10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended March 31, 2007

or

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

For the transition period from              to             

Commission File Number 000-30189

VYYO INC.

(Exact name of registrant as specified in its charter)

Delaware	94-3241270
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)
6625 The Corners Parkway, Suite 100
Norcross, Georgia	30092
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code (678) 282-8000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes xNo o

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 x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes oNo x

As of May 11, 2007, there were 18,477,190 shares of Common Stock outstanding.

INDEX

VYYO INC.

	Page No.
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at March 31, 2007 and December 31, 2006		3
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2007 and March 31, 2006		4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2007 and March 31, 2006		5
Notes to Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
Item 3. Quantitative and Qualitative Disclosures About Market Risk		29
Item 4. Controls and Procedures		29
PART II. OTHER INFORMATION
Item 1A. Risk Factors		30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		43
Item 6. Exhibits		44
SIGNATURES		45

2

PART I. FINANCIAL INFORMATION

Item 1.Condensed Consolidated Financial Statements

Vyyo Inc.

Consolidated Balance Sheets

(In thousands of U.S. $, except share data)

	March 31, 2007			December 31, 2006
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	24,134		$	7,416
Short-term investments	7,020			11,272
Accounts receivable trade, net:
Related party (note 3)	—			991
Other	468			194
	468			1,185
Inventory, net (note 2)	2,320			2,362
Other	923			996
Total Current Assets	34,865			23,231
Long-Term Assets:
Restricted cash (note 4)	5,000			5,000
Property and equipment, net	1,662			1,676
Employee rights upon retirement funded (note 6)	1,221			1,168
Debt issuance costs, net	150			1,074
TOTAL ASSETS	$	42,898		$	32,149
LIABILITIES AND CAPITAL DEFICIENCY
Current Liabilities:
Accounts payable	$	1,349		$	1,719
Accrued liabilities (note 5)	8,140			7,877
Deferred revenues-related party (note 3)	3,679			3,795
Total Current Liabilities	13,168			13,391
Long-Term Liabilities:
Promissory note (note 4)	5,401			5,078
Senior secured note (note 7)	—			5,085
Convertible note (note 7)	35,000			10,097
Liability for employee rights upon retirement (note 6)	2,345			2,111
Total Liabilities	55,914			35,762
Capital Deficiency:
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, 18,316,231 and 18,114,031 shares issued and outstanding at March 31, 2007 and December 31, 2006, respectively	262,600			260,966
Accumulated other comprehensive loss	(1		)	(3		)
Accumulated deficit	(275,615		)	(264,576		)
Total Capital Deficiency	(13,016		)	(3,613		)
TOTAL LIABILITIES AND CAPITAL DEFICIENCY	$	42,898		$	32,149

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

3

Vyyo Inc.

Condensed Consolidated Statements of Operations

(In thousands of U.S. $, except per share data)

(Unaudited)

	Three Months Ended March 31,
	2007			2006
REVENUES
Revenues (note 10)	$	462		$	569
Revenues from related party (notes 3 and 10)	161			1,800
TOTAL REVENUES	623			2,369
COST OF REVENUES
Cost of products sold	618			318
Cost of products sold, related party	80			1,492
Total Cost of Revenues	698			1,810
GROSS PROFIT (LOSS)	(75		)	559
OPERATING EXPENSES
Research and development	2,868			2,461
Sales and marketing	1,881			2,643
General and administrative	2,047			3,009
Total Operating Expenses	6,796			8,113
OPERATING LOSS	(6,871		)	(7,554		)
FINANCIAL INCOME	244			155
FINANCIAL EXPENSES (consists primarily of expenses for extinguishment of debt, note 7)	(4,162		)	(424		)
LOSS BEFORE INCOME TAXES	(10,789		)	(7,823		)
INCOME TAX	(250		)	(157		)
LOSS FOR THE PERIOD	$	(11,039	)	$	(7,980	)
LOSS PER SHARE — basic and diluted	$	(0.61	)	$	(0.50	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
Basic and diluted	18,095			15,859

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

4

Vyyo Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands of U.S. $)

(Unaudited)

	Three Months Ended  March 31,
	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss for the period	$	(11,039	)	$	(7,980	)
Adjustments to reconcile loss to net cash used in operating activities:
Income and expenses not involving cash flows:
Depreciation and amortization	218			229
Accretion and amortization of financing instruments, net	3,715			365
Stock-based compensation, net	886			1,981
Capital gain on sales of property and equipment	(4		)	—
Decrease (increase) in assets and liabilities:
Accounts receivable — related party	991			—
Accounts receivable — other	(274		)	164
Other current assets	73			(29		)
Inventory	42			987
Accounts payable	(370		)	(379		)
Accrued liabilities	342			217
Deferred revenues — related party	(116		)	57
Liability for employee rights upon retirement	234			301
Net cash used in operating activities	(5,302		)	(4,087		)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment	(435		)	(34		)
Purchase of short-term investments	(3,400		)	(1,000		)
Proceeds from sales and maturities of short-term investments	7,654			4,739
Proceed from sale of property and equipment	6			—
Contributions to severance pay funds	(53		)	(31		)
Net cash provided by investing activities	3,772			3,674
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options	748			1,054
Proceeds from issuance of common stock, Senior Secured Note, 2006 Convertible Note and warrants, net of issuance cost	—			23,820
Proceeds from issuance of 2007 Convertible Note	35,000			—
Payments of Senior Secured Note and 2006 Convertible Note	(17,500		)	—
Net cash provided by financing activities	18,248			24,874
Increase in cash and cash equivalents	16,718			24,461
Cash and cash equivalents at beginning of period	7,416			2,548
Cash and cash equivalents at end of period	$	24,134		$	27,009
Supplemental Disclosure of Cash Flow Information:
Cash paid for taxes	$	8		$	2
Cash paid for interest	$	709		$	—

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

5

Vyyo Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.General Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Vyyo Inc. have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and with the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals, reclassifications and adjustments) considered necessary for a fair presentation have been included. Operating results for the interim period are not necessarily indicative of the results that may be expected for the full year. You should read these interim unaudited condensed consolidated financial statements in conjunction with the audited consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2006, filed by Vyyo Inc. with the Securities and Exchange Commission (the “SEC”).

Organization and Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of Vyyo Inc. and its wholly-owned subsidiaries (collectively, “Vyyo” or the “Company”). All material inter-company balances and transactions have been eliminated in consolidation.

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 primary focus is now on its Cable Solutions segment, and significantly all of its internal resources are focused on enhancing its visibility in and penetration of the cable market.

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 its 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 designed 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 Cable Solutions segment also includes the results of operations of Xtend Networks Ltd., an Israeli privately-held company, and its wholly-owned, United States-based subsidiary, Xtend Networks Inc. (collectively, “Xtend”).

The Company’s Wireless Solutions segment includes products which enable utilities and other network service providers to operate private wireless networks for communications, monitoring and Supervisory Control And Data Acquisition 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.

Summary of Significant Accounting Principles

Financing

On March 28, 2007, the Company closed the private placement (the “2007 Financing”) of a convertible note with Goldman, Sachs & Co. in exchange for $35,000,000 (the “2007 Convertible Note”), which included $17,500,000 of new funding and $17,500,000 of which the Company used to pay off the $10,000,000 10% Convertible Note (the “2006 Convertible Note”) and $7,500,000 9.5% Senior Secured Note (the “Senior Secured Note”). The 2007 Financing resulted in estimated net proceeds to the Company of approximately $17,350,000.  See note 7.

On March 23, 2006, the Company closed the private placement (the “2006 Financing”) of $25,000,000 of common stock, a Convertible Note, a Senior Secured Note and warrants to purchase common stock to Goldman, Sachs & Co. The 2006 Financing  resulted in estimated net proceeds to the Company of approximately $23,400,000. See note 7.

6

Liquidity and Capital Resources

The Company’s consolidated financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has experienced a significant loss from operations since its incorporation. For the three months ended March 31, 2007, the Company incurred a net loss of $11,039,000 and had an accumulated deficit of $275,615,000. The Company’s ability to continue as a going concern will depend upon its ability to raise additional capital or attain profitable operations. In addition, the Company continues to seek to expand its revenue base by adding new customers. Failure to secure additional capital or to expand its revenue base to achieve profitability, would likely result in the Company depleting its available funds and not being able to pay its obligations when they become due. The accompanying unaudited interim consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result if the Company is unable to continue as a going concern.

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

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 United States dollar is the functional currency for the Company and its subsidiaries and all of its sales are made in United States dollars. In addition, a substantial portion of the costs of the Company’s foreign subsidiaries are incurred in United States dollars. Since the United States dollar is the primary currency in the economic environment in which the Company and its foreign subsidiaries operate, monetary accounts maintained in currencies other than the United States dollar (principally cash and liabilities) are remeasured into United States 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 in the Statements of Operations as part of “Financing Income” and “Financing Expense.”

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 capital deficiency, 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 “Financial Income” or “Financial Expenses,” as applicable. 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 in the Statements of Operations 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 “Financial Income” or “Financial Expenses,” as applicable.

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 other-than-temporary impairment in its available-for-sale securities of $0 and $(42,000) and realized losses of $0 and $31,000 for the three months ended March 31, 2007 and 2006, respectively.

7

Cash Equivalents

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

Inventory

Inventory is 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 inventory 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 different 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. During the three months ended March 31, 2007 and 2006, the Company did not write-down any inventory.

The Company adopted the provisions of the Financial Accounting Standards Board (“FASB”) Statement No. 151, “Inventory Costs” (“FASB 151”), as of January 1, 2006, which did not have a material effect on the Company’s financial statements. FASB 151 requires that abnormal idle facility expenses be recognized as current-period charges, and that allocation of fixed production overhead costs to inventory be based on normal capacity of the production facility.

Fair Value of Financial Instruments

The fair value of the financial instruments included in the Company’s working capital approximates carrying value. The Syntek Promissory Note, the Senior Secured Note and the 2006 Convertible Note delivered in the 2006 Financing and the 2007 Convertible Note delivered in the 2007 Financing are presented in the Balance Sheets as “Long-Term Liabilities,” at approximately their estimated fair value.

Debt Issuance Costs

 Costs incurred in the issuance of the 2007 Convertible Note in the 2007 Financing included cash payments to legal advisors in the three months ended March 31, 2007. Costs incurred in the issuance of the 2006 Convertible Note and Senior Secured Note to the Company’s financial advisor included warrants to purchase shares of the Company’s common stock and cash payments to legal and financial advisors in the year ended December 31, 2006. In the year ended December 31, 2006, the fair value of the warrants was determined based on the Black-Scholes option-pricing model. Issuance cost are deferred and amortized as a component of interest expense over the period from issuance through the first redemption date.

Extinguishment of Debt

As noted above, in the 2007 Financing, the Company repaid the 2006 Convertible Note and Senior Secured Note. The Company accounted for this repayment as “extinguishment of debt” under the Emerging Issues Task Force (“EITF”) 96-19, “Debtor’s Accounting for a Modification or Exchange of Debt Instruments” (“EITF 96-19”). The 2007 Convertible Note was initially recorded at fair value, and that amount was used to determine the debt extinguishment loss of $3,263,000 recognized as a result of $2,231,000 unamortized accretion and $1,032,000 unamortized issuance expenses related to the 2006 Convertible Note and Senior Secured Note.

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.

8

Impairment of Long-Lived Assets

Statement of Financial Accounting Standards (“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

The Company generates revenues from sales of its products. As of March 31, 2007, 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 also may sell these products together as a package, in which case the Company typically ships products 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. The Company’s standard sales terms generally do not include customer acceptance provisions. However, where there is a right of return, customer acceptance provision or there is uncertainty about customer acceptance, the associated revenue is deferred until the Company has evidence of customer acceptance.

EITF No. 00-21, “Revenue Arrangements with Multiple Deliverables” (“EITF No. 00-21”), 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 sells its products 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.

The Company recognizes revenues related to the exclusivity provisions contained in the equipment purchase agreement with Arcadian Networks, Inc. on a straight line basis, over the 10-year term of that agreement.

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 or as the related milestone is met.

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 periods presented. All outstanding stock options and shares of restricted stock have been excluded from the calculation of the diluted loss per share because all such securities are not dilutive for the presented periods. For the three months ended March 31, 2007, the total number of shares of common stock related to outstanding options and the 2007 Convertible Note and warrants issued in connection with the 2006 Financing and restricted stock excluded from the calculations of diluted loss per share were 10,118,466. For the three months ended March 31, 2006, the total number of shares of common stock related to outstanding options and the 2006 Convertible Note, warrants issued in connection with the 2006 Financing and restricted stock excluded from the calculations of diluted loss per share were 7,579,390.

9

Stock-Based Compensation

Prior to January 1, 2006, the Company accounted for employees’ stock-based compensation under the intrinsic value model in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations. In accordance with SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), as amended by SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure”.

