As filed with the Securities and Exchange Commission on April 8, 2002

                                                     Commission File No. 0-30862

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

                                    FORM 20-F
                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

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

                              CERAGON NETWORKS LTD.
            (Exact name of Registrant as specified in its charter and
                 translation of Registrant's name into English)

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

                                     ISRAEL

                 (Jurisdiction of incorporation or organization)

               24 RAOUL WALLENBERG STREET, TEL AVIV 69719, ISRAEL

                    (Address of principal executive offices)

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

Securities registered or to be registered pursuant to Section 12(b) of the Act:

                                      None

                              (Title of each Class)

Securities registered or to be registered pursuant to Section 12(g) of the Act:

               Ordinary Shares, Par Value NIS .01(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:

                                      None

                                (Title of Class)
                       ----------------------------------

Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report: As of December 31, 2001, Registrant had 22,165,196 Ordinary Shares
outstanding.

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 which financial statement item the registrant has
elected to follow: ITEM 17 ITEM 18 |X|



<PAGE>
                                TABLE OF CONTENTS
                                                                            PAGE

ITEM 1.   Identity of Directors, Senior Management and Advisers............    1
ITEM 2.   Offer Statistics and Expected Timetable..........................    1
ITEM 3.   Key Information..................................................    1
          Selected Financial Data..........................................    1
          Risk Factors.....................................................    2
ITEM 4.   Information on the Company.......................................   19
          History and Development of the Company...........................   19
          Business Overview................................................   19
          Industry Background..............................................   20
          Our Solution.....................................................   23
          Products ........................................................   26
          Network Applications ............................................   27
          Customer Service and Support.....................................   28
          Manufacturing and Assembly.......................................   28
          Competition......................................................   29
          Customers and Markets............................................   29
          Intellectual Property............................................   31
          Conditions in Israel.............................................   31
          Organizational Structure.........................................   39
          Property, Plant and Equipment....................................   39
ITEM 5.   Operating and Financial Review and Prospects.....................   40
          Overview.........................................................   40
          Results of Operations............................................   42
          Year Ended December 31, 2000 and 2001............................   43
          Year Ended December 31, 1999 and 2000............................   44
          Impact of Inflation and Currency Fluctuations....................   45
          Effects of Government Regulations and Location on the
               Company's Business..........................................   46
          Liquidity and Capital Resources..................................   46
ITEM 6.   Directors, Senior Management and Employees.......................   48
          Directors and Senior Management..................................   48
          Compensation of Directors and Executive Officers.................   51
          Board Practices..................................................   51
          Employees........................................................   61
          Share Ownership..................................................   61
          Stock Option Plans...............................................   62
ITEM 7.   Major Shareholders and Related Party Transactions................   64
          Major Shareholders...............................................   64
          Related Party Transactions.......................................   66
ITEM 8.   Financial Information............................................   68
          Consolidated Statements and Other Financial Information..........   68
          Export Sales.....................................................   68
          Legal Proceedings................................................   68
          Dividends........................................................   68
          Corporate Tax Rate...............................................   69
          Government Grants................................................   70
ITEM 9.   The Offer and Listing............................................   71
ITEM 10.  Additional Information...........................................   72
          Memorandum and Articles of Association...........................   72
          Material Contracts...............................................   72
          Exchange Controls................................................   72
          Taxation.........................................................   72
          Documents on Display.............................................   79
ITEM 11.  Quantitative and Qualitative Disclosures About Market Risk.......   79
ITEM 12.  Description of Securities Other than Equity Securities...........   80
ITEM 13.  Defaults, Dividend Arrearages and Delinquencies..................   80
ITEM 14.  Material Modifications to the Rights of Security Holders
               and Use of Proceeds.........................................   80
          Use of Proceeds..................................................   80
ITEM 15.  [RESERVED].......................................................   80
ITEM 16.  [RESERVED].......................................................   80
ITEM 17.  Financial Statements.............................................   81
ITEM 18.  Financial Statements.............................................   81
ITEM 19.  Exhibits.........................................................   81

                                      - i -
<PAGE>

                                     PART I


ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.


ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.


ITEM 3.  KEY INFORMATION

SELECTED FINANCIAL DATA

         The selected financial data of Ceragon Networks Ltd. and its
consolidated subsidiaries (together, "Ceragon," "we," or "us") set forth below
is derived from our consolidated financial statements, which were prepared in
U.S. dollars and in accordance with United States Generally Accepted Accounting
Principles (U.S. GAAP) and cover the period from our incorporation on July 23,
1996 through December 31, 2001. The selected consolidated financial data set
forth below should be read in conjunction with Item 5 of this annual report
entitled "Operating and Financial Review and Prospects" and our consolidated
financial statements and the notes to those financial statements included
elsewhere in this annual report.

<TABLE>
<CAPTION>

                                                   1997          1998          1999          2000          2001
                                                ----------    ----------    ----------    ----------    ----------
CONSOLIDATED STATEMENT OF OPERATIONS
   DATA:
<S>                                             <C>           <C>           <C>            <C>            <C>
Revenues..............................          $      --     $     426     $   4,552      $ 29,197       $24,852
Cost of revenues......................                 --           316         3,624        16,605        45,282
                                                ----------    ----------    ----------    ----------    ----------
Gross profit (loss)--before non-cash
   compensation expense...............                 --           110           928        12,592       (20,430)
Non-cash compensation expense.........                 --            46            73           603           400
                                                ----------    ----------    ----------    ----------    ----------
Gross profit (loss)...................                 --            64           855        11,989       (20,830)
                                                ----------    ----------    ----------    ----------    ----------
Operating expenses:

    Research and development, net of
      non-cash compensation expense of
      $87, $145, $470,  $3,408 and
      $2,248, respectively............              1,819         3,330         5,000         9,904        12,967

    Less: participation by the Chief
      Scientist of the Government of
      Israel..........................                741         1,176         1,621         2,211         2,660
                                                ----------    ----------    ----------    ----------    ----------
    Research and development, net.....              1,078         2,154         3,379         7,693        10,307
                                                ----------    ----------    ----------    ----------    ----------


    Marketing and selling, net of
      non-cash compensation expense of
      $0, $113, $664, $3,085 and
      $1,984, respectively............                 40           669         2,560         8,790        11,924

</TABLE>

                                       1

<PAGE>
<TABLE>
<CAPTION>

                                                   1997          1998          1999          2000          2001
                                                ----------    ----------    ----------    ----------    ----------
<S>                                             <C>           <C>           <C>            <C>            <C>
    General and administrative, net of
      non-cash compensation expense of
      $0, $0, $551,
       $2,433 and $1,799, respectively                 56           225           483         1,926         5,770
    Amortization of deferred
      compensation....................                 87           258         1,685         8,926         6,031
          Restructuring costs                          --            --            --            --         4,750
                                                ----------    ----------    ----------    ----------    ----------
         Total operating expenses.....              1,261         3,306         8,107        27,335        38,782
                                                ----------    ----------    ----------    ----------    ----------
Operating loss........................             (1,261)       (3,242)       (7,252)      (15,346)      (59,612)
Financing income (expenses), net......                 (3)           90           (89)        2,470         2,769
                                                ----------    ----------    ----------    ----------    ----------

Net loss..............................          $  (1,264)    $  (3,152)    $  (7,341)    $ (12,876)    $ (56,843)
Dividend related to convertible
   preferred shares...................                 --            --            --       (22,328)           --
                                                ----------    ----------    ----------    ----------    ----------
Net loss attributable to ordinary
   shareholders.......................             (1,264)       (3,152)       (7,341)      (35,204)      (56,843)
                                                ==========    ==========    ==========    ==========    ==========

Basic and diluted net loss per
   ordinary share.....................            $ (0.25)      $ (0.62)      $ (1.42)    $    (3.06)    $  (2.69)
                                                ----------    ----------    ----------    ----------    ----------

Weighted average number of ordinary
   shares used to compute basic and
   diluted net loss per share.........          5,089,000     5,089,000     5,161,000     11,501,722    21,099,336
                                                ==========    ==========    ==========    ==========    ==========
</TABLE>
         All outstanding share options have been excluded from the calculation
of diluted net loss per share because all these securities are antidilutive for
the periods presented.

<TABLE>
<CAPTION>

                                                1997         1998         1999          2000        2001
                                             ---------    ---------    ---------      ---------   --------
<S>                                          <C>          <C>          <C>            <C>         <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents, short term
deposits, short-term investments and
long-term investments                        $      9     $    104     $  1,149       $ 80,320    $53,721
Working capital...                               (174)         357        3,365        104,558     55,361
Total assets......                                454        2,082        7,938        128,050     72,086
Total long term debt.......                     1,246        4,718        1,173           --          --
Shareholders' equity (deficit)                 (1,067)      (3,688)       3,330        111,068     60,619
</TABLE>

RISK FACTORS

         This annual report includes certain statements that are intended to be,
and are hereby identified as, "forward looking statements" for the purposes of
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. We have based these forward-looking statements on our current expectations
and projections about future events. These forward-looking statements are
subject to risks, uncertainties, and assumptions about our company, including,
among other things:

o        our strategy

                                       2
<PAGE>

o        market demand and acceptance of our products and technology

o        projected capital expenditures and liquidity

o        development of new products

o        our suppliers

         Forward-looking statements can be identified by the use of
forward-looking terminology such as "may," "will," "expect," "anticipate,"
"estimate," "continue" or other similar words. These statements discuss future
expectations, contain projections of results of operations or of financial
condition or state other "forward-looking" information. When considering such
forward-looking statements, you should keep in mind the risk factors and other
cautionary statements in this annual report. These statements may be found in
Item 4: "Information on the Company" and Item 5: "Operating and Financial Review
and Prospects" and in this annual report generally. Our actual results could
differ materially from those anticipated in these forward-looking statements as
a result of various factors, including all the risks discussed in "Risk Factors"
and elsewhere in this annual report.

         We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties, and assumptions,
the forward-looking events discussed in this annual report might not occur.

RISKS RELATING TO OUR BUSINESS

DUE TO OUR LIMITED OPERATING HISTORY, IT IS DIFFICULT TO EVALUATE OUR BUSINESS
OR PREDICT OUR FUTURE OPERATING RESULTS.

         We are an early stage company in the new and rapidly evolving market
for broadband wireless equipment. We began operations in July 1996 and did not
record our first revenues until the second half of 1998. This limited operating
history makes it difficult to evaluate our business and to assess our future.
Our limited operating history may impede our insight into emerging market trends
and affect our business. If we do not properly respond to these trends, our
operating results may be negatively affected.

WE HAVE A HISTORY OF OPERATING AND NET LOSSES. WE MAY NOT OPERATE PROFITABLY IN
THE FUTURE.

         We incurred significant operating and net losses in every fiscal year
since our inception and we may continue to incur losses in the future. We
reported net losses of $3.2 million for 1998, $7.3 million for 1999, $12.9
million for 2000, and $56.8 million for 2001. As of December 31, 2001, our
accumulated deficit was $103.9 million. Despite continuing expense reduction
measures, our operating expenses may not decrease as rapidly as anticipated. As
a result, net cash outflows and operating and net losses may continue for the
near term. If our sales do not increase as anticipated or if our expenses
increase at a greater pace than our revenues, we will not be profitable. Even if
we achieve profitability, we may not be able to sustain or increase
profitability on a quarterly or annual basis.

                                       3
<PAGE>

OUR QUARTERLY FINANCIAL PERFORMANCE IS LIKELY TO VARY SIGNIFICANTLY IN THE
FUTURE. OUR REVENUES AND OPERATING RESULTS IN ANY QUARTER MAY NOT BE INDICATIVE
OF OUR FUTURE PERFORMANCE. IT MAY THEREFORE BE DIFFICULT FOR INVESTORS TO
EVALUATE OUR PROSPECTS.

         Our quarterly revenues and operating results have varied significantly
in the past and are likely to continue to vary significantly in the future.
Fluctuations in our quarterly financial performance may result from the fact
that we may receive a small number of relatively large orders in any quarter.
The deferral or loss of one or more significant sales could materially affect
our operating results in any fiscal quarter, especially if there are significant
sales and marketing expenses associated with the deferred or lost sales. Because
large orders generate disproportionately large revenues, our revenues and the
rate of growth of our revenues for that quarter may reach levels that may not be
sustained in subsequent quarters. Thus, our revenues and operating results in
any quarter may not be indicative of future performance and it may be difficult
for investors to evaluate our prospects.

BECAUSE OF THE ECONOMIC DOWNTURN IN THE UNITED STATES ECONOMY AND TIGHTENING OF
GLOBAL CAPITAL MARKETS FOR TELECOMMUNICATIONS PROJECTS, THE DEMAND FOR OUR
PRODUCTS AND SERVICES MAY CONTINUE TO DECREASE.

         Due to the economic downturn in the United States, as well as the
global tightening of the capital markets for telecommunications and mobile
cellular projects during calendar 2001, our business opportunities in the United
States, Europe, Asia and other countries and geographic regions where we conduct
business have diminished. To the extent that the economic downturn and the
global tightening of the capital markets continue, the demand for our products
and services may decrease further in these countries and geographical regions.
This could result in our customers delaying or canceling the purchase of our
products, which would have a significant negative impact on our revenues. Due to
the collapse of the CLEC business in the United States, we expect little, if
any, business from the CLEC market in 2002. This may result in a further revenue
decline in 2002 as compared to 2001.

OUR PRODUCTS HAVE LENGTHY SALES CYCLES. THIS ADDS COST TO OUR SALES EFFORTS AND
UNCERTAINTY AS TO THEIR RESULTS.

         Our products have lengthy sales cycles. For example, it typically takes
from six to twelve months after we first begin discussions with a prospective
customer before we receive an order from that customer. Because of this, we are
often required to devote more time to, and spend more money on, marketing our
products than would be necessary if sales were made more quickly. We believe
that the length of the sales cycles will continue to increase in light of the
more conservative spending by many customers and potential customers due to
current market circumstances.

THE LOSS OF ONE OR MORE OF OUR KEY CUSTOMERS WOULD RESULT IN A LOSS OF REVENUES.

         In certain fiscal quarters, relatively few customers have accounted for
a large percentage of our revenues. Our business may be seriously harmed if we
experience a loss of any of our significant customers, or we suffer a
substantial reduction in orders from these customers. During 2001, two of our
significant customers, Winstar Communications, Inc. and Advanced


                                       4
<PAGE>

Radio Telecom Corp., filed for protection under Chapter 11 of the U.S.
Bankruptcy Code. We have experienced a reduction in revenues due to the
bankruptcies of these customers and we may suffer a further reduction in
revenues from other customers who may experience similar difficulties. The
worldwide telecommunications industry is dominated by a small number of large
corporations, and we expect that a significant portion of our future product
sales will continue to be concentrated in a limited number of customers. In
addition, our customers typically are not contractually obligated to purchase
any quantity of products in any particular period and product sales to major
customers have varied widely from period to period. The loss of any existing
customer, a significant reduction in the level of sales to any existing
customer, or our inability to gain additional customers could result in further
declines in our revenues. If these revenue declines occur, our business,
financial condition, and results of operations could be harmed.

WE ARE DEPENDENT UPON SALES OF OUR FIBEAIR FAMILY OF PRODUCTS. ANY REDUCTION IN
DEMAND FOR THESE PRODUCTS WOULD CAUSE OUR REVENUES TO DECREASE.

         All of our revenues are generated from sales of a single family of
products, our FibeAir products. We expect sales of our FibeAir family of
products to continue to account for all of our revenues for the foreseeable
future. As a result, we are more likely to be adversely affected by a reduction
in demand for these products than companies that sell multiple product families.
We also may not succeed in reducing the risk associated with any slowdown in
demand for our FibeAir products.

SOME OF OUR CUSTOMERS REQUIRE SYSTEMS INTEGRATION EXPERTISE AND VENDOR
FINANCING. WE DO NOT CURRENTLY PROVIDE THESE SERVICES. IF PROSPECTIVE CUSTOMERS
DO NOT SELECT OUR PRODUCTS BECAUSE WE DO NOT PROVIDE THESE SERVICES, OUR
REVENUES MAY NOT INCREASE.

         Some of our customers have purchased our products as part of a larger
network deployment program that can require capital expenditures of hundreds of
millions of dollars. In some circumstances, these customers require their
equipment vendors to integrate equipment into these larger networks and finance
deployment. We do not currently provide this large scale integration or
financing. We rely on third parties who sell our products for integration into
service providers' and enterprise customers' networks. If we are unable to
identify such third parties that are willing and able to provide this
integration or financing, we would be at a competitive disadvantage or may not
be able to effectively compete for the business of some customers.

IF WE FAIL TO MAINTAIN OUR EXISTING RELATIONSHIPS WITH ORIGINAL EQUIPMENT
MANUFACTURERS OF COMMUNICATIONS EQUIPMENT, OUR DISTRIBUTION CHANNELS COULD BE
HARMED. THIS COULD CAUSE OUR REVENUES TO DECREASE.

         Our relationships with a limited number of original equipment
manufacturers of communications equipment are intended to provide our customers
with easier access to financing and to systems integrators with a variety of
equipment and service capabilities. A limited number of such original equipment
manufacturers have the financial resources or technical expertise necessary to
sell, or to integrate, our products globally. If we are not successful in


                                       5
<PAGE>

maintaining and developing these relationships or if these original equipment
manufacturers reduce their purchasing of our products, our revenues may
decrease.

         These relationships are non-exclusive and do not contain minimum
purchase commitments. Should any of such original equipment manufacturers cease
to emphasize systems that include our products, choose to emphasize alternative
technologies or promote products of our competitors, our revenues and,
consequently, our results of operations could be adversely affected.

WE RELY ON A LIMITED NUMBER OF INDEPENDENT MANUFACTURERS TO MANUFACTURE CIRCUIT
BOARDS AND OTHER COMPONENTS FOR OUR PRODUCTS. THIS COULD RESULT IN A DISRUPTION
IN SUPPLY OF THESE COMPONENTS.

         We currently rely on independent manufacturers to produce circuit
boards and other components used in our products. We do not have long-term
contracts with many of these independent manufacturers. Except for one such
manufacturer, each of our independent manufacturers could terminate its
relationship with us at any time. Our agreement with that manufacturer was
signed during the first quarter of 2001 and is valid for an initial term of two
years. We have experienced and may in the future experience delays in shipments
from these manufacturers. This could delay product shipments to our customers.
We may in the future experience other manufacturing problems, including inferior
quality and insufficient quantities of components. These delays, quality
problems and shortages could result in delayed deliveries, penalties, equipment
replacement costs and possible cancellation of orders. If our manufacturers
experience financial, operational, manufacturing capacity or other difficulties,
our supply may be disrupted and we may be required to seek alternate
manufacturers. In addition, due to the current economic downturn, our suppliers
have experienced and are continuing to experience various financial difficulties
which may impact their ability to supply the materials, components and
subsystems that we require. We may be unable to secure alternate manufacturers
that meet our needs. Moreover, qualifying new manufacturers and commencing
volume production is expensive and time consuming. If we are required or choose
to change manufacturers, our sales and our customer relationships may suffer.

WE OBTAIN SOME OF THE COMPONENTS INCLUDED IN OUR PRODUCTS FROM A SINGLE SOURCE
OR A LIMITED GROUP OF SUPPLIERS. IF WE LOSE ANY OF THESE SUPPLIERS, WE MAY
EXPERIENCE PRODUCTION DELAYS AND A SUBSTANTIAL LOSS OF REVENUE.

         We currently obtain key components from a limited number of suppliers.
Some of these components are obtained from a single source supplier. We
generally do not have long-term supply contracts with our suppliers. Our
dependence on a limited number of suppliers subjects us to the following risks:

          o    Our suppliers could increase component prices significantly at
               any time and with immediate effect. This would increase our
               component procurement costs and could result in reduced gross
               margin.

                                       6
<PAGE>

          o    Our suppliers may experience shortages in components and
               interrupt or delay their shipments to us. This may delay our
               product shipments to our customers and result in penalties and/or
               cancellation of orders for our products.

          o    Our suppliers could discontinue the manufacture or supply of
               components used in our systems. If this occurs and we are unable
               to develop alternative sources for components, we might need to
               modify our products. This would likely interrupt our
               manufacturing process and could cause delays in our product
               shipments. Moreover, a significant modification in our product
               design may increase our manufacturing costs and force us to
               accept lower gross margins.

          o    We may purchase more inventory than is immediately required to
               compensate for potential component shortages or discontinuation.
               Such inventory can become obsolete.

AS A RESULT OF MATERIALS ORDER CANCELLATIONS AND DELIVERY POSTPONEMENTS TO OUR
VENDORS, WE MAY BE SUBJECT TO LEGAL ACTION BY SUCH VENDORS WHICH, IF SUCCESSFUL,
COULD RESULT IN DAMAGES AGAINST US.

         In connection with our efforts to tailor our manufacturing rate to
current demand in light of the bankruptcies of Winstar Communications and
Advanced Radio Telecom, as well as the general slowdown in the
telecommunications market, we have cancelled certain orders for components, or
postponed delivery dates for certain components. One or more of our suppliers
may seek to initiate legal actions against us as a result of these actions.
While we do not anticipate that any such potential action would materially
affect our business, such action would likely have an adverse impact on our
relationship with any such suppliers, and may adversely impact our relationship
with affiliated suppliers. If such potential claims are filed, and are
successful against us, we may be required to pay damages to the successful
claimants.

IF SUFFICIENT DEMAND FOR OUR BROADBAND WIRELESS PRODUCTS DOES NOT DEVELOP, WE
WILL NOT BE ABLE TO GENERATE SIGNIFICANT REVENUES AND WE MAY NOT BE PROFITABLE.

         The acceptance of the broadband wireless equipment which we and our
competitors sell as a means of delivering data, video and voice traffic will
depend upon numerous factors, including:

          o    its capacity to handle growing volumes of traffic;

          o    its cost effectiveness;

          o    its reliability and security;

          o    the availability of sufficient equipment, frequency bands and
               installation sites; and

          o    its performance in extreme weather conditions.

                                       7
<PAGE>

         If our products do not address these factors in a manner which
satisfies the requirements of prospective customers and end-users, the demand
for our products may be adversely affected and we may not be able to generate
significant revenues or operate profitably.

IF WE DO NOT SUCCEED IN DEVELOPING AND MARKETING NEW AND ENHANCED BROADBAND
WIRELESS PRODUCTS THAT KEEP PACE WITH TECHNOLOGICAL DEVELOPMENTS AND OUR
CUSTOMERS' NEEDS, OUR REVENUES MAY NOT INCREASE.

         The market for our products is new and emerging. It is characterized by
rapid technological advances, changing customer needs and evolving industry
standards. Accordingly, our success will depend on our ability to: o develop and
market new products in a timely manner to keep pace with developments in
technology;

          o    meet evolving customer requirements;

          o    enhance our current product offerings; and

          o    deliver products through appropriate distribution channels.

         We are continuously seeking to develop new products and enhance our
existing products to support additional frequency bands and higher transmission
speeds. Developing new products and product enhancements requires significant
capital expenditures and research and development resources. We may not be
successful in enhancing our existing products or developing new products in
response to technological advances or to satisfy increasingly sophisticated
customer needs in a timely and cost-effective manner.

WE FACE INTENSE COMPETITION FROM OTHER BROADBAND WIRELESS EQUIPMENT PROVIDERS.
OUR FAILURE TO COMPETE EFFECTIVELY COULD HURT OUR SALES.

         The market for broadband wireless equipment is rapidly evolving,
fragmented, highly competitive and subject to rapid technological change.
Increased competition could result in reduced demand for our products, price
reductions and reduced gross margins, any of which could seriously harm our
business. A number of large communications equipment suppliers, including
Alcatel, DMC Stratex Networks, Nera Telecommunications, L.M. Ericsson, Microwave
Communications Division of Harris Corporation, NEC, Marconi, SIAE, Siemens AG,
as well as several private companies currently in the startup stage, and a
number of other companies have developed or are developing products that compete
with ours. Some of our competitors are substantially larger than we are and have
longer operating histories and greater financial, sales, marketing,
distribution, technical, manufacturing and other resources than we have. Some
also have greater name recognition and a larger customer base than we have. Many
of our competitors have well-established relationships with our current and
potential customers and have extensive knowledge of our target markets. Some of
our competitors have product lines that compete with ours, and are also original
equipment manufacturers (OEMs) through which we market and sell our products.
Some of our largest customers could internally develop the capability to
manufacture products similar to those manufactured by us and, as a result, their

                                       8
<PAGE>

demand for our products and services may decrease. As a result, our competitors
may be able to respond more quickly to evolving industry standards and changes
in customer requirements, or to devote greater resources to the development,
promotion and sale of their products than we can. We expect to face increasing
competitive pressures from both current and future competitors. In addition,
current and potential competitors may make strategic acquisitions or establish
cooperative relationships among themselves or with third parties to increase
their ability to gain market share rapidly. We also expect that industry
consolidation will increase competition.

         We believe that our ability to compete successfully will depend on a
number of factors both within and outside our control, including price, quality,
availability, customer service and support, breadth of product line, product
performance and features, rapid time-to-market delivery capabilities,
reliability, timing of new product introductions by us, our customers and our
competitors, and the ability of our customers to obtain financing. We cannot
assure you that we will have the financial resources, technical expertise, or
marketing, sales, distribution, and customer service and support capabilities to
compete successfully.

CONSOLIDATION WITHIN THE TELECOMMUNICATIONS INDUSTRY AND AMONG SUPPLIERS COULD
DECREASE OUR REVENUES.

         The telecommunications industry has experienced significant
consolidation among its participants, and we expect this trend to continue. Some
operators in this industry have experienced financial difficulty and have filed,
or may file, for bankruptcy protection or have been or may be acquired by other
operators. Other operators may merge and one or more of our competitors may
supply products to such companies that have merged or will merge. This
consolidation could result in purchasing decision delays by the merged companies
and decrease opportunities for us to supply our products to the merged
companies. We may also see similar consolidation among suppliers which may
further decrease our opportunity to market and sell our products.

COMPETITION MAY RESULT IN INCREASED PRESSURE ON THE PRICES FOR OUR PRODUCTS,
WHICH COULD RESULT IN DECREASED REVENUES.

         We participate in a highly volatile industry that is characterized by
vigorous competition for market share and rapid technological development.
Furthermore, our customers and potential customers are increasingly
concentrating on limitations and reductions on their capital expenditures as
well as return on investment (ROI) in connection with their purchasing
decisions. These factors could result in aggressive pricing practices and
growing competition both from start-up companies and from well-capitalized
telecommunication systems providers. Manufacturers of digital microwave
telecommunications equipment are likely to experience price pressure, which
might result in downward pricing pressure on our products. Our future
profitability is dependent upon our ability to improve manufacturing
efficiencies, reduce costs of materials used in our products, and to continue to
introduce new products and product enhancements. Any inability by us to
effectively respond to such situation, may harm our business, financial
condition and results of operations.



                                       9
<PAGE>

WE ALSO FACE INTENSE COMPETITION FROM BROADBAND TECHNOLOGIES THAT COMPETE WITH
WIRELESS TRANSMISSION WHICH COULD HURT OUR SALES.

         Our products also compete to a certain extent with other high-speed
communications solutions discussed elsewhere in this annual report, including
free space optics, low to medium capacity point-to-point radios, fiber optic
lines, and other wireless technologies. Some of these technologies utilize
existing installed infrastructure and have achieved significantly greater market
acceptance and penetration than high-capacity broadband wireless technologies.
We expect to face increasing competitive pressures from both current and future
technologies in the broadband access market.

OUR PRODUCTS MAY CONTAIN DEFECTS THAT COULD HARM OUR REPUTATION, BE COSTLY TO
CORRECT, EXPOSE US TO LITIGATION AND HARM OUR OPERATING RESULTS.

         We and our customers have from time to time discovered defects in our
products and additional defects may be found in the future. If defects are
discovered, we may not be able to correct them in a timely manner or at all.
Defects and failures in our products could result in a loss of, or a delay in,
market acceptance of our products. In addition, defects in our products could
cause adverse publicity, damage our reputation and impair our ability to acquire
new customers. In addition, we may need to make significant capital expenditures
to eliminate defects from our products or to replace defective equipment.

         Moreover, because our products are used in critical communications
networks, we may be subject to significant liability claims if our products do
not work properly. The provisions in our agreements with customers that are
intended to limit our exposure to liability claims may not preclude all
potential claims. In addition, any insurance policies we have may not adequately
limit our exposure with respect to such claims. We warrant to our current
customers that our products will operate in accordance with product
specifications. If our products fail to conform to these specifications, our
customers could require us to remedy the failure or could assert claims for
damages. Liability claims could require us to spend significant time and money
in litigation or to pay significant damages. Any such claims, whether or not
successful, would be costly and time-consuming to defend and could seriously
damage our reputation and our business.

LINE-OF-SIGHT LIMITATIONS INHERENT IN BROADBAND WIRELESS PRODUCTS MAY LIMIT
DEPLOYMENT OPTIONS AND HAVE AN ADVERSE AFFECT ON OUR SALES.

         Broadband wireless products require a direct line-of-sight between
antennas, potentially limiting the ability of our customers to deploy them in a
cost-effective manner. Because of line-of-sight limitations, service providers
often install broadband wireless equipment on the rooftops of buildings and on
other tall structures. Communications service providers must generally secure
roof rights from the owners of each building or other structure on which our
products are installed. Any inability to obtain roof rights easily and cost
effectively may cause a delay in deployment and increase the installation cost
of our products or may cause customers not to choose to install broadband
wireless equipment.



                                       10
<PAGE>

IF THERE IS A CHANGE IN GOVERNMENT REGULATION, OR IF INDUSTRY STANDARDS CHANGE,
THE POTENTIAL MARKETS FOR OUR PRODUCTS MAY BECOME LIMITED AND WE MAY NEED TO
MODIFY OUR PRODUCTS. THIS MAY INCREASE OUR PRODUCT COSTS AND ADVERSELY AFFECT
OUR ABILITY TO BECOME PROFITABLE.

         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. This may be expensive
and time-consuming. 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. Any failure by
regulatory authorities to allocate suitable, sufficient radio frequencies to
potential customers in a timely manner could negatively impact demand for our
products and may result in the delay or loss of potential orders for our
products. In addition, if new industry standards emerge that we do not
anticipate, our products could be rendered obsolete.

THE GLOBAL ECONOMIC SLOWDOWN HAS PARTICULARLY AFFECTED TELECOMMUNICATIONS
EQUIPMENT MANUFACTURERS AND SERVICE PROVIDERS, AND THE DEMAND FOR
TELECOMMUNICATIONS EQUIPMENT, SUCH AS OURS, HAS DIMINISHED.

