<PAGE>

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

                                   FORM 10-Q

(Mark One)

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

          For the Quarterly Period Ended March 31, 2001
                                         --------------

                                      or

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

          For the transition period from             to
                                         -----------    -----------

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

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


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


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


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


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.    Yes  X      No
                                          ---        ---



As of March 31, 2001, there were 36,864,614 shares of Common Stock ($0.0001 par
value) outstanding.

<PAGE>

                                     INDEX


                                   VYYO INC.


<TABLE>
<CAPTION>

                                                                        Page No.
                                                                        -------


PART I. FINANCIAL INFORMATION
-----------------------------
<S>      <C>                                                          <C>

Item 1.  Condensed Consolidated Financial Statements (Unaudited)

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

         Condensed consolidated statements of operations-three months
          ended March 31, 2000 and March 31, 2001......................    4

         Condensed consolidated statements of cash flows-three months
          ended March 31, 2000 and March 31, 2001......................    5

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

Item 2.  Management's Discussion and Analysis of Financial Condition
          and Results of Operations....................................    8

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

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

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

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

Item 3.  Defaults upon Senior Securities................................  23

Item 4.  Submission of Matters to a Vote of Security Holders............  23

Item 5.  Other Information..............................................  23

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

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

                                       2
<PAGE>

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



                                   Vyyo Inc.
                     Condensed Consolidated Balance Sheets
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                           December 31,                    March 31,
                                                           ------------                    ---------
                                                               2000                           2001
                                                           ------------                    ---------
                                                             (Note 1)                     (Unaudited)
<S>                                                     <C>                           <C>
  Assets
  ------
  Current Assets
  --------------
  Cash and cash equivalents                                 $     33,991                 $     15,924
  Short-term investments                                          93,914                       88,140
  Accounts receivable, net                                         2,890                          646
  Inventory                                                        6,006                        4,795
  Other current assets                                             2,382                        2,206
                                                      -------------------              ---------------
    Total current assets                                         139,183                      111,711

  Property and equipment, net                                      3,984                        4,609
                                                      -------------------              ---------------
                                                            $    143,167                 $    116,320
                                                      ===================              ===============

  Liabilities and Stockholders' Equity
  ------------------------------------
  Current Liabilities
  -------------------
  Accounts payable                                          $      6,242                 $      3,297
  Accrued liabilities                                              9,345                       11,269
  Accrued restructuring charges                                        -                        4,105
                                                      -------------------              ---------------
    Total current liabilities                                     15,587                       18,671

  Commitments and Contingencies

  Stockholders' Equity
  --------------------

  Common stock (37,762 and 36,685 shares issued and              239,613                      231,017
  outstanding at December 31, 2000 and March 31, 2001,
  respectively)
  Notes receivable from stockholders                              (2,834)                        (751)
  Deferred stock compensation                                     (8,100)                      (6,400)
  Other comprehensive income                                         289                          922
  Accumulated deficit                                           (101,388)                    (127,139)
                                                      -------------------              ---------------
    Total stockholders' equity                                   127,580                       97,649
                                                      -------------------              ---------------
                                                            $    143,167                 $    116,320
                                                      ===================              ===============

See Notes to Condensed Consolidated Financial Statements

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

                                       3
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                  Three Months Ended
                                                                                  ------------------
                                                                                       March 31,
                                                                                       ---------
                                                                            2000                   2001
                                                                            ----                   ----
<S>                                                                     <C>                    <C>

  Net revenues                                                             $   1,841             $     669

  Cost of revenues (includes $7,914 of charges for inventory and               1,392                 8,900
  purchase commitments in 2001)
                                                                          -----------           -----------

  Gross profit (loss)                                                            449                (8,231)


  Operating Expenses
  ------------------
  Research and development                                                     1,903                 5,534
  Sales and marketing                                                          1,450                 2,331
  General and administrative                                                   1,783                 2,822
  Restructuring charge                                                             -                 4,573
  Charge for stock compensation                                                6,500                 4,012
                                                                          -----------           -----------
  Total operating expenses                                                    11,636                19,272
                                                                          -----------           -----------