Effective January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-based Payment” (“SFAS 123(R)”). SFAS 123(R) supersedes APB 25 and related interpretations and amends SFAS No. 95, “Statement of Cash Flows.” SFAS 123(R) requires that awards classified as equity awards be accounted for using the grant-date fair value method. The fair value of stock options is determined based on the number of shares granted and the price of the Company’s common stock, and determined based on the Black-Scholes, Monte Carlo and the binomial option-pricing models, net of estimated forfeitures. The Company estimated forfeitures based on historical experience and anticipated future conditions. The Monte Carlo valuation model is used only for stock options granted to executives in 2005 and 2006 if vesting is subject to market condition criteria.

In March 2005, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 107 (“SAB 107”). SAB 107 provides supplemental implementation guidance on SFAS 123(R), including guidance on valuation methods, inventory capitalization of stock-based compensation cost, income statement effects, disclosures and other issues. SAB 107 requires stock-based compensation to be classified in the same expense line items as cash compensation. The Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R). In addition, the Company has reclassified stock-based compensation from prior periods to correspond to current period presentation within the same operating expense line items as cash compensation paid to employees.

The Company elected to recognize compensation cost for options granted with service conditions that have graded vesting schedules using the graded vesting attribution method.

The Company elected to adopt the modified prospective transition method permitted by SFAS 123(R). Under this transition method, the Company implemented SFAS 123(R) as of the first quarter of 2006 with no restatement of prior periods. The valuation provisions of SFAS 123(R) apply to new awards and to awards modified, repurchased or cancelled after January 1, 2006. Additionally, compensation cost for the portion of awards for which the requisite service has not been rendered that are outstanding as of January 1, 2006 are recognized over the remaining service period using the grant-date fair value of those awards as calculated for pro forma disclosure purposes under SFAS 123.

In November 2005, FASB issued Staff Position No. SFAS 123(R)-3 “Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards.” The Company has elected to adopt the alternative transition method provided in this FASB Staff Position for calculating the tax effects of stock-based compensation pursuant to SFAS 123(R). The alternative transition method includes simplified methods to establish the beginning balance of the additional paid-in capital pool related to the tax effects of employee stock-based compensation, which is available to absorb tax deficiencies recognized after adoption of SFAS 123(R).  As of January 1, 2006, the cumulative effect of the Company’s adoption of SFAS 123(R) was not material.

The Company accounts for equity instruments issued to third party service providers (non-employees) in accordance with the fair value of the instruments based on an option-pricing model, pursuant to the guidance in EITF 96-18 “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services.” The Company revaluates the fair value of the options granted over the related service periods and recognizes the value over the vesting period using the Black-Scholes model.

10

The fair value of each stock option granted during the three months ended March 31, 2007 and 2006 was estimated at the date of grant using the Black-Scholes and the binomial valuation models, using the following assumptions:

	Three Months Ended March 31,
	2007	2006
Black-Scholes model assumptions:
Risk-free interest rates ranges	4.68%	4.66%-4.74%
Weighted-average expected life range	10	2.5-5.0
Volatility ranges	0.61	0.62-0.76
Dividend yields	—	—
Monte Carlo valuation model assumptions:
Risk-free interest rate	—	4.60%
Weighted-average expected life	—	5.22
Volatility	—	0.61
Dividend yields	—	—
Binomial valuation model assumptions:
Risk-free interest rates ranges	4.46%-5.16%	4.20%-4.60%
Weighted-average expected life range	2.79-6.54	0.08-8.42
Volatility ranges	0.33-0.85	0.61-0.63
Dividend yields	—	—

Recent Accounting Pronouncements

In December 2006, FASB issued Staff Position EITF 00-19-2, “Accounting for Registration Payment Arrangements” (“EITF 00-19-2”). EITF 00-19-2 specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement should be separately recognized and measured in accordance with SFAS No. 5, “Accounting for Contingencies.” EITF 00-19-2 is effective immediately for registration payment arrangements and the financial instruments subject to those arrangements that are entered into or modified after December 21, 2006. For registration payment arrangements and financial instruments subject to those arrangements that were entered into prior to December 21, 2006, the guidance in the EITF 00-19-2 is effective for fiscal years beginning after December 15, 2006. The Company does not expect FSP EITF 00-19-2 to have a material impact on the Company’s consolidated financial statements.

In February 2007, FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). This standard permits companies to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. This statement will be effective for the Company as applicable beginning January 1, 2008. The Company is currently evaluating the impact that the adoption of SFAS 159 would have on its consolidated financial statements.

Reclassifications

Certain amounts in the 2006 financial statements have been reclassified to conform to the 2007 presentation.

2.Inventory, net

Inventory is comprised of the following:

	March 31,		December 31,
	2007		2006
	(In thousands of U. S. $)
Raw materials	$	421	$	395
Work in process	455		445
Finished goods	1,444		1,522
	$	2,320	$	2,362

11

3.Agreement with Arcadian Networks, Inc.

On March 31, 2006, the Company entered into an Equipment Purchase Agreement (the “ANI Agreement”) with Arcadian Networks, Inc. (“ANI”). Davidi Gilo, the Company’s Chairman of the board of directors and former Chief Executive Officer, is also the Chairman of the board of directors of ANI and the sole member of the limited liability company that is the general partner of a major stockholder of ANI. Avraham Fischer, a director of the Company, is co-chief executive officer and a director of Clal Industries and Investments, Ltd. (“Clal”), which invested $20,000,000 in ANI in August 2006.  Goldman, Sachs & Co., a major stockholder in the Company and holder of the 2007 Convertible Note is a stockholder of ANI.

Pursuant to the ANI Agreement, the Company sells certain of its products and services to ANI over a 10-year term. The Company distributes these products to ANI on an exclusive basis in the United States, Canada and the Gulf of Mexico (the “Relevant Territory”) to identified markets if: (a) ANI makes two payments of $4,000,000 during each of the first two years of the ANI Agreement; (b) ANI meets specified annual minimum product purchase amounts; and (c) ANI’s outstanding balances are below specified amounts. The exclusivity payments are not refundable under any circumstances.

Exclusivity after the second year will depend on ANI’s meeting the minimum purchase amounts. In addition, to maintain its exclusivity rights in the ANI Agreement, ANI must purchase at least 25% of its minimum product purchase amounts within the first six months of any given year, and at least 32% within the first six months of any given year if ANI purchases from third parties more than 15% of products with similar functionality to the products covered by the ANI Agreement.

The ANI Agreement fixes the product prices for the first two years, after which time prices are subject to adjustment according to the amount of product purchased by ANI compared to specified forecasted purchase amounts.

The ANI Agreement does not prohibit the Company from selling any of its products or services to areas outside of the Relevant Territory. In addition, the Company may sell its products within the Relevant Territory to end users or resellers other than those engaged in the following markets: (a) electricity generation, transmission or distribution (both downstream and upstream); (b) oil or gas exploration, manufacture, transportation or distribution; (c) water utility; (d) chemical manufacture; (e) mining; (f) environmental monitoring or protection; (g) transportation facilities (including railroads); (h) border control; and (i) public safety. Specifically, the Company may sell its products in the Relevant Territory to cable television customers.

The Company received an initial purchase order for $10,000,000 on March 31, 2006 (related to products to be purchased in the first year of the ANI Agreement) and the first exclusivity payment of $4,000,000 on April 3, 2006 which satisfied ANI’s requirements for exclusivity in the first year of the ANI Agreement. As of March 31, 2007, the Company had not received the second $4,000,000 exclusivity payment.

For the three months ended March 31, 2007, the Company recognized revenue of $161,000 under the ANI Agreement, which included income related to the exclusivity payment of $100,000 and product maintenance of $61,000. The Company will recognize the exclusivity payments from ANI over the 10-year term of the ANI Agreement. As of the date of this report, ANI did not have an outstanding accounts receivable balance and the Company had deferred revenues from ANI sales of $3,679,000.

4.Promissory Note

On June 30, 2004, the Company acquired all of the outstanding shares of Xtend, an Israeli privately-held company that was a development stage company at the time. As part of the purchase, the Company delivered a Promissory Note in the principal amount of $6,500,000 originally payable on March 31, 2007 (the “Syntek Promissory Note”). The Company accounted for the Syntek Promissory Note as contingent consideration since it was payable only if the Company was unable to meet certain key provisions, as described in the Syntek Promissory Note. These key provisions were amended on December 16, 2005 as follows:

·the maturity date was extended by one year from March 31, 2007 to March 31, 2008;

·the provision that would have allowed acceleration of the Syntek Promissory Note if the sum of the Company’s 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;

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·The Syntek Promissory Note provides for cancellation in the event that:

(a)the Company’s revenue (including that of all subsidiaries, except for newly acquired businesses) equals or exceeds $60,000,000 million and gross margin equal or exceeds 35%, for the year ended December 31, 2007;

(b)beginning on the first day that the Company’s common stock closes at or above $18.00 per share and at any time thereafter, a sale by the holder of all of its Remaining Shares at an average sales price at or above $18.00 per share. “Remaining Shares” means those shares of the Company’s common stock received by the holder in connection with the acquisition;

(c)all of the Remaining Shares are included in a successfully concluded secondary offering (on Form S-3 or otherwise) at an offering price at or above $18.00 per share in which the holder either (i) sells all of the Remaining Shares or (ii) is provided an opportunity to sell all of such shares into such secondary offering and elects not to sell, provided that the successfully concluded offering included no fewer than the number of Remaining Shares; or

(d)the receipt by the holder of a bona fide offer for the purchase of all of the Remaining Shares at an average sales price at or above $18.00 per share. A “bona fide” offer means a fully funded and unconditional offer for purchase by a buyer who has provable and sufficient financial resources to purchase all of the Remaining Shares for cash within a commercially reasonable period of time from the date of offer, not to exceed 30 days.

As security for the amended Syntek Promissory Note, the Company delivered a $5,000,000 irrevocable letter of credit, and deposited $5,000,000 with an Israeli bank and agreed to restrictions on withdrawal of this amount until the letter of credit is cancelled.  The letter of credit will be cancelled if, 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.

The Company determined that, as of the time of the amendment of the Syntek  Promissory Note in December 2005 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. In addition, the Company estimated the fair value of the amended Syntek Promissory Note at $3,967,000 and recorded this amount in the Balance Sheets as a long-term liability under “Promissory note.” The Company recorded $2,533,000, the difference between the value of the amended Syntek Promissory Note and the original Syntek Promissory Note, 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 Syntek Promissory Note up to $6,500,000. The Company will record the accretion of $2,533,000 as finance expenses during the remaining term of the amended Syntek Promissory Note, unless it is cancelled as provided above. For the three months ended March 31, 2007, the Company recorded $323,000 in financial expenses related to the accretion of the amended Syntek Promissory Note.

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5.Accrued Liabilities

Accrued liabilities consist of the following:

	March 31,		December 31,
	2007		2006
	(In thousands of U.S. $)
Withholding tax	$	3,577	$	3,321
Compensation and benefits	2,185		1,995
Royalties	950		940
Professional fees	322		361
Deferred rent	361		354
Interest payable to Goldman, Sachs & Co.	14		285
Warranty*	57		66
Deferred revenues	70		66
Other	604		489
	$	8,140	$	7,877

*The changes in the warranty balances consist of the following:

	Three Months Ended March 31,			Year Ended December 31,
	2007			2006
	(In thousands of U.S. $)
Balance at beginning of period	$	66		$	104
Usage of warranty	—			(59		)
Product warranty issued for new sales	23			177
Changes in accrual of warranty periods ending	(32		)	(156		)
Balance at end of period	$	57		$	66

6.Severance Liabilities

The amounts paid related to severance and severance expenses were:

	Three Months Ended March 31,
	2007		2006
	(In thousands of U.S. $)
Amounts paid related to severance	$	129	$	174
Severance expenses*	$	310	$	397

*With respect to the Company’s Israeli employees, the Company expects to contribute $366,000 to a defined contribution plan and $159,000 to insurance and pension plans for the year ended December 31, 2007 (includes amounts contributed in the three months ended March 31, 2007).

7.Financing

2007 Financing

 On March 28, 2007, the Company issued the 2007 Convertible Note ($35,000,000 principal; 5% annual interest), initially convertible into 3,500,000 shares of the Company’s common stock to Goldman, Sachs & Co., of which $17,500,000 was used to pay off in full the Company’s outstanding 2006 Convertible Note and Senior Secured Note delivered in the 2006 Financing described below.

The 2007 Convertible Note is convertible at the holder’s option into shares of the Company’s common stock at a conversion price of $10.00 per share, provided, that in no event may the holder own of record more than 14.8% of the outstanding shares of the Company’s common stock. In the event of a Fundamental Transaction (as defined in the 2007 Convertible Note to include sales of the Company’s assets and certain business combination transactions), the

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holder may, at its option, require the Company to redeem all or any portion of the 2007 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 cash “make-whole” premium, calculated in accordance with the terms of the 2007 Convertible Note.

