UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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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, 2005

Commission File Number 000-30189

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VYYO INC.(Exact Name of Registrant as Specified in Its Charter)

|Delaware                                                       |  | 94-3241270                       
|-------------------------------------------------------------- |  | ---------------------------------
|(State or Other Jurisdiction
Of Incorporation or Organization) |  | (IRS Employer
Identification No.)
|4015 Miranda Avenue, First Floor,
Palo Alto, California        |  | 94304                            
|(Address of Principal Executive Offices)                       |  | (Zip Code)                       

Registrant's Telephone Number, Including Area Code:(650) 319-4000

Securities
Registered Pursuant to Section 12(b) of the Act:None

Securities
Registered Pursuant to Section 12(g) of the Act:Common Stock, $0.0001 Par Value

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.    o Yes    ý No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.    o Yes    ý No

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, as amended, 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.    ý Yes    o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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.    ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer
and large accelerated filer" in Rule 12b-2 of the Exchange Act (Check one):

Large
accelerated filer o                Accelerated filer o                Non-accelerated
filer ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act).    o Yes    ý No

Aggregate market value of the voting stock held by non-affiliates of the registrant as of March 27, 2006 (computed by reference to the closing
price of the registrant's Common Stock as reported on the Nasdaq National Marked on such date): approximately $73,776,668

The
number of shares outstanding of the registrant's Common Stock, $0.0001 par value per share, as of March 27, 2006, was 17,631,964.

Documents Incorporated by Reference:Part III, Items 10, 11, 12, 13 and 14 of this Report are incorporated by
reference from the definitive Proxy Statement for the registrant's 2006 annual meeting of stockholders.



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VYYO INC.        2005 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

|           |  |                                                                                                              |  | Page
|---------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|PART I    
|Item 1.    |  | Business                                                                                                     |  | 4   
|Item 1A.   |  | Risk Factors                                                                                                 |  | 15  
|Item 1B.   |  | Unresolved Staff Comments                                                                                    |  | 31  
|Item 2.    |  | Properties                                                                                                   |  | 31  
|Item 3.    |  | Legal Proceedings                                                                                            |  | 32  
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                          |  | 32  
|PART II   
|Item 5.    |  | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 32  
|Item 6.    |  | Selected Financial Data                                                                                      |  | 34  
|Item 7.    |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                        |  | 35  
|Item 7A.   |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 51  
|Item 8.    |  | Financial Statements and Supplementary Data                                                                  |  | 52  
|Item 9.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 52  
|Item 9A.   |  | Controls and Procedures                                                                                      |  | 52  
|Item 9B.   |  | Other Information                                                                                            |  | 52  
|PART III  
|Item 10.   |  | Directors and Executive Officers of the Registrant                                                           |  | 53  
|Item 11.   |  | Executive Compensation                                                                                       |  | 53  
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 53  
|Item 13.   |  | Certain Relationships and Related Transactions                                                               |  | 53  
|Item 14.   |  | Principal Accountant Fees and Services                                                                       |  | 53  
|PART IV   
|Item 15.   |  | Exhibits and Financial Statement Schedules                                                                   |  | 54  
|SIGNATURES |  | 55                                                                                                          

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Forward-Looking Statements

The matters discussed in this Annual Report on Form 10-K, with the exception of the historical information presented, contain forward-looking
statements involving risks and uncertainties, as well as assumptions that, if they do not fully materialize or prove incorrect, could cause our business and results of operations to differ materially
from those expressed or implied by such forward-looking statements. Such forward-looking statements include:



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You
can identify these and other forward-looking statements by the use of words such as "may," "will," "should," "could," "intend," "expect," "plan," "estimate," "project," "anticipate,"
"believe," "potential," "continue," or the negative of such terms, or other comparable terminology. The risks, uncertainties and assumptions referred to above that could cause our actual results to
differ materially from the results expressed or implied by such forward-looking statements include those set forth in Item 1A in this Annual Report on Form 10-K and the risks,
uncertainties and assumptions discussed from time to time in our other public filings and public announcements. All forward-looking statements included in this Annual Report on Form 10-K are
based on information available to us as of the date hereof, and we assume no obligation to update these forward-looking statements.

PART I

Item 1.    Business

Overview

Vyyo Inc. and its wholly-owned subsidiaries (collectively, "we," "us" or "our") provide cable and wireless broadband access solutions through two business
segments: the "Cable Solutions" segment and the "Wireless Solutions" segment. Our products are designed to address four markets: Cable, Telecommunication, Utility and Wireless Internet Service
Providers ("WISP"). Although we are engaged to various degrees in these distinct markets, some of our core technologies overlap with our respective solutions.

Our
Cable Solutions segment includes products that are used to deliver telephony and data T1/E1 links to enterprise and cellular providers over cable's wireless or hybrid-fiber coax
("HFC") networks. Additionally, our "Spectrum Overlay" technology is used to expand cable operators' typical HFC network capacity in the "last mile" by up to two times in the downstream and up to four
times in the upstream. Our Cable Solutions segment includes the results of operations of Xtend Networks Ltd., an Israeli company, and its wholly-owned, U.S.-based subsidiary, Xtend
Networks Inc. (collectively, "Xtend"). Xtend Networks Inc. markets our Spectrum Overlay and TI over HFC products. We purchased all of the outstanding capital stock of Xtend on June 30,
2004 and consolidated its operations with our operations beginning July 1, 2004. For a discussion of the acquisition of Xtend, please refer to note 6 of our 2005 annual Consolidated
Financial Statements.

Our
Wireless Solutions segment includes our utility products which enable utilities and other network service providers to operate private wireless networks for communications,
monitoring and Supervisory Control And Data Acquisition ("SCADA") of their geographically disbursed, remote assets. Additionally, it includes our WISP and telecommunications products which address the
needs of rural service providers to serve customers with wireless, high-speed data beyond the reach of traditional terrestrial networks.

We
are focused on promoting products in our Wireless Solutions segment into the network provider, utility, petrochemical, municipality and enterprise markets. Our Cable Solutions segment
is focused on both promoting T1 solutions for business services over cable networks and promoting cable

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bandwidth
expansion solutions that are designed to expand cable operators' typical HFC network capacity.

Vyyo Inc.
was incorporated in Delaware in 1996. We have an aggregate of 132 employees in the United States and Israel.

Cable Solutions Segment



We provide infrastructure solutions that are designed to expand the bandwidth of cable television networks. Our Cable Solutions segment has not yet reached
profitability and only began generating revenues in the quarter ended September 30, 2005.

Products
from our Cable Solutions segment include voice grade T1 and radio frequency ("RF") products with node, amplifier, splitter and passive elements targeted to the coaxial portion
of the existing cable infrastructure. These products are designed to enable the layer-one expansion of available spectrum up to 3 GHz, which in turn allows cable system operators ("MSOs")
to provide more bandwidth-intensive services to their customers.



Our products provide MSOs with the opportunity to increase the availability of bandwidth on their legacy and upgraded systems through our advanced technology. Our
technology has the potential to
help MSOs develop new sources of revenue by (a) providing residential subscribers with the enhanced "quadruple play" of voice, data, video and wireless services; (b) increasing capacity
for high definition TV, video-on-demand, network-based digital video recording, high definition video-on-demand, peer-to-peer
gaming and peer-to-peer video conferencing; and (c) attracting new small and medium-sized business ("SMB") customers through T1 capabilities.

Our
products are designed to be backwards compatible with the existing network equipment so as not to affect existing residential services. We designed our solution to pass through all
of the legacy services and overlay the expanded services without interfering with cable's traditional services. The products provide a compatible architecture, through Block Division
Multiplexing technology, that, for example, enables the continued use of existing, standardized equipment, such as DOCSIS® cable modem termination systems, cable modems and
digital set-top units.

In
a sample SMB application, the combination of our T1 technology and increased HFC capacity allows MSOs to service hundreds of T1 links over the existing HFC networks. This solution
potentially creates a new market for MSOs, enabling them to provide alternatives to incumbent carriers for SMBs that need to connect local telephone switches to the public switched telephone network,
connect cellular towers to cellular carrier's point of presence via the existing HFC, or connect their local area network ("LAN") to another office or to the Internet. MSOs also can offer SMBs bundled
services of television, high-speed data and telephony, giving them a competitive advantage over the incumbent telecom service providers.



We have developed a broad range of "Spectrum Overlay" products to increase the bandwidth of existing cable television networks and, during 2005, we optimized such
products for residential applications. Cable products are designed to be "backwards compatible," overlaying spectrum in parallel to current networks and allowing the utilization of
pre-existing digital equipment. Additionally, our T1 over HFC technology enables MSOs to deploy carrier class T1 links for commercial voice and data services, and to backhaul voice traffic
between cellular towers and wireless providers' central offices via HFC plant.

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Our
Spectrum Overlay solution is made up of the following elements:

Node Products: XHUB.The XHUB is located at the fiber node and converts the HFC network standard frequency band to the
coaxial plant's extended bands. For example, the Spectrum Overlay XHUB 3006 is a block multiplexer and frequency converter which multiplexes two downstream blocks, each carrying a different content,
onto a single cable coaxial plant while demultiplexing five upstream blocks.

Trunk Amplifiers: Xtendifier and XBridger.The Xtendifier is the amplification and gain control element of the overlayed
coaxial plant. The Xtendifier is installed along the coaxial line, in parallel to existing line extenders. For example, our XFR 3000 is a bi-directional, wide-band amplifier
which operates in conjunction with the legacy amplifier. The XBridger performs the same functions, but is placed in conjunction with a multiple output legacy XBridger amplifier.

Passive Elements.Our 3 GHz passive elements, with band performance, replace the existing passive elements (taps, splitters,
line power inserters and line equalizers.) The XSP replaces existing splitters and directional couplers; the XFFT replaces existing taps; the XLPI replaces existing power line inserter and the XLEQ
replaces existing line equalizers, all providing bandwidth performance supporting the increased frequencies used with the Spectrum Overlay system.

CPE Device: XTB.The Spectrum Overlay XTB is a block division multiplexer and frequency converter that interfaces with
existing standard CPE devices, enabling subscribers to enjoy true quadruple play services.

Our
T1 over coax solution for SMB and cellular backhaul is made up of the following elements:

XMTS.The XMTS is the focal point of our unique broadband access system. It supports data, voice and circuit-switched (E1/T1)
traffic to and from wired and wireless modems. The XMTS delivers traffic, depending on its type, to a data, voice or E1/T1 transport network. In conjunction with the DS3 availability, the XMTS product
family includes:



T1 Modems.Our modems are located in residences, small/home offices, medium-sized businesses or at cellular sites. The modem
delivers telephony services (T1/E1) and high-speed data connections to business and residential subscribers. These modems send and receive data and voice traffic to and from the XMTS via
wireless or HFC networks.



Our Cable Solutions segment targets MSOs. We generally sell products based on individual purchase orders; accordingly, customers are not obligated by
long-term contracts. Our customers can generally cancel or reschedule orders upon short notice and can discontinue using our products at any time.

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Our
Cable Solutions segment did not generate revenue until the quarter ended September 30, 2005, and these revenues were not significant. Accordingly, we expect that a relatively
small number of customers will account for a large percentage of our revenues. See note 16 of our 2005 annual Consolidated Financial Statements beginning on page F-1 for financial
information pertaining to our Cable Solutions segment.



The products of our Cable Solutions segment are currently targeted to U.S.-based MSOs of all sizes by our direct sales force in North America. We promote our
products through direct personal contact, presentations at trade shows, expositions, seminars and lectures and public relations efforts.

In
August 2005, we announced that we had been named as an approved vendor for Cox Communications Inc. with respect to our TI over HFC systems for business customers. This
approved-vendor status for TI over HFC is in addition to our approved-vendor status with Cox for our Spectrum Overlay products. In addition, our Spectrum Overlay products are being evaluated at
different levels at other leading cable network operators in North America.



We outsource our manufacturing to contract manufacturers that have the expertise and ability to respond quickly to customer orders while maintaining high quality
standards. Any inability of these manufacturers to provide the necessary capacity or output could result in significant production delays that could harm our business. The components for the equipment
we supply are purchased on a purchase order basis. We have no guaranteed supply or long-term contractual agreements with any suppliers. In addition, some of the components included in our
products 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 perform some assembly and testing in our Israeli facility.



Our research and development activities in the Cable Solutions segment are focused on developing and introducing new features that are important to our target
market. Our ongoing product development program assesses MSOs' needs and technological changes in the cable market. See "Management's Discussion and Analysis of Financial Condition and Results of
OperationsResults of OperationsResearch and Development" for a description of research and development expenses for our Cable Solutions segment.



The market for cable equipment vendors is competitive, rapidly evolving and subject to rapid technological change. The principal competitive factors in this
market include:



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Our
Cable Solutions segment faces competition from technologies such as higher encoding over cable (1024QAM), high-end compression (e.g., MPEG-4), Switched
Digital Video, the upgrading of coaxial networks to 1GHz and fiber optic solutions. MSOs have partial alternatives to our technology for increasing bandwidth on their systems, including fiber-based
solutions and node-splitting. In addition, MSOs themselves face competition from the high bandwidth solutions offered by satellite providers and incumbent telecommunications operators,
including digital subscriber line, or DSL, technology and from fiber-to-the-home/curb technologies.

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 MSOs. 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 competitors are currently Scientific-Atlanta (purchased by Cisco Systems, Inc. in
2006), Motorola, Inc., C-Cor Incorporated and Narad Networks, Inc. Most of these competitors have existing relationships with one or more of our prospective customers. We may not be
able to compete successfully against current and future competitors and competitive pressures may seriously harm our business.



As of December 31, 2005, our Cable Solutions segment employed 33 individuals in Israel in research and development, two individuals in Israel in sales and
marketing and 14 individuals in the United States in sales,marketing and customer support. None of our U.S. employees is represented by a union.

Xtend,
our wholly-owned subsidiary, is an Israeli company and is subject to Israeli labor laws and regulations with respect to its 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, prior notice and other
conditions of employment.

Through
Xtend, we and our Israeli employees are subject to provisions of certain collective bargaining agreements, by order of the Israeli Ministry of Labor and Welfare. These provisions
principally concern wages, cost of living expenses and other conditions of employment. Xtend provides our Israeli employees with benefits and working conditions above the required minimums. None of
our Israeli employees are represented by a labor union and we have not experienced any work stoppages.

Wireless Solutions Segment



Our Wireless Solutions segment supplies wireless broadband end-to-end solutions used by utilities, service providers, WISP and
telecommunication companies to deliver both wireless telephony and high-speed data connections. Our products enable utilities and other network service providers to operate private
wireless networks for communications, monitoring and SCADA of their geographically disbursed, remote assets. Additionally, our WISP and
telecommunications products address the needs of rural service providers to serve customers with wireless high-speed data beyond the reach of traditional terrestrial networks.

Our
technology uses point-to-multipoint architecture to deliver circuit switched (telephony), as well as voice and data over internet protocol. We sell our
systems directly to service providers and system integrators, who provide network planning and integration services. We then integrate our systems with other components in the network and provide
their customers with end-to-end network solutions.

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Our
systems are deployed in point-to-multipoint applications at the radio frequencies designated for two-way broadband communication. The majority of
our systems are deployed in the 3.5 GHz band internationally and the 2.5 GHz and 700 MHz bands in the United States. 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 support both voice and data communications.

We
support 802.3 bridging across our network, which allows us to support Internet Protocol ("IP"). IP is, in turn, the networking standard used to deliver voice, video 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. We also support voice and data
via a circuit-switched connection providing a dedicated connection to a subscriber with dependable throughput and latency. 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. In addition, our systems are used to connect cellular based stations to a base station
controller, commonly known as a backhaul connection.

Our
system consists of a wireless hub, which serves as a point of convergence for data traffic in a network, network management system and wireless subscriber modems. Each wireless hub
is located at a base station, which houses the network components of our system. Each hub transmits and receives network traffic to and from our wireless modems, which are installed at multiple
subscriber locations. Our network management system provides remote monitoring and configuration services with respect to the wireless hubs and modems to allow the service provider to operate the
system from a central location.



Our system is designed to allow our customers to rapidly deploy cost-effective, high-speed data and voice connections directly for
communications, monitoring and SCADA of their remote assets and for business, residential and cellular backhaul voice and data applications. Our systems are deployed in
point-to-multipoint applications at the frequencies designated for these applications and consist of a broadband hub, which serves as a point of convergence for data traffic in
a network, network management system software and subscriber modems. Each broadband hub is located at a base station, which houses the components in the network. Our modems are installed at multiple
subscriber locations as follows:



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Using our wireless 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.

Our
system is used primarily at the 2.5 GHz MMDS and the 700 MHz bands in the United States and at the 3.5 GHz band internationally.



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 is designed to support tens to thousands of users depending upon the configuration and application.

Our
wireless hub is designed to support a variety of channel capacities by using combinations of six communications modules as either upstream or downstream modules, with each upstream
module supporting either one or six upstream receivers, and each downstream module supporting either one or four downstream transmitters. For example, our system can provide 24 upstream channels and
four downstream channels. A channel is a subdivision of a frequency band used to transmit radio frequency signals. This flexibility allows the operator to configure a system for each specific
situation.

Multiple
wireless hubs may be controlled through one central network management system. Our network management system manages overall system operations. The system features graphical
views of wireless hubs and modems. The network management system allows network operators to configure, maintain and troubleshoot hubs and modems from a central workstation.

Wireless Modems.We sell several kinds of wireless modems. Our data modem is designed for residential, home office or small
office deployment. It can support up to 75 individual users at the LAN that is served by the modem, without a router. Our V284 modem, with its built-in 700 MHz radio, provides broadband
wireless data and VoIP services to residential and business customers over a radius exceeding 25 miles when used in conjunction with our V3000 T1/E1 base stations or V2800 IP broadband hubs.



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

Support of Internet Protocol.Our system architecture supports IP communications traffic, and our primary systems components,
the media access controller and the scheduler, are optimized for IP communications traffic. We have designed our systems to carry variable-length IP packets over one upstream TDMA burst as well as to
support large packets that must be spread over multiple TDMA bursts.

MAC and PHY Layer Capabilities.Our media access control layer capabilities, combined with our physical layer capabilities,
provide robust performance under adverse conditions and effectively utilize the limited frequency and bandwidth allocations of the 700 MHz band and 3.5 GHz band. Our single

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carrier
PHY (Physical) layer technology offers multiple symbol rates and modulation schemes on both upstream and downstream channels which are used to optimize system configuration in any particular
deployment scenario.

Scheduling Algorithms.We develop scheduling software code for DOCSIS-based (Data Over Cable Service Interface
Specifications) TDMA point-to-multipoint systems. Our scheduling algorithms are optimized to support multiple services including best effort data services, committed
information rate data services, VoIP services and T1/E1 services, in an efficient manner for optimal utilization of limited wireless spectrum.

Circuit Switched Capability.Our broadband wireless access solution includes a circuit-switched capability which allows our
base station and CPE to be a multi-service platform, which delivers high-speed IP data as well as plain old telephone service and T1/E1 services across a single, cohesive vendor platform
and RF infrastructure.



In 2005, we expanded our customer focus beyond traditional telecommunications providers. As a result, we now sell our products directly to utilities, service
providers, WISP and telecommunication companies to deliver both wireless telephony and high-speed data connections. We sell our products based on individual purchase orders; accordingly,
our customers are not obligated by long-term contracts. Our customers can generally cancel or reschedule undelivered 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. We expect that we will continue to depend on a limited number of customers for a substantial
portion of our revenues in future periods. See note 16 of our 2005 annual Consolidated Financial Statements beginning on page F-1 for financial information pertaining to our
Wireless Solutions segment.



In 2005, we focused our sales and marketing resources on utilities, network service providers and network system integrators in the United States while reducing
resources dedicated to sales and marketing in international markets, particularly China. Some of our customers have the means to provide vendor financing to their end users customers 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, and in some cases field trials, 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 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, modems, up/down converters and manufacturing of our wireless hubs to contract
manufacturers. Any inability of these manufacturers to provide the necessary capacity or output could result in significant production delays that could harm our business. The components for our
wireless hubs and any third party radio equipment we require are purchased on a purchase order basis. We have no guaranteed supply or long-term 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.

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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.



In 2005, we re-focused research and development activities on developing products to address the utility and network service provider markets. Our
research and development activities in the Wireless Solutions segment are focused on developing and introducing of new features that are important to our customers. In 2005, our primary focus was on
our 700 MHz solution and our recently-introduced DOCSIS®-compatible T1 solution targeting SMBs. Our ongoing product development program assesses service providers' needs and technological
changes in the telecommunications market.

We
believe that our extensive experience in designing and implementing high quality network components and system software allows us to develop high quality solutions. As a result of
these
development efforts, we have created an integrated broadband wireless platform that delivers data, voice and T1/E1 services.

See
"Management's Discussion and Analysis of Financial Condition and Results of OperationsResults of OperationsResearch and Development" for a description of
research and development expenses for our Wireless Solutions segment.



The market for broadband wireless access systems is competitive, rapidly evolving and subject to rapid technological change. The principal competitive factors in
this market include: availability of licensed spectrum, 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; development and adoption of new wireless standards (e.g., Wi-MAX); ability to provide system integration services
efficiently and cost effectively; and sales capability, technical support and service.

The
primary competing alternative technologies for broadband access include:

Digital Subscriber Line.Digital subscriber line ("DSL") technology 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 telecommunications operators, such as SBC Communications, Inc. and
Verizon Communications, as well as numerous competitive local exchange carriers.

Cable Modems.Cable modems are designed to provide broadband Internet access services by cable operators and are targeted
primarily at the residential market. Cable infrastructure passes by 110,800,000 homes in North America, but only a portion of those homes currently have access to two-way cable modem
service. Many cable operators 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

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pulses
of light to transmit digital information. 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 and in some cases lower 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 competitors are currently Alvarion Inc., Aperto Networks, Inc., Arris Group, Inc. NextNet
Wireless, Inc., IP Wireless, Inc., Navini Networks, Inc., Wi-LAN Inc., SR Telecom, Harris Corporation, Cambridge Wireless Limited, Flarion, VCOM, Airspan and
ZTE Corporation. 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.



As of December 31, 2005, our Wireless Solutions segment employed 30 individuals in Israel in research and development, 12 individuals in the United States
in sales, marketing and customer support and 16 individuals in Israel in manufacturing and operations. None of our U.S. employees is represented by a union.