  Operating loss                                                             (11,187)              (27,503)

  Interest and other income (expense), net                                       (68)                1,752
                                                                          -----------           -----------

  Net loss                                                                 $ (11,255)            $ (25,751)
                                                                          ===========           ===========

  Net Loss Per Share:
   Basic and diluted                                                       $   (0.48)            $   (0.70)
                                                                          ===========           ===========

  Shares used in per share computation - basic and diluted
                                                                              23,312                36,983
                                                                          ===========           ===========


                          See Notes to Condensed Consolidated Financial Statements

</TABLE>

                                       4
<PAGE>

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


<TABLE>
<CAPTION>
                                                                                  Three Months Ended
                                                                                  ------------------
                                                                                       March 31,
                                                                                       ---------
                                                                            2000                   2001
                                                                            ----                   ----
<S>                                                                      <C>                    <C>
  Operating Activities:
  ---------------------

  Net loss for the period                                                  $   (11,255)         $   (25,751)
  Adjustments to reconcile net loss to net cash
  used in operating activities:
  Depreciation and other                                                           148                  912
  Stock based compensation                                                       6,500                4,012
  Changes in operating assets and liabilities:
    Accounts receivable                                                           (336)               2,244
    Inventory                                                                     (257)               1,211
    Other current assets                                                        (1,603)                 176
    Accounts payable                                                             1,300               (2,945)
    Accrued liabilities                                                          3,102                6,029
    Deferred income                                                                 24                    -
                                                                          -------------         ------------

  Net cash used in operating activities                                         (2,377)             (14,112)
                                                                          -------------         ------------
  Investing Activities:
  ---------------------
  Purchases of property and equipment                                             (600)              (1,561)
  Purchases of short term investments                                                -              (11,218)
  Proceeds from sale of short term investments                                       -               17,625
  Proceeds from sale of property and equipment                                       -                   24
                                                                          -------------         ------------

  Net cash provided by (used in) investing activities                             (600)               4,870
                                                                          -------------         ------------
  Financing Activities:
  ---------------------
  Repayment of short-term debt obligations                                         (32)                   -
  Proceeds from stockholder note                                                   920                    -
  Issuance of common and preferred stock for cash                                  611                  232
  Repurchase of stock                                                                -               (9,057)
                                                                          -------------         ------------

  Net cash provided by (used in) financing activities                            1,499               (8,825)
                                                                          -------------         ------------

  Decrease in cash and cash equivalents                                         (1,478)             (18,067)
  Cash and cash equivalents at beginning of period                               5,036               33,991
                                                                          -------------         ------------
  Cash and cash equivalents at end of period                               $     3,558          $    15,924
                                                                          =============         ============


                          See Notes to Condensed Consolidated Financial Statements

</TABLE>

                                       5
<PAGE>

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



1.   Basis of Presentation

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

Use of Estimates

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

Net Loss Per Share

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


2.  Inventory

Inventory is comprised of the following (in thousands):

<TABLE>

                                                            December 31,               March 31,
                                                               2000                      2001
                                                               -----                     ----
                                                                                     (Unaudited)
<S>                                                      <C>                       <C>
                        Raw material                        $     2,890               $    1,815
                        Work in process                             809                      523
                        Finished goods                            2,307                    2,457
                                                          --------------           --------------
                                                            $     6,006               $    4,795
                                                          ==============           ==============

3.   Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

                                                            December 31,              March 31,
                                                               2000                     2001
                                                               ----                     ----
                                                                                     (Unaudited)

                        Compensation and benefits           $     4,220               $    4,497
                        Inventory purchase commitments                -                    3,706
                        Warranty                                  1,103                      723
                        Withholding tax                             742                      794
                        Other                                     3,280                    1,549
                                                          --------------           --------------
                                                            $     9,345               $   11,269
                                                          ==============           ==============
</TABLE>

                                       6
<PAGE>

4.   Accrued Restructuring Charges

During the first quarter of 2001, the Company restructured its operations, which
resulted in excess facilities.  Restructuring charges were $3,927,000 for costs
related to excess facilities and $178,000 for severance.  In addition, the
Company recorded an asset write-down of $468,000 related to idle capital assets.