Under the Amended and Restated Registration Rights Agreement executed in connection with the 2007 Convertible Note, the Company is required to file a registration statement on Form S-3 registering the resale of the shares issuable upon conversion of the 2007 Convertible Note for an initial two-year period, subject to extension under specified circumstances.

The Company accounted for the issuance of the 2007 Convertible Note (and the resulting repayment of the 2006 Convertible Note and Senior Secured Note) as extinguishment of debt under EITF 96-19. As a result of the extinguishment of the 2006 Convertible Note and Senior Secured Note, the Company recorded $3,263,000 in the three months ended March 31, 2007 as financial expenses consisting of $2,231,000 of unamortized accretion and $1,032,000 of unamortized issuance expenses.

In accordance with the provisions of EITF 96-19, the Company recorded the 2007 Convertible Note at its fair value, which is estimated at $35,000,000. The 2007 Financing resulted in estimated net proceeds to the Company of approximately $17,350,000, following pay off of the 2006 Convertible Note and Senior Secured Note and payment of issuance expenses of approximately $150,000.

2006 Financing

On March 23, 2006, the Company closed the private placement of $25,000,000 of common stock, a Convertible Note, a Senior Secured Note and warrants to purchase common stock to Goldman, Sachs & Co. In the 2006 Financing, the Company issued (a) 1,353,365 shares of common stock, (b) the 2006 Convertible Note ($10,000,000; 10% annual interest), (c) the Senior Secured Note ($7,500,000 principal; 9.5% annual interest), and (d) warrants to purchase 298,617 shares of common stock. The transaction resulted in estimated net proceeds to the Company of approximately $23,400,000.

The Company allocated the proceeds received in the 2006 Financing to the different instruments based on the relative fair value of each instrument as follows:

			Relative fair
	Face value		value
1,353,365 shares of common stock	$	7,500,000	$	8,260,000
10% Convertible Note	10,000,000		10,111,000
9.5% Senior Secured Note	7,500,000		4,830,000
Warrants to purchase 298,617 shares of common stock for $0.10 per share	—		1,799,000
Total gross proceeds received in 2006 Financing	$	25,000,000	$	25,000,000

The estimated issuance costs of the 2006 Financing were approximately $1,993,000 including (a) a $1,210,000 payment and issuance of warrants to purchase 79,559 shares of the Company’s common stock, at exercise prices ranging from $0.10 to $10.00 (at an estimated fair value of $366,000), to the Company’s financial advisor and (b) approximately $417,000 for legal and other professional fees and costs. Of these estimated issuance costs, $806,000 and $385,000 were allocated to the 2006 Convertible Note and the Senior Secured Note, respectively. These costs were amortized based on the effective interest amortization method through the five-year term until maturity of the notes and recorded as interest expense, based on the effective interest method of amortization.  The issuance costs described above were allocated to the different instruments based on their relative fair values.

As noted above, the Company repaid in full the 2006 Convertible Note and Senior Secured Note with proceeds from the 2007 Financing, and the unamortized accretion and unamortized issuance expenses were extinguished at that time.

8.Stock-Based Compensation

Common Stock Reserved for Issuance

As of March 31, 2007, the Company reserved approximately 727,709 shares of common stock for issuance, upon exercise of stock options and issuance of shares of restricted stock reserved under its stock-based compensation plans.  These shares are available for issuance under the plans described below.

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Stock Option Plans

The Company has the following stock option plans: the 1999 Employee and Consultant Equity Incentive Plan and the Third Amended and Restated 2000 Employee and Consultant Equity Incentive Plan (the “2000 Plan”). The Company’s 1996 Equity Incentive Plan expired by its terms as of February 3, 2006. The Company currently makes grants only from the 2000 Plan, which permits 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 if granted to persons who are subject to Israel income tax. The 2000 Plan also provides for the awards of restricted stock and stock bonuses.

ISOs must have an exercise price equal to the fair value of the common stock on the grant date as determined by the Company’s 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. On May 10, 2007, the Company’s stockholders increased the 1,000,000 shares added annually to the 2000 Plan to 1,500,000 shares effective as of January 1, 2008 and, effective immediately, added an additional 1,000,000 shares to the total number available for issuance under the 2000 Plan.

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, of which $222,000 was amortized during the year ended December 31, 2005 under APB No. 25.

In March 2005, the Company granted certain executives 630,000 options to purchase shares of 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 consultant 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. As of March 31, 2007, 135,000 of these stock options were forfeited. In the three months ended March 31, 2007 and 2006, the Company recorded expenses of $117,000 and $117,000, respectively, related to these stock options.

In March 2007, the Company granted its Vice Chairman of the board of directors 250,000 options to purchase shares of common stock for $6.31 per share. This grant was made to the Vice Chairman in his individual capacity as a consultant to the Company. The options vest and become exercisable in equal monthly installments over 48 months. These stock options may be accelerated upon the occurrence of specified events, including certain financing events, approval of the Company’s products in identified cable companies or upon a “Change of Control” (as defined in the Consulting Agreement). In the three months ended March 31, 2007, the Company recorded expenses of $36,000 related to these stock options.

Grant of Stock Options to Davidi Gilo

On February 10, 2006, the Company’s Compensation Committee approved the grant of stock options to Mr. Gilo, Chairman of the board of directors, to purchase 900,000 shares of the Company’s common stock. At the time, Mr. Gilo also was Chief Executive Officer of the Company. These options vest as follows:

(a)300,000 shares vested upon the closing of the Financing.

(b)300,000 shares vest at such time as the per share price of the Company’s common stock closes at or above $10.44 for a period of any 22 (consecutive or non-consecutive) trading days, so long as Mr. Gilo remains an employee of or consultant to the Company on the 22nd day of such period.

(c)300,000 shares vest at such time as the per share price of the Company’s common stock closes at or above $15.66 for a period of any 22 (consecutive or non-consecutive) trading days, so long as Mr. Gilo remains an employee of or consultant to the Company on the 22nd day of such period.

The Company recorded stock-based compensation expenses of $750,000 for the three months ended March 31, 2006 related to the 300,000 options granted to Mr. Gilo that vested upon the closing of the 2006 Financing. In connection with the 600,000 stock options granted to Mr. Gilo which vest based on the closing price of the Company’s common stock, the Company recorded $79,000 and $30,000 in the three months ended March 31, 2007 and 2006, respectively. These stock-based compensation expenses were determined based on the Monte Carlo valuation method.

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Restricted Stock

Recipients of shares of restricted stock are entitled to cash dividends, to the extent paid, and to vote their shares throughout the restricted period. The shares are valued at the market price on the grant date, and compensation is amortized ratably over the vesting period. The Company must recognize compensation expenses 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 were to vest subject to designated performance criteria. In the three months ended March 31, 2007, the Company did not record compensation expenses since it did not achieve the performance conditions related to the remaining restricted stock.

A summary of stock option plans, shares of restricted stock and related information, under all of the Company’s equity incentive plans as of March 31, 2007 is as follows (in thousands, except per share data):

					Weighted
	Options/Shares				average		Weighted
	available		Number		exercise		average
	for grants		outstanding		price		fair value
Balance at January 1, 2007	559		6,063		$	5.41	—
Authorized	1,000		—		—		—
Granted*	(1,130	)	1,130		$	5.86	$	2.65
Exercised	—		(278	)	$	4.82	—
Cancelled	299		(299	)	$	6.53	—
Balance at March 31, 2007	728		6,616		$	5.46	—

*Includes 51,250 options granted to non-employee directors in the three months ended March 31, 2007 and additional 250,000 options granted to the Vice Chairman who also serves as a consultant.

The following table summarizes information concerning outstanding and exercisable options under stock option plans as of March 31, 2007:

	Options outstanding				Options exercisable
		Weighted	Weighted			Weighted
		average	average			average
		remaining	exercise			exercise
Range of exercise	Number	contractual	price per		Number	price per
Prices	outstanding	life	Share		exercisable	share
	(In thousands)	(In years)			(In thousands)
Plans:
0.10	126	3.52	$	0.10	44	$	0.10
0.99	3	0.86	0.99		3	0.99
2.27-3.40	637	3.71	3.24		470	3.20
3.57-5.22	2,725	4.89	4.64		1,405	4.43
5.60-8.39	2,999	4.41	6.73		1,048	6.76
8.43-10.50	126	2.70	9.44		35	9.05
	6,616	4.49	$	5.46	3,005	$	5.04

9.Comprehensive Loss

The components of comprehensive loss are as follows:

	Three Months Ended March 31,
	2007			2006
	(In thousands of U.S. $)
Loss	$	(11,039	)	$	(7,980	)
Unrealized loss on available-for-sale securities	(1		)	—
Comprehensive loss	$	(11,040	)	$	(7,980	)

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10.Segment Reporting

The Company’s business is divided into two segments: “Cable Solutions” and “Wireless Solutions.”

	Three Months Ended March 31,
	2007			2006
	(In thousands of U.S. $)
Consolidated revenues from:
Cable Solutions	$	462		$	463
Wireless Solutions:
Related party	161			1,800
Other	—			106
	161			1,906
Consolidated revenues	$	623		$	2,369
Operating loss:
Cable Solutions	$	(5,605	)	$	(2,690	)
Wireless Solutions	(1,266		)	(4,864		)
Total consolidated operating loss	(6,871		)	(7,554		)
Financial income	244			155
Financial expenses	(4,162		)	(424		)
Income taxes	(250		)	(157		)
Loss for the period	$	(11,039	)	$	(7,980	)

The following provides information on the Company’s assets:

	March 31,		December 31,
	2007		2006
	(In thousands of U.S. $)
Cash, cash equivalents and short-term investments	$	31,154	$	18,688
Restricted cash	5,000		5,000
Debt issuance costs, net	150		1,074
Cable Solutions	3,370		3,139
Wireless Solutions	3,224		4,248
	$	42,898	$	32,149

	Three Months Ended March 31,
	2007		2006
	(In thousands of U.S. $)
Expenditures for long-lived assets:
Cable Solutions	$	148	$	17
Wireless Solutions	58		17
	$	206	$	34
Depreciation and amortization expenses:
Cable Solutions	$         158		$         115
Wireless Solutions	60		114
	$         218		$         229

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

	Three Months Ended March 31,
	2007		2006
	(In thousands of U.S. $)
Revenues from sales to affiliated and unaffiliated customers in the:
Cable Solutions segment:
North America	$	462	$	463
Wireless Solutions segment:
North America, related party	161		1,800
North America	—		95
Rest of the world	—		11
	$	161	$	1,906
	$	623	$	2,369

	March 31,		December 31,
	2007		2006
	(In thousands of U.S. $)
Property and equipment, net
Israel	$	1,020	$	1,008
United States	642		668
	$	1,662	$	1,676

Sales to major customers out of total revenues are as follows:

	Three Months Ended March 31,
	2007		2006
Customer A	72	%	18	%
Customer B (related party)	26	%	76	%

11.          Subsequent Event

Employment of Davidi Gilo, the Company’s Chairman of the Board of Directors

On April 5, 2007, the Company entered into an amended and restated employment agreement with Davidi Gilo (the “2007 Gilo Agreement”), which replaces and supersedes his employment agreement executed in 2006.

Under the 2007 Gilo Agreement, Mr. Gilo will continue to serve as the Company’s Chairman of the board of directors (subject to approval of the Company’s stockholders and until his successor is duly appointed and elected). The amendment has the same three-year term as his 2006 employment agreement (beginning February 2006), with automatic renewals thereafter for terms of one year each, subject to termination upon prior notice by either party. In exchange for 20 hours of services per week, Mr. Gilo will receive an annual base salary of $200,000, which will be reviewed on or before December 31, 2007 and thereafter based on Mr. Gilo’s services and the Company’s 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 will be entitled to an additional annual bonus based on his and the Company’s performance each year as determined by the Company’s board of directors or Compensation Committee.  In addition, Mr. Gilo is eligible for stock options that the Company may award, and he accrues 30 days of paid vacation for each 12 months of employment, up to a maximum of 60 days.

If the Company terminates his employment without “Cause” (as defined in the 2007 Gilo Agreement), all of Mr. Gilo’s unvested options vest immediately and Mr. Gilo will receive a severance payment equal to the greater of (a) the full amount of compensation that Mr. Gilo could have expected under the 2007 Gilo Agreement (based on his total compensation (salary and bonus) earned in 2007) through the end of the term; or (b) the full amount of compensation that Mr. Gilo could have expected under the 2007 Gilo Agreement for 18 months (based on his total compensation (salary and bonus) earned in 2007).

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If the Company terminates his employment without Cause after the initial three-year term, all of Mr. Gilo’s unvested options shall immediately and Mr. Gilo will receive a severance payment equal to the full amount of the compensation that Mr. Gilo could have expected under the 2007 Gilo Agreement for 18 months (based on his total compensation (salary and bonus) earned in 2007).

