and liabilities:                                      |  |                             |        |   |      |   |         |  
|Accounts receivable                                                     |  |                             | 313    |   |      |   | (83     | )
|Other current assets                                                    |  |                             | (431   | ) |      |   | 267     |  
|Inventories                                                             |  |                             | (201   | ) |      |   | 93      |  
|Accounts payable                                                        |  |                             | (72    | ) |      |   | (199    | )
|Accrued liabilities                                                     |  |                             | (1,112 | ) |      |   | 405     |  
|Liability for employee rights upon retirement                           |  |                             | (14    | ) |      |   | (89     | )
|                                                                        |  |                             |        |   |      |   |         |  
|Net cash used in operating activities                                   |  |                             | (7,755 | ) |      |   | (2,168  | )
|                                                                        |  |                             |        |   |      |   |         |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                   |  |                             |        |   |      |   |         |  
|Purchase of property and equipment                                      |  |                             | (554   | ) |      |   | (71     | )
|Purchase of short-term investments                                      |  |                             | (9,076 | ) |      |   | (24,357 | )
|Proceeds from sales and maturities of short-term investments            |  |                             | 13,801 |   |      |   | 30,324  |  
|Release (Contributions) of severance pay funds                          |  |                             | 33     |   |      |   | (12     | )
|                                                                        |  |                             |        |   |      |   |         |  
|Net cash provided by investing activities                               |  |                             | 4,204  |   |      |   | 5,884   |  
|                                                                        |  |                             |        |   |      |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                   |  |                             |        |   |      |   |         |  
|Issuance of common shares                                               |  |                             | 203    |   |      |   | 278     |  
|Proceeds from notes receivables from shareholders                       |  |                             | 37     |   |      |   |        |  
|                                                                        |  |                             |        |   |      |   |         |  
|Net cash provided by financing activities                               |  |                             | 240    |   |      |   | 278     |  
|                                                                        |  |                             |        |   |      |   |         |  
|Increase (decrease) in cash and cash equivalents                        |  |                             | (3,311 | ) |      |   | 3,994   |  
|Cash and cash equivalents at beginning of period                        |  |                             | 5,512  |   |      |   | 12,930  |  
|                                                                        |  |                             |        |   |      |   |         |  
|Cash and cash equivalents at end of period                              |  | $                           | 2,201  |   |      | $ | 16,924  |  
|                                                                        |  |                             |        |   |      |   |         |  



The accompanying
notes are an integral part of these Condensed Consolidated Financial Statements.



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##### Table of Contents

Vyyo Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)



1. Basis of Presentation



The accompanying unaudited condensed consolidated financial statements of Vyyo Inc. have been prepared in accordance with generally accepted accounting
principles (GAAP) 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 GAAP 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, 2004, included in the annual report on Form 10-K for the year ended December
31, 2004, filed with the Securities and Exchange Commission.



Organization and Principles of Consolidation



The consolidated financial statements include the accounts of Vyyo Inc. and its wholly-owned subsidiaries (collectively, Vyyo or the Company). Following the acquisition of all of the outstanding shares of Xtend
Networks Ltd. (Xtend) on June 30, 2004, the results of Xtends operations were consolidated commencing July 1, 2004. All material inter-company balances and transactions have been eliminated in consolidation.



Vyyo operates in two segments. The first operating segment is the Fixed
Broadband Wireless segment. The Fixed Broadband Wireless segment supplies broadband wireless access systems used by telecommunications service providers to deliver wireless, high-speed data and voice connections to business and residential
subscribers. The Company sells these systems directly to service providers, as well as to system integrators that deploy the Companys systems as part of their end-to-end network solutions for service providers.



The second operating segment is the Cable segment. On June 30,
2004, the Company acquired all of the outstanding shares of Xtend, an Israeli privately-held company, that is a development stage enterprise. Xtend provides infrastructure solutions that expand the bandwidth of cable television lines and leverages
Vyyos Data Over Cable System Interface Specification (DOCSIS®)-based hub to enable cable companies to offer voice grade T1 circuit-switched products. (see note 3).



On August 12, 2003, the Companys Board of Directors determined to cease its software business operated by Shira
Computers Ltd. (Shira), a wholly-owned subsidiary of the Company, and terminate all of Shiras employees. Prior to the cessation of operations, Shira operated in the Software Products segment. The cessation of
Shiras operations represents a disposal of a business segment under Statement of Financial Accounting Standards (SFAS) No. 144 (Accounting for the Impairment or Disposal of Long-Lived Assets). Accordingly, the results
of the software segment have been classified as discontinued operations, and prior periods have been reclassified respectively.



On March 31, 2005, the Company sold all of its shares of Shira to third parties (see also note 4).



Summary of Significant Accounting Principles



The consolidated financial statements have been prepared in accordance with
GAAP in the United States.



Use of Estimates



The preparation of the financial statements in conformity with GAAP
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 period. Actual results could differ from those estimates.



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##### Table of Contents

Vyyo Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)



Short Term Investments



Pursuant to SFAS No. 115, Accounting for Certain Investments in Debt
and Equity Securities, the Companys investments in debt securities have been designated as available-for-sale. Available-for-sale securities are carried at fair value, which is determined based upon the quoted market prices of the
securities, with unrealized gains and losses reported in accumulated other comprehensive income (loss), a component of shareholders equity until realized. Realized gains and losses and declines in value judged to be other than temporary on
available-for-sale securities are included in interest income, net. The Company views its available-for-sale portfolio as available for use in its current operations. Accordingly, the Company has classified all investments as short-term under
short term investments, even though the stated maturity date may be one year or more from beyond the current balance sheet date. Interest, amortization of premiums, accretion of discounts, and dividends on securities classified as
available-for-sale are included in interest income, net. In March 2004, the FASB issued EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments which provides new guidance for
assessing impairment losses on debt and equity investments. Additionally, EITF Issue No. 03-1 includes new annual disclosure requirements for investments that are deemed temporarily impaired. In September 2004, the FASB delayed the accounting
provisions of EITF Issue No. 03-1 (however, the disclosure requirements remain effective). The Company will evaluate the effect, if any, of EITF Issue No. 03-1 when final guidance is released. The Company has recorded $112,000 financial expenses for
the period of three months ended March 31, 2005 for an other then temporary impairment in its available for sale securities.



Inventory



Inventory is valued at the lower of cost or market. Cost includes the cost of raw materials computed using the moving average basis and, for work in
progress and finished goods, direct labor as well. Market is determined by reference to the sales proceeds of items sold in the ordinary course of business or management estimates based on prevailing market conditions.



During the year 2001, the Company wrote down excess inventory and purchase
commitments of $8.45 million. The write-down was charged to the cost of revenues. There were no revenues in the three months ended March 31, 2005 from inventory previously written-down to $0. In the three months ended March 31, 2004, inventory that
was previously written-down to $0 by taking a charge of $286,000 was sold for the amount of $661,000.



Intangible Assets



The Companys intangible assets relate to the acquisition of Xtend and consist of technology, non-competition agreements, an exclusive sales
agreement and workforce. These definite-life intangible assets are amortized using the straight-line method over their estimated useful lives, ranging between one and six years (see note 3).



Impairment of Long-Lived Assets



SFAS 144 requires that long-lived assets including certain intangible assets
to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Under SFAS 144, if the sum of the expected future cash flows
(undiscounted and without interest charges) of the long-lived assets is less than the carrying amount, an impairment loss would be recognized, and the assets are written down to their estimated fair values.



Foreign Currency Transactions



The U.S. dollar is the functional currency for the Company and all of its
foreign subsidiaries. All of the sales of the Company are made in U.S. dollars. In addition, a substantial portion of the foreign subsidiaries costs are incurred in U.S. dollars. Since the U.S. dollar is the primary currency in the economic
environment in which the foreign subsidiaries operate, monetary accounts maintained in currencies other than the U.S. dollar (principally cash and liabilities) are remeasured using the representative foreign exchange rate at the balance sheet date.
Operational accounts and nonmonetary balance sheet accounts are measured and recorded at the rate in effect at the date of the transaction.



The effects of foreign currency remeasurement are reported in current operations and have not been material to date.



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##### Table of Contents

Vyyo Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)



Revenue Recognition



Revenues from the Fixed Broadband Wireless segment are derived from sales of
products. The Company currently provides no services. These products consist of hubs and modems, which are off-the-shelf products, sold as is, without further adjustment or installation. These products are usually sold individually
according to a standard fixed price determined by the Company. When establishing a relationship with a new customer, the Company may also sell these products together as a package, in which case these products are shipped at the same
time to the customer. As the Companys products are off-the-shelf products, the Company does not provide its customers with the right of return or any additional services after delivery (except for standard product warranty).



Revenues from the Companys products are recorded when (1) persuasive
evidence of an arrangement exists; (2) delivery has occurred and customer acceptance requirements have been met; (3) the price is fixed or determinable; and (4) collection of payment is reasonably assured and the Company has no additional
obligations.



Emerging Issues Task Force (EITF)
Issue 00-21, Revenue Arrangements with Multiple Deliverables addresses the accounting, by a vendor, for contractual arrangements in which multiple revenue-generating activities will be performed by the vendor. It is effective
prospectively for all arrangements entered into in fiscal periods beginning after June 15, 2003.



EITF Issue 00-21 addresses when and, if so, how an arrangement involving multiple deliverables should be divided into separate units of accounting. The
Companys multiple deliverables arrangements are those arrangements with new customers in which the Companys products are sold together as a package. Because these off-the-shelf products are delivered at the same time and the
four revenue recognition criteria are met at that time, the adoption of EITF 00-21 had no impact on the Companys financial position and results of operations.



The Company provides for warranty costs at the same time revenue is recognized. The provision for warranty costs is
calculated as a percentage of the sales, based on historical experience.



Loss per Share



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



Employee Stock-Based Compensation



The Company accounts for employee stock based compensation in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25), and related interpretations. Charge for stock compensation represents the amortization of deferred compensation charges, which are based on aggregate differences between the respective exercise price
of stock options, restricted shares and purchase price of stock on one hand versus the fair market value of the common stock on the other hand. Deferred stock compensation is amortized over the vesting period of the underlying options and the
restricted shares.



Under Fixed Plan accounting,
compensation cost is fixed, measured at grant date and is not subsequently adjusted. Under Variable Plan accounting, the measurement date occurs after the grant date and compensation cost is estimated and recorded each period from the
date of grant to the measurement date, based on the difference between the option price and the fair market value of the stock at the end of each period.



8



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##### Table of Contents

Vyyo Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)



Employee Stock-Based Compensation (continued)



SFAS No. 123 Accounting for Stock-Based Compensation (SFA
No. 123) establishes a fair value based method of accounting for employee stock options or similar equity instruments, and encourages adoption of such method for stock compensation plans. However, it also allows companies to continue to
account for those plans using the accounting treatment prescribed by APB No. 25. The Company has elected to continue accounting for employee stock option plans and restricted shares according to APB No. 25 and accordingly discloses proforma data
assuming the Company had accounted for employee stock option grants using the fair value based method as defined in SFAS No. 123.