5.   Contingencies

Patent Matter

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

Common Stock Repurchase Program

In December 2000, the Company's board of directors authorized the repurchase of
up to 4 million shares of Vyyo's common stock.  In March 2001, the Company's
board of directors approved an increase in the number of shares it may purchase
under its repurchase program by 6 million shares.   In the quarter ended  March
31, 2001, the Company repurchased and retired 1.3 million shares in open market
transactions for a total cost of $9.1 million.

Shareholder's Note Receivable

In the first quarter of 2001, the Company amended a promissory note in the
amount of $2,834,163 issued to the Company by  an officer to (i) make the note
non-recourse to the assets of the issuer of the note other than the underlying
collateral,  (ii) reduce the  interest rate and delay the due date for payment
of interest until the maturity date of the note, and (iii) secure the note
solely with the underlying shares of common stock purchased with the note
proceeds.   In connection with this amendment, the Company wrote off $2.1
million related to a decrease in the fair market value of the underlying
collateral.

6.   Comprehensive Income

Total comprehensive income was $633,000 for the quarter ended March 31, 2001.
The Company did not have comprehensive income in the three months ended March
31, 2000.

7.   New Accounting Pronouncements

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

                                       7
<PAGE>

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

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

Overview

     We supply broadband wireless access systems used by telecommunications
service providers to deliver wireless, high-speed data connections to business
and residential subscribers.  We sell our systems directly to service providers,
as well as to system integrators that deploy our systems as part of their end-
to-end network solutions for service providers.  We have incurred significant
losses since our inception, and we expect to continue to incur net losses for
the foreseeable future.  We incurred net losses of approximately $25.8 million
for the three months ended March 31, 2001.  As of March 31, 2001, our
accumulated deficit was approximately $127.1 million.

Results of Operations

Net Revenues.

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

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

     Net revenues decreased by 64% from $1.8 million in the first quarter of
2000 to $669,000 in the first quarter of 2001. First quarter of 2000 revenue
included technology development revenue of $240,000. This decrease primarily
reflects a general slow-down in the economy, reduction of capital spending and
tightening of financial markets, which has reduced our potential customers'
ability to secure financing and purchase our equipment.

Cost of Revenues.

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

     Cost of revenues increased from $1.4 million in the first quarter of 2000
to $8.9 million in the first quarter of 2001. Cost of revenues in first quarter
of 2001 included charges of approximately $7.9 million for excess inventory and
purchase commitments.

                                       8
<PAGE>

Research and Development Expenses.

     Research and development expenses consist primarily of personnel,
facilities, equipment and supplies for our research and development activities.
These expenses are charged to operations as incurred. Our research and
development expenses increased from $1.9 million in the first quarter of 2000 to
$5.5 million in the first quarter of 2001. These increases were due to increases
in the number of research and development personnel and related activities,
related costs of facilities and special charges of $400,000 in the first quarter
of 2001. Due to cost cutting measures, including a reduction in force of
approximately 20% in April 2001, we expect research and development expenses in
the second quarter of 2001 to be lower than the first quarter of 2001.

Sales and Marketing Expenses.

     Sales and marketing expenses consist of salaries and related costs of sales
and marketing employees, consulting fees and expenses for travel, trade shows
and promotional activities.  Selling and marketing expenses increased from $1.4
million in the first quarter of 2000 to $2.3 million in the first quarter of
2001.  The increase in sales and marketing expenses was primarily due to an
increase in the number of sales and marketing personnel and related activities.

General and Administrative Expenses.

     General and administrative expenses consist primarily of personnel and
related costs for general corporate functions, including finance, accounting,
business development, legal and administration. General and administrative
expenses increased from $1.8 million in the first quarter of 2000 to $2.8
million in the first quarter of 2001. The increase was due to additional
administrative personnel and activities to support the overall increased
business activities and activities related to being a public company. Due to
cost-cutting measures, including a reduction in force of approximately 20% in
April 2001, we expect general and administrative expenses in the second quarter
of 2001 to be lower than the first quarter of 2001.