If the Company terminates his employment  for Cause, Mr. Gilo will receive a severance payment equal to full amount of the compensation that Mr. Gilo could have expected under the 2007 Gilo Agreement for three months (based on his total compensation (salary and bonus) earned in 2007).

If Mr. Gilo voluntarily terminates his employment, Mr. Gilo shall receive a severance payment equal to the full amount of the compensation that Mr. Gilo could have expected under the 2007 Gilo Agreement for nine months (based on his total compensation (salary and bonus) earned in 2007).

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

You should read this Management’s Discussion and Analysis of Financial Condition and Results of Operations in conjunction with our condensed consolidated financial statements and accompanying notes appearing elsewhere in this Quarterly Report on Form 10-Q. 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 below and elsewhere in this report.

Overview

We provide cable and wireless broadband access solutions through two business segments: our “Cable Solutions” segment and our “Wireless Solutions” segment. Our primary focus is now on our Cable Solutions segment, and significantly all of our internal resources are focused on enhancing our visibility in and penetration of the cable market. The recent additions of James A. Chiddix as the new Vice Chairman of our board of directors and Wayne H. Davis as our new Chief Executive Officer validate our efforts and increase our visibility within the cable industry.

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 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 company, and its wholly-owned, United States-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 our acquisition of Xtend, see note 7 of our 2006 annual Consolidated Financial Statements.

Our Wireless Solutions segment includes products which enable utilities and other network service providers to operate private wireless networks for communications, monitoring and Supervisory Control And Data Acquisition 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.

On March 23, 2006, we closed the private placement of shares of common stock, a convertible note, a senior secured note and warrants to purchase common stock with Goldman, Sachs & Co. in exchange for $25,000,000 (the “2006 Financing”). In the 2006 Financing we issued (a) 1,353,365 shares of our common stock, (b) a $10,000,000 10% Convertible Note (the “2006 Convertible Note”), (c) a $7,500,000 9.5% Senior Secured Note (the “Senior Secured Note”), and (d) warrants to purchase 298,617 shares of our common stock, all of which were exercised in 2006. Our net proceeds from the 2006 Financing were approximately $23,400,000.

On March 28, 2007, we closed the private placement of a convertible note with Goldman, Sachs & Co. in exchange for $35,000,000 (the “2007 Convertible Note”), which included $17,500,000 of new funding and $17,500,000 of which we used to pay off the 2006 Convertible Note and Senior Secured Note delivered in the 2006 Financing. Our net proceeds from the 2007 Financing were approximately $17,350,000. See also note 7.

Critical Accounting Principles

The discussion and analysis of our financial condition and results of operations is based upon our unaudited interim condensed 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.

Our significant accounting principles are described in the notes to our 2006 annual consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2006. We determined the critical principles by

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considering accounting principles that involve the most complex or subjective decisions or assessments. We believe our most critical accounting principles include the following:

Revenue Recognition

We generate revenues from sales of our products. As of March 31, 2007, our revenues from services were not significant. Our products are off-the-shelf products, sold “as is,” without further adjustment or installation. When establishing a relationship with a new customer, we also may sell these products together as a package, in which case we typically ship products at the same time to the customer.

We record 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 terms generally do not include customer acceptance provisions. However, if there is a right of return, customer acceptance provision or uncertainty about customer acceptance, we defer the associated revenue until we have evidence of customer acceptance.

Emerging Issues Task Force (“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. Our multiple deliverables arrangements are those arrangements with new customers in which we sell our products together as a package. Because we deliver 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 our financial position and results of operations.

We recognize revenues related to the exclusivity provisions contained in the equipment purchase agreement with Arcadian Networks, Inc. (“ANI”) described in note 4 of our 2006 annual Consolidated Financial Statements on a straight line basis, over the 10-year term of that agreement

Inventory

We regularly monitor inventory quantities on hand and record a provision for excess and obsolete inventory 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 our inventory and reported operating results. If actual market conditions are different from 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. If we later determine that our inventory is overvalued, we would be required to recognize such costs in our costs of sales at the time of such determination. If we later determine that our inventory is undervalued, we may have overstated our costs of sales in previous periods and would be required to recognize additional operating income only when the undervalued inventory was sold.

We adopted the provisions of the Financial Accounting Standards Board (“FASB”) Statement No. 151, “Inventory Costs” (“FASB 151”), as of January 1, 2006, which did not have a material effect on our financial statements. FASB 151 requires us to recognize abnormal idle facility expenses as current-period charges, and to allocate fixed production overhead costs to inventory based on normal capacity of the production facility.

Extinguishment of Debt

As noted above, in the 2007 Financing we repaid the 2006 Convertible Note and Senior Secured Note. We accounted for this repayment as “extinguishment of debt” under the Emerging Issues Task Force 96-19, “Debtor’s Accounting for a Modification or Exchange of Debt Instruments” (“EITF 96-19”). The 2007 Convertible Note was initially recorded at fair value, and that amount was used to determine the debt extinguishment loss of $3,263,000 recognized as a result of $2,231,000 unamortized accretion and $1,032,000 unamortized issuance expenses related to the 2006 Convertible Note and Senior Secured Note.

Fair Value of Financial Instruments

The fair value of the financial instruments included in our working capital approximates carrying value. The Syntek Promissory Note, the Senior Secured Note and the 2006 Convertible Note delivered in the 2006 Financing and the 2007 Convertible Note delivered in the 2007 Financing are presented in the Balance Sheets as “Long-Term Liabilities,” at approximately their estimated fair value.

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Debt Issuance Costs

Costs incurred in the issuance of the 2007 Convertible Note included cash payments to legal advisors in the three months ended March 31, 2007. Costs incurred in the issuance of the 2006 Convertible Note and Senior Secured Note to the Company’s financial advisor included warrants to purchase shares of the Company’s common stock and cash payments to legal and financial advisors in the year ended December 31, 2006. In the year ended December 31, 2006, the fair value of the warrants was determined based on the Black-Scholes option-pricing model. Issuance cost are deferred and amortized as a component of interest expense over the period from issuance through the first redemption date.

Stock-Based Compensation

Prior to January 1, 2006, we accounted for employees’ stock-based compensation under the intrinsic value model in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations. In accordance with SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), as amended by SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.”

Effective January 1, 2006, we adopted SFAS No. 123 (revised 2004), “Share-based Payment” (“SFAS 123(R)”). SFAS 123(R) supersedes APB 25 and related interpretations and amends SFAS No. 95, “Statement of Cash Flows.” SFAS 123(R) requires that awards classified as equity awards be accounted for using the grant-date fair value method. The fair value of stock options is determined based on the number of shares granted and the price of our common stock, and determined based on the Black-Scholes, Monte Carlo and the binomial option-pricing models, net of estimated forfeitures. We estimated forfeitures based on historical experience and anticipated future conditions. The Monte Carlo valuation model is used only for stock options granted to executives in 2005 and 2006 if vesting is subject to market condition criteria.

In March 2005, the SEC issued Staff Accounting Bulletin No. 107, “Share-Based Payment” (“SAB 107”). SAB 107 provides supplemental implementation guidance on SFAS 123(R), including guidance on valuation methods, inventory capitalization of stock-based compensation cost, income statement effects, disclosures and other issues. SAB 107 requires stock-based compensation to be classified in the same expense line items as cash compensation. We applied the provisions of SAB 107 in our adoption of SFAS 123(R). In addition, we have reclassified stock-based compensation from prior periods to correspond to current period presentation within the same operating expense line items as cash compensation paid to employees.

We elected to recognize compensation cost for an option granted with service conditions that have graded vesting schedules using the graded vesting attribution method.

We elected to adopt the modified prospective transition method permitted by SFAS 123(R). Under this transition method, we implemented SFAS 123(R) as of the first quarter of 2006 with no restatement of prior periods. The valuation provisions of SFAS 123(R) apply to new awards and to awards modified, repurchased or cancelled after January 1, 2006. Additionally, we recognize compensation cost over the remaining service period for the portion of awards for which the requisite service has not been rendered using the grant-date fair value of those awards as calculated for pro forma disclosure purposes under SFAS 123.

In November 2005, FASB issued Staff Position No. SFAS 123(R)-3, “Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards” (“SFAS 123(R)-3”). We elected to adopt the alternative transition method provided in SFAS 123(R)-3 for calculating the tax effects of stock-based compensation pursuant to SFAS 123(R). The alternative transition method includes simplified methods to establish the beginning balance of the additional paid-in capital pool related to the tax effects of employee stock-based compensation, which is available to absorb tax deficiencies recognized after adoption of SFAS 123(R).

As of January 1, 2006, the cumulative effect of our adoption of SFAS 123(R) was not material.

We account for equity instruments issued to third party service providers (non-employees) in accordance with the fair value based on an option-pricing model, pursuant to the guidance in EITF 96-18 “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services”. The fair value of the options granted is revalued over the related service periods and recognized over the vesting period, using the Black-Scholes model.

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Expense related to stock-based compensation is included in the following line items in the Statements of Operations:

	Three Months Ended March 31,
	2007	2006
	(In thousands of U.S. $)
Cost of revenues	$18	$14
Research and development	$130	$217
Sales and marketing	$291	$469
General and administrative	$447	$1,281

Recent Accounting Pronouncements

In December 2006, FASB issued Staff Position EITF 00-19-2, “Accounting for Registration Payment Arrangements” (“EITF 00-19-2”). EITF 00-19-2 specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement should be separately recognized and measured in accordance with SFAS No. 5, “Accounting for Contingencies.” EITF 00-19-2 is effective immediately for registration payment arrangements and the financial instruments subject to those arrangements that are entered into or modified subsequent to December 21, 2006. For registration payment arrangements and financial instruments subject to those arrangements that were entered into prior to December 21, 2006, the guidance in EITF 00-19-2 is effective for fiscal years beginning after December 15, 2006. We do not expect EITF 00-19-2 to have a material impact on our consolidated financial statements.

In February 2007, FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). This standard permits companies to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. This statement will be effective for us as applicable beginning January 1, 2008. We are currently evaluating the impact that the adoption of SFAS 159 would have on our consolidated financial statements.

Results of Operations

Revenues

Revenues decreased to $623,000 in the three months ended March 31, 2007 from $2,369,000 in the three months ended March 31, 2006. This decrease in revenues was primarily due to revenue of $161,000 compared to revenue of $1,800,000 from our Wireless Solutions segment for products sold to ANI in the three months ended March 31, 2007 and 2006, respectively. ANI is a related party as discussed above in note 3. Our sales for the Cable Solutions segment were $462,000 and $463,000 for products sold to a top five cable MSO in the three months ended March 31, 2007 and 2006, 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.

	Three Months Ended March 31,
	2007		2006
Customer A	72	%	18	%
Customer B (related party)	26	%	76	%

Cost of Revenues

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

Cost of revenues decreased to $698,000 during the three months ended March 31, 2007 from $1,810,000 during the three months ended March 31, 2006. This decrease in cost of revenues was primarily attributable to decreases in shipments of our products. Our gross margin during the three months ended March 31, 2007 decreased primarily due to the decrease in shipment of our products together with flat fixed costs. We anticipate that our gross margins will continue to fluctuate based on our product and customer mix, revenue level and inventory valuations.

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Research and Development

Our research and development expenses were $2,868,000 and $2,461,000 during the three months ended March 31, 2007 and 2006, respectively. Approximately $2,206,000 and $1,135,000 of these expenses were from our Cable Solutions segment and approximately $662,000 and $1,326,000 of these expenses were from our Wireless Solutions segment for the three months ended March 31, 2007 and 2006, respectively. These expenses consist primarily of personnel, facilities, equipment and supplies and are charged to operations as incurred. A majority of our research and development activities are conducted in our facility in Israel.

The increase in our research and development expenses in our Cable Solutions segment during the three months ended March 31, 2007 compared to the three months ended March 31, 2006 resulted mainly from (a) an increase in salaries and compensation from $613,000 to $1,226,000 due to the increase in our Cable Solutions segment workforce compared to the workforce as of March 31, 2006 and (b) an increase of subcontractors, materials and other professional fees from $139,000 to $445,000.

Given our focus on our Cable Solutions segment, we anticipate that we will need to increase our research and development workforce in the Cable Solutions segment in future periods to meet our customer demands.

The decrease in our research and development expenses in our Wireless Solutions segment during the three months ended March 31, 2007 compared to the three months ended March 31, 2006 resulted mainly from (a) a decrease in salaries and compensation from $615,000 to $336,000 due to the decrease in our Wireless Solutions segment workforce compared to the workforce as of March 31, 2006, (b) a decrease of subcontractors, materials and other professional fees from $269,000 to $74,000 and (c) decreased charges for stock-based compensation from $118,000 to $17,000.

Sales and Marketing

Sales and marketing expenses decreased to $1,881,000 during the three months ended March 31, 2007 compared to $2,643,000 during the three months ended March 31, 2006. Of these expenses, $1,724,000 and $1,561,000 were from our Cable Solutions segment in the three months ended March 31, 2007 and 2006, respectively, and $157,000 and $1,082,000 were from our Wireless Solutions segment in the three months ended March 31, 2007 and 2006, respectively. Sales and marketing expenses consist of salaries and related costs for sales and marketing employees, consulting fees and expenses for travel, trade shows, market research, branding and promotional activities.