         The global economic slowdown has resulted in reduced demand for
advanced telecommunications equipment due to cost cutting and general spending
limits imposed by telecommunications service providers. This has had a
significant impact on products like ours.

OUR RECENT PENETRATION IN THE CELLULAR INDUSTRY MAY RESULT IN INCREASED R&D
SPENDING TO MEET DEVELOPING CUSTOMER NEEDS.

         We have recently expanded sales to customers in the cellular market, to
support wireless requirements for second and third generation cellular networks.
We are new in this market and any need for rapid additional research and
development could result in additional required investments by us which could
increase our cash outflow in the short term.

DUE TO OUR SIGNIFICANT VOLUME OF INTERNATIONAL SALES AND OUR RAPID EXPANSION
INTO NEW MARKETS, WE ARE SUSCEPTIBLE TO A NUMBER OF POLITICAL, ECONOMIC AND
GEOGRAPHIC RISKS THAT COULD HARM OUR BUSINESS IF THEY OCCUR.

         We are highly dependent on sales to customers outside the United
States. We expect that international sales will continue to account for the
majority of our net product sales for the foreseeable future. As a result, the
occurrence of any international, political, economic or geographic events that
adversely affects our business could result in significant revenue shortfalls.
We have also expanded into new geographic markets in 2001.

         These revenue shortfalls could cause our business, financial condition
and results of operations to be harmed. Some of the risks and challenges of
doing business internationally include:


          o    unexpected changes in regulatory requirements;

                                       11
<PAGE>

          o    fluctuations in foreign currency exchange rates;

          o    imposition of tariffs and other barriers and restrictions;

          o    management and operation of an enterprise spread over various
               countries;

          o    burden of complying with a variety of foreign laws; and

          o    general economic and geopolitical conditions, including inflation
               and trade relationships.

         For sales in the cellular market, any delays by cellular providers in
their second and third generation network deployment schedules could result in
lower than expected revenues for us, since any such deployment schedule delays
would likely result in delayed purchasing decisions by such customers.

THE UNPREDICTABILITY OF OUR QUARTER-TO-QUARTER RESULTS MAY HARM THE TRADING
PRICE OF OUR COMMON STOCK.

         Our quarterly operating results may vary significantly in the future
for a variety of reasons, many of which are outside of our control, and any of
which may harm our business. These factors include:


          o    volume and timing of product orders received and delivered during
               the quarter;

          o    our ability and the ability of our key suppliers to respond to
               changes made by customers in their orders;

          o    timing of new product introductions by us or our competitors;

          o    changes in the mix of products sold by us;

          o    cost and availability of components and subsystems;

          o    downward pricing pressure on our products;

          o    adoption of new technologies and industry standards;

          o    competitive factors, including pricing, availability and demand
               for competing products;

          o    ability of our customers to obtain financing to enable their
               purchase of our products;

          o    fluctuations in foreign currency exchange rates;

                                       12
<PAGE>

          o    regulatory developments; and

          o    general economic conditions in the United States and
               internationally.

         Our quarterly results are difficult to predict and delays in product
delivery or closing of a sale can cause revenues and net income to fluctuate
significantly from anticipated levels. In addition, we may increase spending in
response to competition or to pursue new market opportunities. Accordingly, we
cannot assure you that we will be able to sustain profitability in the future,
particularly on a quarter-to-quarter basis.

OUR STOCK PRICE MAY BE VOLATILE, WHICH MAY LEAD TO LOSSES BY INVESTORS.

         Announcements of developments related to our business, announcements by
competitors, quarterly fluctuations in our financial results and general
conditions in the telecommunications industry in which we compete, or the
economies of the countries in which we do business and other factors could cause
the price of our common stock to fluctuate, perhaps substantially. In addition,
recently, the stock market has experienced extreme price fluctuations, which
have often been unrelated to the operating performance of affected companies.
These factors and fluctuations could lower the market price of our common stock.

IF SUFFICIENT RADIO FREQUENCY SPECTRUM IS NOT ALLOCATED FOR USE BY OUR PRODUCTS,
AND WE FAIL TO OBTAIN REGULATORY APPROVAL FOR OUR PRODUCTS, OUR ABILITY TO
MARKET OUR PRODUCTS MAY BE RESTRICTED.

         Radio communications are subject to regulation by United States and
foreign laws and international treaties. Generally, our products must conform to
a variety of United States and international requirements established to avoid
interference among users of transmission frequencies and to permit
interconnection of telecommunications equipment. Any delays in compliance with
respect to our future products could delay the introduction of such productions.

         In addition, both in the United States and internationally, we are
affected by the allocation and auction of the radio frequency spectrum by
governmental authorities. Such governmental authorities may not allocate
sufficient radio frequency spectrum for use by our products or we may not be
successful in obtaining regulatory approval for our products from these
authorities. Historically, in many developed countries, the unavailability of
frequency spectrum has inhibited the growth of wireless telecommunications
networks. In addition, to operate in a jurisdiction, we must obtain regulatory
approval for our products. Each jurisdiction in which we market our products has
its own regulations governing radio communications. Products that support
emerging wireless telecommunications services can be marketed in a jurisdiction
only if permitted by suitable frequency allocations, auctions and regulations,
and the process of establishing new regulations is complex and lengthy. If we
are unable to obtain sufficient allocation of radio frequency spectrum by the
appropriate governmental authority or obtain the proper regulatory approval for
our products, our business, financial condition or results of operations may be
harmed.




                                       13
<PAGE>

OUR PRODUCTS OPERATE ON GOVERNMENT LICENSED RADIOSPECTRUM FREQUENCIES. IF A
SERVICE PROVIDER IS UNABLE TO SECURE SUCH A LICENSE, OR IF A HOLDER OF A LICENSE
FILES FOR BANKRUPTCY AND ITS LICENSE IS UNAVAILABLE, SUCH SERVICE PROVIDER MAY
BE UNABLE TO PROVIDE WIRELESS COMMUNICATIONS SERVICES IN THE OPTIMAL
TRANSMISSION FREQUENCY AND MAY NOT DEPLOY A WIRELESS NETWORK USING OUR PRODUCTS.

         Our products operate on government licensed radiospectrum frequencies.
Users of our products must either have a license to operate and provide
communications services in the applicable frequency or must acquire the right to
do so from another license holder. If unable to secure such a license, a service
provider may not deploy a wireless network using our products. If a license
holder of such radiospectrum frequency files for liquidation, dissolution, or
bankruptcy, substantial time could pass before those licenses are transferred,
canceled, or reissued by the applicable government licensing authority. Until
the licenses are transferred, canceled, or reissued, other operators may be
precluded from operating in such licensed frequencies, which could decrease
demand for our products. In addition, if the authorities choose to revoke
licenses for certain frequencies, demand for our products may decrease as well.

IF WE ARE UNABLE TO CONTINUE TO LICENSE TECHNOLOGY FROM THIRD PARTIES ON
REASONABLE TERMS, WE MAY BE PRECLUDED FROM SELLING PRODUCTS DERIVED FROM
LICENSED TECHNOLOGY AND WE MAY BE REQUIRED TO REDUCE THE FUNCTIONALITY OF OUR
PRODUCTS. THIS MAY ADVERSELY AFFECT OUR SALES.

         We rely on technology that we license from third parties, including
software that is integrated with internally developed software and used in our
products to perform key functions. If we are unable to continue to license any
of this software on commercially reasonable terms, we will face delays in
releases of our products and may be required to reduce the operating
capabilities of our products, for example, by reducing the number of operating
systems on which our products operate, until equivalent technology can be
identified, licensed or developed, and integrated into our current products.

IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS ADEQUATELY, WE MAY
BE DEPRIVED OF LEGAL RECOURSE AGAINST THOSE WHO MISAPPROPRIATE OUR INTELLECTUAL
PROPERTY.

         Our ability to compete will depend, in part, on our ability to obtain
and enforce intellectual property protection for our technology in the United
States and internationally. We currently rely upon a combination of trade
secrets, trademark, copyright, patents and contractual rights to protect our
intellectual property. In addition, we enter into confidentiality and invention
assignment agreements with our employees, and enter into non-disclosure
agreements with our suppliers and appropriate customers so as to limit access to
and disclosure of our proprietary information. We cannot assure you that any
steps taken by us will be adequate to deter misappropriation or impede
independent third party development of similar technologies. In the event that
such intellectual property arrangements are insufficient, our business,
financial condition and results of operations could be harmed. We cannot assure
you that the protection provided to our intellectual property by the laws and
courts of foreign nations will be substantially similar to the remedies
available under United States law. Furthermore, we cannot assure you that third
parties will not assert infringement claims against us based on foreign
intellectual property rights and laws that are different from those established
in the United States.


                                       14
<PAGE>

DEFENDING AGAINST INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS COULD BE EXPENSIVE
AND COULD DISRUPT OUR BUSINESS.

         The wireless telecommunications industry is characterized by vigorous
protection and pursuit of intellectual property rights, which has resulted in
often protracted and expensive litigation. We may in the future be notified that
we are infringing certain patent or other intellectual property rights of
others. Such litigation or claim could result in substantial costs and diversion
of resources. In the event of an adverse result of any such litigation, we could
be required to pay substantial damages, cease the licensing of allegedly
infringing technology or the sale of allegedly infringing products and expend
significant resources to develop non-infringing technology or to obtain licenses
for the infringing technology. We cannot assure you that we would be successful
in developing such non-infringing technology or that any license for the
infringing technology would be available to us on commercially reasonable terms,
if at all.

OUR NON-COMPETITION AGREEMENTS WITH EMPLOYEES MAY NOT BE ENFORCEABLE. IF ANY OF
OUR EMPLOYEES LEAVES US AND JOINS A COMPETITOR, OUR COMPETITOR COULD BENEFIT
FROM THE EXPERTISE OUR FORMER EMPLOYEE GAINED WHILE WORKING FOR US.

         Our non-competition agreements with permanent employees in Israel
prohibit these employees from directly competing with us or working for our
competitors. However, under current law, we may not be able to enforce these
agreements. If we are unable to enforce any of these agreements, our competitors
may employ our former employees and benefit from the expertise our former
employees gained while working for us. We do not have non-competition agreements
with our employees outside of Israel, although we do have non-disclosure
agreements with all employees and consultants worldwide.

DUE TO THE SIZE OF THEIR SHAREHOLDINGS, SOME OF OUR SHAREHOLDERS, INCLUDING
YEHUDA AND ZOHAR ZISAPEL, HAVE SIGNIFICANT INFLUENCE OVER MATTERS REQUIRING
SHAREHOLDER APPROVAL. THIS COULD DELAY OR PREVENT A CHANGE OF CONTROL.

         Yehuda and Zohar Zisapel, who are brothers, beneficially own, directly
or through entities they control, 24.4% of the outstanding ordinary shares. As a
result, these shareholders may control the outcome of various actions that
require shareholder approval. For example, they may be able to elect our
directors, delay or prevent a transaction in which shareholders might receive a
premium over the prevailing market price for their shares or prevent changes in
control or management.

IF WE ARE CHARACTERIZED AS A PASSIVE FOREIGN INVESTMENT COMPANY, OUR U.S.
SHAREHOLDERS MAY SUFFER ADVERSE TAX CONSEQUENCES, INCLUDING HIGHER TAX RATES AND
POTENTIALLY PUNITIVE INTEREST CHARGES ON THE PROCEEDS OF SHARE SALES.

         We do not believe that during 2001 we were a passive foreign investment
company. Foreign companies may be characterized as a passive foreign investment
company for U.S. federal income tax purposes if for any taxable year 75% or more
of such company's gross income is passive income, or at least 50% of such
company's assets are held for the production of, or produce, passive income. If
we are characterized as a passive foreign investment



                                       15
<PAGE>

company, our U.S.
shareholders may suffer adverse tax consequences. These consequences may include
having gains realized on the sale of our ordinary shares treated as ordinary
income, rather than capital gain income, and having potentially punitive
interest charges apply to the proceeds of share sales.

RISKS RELATING TO OUR LOCATION IN ISRAEL

CONDITIONS IN ISRAEL MAY LIMIT OUR ABILITY TO PRODUCE AND SELL OUR PRODUCTS.
THIS COULD RESULT IN A DECREASE OF OUR REVENUES.

         Our principal offices, manufacturing facilities and research and
development facilities are located in Israel. Political, economic and military
conditions in Israel could directly affect 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. Since October 2000, there has been an increase in
hostilities between Israel and the Palestinians, which has adversely affected
the peace process and has negatively influenced our relationship with several
Arab countries. Such ongoing hostilities may hinder Israel's international trade
relations and may limit the geographic markets where we can sell our products.
Such events could have a material effect on our operation and business.

         From time to time Israeli companies or companies doing business with
Israeli companies have been subject to an economic boycott initiated by several
Arab countries. This boycott or similar restrictive laws or policies directed
towards Israel or Israeli businesses could adversely affect us.

         Generally, male adult citizens and permanent residents of Israel under
the age of 51 are obligated to perform up to approximately 31 days of military
reserve duty annually, depending on their age and prior position in the army.
Additionally, these residents may be called to active duty at any time under
emergency circumstances. The full impact on our workforce or business if some of
our officers and employees are called upon to perform military service is
difficult to predict.

BECAUSE A MAJORITY OF OUR REVENUES ARE GENERATED IN U.S. DOLLARS WHILE A PORTION
OF OUR EXPENSES IS INCURRED IN NEW ISRAELI SHEKELS, OUR RESULTS OF OPERATIONS
WOULD BE ADVERSELY AFFECTED IF INFLATION IN ISRAEL IS NOT OFFSET ON A TIMELY
BASIS BY A DEVALUATION OF THE NEW ISRAELI SHEKEL AGAINST THE U.S. DOLLAR.

         A majority of our revenues are in dollars, while a portion of our
expenses, principally salaries and the related personnel expenses for Israeli
employees and consultants, and local vendors and subcontractors are 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. This would have the effect of increasing the dollar cost of
our operations and would therefore have an adverse effect on our dollar-measured
results of operations.



                                       16
<PAGE>

THE GOVERNMENT GRANTS WE HAVE RECEIVED FOR RESEARCH AND DEVELOPMENT EXPENDITURES
LIMIT OUR ABILITY TO MANUFACTURE PRODUCTS AND TRANSFER TECHNOLOGIES OUTSIDE OF
ISRAEL AND REQUIRE US TO SATISFY SPECIFIED CONDITIONS. IF WE FAIL TO SATISFY
THESE CONDITIONS, WE MAY BE REQUIRED TO REFUND GRANTS PREVIOUSLY RECEIVED.

         We currently receive grants from the Government of Israel through the
Office of the Chief Scientist of the Ministry of Industry and Trade, or Chief
Scientist, for the financing of a significant portion of our research and
development expenditures in Israel. In 1999, 2000, and 2001 we received or
accrued Chief Scientist grants totaling approximately $1.6 million, $2.2
million, and $2.7 million representing approximately 32%, 22%, and 21%,
respectively, of our total research and development expenditures in these
periods. The terms of the Chief Scientist grants limit our ability to
manufacture products, or transfer technologies, outside of Israel, if such
products or technologies were developed using Chief Scientist grants. In
addition, if we fail to comply with any of the conditions imposed by the Chief
Scientist, we may be required to refund any payments previously received,
together with interest and penalties.

THE TAX BENEFITS TO WHICH WE ARE CURRENTLY ENTITLED FROM OUR APPROVED ENTERPRISE
PROGRAM REQUIRE US TO SATISFY SPECIFIED CONDITIONS. IF WE FAIL TO SATISFY THESE
CONDITIONS, WE MAY BE REQUIRED TO PAY INCREASED TAXES AND WOULD LIKELY BE DENIED
THESE BENEFITS IN THE FUTURE.

         The Investment Center of the Ministry of Industry and Trade has granted
approved enterprise status to an investment program at our manufacturing
facility in Tel Aviv. When we begin to generate net income from this approved
enterprise program, the portion of our income derived from this program will be
exempt from tax for a period of two years and will be subject to a reduced tax
for an additional five to eight years thereafter, depending on the percentage of
our share capital held by non-Israelis. The benefits available to an approved
enterprise program are dependent upon the fulfillment of conditions stipulated
under applicable law and in the certificate of approval. If we fail to comply
with these conditions, in whole or in part, or fail to get approval in whole or
in part, we may be required to pay additional taxes for the period in which we
benefited from the tax exemption or reduced tax rates and would likely be denied
these benefits in the future. The amount by which our taxes would increase will
depend on the difference between the then applicable tax rate for non-approved
enterprises and the rate of tax, if any, that we would otherwise pay as an
approved enterprise, and the amount of any taxable income that we may earn in
the future.

THE TAX BENEFITS AVAILABLE TO APPROVED ENTERPRISE PROGRAMS MAY BE REDUCED OR
ELIMINATED IN THE FUTURE. THIS WOULD LIKELY INCREASE OUR TAXES.

          The Israeli government may reduce or eliminate in the future tax
benefits available to approved enterprise programs. Our approved program and tax
benefits thereunder may not continue in the future at their current levels or at
any level. The termination or reduction of these tax benefits would likely
increase our taxes. The amount, if any, by which our taxes would increase will
depend upon the rate of any tax increase, the amount of any tax benefit
reduction, and the amount of any taxable income that we may earn in the future.



                                       17
<PAGE>

IT MAY BE DIFFICULT TO ENFORCE A U.S. JUDGMENT AGAINST US, AND OUR OFFICERS AND
DIRECTORS NAMED IN THIS ANNUAL REPORT, TO ASSERT U.S. SECURITIES LAWS CLAIMS IN
ISRAEL AND TO SERVE PROCESS ON SUBSTANTIALLY ALL OF OUR OFFICERS AND DIRECTORS.

         We are incorporated in Israel. Substantially all of our executive
officers and directors named in this annual report are nonresidents of the
United States, and a substantial portion of the assets of these persons are
located outside the United States, although a significant portion of our assets
are located in the U.S. It may be difficult for an investor, or any other person
or entity, to enforce a U.S. court judgment based upon the civil liability
provisions of U.S. federal securities laws in an Israeli court or to effect
service of process upon these persons. Additionally, it may be difficult for an
investor, or any other person or entity, to enforce civil liabilities under U.S.
federal securities laws in original actions instituted in Israel.

PROVISIONS OF ISRAELI LAW COULD DELAY, PREVENT OR MAKE DIFFICULT A CHANGE OF
CONTROL AND THEREFORE DEPRESS THE PRICE OF OUR SHARES.

         The Israeli Companies Law generally requires that a merger be approved
by the board of directors and a majority of the shares voting on the proposed
merger. Unless a court rules otherwise, the merger will not be deemed approved
if a majority of the shares held by parties other than the other party to the
merger (or by any person who holds 25% or more of the shares or the right to
appoint 25% or more of the directors of the other party) vote against the
merger. Upon the request of any creditor of a party to the proposed merger, a
court may delay or prevent the merger if it concludes that there is a reasonable
concern that, as a result of the merger, the surviving company will be unable to
satisfy its obligations. Finally, a merger may not be completed unless at least
70 days have passed since the filing of the merger proposal with the Israeli
Registrar of Companies.

         Also, in certain circumstances an acquisition of shares in a public
company must be made by means of a tender offer if, as a result of the
acquisition, the purchaser would become a 25% or 45% shareholder of the company
(unless there is already a 25% or a majority shareholder of the company,
respectively). If, as a result of an acquisition, the acquirer would hold more
than 90% of a company's shares, the acquisition must be made by means of a
tender offer for all of the shares. The described restrictions could prevent or
make more difficult an acquisition of Ceragon which could depress our share
price.


                                       18
<PAGE>


ITEM 4.  INFORMATION ON THE COMPANY

HISTORY AND DEVELOPMENT OF THE COMPANY

         We were incorporated in Israel on July 23, 1996 as Giganet Ltd. We
changed our name to Ceragon Networks Ltd. on September 6, 2000, as part of the
resolution of a dispute concerning the use of the word "Giganet." We operate
under the Israeli Companies Law, 1999. Our registered office is located at 24
Raoul Wallenberg Street, Tel Aviv 69719, Israel and the telephone number is
011-972-3-645-5733. Our world wide web address is www.ceragon.com. Our agent for
service of process in the United States is Ceragon Networks, Inc., our wholly
owned U.S. subsidiary and North American headquarters, located at 777 Corporate
Drive, Mahwah, New Jersey 07430.

         In the year ending December 31, 2001, our capital expenditures, net of
investment grants from the Government of Israel, were $2.3 million and were
spent primarily on production equipment and leasehold improvements. These
capital expenditures were financed by the proceeds from our initial public
offering and our financings. In the year ending December 31, 2000, our capital
expenditures, net of investment grants from the Government of Israel, were $6.5
million and were spent primarily on production equipment. These capital
expenditures were financed primarily by the proceeds from our initial public
offering. From the time of our incorporation in 1996 through December 31, 1999,
we spent $2.0 million on capital expenditures, primarily on production equipment
and leasehold improvements. These expenditures were financed through our
financings, bank loans and a loan from RAD Data Communications Ltd. We repaid
the loan from RAD Data Communications in August 2000. We have no current
commitments for capital expenditures.

BUSINESS OVERVIEW

         We design, develop, manufacture and sell high-capacity wireless network
equipment for cellular operators, communications service providers and
enterprises. Our products provide high-speed, fiber-like transmission quality
and can be deployed more rapidly and cost effectively than fiber optic lines.
Our products operate over most of the 7-38 GHz high-frequency bands, which are
licensed by various countries in North America, Europe, Middle East, Africa,
Latin America, and the Asia-Pacific region.

         We primarily target fixed and mobile communications service providers
that require high capacity connectivity. To date, our products have been
commercially deployed in more than 35 countries by communications service
providers, including local telephone companies and cellular telephone service
providers, and large corporate organizations. Cellular operators use our
products to connect their cell sites or switch locations to provide what is
referred to as "backhaul". Communications service providers use our products as
an integral part of their high-capacity metropolitan ring and access networks.
The enterprise market, which includes universities, financial institutions,
corporate campuses, and hospitals, use our equipment for their internal
communications needs. We sell our products through a direct sales force, systems
integrators, original equipment manufacturers, distributors and value-added
resellers.

                                       19
<PAGE>

         In general, the telecommunications equipment business is seasonal to
the extent that sales in the first quarter of each calendar year are typically
less than in other quarters. Our historical results do not reflect such
seasonality.

INDUSTRY BACKGROUND

         Ceragon targets three market segments and applications for our product
offering: cellular backhaul, high capacity metropolitan access, and the
enterprise market.

CELLULAR BACKHAUL AND METROPOLITAN ACCESS

         Over the past few years, cellular operators worldwide have commercially
installed hundreds of thousands of point-to-point fixed wireless links to
connect their cell sites, base stations and switches. The significant majority
of the installed base of point-to-point fixed wireless links for cellular
backhaul is low to medium capacity systems, also referred to as PDH systems.
PDH, which stands for Plesiochronous Digital Hierarchy, defines a set of
transmission systems that use two-wire pairs (one for transmit, one for receive)
and Time Division Multiplexing to interleave multiple channels of digital voice
and data. With the increasing subscriber numbers, the additional cell sites and
the emergence of wireless data applications, cellular operators are upgrading
the transmission requirements of their networks. Increasingly, these operators
are selecting high capacity fixed wireless SONET/SDH equipment, like our
equipment, to connect the switches and aggregation points in a cellular
topology. In addition, the migration of cellular networks toward data-rich GPRS
and UMTS next generation networks is placing additional demands on the need for
higher capacity backhaul connectivity.

         Synchronous optical network, or SONET, and its European counterpart,
synchronous digital hierarchy, or SDH, are the basic network communications
protocols, or standards, that exist today for intercity and international
connectivity for high capacity metropolitan access. These standards are
generally utilized in a fiber optic network organized in a ring formation. The
ring formation uses at least two transmission paths, or links, to each point so
that traffic is rerouted in the other direction if a link in the ring formation
fails.

ENTERPRISE MARKET

         As the need for integrated, high-speed communications increases,
organizations within the enterprise market, which include universities,
financial institutions, corporate campuses and hospitals, are seeking solutions
for internal communication needs.

         Data transmission is on the rise within corporate and campus facilities
due to the proliferation of Intranets. Fast Ethernet is a standard for data
transmission, focusing corporate IT departments on building and managing their
ever-expanding Internet protocol (IP) infrastructures. These infrastructures
must be flexible, scalable and integrate voice communications.

                                       20
<PAGE>

         Corporate and campus network decision makers are increasingly looking
at broadband wireless technology to gain independence from outside providers.
Broadband wireless also eliminates the connectivity challenges associated with
laying fiber.

         To date, most broadband wireless technology deployed in the enterprise
has been in unlicensed frequency bands. The developing use of licensed radio
frequency spectrum, like that required for our products, significantly minimizes
signal interference, further protecting an enterprise's investment.

DEREGULATION IN THE TELECOMMUNICATIONS INDUSTRY

         Historically, each local telecommunications market has been served by a
single telephone company. In recent years, telecommunications deregulation has
permitted new local telephone companies, which are commonly known as competitive
local exchange carriers, or CLECs, to enter the local communications service
market. These competitive local exchange carriers generally do not have an
existing communications infrastructure. They seek to develop and deploy
communications networks rapidly and cost effectively in order to provide service
to business and residential subscribers. To gain a competitive advantage in a
deregulated market, competitive local exchange carriers seek to offer high-speed
Internet access and integrated data, video and voice services, all of which
require broadband access. While originally CLECs were expected to be an exciting
new alternative, commencing in early 2001, the CLEC market in the United States
experienced a rapid downturn in which several companies, including Winstar
Communications and Advanced Radio Telecom, sought protection under Chapter 11 of
the U.S. Bankruptcy Code. Other CLECs in the United States and around the world
have also filed for bankruptcy, while others have decided to temporarily suspend
acquiring new equipment and rolling out new networks.

         In any event, continuing deregulation has resulted in the licensing of
a significant range of frequencies for use in wireless communications networks.
Wireless communications technologies enable service providers to provide users
with reliable access to communications networks to facilitate transmission of
large amounts of data, video and voice content. In light of the demand for
broadband access, regulators throughout the world have increased the
availability of frequencies and bandwidth that may be used by wireless
operators.

         As a result, broadband wireless technology is being utilized by both
incumbent and emerging communications service providers. Established local
telephone companies, which are commonly known as incumbent local exchange
carriers, are also using broadband wireless technology to reach new customers to
whom they previously could not provide access, fill coverage gaps in their
existing networks and deploy value-added services in a cost-effective manner.
Competitive local exchange carriers may use this technology to bypass existing
wire-based infrastructure and compete with incumbent local exchange carriers.

AVAILABLE SOLUTIONS

         The market for broadband high capacity access to the Internet and other
communications networks is addressed by a variety of competing products,
including our wireless point-to-point products, fiber optic lines, free space
optics, and wireless point-to-multipoint products. For a



                                       21
<PAGE>

number of reasons, neither the growth rate of the market for products like ours
nor the growth rate of our sales will necessarily reflect the growth rate of the
overall market for broadband high-capacity access products. These reasons
include the possibilities that:

          o    wireless products may not be able to satisfy the demand to
               transmit growing volumes of data at the same level as wireline
               products;

          o    broadband wireless products require a direct line-of-sight
               between antennas, potentially limiting the ability of our
               customers to deploy them in a cost-effective manner; and

          o    sufficient equipment, frequency bands or installation sites might
               not be available to support the demand for wireless products.

         In order to meet increasing demand for high capacity connectivity
demands in cellular backhaul or for high capacity metropolitan access services,
many communications service providers are deploying fiber optic communications
networks. A fiber optic network is a transmission medium on which information is
transmitted as light pulses along thin glass filaments, or fiber. Fiber optic
networks are often referred to as network backbone because they connect the
network operations centers of communications service providers across the United
States and Europe, transmitting data at speeds in multiples of 10 billion bits
per second, or 10 Gbps.

         Fiber optic lines have traditionally been used for backbone and
inter-city communications networks. However, fiber optic networks take time to
install and are expensive to deploy within metropolitan areas. Permission to lay
fiber optic lines underground may be difficult to obtain in many large
metropolitan areas because it may require digging up miles of city streets. It
may take many months to obtain the necessary permits and several more months to
complete installation. Service cannot begin until construction is completed.
Construction costs for fiber optic networks in metropolitan areas are extremely
high, and rights of way, if available, often carry additional tariffs.
Maintenance is also costly because fiber optic cable sometimes must be dug up to
be repaired. Moreover, fiber cannot be easily redeployed if customers relocate
outside of the fiber network. These problems have generally limited the use of
fiber in access networks to those areas generating the highest levels of
communications traffic.

         As a result, service providers have experienced bottlenecks in the
local access portion of existing communications networks. To address this, some
operators have used copper-based leased T1 services in the United States and E1
services internationally. A T1 line is a telecommunications connection dedicated
to a subscriber that supports data transmission rates of up to 1.5 Mbps; and an
E1 line supports data transmission rates of up to 2.0 Mbps. T1 and E1 services,
however, cannot meet the increasing requirements of telecommunications networks.
In addition, T1 and E1 services are costly and cumbersome access strategies for
emerging service providers, which must lease lines from incumbent carriers and
forego control over their network facilities.

                                       22
<PAGE>

         FIXED WIRELESS.

         Fixed wireless technology enables the transmission of high-speed data
through radio waves. Broadband wireless communications can be implemented
through either point-to-point or point-to-multipoint architectures.
Point-to-multipoint wireless technology enables data to be transmitted between a
central hub and multiple subscriber locations deployed around the hub. The
central hub connects subscribers in the local access portion of the network to
the service provider's network backbone. This technology currently enables data
to be transmitted at rates of up to 16 Mbps. Because point-to-multipoint
solutions are wireless, they typically have lower installation costs and shorter
deployment times than wireline solutions. However, because point-to-multipoint
solutions involve the sharing of capacity among numerous subscribers, these
solutions provide less dedicated capacity to individual subscribers than
point-to-point solutions. Consequently, many business subscribers require more
bandwidth than can be supported by existing point-to-multipoint wireless
solutions. Point-to-point and point-to-multipoint fixed wireless technologies
are complementary and we have not seen direct competition between the two.

         The physical constraints, costs and inefficiencies associated with the
deployment of fiber optic lines and the limitations inherent in the alternative
access solutions described above have created a significant market opportunity
for cost-effective, high-capacity broadband wireless solutions that are rapidly
deployable and scalable and capable of meeting the increasing transmission rate
requirements of telecommunications service providers.