Proforma information regarding net loss and loss per share, required under SFAS No. 123 has been determined as if the Company had accounted for its stock
options and restricted shares under the fair value method of SFAS No. 123. The fair value for stock options and restricted shares was estimated at the date of each option grant using the Black-Scholes option pricing model with the following
weighted-average assumptions for the three months ended March 31, 2005 and 2004: risk-free interest rates ranging from 1.2% to 4.5%; dividend yields of zero; a weighted-average expected life of the options of approximately 2.5 and 3.58 years; and
volatility ranging from 0.732 to 1.021.



The
Companys proforma information is as follows:



|                                                                                                  |  |                                      |        |   |      |   |        |  
|------------------------------------------------------------------------------------------------- |  | ------------------------------------ | ------ | - | ---- | - | ------ | -
|                                                                                                  |  | Three Months endedMarch 31,          |       
|                                                                                                  |  | 2005                                 |        |   | 2004 |  
|                                                                                                  |  | In thousands (except per share data) |       
|Loss from continuing operations as reported                                                       |  | $                                    | (7,003 | ) |      | $ | (2,061 | )
|Add: stock based employee compensation income included in reported loss                           |  |                                      | (261   | ) |      |   | (547   | )
|Add: stock based employee compensation expenses determined under fair value method for all awards |  |                                      | (1,364 | ) |      |   | (854   | )
|                                                                                                  |  |                                      |        |   |      |   |        |  
|Proforma loss from continuing operations                                                          |  | $                                    | (8,628 | ) |      |   | (3,462 | )
|                                                                                                  |  |                                      |        |   |      |   |        |  
|Income (loss) from discontinued operations as reported                                            |  | $                                    | 265    |   |      | $ | (84    | )
|Add : stock based employee compensation income determined under fair value method for all awards  |  |                                      |       |   |      |   | 7      |  
|                                                                                                  |  |                                      |        |   |      |   |        |  
|Proforma income (loss) from discontinued operations                                               |  |                                      | 265    |   |      |   | (77    | )
|                                                                                                  |  |                                      |        |   |      |   |        |  
|Proforma loss                                                                                     |  | $                                    | (8,363 | ) |      | $ | (3,539 | )
|                                                                                                  |  |                                      |        |   |      |   |        |  
|Basic and diluted loss per share:                                                                 |  |                                      |        |   |      |   |        |  
|As reported:                                                                                      |  |                                      |        |   |      |   |        |  
|Continuing operations                                                                             |  | $                                    | (0.46  | ) |      | $ | (0.15  | )
|Discontinued operations                                                                           |  |                                      | 0.02   |   |      |   | (0.01  | )
|                                                                                                  |  |                                      |        |   |      |   |        |  
|Loss                                                                                              |  | $                                    | (0.44  | ) |      | $ | (0.16  | )
|                                                                                                  |  |                                      |        |   |      |   |        |  
|Proforma:                                                                                         |  |                                      |        |   |      |   |        |  
|Continuing operations                                                                             |  | $                                    | (0.57  | ) |      | $ | (0.26  | )
|Discontinued operations                                                                           |  |                                      | 0.02   |   |      |   | (0.01  | )
|                                                                                                  |  |                                      |        |   |      |   |        |  
|Loss                                                                                              |  | $                                    | (0.55  | ) |      | $ | (0.27  | )
|                                                                                                  |  |                                      |        |   |      |   |        |  



9



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##### Table of Contents

Vyyo Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)



Reclassifications



Certain amounts in the 2004 financial statements have been reclassified to
conform to the 2005 presentation.



Recent accounting
pronouncements 



FAS 123 (revised 2004) Share-based
Payment



In December 2004, the Financial Accounting Standards
Board issued the revised Statement of Financial Accounting Standards No. 123, Share-Based Payment (FAS 123R), which addresses the accounting for share-based payment transactions in which the Company obtains employee services in exchange
for (a) equity instruments of the Company or (b) liabilities that are based on the fair value of the Companys equity instruments or that may be settled by the issuance of such equity instruments. This Statement eliminates the ability to
account for employee share-based payment transactions using APB Opinion No. 25, Accounting for Stock Issued to Employees, and requires instead that such transactions be accounted for using the grant-date fair value based method. This Statement will
be effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005 (July 1, 2005 for the Company). Early adoption of FAS 123R is encouraged.



On April 15, 2005, the Securities and Exchange Commission approved a new rule, under which FAS 123R is effective for public
companies at the beginning of their next fiscal year that begins after June 15, 2005 (first quarter of 2006 for the company). This Statement applies to all awards granted or modified after the Statements effective date. In addition,
compensation cost for the unvested portion of previously granted awards that remain outstanding on the Statements effective date shall be recognized on or after the effective date, as the related services are rendered, based on the
awards grant-date fair value as previously calculated for the proforma disclosure under FAS 123.



The Company estimates that the cumulative effect of adopting FAS 123R as of its adoption date by the Company (January 1, 2006), based on the awards
outstanding as of March 31, 2005, will not be material. This estimate does not include the impact of additional awards, which may be granted, or forfeitures, which may occur subsequent to March 31, 2005 and prior to our adoption of FAS 123R. The
Company expects that upon the adoption of FAS 123R, it will apply the modified prospective application transition method, as permitted by the Statement. Under such transition method, upon the adoption of FAS 123R, the Companys financial
statements for periods prior to the effective date of the Statement will not be restated. The impact in 2006 and beyond will depend upon various factors, among them the Companys future compensation strategy.



10



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##### Table of Contents

Vyyo Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)



2. Inventory



Inventory is comprised of the following:



|                |  |               |       |                  |   |      
|--------------- |  | ------------- | ----- | ---------------- | - | -----
|                |  | March 31,2005 |       | December 31,2004
|                |  | In thousands 
|Raw materials   |  | $             | 1,805 |                  | $ | 1,598
|Work in process |  |               | 422   |                  |   | 533  
|Finished goods  |  |               | 1,273 |                  |   | 1,168
|                |  |               |       |                  |   |      
|                |  | $             | 3,500 |                  | $ | 3,299
|                |  |               |       |                  |   |      



3. Acquisition of
Xtend



On June 30, 2004, the Company acquired all of the
outstanding shares of Xtend (the Transaction), an Israeli privately-held, company which is a development stage enterprise. Xtend provides infrastructure solutions that expand the bandwidth of cable television lines. The Transaction
allows the Company to diversify its business by adding a different field of operation to its fixed broadband wireless business. The results of Xtends operations were consolidated with the Companys operations commencing July 1, 2004.



In connection with the Transaction:



The Company issued 1,398,777 shares of the Companys common stock and
made cash payments of approximately $2,970,000 for non-competition agreements from certain employees of Xtend.



The Company provided a contingent promissory note (Contingent Note) in the principal amount of $6.5 million payable on March 31, 2007. In
the event that the consolidated revenues of the Company in the year ended December 31, 2006 equal or exceed $60 million and the consolidated gross margin of the Company equals or exceeds 35% during the same period, the Contingent Note shall be
canceled. The Contingent Note is subject to acceleration in the event that the excess sum of the Companys cash, cash equivalents, short term investments and accounts receivables, net of the sum of the Companys long-term and short-term
liabilities (exclusive of the Contingent Note) is less than $20 million on December 31, 2005 or on June 30, 2006 (see also note 7);



In January 2005, the Company paid a cash bonus to an Xtend employee in the amount of approximately $1.2 million and, in July 2004, granted 146,000
restricted shares to the same employee, of which 71,000 shares have vested and 75,000 shares will vest subject to designated performance criteria;



The Company agreed to make cash payments to certain other Xtend option holders and Xtend employees in connection with those parties outstanding
options in Xtend. These cash payments include a payment of approximately $269,000 paid in cash at the closing of the Transaction on June 30, 2004 and a payment of approximately $255,000 which is expected to be paid over two years upon realization of
certain conditions.



As Xtend is a development stage enterprise
that has not yet commenced its planned principal operations, the Company accounted for the Transaction as an acquisition of net assets pursuant to the provisions of SFAS 142 Goodwill and Other Intangible Assets. Accordingly, the purchase
price was allocated to the individual assets acquired and liabilities assumed, based on their relative fair values, and no goodwill was recorded; and



The Company incurred direct expenses related to the Transaction amounting to $578,000, which were capitalized as a part of the investment of Xtend.



11



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##### Table of Contents

Vyyo Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)



3. Acquisition of Xtend (continued)



Intangible assets acquired are amortized using the straight-line method over
their estimated useful lives as follows: existing technology over six years; non-competition agreements over approximately three years; an exclusive sales agreement over four and one half years and workforce over one year.



The fair value of the intangible assets acquired was estimated by a third
party appraiser, based upon future expected discounted cash-flows in the fourth quarter of 2004.



Amortization of intangible assets acquired for the three months ended March 31, 2005 was $509,000 consisting of the amortization of existing technology of
$92,000, non-competition agreements amounting to $220,000 an exclusive sales agreement amounting to $135,000 and workforce amounting to $62,000.



Estimated amortization expenses of intangible assets for the following years subsequent to March 31, 2005 are as follows:



|                                                 |  |              |      
|------------------------------------------------ |  | ------------ | -----
|                                                 |  | In thousands
|Period from April 1, 2005 till December 31, 2005 |  | $            | 1,405
|2006                                             |  |              | 1,791
|2007                                             |  |              | 1,641
|2008                                             |  |              | 907  
|2009                                             |  |              | 366  
|2010                                             |  |              | 183  
|                                                 |  |              |      
|Total                                            |  | $            | 6,293
|                                                 |  |              |      



4. Shira 
Discontinued Operations



Assets and liabilities of the
discontinued operation are as follows:



|                    |  |               |   |                  |   |    
|------------------- |  | ------------- | - | ---------------- | - | ---
|                    |  | March 31,2005 |   | December 31,2004
|                    |  | In thousands 
|Current assets      |  | $             |  |                  | $ | 72 
|                    |  |               |   |                  |   |    
|Current liabilities |  | $             |  |                  | $ | 433
|                    |  |               |   |                  |   |    



Profit and loss of the
discontinued operations were as follows:



|                                           |  |                             |     |   |      |   |     |  
|------------------------------------------ |  | --------------------------- | --- | - | ---- | - | --- | -
|                                           |  | Three Monthsended March 31, |    
|                                           |  | 2005                        |     |   | 2004 |  
|                                           |  | In thousands                |    
|Loss from operations                       |  | $                           | (25 | ) |      | $ | (84 | )
|Other income (see b below)                 |  |                             | 290 |   |      |   |    |  
|                                           |  |                             |     |   |      |   |     |  
|Income (loss) from discontinued operations |  | $                           | 265 |   |      | $ | (84 | )
|                                           |  |                             |     |   |      |   |     |  



12



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##### Table of Contents

Vyyo Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)



4. Shira  Discontinued Operations (continued)



Profit and Loss from discontinued operations includes -



a) The Company did not incur any severance expenses or termination of
contractual obligations, accounted for according to SFAS 146 (Accounting for costs associated with exit or disposal activities), during the three months ended March 31, 2005. The Company settled all severance expenses and termination of
contractual obligations as of December 31, 2004. During the three months ended March 31, 2004 the Company paid $77,000 in severance expenses and termination of contractual obligations.



b) Sale of Shira



On March 31, 2005 the Company sold all of its shares of Shira to third parties (hereafter  the Purchasers). According to the agreement,
the Purchasers shall pay the Company 22.5% to 42.5% of the proceeds that may be received upon the further sale by the Purchasers of Shira or its assets. The Purchasers have assumed all liabilities of Shira totaling to $270,000. The gain from this
sale was $290,000 and was recorded in discontinued operations.