The increase in our sales and marketing expenses in our Cable Solutions segment during the three months ended March 31, 2007 compared to the three months ended March 31, 2006 resulted mainly from an increase in salaries and compensation from $775,000 to $982,000 due to the increase in our Cable Solutions segment workforce compared to the workforce as of March 31, 2006. These amounts were partly offset by decreased charges for stock-based compensation from $328,000 to $288,000.

Given our focus on our Cable Solutions segment, we anticipate that our Cable Solutions segment sales and marketing workforce will increase in future periods as we increase our efforts to penetrate the Cable Solutions market and meet our customer demands.

The decrease in our sales and marketing expenses from our Wireless Solutions segment in the three months ended March 31, 2007 was mainly from (a) a decrease in salaries and compensation from $477,000 to $61,000 due to the decrease in our Wireless Solutions segment workforce compared to the workforce as of March 31, 2006, (b) decreased charges for stock-based compensation from $141,000 to $3,000, (c) a decrease in travel and entertainment expenses from $65,000 to $22,000, (d) a decrease of subcontractors, materials and other professional fees from $45,000 to $6,000 and (e) a decrease in overhead expenses from $245,000 to $43,000 related to the relocation of our sales and marketing support facilities of our Wireless Solutions segment from Palo Alto, California to Norcross, Georgia during 2006. Given this reduction and our general de-emphasis of our Wireless Solutions segment, we anticipate that sales and marketing expenses of our Wireless Solutions segment will decrease in future periods.

General and Administrative

General and administrative expenses were $2,047,000 compared to $3,009,000 during the three months ended March 31, 2007 and 2006, respectively. Of these expenses, approximately $1,520,000 and $285,000 were from our Cable Solutions segment and approximately $527,000 and $2,724,000 were from our Wireless Solutions segment during the three months ended March 31, 2007 and 2006, respectively. General and administrative expenses consisted primarily of personnel and related costs for general corporate functions, including finance, accounting, implementation of the Sarbanes-Oxley Act of 2002, strategic and business development and legal.

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The decrease in general and administrative expenses during the three months ended March 31, 2007 compared to the three months ended March 31, 2006 was primarily due to (a) decreased charges for stock-based compensation from $1,281,000 to $447,000 and (b) a decrease in professional fees from $332,000 to $209,000.

We expect general and administrative expenses to be higher in the future as we continue to implement internal controls over financial reporting as required by the Sarbanes-Oxley Act and to execute our strategic plans and business development efforts.

Financial Income (Expense), Net

“Financial Income (expense), net” includes interest and investment income, foreign currency remeasurement gains and losses. Net interest expense was $3,918,000 for the three months ended March 31, 2007 compared to net interest expense of $269,000 for the three months ended March 31, 2006. As a result of the extinguishment of the 2006 Convertible Note and Senior Secured Note, we recorded $3,263,000 in the three months ended March 31, 2007 as financial expenses consisting of $2,231,000 of unamortized accretion and $1,032,000 of unamortized issuance expenses. In addition we had increased interest expenses due to our amended Syntek Promissory Note, 2006 Convertible Note and Senior Secured Note. These increases were partially offset by interest income derived mainly from our cash and short-term investment balances, and recognition of an other-than-temporary impairment in our available-for-sale securities of $0 and ($42,000) and realized losses of $0 and $31,000 for the three months ended March 31, 2007 and 2006, respectively.

We will incur increased interest expenses for the remainder of 2007 and beyond due to long-term debt issued in the 2007 Financing in which the 2007 Convertible Note bears an annual interest rate of 5% and due to the amortization of deferred expenses incurred as part of the 2007 Financing. Interest expenses also will increase given the accretion to the value of the $6,500,000 amended Syntek Promissory Note. We will record accretion of $2,533,000 throughout the term of the amended Syntek Promissory Note, unless the note is cancelled, of which we recorded $323,000 during the three months ended March 31, 2007.

Income Taxes

As of December 31, 2006, our Israeli subsidiaries had net operating loss carryforwards of approximately $96,000,000. These 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 29% for 2007) 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 2006 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.

Liquidity and Capital Resources

As of March 31, 2007, we had $31,154,000 of cash, cash equivalents and short-term investments.

Our consolidated financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We have experienced significant losses from operations since our incorporation. For the period ended March 31, 2007, we incurred a net loss of $11,039,000 and had an accumulated deficit of $275,615,000. Our ability to continue as a going concern will depend upon our ability to raise additional capital or attain profitable operations. In addition, we continue to seek to expand our revenue base by adding new customers. Failure to secure additional capital or to expand our revenue base to achieve profitability, would likely result in depleting our available funds and not being able to pay our obligations when they become due. The accompanying unaudited interim Consolidated Financial Statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result if we are unable to continue as a going concern.

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During the three months ended March 31, 2007, net cash used in operations was $5,302,000, comprised mainly of our loss of $11,039,000, partially offset by (a) non-cash charges related to depreciation and amortization of $218,000, (b)  stock-based compensation of $886,000, (c) financing expenses of $3,715,000 resulting from accretion of the amended Syntek Promissory Note, the 2006 Convertible Note and Senior Secured Note delivered in the 2006 Financing and the 2007 Convertible Note delivered in the 2007 Financing, (d) an increase of liability for employee rights upon retirement of $234,000, and (e) changes in other working capital accounts of $688,000.

During the three months ended March 31, 2006, net cash used in operations was $4,087,000, comprised mainly of our loss of $7,980,000, partially offset by (a) non-cash charges related to depreciation and amortization of $229,000, (b) financing expenses of  $365,000 resulting from accretion of the amended Syntek Promissory Note, 2006 Convertible Note and Senior Secured Note, (c) stock-based compensation of $1,981,000, (d) an increase of liability for employee rights upon retirement of $301,000, and (e) changes in other working capital accounts of $1,017,000.

During the three months ended March 31, 2007, net cash provided by investing activities was $3,772,000 comprised of sales and maturities of our short-term investments net of $4,254,000 in purchases of short-term investments partially offset by $435,000 in purchases of property and equipment. During the three months ended March 31, 2006, net cash provided by investing activities was $3,674,000 comprised of $3,739,000 net of sales and purchases of our short-term investments partially offset by $34,000 in purchases of property and equipment.

Financing activities in the three months ended March 31, 2007 were approximately $18,248,000 related to the 2007 Financing which included the 2007 Convertible Note and proceeds we received upon the exercise of stock options.  Financing activities in the three months ended March 31, 2006 were approximately $24,874,000 and related to (a) the 2006 Financing, which included the issuance of our common stock, the 2006 Convertible Note, the Senior Secured Note and warrants to purchase our common stock, net of issuance cost and (b) proceeds we received upon the exercise of stock options. See note 7 above for additional information about the 2007 Financing and the 2006 Financing.

We have purchase obligations to our suppliers that support our operations in the normal cause of our business. The obligations require us to purchase minimum quantities of the suppliers’ products at a specified price. As of March 31, 2007 and December 31, 2006, we had approximately $2,929,000 and $1,136,000, respectively, of purchase obligations. These obligations are expected to become payable at various times through 2007.

Subsequent Event

Employment of Davidi Gilo, our Chairman of the Board of Directors

On April 5, 2007, we entered into an amended and restated employment agreement with Davidi Gilo (the “2007 Gilo Agreement”), which replaced and superseded his employment agreement executed in 2006.

Under the 2007 Gilo Agreement, Mr. Gilo will continue to serve as our Chairman of the board of directors (subject to approval of our stockholders and until his successor is duly appointed and elected). The 2007 Gilo Agreement has the same three-year term as his 2006 agreement, with automatic renewals thereafter for terms of one year each, subject to termination upon prior notice by either party. In exchange for 20 hours of services per week, Mr. Gilo will receive an annual base salary of $200,000, which will be reviewed on or before December 31, 2007 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 will be entitled to an additional annual bonus based on his and our performance each year as determined by our board of directors or Compensation Committee.  In addition, Mr. Gilo is eligible for stock options that we award, and he shall accrue 30 days of paid vacation for each 12 months of employment.

If we terminate his employment without “Cause” (as defined in the 2007 Gilo Agreement), all of Mr. Gilo’s unvested options will vest immediately and Mr. Gilo will receive a severance payment equal to the greater of (a) the full amount of compensation that Mr. Gilo could have expected under the 2007 Gilo Agreement (based on his total compensation (salary and bonus) earned in 2007) through the end of the term; or (b) the full amount of compensation that Mr. Gilo could have expected under the 2007 Gilo Agreement for 18 months (based on his total compensation (salary and bonus) earned in 2007).

If we terminate his employment without Cause after the initial three-year term, all of Mr. Gilo’s unvested options will vest immediately and Mr. Gilo will receive a severance payment equal to the full amount of the compensation that Mr. Gilo could have expected under the 2007 Gilo Agreement for 18 months (based on his total compensation (salary and bonus) earned in 2007).

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If we terminate his employment for Cause, Mr. Gilo will receive a severance payment equal to full amount of the compensation that Mr. Gilo could have expected under the 2007 Gilo Agreement for three months (based on his total compensation (salary and bonus) earned in 2007).

If Mr. Gilo voluntarily terminates his employment, Mr. Gilo will receive a severance payment equal to the full amount of the compensation that Mr. Gilo could have expected under the 2007 Gilo Agreement for nine months (based on his total compensation (salary and bonus) earned in 2007).

Forward-Looking Statements

You should read Management’s Discussion and Analysis of Financial Condition and Results of Operations in conjunction with the consolidated financial statements and accompanying notes appearing elsewhere in our Quarterly Report on Form 10-Q. The matters addressed in 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, 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:

·our belief that our ability to continue as a going concern will depend upon our ability to raise additional capital or attain profitable operations;

·our belief that failure to secure additional capital or to expand our revenue base to achieve profitability would likely result in depleting our available funds and not being able to pay our obligations when they become due;

·our belief that our most critical accounting policies include policies related to revenue recognition, inventory, extinguishment of debt, fair value of financial instruments, debt issuance costs and stock-based compensation;

·our expectation that EITF 00-19-2 will not have a material impact on our consolidated financial statements;

·our anticipation that our revenues will remain concentrated among a few customers for the foreseeable future;

·our anticipation that our gross margins will continue to fluctuate based on our product and customer mix, revenue level and inventory valuations;

·our anticipation that we will need to increase our research and development workforce in the Cable Solutions segment in future periods to meet our customer demands;

·our anticipation that our Cable Solutions segment sales and marketing workforce will increase in future periods as we increase our efforts to penetrate the Cable Solutions market and meet our customer demands;

·our anticipation that sales and marketing expenses of our Wireless Solutions segment will decrease in future periods given the reduction in our expenses related to the relocation of our sales and marketing support facilities from California to George and our general de-emphasis of our Wireless Solutions segment;

·our expectation that general and administrative expenses will be higher in the future as we continue to

·implement internal controls over financial reporting as required by the Sarbanes-Oxley Act of 2002 and to execute our strategic plans and business development efforts;

·our expectation that the losses of our Israeli subsidiaries will offset certain future earnings of the subsidiaries, if attained, during the tax-exempt period (provided under Israeli law);and

·our belief as to the payment of purchase obligations that are expected to become payable at various times through 2007.

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

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forth under Item 1A below 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 document are based on information available to us as of the date hereof, and we assume no obligation to update these forward-looking statements.

Item 3.Quantitative and Qualitative Disclosures about Market Risk

We are exposed to financial market risks including changes in interest rates and foreign currency exchange rates. Substantially all of our revenue and capital spending is transacted in United States 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 (“NIS”). We have not engaged in hedging transactions to reduce our exposure to fluctuations that may arise from changes in foreign exchange rates. In the event of an increase in inflation rates in Israel, or if appreciation of the NIS occurs without a corresponding adjustment in our dollar-denominated revenues, our results of operation and business could be materially harmed.

As of March 31, 2007, we had cash, cash equivalents and short-term investments of $31,154,000. 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. Highly liquid investments with maturity of less than three months at the date of purchase are considered to be cash equivalents; investments with maturities of three months or greater are classified as available-for-sale and considered to be short-term investments.

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

Quantitative Interest Rate Disclosure as of March 31, 2007

If market interest rates were to increase on March 31, 2007 immediately and uniformly by 10%, the fair value of the portfolio would decline by approximately $12,000, or approximately 0.04% of the total portfolio (approximately 0.03% of total assets). Assuming that the average yield to maturity on our portfolio at March 31, 2007 remains constant throughout the second quarter of 2007 and assuming that our cash, cash equivalents and short-term investments balances at March 31, 2007 remain constant for the duration of the second quarter of 2007, interest income for the second quarter of 2007 would be approximately $326,000. Assuming a decline of 10% in the market interest rates at March 31, 2007, interest income for the second quarter of 2007 would be approximately $383,000, which represents a decrease in interest income of approximately $28,000. The decrease in interest income will result in a decrease of the same amount to net income and cash flows from operating activities for the three months ended March 31, 2007. These amounts are determined by considering the impact of the hypothetical interest rates on our cash equivalents and available-for-sale securities at March 31, 2007 over the remaining contractual lives.