OUR SOLUTION

         Our wireless solutions provide communications service providers with
the following capabilities:

          o    HIGH-SPEED COMMUNICATIONS. Our products enable the delivery of
               symmetrical, high-speed Internet access and integrated data,
               video and voice communications at transmission speeds of 45, 100,
               155, 311 and 622 Mbps, as compared to less than 10 Mbps
               attainable via commercially available DSL or cable or up to 16
               Mbps attainable under commercially available point-to-multipoint
               systems. Our products deliver fiber-like transmission quality
               with error rates of less than one error per ten trillion bits
               transmitted.

          o    COST EFFECTIVENESS. Our products avoid the high costs associated
               with the deployment of fiber optic networks, including the cost
               of digging up streets, and obtaining municipal permits and rights
               of way to lay fiber optic lines. It is commonly estimated that
               digging costs for laying fiber optic lines in metropolitan areas
               are approximately $150 thousand per mile. Our wireless products
               further reduce costs because, unlike fiber optic lines, our
               products can be redeployed and reused at a negligible cost as
               customer needs change.

          o    RAPID DEPLOYMENT AND TIME TO MARKET. Communications service
               providers can deploy our products and provide their business
               subscribers with broadband access within a matter of hours. Our
               products are light-weight, compact and easy to install and
               maintain. Our product set-up and configuration, including
               operating frequency channel, is determined by our proprietary
               management software. This



                                       23
<PAGE>

               feature simplifies the installation process and reduces
               installation time. Our products can be installed on rooftops or
               on the sides of buildings in a matter of hours, as compared to
               competing wireless products which may require days or weeks to
               deploy or fiber optic networks which may require months or years
               to deploy. Rapid deployment enables service providers to roll out
               service to subscribers and generate revenues quickly.

          o    MULTI-PROTOCOL OPTIONS. Our products work with the most common
               transmission standards used in communications networks around the
               world.

          o    VARIETY OF FREQUENCY BANDS. Service providers select the optimal
               available transmission frequency based on the rainfall intensity
               in the transmission area and the desired transmission range.
               Regulators grant licenses to operate and provide communication
               services in various high frequency bands in each region. The
               high-frequency bands are allocated by government licensing
               authorities for high-capacity transmissions in the metropolitan
               area. Our products operate in the 7, 8, 13, 15, 18, 23, 26, 28,
               29, 31 and 38 GHz high-frequency bands, the principal licensed
               high-frequency bands currently available for commercial use
               throughout the world.

          o    MEET MULTIPLE REGULATORY STANDARDS. We design our products to
               meet North American and European standards. The European
               standards have been developed by the European Telecommunications
               Standards Institute, commonly referred to as ETSI, and have been
               adopted in most countries excluding those in North America. With
               some minor modular modifications, any of our products originally
               assembled to comply with North American standards may be easily
               adapted by communications service providers for compliance with
               European standards and vice versa. The international
               compatibility of our products makes them attractive to global
               communications service providers and equipment vendors that
               deploy communications networks in North American and
               international markets. Global communications service providers
               and equipment vendors that invest significant time and effort in
               studying, testing and approving our products prior to their
               deployment in communications networks in North American or
               international markets may deploy our products on a more expedited
               basis in communications networks in the other markets as well.

          o    MODULAR ARCHITECTURE. Our products contain circuit boards that
               can easily be replaced or exchanged in the field. Our modular
               product design enables us to standardize our manufacturing
               process cost efficiently and concurrently manufacture each
               product to satisfy the individual requirements of each service
               provider on an expedited basis. It also enables service providers
               to easily adapt our products for use in different network
               environments. For example, modularity enables service providers
               to easily change our products to support different communications
               protocols by simply replacing the relevant modular components.

          o    INTEGRATED MULTIPLE ACCESS DESIGN. By adding an internal module
               to our basic product, a service provider can allocate the
               transmission capacity over multiple



                                       24
<PAGE>

               transmission lines. This unique feature substantially reduces the
               service provider's costs by eliminating the need to purchase
               external equipment that would otherwise be needed for this
               purpose.

          o    SCALABILITY AND FLEXIBILITY. We design our products to enable
               communications service providers to deploy them incrementally as
               demand for their services increases. This allows the
               communication service providers to match capital outlays with
               subscriber growth. Our customers can establish a wireless
               broadband network with a relatively low initial investment, in
               comparison to fiber optic lines, and later expand the geographic
               coverage area of their networks and increase the number of points
               that can be served on their networks as subscriber demand
               increases.

          o    HIGH RELIABILITY AND AVAILABILITY. We design our products to
               match the reliability standard required by service providers,
               including 99.999% availability. This means that our products
               maintain connectivity 99.999% of the time, corresponding to
               approximately five minutes of down time per year, even under
               adverse weather conditions. This enables our customers to provide
               their subscribers with the same high availability as is offered
               by incumbent carriers using fiber optic networks. In addition,
               our products can be configured to provide full redundancy by
               connecting two radio links over the same frequency channel. This
               feature minimizes service interruptions.

          o    ENCRYPTION. In the security area, we announced the first
               high-capacity wireless system to offer a built-in-DES-based
               encryption solution. Our user-friendly EncryptAir solution has
               been validated by the National Institute of Standards and
               Technology (NIST).

          o    MULTIPLE MODULATION SCHEMES. The FibeAir product family utilizes
               multiple modulation schemes, including 16 QAM and 128 QAM,
               enabling broadband wireless service providers to choose either
               the 16 QAM modem for increased range, or the new 128 QAM modem
               for increased spectral efficiency.

         These benefits may be offset by the following disadvantages and
limitations of our wireless solutions relative to the solutions offered by our
competitors. Such disadvantages include:

          o    EXTREME WEATHER CONDITIONS. Our products may not operate in
               extreme weather conditions, including severe rainfalls or
               hurricanes.

          o    LINE-OF-SIGHT LIMITATIONS. Because our products require a direct
               line-of-sight between antennas, service providers often install
               our products on rooftops of buildings and on other tall
               structures. As a result, service providers must generally secure
               roof rights from the owners of each building or other structure
               on which our products are installed. This may delay deployment
               and increase the installation cost of our products or cause
               service providers not to install broadband wireless equipment.

                                       25
<PAGE>

          o    FREQUENCY BANDS. To operate our products, service providers must
               either have a license to operate and provide communications
               services in the optimal available transmission frequency or
               acquire the right to do so from a licensee. If a service provider
               is unable to secure such a license, it will not be able to
               operate and provide wireless communications services in the
               optimal transmission frequency. This may deter a service provider
               from deploying a wireless network.

PRODUCTS

         Our products consist of a compact high-performance antenna, an outdoor
unit, an indoor unit and our proprietary network management software. The
antenna transmits and receives microwave radio signals. The outdoor unit
controls the power transmission and provides an interface between the antenna
and the indoor unit. The outdoor unit is enclosed in a compact weather-proof
enclosure. It is fastened to the antenna with four latches and, therefore, is
easily detachable from the antenna. The antenna is mounted on a pole which is
typically mounted on a rooftop or the side of a building. The indoor unit is
connected to the outdoor unit by a standard coaxial cable. The indoor unit:

          o    converts the transmission signals from digital to radio and vice
               versa;

          o    processes and manages information transmitted to and from the
               outdoor unit;

          o    aggregates multiple transmission signals; and

          o    provides the physical interfaces to the wireline network.

         An antenna, an outdoor unit and an indoor unit comprise a terminal. Two
terminals are required to form a radio link, which may extend across a distance
of up to 30 miles. The specific distance depends upon the customer's
requirements, the frequency utilized, the available line of sight and local rain
intensity. Each link can be controlled by our network management software or be
interfaced to the management network system of the communications service
provider. We market our products under the name FibeAir. The FibeAir products
utilize multiple modulation schemes, which increase the flexibility of our
products by giving service providers the ability to choose between increased
range or increased spectral efficiency.

         FIBEAIR 1500. The FibeAir 1500 system provides 155 Mbps of transmission
capacity for various communications protocols. This system is available in
multiple configurations providing 155, 100 and 45 Mbps transmission capacities.

         FIBEAIR 1528. The FibeAir 1528 system provides 155 Mbps of transmission
capacity in a more spectrally efficient manner for various communication
protocols. FIBEAIR 450. The FibeAir 450 system provides a narrowband connection
in a dense wireless area where radio spectrum is limited. This system provides
one 45 Mbps connection.

         FIBEAIR 3100. The FibeAir 3100 system provides up to 311 Mbps of
transmission capacity for various communication protocols. This is a
high-frequency system with capacity that can be expanded from 155 to 311 Mbps.

                                       26
<PAGE>

         FIBEAIR 6200. The FibeAir 6200 system provides 622 Mbps of transmission
capacity for various communications protocols. This system operates over various
frequencies with ultra-high capacity.

         FIBEAIR 10000. The FibeAir 10000 digital radio system provides a
Gigabit Ethernet interface option providing 600 Mbps of transmission capacity
for ultra-high capacity Internet protocol data traffic.

         NETWORK MANAGEMENT PROTOCOL SOFTWARE. We support our products with a
full suite of network management tools designed to be easily integrated with
communications networks of service providers. Our products can be managed
locally by our management software or interfaced to the management network
system of the communications service provider. Our network management software
allows communications service providers to monitor performance and troubleshoot
difficulties remotely from multiple locations. The software runs on Windows
95/98/NT and over HP OpenView platforms and is user-friendly with graphical
interfaces.

NETWORK APPLICATIONS

         Our FibeAir products are deployed in various network applications,
based on the network architecture and communications transmission requirements
of our customers. These networks include:

         IP/FAST ETHERNET GIGABIT ETHERNET NETWORKS. Internet protocol, or IP,
is the transmission standard of the Internet and private data networks. Fast
Ethernet is the physical 100 Mbps interface most commonly used for high-speed IP
connections. Our products deliver full 100 Mbps throughput for fast Ethernet.
Our products also deliver two fast Ethernet channels over a single 155 Mbps
system. Dynamic bandwidth allocation is used to share the overall capacity
between the two fast Ethernet channels. Each fast Ethernet channel can provide a
separate, secure connection to a business subscriber. This feature substantially
reduces the service provider's costs by eliminating the need to purchase
external equipment or double the links. Our products also deliver Gigabit
Ethernet for ultra-high capacity IP connections in metropolitan rings, high
speed access connections, and private networks.

         ATM NETWORKS. Asynchronous transfer mode, or ATM, is a high-capacity
communications protocol. An ATM network is a packet network that supports
real-time voice and video content, as well as data. ATM networks transmit all
traffic in small constantly-sized packets or cells. The constant cell size
enables voice and video content to be processed and transmitted effectively.

         SONET/SDH NETWORKS. Synchronous optical network, or SONET, and its
European counterpart, synchronous digital hierarchy, or SDH, are the basic
network communications protocols, or standards, that exist today for intercity
and international connectivity. These standards are generally utilized in a
fiber optic network organized in a ring formation. The ring formation uses at
least two transmission paths, or links, to each point so that traffic is
rerouted in the other direction if a link in the ring formation fails.

         IP/FAST ETHERNET OVER SONET/SDH NETWORKS. Our products directly deliver
IP packets over SONET/SDH protocols. This unique feature enables our customers
to connect our products



                                       27
<PAGE>

to the SONET/SDH backbone, and deliver the IP transmission over the entire
SONET/SDH network infrastructure. This feature substantially reduces the service
provider's costs by eliminating the need to purchase an expensive router to
convert the Ethernet traffic into SONET/SDH frames.

CUSTOMER SERVICE AND SUPPORT

         We are committed to providing our customers with high levels of service
and support. We support our products with documentation and training courses
tailored to our customers' various needs. Our sales and network field
engineering services personnel work closely with customers, third party
integrators and others to coordinate network design, ensure successful
installation and provide continuous customer support. We provide technical
assistance and customer support 24 hours a day, 7 days a week. We have the
capability to remotely monitor the in-network performance of our products and
diagnose and address problems that may arise. We assist our customers in
utilizing our network management software within their own internal network
operations control centers.

MANUFACTURING AND ASSEMBLY

         Our manufacturing operations consist of materials planning and
procurement, assembly of outdoor units, final product assurance testing, quality
control and packaging and shipping. We conduct the majority of these operations
at our facility in Tel Aviv. We have a flexible assembly process that is
designed to reduce our assembly cycle time and reduce our need to maintain a
large inventory of finished goods. We test our products, both during and after
the assembly process, using internally developed product assurance testing
procedures. The components for our products come primarily from the United
States, Europe and Asia. We currently do not have any difficulties with the
supply of components, and except with respect to the explanations in "Risk
Factors", we do not anticipate any difficulties in the near future.

         In 2000, in anticipation of increased demand for our products, we
expanded our operations to a secondary facility in Jerusalem. Due to the
slowdown in the telecommunications market and the resulting decreased demand for
our products, we closed this manufacturing facility in May 2001.

         In addition to our own manufacturing operations, we contract with third
parties to manufacture circuit boards and other components used in our products
and to assemble and test indoor units and outdoor units for us. Each of these
third parties is owned and operated independently of us and provides services to
other entities. In 2001, we entered into a two year agreement with a
manufacturer to assemble and test our indoor units. At the end of the initial
two year term, this contract automatically renews every twelve months, unless
terminated by either party six months prior to the end of any such term. We have
also recently entered into two agreements with different third parties for the
manufacture and testing of our outdoor units.

         We comply with standards promulgated by the International Organization
for Standardization and have received certification under the ISO 9001, ISO
9002, and ISO 14000 standards. These standards define the procedures required
for the manufacture of products with


                                       28
<PAGE>

predictable and stable performance and quality, as well as environmental
guidelines for our operations.

COMPETITION

         The market for broadband wireless equipment is rapidly evolving,
fragmented, highly competitive and subject to rapid technological change. We
expect competition to persist, intensify and increase in the future, especially
if rapid technological developments occur in the broadband wireless equipment
industry or in other competing high-speed access technologies.

         We compete with a number of U.S. and international wireless equipment
providers that vary in size and in the types of products and solutions they
offer. Our primary competitors are companies that offer point-to-point wireless
network solutions, including Alcatel, DMC Stratex Networks, Nera
Telecommunications, L.M. Ericsson, Microwave Communications Division of Harris
Corporation, NEC, Marconi, SIAE, Siemens AG, as well as several private
companies currently in the startup stage, and a number of other companies have
developed or are developing products that compete with ours. We believe we
compete principally on the basis of:

          o    product performance, design, features and inter-operability;

          o    product quality and reliability;

          o    price;

          o    ability to deliver products on a timely basis; and

          o    technical support and customer service.

         Our products also compete with other high-speed communications
solutions, including fiber optic lines, free space optics (to a limited extent),
and other wireless technologies.

CUSTOMERS AND MARKETS

         Our principal end-user customers are cellular operators, communications
service providers and enterprises, such as financial institutions, hospitals,
universities, and corporate campuses. We currently focus on the markets in
Europe, Middle East, Africa, Asia-Pacific, Latin America and North America. We
target three principal applications for our products:

          o    providing cellular operators with high capacity connectivity for
               their cell sites and switching location;

          o    providing connectivity among points in a ring or access formation
               in a metropolitan area; and

                                       29
<PAGE>

          o    providing connectivity within campuses of corporations or other
               organizations for their internal networks.

         We began selling our products commercially during the second half of
1998. Our products are currently used by more than 100 customers in more than 35
countries. Purchasers of our products include original equipment manufacturers,
communications service providers, cellular operators, large corporations,
financial institutions, hospitals, and universities.

         We generally have written purchase agreements with our major customers.
These contracts typically do not contain minimum purchase commitments.

         The following table summarizes the distribution of our revenues by
geographic market, stated as a percentage of total revenues for the periods
indicated:

                               ------------------------------------------------
                                           % OF REVENUES FOR YEAR ENDED
                                                   DECEMBER 31,
                               -------------------------------------------------
REGION                               1999              2000              2001
------                               ----              ----              ----
North America....................   45.98%            54.53%            38.30%
EMEA*............................   48.72%            38.77%            53.00%
Asia-Pacific and Latin
America..........................    5.30%             6.70%             8.70%

* EUROPE, MIDDLE EAST, AND AFRICA

DISTRIBUTION CHANNELS

         In 2001, we sold our products through distributors, resellers, and
third party integrators. We also sold our products through original equipment
manufacturers.

DIRECT SALES

         We currently utilize a direct sales force to serve customers in North
America, Europe, Middle East, Africa, Asia-Pacific, Latin America and the rest
of the world. Our direct sales force targets cellular operators, communications
service providers, distributors and value added resellers (which in turn sell
into the enterprise market). Our direct sales force also helps us build
long-term relationships with communications service providers, whether they are
direct customers or customers of our equipment vendor customers.

MARKETING EFFORTS

         The principal goal of our marketing program is to educate existing and
potential customers about the capabilities and benefits of our products. We are
also committed to developing and enhancing the awareness of our company and our
products. Our marketing efforts include advertising, public relations and
participation in and organization of industry trade shows and conferences.

                                       30
<PAGE>

INTELLECTUAL PROPERTY

         To safeguard our proprietary technology, we rely on a combination of
copyright, trademark and trade secret laws, confidentiality agreements and other
contractual arrangements with our customers, third-party distributors and
employees, each of which affords only limited protection. We have trademark
applications for four marks pending in the United States, Canada, and Europe and
applications for three marks pending in Israel. We hold a registered trademark
in Israel for the name Ceragon Networks. We have one patent application pending
in the United States, and we have not been issued any patents.

CONDITIONS IN ISRAEL

         We are incorporated under the laws of, and our principal offices and
manufacturing and research and development facilities are located in, the State
of Israel. Therefore, we are directly affected by political, economic and
military conditions in Israel which could affect our U.S. shareholders.

POLITICAL CONDITIONS

         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 from time to time in intensity and degree, has led
to security and economic problems for Israel. Israel signed a peace treaty with
Egypt in 1979 and a peace treaty with Jordan in 1994. Since 1993, a joint
Israeli-Palestinian declaration of principles began what is commonly referred to
as the "peace process". Since then, several other agreements have been signed
between Israel and the Palestinians. As of the date of this annual report,
Israel has not entered into any peace agreement with Syria or Lebanon or any
final agreement with the Palestinians. Since October 2000, there has been an
increase in hostilities between Israel and the Palestinians, which has adversely
affected the peace process and has negatively influenced Israel's relationship
with several Arab countries.

         Some neighboring countries, as well as certain companies and
organizations, continue to participate in a boycott of Israeli firms and others
doing business with Israel or with Israeli companies. We are also precluded from
marketing our products to certain of these countries due to U.S. and Israeli
regulatory restrictions. Because none of our revenue is currently derived from
sales to these countries, we believe that in the past, the boycott has not had a
material adverse effect on us. However, restrictive laws, policies or practices
directed towards Israel or Israeli businesses could have an adverse impact on
the expansion of our business.

         All male adult citizens and permanent residents of Israel under the age
of 51 are, unless exempt, obligated to perform up to approximately 31 days of
military reserve duty annually. Additionally, these residents are subject to
being called to active duty at any time under emergency circumstances. Many of
our officers and employees are currently obligated to perform annual reserve
duty. While we have operated effectively under these requirements since we began
operations and during the increase in hostilities with the Palestinians since
October 2000, we cannot assess the full impact of these requirements on our
workforce or business if



                                       31
<PAGE>

conditions should change, and we cannot predict the effect on our business
operations of any expansion or reduction of these obligations.

ECONOMIC CONDITIONS

         Israel's economy has been subject to numerous destabilizing factors,
including a period of rampant inflation in the early to mid-1980s, low foreign
exchange reserves, fluctuations in world commodity prices, military conflicts
and civil unrest. The Israeli government has intervened in various sectors of
the economy by utilizing fiscal and monetary policies, import duties, foreign
currency restrictions and control of wages, prices and foreign currency exchange
rates. In 1998, the Israeli currency control regulations were liberalized
significantly to allow Israeli residents to deal in foreign currency and
non-residents of Israel to purchase and sell Israeli currency and assets. The
Israeli government has periodically changed its policies in these areas. There
are currently no Israeli currency control restrictions on remittances of
dividends on the ordinary shares or the proceeds from the sale of the shares.
However, legislation remains in effect under which currency controls can be
imposed by administrative action at any time.

         The Israeli government's monetary policy contributed to relative price
and exchange rate stability in recent years, despite fluctuating rates of
economic growth and an increasingly high rate of unemployment. We cannot assure
you that the Israeli government will be successful in its attempts to keep
prices and exchange rates stable. Price and exchange rate instability may have a
material adverse effect on us.

TRADE RELATIONS

         Israel is a member of the United Nations, the International Monetary
Fund, the International Bank for Reconstruction and Development and the
International Finance Corporation. Israel is a member of the World Trade
Organization and is a signatory to the General Agreement on Trade in Services.
In addition, Israel has been granted preferences under the Generalized System of
Preferences from the United States, Australia, Canada and Japan. These
preferences allow Israel to export products covered by these programs either
duty-free or at reduced tariffs.

         Israel and the European Union concluded a free trade agreement in July
1975 which confers various advantages on Israeli exports to most European
countries and obligates Israel to lower its tariffs on imports from these
countries over a number of years. In 1985, Israel and the United States entered
into an agreement to establish a free trade area. The free trade area has
eliminated all tariff and specified non-tariff barriers on most trade between
the two countries. On January 1, 1993, an agreement between Israel and the
European Free Trade Association, known as the EFTA, established a free-trade
zone between Israel and EFTA nations. In November 1995, Israel entered into a
new agreement with the European Union, which includes modified rules of origin
and other improvements, including providing for Israel to become a member of the
research and technology programs of the European Union. In recent years, Israel
has established commercial and trade relations with a number of other nations,
including Russia, China, India, Turkey and other nations in Eastern Europe and
Asia.



                                       32
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ISRAELI TAX CONSIDERATIONS AND GOVERNMENT PROGRAMS

         The following is a summary of the current tax structure applicable to
companies in Israel, with special reference to its effect on us. The following
also contains a discussion of the Israeli government programs benefiting us. To
the extent that the discussion is based on new tax legislation which has not
been subject to judicial or administrative interpretation, we cannot assure you
that the tax authorities will accept the views expressed in the discussion in
question. The discussion is not intended, and should not be taken, as legal or
professional tax advice and is not exhaustive of all possible tax
considerations.

TAX BENEFITS UNDER THE LAW FOR THE ENCOURAGEMENT OF CAPITAL INVESTMENTS, 1959

         The Law for the Encouragement of Capital Investments, 1959, commonly
referred to as the Investment Law, provides that a proposed capital investment
in eligible facilities may, upon application to the Investment Center of the
Ministry of Industry and Trade of the State of Israel, be designated as an
approved enterprise. Each certificate of approval for an approved enterprise
relates to a specific investment program delineated both by its financial scope,
including its capital sources, and by its physical characteristics, for example,
the equipment to be purchased and utilized under the program. The tax benefits
derived from any certificate of approval relate only to taxable income
attributable to the specific approved enterprise. If a company has more than one
approval or only a portion of its capital investments is approved, its effective
tax rate is the result of a weighted average of the applicable rates.

         Taxable income of a company derived from an approved enterprise is
subject to company tax at the maximum rate of 25%, rather than 36%, for the
benefit period. This period is ordinarily seven or ten years depending upon the
geographic location of the approved enterprise within Israel, and whether the
company qualifies as a foreign investors' company as described below, commencing
with the year in which the approved enterprise first generates taxable income.
However, this period is limited to twelve years from commencement of production
or fourteen years from the date of approval, whichever is earlier.

         A company owning an approved enterprise may elect to receive an
alternative package of benefits. Under the alternative package of benefits, a
company's undistributed income derived from an approved enterprise will be
exempt from company tax for a period of between two and ten years from the first
year of taxable income, depending on the geographic location of the approved
enterprise within Israel, and the company will be eligible for a reduced tax
rate for the remainder of the benefits period.

         A company that has an approved enterprise program is eligible for
further tax benefits if it qualifies as a foreign investors' company. A foreign
investors' company is a company more than 25% of whose share capital and
combined share and loan capital is owned by non-Israeli residents. A company
that qualifies as a foreign investors' company and has an approved enterprise
program is eligible for tax benefits for a ten year benefit period. Depending on
the geographic location of the approved enterprise within Israel, income derived
from the approved enterprise program may be exempt from tax on its undistributed
income for a period of two years and will be subject to a reduced tax rate for
an additional eight years. The tax rate for the additional eight years is 25%,
unless the level of foreign investment exceeds 49%, in which case



                                       33
<PAGE>

the tax rate is 20% if the foreign investment is 49% or more and less than 74%;
15% if 74% or more and less than 90%; and 10% if 90% or more. A company that has
elected the alternative package of benefits and that subsequently pays a
dividend out of income derived from the approved enterprise during the tax
exemption period will be subject to tax on the amount distributed. The tax rate
will be the rate which would have been applicable had the company not elected
the alternative package of benefits. This rate is generally 10%-25%, depending
on the percentage of the company's shares held by foreign shareholders. The
dividend recipient is taxed at the reduced rate applicable to dividends from
approved enterprises, which is 15% if the dividend is distributed during the tax
exemption period or within 12 years after the period. The company must withhold
this tax at the source, regardless of whether the dividend is converted into
foreign currency.

         Subject to applicable provisions concerning income under the
alternative package of benefits, all incomes are considered to be attributable
to the entire enterprise and their effective tax rate is the result of a
weighted average of the various applicable tax rates. Under the Investment Law,
a company that has elected the alternative package of benefits is not obliged to
distribute exempt retained profits, and may generally decide from which year's
profits to declare dividends. We currently intend to reinvest any income derived
from our approved enterprise programs and not to distribute the income as a
dividend.

         The Investment Center bases its decision whether or not to approve an
application on the criteria in the Investment Law and regulations, the then
prevailing policy of the Investment Center and the specific objectives and
financial criteria of the applicant. Therefore, we cannot assure you that any of
our applications will be approved. In addition, the benefits available to an
approved enterprise are conditional upon the fulfillment of conditions
stipulated in the Investment Law and its regulations and the criteria in the
specific certificate of approval, as described above. If a company does not meet
these conditions, it would be required to refund the amount of tax benefits,
with the addition of the consumer price index linkage adjustment and interest.

         The Investment Center has granted approved enterprise status under
Israeli law to an investment program at our manufacturing facility in Tel Aviv
and we have derived and expect to continue to derive a substantial portion of
our income from this program. Additionally, an investment program at our former
Jerusalem facility had been granted approved enterprise status. Following the
closing of the Jerusalem facility in 2001, we received approval to transfer the
approved enterprise program from Jerusalem to our Tel Aviv facility. We have
elected the alternative package of benefits under these approved enterprise
programs. Assuming there is no change in the applicable law, the portion of our
income derived from these approved enterprise programs will be exempt from tax
for a period of two years commencing in the first year in which there is taxable
income and will be subject to a reduced company tax of up to 25% for the
subsequent period of five years, or eight years if the percentage of non-Israeli
investors who hold our ordinary shares exceeds 25%. The benefits available to an
approved enterprise program are dependent upon the fulfillment of conditions
stipulated in applicable law and in the certificate of approval. The period of
tax benefits for our approved enterprise programs has not yet commenced, because
we have yet to realize taxable income.



                                       34
<PAGE>

GRANTS UNDER THE LAW FOR THE ENCOURAGEMENT OF INDUSTRIAL RESEARCH AND
DEVELOPMENT, 1984

         Under the Law for the Encouragement of Industrial Research and
Development, 1984, commonly referred to as the Research Law, research and
development programs that meet specified criteria and are approved by a
governmental research committee of the Office of the Chief Scientist are
eligible for grants generally of up to 50% of the project's expenditure, as
determined by the research committee, in exchange for the payment of royalties
from the income derived from products or services using the technology or know
how developed under such programs. Regulations under the Research Law generally
provide for the payment of royalties to the Chief Scientist of 3-5% on such
income until 100% of the dollar-linked grant is repaid. Following the full
repayment of the grant, there is no further liability for repayment, however,
the recipient of the grants still remains obligated under other requirements of
the Research Law.

         The terms of the Israeli government participation under the Law for the
Encouragement of Industrial Research and Development, 1984, commonly known as
the Research Law, also require that the manufacture of products developed with
government grants be performed in Israel. However, under the regulations of the
Research Law, if any of the manufacturing is performed outside of Israel,
assuming we receive approval from the Chief Scientist for the foreign
manufacturing, we will be required to pay increased royalties. Such increased
royalties include an increased rate of royalties and an increase in their total
amount. The increased amount of the royalties depends upon the manufacturing
volume that is performed outside of Israel as follows:

          MANUFACTURING VOLUME        ROYALTIES TO THE CHIEF SCIENTIST
            OUTSIDE OF ISRAEL             AS A PERCENTAGE OF GRANT
            -----------------             ------------------------
              less than 50%                         120%
           between 50% and 90%                      150%
              more than 90%                         300%
         The Office of the Chief Scientist's policy also provides that the
technology and know-how developed with Chief Scientist grants may not be
transferred to third parties outside of Israel. This prohibition, however, is
not relevant for the export of any products developed using the grants. Approval
of the transfer of technology may be granted in specific circumstances to
Israeli entities, only if the recipient abides by the provisions of the Research
Law and related regulations, including the restrictions on the transfer of
technology and know-how and the obligation to pay royalties in an amount that
may be increased. We cannot assure you that any consent, if requested, will be
granted.

         Effective for grants received from the Chief Scientist under programs
approved after January 1, 1999, the outstanding balance of the grants will be
subject to interest equal to the 12 month London interbank offered rate
applicable to dollar deposits that is published on the first business day of
each calendar year.

         In October 2001, a governmental bill was submitted for the approval of
the Israeli parliament, to amend the Research Law. The bill, which was based on
the recommendations of a special government committee, aims to make the Research
Law more compatible with the


                                       35
<PAGE>

current business environment by, among other things, relaxing restrictions on
transfer of technology or manufacturing abroad.

         However, the bill suggests amending the purposes of the Research Law so
that future grants from the Office of the Chief Scientist will be available only
to those applicants who can demonstrate that their proposed program will
substantially contribute to the Israeli economy as a whole, upon the discretion
of the Office of the Chief Scientist Research Committee. This may result in
future, unforeseen, difficulties to obtain approvals from the Office of the
Chief Scientist for additional grants.

         While the proposed bill would, among other things, allow the transfer
of technology or know-how developed with the funding of the Office of the Chief
Scientist to third parties outside of Israel, such transfer would still be
subject to the approval of the Office of the Chief Scientist and could incur
considerable financial costs. Generally, the proposed bill would mandate the
Office of the Chief Scientist Research Committee to grant such approval to
transferors if either (1) the transferee granted the transferor an irrevocable
worldwide exclusive license to use and benefit from the technology, or (2) the
Office of the Chief Scientist receives payment equal to the greater of (x) 150%
of the total benefits granted to the participant (plus linkage and interest),
and (y) the amount received when multiplying the so-called "OCS Holdings" in a
company by the market value of that company, with the addition of a premium of
up to 20% of that amount, minus any royalties paid to the Office of the Chief
Scientist to date. The "OCS Holdings" refers to the deemed `holdings' of the
Office of the Chief Scientist in the company derived from the financing
"investments" made by the Office of the Chief Scientist in the company, as
diluted by other investments in the company.