Restructuring Charges

     Restructuring charges of $4.6 million recorded in the first quarter of 2001
relate mostly to excess facilities. We expect to record an additional
restructuring charge, of a lesser amount, in the second quarter of 2001 for
severance related to an approximately 20% reduction in force.

Charge for Stock Based Compensation.

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

Interest and Other Income (Expense), Net.

     Interest income and other (expense) includes interest and investment
income, foreign currency remeasurement gains and losses offset by interest
expense related to bank loans and convertible notes. Net interest expense for
the first quarter of 2000 was $68,000 compared to net interest income of $1.8
million in the first quarter of 2001. Substantially all of the interest and
other income in the first quarter of 2001 are represented by interest income on
our cash and short-term investment balances. In the second quarter of 2000, we
repaid all of our outstanding loans. Interest and other income increased due to
the higher average balance of invested cash equivalents and short-term
investments. Interest income is expected to decline in the future quarters due
to a decline in cash balances and interest rates.

                                       9
<PAGE>

Income Taxes.

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

Liquidity And Capital Resources

     As of March 31, 2001, we had $104 million of cash, cash equivalents and
short-term investments.  In the first three months of 2000, cash used in
operations was $2.4 million, comprised of our net loss of $11.3 million,
partially offset by a non-cash charge of $6.6 million for deferred stock
compensation charges and changes in other working capital accounts of $2.2
million.  In the first three months of 2001, cash used in operations was $14.1
million, comprised of our net loss of $25.8 million, partially offset by non-
cash charges of $4.9 million for stock compensation charges, depreciation and
asset write-down and changes in working capital accounts of $6.8 million.

     Investing activities in the first quarter of 2001, excluding purchases and
proceeds from short-term investments, amounted to approximately $1.6 million for
investments in property and equipment.

     Financing activities in the first three months of 2001 was a net outflow
$8.8 million due to stock repurchases in the amount of $9.1 million, partially
offset by proceeds from stock option exercises.

     As of March 31, 2001, we had approximately $4.7 million of inventory
purchase obligations.  In the first quarter of 2001, we recorded a special
charge of $4.3 million for inventory obligations in excess of estimated
inventory requirements.

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

New Accounting Pronouncements

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

                                       10
<PAGE>

Certain Factors That May Affect Future Results

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

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

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

     Service providers continually evaluate alternative technologies, including
digital subscriber line, fiber and cable. The failure of service providers to
accept our products would seriously harm our business.

     In addition, during the first quarter of 2001, the market for
telecommunications equipment significantly declined, which has adversely
affected the entire telecommunications industry, including service providers,
systems integrators and equipment providers, and has reduced the business
outlook and visibility of the industry.  If the telecommunications market, and
in particular the market for broadband access equipment, does not improve and
grow, our business would be substantially harmed.

The loss of one or more of our key customers or the loss of orders for our
products from service providers to our customers would result in a loss of a
significant amount of our revenues.

     A relatively small number of customers account for a large percentage of
our revenues.  In 2000, ADC Telecommunications accounted for approximately 33%
of our revenues, Nortel Networks accounted for approximately 22% of our
revenues, and Convergence Communications, Inc. accounted for approximately 10%
of our revenues.  In addition, we believe that one or more of the major service
providers in the United States accounted for a significant portion of the
products we sold to systems integrators in 2000.

We expect that we will continue to depend on a relatively limited number of
customers for a substantial portion of our revenues in future periods. The loss
of a major customer or the reduction, delay or cancellation of orders from one
or more of our customers, or our system integrator customers' loss of orders
from their service provider customers, could seriously harm our ability to
sustain revenue levels, which would 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 wireless industry.

     Countries worldwide are considering or are in the process of allocating
frequencies for fixed wireless applications, but not all markets have done so.
In addition, in November 2000, the United States Federal Communications
Commission issued an interim report on the potential effects of reallocating
spectrum from

                                       11
<PAGE>

certain frequency bands allocated for two-way fixed wireless applications to
third generation (3G) cellular applications. If the United States and/or other
countries do not provide sufficient spectrum for fixed wireless applications or
reallocate spectrum in the fixed wireless frequency bands for other purposes,
our customers may delay or cancel deployments in fixed broadband wireless, which
could seriously harm our business.