Item 4.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.

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PART II.OTHER INFORMATION

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 $11,039,000 for the three months ended March 31, 2007 and as of that date our accumulated deficit was $275,615,000. Our revenues and gross margins may not grow or even continue at their current levels 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, unpredictable sales patterns, declining average selling prices and rapid product obsolescence, all of which make it more challenging to effectively manage our inventory. In addition, some of the components we require have long lead-times and we are required to order or build inventory well in advance of the time of our anticipated sales.

Our inventory is stated at the lower of cost or market value. Determining market value of our inventory requires 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 inventory when we determine that inventory is slow moving, obsolete, excessive or if the selling price of the product is insufficient to cover product costs and selling expenses.

In this regard, our inventory increased substantially in 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 non-cancelable purchase commitments of $424,000 and $2,050,000 for the years ended December 31, 2006 and 2005, respectively.

If 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 28, 2007, we closed a financing of $35,000,000 with Goldman, Sachs & Co., as further described in note 7. In the 2007 Financing, we delivered the 2007 Convertible Note, $17,500,000 of which was used to payoff the outstanding 2006 Convertible Note and the Senior Secured Note issued to Goldman, Sachs & Co. in the 2006 Financing. Following this pay off and payment of issuance expenses , our net proceeds were $17,350,000. Notwithstanding the 2007 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 we default under the 2007 Convertible Note delivered to Goldman, Sachs & Co., the principal and accrued interest would become due and payable which would substantially harm our cash position and business prospects.

On March 28, 2007, we closed the 2007 Financing which included delivery of the 2007 Convertible Note in the principal amount of $35,000,000. The 2007 Convertible Note contains events of default that, if triggered, would require us to pay the principal and accrued interest under such note immediately (after the expiration of applicable cure periods). If an event of default occurs under the 2007 Convertible Note 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 industry is extremely competitive, subject to drastic technological changes, changes in capital expenditure budgets 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. We have only recently shipped our first commercial orders for our 3GHz Spectrum Overlay solution to two systems of a top MSO. Other than these orders, we have only begun to install our 3GHz Spectrum Overlay products with customers in field trials. There can be no assurance that our installations of our cable products will be successful. As some of our cable products continue to be in a development stage, we may face challenges such as market resistance to new products, 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.

Because substantially all of our revenues are generated in United States 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 United States dollar.

Our functional currency is the United States dollar. We generate substantially all of our revenues in United States. 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 (“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.

Our success will depend on future demand for additional bandwidth by MSOs and their customers and the willingness and ability of MSOs to substantially increase available bandwidth on their networks using our alternative technology solution.

Because our cable products expand available bandwidth over existing infrastructure, demand for these products depends on demand for additional bandwidth by MSOs and their customers. The scope and timing of customer demand for 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.

For our cable products to be sold in significant quantities, MSOs also 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. 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.

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

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

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 products will depend significantly on the growing market acceptance of several emerging broadband services, including digital video, video-on-demand, high definition television, very high-speed data services and voice-over-internet protocol (“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, 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.

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

·convergence, or the desire of certain operators to provide a combination of video, voice and data services to consumers, also known as the “triple play;”

·the use of digital video by businesses and governments;

·the privatization of state owned telecommunication companies in other countries;

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

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

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

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

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

To develop such channels and market and sell our cable products, we need to grow our sales and marketing team, many of whom will be based in the United States. It may be difficult for us to hire and retain additional qualified personnel. Integrating new personnel, particularly United States based personnel, may be challenging from a culture and logistics perspective because most of our employees currently are based in Israel.

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

Because of our long product development process and sales cycle, we may continue to incur substantial expenses without sufficient 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 would be seriously harmed if such revenues do not materialize when anticipated, or at all.

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

Telecommunications service providers continually evaluate alternative technologies, including digital subscriber line, fiber and cable. If service providers or systems integrators do not emphasize systems that include our products, choose to emphasize alternative technologies or promote systems of our competitors, our business would be seriously harmed.

Market conditions remain difficult and capital spending plans are often constrained. It is likely that further industry restructuring and consolidation will take place. Companies that have historically not had a large presence in the broadband access equipment market have expanded 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.

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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, our business may be seriously harmed.

Our future success depends 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 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.

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

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

	Three Months Ended March 31,
	2007		2006
Customer A	72	%	18	%
Customer B (related party)	26	%	76	%

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.

In this regard, sales to Customer B in the year ended December 31, 2006 accounted for the vast majority of our sales during that year. This customer was formed in 2006 and has a very limited history of operations, profitable or otherwise. If this customer is not successful in operating its business, or if sales to this customer are lower than our expectations, our business could be harmed. We have designed products for our Wireless Solutions segment to meet the specifications of Customer B, based on that customer’s assessment of the utility sector. Sales in our Wireless Solutions segment could be adversely affected if Customer B has not accurately assessed the needs of the utility sector.

Notwithstanding the foregoing, as sales to Customer B were made by our Wireless Solutions segment, if this customer is not successful, the effect to us will be tempered given the refocus of our internal resources on our Cable Solutions segment. In this regard, we expect that a significant source of our revenues in the coming years will be derived from our Cable Solutions segment rather than our Wireless Solutions segment.

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

We may explore investments in or acquisitions of other companies, products or technologies, including companies or technologies that are not complementary or related to our current solutions. We ultimately may be unsuccessful in operating and/or integrating an acquired company’s personnel, operations, products and technologies into our business. These difficulties may disrupt our ongoing business, divert the time and attention of our management and employees and increase our expenses.

Moreover, the anticipated benefits of any acquisition may not be realized or may not be realized in the time period we expect. 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 could spend significant resources in searching for and investigating new business opportunities, and ultimately may be unsuccessful in acquiring new businesses.

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We depend on cable and telecommunications industry capital spending for 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:

·              the availability of cash or financing;

·              budgetary issues;

·              regulation and/or deregulation of the telecommunications industry;

·              competitive pressures;

·              alternative technologies;

·              overall demand for broadband services, particularly relatively new services such as VoIP;

·              industry standards;

·              the pattern of increasing consolidation in the industry; and

·              general consumer spending and overall economic conditions.

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

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

We do not participate 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 initiatives of MSOs and the wireless industry could adversely affect our prospects.

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

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

We implemented a cost reduction program in 2005 by reducing our workforce, which 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. In this regard, we are currently experiencing difficulty in hiring skilled research and development personnel in Israel. If this difficulty continues in the foreseeable future, our research and development efforts would be harmed.

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

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mature. We may be unable to reduce our manufacturing costs in response to declining average per unit selling prices. Our competitors may be able to achieve greater economies of scale and may be less vulnerable to the effects of price competition than we are. These declines in average selling prices will generally lead to declines in gross margins and 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 quarterly operating results fluctuate, which may cause our share price to decline.

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

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

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

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

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

·reductions in pricing by us or our competitors;

·global economic conditions;

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

·changes in the prices or delays in deliveries of the components we purchase or license; and

·any acquisitions or dispositions we may effect.

A delay in the recognition of revenue, even from one customer, 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.

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.

Our research and development facilities are located in Israel. Our reliance on international sales, operations and suppliers exposes us to foreign political and economic risks, which may impair our ability to generate revenues. These risks include:

·              economic, inflation and political instability;

·              terrorist acts, international conflicts and acts of war;

·              our international customers’ ability to obtain financing to fund their deployments;

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

·              import or export licensing requirements and tariffs;

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·              labor shortages or stoppages;

·              trade restrictions and tax policies; and

·              limited protection of intellectual property rights.

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

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 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. 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 we generally do not have 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 generally sell our broadband access equipment and systems based on individual purchase orders. Our customers generally are not obligated by agreements to purchase our systems, and the agreements we have entered into, other than our agreement with ANI, 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.

The 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:

·              product performance, features and reliability;

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·              price;

·              stability;

·              scope of product line;

·              sales and distribution capabilities;

·              technical service and support;

·              relationships, particularly those with system integrators and operators; and

·              industry standards.

Certain of our 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 Scientific Atlanta (purchased by Cisco Systems, Inc. in 2006); Motorola, Inc.; BigBand Networks, Inc.; C-Cor Incorporated and Narad Networks, Inc. Most of these competitors have existing relationships with one or more of our prospective customers. In the cable industry, our cable offerings face competition from technologies such as digital set-top boxes, high-end compression technologies and DVRs. For our broadband wireless offerings, we face competition from technologies such as digital subscriber line, fiber and cable. 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.

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

Our future success in the wireless 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 continue to operate our Wireless Solutions segment, our primary focus is now on our Cable Solutions segment. Accordingly, we may consider a variety of alternatives to Wireless Solutions segment, including the sale, divestiture, license or restructuring of a substantial portion or all of our current wireless network technology or assets. If demand for products in our Wireless Solutions segment increases, we may not have sufficient products (either in terms of quantity or different product lines) to address the needs of the wireless market due to insufficient production capabilities or research and development expertise.

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 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 not detected. We have in the past experienced, and may experience from time-to-time, defects in new or enhanced products and systems after shipments, or defects in deployed systems. This could occur 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.

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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 products, substantially all of whom are located in Israel and Taiwan. These relationships may be terminated by either party with little or no notice. If our manufacturers are unable or unwilling to continue manufacturing our systems in required volumes, we would have to identify qualified alternative manufacturers, which would result in delays causing our results of operations to suffer. Our limited experience with these manufacturers and lack of visibility as to the manufacturing capabilities of these companies if our volume requirements significantly increase 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 is unlikely to fulfill anticipated demand, and we will therefore be required to find a manufacturer in the near future. Our inability to enter into an 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 3.5GHz and other products. We currently have limited relationships with third party suppliers. If we are unable to establish meaningful 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 are implemented over the HFC 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. In addition, we depend on the continuous delivery of components by various manufacturers of electronic connectors, filters, boards and transistors.

                Furthermore, we have produced certain of our products only in limited quantities. If demand for these products increases significantly, we will need to implement and address additional processes, procedures and activities necessary to support increased production. If we are unable to do so, our business would be substantially harmed.

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

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

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

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

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

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

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

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

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

We have increased certain expenses to address new business opportunities in the Cable Solutions segment, and we will need to continue to monitor closely our costs and expenses. If the market for our cable solutions does not expand or takes longer to develop than we expect, 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 revenues.

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 addition, if worldwide manufacturing capacity does not rise along with a rise in demand, our subcontract manufacturers could allocate available capacity to larger customers or to customers that have long-term supply contracts in place.

Our inability to obtain adequate manufacturing capacity at acceptable prices, or any delay or interruption in supply, could reduce our revenues or increase our cost of revenue and could seriously harm our business.

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

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

·              obtain licenses to the infringing technology;

·              pay substantial damages under applicable law;

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

·              expend significant resources to develop non-infringing technology.

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

If we do not 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 Cable Solutions segment. 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.

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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.

Some of our products and technology are subject to export control laws and regulations. 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 and the resulting rules of the Nasdaq Stock Market will continue to require changes in our corporate governance, public disclosure and compliance practices. The scope of rules and regulations applicable to us has increased and will continue to increase our legal and financial compliance costs.

As a public company, our systems of internal controls over financial reporting are required to comply with the standards adopted by the Securities and Exchange Commission (“SEC”) and the Public Company Accounting Oversight Board (the “PCAOB”). We will be required to make our first annual certification on our internal controls over financial reporting in our annual report for the fiscal year ended December 30, 2007. In preparing for such certification, we are evaluating our internal controls for compliance with applicable SEC and PCAOB requirements, and we may be required to design enhanced processes and controls to address issues identified through this review. This could result in significant delays and cost to us and require us to divert substantial resources, including management time, from other activities. We have commenced a review of our existing internal control structure and may need to hire additional personnel. Although our review is not complete, we are taking steps to improve our internal control structure by dedicating internal resources to analyze and improve our internal controls, to be supplemented periodically with outside consultants as needed. However, if we fail to achieve and maintain the adequacy of our internal controls, we may not be able to conclude that we have effective internal controls over financial reporting as of the end of our fiscal year 2007. Moreover, although our management will continue to review and evaluate the effectiveness of our internal controls, we can give no assurance that there will be no material weaknesses in our internal control over financial reporting. We may in the future have material weaknesses or other control deficiencies in our internal control over financial reporting as a result of our controls becoming inadequate due to changes in conditions, the degree of compliance with our internal control policies and procedures deteriorating, or for other reasons. If we have significant deficiencies or material weaknesses or other control deficiencies in our internal control over financial reporting, our ability to record, process, summarize and report financial information within the time periods specified in the rules and forms of the SEC will be adversely affected. This failure could materially and adversely impact our business, our financial condition and the market value of our securities.