5. Accrued Liabilities



Accrued liabilities
consist of the following:



|                          |  |               |       |                  |   |      
|------------------------- |  | ------------- | ----- | ---------------- | - | -----
|                          |  | March 31,2005 |       | December 31,2004
|                          |  | In thousands 
|Withholding tax           |  | $             | 2,154 |                  | $ | 2,025
|Compensation and benefits |  |               | 1,981 |                  |   | 2,819
|Royalties                 |  |               | 960   |                  |   | 1,084
|Warranty *                |  |               | 356   |                  |   | 426  
|Other                     |  |               | 982   |                  |   | 1,191
|                          |  |               |       |                  |   |      
|                          |  | $             | 6,433 |                  | $ | 7,545
|                          |  |               |       |                  |   |      

---

|* | The changes in the balances during the periods are comprised of the following:
|- | ------------------------------------------------------------------------------



|                                                         |  |                                  |      |   |                             |   |      |  
|-------------------------------------------------------- |  | -------------------------------- | ---- | - | --------------------------- | - | ---- | -
|                                                         |  | Three Months endedMarch 31, 2005 |      |   | Year ended December 31,2004 |  
|                                                         |  | In thousands                     |     
|Balance at beginning of period                           |  | $                                | 426  |   |                             | $ | 389  |  
|Product warranty issued for new sales                    |  |                                  | 42   |   |                             |   | 380  |  
|Changes in accrual in respect of warranty periods ending |  |                                  | (112 | ) |                             |   | (343 | )
|                                                         |  |                                  |      |   |                             |   |      |  
|Balance at end of period                                 |  | $                                | 356  |   |                             | $ | 426  |  
|                                                         |  |                                  |      |   |                             |   |      |  





13



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##### Table of Contents

Vyyo Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)



6. Severance Liabilities



The amounts paid related to severance and severance expenses were:



|                                  |  |                             |     |      |   |    
|--------------------------------- |  | --------------------------- | --- | ---- | - | ---
|                                  |  | Three Months endedMarch 31,
|                                  |  | 2005                        |     | 2004
|                                  |  | In thousands               
|Amounts paid related to severance |  | $                           | 144 |      | $ | 140
|                                  |  |                             |     |      |   |    
|Severance expenses*               |  | $                           | 174 |      | $ | 97 
|                                  |  |                             |     |      |   |    

---

|* | With respect to the Companys Israeli employees the Company expects to contribute $295,000 to a defined contribution plan and $195,000 to insurance and pension plans for the
year ended December 31, 2005 (includes amounts contributed in the three months end March 31, 2005).
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



7. Contingency



Regarding contingent consideration related to acquisition of Xtend, see note 3.



8. Former Chief Executive Officer separation agreement



In April 2002, pursuant to a separation agreement entered into in October 2001 and as part of a restructuring program that
the Company implemented in 2001, the Companys former Chief Executive Officer borrowed $1 million pursuant to a facility provided for in the 2002 separation agreement. This loan is 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 is secured solely by the 266,667 options held by such officer and the shares of the Companys common stock underlying these options.



Combined accounting is being applied to the 266,667 options issued and the
related loan secured by such options. This results in variable accounting for the 266,667 options, with a minimum expense being recorded of $1 million. The total adjustments for the three months ended March 31, 2005 and 2004 associated with these
options were income adjusts of $315,000 and $501,000, respectively. The charges were recorded as restructuring adjustments.



9. Comprehensive Loss



The components of comprehensive loss are as follows:



|                                                 |  |                             |        |   |      |   |        |  
|------------------------------------------------ |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                 |  | Three Months endedMarch 31, |       
|                                                 |  | 2005                        |        |   | 2004 |  
|                                                 |  | In thousands                |       
|Loss                                             |  | $                           | (6,738 | ) |      | $ | (2,145 | )
|Unrealized loss on available-for-sale securities |  |                             | (24    | ) |      |   | (34    | )
|                                                 |  |                             |        |   |      |   |        |  
|Comprehensive loss                               |  | $                           | (6,762 | ) |      | $ | (2,179 | )
|                                                 |  |                             |        |   |      |   |        |  



14



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##### Table of Contents

Vyyo Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)



10. Segment Reporting



Following the acquisition of Xtend, as described in note 3 above, the
Companys business is divided into two segments: Fixed Broadband Wireless and Cable. The results of Xtends operations were consolidated commencing July 1, 2004.



|                                                                |  |                             |       |      |   |      
|--------------------------------------------------------------- |  | --------------------------- | ----- | ---- | - | -----
|                                                                |  | Three Months EndedMarch 31,
|                                                                |  | 2005                        |       | 2004
|                                                                |  | In thousands               
|Consolidated revenues from the Fixed Broadband Wireless segment |  | $                           | 704   |      | $ | 2,225
|                                                                |  |                             |       |      |   |      
|Operating loss from continuing operations:                      |  |                             |       |      |   |      
|Fixed Broadband Wireless                                        |  | $                           | 3,538 |      | $ | 2,314
|Cable                                                           |  |                             | 3,541 |      |   |     
|                                                                |  |                             |       |      |   |      
|Total consolidated operating loss from continuing operations    |  |                             | 7,079 |      |   | 2,314
|Interest income, net                                            |  |                             | 76    |      |   | 253  
|                                                                |  |                             |       |      |   |      
|Loss from continuing operations                                 |  | $                           | 7,003 |      | $ | 2,061
|                                                                |  |                             |       |      |   |      



Assets:



|                                    |  |                             |        |                  |   |       
|----------------------------------- |  | --------------------------- | ------ | ---------------- | - | ------
|                                    |  | March 31,2005               |        | December 31,2004
|                                    |  | In thousands               
|Fixed Broadband Wireless            |  | $                           | 39,474 |                  | $ | 47,991
|Cable:                              |  |                             |        |                  |   |       
|Intangible assets                   |  |                             | 6,293  |                  |   | 6,802 
|Other assets                        |  |                             | 2,535  |                  |   | 1,306 
|                                    |  |                             |        |                  |   |       
|                                    |  |                             | 8,828  |                  |   | 8,108 
|                                    |  |                             |        |                  |   |       
|Eliminations / adjustments          |  |                             |        |                  |   | 72    
|                                    |  |                             |        |                  |   |       
|                                    |  | $                           | 48,302 |                  | $ | 56,171
|                                    |  |                             |        |                  |   |       
|                                    | 
|                                    |  | Three Months ended March31,
|                                    |  | 2005                        |        | 2004            
|                                    |  | In thousands               
|Expenditures for long-lived assets: |  |                             |        |                  |   |       
|Fixed Broadband Wireless            |  | $                           | 43     |                  | $ | 71    
|Cable                               |  |                             | 511    |                  |   |      
|                                    |  |                             |        |                  |   |       
|                                    |  | $                           | 554    |                  | $ | 71    
|                                    |  |                             |        |                  |   |       



15



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##### Table of Contents

Vyyo Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)



10. Segment Reporting (continued)



|                                        |  |                             |     |      |   |    
|--------------------------------------- |  | --------------------------- | --- | ---- | - | ---
|                                        |  | Three Months endedMarch 31,
|                                        |  | 2005                        |     | 2004
|                                        |  | In thousands               
|Depreciation and amortization expenses: |  |                             |     |      |   |    
|Fixed Broadband Wireless                |  | $                           | 164 |      | $ | 130
|                                        |  |                             |     |      |   |    
|Cable:                                  |  |                             |     |      |   |    
|Intangible assets                       |  |                             | 509 |      |   |   
|Other assets                            |  |                             | 88  |      |   |   
|                                        |  |                             |     |      |   |    
|                                        |  |                             | 597 |      |   |    
|                                        |  |                             |     |      |   |    
|                                        |  | $                           | 761 |      | $ | 130
|                                        |  |                             |     |      |   |    



The following is a summary of
operations within geographic areas based on the location of the customers:



|                                                                                                                  |  |                              |       |                  |   |      
|----------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ----- | ---------------- | - | -----
|                                                                                                                  |  | Three Months ended March 31,
|                                                                                                                  |  | 2005                         |       | 2004            
|                                                                                                                  |  | In thousands                
|Revenues from sales to unaffiliated customers from continuing operations in the Fixed Broadband Wireless segment: |  |                              |       |                  |   |      
|North America                                                                                                     |  | $                            | 357   |                  | $ | 315  
|Asia                                                                                                              |  |                              | 301   |                  |   | 1,815
|Rest of the world                                                                                                 |  |                              | 46    |                  |   | 95   
|                                                                                                                  |  |                              |       |                  |   |      
|                                                                                                                  |  | $                            | 704   |                  | $ | 2,225
|                                                                                                                  |  |                              |       |                  |   |      
|                                                                                                                  |  |                             
|                                                                                                                  |  | March 31,2005                |       | December 31,2004
|                                                                                                                  |  | In thousands                
|Property and equipment, net                                                                                       |  |                              |       |                  |   |      
|Israel                                                                                                            |  | $                            | 1,304 |                  | $ | 1,053
|United States                                                                                                     |  |                              | 250   |                  |   | 199  
|                                                                                                                  |  |                              |       |                  |   |      
|                                                                                                                  |  | $                            | 1,554 |                  | $ | 1,252
|                                                                                                                  |  |                              |       |                  |   |      



16



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##### Table of Contents

Vyyo Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)



10. Segment Reporting (continued)



Sales to major customers in the Fixed Broadband Wireless segment out of
total revenues are as follows:



|           |  |                             |   |  |      |  
|---------- |  | --------------------------- | - |  | ---- | -
|           |  | Three Months endedMarch 31, |  
|           |  | 2005                        |   |  | 2004 |  
|Customer A |  | 25                          | % |  | 13   | %
|Customer B |  | 24                          | % |  |     |  
|Customer C |  | 23                          | % |  | 20   | %
|Customer D |  | 6                           | % |  | 32   | %
|Customer E |  | 5                           | % |  | 14   | %
|Customer F |  |                            |   |  | 10   | %



17



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##### Table of Contents

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



You should read this Managements Discussion and Analysis of Financial Condition and Results of Operations in conjunction with our consolidated
financial statements and accompanying notes appearing elsewhere in this quarterly report. 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. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set
forth under the heading Risk Factors following this Managements Discussion and Analysis section, and elsewhere in this report.



Overview



We supply end-to-end broadband access solutions used by telecommunications providers to deliver both circuit-switched services, such as telephony and
T1/E1 connections, and Internet Protocol (IP) services, such as high-speed data and voice over IP connections, to business and residential subscribers. Our technology uses point-to-multipoint architecture to deliver services over
wireless media or cable television networks. We sell our systems to system integrators, distributors and directly to service providers.



We have two business segments. The Fixed Broadband Wireless segment supplies broadband wireless access systems used by telecommunications
service providers to deliver wireless, high-speed data and voice connections to business and residential subscribers. The Cable segment represents the results of Xtends operations, which were consolidated commencing July 1, 2004.
Xtend, which is a development stage enterprise, provides infrastructure solutions that expand the bandwidth of cable television lines.