Our
Wireless Solutions segment is operated by our Israeli subsidiary, Vyyo Ltd., which 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, prior notice and other conditions of employment.

Through
Vyyo Ltd., we and our Israeli employees are subject to provisions of certain collective bargaining agreements, by order of the Israeli Ministry of Labor and Welfare. These
provisions principally concern wages, cost of living expenses and other conditions of employment. We provide our Israeli employees with benefits and working conditions above the required minimums. Our
Israeli employees are not represented by a labor union and we have not experienced any work stoppages.

Government Regulation

Our business depends on the availability of certain radio frequencies for broadband two-way communications. Radio frequencies are subject to extensive
regulation worldwide. 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 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.

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Our
compliance with regulation agencies, such as the FCC, requires us to do ongoing verification and testing and may add delays to our product upgrades and releases and we may not be
able to meet those regulations for future products. Those regulations also may change which could require us to modify our systems, which may be expensive and time-consuming, and incur
substantial compliance costs 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 certain of our products and technology. We are subject to the risk that more stringent export control requirements
could be
imposed in the future on product classes that include products exported by us, which would result in additional compliance burdens and could impair the enforceability of our contract rights.



We 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 Cable Solutions segment has 35 patent applications pending worldwide, including 15 in the United States. Our Wireless Solutions
segment has eight issued patents and five patent applications pending, all in the United States.

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, and others may independently develop similar technologies or products. 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 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.

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Others'
patents may be determined to be valid, or some or all of our products may ultimately be determined to infringe those patents. Patent holders 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.

Cost Reduction Program

In August 2005, we implemented a cost reduction program whereby we reviewed the size and composition of our workforce and made adjustments after evaluating
a variety of factors. In connection with this cost reduction program, we reduced our workforce by approximately 16% in the United States and Israel. We have recorded approximately $360,000 in a
one-time cash severance payment and related expenses. This cost reduction did not require the termination of any contractual obligations or require us to incur other material associated
costs.

Shira Computers Ltd.

On May 14, 2002, we acquired all of the outstanding ordinary shares of Shira, an Israeli privately held company that provided software products for the
prepress and publishing markets (the "Software Products" segment), pursuant to a share exchange agreement. Due to the continuing decline in Shira's sales, Shira's recurring losses and its inability to
penetrate the market, on August 12, 2003, our Board of Directors determined to cease all of Shira's business operations and terminate all of Shira's employees.

On
March 31, 2005, we sold all of our shares of Shira stock to third parties (the "Shira Purchasers"). The Shira Purchasers are required to pay us 22.5% to 42.5% of the proceeds
that may be received upon any subsequent sale by the Shira Purchasers of Shira or its assets. The Shira Purchasers assumed all liabilities of Shira totaling $270,000. The gain from this sale was
$290,000 and was recorded in discontinued operations. During the year ended December 31, 2005, we received an additional $166,000 from the Shira Purchasers.

Segments and Geographic Information

See note 16 of our 2005 annual Consolidated Financial Statements for a description of financial matters related to our Wireless Solutions and Cable
Solutions segments, as well as geographic information related to our business.

Item 1A.    Risk Factors

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

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

We have incurred significant losses since our inception, and we expect to continue to incur losses for the foreseeable future. We incurred losses of $38,692,000
in the year ended December 31, 2005 and $21,093,000 in the year ended December 31, 2004. As of December 31, 2005, our accumulated deficit was $235,150,000. In addition, we have
increased our sales and marketing expenditures and research

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and
development expenditures in connection with our efforts to develop new sources of revenue. Our revenues and gross margins may not grow or even continue at their current level and may decline even
further. If our revenues do not rapidly increase, or if our expenses increase at a greater pace than our revenues, we will never become profitable.

We have written down and may need to further write-down our inventory in the future if our sales levels do not match our expectations, or if selling prices decline
more than we anticipate, which could adversely impact our operating results.

We operate in an industry that is characterized by intense competition, supply shortages or oversupply, rapid technological change, declining average selling
prices and rapid product obsolescence, all of which make it more challenging to effectively manage our inventory. In addition, we are required to order or build inventory well in advance of the time
of our anticipated sales.

Our
inventories are stated at the lower of cost or market value. Determining market value of inventories involves numerous judgments, including, but not limited to, judgments regarding
average selling prices and sales volumes for future periods. We primarily utilize estimated selling prices for measuring any potential declines in market value below cost. When market value is
determined to be below cost, we make appropriate allowances to reduce the value of inventories to net realized value. We may reduce the value of our inventories when we determine that inventories are
slow moving, obsolete or excess or where the selling price of the product is insufficient to cover product costs and selling expenses.

In
this regard, our inventory increased substantially in 2004 and 2005 because sales were substantially less than our anticipated demand and we were required to make advance inventory
purchase commitments for anticipated sales. Accordingly, we recorded a write down of inventory and purchase commitments of approximately $2,050,000 for the year ended December 31, 2005. In the
event that our sales do not increase, the sales price of our products decrease or we are otherwise unable to control inventory levels consistent with actual demand, we may be required to write-down
additional inventory. Any such write-down would adversely affect our operating results in future periods.

We may have insufficient capital to execute our business plan.

On March 23, 2006, we closed a financing of $25,000,000 from Goldman, Sachs & Co., resulting in net proceeds to us of approximately $23,500,000. See
"Management's Discussion and Analysis of Financial Condition and Results of OperationsSubsequent EventsFinancing" below. Notwithstanding this financing, we may need
additional capital to execute our business plan. If we are unsuccessful in securing additional cash, either through additional equity and/or debt financings or increased revenues, we may not be able
to successfully execute our business plan.

If an event of default occurs under either the Convertible Note or the Senior Secured Note delivered to Goldman, Sachs & Co. in the financing, the principal and accrued
interest under each note would become due and payable which would substantially harm our cash position and business prospects.

On March 23, 2006, we closed a financing for $25,000,000 which included delivery of a Convertible Note in the principal amount of $10,000,000 and a Senior
Secured Note in the principal amount of $7,500,000. Each of these notes contains events of default that, if triggered, would require us to pay the principal and accrued interest under both notes
immediately (after the expiration of applicable cure periods). If an event of default occurs under the notes and the holder declares all outstanding principal and interest immediately due and payable,
our cash position and business prospects would be substantially harmed.

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If we fail to achieve significant market penetration and customer acceptance of our cable products, our prospects would be substantially harmed.

The market for broadband products in the cable television industry is extremely competitive, subject to drastic technological changes and highly fragmented. Our
products in the Cable Solutions segment are new and relatively unknown; accordingly, we have not generated significant revenue in this segment. To date, we have only begun to install our cable
products with customers in field trials. There can be no assurance that our initial installations of our cable products will be successful. As our cable products are in a development stage, we may
face challenges such as market resistance to a new product, perceptions regarding customer support and quality control.

We
will generate significant sales only if we are able to penetrate the market and create market share in this industry. If we are unable to do so, our business would be harmed and our
prospects significantly diminished.

Our success will depend on MSOs willingness and ability to substantially increase the available bandwidth on their networks using our alternative technology solution.

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

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

Our future success in the telecommunications market depends on high-speed wireless communications products gaining market acceptance as a means to
provide voice and data communications services. Because these markets are relatively new and unproven, it is difficult to predict if these markets will ever develop, expand or be sufficiently large to
sustain our business. Major service providers in the United States have ceased, delayed or reduced their rollouts and may further delay or reduce rollouts in the future. Our expectations with respect
to a recovery, if any, in the telecommunications market, may not prove accurate. In the event that service providers adopt technologies other than the wireless technologies that we offer or if they
delay further their deployment of high-speed wireless communication products, we will not be able to sustain or expand our business.

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

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

Telecommunications service providers continually evaluate alternative technologies, including digital subscriber line, fiber and cable. Should service providers
or systems integrators, to which we may sell products in the future, cease to emphasize systems that include our products, choose to emphasize

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alternative
technologies or promote systems of our competitors, our business would be seriously harmed.

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

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

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

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

In
addition, the deregulation, privatization and economic globalization of the worldwide communications market, which resulted in increased competition and escalating demand for new
technologies and services, may not continue in a manner favorable to us or our business strategies. In addition, the growth in demand for Internet services and the resulting need for
high-speed or enhanced communications products may not continue at its current rate or at all.

Our success depends significantly on Davidi Gilo, our Chairman of the Board and Chief Executive Officer, the loss of whom could seriously harm our business.

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

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

We acquired Xtend, a provider of infrastructure solutions that expand the bandwidth of cable operators, on June 30, 2004. We also may continue to explore
investments in or acquisitions of other companies, products or technologies, including companies or technologies that are not complementary or related to our current wireless broadband access
business. We ultimately may be unsuccessful in operating Xtend as a profitable business as we were unable to operate Shira as a profitable business. In addition, we may have difficulty integrating
Xtend's or other companies' personnel, operations, products and technologies into our current business. These difficulties may disrupt our ongoing business, divert the time and attention of our
management and employees and increase our expenses.

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Moreover,
the anticipated benefits of our acquisition of Xtend or any other acquisition may not be realized. Future acquisitions could result in dilutive issuances of equity securities,
the incurrence of debt, contingent liabilities or amortization expenses related to goodwill and other identifiable intangible assets and the incurrence of large and immediate write-offs,
any of which could seriously harm our business. In addition, we expect that we will expend significant resources in searching for and investigating new business opportunities, and may be unsuccessful
in acquiring new businesses.

We will need to develop distribution channels and management resources to market and sell our cable products.

Our Spectrum Overlay solutions are at a development stage in the commercialization of our cable products. We currently have limited relationships with potential
customers and distributors as well as limited professional sales staff. We will be successful only if we are able to develop distribution channels to market and sell our cable products.

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

We
currently have limited exposure to global business opportunities. We will not be able to take advantage of any meaningful potential global demand for our products unless and until we
are able to develop global distribution channels and strategies.

We have not yet produced or deployed our cable products in high volumes.

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

Because
we have not yet deployed our Spectrum Overlay solutions products in high volume, there is significant technology risk associated with any such future deployment. We cannot be
sure that any such high volume deployment would be successful.

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

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



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

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

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

Our participation or lack of participation in industry standards groups may adversely affect our business.

We are not active in the standards process of the Cable Television Laboratories, Inc., a cable industry consortium that establishes cable technology
standards and administers compliance testing. In the future, we may determine to join or not join other standards or similar organizations. Our membership in these organizations could dilute our
proprietary intellectual property rights in our products while our failure to participate in others could jeopardize acceptance of any of our products that do not meet industry standards.

Product standardization, as may result from wireless industry initiatives or from initiatives of the major cable operators, may adversely affect our prospects.

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

Since we reduced our workforce in August 2005, our research and development efforts could be harmed.

We implemented a cost reduction program in August 2005 by reducing our workforce. The full implementation of this program resulted in a reduction of our
workforce of approximately 16%. This reduction has had the largest effect on our research and development activities. Our ability to further develop and market our products may be limited if we have
not accurately predicted the appropriate workforce requirements for our research and development efforts.

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

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

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manufacturing
costs in response to declining average per unit selling prices. Our competitors may be able to achieve greater economies of scale and may be less vulnerable to the effects of price
competition than we are. These declines in average selling prices will generally lead to declines in gross margins and total profitability for these systems. If we are unable to reduce our costs to
offset declines in average selling prices, we may not be able to achieve or maintain profitability.

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

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

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



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

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

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



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A
delay in the recognition of revenue, even from one customer, could 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 would not be able to timely adjust expenses accordingly, which would harm our operating
results in that period. We believe that period-to-period comparisons of our results of operations are not meaningful and should not be relied upon as indicators of future
performance. If our operating results fall below the expectations of investors in future periods, our share price would likely decline.

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

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

Year Ended December 31,2005

2004

2003Customer A

45
%
19
%
14
%Customer B

8
%
19
%
4
%Customer C

7
%
7
%
11
%Customer D

2
%
13
%
47
%Customer E



21
%
Customer F



2
%
14
%


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

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 32.0% of our revenues in the year ended December 31, 2005. In addition, we maintain research and
development facilities in Israel. Our reliance on international sales, operations and suppliers exposes us to foreign political and economic risks, which may impair our ability to generate revenues.
These risks include:



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

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

Our research and development and final testing and assembly facilities, a majority of our employees and some of our contract manufacturers are located in Israel.
Political, economic and military conditions in Israel directly affect our operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between
Israel and its Arab neighbors and a state of hostility, varying in degree and intensity, has led to security and economic problems for Israel. Hostilities within Israel have dramatically escalated in
recent years, which could disrupt our operations. In addition, the recent wars in Iraq and Afghanistan and the current military and political presence of the United States or its allies in Iraq and
Afghanistan could cause increasing instability in the Middle East and further disrupt relations between Israel and its Arab neighbors. We could be adversely affected by any major hostilities involving
Israel, the interruption or curtailment of trade between Israel and its trading partners, a significant increase in inflation or a significant downturn in the economic or financial condition of
Israel. As a result of the hostilities and unrest presently occurring within Israel and the Middle East, the future of the peace efforts between Israel and its Arab neighbors is uncertain. Moreover,
several countries still restrict business with Israel and with Israeli companies. We could be adversely affected by restrictive laws or policies directed towards Israel or Israeli businesses.

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

Because substantially all of our revenues are generated in U.S. dollars while a portion of our expenses are incurred in New Israeli Shekels, our results of operations could 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.

Our functional currency is the U.S. dollar. We generate substantially all of our revenues in U.S. dollars, but we incur a substantial portion of our expenses,
principally salaries and related personnel expenses related to research and development, in New Israeli Shekels, or NIS. As a result, we are exposed to the risk that the rate of inflation in Israel
will exceed the rate of devaluation of the NIS in relation to the dollar or that the timing of this devaluation lags behind inflation in Israel.

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

We sell our broadband access equipment and systems based on individual purchase orders. Our customers generally are not obligated by long-term
agreements to purchase our systems, and the agreements we have entered into do not obligate our customers to purchase a minimum number of systems. Our customers can generally cancel or reschedule
orders on short notice and discontinue using our systems at any time. Further, having a successful field system trial does not necessarily mean that the customer will order large volumes of our
systems. The reduction, delay or cancellation of orders from one or more of our customers could seriously harm our operating results.

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The potential effects of regulatory actions could impact spectrum allocation and frequencies worldwide and cause delays or otherwise negatively impact the growth and
development of the broadband market, which would adversely affect our business.

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

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

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

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



Certain
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, broader product lines and
established relationships with system integrators and service providers. Our primary competitors are Alvarion Inc.; Aperto Networks, Inc.; NextNet Wireless, Inc.; IP
Wireless, Inc.; Navini Networks, Inc.; Wi-LAN Inc.; SR Telecom Inc.; Harris Corporation; Cambridge Wireless Limited; Flarion Technologies Inc. (acquired
by Qualcomm Incorporated in January 2006); VCom Inc.; Airspan Networks, Inc.; ZTE Corporation; Scientific-Atlanta (purchased by Cisco Systems, Inc. in 2006);
Motorola, Inc.; C-Cor Incorporated and Narad Networks, Inc. Most of these competitors have existing relationships with one or more of our prospective customers. For our broadband
wireless offerings, we face competition from technologies such as digital subscriber line, fiber and cable. In the cable industry, our cable offerings face competition from technologies such as
digital set-top boxes, high-end compression technologies and DVRs. Furthermore, the move toward open standards may increase the number of operators who will offer new services,
which in turn may increase the number of competitors and drive down the capital expenditures per subscriber deployed. We may not be able to compete successfully against our current and future
competitors, and competitive pressures could seriously harm our business.

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

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

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

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

In
addition to sales to system integrators, we also sell in some instances directly to service providers. Such direct sales require us to resell equipment to service providers
manufactured by third party suppliers and to integrate this equipment with the equipment we manufacture. We are particularly dependent on third party radio suppliers in selling our 3.5 Ghz and
other products. We currently have no formal relationship with any third party supplier. If we are unable to establish relationships with suppliers, or if these suppliers are unable to provide
equipment that meets the specifications of our customers on the delivery schedules required by our customers, and at acceptable prices, our business would be substantially harmed.

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

25

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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:



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

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

Although we reduced the costs of our wireless network operations in response to the decline in the telecommunications industry that began around 2001, we have
increased certain expenses to address new business opportunities in both the Wireless Solutions and Cable Solutions segments and we will need to continue to monitor closely our costs and expenses. If
the market and our business do not expand, we may need to further reduce our operations. In addition, our acquisition of Xtend has caused our costs to increase as we seek to develop business.

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

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

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

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



26

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

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

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

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

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

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

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

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

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

27

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

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

The Sarbanes-Oxley Act of 2002 that became law in July 2002 and the resulting rules of the Nasdaq National Market have required and will continue to
require changes in our corporate governance, public disclosure and compliance practices. The number of rules and regulations applicable to us has increased and will continue to increase our legal and
financial compliance costs. In addition, we have incurred and will continue to incur significant costs as we prepare to comply with Section 404 of the Sarbanes-Oxley Act of 2002 regarding
internal control over financial reporting. These laws and regulations and perceived increased risk of liability could make it more difficult for us to attract and retain qualified members of our Board
of Directors, particularly to serve on our audit committee, and qualified executive officers. We cannot estimate the timing or magnitude of additional costs we may incur as a result.

In
addition to the increased costs discussed above, we are spending an increased amount of management time and internal resources to understand and comply with these changing laws,
regulations and standards relating to corporate governance and public disclosure. Allocating the necessary resources to comply with evolving corporate governance and public disclosure standards has
increased general and administrative expenses and caused a diversion of management time and attention to compliance activities.

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

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

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

Certain of our capital investments have been granted "approved enterprise" status under Israeli law providing us with certain Israeli tax benefits. The benefits
available to an approved enterprise are

28

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conditioned
upon the fulfillment of conditions stipulated in applicable law and in the specific certificate of approval. If we fail to comply with these conditions, in whole or in part, we may be
required to pay additional taxes for the period in which we enjoyed the tax benefits and would likely be denied these benefits in the future. From time to time, the government of Israel has considered
reducing or eliminating the benefits available under the approved enterprise program. These tax benefits may not be continued in the future at their current levels or at all. The termination or
reduction of these benefits would increase our taxes and could seriously harm our business. As of the date hereof, our Israeli subsidiaries, Vyyo Ltd. and Xtend, have accumulated loss
carry-forwards for Israeli tax purposes and therefore have not enjoyed any tax benefits under current approved enterprise programs.

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

As
of April 1, 2005, the government of Israel eliminated the ability of companies to submit new applications for approved enterprise status. This change in the government policy
may hinder us in the future with respect to any benefits we may have received for new undertakings which would have been entitled to "approved enterprise" status.

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

Several members of our Board of Directors, Lewis Broad, Neill Brownstein, Avraham Fischer, Samuel Kaplan and Alan Zimmerman, have had professional relationships
with our Chairman of the Board, Davidi Gilo, and his affiliated companies for several years. These members of our Board of Directors previously served on the boards of directors of DSP
Communications, Inc. and/or DSP Group, Inc., of which Mr. Gilo was formerly the controlling stockholder and the Chairman of the Board. In addition, Avraham Fischer is a senior
partner of the law firm of Fischer, Behar, Chen & Co., which represents us on matters relating to Israeli law, and is an investor and co-Chief Executive Officer of an Israeli
investor group in which Mr. Gilo was an investor until October 2005. There are no family relationships between these directors and officers, and no member of our compensation committee
serves as a member of the Board of Directors or compensation committee of any entity that has one or more executive officers serving as a member of our Board of Directors or compensation committee.
However, the long-term relationships between these directors and officers and Mr. Gilo and his affiliated companies could be considered to limit their independence.

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

As of December 31, 2005, our management collectively owned approximately 32.8% of our outstanding common stock (based on the number of shares owned by
these individuals and the number of shares issuable upon exercise of options within 60 days of March 31, 2006).

As
a result, these stockholders, acting together, will be able to control the outcome of all matters submitted for stockholder action, including:



29

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

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

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

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

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



Many
of these factors are beyond our control and may negatively impact the market price of our common stock, regardless of our performance. In addition, the stock market in general, and
the market for technology and telecommunications-related companies in particular, have been highly volatile. Our common stock may not trade at the same levels compared to shares 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 could become 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.

30

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

Our Fourth Amended and Restated Certificate of Incorporation and Amended and Restated 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:



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

It may be difficult to enforce a judgment in the United States against us and our nonresident Chief Financial Officer and certain directors.

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

Item 1B.    Unresolved Staff Comments

None.

Item 2.    Properties

We are headquartered in Palo Alto, California, where we lease approximately 14,565 square feet of commercial space. Our lease for these facilities expires on
April 30, 2009, although we are able to cancel the lease beginning November 1, 2006 on six months prior notice. These facilities are used for executive office space, including sales and
marketing, finance and administration and technical customer support.

|Location                   |  | Major Activity                                                          |  | Leased Space
(square footage) |  | Expiration of
Current Lease
|-------------------------- |  | ----------------------------------------------------------------------- |  | ----------------------------- |  | ---------------------------
|Palo Alto, California      |  | Corporate headquarters; sales and marketing, finance and administration |  | 14,565                        |  | April 2009                 
|Norcross, Georgia          |  | Sales and marketing                                                     |  | 5,740                         |  | January 2010               
|Modi'in District of Israel |  | Research and development, product assembly and testing                  |  | 42,200                        |  | November 2010              

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We
believe that our current facilities will be adequate to meet our needs for the foreseeable future. Notwithstanding the foregoing, management has determined to cancel its lease and
relocate its corporate headquarters from Palo Alto, California to its leased location in Norcross, Georgia. We expect the relocation to be complete during the year ended December 31, 2006.

Item 3.    Legal Proceedings

We are involved from time to time in litigation incidental to the ordinary course of our business activities. While the results of such litigation cannot be
predicted with certainty, based on our current understanding of the facts, we do not believe that the final resolution of such matters will have a material adverse effect on our consolidated financial
position or results of operations.

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

None.

PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded on the Nasdaq National Market under the symbol "VYYO." The following table presents the high and low sales prices of our common stock
in each quarter of 2004 and 2005, as reported by the Nasdaq National Market:

Price Range of
Common StockHigh

LowYear Ended December 31, 2005First Quarter

$
9.57

$
6.80Second Quarter


8.26


5.61Third Quarter


6.99


3.63Fourth Quarter


6.94


3.70Year Ended December 31, 2004First Quarter

$
9.92

$
5.66Second Quarter


7.87


5.25Third Quarter


6.60


4.29Fourth Quarter


8.98


4.80


On
March 27, 2006, the closing price of our common stock as reported on the Nasdaq National Market was $7.01 per share. As of March 27, 2006, there were approximately 100
holders of record of our common stock, which we believe represents approximately 2,700 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 Israeli subsidiaries, Vyyo Ltd. and Xtend Networks 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 an Israeli subsidiary distributes a cash dividend to us from income which is tax exempt, other than in connection with the
subsidiary's complete liquidation, it would be taxed at the corporate rate applicable to such income (currently between 10% to 25%). Pursuant to Article 12 of the Income Tax Treaty between
Israel and the United States, if we were to receive a dividend from an Israeli subsidiary from income derived during any period for which

32

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the
subsidiary is entitled to the reduced tax rate applicable to an approved enterprise, then that subsidiary would be required to withhold 15% of the gross amount of the dividend payable to us under
certain conditions.

Securities Authorized for Issuance under Equity Compensation Plans.The following chart sets forth
certain information as of December 31, 2005, with respect to our three stock option plans: 1996 Equity Incentive Plan, 1999 Employee and Consultant Equity Incentive Plan and Third Amended and
Restated
2000 Employee and Consultant Equity Incentive Plan (the "2000 Plan"). Currently, we only grant stock options out of our 2000 Plan.

Each
of our plans has been approved by our stockholders. The number of shares reserved for issuance under the 2000 Plan automatically increases on January 1st of
each year by the lesser of (i) 1,000,000 shares, or (ii) 10% of the number of shares of our common stock outstanding on the last day of the immediately preceding fiscal year. On
January 20, 2005, our Board of Directors terminated our Employee Stock Purchase Plan due to the potential impact of then recent accounting pronouncements.

|Plan Category                                              |  | Number of securities
to be issued
upon exercise of
outstanding options,
warrants and rights
(a) |  | Weighted-average
exercise price of
outstanding options,
warrants and rights
(b) |  | Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected
in column (a))
(c)
|---------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------
|Equity compensation plans approved by security holders     |  | 5,584,854                                                                                       |  | $5.35 per share                                                                 |  | 829,946                                                                                                                                        
|Equity compensation plans not approved by security holders |  | None                                                                                            |  | None                                                                            |  | None                                                                                                                                           
|Total                                                      |  | 5,584,854                                                                                       |  | $5.35 per share                                                                 |  | 829,946                                                                                                                                        

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Item 6.    Selected Financial Data

|                                                                 |                                                    | Year Ended December 31, |        
|---------------------------------------------------------------- | -------------------------------------------------- | ----------------------- | -------
|
|
|Statements of Operations Data:                                   |                                                    |                         |        
|Revenues                                                         |                                                    | $                       | 2,367  
|Cost of revenues:                                                |                                                    |                         |        
|                                                                 | Cost of products sold                              |                         |        
|                                                                 | Write-down of inventory and purchase commitments   |                         |        
|                                                                 | Impairment and amortization of technology          |                         |        
|                                                                 |                                                    |                         |        
|Total cost of revenues                                           |                                                    |                         | 6,583  
|                                                                 |                                                    |                         |        
|Gross profit (loss)                                              |                                                    |                         | (4,216 
|                                                                 |                                                    |                         |        
|Operating expenses (income):                                     |                                                    |                         |        
|Research and development, net                                    |                                                    |                         | 11,195 
|                                                                 | Acquisition of in-process research and development |                         |        
|                                                                 | Sales and marketing                                |                         |        
|                                                                 | General and administrative                         |                         |        
|                                                                 | Restructuring adjustments                          |                         |        
|                                                                 | Impairment and amortization of intangible assets   |                         |        
|                                                                 |                                                    |                         |        
|Total operating expenses                                         |                                                    |                         | 37,841 
|                                                                 |                                                    |                         |        
|Operating loss                                                   |                                                    |                         | (42,057
|Gain resulting from amendment to promissory note                 |                                                    |                         | 2,533  
|Interest income, net                                             |                                                    |                         | 401    
|                                                                 |                                                    |                         |        
|Loss from continuing operations                                  |                                                    |                         | (39,123
|Discontinued operations                                          |                                                    |                         | 431    
|                                                                 |                                                    |                         |        
|Loss for the year                                                |                                                    | $                       | (38,692
|                                                                 |                                                    |                         |        
|Loss per share (basic and diluted):                              |                                                    |                         |        
|                                                                 | Continuing operations                              |                         | $      
|                                                                 | Discontinued operations                            |                         |        
|                                                                 |                                                    |                         |        
|                                                                 |                                                    | $                       | (2.51  
|                                                                 |                                                    |                         |        
|Weighted average number of shares outstanding: basic and diluted |                                                    |                         | 15,422 

|                                                  |  | December 31,
|------------------------------------------------- |  | ------------
|
|Balance Sheet Data:                               |  |             
|Cash, cash equivalents and short-term investments |  | $           
|Restricted cash                                   |  |             
|Working capital                                   |  |             
|Total assets                                      |  |             
|Total stockholders' equity                        |  |             

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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 2005 annual Consolidated
Financial Statements and accompanying notes appearing elsewhere in this Annual Report on Form 10-K. 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 in Item 1A above and elsewhere in this report.

Overview

We provide cable and wireless broadband access solutions through two business segments: the "Cable Solutions" segment and the "Wireless Solutions" segment. Our
products are designed to address four markets: Cable, Telecommunication, Utility and "WISP. Although we are engaged to various degrees in these distinct markets, some of our core technologies overlap
with our respective solutions.

Our
Cable Solutions segment includes products that are used to deliver telephony and data T1/E1 links to enterprise and cellular providers over cable's wireless HFC networks.
Additionally, our "Spectrum Overlay" technology is used to expand cable operators' typical HFC network capacity in the "last mile" by up to two times in the downstream and up to four times in the
upstream. Our Cable Solutions segment includes the results of operations of Xtend Networks Ltd., an Israeli privately-held development stage company, and its wholly-owned,
U.S.-based subsidiary, Xtend Networks Inc. (collectively, "Xtend"). We purchased all of the outstanding capital stock of Xtend on June 30, 2004 and consolidated its operations with our
operations beginning July 1, 2004. For a discussion of the acquisition of Xtend, please refer to note 6 of our 2005 annual Consolidated Financial Statements.

Our
Wireless Solutions segment includes our utility products which enable utilities and other network service providers to operate private wireless networks for communications,
monitoring and SCADA of their geographically disbursed, remote assets. Additionally, it includes our WISP and telecommunications products which address the needs of rural service providers to serve
customers with wireless, high-speed data beyond the reach of traditional terrestrial networks.

We
are focused on promoting products in our Wireless Solutions segment into the network provider, utility, petrochemical, municipality and enterprise markets. Our Cable Solutions segment
is focused on both promoting T1 solutions for business services over cable networks and promoting cable bandwidth expansion solutions that are designed to expand cable operators' typical HFC network
capacity.

On
March 23, 2006, we closed the private placement of $25,000,000 of common stock, a Convertible Note, a Senior Secured Note and Warrants to Goldman, Sachs & Co. (the
"Financing"), resulting in net proceeds to us of approximately $23,500,000. See "Subsequent EventsFinancing."

In
2003, we determined to cease the software business operated by Shira Computers Ltd. ("Shira"), our wholly-owned subsidiary, and terminate all of Shira's employees. Prior to
that time, Shira operated in the "Software Products" segment. The cessation of Shira's operations represented a disposal of a business segment under Statement of Financial Accounting Standards
("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." Accordingly, we classified the results of the Software Products segment as discontinued
operations, and reclassified prior periods accordingly. On March 31, 2005, we sold all of our shares of Shira to third parties. See note 11 to our 2005 annual Consolidated Financial
Statements.

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Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations is based upon our 2005 annual Consolidated Financial Statements, which have been
prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates, judgments and assumptions that
affect the reported assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities at the date of the financial statements. Actual results may differ from
these estimates, judgments and assumptions under different conditions.

Our
critical accounting policies are described in the notes to the 2005 annual Consolidated Financial Statements as of and for the year ended December 31, 2005. We determined
these critical policies by considering accounting policies that involve the most complex or subjective decisions or assessments. We believe our most critical accounting policies include the following:



Revenues from the Wireless Solutions and Cable Solutions segments are derived from sales of products. As of December 31, 2005, our revenues from services
were not significant. Our products are generally off-the-shelf products, sold "as is," without further adjustment or installation. When establishing a relationship with a new
customer, we may also sell these products together as a package, in which case the products typically are shipped at the same time to the customer. We do not recognize revenue when our customers have
the right of return or any additional services are not delivered.

We
recognize revenues from our products when (a) persuasive evidence of an arrangement exists; (b) delivery has occurred and customer acceptance requirements have been met,
if any, and we have no additional obligations; (c) the price is fixed or determinable; and (d) collection of payment is reasonably assured. Our standard sales generally do not include
customer acceptance provisions. However, if there is a customer acceptance provision or there is uncertainty about customer acceptance, the associated revenue is deferred until we have evidence of
customer acceptance.



SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"), requires that long-lived
assets, including definite life intangible assets to be held and used or disposed of by an entity, be reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable. Under SFAS No. 144, if the sum of the expected future cash flows (undiscounted and without interest charges) of the long-lived assets is
less than the carrying amount, we would recognize an impairment loss and would write down the assets to their estimated fair values.



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

Under
"Fixed Plan" accounting, compensation cost is fixed, measured at grant date and is not subsequently adjusted. Under "Variable Plan" accounting, the measurement date occurs after
the grant

36

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date
and compensation cost is estimated and recorded each period from the grant date to the measurement date, based on the difference between the option price and the fair market value of the
underlying common stock at the end of each period.

SFAS
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), establishes a fair value based method of accounting for employee stock options or similar equity
instruments, and encourages adoption of such method for stock compensation plans. However, SFAS No. 123 also allows companies to continue to account for those plans using the accounting
treatment prescribed by APB No. 25. We have elected to continue accounting for employee stock options and shares of restricted stock according to APB No. 25.

As
of January 1, 2006, we adopted SFAS No. 123 (Revised 2004) "Share-Based Payment" ("SFAS No. 123(R)"). See "Recent Accounting Pronouncements."



We regularly monitor inventory quantities on hand and record a provision for excess and obsolete inventories based primarily on our estimated forecast of future
product demand and production requirements. Although we make every effort to ensure the accuracy of our forecasts of future product
demand, any significant unanticipated changes in demand or technological developments would significantly impact the value of the inventory and the reported operating results. If actual market
conditions are less favorable than our assumptions, additional provisions may be required. Our estimate of future product demand may prove to be inaccurate, in which case we may have understated or
overstated the provision required for excess and obsolete inventory. In the future, if the inventory is determined to be overvalued, we would be required to recognize such costs in our cost of sales
at the time of such determination. If our inventory is determined to be undervalued, we may have overstated our cost of sales in previous periods and would be required to recognize additional
operating income only when the undervalued inventory was sold.

In
accordance with our inventory evaluation policy described above, we recognized an inventory provision of approximately $2,050,000 during the year ended December 31, 2005. This
provision includes a $290,000 provision for purchase commitments resulting from our need to order or build inventory in advance of anticipated sales. We recognized these provisions to account for
excess inventory resulting from longer than expected sales cycle and customer acceptance of our product.



We have designated our investments in debt securities as available-for-sale. Available-for-sale securities are
carried at fair value, which is determined based upon the quoted market prices of the securities, with unrealized gains and losses reported in accumulated other comprehensive income (loss), a
component of stockholders' equity until realized. Realized gains and losses and declines in value judged to be other-than-temporary on
available-for-sale securities are included in interest income, net. We view our available-for-sale portfolio as available for use in our current
operations. Accordingly, we have classified all investments as short-term under "short-term investments," even though the stated maturity date may be one year or more beyond
the current balance sheet date. Interest, amortization of premiums, accretion of discounts and dividends on securities classified as available-for-sale are included in interest
income, net.

We
recognize an impairment charge when the decline in the fair values of these investments below their cost basis is deemed to be other-than-temporary. We
consider various factors in determining whether to recognize an impairment charge, including the length of time and the extent to which the fair value has been below the cost basis, the current
financial condition of the investee and our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.

37

---



Recent Accounting Pronouncements

In November 2004, FASB issued SFAS No. 151, "Inventory Costsan amendment of ARB No. 43" ("SFAS No. 151"). SFAS
No. 151 requires idle facility expenses, freight, handling costs and wasted material (spoilage) costs to be recognized as current-period charges. It also requires that allocation of fixed
production overhead to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 will be effective for inventory costs incurred during fiscal years
beginning after June 15, 2005 (January 1, 2006 for us). We do not expect this standard to have a material impact on our consolidated financial position, results of operations or cash
flows.

In
December 2004, FASB issued SFAS No. 123 (Revised 2004) "Share-Based Payment" ("SFAS No. 123(R)"). SFAS No. 123(R) addresses all forms of share-based
payment awards, including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights. SFAS No. 123(R) supersedes our current accounting for
share-based payment awards under APB No. 25 and requires that we recognize compensation expense for all share-based payment awards based on fair value. In March 2005, the Securities and
Exchange Commission released Staff Accounting Bulletin No. 107, "Share-Based Payment" ("SAB No. 107") relating to the adoption of SFAS No. 123(R). Beginning in the first quarter
of 2006, we will adopt the provisions of SFAS No. 123(R) under the modified prospective transition method. Under the new standard, our estimate of compensation expense will require a number of
complex and subjective assumptions including stock price volatility, employee exercise patterns (expected life of the options), future forfeitures and related tax effects. We recognize share-based
payment compensation expense based on FASB Interpretation 28, "Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans an interpretation of APB Opinions No. 15
and 25," which provides for accelerated expensing, and we will continue to do so after the adoption of SFAS No. 123(R). SFAS No. 123(R) requires that we estimate the number of
forfeitures expected to occur and record expense based upon the number of awards expected to vest. As of the year ended December 31, 2005, we accounted for forfeitures as they accrue as
permitted under then-current accounting standards. The cumulative effect of adopting the change in estimating forfeitures is not material to our financial statements for the year ended
December 31, 2005.

We
expect that adoption of SFAS No. 123(R) will increase our stock-based compensation expenses in the year ended December 31, 2006 by approximately $4,200,000. This
estimate does not include the impact of additional awards which may be granted, or forfeitures which may occur, after December 31, 2005 and prior to our adoption of SFAS No. 123(R).

In
June 2005, FASB issued SFAS No. 154, "Accounting Changes and Error Corrections" ("SFAS No. 154"). SFAS No. 154 supercedes APB Opinion No. 20 and
SFAS No. 3. SFAS No. 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application as the required
method for reporting a change in accounting principle. SFAS No. 154 provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and
for reporting a change when retrospective application is impracticable. SFAS No. 154 also addresses the reporting of a correction of an error by restating previously issued financial
statements. SFAS No. 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005 (January 1, 2006 for us). We do not believe that adoption of SFAS No. 154 will have a material effect
on our consolidated financial position, results of operations or cash flows.

In
November 2005, FASB issued FSP FAS 115-1 and FAS 124-1, "The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments" ("FSP 115-1 and 124-1"), which clarifies when an investment is considered impaired, whether the impairment is other than temporary and the
measurement of an impairment loss. It also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain
disclosures

38

---



about
unrealized losses that have not been recognized as other-than-temporary impairments. We adopted FSP FAS 115-1 and FAS 124-1 as of
December 31, 2005.

Results of Operations



Revenues were $2,367,000, $6,094,000 and $6,060,000 for the years ended December 31, 2005, 2004 and 2003, respectively. Revenues derived from our Wireless
Solutions segment were $2,193,000, $6,094,000 and $6,060,000 for the years ended December 31, 2005, 2004 and 2003, respectively. Revenues derived from our Cable Solutions segment were $174,000,
$0 and $0 for the years ended December 31, 2005, 2004 and 2003, respectively.

Our
small revenue base for the year ended December 31, 2005 resulted from (a) slower than expected customer acceptance of products in our Cable Solutions segment,
(b) longer than anticipated sales cycles and our customer's difficulty in securing available licensed spectrum in the United States and (c) realigning our geographic focus by pulling
resources out of Asia and the sub-continent region. The 61% decrease in our revenues for the year ended December 31, 2005 compared to the revenues reported for the year ended
December 31, 2004, mainly resulted from: (a) the change in our strategic direction in favor of the utility and cable markets, and (b) the closing of our China office and our
international sales department which had generated revenues
of $757,000, $4,484,000 and $4,856,000 for the years ended December 31, 2005, 2004 and 2003, respectively. Revenues did not change significantly during the year ended December 31, 2004
compared to the year ended December 31, 2003. The slight increase was primarily related to increased shipments of our products in the United States.

Revenues
from the sale of inventory previously written down to $0 for the years ended December 31, 2005, 2004 and 2003 was $0, $1,014,000 and $3,209,000, respectively.

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

Year ended December 31,2005

2004

2003Customer A

45
%
19
%
14
%Customer B

8
%
19
%
4
%Customer C

7
%
7
%
11
%Customer D

2
%
13
%
47
%Customer E



21
%
Customer F



2
%
14`
%




In August 2005, we implemented a cost reduction program whereby we reviewed the size and composition of our workforce and made adjustments after evaluating
a variety of factors. In connection with this cost reduction program, we reduced our workforce by approximately 16% in the United States and Israel. We have recorded approximately $360,000 in a
one-time cash severance payment and related expenses. This cost reduction does not require the termination of any contractual obligations or require us to incur other material associated
costs.



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

39

---



Cost
of revenues was $6,583,000, $4,232,000 and $1,986,000 for the years ended December 31, 2005, 2004 and 2003, respectively. The increase in cost of revenues included impairment
and amortization of technology of $2,014,000, $194,000 and $0; and inventory write-downs of approximately $2,050,000, $0 and $0 for the years ended December 31, 2005, 2004 and 2003,
respectively. The inventory write-down for the year ended December 31, 2005 included a $290,000 provision for purchase commitments resulting from our requirement to order or build
inventory in advance of anticipated sales. We took these provisions to account for excess inventory resulting from longer than expected sales cycle and customer acceptance of our products. We believe
it is possible that in the future we may sell some or even a significant portion of the written-down inventory. This belief is consistent with our experience in 2002 and subsequent years
in which we sold inventory that was previously written-down. However, due to the fact that we cannot comfortably predict when, if ever, such inventory will be sold given the lack of
visibility and lack of acceptable predictability into our sales cycle, we have determined that it is appropriate to record the above write-down. We anticipate that our gross margins will
continue to fluctuate based on our product and customer mix, revenue level and inventory valuations.

Cost
of revenues does not include $0, $435,000 and $1,663,000 related to inventories previously written-down to $0 during the years ended December 31, 2005, 2004 and
2003, respectively,

In
November 2004, our Israeli subsidiaries entered into new lease agreements. Accordingly, our costs related increased for the year ended December 31, 2005 due to the
relocation of the subsidiaries' facilities in the second quarter of 2005. Expenses related to leased facilities were $203,000 and $79,000 for the years ended December 31, 2005 and 2004,
respectively.



Our research and development expenses were $11,195,000, $6,934,000 and $4,365,000 for the years ended December 31, 2005, 2004 and 2003, respectively.
Approximately $6,043,000, $2,110,000 and $0 of the expenses were from our Cable Solutions segment for the years ended December 31, 2005, 2004 and 2003, respectively. Approximately $5,152,000,
$4,824,000 and $4,365,000 of the expenses were from our Wireless Solutions segment for the years ended December 31, 2005, 2004 and 2003, respectively. These expenses consist primarily of
personnel, facilities, equipment and supplies. A majority of our research and development activities are carried out in our facility in Israel. These expenses are charged to operations as incurred.

We
increased spending for our personnel, facilities and equipment to enhance our Cable Solutions segment efforts during the years ended December 31, 2005 and 2004.
Non-cash expenses related to stock option grants to our research and development employees and consultants were $223,000, $80,000 and $0 and for the years ended December 31, 2005,
2004 and 2003, respectively.

The
increase in our research and development expenses related to the Cable Solutions segment for the year ended December 31 2005, compared to expenses reported for the year ended
December 31, 2004, resulted from the consolidation of Xtend with our operations beginning July 1, 2004. In addition, research and development expenses increased as a result of an
increase in workforce compared to the workforce as of December 31, 2004 and the increase of new projects, as a result of our efforts to diversify our business to the Cable Solutions segment in
addition to our Wireless Solutions segment.

The
cost of our facilities increased for the year ended December 31, 2005 due to the relocation of our Israeli facilities in the second quarter of 2005. Expenses related to leased
facilities were $701,000 and $304,000 for the years ended December 31, 2005 and 2004, respectively.

We
anticipate that our research and development workforce will increase in future periods in order to meet our customer demands.

40

---







On June 30, 2004, we acquired all of the outstanding shares of Xtend. The projects allocated to in-process research and development of
approximately $1,402,000 represented the fair value of purchased in-process technology for research projects that, as of acquisition date, did not reach technological feasibility and had
no alternative future use. Accordingly, we charged them to our Consolidated Statements of Operations on the date of acquisition.



Sales and marketing expenses increased to $9,912,000 for the year ended December 31, 2005, compared to sales and marketing expenses of $8,065,000 and
$4,052,000 for the years ended December 31, 2004 and 2003, respectively. Sales and marketing expenses consist of salaries and related costs of sales and marketing employees, consulting fees and
expenses for travel, trade shows, market research, branding and promotional activities. The increases in the year ended December 31, 2005 reflect our efforts to increase our visibility in the
utilities and cable markets.

Sales
and marketing expenses for our Wireless Solutions segment were approximately $4,302,000, $4,842,000 and $4,052,000 for the years ended December 31, 2005, 2004 and 2003,
respectively. The decrease in the expenses for our Wireless Solutions segment in the year ended December 31, 2005 compared to those in the year ended December 31, 2004 mainly were due to
the closing of our China office and our international sales department. The increase in expenses related to the Wireless Solutions segment in the year ended December 31, 2004 compared to those
in the year ended December 31, 2003 was due to (a) an increase in sales efforts for our wireless products in China and other new markets, (b) an increase in our workforce and
(c) increased expenses resulting from efforts to acquire new customers.

