<PAGE>

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

                                   FORM 10-K

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

                  For the fiscal year ended December 31, 2000

                        Commission File Number 0-30189

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

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

     20400 Stevens Creek Boulevard, 8th Floor, Cupertino, California 95014
          (Address of principal executive offices,including zip code)

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

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

       Securities registered pursuant to Section 12(b) of the Act:  None

          Securities registered pursuant to Section 12(g) of the Act:
                        Common Stock, $.0001 par value
                               (Title of class)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K  [X]

The aggregate market value of the Common Stock held by non-affiliates of the
registrant as of February 8, 2001 was approximately $159,050,500. For purposes
of this calculation only, (i) shares of Common Stock are deemed to have a market
value of $11.03 per share, the average of the bid and asked prices of the Common
Stock as reported on the Nasdaq National Market on February 8, 2001, and
(ii)each of the executive officers, directors and persons holding 5% or more of
the outstanding Common Stock is deemed to be an affiliate.

The number of shares of Common Stock outstanding on February 8, 2001 was
37,283,615 shares.

Documents Incorporated By Reference: Part III of this Report incorporates
information by reference from the definitive Proxy Statement for the
registrant's annual meeting of stockholders to be held on May 8, 2001.
<PAGE>

                                   VYYO INC.

                          2000 FORM 10-K ANNUAL REPORT

                               TABLE OF CONTENTS


                                     PART I
                                                               Page
                                                               ----
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<S>        <C>                                                  <C>
Item 1.    Business...........................................   3

Item 2.    Properties.........................................  13

Item 3.    Legal Proceedings..................................  13

Item 4.    Submission of Matters to a Vote of Security Holders  13
</TABLE>
                                    PART II
<TABLE>
<CAPTION>

<S>        <C>                                                   <C>
Item 5.    Market for Registrant's Common Equity and Related
           Stockholder Matters...............................    14

Item 6.    Selected Financial Data...........................    15

Item 7.    Management's Discussion and Analysis of Financial
           Condition and Results of Operations...............    17

Item 7A.   Quantitative and Qualitative Disclosures About
           Market Risk.......................................    33

Item 8.    Financial Statements and Supplementary Data.......    33

Item 9.    Changes in and Disagreements with Accountants
           on Accounting and Financial Disclosure............    33
</TABLE>

                                   PART III
<TABLE>
<CAPTION>

<S>        <C>                                                   <C>
Item 10.   Directors and Executive Officers of the
           Registrant........................................    34

Item 11.   Executive Compensation............................    34

Item 12.   Security Ownership of Certain Beneficial Owners
           and Management....................................    34

Item 13.   Certain Relationships and Related Transactions....    34
 </TABLE>

                                    PART IV
<TABLE>
<CAPTION>

<S>        <C>                                                   <C>
Item 14.   Exhibits, Financial Statement Schedules,
           and Reports on Form 8-K...........................    35

SIGNATURES...................................................    39
</TABLE>

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                                    PART I

                 CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS

     This report on Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, including, without limitation, statements
regarding Vyyo's expectations, beliefs, intentions or future strategies that are
signified by the words "expects", "anticipates", "intends", "believes" or
similar language.  All forward-looking statements included in this document are
based on information available to Vyyo on the date hereof, and Vyyo assumes no
obligation to update any such forward-looking statements.  Actual results could
differ materially from those projected in any such forward-looking statements.
In particular, the following factors, among others, could cause actual results
to differ materially from those described in the forward-looking statements:

 .  Growth of the wireless broadband access market and acceptance of wireless
   broadband access technology

 .  The timing and extent of rollouts of broadband wireless access systems by the
   major telecommunications service providers

 .  our dependence on a limited number of customers

 .  implementing our business strategy

 .  attracting and retaining customers and employees

 .  existing and future competition in our markets

 .  obtaining and expanding market acceptance of the products we offer and
   development of new products

 .  rapid technological changes in our industry

     In evaluating our business, prospective investors should carefully consider
the information set forth below under the caption "Certain Factors That May
Affect Future Results" set forth in Management's Discussion and Analysis of
Financial Condition and Results of Operations.  We caution potential investors
that our business and financial performance are subject to substantial risks and
uncertainties.

Item 1.  Business

Overview

     We supply broadband wireless access systems used by telecommunications
service providers to deliver wireless, high-speed data connections to business
and residential subscribers. We sell our systems directly to service providers
and system integrators, who provide network planning and integration services
and integrate our systems with other components in the network and provide their
customers with end-to-end network solutions. We also provide system integration
services to some of our service provider customers to more effectively implement
our systems.

     Our systems are deployed in point-to-multipoint applications at the radio
frequencies licensed for two-way broadband communication.  Point-to-multipoint
technology refers to the ability of a central, wireless hub to transmit and
receive network traffic to and from multiple subscriber modems.  Our systems are
based on the Internet protocol, or IP, which is the networking standard used to
deliver voice and data over the Internet. Networking standards are the special
set of rules for communicating that the end points in a telecommunication
connection use to send signals back and forth.  Service providers use our system
to bridge the segment of the network that connects the service providers'
systems directly to the subscribers, commonly referred to as the last mile.

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<PAGE>

     Our system consists of a wireless hub, which serves as a point of
convergence for data traffic in a network, network management system software
and wireless subscriber modems.  Each wireless hub is located at a base station,
which houses the components in the network.  Each hub transmits and receives
network traffic to and from our wireless modems, which are installed at multiple
subscriber locations.  Our integrated network management system, which manages
the traffic over the network, optimizes how quickly and efficiently the system
operates by allocating bandwidth, which describes the amount of data which can
travel over the wireless signal.

Industry Background

     The volume of high-speed data traffic across worldwide communications
networks has grown dramatically as the public Internet and private corporate
intranets have been broadly adopted for communications and e-commerce.  This
traffic growth has created demand for cost-effective, high-speed communications,
as subscribers increasingly rely on numerous applications and data-intensive
content, such as full-streaming video where subscribers watch video clips with
sound over the Internet, voice over IP where subscribers conduct voice calls
over the Internet instead of their telephones, and remote access where
telecommuters gain access to corporate networks from locations other than their
offices.

     The growth in data traffic has increased the demand for high speed access.
In light of this demand, the Federal Communications Commission, or FCC, has
taken steps to increase the availability of frequencies and bandwidth that may
be used by wireless carriers in the United States for such data transmission.
The FCC has increased the availability of various frequencies within the bands
of 24 to 40 Gigahertz, or GHz, frequencies often referred to as the local
multipoint distribution system, or LMDS.  In addition, an FCC ruling in
September 1998 allowed license holders of the multichannel multipoint
distribution system, or MMDS, or various frequencies within the band of 2.15 to
2.68 GHz, to offer two-way broadband wireless data services.  Previously, these
frequencies had been restricted to one-way video transmissions.  In October
2000, the FCC began to evaluate the implications of reallocation or sharing
frequency below the 3.0 GHz bands.  The FCC has indicated that a final report
will be issued by March 1, 2001 that will examine whether it may be necessary to
reallocate spectrum for incumbent services, and if so, what spectrum may be made
available.  If the FCC were to reallocate spectrum from fixed wireless
applications to other applications, service providers may delay or alter their
deployment plans and schedules which could seriously harm our business.

     International Data Corporation reported that in 1999, Sprint and WorldCom
spent over $1.5 billion to purchase companies holding MMDS licenses.  In the
United States and internationally, emerging carriers may use this technology to
bypass existing wire-based infrastructure and to compete with incumbent
carriers.  And this technology may be used to deploy broadband services in
regions where there is no existing wire-based communications infrastructure
through which to offer broadband services.  The Strategis Group estimates that
service provider revenue generated from fixed wireless technologies will grow
from $740 million in 2000 to $16.3 billion in 2004.

     Opportunities in broadband wireless access are increasing globally as
Europe, Latin America, Asia Pacific and Canada join the United States in
promoting competition in the local communications services market by allocating
frequencies and bandwidth and issuing transmission licenses.  Deregulation has
created the opportunity for new competitors to use existing and emerging
broadband technologies to offer multiple communications services directly to
subscribers.  There are a number of broadband wire-based technologies that do
not utilize airwaves for data and voice transport, but instead use copper wire,
fiber optic cable, or other physical wires to transport voice and data.  These
wire-based technologies deliver high-speed connections, but performance, cost,
time for deployment or service availability may limit the use of these
alternative technologies to satisfy the needs of service providers and
subscribers.  Broadband wireless technology allows incumbent and emerging
service providers to avoid the limitations of the existing wire-based
infrastructure and 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.

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<PAGE>

The Vyyo Solution

     Our system is designed to allow service providers to rapidly deploy cost-
effective, high speed data connections directly to business and residential
subscribers.  Our systems are deployed in point-to-multipoint applications at
the frequencies licensed for these applications, and consist of a wireless hub,
which serves as a point of convergence for data traffic in a network, network
management system software and wireless subscriber modems.  Each wireless hub is
located at a base station, which houses the components in the network. Our
integrated network management system manages the traffic over the network,
optimizes how quickly and efficiently the system operates by allocating
bandwidth.  Our wireless modems are installed at multiple subscriber locations.

     .      Point-to-multipoint wireless hubs are located inbase stations and
            send and receive data traffic to and from up to 8,000 wireless
            subscriber modems very high speeds. Our network management system
            manages andcontrols the traffic transmitted overour broadband
            wireless system.

     .      Our wireless modems connected to PCs or LANs are located in
            residences, small/home offices, and medium-sized businesses. These
            modems send and receive data traffic and provide access to the
            Internet.

     .      Our wireless hub interfaces with a router located in the base
            station that sends data traffic to the Internet and, in the future,
            will send voice traffic to the gateway that connects with the public
            telephone network.

     .      System integrators or service providers add additional network
            equipment, such as antennae to transmit wireless radio frequency
            signals, and complete the network infrastructure.

     Our system allows service providers to maximize the number of simultaneous
subscribers on their networks.  Using our point-to-multipoint system, service
providers can roll out network service quickly and with a minimal initial
investment and can then expand their networks by adding more wireless hubs and
subscriber wireless modems as the number of subscribers grows.

     Currently, the primary frequency bands for broadband data services in the
United States or other countries are various frequencies within the MMDS and
LMDS bands:

     .      MMDS--Multichannel Multipoint Distribution Service--2.150 to
            2.680 GHz(3.5 GHz in Europe); and

     .      LMDS--Local Multipoint Distribution Service--24 to 40 GHz.


     Cost-effective Systems.  Service providers worldwide are beginning to use
wireless access technologies to deploy high-speed data services as a cost-
effective alternative to wire-based communications, such as cable modems and
digital subscriber lines.  Our wireless system avoids many of the high costs
associated with wire-based solutions, such as costs of installing copper wire,
cable or fiber and obtaining access rights-of-way and digging up streets to lay
wire.  We believe that our systems are more cost-effective than other wireless
access systems because our IP-based systems are easy to operate and less
expensive to install and maintain.

     Standards-based System Design.  Our systems are based on DOCSIS, an
existing standard from the cable industry that we have enhanced for use in the
wireless environment.  Because different manufacturers may use different
protocols or rules for communicating and sending signals back and forth in their
products, these products are often unable to communicate with one another or
with products from other manufacturers.  By designing systems with communication
rules based on an existing industry standard, our systems can be

                                       5
<PAGE>

more easily adapted to new standards and rules and make them easier to integrate
with other manufacturers' equipment, which contributes to the cost-effectiveness
of our systems. The wide availability of key components enable our standards-
based systems to be manufactured and deployed at lower costs than most other
currently available systems.

     Commercial Deployments.  Our product is one of the first commercially
available wireless hub and modem systems for MMDS and LMDS frequency bands.   In
the past year, our DOCSIS-based system has been in trials or commercially
deployed in Australia, Argentina, Brazil, Canada, China, Costa Rica, El
Salvador, Guatemala, Mexico, Panama, and the United States.

     Flexible Platform.  Our systems are highly scalable which allows additional
users and hubs to be added quickly and easily, so our customers can establish a
wireless broadband access network with a relatively low initial investment and
later expand the geographic coverage area of the network and increase the number
of users who can be served on the network as subscriber demand increases.  Our
integrated network management system is designed to allow new system features
and benefits to be added without costly replacements of existing hardware.
Service providers also use the integrated network management system to manage
the traffic over the network and optimize how quickly and efficiently the system
operates by efficiently allocating bandwidth, or the amount of data that can
travel over the wireless signal.  These system characteristics allow service
providers to maximize the number of simultaneous end-users served by a hub while
preserving the speed and quality of data transmission.

Products

     Wireless Hub.  Our wireless hub manages data communications between
wireless modems located at subscribers' locations and network devices such as
routers located at a central office or base station.  The primary role of the
wireless hub is to manage the upstream traffic from the subscriber toward the
public telephone and data networks, and the downstream traffic from the networks
toward the subscriber.  Our wireless hub can support up to 8,000 wireless
modems.

     Our wireless hub employs a unique open physical layer (PHY) architecture
that allows us to easily replace the PHY boards in the hub as more sophisticated
technology becomes available.  Our wireless hub is designed to support a variety
of channel capacities by using any combination of six communications modules as
either upstream or downstream modules, with each upstream module supporting six
upstream receivers, and each downstream module supporting one downstream
transmitter.  For example, our system can provide, among other combinations, 30
upstream channels and one downstream channel or 24 upstream channels and two
downstream channels.  A channel is a subdivision of a frequency band used to
transmit radio frequency signals.  This flexibility allows the system engineer
to configure a system for each specific situation.

     Our wireless hub may be accessed for modification or transmitter or
receiver module replacement by the operator while maintaining continuous
operation.  Most of the modules are identical, which is intended to reduce
maintenance and inventory requirements.  When used in combination with our
wireless modems, our wireless hub enables radio frequency performance in any of
the currently licensed point-to-multipoint frequency bands.  Multiple wireless
hubs may be controlled through the same network management system operator
interface, either locally or from a remote location.


     Our integrated network management system is a Windows NT-based software
package that manages overall system operations.  The system features graphical
views of all parts of the network, subscribers, modems and traffic patterns.
The network management system allows network operators to configure, maintain
and troubleshoot hubs and modems from a central workstation.  Our network
management system also enables the network operator to work at a location remote
from the public telephone network or the data network, thereby increasing the
system's operational flexibility.  In addition, our systems can adjust
automatically to more efficiently utilize available bandwidth.  This utilization
can translate into increased potential revenue for service providers as compared
to other currently available wireless products.

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<PAGE>

     Wireless Modem.  Our wireless subscriber modem is designed for residential,
home office or small office deployment.  It supports up to 15 individual users
simultaneously through a separate Ethernet hub or switch.

     Technology

     Our experience in designing shared bandwidth communications systems using
time division multiple access, or TDMA, technology is the foundation of our
expertise in the point-to-multipoint broadband wireless access market.  TDMA is
a wireless technology that allows multiple users to share available bandwidth.
We believe that we have extensive expertise in system design, as well as modem
and broadband radio frequency technology. We have developed media access
controller, or MAC, layer algorithms, or software code, that maximize the number
of subscribers that can share a single upstream channel.

     Internet Protocol Expertise.  Our system architecture supports Internet
Protocol communications traffic, and our primary systems component, the media
access controller, is optimized for Internet Protocol communications traffic.
We have designed our systems to support variable-length Internet Protocol
packets, which carry the data being transmitted, including the most common
packet size of 64 bytes.