Starting in 2004, we believed new opportunities might develop for our traditional wireless products and began to dedicate additional resources to sales in
the utilities and oil and gas markets and other national and international markets. These opportunities, however, are developing slowly and the environments are very competitive. Further, we have reduced our resources in Asia to better align them
with the near-term opportunities. If our sales do not substantially increase from current levels, we will continue to incur losses, and may never achieve profitability. We have incurred significant losses since our inception, and we expect to
continue to incur losses for the foreseeable future.



On June
30, 2004, we completed the acquisition of all of the outstanding shares of Xtend Networks Ltd. and its wholly-owned, U.S.-based subsidiary, Xtend Networks, Inc. (collectively, Xtend). Xtend provides infrastructure solutions that expand
the bandwidth of cable television lines and leverages Vyyos Data Over Cable System Interface Specification (DOCSIS®)-based hub to enable cable companies to offer voice grade T1 circuit-switched products. Xtend is based in Israel and has an
office in Atlanta, Georgia. Xtend has never been profitable and, as it is in a development stage, to date it has not generated any revenues. The results of Xtends operations were consolidated with Vyyos operations commencing July 1,
2004.



The acquisition of Xtend, which is currently operating
as a wholly-owned subsidiary of Xtend Cable Solutions Inc., a wholly-owned subsidiary of Vyyo Inc., is intended to diversify our business and to seek to open new markets for our current products.



Vyyo provided a contingent promissory note (Contingent Note) in a
principal amount of $6.5 million payable on March 31, 2007. In the event that the consolidated revenues of Vyyo in the year ended December 31, 2006 equal or exceed $60 million and the consolidated gross margin of Vyyo equals or exceeds 35% during
the same period, the Contingent Note shall be canceled. The Contingent Note is subject to acceleration in the event that the excess sum of Vyyos cash, cash equivalents, short term investments and accounts receivables, net of the sum of
Vyyos long-term and short-term liabilities (exclusive of the Contingent Note) is less than $20 million on December 31, 2005 or on June 30, 2006.



In January 2005, Vyyo paid a cash bonus to an Xtend employee of approximately $1.2 million and, in July 2004, granted 146,000 restricted shares to the
same employee, of which 71,000 shares have vested and 75,000 shares will vest subject to designated performance criteria.



Vyyo agreed to make cash payments to certain other Xtend option holders and Xtend employees in connection with those parties outstanding options in
Xtend. These cash payments include a payment of approximately $269,000 paid in cash at the closing of the acquisition and a payment of approximately $255,000 which is expected to be paid over two years upon realization of certain conditions.



18



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##### Table of Contents

As Xtend is a development stage enterprise that has not yet commenced its planned principal operations we
accounted for the acquisition as an acquisition of net assets.



The fair value of the intangible assets acquired was estimated by a third party appraiser, based upon future expected discounted cash-flows in the fourth quarter of 2004.



Intangible assets acquired are amortized using the straight-line method over their estimated useful lives as follows:
existing technology over six years; non-competition agreements over approximately three years; exclusive sales agreement over four and one half years and workforce over one year.



Amortization of intangible assets acquired for the three months ended March 31, 2005 was $509,000, consisting of the
amortization of existing technology of $92,000, non-competition agreements amounting to $220,000, an exclusive sales agreement amounting to $135,000 and workforce amounting to $62,000.



Estimated future amortization expenses are as follows:



|                                                 |  |              |      
|------------------------------------------------ |  | ------------ | -----
|                                                 |  | In thousands
|Period from April 1, 2005 till December 31, 2005 |  | $            | 1,405
|2006                                             |  |              | 1,791
|2007                                             |  |              | 1,641
|2008                                             |  |              | 907  
|2009                                             |  |              | 366  
|2010                                             |  |              | 183  
|                                                 |  |              |      
|Total                                            |  | $            | 6,293
|                                                 |  |              |      



Critical Accounting
Policies



The discussion and analysis of our financial
conditions and results of operations is based upon our consolidated interim financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities at the date of the financial statements. Actual results may
differ from these estimates under different assumptions and conditions.



Our significant accounting policies are described in the notes to the annual consolidated financial statements as of and for the year ended December 31, 2004. We determined the critical principles by considering accounting policies that
involve the most complex or subjective decisions or assessments. We believe our most critical accounting policies include the following:



Revenue recognition



Revenues from our Fixed Broadband Wireless segment are derived from sales of products. We currently provide no services. These products consist of hubs
and modems, which are off-the-shelf products, sold as is, without further adjustment or installation. These products are usually sold individually according to a standard fixed price determined by us. When establishing a relationship
with a new customer, we may also sell these products together as a package, in which case these products are shipped at the same time to the customer. As our products are off-the-shelf products, we do not provide our customers with the
right of return or any additional services after delivery (except for standard product warranty).



Revenues from our products are recorded when (1) persuasive evidence of an arrangement exists; (2) delivery has occurred and customer acceptance
requirements have been met; (3) the price is fixed or determinable; and (4) collection of payment is reasonably assured and we have no additional obligations.



Emerging Issues Task Force (EITF) Issue 00-21, Revenue Arrangements with Multiple Deliverables addresses the accounting, by a
vendor, for contractual arrangements in which multiple revenue-generating activities will be performed by the vendor. It is effective prospectively for all arrangements entered into in fiscal periods beginning after June 15, 2003.



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EITF Issue 00-21 addresses when and, if so, how an arrangement involving multiple deliverables should be
divided into separate units of accounting. Our multiple deliverables arrangements are those arrangements with new customers in which our products are sold together as a package. Because these off-the-shelf products are delivered at the
same time and the four revenue recognition criteria are met at that time, the adoption of EITF 00-21 had no impact on our financial position and results of operations.



Short Term Investments



Pursuant to SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, Vyyos investments in debt securities have
been designated as available-for-sale. Available-for-sale securities are carried at fair value, which is determined based upon the quoted market prices of the securities, with unrealized gains and losses reported in accumulated other comprehensive
income (loss), a component of shareholders equity until realized. Realized gains and losses and declines in value judged to be other than temporary on available-for-sale securities are included in interest income, net. Vyyo views its
available-for-sale portfolio as available for use in its current operations. Accordingly, Vyyo has classified all investments as short-term under short term investments, even though the stated maturity date may be one year or more from
beyond the current balance sheet date. Interest, amortization of premiums, accretion of discounts, and dividends on securities classified as available-for-sale are included in interest income, net. In March 2004, the FASB issued EITF Issue No. 03-1,
The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments which provides new guidance for assessing impairment losses on debt and equity investments. Additionally, EITF Issue No. 03-1 includes new annual
disclosure requirements for investments that are deemed temporarily impaired. In September 2004, the FASB delayed the accounting provisions of EITF Issue No. 03-1 (however, the disclosure requirements remain effective). We will evaluate the effect,
if any, of EITF Issue No. 03-1 when final guidance is released. Vyyo has recorded $112,000 financial expenses for the period of three months ended March 31, 2005 for an other then temporary impairment in its available for sale securities.



Inventory



Inventory is valued at the lower of cost or market. Cost includes the cost
of raw materials computed using the moving average basis and, for work in progress and finished goods, direct labor as well. Market is determined by reference to the sales proceeds of items sold in the ordinary course of business or management
estimates based on prevailing market conditions.



Products
warranty



We accrue for product warranty costs upon
recognition of product revenues. The provision is calculated as a percentage of the sales based on historical experience.



Intangible assets



The acquisition of Xtend has generated significant amounts of intangible assets, that consist mainly of technology, non-competition agreements, an
exclusive sales agreement and workforce. These definitive-life intangible assets are amortized using the straight-line method over their estimated periods of useful lives, ranging between one and six years. This valuation of the fair value of these
intangible assets acquired was performed by qualified independent appraisers, based on the estimated expected discounted cash-flows, and will be subject to future impairment tests.



This discussion and analysis should be read in conjunction with our condensed consolidated interim financial statements and
related notes included elsewhere in this report.



Recent
Accounting Pronouncements



In December 2004, the Financial
Accounting Standards Board (FASB) issued the revised Statement of Financial Accounting Standards (FAS) No. 123, Share-Based Payment (FAS 123R), which addresses the accounting for share-based payment transactions in which Vyyo
obtains employee services in exchange for (a) equity instruments of Vyyo or (b) liabilities that are based on the fair value of Vyyos equity instruments or that may be settled by the issuance of such equity instruments. This Statement
eliminates the ability to account for employee share-based payment transactions using APB Opinion No. 25, Accounting for Stock Issued to Employees, and requires instead that such transactions be accounted for using the grant-date fair value based
method. This Statement will be effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005 (July 1, 2005 for Vyyo). Early adoption of FAS 123R is encouraged.



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On April 15, 2005, the Securities and Exchange Commission approved a new rule, under which FAS 123R is
effective for public companies at the beginning of their next fiscal year that begins after June 15, 2005 (first quarter of 2006 for Vyyo). This Statement applies to all awards granted or modified after the Statements effective date. In
addition, compensation cost for the unvested portion of previously granted awards that remain outstanding on the Statements effective date shall be recognized on or after the effective date, as the related services are rendered, based on the
awards grant-date fair value as previously calculated for the proforma disclosure under FAS 123.



We estimate that the cumulative effect of adopting FAS 123R as of its adoption date by Vyyo (January 1, 2006), based on the awards outstanding as of March
31, 2005, will not be material. This estimate does not include the impact of additional awards, which may be granted, or forfeitures, which may occur subsequent to March 31, 2005 and prior to our adoption of FAS 123R. We expect that upon the
adoption of FAS 123R, it will apply the modified prospective application transition method, as permitted by the Statement. Under such transition method, upon the adoption of FAS 123R, Vyyos financial statements for periods prior to the
effective date of the Statement will not be restated. The impact in 2006 and beyond will depend upon various factors, among them Vyyos future compensation strategy.



Results of Operations



Revenues



Revenues decreased to $704,000 in the first quarter of 2005 from $2.2 million in the first quarter of 2004. The decrease in revenues in the first quarter
of 2005 was due to the decreased shipments of our products as well as lower selling prices as a result of competitive price pressure. For the three months ended March 31, 2005 revenues do not include revenues from sales of inventory that was
previously written down to $0; during the three months ended March 31, 2004 revenues include $661,000 of previously written down inventory.



Our revenue is concentrated among relatively few customers, as set forth in the following table. 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.



|           |  |                             |   |  |      |  
|---------- |  | --------------------------- | - |  | ---- | -
|           |  | Three Months endedMarch 31, |  
|           |  | 2005                        |   |  | 2004 |  
|Customer A |  | 25                          | % |  | 13   | %
|Customer B |  | 24                          | % |  |     |  
|Customer C |  | 23                          | % |  | 20   | %
|Customer D |  | 6                           | % |  | 32   | %
|Customer E |  | 5                           | % |  | 14   | %
|Customer F |  |                            |   |  | 10   | %



Cost of Revenues



Cost of revenues consists of component and material
costs, direct labor costs, warranty costs and overhead related to manufacturing our products.



Cost of revenues decreased to $786,000 in the first quarter of 2005 from $1.0 million in the first quarter of 2004. The decrease in cost of revenues in the first quarter of 2005 was primarily attributable to the
decrease in shipments of our products and decreasing expenses related to our efforts to acquire new customers. As a result of the write-down of inventories to $0 in 2001, cost of revenues does not include $286,000 in the first quarter of 2004,
related to the sale of such inventories. Our gross margin in the first quarter of 2005 decreased from the gross margin in the first quarter of 2004 primarily due to competitive price pressure in our markets, and decrease shipments therefore increase
the effect of the fixed costs. We anticipate that our gross margins will continue to fluctuate and that our cost of revenues will increase in future periods to the extent that we deplete our previously written-down inventories and sell products from
newly acquired inventories.