         As opposed to the Research Law, which requires that all manufacturing
will occur in Israel at the time of the application, the proposed bill enables
the approval of grants in cases of prior declaration that the manufacturing will
not take place, in whole or in part, in Israel. This declaration will be taken
into consideration at the time of the approval of such grant. Similar to the
regulations promulgated under the Research Law, the proposed bill would also
allow the transfer of manufacture of products outside Israel, if such was not
already the case, if prior approval is received from the Office of the Chief
Scientist, which approval, according to the proposed bill, may be subject to a
payment to the Office of the Chief Scientist of up to 120% of the grants (plus
linkage and interest). However, such approval would not be required if only 10%
of the manufacturing capability is being transferred and prior written notice
has been given to the Office of the Chief Scientist.

         If implemented, the bill might result in the imposition of high fees in
connection with the transfer of technologies or manufacturing outside of Israel.

         In order to be enacted as legislation the proposed bill must be
approved by the Israeli parliament and published, and the substance of the bill
could undergo significant revisions during that process. It is not known at this
stage when or whether the proposed bill (in its current or a future revised
form) will be implemented or to what extent it will apply to research and
development programs funded prior to the effective date of the proposed bill.

                                       36
<PAGE>

         The Israeli authorities have indicated that the government may further
reduce or abolish grants from the Chief Scientist in the future. Even if these
grants are maintained, we cannot assure you that we will receive Chief Scientist
grants in the future. In addition, each application to the Chief Scientist is
reviewed separately, and grants are based on the program approved by the
research committee. Generally, expenditures supported under other incentive
programs of the State of Israel are not eligible for grants from the Chief
Scientist. We cannot assure you that applications to the Chief Scientist will be
approved and, until approved, the amounts of any grants are not determinable.

TAX BENEFITS AND GRANTS FOR RESEARCH AND DEVELOPMENT

         Israeli tax law allows, under specific conditions, a tax deduction in
the year incurred for expenditures, including capital expenditures, relating to
scientific research and development projects, if:

          o    the expenditures are approved by the relevant Israeli government
               ministry, determined by the field of research;

          o    the research and development is for the promotion or development
               of the company; and

          o    the research and development is carried out by or on behalf of
               the company seeking the deduction.

         Expenditures not so approved are deductible over a three-year period.
However, expenditures made out of proceeds made available to us through
government grants are not deductible according to Israeli law.

TAX BENEFITS UNDER THE LAW FOR THE ENCOURAGEMENT OF INDUSTRY (TAXES), 1969

         According to the Law for the Encouragement of Industry (Taxes), 1969,
generally referred to as the Industry Encouragement Law, an industrial company
is a company resident in Israel, at least 90% of the income of which, in a given
tax year, determined in Israeli currency exclusive of income from specified
government loans, capital gains, interest and dividends, is derived from an
industrial enterprise owned by it. An industrial enterprise is defined as an
enterprise whose major activity in a given tax year is industrial production
activity.

         Under the Industry Encouragement Law, industrial companies are entitled
to the following preferred corporate tax benefits:

          o    deduction of purchases of know-how and patents over an eight-year
               period for tax purposes;

          o    deduction of specified expenses incurred for a public issuance of
               securities over a three-year period for tax purposes;

          o    right to elect, under specified conditions, to file a
               consolidated tax return with additional related Israeli
               industrial companies; and

                                       37
<PAGE>

          o    accelerated depreciation rates on equipment and buildings.

         Eligibility for benefits under the Industry Encouragement Law is not
subject to receipt of prior approval from any governmental authority.

         We believe that we currently qualify as an industrial company within
the definition of the Industry Encouragement Law. We cannot assure you that we
will continue to qualify as an industrial company or that the benefits described
above will be available to us in the future.

SPECIAL PROVISIONS RELATING TO TAXATION UNDER INFLATIONARY CONDITIONS

         The Income Tax Law (Inflationary Adjustments), 1985, generally referred
to as the Inflationary Adjustments Law, represents an attempt to overcome the
problems presented to a traditional tax system by an economy undergoing rapid
inflation. The Inflationary Adjustments Law is highly complex. Its features
which are material to us can be described as follows:

         There is a special tax adjustment for the preservation of equity as
follows:

          o    Where a company's equity, as calculated under the Inflationary
               Adjustments Law, exceeds the depreciated cost of fixed assets, a
               deduction from taxable income is permitted equal to the excess
               multiplied by the applicable annual rate of inflation. The
               maximum deduction permitted in any single tax year is 70% of
               taxable income, with the unused portion permitted to be carried
               forward.

          o    Where a company's depreciated cost of fixed assets exceeds its
               equity, then the excess multiplied by the applicable annual rate
               of inflation is added to taxable income.

          o    Subject to specified limitations, depreciation deductions on
               fixed assets and losses carried forward are adjusted for
               inflation based on the increase in the consumer price index.

          o    Gains on traded securities, which are normally exempt from tax,
               are taxable in specified circumstances. However, dealers in
               securities are subject to the regular tax rules applicable to
               business income in Israel.



                                       38
<PAGE>

ORGANIZATIONAL STRUCTURE

         We are an Israeli company that commenced operations in 1996. We
currently have seven subsidiaries, as follows:

<TABLE>
<CAPTION>
                                                       PLACE OF          OWNERSHIP
                  COMPANY                           INCORPORATION         INTEREST               FUNCTION
---------------------------------------            ---------------       ---------          -------------------

<S>                                                  <C>                   <C>              <C>
Ceragon Networks (UK) Limited                        England               100%             Sales and Marketing
Ceragon Networks Latin America, Inc.                 Florida               100%             Sales and Marketing
Ceragon Networks SARL                                France                100%             Sales and Marketing
Ceragon Networks Gmbh                                Germany               100%             Sales and Marketing
Ceragon Networks (HK) Limited                        Hong Kong             100%             Sales and Marketing
Ceragon Networks, S.A. de C.V.                       Mexico                100%             Sales and Marketing
Ceragon Networks, Inc.                               New Jersey            100%             Sales and Marketing
</TABLE>

PROPERTY, PLANT AND EQUIPMENT

         Our corporate headquarters and principal administrative, finance,
sales, marketing and promotion, R&D, operations, and manufacturing are located
at leased facility of approximately 41,000 square feet in Tel Aviv, Israel. The
lease for this facility expires in May 2003. We also maintain another space of
approximately 7,000 square feet in our building. The lease for this space
expires in November 2003. In addition to these properties, we lease
approximately 17,000 square feet of space in other adjacent and nearby
buildings, the leases for which expire in 2002 to 2005, to provide space for our
manufacturing and operations activities.

         In December 2000, we entered into a five year lease for approximately
52,110 square feet in Tel Aviv. We have provided a bank guaranty to the landlord
in the approximate amount of $750,000 to guarantee our obligations pursuant to
the lease. In 2001, we entered into a two year sublease of this space to an
unrelated third party. This third party provided us with a $500,000 bank
guarantee to guaranty the obligations under the sublease. The term of the
sublease and the lease price per square foot of property is less than our
current commitment under the lease agreement with the landlord. As a result, we
shall continue to have a nominal monthly lease payment obligation throughout the
term of the sublease. After the end of the sublease period, our obligations for
full payment of the lease amount shall resume.

         In the United States, we lease approximately 3,300 square feet in
Mahwah, New Jersey expiring in August 2003, approximately 250 square feet in
Dallas, Texas on a month-to-month basis and approximately 750 square feet in
Nashua, New Hampshire on a month-to-month basis. In Florida, we lease
approximately 760 square feet pursuant to a lease expiring in November 2004. The
foregoing space is used for our sales and marketing activities by our U.S.
subsidiaries.

         In the United Kingdom, we lease approximately 2,560 square feet in
Birmingham expiring in March 2015. In France, we lease approximately 150 square
feet on a month-to-


                                       39
<PAGE>

month basis. In Germany, we lease approximately 150 square feet on a
month-to-month basis. In Mexico, we lease approximately 1,300 square feet
pursuant to a lease expiring in March 2003. In Hong Kong, we lease approximately
150 square feet on a month-to-month basis. All of the foregoing space is used by
our local subsidiaries to conduct international sales and marketing activities.


ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS

         THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION
WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES TO THOSE FINANCIAL
STATEMENTS THAT APPEAR ELSEWHERE IN THIS ANNUAL REPORT. OUR CONSOLIDATED
FINANCIAL STATEMENTS ARE PREPARED IN CONFORMITY WITH U.S. GAAP.

OVERVIEW

         We design, develop, manufacture and sell high-capacity broadband
wireless network equipment that enables communications service providers
globally to deliver high-speed Internet access and integrated data, video and
voice services. We were incorporated and commenced operations in July 1996. We
began selling our products in the second half of 1998. Before that time, our
operations consisted primarily of research and development. Through December
2001, relatively few customers have accounted for a large percentage of our
revenues. We conduct our international sales and marketing activities through
seven wholly-owned subsidiaries.

         Our revenues decreased during 2001 from $12.6 million in the first
quarter to $3.3 million in the fourth quarter. The majority of our revenues were
from shipments of our products to U.S. competitive local exchange carriers,
known as CLECs. Beginning in the first quarter of 2001, there was a rapid and
unexpected slowdown in the telecommunications market, particularly with respect
to U.S. CLECs. In April and May 2001, two of our important customers, Winstar
Communications (at that time, our main U.S. customer) and Advanced Radio
Telecom, filed for protection under Chapter 11 of the U.S. Bankruptcy Code.
Beginning April 2001, we initiated a number of measures to reduce expenses.
These measures included an approximately 25% reduction in our workforce and the
closing of our secondary manufacturing facility in Jerusalem. As a result of
this rapid change in market conditions for our products, in the first quarter of
2001, we recorded a special one-time charge of $2.6 million for doubtful
accounts presented in general and administrative expenses due primarily to
monies due and owing for equipment delivered to Winstar Communications. In 2001,
we also recorded a $28.9 million charge for an inventory write down and fixed
asset impairment presented in cost of revenues, due to inventory purchases made
in 2000 and the first quarter of 2001 for long lead time components to support
expected customer demand in 2001, and $4.7 million due to restructuring plans
presented in restructuring costs. We have reduced our annual operating expenses
in accordance with our targets.

         A majority of our revenues are generated, and a majority of our
expenses are incurred, in U.S. dollars. Consequently, we use the dollar as our
functional currency. Transactions and balances in other currencies are converted
into dollars according to the principles in Financial Accounting Standards Board
Statement No. 52. Gains and losses arising from conversion are


                                       40
<PAGE>

recorded as interest income or expense, as applicable. Our consolidated
financial statements are prepared in dollars and in accordance with U.S. GAAP.

         We expect our operating results to fluctuate significantly in the
future as a result of various factors, many of which are outside our control.
Consequently, we believe that period-to-period comparisons of our operating
results may not necessarily be meaningful and, as a result, you should not rely
on them as an indication of future performance.

         REVENUES. We generate revenues from the sale of our products. We
recognize revenues from the sale of our products in accordance with SEC Staff
Accounting Bulletin Number 101. We price our products on a per unit basis and
grant discounts based upon unit volumes. We sell our products directly and
through distribution channels in North America, Europe, Middle East, Africa,
Latin America and the Asia-Pacific region. In 2001, approximately 38.3% of our
revenues were generated in North America, 53% were generated in Europe, Middle
East, and Africa and 8.7% were generated in the Asia-Pacific and Latin American
regions.

         COST OF REVENUES. Our cost of revenues consists of component and
material costs, labor costs, subcontractor fees, royalties, estimated warranty
costs, overhead related to manufacturing and depreciation of manufacturing
equipment. Our gross margin is affected by the selling prices for our products
and the cost of revenues. Generally, our gross margins from direct sales are
slightly higher than our gross margins from indirect sales.

         RESEARCH AND DEVELOPMENT EXPENSES. Our research and development
expenses consist primarily of compensation and related costs for research and
development personnel, subcontractors' costs, costs of materials and
depreciation of equipment. All of our research and development costs are
expensed as incurred. Research and development expenses are offset by
royalty-bearing grants from the Chief Scientist. We believe continued investment
in research and development is essential to attaining our strategic objectives.

         MARKETING AND SELLING EXPENSES. Our marketing and selling expenses
consist primarily of compensation and related costs for sales and marketing
personnel, trade show and exhibit expenses, travel expenses, public relations
and promotional materials and royalties paid to the Government of Israel in
connection with grants we received from the Chief Scientist.

         GENERAL AND ADMINISTRATIVE EXPENSES. Our general and administrative
expenses consist primarily of salaries and related expenses for executive,
accounting and human resources personnel, professional fees, provisions for
doubtful accounts and other general corporate expenses.

         AMORTIZATION OF DEFERRED COMPENSATION. Amortization of share-based
compensation results from the granting to employees of options with exercise
prices per share determined to be below the fair market value per share of our
ordinary shares on the dates of grant. The share-based compensation is amortized
to cost of revenues and operating expenses over the vesting period of the
individual options.

         As a result of options granted through December 31, 2001, we are
required to recognize under U.S. GAAP a total charge for amortization of
deferred compensation of approximately $23.0 million. We recognized
approximately $18.1 million of such amount in the years 1997


                                       41
<PAGE>

through and including 2001and expect to recognize approximately $3.0 million of
such amount in 2002, approximately $1.4 million in 2003, and the remaining
balance in 2004 and 2005.

         RESTRUCTURING COSTS. Restructuring costs reflects restructuring charge
of approximately $4.7 million with respect to actions taken by us in accordance
with a Board-approved restructuring plan.

         FINANCING INCOME (EXPENSES), NET. Our financing income consisted
primarily of interest earned on bank deposits, interest and investment income
from various short-term financial instruments, gains and losses from the
conversion of monetary balance sheet items denominated in non-dollar currencies
into dollars.

         TAXES. Israeli companies are generally subject to income tax at the
rate of 36%. However, we benefit from preferential tax rates under the Law for
the Encouragement of Capital Investments. Commencing the first year in which we
earn taxable income, our approved enterprise status entitles us to tax
exemptions on the portion of our income derived from our approved enterprise for
two years, and taxation at a rate of 25% for between five to eight years
thereafter. However, these benefits may not be applied to reduce the tax rate
for any income derived by our non-Israeli subsidiaries.

RESULTS OF OPERATIONS

         The following table presents consolidated statement of operations data
for the periods indicated as a percentage of total revenues.

<TABLE>
<CAPTION>

                                                                                               YEAR ENDED
                                                                                              DECEMBER 31,
                                                                                      --------------------------------
                                                                                       1999         2000         2001
                                                                                     --------      -------     --------
<S>                                                                                   <C>          <C>          <C>
Revenues...............................................................               100.0%       100.0%       100.0%
Cost of revenues.......................................................                79.6         56.9        182.2
                                                                                     --------      -------     --------
Gross profit (loss)--before non-cash compensation expense..............                20.4         43.1        (82.2)
                                                                                     --------      -------     --------
Non-cash compensation expense..........................................                 1.6          2.1          1.6
Gross profit (loss)....................................................                18.8         41.0        (83.8)
Operating expenses
   Research and development, net of non-cash compensation expense......               109.8         33.9         52.2
   Less: participation by the Chief Scientist of the Government of
     Israel............................................................                35.6          7.6         10.7
                                                                                     --------      -------     --------
   Research and development, net.......................................                74.2         26.3         41.5
   Marketing and selling, net of non-cash compensation expense.........                56.2         30.1         48.0
   General and administrative, net of non-cash compensation expense....                10.6          6.6         23.2
   Amortization of deferred compensation...............................                37.0         30.6         24.3
                                                                                     --------      -------     --------
    Restructuring Costs                                                                --           --           19.1
                                                                                     --------      -------     --------
Total operating expenses...............................................               178.0         93.6        156.1
                                                                                     --------      -------     --------
Operating loss.........................................................              (159.2)       (52.6)      (239.9)
Financing income (expenses), net.......................................                (2.0)         8.5         11.2
                                                                                     --------      -------     --------
Net loss...............................................................              (161.2)%      (44.1)%     (228.7)%
                                                                                     ========      =======     ========
</TABLE>

                                       42
<PAGE>

YEARS ENDED DECEMBER 31, 2000 AND 2001

         REVENUES. Revenues decreased from $29.2 million for the year ended
December 31, 2000 to $24.9 million for the year ended December 31, 2001, a
decrease of $4.3 million. This decrease was primarily attributable to decreased
sales resulting from the telecommunications market downturn which started in
approximately March 2001.

         COST OF REVENUES. Cost of revenues increased from $16.6 million for the
year ended December 31, 2000 to $45.3 for the year ended December 31, 2001, an
increase of $28.7 million. This increase was primarily attributable to an
inventory write-down, a fixed asset impairment charge, as well as lower
production volumes and higher proportional overhead costs.

         Gross profit (loss) as a percentage of revenues before non-cash
compensation expenses related to the cost of revenues decreased from 43.1% for
the year ended December 31, 2000 to (82.2)% for the year ended December 31,
2001. This decrease was primarily attributable to an inventory write-down, a
fixed asset impairment charge, as well as lower production volumes and higher
proportional overhead costs.

         RESEARCH AND DEVELOPMENT EXPENSES, NET. Research and development
expenses increased from $9.9 million for the year ended December 31, 2000 to
$13.0 million for the year ended December 31, 2001, an increase of $3.1 million.
This increase was primarily due to increases in the number of our research and
development personnel and in subcontractors' expenses. Research and development
expenses were partially offset by royalty-bearing grants from the Chief
Scientist, which amounted to $2.2 million for the year ended December 31, 2000
and $2.7 million for the year ended December 31, 2001.

         MARKETING AND SELLING EXPENSES. Marketing and selling expenses
increased from $8.8 million for the year ended December 31, 2000 to $11.9
million for the year ended December 31, 2001, an increase of $3.1 million. This
increase was due primarily to our expenditures for our sales and marketing
infrastructure. These expenditures included increases in our sales, marketing
and customer support personnel, opening new offices, trade shows, traveling and
other costs associated with sales and support activities.

         GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased from $1.9 million for the year ended December 31, 2000 to
$5.8 million for the year ended December 31, 2001, an increase of $3.9 million.
This increase was due to bad debt recorded, and increases in general and
administrative personnel, professional services, and other expenses. The
allowance for doubtful debt as of December 31, 2001 was $450 thousand.

         AMORTIZATION OF DEFERRED COMPENSATION. Amortization of deferred
compensation decreased from $9.5 million for the year ended December 31, 2000 to
$6.4 million for the year ended December 31, 2001, a decrease of $3.1 million.
Amortization of deferred compensation includes non-cash compensation expenses
related to the cost of revenues of $603 thousand for the year ended December 31,
2000 and $400 thousand for the year ended December 31, 2001.

         RESTRUCTURING COSTS. Restructuring costs increased from $0 for the year
ended December 31, 2000 to $4.7 million for the year ended December 31, 2001.
This increase was primarily due to restructuring pursuant to our plan in light
of the global economic slowdown.

                                       43
<PAGE>

         NET LOSS. Net loss increased from $12.9 million for the year ended
December 31, 2000 to $56.8 million for the year ended December 31, 2001, an
increase of $43.9 million.

YEARS ENDED DECEMBER 31, 1999 AND 2000

         REVENUES. Revenues increased from $4.6 million for the year ended
December 31, 1999 to $29.2 million for the year ended December 31, 2000, an
increase of $24.6 million. This increase was primarily attributable to increased
sales from both existing and new customers in North America and Europe.

         COST OF REVENUES. Cost of revenues increased from $3.6 million for the
year ended December 31, 1999 to $16.6 million for the year ended December 31,
2000, an increase of $13.0 million. This increase was attributable to an
increase in our sales volume.

         Gross profit as a percentage of revenues before non-cash compensation
expenses related to the cost of revenues increased from 20.4% for the year ended
December 31, 1999 to 43.1% for the year ended December 31, 2000. This increase
was primarily attributable to economies of scale associated with increased
manufacturing volume.

         RESEARCH AND DEVELOPMENT EXPENSES, NET. Research and development
expenses increased from $5.0 million for the year ended December 31, 1999 to
$9.9 million for the year ended December 31, 2000, an increase of $4.9 million,
or 98%. This increase was primarily due to increases in the number of our
research and development personnel and in subcontractors' expenses. Research and
development expenses were partially offset by royalty-bearing grants from the
Chief Scientist, which amounted to $1.6 million for the year ended December 31,
1999 and $2.2 million for the year ended December 31, 2000.

         MARKETING AND SELLING EXPENSES. Marketing and selling expenses
increased from $2.6 million for the year ended December 31, 1999 to $8.8 million
for the year ended December 31, 2000, an increase of $6.2 million. This increase
was due primarily to our expenditures for our sales and marketing
infrastructure. These expenditures included increases in our sales, marketing
and customer support personnel, royalty payments, trade shows, traveling and
other costs associated with sales and support activities.

         GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased from $483 thousand for the year ended December 31, 1999 to
$1.9 million for the year ended December 31, 2000, an increase of $1.4 million.
This increase was due to increases in general and administrative personnel,
professional services, doubtful debt and recruitment costs and other expenses.
The allowance for doubtful debt as of December 31, 2000 was $250 thousand.

         AMORTIZATION OF DEFERRED COMPENSATION. Amortization of deferred
compensation increased from $1.8 million for the year ended December 31, 1999 to
$9.5 million for the year ended December 31, 2000, an increase of $7.8 million.
This increase was primarily due to increases in the number of options granted
and an increase in the difference between the fair value of the ordinary shares
at the date of grant and the exercise price. Amortization of deferred
compensation includes non-cash compensation expenses related to the cost of
revenues of $73 thousand for the year ended December 31, 1999 and $603 thousand
for the year ended December 31, 2000.

                                       44
<PAGE>

         NET LOSS. Net loss increased from $7.3 million for the year ended
December 31, 1999 to $12.9 million for the year ended December 31, 2000, an
increase of $5.6 million.

         BENEFICIAL CONVERSION/DIVIDEND. We have recorded a preferred share
dividend of approximately $22 million for the year ended December 31, 2000,
representing the value of the beneficial conversion feature upon the issuance of
preferred shares in February 2000 and of Series B preferred shares in March
2000. The beneficial conversion feature was calculated based on the difference
between the conversion price of $2.45 and $5.11 per share, respectively, and the
estimated fair value of the ordinary shares as at the dates of issuances, but
limited to the amount of the proceeds from the issuances of the preferred
shares.

IMPACT OF INFLATION AND CURRENCY FLUCTUATIONS

         The dollar cost of our operations is influenced by the extent that any
inflation in Israel is or is not offset, or is offset on a lagging basis, by the
devaluation of the NIS in relation to the dollar. When the rate of inflation in
Israel exceeds the rate of devaluation of the NIS against the dollar, companies
experience increases in the dollar cost of their operations in Israel. Unless
offset by a devaluation of the NIS, inflation in Israel will have a negative
effect on our profitability, since we receive payment in dollars or
dollar-linked NIS for most of our sales while incurring a portion of our
expenses, principally salaries and related personnel expenses, in NIS.

         The following table presents information about the rate of inflation in
Israel, the rate of devaluation of the NIS against the dollar, and the rate of
inflation in Israel adjusted for the devaluation:

<TABLE>
<CAPTION>
                                                                                                ISRAELI INFLATION
                                                       ISRAELI INFLATION     NIS DEVALUATION       ADJUSTED FOR
               YEAR ENDED DECEMBER 31,                       RATE %              RATE %           DEVALUATION %
----------------------------------------------------   -----------------     ---------------    -----------------
<S>                                                          <C>                  <C>                 <C>
  1997.........................................              7.0                  8.8                 (1.7)
  1998.........................................              8.6                 17.6                 (7.7)
  1999.........................................              1.3                 (0.1)                 1.3
  2000.........................................              0.0                 (2.7)                 2.8
  2001.........................................              1.4                  9.3                 (7.2)
</TABLE>

         A devaluation of the NIS in relation to the dollar has the effect of
reducing the dollar amount of any of our expenses or liabilities that are
payable in NIS, unless those expenses or payables are linked to the dollar. This
devaluation also has the effect of decreasing the dollar value of any asset that
consists of NIS or receivables payable in NIS, unless the receivables are linked
to the dollar. Conversely, any increase in the value of the NIS in relation to
the dollar has the effect of increasing the dollar value of any unlinked NIS
assets and the dollar amounts of any unlinked NIS liabilities and expenses.

         Because exchange rates between the NIS and the dollar fluctuate
continuously, with a historically declining trend in the value of the NIS,
exchange rate fluctuations, particularly larger periodic devaluations, would
have an impact on our profitability and period-to-period comparisons of our
results. The effects of foreign currency re-measurements are reported in our

                                       45
<PAGE>

consolidated financial statements of operations. For a discussion of our hedging
transactions, please see "Quantitative and Qualitative Disclosures about Market
Risk."

EFFECTS OF GOVERNMENT REGULATIONS AND LOCATION ON THE COMPANY'S BUSINESS

         For a discussion of the effects of Israeli governmental regulation and
our location in Israel on our business, see "Information on the Company -
Conditions in Israel" above.

LIQUIDITY AND CAPITAL RESOURCES

         Since our inception, we have financed our operations primarily through
private placements of convertible debentures and preferred shares,
royalty-bearing grants from the Chief Scientist, borrowing from a related party,
borrowings under our line of credit and from proceeds of our initial public
offering on the Nasdaq National Market in August 2000. Through December 31,
2000, we raised $97.8 million in the initial public offering and an additional
$35.2 million from three private placements all of which in the aggregate amount
to a total of $133.0 million. We did not raise any capital during fiscal 2001.
Through December 31, 2001, we received a total of approximately $8.5 million
from the Chief Scientist. Prior to fiscal year 2001, we borrowed approximately
$1.2 million from a related party which we repaid in August 2000 from the
initial public offering proceeds.

         As of December 31, 2001, we had approximately $53.7 million in cash and
cash equivalents, short term deposits, and corporate bonds.

         As of December 31, 2001, we had a $6 million line of credit from a
leading Israeli bank, all of which is currently undrawn. In consideration for
this line of credit, we registered a floating charge on all of our assets in
favor of the bank. We also issued a warrant to the bank to purchase our ordinary
shares for an aggregate purchase price of up to $900 thousand. The bank
exercised this warrant prior to our IPO.

         Net cash used in operating activities was approximately $6.9 million
for the year ended December 31, 1999, $25.8 million for the year ended December
31, 2000, and $24.1 million for the year ended December 31, 2001.

         Net cash used in investing activities was $933 thousand for the year
ended December 31, 1999, $15.0 million for the year ended December 31, 2000, and
$39.5 million for the year ended December 31, 2001. The increase in net cash
used in investing activities was primarily attributable to the purchase of
property and equipment and to increases in short term deposits and corporate
bonds in 2001.

         Net cash provided (used) by financing activities was $8.8 million for
the year ended December 31, 1999, $109.8 million for the year ended December 31,
2000, and $(37) thousand for the year ended December 31, 2001. The cash provided
by financing activities in the years 1999 and 2000 was attributable to proceeds
from the issuance of preferred shares in 1999 and 2000, and the issuance of
ordinary shares in our initial public offering.

         As of December 31, 2001, our principal commitments consisted of $7.9
million for obligations outstanding under operating leases and $6.7 million of
royalties payable to the


                                       46
<PAGE>

Government of Israel on revenues from product sales. We are also committed to
pay royalties to a subcontractor for the development of a component and its
integration into one of our products. The royalty rate on royalties payable to
this subcontractor decreases on an annual basis, at the rate of 4%, 3% and 2% of
our revenues for the first, second and third years of revenues, respectively,
and 1% of our revenues for the fourth to seventh years of revenues. This is the
fourth year we have received revenues as of December 31, and we currently pay
royalties to this subcontractor at a rate of 1% of our collected revenue for a
specific product.

         In 2001, the Company entered into agreements with international
suppliers pursuant to which the Company is committed to purchase certain
products from these suppliers. The initial minimum purchase commitments under
these agreements are approximately $27 million.

         The majority of our investments consist of short term, highly liquid
investments with original maturities of less than three months. We also have a
small portion of our assets in corporate debt securities investments with
maturities of up to two years, carrying a minimum rating of AA/A2. All of these
investments are in US dollars.

         We believe that current cash and cash equivalent balances and cash
flows from operations will be sufficient for our present requirements.

         Our capital requirements are dependent on many factors, including
market acceptance of our products and the allocation of resources to our
research and development efforts, as well as our marketing and sales activities

CAPITAL EXPENDITURES

         We have no current material commitments for capital expenditures.

RESEARCH AND DEVELOPMENT

         We place considerable emphasis on research and development to expand
the capabilities of our existing products, to develop new products and to
improve our existing technologies and capabilities. We believe that our future
success will depend upon our ability to maintain technological leadership, to
enhance existing products and to introduce on a timely basis new commercially
viable products and technology addressing the needs of our customers. We intend
to continue to devote a significant portion of our personnel and financial
resources to research and development. As part of our product development
process, we seek to maintain close relationships with our customers to identify
market needs and to define appropriate product specifications. In addition, we
intend to continue to comply with industry standards and, in order to
participate in the formulation of European standards, we are full members of the
European Telecommunications Standards Institute.

         Our research and development activities are conducted at our facilities
in Tel Aviv, Israel. As of December 31, 2001, our research and development staff
consisted of 83 employees. Our research and development team includes highly
specialized engineers and technicians with expertise in the fields of millimeter
wave design, modem and signal processing, data communications, system management
and networking solutions. Our technical expertise in these fields results in a
highly-optimized system design and a strong and reliable system solution. Our


                                       47
<PAGE>

extensive protocol knowledge and expertise has resulted in highly optimized
solutions for various communications protocols.

INTELLECTUAL PROPERTY

         See: "History and Development of the Company--Intellectual Property."

TREND INFORMATION

         In early 2001, the global telecommunications industry, including in our
principal geographic markets, started to experience a slowdown, resulting in
decreases and delays in the procurement and deployment of new telecommunications
equipment. Many industry players in markets throughout the world have
experienced, and are continuing to experience, substantial declines in sales and
revenues and have in many cases incurred significant operating losses. Many
carriers and service providers have stopped deploying new data communications
and telecommunications systems. Many have suspended purchasing new data
communications or telecommunications products or have ceased operations
completely. Many of these companies are no longer potential customers.