     DOCSIS+(TM) Standard.  Our systems use an enhanced version of the cable
industry's DOCSIS standard, which we call DOCSIS+(TM).  Our DOCSIS+(TM) standard
provides for comprehensive support of all Internet Protocol-based services.  We
believe that we are the first company to modify the DOCSIS standard to suit the
wireless environment.   We have developed media access controller layer
algorithms based on DOCSIS+(TM) for our wireless hubs and modems and have made
additional enhancements to facilitate reliable communication over the MMDS and
LMDS frequency bands.

     Enhanced MAC Layer Algorithms.  Our enhanced media access controller layer
software code, combined with select physical layer software code, provide robust
performance under adverse conditions and effectively utilize the limited
frequency and bandwidth allocations of the MMDS band.

     Signal Processing Technology.  We develop, deploy and support the
networking architecture for the multiple modules required in our systems.
Specifically, we have developed technology that is designed to correct
transmission errors and prevent unauthorized access to the data being
transmitted.  We believe that our ability to rapidly develop and integrate such
modules into our systems provides us with a competitive advantage.

     Scheduling Algorithms.  We develop scheduling software code for TDMA -based
point-to-multipoint systems.  Our network management system is designed to
predict user behavior and automatically adjust allocation of frequencies to more
efficiently utilize bandwidth.  The ability to control and modify the
characteristics of the network management system allows us to further optimize
it to changing environments and future services.

Customers

     We sell our systems directly to service providers and system integrators
that deploy our systems as part of their end-to-end network solutions for
service providers.  We also provide system integration services to some of our
service provider customers to more effectively implement our systems.  We sell
our systems based on individual purchase orders.  Our customers are not
obligated by long-term contracts to purchase our systems.  Our customers can
generally cancel or reschedule orders upon short notice and can discontinue
using our systems at any time.

     A relatively small number of customers account for a large percentage of
our revenues.  In 2000, ADC Telecommunications, Inc. accounted for approximately
33% of our revenues, Nortel Networks accounted for approximately 22% of our
revenues, and Convergence Communications, Inc. accounted for

                                       7
<PAGE>

approximately 10% of our revenues. We expect that we will continue to depend on
a limited number of customers for a substantial portion of our revenues in the
future.

     Collaborative Arrangements with Systems Integrators and Others.  We have a
collaboration agreement with ADC, under which we sell our hubs and modems to ADC
for resale and distribution to ADC's customers. We granted to ADC a non-
exclusive license to use specified software embedded in or provided with our
products.  As of December 31, 2000, ADC holds approximately 7% of our
outstanding common stock.

     In early 2000, we established a relationship with Nortel Networks under
which Nortel Networks sells our products on an OEM basis.  We began generating
revenues from sales of our products to Nortel Networks in the second quarter of
2000.  We also have agreements to collaborate with several radio companies,
including California Amplifier, REMEC and others, to develop radio products that
will interoperate with our equipment.

Sales and Marketing

     The global telecommunications industry is dominated by a limited number of
network system integrators.  We focus our marketing efforts on network system
integrators that have the means to provide vendor financing in situations where
our equipment is purchased as part of the total network. For some service
providers, this financing is a necessary part of the total network solution.  We
support our system integrator customers with site demonstrations for their
service provider customers.  The objective of a site demonstration is to promote
the adoption of our systems for deployment within the service provider's
network.

     We also sell our systems directly to service providers.  In determining
which accounts to service directly, we focus on those service providers that
prefer to work with a vendor directly and serve as their own system integrator.
In some instances, we may serve as a system integrator and provide, through
third parties, the other components of the network system.

     Our direct sales force maintains contact with the service provider and the
system integrator account team, regardless of the actual distribution channel.
This contact keeps us informed of the evolving needs of the service providers
and helps strengthen our relationship with each customer.  In some markets, we
have established distribution relationships with local resellers that also
provide support and maintenance to their service provider customers.

     Our marketing group provides marketing support services for our executive
staff, direct sales force, system integrators and resellers.  Through our
marketing activities, we provide technical and strategic sales support to our
direct sales personnel and system integrators or resellers, including in-depth
product presentations, technical manuals, sales tools, pricing, marketing
communications, marketing research, trademark administration and other support
functions.

     Our marketing group is also responsible for product management activities
throughout each product's lifecycle. These activities include defining product
features, approving product releases, specification enhancements to our product
and service offerings, and determining future product platforms.

Manufacturing

     We outsource manufacturing to contract manufacturers that have the
expertise and ability to reduce costs associated with volume manufacturing and
to respond quickly to customer orders while maintaining high quality standards.
We outsource printed circuit board assembly and manufacturing of our wireless
hubs to contract manufacturers located in Israel. We outsource manufacturing of
our wireless modems to a contract manufacturer located in Taiwan. Any inability
of these manufacturers to provide the necessary capacity or output could result
in significant production delays that could harm our business. Our wireless hubs
and modems are currently purchased on a purchase order basis. We have no
guaranteed supply or long-term

                                       8
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contractual agreements with any of our suppliers. In addition, some of the
components included in our systems are obtained from a single source or limited
group of suppliers. The partial or complete loss of such suppliers could
increase our costs, delay shipments or require redesigns of our products.

     We assemble our wireless hubs and perform final tests on our systems at our
facility located in Jerusalem, Israel.  Our facility is ISO 9002-certified.  ISO
9002 is a set of international quality assurance standards for companies
involved in the design, development, manufacturing, installation and servicing
of products or services.  These standards are set by the International
Organization for Standardization, or ISO, an international federation of
national standards bodies.  To be recommended for ISO 9002 certification, a
company must be audited by an ISO-accredited auditing company and must meet or
surpass ISO standards.

Research and Development

     The goal of our research and development activities is to continue the
development and introduction of next-generation products for our customers.  Our
efforts are also focused on reducing the cost and increasing the functionality
of our systems, while adapting them to the frequency and interface
specifications required for new markets.  Our ongoing new product development
program assesses service providers' needs and technological changes in the
communications market.  We are pursuing new generations of many of our products.

     We believe that our extensive experience designing and implementing high
quality network and radio components and system software allows us to develop
high-value integrated systems solutions.  As a result of these development
efforts, we believe that we have created an industry-leading platform for cost-
effective broadband wireless voice and data delivery with dynamic bandwidth
allocation.

     Our future success depends on our continued investment in research and
development in radio, networking and software technologies, and we expect to
continue to invest a significant portion of revenues in this area.  Our research
and development expenditures were $3.3 million for 1998, $3.7 million for 1999,
and $13.1 million for 2000.  We are currently investing significant resources to
increase the capacity and extend the capabilities and features of our systems.

     As of December 31, 2000, our research and development staff consisted of
144 employees, the majority of whom are located in Israel.

Competition

     The market for broadband wireless access systems is intensely competitive,
rapidly evolving and subject to rapid technological change. The principal
competitive factors in this market include:

     .     product performance and features;

     .     price of competitive products;

     .     reliability and stability of operation;

     .     ability to develop and implement new services and technologies;

     .     ability to support newly allocated frequencies; and

     .     sales capability, technical support and service.

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     The primary competing alternative technologies for broadband access
include:

     Digital Subscriber Line.  Digital subscriber line, or DSL, technology today
transmits data approximately 50 times faster than a conventional dial-up modem
using the existing copper wire network.  DSL transmission rates are limited,
however, by the length and quality of the available copper wires.  Various
implementations of DSL are being developed and deployed. Service providers
deploying DSL technology include incumbent local exchange carriers, such as SBC
Communications, Inc. and Bell Atlantic Corporation, as well as numerous
competitive local exchange carriers.

     Cable Modems.  Cable modems are designed to provide broadband Internet
access and are targeted primarily at the residential market.  Cable lines pass
by 100  million homes in North America, but only a portion of those homes
currently have access to two-way cable modem service.  Several cable companies
are currently offering broadband access services across two-way cable, and cable
TV networks will be used increasingly for voice and high-speed data services.

     Fiber-based Solutions.  Fiber-based solutions and high-capacity leased
lines offer the highest data transmission rate of any of the alternative
technologies for broadband access.  Fiber optic cables use pulses of light to
transmit digital information.  Because fiber optic cables support thousands of
high speed, local digital connections onto a single higher-speed connection to
the central office or the central side of the cable TV network where all the
video signals emanate, they offer virtually unlimited bandwidth capacity.  Due
to their high capacity, fiber optic cables are increasingly being used in the
access network in both telecommunications and cable TV applications.  However,
these solutions are costly to deploy for small business and residential
subscribers.

     DSL and cable modem technologies offer data transmission speeds comparable
to our broadband wireless technology at comparable modem costs.  Fiber optic
cable provides faster transmission rates than our broadband wireless technology,
though at significantly higher costs.

     Many of our competitors and potential competitors have substantially
greater financial, technical, distribution, marketing and other resources than
we have and, therefore, may be able to respond more quickly to new or changing
opportunities, technologies and other developments.  In addition, many of our
competitors have longer operating histories, greater name recognition and
established relationships with system integrators and service providers.  These
competitors may also be able to undertake more extensive marketing campaigns,
adopt more aggressive pricing policies and devote substantially more resources
to developing new products.  Our primary competitor is Hybrid Networks, Inc.,
and other companies, such as Adaptive Broadband Corporation and BreezeCOM Ltd.,
have announced plans to enter the MMDS market. In addition, well-capitalized
companies such as Cisco Systems, Lucent Technologies, Alcatel and other vendors
have announced plans to enter, or are potential entrants into, the broadband
wireless market.  These vendors have been attracted by investments by WorldCom,
Sprint and other service providers in wireless operations. Most of these
competitors have existing relationships with one or more of our prospective
customers.  We may not be able to compete successfully against our current and
future competitors and competitive pressures may seriously harm our business.

Government Regulation

     Our business depends on the availability of certain radio frequencies for
broadband two-way communications.  Radio frequencies are subject to extensive
regulation under the laws of the United States, foreign laws and international
treaties.  Each country has different regulation and regulatory processes for
wireless communications equipment and uses of radio frequencies.  The regulatory
environment in which we operate is subject to significant change, the results
and timing of which are uncertain.  Historically, in many countries the
unavailability of radio frequencies for two-way broadband communications has
inhibited the growth of such networks.  The process of establishing new
regulations for broadband wireless frequencies and allocating such frequencies
to operators is complex and lengthy.  Our customers and potential customers may
not be able to obtain sufficient frequencies for their planned uses of our
systems.  Failure by the regulatory

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authorities to allocate suitable, sufficient radio frequencies for such uses in
a timely manner could deter potential customers from ordering our systems and
seriously harm our business.

     Our systems must conform to a variety of domestic, foreign and
international regulatory requirements established to, among other things, avoid
interference among users of radio frequencies and permit interconnection of
equipment.  Regulatory bodies worldwide have adopted and are adopting or
revising standards for wireless communications products.  The emergence or
evolution of regulations and industry standards for broadband wireless products,
through official standards committees or widespread use by operators, could
require us to modify our systems, which may be expensive and time-consuming, and
incur substantial compliance costs and seriously harm our business.

     We are subject to export control laws and regulations with respect to all
of our products and technology.  We are subject to the risk that more stringent
export control requirements could be imposed in the future on product classes
that include products exported by us, which would result in additional
compliance burdens and could impair the enforceability of our contract rights.
Some of our products contain encryption technologies to enable the transfer of
data in a manner that preserves the privacy of the parties communicating such
data.  United States law currently requires Department of Commerce review and
classification of the encryption technologies included in our systems before
sales of our systems outside the United States, and we are subject to various
restrictions on exporting our systems to certain countries. Under Israeli law,
means of encryption and encryption equipment are controlled commodities within
the meaning of the Control of Commodities and Services Law, 5718-1957, and are
therefore subject to the prohibitions, restraints, supervision and control
governing it by virtue of such law and regulations and orders thereunder.  Such
law and regulation prohibit the engagement in means of encryption otherwise than
pursuant to a license from the authorized person appointed by the Minister of
Defense.  Vyyo Ltd.'s license to engage in encryption expires on February 28,
2001.  We may not be able to renew these licenses as necessary from time to
time.  In addition, we may be required to apply for additional licenses to cover
modifications and enhancements to our products.  Any revocation or expiration of
any requisite license, the failure to obtain a license for product
modifications, or more stringent export control requirements could seriously
harm our business.

Intellectual Property

     We have 18 patent applications pending in the United States and 11 foreign
patent applications pending.  We rely on a combination of patent, copyright and
trademark laws, trade secrets and confidentiality and other contractual
provisions to establish and protect our proprietary rights, each of which is
important to our business.

     Our success depends in part on our ability to protect our proprietary
technologies.  Our pending or future patent applications may not be approved and
the claims covered by such applications may be reduced.  If allowed, our patents
may not be of sufficient scope or strength, others may independently develop
similar technologies or products, duplicate any of our products or design around
our patents, and the patents may not provide us competitive advantages.
Further, patents held by third parties may prevent the commercialization of
products incorporating our technologies or third parties may challenge or seek
to narrow, invalidate or circumvent any of our pending or future patents.  We
also believe that foreign patents, if obtained, and the protection afforded by
such foreign patents and foreign intellectual property laws, may be more limited
than that provided under United States patents and intellectual property laws.
Litigation, which could result in substantial costs and diversion of effort by
us, may also be necessary to enforce any patents issued or licensed to us or to
determine the scope and validity of third-party proprietary rights.  Any such
litigation, regardless of outcome, could be expensive and time-consuming, and
adverse determinations in any such litigation could seriously harm our business.

     We also rely on unpatented trade secrets and know-how and proprietary
technological innovation and expertise which are protected in part by
confidentiality and invention assignment agreements with our employees, advisors
and consultants and non-disclosure agreements with certain of our suppliers and
distributors.  These agreements may be breached, we may not have adequate
remedies for any breach or our

                                       11
<PAGE>

unpatented proprietary intellectual property may otherwise become known or
independently discovered by competitors. Further, the laws of certain foreign
countries may not protect our products or intellectual property rights to the
same extent as do the laws of the United States.

     From time to time, third parties, including our competitors, may assert
patent, copyright and other intellectual property rights to technologies that
are important to us.  We expect that we will increasingly be subject to license
offers and infringement claims as the number of products and competitors in our
market grows and the functionality of products overlaps.  In this regard, in
early 1999 and again in April 2000, we received written notices from Hybrid
Networks in which Hybrid claimed to have patent rights in certain technology.
Hybrid requested that we review our products in light of eleven of Hybrid's
issued patents.  Vyyo believes, based on the advice of counsel, that these
Hybrid patents are invalid or are not infringed by our products.

     Others' patents, including Hybrid's, may be determined to be valid, or some
or all of our products may ultimately be determined to infringe the Hybrid
patents or those of other companies. Hybrid or other companies may pursue
litigation with respect to these or other claims. The results of any litigation
are inherently uncertain. In the event of an adverse result in any litigation
with respect to intellectual property rights relevant to our products that could
arise in the future, we could be required to obtain licenses to the infringing
technology, pay substantial damages under applicable law, to cease the
manufacture, use and sale of infringing products or to expend significant
resources to develop non-infringing technology. Licenses may not be available
from third parties, either on commercially reasonable terms or at all. In
addition, litigation frequently involves substantial expenditures and can
require significant management attention, even if we ultimately prevail.
Accordingly, any infringement claim or litigation against us could significantly
harm our business, operating results and financial condition.

Employees

     As of December 31, 2000, we had 241 employees, of whom 181 were employed in
Israel and 60 were employed in the United States or other locations.  Of these
employees, 144 were principally dedicated to research and development, 33 were
dedicated to sales, marketing and customer support and 35 were involved in
manufacturing and operations.  None of our U.S. employees is represented by a
union.