We have depended on two system integrators for a significant portion of our
revenues, and if either of these system integrators does not promote or purchase
our products, our business may be seriously harmed.

     Sales to ADC Telecommunications accounted for approximately 33% of our
revenues in 2000, and Nortel Networks accounted for approximately 22% of our net
revenues in 2000.  In addition, ADC accounted for the majority of our revenues
in the first quarter of 2001.  Although we are working to expand our direct
relationships with major service providers, the loss of either ADC
Telecommunications or Nortel Networks as a customer, or the continuing delay of
significant orders from them, even if only temporary, could, among other things:

  .  reduce or delay our revenues;

  .  harm our reputation with major service providers, particularly if ADC
     Telecommunications or Nortel Networks were to replace our products with a
     competitor's products; or

  .  reduce our ability to predict our cash flow accurately.

     There are a limited number of system integrators that have the financial
resources or technical expertise to sell or integrate our systems globally. If
ADC Telecommunications or Nortel Networks will not sell, service or integrate
our products, and we cannot secure other system integrators as replacements or
ourselves provide system integrator services, we would be limited in our ability
to sell our products. Nortel is not obligated by a long-term contract to
purchase our systems, and ADC's agreement with us does not obligate ADC to
purchase a minimum number of systems.  Our customers, including Nortel and ADC,
can generally cancel or reschedule orders on short notice and discontinue using
our systems at any time.  We believe that should ADC Telecommunications, Nortel
Networks or other systems integrators that we may sell products to in the future
cease to emphasize systems that include our products, choose to emphasize
alternative technologies or promote systems of our competitors, our business
would be seriously harmed.

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

     We have incurred significant losses since our inception, and we expect to
continue to incur net losses for the foreseeable future. We incurred net losses
of approximately $35.2 million in 2000 and $25.8 million in the first quarter of
2001.  As of March 31, 2001, our accumulated deficit was approximately $127.1
million. In response to the significant decline in our business and revenues in
the first quarter of 2001, we have decreased our operating expenses; however,
our expenses will continue to be significantly greater than our revenues for the
foreseeable future.  We also intend to increase certain operating expenses in
the near term, especially our marketing and selling expenses. Our revenues may
not grow or even continue at their current level. If our revenues do not rapidly
increase or if our expenses increase at a greater pace than our revenues, we
will never become profitable.

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

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

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

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

  .  reductions in pricing by us or our competitors;

                                       12
<PAGE>

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

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

  .  global economic conditions; and

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

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

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

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

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

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

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

     Our systems may contain undetected defects or errors. This may result
either from defects in components supplied by third parties or from errors in
our software that we have failed to detect. We have in the past experienced, and
may experience from time to time in the future, defects in new or enhanced
products and systems after commencement of commercial shipments. 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

                                       13
<PAGE>

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 these manufacturers may be unable to
fill our orders on a timely basis, which would result in delays that could
seriously harm our results of operations.

     We currently have relationships with three contract manufacturers for the
manufacturing of our systems, two of which are located in Israel and one of
which is located in Taiwan. 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.

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

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

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

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

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

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

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

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

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

     Delays and shortages in the supply of components are typical in our
industry. We have experienced minor delays and shortages on more than one
occasion in the past. In addition, any failure of necessary worldwide
manufacturing capacity to rise along with a rise in demand could result in our
subcontract manufacturers allocating available capacity to larger customers or
to customers that have long-term supply contracts in place. Our inability to
obtain adequate manufacturing capacity at acceptable prices, or any delay or
interruption in supply, could reduce our revenues or increase our cost of
revenue and could seriously harm our business.

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

     The broadband wireless access market is only beginning to emerge. We began
commercial shipments of our first-generation broadband wireless access system in
the first quarter of 1999, and we began commercial shipments of our second-
generation wireless access system in the fourth quarter of 1999.  Our second-
generation

                                       14
<PAGE>

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

  .  our limited historical financial data from our wireless products;

  .  our unproven potential to generate profits; and

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

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

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

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

If we do not effectively manage our expansion, our revenues may not increase,
our costs may increase and our business could be seriously harmed.