         These events have had a direct impact on demand for our products. For
example, in April and May 2001, two of our important customers, Winstar
Communications (our main U.S. customer) and Advanced Radio Telecom filed for
protection under Chapter 11 of the U.S. Bankruptcy Code. Other companies have
also filed for bankruptcy, reduced employee headcount, and reduced or suspended
many purchasing activities.

ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

DIRECTORS AND SENIOR MANAGEMENT

                                   MANAGEMENT

         The following table lists our current directors and executive officers:
<TABLE>
<CAPTION>

NAME                                                   AGE      POSITION
----                                                   ---      --------
<S>                                                    <C>      <C>
Zohar Zisapel.............................             53       Chairman of the Board of Directors
Shraga Katz...............................             49       Chief Executive Officer, President and
                                                                Director
Inon Beracha..............................             39       Chief Operating Officer and Vice President,
                                                                Research and Development
Ran Oz....................................             35       Chief Financial Officer
Shlomo Tenenberg..........................             47       Vice President, Marketing and Sales
Gil Feingold..............................             42       Vice President, Operations
Sharon Ganot..............................             33       Vice President, Human Resources
</TABLE>

                                       48
<PAGE>
<TABLE>
<CAPTION>
NAME                                                   AGE      POSITION
----                                                   ---      --------

<S>                                                    <C>      <C>
Mitchell C. Shelowitz.....................             35       General Counsel and Corporate Secretary
David Ackerman............................             45       President of our U.S. subsidiary

Yael Langer...............................             37       Director
Zohar Gilon...............................             54       Director
Shmuel Levy...............................             47       Director
Joseph Atsmon.............................             52       Director
</TABLE>

         ZOHAR ZISAPEL has served as the chairman of our board of directors
since we were incorporated in 1996. Mr. Zisapel is also a founder and a director
of RAD Data Communications Ltd., of which he served as president from January
1982 until January 1998 and has served as Chairman since 1998. Mr. Zisapel
serves as a director of RIT Technologies Ltd. and Verisity Ltd. and as Chairman
of RADVision Ltd. and RADCOM Ltd. Mr. Zisapel previously served as head of the
electronics research department in the Israeli Ministry of Defense. Mr. Zisapel
received B.Sc. and M.Sc. in electrical engineering from the Technion, Israel
Institute of Technology and an M.B.A. from Tel Aviv University.

         SHRAGA KATZ, our co-founder, has served as our president and chief
executive officer since July 1996. From April 1979 to April 1996, Mr. Katz
served in the electronic research and development department in the Israeli
Ministry of Defense. From April 1993 to April 1996, Mr. Katz served as the head
of that department. Mr. Katz received a B.Sc. in electrical engineering and
electronics from the Technion, Israel Institute of Technology, and an M.B.A.
from Tel Aviv University.

         INON BERACHA, our co-founder, has served as our chief operating officer
since December 2000 and our vice president of research and development since
July 1996. From January 1985 April 1996, Mr. Beracha served in the electronic
research and development department in the Israeli Ministry of Defense. From
March 1993 to April 1996, Mr. Beracha served as the deputy head of that
department. Mr. Beracha received a B.Sc. and an M.Sc. in electrical engineering
and electronics from Tel Aviv University.

         RAN OZ has served as our chief financial officer since September 2001.
From 1995 until 2001, Mr. Oz was the general manager and chief financial officer
of Jacada Ltd. From 1992 to 1994, Mr. Oz was associated with Somekh Chaikin as a
certified public accountant. Mr. Oz received a B.A. in economics and accounting
and a Masters degree in business administration and economics from the Hebrew
University of Jerusalem.

         SHLOMO TENENBERG has served as our vice president of marketing and
sales since July 1998. From March 1994 to July 1998, Mr. Tenenberg served as the
vice president of Nexus Telocation Systems Ltd. From October 1989 until March
1994, Mr. Tenenberg was the marketing manager at ECI Telecom Ltd. Mr. Tenenberg
received a B.Sc. in electrical engineering and electronics from Ben Gurion
University and an M.B.A. from Tel Aviv University.

         GIL FEINGOLD has served as our vice president of operations since March
1998. From March 1992 to March 1998, Mr. Feingold held logistics management and
engineering positions with Madge Networks Ltd. and Lannet Data Communications
Ltd. From October 1986 to March


                                       49
<PAGE>

1992, Mr. Feingold served as production engineer manager of Motorola
Communications Israel. Mr. Feingold received a B.Sc. in industrial engineering
from the Tel Aviv University and an M.B.A. from Bar Ilan University.

         SHARON GANOT has served as our vice president of human resources since
March 2000. From December 1999 until March 2000, Ms. Ganot was the manager of
our human resources department. From April 1994 until December 1999, she was a
personnel recruiter and training manager with RAD Data Communications Ltd. Ms.
Ganot received a B.A. in psychology and an M.A. in Industrial Studies from Tel
Aviv University.

         MITCHELL C. SHELOWITZ has served as our general counsel and corporate
secretary since December 2000. From July 1999 until December 2000, Mr. Shelowitz
was legal counsel at Gilat Satellite Networks Ltd. Before that, Mr. Shelowitz
was associated with the law firms of Goldfarb, Levy, Eran & Co. (Tel Aviv) from
1997 to 1999, Nixon Peabody LLP (Garden City, New York) from 1996 to 1997, and
Proskauer Rose LLP (New York City) from 1991 to 1996. Mr. Shelowitz received a
J.D. from Touro College, Jacob D. Fuchsberg Law Center and received a B.A. in
biology and business from the State University of New York at Albany.

         DAVID ACKERMAN has served as the president of our U.S. subsidiary since
July 1999. Mr. Ackerman founded DORNET Systems, a U.S. distributor for the
RAD-BYNET group, and from January 1998 to June 1999 served as the president of
DORNET Systems. From March 1996 to December 1997, Mr. Ackerman was the vice
president of North American sales of RIT Technologies Ltd., a member of the
RAD-Bynet group. From February 1992 to March 1996, he was a regional sales
manager for RIT Technologies Ltd. Mr. Ackerman received a B.A. and an M.B.A.
from the University of Massachusetts.

         YAEL LANGER has served as a director of our company since December
2000. Ms. Langer served as our general counsel from July 1998 until December
2000. Ms. Langer is general counsel and secretary of RAD and other companies in
the RAD-BYNET group. From December 1995 to July 1998, Ms. Langer served as
assistant general counsel to companies in the RAD-BYNET group. From September
1993 until July 1995, Ms. Langer was a member of the legal department of Poalim
Capital Markets and Investments Ltd. Ms. Langer has an LL.B. from the Hebrew
University in Jerusalem.

         ZOHAR GILON has served as a director of our company since June 1999.
Mr. Gilon is a General Partner and Managing Director of Tamar Technologies L.P.,
a venture capital fund based in Israel, which was founded in 1998 together with
C.E. Unterberg, Towbin. Mr. Gilon is a private entrepreneur and has served as a
director of AVT-Advanced Vision Technology Ltd. since 1998, as well for
companies in the RAD-BYNET group, including RADCOM Ltd. since September 1995,
RIT Technologies Ltd., since September 1995, and Silicom Ltd. since 1995.
Between November 1993 and June 1995, Mr. Gilon served as president of W.S.P.
Capital Holdings, an investment firm traded on the Tel Aviv Stock Exchange. Mr.
Gilon received a B.S.E.E. from the Technion, Israel Institute of Technology, and
an M.B.A. from Tel Aviv University. Mr. Gilon is one of our external directors
under Israeli law and is one of our independent directors under Nasdaq rules.

                                       50
<PAGE>

         SHMUEL LEVY has served as a director of our company since June 2000.
From December 2000, Mr. Levy has been a partner at Sequoia Capital. From August
1998 until July 2000, Mr. Levy was employed by Lucent Technologies Inc., where
he was president, enterprise internetworking systems. From June 1997 to July
1998, Mr. Levy was the president and chief executive officer of Lannet Data
Communications Ltd. From July 1992 to June 1997, Mr. Levy held various executive
positions with Madge Networks Ltd. and Lannet Data Communications. Mr. Levy
received a B.S. degree in electrical engineering from Ben Gurion University. Mr.
Levy is one of our external directors under Israeli law and is one of our
independent directors under Nasdaq rules.

         JOSEPH ATSMON has served as a director since July 12, 2001. He
currently serves as Chairman of Discretix Ltd., a position he has held since
April 1, 2001, and director of Nice Ltd. since July 2001. From 1995 until 2000,
he served as chief executive officer of Teledata Communications Ltd., a public
company acquired by ADC Telecommunications Inc. in 1998. From 1986 until 1995,
Mr. Atsmon served in various positions at Tadiran Ltd., among them a Division
President and Corporate Vice President for Business Development. Mr. Atsmon
received a B.Sc. in Electrical Engineering, SUMMA CUM LAUDE, from the Technion,
Israel Institute of Technology. Mr. Atsmon is one of our independent directors
under Nasdaq rules.

COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

         The following table presents all compensation we paid to all of our
directors and executive officers as a group for the year ended December 31,
2001. The table does not include any amounts we paid to reimburse any of our
affiliates for costs incurred in providing us with services during this period.
<TABLE>
<CAPTION>

                                                                                                PENSION,
                                                                         SALARIES, FEES,     RETIREMENT AND
                                                                         COMMISSIONS AND      OTHER SIMILAR
                                                                             BONUSES            BENEFITS
                                                                         --------------     ---------------
<S>                                                                         <C>                 <C>
All directors and executive officers as a group, consisting of
thirteen persons...................................................         $845,000            $115,000
</TABLE>

         As of December 31, 2001, our directors and executive officers as a
group, consisting of thirteen persons, held options to purchase an aggregate of
2,339,250 ordinary shares. All our officers work full time.

         Other than reimbursement for expenses, and the award of stock options,
we do not compensate our directors for serving on our board of directors. For
more information, please see "Affiliate Employees Option Plan" below and Note 8
to our Consolidated Financial Statements included as Item 18 in this annual
report.

BOARD PRACTICES

BOARD OF DIRECTORS

         Our articles of association authorize our board of directors to consist
of a minimum of five and a maximum of nine members. Our board of directors
presently consists of six members. The


                                       51
<PAGE>

board retains all the powers in running our company that are not specifically
granted to the shareholders. The board may make decisions to borrow money for
our company, and may set aside reserves out of our profits, for whatever
purposes it thinks fit.

         The board may make a resolution when a quorum is present, and each
resolution must be passed by a vote of at least a majority of the directors
present at the meeting. A quorum of directors is at least a majority of the
directors then in office. The board may elect one director to serve as the
chairman of the board of directors to preside at the meetings of the board of
directors, and may also remove such director as chairman. Minutes of the
meetings are recorded and kept at our offices.

TERMS OF DIRECTORS

         Our articles of association provide that directors, other than our
external directors described below, are elected at our annual general meeting of
shareholders by a vote of the holders of a majority of the voting power
represented at that meeting. Each of these directors holds office until the next
annual general meeting of the shareholders. Our external directors, currently
Zohar Gilon and Shmuel Levy, each serve a three year term. Zohar Gilon's and
Shmuel Levy's terms will expire in February 2004.

         In the event that any directors are appointed by the board of
directors, their appointment must be ratified by the shareholders at the next
shareholders' meeting following the appointment. Our shareholders may remove a
director from office, in certain circumstances. There is no requirement that a
director own shares of our company. Directors may appoint alternative directors
in their stead.

         As a company organized in Israel whose ordinary shares are listed for
quotation on the Nasdaq National Market we are required to comply with both the
rules of the Nasdaq National Market applicable to listed companies and the
Israeli Companies Law applicable to Israeli companies. Under Nasdaq National
Market Rules, we are required to appoint three independent directors and, under
the Israeli Companies Law, we are required to appoint two external directors.

INDEPENDENT DIRECTORS

         The independence standard under Nasdaq rules excludes any person who is
a current or former employee of a company or its affiliates as well as the
immediate family members of an executive officer of a company or its affiliates.
Messrs. Zohar Gilon, Shmuel Levy, and Joseph Atsmon currently serve as our
independent directors. Mr. Atsmon was appointed as our third independent
director in July 2001 to replace our interim independent director Yael Langer.

EXTERNAL DIRECTORS

         We are subject to the provisions of the new Israeli Companies Law,
5759-1999, which became effective on February 1, 2000 and which supersedes most
of the provisions of the Israeli Companies Ordinance (New Version), 5743-1983.
The Companies Law authorizes the minister of justice to adopt regulations
exempting from the provisions described below companies whose shares are traded
outside of Israel, such as Ceragon.

                                       52
<PAGE>

         Under the Companies Law, companies incorporated under the laws of
Israel whose shares have been offered to the public in or outside of Israel are
required to appoint at least two external directors. A person may not be
appointed as an external director if he or she or his or her relative, partner,
employer or any entity under his or her control has or had during the two years
preceding the date of appointment any affiliation with:

          o    the company;

          o    any entity controlling the company; or

          o    any entity controlled by the company or by this controlling
               entity.

               The  term affiliation includes:


          o    an employment relationship;

          o    a business or professional relationship maintained on a regular
               basis;

          o    control; and

          o    service as an office holder, excluding service as an office
               holder during the three month period in which the company first
               offers its shares to the public.

         No person can serve as an external director if the person's position or
other business creates, or may create, conflicts of interest with the person's
service as an external director, or, if his or her position or other business
might interfere with his or her ability to serve as a director.

         A company may not engage an external director as an office holder and
cannot employ or receive services from that person, either directly or
indirectly, including through a corporation controlled by that person for a
period of two years from the termination of his or her service as an external
director.

ELECTION OF EXTERNAL DIRECTORS

         External directors are elected by a majority vote at a shareholders'
meeting, provided that either:

          o    the majority of the shares voted at the meeting, including at
               least one third of the shares of non-controlling shareholders
               voted at the meeting, vote in favor of the election; or

          o    the total number of shares voted against the election of the
               external director does not exceed one percent of the aggregate
               voting rights in the company.

         The initial term of an external director is three years and may be
extended for an additional three years. External directors can be removed from
office only by the same majority



                                       53
<PAGE>

of shareholders that was required to elect them, or by a court (if they cease to
meet the statutory qualifications with respect to their appointment, or if they
violate their duty of loyalty to the company). Each committee of a company's
board of directors is required to include at least one external director.
Currently, Zohar Gilon and Shmuel Levy serve as our external directors.

AUDIT COMMITTEE

NASDAQ REQUIREMENTS

         Under Nasdaq rules, we are required to have an audit committee
consisting of at least three independent directors, all of whom are financially
literate and one of whom has accounting or related financial management
expertise. The responsibilities of the audit committee under Nasdaq rules
include evaluating the independence of a company's outside auditors. Currently,
Messrs. Zohar Gilon, Shmuel Levy, and Joseph Atsmon serve on our audit
committee. Mr. Atsmon was appointed as our third independent director in July
2001 to replace Yael Langer who served as an interim member of our audit
committee.

COMPANIES LAW REQUIREMENTS

         Under the Companies Law, the board of directors of any Israeli company
whose shares are publicly traded must appoint an audit committee, comprised of
at least three directors including all of the external directors, but excluding:


          o    the chairman of the board of directors; and

          o    a controlling party, or his or her relative, and any director
               employed by the company or who provides services to the company
               on a regular basis.

         The role of the audit committee is to examine accounting, reporting,
and financial control practices, in consultation with the internal auditor and
the company's independent accountants, and to exercise the powers of the board
of directors with respect to such practices.

         The composition of our Audit Committee satisfies both the Nasdaq
National Market Rules and the Israeli Companies Law requirements.

APPROVAL OF CERTAIN TRANSACTIONS

         The approval of the audit committee is required to effect specified
actions and exceptional transactions with office holders, third parties in which
an office holder has a personal interest and controlling parties, and
transactions with a third party in which a controlling party has a personal
interest. A controlling party is defined in the Companies Law for this purpose
as a person with the ability to direct the actions of a company, or a person who
holds 25% or more of the voting rights in a public company if no other
shareholder owns more than 50% of the voting rights in the company, provided
that two or more persons holding voting rights in the company who each have a
personal interest in the approval of the same transaction shall be deemed to be
one holder. The audit committee may not approve an action or an exceptional

                                       54
<PAGE>

transaction with a controlling party or with an office holder unless at the time
of approval the two external directors are serving as members of the audit
committee and at least one of them is present at the meeting in which an
approval was granted. Audit committee approval is also required to approve the
grant of an exemption from the responsibility for a breach of the duty of care
towards the company, or for the provision of insurance or an undertaking to
indemnify any office holder who is not a director of the company. In addition,
the audit committee must approve contracts between the company and any of its
directors relating to the service or employment of the director.

REMUNERATION OF DIRECTORS

         Directors' remuneration requires the approval of the audit committee,
the board of directors, and the shareholders. except for reimbursement of
reasonable expenses incurred in connection with carrying out the directors'
duties.

         Neither the Company nor its subsidiaries has entered into any service
contracts with its directors that provide benefits upon termination of
employment, except with regard to the president and chief executive officer in
his capacity as president and chief executive officer.

SHARE INCENTIVE COMMITTEE

         Our share incentive committee, which consists of Zohar Zisapel and
Shraga Katz, administers our key employee share incentive plan.

OPTION COMMITTEE

         Our option committee, which consists of Zohar Zisapel and Shraga Katz,
administers our affiliate employees option plan.

DIVIDENDS

         The board may declare dividends as it views justified, but the final
dividend for any fiscal quarter must be proposed by the board and approved by
the shareholders. Dividends may be paid in assets or shares, debentures or
debentures stock of our company or of other companies. For further information,
please see "Financial Information - Dividends."

INTERNAL AUDITOR

         Under the Companies Law, the board of directors must appoint an
internal auditor proposed by the audit committee. The role of the internal
auditor is to examine, among other things, whether the company's actions comply
with the law, integrity and orderly business procedure. The internal auditor has
the right to demand that the chairman of the audit committee convene an audit
committee meeting, and the internal auditor may participate in all audit
committee meetings. Under the Companies Law, the internal auditor may not be an
interested party, an office holder or an affiliate, or a relative of an
interested party, an office holder or affiliate, nor may the internal auditor be
the company's independent accountant or its representative. We have appointed
Gideon Duvshani, C.P.A., as our internal auditor.


                                       55
<PAGE>

APPROVAL OF SPECIFIED RELATED PARTY TRANSACTIONS UNDER ISRAELI LAW

FIDUCIARY DUTIES OF OFFICE HOLDERS

         The Companies Law imposes a duty of care and a duty of loyalty on all
office holders of a company, including directors and officers. An officer
includes the general or deputy general manager, chief business manager and any
other manager who reports directly to the general manager. The duty of care
requires an office holder to act with the level of care with which a reasonable
office holder in the same position would have acted under the same
circumstances. The duty of care includes a duty to use reasonable means to
obtain:

          o    information on the appropriateness of a given action brought for
               his or her approval or performed by him or her by virtue of his
               or her position; and

          o    all other important information pertaining to these actions.

         The duty of loyalty of an office holder is a duty to act in good faith
and for the benefit of the company, and includes a duty to:

          o    refrain from any conflict of interest between the performance of
               his or her duties in the company and his or her personal affairs;

          o    refrain from any activity that is competitive with the company;

          o    refrain from exploiting any business opportunity of the company
               to receive a personal gain for himself or herself or others; and

          o    disclose to the company any information or documents relating to
               a company's affairs which the office holder has received due to
               his or her position as an office holder.

                  The company may approve an action by an office holder from
which the office holder would otherwise have to refrain, as described above, if:


          o    the office holder acts in good faith and the act or its approval
               does not cause harm to the company; and

          o    the office holder discloses the nature of his or her interest in
               the transaction to the company in a reasonable time before the
               company's approval.

         Each person listed in the table under "--Directors and Senior
Management" above is considered an office holder under the Companies Law.


                                       56
<PAGE>


DISCLOSURE OF PERSONAL INTERESTS OF AN OFFICE HOLDER

         The Companies Law requires that an office holder of a company promptly
disclose, without delay, and, in any event, not later than the first board
meeting at which the transaction is discussed, any direct or indirect personal
interest that he or she may have and all related material information known to
him or her relating to any existing or proposed transaction by the company. If
the transaction is an extraordinary transaction, the office holder must also
disclose any personal interest held by:

          o    the office holder's spouse, siblings, parents, grandparents,
               descendants, spouse's descendants and the spouses of any of these
               people; or

          o    any corporation in which the office holder is a 5% or greater
               shareholder, director or general manager or in which he or she
               has the right to appoint at least one director or the general
               manager.

         Under the Companies Law, an extraordinary transaction is a transaction:

          o    other than in the ordinary course of business;

          o    otherwise than on market terms; or

          o    that is likely to have a material impact on the company's
               profitability, assets or liabilities.

         The Companies Law does not specify to whom within the company nor the
manner in which required disclosures are to be made. We require our office
holders to make such disclosures to our board of directors.

         Under the Companies Law, once an office holder complies with the above
disclosure requirement, the board of directors may approve a transaction between
the company and an office holder, or a third party in which an office holder has
a personal interest, unless the articles of association provide otherwise. A
transaction that is adverse to the company's interest may not be approved.

         If the transaction is an extraordinary transaction, first the audit
committee and then the board of directors must approve the transaction. Under
specific circumstances, shareholder approval may also be required. A director
who has a personal interest in an extraordinary transaction, which is considered
at a meeting of the board of directors or the audit committee, may not be
present at this meeting or vote on this matter, unless a majority of the board
of directors or the audit committee, as the case may be, has a personal
interest. If a majority of the board of directors has a personal interest, then
shareholder approval is required.

                                       57
<PAGE>

DISCLOSURE OF PERSONAL INTERESTS OF A CONTROLLING PARTY

         Under the Companies Law, the disclosure requirements which apply to an
office holder also apply to a controlling party of a public company. A
controlling party includes for this purpose a shareholder that holds 25% or more
of the voting rights in a public company if no other shareholder owns more than
50% of the voting rights in the company or a shareholder who has the ability to
direct the actions of the company. Extraordinary transactions with a controlling
shareholder or in which a controlling shareholder has a personal interest, and
the terms of compensation of a controlling shareholder who is an office holder,
require the approval of the audit committee, the board of directors and the
majority of the voting power of the shareholders present and voting at the
general meeting of the company, provided that:

          o    the majority of shares voted at the meeting, including at least
               one-third of the shares of shareholders who have no personal
               interest in the transaction, vote in favor of the election; or

          o    the total number of shares voted against the transaction by
               shareholders who have no personal interest in the transaction
               does not exceed one percent of the aggregate voting rights in the
               company.

         In addition, under the Companies Law, each shareholder has a duty to
act in good faith in exercising his rights and fulfilling his obligations toward
the company and other shareholders and to refrain from abusing his power in the
company, such as shareholder votes. Further, specified shareholders have a duty
of fairness toward the company. These shareholders include any controlling
shareholder, any shareholder who knows that he or she possesses the power to
determine the outcome of a shareholder vote, and any shareholder who, pursuant
to the provisions of the articles of association, has the power to appoint or to
prevent the appointment of an office holder or any other power toward the
company. However, the Companies Law does not define the substance of this duty
of fairness.

EXCULPATION, INSURANCE AND INDEMNIFICATION OF DIRECTORS AND OFFICERS

         Under the Companies Law, an Israeli company may not exempt an office
holder from liability for a breach of his or her duty of loyalty, but may exempt
in advance an office holder from his or her liability to the company, in whole
or in part, for a breach of his or her duty of care.

OFFICE HOLDERS INSURANCE

         Our articles of association provide that, subject to the provisions of
the Companies Law, we may enter into a contract for the insurance of the
liability of any of our office holders concerning an act performed by him or her
in his or her capacity as an office holder for:

          o    a breach of his or her duty of care to us or to another person;

                                       58
<PAGE>

          o    a breach of his or her duty of loyalty to us, provided that the
               office holder acted in good faith and had reasonable cause to
               assume that his or her act would not prejudice our interests; or

          o    a financial liability imposed upon him or her in favor of another
               person.

INDEMNIFICATION OF OFFICE HOLDERS

         Our articles of association provide that we may indemnify any of our
office holders against an act performed in his or her capacity as an office
holder, including indemnity for the following:

          o    a financial liability imposed on him or her in favor of another
               person; and

          o    reasonable litigation expenses, including attorneys' fees,
               expended by the office holder or charged to him or her by a
               court, resulting from the following: proceedings we institute
               against him or her or instituted on our behalf or by another
               person; a criminal charge from which he or she was acquitted; or
               a criminal charge in which he or she was convicted for a criminal
               offense that does not require proof of intent.

         Our articles of association also include the following:

          o    we are authorized to grant in advance an undertaking to indemnify
               our office holders, provided that the undertaking is: limited to
               specified events which the board of directors determines to be
               anticipated; and limited to an amount determined by the board of
               directors to be reasonable under the circumstances.

          o    we are authorized to indemnify retroactively our office holders.

LIMITATIONS ON INSURANCE AND INDEMNIFICATION

         The Companies Law provides that a company may not indemnify an office
holder nor enter into an insurance contract which would provide coverage for any
monetary liability incurred as a result of any of the following:

          o    a breach by the office holder of his or her duty of loyalty
               unless the office holder acted in good faith and had a reasonable
               basis to believe that the act would not prejudice the company;

          o    a breach by the office holder of his or her duty of care if the
               breach was done intentionally or recklessly;

          o    any act or omission done with the intent to derive an illegal
               personal benefit; or

          o    any fine levied against the office holder.

                                       59
<PAGE>

         In addition, under the Companies Law, indemnification of, and
procurement of insurance coverage for, our office holders must be approved by
our audit committee and our board of directors and, in specified circumstances,
by our shareholders.

         We indemnify our office holders to the fullest extent permitted under
the Companies Law. We currently hold directors and officers liability insurance
for the benefit of our office holders. This policy was approved by our board of
directors and by our shareholders. Insofar as indemnification for liabilities
arising under the United States Securities Act of 1933, as amended, may be
permitted to our directors, officers and controlling persons, we have been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.

ANTI-TAKEOVER PROVISIONS; MERGERS AND ACQUISITIONS

         The Companies Law provides for mergers, provided that each party to the
transaction obtains the approval of its board of directors and shareholders. For
purposes of the shareholder vote of each party, unless a court rules otherwise,
the merger will not be deemed approved if a majority of the shares not held by
the other party (or by any person who holds 25% or more of the shares or the
right to appoint 25% or more of the directors of the other party) have voted
against the merger. Upon the request of a creditor of either party to the
proposed merger, the court may delay or prevent the merger if it concludes that
there exists a reasonable concern that as a result of the merger the surviving
company will be unable to satisfy the obligations of that party. Finally, a
merger may not be completed unless at least 70 days have passed from the time
that the requisite proposals for approval of the merger have been filed with the
Israeli Registrar of Companies.

         In addition, provisions of the Companies Law that deal with
"arrangements" between a company and its shareholders may be used to effect
squeeze-out transactions in which the target company becomes a wholly-owned
subsidiary of the acquirer. These provisions generally require that the merger
be approved by a majority of the participating shareholders holding at least 75%
of the shares voted on the matter. In addition to shareholder approval, court
approval of the transaction is required, which entails further delay. The
Companies Law also provides for a merger between Israeli companies, after
completion of the above procedure for an "arrangement" transaction and court
approval of the merger.

         The Companies Law also provides that an acquisition of shares in a
public company must be made by means of a tender offer if as a result of the
acquisition the purchaser would become a 25% shareholder of the company. This
rule does not apply if there is already another 25% shareholder of the company.
Similarly, the Companies Law provides that an acquisition of shares in a public
company must be made by means of a tender offer if as a result of the
acquisition the purchaser would become a 45% shareholder of the company, unless
there is already a majority shareholder of the company. The Israeli Minister of
Justice has the authority to adopt regulations exempting from these tender offer
requirements companies that are publicly traded outside Israel, such as our
company. In any event, if as a result of an acquisition of shares the acquirer
will hold more than 90% of a company's shares, the acquisition must be made by
means of a tender offer for all of the shares. If more than 95% of the
outstanding shares are tendered in the tender offer, all the shares that the
acquirer offered to purchase will be transferred

                                       60
<PAGE>

to it. Israel tax law treats stock-for-stock acquisitions between an Israeli
company and another company less favorably than does U.S. tax law. For example,
Israeli tax law may subject a shareholder who exchanges his or her ordinary
shares for shares in another corporation to taxation on half the shareholder's
shares two years following the exchange and on the balance of the shares four
years thereafter even if the shareholder has not yet sold the shares.

EMPLOYEES

         As of December 31, 2001, we had 204 employees worldwide, of whom 83
were employed in research and development, 51 in sales and marketing, 15 in
management and administration and 55 in operations. Of these employees, 179 were
based in Israel, 12 were based in the United States, 10 were based in Europe,
and 3 were based in Latin America and Asia-Pacific. We have employment
agreements with all of our employees.

         As part of a number of measures taken to reduce our operating costs,
during 2001, we engaged in work force reductions. The above numbers reflect the
post-reduction workforce.

         We are subject to Israeli labor laws and regulations with respect to
our Israeli employees. These laws principally concern matters such as paid
annual vacation, paid sick days, length of the workday and work week, minimum
wages, pay for overtime, insurance for work-related accidents, severance pay and
other conditions of employment.

         Furthermore, we and our Israeli employees are subject to provisions of
the collective bargaining agreements between the Histadrut, the General
Federation of Labor in Israel, and the Coordination Bureau of Economic
Organizations, including the Industrialists Association, by order of the Israeli
Ministry of Labor and Welfare. These provisions principally concern cost of
living increases, recreation pay and other conditions of employment. We provide
our employees with benefits and working conditions above the required minimums.
Our employees are not represented by a labor union. We consider our relationship
with our employees to be good. To date, we have not experienced any work
stoppages.

          The employees of our subsidiaries are subject to local labor laws and
regulations that vary from country to country.

SHARE OWNERSHIP

         The following table sets forth certain information regarding the
ownership of our ordinary shares by our directors and officers as of December
31, 2001. The percentage of outstanding ordinary shares is based on 22,165,196
ordinary shares outstanding as of December 31, 2001.

         Total shares beneficially owned in the table below include shares that
may be acquired upon the exercise of options that are exercisable within 60
days. The shares that may be issued under these options are treated as
outstanding only for purposes of determining the percent owned by the person or
group holding the options but not for the purpose of determining the percentage
ownership of any other person or group. Each of our directors and officers who
is also a director or officer of an entity listed in the table below disclaims
ownership of our ordinary shares owned by such entity.