     Our Israeli subsidiary is 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 work day and work week,
minimum wages, pay for overtime, insurance for work related accidents, severance
pay and other conditions of employment.

     Our Israeli subsidiary 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 Associations, by order of the
Israeli Ministry of Labor and Welfare.  These provisions principally concern
cost of living expenses, recreation pay and other conditions of employment.  Our
Israeli subsidiary provides our Israeli employees with benefits and working
conditions above the required minimums.  Our employees are not represented by a
labor union.  We have not experienced any work stoppages.

                                       12
<PAGE>

Item 2.  Properties

     We are headquartered in California, where we lease approximately 18,000
square feet of commercial space in Cupertino and Sunnyvale under month-to-month
and up to one-year lease arrangements.  These facilities are used for executive
office space, including sales and marketing, customer support, and finance and
administration.  We also lease approximately 27,000 square feet of commercial
space in Jerusalem, Israel under a term lease that expires on December 31, 2003,
subject to one five-year extension at our option.  We intend to move all of our
Israeli operations to a new 43,120 square foot facility in July 2001 and to
sublease our current facility to another tenant.  In June 2000, we entered into
a term lease for this new facility.  The new lease has a term of four years
commencing on January 1, 2001, and is subject to six extensions of two years
each.  These facilities are used for research and development activities and for
product assembly and testing.

Item 3.  Legal Proceedings

     None.

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

     None.

                                       13
<PAGE>

                                    PART II

Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters

     Our common stock has been traded on the Nasdaq National Market under the
symbol "VYYO" since our initial public offering on April 5, 2000.  Prior to that
date, there was no public market for our common stock.  The following table
presents for the periods indicated the high and low sales prices for our common
stock, as reported by the Nasdaq National Market:

<TABLE>
<CAPTION>

                                                                           Price Range of
                                                                            Common Stock
                                                                    -----------------------------
                                                                        High               Low
                                                                    -----------------------------
<S>                                                                 <C>                <C>

Year Ended December 31, 2000
 Second Quarter (beginning April 5, 2000).........................     $35.375            $ 13.25
 Third Quarter....................................................     $44.625            $20.875
 Fourth Quarter...................................................     $30.375            $ 5.375
</TABLE>

     On February 8, 2001, the closing price of our common stock as reported on
the Nasdaq National Market was $10.875 per share.  As of February 8, 2001, there
were approximately 156 holders of record of our common stock, which we believe
represents approximately 5,600 beneficial holders.

     Dividend Policy. We have never declared or paid any cash dividends on
shares of our common stock. We presently intend to retain any future earnings to
fund the development and expansion of our business. Therefore, we do not
anticipate paying cash dividends on our common stock in the foreseeable future.
Through our subsidiary, Vyyo Ltd., we participate in the "alternative benefits
program" under the Israeli law for the Encouragement of Capital Investments,
1959, under which we realize certain tax exemptions. If Vyyo Ltd. distributes a
cash dividend to Vyyo Inc. from income which is tax exempt, other than in the
complete liquidation of Vyyo Ltd., it would be taxed at the corporate rate
applicable to such income (currently 25%).

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

     From April 3, 2000, until December 31, 2000, we used approximately $3.5
million of the net offering proceeds for purchases of property, plant and
equipment, approximately $2.4 million of the net proceeds for repayment of short
term debt obligations, approximately $2.4 million of the net proceeds for
repurchase of our common stock, and approximately $15.2 million of the net
offering proceeds for working capital.

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

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

                                       14
<PAGE>

Item 6.   Selected Financial Data

<TABLE>
<CAPTION>

                                                                     Year Ended December 31,
                                                     ----------------------------------------------------
                                                      1996        1997      1998       1999        2000
                                                     -------    -------    -------   --------    --------
                                                             (in thousands, except per share data)
<S>                                                  <C>       <C>        <C>        <C>        <C>
Statement of Operations
 Data:
Net revenues                                         $   478    $ 1,537    $ 2,449   $  4,230    $ 15,378
Cost of revenues                                         896      1,556      2,568      4,316      10,635
                                                     -------    -------    -------   --------    --------

Gross profit (loss)                                     (418)       (19)      (119)       (86)      4,743
Operating expenses:
  Research and
   development                                         1,444      2,398      3,252      3,678      13,086
  Sales and marketing                                    929      1,484      2,413      1,972       8,201
  General and
   administrative                                      1,180      1,200      1,363      2,148       8,785
  Charge for stock
   compensation                                           --         --         --      9,300      14,607
                                                     -------    -------    -------   --------    --------
    Total operating
     Expenses                                          3,553      5,082      7,028     17,098      44,679
                                                     -------    -------    -------   --------    --------
Operating loss                                        (3,971)    (5,101)    (7,147)   (17,184)    (39,936)
  Charge for amended
   financing
   arrangements                                           --         --         --    (25,700)         --
  Interest and other
   income (expense),
   net                                                  (131)      (244)      (524)      (717)      4,704
                                                     -------    -------    -------   --------    --------
Net loss                                             $(4,102)   $(5,345)   $(7,671)  $(43,601)   $(35,232)
                                                     =======    =======    =======   ========    ========

Pro forma net loss (unaudited)(1)                    $(4,102)   $(5,345)   $(7,671)  $ (8,601)   $(20,625)
                                                     =======    =======    =======   ========    ========

Net loss per share: (basic and
   diluted)                                                     $ (5.91)   $ (5.43)   $ (5.40)   $ (1.08)
                                                                =======    =======    =======    =======
Shares used in net loss per
   share (basic and diluted)                                        905      1,412      8,078     32,600
                                                                =======    =======    =======    =======
Pro forma net loss per
  share (unaudited)(2)                                                                $ (0.85)   $ (0.61)
                                                                                      =======    =======
Shares used in pro forma net
 loss per share (unaudited)                                                            10,137     33,685
                                                                                      =======    =======
</TABLE>

(1) Pro forma net loss excludes charges for stock compensation and amended
financing arrangements.

(2) Pro forma net loss per share (i) reflects the conversion of the outstanding
preferred shares into common shares, which automatically converted at the
completion of the initial public offering and (ii) excludes charges for stock
compensation and amended financing arrangements.

                                       15
<PAGE>

<TABLE>
<CAPTION>
                                               December 31,
                               ---------------------------------------------
                                1996     1997       1998      1999     2000
                               ------   -------   --------   ------  -------
                                              (in thousands)
<S>                           <C>       <C>       <C>        <C>     <C>
Balance Sheet Data:

Cash, cash equivalents and
 short term investments        $1,459   $   510   $    131   $5,036  $127,905
Working capital
 (deficiency)                     785    (4,497)   (10,581)     210   123,596
Total assets                    3,074     2,976      3,380    8,363   143,167
Long-term obligations, net
 of current portion             2,328       394         --       --        --
Total shareholders' equity
 (net capital deficiency)        (560)   (3,811)    (9,571)   1,305   127,580
</TABLE>

                                       16
<PAGE>

Item 7.  Management's Discussion and Analysis of Financial Condition and Results
of Operations

     You should read this Management's Discussion and Analysis of Financial
Condition and Results of Operations in conjunction with our 2000 consolidated
financial statements and accompanying notes  appearing elsewhere in this annual
report.  The matters addressed in this Management's Discussion and Analysis of
Financial Condition and Results of Operations, with the exception of the
historical information presented, contain forward-looking statements involving
risks and uncertainties.  Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under the heading "Certain Factors That May Affect
Future Results" following this Management's Discussion and Analysis section, and
elsewhere in this report.

Overview

     We supply broadband wireless access systems used by telecommunications
service providers to deliver wireless, high-speed data connections to business
and residential subscribers. We sell our systems directly to service providers,
as well as to system integrators that deploy our systems as part of their end-
to-end network solutions for service providers. We have incurred significant
losses since our inception, and we expect to continue to incur net losses for
the foreseeable future. We incurred net losses of approximately $35.2 million
for the year ended December 31, 2000. As of December 31, 2000, our accumulated
deficit was approximately $101.4 million.

     Prior to our introduction of broadband wireless access systems, we
developed and marketed cable broadband communication systems. Our first-
generation broadband wireless system was commercially deployed during the first
quarter of 1999 for the local multipoint distribution system, or LMDS, and the
multichannel multipoint distribution system, or MMDS, frequency bands. Our
second-generation, DOCSIS-based, broadband wireless access system was
commercially deployed during the first half of 2000 for the LMDS and MMDS
frequency bands.

     Net revenues include product revenues and technology development and
license revenues. Product revenues are derived primarily from sales of hubs and
modems to telecommunications service providers and to system integrators.
Product revenues are generally recorded when products are shipped, provided
there are no customer acceptance requirements and we have no additional
performance obligations. We accrue for estimated sales returns or exchanges and
product warranty and liability costs upon recognition of product revenues.
Technology development revenues are recognized when the applicable customer
milestones are met, including deliverables, but not in excess of the estimated
amount that would be recognized using the percentage-of-completion method.
License revenues are recognized when the license technology is delivered.
Deferred revenues represent the gross profit on product revenues subject to
return or exchange and total payments on technology development not yet
recognized.

Results of Operations

Years Ended December 31, 1998, 1999 and 2000

     Net Revenues.

     Net revenues increased 73% from $2.4 million in 1998 to $4.2 million in
1999, and 264% to $15.4 million in 2000. This increase primarily reflects the
increase in unit sales of our systems, the technology development and licensing
activities in 1999 and 2000 and recognition in 2000 of previously deferred
revenues amounting to $724,000. We began commercial shipments of our first-
generation broadband wireless access system in the first quarter of 1999, and we
began commercial shipments of our second-generation DOCSIS-based wireless access
system in the fourth quarter of 1999. All of our product revenues in 1998, and a
substantial portion of our product revenues in 1999, relate to sales of cable
modem products that we are no longer developing. Virtually all of the remaining
revenues in 1999 relate to sales of our first-generation wireless modem
products, which we phased out with the launch of our second-generation, DOCSIS-
based,

                                       17
<PAGE>

wireless access systems in the fourth quarter of that year. Technology
development and licensing revenues were $480,000 in 1999 and less than 10% of
revenues in 2000.

     In 1999, approximately 61% of our revenues were derived from customers in
North America and 39% from customers outside of North America. In 2000, 82% of
our revenues were from customers in North America and 18% from customers outside
of North America.

     Our revenues are concentrated among relatively few customers. In 2000, two
system integrators, Nortel Networks and ADC, collectively represented
approximately 55% of our net revenues.  Revenues from ADC, Nortel and
Convergence Communications, Inc. represented approximately 33%, 22% and 10%,
respectively, of our net revenues in 2000.  In 1999, revenues from four
customers represented approximately 20%, 14%, 13% and 12% of net revenues. In
1998, revenues from three customers represented approximately 31%, 23% and 15%
of net revenues. Though our principal revenue-generating customers are likely to
vary on a quarterly basis, we anticipate that our revenues will remain
concentrated among a few system integration customers for the foreseeable
future.  As of December 31, 2000, ADC holds approximately 7% of our outstanding
common stock.

     Cost of Revenues.

     Cost of revenues consists of component and material costs, direct labor
costs, warranty costs, royalties in connection with Israeli government incentive
programs and overhead related to manufacturing our products.  Cost of revenues
increased from $2.6 million in 1998 to $4.3 million in 1999 and to $10.6 million
in 2000. These increases were attributable primarily to increased shipments of
our products in each of the three years. Gross margins improved from negative
margins in 1998 and 1999 to 31% in 2000. Gross margins in 1998 were negatively
affected by the high initial fixed costs and low volumes associated with our
proprietary cable modem products. Gross margins in 1999 were negatively affected
by the high fixed costs associated with the first generation wireless modem
products and inventory write-offs associated with the discontinuation of in-
house cable modem assembly, as well as the replacement of a modem system for a
key customer with next-generation technology. Cost of revenues included costs of
technology development revenues of $313,000 in 1999.  The increase in gross
margin in 2000 reflects the cost effectiveness of the second-generation DOCSIS-
based wireless broadband systems, recognition of revenues previously deferred
offset by inventory write-down and to a lesser extent the impact of technology
development revenues.  We expect that our gross margins will continue to
fluctuate in future periods.

     Prior to 1997, we participated in several Israeli government research and
development incentive programs under which we received research and development
participation of approximately $3.7 million. We are obligated to pay royalties
at rates that generally range from 2.5% to 5% of revenues resulting from the
funded projects up to maximum amounts of 100% or 150% of the funded amount. As
of December 31, 2000, we had repaid or provided for the repayment of grants
amounting to $1.1 million. As we over time have gradually decreased the
manufacture and sale of products developed within any of the projects funded by
the Office of the Chief Scientist in the Israeli Ministry of Industry and Trade
or by the Israel-United States Binational Industrial Research and Development
Foundation, we believe that the remaining contingent royalty liability is
approximately $300,000.

     Research and Development Expenses.

     Research and development expenses consist primarily of personnel,
facilities, equipment and supplies for our research and development activities.
Substantially all of our research and development activities are carried out in
our facility in Israel. These expenses are charged to operations as incurred.
Our research and development expenses increased from $3.3 million in 1998 to
$3.7 million in 1999 and to $13.1 million in 2000. These increases were due to
increased levels of activities and related costs of personnel and facilities. We
believe significant investment in research and development is essential to our
future success and plan on increasing our research and development activities.
This includes recruiting and hiring additional personnel and expanding our
research and development facility to accommodate the additional personnel, which
will

                                       18
<PAGE>

result in increased expenses in absolute dollars. Accordingly, we expect
that research and development expenses will continue to increase in future
periods.

     Sales and Marketing Expenses.

     Sales and marketing expenses consist of salaries and related costs of sales
and marketing employees, consulting fees and expenses for travel, trade shows
and promotional activities. Sales and marketing expenses decreased from $2.4
million in 1998 to $2.0 million in 1999 and increased to $8.2 million in 2000.
The fluctuation in sales and marketing expenses in each of the years was
primarily due to changes in the number of sales and marketing personnel and the
level of trade show and other promotional activities. In 2000 we began to expand
our sales and marketing activities in worldwide locations such as South East
Asia, South America, and Europe.  We plan to continue to increase our sales and
marketing activities, including recruiting and hiring additional sales personnel
inside and outside of the US, which will result in increased expenses in
absolute dollars. Accordingly, we expect that sales and marketing expenses will
continue to increase in future periods.

     General and Administrative Expenses.

     General and administrative expenses consist primarily of personnel and
related costs for general corporate functions, including finance, accounting,
strategic and business development, human resources and legal. General and
administrative expenses increased from $1.4 million in 1998 to $2.1 million in
1999 and to $8.8 million in 2000. The increase from 1999 to 2000 is due to the
hiring of additional senior management personnel and expansion of operational
and corporate activities to support the growing research and development and
sales and marketing organizations as well as to support our operations as a
public company.  We expect that general and administrative expenses will
continue to increase in future periods.

     Charge for Stock Compensation.

     Charge for stock compensation represents the amortization of deferred
compensation charges which are based on the aggregate differences between the
respective exercise price of stock options and purchase price of stock at their
dates of grant or sale and the deemed fair market value of our common stock for
accounting purposes. Deferred stock compensation is amortized over the vesting
period of the underlying options. Amortization expense was $9.3 million in 1999
and $14.6 million in 2000. As of December 31, 2000, unamortized deferred
compensation related to options issued through the completion of the initial
public offering amounted to $8.1 million.

     Charge for Amended Financing Arrangement.