     Although we have recently reduced our operations in response to the decline
in our business outlook, we will need to expand our operations in the future as
the market and our business expands.  This growth will place a significant
strain on our managerial, operational and financial resources. We also need to
implement sophisticated inventory and control systems.

     To manage growth effectively, we must, among other things:

  .  improve and expand our information and financial systems, and managerial
     procedures and controls;

  .  hire, train, manage and retain qualified employees; and

  .  effectively manage relationships with our customers, suppliers and other
     third parties.

     We may not have made adequate allowances for the costs and risks associated
with any expansion, our systems, procedures or controls may not be adequate to
support our operations, and our management may be unable to offer and expand our
product categories successfully. Any delay in implementing, or transitioning to,
new or enhanced systems, procedures or controls may seriously harm our ability
to record and report financial and management information on a timely and
accurate basis or otherwise manage our expanding operations. If we are unable to
do so effectively, our business may be seriously harmed.

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

     Sales outside of North America accounted for approximately 18% of our
revenues in 2000.  In addition, we believe that a significant portion of our
revenues from customers in North America is derived from sales of products that
are being deployed outside of North America.  We expect that international sales
will continue to account for a significant portion of our revenues.  In
addition, we maintain research and development facilities in

                                       15
<PAGE>

Israel. Our reliance on international sales and operations exposes us to foreign
political and economic risks, which may impair our ability to generate revenues.
These risks include:

  .  economic and political instability;

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

  .  import or export licensing requirements and tariffs;

  .  trade restrictions; and

  .  more limited protection of intellectual property rights.

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

If we are unable to attract, train and retain qualified engineers, marketing,
sales and technical support personnel, we may not be able to develop our
business.

     We will need to hire additional engineers and highly trained technical
support personnel in Israel and in Northern California in order to succeed. We
will need to increase our technical staff to support new customers and the
expanding needs of existing customers, as well as for our continued research and
development operations.

     Hiring engineers, marketing, sales and technical support personnel is very
competitive in our industry due to the limited number of people available with
the necessary skills and understanding of our products. This is particularly
true in Israel and Northern California, where competition for such personnel is
intense.

     Our systems require a sophisticated marketing and sales effort targeted at
several levels within a prospective customer's organization. We have recently
expanded our sales force and we plan to hire additional sales personnel,
particularly in the United States. Competition for qualified sales personnel is
intense, and we may not be able to hire sufficient sales personnel to support
our marketing efforts. If we are unable to hire and retain necessary personnel
in each of these rapidly expanding areas, our business will not develop, and our
operating results will be harmed.

We depend on our key personnel, in particular Davidi Gilo, our Chairman of the
Board, John O'Connell, our Chief Executive Officer, and Menashe Shahar, our
Chief Technical Officer, the loss of any of whom could seriously harm our
business.

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

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

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

                                       16
<PAGE>

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

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

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

  .  obtain licenses to the infringing technology;

  .  pay substantial damages under applicable law;

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

  .  expend significant resources to develop non-infringing technology.

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

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

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

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

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

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

     Our future success is dependent upon the continued growth of the
communications industry and, in particular, the Internet. The global
communications and Internet industries are evolving rapidly, and it is difficult
to predict growth rates or future trends in technology development. In addition,
the deregulation, privatization and economic globalization of the worldwide
communications market, which resulted in increased competition and

                                       17
<PAGE>

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

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

  .  expanding research and development programs;

  .  hiring additional qualified personnel;

  .  implementing further marketing and sales activities; and

  .  acquiring complementary technologies or businesses.

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

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

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

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

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

  Our management collectively own approximately 48% of our outstanding common
stock. As a result, these stockholders, acting together, will be able to control
the outcome of all matters submitted for stockholder action, including:

                                       18
<PAGE>

  .  electing members to our board of directors;

  .  approving significant change-in-control transactions;

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

  .  controlling our management and operations.

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

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

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

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

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

  .  introduction and adoption of new industry standards;

  .  changes in financial estimates or recommendations by securities
     analysts;

  .  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.