Sales
and marketing expenses for our Cable Solutions segment were approximately $5,610,000, $3,223,000 and $0 for the years ended December 31, 2005, 2004 and 2003, respectively.
The increase in our sales and marketing expenses for our Cable Solutions segment in the year ended December 31 2005 compared to the year ended December 31, 2004 resulted from
(a) the consolidation of Xtend with our operations beginning July 1, 2004, (b) increased sales and marketing workforce compared to the
workforce as of December 31, 2004, (c) increased expenses related to trade shows and promotional activities and (d) increased expenses related to new market potential and market
research as part of our efforts to diversify our business to the Cable Solutions segment in addition to our Wireless Solutions segment.

Our
sales and marketing expenses for the Cable Solutions segment for the year ended December 31, 2004 included $1,200,000 accrued for a relocation bonus to an Xtend employee (paid
in January 2005) and non-cash stock compensation charges of $126,000, $539,000 and $0 for the years ended December 31, 2005, 2004 and 2003, respectively.

We
anticipate that our sales and marketing workforce will increase in future periods as we increase our efforts to penetrate the cable market and meet our customer demands.



General and administrative expenses were $6,321,000, $6,257,000 and $5,082,000 for the years ended December 31, 2005, 2004 and 2003, respectively. Of these
expenses, approximately $751,000, $253,000 and $0 were from our Cable Solutions segment and approximately $5,570,000, $6,004,000 and $5,082,000 were from our Wireless Solutions segment in the years
ended December 31, 2005, 2004 and 2003, respectively. General and administrative expenses consisted primarily of personnel and related costs for general corporate functions, including finance,
accounting, Sarbanes-Oxley Act of 2002 related implementation, strategic and business development and legal.

Non-cash
stock compensation charges included $108,000, $13,000 and $128,000 for the years ended December 31, 2005, 2004 and 2003, respectively.

41

---



The
increases in general and administrative expenses for the year ended December 31, 2005 compared to the year ended December 31, 2004 was primarily due to
(a) increases in executive staff and professional fees for the Cable Solutions segment that were consolidated with our operations beginning July 1, 2004 and (b) increases in the
cost of our facilities due to the relocation of our Israeli facilities in the second quarter of 2005. These increases were offset by a decrease of general and administrative expenses resulting from a
decrease in executive staff and professional fees for the Wireless Solutions segment.

The
increase in general and administrative expenses for the year ended December 31, 2004 compared to the year ended December 31, 2003 was primarily due to
(a) increases in salaries and professional fees, (b) increases in the Cable Solutions segment's general and administrative expenses and (c) internal expenses related to the Xtend
acquisition which were not capitalized to our Xtend investment.

General
and administrative expenses also included expenses of $742,000, $770,000 and $698,000 for the years ended December 31, 2005, 2004 and 2003, respectively, related to an
aircraft time sharing agreement through an unaffiliated third party management company, in connection with several charters of an aircraft for business travel for Davidi Gilo, our Chief Executive
Officer.

We
expect general and administrative expenses to be higher for the year ended December 31, 2006 compared to the year ended December 31, 2005 as we continue to implement
internal controls over financial reporting relating to compliance with the Sarbanes-Oxley Act and execute our strategic plans and business development efforts.



During the year ended December 31, 2005, we recorded restructuring income adjustments of $875,000, resulting from a decrease in the fair value of our
stock, compared to $21,000 and $1,115,000 of restructuring expenses for the years ended December 31, 2004 and 2003, respectively. The restructuring program that we undertook in 2001 resulted in
income reported for the year ended December 31, 2005 from an adjustment with respect to variable stock compensation related to our former chief executive officer. This former officer exercised
the majority of his stock options in 2005; accordingly, we no longer account for these stock options under variable plan accounting.



On June 30, 2004, we acquired all of the outstanding shares of Xtend. As part of this acquisition, we: (a) issued 1,398,777 shares of our common
stock valued at $8,492,000; (b) paid approximately $2,970,000 for non-competition agreements with certain Xtend employees; (c) paid $269,000 to certain Xtend option holders
and employees for the cancellation of their Xtend options; and (d) paid other related expenses of $578,000.

In
addition, we provided a promissory note in the principal amount of $6,500,000 originally payable on March 31, 2007 (the "Promissory Note").

As
Xtend was a development stage enterprise that had not yet commenced its planned principal operations, we accounted for the acquisition as an acquisition of net assets pursuant to the
provisions of SFAS No. 142, "Goodwill and Other Intangible Assets." Accordingly, we allocated the purchase price to the individual assets acquired and liabilities assumed, based on their
relative fair values, and

42

---



we
recorded no goodwill. As of the closing date of the acquisition, the tangible and intangible net assets acquired consisted of the following (in thousands of U.S $):

Tangible assets acquired and liabilities assumed:Cash and cash equivalents

$
3,191Other current assets


481Property and equipment, net


325Current liabilities


(937
)Total net tangible assets acquired

$
3,060Intangible assets acquired:Existing technology


2,208In-process research and development


1,402Non-competition agreements


2,941Exclusive sales agreement


2,450Workforce


248Total intangible assets acquired


9,249Total tangible and intangible net assets acquired

$
12,309Payment made in cash (including expenses)

$
3,817Payment made by issuance of common stock


8,492Total purchase price

$
12,309


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

The
amount allocated to in-process research and development represents the fair value of purchased in-process products or projects that, as of the acquisition's
closing date, had not reached technological feasibility and had no alternative future use. Accordingly, they were charged to our Consolidated Statements of Operations as of such date.

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

Amortization
of intangible assets acquired for the years ended December 31, 2005 and 2004 was $1,914,000 and $1,045,000, respectively, consisting of the amortization of existing
technology of $366,000 and $194,000; non-competition agreements of $883,000 and $442,000; an exclusive sales agreement of $541,000 and $285,000; and workforce of $124,000 and $124,000,
respectively.

On
December 16, 2005, we amended key provisions of the Promissory Note including the following: (a) the maturity date was extended by one year from March 31, 2007 to
March 31, 2008; and (b) the provision that would have allowed the holder to accelerate the Promissory Note if the sum of our cash, cash equivalents, short-term investments
and accounts receivables, net of short- and long-term debt, was less than $20,000,000 on December 31, 2005 or June 30, 2006 was waived. We determined that, as of the time of
the amendment of the Promissory Note and immediately prior to its amendment, the contingency had been resolved and, therefore, we recorded $6,500,000 as additional consideration paid in the
acquisition. This resulted in an increase to the intangible assets acquired.

Our
current focus is on the residential market for MSOs, rather then the commercial market for MSOs, which was our prior focus at the time we acquired Xtend. This change in focus will
require us to invest additional efforts in the development of suitable technology and products. Given this change

43

---



in
focus, and in conjunction with our ongoing review of the carrying value of our intangible assets, we determined that, in accordance with SFAS No. 144, an impairment test of intangible asset
is required.

The
fair value of the intangible assets was estimated by management with the assistance of an independent third party appraiser, based upon future expected discounted
cash-flows as of December 31, 2005. Based on this appraisal, by using a weighted discounted cash flow model for the estimation of a fair value of group of assets as set forth in
SFAS No. 144, together with other facts and circumstances, we decided to record an impairment charge of $11,388,000 related to the full remaining carrying value of the intangible assets as of
December 31, 2005. For additional information, see notes 6 and 7 of our 2005 annual Consolidated Financial Statements.



In addition to the impairment performed on the acquired intangible assets, we estimated the fair value of the amended Promissory Note at approximately $3,967,000
and recorded this amount as a long-term liability under "Promissory note" in our Consolidated Balance Sheet. The $2,533,000 difference between the value of the amended Promissory Note and
the original Promissory Note was recorded as "Gain Resulting from Amendment of to Promissory Note" in the Consolidated Statements of Operations. In future periods we will record an accretion to the
value of the amended Promissory Note up to $6,500,000. This accretion of $2,533,000 will be recorded as finance expenses during the remaining term of the Promissory Note, unless the note is cancelled.
For additional information, see notes 6 and 7 of our 2005 annual Consolidated Financial Statements.



Interest income, net included interest from investment income and foreign currency remeasurement gains and losses. Net interest income decreased to $401,000 in
the year ended December 31, 2005, compared to $508,000 and $1,439,000 in the years ended December 31, 2004 and 2003, respectively. The reduction of interest income for the year ended
December 31, 2005 resulted from less cash and investments, $45,000 of realized losses from the sale of debt securities before their maturity and an other-than-temporary
investment impairment of $126,000. Our
recognition of the other-than-temporary investment impairment is due to the effect of rising interest rates on our fixed-interest debt investments that potentially may not be
held until maturity. Our interest income is derived from our cash and short-term investment balances. We will incur interest expenses in the year 2006 and beyond due to
long-term debt related to our financing with Goldman, Sachs & Co. in which $17,500,000 of the proceeds bear an annual interest rate of 9.5% up to 10%, and the amortization of
deferred expenses (including the value of the warrant to purchase shares of our common stock attached to a portion of such long-term debt) incurred as part of the financing. Interest
expenses will also be increased by the accretion to the value of the amended Promissory Note delivered to a former Xtend shareholder, as part of the acquisition of Xtend. Accretion of $2,533,000 will
be recorded as finance expenses during the remaining term of the Promissory Note, unless such Promissory Note is cancelled.



Our tax rate reflects a mix of the United States federal and state tax on our United States income and Israeli tax on non-exempt income. As of
December 31, 2005, we had U.S. federal net operating loss carryforwards of approximately $44,400,000, which will expire between 2011 through 2025. We have net operating losses of approximately
$28,400,000 expiring in the years 2008 through 2015. 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 our utilization of the net operating losses.

44

---



As
of December 31, 2005, our Israeli subsidiaries, excluding Shira Computers Ltd. ("Shira"), had net operating loss carryforwards of approximately $90,000,000. The Israeli
loss carryforwards have no expiration date.

Our
Israeli subsidiaries have been granted "approved enterprise" status for several investment programs. The "approved enterprise" status entitles these subsidiaries to receive tax
exemption periods, ranging from two to six years, on undistributed earnings commencing in the year in which the subsidiaries attain taxable income. In addition, this "approved enterprise" status
provides a reduced corporate tax rate of between 10% to 25% (as opposed to the usual Israeli corporate tax rate of 34% for 2005) for the remaining term of the program on the plan's proportionate share
of income.

Since
our Israeli subsidiaries have not achieved taxable income, the tax benefits periods have not yet commenced. The subsidiaries' losses are expected to offset certain future earnings
of the subsidiaries during the tax-exempt period; therefore, the utilization of the net operating losses will
generate no tax benefits. Accordingly, deferred tax assets from such losses have not been included in our 2005 annual Consolidated Financial Statements. The entitlement to the above benefits is
conditioned upon the subsidiaries fulfilling the conditions stipulated by the law, regulations published thereunder and the instruments of approval for the specific investments in approved
enterprises.

One
of our subsidiaries is taxed at the regular rate. Following a series of changes in Israeli tax rates, the corporate tax rates for 2004 and thereafter are as follows: 2004: 35%, 2005:
34%, 2006: 31%, 2007: 29%, 2008: 27%, 2009: 26% and for 2010 and thereafter: 25%.

On
January 1, 2003, the Israeli Law for Amendment of the Income Tax Ordinance (Amendment No. 132), 5762-2002, as amended, known as the "Tax Reform," came into
effect. The Tax Reform is aimed at broadening the categories of taxable income and reducing the tax rates imposed on employment income. Pursuant to these reforms, we have chosen, with respect to stock
options granted under our 2000 Plan, to grant to employees and Office Holders ("Nosei Missra") of our subsidiaries who are Israeli tax residents, in
each case excluding controlling shareholders (as such term is defined in Section 32(9) of the Israeli Income Tax Ordinance, options without a trustee intermediary). This permits such employees
and Office Holders, pursuant to the terms of the plan, to exercise their stock options and sell their shares without the holding period requirements and other restrictions imposed in the case of
options granted through a trustee intermediary. In the absence of a trustee intermediary, the Tax Reform generally permits such employees and Office Holders to recognize ordinary income at the time
the employee actually sells the shares, rather than on the date of grant or exercise, but precludes us from deducting the resulting expense for tax purposes at any time.

We
have provided a full valuation allowance against our U.S. federal and state deferred tax assets as the future realization of the tax benefit is not sufficiently assured.



Charges for stock-based compensation represent the amortization of deferred stock compensation charges which are based on the aggregate differences between the
respective exercise price of stock options and the purchase price of the underlying common 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 stock options. For the year ended December 31, 2005, net income related to stock-based compensation was
$318,000 compared to expenses of $669,000 and $1,403,000 for the years ended December 31, 2004 and 2003, respectively. The stock-based compensation charges resulted from (a) a separation
agreement (including income adjustments of $786,000 for the year ended December 31, 2005 and expenses of $21,000 and $1,275,000 for the years ended December 31, 2004 and 2003,
respectively, associated with the termination of our former chief executive officer recorded as a restructuring adjustment) and (b) stock option grants to service providers and employees
accounted for on the fair value based method.

45

---



The
charges for stock compensation relating to the continuing operations are as follows:

Year ended December 31,2005

2004

2003(in thousands)Cost of products sold

$
11

$


$
Research and development

$
223

$
80

$
Sales and marketing

$
126

$
555

$
General and administrative

$
108

$
13

$
128Charge for restructuring

$
(786
)
$
21

$
1,275


We
expect that adoption of SFAS No. 123(R) will increase our stock-based compensation expenses in the year ended December 31, 2006 by approximately $4,200,000. This
estimate does not include the impact of additional awards which may be granted, or forfeitures which may occur, after December 31, 2005 and prior to our adoption of SFAS No. 123(R).



Assets and liabilities of the discontinued operations were as follows:

December 31,
2005

December 31,
2004(in thousands)Current assets

$


$
72Current liabilities

$


$
433


Profit
and loss of the discontinued operations were as follows:

Year ended December 31,2005

2004

2003(in thousands)Income (loss) from operations

$
(25
)
$
64

$
(6,631
)Other income (see b below)

$
456





Interest income, net





3


(9
)Income from discontinued operations

$
431

$
67

$
(6,640
)


We
did not incur any severance expenses or termination of contractual obligations, accounted for according to SFAS No. 146, "Accounting for costs associated with exit or disposal
activities," during the year ended December 31, 2005. We settled all severance expenses and termination of contractual obligations as of December 31, 2004 amounting to $82,000.

On
March 31, 2005, we sold all of our shares of Shira stock to third parties (the "Shira Purchasers"). The Shira Purchasers are required to pay us 22.5% to 42.5% of the proceeds
that may be received upon the subsequent sale by the Shira Purchasers of Shira or its assets. The Shira Purchasers assumed all liabilities of Shira totaling $270,000. We recorded a $290,000 gain from
this sale in discontinued operations. During the year ended December 31, 2005, we received an additional $166,000 from the Shira Purchasers.

Liquidity and Capital Resources

Since inception, we have financed our operations principally through bank borrowings and equity sales of our common stock for approximately $159,400,000. As of
December 31, 2004, through open market transactions, we repurchased 557,800 shares under the repurchase program for a total of $11,400,000. We did not repurchase shares under such program
during 2005 and have no present intention of doing so in 2006.

46

---





We have experienced net operating losses and negative cash flows since inception. As of December 31, 2005, we had an accumulated deficit of $235,150,000. Cash used in operations
was $27,676,000, $16,283,000 and $14,547,000 for the years ended December 31, 2005, 2004 and 2003, respectively. We expect to continue to incur losses in the foreseeable future.

As
of December 31, 2005, our principal source of liquidity was $9,951,000 of cash, cash equivalents and short-term investments. On March 23, 2006, we completed
a financing with Goldman, Sachs & Co. further described below in "Subsequent Events." The closing of the financing resulted in net proceeds to us of approximately $23,500,000. We
believe this cash, coupled with our anticipated cash flows used for operations, will be sufficient to meet our operating and capital expenditures for at least the next 12 months.



Net cash used in operating activities was $27,676,000, $16,283,000 and $14,547,000 for the years ended December 31, 2005, 2004 and 2003, respectively.
During the year ended December 31, 2005, we used cash primarily to (a) fund our net loss which included non-cash charges related to (i) depreciation and amortization
of $2,914,000, (ii) write-downs of inventory by $1,760,000, (iii) impairment of intangible assets of $11,388,000, (iv) a gain resulting from amendment of the Promissory Note of
$2,533,000, and (v) stock-based compensation income of $318,000; (b) increase inventory by $952,000 as a result of our strategy to penetrate the wireless solutions markets;
(c) increase other current assets by $158,000; (d) reduced trade payables and accrued liabilities by $1,256,000; and (e) reduce account receivables by $169,000.

During
the year ended December 31, 2004 we used cash primarily to fund our net loss including changes in other working capital accounts of $1,066,000, which were partially offset
by changes in non- cash charges of (a) depreciation and amortization and acquired in-process research and development of $3,122,000, and (b) $669,000 related to
stock-based compensation.



Net cash provided by investing activities was $23,018,000, $6,593,000 and $11,401,000 for the years ended December 31, 2005, 2004 and 2003, respectively.
During the year ended December 31, 2005, proceeds were comprised of the sale of short-term investments and maturities, which were offset by the purchase of short-term
investments of $29,519,000, a restricted cash deposit of $5,000,000 for an irrevocable letter of credit relating to our amended Promissory Note and purchases of property and equipment of $1,339,000
primarily related to investment in equipment for the research and development and manufacturing, and for lease improvements to our new facilities in Israel.

During
the year ended December 31, 2004, investing activities were comprised of proceeds from sales and maturities of short-term investments net of our purchase of
short-term investments of $8,110,000, which were offset by $759,000 for purchases of property and equipment and net cash outflow of $626,000 related to the Xtend acquisition.



Net cash provided by financing activities was $1,694,000, $2,272,000 and $1,005,000 for the years ended December 31, 2005, 2004 and 2003, respectively.
During the year ended December 31, 2005, we received proceeds from exercises of stock options of $676,000 and repayment of a note receivable from our former chief executive officer of
$1,018,000.

During
the year ended December 31, 2004, we received proceeds from exercises of stock options and employee stock purchase plan of $2,272,000.

47

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We have purchase obligations to our suppliers that support our operations in the normal cause of business. The purchase obligations are related to our operating
activities, including the purchase of raw materials for manufacturing our products and research and development activities. Some of these purchase obligations are related to our fixed assets and
others require us to purchase minimum quantities of the suppliers' products at a specified price. We had purchase obligation of approximately $1,538,000, $2,612,000 and $242,000 for the years ended
December 31, 2005, 2004 and 2003, respectively. These obligations are expected to become payable at various times through the year ended December 31, 2006.

Selected Quarterly Data

The following table presents unaudited quarterly financial information for each of the four quarters in the years ended December 31, 2005 and 2004. You
should read this information in conjunction with our 2005 annual Consolidated Financial Statements and the accompanying notes appearing elsewhere in this Annual Report on Form 10-K.

|                                                              |                                                  | Quarter Ended |        
|------------------------------------------------------------- | ------------------------------------------------ | ------------- | -------
|
|
|Statements of Operations data:                                |                                                  |               |        
|Revenues                                                      |                                                  | $             | 286    
|Cost of revenues                                              |                                                  |               |        
|                                                              | Cost of products sold                            |               |        
|                                                              | Write down of inventory and purchase commitments |               |        
|                                                              | Amortization and impairment of technology        |               |        
|                                                              |                                                  |               |        
|Total cost of revenues                                        |                                                  |               | 2,113  
|                                                              |                                                  |               |        
|Gross (loss) profit                                           |                                                  |               | (1,827 
|                                                              |                                                  |               |        
|Operating loss                                                |                                                  |               | (17,501
|                                                              |                                                  |               |        
|Loss from continuing operations                               |                                                  |               | (10,857
|Discontinued operations                                       |                                                  |               | 66     
|                                                              |                                                  |               |        
|Loss                                                          |                                                  | $             | (14,884
|                                                              |                                                  |               |        
|Loss per share (basic and diluted):                           |                                                  |               |        
|Continuing operations                                         |                                                  | $             | (0.97  
|Discontinued operations                                       |                                                  |               | 0.01   
|                                                              |                                                  |               |        
|Loss per share (basic and diluted)                            |                                                  | $             | (0.96  
|                                                              |                                                  |               |        
|Weighted average number of shares of common stock outstanding |                                                  |               |        
|                                                              | Basic and diluted                                |               |        
|                                                              |                                                  |               |        

48

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|                                                              |                                           | Quarter Ended |       
|------------------------------------------------------------- | ----------------------------------------- | ------------- | ------
|
|
|Statements of Operations data:                                |                                           |               |       
|Revenues                                                      |                                           | $             | 570   
|Cost of revenues                                              |                                           |               |       
|                                                              | Cost of products sold                     |               |       
|                                                              | Amortization and impairment of technology |               |       
|                                                              |                                           |               |       
|Total cost of revenues                                        |                                           |               | 1,925 
|                                                              |                                           |               |       
|Gross (loss) profit                                           |                                           |               | (355  
|                                                              |                                           |               |       
|Operating loss                                                |                                           |               | (8,612
|                                                              |                                           |               |       
|Loss from continuing operations                               |                                           |               | (8,578
|Discontinued operations                                       |                                           |               | 56    
|                                                              |                                           |               |       
|Loss                                                          |                                           | $             | (8,522
|                                                              |                                           |               |       
|Loss per share (basic and diluted):                           |                                           |               |       
|Continuing operations                                         |                                           | $             | (0.57 
|Discontinued operations                                       |                                           |               |      
|                                                              |                                           |               |       
|Loss per share (basic and diluted)                            |                                           | $             | (0.57 
|                                                              |                                           |               |       
|Weighted average number of shares of common stock outstanding |                                           |               |       
|                                                              | Basic and diluted                         |               |       
|                                                              |                                           |               |       

Off-Balance Sheet Arrangements

We did not undertake any off-balance sheet arrangements in the fiscal year ended December 31, 2005.