     Charge for amended financing arrangement represents the aggregate
differences between the common stock conversion price per share for certain
amended notes payable or the related amended warrants' exercise price per common
share and the deemed fair market value of our common stock for accounting
purposes.

     Interest Income (Expense), Net.

     Interest income and other income (expense) includes interest and investment
income, foreign currency remeasurement gains and losses offset by interest
expense related to bank loans and convertible notes. In 2000, we repaid all of
our outstanding loans. Net interest expense increased from $524,000 in 1998 to
$717,000 in 1999 due to increased borrowings. Net interest income in 2000 was
$4.7 million from interest income on our cash and short-term investment balances
from proceeds from our initial and follow-on public offerings.

                                       19
<PAGE>

     Income Taxes.

     As of December 31, 2000, we had approximately $32 million of Israeli net
operating loss carryforwards, $7 million of United States federal net operating
loss carryforwards, and $6 million of state net operating loss carryforwards.
The Israeli net operating loss carryforwards have no expiration date and have
not been recorded as tax assets because the losses are expected to be utilized
during a tax exempt period.  The United States federal net operating loss
carryforwards expire in various amounts between the years 2011 and 2020.  The
state net operating loss carryforwards expire in various amounts between the
years 2004 and 2005. We have provided a full valuation allowance against our
United States federal and state deferred tax assets as the future realization of
the tax benefit is not sufficiently assured.

Interim Financial Statements

     The following table presents unaudited quarterly financial information for
each of the four quarters in the year ended December 31, 2000. You should read
this information in conjunction with our consolidated financial statements and
the accompanying notes appearing elsewhere in this annual report.

<TABLE>
<CAPTION>

                                                                     Quarter Ended
                                                    -----------------------------------------------------
                                                    March 31,   June 30,     September 30,   December 31,
                                                      2000       2000            2000           2000
                                                    --------    -------         -------        -------
                                                           (in thousands, except per share data)
<S>                                                 <C>         <C>          <C>             <C>
Statement of Operations Data:
Net revenues                                        $  1,841    $ 3,015         $ 4,465        $ 6,057
Gross profit                                             449        917           1,379          1,998
Operating loss                                       (11,187)    (9,378)         (9,693)        (9,678)
Net loss                                             (11,255)    (8,133)         (8,247)        (7,597)
Pro forma net loss (1)                                (4,755)    (4,696)         (5,577)        (5,597)
Net loss per share: (basic and
   diluted)                                         $  (0.48)   $ (0.24)        $ (0.23)       $ (0.20)
Shares used in net loss per
   share (basic and diluted)                          23,312     33,828          35,707         37,554
Pro forma net loss per
  share (unaudited)(2)                              $  (0.17)   $ (0.14)        $ (0.16)       $ (0.15)
Shares used in pro forma net
 loss per share (unaudited)                           27,256     34,223          35,707         37,554
</TABLE>

(1) Pro forma net loss excludes charges for stock compensation.

(2) Pro forma net loss per share (i) reflects the conversion of the outstanding
preferred shares into common shares, which automatically converted at the
completion of the initial public offering and (ii) excludes charges for stock
compensation and amended financing arrangements.

Liquidity and Capital Resources

     Since our inception, we have funded operations primarily through equity
sales and borrowings from stockholders and banks. We raised approximately $6.8
million in 1998 and $11.7 million in 1999 in convertible debt from stockholders
and equity. We raised approximately $147.7 million in 2000 from the issuance of
common stock, most of which was raised in our initial public offering in April
2000 and our follow-on offering in September 2000. As of December 31, 2000, we
had $127.9 million of cash, cash equivalents and short-term investments.

     In 2000 cash used in operations was $17.6 million, comprised of our net
loss of $35.2 million offset by depreciation and non-cash charge for stock
compensation amounting to $15.8 million and net changes in working capital of
$1.9 million.  Within working capital, our inventories and accounts receivable
increased by

                                       20
<PAGE>

$4.9 million and $2.3 million, respectively, and our accounts payable and
accrued liabilities increased by an aggregate of $11.5 million. In 1999, cash
used in operations was $6.2 million comprised of $8.6 million of our net loss
excluding a non-cash charge for stock compensation and amended financing
agreements, an increase in accounts receivable of $336,000, offset by a decrease
in inventories of $512,000 and increase in accounts payable and accrued
liabilities of $1.5 million. In 1998, cash used in operations was $6.7 million
comprised of our net loss of $7.7 million, an increase in inventory of $638,000,
partially offset by a $1.1 million increase in accounts payable and accrued
liabilities. We have made investments in property and equipment of approximately
$5.0 million from 1998 through December 31, 2000.

     On December 21, 2000, we announced a stock repurchase program of up to 4
million shares subject to market conditions and at the discretion of management.
As of December 31, 2000, through open market transactions, we repurchased
338,500 shares under the repurchase program for a total of $2.3 million.
Through January 16, 2001, we have repurchased 1.2 million shares for a total of
$8.6 million.  Our liquidity will be impacted to some extent by the amount of
share repurchases, if any, made under the repurchase program in the future.

     Our capital requirements depend on numerous factors, including market
acceptance of our products, the resources we devote to developing, marketing,
selling and supporting our products, the timing and extent of establishing
additional international operations and other factors. We expect to devote
substantial capital resources to hire and expand our research and development
and our sales and marketing organizations, to expand marketing programs and for
other general corporate activities. We believe that our current cash, cash
equivalents and short-term investment balances, will be sufficient to fund our
operations for at least the next 12 months. During or after this period, if cash
generated by operations is insufficient to satisfy our liquidity requirements,
we may need to cancel or suspend our stock repurchase program, sell additional
equity or debt securities or obtain additional credit arrangements. Additional
financing may not be available on terms acceptable to us or at all. The sale of
additional equity or convertible debt securities may result in additional
dilution to our stockholders.

Effective Corporate Tax Rates

     Our tax rate will reflect a mix of the United States federal and state tax
on our United States income and Israeli tax on non-exempt income. The majority
of our Israeli subsidiary's income is derived from our company's capital
investment program with "Approved Enterprise" status under the Law for the
Encouragement of Capital Investments, and is eligible therefore for tax
benefits. Because of these benefits, we will enjoy a tax exemption on income
derived from this investment program for a period of six years commencing in the
first year in which the Israeli subsidiary will have taxable income, provided
that we do not distribute such income as a dividend, and a reduced tax rate of
10 to 15% for up to four subsequent years. All of these tax benefits are subject
to various conditions and restrictions. There can be no assurance that we will
obtain approval for additional Approved Enterprises Programs or that the
provisions of the law will not change. Under a proposed tax reform in Israel,
tax benefits with respect to future programs may be reduced. Since we have
incurred tax losses through December 31, 2000, we have not yet used the tax
benefits for which we are eligible.

Recent Accounting Pronouncements

     In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, or SFAS No.
133, which establishes accounting and reporting standards for derivative
instruments and hedging activities. The statement requires recognition of all
derivatives at fair value in the financial statements. FASB Statement No. 137,
Accounting for Derivative Instruments and Hedging Activities Deferral of the
Effective Date of FASB Statement No. 133, an amendment of FASB Statement No.
133, defers implementation of SFAS No. 133 until fiscal years beginning after
June 15, 2000.  There are no significant financial impacts on our financial
statements from implementation of the standard.

                                       21
<PAGE>

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101--Revenue Recognition in Financial Statements ("SAB
101"), which among other things clarifies certain conditions to be met in order
to recognize revenue.  We believe that our revenue recognition  is in compliance
with SAB 101.

     In September 2000, the FASB issued SFAS No. 140, "Accounting for
Transaction and Servicing of Financial Assets and Extinguishment of
Liabilities."  This Statement revises the accounting standards for
securitizations and other transfers of financial assets and collateral and
requires certain disclosures.  This Statement is effective for transfers and
servicing of of financial assets occurring after March 31, 2001.  We believe
that the standard will not have a significant effect on our financial condition
or results of operations.

Certain Factors That May Affect Future Results

If broadband wireless technology or our implementation of this technology is not
broadly accepted, we will not be able to sustain or expand our business.

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

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

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

     Sales to ADC Telecommunications accounted for approximately 33% of our
revenues in 2000, and Nortel Networks accounted for approximately 22% of our net
revenues in 2000.  The loss of either ADC Telecommunications or Nortel Networks
as a customer, or the delay of significant orders from them, even if only
temporary, could, among other things:

     .  reduce or delay our revenues;

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

     .  reduce our ability to predict our cash flow accurately.

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

                                       22
<PAGE>

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

     A relatively small number of customers account for a large percentage of
our revenues.  In 2000, ADC Telecommunications accounted for approximately 33%
of our revenues, Nortel Networks accounted for approximately 22% of our
revenues, and Convergence Communications, Inc. accounted for approximately 10%
of our revenues.

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

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

     Countries worldwide are considering or are in the process of allocating
frequencies for fixed wireless applications, but not all markets have done so.
In addition, in November 2000, the United States Federal Communications
Commission issued an interim report on the potential effects of reallocating
spectrum from certain frequency bands allocated for two-way fixed wireless
applications to third generation (3G) cellular applications.  If the United
States and/or other countries do not provide sufficient spectrum for fixed
wireless applications or reallocate spectrum in the fixed wireless frequency
bands for other purposes, our customers may delay or cancel deployments in fixed
broadband wireless, which could seriously harm our business.

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

     We have incurred significant losses since our inception, and we expect to
continue to incur net losses for the foreseeable future. We incurred net losses
of approximately $35.2 million in 2000.  As of December 31, 2000, our
accumulated deficit was approximately $101.4 million. We intend to increase our
operating expenses significantly, especially our marketing and selling expenses,
and our research and development expenses. However, our revenues may not grow or
even continue at their current level. If our revenues do not rapidly increase or
if our expenses increase at a greater pace than our revenues, we will never
become profitable.

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

     Our quarterly operating results have varied significantly in the past and
are likely to vary significantly in the future. These variations result from a
number of factors, including:

     .  the uncertain timing and level of market acceptance for our systems;

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

     .  reductions in pricing by us or our competitors;

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

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

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

                                       23
<PAGE>

indicators of future performance. If our operating results fall below the
expectations of investors in future periods, our share price will likely
decline.

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

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

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

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

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

     We currently have relationships with three contract manufacturers for the
manufacturing of our systems, two of which are located in Israel and one of
which is located in Taiwan. These relationships may be terminated by either
party with little or no notice. If our manufacturers are unable or unwilling to
continue manufacturing our systems in required volumes, we would have to
identify qualified alternative manufacturers, which would result in delays that
could cause our results of operations to suffer. Our limited experience with
these manufacturers does not provide us with a reliable basis on which to
project their ability to meet delivery schedules, yield targets or costs. If we
are required to find alternative manufacturing sources, we may not be able to
satisfy our production requirements at acceptable prices and on a timely basis,
if at all. Any significant interruption in supply would affect the allocation of
systems to customers, which in turn could seriously harm our business.

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

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

                                       24
<PAGE>

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

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

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

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

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

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

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

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

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

     The broadband wireless access market is only beginning to emerge. We began
commercial shipments of our first-generation broadband wireless access system in
the first quarter of 1999, and we began commercial shipments of our second-
generation wireless access system in the fourth quarter of 1999.  All of our
product revenues in 1998, and a substantial portion of our product revenues in
1999, related to sales of cable modem products that we are no longer developing.
Virtually all of the remaining revenues in 1999 related to sales of our first-
generation wireless modem products, which we phased out with the launch of our
second-generation wireless access system in the fourth quarter of that year. Our
second-generation wireless access system is based on the cable industry's
standard set of communications rules, or protocols, that we have adopted for use
in wireless applications. Therefore, the success of our business will be
entirely dependent upon the success of our wireless products generally, and our
new wireless products in particular. We have a very limited operating history in
the broadband wireless access market upon which to evaluate our future
prospects, and the revenue and income potential of our business and market are
unproven. Our limited operating history in this market may limit an investor's
ability to evaluate our prospects due to:

     .  our limited historical financial data from our wireless products;

     .  our unproven potential to generate profits; and

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

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

                                       25
<PAGE>

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

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

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

     We are continuing to actively expand our operations. This growth has
placed, and will continue to place, a significant strain on our managerial,
operational and financial resources. We also need to implement sophisticated
inventory and control systems.

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

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

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

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

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

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

     Sales outside of North America accounted for approximately 18% of our
revenues in 2000, and 39% of our revenues in 1999.  In addition, we believe that
a significant portion of our revenues from customers in North America is derived
from sales of products that are being deployed outside of North America.  We
expect that international sales will continue to account for a significant
portion of our revenues.  In addition, we maintain research and development
facilities in Israel. Our reliance on international sales and operations exposes
us to foreign political and economic risks, which may impair our ability to
generate revenues. These risks include:

     .  economic and political instability;

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

     .  import or export licensing requirements and tariffs;

     .  trade restrictions; and

     .  more limited protection of intellectual property rights.

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

                                       26
<PAGE>

If our senior management team is unable to work together effectively, our
business may be seriously harmed.

     Our Chief Executive Officer, John O'Connell, joined us in October 2000. As
a result, he has had only a limited time to work together with our senior
management team. If our management is unable to work together effectively to
manage our organization as a public company, our business may be seriously
harmed.

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

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

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

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

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

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

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

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

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

     We expect that we will increasingly be subject to license offers and
infringement claims as the number of products and competitors in our market
grows and the functionality of products overlaps. In this

                                       27
<PAGE>

regard, in early 1999, and again in April 2000, we received written notices from
Hybrid Networks in which Hybrid claimed to have patent rights in certain
technology. Hybrid requested that we review our products in light of 11 of
Hybrid's issued patents.

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

     .  obtain licenses to the infringing technology;

     .  pay substantial damages under applicable law;

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

     .  expend significant resources to develop non-infringing technology.

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

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

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

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

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

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

     A customer's decision to purchase many of our systems typically involves a
significant technical evaluation, formal internal procedures associated with
capital expenditure approvals and testing and acceptance of new systems that
affect key operations. For these and other reasons, the sales cycle associated
with our systems can be lengthy and subject to a number of significant risks
over which we have little or no control. Our next-generation systems may have
even longer sales cycles and involve demonstrations, field trials and other
evaluation periods, which will further lengthen the sales cycle. Because of the
growing sales

                                       28
<PAGE>

cycle and the possibility that we may rely on a concentrated number of customers
for our revenues, our operating results could be seriously harmed if such
revenues do not materialize when anticipated, or at all.

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

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

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

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

     .  expanding research and development programs;

     .  hiring additional qualified personnel;

     .  implementing further marketing and sales activities; and

     .  acquiring complementary technologies or businesses.


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

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

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

     We are subject to export control laws and regulations with respect to all
of our products and technology. We are subject to the risk that more stringent
export control requirements could be imposed in the future on product classes
that include products exported by us, which would result in additional
compliance burdens and could impair the enforceability of our contract rights.
We may not be able to renew our export

                                       29
<PAGE>

licenses as necessary from time to time. In addition, we may be required to
apply for additional licenses to cover modifications and enhancements to our
products. Any revocation or expiration of any requisite license, the failure to
obtain a license for product modifications and enhancements, or more stringent
export control requirements could seriously harm our business.

If the Wireless Digital Subscriber Line Consortium is not successful in its
efforts or we are not able to otherwise influence industry standards, we will
not benefit from our contributions to the Consortium and our products may not be
accepted in the marketplace.

     In July 2000, we and five other industry participants announced the
formation of a Wireless Digital Subscriber Line Consortium to accelerate the
deployment of broadband wireless solutions to the marketplace. The goal of the
Consortium is to provide the industry with standardized, timely, multi-vendor
solutions for broadband wireless access. If the Wireless Digital Subscriber Line
Consortium is not successful or we are not able to otherwise influence industry
standards, we will not benefit from our contributions to the Consortium and our
products may not be accepted in the marketplace.