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.

Our success depends significantly on Davidi Gilo, our Chairman of the Board, 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 significantly depend on the services of Davidi Gilo, our Chairman of the Board and former 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.

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

Since our inception, we have used stock options as a fundamental component of our employee compensation packages. We believe that our stock option plans are an important tool to link the long-term interests of 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 generally accepted accounting principals in the United States that require us to record a charge to earnings for employee stock option grants, as well as other equity based awards. The change has negatively impacted our earnings and, if such impact is material in the future, could affect our ability to raise capital on acceptable terms. In addition, regulations implemented by the Nasdaq Stock 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 these new regulations make it more difficult or unacceptably 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 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 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.

We may lose our United States income tax net operating loss carryforwards if we experience a significant change in ownership.

The utilization of net operating loss carryforwards may be subject to substantial annual limitations if there has been a significant “change in ownership.” Any “change in ownership,” as described in Section 382 of the Internal Revenue Code, may substantially limit our ability to utilize the net operating losses carryforwards. As of December 31, 2006, we had United States federal net operating loss carryforwards of approximately $55,100,000, which will expire in years 2011 through 2026 and state net operating losses of approximately $40,200,000 which will expire in years 2008 through 2016.

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

A majority of our board of directors, Lewis Broad, Neill Brownstein, Avraham Fischer, Samuel Kaplan and Alan Zimmerman and certain of our officers, have had professional relationships with Davidi Gilo, our Chairman of the Board and former Chief Executive Officer, 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, is an investor and co-chief executive officer of an Israeli investor group in which Mr. Gilo was an investor until October 2005, and is co-chief executive officer and a director of Clal Industries and Investments, Ltd., which has made a significant investment in ANI, a related party of our company. However, the long-term relationships between these directors and officers and Mr. Gilo and his affiliated companies could be considered to limit their independence.

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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 March 31, 2007, our management collectively owned approximately 33.49% 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, 2007).

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

·              electing members to our board of directors;

·approving significant change-in-control transactions;

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

·controlling our management and operations.

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

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 could disrupt our manufacturing, information technology 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 Global Market is likely to continue to experience extreme price and volume fluctuations, the price of our stock may decline.

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

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

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

·              introduction and adoption of new industry standards;

·              changes in financial estimates or recommendations by securities analysts;

·              changes in the market valuations of our competitors;

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

·              sales of our common stock.

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

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To date, the trading volume in our common stock generally has been relatively low and significant price fluctuations can occur as a result. If the generally low trading volumes experienced to date continue, such price fluctuations could continue in the future and the sale prices of our common stock could decline significantly. Investors may therefore have difficulty selling their shares.

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.

If securities or industry analysts do not publish research or reports about our business, if they change their recommendations regarding our shares adversely or if our operating results to not meet their expectations, the price of our common stock could decline.

The trading market for our common stock will be influenced by the research and reports that industry and securities analysts publish about us or our business. If these analysts fail to publish reports about us or if one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause the price of our common stock to decline. Moreover, if one or more analysts who cover us downgrade our common stock or if our operating results do not meet their expectations, the price of our common stock could decline.

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

Our Fifth 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:

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

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

·super majority voting is required to amend key provisions of our Fifth Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws;

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

·stockholders are not able to take action by written consent; and

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

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

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 2.Unregistered Sales of Equity Securities and Use of Proceeds

On March 28, 2007, we delivered the 2007 Convertible Note to Goldman, Sachs & Co. For a description of the 2007 Financing, including a description of our expenses paid in connection with the 2007 Financing, see note 7 above. We relied upon Rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended, for the exemption from registration of the sale of such securities.

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Item 6.Exhibits

Exhibit Number		Exhibit Description
	3.1	Fifth Amended and Restated Certificate of Incorporation.
	3.2	Amended and Restated Bylaws.
	4.1	Reference is made to Exhibits 3.1 and 3.2 above.
	10.1	Form of Indemnification Agreement.*
	31.1	Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1	Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Indicates management contract or compensatory plan or arrangement.

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SIGNATURES

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

Date: May 15, 2007
VYYO INC.
By:	/s/ Wayne H. Davis
	Wayne H. Davis, Chief Executive Officer
	(Duly Authorized Officer)
By:	/s/ Arik Levi
	Arik Levi, Chief Financial Officer
	(Duly Authorized Officer and Principal Financial Officer)

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EXHIBIT INDEX

Exhibit Number		Exhibit
	3.1	Fifth Amended and Restated Certificate of Incorporation.
	3.2	Amended and Restated Bylaws.
	4.1	Reference is made to Exhibits 3.1 and 3.2 above.
	10.1	Form of Indemnification Agreement.*
	31.1	Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1	Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adapted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*Indicates management contract or compensatory plan or arrangement.

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EX-3.1

Exhibit 3.1

FIFTH AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

VYYO INC.

Vyyo Inc. (the “Corporation”), a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify as follows:

(a)           The name of the Corporation is Vyyo Inc.  The original Certificate of Incorporation of the Corporation was filed with the office of the Secretary of State of the State of Delaware on March 21, 1996 under the name PhaseCom, Inc.

(b)           This Fifth Amended and Restated Certificate of Incorporation (the “Fifth Amended and Restated Certificate of Incorporation”) was duly adopted by the Board of Directors and by the stockholders of the Corporation in accordance with Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware.

(c)           The text of the Fourth Certificate of Incorporation of the Corporation is amended and restated in its entirety as follows:

FIRST:   The name of the Corporation is Vyyo Inc. (hereinafter the “Corporation”).

SECOND:  The address of the registered office of the Corporation in the State of Delaware and County of New Castle is 1313 N. Market Street, Suite 5100, Wilmington, DE 19801. The name of its registered agent at that address is PHS CORPORATE SERVICES, INC.

THIRD:  The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware as set forth in Title 8 of the Delaware Code (the “DGCL”).

FOURTH:  The total number of shares of stock which the Corporation shall have authority to issue is 50,000,000 shares of common stock, each having a par value of $0.0001, and 5,000,000 shares of preferred stock, each having a par value of $0.001.

The Board of Directors is expressly authorized to provide for the issuance of all or any shares of the preferred stock in one or more classes or series, and to fix for each such class or series such voting powers, full or limited, or no voting powers, and such distinctive designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issuance of such class or series and as may be permitted by the DGCL, including, without limitation, the authority to provide that any such class or series may be (i) subject to redemption at such time or times and at such price or prices;

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(ii) entitled to receive dividends (which may be cumulative or non-cumulative) at such rates, on such conditions, and at such times, and payable in preference to, or in such relation to, the dividends payable on any other class or classes or any other series; (iii) entitled to such rights upon the dissolution of, or upon any distribution of the assets of, the Corporation; or (iv) convertible into, or exchangeable for, shares of any other class or classes of stock, or of any other series of the same or any other class or classes of stock, of the Corporation at such price or prices or at such rates of exchange and with such adjustments; all as may be stated in such resolution or resolutions.

FIFTH: The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders:

(a)           The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.

(b)           The Board of Directors shall consist of not less than one nor more than twelve members, the exact number of which shall be fixed by the Board of Directors. Election of directors need not be by written ballot unless the Bylaws so provide.

(c)           The directors shall be divided into three classes, designated Class I, Class II and Class III.  Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors.  The initial division of the Board of Directors into classes shall be made by the decision of the affirmative vote of a majority of the entire Board of Directors.  The term of the initial Class I directors shall terminate on the date of the 2001 annual meeting; the term of the initial Class II directors shall terminate on the date of the 2002 annual meeting; and the term of the initial Class III directors shall terminate on the date of the 2003 annual meeting.  At each succeeding annual meeting of stockholders beginning in 2001, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term.  If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director.

(d)           A director shall hold office until the annual meeting for the year in which his or her term expires and until his or her successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office.

(e)           Subject to the terms of any one or more classes or series of preferred stock, any vacancy on the Board of Directors that results from an increase in the number of directors may be filled by a majority of the Board of Directors then in office, provided that a quorum is present, and any other vacancy occurring on the Board of Directors may be filled by a majority of the Board of Directors then in office, even if less than a quorum, or by a sole remaining director.  Any director of any class elected to fill a vacancy resulting from an increase in the number of

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directors of such class shall hold office for a term that shall coincide with the remaining term of that class.  Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his predecessor.  Subject to the rights, if any, of the holders of shares of preferred stock then outstanding, any or all of the directors of the Corporation may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting power of the Corporation’s then outstanding capital stock entitled to vote generally in the election of directors.  Notwithstanding the foregoing, whenever the holders of any one or more classes or series of Preferred Stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of this Fifth Amended and Restated Certificate of Incorporation applicable thereto, and such directors so elected shall not be divided into classes pursuant to this Article FIFTH unless expressly provided by such terms.

(f)            In addition to the powers and authority hereinbefore or by statute expressly conferred upon them, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject, nevertheless, to the provisions of the DGCL, this Fifth Amended and Restated Certificate of Incorporation, and any Bylaws adopted by the stockholders; provided, however, that no Bylaws hereafter adopted by the stockholders shall invalidate any prior act of the directors which would have been valid if such Bylaws had not been adopted.

(g)           No director shall be personally liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the DGCL or (iv) for any transaction from which the director derived an improper personal benefit.  No director shall be personally liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director.  Any repeal or modification of this Article FIFTH, Section (g) by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification.

SIXTH: The Corporation shall indemnify its directors and officers to the fullest extent authorized or permitted by law, as now or hereafter in effect, and such right to indemnification shall continue as to a person who has ceased to be a director or officer of the Corporation and shall inure to the benefit of his or her heirs, executors and personal and legal representatives; provided, however, that, except for proceedings to enforce rights to indemnification, the Corporation shall not be obligated to indemnify any director or officer (or his or her heirs, executors or personal or legal representatives) in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors.  The right to indemnification conferred by this Article SIXTH shall include the right to be paid by the Corporation the expenses incurred in defending or otherwise participating in any proceeding in advance of its final disposition.

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The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article SIXTH to directors and officers of the Corporation.

The rights to indemnification and to the advancement of expenses conferred in this Article SIXTH shall not be exclusive of any other right which any person may have or hereafter acquire under this Fifth Amended and Restated Certificate of Incorporation, the Bylaws of the Corporation, any statute, agreement, vote of stockholders or disinterested directors or otherwise.

Any repeal or modification of this Article SIXTH by the stockholders of the Corporation shall not adversely affect any rights to indemnification and to the advancement of expenses of a director or officer of the Corporation existing at the time of such repeal or modification with respect to any acts or omissions occurring prior to such repeal or modification.

SEVENTH: Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide.  The books of the Corporation may be kept (subject to any provision contained in the DGCL) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation.

EIGHTH: In furtherance and not in limitation of the powers conferred upon it by the laws of the State of Delaware, the Board of Directors shall have the power to make, alter, amend, change, add to or repeal the Corporation’s Bylaws.  The affirmative vote of at least a majority of the entire Board of Directors shall be required to adopt, amend, alter or repeal the Corporation’s Bylaws.  The Corporation’s Bylaws also may be altered, amended, changed, added to or repealed by the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting power of the shares entitled to vote at an election of directors.

NINTH: Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation, and the ability of the stockholders to consent in writing to the taking of any action is hereby specifically denied.

TENTH: Unless otherwise required by law, special meetings of stockholders, for any purpose or purposes, may be called by either (i) the Chairman, if there be one, (ii) the Board of Directors or (iii) a committee of the Board of Directors that has been duly designated by the Board of Directors and whose powers and authority include the power to call such meetings.  The ability of the stockholders to call a special meeting of stockholders is hereby specifically denied.

ELEVENTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Fifth Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.

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IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated Certificate of Incorporation to be executed on its behalf this 10th day of May, 2007.

VYYO INC.
By:	/s/ Davidi Gilo
Name:	Davidi Gilo
Title:	Chairman of the Board

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EX-3.2

Exhibit 3.2

AMENDED AND RESTATED

BYLAWS

OF

VYYO INC.

(hereinafter called the “Corporation”)

ARTICLE I

OFFICES

Section 1. Registered Office. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware.

Section 2. Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine.

ARTICLE II
MEETINGS OF STOCKHOLDERS

Section 1. Place of Meetings. Meetings of the stockholders for the election of

directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware as shall be designated from time to time by the Board of Directors.

Section 2. Annual Meetings. The Annual Meetings of Stockholders for the election of directors shall be held on such date and at such time as shall be designated from time to time by the Board of Directors. Any other proper business may be transacted at the Annual Meeting of Stockholders.

Section 3. Nature of Business at Meetings of Stockholders. No business may be transacted at an annual meeting of stockholders, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of

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Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (c) otherwise properly brought before the annual meeting by any stockholder of the Company (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 3 and on the record date for the determination of stockholders entitled to vote at such annual meeting (ii) who complies with the notice procedures set forth in this Section 3 and (iii) who otherwise meets the applicable requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the rules and regulations promulgated thereunder.