Research and Development
Expenses



Research and development expenses consist
primarily of personnel, facilities, equipment and supplies for our research and development activities. Substantially all of our research and development activities are carried out in our facilities in Israel. These expenses are charged to



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operations as incurred. Our research and development expenses increased to $2.7 million in the first quarter of 2005 from $1.2 million in the first quarter
of 2004. Research and development expenses included approximately $1.6 million from the Cable segment in the first quarter of 2005. The increase in research and development expenses in the first quarter of 2005 was due to our research and
development efforts for our new Cable segment as well as an increase in our workforce. In addition, on November 4, 2004, two of our subsidiaries entered into new leases for approximately 42,000 square feet of office space near Tel-Aviv, Israel,
which leases are expected to involve significant rent and fee payments. We anticipate that research and development expenses will increase in future periods as we increase our efforts to develop new products.



Selling and Marketing



Sales and marketing expenses consist of salaries and related costs of sales
and marketing employees, consulting fees and expenses for travel, trade shows and promotional activities. Sales and marketing expenses increased to $2.7 million in the first quarter of 2005 from $1.4 million in the first quarter of 2004. The
increase in sales and marketing expenses in the first quarter of 2005 was due to (1) an increase in sales and marketing expenses, including approximately $1.3 million attributable to the new Cable segment in the first quarter of 2005, (2) an
increase in sales efforts for our wireless products in the utilities and gas markets and other new markets and (3) an increase in our workforce. We anticipate that sales and marketing expenses will increase in future periods as we increase our
efforts to sell our products in the Cable segment and other new markets.



General and Administrative



General and administrative expenses consist primarily of personnel and related costs for general corporate functions, including finance, accounting, strategic and business development, and legal. General and administrative expenses in the
first quarter of 2005 were $1.5 million and $1.4 million in the first quarter of 2004. General and administrative expenses were consistent for the three month periods ended March 31, 2005 and 2004. General and administrative expenses are currently
expected to be higher in 2005 compared to 2004 for the implementation of internal controls over financial reporting relating to Sarbanes-Oxley compliance. General and administrative expenses also included expenses of $159,000 in the first quarter of
2005, and $194,000 in the first quarter of 2004, which includes payments to Harmony Management, Inc., a corporation owned by Davidi Gilo, pursuant to an aircraft time sharing agreement and to an unaffiliated third party management company, in
connection with several charters of an aircraft for business travel purposes.



Amortization of Intangible Assets



Intangible assets acquired are amortized using the straight-line method over their estimated useful lives as follows: existing technology acquired in the Xtend acquisition over six years; non-competition agreements
over approximately three years; exclusive sales agreement over four and one-half years and workforce over one year.



Amortization of intangible assets acquired for the three months ended March 31, 2005 was $509,000, consisting of the amortization of existing technology
of $92,000, non-competition agreements amounting to $220,000, an exclusive sales agreement amounting to $135,000 and workforce amounting to $62,000.



Restructuring Charges



In 2001, we implemented a restructuring program to reduce operating expenses due to the dramatic and continuing slowdown in the telecommunications sector
and the general economy. In connection with the restructuring program, we recorded a restructuring income in the first quarter of 2005 of $315,000 from a positive adjustment with respect to a variable compensation plan related to our former Chief
Executive Officer. There are no other severance expenses or termination of contractual obligations payments attributable to the restructuring.



Interest Income, Net



Interest income, net, includes interest from investment income, foreign currency remeasurement gains and losses. Net interest income was $76,000 in the
first quarter of 2005 and $253,000 in the first quarter of 2004. Interest income for the first quarter was approximately $177,000 offset by an Other-Than-Temporary investment impartment of $112,000 attributable to the effect of rising interest rates
on the Companys fixed interest debt investments that potentially may not be held until maturity. Our interest income is derived mainly from our cash and short-term investment balances from proceeds from our initial and follow-on public
offerings effected in 2000. We expect that our interest income will continue to decrease due to decreasing cash balances.



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Income Taxes



As of December 31, 2004, Vyyos Israeli subsidiaries (excluding Shira) had net operating loss carryforwards of
approximately $84 million. The Israeli loss carryforwards have no expiration date.



Vyyos Israeli subsidiaries have been granted in the past approved enterprise status for several investment programs. These programs entitle the Israeli subsidiaries (the Subsidiaries) to
tax exemption periods, ranging from two to six years, on undistributed earnings commencing in the year in which they attain taxable income as well as a reduced corporate tax rate of 10%-25% for the remaining term of the program on the plans
proportionate share of income.



Since the Subsidiaries have not
achieved taxable income, the tax benefits periods have not yet commenced. The Subsidiaries losses are expected to offset certain future earnings of the Subsidiaries during the tax-exempt period; therefore, the utilization of the net operating losses
will generate no tax benefits. Accordingly deferred tax assets from such losses have not been included in the financial statements. The entitlement to the above benefits is conditional upon the Subsidiaries fulfilling the conditions stipulated by
the law, regulations published thereunder and the instruments of approval for the specific investments in approved enterprises. We have provided a full valuation allowance against our United States federal and state deferred tax assets as the future
realization of the tax benefit is not sufficiently assured.



Charge for Stock Based Compensation



Charge
for stock compensation represents the amortization of deferred compensation charges which are based on the aggregate differences between the respective exercise price of stock options and purchase price of stock at their dates of grant or sale and
the deemed fair market value of our common stock for accounting purposes. Deferred stock compensation is amortized over the vesting period of the underlying options. Net income related to stock compensation of $261,000 in the first quarter of 2005
resulted from (1) a separation agreement (including income adjustments of $315,000 in the first quarter of 2005 associated with a separation agreement with our former Chief Executive Officer recorded as a restructuring adjustment) and (2) option
grants to service providers accounted at a fair value based method.



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Discontinued Operation





Assets and liabilities of the discontinued
operation were as follows:



|                    |  |               |   |                  |   |    
|------------------- |  | ------------- | - | ---------------- | - | ---
|                    |  | March 31,2005 |   | December 31,2004
|                    |  | In thousands 
|Current assets      |  | $             |  |                  | $ | 72 
|                    |  |               |   |                  |   |    
|Current liabilities |  | $             |  |                  | $ | 433
|                    |  |               |   |                  |   |    



Profit and loss of the
discontinued operations were as follows:



|                                               |  |                             |     |   |      |   |     |  
|---------------------------------------------- |  | --------------------------- | --- | - | ---- | - | --- | -
|                                               |  | Three Months endedMarch 31, |    
|                                               |  | 2005                        |     |   | 2004 |  
|                                               |  | In thousands                |    
|Loss from discontinued operations              |  | $                           | (25 | ) |      | $ | (84 | )
|Other income (see b below)                     |  |                             | 290 |   |      |   |    |  
|                                               |  |                             |     |   |      |   |     |  
|Net income (loss) from discontinued operations |  | $                           | 265 |   |      | $ | (84 | )
|                                               |  |                             |     |   |      |   |     |  



Income (loss) from
discontinued operations includes:



(a) We did not incur any
severance expenses or termination of contractual obligations, accounted for according to SFAS 146 (Accounting for costs associated with exit or disposal activities), during the three months ended March 31, 2005. We settled all severance
expenses and termination of contractual obligations as of December 31, 2004. During the three months ended March 31, 2004 Vyyo paid $77,000 in severance expenses and termination of contractual obligations.



(b) Sale of Shira: On March 31, 2005 Vyyo sold all of its shares of Shira to
third parties (hereafter the Purchasers). According to the agreement, the Purchasers shall pay Vyyo 22.5% to 42.5% of the proceeds that may be received upon the further sale by the Purchasers of Shira or its assets. The Purchasers have
assumed all liabilities of Shira totaling to $270,000. The gain from this sale was $290,000 and was recorded in discontinued operations.



Liquidity and Capital Resources



As of March 31, 2005, we had $34.3 million of cash, cash equivalents and short-term investments. In the first three months of 2005, net cash used in
operations was $7.7 million, comprised mainly of (1) our loss of $6.7 million, (2) changes in other working capital accounts of $1.5 million, and (3) non-cash charges of (a) depreciation and amortization of $0.8 million (b) income related to stock
compensation of $0.3 million. In the first three months of 2004, net cash used in operations was $2.2 million, comprised mainly of (1) our net loss of $2.1 million, (2) changes in other working capital accounts of $0.3 million, and (3) non-cash
charges of (a) depreciation and amortization of $0.1 million, and (b) income related to stock compensation of $0.5 million.



In the first three months of 2005, net cash provided by investing activities was $4.2 million comprised of our sales and maturities of short-term
investments net of our purchase of short-term investments of $4.7 million, partially offset by an outflow from purchases of property and equipment amounting to $0.5 million. In the first three months of 2004, net cash provided by investing
activities was $5.9 million, comprised mainly of our purchase of short-term investments net of our proceeds from sales and maturities of short-term investments of $6 million.



Financing activities in the first three months of 2005 amounted to approximately $0.2 million of proceeds from stock option
exercises and proceeds from notes receivable from shareholders. Financing activities in the first three months of 2004 amounted to approximately $0.3 million of proceeds from stock option exercises.



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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 and other factors. We presently expect that our existing capital resources along with anticipated revenue will be sufficient to meet our working capital and capital
expenditure needs for at least the next 12 months. During the next 12 months, we expect that we will need to raise additional capital to execute our business plan and to provide adequate working capital to satisfy our business objectives and
requirements. If we raise additional funds through the issuance of equity or convertible debt securities, we may be required to do so at a price per share below then-current trading prices thereby diluting our current shareholders. We may not be
able to obtain additional funds on acceptable terms, or at all. This potential inability to raise funds on acceptable terms could seriously harm our business. If we cannot raise needed funds on acceptable terms, we may not be able to execute our
business plan or to continue as a going concern.



RISK
FACTORS



Our business is subject to substantial risks,
including the risks described below.



Vyyo Inc. and Xtend
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 losses for the foreseeable future. We incurred losses of
approximately $6.7 million for the three months ended March 31, 2005 and $21.1 million in the year ended December 31, 2004. As of March 31, 2005, our accumulated deficit was approximately $203 million. In addition, we recently increased our sales
and marketing expenditures and research and development expenditures in connection with our efforts to develop new sources of revenue. Our revenues and gross margins may not grow or even continue at their current level and may decline even further.
If our revenues do not rapidly increase, or if our expenses increase at a greater pace than our revenues, we will never become profitable.



We will need to raise additional capital in the future, and if we are unable to timely secure adequate funds on terms acceptable to us, we may not be
able to execute our business plan or to continue as a going concern.



We presently expect that our existing capital resources along with anticipated revenue will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. During the next 12
months, we expect that we will need to raise additional capital to execute our business plan and to provide adequate working capital to satisfy our business objectives and requirements. If we raise additional funds through the issuance of equity or
convertible debt securities, we may be required to do so at a price per share below then-current trading prices thereby diluting our current shareholders. We may not be able to obtain additional funds on acceptable terms, or at all. This potential
inability to raise funds on acceptable terms could seriously harm our business. If we cannot raise needed funds on acceptable terms, we may not be able to execute our business plan or to continue as a going concern.