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

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

     .   electing members to our board of directors;

     .   approving significant change-in-control transactions;

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

     .   controlling our management and operations.

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

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

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

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

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

     .   introduction and adoption of new industry standards;

     .   changes in financial estimates or recommendations by securities
         analysts;

     .   changes in the market valuations of our competitors;

                                       30
<PAGE>

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

     .   sales of our common stock.

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

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

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

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

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

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

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

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

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

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

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

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

     Some of our directors, officers and employees are currently obligated to
perform annual reserve duty and are subject to being called to active duty at
any time under emergency circumstances. Our business cannot

                                       31
<PAGE>

assess the full impact of these requirements on our workforce or business if
conditions should change and we cannot predict the effect on us of any expansion
or reduction of these obligations.

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

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

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

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

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

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

                                       32
<PAGE>

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

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

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

     Our general policy is to limit the risk of principal loss and ensure
the safety of invested funds by limiting market and credit risk.  All highly
liquid investments with maturity of less than three months at the date of
purchase are considered to be cash equivalents; all investments with maturities
of three months or greater are classified as available-for-sale and considered
to be short-term investments. If market interest rates were to increase
immediately and uniformly by 10 percent from the levels at December 31, 2000,
the fair value of the portfolio would decline by an immaterial amount, primarily
because of the short-term nature of the investments. While all our cash
equivalents and short-term investments are classified as "available-for-sale,"
we generally have the ability to hold our fixed income investments until
maturity and therefore we would not expect our operating results or cash flows
to be affected to any significant degree by the effect of a sudden change in
market interest rates on our securities portfolio. We do not hedge any interest
rate exposures.

Item 8.  Financial Statements and Supplementary Data

     The response to this Item is submitted as a separate section of this Form
10-K.  See Item 14.

Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure

     None.



                                       33
<PAGE>

                                   PART III

Item 10.  Directors and Executive Officers of the Registrant

  The information regarding directors and executive officers required by
Item 10 is incorporated by reference from the information under the captions
"Election of Directors," "Directors and Executive Officers" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the definitive proxy statement for
our 2001 annual meeting of stockholders, which we intend to file with the
Securities and Exchange Commission on or before March 26, 2001.

Item 11.  Executive Compensation

  The information required by Item 11 is incorporated by reference from the
information under the caption "Executive Compensation and Other Information" in
the definitive proxy statement for our 2001 annual meeting of stockholders,
which we intend to file with the Securities and Exchange Commission on or before
March 26, 2001.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

  The information required by Item 12 is incorporated by reference from the
information under the caption "Security Ownership of Certain Beneficial Owners
and Management" in the definitive proxy statement for our 2001 annual meeting of
stockholders, which we intend to file with the Securities and Exchange
Commission on or before March 26, 2001.

Item 13.  Certain Relationships and Related Transactions

  The information required by Item 13 is incorporated by reference from the
information under the caption "Certain Relationships and Related Transactions"
in the definitive proxy statement for our 2001 annual meeting of stockholders,
which we intend to file with the Securities and Exchange Commission on or before
March 26, 2001.

                                      34

<PAGE>

                                    PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

     (a)1.  Financial Statements

          The financial statements filed as a part of this report are identified
in the Index to Consolidated Financial Statements on page F-1.

     (a)2.  Financial Statement Schedules

          No financial statement schedules are filed herewith.  The schedules
have been omitted because the information required to be set forth therein is
not applicable or is shown in the financial statements or notes thereto.

     (a)3.  Exhibits

          The following exhibits are filed herewith or are incorporated by
reference to exhibits previously filed with the Securities and Exchange
Commission.  The Registrant shall furnish copies of exhibits for a reasonable
fee (covering the expense of furnishing copies) upon request.

Exhibit
Number         Exhibit Title
------         -------------

3.1       Third Amended and Restated Certificate of Incorporation of the
          Registrant (filed as Exhibit 3.1 to the Registrant's Registration
          Statement on Form S-1, file no. 333-96129, and incorporated herein by
          reference).

3.2       Amended and Restated Bylaws of the Registrant (filed as Exhibit 3.2 to
          the Registrant's Registration Statement on Form S-1, file no. 333-
          96129, and incorporated herein by reference).

10.1*     Form of Indemnification Agreement (filed as Exhibit 10.1 to the
          Registrant's Registration Statement on Form S-1, file no. 333-96129,
          and incorporated herein by reference).

10.2*     1996 Equity Incentive Plan (filed as Exhibit 10.2 to the Registrant's
          Registration Statement on Form S-1, file no. 333-96129, and
          incorporated herein by reference).

10.3*     1999 Employee and Consultant Equity Incentive Plan (filed as Exhibit
          10.3 to the Registrant's Registration Statement on Form S-1, file no.
          333-96129, and incorporated herein by reference).

10.4*     Amended and Restated 2000 Employee and Consultant Equity Incentive
          Plan (filed as Exhibit 10.4 to the Registrant's Registration Statement
          on Form S-1, file no. 333-96129, and incorporated herein by
          reference).

10.5*     2000 Employee Stock Purchase Plan (filed as Exhibit 10.5 to the
          Registrant's Registration Statement on Form S-8, file no. 333-37804,
          and incorporated herein by reference).

10.6*     Amendment to 2000 Employee Stock Purchase Plan, adopted on November
          14, 2001 (filed herewith)

10.7*     Form of Stock Purchase Agreement, dated as of December 28, 1999, by
          and between the Registrant and each of Lewis Broad, Neill Brownstein,
          Avraham Fischer, Davidi Gilo, John

                                     35
<PAGE>

          Griffin, Samuel Kaplan and Alan Zimmerman (filed as Exhibit 10.6 to
          the Registrant's Registration Statement on Form S-1, file no. 333-
          96129, and incorporated herein by reference).

10.8      Series C Preferred Stock Purchase Agreement, dated as of August 13,
          1999, by and between the Registrant and ADC Telecommunications, Inc.
          (filed as Exhibit 10.9 to the Registrant's Registration Statement on
          Form S-1, file no. 333-96129, and incorporated herein by reference).

10.9      Series C Preferred Stock Purchase Agreement, dated as of December 27,
          1999, by and between the Registrant and Arnon Kohavi (filed as Exhibit
          10.10 to the Registrant's Registration Statement on Form S-1, file no.
          333-96129, and incorporated herein by reference).

10.10     Registration Rights and Lock-Up Agreement dated as of April 21, 1996,
          by and among the Registrant and certain holders of the Series A
          Preferred Stock and Series C Preferred Stock (filed as Exhibit 10.11
          to the Registrant's Registration Statement on Form S-1, file no. 333-
          96129, and incorporated herein by reference).

10.11     Amendment to Registration Rights and Lock-Up Agreement, dated as of
          August 13, 1999, by and among the Registrant and certain holders of
          the Series A Preferred Stock and Series C Preferred Stock (filed as
          Exhibit 10.12 to the Registrant's Registration Statement on Form S-1,
          file no. 333-96129, and incorporated herein by reference).

10.12*    Employment Agreement with Davidi Gilo (filed as Exhibit 10.13 to the
          Registrant's Registration Statement on Form S-1, file no. 333-96129,
          and incorporated herein by reference).

10.13*    Employment Agreement with Eran Pilovsky (filed as Exhibit 10.14 to the
          Registrant's Registration Statement on Form S-1, file no. 333-96129,
          and incorporated herein by reference).

10.14*    Employment Agreement with Stephen P. Pezzola (filed as Exhibit 10.15
          to the Registrant's Registration Statement on Form S-1, file no. 333-
          96129, and incorporated herein by reference).

10.15*    Employment Agreement with Michael Corwin (filed as Exhibit 10.16 to
          the Registrant's Registration Statement on Form S-1, file no. 333-
          96129, and incorporated herein by reference).

10.16*    Employment Agreement with Arnon Kohavi (filed as Exhibit 10.17 to the
          Registrant's Registration Statement on Form S-1, file no. 333-96129,
          and incorporated herein by reference).

10.17*    Employment Agreement with Menashe Shahar (filed herewith).

10.18     Unprotected Lease Agreement, dated as of March 7, 1999 between Vyyo
          Ltd. and Ayalot Investments in Properties (Har Hotzvim) 1994 Ltd.
          (filed as Exhibit 10.18 to the Registrant's Registration Statement on
          Form S-1, file no. 333-96129, and incorporated herein by reference).

10.19+    Collaboration Agreement, dated August 6, 1999, between Vyyo Ltd. and
          ADC Telecommunications, Inc. (filed as Exhibit 10.19 to the
          Registrant's Registration Statement on Form S-1, file no. 333-96129,
          and incorporated herein by reference).

                                      36
<PAGE>

10.20+    License and Development Agreement, dated as of December 1999, by and
          between Philips Semiconductor, Inc., Vyyo Ltd., and the Registrant
          (filed as Exhibit 10.20 to the Registrant's Registration Statement on
          Form S-1, file no. 333-96129, and incorporated herein by reference).

10.21     Secured Promissory Note, dated January 16, 2000, of Eran Pilovsky for
          the benefit of the Registrant (filed as Exhibit 10.21 to the
          Registrant's Registration Statement on Form S-1, file no. 333-96129,
          and incorporated herein by reference).

10.22     Amendment No. 2 to Registration Rights and Lock-Up Agreement dated as
          of February 4, 2000, by and among the Registrant and certain holders
          of the Series A Preferred Stock and Series C Preferred Stock (filed as
          Exhibit 10.23 to the Registrant's Registration Statement on Form S-1,
          file no. 333-96129, and incorporated herein by reference).

10.23     1997 Series A-2 Warrant, dated December 29, 1997, issued by the
          Registrant to Eli David (filed as Exhibit 10.25 to the Registrant's
          Registration Statement on Form S-1, file no. 333-96129, and
          incorporated herein by reference).

10.24     1998 Series A-2 Warrant, dated February 26, 1998, issued by the
          Registrant to Eli David (filed as Exhibit 10.26 to the Registrant's
          Registration Statement on Form S-1, file no. 333-96129, and
          incorporated herein by reference).

10.25     Form of 1998 Series B-1 Warrant, dated June 30, 1998, issued by the
          Registrant to Selawi Business, S.A. and Shaul Berger (filed as Exhibit
          10.27 to the Registrant's Registration Statement on Form S-1, file no.
          333-96129, and incorporated herein by reference).

10.26     Warrant, dated June 2, 1999, issued by the Registrant to Biblica
          Investment Limited (filed as Exhibit 10.28 to the Registrant's
          Registration Statement on Form S-1, file no. 333-96129, and
          incorporated herein by reference).

10.27     1998 Series A-1 Warrant, dated February 3, 1998, issued by the
          Registrant to Eli David (filed as Exhibit 10.29 to the Registrant's
          Registration Statement on Form S-1, file no. 333-96129, and
          incorporated herein by reference).

10.28+    Addendum #1 to Collaboration Agreement, dated July 14, 2000, by and
          among Vyyo Inc., Vyyo Ltd. and ADC Telecommunications, Inc. (filed as
          Exhibit 10.30 to the Registrant's Quarterly Report on Form 10-Q for
          the quarter ended June 30, 2000, as filed on August 11, 2000, and
          incorporated herein by reference).

10.29     Form of Amendment No. 3 to Registration Rights and Lock-Up Agreement
          dated as of September 11, 2000, by and among the Registrant and
          certain holders of the Series A Preferred Stock and Series C Preferred
          Stock (filed as Exhibit 10.31 to the Registrant's Registration
          Statement on Form S-1, file no. 333-45132, and incorporated herein by
          reference).

10.30     Israeli Lease Agreement (translated from Hebrew), dated as of June 13,
          2000 between Vyyo Ltd. and Har Hotzvim Properties Ltd. (filed as
          Exhibit 10.32 to the Registrant's Registration Statement on Form S-1,
          file no. 333-45132, and incorporated herein by reference).

10.31     Indemnification Agreement among the Registrant and certain selling
          stockholders in connection with the September 2000 offering (filed as
          Exhibit 10.33 to the Registrant's Registration Statement on Form S-1,
          file no. 333-45132, and incorporated herein by reference).

                                      37
<PAGE>

10.32+    Addendum #2 to Collaboration Agreement, dated September 19, 2000 by
          and among Vyyo Inc., Vyyo Ltd., and ADC Telecommunications, Inc.
          (filed as Exhibit 10.34 to the Registrant's Quarterly Report on Form
          10-Q for the quarter ended September 30, 2000, as filed on November 8,
          2000, and incorporated herein by reference).

10.33*    Employment Agreement with John O'Connell, dated as of October 12, 2000
          (filed herewith).

10.34*    Loan and Pledge Agreement, by and between John O'Connell and the
          Registrant, dated as of October 12, 2000 (filed herewith).

21.1      Subsidiaries of the Registrant

23.1      Consent of Ernst & Young LLP, Independent Auditors


________________

+    We have been granted confidential treatment from the Commission for
     selected portions of this exhibit. The omitted portions were separately
     filed with the Commission.

*    Indicates management contract or compensatory plan or arrangement.

  (b)  Reports on Form 8-K

     On October 16, 2000, we filed a report on Form 8-K reporting under Item 5
  that John O'Connell had been appointed as our Chief Executive Officer.

                                      38

<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

VYYO INC.


By: /s/ John O'Connell
    ------------------------------------------------
    John O'Connell, Chief Executive Officer

Date:  February 15, 2001

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
            Signature                              Title                         Date
            ---------                              -----                         ----
<S>                                <C>                                     <C>
 /s/ Davidi Gilo                   Chairman of the Board of Directors      February 15, 2001
---------------------------------
 Davidi Gilo

/s/ John O'Connell                 Chief Executive Officer (Principal      February 15, 2001
---------------------------------  Executive Officer)
John O'Connell

/s/ Eran Pilovsky                  Chief Financial Officer (Principal      February 15, 2001
---------------------------------  Financial and Accounting Officer)
Eran Pilovsky

/s/ Lewis S. Broad                 Director                                February 15, 2001
---------------------------------
Lewis S. Broad

/s/ Neill H. Brownstein            Director                                February 15, 2001
---------------------------------
Neill H. Brownstein

/s/ Avraham Fischer                Director                                February 15, 2001
---------------------------------
Avraham Fischer

/s/ John P. Griffin                Director                                February 15, 2001
---------------------------------
John P. Griffin

/s/ Samuel L. Kaplan               Director                                February 15, 2001
---------------------------------
Samuel L. Kaplan

/s/ Alan L. Zimmerman              Director                                February 15, 2001
---------------------------------
Alan L. Zimmerman
</TABLE>

                                      39
<PAGE>

                                   Vyyo Inc.

                   Index to Consolidated Financial Statements

Report of Ernst & Young LLP, Independent Auditors.........................  F-2

Consolidated Balance Sheets as of December 31, 1999 and 2000..............  F-3
Consolidated Statements of Operations for the years ended December 31,
  1998, 1999 and 2000.....................................................  F-4
Consolidated Statements of Stockholders' Equity (Net Capital Deficiency)
  for the years ended December 31, 1998, 1999 and 2000....................  F-5
Consolidated Statements of Cash Flows for the years ended December 31,
  1998, 1999 and 2000.....................................................  F-6
Notes to Consolidated Financial Statements................................  F-7


                                      F-1
<PAGE>

               Report of Ernst & Young LLP, Independent Auditors

The Board of Directors and Stockholders
Vyyo Inc.