Tabular Disclosure of Contractual Obligations

Our known contractual obligations for the fiscal year ended December 31, 2005 are as follows:

|                            |  | Payments due by period
|--------------------------- |  | ----------------------
|
|
|Operating Lease Obligations |  | $                     
|Purchase Obligations        |  |                       
|Promissory Note             |  |                       
|                            |  |                       
|Total                       |  | $                     
|                            |  |                       

Subsequent Events



Amended Employment Agreement.On February 10, 2006, we entered into an amended employment agreement with
Mr. Gilo, our Chief Executive Officer and Chairman of the Board of Directors (the "2006 Employment Agreement"), which replaces and supersedes his original employment agreement (the "Original
Employment Agreement").

49

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The
2006 Employment Agreement is for a three-year term, with automatic renewals thereafter for terms of one year each, subject to termination upon prior notice by either
party. Under the 2006 Employment Agreement, in exchange for 30 hours of services per week, Mr. Gilo will receive an annual base salary of $400,000, which will be reviewed on or before
December 31, 2006 and thereafter based on Mr. Gilo's services and our financial results. Mr. Gilo is eligible to receive employee benefits available to all employees, is eligible
to participate in bonus plans that may be adopted by our Board of Directors and shall receive an additional bonus based on his performance and that of the company each year as determined by our Board
of Directors or Compensation Committee. In addition,
Mr. Gilo is eligible for stock options that we may award to him, and he shall accrue 30 days of paid vacation for each 12 months of employment.

If
the 2006 Employment Agreement is terminated without cause (as defined in the 2006 Employment Agreement), all of Mr. Gilo's unvested options would vest immediately and
Mr. Gilo would receive a severance payment equal to the greater of (a) the full amount of compensation that Mr. Gilo could have expected under the 2006 Employment Agreement
(without bonus) through the end of the term; or (b) 18 months of his then-current salary without bonus. If the 2006 Employment Agreement is terminated without Cause after the
initial three-year term, all of Mr. Gilo's unvested options would vest immediately and Mr. Gilo would receive a severance payment of 18 months of his
then-current salary without bonus. If the 2006 Employment Agreement is terminated by the Company for Cause, Mr. Gilo would receive a severance payment equal to three months of his
then-current salary without bonus. If Mr. Gilo voluntarily terminates the 2006 Employment Agreement, he would receive a severance payment of nine months of his then current salary
without bonus.

Grant of Stock Options.On February 10, 2006, our Compensation Committee granted Mr. Gilo options to purchase
900,000 shares of the our common stock. These options vest as follows:



On March 18, 2006, we entered into a Securities Purchase Agreement (the "Purchase Agreement"), for the private placement of $25,000,000 of common stock, a
Convertible Note, a Senior Secured Note and Warrants to Goldman, Sachs & Co. (the "Financing"). In connection with the Financing, we issued (a) 1,353,365 shares of our common stock,
(b) a $10,000,000 10% Convertible Note, (c) a $7,500,000 9.5% Senior Secured Note, and (d) Warrants to purchase 298,617 shares of our common stock. The transaction resulted in
estimated net proceeds to us of approximately $23,500,000. The transactions contemplated by the Purchase Agreement closed on March 23, 2006.

The
Convertible Note matures on March 22, 2011 and accrues interest at a rate of 10% per annum, payable in cash quarterly in arrears, and is convertible at the holder's option
into shares of

50

---



common
stock at a conversion price of $10.00 per share, subject to adjustment. In the event of a Fundamental Transaction (as defined in the Convertible Note), the holder may, at its option, require us
to redeem all or any portion of the Convertible Note at a price equal to 101% of the principal amount, plus all accrued and unpaid interest, if any, and subject to specified conditions, may be
entitled to a "make-whole" premium calculated in accordance with the terms of the Convertible Note. Any default in the payment of interest or principal will result in an increase in the
interest rate by an additional 2% until the default is cured. In addition, holders of more than one-third of the aggregate principal balance then outstanding may declare all outstanding
amounts immediately due and payable upon the occurrence of any event of default. The Convertible Note is unsecured and subordinate to our senior indebtedness.

The
Senior Secured Note matures on March 22, 2011 and accrues interest at a rate of 9.5% per annum. The entire principal amount plus all accrued interest is payable at maturity,
unless earlier redeemed or repurchased. We have the option to prepay the Senior Secured Note in whole or in part, beginning March 22, 2007, subject to payment of an applicable premium. In the
event of a Fundamental Transaction (as defined in the Senior Secured Note), the holder may, at its option, require us to redeem the entire Senior Secured Notes at a price equal to 101% of the
principal amount, plus all accrued and unpaid interest. Any default in the payment of interest or principal will result in an increase in the interest rate by an additional 2% until the default is
cured. In addition, holders of more than one-third of the aggregate principal balance then outstanding may declare all outstanding amounts immediately due and payable upon the occurrence
of any event of default. In connection with the Senior Secured Note, we also issued a Warrant exercisable for 298,617 shares of common stock at an exercise price of $0.10 per share, to expire on
March 22, 2006. Goldman, Sachs & Co. exercised its Warrant on March 24, 2006. The Senior Secured Note is a senior secured obligation, secured by our assets and the intellectual
property of certain of our subsidiaries.



During the first quarter of 2006, we began a process to streamline our businesses by consolidating our corporate headquarters in Palo Alto, California with our
sales offices in Atlanta, Georgia. We expect that this move to a single location will enable us to reduce costs over time, to improve our access to top cable industry talent and to improve our
location efficiencies and controls.

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, 2005, we had cash, cash equivalents and short-term investments of $9,951,000. 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

51

---



the
date of purchase are considered to be cash equivalents; all investments with maturities of three months or greater are classified as available-for-sale and considered to be
short-term investments.

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

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 15.

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

None.

Item 9A.    Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the
period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and
procedures were effective to ensure that information we are required to disclose in reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange commission rules and forms.

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

Item 9B.    Other Information

None.

52

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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 "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the definitive proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A for our 2006 annual meeting of stockholders.

We
have adopted a code of conduct and ethics for all of our employees and directors, including our chief executive officer, chief financial officer, other executive officers and senior
financial personnel. A copy of our business ethics policy is posted on our website at www.vyyo.com. Our code of business conduct may be found on our website as follows:



We
intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of this code of conduct and
ethics by posting the required information on our website, at the address and location specified above.

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 to be filed with the Securities and Exchange Commission pursuant to Regulation 14A for our 2006 annual meeting of stockholders.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by Item 12 is incorporated by reference from the information under the caption "Security Ownership of Certain Beneficial Owners
and Management" and "Equity Compensation Information for Plans or Individual Arrangements with Employees and Non-Employees" in the definitive proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A for our 2006 annual meeting of stockholders.

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"
and "Compensation Committee Interlocks and Insider Participation" in the definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A for our
2006 annual meeting of stockholders.

Item 14.    Principal Accountant Fees and Services

The information required by Item 14 is incorporated by reference from the information under the caption "Principal Accounting Fees and Services" in the
definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A for our 2005 annual meeting of stockholders.

53

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PART IV

Item 15.    Exhibits and Financial Statement Schedules



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



No
financial statement schedules are required to be filed.



The
information required by this item is set forth on the exhibit index which follows the signature page of this report.

54

---





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:      
|Date: March 30, 2006 |  |          

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.

|Signature                                 |  | Title                                                                                        |  | Date          
|----------------------------------------- |  | -------------------------------------------------------------------------------------------- |  | --------------
|                                          |  |                                                                                              |  |               
|/s/DAVIDI GILODavidi Gilo                 |  | Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer) |  | March 30, 2006
|/s/ARIK LEVIArik Levi                     |  | Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)       |  | March 30, 2006
|/s/RONN BENATOFFRonn Benatoff             |  | Director                                                                                     |  | March 30, 2006
|/s/LEWIS S. BROADLewis S. Broad           |  | Director                                                                                     |  | March 30, 2006
|/s/NEILL H. BROWNSTEINNeill H. Brownstein |  | Director                                                                                     |  | March 30, 2006
|/s/AVRAHAM FISCHERAvraham Fischer         |  | Director                                                                                     |  | March 30, 2006
|/s/JOHN P. GRIFFINJohn P. Griffin         |  | Director                                                                                     |  | March 30, 2006
|/s/SAMUEL L. KAPLANSamuel L. Kaplan       |  | Director                                                                                     |  | March 30, 2006
|/s/ALAN L. ZIMMERMANAlan L. Zimmerman     |  | Director                                                                                     |  | March 30, 2006

55

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Vyyo Inc.  2005 ANNUAL REPORT

CONSOLIDATED FINANCIAL STATEMENTS  TABLE OF CONTENTS

|                                                                                                                |  | Page
|--------------------------------------------------------------------------------------------------------------- |  | ----
|Report of Independent Registered Public Accounting Firm                                                         |  | F-2 
|Consolidated Balance Sheets as of December 31, 2005 and 2004                                                    |  | F-3 
|Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003                      |  | F-4 
|Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2005, 2004 and 2003 |  | F-5 
|Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003                      |  | F-6 
|Notes to Consolidated Financial Statements                                                                      |  | F-7 

F-1

---





|GRAPHIC |  | Kesselman & KesselmanCertified Public Accountants (Isr.)
Trade Tower, 25 Hamered Street
Tel Aviv 68125 Israel
P.O. Box 452 Tel Aviv 61003 Israel
Telephone +972-3-7954555
Facsimile +972-3-7954556
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholders of
Vyyo Inc.

We
have audited the accompanying consolidated balance sheets of Vyyo Inc. (the "Company") and its subsidiaries as of December 31, 2005 and 2004 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of
the Company's Board of Directors and management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (in the United States of America). 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 the Company's Board of Directors and 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 the Company and its subsidiaries as of
December 31, 2005 and 2004, the consolidated results of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2005, in
conformity with accounting principles generally accepted in the United States of America.

|Tel-Aviv, Israel
March 29, 2006 |  | /s/ Kesselman & Kesselman CPAs (Isr.)
A member of PricewaterhouseCoopers International Limited
|------------------------------- |  | ----------------------------------------------------------------------------------------------

F-2

---





Vyyo Inc.        Consolidated Balance Sheet        (In thousands of U.S. $, except share data)

|                                                |                                                                             | December 31,                                                                                                                                                                                        |  
|----------------------------------------------- | --------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -
|
|ASSETS                                          |                                                                             |                                                                                                                                                                                                     |  
|Current Assets:                                 |                                                                             |                                                                                                                                                                                                     |  
|                                                | Cash and cash equivalents                                                   |                                                                                                                                                                                                     | $
|                                                | Short-term investments (note 2)                                             |                                                                                                                                                                                                     |  
|                                                | Accounts receivable, net                                                    |                                                                                                                                                                                                     |  
|                                                | Inventories (note 3)                                                        |                                                                                                                                                                                                     |  
|                                                | Other                                                                       |                                                                                                                                                                                                     |  
|                                                |                                                                             |                                                                                                                                                                                                     |  
|                                                |                                                                             | Total current assets                                                                                                                                                                                |  
|Long-Term Assets:                               |                                                                             |                                                                                                                                                                                                     |  
|                                                | Restricted cash (note 4)                                                    |                                                                                                                                                                                                     |  
|                                                | Property and equipment, net (note 5)                                        |                                                                                                                                                                                                     |  
|                                                | Employee rights upon retirement funded (note 9)                             |                                                                                                                                                                                                     |  
|                                                | Intangible assets, net (note 7)                                             |                                                                                                                                                                                                     |  
|                                                |                                                                             |                                                                                                                                                                                                     |  
|                                                |                                                                             | TOTAL ASSETS                                                                                                                                                                                        |  
|                                                |                                                                             |                                                                                                                                                                                                     |  
|LIABILITIES AND STOCKHOLDERS' EQUITY            |                                                                             |                                                                                                                                                                                                     |  
|Current Liabilities:                            |                                                                             |                                                                                                                                                                                                     |  
|                                                | Accounts payable                                                            |                                                                                                                                                                                                     | $
|                                                | Accrued liabilities (note 8)                                                |                                                                                                                                                                                                     |  
|                                                |                                                                             |                                                                                                                                                                                                     |  
|                                                |                                                                             | Total current liabilities                                                                                                                                                                           |  
|                                                |                                                                             |                                                                                                                                                                                                     |  
|Long-Term Liabilities:                          |                                                                             |                                                                                                                                                                                                     |  
|                                                | Promissory note (note 6)                                                    |                                                                                                                                                                                                     |  
|                                                | Liability for employee rights upon retirement (note 9)                      |                                                                                                                                                                                                     |  
|Commitments and contingent liabilities(note 10) |                                                                             |                                                                                                                                                                                                     |  
|                                                |                                                                             | Total liabilities                                                                                                                                                                                   |  
|                                                |                                                                             |                                                                                                                                                                                                     |  
|Stockholders' Equity(note 12):                  |                                                                             |                                                                                                                                                                                                     |  
|                                                | Preferred stock, $0.001 par value; 5,000,000 shares authorized; none issued |                                                                                                                                                                                                     |  
|                                                |                                                                             | Common stock, $0.0001 par value and paid in capital; 50,000,000 shares authorized, 15,721,334 and 15,232,420 shares issued and outstanding at December 31, 2005 and December 31, 2004,
respectively |  
|                                                | Deferred stock-based compensation                                           |                                                                                                                                                                                                     |  
|                                                | Notes receivable from stockholders                                          |                                                                                                                                                                                                     |  
|                                                | Accumulated other comprehensive loss                                        |                                                                                                                                                                                                     |  
|                                                | Accumulated deficit                                                         |                                                                                                                                                                                                     |  
|                                                |                                                                             |                                                                                                                                                                                                     |  
|                                                |                                                                             | Total stockholders' equity                                                                                                                                                                          |  
|                                                |                                                                             |                                                                                                                                                                                                     |  
|                                                |                                                                             | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                                          |  
|                                                |                                                                             |                                                                                                                                                                                                     |  

The accompanying notes are an integral part of these consolidated financial statements.

F-3

---





Vyyo Inc.        Consolidated Statements of Operations        (In thousands of U.S. $, except per share data)

|                                                             |                                                             | Year ended December 31,  |        
|------------------------------------------------------------ | ----------------------------------------------------------- | ------------------------ | -------
|
|REVENUES(note 16)                                            |                                                             | $                        | 2,367  
|COST OF REVENUES:                                            |                                                             |                          |        
|                                                             | Cost of products sold                                       |                          |        
|                                                             | Write-down of inventory and purchase commitments            |                          |        
|                                                             | Impairment and amortization of technology (note 7)          |                          |        
|                                                             |                                                             |                          |        
|TOTAL COST OF REVENUES                                       |                                                             |                          | 6,583  
|                                                             |                                                             |                          |        
|GROSS PROFIT(LOSS)                                           |                                                             |                          | (4,216 
|                                                             |                                                             |                          |        
|OPERATING EXPENSES (INCOME):                                 |                                                             |                          |        
|                                                             | Research and development, net                               |                          |        
|                                                             | Acquisition of in-process research and development (note 6) |                          |        
|                                                             | Sales and marketing                                         |                          |        
|                                                             | General and administrative                                  |                          |        
|                                                             | Restructuring adjustments                                   |                          |        
|                                                             | Impairment and amortization of intangible assets (note 7)   |                          |        
|                                                             |                                                             |                          |        
|                                                             |                                                             | Total operating expenses |        
|                                                             |                                                             |                          |        
|OPERATING LOSS                                               |                                                             |                          | (42,057
|GAIN RESULTING FROM AMENDMENT TO
    PROMISSORY NOTE(note 6) |                                                             |                          | 2,533  
|INTEREST INCOME, net (note 14)                               |                                                             |                          | 401    
|                                                             |                                                             |                          |        
|LOSS FROM CONTINUING OPERATIONS                              |                                                             |                          | (39,123
|DISCONTINUED OPERATIONS(note 11)                             |                                                             |                          | 431    
|                                                             |                                                             |                          |        
|LOSS FOR THE YEAR                                            |                                                             | $                        | (38,692
|                                                             |                                                             |                          |        
|LOSS PER SHARE                                               |                                                             |                          |        
|Basic and diluted:                                           |                                                             |                          |        
|                                                             | Continuing operations                                       |                          | $      
|                                                             | Discontinued operations                                     |                          |        
|                                                             |                                                             |                          |        
|                                                             |                                                             | $                        | (2.51  
|                                                             |                                                             |                          |        
|WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING                |                                                             |                          |        
|                                                             | Basic and diluted                                           |                          |        
|                                                             |                                                             |                          |        

The accompanying notes are an integral part of these consolidated financial statements.

F-4

---



Vyyo Inc.
Consolidated Statements of Changes in Stockholders' Equity
(In thousands of U.S. $, except share data)

|                                                                                               |                                                                  | Common Stock and additional
paid in capital |  |   |         |   |   |        |   |   |        |   |  
|---------------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ------------------------------------------- |  | - | ------- | - | - | ------ | - | - | ------ | - | -
|
|
|BALANCE AT JANUARY 1, 2003                                                                     |                                                                  | 12,545,036                                  |  | $ | 229,115 |   | $ | (1,037 | ) |   |       |   | $
|Loss for the year                                                                              |                                                                  |                                             |  |   |         |   |   |        |   |   |        |   |  
|Other comprehensive lossunrealized losses on investments net                                  |                                                                  |                                             |  |   |         |   |   |        |   |   |        |   |  
|                                                                                               |                                                                  |                                             |  |   |         |   |   |        |   |   |        |   |  
|Comprehensive loss                                                                             |                                                                  |                                             |  |   |         |   |   |        |   |   |        |   |  
|                                                                                               |                                                                  |                                             |  |   |         |   |   |        |   |   |        |   |  
|Issuance of common stock upon exercise of options and pursuant to Employee Stock Purchase Plan |                                                                  | 452,023                                     |  |   | 1,005   |   |   |        |   |   |        |   |  
|Deferred stock compensation                                                                    |                                                                  |                                             |  |   | 1,403   |   |   |        |   | $ | (1,403 | ) |  
|Stock-based compensation expense                                                               |                                                                  |                                             |  |   |         |   |   |        |   |   | 1,403  |   |  
|                                                                                               |                                                                  |                                             |  |   |         |   |   |        |   |   |        |   |  
|BALANCE AT DECEMBER 31, 2003                                                                   |                                                                  | 12,997,059                                  |  |   | 231,523 |   |   | (1,037 | ) |   |       |   |  
|Loss for the year                                                                              |                                                                  |                                             |  |   |         |   |   |        |   |   |        |   |  
|Other comprehensive lossunrealized losses on investments                                      |                                                                  |                                             |  |   |         |   |   |        |   |   |        |   |  
|                                                                                               |                                                                  |                                             |  |   |         |   |   |        |   |   |        |   |  
|Comprehensive loss                                                                             |                                                                  |                                             |  |   |         |   |   |        |   |   |        |   |  
|                                                                                               |                                                                  |                                             |  |   |         |   |   |        |   |   |        |   |  
|Issuance of common stock upon exercise of options and pursuant to Employee Stock Purchase Plan |                                                                  | 690,584                                     |  |   | 2,272   |   |   |        |   |   |        |   |  
|Issuance of common stock for Xtend Networks Ltd. ("Xtend") acquisition                         |                                                                  | 1,398,777                                   |  |   | 8,492   |   |   |        |   |   |        |   |  
|Issuance of restricted common stock related to Xtend acquisition                               |                                                                  | 146,000                                     |  |   | 459     |   |   |        |   |   | (459   | ) |  
|Deferred stock compensation                                                                    |                                                                  |                                             |  |   | 210     |   |   |        |   |   | (210   | ) |  
|Stock-based compensation expense                                                               |                                                                  |                                             |  |   |         |   |   |        |   |   | 669    |   |  
|                                                                                               |                                                                  |                                             |  |   |         |   |   |        |   |   |        |   |  
|BALANCE AT DECEMBER 31, 2004                                                                   |                                                                  | 15,232,420                                  |  |   | 242,956 |   |   | (1,037 | ) |   |       |   |  
|                                                                                               |                                                                  |                                             |  |   |         |   |   |        |   |   |        |   |  
|Loss for the year                                                                              |                                                                  |                                             |  |   |         |   |   |        |   |   |        |   |  
|Other comprehensive loss:                                                                      |                                                                  |                                             |  |   |         |   |   |        |   |   |        |   |  
|                                                                                               | Unrealized gains on investments net                              |                                             |  |   |         |   |   |        |   |   |        |   |  
|                                                                                               | Reclassification of realized losses included in net loss         |                                             |  |   |         |   |   |        |   |   |        |   |  
|                                                                                               | Other-than-temporary impairment in available-for-sale securities |                                             |  |   |         |   |   |        |   |   |        |   |  
|                                                                                               |                                                                  |                                             |  |   |         |   |   |        |   |   |        |   |  
|Comprehensive loss                                                                             |                                                                  |                                             |  |   |         |   |   |        |   |   |        |   |  
|                                                                                               |                                                                  |                                             |  |   |         |   |   |        |   |   |        |   |  
|Issuance of common stock upon exercise of options                                              |                                                                  | 488,914                                     |  |   | 676     |   |   |        |   |   |        |   |  
|Deferred stock compensation                                                                    |                                                                  |                                             |  |   | 964     |   |   |        |   |   | (964   | ) |  
|Stock-based compensation expense                                                               |                                                                  |                                             |  |   | (540    | ) |   |        |   |   | 222    |   |  
|Payment of note receivable from stockholder                                                    |                                                                  |                                             |  |   |         |   |   | 1,018  |   |   |        |   |  
|                                                                                               |                                                                  |                                             |  |   |         |   |   |        |   |   |        |   |  
|BALANCE AT DECEMBER 31, 2005                                                                   |                                                                  | 15,721,334                                  |  | $ | 244,056 |   | $ | (19    | ) | $ | (742   | ) |  
|                                                                                               |                                                                  |                                             |  |   |         |   |   |        |   |   |        |   |  

The accompanying notes are an integral part of these consolidated financial statements.