If Xtend fails to achieve significant market penetration and customer
acceptance of its products, its prospects would be substantially harmed.



The market for broadband products in the cable television industry is extremely competitive, subject to drastic technological changes and highly fragmented. Xtend has not generated any revenue. Its products are new
and relatively unknown. To date, Xtend has only begun to install its product with customers in field trials. There can be no assurance that Xtends initial installations will be successful. As an early stage operation, Xtend may face challenges
such as market resistance to a new product, perceptions regarding customer support and quality control.



Xtend will generate significant sales only if it is able to penetrate this market and create market share in this industry. If Xtend is unable to do so,
its business would be harmed and its prospects significantly diminished.



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Xtends success will depend on the cable industrys willingness and ability to substantially
increase the available bandwidth on their networks using Xtends alternative technology solution.



For our products to be sold in significant quantities, cable television operators (MSOs) must be willing and able to substantially increase
the available bandwidth on their networks. MSOs may not be willing or able to develop additional services and revenue streams to justify the deployment of Xtends technology. Meanwhile, major MSOs have indicated that the imminent completion of
significant network upgrades, which involve significant labor and construction costs, will lead to lower capital expenditures in the future. MSOs such as Adelphia Communications have been in bankruptcy proceedings. If our product portfolio and
product development plans do not position us well to capture an increased portion of the expected reduced capital spending of these cable operators, our operating results would be adversely affected.



If the adoption of broadband wireless technology continues to be limited,
we will not be able to sustain our business.



Our future
success in the telecommunications business 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 if these markets will ever develop, expand or be sufficiently large to sustain our business. Major service providers in the United States have ceased, delayed or reduced their rollouts and may further delay or reduce rollouts in
the future. Our expectations with respect to a recovery, if any, in the telecommunications market, may not prove accurate. In the event that service providers adopt technologies other than the 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.



While we are continuing to operate our traditional Fixed Broadband Wireless business and have increased our sales and marketing efforts to address the
utilities and oil and gas market and other new markets, we are also considering a variety of alternatives to this business, including the sale, divestiture, license or restructuring of a substantial portion or all of our current fixed wireless
broadband technology or assets. In the event of any such transaction, the value we may realize in the current market could be minimal.



If telecommunications service providers and systems integrators do not promote and purchase our products, or if the telecommunications equipment market
continues not to improve and grow, our business will seriously be harmed.



Telecommunications service providers continually evaluate alternative technologies, including digital subscriber line, fiber and cable. Should service providers or systems integrators, to which we may sell products 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.



Market conditions remain difficult and capital spending plans are often
constrained. It is likely that further industry restructuring and consolidation will take place. Companies that have historically not had a large presence in the broadband access equipment market have begun recently to expand their market share
through mergers and acquisitions. The continued consolidation of our competitors could have a significant negative impact on us. Further, our competitors may bundle their products or incorporate functionality into existing products in a manner that
discourages users from purchasing our products or which may require us to lower our selling prices resulting in lower gross margins.



If the telecommunications market, and in particular the market for broadband access equipment, does not improve and grow, our business will be
substantially harmed.



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If our inventories exceed anticipated sales or selling prices, we may be required to write-down our
inventory, which would adversely affect our operating results.



We are required to order or build inventory well in advance of the time of our anticipated sales. In this regard, our inventory increased substantially in 2004 because sales were substantially less than our anticipated demand. In the event
that our sales do not increase, the sales price of our products decreases or we are otherwise unable to control inventory levels consistent with actual demand, we may be required to write-down a substantial portion of our inventory, as we did in
2001. Such a write-down would adversely affect both our balance sheet and operating results in future periods.



If the communications, Internet and cable television industries do not 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 growth of the communications industry, the cable television industry and, in particular, the Internet. These markets continue to evolve rapidly because of advances in technology and changes in customer demand. We cannot predict
growth rates or future trends in technology development. It is possible that cable television operators, telecommunications companies or other suppliers of broadband services will decide to adopt alternative architectures or technologies that are
incompatible with our current or future products. If we are unable to design, develop, manufacture and sell products that incorporate or are compatible with these new architectures or technologies, our business will suffer. Also, decisions by
customers to adopt new technologies or products are often delayed by extensive evaluation and qualifications processes and can result in delays of current products.



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.



We may not be able to successfully operate Xtend or integrate Xtend or other businesses that we may choose to acquire, in a cost-effective and non-disruptive manner and realize anticipated benefits.



We recently acquired Xtend, a provider of infrastructure solutions that
expand the bandwidth of cable television lines. We also continue to explore investments in or acquisitions of other companies, products or technologies, including companies or technologies that are not complementary or related to our current
wireless broadband access business. We may be unsuccessful in operating Xtend as a profitable business as we were unable to operate Shira as a profitable business. In addition, we may have difficulty integrating Xtends or other companies
personnel, operations, products and technologies into our current business. It also may be difficult to manage Xtend since a significant number of its management is currently in Israel and in Atlanta, Georgia. These difficulties may disrupt our
ongoing business, divert the time and attention of our management and employees and increase our expenses. Moreover, the anticipated benefits of our acquisition of Xtend or any other 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 identifiable intangible assets and the incurrence of large and immediate write-offs, any of which could
seriously harm our business. In addition, we expect that we will expend significant resources in searching for and investigating new business opportunities, and may be unsuccessful in acquiring new businesses.



Xtend will need to develop distribution channels and management resources
to market and sell its products.



Xtend is at a very early
stage in the commercialization of its products. Xtend currently has strictly limited relationships with potential customers and distributors as well as limited professional sales staff. Xtend will be successful only if it is able to develop
distribution channels to market and sell its products.



In
order to develop such channels and market and sell its products, Xtend will need to build a well-connected team of executives and marketing professionals. Many of these executive and professionals will likely need to be based in the United States.
It may be difficult for Xtend to hire and retain qualified personnel. Integrating new personnel, particularly U.S.-based personnel, into Xtend may be challenging from a culture and logistics perspective because most of Xtends employees are
currently based in Israel. Meanwhile, the management of Vyyo Inc. has very limited experience in the cable industry.



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Xtend currently has limited exposure to global business opportunities. It will not be able to take
advantage of any meaningful potential global demand for its products unless and until it is able to develop global distribution channels and strategies.



Xtend has not yet manufactured or deployed its products in high volumes.



Xtend products have not yet been produced in high volumes and there may be challenges and unexpected delays, such as quality
control issues, in its attempts to increase volume and lower production costs. Our long term success depends on our ability to produce high quality products at a low cost and, in particular, to reduce the production cost of Xtend equipment designed
for residential use.



Because Xtends products have not
yet been deployed in high volume, there is significant technology risk associated with any such future deployment. There can be no assurances that any such high volume deployment would be successful.



We will depend on cable and telecommunications industry capital spending
for much of our revenue and any decrease or delay in such spending would adversely affect our prospects.



Demand for our products and those of Xtend will depend on the size and timing of capital expenditures by telecommunications service providers and MSOs.
These capital spending patterns are dependent upon factors including:



| |  |  | the availability of cash or financing;
| | - |  | --------------------------------------



| |  |  | budgetary issues;
| | - |  | -----------------



| |  |  | regulation and/or deregulation of the telecommunications industry;
| | - |  | ------------------------------------------------------------------



| |  |  | competitive pressures;
| | - |  | ----------------------



| |  |  | alternative technologies;
| | - |  | -------------------------



| |  |  | overall demand for broadband services, particularly relatively new services such as voice over Internet Protocol;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | industry standards;
| | - |  | -------------------



| |  |  | the pattern of increasing consolidation in the industry; and
| | - |  | ------------------------------------------------------------



| |  |  | general consumer spending and overall economic conditions.
| | - |  | ----------------------------------------------------------



If MSOs and telecommunications service providers do not make significant capital expenditures, our prospects could be adversely affected.



Xtend will depend on future demand for additional bandwidth by the cable
industry and its end customers.



Because
Xtends products expand available bandwidth over existing infrastructure, demand for our products depends on demand for additional bandwidth by the cable industry and its end customers. The scope and timing of end user demand for such
additional bandwidth is uncertain and hard to predict. The factors influencing this demand include competitive offerings, applications availability, pricing models, costs, regulatory requirements and the success of initial roll-outs. If the future
demand for bandwidth is insubstantial, is addressed by alternative technologies or does not develop in the near future, Xtends prospects will be adversely affected.



Our participation or lack of participation in industry standards groups, such as the WiMax Forum, may adversely affect
our business.



Neither Vyyo Inc. nor Xtend is currently
active in the standards process of the Cable Television Laboratories, Inc., a cable industry consortium that establishes cable technology standards and administers compliance testing. In the future, we may determine to join or not join other
standards or similar organizations. Our membership in these organizations could dilute our proprietary intellectual property rights in our products while our failure to participate in others could jeopardize acceptance of any of our products that do
not meet industry standards.



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Product standardization, as may result from the WiMax initiative or from initiatives of the major
cable operators, may adversely affect our prospects and those of Xtend.



Product standardization initiatives encouraged by telecommunications companies and cable operators may adversely affect revenues, gross margins and profits. In the past, standardization efforts by major cable
operators have negatively impacted equipment vendors by leading to equipment obsolescence, commoditization and reduced margins. If our products are not compliant with future standards, our prospects could be adversely affected.



Because we operate in international markets, and particularly in China, 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 49% of our revenues in the first quarter of 2005. In addition, we maintain research and
development facilities in Israel. Our reliance on international sales, operations and suppliers exposes us to foreign political and economic risks, which may impair our ability to generate revenues. These risks include:



| |  |  | economic and political instability;
| | - |  | -----------------------------------



| |  |  | terrorist acts, international conflicts and acts of war;
| | - |  | --------------------------------------------------------



| |  |  | our international customers ability to obtain financing to fund their deployments;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | changes in regulatory requirements and licensing frequencies to service providers;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | import or export licensing requirements and tariffs;
| | - |  | ----------------------------------------------------



| |  |  | labor shortages or stoppages;
| | - |  | -----------------------------



| |  |  | trade restrictions and tax policies; and
| | - |  | ----------------------------------------



| |  |  | limited protection of intellectual property rights.
| | - |  | ---------------------------------------------------



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



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.



There has been significant price erosion in the broadband equipment field. We expect that continued price competition among broadband access equipment and
systems suppliers will reduce our gross margins in the future, particularly in Asia. We anticipate that the average selling prices of broadband access systems will continue to decline as product technologies mature. 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.



Our future growth depends on market acceptance of several
emerging broadband services, on the adoption of new broadband technologies and on several other broadband industry trends.



Future demand for our broadband wireless and cable products will depend significantly on the growing market acceptance of several emerging broadband
services, including digital video; video-on-demand (VOD); high definition (HD) television; very high-speed data services and voice-over-IP (VoIP) telephony. The effective delivery of these services will depend in part on a variety of new network
architectures, such as fiber-to-the premises (FTTP) networks; new video compression standards such as MPEG-4 and Microsofts Windows Media 9; the greater use of protocols such as IP; and the introduction of new consumer devices, such as
advanced set-top boxes and digital video recorders (DVRs). If adoption of these emerging services and/or technologies is not as widespread or as rapid as we expect, our net sales growth will be materially and adversely affected.