We have audited the accompanying consolidated balance sheets of Vyyo Inc. as of
December 31, 1999 and 2000, and the related consolidated statements of
operations, stockholders' equity (net capital deficiency) and cash flows for
each of the three years in the period ended December 31, 2000. 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. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Vyyo Inc. at
December 31, 1999 and 2000, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
2000, in conformity with accounting principles generally accepted in the United
States.

                                         /s/ Ernst & Young LLP


San Jose, California
January 16, 2001

                                      F-2
<PAGE>

                                   Vyyo Inc.

                          Consolidated Balance Sheets

                (In thousands, except share and per share data)


<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                                    1999               2000
                                                                            ---------------------------------------
<S>                                                                             <C>                 <C>
Assets
Current assets:
 Cash and cash equivalents                                                      $  5,036             $  33,991
 Short-term investments                                                                -                93,914
 Accounts receivable, net of allowance for doubtful accounts
  of $176 and $44 in 1999 and 2000, respectively                                     583                 2,890
 Inventory                                                                         1,132                 6,006
 Other                                                                               517                 2,382
                                                                              --------------------------------------
Total current assets                                                               7,268               139,183

Property and equipment, net                                                        1,095                 3,984
                                                                              --------------------------------------
                                                                                $  8,363             $ 143,167
                                                                              ======================================

Liabilities and stockholders' equity
Current liabilities:
 Accounts payable                                                               $    895             $   6,242
 Accrued liabilities                                                               3,153                 9,345
 Deferred income                                                                     639                     -
 Bank line of credit                                                               2,280                     -
 Equipment financing obligations                                                      91                     -
                                                                              ----------------------------------
Total current liabilities                                                          7,058                15,587

Commitments and contingencies

Stockholders' equity:
 Preferred stock, $0.001 par value at amounts paid in; 5,000,000 shares
  authorized; 11,564,269 shares issued and outstanding at
  December 31, 1999 (none at December 31, 2000)                                   15,369                     -
 Common stock, $0.0001 par value at amounts paid in; 200,000,000 shares
  authorized; 23,002,733 and 37,761,828 shares issued and outstanding at
  December 31, 1999 and 2000, respectively                                        66,412               239,613
 Notes receivable from stockholders                                                 (920)               (2,834)
 Deferred stock compensation                                                     (13,400)               (8,100)
 Accumulated other comprehensive income                                                -                   289
 Accumulated deficit                                                             (66,156)             (101,388)
                                                                              --------------------------------------
Total stockholders' equity                                                         1,305               127,580
                                                                              --------------------------------------
                                                                                $  8,363             $ 143,167
                                                                              ======================================
</TABLE>

See accompanying notes.

                                      F-3
<PAGE>

                                   Vyyo Inc.

                     Consolidated Statements of Operations

                     (In thousands, except per share data)


<TABLE>
<CAPTION>
                                                                         Years ended December 31,
                                                            1998                 1999                 2000
                                                     ---------------------------------------------------------------
<S>                                                   <C>                  <C>                  <C>

Net revenues (1)                                        $ 2,449              $  4,230             $ 15,378
Cost of revenues                                          2,568                 4,316               10,635
                                                      --------------------------------------------------------------
Gross profit (loss)                                        (119)                  (86)               4,743

Operating expenses:
 Research and development                                 3,252                 3,678               13,086
 Sales and marketing                                      2,413                 1,972                8,201
 General and administrative                               1,363                 2,148                8,785
 Charge for stock compensation (2)                            -                 9,300               14,607
                                                      --------------------------------------------------------------
 Total operating expenses                                 7,028                17,098               44,679

Operating loss                                           (7,147)              (17,184)             (39,936)
Charge for amended financing arrangements                     -               (25,700)                   -
Interest and other income (expense), net                   (524)                 (717)               4,704
                                                      --------------------------------------------------------------
Net loss                                                $(7,671)             $(43,601)            $(35,232)
                                                      ==============================================================

Net loss per share:
 Basic and diluted                                       $(5.43)               $(5.40)              $(1.08)
                                                      ==============================================================

Number of shares used in per share computation:
 Basic and diluted                                        1,412                 8,078               32,600
                                                      ==============================================================
</TABLE>

See accompanying notes.



  (1) Revenues from ADC Telecommunications, Inc., an approximately 7%
shareholder at December 31, 2000, were $654 in 1999 and $5,186 in 2000.

  (2) Charge for stock compensation relating to cost of revenues, research and
development, sales and marketing and general and administrative were $0, $100,
$300 and $8,900 in 1999 and $600, $4,500, $3,907 and $5,600 in 2000.

                                      F-4
<PAGE>

                                   Vyyo Inc.

    Consolidated Statement of Stockholders' Equity (Net Capital Deficiency)

                (In thousands, except share and per share data)
<TABLE>
<CAPTION>
                                                                                                            Notes
                                                      Convertible Preferred Stock      Common Stock       Receivable     Deferred
                                                      --------------------------------------------------     from          Stock
                                                          Shares         Amount       Shares     Amount   Stockholders  Compensation
                                                      ------------------------------------------------------------------------------
<S>                                                    <C>              <C>           <C>        <C>           <C>         <C>
Balance at December 31, 1997                              1,584,110     $  9,732      950,466    $  1,341      $  -         $  -
Issuance of common stock*                                         -            -      263,292         171         -            -
Issuance of Series A preferred stock*                        21,123           15            -           -         -            -
Issuance of Series B preferred stock*                       629,447          603            -           -         -            -
Conversion of notes payable into common stock                     -            -    1,517,741       1,012         -            -
Repurchase of preferred stock and common stock              (20,992)         (15)     (12,596)         (5)        -            -
Issuance of warrants to purchase common stock                     -            -            -         130         -            -
Net loss                                                          -            -            -           -         -            -
                                                       ---------------------------------------------------------------------------
Balance at December 31, 1998                              2,213,688       10,335    2,718,903       2,649         -            -
Issuance of common stock*                                         -            -    6,626,000       3,481      (920)           -
Issuance of Series C preferred stock*                     9,350,581        5,034            -           -         -            -
Issuance of common stock upon exercise of warrants*               -            -    1,091,921       1,947         -            -
Conversion of notes payable into common stock                     -            -   11,128,254       9,090         -            -
Issuance of common stock upon exercise of options                 -            -    1,437,655         845         -            -
Deferred stock compensation                                       -            -            -      22,700         -      (22,700)
Amortization of deferred stock compensation                       -            -            -           -         -        9,300
Charge for amended financing arrangements                         -            -            -      25,700         -            -
Net loss                                                          -            -            -           -         -            -
                                                       ----------------------------------------------------------------------------
Balance at December 31, 1999                             11,564,269     $ 15,369   23,002,733    $ 66,412   $  (920)    $(13,400)
Unrealized gain on investments                                    -            -            -           -         -            -
Net loss                                                          -            -            -           -         -            -
Comprehensive loss                                                -            -            -           -         -            -
Conversion of convertible preferred stock upon
 closing of Initial Public Offering                     (11,564,269)     (15,369)   3,944,583      15,369         -            -
Issuance of common stock in initial and
 follow-on public Offerings*                                      -            -    9,512,500     146,250         -            -
Issuance of common stock upon exercise of
 warrants*                                                        -            -       41,259          41         -            -
Issuance of common stock upon exercise of
 options and pursuant to Employee Stock
 Purchase Plan                                                    -            -    1,599,253       4,571    (3,159)           -
Repayment of shareholders' notes                                  -            -            -           -     1,245            -
Repurchase and retirement of common stock                         -            -     (338,500)     (2,337)        -            -
Deferred stock compensation                                       -            -            -       9,307         -       (9,307)
Amortization of deferred stock compensation                       -            -            -           -         -       14,607
                                                       ----------------------------------------------------------------------------
Balance at December 31, 2000                                      -     $      -   37,761,828    $239,613   $(2,834)    $ (8,100)
                                                       ============================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                   Accumulated         Total
                                                                      Other         Stockholders'
                                                     Accumulated  Comprehensive     Equity (Net)
                                                       Deficit        Income         Deficiency
                                                    -------------------------------------------
<S>                                                  <C>           <C>              <C>
Balance at December 31, 1997                           $ (14,884)       $  -        $ (3,811)
Issuance of common stock*                                      -           -             171
Issuance of Series A preferred stock*                          -           -              15
Issuance of Series B preferred stock*                          -           -             603
Conversion of notes payable into common stock                  -           -           1,012
Repurchase of preferred stock and common stock                 -           -             (20)
Issuance of warrants to purchase common stock                  -           -             130
Net loss                                                  (7,671)          -          (7,671)
                                                      ----------------------------------------
Balance at December 31, 1998                             (22,555)          -          (9,571)
Issuance of common stock*                                      -           -           2,561
Issuance of Series C preferred stock*                          -           -           5,034
Issuance of common stock upon exercise of warrants*            -           -           1,947
Conversion of notes payable into common stock                  -           -           9,090
Issuance of common stock upon exercise of options              -           -             845
Deferred stock compensation                                    -           -               -
Amortization of deferred stock compensation                    -           -           9,300
Charge for amended financing arrangements                      -           -          25,700
Net loss                                                 (43,601)          -         (43,601)
                                                      ----------------------------------------
Balance at December 31, 1999                           $ (66,156)       $  -        $  1,305
Unrealized gain on investments                                 -         289             289
Net loss                                                 (35,232)          -         (35,232)
Comprehensive loss                                             -           -         (34,943)
Conversion of convertible preferred stock upon
 closing of Initial Public Offering                            -           -               -
Issuance of common stock in initial and
 follow-on public Offerings*                                   -           -         146,250
Issuance of common stock upon exercise of
 warrants*                                                     -           -              41
Issuance of common stock upon exercise of
 options and pursuant to Employee Stock
 Purchase Plan                                                 -           -           1,412
Repayment of shareholders' notes                               -           -           1,245
Repurchase and retirement of common stock                      -           -          (2,337)
Deferred stock compensation                                    -           -               -
Amortization of deferred stock compensation
  Balance at December 31, 2000                                 -           -          14,607
                                                      ----------------------------------------
Balance at December 31, 2000                           $(101,388)       $289        $127,580
                                                      ========================================
</TABLE>
* Net of issuance costs


See accompanying notes.

                                      F-5
<PAGE>

                                   Vyyo Inc.

                     Consolidated Statements of Cash Flows

                                (In thousands)


<TABLE>
<CAPTION>
                                                                                               Years ended December 31,
                                                                                              1998        1999        2000
                                                                                           ----------------------------------
<S>                                                                                        <C>        <C>         <C>

Operating activities
Net loss                                                                                   $(7,671)   $(43,601)   $(35,232)
Adjustments to reconcile net loss to net cash used in operating activities:
 Depreciation and other                                                                        375         454       1,204
 Amortization of deferred stock compensation                                                     -       9,300      14,607
 Charge for amended financing arrangements                                                       -      25,700           -
 Changes in assets and liabilities:
  Accounts receivable                                                                           (8)       (336)     (2,307)
  Other current assets                                                                          34        (169)     (1,865)
  Inventory                                                                                   (638)        512      (4,874)
  Accounts payable                                                                             636        (246)      5,347
  Accrued liabilities                                                                          455       1,663       6,192
  Deferred income                                                                              140         499        (639)
                                                                                         ----------------------------------
Net cash used in operating activities                                                       (6,677)     (6,224)    (17,567)
                                                                                         ----------------------------------

Investing activities
Purchases of property and equipment                                                           (305)       (581)     (4,093)
Proceeds from sale of property and equipment                                                     -          42           -
Purchases of short-term investments                                                              -           -    (105,638)
Sales and maturities of short-term investments                                                   -           -      12,013
                                                                                         ----------------------------------
Net cash used in investing activities                                                         (305)       (539)    (97,718)
                                                                                         ----------------------------------

Financing activities
Proceeds from notes payable to stockholders                                                  5,834       1,385           -
Proceeds from notes receivable from stockholders                                                 -       2,080       1,245
Proceeds from debt                                                                           1,970         310           -
Repayments of capital lease obligations                                                          -        (336)          -
Repayments of debt and capital lease obligations                                            (2,100)          -      (2,371)
Repurchase of preferred stock and common stock                                                 (20)          -      (2,337)
Issuance of preferred stock and common stock                                                   789       8,229     147,703
Issuance of warrants to purchase common stock                                                  130           -           -
                                                                                         ----------------------------------
Net cash provided by financing activities                                                    6,603      11,668     144,240
                                                                                         ----------------------------------

Increase (decrease) in cash and cash equivalents                                              (379)      4,905      28,995
Cash and cash equivalents at beginning of period                                               510         131       5,036
                                                                                         ----------------------------------
Cash and cash equivalents at end of period                                                 $   131    $  5,036   $  33,991
                                                                                         ==================================

Noncash financing activities
Conversion of convertible preferred stock into common stock                                $     -    $      -   $  15,369
                                                                                         ==================================
Conversion of stockholders' notes into common stock                                        $ 1,012    $  9,090   $       -
                                                                                         ==================================
Issuance of common stock for notes receivable                                              $     -    $  3,000   $   3,159
                                                                                         ==================================

Supplemental cash flow information
Interest paid                                                                              $   143    $    141   $     176
                                                                                         ==================================
</TABLE>

See accompanying notes.

                                      F-6
<PAGE>

                                   Vyyo Inc.

                  Notes to Consolidated Financial Statements


1. Business and Significant Accounting Policies

Organization and Basis of Presentation

  Vyyo Inc. (previously Phasecom, Inc.) was incorporated as a Delaware
corporation in 1996. Vyyo Inc. together with its subsidiaries (collectively,
"Vyyo" or the "Company") supplies broadband wireless access systems used by
telecommunications service providers to deliver wireless high-speed data
connections to businesses and residential subscribers. The Company sells its
products directly to service providers and to system integrators. The majority
of the Company's revenues are generated from sales to customers in North
America.

  The Company's consolidated financial statements reflect the operations of Vyyo
Inc. and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.

Revenue Recognition

  Net revenues include product revenues and in 1999 and 2000 also include
technology development or license revenues ($480,000 in 1999 and less than 10%
of revenues in 2000). Product revenues are derived primarily from sales of hubs
and modems to telecommunications service providers and to system integrators.
Product revenues are generally recorded when products are shipped, provided
there are no customer acceptance requirements and the Company has no additional
performance obligations. The Company accrues for estimated sales returns and
exchanges and product warranty and liability costs upon recognition of product
revenues.

  Technology development revenues are related to best efforts arrangement with
customers and license revenue for developed technology. Due to technology risk
factors, the costs of the technology development efforts are expensed when
incurred and the revenues are recognized when the applicable customer milestones
are met, including deliverables, but not in excess of the estimated amount that
would be recognized using the percentage-of-completion method. As for license
revenues, the costs are expensed when incurred and revenues are recognized when
the license technology is delivered.

  Deferred income in 1999 represent amounts received from customers for products
subject to return or exchange and payments on technology development contracts
not yet recognized as revenue.

Risk Factors and Concentrations

  The Company is subject to various risks similar to other companies in a
comparable stage of growth, including but not limited to dependence on key
customers, dependence on key individuals, competition from substitute products
and larger companies, and the continued successful development and marketing of
its products.

                                      F-7
<PAGE>

                                   Vyyo Inc.