                                       61
<PAGE>
<TABLE>
<CAPTION>

                                                                                             PERCENTAGE OF
                                                                     NUMBER OF ORDINARY       OUTSTANDING
NAME                                                                       SHARES           ORDINARY SHARES
----------------------------------------------------------           ------------------     ---------------
<S>                                                                      <C>                      <C>
Zohar Zisapel.............................................               2,569,500                11.6%
Shraga Katz ..............................................                 898,000                 4.1%
All of directors and executive officers as a group,
Consisting of thirteen people(1)..........................               4,216,332                19.0%
</TABLE>

(1)      Each of these directors and executive officers individually
         beneficially owns less than 1% of the outstanding shares, except
         Messrs. Zohar Zisapel and Shraga Katz. These holdings do not include
         816,250 ordinary shares held by Tamar Technologies L.P., a venture
         capital fund for which our director Zohar Gilon is a General Partner
         and Managing Director.

STOCK OPTION PLANS

KEY EMPLOYEE SHARE INCENTIVE PLAN

         In August 1996, we adopted our key employee share incentive plan.
Employees of our company and our subsidiaries or affiliates belonging to the
RAD-BYNET group are eligible to participate in the plan. No options may be
granted to any person serving on the share incentive committee nor to any person
who is or will become as a result of an option grant one of our controlling
shareholders. The options expire five to ten years from the date of issuance.
The following table presents option grant information for this plan as of
December 31, 2001:


ORDINARY SHARES RESERVED                                     WEIGHTED AVERAGE
   FOR OPTION GRANTS            OPTIONS OUTSTANDING           EXERCISE PRICE
------------------------        -------------------         ------------------
       7,539,000                     4,923,404                    $2.36

         The 7,539,000 ordinary shares indicated in the table as having been
reserved for option grants reflect the total number of ordinary shares reserved
for grants under this plan and our affiliate employees option plan in the
aggregate. Of the shares reserved for option grants, 1,442,500 were issued by
the board of directors pursuant to a decision as of October 23, 2001, and are
subject to approval by the shareholders at the next annual general meeting.

         The share incentive committee of our board of directors administers the
plan. Under the plan, the committee has the authority to determine, in its
discretion:

          o    the persons to whom options are granted;

          o    the number of shares underlying each option award;

          o    the time or times at which the award shall be made;

          o    the exercise price, vesting schedule and conditions under which
               the options may be exercised; and

                                       62
<PAGE>

          o    any other matter necessary or desirable for the administration of
               the plan.

         Under section 112 of the Israeli Companies Law, the share incentive
committee may only advise our board of directors with regard to the grant of
options, and the actual grant is carried out by our board of directors.

OPTION TRUST

         Under the plan, pursuant to Section 102 of the Israeli Tax Ordinance,
all options, or shares issued upon exercise of options, are held in trust and
registered in the name of a trustee selected by the share incentive committee.
The trustee may not release the options or ordinary shares to the holders of
these options or shares that are subject to the Israeli Tax Ordinance before the
second anniversary of the registration of the options in the name of the
trustee. During this period, voting rights attached to the ordinary shares
issued upon exercise of the options may be exercised jointly by Yehuda Zisapel
and Zohar Zisapel.

         This restriction does not apply to employees that are not subject to
the Israeli Tax Ordinance. In addition, pursuant to an amendment to the plan,
based upon a tax ruling by the Israeli Tax Authority, option holders that are
subject to the Israeli Tax Ordinance have the ability to exercise vested options
prior to the conclusion of the two year period as long as:

          o    all shares arising out of the employee's exercise of options are
               sold immediately upon exercise to an unrelated third party; and

          o    the employee exercising the options pays to the Israel Tax
               Authority a 50% tax on the net revenue resulting from the
               exercise of options and the sale of shares.

TERMINATION AND AMENDMENT

         Our board of directors may terminate or amend the plan, provided that
any action by our board of directors, which will alter or impair the rights of
an option holder, requires the prior consent of that option holder.

AFFILIATE EMPLOYEES OPTION PLAN

         In May 1997, we adopted our affiliate employees option plan. This plan
has terms that are substantially identical to the terms of the key employee
share incentive plan. Our employees, directors and consultants are eligible to
participate in the plan. No options may be granted to any person serving on the
share incentive committee nor to any person who is or will become as a result of
an option grant one of our controlling shareholders. The options expire five to
ten years from the date of issuance. The following table presents option grant
information for this plan as of December 31, 2001:

ORDINARY SHARES RESERVED                                     WEIGHTED AVERAGE
   FOR OPTION GRANTS            OPTIONS OUTSTANDING           EXERCISE PRICE
------------------------        -------------------         ------------------
      7,539,000                       805,450                     $5.28

                                       63
<PAGE>

         The 7,539,000 ordinary shares indicated in the table as having been
reserved for option grants reflect the total number of ordinary shares reserved
for grants under this plan and our key employee share incentive plan in the
aggregate. Of the shares reserved for option grants, 342,500 were issued by the
board of directors pursuant to a decision as of October 23, 2001, and are
subject to approval by the shareholders at the next annual general meeting.


ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

MAJOR SHAREHOLDERS

         The following table sets forth stock ownership information as of
December 31, 2001 with respect to:

          1)   Each person who is known by us to be the beneficial owner of more
               than 5% of our outstanding ordinary shares; and

          2)   All the directors and executive officers.

         Except where otherwise indicated, and except pursuant to community
property laws, we believe, based on information furnished by such owners, that
the beneficial owners of the ordinary shares listed below have sole investment
and voting power with respect to such shares. The shareholders listed below do
not have any different voting rights from any of our other shareholders. We know
of no arrangements which would, at a subsequent date, result in a change of
control of our company.

         Total shares beneficially owned in the table below include shares that
may be acquired upon the exercise of options that are exercisable within 60
days. The shares that may be issued under these options are treated as
outstanding only for purposes of determining the percent owned by the person or
group holding the options but not for the purpose of determining the percentage
ownership of any other person or group. Each of our directors and officers who
is also a director or officer of an entity listed in the table below disclaims
ownership of our ordinary shares owned by such entity.

                                       64
<PAGE>

         Unless otherwise noted below, each shareholder's address is 24 Raoul
Wallenberg St., Tel Aviv 69719, Israel.

<TABLE>
<CAPTION>
                                                                                             PERCENTAGE OF
                                                                  NUMBER OF ORDINARY          OUTSTANDING
NAME                                                                    SHARES             ORDINARY SHARES(1)
----------------------------------------------------------        ------------------       ------------------
<S>                                                                   <C>                         <C>
Yehuda Zisapel(2).........................................            2,838,000                   12.8%
Zohar Zisapel(2)..........................................            2,569,500                   11.6%
HarbourVest International Private Equity Partners III -
   Direct Fund, L.P.(3)...................................            1,565,750                    7.1%
Fidelity International Limited (4)                                    1,914,300                    8.6%
Directors and Executive Officers as a group
(thirteen people) (5).....................................            4,216,332                   19.0%

</TABLE>
(1)  Based on 22,165,196 Ordinary Shares issued and outstanding as of December
     31, 2001.

(2)  Yehuda Zisapel and Zohar Zisapel are brothers.

(3)  The sole general partner of HarbourVest International Private Equity
     Partners III-Direct Fund, L.P. is HIPEP III-Direct Associates L.L.C., the
     managing member of which is HarbourVest Partners, LLC. The address of
     HarbourVest is One Financial Center, Boston, Massachusetts 02111. The
     members of HIPEP III Direct Associates L.L.C. and HarbourVest Partners LLC
     may be deemed to have an indirect pecuniary interest (within the meaning of
     Rule 16a-1 under the Exchange Act) in an indeterminate portion of the
     shares beneficially owned by HarbourVest International Private Equity
     Partners III-Direct Fund, L.P. Such members disclaim beneficial ownership
     of these shares within the meaning of Rule 13d-3 of the Exchange Act.

(4)  Fidelity International Limited is a Bermuda company, located at HM 670
     Hamilton, HMCX, Bermuda.

(5)  Each of these directors and executive officers individually beneficially
     own less than 1% of the outstanding shares, except Messrs. Zohar Zisapel
     and Shraga Katz. These holdings do not include 816,250 ordinary shares held
     by Tamar Technologies L.P., a venture capital fund for which our director
     Zohar Gilon is a General Partner and Managing Director.



                                       65
<PAGE>

RELATED PARTY TRANSACTIONS

THE RAD-BYNET GROUP OF COMPANIES

         Yehuda Zisapel is a principal shareholder and Zohar Zisapel is a
director and principal shareholder of our company. They are brothers who, as of
December 31, 2001, together control 24.4% of our company. Individually or
together, they are also founders, directors and principal shareholders of
several other companies which, together with us and the other affiliates, are
known as the RAD-BYNET group. These corporations include the following, as well
as other real estate, holding a pharmaceutical companies:
<TABLE>
<CAPTION>

<S>                                       <C>                                           <C>
AB-NET Ltd.                               Modules Inc.                                  RND Operation Services Ltd.
Axerra Networks Inc.                      RADCOM Ltd.                                   RADView Software Ltd.
BYNET Data Communications Ltd.            RAD Data Communications Ltd.                  RADVision Ltd.
BYNET Electronics Ltd.                    RADLAN Computer Communications Ltd.           RADWARE Ltd.
BYNET SEMECH Outsourcing Ltd.             RND Networks Ltd.                             RADWIN Ltd.
BYNET Systems Applications Ltd.           SILICOM Ltd.                                  RIT Technologies Ltd.
EADWARE Ltd.                              SANRAD Inc.                                   WISAIR Inc.
                                                                                        RADREAL Ltd.
</TABLE>

         The above list does not constitute a complete list of the investments
of Messrs. Yehuda and Zohar Zisapel.

         Mr. Gilon, our director, also serves as a director of other companies
in the RAD-BYNET group, including RADCOM Ltd., RIT Technologies Ltd. and SILICOM
Ltd. Mr. Ackerman, the President of our U.S. subsidiary, founded and served in
the past as President of DORNET Systems, a U.S. distributor for the RAD-BYNET
group. Mr. Ackerman also served in the past as the vice president of North
American sales of RIT Technologies.

         In addition to engaging in other businesses, members of the RAD-BYNET
group are actively engaged in designing, manufacturing, marketing and supporting
data communications products, none of which currently compete with our products.
Some of the products of members of the RAD-BYNET group are complementary to, and
may be used in connection with, our products.

         Members of the RAD-BYNET group provide us on an as-needed basis with
finance, legal, management information systems, marketing, and administrative
services, and we reimburse each company for its costs in providing these
services. The aggregate amount of these expenses was approximately $0.7 million
in 2001.

         We generally ascertain the market prices for goods and services that
can be obtained at arms' length from unaffiliated third parties before entering
into any transaction with a member of the RAD-BYNET group for those goods and
services. In addition, all of our transactions to date with members of the
RAD-BYNET group were approved by our board of directors and audit committee. As
a result, we believe that the terms of the transactions in which we have engaged
and are currently engaged with other members of the RAD-BYNET group are
beneficial to us and no less favorable to us than terms which might be available
to us from unaffiliated third parties. Any future transaction and arrangement
with entities, including other members of the


                                       66
<PAGE>

RAD-BYNET group, in which our office holders have a personal interest will
require approval by our audit committee, our board of directors and, if
applicable, our shareholders.

LEASE ARRANGEMENTS

         We lease our office space for our current headquarters and principal
administrative, finance, marketing and sales operations from real estate holding
companies controlled by Yehuda and Zohar Zisapel. This facility is approximately
41,000 square feet in size. The lease for this facility will expire in May 2003,
with options to renew for two additional one-year periods. We also lease an
additional 12,000 square feet in adjacent buildings from companies controlled by
Zohar Zisapel and Yehuda Zisapel. The aggregate amount of rent and maintenance
expenses related to these properties was approximately $1.3 million in 2001.

SUPPLY ARRANGEMENT

         We purchase components from RAD Data Communications Ltd. and other
members of the RAD-BYNET group which we integrate into our products. The
aggregate purchase price of these components was approximately $1 million for
the year ended December 31, 2001.

SALES REPRESENTATION AGREEMENT

         In January 2001, we entered into a non-exclusive sales representation
agreement with Bynet Data Communications Ltd. The term of this agreement was one
year, subject to one year renewals upon agreement by the parties. This agreement
was not renewed. Under the agreement, Bynet was granted the right to market our
products in Israel and to the Israel Ministry of Defense. Under the agreement,
Bynet was paid $22,500 for their services, and, subject to sales, sales
commissions ranging from 5%-8%.

DISTRIBUTORSHIP AGREEMENT

         In January 2001, we entered into a non-exclusive distributor agreement
with Bynet Data Communications Ltd. The term of this agreement is one year,
which is automatically renewed for additional one year terms, unless either
party provides notice of non-renewal within ninety days prior to the expiration
of any such one year term. Under this agreement, Bynet may resell our products
to companies in Israel and to the Israel Ministry of Defense. This agreement has
been automatically renewed for an additional one year term.

REGISTRATION RIGHTS

         In connection with the private placement of preferred shares before our
initial public offering in August 2000, several of our shareholders were granted
registration rights with respect to 14,581,500 ordinary shares which resulted
following conversion of their preferred shares immediately prior to the
completion of our initial public offering. The agreement grants registration
rights to each of:

          o    the majority of the holders of the ordinary shares resulting from
               the conversion of such preferred shares; and

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<PAGE>

          o    Yehuda Zisapel and Zohar Zisapel.

         Under the agreement, each of these shareholder groups has the right to
make a single demand for the registration of their ordinary shares outstanding
at the time of the initial public offering, provided that the demand covers
shares representing a market value of at least $4 million and does not include
shares which may be sold without restriction within three months from the date
of the demand. These registration rights will be exercisable at any time
commencing on the first anniversary of the consummation of the initial public
offering for a period of three years, or, in specified cases, for a period of
five years thereafter. In addition, each of the shareholders has the right to
have its ordinary shares included in some of our registration statements.

AGREEMENT WITH OUR CHIEF EXECUTIVE OFFICER

         In July 1996, we entered into an agreement with Shraga Katz, pursuant
to which he agreed to serve as our chief executive officer for a period of no
less than five years from July 1996. The agreement provides that Shraga Katz may
not compete with us or disclose to third parties information pertaining to our
business for a period ranging from twelve to thirty months from the date of
termination of his employment, depending on the length of his term of employment
with us.


ITEM 8:  FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

         See Consolidated Financial Statements. No significant change to
Ceragon's financial condition has occurred since the date of the annual
financial statements included herein.

EXPORT SALES

         In 2001, all of our sales were to customers located outside of Israel.

LEGAL PROCEEDINGS

         We are not a party to any material legal proceedings, nor have there
been any material legal proceedings in which any of our directors, members of
senior management, or affiliates is either a party adverse to us or has a
material interest adverse to us. There are no material legal or governmental
proceedings which we know to be pending against us.

DIVIDENDS

         We have never declared or paid any dividend on our ordinary shares and
we do not anticipate paying any dividends on our ordinary shares in the future,
except for the share dividend that was paid as a result of the 250-for-1 share
recapitalization that took place immediately prior to our initial public
offering. We currently intend to retain all future earnings to finance our
operations and to expand our business.

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<PAGE>

CORPORATE TAX RATE

         Israeli companies are generally subject to income tax at the rate of
36%. However, a program at our manufacturing facility in Tel Aviv has been
granted approved enterprise status under the Law for the Encouragement of
Capital Investments, 1959. We are entitled to a reduction in the normally
applicable tax rate for income generated from this program. Additionally, an
investment program at our former Jerusalem facility had been granted approved
enterprise status. Although we closed the Jerusalem facility during 2001, we
received approval to transfer the approved enterprise program from Jerusalem to
our Tel Aviv facility later in 2001. Subject to compliance with applicable
requirements, the portion of income derived from an approved enterprise program
investment is eligible for the following tax benefits commencing in the first
year in which it generates taxable income:

YEAR AFTER WE
BEGIN GENERATING
TAXABLE INCOME                TAX BENEFIT
--------------                -----------
1-2.......................    Tax-exempt
3-7.......................    Corporate tax of up to 25%
8-10......................    Corporate tax of up to 25% if more than 25% of our
                              shares are held by non-Israeli investors

         We have derived, and expect to continue to derive, a substantial
portion of our revenues from our approved enterprise program. The benefits
available to an approved enterprise program are described below. These benefits
are dependent upon the fulfillment of conditions stipulated in applicable law
and in the certificate of approval. Because we have not generated taxable
income, the period of tax benefits for our existing approved enterprise program
has not yet commenced. After we begin to report taxable income and exhaust any
net operating loss carry-forwards, these benefits should result in recognized
income from the approved enterprise being tax exempt or taxed at a lower rate
for a specified period. However, these benefits may not be applied to reduce the
tax rate for any income derived by our non-Israeli subsidiaries.

         The portion of our income derived from our approved enterprise program
at our manufacturing facility in Tel Aviv will be exempt from tax for a period
of two years commencing in the first year in which we have taxable income and
will be subject to a reduced company tax of up to 25% for the subsequent period
of five years, or eight years if the percentage of non-Israeli investors who
hold our ordinary shares exceeds 25%.

         Until December 31, 1998, our company was considered a "family company"
for tax purposes (according to Section 64A of the Israeli Income Tax Ordinance).
Accordingly, until December 31, 1998 our losses for tax purposes were assigned
to our shareholders and are not available to us.

         As of December 31, 2001, our net operating loss carry-forwards for
Israeli income tax purposes amounted to approximately $54 million. Under Israeli
law, these net-operating losses may be carried forward indefinitely and offset
against future taxable income. We have provided a valuation allowance for the
full amount of the tax benefit derived from these loss carry-forwards due to our
history of operating losses and the uncertainty as to when these benefits will
be utilized. Deferred taxes in respect of other temporary differences are
immaterial.

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<PAGE>

         As of December 31, 2001, the net operating loss carry-forwards of our
New Jersey subsidiary for U.S. tax purposes amounted to approximately $9.9
million. These losses are available to offset any future U.S. taxable income of
our U.S. subsidiary and will expire in 2021.

GOVERNMENT GRANTS

         Our research and development efforts have been financed through
internal resources and grants from the Chief Scientist. Under the Law for the
Encouragement of Industrial Research and Development, 1984, approved research
and development expenditure programs are eligible for grants of up to 50% of the
expenditures if they meet certain criteria.

         For the years ended December 31, 2000 and 2001, the Chief Scientist
provided grants for research and development efforts of approximately $2.2
million and $2.7 million, representing 22% and 21% of our total research and
development expenses in each of these respective periods. We expect that the
Chief Scientist grants will be maintained at the same approximate percentage of
our total research and development expenses in the short term.

         We pay royalties to the Chief Scientist only if the project yields
revenues. The royalty rates are 3% of sales in the first three years of sales
and were recently changed to 3.5% thereafter (instead of 4% in the next three
years and 5% thereafter), up to the repayment of 100% of the received grants.
For grants received under programs approved subsequent to January 1, 1999, the
maximum payment is 100% of the grant amount plus interest at LIBOR rates. Our
total obligation for royalties to the Chief Scientist for grants received or
accrued, net of royalties paid, or accrued, amounted to approximately $6.7
million as of December 31, 2001.

         For the last three years, we have paid or accrued royalties to the
Chief Scientist as follows:

                                                       ROYALTIES PAID OR ACCRUED
                                                       -------------------------
                                                             (IN THOUSANDS)


Year ended December 31, 1999.........................          $   137
Year ended December 31, 2000.........................          $   876
Year ended December 31, 2001.........................          $   778

         The manufacturing of products developed with Chief Scientist grants
must be performed in Israel. However, subject to the Chief Scientist's approval,
manufacturing may be performed outside of Israel if the company pays increased
royalties. Such increased royalties are also based on the amount of
manufacturing performed outside of Israel.

         The Government of Israel, through its Fund for the Encouragement of
Marketing Activities, awards grants to Israeli companies for overseas marketing
expenses, including expenses for maintaining branches, advertising, catalogs,
exhibitions and surveys, up to a maximum rate of 30% of these expenses, not to
exceed $1.0 million annually. In 1999, we received grants from the marketing
fund totaling approximately $50 thousand. As of December 31, 2001, we had no
liability to the Government of Israel for grants received from the marketing
fund.

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<PAGE>

         We submitted a new marketing plan that was approved in May 2000. Under
this program, we received grants totaling $180 thousand in 2001. In respect of
this grant, we are required to pay a royalty at the rate of 4% of the total
increase in export sales, up to the total amount of the grant received,
commencing on January 1, 2003. As of December 31, 2001, we were obligated to
repay a total of $180 thousand to the Government of Israel for grants received
from the marketing fund utilizing this royalty mechanism. With respect to this
grant, as of December 31, 2001, we accrued $40 thousand in royalties which are
payable by January 1, 2003.

ITEM 9:  OFFER AND LISTING

         Our ordinary shares are listed on the Nasdaq National Market since
August 4, 2000.

         The table below sets forth for the periods indicated the high and low
last reported prices of the ordinary shares as reported on Nasdaq since August
4, 2000.

                                                            ORDINARY SHARES
                                                          --------------------
                                                           HIGH          LOW
                                                          -----         -----
YEAR ENDING DECEMBER 31, 2000

AUGUST 4, 2000 THROUGH DECEMBER 31, 2000: ..........      32.00         10.63
August 4, 2000 through September 30, 2000...........      32.00         17.06
Fourth Quarter .....................................      24.75         10.63

YEAR ENDING DECEMBER 31, 2001:
First Quarter ......................................      19.31          6.19
Second Quarter .....................................       5.97          2.34
Third Quarter ......................................       3.30          2.00
Fourth Quarter .....................................       4.49          1.92

MOST RECENT SIX MONTHS:

     October .......................................       2.1           1.92
     November ......................................       3.04          1.94
     December ......................................       4.49          2.95
     January .......................................       4.55          3.40
     February ......................................       3.50          2.80
     March .........................................       3.38          3.00

         As of April 3, 2002, the last reported price of one of our ordinary
shares on the Nasdaq National Market was $2.90.

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<PAGE>


ITEM 10. ADDITIONAL INFORMATION

MEMORANDUM AND ARTICLES OF ASSOCIATION

         A description of our memorandum and articles of association was
previously provided in our registration statement on Form F-1 (Registration
Statement 333-12312) filed with the Securities and Exchange Commission on August
3, 2000, and is incorporated herein by reference.

MATERIAL CONTRACTS

         None.

EXCHANGE CONTROLS

         There are currently no Israeli currency control restrictions on
payments of dividends or other distributions with respect to our ordinary shares
or the proceeds from the sale of the shares, except for the obligation of
Israeli residents to file reports with the Bank of Israel regarding certain
transactions. However, legislation remains in effect pursuant to which currency
controls can be imposed by administrative action at any time.

TAXATION

         The following is a short summary of the tax environment to which
shareholders may be subject. The following is not intended, and should not be
construed, as legal or professional tax advice and is not exhaustive of all
possible tax considerations. Each individual should consult his or her own tax
or legal advisor.

ISRAELI CAPITAL GAINS TAX ON SALES OF SHARES

         Israeli law imposes a capital gains tax on the sale of capital assets.
The law distinguishes between real gain and inflationary surplus. The
inflationary surplus is a portion of the total capital gain that is equivalent
to the increase of the relevant asset's purchase price which is attributable to
the increase in the Israeli consumer price index between the date of purchase
and the date of sale. The real gain is the excess of the total capital gain over
the inflationary surplus. The inflationary surplus accumulated from and after
December 31, 1993, is exempt from any capital gains tax in Israel while the real
gain is added to ordinary income, which is taxed at ordinary rates of 30% to 50%
for individuals and 36% for corporations.

         Under current law, sales of ordinary shares are exempt from Israeli
capital gains for so long as they are quoted on Nasdaq or listed on a stock
exchange in specified countries and we qualify as an industrial company. We
cannot assure you that we will maintain this qualification or our status as an
industrial company. We also cannot assure you that Israeli law will not be
changed, as currently proposed, to apply Israeli capital gains tax to the sale
of our ordinary shares. Moreover, dealers in securities in Israel are taxed at
regular tax rates applicable to business income.

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<PAGE>

         Under the convention between the United States and Israel concerning
taxes on income, Israeli capital gains tax will not apply to the sale, exchange
or disposition of ordinary shares by a person:

          o    who qualifies as a resident of the United States within the
               meaning of the U.S.-Israel tax treaty; and

          o    who is entitled to claim the benefits available to the person by
               the U.S.-Israel tax treaty.

         However, this exemption will not apply if the treaty U.S. resident
holds, directly or indirectly, shares representing 10% or more of our voting
power during any part of the 12-month period preceding the sale, exchange or
disposition, subject to specified conditions. In this case, the sale, exchange
or disposition would be subject to Israeli tax, to the extent applicable.
However, under the U.S.-Israel tax treaty, the treaty U.S. resident would be
permitted to claim a credit for the taxes against the U.S. federal income tax
imposed on the sale, exchange or disposition, subject to the limitations in U.S.
laws applicable to foreign tax credits generally. The U.S.-Israel tax treaty
does not relate to U.S. state or local taxes.

ISRAELI TAXATION OF NON-RESIDENT HOLDERS OF SHARES

         Non-residents of Israel are subject to income tax on income accrued or
derived from sources in Israel. These sources of income include passive income,
including dividends, royalties and interest, as well as non-passive income from
services provided in Israel. On distributions of dividends other than bonus
shares or stock dividends, income tax is withheld at the source. Unless a
different rate is provided in a treaty between Israel and the shareholder's
country of residence, the withholding rate is as follows:


                             DIVIDENDS NOT GENERATED BY AN APPROVED ENTERPRISE
                            ----------------------------------------------------
DIVIDENDS GENERATED BY          U.S. COMPANY HOLDING
AN APPROVED ENTERPRISE       10% OR MORE OF OUR SHARES       OTHER NON-RESIDENT
----------------------       -------------------------       ------------------
         15%                           12.5%                        25%

         Under an amendment to the Inflationary Adjustments Law, non-Israeli
corporations might be subject to Israeli taxes on the sale of traded securities
of an Israeli company, subject to the provisions of any applicable double
taxation treaty.

ISRAELI FOREIGN EXCHANGE REGULATIONS

         We are permitted to pay in Israeli and non-Israeli currency:

          o    dividends to holders of our ordinary shares; and

          o    any amounts payable to the holders of our ordinary shares upon
               our dissolution, liquidation or winding up.

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<PAGE>

         If we make any payments in Israeli currency, the payments may be
converted into freely repatriable dollars at the rate of exchange prevailing at
the time of conversion.

U.S. FEDERAL INCOME TAX CONSIDERATIONS

         Subject to the limitations described in the following paragraphs, the
discussion below describes the material U.S. federal income tax consequences to
a holder of our ordinary shares, referred to in this discussion as a U.S.
holder, that is:

          o    an individual who is a citizen or resident of the United States,

          o    a corporation (or other entity treated as a corporation for U.S.
               federal tax purposes) created or organized in the United States
               or under the laws of the United States or of any state or the
               District of Columbia,

          o    a partnership (or other entity treated as a partnership for U.S.
               federal tax purposes) created or organized in the United States
               or under the laws of the United States or of any state or the
               District of Columbia, expect as otherwise provided by future
               Treasury regulations,

          o    an estate, the income of which is includible in gross income for
               U.S. federal income tax purposes regardless of its source, or

          o    a trust, if a court within the United States is able to exercise
               primary supervision over the administration of the trust and one
               or more U.S. persons have the authority to control all
               substantial decisions of the trust.

         This summary is not a comprehensive description of all of the tax
considerations that may be relevant to each person's decision to purchase
ordinary shares. This summary considers only U.S. holders that will own ordinary
shares as capital assets.

         This discussion is based on current provisions of the Internal Revenue
Code of 1986, current and proposed Treasury regulations, and administrative and
judicial decisions as of the date of this annual report, all of which are
subject to change, possibly on a retroactive basis. This discussion does not
address all aspects of U.S. federal income taxation that may be relevant to any
particular shareholder based on the shareholder's individual circumstances. In
particular, this discussion does not address the potential application of the
alternative minimum tax or the U.S. federal income tax consequences to U.S.
holders that are subject to special treatment, including U.S. holders that:

          o    are broker-dealers or insurance companies;

          o    have elected mark-to-market accounting;

          o    are tax-exempt organizations;

          o    are financial institutions or financial services entities;

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<PAGE>

          o    hold ordinary shares as part of a straddle, hedge, conversion or
               other integrated transaction with other investments;

          o    own directly, indirectly or by attribution at least 10% of our
               voting power; and

          o    have a functional currency that is not the U.S. dollar.

         In addition, this discussion does not address any aspect of state,
local or non-U.S. tax laws, nor the possible application of the U.S. federal
estate or gift tax or any state inheritance, estate or gift tax.

         Material aspects of U.S. federal income tax relevant to a holder other
than a U.S. holder referred to in this discussion as a non-U.S. holder, are also
discussed below.

EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR FOR
THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF PURCHASING, HOLDING OR DISPOSING
OF OUR ORDINARY SHARES.

TAXATION OF DIVIDENDS PAID ON ORDINARY SHARES

         Subject to the discussion below under "Tax Consequences if We are a
Passive Foreign Investment Company," a U.S. holder will be required to include
in gross income as ordinary income the amount of any distribution paid on
ordinary shares, including any Israeli taxes withheld from the amount paid, on
the date the distribution is received, to the extent the distribution is paid
out of our current or accumulated earnings and profits as determined for U.S.
federal income tax purposes. These distributions will be foreign source passive
income (or in some cases, financial services income) for U.S. foreign tax credit
purposes and will not be eligible for the dividends received deduction otherwise
available to corporations. Distributions in excess of earnings and profits will
be applied against and will reduce the U.S. holder's basis in the ordinary
shares and, to the extent in excess of that basis, will be treated as gain from
the sale or exchange of ordinary shares.

         Distributions of current or accumulated earnings and profits paid in
foreign currency to a U.S. holder will be includible in the income of a U.S.
holder in a U.S. dollar amount calculated by reference to the exchange rate on
the day the distribution is received. A U.S. holder that receives a foreign
currency distribution and converts the foreign currency into U.S. dollars after
receipt will have foreign exchange gain or loss based on any appreciation or
depreciation in the value of the foreign currency against the U.S. dollar, which
will generally be U.S. source ordinary income or loss.

         U.S. holders will have the option of claiming the amount of any Israeli
income taxes withheld at source either as a deduction from gross income or as a
dollar-for-dollar credit against their U.S. federal income tax liability.
Individuals who do not claim itemized deductions, but instead utilize the
standard deduction, may not claim a deduction for the amount of the Israeli
income taxes withheld, but the amount may be claimed as a credit against the
individual's U.S. federal income tax liability. The amount of foreign income
taxes that may be claimed as a credit in any year is subject to complex
limitations and restrictions, which must be determined on an individual basis by
each shareholder. These limitations include the provisions described in the

                                       75
<PAGE>

following paragraphs as well as rules which limit foreign tax credits allowable
for specific classes of income to the U.S. federal income taxes otherwise
payable on each class of income. The total amount of allowable foreign tax
credits in any year cannot exceed the pre-credit U.S. tax liability for the year
attributable to foreign source taxable income.