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Furthermore, other technological, industry and regulatory trends will affect the growth of our business.
These trends include the following:



| |  |  | convergence, or the desire of certain operators to provide a combination of video, voice and data services to consumers, also known as the triple play;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the use of digital video by businesses and governments;
| | - |  | -------------------------------------------------------



| |  |  | the privatization of state-owned telecommunication companies in other countries;
| | - |  | --------------------------------------------------------------------------------



| |  |  | efforts by regulators and governments in the United States and abroad to encourage the adoption of broadband and digital technologies; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the extent and nature of regulatory attitudes towards such issues as competition between operators, access by third parties to networks of other operators, and new services such as
VoIP.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If, for instance, operators do not pursue
the triple play as aggressively as we expect, our net sales growth would be materially and adversely affected. Similarly, if our expectations regarding these and other trends are not met, our net sales may be materially and adversely affected.



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. 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 broadband access equipment and systems by the major service
providers;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the fact that we often recognize a substantial proportion of our revenues in the last few weeks of each quarter;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | the ability of our existing and potential direct customers to obtain financing for the deployment of broadband access equipment and systems;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the mix of products sold by us and the mix of sales channels through which they are sold;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | reductions in pricing by us or our competitors;
| | - |  | -----------------------------------------------



| |  |  | global economic conditions;
| | - |  | ---------------------------



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



| |  |  | changes in the prices or delays in deliveries of the components we purchase or license; and
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | any acquisitions or dispositions we may effect.
| | - |  | -----------------------------------------------



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.



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



A relatively small number of customers account for a large percentage of our revenues, as set forth in the table below:



|           |  |                             |   |  |      |  
|---------- |  | --------------------------- | - |  | ---- | -
|           |  | Three Months endedMarch 31, |  
|           |  | 2005                        |   |  | 2004 |  
|Customer A |  | 25                          | % |  | 13   | %
|Customer B |  | 24                          | % |  |     |  
|Customer C |  | 23                          | % |  | 20   | %
|Customer D |  | 6                           | % |  | 32   | %
|Customer E |  | 5                           | % |  | 14   | %
|Customer F |  |                            |   |  | 10   | %



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We expect that we will continue to depend on a limited number of customers for a substantial portion of
our revenues in future periods. The loss of a major customer could seriously harm our ability to sustain revenue levels, which would seriously harm our operating results.



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



Vyyos research and development, final testing and assembly facilities,
and some contract manufacturers are located in Israel. In addition, Xtends headquarters, its research and development, final testing and assembly facilities and most of its employees are located in Israel. Political, economic and military
conditions in Israel directly affect our operations. Since the establishment of the State of 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 dramatically escalated in recent years, which could disrupt our operations. In addition, the recent wars in Iraq and Afghanistan and the current military
and political presence of the United States or its allies in Iraq and Afghanistan could cause increasing instability in the Middle East and further disrupt relations between Israel and its Arab neighbors. 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 and the Middle East, 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.



Our Chief Financial Officer, one of our directors and many Vyyo and Xtend employees are based in Israel, and many of them 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.



The functional currency for Vyyo and its subsidiaries is 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.



Because we do not have long-term contracts with our customers, our customers can discontinue purchases of our systems at any time, which could
adversely affect future revenues and operating results.



We sell our broadband access equipment and systems based on individual purchase orders. Our customers are generally 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



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using our systems at any time. Further, having a successful field system trial does not necessarily mean that the customer will order large volumes of our
systems. The reduction, delay or cancellation of orders from one or more of our customers could seriously harm our operating results.



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 market, which would adversely affect our business.



Countries worldwide are considering or are in the process of allocating frequencies for wireless applications, but not all markets have done so. If the
United States and/or other countries do not provide sufficient spectrum for wireless applications or reallocate spectrum in the wireless frequency bands for other purposes, our customers may delay or cancel deployments in broadband wireless, which
could seriously harm our business. Further, if our customers are unable to obtain licenses to sufficient spectrum in the wireless frequency bands our business may be seriously harmed.



The cable industry is also heavily regulated and changes in the regulatory landscape may adversely affect Xtends
business. For example, cable operators are currently required to carry a significant number of analog channels. A reduction or elimination of this requirement may free bandwidth for these operators and reduce the potential market for Xtends
products.



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



The market for broadband access equipment and systems is intensely competitive, rapidly evolving and subject to rapid technological change. The main competitive factors in our and Xtends markets include:



| |  |  | product performance, features and reliability;
| | - |  | ----------------------------------------------



| |  |  | price;
| | - |  | ------



| |  |  | stability;
| | - |  | ----------



| |  |  | scope of product line;
| | - |  | ----------------------



| |  |  | sales and distribution capabilities;
| | - |  | ------------------------------------



| |  |  | technical service and support;
| | - |  | ------------------------------



| |  |  | relationships, particularly those with system integrators and operators; and
| | - |  | ----------------------------------------------------------------------------



| |  |  | industry standards.
| | - |  | -------------------



Certain of our and Xtends 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, broader
product lines and established relationships with system integrators and service providers. Our primary competitors are Alvarion Inc., Aperto Networks, Inc., NextNet Wireless, Inc., IP Wireless, Inc., Navini Networks, Inc., Wi-LAN Inc., SR Telecom,
Harris Corporation, Cambridge Wireless Limited, Flarion, VCOM, Airspan and ZTE Corporation. Xtends primary competitors include Scientific Atlanta, Motorola, C-Core and Narad Networks. Most of these competitors have existing relationships with
one or more of our prospective customers. For our broadband wireless offerings, we face competition from technologies such as digital subscriber line, fiber and cable. In the cable industry, Xtends cable offerings face competition from
technologies such as digital set-top boxes, high-end compression technologies and DVRs. Furthermore, the move towards open standards may increase the number of operators who will offer new services, which in turn may increase the number of
competitors and drive down the capital expenditures per subscriber deployed. We may not be able to compete successfully against our current and future competitors, and competitive pressures may seriously harm our business.



Hardware defects or software errors may increase our costs and impair the
market acceptance of our systems, which would adversely affect our future operating results.



Our systems will occasionally contain certain 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,



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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. This may be observed in connection with stability or other performance problems. 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.



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



We currently have relationships with a limited number of
contract manufacturers for the manufacturing of our broadband wireless systems, which contractors are located in Israel, Taiwan and China. Xtends products are manufactured in Israel by contract manufacturers. 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 written agreement with a manufacturer for our modem products. Our current inventory of modems will likely be insufficient to fulfill anticipated demand, and we
will therefore be required to find a manufacturer in the near future. Our inability to enter into a written agreement with a manufacturer for our modems would harm our business.



In addition to sales to system integrators, we also sell in some instances directly to service providers. Such direct sales
require us to resell to service providers equipment manufactured by third party suppliers and to integrate this equipment with the equipment we manufacture. We are particularly dependent on third party radio suppliers in selling our 3.5 Ghz and
other products. 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.



Xtends products are implemented over the hybrid fiber coaxial plant and, as such, they interface and integrate with existing products from multiple
other vendors. Future offerings by these vendors may not be sufficiently compatible with Xtends products. In addition, Xtend depends on the continuous delivery of components by various manufacturers of electronic connectors, filters, boards
and transistors.



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;
| | - |  | ---------------------------------------------------------------------------------------------------------



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| |  |  | 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.



If we do not effectively manage our costs, our business
could be substantially harmed.



Although we reduced the
costs of our fixed broadband wireless operations in response to the decline in the telecommunications industry that began around 2001, we have recently increased certain expenses to address new business opportunities in both the broadband wireless
and cable segments and we will need to continue to monitor closely our costs and expenses. If the market and our business do not expand, we may need to further reduce our operations.



The acquisition of Xtend will cause our costs to increase as we seek to develop its business. In addition, the acquisition
agreement itself calls for payment to certain shareholders of Xtend as part of the purchase price, subject to various performance criteria.



We depend on Davidi Gilo, our Chairman of the Board and Chief Executive Officer, the loss 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 services of Davidi Gilo, our Chairman of the Board and Chief Executive Officer. We do not carry key person life insurance on our senior management or key personnel.
Any loss of the services of Davidi Gilo or other members of senior management or other key personnel could seriously harm our business.



Delays and shortages in the supply of components from our suppliers and third party vendors 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 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.



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



Third parties 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.
| | - |  | ------------------------------------------------------------------



We also may experience infringement claims based on Shiras technology and products. Accordingly, any infringement claim or litigation against us
could significantly harm our business, operating results and financial condition.



If we fail to adequately protect our intellectual property, we may not be able to compete and our ability to provide unique products may be compromised.



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



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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, and others may independently develop similar technologies or products. Litigation, which could result in substantial costs and diversion of our efforts, 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 the outcome, could be expensive and time consuming, and adverse determinations in any such litigation could
seriously harm our business.



Similarly, our pending or future
trademark applications may not be approved and may not be sufficient to protect our trademarks in the markets where we either do business or hope to conduct business. The inability to secure any necessary trademark rights could be costly and could
seriously harm our business.



We regularly evaluate and seek to
explore and develop derivative products relating to our broadband access equipment and systems. We may not be able to secure all desired intellectual property protection relating to such derivative products. Furthermore, because of the rapid pace of
change in the broadband industry, much of our business and many of our products rely on technologies that evolve constantly and this continuing uncertainty make it difficult to forecast future demand for our products.



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 our broadband access equipment and systems, as well as Xtends line of products, 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. Because of the growing sales cycle and the likelihood that we may rely on a small number of customers for our revenues, our operating results could
be seriously harmed if such revenues do not materialize when anticipated, or at all.



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



The emergence or evolution of regulations and industry standards for
broadband 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 certain
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.



We are incurring additional costs and devoting more management resources
to comply with increasing regulation of corporate governance and disclosure.



We are spending an increased amount of management time and external resources to understand and comply with changing laws, regulations and standards relating to corporate governance and public disclosure, including
the Sarbanes-Oxley Act of 2002, new SEC regulations and rules of the Nasdaq National Market, the market on which our shares are listed. Allocating the necessary resources to comply with evolving corporate governance and public disclosure standards
has increased general and administrative expenses and caused a diversion of management time and attention to compliance activities.



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Recent regulations related to equity compensation could adversely affect earnings, affect our ability
to raise capital and affect our ability to attract and retain key personnel.



Since our inception, we have used stock options as a fundamental component of our employee compensation packages. We believe that our stock option plans are an important tool to link the long-term interests of
shareholders and employees, especially executive management, and serve to motivate management to make decisions that will, in the long run, give the best returns to shareholders. The Financial Accounting Standards Board has adopted changes to the
United States generally accepted accounting principles, or U.S. GAAP, that require us to record a charge to earnings for employee stock option grants, as well as other equity-based awards. The ultimate outcome of this requirement will most likely
negatively impact our earnings and could affect our ability to raise capital on acceptable terms. In addition, new regulations implemented by the Nasdaq National Market requiring shareholder approval for all stock option plans could make it more
difficult for us to grant options to employees in the future. To the extent that new regulations make it more difficult or expensive to grant options to employees, we may incur increased compensation costs, change our equity compensation strategy or
find it difficult to attract, retain and motivate employees, each of which could materially and adversely affect our business.



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.