             Notes to Consolidated Financial Statement (continued)


1. Business and Significant Accounting Policies (continued)

Risk Factors and Concentrations (continued)

  Financial instruments that subject the Company to credit risk consist
primarily of cash, cash equivalents and short-term investments, and accounts
receivable. The Company invests cash equivalents and short-term investments
through high-quality financial institutions. The Company performs ongoing credit
evaluations of its customers and generally does not require collateral. The
Company provides reserves for estimated credit losses. Provisions for bad debts
in 1998 and 1999 were $11,000, $198,000 and a credit provision of $132,000 in
2000. Write-offs of uncollectible accounts in 1998, 1999 and 2000 were $0,
$209,000 and $31,000, respectively.

  Sales to one customer represented 31%, 20% and 33% of total revenues for the
years ended December 31, 1998, 1999 and 2000, respectively.  Sales to another
customer represented 15% and 13% of total revenues for the years ended December
31, 1998 and 1999, respectively. Sales to two other customers represented 14%
and 12% of total revenues for the year ended December 31, 1999.  Sales to one
other customer represented 23% of revenues for the year ended December 31, 1998
and 10% for the year ended December 31, 2000. Sales to one other customer
represented 22% of total revenues for the year ended December 31, 2000.

  In August 1999, ADC Telecommunications, Inc. ("ADC"), one of the Company's
major customers made an approximately 10% equity investment in the Company. As
of December 31, 2000, ADC held approximately 7% of the company's outstanding
common stock. Revenues from ADC were $654,000 in 1999 and $5,186,000 in 2000.
Accounts receivable from ADC at December 31, 1999 and 2000, were $237,000 and
$93,000, respectively.

Use of Estimates

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

Research and Development

  Research and development costs are expensed as incurred and consist primarily
of personnel, facilities, equipment and supplies for our research and
development activities.

Property and Equipment

  Property and equipment are recorded at cost. Depreciation and amortization are
provided using the straight-line method over the estimated useful lives of the
assets (generally from two to five years), or the life of the lease, whichever
is shorter.

                                      F-8
<PAGE>

                                   Vyyo Inc.

             Notes to Consolidated Financial Statement (continued)


1. Business and Significant Accounting Policies (continued)

Foreign Currency Transactions

  The U.S. dollar is the functional currency for all of the Company's foreign
subsidiaries. Substantially all of the sales of the Company's foreign
subsidiaries' are made in U.S. dollars. In addition, substantial portion of the
foreign subsidiaries' costs are incurred in U.S. dollars. Since the U.S. dollar
is the primary currency in the economic environment in which the foreign
subsidiaries operate, monetary accounts maintained in currencies other than the
U.S. dollar (principally cash and liabilities) are remeasured using the foreign
exchange rate at the balance sheet date.  Operational accounts and nonmonetary
balance sheet accounts are measured and recorded at the rate in effect at the
date of the transaction. The effects of foreign currency remeasurement are
reported in current operations and have not been material to date.

Cash Equivalents and Short-Term Investments

  Pursuant to SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," the Company's debt securities have been designated as
available-for-sale. Available-for-sale securities are carried at fair value,
which is determined based upon the quoted market prices of the securities, with
unrealized gains and losses reported in accumulated other comprehensive income,
a component of shareholders' equity. Realized gains and losses and declines in
value judged to be other than temporary on available-for-sale securities are
included in interest income. The Company views its available-for-sale portfolio
as available for use in its current operations. Accordingly, the Company has
classified all investments as short-term, even though the stated maturity date
may be one year or more from beyond the current balance sheet date. Interest and
dividends on securities classified as available-for-sale are included in
interest income.

Net Loss Per Share

  Basic and diluted net losses per share are presented in accordance with SFAS
No. 128, "Earnings per Share" ("SFAS 128"), for all periods presented.  All
preferred stock, outstanding stock options, and warrants have been excluded from
the calculation of the diluted loss per share because all such securities are
antidilutive for all periods presented. The total number of common shares
related to preferred stock, outstanding options and warrants excluded from the
calculations of diluted net loss per share were 2,776,391, 7,806,387 and
7,501,416 for the years ended December 31, 1998, 1999 and 2000, respectively.

Accounting for Stock-Based Compensation

  The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under the Financial Accounting
Standards Board ("FASB") Statement No. 123, "Accounting for Stock-Based
Compensation"

                                      F-9
<PAGE>

                                   Vyyo Inc.

            Notes to Consolidated Financial Statements (continued)


1. Business and Significant Accounting Policies (continued)

Accounting for Stock-Based Compensation (continued)

("SFAS 123") requires use of option valuation models that were not developed for
use in valuing employee stock options. Under APB 25, when the exercise price of
the Company's employee stock or options equals the market price of the
underlying stock on the date of the grant, no compensation expense is
recognized.

  Prior to Vyyo's initial public offering in April 2000, in connection with the
grant of certain stock options and the issuance of certain shares, the Company
recorded deferred compensation expense representing the difference between the
option exercise price or the share purchase price and the deemed fair value of
the Company's common stock on the date of grant. The deferred compensation costs
are being amortized based on the graded vesting method over the vesting period
of the options.

New Accounting Pronouncements

  In June 1998, the Financial Accounting Standard Board (FASB) issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS
No. 133) which establishes accounting and reporting standard for derivatives
instruments and hedging activities. The statement requires recognition of all
derivatives at fair value in the financial statements. FASB Statement No. 137
"Accounting for Derivative Instruments and Hedging Activities Deferral of the
Effective Date of FASB Statement No. 133" an amendment of FASB Statement No.
133, defers implementation of SFAS No. 133 until fiscal years beginning after
June 15, 2000. The Company believes that, upon implementation, the standard will
not have a significant effect on its financial condition or results of
operations.

  In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101-Revenue Recognition in Financial Statements ("SAB
101"), which among other things clarifies certain conditions to be met in order
to recognize revenue. The Company believes that its revenue recognition is in
compliance with SAB 101.

  In September 2000, the FASB issued SFAS No. 140, "Accounting for Transaction
and Servicing of Financial Assets and Extinguishment of Liabilities".  This
Statement revises the accounting standards for securitizations and other
transfers of financial assets and collaterals and requires certain disclosures.
This statement is effective for transfers and servicing of financial assets
occurring after March 31, 2001.  The Company believes that the standard will not
have a significant effect on its financial condition or results of operations.

                                      F-10
<PAGE>

                                  Vyyo Inc.

            Notes to Consolidated Financial Statements (continued)


2. Available-For-Sale Securities

  The fair value and the amortized cost of available-for-sale securities at
December 31, 2000 are as follows:
<TABLE>
<CAPTION>
                                                          December 31, 2000
                                  -----------------------------------------------------------------
                                                                                      Estimated
                                                  Unrealized      Unrealized            Fair
                                      Amortized     Holding         Holding            Market
                                         Cost        Gains          Losses             Value
                                  -----------------------------------------------------------------
                                                           (In thousands)
<S>                                  <C>             <C>             <C>              <C>

      Corporate debt securities      $ 92,545        $338            $(82)            $ 92,801
      United States obligations        15,017          33               -               15,050
      Money market                     10,028           -               -               10,028
                                  -----------------------------------------------------------------
                                     $117,590        $371            $(82)            $117,879
                                  =================================================================

      Reported as:
      Cash equivalents               $ 23,967        $  -            $ (2)            $ 23,965
      Short-term investments           93,623         371             (80)              93,914
                                  -----------------------------------------------------------------
                                     $117,590        $371            $(82)            $117,879
                                  =================================================================
</TABLE>

  The contractual maturities of available for sales debt securities at December
31, 2000 are as follows:
<TABLE>
<CAPTION>
                                                            Amortized
                                                              Cost            Fair Value
                                                       --------------------------------------
                                                                   (In thousands)
<S>                                                         <C>               <C>
Due in one year or less, including money market
 funds                                                      $ 59,177          $ 59,243
Due in one to two years                                       58,413            58,636
                                                       --------------------------------------
                                                            $117,590          $117,879
                                                       ======================================
</TABLE>

3. Inventory

  Inventory is stated at the lower of weighted-average actual cost or market.
Inventory is comprised of the following:
<TABLE>
<CAPTION>
                                                                    December 31,
                                                              1999               2000
                                                       --------------------------------------
                                                                   (In thousands)
<S>                                                         <C>                <C>
Raw materials                                               $  631             $2,890
Work in process                                                351                809
Finished goods                                                 150              2,307
                                                       --------------------------------------
                                                            $1,132             $6,006
                                                       ======================================

</TABLE>

                                      F-11
<PAGE>

                                   Vyyo Inc.

            Notes to Consolidated Financial Statements (continued)


4. Property and Equipment

Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                                      December 31,
                                                                1999                2000
                                                     ----------------------------------------------
                                                                    (In thousands)

<S>                                                  <C>                 <C>
Machinery and equipment                                        $ 1,101             $ 2,537
Computers                                                        1,084               2,762
Furniture, fixtures and leasehold improvements                     293               1,220
Other                                                               57                 109
                                                   -------------------------------------------------

                                                                 2,535               6,628
Accumulated depreciation and amortization                       (1,440)             (2,644)
                                                   -------------------------------------------------
Property and equipment, net                                    $ 1,095             $ 3,984
                                                   =================================================
</TABLE>

5. Accrued Liabilities

Accrued liabilities consist of the following:

<TABLE>
<CAPTION>
                                                                      December 31,
                                                                1999               2000
                                                   --------------------------------------------------
                                                                     (In thousands)

<S>                                                  <C>                <C>
Compensation and benefits                                       $1,192             $4,220
Warranty                                                           475              1,103
Withholding tax                                                    370                742
Other                                                            1,116              3,280
                                                   ---------------------------------------------------
                                                                $3,153             $9,345
                                                   ===================================================
</TABLE>

6. Bank Line of Credit

  The Company has a credit facility in the amount of $724,000 with a bank in
Israel that is being used to guarantee certain contractual obligations.  As of
December 31, 2000, all assets of the Company's Israeli subsidiary are subject to
fixed and floating liens pursuant to the credit facility. Also, the Company's
property and equipment in Israel with a net book value at December 31, 2000
aggregating $2,971,000 are subject to floating liens in connection with
investment grants received from the Israeli government.

7. Commitments and Contingencies

Purchase Commitments

  From time to time, the Company enters into short-term supply agreements with
its vendors. Pursuant to these agreements, the Company may be subject to
penalties and charges for quantities not purchased by agreed-upon dates.

                                      F-12
<PAGE>

                                   Vyyo Inc.

            Notes to Consolidated Financial Statements (continued)

7. Commitments and Contingencies (continued)

Operating Leases

  The Company leases its facilities under cancelable and non-cancelable
operating lease agreements that expire through 2004. Future rental payments on a
fiscal year basis under noncancelable operating leases with initial term in
excess of one year, were as follows:

<TABLE>
<CAPTION>

                                                                        December 31,
                                                                           2000
                                                                    -------------------
                                                                       (In thousands)
<S>                                                                   <C>
2001                                                                      $2,699
2002                                                                       2,788
2003                                                                       2,428
2004                                                                       1,486
                                                                    -------------------
                                                                          $9,401
                                                                    ===================
</TABLE>

  The gross rental payments under all operating leases were $381,000, $494,000
and $1.3 million for the years ended December 31, 1998, 1999 and 2000,
respectively. Rental expense, net of reimbursements from subleases, was
$127,000, $434,000 and $1.2 million for the years ended December 31, 1998, 1999
and 2000, respectively. Aggregate future minimum rentals to be received under
noncancelable subleases are $25,000 as of December 31, 2000.

Accrued Severance Liabilities

  The Company's liability for severance pay pursuant to Israeli law is covered
by deposits with financial institutions and by accrual. The accrued severance
pay liability included in accrued compensation and benefits and the amount
funded included in other current assets is as follows:

<TABLE>
<CAPTION>
                                                                         December 31,
                                                                  1999                2000
                                                   --------------------------------------------------
                                                                       (In thousands)

<S>                                                  <C>                 <C>
Accrued severance pay                                            $ 348               $ 643
Less amount funded                                                (202)               (215)
                                                   --------------------------------------------------
Unfunded portion, net accrued severance pay                      $ 146               $ 428
                                                   ==================================================
</TABLE>

Customer Claim

  In 1997, a customer filed a claim against the Company in the amount of
approximately $300,000 alleging damages resulting from certain products being
delivered which did not meet product specifications. The Company no longer sells
or supports these products. The Company believes it has meritorious defenses
against these allegations and it plans to vigorously defend against them.

                                      F-13
<PAGE>

                                   Vyyo Inc.

            Notes to Consolidated Financial Statements (continued)

7. Commitments and Contingencies (continued)

Related Party

  In 1999 and 2000, the Company paid a related party, a company under common
control of a major stockholder,  $343,000 and $646,000, respectively, for
various general and administrative charges.

  In connection with issuance of common stock upon an exercise of a stock
option, an officer of the Company issued to the Company a full recourse
Promissory Note ("Note") in the principal amount of $2,834,200.   The Note bears
interest at  a rate equal to the Federal Reserve federal funds rate plus 2% and
is secured by the purchased stock and other assets having an aggregate initial
value of not less than 200% of the amount of the Note.

Patent Matter

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

Research Grants

Prior to 1997, the Company participated in the following research and
development incentive programs:

a. The Office of the Chief Scientist in the Israeli Ministry of Industry and
   Trade (the "Chief Scientist).
   The Company has obtained grants from the Chief Scientist through 1996
   totaling approximately $2 million. The terms of the grants from the Chief
   Scientist prohibit the transfer of technology developed pursuant to the terms
   of these grants to any person, without prior written consent of the Chief
   Scientist. These grants are repayable to the Chief Scientist generally at the
   rate of 3% of the sales of the products developed out of the projects funded,
   up to an amount equal to 100% of the grant received.

b. Binational Industrial Research and Development Foundation (the "BIRD
   Foundation").
   The Company has participated in programs sponsored by the BIRD Foundation,
   which funds joint US-Israeli teams in the development of technological
   products. The Company received grants totaling approximately $1.7 million
   from the BIRD Foundation for various projects. Grants received from the BIRD
   Foundation are paid back at the rate of 2.5% to 5% of revenues shown from the
   projects funded, up to a maximum amount equal to 150% of the grants received.

As of December 31, 2000, the Company has repaid or provided for the repayment of
grants amounting to $1.1 million.

                                      F-14
<PAGE>

                                   Vyyo Inc.

            Notes to Consolidated Financial Statements (continued)

8. Stockholders' Equity

Initial and Follow-On Public Offerings

  On April 10, 2000 Vyyo sold 6,750,000 shares of its common stock in an
underwritten public offering at a per share price of $13.50 and on May 2, 2000,
sold an additional 1,012,000 shares at the same per share price through the
exercise of the underwriters' over allotment option, for aggregate net proceeds
of approximately $94.9 million, after underwriting commissions and issuance
costs.   Upon the closing of the initial public offering, all of the previously
outstanding shares of preferred stock were converted into common stock.

  On September 19, 2000, Vyyo sold 1,750,000 shares of its common stock in a
follow-on offering at a price per share of $31.56. Net proceeds to the Company
were approximately $51.3 million after underwriting commissions and issuance
costs.