         A U.S. holder will be denied a foreign tax credit for Israeli income
tax withheld from dividends received on the ordinary shares:

          o    if the U.S. holder has not held the ordinary shares for at least
               16 days of the 30 day period beginning on the date which is 15
               days before the ex-dividend date; or

          o    to the extent the U.S. holder is under an obligation to make
               related payments on substantially similar or related property.

         Any days during which a U.S. holder has substantially diminished its
risk of loss on the ordinary shares are not counted toward meeting the 16 day
holding period required by the statute.

TAXATION OF THE DISPOSITION OF ORDINARY SHARES

         Subject to the discussion below under "Tax Consequences if We are a
Passive Foreign Investment Company," upon the sale, exchange or other
disposition of ordinary shares, a U.S. holder will recognize capital gain or
loss in an amount equal to the difference between the U.S. holder's basis in the
ordinary shares, which is usually the cost to the U.S. holder of the shares, and
the amount realized on the disposition. A disposition of shares will be
considered to occur on the trade date, regardless of the holder's method of
accounting. Capital gain from the sale, exchange or other disposition of
ordinary shares held more than one year is long-term capital gain, and is
eligible for a reduced rate of taxation in the case of individuals. Gain or loss
recognized by a U.S. holder on a sale, exchange or other disposition of ordinary
shares generally will be treated as U.S. source income for U.S. foreign tax
credit purposes. The deductibility of a capital loss recognized on the sale,
exchange or other disposition of ordinary shares is subject to limitations.

         A U.S. holder that uses the cash method of accounting calculates the
U.S. dollar value of the proceeds received on the sale as of the date that the
sale settles. However, a U.S. holder that uses the accrual method of accounting
is required to calculate the value of the proceeds of the sale as of the trade
date and may therefore realize foreign currency gain or loss. The U.S. holder
may avoid realizing foreign currency gain or loss if he or she has elected to
use the settlement date to determine its proceeds of sale for purposes of
calculating the foreign currency gain or loss. In addition, a U.S. holder that
receives foreign currency upon disposition of ordinary shares and converts the
foreign currency into U.S. dollars after receipt will have foreign exchange gain
or loss based on any appreciation or depreciation in the value of the foreign
currency against the U.S. dollar, which will generally be U.S. source ordinary
income or loss.

TAX CONSEQUENCES IF WE ARE A PASSIVE FOREIGN INVESTMENT COMPANY

         We will be a passive foreign investment company, or PFIC, if 75% or
more of our gross income in a taxable year, including the pro rata share of the
gross income of any U.S. or foreign


                                       76
<PAGE>

corporation, in which we are considered to own 25% or more of the shares by
value, is passive income. Alternatively, we will be considered to be a PFIC if
at least 50% of our assets in a taxable year, ordinarily determined based on the
average fair market value of our assets over the taxable year and including the
pro rata share of the assets of any company in which we are considered to own
25% or more of the shares by value, produce or are held for the production of
passive income.

         If we were a PFIC, and a U.S. holder did not make an election to treat
us as a qualified electing fund as described below, excess distributions by us
to a U.S. holder would be taxed in a special way. Excess distributions are
amounts received by a U.S. holder on shares in a PFIC in any taxable year that
exceed 125% of the average distributions received by the U.S. holder from the
PFIC in the shorter of:

          o    the three previous years; or

          o    the U.S. holder's holding period for ordinary shares before the
               present taxable year.

         Excess distributions must be allocated ratably to each day after 1986
that a U.S. holder has held shares in a PFIC. A U.S. holder would then be
required to include amounts allocated to the current taxable year in its gross
income as ordinary income for that year. Further, a U.S. holder would be
required to pay tax on amounts allocated to each prior taxable year at the
highest rate in effect for that year on ordinary income and the tax would be
subject to an interest charge at the rate applicable to deficiencies for income
tax.

         The entire amount of gain that is realized by a U.S. holder upon the
sale or other disposition of ordinary shares will also be treated as an excess
distribution and will be subject to tax as described above.

         In some circumstances a U.S. holder's tax basis in our ordinary shares
that were inherited from a deceased person who was a U.S. holder would not equal
the fair market value of those ordinary shares as of the date of the deceased's
death but would instead be equal to the deceased's basis, if lower.

         The special PFIC rules described above will not apply to a U.S. holder
if that U.S. holder makes an election to treat us as a qualified electing fund
in the first taxable year in which the U.S. holder owns ordinary shares and if
we comply with specified reporting requirements. Instead, a U.S. holder having
made a qualified electing fund election, or QEF election, is required for each
taxable year to include in income a pro rata share of the ordinary earnings of
the qualified electing fund as ordinary income and a pro rata share of the net
capital gain of the qualified electing fund as long-term capital gain, subject
to a separate election to defer payment of taxes. If deferred, the taxes will be
subject to an interest charge. We would supply U.S. holders with the information
needed to report income and gain under a QEF election if we were classified as a
PFIC.

         The QEF election is made on a shareholder-by-shareholder basis and can
be revoked only with the consent of the Internal Revenue Service, or IRS. A
shareholder makes a QEF election


                                       77
<PAGE>

by attaching a completed IRS Form 8621, including the PFIC annual information
statement, to a timely filed U.S. federal income tax return and by filing a copy
of the form with the IRS Service Center in Philadelphia, Pennsylvania. Even if a
QEF election is not made, a shareholder in a PFIC who is a U.S. person must file
a completed IRS Form 8621 every year.

         A U.S. holder of PFIC shares which are publicly traded may elect to
mark the stock to market annually, recognizing as ordinary income or loss each
year an amount equal to the difference as of the close of the taxable year
between the fair market value of the PFIC shares and the U.S. holder's adjusted
tax basis in the PFIC shares. Losses would be allowed only to the extent of net
mark-to-market gain previously included by the U.S. holder under the election
for prior taxable years. If the mark-to-market election were made, then the
rules described above would not apply for periods covered by the election.

         Although we do not believe that we were a PFIC in 2001, there can be no
assurance that the IRS will agree with that conclusion or that we will not
become a PFIC in 2002 or in a subsequent year. The tests for determining PFIC
status are applied annually and it is difficult to make accurate predictions of
future income and assets, which are relevant to this determination. U.S. holders
who hold ordinary shares during a period when we are a PFIC will be subject to
these rules, even if we cease to be a PFIC, subject to specified exceptions for
U.S. holders who made a QEF election. U.S. holders are urged to consult their
tax advisors about the PFIC rules, including QEF and mark-to-market elections.

TAX CONSEQUENCES FOR NON-U.S. HOLDERS OF ORDINARY SHARES

         Except as described in "Information Reporting and Back-up Withholding"
below, a non-U.S. holder of ordinary shares will not be subject to U.S. federal
income or withholding tax on the payment of dividends on, and the proceeds from
the disposition of, ordinary shares, unless:

          o    the item is effectively connected with the conduct by the
               non-U.S. holder of a trade or business in the United States and:

               (i)  in the case of a resident of a country which has a treaty
                    with the United States, the item is attributable to a
                    permanent establishment; or

               (ii) in the case of an individual, the item is attributable to a
                    fixed place of business in the United States;

          o    the non-U.S. holder is an individual who holds the ordinary
               shares as a capital asset and is present in the United States for
               183 days or more in the taxable year of the disposition and does
               not qualify for an exemption; or

          o    the non-U.S. holder is subject to tax under the provisions of
               U.S. tax law applicable to U.S. expatriates.

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<PAGE>

INFORMATION REPORTING AND BACK-UP WITHHOLDING

         U.S. holders generally are subject to information reporting
requirements for dividends paid in the United States on ordinary shares.
Dividends paid in the United States to a U.S. holder on ordinary shares are
subject to back-up withholding at a rate of 30% unless the U.S. holder provides
IRS Form W-9 or establishes an exemption. U.S. holders generally are subject to
information reporting and back-up withholding at a rate of 30% on proceeds paid
from the disposition of ordinary shares unless the U.S. holder provides IRS Form
W-9 or establishes an exemption.

         Non-U.S. holders generally are not subject to information reporting or
back-up withholding for dividends paid on, or upon the disposition of, ordinary
shares, provided that the non-U.S. holder provides a taxpayer identification
number, certifies to its foreign status, or establishes another exemption to the
information reporting or back-up withholding requirements.

         The amount of any back-up withholding will be allowed as a credit
against a U.S. or non-U.S. holder's U.S. federal income tax liability and may
entitle the holder to a refund, provided that required information is furnished
to the Internal Revenue Service.

DOCUMENTS ON DISPLAY

         We file reports and other information with the SEC. These reports
include certain financial and statistical information about us, and may be
accompanied by exhibits. You may read and copy any document we file with the SEC
at the SEC's Public Reference Room at 450 Fifth Street, Washington D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. You may also visit us on the World Wide Web at www.ceragon.com.


ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         We do not use derivative financial instruments for trading purposes.
Accordingly, we have concluded that there is no material market risk exposure of
the type contemplated by Item 11, and that no quantitative tabular disclosures
are required. We are exposed to certain other types of market risks, as further
described below.

         We are exposed to financial market risk associated with changes in
foreign currency exchange rates. The majority of our revenue and expenses are
transacted in U.S. dollars. A portion of our expenses, however, are denominated
in New Israeli Shekels and Euros. During 2001, in order to protect against the
volatility of future cash flows caused by changes in foreign currency exchange
rates, we used a forward contract. As of year end, the outstanding balance of
the forward contract was immaterial.

         We invest in investment grade U.S. corporate bonds and dollar deposits
with banks. Since these investments typically carry fixed interest rates and
since our policy and practice is to hold these investments to maturity,
financial income over the holding period is not sensitive to changes in interest
rates.

                                       79
<PAGE>

         As of December 31, 2001, we had no other exposure to changes in
interest rates and had no interest rate derivative financial instruments
outstanding.


ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.

NOT APPLICABLE



PART II


ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.

NOT APPLICABLE


ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
         USE OF PROCEEDS.

USE OF PROCEEDS

         Through December 31, 2001, most of the net offering proceeds from our
initial public offering were invested in short term investments. During fiscal
year 2001, we used $3.2 million of the net offering proceeds on capital
expenditures, including manufacturing equipment, research equipment and
leasehold improvements.


ITEM 15. [RESERVED]


ITEM 16. [RESERVED]


                                       80
<PAGE>


PART III


ITEM 17. FINANCIAL STATEMENTS

NOT APPLICABLE.


ITEM 18. FINANCIAL STATEMENTS

         The Consolidated Financial Statements and related notes thereto
required by this item are contained on pages F-1 through F-24 hereof.


ITEM 19. EXHIBITS

<TABLE>
<CAPTION>
(A)  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                                                              PAGE
     ------------------------------------------                                                              ----
<S>  <C>                                                                                                      <C>
     Report of Independent Auditors .......................................................................   F-2
     Consolidated Balance Sheets at December 31, 2001 and 2000.............................................   F-3
     Consolidated Statements of Operations for the Years Ended December 31, 2001, 2000 and 1999............   F-4
     Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31,
        2001, 2000 and 1999................................................................................   F-5
     Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999............   F-6
     Notes to Consolidated Financial Statements............................................................   F-7

(B)    EXHIBITS

1.1   Memorandum of Association (English translation accompanied
         by Hebrew original*
1.2   Articles of Association**
4.1   Tenancy Agreement, dated as of February 22, 2000, by and among
         the Company, Zisapel Properties Ltd. and Klil & Michael Properties
         Ltd. (English translation)***
8.1   List of Subsidiaries
10.1  Consent of Luboshitz Kasierer

</TABLE>

* Previously filed as exhibit 3.1 in connection with the Company's Registration
Statement on Form F-1 (Registration Statement 333-12312) on August 3, 2000 and
incorporated herein by reference.

** Previously filed as exhibit 3.2 in connection with the Company's Registration
Statement on Form F-1 (Registration Statement 333-12312) on August 3, 2000 and
incorporated herein by reference.

*** Previously filed as exhibit 10.3 in connection with the Company's
Registration Statement on Form F-1 (Registration Statement 333-12312) on August
3, 2000 and incorporated herein by reference.



                                       81
<PAGE>







                              ---------------------
                              CERAGON NETWORKS LTD.
                              ---------------------




                        CONSOLIDATED FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 2001
                             -----------------------


















<PAGE>




                              ---------------------
                              CERAGON NETWORKS LTD.
                              ---------------------




                                 C O N T E N T S
                                 ---------------




                                                                        PAGE
                                                                        ----

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                                 F-2

CONSOLIDATED FINANCIAL STATEMENTS:

  Consolidated Balance Sheets as of December 31, 2001 and 2000           F-3

  Consolidated Statements of Operations                                  F-4
    for the years ended December 31, 2001, 2000 and 1999

  Consolidated Statements of Changes in Shareholders' Equity
    for the years ended December 31, 2001, 2000 and 1999                 F-5

  Consolidated Statements of Cash Flows
    for the years ended December 31, 2001, 2000 and 1999                 F-6

  Notes to the Consolidated Financial Statements                      F-7 - F-26





                                    # # # # #






                                      F-1
<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Shareholders of
CERAGON NETWORKS LTD.
---------------------


We have audited the accompanying consolidated balance sheets of Ceragon Networks
Ltd.  and its  subsidiaries  as of  December  31,  2001 and 2000 and the related
consolidated statements of operations,  changes in shareholders' equity and cash
flows for each of the three years in the period ended  December 31, 2001.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States and Israel,  including those prescribed under the Auditors'
Regulations (Auditor's Mode of Performance),  1973. Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial  statements.  An audit also  includes  assessing  the  accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Ceragon
Networks  Ltd. and its  subsidiaries  as of December 31, 2001 and 2000,  and the
results of its  operations and its cash flows for each of the three years in the
period  ended  December 31,  2001,  in  conformity  with  accounting  principles
generally accepted in the United States.


                                               /s/ Luboshitz Kasierer
                                               ----------------------
                                               LUBOSHITZ KASIERER
                                                Arthur Andersen


Tel-Aviv, Israel
January 31, 2002


                                       F-2

<PAGE>


                              CERAGON NETWORKS LTD.

                           CONSOLIDATED BALANCE SHEETS
          (U.S. dollars in thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                                       DECEMBER 31
                                                                                  ---------------------
                                                                  NOTE             2000           2001
                                                                                  ------         ------

<S>                                                              <C>             <C>             <C>
ASSETS
Current assets
  Cash and cash equivalents                                       (4A)            70,064          6,421
  Short-term deposits                                             (4B)            10,256         26,741
  Corporate bonds                                                 (5)                  -         19,813
  Trade receivables, net                                          (2E)            12,705          2,822
  Other receivables                                              (10A)             5,300          2,143
  Inventories                                                    (10B)            22,190          7,377
                                                                               ---------       --------
      Total current assets                                                       120,515         65,317
                                                                               ---------       --------
Corporate bonds                                                   (5)                  -            746
                                                                               ---------       --------

Property and equipment                                            (3)
  Cost                                                                             8,469          8,151
  Less - accumulated depreciation                                                  1,455          3,058
                                                                               ---------       --------
                                                                                   7,014          5,093
                                                                               ---------       --------

Deposits with insurance companies                                 (6)                521            930
                                                                               ---------       --------
      Total assets                                                               128,050         72,086
                                                                               =========       ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
  Trade payables                                                                  12,463          5,040
  Other payables and accrued expenses                            (10C)             3,494          4,916
                                                                               ---------       --------
      Total current liabilities                                                   15,957          9,956
                                                                               ---------       --------

Long-term liabilities
  Accrued severance pay                                           (6)              1,025          1,511
                                                                               ---------       --------

      Total liabilities                                                           16,982         11,467
                                                                               ---------       --------

Commitments and contingent liabilities                            (7)

Shareholders' equity                                              (8)
  Share capital
    Ordinary shares of NIS 0.01 par value:
      Authorized  - 40,000,000; Issued and outstanding as
        of December 31, 2000 and 2001 - 20,517,521 and
        22,165,196 shares, respectively
                                                                                      52             56
    Additional paid-in capital                                                   170,348        169,355
    Deferred compensation                                                        (12,231)        (4,848)
    Accumulated deficit                                                          (47,101)      (103,944)
                                                                               ---------       --------
  Total shareholders' equity                                                     111,068         60,619
                                                                               ---------       --------

  Total liabilities and shareholders' equity                                     128,050         72,086
                                                                               =========       ========
</TABLE>


        /s/ Shraga Katz                                  /s/ Ran Oz
     --------------------------                     --------------------------
            SHRAGA KATZ                                      RAN OZ
      Chief Executive Officer                        Chief Financial Officer


  THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
                                  STATEMENTS.


                                       F-3
<PAGE>


                              CERAGON NETWORKS LTD.


                      CONSOLIDATED STATEMENTS OF OPERATIONS
          (U.S. dollars in thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                                FOR THE YEAR ENDED
                                                                                    DECEMBER 31
                                                                    ------------------------------------------
                                                          NOTE          1999          2000            2001
                                                         ------     -----------   ------------    ------------

<S>                                                       <C>             <C>           <C>             <C>
Revenues                                                  (10D)           4,552         29,197          24,852
Cost of revenues                                                          3,624         16,605          45,282
                                                                    -----------   ------------    ------------
         Gross profit (loss) before non-cash
           compensation expense                                             928         12,592         (20,430)
Non-cash compensation expense                                                73            603             400
                                                                    -----------   ------------    ------------
         Gross profit (loss)                                                855         11,989         (20,830)
                                                                    -----------   ------------    ------------

Operating expenses
  Research and development, net of non-
    cash compensation expense of $470,                                    5,000          9,904          12,967
    $3,408, $2,248, respectively
  Less - participation by the Chief
    Scientist of the Government of Israel                 (7A)            1,621          2,211           2,660
                                                                    -----------   ------------    ------------

  Research and development, net                                           3,379          7,693          10,307

  Marketing and selling, net of non-cash
    compensation expense of $664,                                         2,560          8,790          11,924
    $3,085, $1,984, respectively
  General and administrative, net of
    non-cash compensation expense of $551,
    $2,433, $1,799, respectively                                            483          1,926           5,770

  Amortization of deferred compensation                                   1,685          8,926           6,031

  Restructuring costs                                     (11)                -              -           4,750
                                                                    -----------   ------------    ------------
         Total operating expenses                                         8,107         27,335          38,782
                                                                    -----------   ------------    ------------

Operating loss                                                           (7,252)       (15,346)        (59,612)

Financing income (expenses), net                                            (89)         2,470           2,769
                                                                    -----------   ------------    ------------
         Net loss                                                        (7,341)       (12,876)        (56,843)
                                                                    -----------   ------------    ------------

Dividend related to convertible preferred shares                              -        (22,328)              -
                                                                    -----------   ------------    ------------

Net loss attributable to ordinary shareholders                           (7,341)       (35,204)        (56,843)
                                                                    ===========   ============    ============

Basic and diluted net loss per ordinary share                             (1.42)         (3.06)          (2.69)
                                                                    ===========   ============    ============

Weighted average number of shares used to
   compute basic and diluted net loss per share                       5,161,000     11,501,722      21,099,336
                                                                    ===========   ============    ============
</TABLE>


  THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
                                  STATEMENTS.


                                       F-4
<PAGE>


                              CERAGON NETWORKS LTD.

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                 (U.S. dollars in thousands, except share data)


<TABLE>
<CAPTION>
                                                ORDINARY   PREFERRED    SHARE     ADDITIONAL       DEFERRED   ACCUMULATED   TOTAL
                                                 SHARES     SHARES     CAPITAL  PAID-IN CAPITAL  COMPENSATION   DEFICIT
                                               ----------- ----------  -------  ---------------  ------------ -----------  ---------
<S>                                            <C>          <C>           <C>        <C>            <C>         <C>         <C>
Balance as of January 1, 1999                   5,089,000            -     16          1,425           (573)      (4,556)    (3,688)
Deferred compensation                                   -            -      -         11,457        (11,457)           -          -
Amortization of deferred compensation                   -            -      -              -          1,758            -      1,758
Issuance of preferred shares (*)                        -    3,666,000      8          8,845              -            -      8,853
Conversion of convertible debentures              151,750    1,386,000      4          3,744              -            -      3,748
Net loss                                                -            -      -              -              -       (7,341)    (7,341)
                                               ----------   ----------   ------     --------       --------     --------    -------
Balance as of December 31, 1999                 5,240,750    5,052,000     28         25,471        (10,272)     (11,897)     3,330
Issuance of preferred shares (*)                        -    4,440,500     10         22,318              -            -     22,328
Issuance of ordinary shares - initial
  public offering (*)                           5,784,271            -     14         88,618              -            -     88,632
Conversion of preferred shares                  9,492,500   (9,492,500)     -              -              -            -          -
Dividend related to convertible
  preferred shares                                      -            -      -         22,328              -      (22,328)         -
Deferred compensation                                   -            -      -         11,488        (11,488)           -          -
Amortization of deferred compensation                   -            -      -              -          9,529            -      9,529
Issuance of warrants                                    -            -      -            125              -            -        125
Net loss                                                -            -      -              -              -      (12,876)   (12,876)
                                               ----------   ----------   ------     --------       --------     --------    -------
Balance as of December 31, 2000                20,517,521            -     52        170,348        (12,231)     (47,101)   111,068

Issuance of ordinary shares
  (options exercised)                           1,647,675            -      4              -              -            -          4
Deferred compensation related to
  forfeited options                                     -            -      -           (952)           952            -          -
Additional IPO expenses                                 -            -      -            (41)             -            -        (41)
Amortization of deferred compensation                   -            -      -              -          6,431            -      6,431
Net loss                                                -            -      -              -              -      (56,843)   (56,843)
                                               ----------   ----------   ------     --------       --------     --------    -------
Balance as of December 31, 2001                22,165,196            -     56        169,355         (4,848)    (103,944)    60,619
                                               ==========   ==========   ======     ========       ========     ========    =======
</TABLE>


     (*)   Net of issuance expenses - 2000 - $ 8,507, 1999 - $151.

  THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
                                  STATEMENTS.


                                       F-5

<PAGE>


                              CERAGON NETWORKS LTD.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (U.S. dollars in thousands)

<TABLE>
<CAPTION>
                                                                          FOR THE YEAR ENDED DECEMBER 31,
                                                                    ------------------------------------------
                                                                        1999          2000            2001
                                                                    -----------   ------------    ------------
<S>                                                                     <C>          <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                                              (7,341)      (12,876)       (56,843)
  Adjustments to reconcile net loss to net cash
    used in operating activities:
      Depreciation                                                         370           854          2,015
      Amortization of deferred compensation                              1,758         9,529          6,431
      Loss from disposal and impairment of fixed assets                      -             -          2,018
      Severance pay, net                                                    98           352             77
      Accrued interest income - short-term deposit                           -          (256)          (410)
      Accrued interest income corporate bonds                                -             -           (192)
      Other                                                                 24             4              -
  Changes in operating assets and liabilities:
      Decrease (increase) in trade receivables                          (1,570)      (10,854)         9,883
      Decrease (increase) in other receivables                            (457)       (4,487)         3,291
      Decrease (increase) in inventories                                (2,088)      (20,158)        14,813
      Increase (decrease) in trade payables                              1,385         9,771         (6,581)
      Increase in other payables and accrued expenses                      946         2,298          1,422
                                                                       -------      --------        -------
         Net cash used in operating activities                          (6,875)      (25,823)       (24,076)
                                                                       -------      --------        -------

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of property and equipment                                      (933)       (5,121)        (3,177)
  Proceeds from sales of property and equipment                              -            72            223
  Increase in short-term deposits                                            -       (10,000)       (16,075)
  Increase in corporate bonds                                                -             -        (20,501)
                                                                       -------      --------        -------
         Net cash used in investing activities                            (933)      (15,049)       (39,530)
                                                                       -------      --------        -------

CASH FLOWS FROM FINANCING ACTIVITIES
  Repayment of loan received from related party                              -        (1,173)             -
  Issuance of preferred shares                                           8,853        22,328              -
  Issuance of ordinary shares                                                -        88,632              4
  Payment of additional IPO expenses                                         -             -            (41)
                                                                       -------      --------        -------
         Net cash provided by (used in) financing activities             8,853       109,787            (37)
                                                                       -------      --------        -------

INCREASE (DECREASE) IN CASH AND CASH
  EQUIVALENTS                                                            1,045        68,915        (63,643)
CASH AND CASH EQUIVALENTS
  AT BEGINNING OF YEAR                                                     104         1,149         70,064
                                                                       -------      --------        -------
CASH AND CASH EQUIVALENTS
  AT END OF YEAR                                                         1,149        70,064          6,421
                                                                       =======      ========        =======

INTEREST PAID                                                              106            66              -
                                                                       =======      ========        =======
NONCASH ACTIVITIES

  Conversion of convertible debentures                                   3,748             -              -
                                                                       =======      ========        =======

  Deferred interest expense upon issuance of warrants                        -           125              -
                                                                       =======      ========        =======

  Dividend related to convertible preferred shares                           -        22,328              -
                                                                       =======      ========        =======

  Transfer of inventory to fixed assets                                      -           691              -
                                                                       =======      ========        =======

  Purchase of fixed assets in payables                                       -           842              -
                                                                       =======      ========        =======
</TABLE>

  THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
                                  STATEMENTS.


                                       F-6
<PAGE>


                              CERAGON NETWORKS LTD.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
          (U.S. dollars in thousands, except share and per share data)


NOTE 1 -  GENERAL

          Ceragon  Networks Ltd. (the "Company") is an Israeli  corporation that
          is engaged in one business  segment -  developing,  manufacturing  and
          marketing  high capacity  broadband  wireless  network  equipment.  In
          August  2000,  the Company  closed an initial  public  offering of its
          ordinary shares on the Nasdaq.

          The Company has seven  wholly-owned  subsidiaries,  Ceragon  Networks,
          Inc. and Ceragon  Networks  Latin America,  Inc. in the U.S.,  Ceragon
          Networks (UK) Limited in the United Kingdom,  Ceragon Networks SARL in
          France,  Ceragon  Networks  Gmbh in  Germany,  Ceragon  Networks  (HK)
          Limited in Hong Kong,  and Ceragon  Networks,  S.A. de C.V. in Mexico.
          The subsidiaries provide marketing,  distribution, sales and technical
          support to the Company's customers in Europe, South America,  Asia and
          the U.S..


NOTE 2 -  SIGNIFICANT ACCOUNTING POLICIES

          The  financial  statements  have  been  prepared  in  conformity  with
          accounting  principles  generally  accepted in the United States.  The
          significant  accounting  policies  followed in the  preparation of the
          financial statements, applied on a consistent basis, are as follows:

          A.   FINANCIAL STATEMENTS IN U.S. DOLLARS

               The  financial  statements  of the Company have been  prepared in
               U.S. dollars, as the currency of the primary economic environment
               in which the  operations of the Company are conducted is the U.S.
               dollar. Substantially all of the Company's sales are made outside
               of  Israel.  A major  portion  of  these  sales  are made in U.S.
               dollars. A substantial  portion of the purchases of materials and
               components  are  made  in  U.S.  dollars  and  other  non-Israeli
               currencies.

               Transactions and balances originally  denominated in U.S. dollars
               are  presented  at  their  original  amounts.   Transactions  and
               balances in other  currencies are remeasured into U.S. dollars in
               accordance  with  the  principles   prescribed  in  Statement  of
               Financial  Accounting  Standards  (SFAS) No. 52 of the  Financial
               Accounting   Standards  Board  of  the  United  States  ("FASB").
               Accordingly, items have been remeasured as follows:



                                      F-7
<PAGE>



                              CERAGON NETWORKS LTD.

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT. )


NOTE 2 -  SIGNIFICANT ACCOUNTING POLICIES (CONT.)

          A.   FINANCIAL STATEMENTS IN U.S. DOLLARS (Cont.)

               Monetary  items - at the  exchange  rate in effect on the balance
               sheet date.

               Nonmonetary items - at historical exchange rates.

               Revenues and expense  items - at the exchange  rates in effect as
               of the date of recognition of those items (excluding depreciation
               and other items deriving from non-monetary items).

               All   exchange   gains  and   losses   from  the   aforementioned
               remeasurement  (which are immaterial  for all periods  presented)
               are reflected in the statement of operations.  The representative
               rate of exchange of the New Israeli  Shekel (NIS) at December 31,
               2001 was  U.S.$1-NIS  4.416,  (December  31,  2000 and 1999 - NIS
               4.041 and NIS 4.153, respectively).

          B.   PRINCIPLES OF CONSOLIDATION

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

          C.   CASH AND CASH EQUIVALENTS

               All highly liquid  investments with an original maturity of three
               months or less are considered cash equivalents.

          D.   SHORT-TERM INVESTMENTS

               Short-term  investments  are  presented  in  accordance  with the
               Statement of Financial  Accounting  Standards  ("SFAS") No. 115 -
               "Accounting   for   Certain   Investments   in  Debt  and  Equity
               Securities".  The  investments  have been  categorized as held to
               maturity securities.  These investments are stated at cost, as it
               is the  intent of the  Company  to hold  these  securities  until
               maturity.  The Company's investment holdings have been classified
               in the consolidated balance sheet according to the maturity date.



                                      F-8
<PAGE>


                              CERAGON NETWORKS LTD.

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)



NOTE 2 -  SIGNIFICANT ACCOUNTING POLICIES (CONT.)

          E.   ALLOWANCE FOR DOUBTFUL ACCOUNTS

               The allowance is determined based upon management's evaluation of
               specific  receivables  that  are  doubtful  of  collection.   The
               allowance for doubtful  accounts was $250 and $450 as of December
               31, 2000 and 2001, respectively. For the years ended December 31,
               1999, 2000 and 2001, the Company recorded  provision for doubtful
               accounts  /  bad  debt  expense  of  $100,   $150,   and  $2,800,
               respectively, included in general and administrative expenses.

          F.   INVENTORIES

               Inventories are valued at the lower of cost or market, cost being
               determined mainly on the "moving average" basis.

          G.   PROPERTY AND EQUIPMENT

               Property  and  equipment  are  stated  at cost.  Depreciation  is
               calculated  using the  straight-line  method  over the  estimated
               useful lives of the assets, ranging from three to fourteen years.