Certain 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. The termination or reduction of these benefits would increase our taxes and could seriously harm our business.
As of the date hereof, our Israeli subsidiaries, Vyyo Ltd. and Xtend, have accumulated loss carry-forwards for Israeli tax purposes and therefore has not enjoyed any tax benefits under current approved enterprise programs.



In the past, Vyyo and Xtend have received grants from the government of
Israel for the financing of a portion of our research and development expenditures for previous products in Israel. The regulations under which we received these grants restrict our ability to manufacture products or transfer technology outside of
Israel for products developed with this technology. Furthermore, these grants may not be available to us in the future.



The government of Israel has decided to cancel, as of June 30, 2004, the ability of companies to submit new applications for approved enterprise status.
This change in the government policy may hinder us in the future with respect to any benefits we may have received for new undertakings which would have been entitled to approved enterprise status.



Several of our directors and officers have relationships with Davidi Gilo
and his affiliated companies that could be deemed to limit their independence.



Several members of our board of directors, Lewis Broad, Neill Brownstein, Avraham Fischer, Samuel Kaplan and Alan Zimmerman, and our President and Chief Operating Officer, Michael Corwin, have had professional
relationships with our Chairman of the Board, Davidi Gilo, and his affiliated companies for several years. These members of our board of directors previously served on the boards of directors of DSP Communications, Inc. and/or DSP Group, Inc., of
which Mr. Gilo was formerly the controlling shareholder and the Chairman of the Board, and Mr. Corwin previously served as an officer of DSP Group. In addition, Avraham Fischer is a senior partner of the law firm of Fischer, Behar, Chen & Co.,
which represents us on matters relating to Israeli law, and is an investor and co-Chief Executive Officer of an Israeli investor group in which Mr. Gilo is also an investor. There are no family relationships between these directors and officers, and
no member of our compensation committee serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee. However,
the long-term relationships between these directors and officers and Mr. Gilo and his affiliated companies could be deemed to limit their independence.



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Because our management has the ability to control shareholder 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 approximately 43% of our outstanding common stock. As a result, these shareholders, acting together, will be able to
control the outcome of all matters submitted for shareholder 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 shareholders; 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.



We rely on a continuous power supply to conduct our
operations, and any electrical or natural resource crisis could disrupt our operations and increase our expenses.



We rely on a continuous power supply for manufacturing and to conduct our business operations. Interruptions in electrical power supplies occur around the
world from time to time. Meanwhile, prices of the resources, such as electrical power and crude oil, upon which we ultimately rely, directly or indirectly, in running our business have been volatile. Power shortages, as have occurred in California
and China, could disrupt our manufacturing and business operations and those of many of our suppliers, and could cause us to fail to meet production schedules and commitments to customers and other third parties. Any disruption to our operations or
those of our suppliers could result in damage to our current and prospective business relationships and could result in lost revenue and additional expenses, thereby harming our business and operating results.



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;
| | - |  | -------------------------------------------------------------------------



| |  |  | 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.



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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 shareholders. 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 shareholders;
| | - |  | -----------------------------------------------------------------------



| |  |  | shareholders are not able to take action by written consent; and
| | - |  | ----------------------------------------------------------------



| |  |  | advance notice is required for nominations of directors and for shareholder 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.



It may be difficult
to enforce a U.S. judgment against us and our nonresident Chief Financial Officer, directors and experts.



Our Chief Financial Officer, two of our directors, and some of the experts named in this report are not residents of the United States, and a substantial
portion of our assets and the assets of these persons are located outside the United States. Therefore, it may be difficult to enforce a judgment obtained in the United States based upon the civil or criminal liabilities provisions of the United
States federal securities laws against us or any of those persons or to effect service of process upon these persons in the United States.



Our sales and operations in Asia, and China in particular, could be disrupted if contagious diseases spread.



The spread of Severe Acute Respiratory Syndrome (SARS) and avian
influenza (Bird Flu) in Asia, and China in particular, has disrupted commerce in the region. If SARS, Bird Flu or other contagious diseases spread in Asia, and China in particular, the markets for our products there may be adversely
affected. In addition, we will likely restrict the travel of our sales and technical personnel to China if such diseases are not contained, which could adversely affect our ability to market and sell our products in China and provide technical
assistance to our customers in China. In addition, a restriction of flights in China could disrupt shipments of our products into China and delay or curtail sales of our products. If SARS, Bird Flu or other contagious diseases spread beyond Asia,
other world markets for our products may also be adversely affected.



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 March 31, 2005, we had cash, cash equivalents and short-term investments of $34.3 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. Highly liquid investments with maturity of less than three months at the date of purchase are considered to be cash equivalents; investments with maturities of three months or greater are
classified as available-for-sale and considered to be short-term investments.



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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 March 31, 2005



If market interest rates were to increase on March 31, 2005 immediately
and uniformly by 10%, the fair value of the portfolio would decline by approximately $30,000, or approximately 0.09% of the total portfolio (approximately 0.06% of total assets). Assuming that the average yield to maturity on our portfolio at March
31, 2005 remains constant throughout the second quarter of 2005 and assuming that our cash, cash equivalents and short-term investments balances at March 31, 2005 remain constant for the duration of the second quarter of 2005, interest income for
the second quarter of 2005 would be approximately $167,000. Assuming a decline of 10% in the market interest rates at March 31, 2005, interest income for the second quarter of 2005 would be approximately $166,000, which represents a decrease in
interest income of approximately $1,000. 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 three months ended March 31, 2005. These amounts are determined by
considering the impact of the hypothetical interest rates on our cash equivalents and available-for-sale securities at March 31, 2005 over the remaining contractual lives.



Item 4. Controls and Procedures



Vyyos management, with the participation of Vyyos Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of Vyyos disclosure controls and procedures (as such term is defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report. Based on such evaluation, Vyyos Chief Executive Officer and Chief Financial Officer have
concluded that, as of the end of such period, Vyyos disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by Vyyo in the reports it files
or submits under the Exchange Act.



There have not been any
changes in Vyyos internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are
reasonably likely to materially affect, Vyyos internal control over financial reporting.



PART II. OTHER INFORMATION



Item 1. LEGAL PROCEEDINGS



None.



Item 2. UNREGISTERED SALES OF EQUITY 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 $40.50 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 March 31, 2005, we used approximately $7.7 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, approximately $1.6 million of the net proceeds in connection with the Xtend Transaction and approximately $73.9 million of the net offering proceeds for working capital.



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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 $94.688 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 March 31, 2005, we used approximately $3.4 million of the net offering proceeds for purchases of property, plant and equipment and the acquisition of Xtend and approximately $14.4
million of the net offering proceeds for working capital.



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



The Vyyo Inc. annual meeting of shareholders was held on March 14, 2005. At the annual meeting, the following matters were voted upon and approved by the shareholders:



(1) The election of two (2) Class II directors, Lewis S. Broad and Neill H.
Brownstein, to serve for a three year term until the 2008 annual meeting of shareholders. The results of the voting were as follows:



| | (a) | Lewis S. Broad
| | --- | --------------



|                                       |  |           
|-------------------------------------- |  | ----------
|Number of shares voted FOR             |  | 12,346,992
|Number of shares WITHHOLDING AUTHORITY |  | 819,294   



| | (b) | Neill H. Brownstein
| | --- | -------------------



|                                       |  |           
|-------------------------------------- |  | ----------
|Number of shares voted FOR             |  | 12,657,085
|Number of shares WITHHOLDING AUTHORITY |  | 509,201   



(2) Approval of the
Third Amended and Restated 2000 Employee and Consultant Equity Incentive Plan increasing the number of shares reserved for issuance thereunder and increasing the number of shares reserved for issuance under the Plans evergreen
provisions. The results of the voting were are follows:



|                               |  |          
|------------------------------ |  | ---------
|Number of shares voted FOR     |  | 5,750,746
|Number of shares voted AGAINST |  | 1,280,260
|Number of shares ABSTAINING    |  | 4,084    
|Number of Broker Non-Votes     |  | 6,131,196



(3) Approval of the
Fourth Amended and Restated Certificate of Incorporation to reduce the number of authorized shares. The results of the voting were are follows:



|                               |  |           
|------------------------------ |  | ----------
|Number of shares voted FOR     |  | 13,155,552
|Number of shares voted AGAINST |  | 8,737     
|Number of shares ABSTAINING    |  | 1,997     
|Number of Broker Non-Votes     |  | 0         



(4) Ratification of
the appointment of Kesselman & Kesselman CPAs (ISR), a member of PricewaterhouseCoopers International Limited, as the independent auditors for the Company for the fiscal year ending December 31, 2005. The results of the voting were are follows:



|                               |  |           
|------------------------------ |  | ----------
|Number of shares voted FOR     |  | 13,161,668
|Number of shares voted AGAINST |  | 2,672     
|Number of shares ABSTAINING    |  | 1,946     
|Number of Broker Non-Votes     |  | 0         



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Item 5. OTHER INFORMATION



(a)
None.



(b) None.



Item 6. EXHIBITS



| | (a) | Exhibits
| | --- | --------



3.1 Fourth Amended and Restated Certificate of Incorporation.



10.1 Xtend Networks, Inc. lease agreement with Corners Realty Corporation, Inc. for certain premises in
Norcross, Georgia (filed as Exhibit 99.1 to the Companys Current Report on Form 8-K filed on January 21, 2005 (File No. 000-30189), and incorporated herein by reference).



10.2 Third Amended and Restated 2000 Employee and Consultant Equity Incentive Plan (filed as Exhibit 10.1
to the Companys Current Report on Form 8-K filed on March 16, 2005 (File No. 000-30189), and incorporated herein by reference).



31.1 Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).



31.2 Certificate of Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).



32.1 Certificate of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18
U.S.C. Section 1350).



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SIGNATURES



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: May 13, 2005



| |  |           |  |                                                          
| |  | --------- |  | ---------------------------------------------------------
| |  | VYYO INC.
| |  |          
| |  | By:       |  | /s/ Davidi Gilo                                          
| |  |           |  | Davidi Gilo, Chief Executive Officer                     
| |  |           |  | (Duly Authorized Officer)                                
| |  |          
| |  | By:       |  | /s/ Arik Levi                                            
| |  |           |  | Arik Levi, Chief Financial Officer                       
| |  |           |  | (Duly Authorized Officer and Principal Financial Officer)



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EXHIBIT INDEX



|              |  |                                                                                                                                                                                                                                                                               
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Exhibit                                                                                                                                                                                                                                                                       
|3.1           |  | Fourth Amended and Restated Certificate of Incorporation.                                                                                                                                                                                                                     
|              | 
|10.1          |  | Xtend Networks, Inc. lease agreement with Corners Realty Corporation, Inc. for certain premises in Norcross, Georgia (filed as Exhibit 99.1 to the Companys Current Report on Form 8-K
filed on January 21, 2005 (File No. 000-30189), and incorporated herein by reference).
|              | 
|10.2          |  | Third Amended and Restated 2000 Employee and Consultant Equity Incentive Plan (filed as Exhibit 10.1 to the Companys Current Report on Form 8-K filed on March 16, 2005 (File No.
000-30189), and incorporated herein by reference).                                         
|              | 
|31.1          |  | Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).                                                                                                                                                    
|              | 
|31.2          |  | Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).                                                                                                                                                    
|              | 
|32.1          |  | Certificate of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).                                                                                                                        



43