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

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

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

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

                                       19
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

     Several of our capital investments have been granted "approved enterprise"
status under Israeli law providing us with 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 benefited from the tax benefits
and would likely be denied these benefits in the future. From time to time, the
Government of Israel has discussed reducing or eliminating the benefits
available under the approved enterprise program. These tax benefits may not be
continued in the future at their current levels or at all. This termination or
reduction of these benefits would increase our taxes and could seriously harm
our business.

                                       20
<PAGE>

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

     In the past, we received grants from the government of Israel for the
financing of a portion of our research and development expenditures 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. We believe that most of our current products are
not based on Chief Scientist funded technology and therefore are not subject to
this restriction.

                                       21
<PAGE>

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

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

     As of December 31, 2000, we had cash, cash equivalents and short-term
investments of $127.9 million. As of March 31, 2001, we had cash, cash
equivalents and short-term investments of $104.1 million.  Substantially all of
these amounts consisted of corporate and government fixed income securities and
money market funds that invest in corporate and government fixed income
securities that are subject to interest rate risk. We place our investments with
high credit quality issuers and by policy limit the amount of the credit
exposure to any one issuer.

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

     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 do not
hedge any interest rate exposures.

Quantitative Interest Rate Disclosure As of December 31, 2000

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

Quantitative Interest Rate Disclosure As of March 31, 2001

     If market interest rates were to increase on March 31, 2001 immediately and
uniformly by 10 percent, the fair value of the portfolio would decline by
approximately $400,000 or approximately 0.5% of the total portfolio
(approximately 0.4% of total assets). Assuming that the average yield to
maturity on our portfolio at March 31, 2001, remains constant for the balance of
2001 and assuming that our cash, cash equivalents and short-term investments
balances at March 31, 2001 remain constant for the balance of 2001, interest
income for each of the remaining quarters of 2001 would be approximately $1.6
million.  Assuming a decline of 10 percent in the market interest rates at March
31, 2001, interest income for each of the remaining quarters of 2001 would
decline by less than $100,000 per quarter. The decrease in interest income will
result in a decrease of the same amount to net income and cash flows from
operating activities for each of the remaining quarters in 2001. These amounts
are determined by considering the impact of the hypothetical interest rates on
the Company's cash equivalents and available-for-sale securities at March 31,
2001, over the remaining contractual lives.

                                       22
<PAGE>

PART II.  OTHER INFORMATION

Item 1.    LEGAL PROCEEDINGS

      None.

Item 2.    CHANGES IN SECURITIES AND USE OF PROCEEDS

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

     From April 3, 2000, until March 31, 2001, we used approximately $5.1
million of the net offering proceeds for purchases of property, plant and
equipment, approximately $2.4 million of the net proceeds for repayment of short
term debt obligations, approximately $11.4 million of the net proceeds for
repurchase of our common stock, and approximately $29.3 million of the net
offering proceeds for working capital.

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

     From September 13, 2000, until March 31, 2001, we used none of the net
proceeds from this offering.  Our temporary investments of the net proceeds from
both of the offerings have been in cash, cash equivalents and investment grade,
short-term interest bearing securities.

Item 3.    DEFAULTS UPON SENIOR SECURITIES

      None.

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

      None.

Item 5.    OTHER INFORMATION

      None.

                                       23
<PAGE>

Item 6.    EXHIBITS AND REPORTS ON FORM 8-K

(a)        Exhibits

    10.35  Amendment No. 1 to Loan And Pledge Agreement, dated as of March 1,
           2001, by and between John O'Connell and the Registrant.

    10.36  Reimbursement Agreement, dated as of March 1, 2001, by and between
           John O'Connell and the Registrant.

    10.37  Termination Agreement, dated as of March 21, 2001, by and between
           Michael P. Corwin and the Registrant.

(b)        Reports on Form 8-K.

           No reports on Form 8-K were filed during the quarter ended March 31,
           2001.

                                       24
<PAGE>

                                   SIGNATURE


     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



Date:  May 14, 2001


VYYO INC.



By:  /s/ Eran Pilovsky
   -------------------------------
   Eran Pilovsky, Chief Financial Officer
   (Duly Authorized Officer and Principal Financial Officer)

                                       25