               The Company values long-lived assets in accordance with Statement
               of Financial  Accounting  Standards No. 121,  "Accounting for the
               Impairment of Long-Lived  Assets and for the Long-Lived Assets to
               be Disposed  Of". The Company  recognizes  impairment  losses for
               long-lived  assets  whenever  events or changes in  circumstances
               result in the carrying amount of the assets  exceeding the sum of
               the expected future  undiscounted cash flows associated with such
               assets. The measurement of the impairment losses to be recognized
               is to be based on the difference  between the fair values and the
               carrying amounts of the assets.



                                      F-9
<PAGE>


                              CERAGON NETWORKS LTD.

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)


NOTE 2 -  SIGNIFICANT ACCOUNTING POLICIES (CONT.)

          H.   RESEARCH AND DEVELOPMENT

               Research and development  expenses,  net of participations by the
               Government of Israel  through the Office of the Chief  Scientist,
               are charged to operations as incurred.

               Software development costs are considered for capitalization when
               technological  feasibility is established  according to Statement
               of Financial  Accounting  Standards No. 86,  "Accounting  for the
               Costs of  Computer  Software  to be  Sold,  Leased  or  Otherwise
               Marketed."  Costs  incurred after  achievement  of  technological
               feasibility in the process of software  production  have not been
               material.  Therefore,  the Company has not capitalized any of its
               research and  development  expenses and does not anticipate  that
               its development process will differ materially in the future.

          I.   REVENUE RECOGNITION

               Revenue from sales of equipment are recognized upon shipment, or,
               if  applicable,  at the end of the  evaluation  period,  and when
               collectibility is probable.







                                      F-10
<PAGE>

                              CERAGON NETWORKS LTD.

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)


NOTE 2 -  SIGNIFICANT ACCOUNTING POLICIES (CONT.)

          J.   INCOME TAXES

               The  Company  accounts  for  income  taxes  under  the  asset and
               liability  method of accounting in accordance with the provisions
               of SFAS 109,  "Accounting for Income Taxes".  Under the asset and
               liability  method,  deferred  taxes are  determined  based on the
               differences  between the financial  statement carrying amount and
               tax basis of  assets  and  liabilities  at  enacted  tax rates in
               effect  in the year in which  the  differences  are  expected  to
               reverse. Valuation allowances are established, when necessary, to
               reduce deferred tax assets to amounts expected to be realized.

          K.   FAIR VALUE OF FINANCIAL INSTRUMENTS

               Unless   otherwise   noted,  the  carrying  amount  of  financial
               instruments approximates fair value.

          L.   CONCENTRATIONS OF CREDIT RISK

               SFAS  No.  105,   Disclosure  of  Information   about   Financial
               Instrument with  Off-Balance-Sheet Risk and Financial Instruments
               with  Concentration  of Credit Risk,  requires  disclosure of any
               significant off-balance sheet and credit risk concentrations. The
               Company has no significant  off-balance-sheet  concentration such
               as foreign exchange contracts,  option contracts or other foreign
               hedging  arrangements.  The Company's accounts receivables credit
               risk is  concentrated  in the  United  States,  Europe  and Latin
               America.

               The  Company  insures   certain  trade   receivables  of  certain
               customers through the Israel Foreign Trade Insurance Company.

          M.   DERIVATIVE FINANCIAL INSTRUMENTS

               Effective  January 1, 2001,  the  Company  adopted  Statement  of
               Financial  Accounting  Standards ("SFAS") No. 133 "Accounting for
               Derivative Instruments and Hedging Activities".

               The Company's derivative financial instruments consist of foreign
               currency forward exchange and option  contracts.  These contracts
               are  utilized by the Company,  from time to time,  to manage risk
               exposure to movements in foreign  exchange  rates.  None of these
               contracts have been designated as hedging instruments.



                                      F-11
<PAGE>


                              CERAGON NETWORKS LTD.

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)



NOTE 2 -  SIGNIFICANT ACCOUNTING POLICIES (CONT.)

          M.   DERIVATIVE FINANCIAL INSTRUMENTS (cont.)

               These  contracts are  recognized as assets or  liabilities on the
               balance sheet at their fair value,  which is the estimated amount
               at which they could be settled  based on market  prices or dealer
               quote,  where available,  or based on pricing models.  Changes in
               fair value are recognized currently in earnings.  The adoption of
               SFAS No. 133 had no material impact on reported  earnings for the
               year ended December 31, 2001.

          N.   SHARE BASED COMPENSATION

               The  Company  accounts  for shares  subject to options  issued to
               employees under Accounting  Principles Board (APB) Opinion No. 25
               "Accounting for Stock Issued to Employees".

               In  accounting   for  options   granted  to  persons  other  than
               employees,  the provisions of SFAS No. 123, "Accounting for Stock
               Based Compensation" are applied.  The fair value of these options
               was  estimated at the grant date using the  Black-Scholes  option
               pricing model.

          O.   BASIC AND DILUTED NET LOSS PER SHARE

               Basic and diluted net loss per share are  presented  according to
               SFAS No. 128, "Earnings per share", for all periods presented.

               Basic and diluted net loss per share have been computed using the
               weighted-average number of ordinary shares outstanding during the
               period.  All convertible  preferred shares and outstanding  share
               options have been  excluded from the  calculation  of diluted net
               loss per share because all these  securities are antidilutive for
               all periods presented.  The total number of shares related to the
               outstanding options excluded from the calculations of diluted net
               loss per share were  3,614,250,  5,600,500  and 5,728,854 for the
               years ended December 31, 1999, 2000 and 2001, respectively.

          P.   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 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.



                                      F-12
<PAGE>



                              CERAGON NETWORKS LTD.

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)




NOTE 2 -  SIGNIFICANT ACCOUNTING POLICIES (CONT.)

          Q.   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

               In July 2001,  the Financial  Accounting  Standards  Board issued
               Statements of Financial  Accounting  Standards No. 141, "Business
               Combinations"  ("SFAS  141")  and No.  142,  "Goodwill  and Other
               Intangible  Assets" ("SFAS 142").  SFAS 141 requires all business
               combinations  initiated  after June 30, 2001, to be accounted for
               using  the  purchase  method.   Under  SFAS  142,   goodwill  and
               intangible  assets with indefinite  lives are no longer amortized
               but are  reviewed  annually  (or more  frequently  if  impairment
               indicators  arise) for impairment.  All other  intangible  assets
               will continue to be amortized over their estimated  useful lives.
               The  amortization  provisions  of SFAS 142 apply to goodwill  and
               intangible  assets  acquired after June 30, 2001. With respect to
               goodwill and  intangible  assets  acquired prior to July 1, 2001,
               the Company is required  to adopt SFAS 142  effective  January 1,
               2002. The adoption of SFAS 141 and 142 will not have an impact on
               the Company's financial position or results of operations.

               In August 2001, the Financial  Accounting  Standards Board issued
               Statement of Financial  Accounting Standards No. 144, "Accounting
               for the  Impairment  or Disposal  of  Long-Lived  Assets"  ("SFAS
               144").  Although SFAS 144  supersedes  FASB Statement No. 121, it
               retains the  requirements  of SFAS 121 regarding  recognition  of
               impairment loss for long-lived  assets to be held and used (based
               on undiscounted  cash flows) and resolves certain  implementation
               issues.   Also,  the  accounting  model  used  in  SFAS  121  for
               long-lived  assets to be  disposed  of by sale (lower of carrying
               amount or fair value less cost to sell) is  broadened by SFAS 144
               to include discontinued operations and supersedes APB Opinion No.
               30. Therefore, discontinued operations will no longer be measured
               on a net realizable  value basis and future operating losses will
               no longer be recognized before they occur. SFAS 144 also broadens
               the   presentation  of  discontinued   operations  to  include  a
               component of an entity (rather than a segment of a business). The
               provisions of SFAS 144 are  effective  for  financial  statements
               issued for fiscal years  beginning  after  December 15, 2001, and
               interim periods within those years. The Company believes that the
               adoption  of SFAS  144 will not  have a  material  impact  on the
               Company's financial statements.



                                      F-13
<PAGE>

                              CERAGON NETWORKS LTD.

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

NOTE 3 -  PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
                                                                                   DECEMBER 31
                                                                         -----------------------------
                                                                             2000              2001
                                                                         ------------      -----------
<S>                                                                           <C>               <C>
             Cost
               Research, development and
                 manufacturing equipment                                      6,522             5,808
               Leasehold improvements                                           405               516
               Office furniture and equipment                                 1,542             1,827
                                                                            -------           -------
                                                                              8,469             8,151
                                                                            -------           -------

             Accumulated depreciation
               Research, development and
                 manufacturing equipment                                      1,248             2,380
               Leasehold improvements                                            35                80
               Office furniture and equipment                                   172               598
                                                                            -------           -------
                                                                              1,455             3,058
                                                                            -------           -------

             Net book value                                                   7,014             5,093
                                                                            =======           =======
</TABLE>

             The Company's property and equipment are primarily located in
             Israel.

             For the years ended December 31, 1999, 2000 and 2001 depreciation
             expense was $370, $854 and $2,015, respectively. In addition, in
             2001, the Company recorded a fixed asset impairment charge in the
             amount of approximately 2.0 million dollars which is presented in
             cost of revenues.


NOTE 4A -  CASH AND CASH EQUIVALENTS

<TABLE>
<CAPTION>
                                                                                   DECEMBER 31
                                                                         -----------------------------
                                                                             2000              2001
                                                                         ------------      -----------
<S>                                                                          <C>               <C>
             Bank deposits in U.S. dollars (*)                               63,816            4,230
             Bank deposits in NIS                                             1,557                -
             Cash in banks                                                    4,691            2,191
                                                                            -------           ------
                                                                             70,064            6,421
                                                                            =======           ======

</TABLE>

             (*)  Bearing annual  interest rates of 2% and 6.8% as at December
                  2001 and 2000, respectively.



                                      F-14
<PAGE>

                              CERAGON NETWORKS LTD.

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)


NOTE 4B - SHORT-TERM DEPOSITS

          Consists of deposits in U.S. dollars in bank with original maturity of
          more than three months, bearing interest at a range of 2.9% to 4.0% as
          of December 31, 2001.


NOTE 5 -  CORPORATE BONDS

<TABLE>
<CAPTION>
                                                                                DECEMBER 31, 2001
                                                                         ---------------------------
                                                                           AMORTIZED         MARKET
                                                                             COST             VALUE
                                                                         -----------      ----------
<S>                                                                         <C>               <C>
             Short-term corporate bonds (*)                                 19,813            19,884
                                                                         ===========      ==========
             Long-term corporate bond (*)                                      746               735
                                                                         ===========      ==========
</TABLE>

             (*)  Including commercial paper and bearing an annual average
                  interest rate of 3.2%.

NOTE 6 -  ACCRUED SEVERANCE PAY

          Under  Israeli  law and labor  agreements,  the Company is required to
          make  severance  payments to its dismissed  employees and to employees
          leaving its employment in certain other  circumstances.  The Company's
          severance pay liability to its  employees,  which is calculated on the
          basis  of the  salary  of each  employee  for the  last  month  of the
          reported period multiplied by the years of such employees' employment,
          is reflected in the  Company's  balance sheet on the accrual basis and
          is partially  funded by purchase of insurance  policies in the name of
          the Company.  Severance pay expenses  amounted to $231, $636 and $654,
          for the years ended December 31, 1999, 2000 and 2001, respectively.













                                      F-15
<PAGE>



                              CERAGON NETWORKS LTD.

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)



NOTE 7 -  COMMITMENTS AND CONTINGENT LIABILITIES

          A.   The Company is committed to pay  royalties to the  Government  of
               Israel on revenues from product sales,  of which the research and
               development was undertaken with Government grants.  Royalties are
               payable from the  commencement of sales of each of these products
               according  to the  relevant  regulations  at a rate of 3%-3.5% of
               sales of the developed  product,  until the cumulative  amount of
               the  royalties  paid  equals  100% of the  amount  of the  grants
               received (for grants received under programs approved  subsequent
               to January 1, 1999 - 100% plus interest at LIBOR).  The Company's
               total   obligation   for   royalties  in  respect  of  Government
               participation  received  or  accrued,  net of  royalties  paid or
               accrued, amounted to $6,672 as of December 31, 2001.

               The Company is  committed  to pay  royalties  to the Fund for the
               Encouragement of Marketing activities of the Government of Israel
               on the total  increase in export  sales up to the total amount of
               the grants  received.  The royalties are payable  commencing from
               the end of the second  year of  implementation  of the plan.  The
               Company's total obligation for royalties in respect of government
               participation  received  or  accrued,  net of  royalties  paid or
               accrued, amounted to approximately $140 as of December 31, 2001.

               The Company is committed to pay royalties to a subcontractor  for
               a component's development and its integration into certain of the
               Company's  products.  Royalties  will be paid at the rates of 4%,
               3%, 2% and 1% for the first,  second,  third and fourth  years of
               revenues,  respectively,  and 1% for the fifth to seventh year of
               revenues.  As of December 31, 2001,  the Company is in its fourth
               year of revenues under the abovementioned plan. The royalties are
               calculated as a rate of sales collection.



                                      F-16
<PAGE>



                              CERAGON NETWORKS LTD.

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)




NOTE 7 -  COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)

          B.   The  Company  operates  from leased  premises in Israel,  Europe,
               Latin America and the U.S. A portion of the premises  occupied by
               the  Company in Israel is leased  under a rental  agreement  with
               related parties.  The rental  agreements expire in the years 2002
               to  2006,  and are  renewable  at the  Company's  option.  Annual
               minimum future rental payments due under the above agreements, at
               the exchange rate in effect on December 31, 2001 are as follows:

                                                               RENTAL
                                                              PAYMENTS
                                                            ------------
                    2002                                        1,266
                    2003                                        2,320
                    2004                                        2,104
                    2005                                        1,593
                    2006                                          595
                                                            ------------
                                                                7,878
                                                            ============

               Rent  expense  was $279,  $902 and  $1,433  for the  years  ended
               December 31, 1999, 2000 and 2001.

          C.   In 2001, the Company entered into  agreements with  international
               suppliers  pursuant to which the Company is committed to purchase
               certain  products  from  these  suppliers.  The  initial  minimum
               purchase commitments under these agreements are approximately $27
               million.



                                      F-17
<PAGE>


                              CERAGON NETWORKS LTD.

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)


NOTE 8 -  SHAREHOLDERS' EQUITY

          A.   In 1998,  122,500  warrants were granted to a  subcontractor  for
               certain research and development services rendered.  The warrants
               have an exercise price of less than $0.01 per share and expire in
               2011.  The fair  value of the  warrants  at the date of grant was
               $227 and was charged to research and development expense.

               The  Company  has   recorded  a  preferred   share   dividend  of
               approximately   $22  million   representing   the  value  of  the
               beneficial  conversion  feature  upon the  issuance of  preferred
               shares in February 2000 and of Series B preferred shares in March
               2000. The beneficial  conversion  feature was calculated based on
               the difference  between the  conversion  price of $2.45 and $5.11
               per  share,  respectively,  and the  estimated  fair value of the
               ordinary  shares at the dates of  issuances,  but  limited to the
               amount  of the  proceeds  from  the  issuances  of the  preferred
               shares.

               In August 2000, the Company closed its initial public offering of
               its  ordinary  shares on NASDAQ.  The  Company  issued  5,750,000
               ordinary shares in consideration for approximately $88.6 million,
               net of issuance expenses. In addition,  all Preferred shares were
               converted to an equal number of ordinary shares.

               Prior to the  consummation  of the initial public offering of its
               ordinary shares, the Company effected a 100-to-1 stock split with
               respect to its  ordinary  shares  and issue 1.50  shares for each
               outstanding ordinary share as a share dividend. All references to
               per share  amounts  and the  number of shares in these  financial
               statements  have been restated to reflect the stock split and the
               share dividend.

               In February  2000,  the Company  received a line of credit from a
               bank in the  amount of $6 million  for a period of 36 months.  In
               consideration  for the line of credit,  the Company  registered a
               floating  charge  on all its  assets  in favor of the  bank.  The
               Company  also issued to the bank a warrant to  purchase  ordinary
               shares of the Company for an  aggregate  exercise  price of up to
               $900. Based on a private  placement in March 2000 the bank became
               entitled to purchase 34,271 ordinary shares, at an exercise price
               of $5.11 per  share.  The fair  value of the  warrant  at date of
               grant was $125 and the Company recorded  financing expense in the
               amount of $125, which are amortized over a period of three years.
               The warrant was exercised upon the Company's IPO in August 2000.



                                      F-18
<PAGE>


                              CERAGON NETWORKS LTD.

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)


NOTE 8 -  SHAREHOLDERS' EQUITY (CONT.)

          B.   The incentive stock option plan and the affiliate employees stock
               option plan  established by the Company  provide for the grant by
               the Company of options to purchase  7,539,000  ordinary shares to
               employees  and  consultants  of the  Company.  The  options  vest
               ratably,  primarily  over  a  three  to  five  year  period.  The
               incentive  stock option plan is  structured  according to Section
               102 of  the  Israeli  Income  Tax  Ordinance  and  the  affiliate
               employees option plan is structured  according to Section 3(9) of
               the Israeli Income Tax Ordinance.  The options expire five to ten
               years after date of issuance.

               Transactions  related  to the above  discussed  employee  options
               during the years ended  December 31, 1999,  2000 and 2001 were as
               follows:

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                               ------------------------------------------------------------------------------
                                             WEIGHTED                   WEIGHTED                     WEIGHTED
                                             AVERAGE                    AVERAGE                      AVERAGE
                                             EXERCISE                   EXERCISE                     EXERCISE
                                 1999         PRICE         2000         PRICE          2001          PRICE
                               --------     ---------     --------     ---------      --------       --------
<S>                            <C>         <C>            <C>             <C>          <C>             <C>
Options outstanding at
  beginning of year            1,855,000   $    (*)       3,614,250       (*)           5,600,500      2.55
Options granted                1,759,250        (*)       1,986,250       7.05          2,355,900      2.35
Options exercised                      -          -               -        -           (1,647,675)     (*)
Options forfeited                      -          -               -        -             (579,871)     6.68
                               ---------   --------       ---------   -----------      ----------   ---------
Options outstanding at
  end of year                  3,614,250        (*)       5,600,500       2.55          5,728,854      2.77
                               =========   ========       =========   ===========      ==========   =========

Exercisable at end of
  year                         1,020,500   $    (*)       1,718,000       0.03          1,389,949      2.37
                               =========   ========       =========   ===========      ==========   =========

Weighted average fair
  value of options
   granted                      $ 6.51                     $ 5.78                        $ 2.35
                               =========                  =========                    ==========
</TABLE>


(*)  Less than $0.01




                                      F-19
<PAGE>


                              CERAGON NETWORKS LTD.

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)


NOTE 8 -  SHAREHOLDERS' EQUITY (CONT.)

          The following  table  summarizes  information  about employee  options
          outstanding at December 31, 2001:

<TABLE>
<CAPTION>
                              OPTIONS OUTSTANDING                                          OPTIONS EXERCISABLE
--------------------------------------------------------------------------------  ------------------------------------
                                             WEIGHTED -          WEIGHTED -                               WEIGHTED -
                          NUMBER              AVERAGE             AVERAGE               NUMBER             AVERAGE
                      OUTSTANDING AT         REMAINING            EXERCISE          OUTSTANDING AT        EXERCISE
     EXERCISE           DECEMBER 31         CONTRACTUAL            PRICE             DECEMBER 31            PRICE
      PRICE                2001                LIFE                                      2001
-----------------   -------------------   ----------------    ------------------  -----------------   ----------------
<S>                      <C>                   <C>                  <C>                   <C>               <C>
        (*)              2,252,850             6.35                   (*)                 1,010,450           (*)
    1.80 - 3.20          2,206,397             9.58                  2.14                    19,497          2.00
       4.09                390,123             8.15                  4.09                    94,841          4.09
       8.18                286,450             8.23                  8.18                    93,916          8.18
   11.00 - 13.00           548,284             8.73                 11.75                   162,295         11.92
       17.00                44,750             8.63                 17.00                     8,950         17.00
                       -----------                                                      -----------
                         5,728,854                                                        1,389,949
                       ===========                                                      ===========
</TABLE>



    (*)  Less than $ 0.01

               The Company  accounts for stock option grants in accordance  with
               APB 25. The total amount of deferred compensation  resulting from
               the  difference  between the  exercise  price and the fair market
               value on the date of the grant of $11.5  million,  $11.5  million
               and nil is included in  shareholders'  equity for the years ended
               December  31,  1999,  2000 and 2001,  respectively,  and is being
               amortized over the vesting  periods of the respective  options in
               accordance with APB 25.  Compensation  cost that has been charged
               to  operations  for the years ended  December 31, 1999,  2000 and
               2001  amounted to $1.8  million,  $9.5 million and $6.4  million,
               respectively.

               If  deferred   compensation   had  been   determined   under  the
               alternative fair value accounting  method provided for under FASB
               Statement  No. 123  "Accounting  for  Stock-Based  Compensation",
               using the  "minimum  value"  method with the  following  weighted
               average  assumptions used for grants for the years ended December
               31, 1999,  2000 and 2001: (1) expected life of the options of 2.5
               - 5 years; (2) dividend yield of 0%; (3) expected volatility 110%
               (70% - 1999)  and (4)  risk-free  interest  rate of 5% - 1999 and
               2000;  1.75% - 2001. The effect on the Company's net loss and net
               loss per share  would  have been  immaterial  for the year  ended
               December 31, 1999.


                                      F-20
<PAGE>


                              CERAGON NETWORKS LTD.

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)


NOTE 8 -  SHAREHOLDERS' EQUITY (CONT.)

          As of December 31, 2000 and 2001, the effect on the Company's net loss
          and net loss per share,  before preferred dividend in 2000, would have
          been increased to the following proforma amounts:

<TABLE>
<CAPTION>
                                                                        2000             2001
                                                                  --------------   --------------
<S>                                                               <C>              <C>
          Net loss:
           As reported                                            $      (12,876)  $      (56,843)
           Pro Forma                                                     (15,127)         (62,705)

          Basic and diluted net loss per share:
           As reported                                            $        (1.12)  $        (2.69)
           Pro Forma                                                       (1.32)           (2.97)
</TABLE>


NOTE 9 -  TAXES ON INCOME

          A.   The  Company  is  subject  to the  Income  Tax Law  (Inflationary
               Adjustments),  1985,  which provides for an adjustment to taxable
               income  for  the  effects  of  inflation  (based  on the  Israeli
               Consumer Price Index) on that portion of shareholders' equity not
               invested in inflation resistant assets.

          B.   The  Company's  investment  plan  totaling  $678 has been granted
               "Approved Enterprise" status through the "Alternatives  Benefits"
               program,  under the Law for Encouragement of Capital Investments,
               1959.  In respect of this plan,  the Company is entitled to a tax
               exemption for the first two years in which it has taxable income,
               and in addition a reduced  income tax rate of 25% (instead of the
               regular rate of 36%) on taxable income derived from the "Approved
               Enterprise" for an additional period of five years or eight years
               if the  percentage of foreign  shareholders  exceeds 25%. The tax
               rates  of  the  Company  may  be  less  than  25%,  based  on the
               proportion of foreign investment in the Company.



                                      F-21
<PAGE>


                              CERAGON NETWORKS LTD.

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)


NOTE 9 -  TAXES ON INCOME (CONT.)

          B.   (Cont.)

               Additionally,  an investment  program at the Company's  secondary
               Jerusalem facility had been granted "Approved Enterprise" status.
               Although  the Company has closed the  Jerusalem  facility  during
               2001,  it has  received  an approval  to  transfer  the  approved
               enterprise  program from Jerusalem to the Tel Aviv facility.  The
               updated  investment  plan for the  expansion  of the plant totals
               approximately  $4 million.  The  benefits  under this program are
               similar to those stated in Item B, above.

               Because the Company has not generated taxable income,  the period
               of tax benefits for the existing approved enterprise programs has
               not yet commenced.  However, these benefits may not be applied to
               reduce  the tax  rate for any  income  derived  by the  Company's
               non-Israeli subsidiaries.

          C.   As of December 31, 2001, the Company has  carryforward tax losses
               in the amount of approximately $54 million,  which may be carried
               forward  indefinitely.  Ceragon  Networks  Wireless Systems Inc.,
               which is subject to U.S. income taxes, has a loss carryforward as
               of December 31, 2001  amounting to  approximately  $9.9  million,
               which  expires in 2021.  The  Company  has  provided a  valuation
               allowance  for the full amount of the tax benefit  deriving  from
               the  carryforward  losses due to its history of operating  losses
               and the  uncertainty  as to when these benefits will be utilized.
               Deferred  taxes in respect  of other  temporary  differences  are
               immaterial.

          D.   The  Company has not  received  final tax  assessments  since its
               incorporation (1996).





                                      F-22
<PAGE>


                              CERAGON NETWORKS LTD.

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)



NOTE 10 -  SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION

<TABLE>
<CAPTION>
          A.   OTHER RECEIVABLES
                                                                               DECEMBER 31
                                                                    -------------------------------
                                                                          2000             2001
                                                                    --------------   --------------
<S>                                                                     <C>              <C>
               Government authorities                                    3,194               613
               Advances to suppliers                                     1,301               478
               Prepaid expenses                                            410               551
               Other                                                       395               501
                                                                       -------           -------
                                                                         5,300             2,143
                                                                       =======           =======

          B.   INVENTORIES

                                                                               DECEMBER 31
                                                                    -------------------------------
                                                                          2000             2001
                                                                    --------------   --------------
               Components                                               12,083             2,354
               Work in progress                                          7,934             3,913
               Finished goods                                            2,173             1,110
                                                                       -------           -------
                                                                        22,190             7,377
                                                                       =======           =======

               In 2001, the Company recorded an expense of $ 26.9 million
               for inventory write-downs, which is included in cost of
               revenues.

          C.   OTHER PAYABLES AND ACCRUED EXPENSES

                                                                               DECEMBER 31
                                                                    -------------------------------
                                                                          2000             2001
                                                                    --------------   --------------
               Employees and related expenses                            1,327               765
               Provision for restructuring costs                             -             1,988
               Accrued expenses                                          1,795             1,847
               Other                                                       372               316
                                                                       -------           -------
                                                                         3,494             4,916
                                                                       =======           =======
</TABLE>


                                      F-23
<PAGE>



                              CERAGON NETWORKS LTD.

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)





NOTE 10 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (CONT.)

          D.   REVENUES

<TABLE>
<CAPTION>
                                                                       DECEMBER 31
                                                       --------------------------------------------
                                                          1999             2000             2001
                                                       ----------       ----------       ----------
<S>                                                       <C>             <C>                <C>
                    United States                         2,093           15,922             9,519
                    Europe                                2,218           11,168            13,035
                    Others                                  241            2,107             2,298
                                                       --------         --------            ------
                                                          4,552           29,197            24,852
                                                       ========         ========            ======

<CAPTION>

                                                                       DECEMBER 31
                                                       --------------------------------------------
                                                          1999             2000             2001
                                                            %                %                %
                                                       ----------       ----------       ----------
<S>                                                       <C>              <C>               <C>
                    Customer A                            45                37                -
                    Customer B                            11               (*)               (*)
                    Customer C                            10               (*)               (*)
                    Customer D                             -                19               30

</TABLE>

                    (*)  Less than 10%.





                                      F-24
<PAGE>


                              CERAGON NETWORKS LTD.

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)



NOTE 11 - RESTRUCTURING COSTS

          In the  second  quarter  of 2001 the  Board of  Directors  approved  a
          restructuring plan to reduce operating expenses significantly. Actions
          taken by the Company  included  mainly a greater than 25% reduction in
          headcount  and a closing of a secondary  manufacturing  facility.  The
          Company recorded a restructuring charge of approximately $4.7 million.

          Components of the restructuring charge for the year ended December 31,
          2001, changes during the period and the remaining accrued liability as
          of December 31, 2001, are as follows:

<TABLE>
<CAPTION>
                                                          RESTRUCTURING        CHANGE DURING           ACCRUED
                                                             CHARGE              THE YEAR             LIABILITY
                                                          -------------        -------------          ---------
<S>                                                           <C>                 <C>                   <C>
             Contractual commitments                          3,141               (1,153)               1,988
             Manufacturing plant
               closing and amortization
               of assets                                      1,609               (1,609)                   -
                                                            -------              -------               ------
                                                              4,750                2,762                1,988
                                                            =======              =======               ======
</TABLE>









                                      F-25
<PAGE>


                              CERAGON NETWORKS LTD.

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)



NOTE 12 - RELATED PARTY BALANCES AND TRANSACTIONS

          Most  of  the  related  party  balances  and   transactions  are  with
          affiliated companies.


<TABLE>
<CAPTION>
                                                                       DECEMBER 31
                                                       --------------------------------------------
                                                          1999             2000             2001
                                                       ----------       ----------       ----------
<S>                                                       <C>             <C>              <C>
          Transactions:

            Cost of sales                                 392              1,533            1,564

            Research and development                      126                326              822
              expenses

            Marketing and selling expenses                199                248              394

            General and administrative
              expenses (including rent
              expense)                                    214                256              214

            Restructuring                                   -                  -               47

            Financing expenses (income)                    13                 77               (1)


                                                                                 DECEMBER 31
                                                                      -------------------------------
                                                                            2000            2001
                                                                      --------------   --------------
          Balances:

            Trade payables, other payables                                270              95
              and accrued expenses

            Other receivables                                               -              14
</TABLE>


                                    #######




                                      F-26
<PAGE>



                                    SIGNATURE

         The registrant hereby certifies that it meets all of the requirements
for filing on Form 20-F and that is has duly caused and authorized the
undersigned to sign this annual report on its behalf.

                                            CERAGON NETWORKS LTD.



                                            By:/s/ Shraga Katz
                                               ------------------------------

                                            Name:     Shraga Katz

                                            Title:    President and
                                                      Chief Executive Officer

Date: April 8, 2002

<PAGE>
                                   EXHIBITS



1.1      Memorandum of Association (English translation
         accompanied by Hebrew original)*

1.2      Articles of Association**

4.1      Tenancy Agreement, dated as of February 22, 2000, by and
         among Ceragon, Zisapel Properties Ltd. and Klil & Michael
         Properties Ltd. (English translation)***

8.1      List of Subsidiaries

10.1     Consent of Luboshitz Kasierer

--------------------
*    Previously filed as exhibit 3.1 in connection with the Ceragon's
     Registration Statement on Form F-1 (Registration Statement 333-12312) on
     August 3, 2000 and incorporated herein by reference.

**   Previously filed as exhibit 3.2 in connection with the Company's
     Registration Statement on Form F-1 (Registration Statement 333-12312) on
     August 3, 2000 and incorporated herein by reference.

***  Previously filed as exhibit 10.3 in connection with the Company's
     Registration Statement on Form F-1 (Registration Statement 333-12312) on
     August 3, 2000 and incorporated herein by reference.