F-5

---





Vyyo Inc.        Consolidated Statements of Cash Flows        (In thousands of U.S. $)

|                                                                                |                                                              | Year ended December 31,                                     |        
|------------------------------------------------------------------------------- | ------------------------------------------------------------ | ----------------------------------------------------------- | -------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:                                           |                                                              |                                                             |        
|Loss for the year                                                               |                                                              | $                                                           | (38,692
|Adjustments to reconcile loss to net cash used in operating activities:         |                                                              |                                                             |        
|                                                                                | Income and expenses not involving cash flows:                |                                                             |        
|                                                                                |                                                              | Depreciation and amortization                               |        
|                                                                                |                                                              | Impairment of technology and identifiable intangible assets |        
|                                                                                |                                                              | Impairment of intangible assets and property and equipment  |        
|                                                                                |                                                              | Write-down of inventories                                   |        
|                                                                                |                                                              | Impairment of goodwill                                      |        
|                                                                                |                                                              | Acquisition of in-process research and development          |        
|                                                                                |                                                              | Amortization and charge related to stock compensation, net  |        
|                                                                                |                                                              | Gain resulting from amendment to promissory note (note 6)   |        
|                                                                                |                                                              | Capital gain on sale of property and equipment              |        
|                                                                                | Decrease (increase) in assets and liabilities:               |                                                             |        
|                                                                                |                                                              | Accounts receivable                                         |        
|                                                                                |                                                              | Other current assets                                        |        
|                                                                                |                                                              | Inventories                                                 |        
|                                                                                |                                                              | Accounts payable                                            |        
|                                                                                |                                                              | Accrued liabilities                                         |        
|                                                                                |                                                              | Restructuring liabilities                                   |        
|                                                                                |                                                              | Liability for employee rights upon retirement               |        
|                                                                                |                                                              |                                                             |        
|Net cash used in operating activities                                           |                                                              |                                                             | (27,676
|                                                                                |                                                              |                                                             |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                                           |                                                              |                                                             |        
|                                                                                | Purchase of property and equipment                           |                                                             |        
|                                                                                | Proceeds from sale of property and equipment                 |                                                             |        
|                                                                                | Purchase of short-term investments                           |                                                             |        
|                                                                                | Proceeds from sales and maturities of short-term investments |                                                             |        
|                                                                                | Restricted cash                                              |                                                             |        
|                                                                                | Acquisition of Xtend, net of cash acquired                   |                                                             |        
|                                                                                | Contributions to severance pay funds                         |                                                             |        
|                                                                                |                                                              |                                                             |        
|Net cash provided by investing activities                                       |                                                              |                                                             | 23,018 
|                                                                                |                                                              |                                                             |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                                           |                                                              |                                                             |        
|                                                                                | Proceeds from exercise of stock options                      |                                                             |        
|                                                                                | Proceeds from notes receivable from stockholders             |                                                             |        
|                                                                                |                                                              |                                                             |        
|Net cash provided by financing activities                                       |                                                              |                                                             | 1,694  
|                                                                                |                                                              |                                                             |        
|Decrease in cash and cash equivalents                                           |                                                              |                                                             | (2,964 
|Cash and cash equivalents at beginning of year                                  |                                                              |                                                             | 5,512  
|                                                                                |                                                              |                                                             |        
|Cash and cash equivalents at end of year                                        |                                                              | $                                                           | 2,548  
|                                                                                |                                                              |                                                             |        
|Non-Cash Investing and Financing Activities:                                    |                                                              |                                                             |        
|Issuance of common stock, in connection with acquisition of subsidiary (note 6) |                                                              |                                                             |       
|                                                                                |                                                              |                                                             |        
|Liability resulting from amended promissory note (note 6)                       |                                                              |                                                             | 3,967  
|                                                                                |                                                              |                                                             |        
|Supplemental Disclosure of Cash Flow Information:                               |                                                              |                                                             |        
|Cash paid for taxes                                                             |                                                              | $                                                           | 6      
|                                                                                |                                                              |                                                             |        
|Cash paid for interest                                                          |                                                              | $                                                           | 4      
|                                                                                |                                                              |                                                             |        

The accompanying notes are an integral part of these consolidated financial statements.

F-6

---





Vyyo Inc.        Notes to Consolidated Financial Statements

1. Significant Accounting Policies

Organization

Vyyo Inc. was incorporated as a Delaware corporation in 1996. The consolidated financial statements include the accounts of Vyyo Inc. and its
wholly-owned subsidiaries (collectively, "Vyyo" or the "Company"). Following the acquisition of all of the outstanding shares of Xtend Networks Ltd. ("Xtend") on June 30, 2004, the
consolidated statements of operations include the results of Xtend's operations beginning July 1, 2004.

The
Company provides cable and wireless broadband access solutions through two business segments: the "Cable Solutions" segment and the "Wireless Solutions" segment. The Company's
products are designed to address four markets: Cable, Telecommunication, Utility and Wireless Internet Service Providers ("WISP). Although the Company is engaged to various degrees in these distinct
markets, some of the Company's core technologies overlap with the Company's respective solutions.

The
Company's Cable Solutions segment includes products that are used to deliver telephony and data T1/E1 links to enterprise and cellular providers over cable's wireless or hybrid-fiber
coax ("HFC") networks. Additionally, the Company's "Spectrum Overlay" technology is used to expand cable operators' typical HFC network capacity in the "last mile" by up to two times in the downstream
and up to four times in the upstream. The Company's Cable Solutions segment includes the results of operations of Xtend Networks Ltd., an Israeli privately-held development stage
company,
and its wholly-owned, U.S.-based subsidiary, Xtend Networks Inc. (collectively, "Xtend"). The Company purchased all of the outstanding capital stock of Xtend on June 30, 2004 and
consolidated its operations with the Company's operations beginning July 1, 2004.

The
Company's Wireless Solutions segment includes the Company utility products which enable utilities and other network service providers to operate private wireless networks for
communications, monitoring and Supervisory Control And Data Acquisition ("SCADA") of their geographically disbursed, remote assets. Additionally, it includes the Company's WISP and telecommunications
products which address the needs of rural service providers to serve customers with wireless, high-speed data beyond the reach of traditional terrestrial networks.

The
Company is focused on promoting products in the Company's Wireless Solutions segment into the network provider, utility, petrochemical, municipality and enterprise markets. The
Company's Cable Solutions segment is focused on both promoting T1 solutions for business services over cable networks and promoting cable bandwidth expansion solutions that are designed to expand
cable operators' typical HFC network capacity.

On
August 12, 2003, the Company's board of directors determined to cease the software business operated by Shira Computers Ltd. ("Shira"), the Company's wholly-owned
subsidiary, and terminate all of Shira's employees. Prior to the cessation of operations, Shira operated in the "Software Products" segment. The cessation of Shira's operations represents a disposal
of a business segment under Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." Accordingly, the Company
has classified the results of the Software Products segment as discontinued operations, and reclassified prior periods respectively. Subsequent to the cessation of the operations of Shira, on
March 31, 2005, the Company sold all of its shares of Shira to third parties. See note 11.

F-7

---



Financing

On March 18, 2006, the Company entered into a Securities Purchase Agreement, for the private placement of $25,000,000 of Common Stock, a Convertible Note,
a Senior Secured Note and Warrants to Goldman, Sachs & Co. (the "Financing"). The Financing resulted in estimated net proceeds to the Company of approximately $23,500,000. The Financing closed
on March 23, 2006. See note 17.

Cost Reduction Program

In August 2005, the Company implemented a cost reduction program whereby it reviewed the size and composition of its workforce and made adjustments after
evaluating a variety of factors. In connection with this cost reduction program, the Company reduced its workforce by approximately 16%. The Company has recorded approximately $360,000 in a
one-time cash severance payment and related expenses. This cost reduction does not require the termination of any contractual obligations or require the Company to incur other material
associated costs.

Risk Factors and Concentrations

The Company is subject to various risks including dependency on key customers, key individuals, competition from substitute products and larger companies, and the
continued development and marketing of its products, in the wireless broadband and cable markets.

Financial
instruments that subject the Company to credit risk consist primarily of cash, cash equivalents, restricted cash, short-term investments and accounts receivable.
The Company invests cash equivalents and short-term investments through high-quality financial institutions. The Company's sales are concentrated among a small numbers of
customers. See note 16. The Company performs ongoing credit evaluations of its customers. The Company provides reserves for estimated credit losses based on the circumstances of a specific debt
for which collection may be doubtful. The allowance for doubtful accounts as of December 31, 2005, 2004 and 2003 is as follows:

December 31,2005

2004

2003(In thousands of U.S. $)Balance at beginning of the year

$
200,000

$
220,000

$
220,000Additions charged to cost and expenses





172,000


30,000Deductions from reserves





(192,000
)

(30,000
)Balance at end of the year

$
200,000

$
200,000

$
220,000


Accounting Principles

The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP").

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts
of assets and liabilities and

F-8

---



related
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting years.

On
an on-going basis, management evaluates its estimates, judgments and assumptions. Management bases its estimates, judgments and assumptions on historical experience and on
various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results could differ from these estimates, judgments and assumptions.

Foreign Currency Transactions

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

Principles of Consolidation

The Company's consolidated financial statements include the accounts of Vyyo Inc. and its wholly-owned subsidiaries. All material inter-company balances
and transactions have been eliminated in consolidation.

Investments in Marketable Securities

The Company's investments in debt securities have been designated as available-for-sale. Available-for-sale
securities are carried at fair value, which is determined based upon the quoted market prices of the securities, with unrealized gains and losses reported in accumulated other comprehensive income
(loss), a component of stockholders' equity, until realized. Realized gains and losses and declines in value judged to be other-than-temporary on
available-for-sale securities are included in the Statements of Operations as part of interest income, net. The Company views its available-for-sale
portfolio as available for use in its current operations. Accordingly, the Company has classified all investments as short-term under "short-term investments," even though the
stated maturity date may be one year or more from the current balance sheet date. Interest, amortization of premiums, accretion of discounts and dividends on securities classified as
available-for-sale are also included in the Statements of Operations as part of interest income, net.

The
Company recognizes an impairment charge when the decline in the fair values of these investments below their cost basis is deemed to be other-than-temporary.
The Company considers various factors in determining whether to recognize an impairment charge, including the length of time and the extent to which the fair value has been below the cost basis, the
current financial condition of the investee and the Company's intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. The
Company recognized an

F-9

---



other-than-temporary
impairment in its available-for-sale securities of $126,000 and realized losses of $45,000 for the year ended December 31,
2005.

Cash Equivalents

Cash equivalents are short-term, highly liquid investments and deposits that have original maturities of three months or less at time of investment
and that are readily convertible to cash.

Inventory

Inventories are stated at the lower of cost or market, where cost includes material and labor. The Company regularly monitors inventory quantities on hand and
records a provision for excess and obsolete inventories based primarily on the Company's estimated forecast of future product demand and production requirements. Although the Company makes every
effort to ensure the accuracy of its forecasts of future product demand, any significant unanticipated changes in demand or technological developments would significantly impact the value of the
inventory and the reported operating results. If actual market conditions are less favorable than the Company's assumptions, additional provisions may be required. The Company's estimates of future
product demand may prove to be inaccurate, in which case the Company may have understated or overstated the provision required for excess and obsolete inventory. In the future, if the inventory is
determined to be overvalued, the Company would be required to recognize such costs in its cost of sales at the time of such determination. If the Company's inventory is determined to be undervalued,
the Company may have overstated its cost of sales in previous periods and would be required to recognize additional operating income only when the undervalued inventory was sold.

Fair Value of Financial Instruments

The fair value of the financial instruments included in the Company's working capital approximates carrying value. The Promissory Note described in note 6
is presented as "Long-Term Liabilities," at its estimated fair value.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are provided using the
straight-line method over the estimated useful lives of the assets.

Leasehold
improvements are amortized over the shorter of the lease term or the estimated useful life of the related asset.

Intangible Assets

The Company's intangible assets relate to the acquisition of Xtend and consist of technology, non-competition agreements, an exclusive sales agreement
and workforce. These definite-life intangible assets are amortized using the straight-line method over their estimated useful lives, ranging between one and six years. See
note 7.

F-10

---



Impairment of Long-Lived Assets and Intangible Assets

SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"), requires that long-lived
assets, including definite life intangible assets to be held and used or disposed of by an entity, be reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable. Under SFAS No. 144, if the sum of the expected future cash flows (undiscounted and without interest charges)
of the long-lived assets is less than the carrying amount, the Company would recognize an impairment loss and would write down the assets to their estimated fair values.

Revenue Recognition

Revenues from the Wireless Solutions and Cable Solutions segments are derived from sales of products. As of December 31, 2005, the Company's revenues from
services were not significant. The Company's products are off-the-shelf products, sold "as is," without further adjustment or installation. When establishing a relationship
with a new customer, the Company may also sell these products together as a package, in which case the products typically are shipped at the same time to the customer.

Revenues
from the Company's products are recorded when (a) persuasive evidence of an arrangement exists; (b) delivery has occurred and customer acceptance requirements have
been met, if any, and the Company has no additional obligations; (c) the price is fixed or determinable; and (d) collection of payment is reasonably assured. Our standard sales generally
do not include customer acceptance provisions. However, if there is a customer acceptance provision or there is uncertainty about customer acceptance, the associated revenue is deferred until we have
evidence of customer acceptance.

EITF
No. 00-21, "Revenue Arrangements with Multiple Deliverables," addresses when and how an arrangement involving multiple deliverables should be divided into
separate units of accounting. The Company's multiple deliverables arrangements are those arrangements with new customers in which the Company's products are sold together as a package. Because the
Company delivers these off-the-shelf products at the same time and the four revenue recognition criteria discussed above are met at that time, the adoption of EITF
No. 00-21 had no impact on the Company's financial position and results of operations.

Product Warranty

The Company provides for product warranty costs when it recognizes revenue from sales of its products. The provision is calculated as a percentage of sales based
on historical experience.

Research and Development Costs

Research and development costs are expensed as incurred and consist primarily of personnel, facilities, equipment and supplies for research and development
activities. Grants received from the Office of the Chief Scientist at the Ministry of Industry and Trade in Israel and other research foundations are deducted from research and development expenses as
the related costs are incurred.

F-11

---



Acquired In-Process Research and Development

Acquired products or projects which have achieved technical feasibility are capitalized as intangible assets, since it is probable that the costs will give rise
to future economic benefits. The estimated fair value of acquired products or projects which have not achieved technical feasibility at the date of acquisition and have no alternative future use are
charged to the operating expenses upon acquisition, in accordance with GAAP. See also note 6.

Loss Per Share of Common Stock

Basic and diluted loss per share are calculated and presented in accordance with SFAS No. 128 "Earnings Per Share" ("SFAS No. 128") for all years
presented. All outstanding stock options and shares of restricted tock have been excluded from the calculation of the diluted loss per share because all such securities are not dilutive for the
presented years. The total number of shares of common stock related to outstanding options, and restricted stock excluded from the calculations of diluted loss per share was 5,659,854, 4,509,920 and
3,941,202 for the years ended December 31, 2005, 2004 and 2003, respectively.

Comprehensive Income (Loss)

SFAS No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") establishes standards for the reporting and presentation of comprehensive income,
its components and accumulated balances in a full set of general purpose financial statements. The Company's components of comprehensive income
(loss), in addition to the loss for the year, include net unrealized gains or losses on investments classified as available for sale.

The
other-than-temporary losses on short-term investments result from the recognition of unrealized losses in the Consolidated Statements of
Operations due to declines in the market prices of those debt securities deemed to be other than temporary, taking into consideration the time that the Company intends to hold these securities. The
Statements of Operations include $45,000 of realized losses that result from the sale of debt securities that are sold before maturity.

The
reclassification adjustment of $126,000 for other-than-temporary losses on marketable securities results from the recognition of unrealized losses in the
Statement of Operations due to declines in the market prices of those securities deemed to be other than temporary.

Employee Stock-Based Compensation

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

F-12

---





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

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

Pro
forma information regarding net loss and loss per share of common stock, required under SFAS No. 123, has been determined as if the Company had accounted for its stock options
and shares of restricted stock under the fair value based method of SFAS No. 123. The fair value for shares of restricted stock was estimated at the date of each grant using the fair market
value of the shares. The fair value of options to purchase shares of our common stock, which vesting is subject to market prices of our common stock, was estimated using the Lattice Model. The fair
value of all other stock options stock options was estimated at the date of each grant using the Black-Scholes option pricing model with the following weighted average assumptions for the years ended
December 31, 2005, 2004 and 2003 as follows:

Year ended December 31,2005

2004

2003Risk-free interest rates ranges

3.35%-4.50%

1.2%-4.62%

1.09%-5.17%Weighted-average expected life

3.4

3.86

3.01Volatility ranges

0.732-0.769

0.65-1.02

0.36-1.21Dividend yields

0

0

0


F-13

---



The
Company's proforma information is as follows:

Year Ended December 31,2005

2004

2003(In thousands of U.S. $,
except per share data)Loss from continuing operations as reported

$
(39,123
)
$
(21,160
)
$
(9,101
)Deduct (add): stock-based employee compensation expenses (income) included in reported loss


(564
)

669


1,403Add: stock-based employee compensation expense determined under fair value method for all awards


(4,793
)

(4,136
)

(1,648
)Pro forma loss from continuing operations


(44,480
)

(24,627
)

(9,346
)Income (loss) from discontinued operations as reported

$
431

$
67

$
(6,640
)Add: stock-based employee compensation income (expense) determined under fair value method for all awards





7


(14
)Pro forma income (loss) from discontinued operations

$
431

$
74

$
(6,654
)Pro forma loss for the year

$
(44,049
)
$
(24,553
)
$
(16,000
)Basic and diluted loss per share:As reported:Continuing operations

$
(2.54
)
$
(1.52
)
$
(0.72
)Discontinued operations


0.03


0.01


(0.52
)Loss

$
(2.51
)
$
(1.51
)
$
(1.24
)Pro forma:Continuing operations

$
(2.89
)
$
(1.76
)
$
(0.74
)Discontinued operations


0.03


0.01


(0.52
)Loss

$
(2.86
)
$
(1.75
)
$
(1.26
)


As
of January 1, 2006, the Company has adopted the provisions of SFAS No. 123 (Revised 2004) "Share-Based Payment." For further details, see "Recent Accounting
Pronouncements" below.

Deferred Income Taxes

Deferred income taxes are determined utilizing the asset and liability method, based on the estimated future tax effects differences between the financial
accounting and tax bases of assets and liabilities under the applicable tax laws. Valuation allowances are included in deferred tax assets when it is more likely than not that these assets will not be
realized. See also note 13.

F-14

---



Reclassifications

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

Recent Accounting Pronouncements

In November 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 151, "Inventory Costsan amendment of ARB
No. 43" ("SFAS No. 151"). SFAS No. 151 requires idle facility expenses, freight, handling costs and wasted material (spoilage) costs to be recognized as current-period charges. It
also requires that allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 will be effective for inventory
costs incurred during fiscal years beginning after June 15, 2005 (January 1, 2006 for the Company). The Company does not expect this standard to have a material impact on its
consolidated financial position, results of operations or cash flows.

In
December 2004, FASB issued SFAS No. 123 (Revised 2004) "Share-Based Payment" ("SFAS No. 123(R)"). SFAS No. 123(R) addresses all forms of share-based
payment awards, including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights. SFAS No. 123(R) supersedes the Company's current
accounting for share-based payment awards under APB No. 25 and requires the Company to recognize compensation expense for all share-based payment awards based on fair value. In
March 2005, the Securities and Exchange Commission released Staff Accounting Bulletin No. 107, "Share-Based Payment" ("SAB No. 107") relating to the adoption of SFAS
No. 123(R). Beginning in the first quarter of 2006, the Company will adopt the provisions of SFAS No. 123(R) under the modified prospective transition method. Under the new standard, the
Company's estimate of compensation expense will require a number of complex and subjective assumptions including stock price volatility, employee exercise patterns (expected life of the options),
future forfeitures and related tax effects. The Company recognizes share-based payment compensation expense based on FASB Interpretation 28, "Accounting for Stock Appreciation Rights and Other
Variable Stock Option or Award Plans an interpretation of APB Opinions No. 15 and 25," which provides for accelerated expensing, and the Company will continue to do so after the adoption of
SFAS No. 123(R). SFAS No. 123R requires the Company to estimate the number of forfeitures expected to occur and record expense based upon the number of awards expected to vest.
Currently, the Company accounts for forfeitures as they accrue as permitted under then-current accounting standards. The cumulative effect of adopting the change in estimating forfeitures
is not material to the Company's financial statements for the year ended December 31, 2005.

The
Company estimates that the adoption of SFAS No. 123(R) will increase it stock-based compensation expenses by approximately $4,200,000 in the year ended December 31,
2006. This estimate does not include the impact of additional awards, which may be granted, or forfeitures, which may occur after December 31, 2005 and prior to the Company's adoption of SFAS
No. 123(R).

In
June 2005, FASB issued SFAS No. 154, "Accounting Changes and Error Corrections" ("SFAS No. 154"). SFAS No. 154 supercedes APB Opinion No. 20 and
SFAS No. 3. SFAS No. 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application as the required
method for reporting a change in accounting principle. SFAS No. 154 provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and
for reporting a change when retrospective

F-15

---



application
is impracticable. SFAS No. 154 also addresses the reporting of a correction of an error by restating previously issued financial statements. SFAS No. 154 is effective for
accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005 (January 1, 2006 for the Company). The Company does not believe that adoption of SFAS
No. 154 will have a material effect on its consolidated financial position, results of operations or cash flows.

In
November 2005, FASB issued FSP FAS 115-1 and FAS 124-1, "The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments" ("FSP 115-1 and 124-1"), which clarifies when an
investment is considered impaired, whether the impairment is other than temporary, and the measurement of an impairment loss. It also includes accounting considerations subsequent to the recognition
of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary
impairments. FSP 115-1 and 124-1 are effective for all reporting periods beginning after December 15, 2005. The Company adopted FSP FAS 115-1 and
FAS 124-1 as of December 31, 2005.