Preferred Stock

  The Company is authorized to issue up to 5,000,000 shares of undesignated
preferred stock, none of which has been issued at December 31, 2000.
Immediately prior to the completion of the Company's initial public offering all
outstanding shares of Series A, B and C convertible preferred stock were
converted into an aggregate of 3,944,583 shares of common stock. Preferred stock
as of December 31, 1999 and immediately prior to the initial public offering was
comprised of the following:

<TABLE>
<CAPTION>
                                                          Shares Issued      Common Shares
                                           Shares              and           Designated for
                                         Authorized        Outstanding         Conversion
                                  ---------------------------------------------------------
<S>                                 <C>                <C>                <C>
Series A                                    6,000,000          1,584,241            950,546
Series B                                   40,000,000            629,447            188,833
Series C                                   40,000,000          9,350,581          2,805,204
Undesignated                               14,000,000                  -                  -
                                  ---------------------------------------------------------
                                          100,000,000         11,564,269          3,944,583
                                  =========================================================
</TABLE>

Warrants

  From 1997 through 1998, the Company issued warrants to purchase an aggregate
of 1,746,447 shares of common stock to investors in connection with equity and
convertible note financing transactions. As of December 31, 2000, 141,951 of
these warrants remained outstanding with an average exercise price of $1.19 per
share. These warrants are exercisable through March 2002.

Common Stock Reserved for Issuance

  As of December 31, 2000, the Company has reserved approximately 8.2 million
shares of common stock for issuance upon exercise of options granted or reserved
under the Company's stock-based compensation plans and outstanding warrants.

                                      F-15
<PAGE>

                                   Vyyo Inc.

            Notes to Consolidated Financial Statements (continued)


8. Stockholders' Equity (continued)

Common Stock Repurchase Program

  In December 2000, the Company's board of directors authorized the repurchase
of up to 4 million shares of Vyyo's common stock.  As of December 31, 2000, the
Company had repurchased and retired 338,500 shares in open market transactions
for a total cost of $2.3 million.

Charge for Stock Compensation

  Charge for stock compensation represents the amortization of deferred
compensation charges, which are based on the aggregate differences between the
respective exercise price of stock options and purchase price of stock at their
dates of grant or sale and the deemed fair market value of our common stock for
accounting purposes. Deferred stock compensation is amortized over the vesting
period of the underlying options.

Stock Option Plans

  The Company has the following stock option plans: (i) 1996 Equity Incentive
Plan, (ii) 1999 Employee and Consultant Equity Incentive Plan, and (iii) 2000
Employee and Consultant Equity Incentive Plan ("the Plans"). The plans as
amended provide for the grant to employees of incentive stock options ("ISOs"),
the grant to employees, directors, and consultants of nonstatutory stock
options, and the grant of stock options which comply with the applicable
requirements of Israeli law to the extent granted to persons who may be subject
to income tax in Israel. The Plans also provide for the awards of restricted
stock and stock bonuses.

  ISOs granted under the Plans have an exercise price equal to the fair value as
determined by the board of directors of the common stock on the date of grant.
Nonstatutory stock options may not be granted with an exercise price less than
85% of the fair value as determined by the board of directors of the common
stock on the date of grant. The period within which the option may be exercised
is determined at the time of grant, provided that no term is longer than ten
years.   The number of shares reserved under the 2000 Employee and Consultant
Equity Incentive Plan is subject to automatic annual increase on the first day
of each fiscal year commencing in 2001, equal to the lesser of 1,350,000 shares
or 5% of the outstanding shares on the last day of the immediately preceding
year.

  In October 1998, the Company adopted an option exchange program to allow
employees to exchange their options for new options with an exercise price of
$0.33. The program resulted in a total of approximately 295,800 options with
exercise price ranging from $1.00 to $2.10 being exchanged for the new options.
The terms of the repriced options remain the same.

                                      F-16
<PAGE>

                                   Vyyo Inc.

            Notes to Consolidated Financial Statements (continued)


8. Stockholders' Equity (continued)

Stock Option Plans (continued)

  In December 2000, the Company exchanged 1,450,000 options with an exercise
price of $20.00 for 870,000 options with an exercise price of $7.66.  These
options expire on December 31, 2001. This exchange constitutes a repricing and
is subject to variable plan accounting.  Stock compensation will be measured on
a quarterly basis based on vesting and on the change in market value of the
Company's stock and stock compensation expense will be recorded over the period
until the options are exercised or expire. As of December 31, 2000, 370,000
options were exercised.  The variable plan accounting resulted in no measured or
recorded expense as of December 31, 2000 because the market value of the
Company's common stock was less than the exercise price of the options.

  A summary of stock option activity, and related information, under the Plans
for the years ended December 31, 1998, 1999 and 2000 is as follows (in
thousands, except per share data):

<TABLE>
<CAPTION>
                                                             Options Outstanding
                               ------------------------------------------------------------------------------
                                                                             Weighted           Weighted
                                       Shares              Number             Average            Average
                                     Available               of              Exercise             Fair
                                     for Grant             Shares              Price              Value
                               ------------------------------------------------------------------------------
<S>                                  <C>                   <C>               <C>                <C>
Balance at December 31, 1997              5                 324              $ 1.57
Authorized                              149                   -                   -
Granted                                (512)                512              $ 0.33             $  0.05
Canceled                                299                (299)             $ 1.43
                               ------------------------------------------------------------------------------

Balance at December 31, 1998            (59)                537              $ 0.53
Authorized                            6,451                   -                   -
Granted                              (4,727)              4,727              $ 0.70             $  0.09
Exercised                                 -              (1,437)             $ 0.60
Canceled                                153                (153)             $ 1.03
                               ------------------------------------------------------------------------------

Balance at December 31, 1999          1,818               3,674              $ 0.69
Authorized                            3,450                   -                   -
Granted                              (7,304)              7,304              $13.15             $  8.57
Exercised                                 -              (1,545)             $ 2.56
Canceled                              2,074              (2,074)             $18.71
                               ------------------------------------------------------------------------------
Balance at December 31, 2000             38               7,359              $ 7.59
                               ==============================================================================
</TABLE>


The weighted-average remaining contractual life of these options is 3.96 years.

                                      F-17
<PAGE>

                                   Vyyo Inc.

            Notes to Consolidated Financial Statements (continued)

8. Stockholders' Equity (continued)

Stock Option Plans (continued)

The following table summarizes information concerning outstanding and
exercisable options at December 31, 2000 (in thousands, except number of years
and per-share amounts):

<TABLE>
<CAPTION>
                                   Options Outstanding                       Options Exercisable
                  ------------------------------------------------------------------------------------
                                             Weighted-       Weighted-                       Weighted-
                                              Average         Average                         Average
                                             Remaining       Exercise                        Exercise
Range of Exercise            Number         Contractual      Price per         Number        Price per
      Prices              Outstanding          Life            Share        Exercisable        Share
------------------------------------------------------------------------------------------------------
                                            (In Years)
<S>                 <C>            <C>                <C>               <C>           <C>
    $0.33-0.50              1,155              3.78             $ 0.47           666           $ 0.46
       0.83                 1,806              3.98               0.83           637             0.83
    1.87-5.67                 536              4.12               3.22           288             3.88
    7.66-8.00               2,172              3.49               7.72             -                -
   10.67-18.00                403              4.31              13.67             -                -
   20.00-28.44              1,287              4.68              23.13             4            27.00
                  ------------------------------------------------------------------------------------
      Total                 7,359              3.96             $ 7.59         1,595           $ 1.34
                  ====================================================================================
</TABLE>

  Pro forma information regarding net loss is required by SFAS 123 and has been
determined as if the Company had accounted for its stock options under the fair
value method of SFAS 123. The pro forma net loss per share below reflects both
(i) the charge for stock included in the historical net loss and (ii) the
expense allocation based on SFAS 123 calculation.  The fair value for the stock
options was estimated at the date of each option grant using a minimum value
pricing model in 1998 and 1999 and Black-Scholes option pricing model in 2000
with the following weighted-average assumptions for 1998, 1999 and 2000: risk-
free interest rate ranges from 4.9% to 6.5%; dividend yields of zero; a
weighted-average expected life of the option of approximately 2.79, 2.46 and
1.67 years; and volatility  ranging from 0.9 to 1.59 in 2000.

  Option valuation models require the input of highly subjective assumptions.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

  For purposes of pro forma SFAS 123 disclosures, the estimated fair value of
the options is amortized to expense over the option vesting periods.

                                      F-18
<PAGE>

                                   Vyyo Inc.

            Notes to Consolidated Financial Statements (continued)

8. Stockholders' Equity (continued)

Stock Option Plans (continued)

The Company pro forma information follows:

<TABLE>
<CAPTION>
                                                         Years Ended December 31,
                                     --------------------------------------------------------------
                                              1998                 1999                 2000
                                     --------------------------------------------------------------
                                                  (In thousands, except per share data)
<S>                                       <C>                  <C>                  <C>
Net loss
 As reported                                $(7,671)            $(43,601)            $(35,232)
                                     ==============================================================
 Pro forma                                  $(7,731)            $(43,691)            $(46,696)
                                     ==============================================================

Basic and diluted loss per share
 As reported                                $ (5.43)            $  (5.40)            $  (1.08)
                                     ==============================================================
 Pro forma                                  $ (5.48)            $  (5.41)            $  (1.43)
                                     ==============================================================
</TABLE>

Employee Stock Purchase Plan

On February 2, 2000, the stockholders and the board of directors approved the
Vyyo Inc. 2000 Employee Stock Purchase Plan (the "ESPP").  The ESPP permits
eligible employees to purchase shares of common stock at the end of each six-
month purchase period during a two-year offering period, through payroll
deductions not exceeding 15% of an employee's salary.  The price per share is
equal to 85% of the lower of the fair market value on the first day of each
offering period or the last day of the applicable purchase period.  As of
December 31, 2000, a total of 696,019 shares have been reserved for future
issuance under the ESPP.  During 2000, 53,981 shares were issued under the ESPP.
The number of shares reserved for issuance under the ESPP automatically
increases by the lesser of (i) 1% of the number of shares outstanding on the
last trading day of the previous calendar year, or (ii) 300,000 shares.  The
increase is effective each year on January 1.


9. Income Taxes

U.S. Income Taxes

  Due to the Company's loss provision for all years, there is no federal or
state income tax expense.  Foreign withholding taxes of $275,000 and $334,000
have been provided and recorded in general and administrative expense for the
years 1999 and 2000, respectively.

                                      F-19
<PAGE>

                                   Vyyo Inc.

            Notes to Consolidated Financial Statements (continued)

9. Income Taxes (continued)

U.S. Income Taxes (continued)

  The tax provision for income taxes differs from the amounts computed by
applying the statutory federal income tax rate of 34% to income before income
taxes.  The source and tax effects of the differences are as follows:

<TABLE>
<CAPTION>
                                                       Years Ended December 31,
                                                   1998               1999               2000
                                           -----------------------------------------------------
                                                            (In thousands)
<S>                                         <C>                 <C>                 <C>
 Computed expected benefit                       $(2,608)           $(14,824)         $(11,979)
 Foreign withholding taxes                            --                 275               334
 Non-deductible stock compensation                    --               3,162             5,112
 Unbenefitted losses                               2,608              11,662             6,867
                                           -----------------------------------------------------
 Total income tax provision                      $    --            $    275          $    334
                                           =====================================================
</TABLE>

  As of December 31, 2000, the Company has U.S. federal net operating loss
carryforwards of approximately $7 million which will expire in the years 2011
through 2020 and a state net operating loss of approximately $6 million expiring
in the years 2004 through 2005. The utilization of net operating loss
carryforwards may be subject to substantial annual limitations if there has been
a significant "change in ownership." Such a "change in ownership," as described
in Section 382 of the Internal Revenue Code, may substantially limit the
Company's utilization of the net operating loss carryforwards.

Israeli Income Taxes

  The Company's Israeli subsidiary has been granted "Approved Enterprise" status
for several investment programs, of which two are currently in effect. Benefits
pursuant to such investment plans include grants on a portion of the costs of
fixed assets, reduced tax rates, and, in certain cases, a full tax exemption for
certain periods. The entitlement to these benefits is conditional upon the
Company's fulfilling the conditions stipulated by the Investment Law,
regulations published thereunder, and the instruments of approval for the
specific investments in Approved Enterprises. In the event of a failure to
comply with these conditions, the benefits may be canceled and the Company may
be required to refund the amount of the benefits, in whole or in part, with the
addition of inflation adjustment differences and interest. The 1988 Investment
Plan will expire in 2001 and no benefits are expected to be realized under this
Plan. The 1996 Investment Plan entitles the Israeli subsidiary to a full tax
exemption ending 6 years after the year in which it utilizes its remaining
operating loss carryforwards and a reduced corporate tax rate of 10% to 15% for
the remaining period of the Plan's benefits, which will expire in 2009. If
Company's Israeli subsidiary distributes a cash dividend to the parent company
from income that is tax exempt, it will be taxed at the corporate rate
applicable to such income (currently 25%).

  The Company applied for a new Investment Plan program for the years 2001 -
2003 with a full tax exemption ending 6 years after the year in which it
utilizes its remaining operating loss carryforwards and a reduced corporate tax
rate of 10% to 15% for the remaining period of the Plan's benefits.

                                      F-20
<PAGE>

                                   Vyyo Inc.

            Notes to Consolidated Financial Statements (continued)

9. Income Taxes (continued)

Israeli Income Taxes (continued)

  As of December 31, 2000, the Company has Israeli net operating loss
carryforwards of approximately $32 million. The Israeli loss carryforwards have
no expiration date and are expected to offset certain future Israeli subsidiary
earnings during the tax-exempt period.

  A pretax loss from foreign (Israeli) operations was approximately $5 million
$6 million and $20 million for the years ended December 31, 1998, 1999 and 2000,
respectively.

Deferred Income Taxes

  Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets are as follows:

<TABLE>
<CAPTION>
                                                                      December 31,
                                                                1999                 2000
                                                   ----------------------------------------------
                                                                    (In thousands)
<S>                                                  <C>                       <C>
Deferred tax assets:
 Net operating loss carryforwards                              $ 2,400              $ 2,900
Valuation allowance                                             (2,400)              (2,900)
                                                   -----------------------------------------------
Net deferred tax assets                                        $     -              $     -
                                                   ===============================================
</TABLE>

  The valuation allowance increased by $400,000 and $500,000 for the years ended
December 31, 1999 and 2000, respectively.

FASB Statement No. 109 provides for the recognition of deferred tax assets if
realization of such assets is more likely than not. Based upon the weight of
available evidence, which includes our historical operating performance and the
reported cumulative net losses in all prior years, we have provided a full
valuation allowance against our net deferred tax assets as the future
realization of the tax benefit is not sufficiently assured.

                                      F-21
<PAGE>

                                   Vyyo Inc.

            Notes to Consolidated Financial Statements (continued)

10. Segments and Geographic Information

Vyyo operates in one industry segment, the design and marketing of broadband
wireless access systems. The following is a summary of operations within
geographic areas based on the location of the entity purchasing the products:

<TABLE>
<CAPTION>
                                                        Years Ended December 31,
                                                1998               1999              2000
                                  ---------------------------------------------------------
                                                             (In thousands)
<S>                                            <C>                <C>              <C>
Revenues from sales to
 unaffiliated customers:
 North America                                 $1,102             $2,587            $12,614
 Rest of the world                              1,347              1,643              2,764
                                  ---------------------------------------------------------
                                               $2,449             $4,230            $15,378
                                  =========================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                December 31,
                                                           1999               2000
                                                   --------------------------------------
                                                                (In thousands)
<S>                                                  <C>                    <C>
Property and Equipment, Net
 Israel                                                   $  992             $2,971
 United States                                               103              1,013
                                                   --------------------------------------
                                                          $1,095             $3,984
                                                   ======================================
</TABLE>

11. Subsequent Events

Subsequent to December 31, 2000 and through January 16, 2001, the Company
repurchased 873,000 additional shares of its common stock, with an aggregate
purchase price of approximately $6.4 million, pursuant to the repurchase plan
described in Note 8.

                                      F-22