2. Short-Term Investments and Cash Equivalents

The fair value of available-for-sale securities and cash equivalents are as follows:

December 31, 2005Due in one year or less
including money market

Due in one to two years(In thousands of U.S. $)Corporate debts securities

$
2,960


United States obligations


3,777

$
250Money market


416


$
7,153

$
250


The
Company recognizes an impairment charge when the decline in the fair values of these investments below their cost basis is deemed to be other-than-temporary.
The Company considers various factors in determining whether to recognize an impairment charge, including the length of time and the extent to which the fair value has been below the cost basis, the
current financial condition of the investee and the Company's intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. The
Company recognized an

F-16

---



other-than-temporary
impairment in its available-for-sale securities of $126,000, $0 and $0 for the year ended December 31, 2005, 2004 and 2003,
respectively.

|                          |                        | December 31, 2005 |       | December 31, 2004
|------------------------- | ---------------------- | ----------------- | ----- | -----------------
|
|
|Corporate debt securities |                        | $                 | 2,960 |                  
|United States obligations |                        |                   | 4,027 |                  
|Money market*             |                        |                   | 416   |                  
|                          |                        |                   |       |                  
|                          |                        | $                 | 7,403 |                  
|                          |                        |                   |       |                  
|Reported as:              |                        |                   |       |                  
|                          | Cash equivalents       |                   |       |                 
|                          | Short-term investments |                   | $     | 7,403            
|                          |                        |                   |       |                  
|                          |                        | $                 | 7,403 |                  
|                          |                        |                   |       |                  

---

3. Inventory

In accordance with the Company's inventory evaluation policy and procedures, the Company recognized inventory and purchase commitment write-downs of approximately
$2,050,000 for the year ended December 31, 2005. These write-downs included a $290,000 provision with respect to non-cancelable purchase commitments for inventory. The Company took
these write-downs to account for excess inventory resulting from a slower than expected sales cycle and the Company's increased focus on providing products to utility and cable customers. The purchase
commitment provision results from the Company's contractual obligation to order or build inventory in advance of anticipated sales.

During
the year ended December 31, 2001, the Company wrote down excess inventory and purchase commitments of $8,450,000. The Company charged the write-down to cost of
revenues. There were no revenues in the year ended December 31, 2005 of inventory previously written-down to $0. In the year ended December 31, 2004, inventory that was
previously written down to $0 by taking a charge of $435,000, was sold for $1,014,000. In the year ended December 31, 2003, inventory that was previously written down to $0 by taking a charge
of $1,663,000, was sold for $3,209,000.

Inventory
is comprised of the following:

December 31,2005

2004(In thousands of U.S. $)Raw materials

$
488

$
1,598Work in process


415


533Finished goods


1,588


1,168$
2,491

$
3,299


For
information on the Company's policy regarding the write-down of inventory, see note 1.

F-17

---





4. Restricted Cash

As security for the amended Promissory Note, as discussed in note 6, the Company delivered to the holder of the Promissory note a $5,000,000
irrevocable letter of credit ("LC") issued by an Israeli Bank. In connection with this LC, the Company deposited $5,000,000 with the Israeli Bank and agreed to restrictions on withdrawal of this
amount until the LC is cancelled.

5. Property and Equipment, net

Property and equipment consist of the following:

December 31,Estimated
useful life2005

2004(In thousands
of U.S. $)Cost:Machinery and equipment

2-5 years

$
3,840

$
3,231Computers

2-3 years


2,545


2,175Furniture, fixtures and leasehold improvements

2-6 years


689


363Vehicles

7 years


56


817,130


5,850Accumulated depreciation and amortization




(5,545
)

(4,598
)Property and equipment, net



$
1,585

$
1,252


Depreciation
and amortization expenses were approximately $1,000,000, $675,000 and $769,000 in the years ended December 31, 2005, 2004 and 2003, respectively. The amount reported
for the year ended December 31, 2003 included $216,000 related to Shira and is presented under discontinued operations.

6. Acquisition of Xtend

On June 30, 2004, the Company acquired all of the outstanding shares of Xtend, an Israeli privately-held development stage company. Xtend
provides infrastructure solutions through the Company's Cable Solutions segment that expand the bandwidth of cable television lines. The acquisition allowed the Company to diversify its business by
adding a different segment to its Wireless Solutions business. The results of Xtend's operations were consolidated with the Company's operations beginning July 1, 2004 and are classified in the
Cable Solutions segment.

In
connection with the acquisition:



F-18

---





As
security for the amended Promissory Note, the Company delivered to the holder the LC. The LC will be cancelled if any time after June 30, 2006, for 45 consecutive trading days,
all of the following conditions exist: (a) the weighted average trading price of the Company's common stock is equal to or higher than $18.00 per share; (b) the average daily trading
volume of the Company's common stock is higher than 150,000 shares per day; and (c) the holder is lawfully able to sell publicly in one transaction or in a series of transactions, during such
45 consecutive trading days, all of its shares of the Company's common stock without registration under the Securities Act of 1933, as amended. If the Company's consolidated revenues in the year ended
December 31, 2006 equal or exceed $60,000,000 and the Company's consolidated gross margin equals or exceeds 35% during the same period, the Promissory Note will be canceled.

F-19

---



The
Company determined that, as of the time of the amendment of the Promissory Note and immediately prior to its amendment, the contingency had been resolved and therefore the Company
recorded $6,500,000 as additional consideration paid in the Xtend acquisition. This resulted in an increase to the intangible assets acquired. Following an impairment test performed on the intangible
assets, the assets were immediately impaired as discussed in note 7. In addition, the Company estimated the fair value of the amended Promissory Note at approximately $3,967,000 and recorded
this amount as a long-term liability under "Promissory note". The difference between the value of the amended Promissory Note and the original Promissory Note, of $2,533,000, was recorded
as "Gain Resulting from Amendment to Promissory Note" in the Consolidated Statements of Operations. In
future periods the Company will record an accretion to the value of the amended Promissory Note up to $6,500,000. This accretion of $2,533,000 will be recorded as finance expenses during the remaining
term of the Promissory Note, it is cancelled as provided above.

As
Xtend was a development stage enterprise that has not yet commenced its planned principal operations, the Company accounted for the acquisition as an acquisition of net assets
pursuant to the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets." Accordingly, the Company allocated the purchase price to the individual assets acquired and liabilities
assumed, based on their relative fair values, and no goodwill was recorded. As of the closing date of the acquisition, the tangible and intangible net assets acquired consisted of the following (in
thousands of U.S $):

Tangible assets acquired and liabilities assumed:Cash and cash equivalents

$
3,191Other current assets


481Property and equipment, net


325Current liabilities


(937
)Total net tangible assets acquired

$
3,060Intangible assets acquired:Existing technology


2,208In-process research and development


1,402Non-competition agreements


2,941Exclusive sales agreement


2,450Workforce


248Total intangible assets acquired


9,249Total tangible and intangible net assets acquired

$
12,309Payment made in cash (including expenses)

$
3,817Payment made by issuance of common stock


8,492Total purchase price

$
12,309


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

The
amount allocated to in-process research and development represents the fair value of purchased in-process products or projects that, as of the date of the
closing date of the acquisition, had

F-20

---



not
reached technological feasibility and had no alternative future use. Accordingly, they were charged to the Consolidated Statements of Operations as of such date.

7. Intangible Assets, net

Intangible assets acquired as described in note 6, were amortized using the straight-line method over their estimated useful lives as follows:
existing technology over six years; non-competition agreements over approximately three years; an exclusive sales agreement over four and a half years; and workforce over one year.

Amortization
of intangible assets acquired for the year ended December 31, 2005 and 2004 were $1,914,000 and $1,045,000, respectively, consisting of the amortization of existing
technology (which were classified to the cost of revenues), of $366,000 and $194,000, respectively, non-competition agreements of $883,000 and $442,000, respectively, an exclusive sales
agreement of $541,000 and $285,000, respectively and workforce of $124,000 and $124,000, respectively.

The
Company's current focus is on the residential market for cable TV Multi System Operators ("MSOs"), rather then the commercial market for MSOs, the Company's prior focus at the time
of the Xtend acquisition. This change in focus will require the Company to invest additional efforts in the development of suitable technology and products. Given this change in focus, and with
conjunction with the Company's ongoing review of carrying value of its intangible assets, the Company's management determined that, in accordance with SFAS No. 144, an impairment test of
intangible assets is required.

The
fair value of the intangible assets was estimated by management with the assistance of an independent third party appraiser, based upon future expected discounted
cash-flows as of December 31, 2005. Based on this appraisal, by using a weighted discounted cash flow model for the
estimation of a fair value of group of assets as set forth in SFAS No. 144, together with other facts and circumstances, the Company's management decided to record an impairment charge of
$11,388,000 relating to the full remaining carrying value of the intangible assets as of December 31, 2005.

This
impairment charge and amortizations of the intangible assets are related to the Cable Solutions segment. See note 16.

8. Accrued Liabilities

Accrued liabilities consist of the following:

December 31,2005

2004(In thousands
of U.S. $)Withholding tax

$
2,582

$
2,025Compensation and benefits


1,812


2,768Royalties


930


1,072Warranty*


104


426Other


963


1,254$
6,391

$
7,545


F-21

---



*
The changes in the warranty provisions are as follows:

December 31,2005

2004

2003(In thousands of U.S. $)Balance at beginning of year

$
426

$
389

$
395Usage of warranty


(39
)




(58
)Product warranty issued for new sales


172


380


444Changes in accrual in respect of warranty periods ending


(455
)

(343
)

(392
)Balance at end the of year

$
104

$
426

$
389


9. Liability for Employee Rights upon Retirement

Israel.Israeli labor laws and agreements require severance payments upon dismissal of an employee or
upon termination of employment in other circumstances. The severance pay liability of the Company's Israeli subsidiaries, which reflects the undiscounted amount of the liability as if it were payable
at each balance sheet date, is calculated based upon length of service and the latest monthly salary (one month's salary for each year worked). The Company's liability for severance pay required by
Israeli law is covered by deposits with financial institutions and by accrual. The accrued severance pay liability is presented as a long-term liability. The amounts funded are presented
separately as employee rights upon retirement funded. For certain Israeli employees, the Company's liability is covered mainly by regular contributions to defined contribution plans which are not
reflected in the balance sheets, since they are not under the Company's control and management.

United States.The Company's liability for severance pay includes severance for certain employees in
the United States in the amount of $157,000 and $93,000 as of December 31, 2005 and 2004, respectively.

The
amounts paid related to severance and severance expenses were:

Year ended December 31,2005

2004

2003(In thousands of U.S. $)Amounts paid related to severance

$
746

$
624

$
645Severance expenses*

$
661

$
729

$
737


---

With
respect to the Company's Israeli employees, as of December 31, 2005, the Company expects to contribute $221,000 to a defined contribution plan and $237,000 to insurance and
pension plans for the year ended December 31, 2006.

F-22

---





The
Company expects that payments relating to future benefits to its employees upon their retirement at normal retirement age in the next 10 years will not be material to the
Company's business or results of operation. These payments are determined based on recent salary rates and do not include amounts that might be paid to employees who retire before their normal
retirement age or who retire after 2015.

10. Commitments and Contingent Liabilities

Operating Leases.The Company leases its facilities and automobiles under cancelable and
non-cancelable operating lease agreements. The Company leases its U.S. facilities in California and Georgia and in Airport City near Tel Aviv, Israel.

The
future minimum rental payments on a fiscal year basis under the operating leases are as follows:

December 31, 2005(In thousands of U.S. $)2006

$
1,7652007


1,5712008


1,3082009


9572010


7312011


183$
6,515
*


---

Rental
expenses under all operating leases were $2,481,000, $1,400,000 and $2,066,000 for the years ended December 31, 2005, 2004 and 2003, respectively. These amounts include
$157,000 related to Shira which is presented under discontinued operations for the year ended December 31, 2003 and $196,000 related to Xtend for the year ended December 31, 2004. Rental
expenses, net of reimbursements from subleases, were $2,481,000, $1,400,000 and $1,748,000 for the years ended December 31, 2005, 2004 and 2003, respectively. Regarding income from subleases,
see note 15.

As
of December 31, 2005, the Company had purchase obligations of $1,538,000 which may become payable to the Company's suppliers at various times in the year ended
December 31, 2006.



The Office of the Chief Scientist in the Israeli Ministry of Industry and Trade (the "Chief Scientist"). The
Company's Israeli subsidiaries have obtained grants from the Chief Scientist of approximately $2,800,000. The technology developed under these grants may not be transferred to any person without the
consent of the Chief Scientist. The grants are repayable to the Chief Scientist generally at the rate of 3% to 5% of the sales of the products developed, up to 100% of the grant received.

F-23

---



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 technology products. The Company has received BIRD Foundation grants of approximately $1,700,000 for various
projects. Grants received from the BIRD Foundation must be paid back at the rate of 2.5% to 5% of revenues from the projects funded, up to a maximum amount equal to 150% of the grants received.

As
of December 31, 2005, the Company repaid approximately $1,300,000 of the abovementioned grants. The maximum amount of contingent liability in respect of future royalties is
$4,100,000 as of December 31, 2005.

Royalty
expenses for the years ended December 31, 2005, 2004 and 2003 were $3,000, $5,000 and $30,000, respectively, all of which were related to Shira and presented under
discontinued operations.



As part of Xtend acquisition, the Company issued a Promissory Note in the principal amount of $6,500,000. This Promissory Note is secured by a $5,000,000 LC. See
note 6.

Guarantees.As of December 31, 2005, the Company issued guarantees of $400,000, the majority
of which related to lease agreements.

11. ShiraDiscontinued Operations

Assets and liabilities of the discontinued operations were as follows:

December 31,2005

2004(In thousands of U.S. $)Current assets

$


$
72Current liabilities

$


$
433


Profit
(loss) of the discontinued operations was as follows:

Year ended December 31,2005

2004

2003(In thousands of U.S. $)Revenues




$
154

$
356Cost of revenues

$
3


31


594Gross (loss) income


(3
)

123


(238
)Income (loss) from operations


(25
)

64


(6,631
)Interest income (expenses), net





3


(9
)(25
)

67


(6,640
)Gain on disposal


456





Income (loss) from discontinued operations

$
431

$
67

$
(6,640
)


F-24

---



Profit
and loss from discontinued operations included amortization of intangible assets of $516,000 in 2003. The Company did not incur any severance expenses or termination of
contractual obligations, accounted for according to SFAS No. 146, "Accounting for costs associated with exit or disposal activities," during the year ended December 31, 2005. The Company
settled all severance expenses and termination of contractual obligations as of December 31, 2004. During the year ended December 31, 2004, the Company paid $82,000 in severance expenses
and termination of contractual obligations.

Due
to the continuing decline in Shira's sales, Shira's recurring losses and its inability to penetrate the market, the Company performed an impairment test, based on the valuation of
Shira's operations and its tangible and intangible assets as of June 30, 2003. The impairment test resulted in impairment charges of $2,644,000, out of which $1,831,000 related to the acquired
technology, $227,000 related to the customer list, $420,000 related to the goodwill recorded upon Shira's acquisition and $166,000 related to property and equipment. The impairment charges were based
on the fair value of the related assets, which were calculated based on the present value of the related cash flows.

On
March 31, 2005, the Company sold all of its shares of Shira stock to third parties (the "Shira Purchasers"). The Shira Purchasers are required to pay the Company 22.5% to 42.5%
of the proceeds that may be received upon any subsequent sale by the Shira Purchasers of Shira or its assets. The Shira Purchasers assumed all liabilities of Shira totaling $270,000. The gain from
this sale was $290,000 and was recorded in discontinued operations. During the year ended December 31, 2005, the Company received an additional $166,000 from the Shira Purchasers.

12. Stockholders' Equity

Common Stock Reserved for Issuance

As of December 31, 2005, the Company has reserved approximately 829,946 shares of common stock for issuance upon exercise of options and issuance of shares
of restricted stock reserved under the Company's stock-based compensation plans.

Issuance of Common Stock for Xtend Acquisition

On June 30, 2004, in connection with the acquisition of Xtend, the Company issued 1,398,777 shares of its common stock. See note 6.

Former Chief Executive Officer Separation Agreement

In April 2002, pursuant to a separation agreement entered into in October 2001 and as part of a restructuring program that the Company implemented
in 2001, the Company loaned $1,000,000 to its former chief executive officer. The loan was secured solely by the option to purchase 266,667 shares of the Company's common stock and the underlying
shares of common stock held by such officer.

The
Company applied combined accounting to these options and the related loan secured by such options. This results in variable accounting for the stock options, with a minimum expense
being recorded of $1,000,000. The total adjustments for the year ended December 31, 2005, 2004 and 2003 associated with these options were income of $786,000 and expenses of $21,000 and
$1,275,000, respectively. The Company also reversed a previous accrual of $89,000 for unrealized expenses. The Company recorded the charges/income as restructuring adjustments.

F-25

---



As
of the year ended December 31, 2005, the former chief executive officer had exercised all of these stock options, and upon the sale of some of the underlying shares of common
stock, paid the Company $981,000 of the aggregate amount borrowed.

Stock Option Plans

The Company has the following stock option plans: (a) the 1996 Equity Incentive Plan, (b) the 1999 Employee and Consultant Equity Incentive Plan,
and (c) the Third Amended and Restated 2000 Employee and Consultant Equity Incentive Plan (the "2000 Plan"). The Company currently makes grants only from the 2000 Plan, which provides for the
grant of incentive stock options ("ISOs") to employees, nonstatutory stock options to employees, directors and consultants and stock options which comply with Israeli law to the extent granted to
persons who are subject to Israel income tax. The 2000 Plan also provides for the awards of restricted stock and stock bonuses.

In
2004, the Company's Board of Directors approved an amendment to the terms of the 2000 Plan to comply with Israeli tax legislation that came into effect in January 2003.

ISOs
must have an exercise price equal to the fair value of the common stock on the grant date as determined by the Board of Directors. The period within which the option may be
exercised is determined at the time of grant, but may not be longer than 10 years. The number of shares reserved under the 2000 Plan is subject to automatic annual increases on the first day of
each fiscal year, equal to the lesser of 1,000,000 shares or 10% of the number of outstanding shares on the last day of the immediately preceding year.

In
October 2003, in connection with a recruitment of a certain employee, the Company granted 50,000 options to purchase the Company's common stock at an exercise price of $4.46
per share. The options vest on the date that the Company's stock price reaches certain prices for seven consecutive trading days. In October 2003, in connection with a recruitment of another
employee, the Company granted 50,000 options to purchase the Company's common stock at an exercise price of $4.30 per share. The
options vest on the date that the Company's revenues reach certain levels. During the year ended December 31, 2004 these employees were terminated and the options described above were
forfeited.

Compensation
cost accrual depends on the probability of the performance criteria being attained and is determined based on the difference between the exercise price and the fair market
value of the stock at the end of each period. Accrual of compensation expense during interim periods is necessary if the performance criteria are being attained or it is probable they will be
attained. Total compensation expenses recognized in the year ended December 31, 2003 with respect to the two options grants described above were $102,000. In the year ended December 31,
2004, these options were forfeited and the Company recorded income of $102,000.

On
November 1, 2004, the Company entered into an at-will employment agreement with Xtend's chief executive officer under which he was granted an option to purchase
300,000 shares of the Company's common stock. In January 2005, he also was granted an option to purchase 400,000 shares of the Company's common stock. No compensation expense was recorded for
these options as the fair value of the stock was not greater than the exercise price. Effective October 31, 2005, the employment of this officer was terminated, and 25% of his outstanding
options (175,000) were immediately vested. All remaining outstanding options were forfeited.

F-26

---



In
August 2005, the Company granted certain employees options to purchase 145,000 shares of the Company's common stock at an exercise price of $0.10 per share. The market price on
the date of grant was $6.75, which resulted in deferred stock compensation of $964,000 which was amortized during the year ended December 31, 2005 by $222,000. Fifty percent of these options
are scheduled to vest on December 10, 2006 and the remaining on December 10, 2007.

In
March 2005, the Company granted its Chairman of the Board and Chief Executive Officer and certain other employees 630,000 options to purchase shares of its common stock for
$7.50 to $10.50 per share. The options vest and become exercisable if the closing price of the Company's common stock is at or above specified prices for 10 trading days out of any 30 consecutive
trading days, so long as the optionee remains an employee of or consultants to the Company on the 10th day of the period. The options expire five years after the grant date, or, if earlier,
90 days after the optionee is no longer an employee of or consultant to the Company. Under APB No. 25, this grant is accounted as a variable plan. In the year ended December 31,
2005 no expenses were recorded, related to this grant.

Restricted Stock

Recipients of shares of restricted stock are entitled to cash dividends, to the extent paid, and to vote their shares throughout the period of restriction. The
value of the shares is the market price on the date of grant. Compensation was amortized ratably over the vesting period. Compensation expenses must be recognized for shares of restricted stock
subject to designated performance criteria if the performance criteria are being attained or it is probable that they will be attained.

In
July 2004, the Company granted a former Xtend employee 146,000 shares of restricted stock, of which 71,000 shares have vested and 75,000 shares will vest subject to designated
performance criteria. See note 6.

F-27

---



A
summary of stock option plans, shares of restricted stock and related information, under all of the Company's equity incentive plans for the years ended December 31, 2005, 2004
and 2003 are as follows (in thousands of U.S. $, except per share data):

Options/Shares
available
for grants

Number
outstanding

Weighted
average
exercise
price
in dollars

Weighted
average
fair value
in dollarsStock Options:Balance at January 1, 2003

2,125

2,459

4.63Authorized

627



Granted fixed plans*

(2,169
)
2,169

3.67

$
2.66Granted variable plans

(100
)
100

4.38

$
3.14Exercised fixed plans



(260
)
3.03Exercised variable plans



(124
)
0.55Cancelled fixed plans

403

(403
)
3.33Balance at December 31, 2003

886

3,941

4.46Authorized

650



Granted fixed plans*

(1,642
)
1,642

6.38

$
3.70Exercised fixed plans



(594
)
3.30Cancelled fixed plans

454

(454
)
4.85Cancelled variable plans

100

(100
)
4.38Balance at December 31, 2004

448

4,435

5.29Restricted shares:Granted fixed plan

(71
)




$
6.47Granted variable plan

(75
)




$
6.47Balance at December 31, 2004

302

4,435

5.29Authorized

2,167



Grant fixed plans*

(2,070
)
2,070

6.41

$
3.80Grant variable plans

(630
)
630

8.11

$
3.28Exercised fixed plans



(222
)
3.00Exercised variable plans



(267
)
0.03Cancelled fixed plans

1,061

(1,061
)
10.46Balance at December 31, 2005

830

5,585

5.35


---

F-28

---





Stock Option Stock Option Plans Details

The following table summarizes information concerning outstanding and exercisable options under stock option plans as of December 31, 2005:

|                |  | Options outstanding |  | Options exercisable
|--------------- |  | ------------------- |  | -------------------
|
|
|Fixed Plans:    |  |                     |  |                    
|0.10            |  | 145                 |  | 4.61               
|0.99            |  | 4                   |  | 2.08               
|2.27-3.40       |  | 1,062               |  | 1.82               
|3.57-5.09       |  | 1,657               |  | 3.18               
|5.60-8.39       |  | 2,010               |  | 4.32               
|8.43-9.60       |  | 77                  |  | 3.33               
|                |  |                     |  |                    
|                |  | 4,955               |  | 3.40               
|                |  |                     |  |                    
|Variable Plans: |  |                     |  |                    
|7.50-10.50      |  | 630                 |  | 4.22               
|                |  |                     |  |                    
|Total           |  | 5,585               |  | 3.49               
|                |  |                     |  |                    

The
number of options exercisable as of December 31, 2004 and 2003 were 2,066,000 and 1,879,000, respectively.

Expenses
related to stock compensation are included in the following line items in the Statements of Operations:

Years ended December 31,2005

2004

2003(In thousands of U.S. $)Cost of products sold

$
11

$


$
Research and development

$
223

$
80

$
Selling and marketing

$
126

$
555

$
General and administrative

$
108

$
13

$
128Charge for restructuring

$
(786
)
$
21

$
1,275


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
permitted eligible employees to purchase shares of common stock at the end of each six-month purchase period during a two-year offering

F-29

---



period,
through payroll deductions not exceeding 15% of an employee's salary. The price per share was 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. During the years ended December 31, 2004 and 2003, 96,352 and 67,226 shares,, respectively were issued under the ESPP. On January 20, 2005,
the Company terminated the ESPP.

13. Income Taxes

U.S. Income Taxes

Due to the Company's loss provision, there is no federal or state income tax expense. Foreign withholding taxes of $558,000, $361,000 and $285,000 have been
provided and recorded in general and administrative expense for the years ended December 31, 2005, 2004 and 2003, respectively.

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:

Years ended December 31,2005

2004

2003(In thousands of U.S. $)Current:Federal

$


$


$
State


12





Foreign


558


361


285Total Current

$
570

$
361

$
285Deferred:Federal

$


$


$
State








Foreign








Total deferred








Total

$
570

$
361

$
285At statutory rate

$
(13,157
)
$
(7,172
)
$
(5,352
)State taxes


13





Net operating losses not benefited


11,610


6,503


4,875Promissory Note


1,349





Non-deductible stock compensation


49


669


477Foreign withholding taxes


558


361


285Other


148





Total

$
570

$
361

$
285


As
of December 31, 2005, the Company had U.S. federal net operating loss carryforwards of approximately $44,400,000, which will expire between 2011 through 2025.The Company has
net operating losses of approximately $28,400,000 expiring in the years 2008 through 2015. The utilization of net operating loss carryforwards may be subject to substantial annual limitations if there
has been a

F-30

---



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
losses.

Israeli Income Taxes

As of December 31, 2005, the Company's Israeli subsidiaries have net operating loss carryforwards of approximately $90,000,000. The Israeli loss
carryforwards have no expiration date.

The
Company's Israeli subsidiaries have been granted "approved enterprise" status for several investment programs. These programs entitle these subsidiaries to tax exemption periods,
ranging from two to six years, on undistributed earnings commencing in the year in which taxable income is attained as well as a reduced corporate tax rate of 10% to 25% for the remaining term of the
program on the plan's proportionate share of income.

Since
the subsidiaries have not achieved taxable income, the tax benefits periods have not yet commenced. The subsidiaries losses are expected to offset certain future earnings of the
subsidiaries during the tax-exempt period; therefore, the utilization of the net operating losses will generate no tax benefits. Accordingly deferred tax assets from such losses have not
been included in the financial statements. The entitlement to the above benefits is conditional upon the subsidiaries fulfilling the conditions stipulated by the law, regulations published thereunder
and the instruments of approval for the specific investments in approved enterprises.

One
of the Company's subsidiaries is taxed at the regular rate. Following a series of changes in Israeli tax rates, the corporate tax rates for 2004 and thereafter are as follows: 2004:
35%, 2005: 34%, 2006: 31%, 2007: 29%, 2008: 27%, 2009: 26% and for 2010 and thereafter: 25%.

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:

December 31,2005

2004(In thousands of U.S. $)Deferred tax assets:Net operating loss carryforwards

$
17,515

$
11,305Other


96


Depreciation


87


197Reserves & Accruals


1,434


75119,132


12,255Valuation allowance


(19,132
)

(12,555
)Net deferred tax assets

$


$



The
valuation allowance increased by $6,877,000, $5,870,000 and $4,515,000 for the years ended December 31, 2005, 2004 and 2003, respectively. Approximately $500,000 of the
valuation allowance is attributable to stock option deduction, the benefit of which will be credited to equity if and when

F-31

---



realized.
In addition, $2,050,000 of the valuation allowance is attributable to acquisition-related items that if and when realized in future periods, will first reduce the carrying value of
intangible asset, then other long-lived intangible assets of the Company's acquired subsidiaries and then income tax expense.

FASB
Statement No. 109, "Accounting for Income Taxes," 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 historical operating performance and the reported cumulative net losses in all prior years. The Company has provided a full valuation allowance against net deferred tax assets as the
future realization of the tax benefit is not sufficiently assured.

Loss
before income taxes is composed of the following components for the:

Year Ended December 31,2005

2004

2003(In thousands of U.S. $)Losses before taxes in United States

$
27,921

$
14,123

$
8,244Losses before taxes from continuing operations of the Subsidiaries


11,202


6,869


758Losses before taxes from discontinued operations of Shira


(431
)

101


6,739Total loss before taxes

$
38,692

$
21,093

$
15,741


14. Interest Income, Net

Interest income, net is comprised of the following:

Years ended December 31,2005

2004

2003(In thousands of U.S. $)Interest income

$
445

$
706

$
1,713Foreign exchange differences


(21
)

(108
)

(24
)Other


(23
)

(90
)

(250
)$
401

$
508

$
1,439


15. Related parties

Related party transactions with Mr. Gilo

Subsequent to December 31, 2005, the Company entered into a new employment agreement with its Chief Executive Officer and Chairman of the Board of
Directors, who is also a major stockholder ("Mr. Gilo").

In
2003, the Company was reimbursed by related parties, specifically companies under the control of Mr. Gilo, for the sublease of facilities of $288,000. During the years ended
December 31, 2005, 2004 and 2003, the Company reimbursed the same related parties for general and administrative expenses, net of $71,000, $63,000 and $110,000, respectively. In addition the
Company granted an employee of

F-32

---



the
same related party options to purchase the Company's common stock and recorded expenses of $20,000 for stock-based compensation in the year ended December 31, 2005.

During
the years ended December 31, 2005, 2004 and 2003, the Company reimbursed a related party, an entity controlled by Mr. Gilo, for general and administrative expenses
of $121,000, $74,000 and $163,000, respectively. During the year ended December 31, 2004, the Company paid an additional $30,000 to such related party for work in connection with the Company's
acquisition of Xtend.

During
the years ended December 31, 2005, 2004 and 2003, the Company recorded various general and administrative expenses in connection with several charters of an aircraft for
business travel purposes, provided by an unaffiliated third party management company, of $742,000, $770,000 and $698,000, respectively. The aircraft used in providing these services is leased by the
same related party controlled by Mr. Gilo.

For
transactions with Mr. Gilo subsequent to the year ended December 31, 2005, see note 17.

Other related party transactions

During the years ended December 31, 2005, 2004 and 2003, the Company recorded legal and professional fees of $72,000, $149,000 and $80,000, respectively,
related to various professional and consulting services provided by a legal consulting firm under the control of a stockholder and a director of the Company.

On
November 1, 2004, the Company and William Keating entered into an at-will employment agreement. Under the terms of Mr. Keating's agreement, effective
November 1, 2004, Mr. Keating became chief executive officer of Xtend. Under the agreement, Mr. Keating was paid a base salary of $300,000 per year and be eligible for an annual
bonus of $200,000 based on performance milestones. Mr. Keating was granted options to purchase 700,000 shares of the Company's common stock. Mr. Keating's employment was terminated in
October 2005. In connection with his termination, and in accordance with the terms of the original grant, 175,000 options to purchase shares of the Company's common stock were vested and all
remaining outstanding options were forfeited. In
addition, the Company made a $75,000 severance payment to Mr. Keating, which the Company had accrued in the year ended December 31, 2004.

With
respect to the amendment of the Promissory Note payable to a stockholder, see notes 4 and 6.

See
note 12 for a description of the separation agreement with the Company's former chief executive officer.

Amounts
due to or from related parties are as follows:

December 31,2005

2004(In thousands
of U.S. $)Current assets

$
2

$
8Accounts payable

$
18

$
278Accrued liabilities

$
25

$
48


F-33

---





16. Operating Segments and Geographic Information

The Company's reportable operating segments are strategic businesses differentiated by the nature of their products, activities and customers and are described as
follows:

The
Wireless Solutions segment enables utilities and other customers to operate private Wireless Solutions for communications to their remote assets and customers. Typical applications
include high-speed internet services, SCADA, VOIP and telephony (T1/E1), all based on modified DOCSIS® technology.

The
Cable Solutions segment enables the Company's cable television operators and other customers to operate private HFC networks for communications to customers. The Cable Solutions
segment represents the results of Xtend's operations, which were consolidated with the Company's operations beginning July 1, 2004, and provides infrastructure solutions that expand the
bandwidth of cable television lines.

The
measurement of losses and assets of the reportable segments is based on the same accounting principles applied in the consolidated financial statements. Segment losses reflect the
loss from operations of the segment and do not include interest income, net, since this interest income is not allocated to the segments.

Financial
data relating to reportable operating segments is as follows:

Year ended December 31,2005

2004

2003(In thousands of U.S. $)Consolidated revenues:Wireless Solutions

$
2,193

$
6,094

$
6,060Cable Solutions


174





$
2,367

$
6,094

$
6,060Operating loss:Wireless Solutions

$
(16,535
)
$
(13,440
)
$
(10,540
)Cable Solutions


(25,522
)

(8,228
)

Operating loss


(42,057
)

(21,668
)

(10,540
)Gain resulting from amendment toPromissory Note


2,533





Interest income, net


401


508


1,439Loss from continuing operations

$
(39,123
)
$
(21,160
)
$
(9,101
)


F-34

---



Year ended December 31,2005

2004

2003(In thousands of U.S. $)Assets:Wireless Solutions

$
19,935

$
47,991

$
62,366Cable Solutions:Intangible assets





6,802


Other assets


1,860


1,306


1,860


8,108


Eliminations / adjustments





72


40$
21,795

$
56,171

$
62,406


Year ended December 31,2005

2004

2003(In thousands of U.S. $)Expenditures for long-lived assets:Wireless Solutions

$
363

$
571

$
337Cable Solutions:Intangible assets





9,249


Other assets


976


513


976


9,762


Eliminations / adjustments








50$
1,339

$
10,333

$
387Depreciation and amortization expenses:Wireless Solutions

$
615

$
595

$
553Cable Solutions:*Intangible assets


13,302


1,045


Other assets


385


80


13,687


1,125


$
14,302

$
1,720

$
553


---

F-35

---



The
following is a summary of operations within geographic areas, classified by the Company's country of domicile and by foreign countries:

Year ended December 31,2005

2004

2003(In thousands of U.S. $)Revenues from sales to unaffiliated customers from continuing operations in Wireless Solutions and Cable Solutions segments:United States

$
1,610

$
1,525

$
1,050China


226


2,105


3,972Malaysia


165


1,778


668Rest of the world


366


686


370$
2,367

$
6,094

$
6,060Property and equipment, netIsrael

$
1,378

$
1,053

$
658United States


207


199


197$
1,585

$
1,252

$
855


Sales
to major customers in the Wireless Solutions and Cable Solutions segments out of total revenues are as follows:

Year ended December 31,2005

2004

2003Customer A

45
%
19
%
14
%Customer B

8
%
19
%
4
%Customer C

7
%
7
%
11
%Customer D

2
%
13
%
47
%Customer E



21
%
Customer F



2
%
14
%


17. Subsequent Events

Transactions with Davidi Gilo, the Company's Chief Executive Officer and Chairman of the Board of Directors

Amended Employment Agreement.On February 10, 2006, the Company entered into an amended
employment agreement with Mr. Gilo, the Company's Chief Executive Officer and Chairman of the Board of Directors (the "2006 Employment Agreement"), which replaces and supersedes his original
employment agreement (the "Original Employment Agreement").

The
2006 Employment Agreement is for a three-year term, with automatic renewals thereafter for terms of one year each, subject to termination upon prior notice by either
party. Under the 2006 Employment Agreement, in exchange for 30 hours of services per week, Mr. Gilo will receive an annual base salary of $400,000, which will be reviewed on or before
December 31, 2006 and thereafter based

F-36

---



on
Mr. Gilo's services and the Company financial results. Mr. Gilo is eligible to receive employee benefits available to all employees, is eligible to participate in bonus plans that may
be adopted by the Company's Board of Directors and shall receive an additional bonus based on his performance and that of the Company each year as determined by the Board of Directors or Compensation
Committee. In addition, Mr. Gilo is eligible for stock options that may be awarded by the Company, and he shall accrue 30 days of paid vacation for each 12 months of employment.

If
the 2006 Employment Agreement is terminated without cause (as defined in the 2006 Employment Agreement), all of Mr. Gilo's unvested options shall vest immediately and
Mr. Gilo shall receive a severance payment equal to the greater of (a) the full amount of compensation that Mr. Gilo could have expected under the 2006 Employment Agreement
(without bonus) through the end of the term; or (b) 18 months of his then-current salary without bonus. If the 2006 Employment Agreement is terminated without Cause after the
initial three-year term, all of Mr. Gilo's unvested options shall vest immediately and Mr. Gilo shall receive a severance payment of 18 months of his
then-current salary without bonus. If the 2006 Employment Agreement is terminated by the Company for Cause, Mr. Gilo shall receive a severance payment equal to three months of his
then-current salary without bonus. If Mr. Gilo voluntarily terminates the 2006 Employment Agreement, he shall receive a severance payment of nine months of his then current salary
without bonus.

Grant of Stock Options.On February 10, 2006, the Company's Compensation Committee approved
the grant to Mr. Gilo of options to purchase 900,000 shares of the Company's common stock. These options vest as follows:



Financing

On March 18, 2006, the Company entered into a Securities Purchase Agreement (the "Purchase Agreement"), for the private placement of $25,000,000 of Common
Stock, a Convertible Note, a Senior Secured Note and Warrants to Goldman, Sachs & Co. (the "Financing"). In connection with the Financing, the Company issued (a) 1,353,365 shares of
common stock, (b) a $10,000,000 10% Convertible Note, (c) a $7,500,000 9.5% Senior Secured Note, and (d) Warrants to purchase 298,617 shares of common stock. The transaction
resulted in estimated net proceeds to the Company of

F-37

---



approximately
$23,500,000. The transactions contemplated by the Purchase Agreement closed on March 23, 2006.

The
Convertible Note matures on March 22, 2011 and accrues interest at a rate of 10% per annum, payable in cash quarterly in arrears, and is convertible at the holder's option
into shares of Common Stock at a conversion price of $10.00 per share, subject to adjustment. In the event of a Fundamental Transaction (as defined in the Convertible Note), the holder may, at its
option, require the Company to redeem all or any portion of the Convertible Note at a price equal to 101% of the principal amount, plus all accrued and unpaid interest, if any, and subject to
specified conditions, may be entitled to a "make-whole" premium calculated in accordance with the terms of the Convertible Note. Any default in the payment of interest or principal will
result in an increase in the interest rate by an additional 2% until the default is cured. In addition, holders of more than one-third of the aggregate principal balance then outstanding
may declare all outstanding amounts immediately due and payable upon the occurrence of any event of default. The Convertible Note is unsecured and subordinate to the Company's senior indebtedness.

The
Senior Secured Note matures on March 22, 2011 and accrues interest at a rate of 9.5% per annum. The entire principal amount plus all accrued interest is payable at maturity,
unless earlier redeemed or repurchased. The Company has the option to prepay the Senior Secured Note in whole or in part, beginning March 22, 2007, subject to payment of an applicable premium.
In the event of a Fundamental Transaction (as defined in the Senior Secured Note), the holder may require that the Company redeem the entire Senior Secured Notes at a price equal to 101% of the
principal amount, plus all accrued and unpaid interest. Any default in the payment of interest or principal will result in an increase in the interest rate by an additional 2% until the default is
cured. In addition, holders of more than
one-third of the aggregate principal balance then outstanding may declare all outstanding amounts immediately due and payable upon the occurrence of any event of default. In connection
with the Senior Secured Note, the Company also issued a Warrant exercisable for 298,617 shares of Common Stock at an exercise price of $0.10 per share, to expire on March 22, 2006. Goldman,
Sachs & Co. exercised this Warrant on March 24, 2006. The Senior Secured Note is a senior secured obligation of the Company, secured by the assets of the Company and the intellectual
property of certain of its subsidiaries, as set forth in the Guaranty and Security Agreement.

F-38

---



INDEX TO EXHIBITS

|Exhibit
Number |  | Exhibit Title                                                                                                                                                                                                                                                                                                   
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1            |  | Share Exchange Agreement dated as of June 30, 2004 by and among Vyyo Inc., Xtend Cable Solutions Inc., Xtend Networks Ltd., and Shareholders of Xtend Networks Ltd. Previously filed as
Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed on July 15, 2004, and incorporated herein by reference.
|3.1            |  | Fourth Amended and Restated Certificate of Incorporation of the Registrant. Previously filed as Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed on May 13, 2005, 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).                                                                                                                         
|4.1            |  | Reference is made to Exhibits 3.1, 3.2, 10.12, 10.18, 10.19, 10.20 and 10.21.                                                                                                                                                                                                                                   
|10.1*          |  | Form of Indemnification Agreement. Previously 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. Previously 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. Previously 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*          |  | Third Amended and Restated 2000 Employee and Consultant Equity Incentive Plan. Previously filed as Exhibit 10.1 to the Registrant's Form 8-K filed on March 16, 2005, and incorporated herein by reference.                                                                                                     
|10.5*          |  | Employment Agreement with Davidi Gilo, dated as of February 10, 2006.                                                                                                                                                                                                                                           
|10.6*          |  | Offer Letter of Avner Kol, effective as of November 1, 2005. Previously filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q filed on November 14, 2005, and incorporated herein by reference.                                                                                               
|10.7*          |  | Separation Agreement and Release of William Keating, effective as of October 31, 2005. Previously filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q filed on November 14, 2005, and incorporated herein by
reference.                                                                     
|10.8*          |  | Separation Agreement and Release of Michael Corwin, effective as of January 27, 2006.                                                                                                                                                                                                                           
|10.9*          |  | Separation Agreement and Release of Andrew Fradkin, effective as of February 25, 2006.                                                                                                                                                                                                                          
|10.10          |  | Indemnification Agreement among the Registrant and certain selling stockholders in connection with the September 2000 offering. Previously filed as Exhibit 10.33 to the Registrant's Registration Statement on Form S-1 (File
No. 333-45132), and incorporated herein by reference.                            
|10.11          |  | Sublease Agreement by and between Tibco Software, Inc. and the Registrant. Previously filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q, filed on October 30, 2003, and incorporated herein by
reference.                                                                                 
|10.12          |  | Amended Promissory Note made on December 16, 2005 by Vyyo Inc. to Syntek Capital AG. Previously filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on December 19, 2005, and incorporated herein by
reference.                                                                          
|               |  |                                                                                                                                                                                                                                                                                                                 

---



|10.13* |  | Restricted Stock Agreement dated June 30, 2004 between Vyyo Inc. and Hillel Weinstein. Previously filed as Exhibit 2.4 to the Registrant's Current Report on Form 8-K filed on July 15, 2004, and incorporated herein by
reference.                      
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.14  |  | Non-Competition Agreement dated June 30, 2004 between Xtend Networks Ltd. and Zeev Orbach. Previously filed as Exhibit 2.5 to the Registrant's Current Report on Form 8-K filed on July 15, 2004, and incorporated herein by
reference.                  
|10.15  |  | Office lease, dated November 4, 2004, by and between Vyyo Ltd. and Kiryat Sede Hateufa Ltd. Previously filed as Exhibit 99.1 to the Registrant's Current Report on Form 8-K filed on February 4, 2005, and incorporated
herein by reference.             
|10.16  |  | Office lease, dated November 4, 2004, by and between Xtend Networks Ltd. and Kiryat Sede Hateufa Ltd. Previously filed as Exhibit 99.2 to the Registrant's Current Report on Form 8-K filed on February 4, 2005, and
incorporated herein by reference.   
|10.17  |  | Lease Agreement, dated December 2004, by and between Corners Realty Corporation and Xtend Networks Inc. Previously filed as Exhibit 99.1 to the Registrant's Current Report on Form 8-K filed on February 21, 2005, and
incorporated herein by reference.
|10.18  |  | Securities Purchase Agreement between Vyyo Inc. and Goldman, Sachs & Co., dated as of March 18, 2006. Previously filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on March 20, 2006, and
incorporated herein by reference.     
|10.19  |  | Form of Convertible Note to be issued by Vyyo Inc. payable to Goldman, Sachs & Co. Previously filed as Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on March 20, 2006, and incorporated herein by
reference.                        
|10.20  |  | Form of Senior Secured Note to be issued by Vyyo Inc. payable to Goldman, Sachs & Co. Previously filed as Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed on March 20, 2006, and incorporated herein by
reference.                     
|10.21  |  | Form of Guaranty and Security Agreement between Vyyo Inc. and Goldman, Sachs & Co. Previously filed as Exhibit 10.4 to the Registrant's Current Report on Form 8-K filed on March 20, 2006, and incorporated herein by
reference.                        
|10.22  |  | Form of Registration Rights Agreement between Vyyo Inc. and Goldman, Sachs & Co. Previously filed as Exhibit 10.5 to the Registrant's Current Report on Form 8-K filed on March 20, 2006, and incorporated herein by
reference.                          
|14.1   |  | Code of Conduct and Ethics. Previously filed as Exhibit 14 to the Registrant's Annual Report on Form 10-K filed on February 24, 2004, and incorporated herein by reference.                                                                              
|21.1   |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                          
|23.1   |  | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                                                                
|31.1   |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                      
|31.2   |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                      
|32.1   |  | Certification of chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                          

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