In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary or Assistant Secretary of the Company.

To be timely, a stockholder’s notice to the Secretary or Assistant Secretary must be delivered to or mailed and received at the principal executive offices of the Company not less than sixty (60) days nor more than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs.

To be in proper written form, a stockholder’s notice to the Secretary or Assistant Secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record

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address of such stockholder, (iii) the class or series and number of shares of capital stock of the Company which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting.

No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with the procedures set forth in this Section 3; provided, however, that, once business has been properly brought before the annual meeting in accordance with such procedures, nothing in this Section 3 shall be deemed to preclude discussion by any stockholder of any such business. If the chairman of an annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted.

Section 4. Nomination of Directors. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Company, except as may be otherwise provided in the Fifth Amended and Restated Certificate of Incorporation of the Corporation, as amended or restated from time to time (the “Certificate of Incorporation”) with respect to the right of holders of preferred stock of the Corporation to nominate and elect a specified number of directors in certain circumstances. Nominations of persons for election to the Board of Directors may be made at any annual meeting of stockholders, or at any special meeting of stockholders called for the purpose of electing directors, (a) by or at the direction of the Board of Directors (or any duly authorized committee

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thereof) or (b) by any stockholder of the Company (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 4 and on the record date for the determination of stockholders entitled to vote at such meeting, (ii) who complies with the notice procedures set forth in this Section 4 and (iii) who otherwise meets the applicable requirements of the Exchange Act and the rules and regulations promulgated thereunder.

In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary or Assistant Secretary of the Company.

To be timely, a stockholder’s notice to the Secretary or Assistant Secretary must be delivered to or mailed and received at the principal executive offices of the Company (a) in the case of an annual meeting, not less than sixty (60) days nor more than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs; and (b) in the case of a special meeting of stockholders called for the purpose of electing directors, not later than the close of business on the tenth (10th) day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs.

To be in proper written form, a stockholder’s notice to the Secretary or Assistant Secretary must set forth (a) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of the person, (ii)

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the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the Company which are owned beneficially or of record by the person and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act, and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the Company which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected. No person shall be eligible for election as a director of the Company unless nominated in accordance with the procedures set forth in this Section 4. If the Chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded.

Section 5. Special Meetings. Unless otherwise required by law or by the Certificate of Incorporation of the Corporation, Special Meetings of Stockholders, for any

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purpose or purposes, may be called by either (i) the Chairman of the Board of Directors, (ii) the Board of Directors or (iii) a committee of the Board of Directors that has been duly designated by the Board of Directors and whose powers and authority include the power to call such meetings. Any request for a Special Meeting of Stockholders by any of the foregoing shall be directed in writing to the (i) the Chairman, if there be one, (ii) the President or (iii) the Secretary and shall state the purpose or purposes of the proposed meeting. At a Special Meeting of Stockholders, only such business shall be conducted as shall be specified in the notice of meeting (or any supplement thereto). The ability of the stockholders to call a special meeting of stockholders is hereby specifically denied.

Section 6. Notice. Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise required by law, the written notice of any meeting shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting.

Section 7. Adjournments. Any meeting of the stockholders may be adjourned from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

Section 8. Quorum. Unless otherwise required by law or the Certificate of Incorporation, the holders of a majority of the capital stock issued and outstanding and entitled to

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vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. A quorum, once established, shall not be broken by the withdrawal of enough votes to leave less than a quorum. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, in the manner provided in Section 7, until a quorum shall be present or represented.

Section 9. Voting. Unless otherwise required by law, the Certificate of Incorporation or these Bylaws, any question brought before any meeting of stockholders, other than the election of directors, shall be decided by the vote of the holders of a majority of the total number of votes of the capital stock represented and entitled to vote thereat, voting as a single class. Unless otherwise provided in the Certificate of Incorporation, and subject to Section 1(b) of Article III and Section 5 of Article V hereof, each stockholder represented at a meeting of stockholders shall be entitled to cast one vote for each share of the capital stock entitled to vote thereat held by such stockholder. Such votes may be cast in person or by proxy but no proxy shall be voted on or after three years from its date, unless such proxy provides for a longer period. The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of stockholders, in such officer’s discretion, may require that any votes cast at such meeting shall be cast by written ballot.

Section 10. Consent of Stockholders in Lieu of Meeting. Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation, and the ability of the stockholders to consent in writing to the taking of any action is hereby specifically denied.

Section 11. List of Stockholders Entitled to Vote. The officer of the Corporation

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who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder of the Corporation who is present.

Section 12. Stock Ledger. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 11 of this Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders.

Section 13. Conduct of Meetings. The Board of Directors of the Corporation may adopt by resolution such rules and regulations for the conduct of the meeting of the stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairman of any meeting of the stockholders shall have the right and authority to prescribe such rule, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) the determination of when the polls shall open and close for any given matter to be voted on at the meeting; (iii) rules and

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procedures for maintaining order at the meeting and the safety of those present; (iv) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (v) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (vi) limitations on the time allotted to questions or comments by participants.

ARTICLE III

DIRECTORS

Section 1. Number and Election of Directors.

(a)             The Board of Directors shall consist of not less than one nor more than twelve members, the exact number of which shall be fixed from time to time by the Board of Directors. Except as provided in Section 2 of this Article III, directors shall be elected by a plurality of the votes cast at the Annual Meeting of Stockholders and each director so elected shall hold office until the next Annual Meeting of Stockholders and until such director’s successor is duly elected and qualified, or until such director’s earlier death, resignation or removal. Any director may resign at any time upon written notice to the Corporation. Directors need not be stockholders.

(b)             No person entitled to vote at an election for directors may cumulate votes to which such person is entitled

Section 2. Vacancies. Unless otherwise required by law or the Certificate of Incorporation, vacancies resulting from death, resignation, disqualification, removal, or other causes shall be filled by either (i) the affirmative vote of the holders of a majority of the voting power of the then-outstanding shares of voting stock of this Corporation entitled to vote generally in the election of directors, voting together as a single class; or (ii) by the affirmative vote of a

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majority of the remaining directors then in office, even though less than a quorum. Newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such newly-created directorship shall be filled by the stockholders, be filled only by the affirmative vote of the directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director’s successor shall have been elected and qualified.

Section 3. Duties and Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these Bylaws required to be exercised or done by the stockholders.

Section 4. Meetings. The Board of Directors may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairman, if there be one, or the President. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than forty-eight (48) hours before the date of the meeting, by telephone or telegram on twenty-four (24) hours’ notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances.

Section 5. Quorum. Except as otherwise required by law or the Certificate of Incorporation, at all meetings of the Board of Directors, a majority of the entire Board of

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Directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting of the time and place of the adjourned meeting, until a quorum shall be present.

Section 6. Actions by Written Consent. Unless otherwise provided in the Certificate of Incorporation, or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all the members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee.

Section 7. Meetings by Means of Conference Telephone. Unless otherwise provided in the Certificate of Incorporation, members of the Board of Directors of the Corporation, or any committee thereof, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 7 shall constitute presence in person at such meeting.

Section 8. Committees. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or

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disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. Any committee, to the extent permitted by law and provided in the resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Each committee shall keep regular minutes and report to the Board of Directors when required.

Section 9. Compensation. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director, payable in cash or securities. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefore. Members of special or standing committees may be allowed like compensation for attending committee meetings.

Section 10. Interested Directors. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because the director or officer’s vote is counted for such purpose if (i) the material facts as to the director or officer’s relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board

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of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to the director or officer’s relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.

ARTICLE IV

OFFICERS

Section 1. General. The officers of the Corporation shall be chosen by the Board of Directors and shall be a President, a Secretary or Assistant Secretary and a Treasurer. The Board of Directors, in its discretion, also may choose a Chairman of the Board of Directors (who must be a director) and one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any number of offices may be held by the same person, unless otherwise prohibited by law or the Certificate of Incorporation. The officers of the Corporation need not be stockholders of the Corporation nor, except in the case of the Chairman of the Board of Directors, need such officers be directors of the Corporation.

Section 2. Election. The Board of Directors, at its first meeting held after each Annual Meeting of Stockholders, shall elect the officers of the Corporation who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors; and all officers of the Corporation shall hold office until their successors are chosen and qualified, or until their earlier death, resignation or removal. Any officer elected by the Board of Directors may be removed at any time by the affirmative vote

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of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. The salaries of all officers of the Corporation shall be fixed by the Board of Directors.

Section 3. Voting Securities Owned by the Corporation. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the President or any Vice President or any other officer authorized to do so by the Board of Directors and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons.

Section 4. Chairman of the Board of Directors. The Chairman of the Board of Directors, if there be one, shall preside at all meetings of the stockholders and of the Board of Directors. The Chairman of the Board of Directors shall be the Chief Executive Officer of the Corporation, unless the Board of Directors designates the President as the Chief Executive Officer, and, except where by law the signature of the President is required, the Chairman of the Board of Directors shall possess the same power as the President to sign all contracts, certificates and other instruments of the Corporation which may be authorized by the Board of Directors. During the absence or disability of the President, the Chairman of the Board of Directors shall exercise all the powers and discharge all the duties of the President. The Chairman of the Board of Directors shall also perform such other duties and may exercise such other powers as may from time to time be assigned by these Bylaws or by the Board of Directors.

Section 5. President. The President shall, subject to the control of the Board of Directors and, if there be one, the Chairman of the Board of Directors, have general supervision of the business of the Corporation and shall see that all orders and resolutions of the Board of

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Directors are carried into effect. The President shall execute all bonds, mortgages, contracts and other instruments of the Corporation requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except that the other officers of the Corporation may sign and execute documents when so authorized by these Bylaws, the Board of Directors or the President. In the absence or disability of the Chairman of the Board of Directors, or if there be none, the President shall preside at all meetings of the stockholders and the Board of Directors. If there be no Chairman of the Board of Directors, or if the Board of Directors shall otherwise designate, the President shall be the Chief Executive Officer of the Corporation. The President shall also perform such other duties and may exercise such other powers as may from time to time be assigned to such officer by these Bylaws or by the Board of Directors.

Section 6. Vice Presidents. At the request of the President or in the President’s absence or in the event of the President’s inability or refusal to act (and if there be no Chairman of the Board of Directors), the Vice President, or the Vice Presidents if there is more than one (in the order designated by the Board of Directors), shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Each Vice President shall perform such other duties and have such other powers as the Board of Directors from time to time may prescribe. If there be no Chairman of the Board of Directors and no Vice President, the Board of Directors shall designate the officer of the Corporation who, in the absence of the President or in the event of the inability or refusal of the President to act, shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President.

Section 7. Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of stockholders and record all the proceedings thereat in a book or

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books to be kept for that purpose; the Secretary shall also perform like duties for committees of the Board of Directors when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board of Directors or the President, under whose supervision the Secretary shall be. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the stockholders and special meetings of the Board of Directors, and if there be no Assistant Secretary, then either the Board of Directors or the President may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Corporation and the Secretary or any Assistant Secretary, if there be one, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest to the affixing by such officer’s signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be.

Section 8. Treasurer. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all transactions as Treasurer and of the financial condition of the

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Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of the office of the Treasurer and for the restoration to the Corporation, in case of the Treasurer’s death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the Treasurer’s possession or under the Treasurer’s control belonging to the Corporation.

Section 9. Assistant Secretaries. Assistant Secretaries, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, any Vice President, if there be one, or the Secretary, and in the absence of the Secretary or in the event of the Secretary’s disability or refusal to act, shall perform the duties of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary.

Section 10. Assistant Treasurers. Assistant Treasurers, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, any Vice President, if there be one, or the Treasurer, and in the absence of the Treasurer or in the event of the Treasurer’s disability or refusal to act, shall perform the duties of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer. If required by the Board of Directors, an Assistant Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of the office of Assistant Treasurer and for the restoration to the Corporation, in case of the Assistant Treasurer’s death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the Assistant Treasurer’s possession or under the Assistant Treasurer’s control belonging to the Corporation.

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Section 11. Other Officers. Such other officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers.

ARTICLE V

STOCK

Section 1. Form of Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate signed, in the name of the Corporation (i) by the Chairman of the Board of Directors, the President or a Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by such stockholder in the Corporation.

Section 2. Signatures. Any or all of the signatures on a certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue.

Section 3. Lost Certificates. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or the owner’s legal representative, to advertise the same in such manner as the Board of Directors shall require

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and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed or the issuance of such new certificate.

Section 4. Transfers. Stock of the Corporation shall be transferable in the manner prescribed by law and in these Bylaws. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by such person’s attorney lawfully constituted in writing and upon the surrender of the certificate therefor, which shall be cancelled before a new certificate shall be issued. No transfer of stock shall be valid as against the Corporation for any purpose until it shall have been entered in the stock records of the Corporation by an entry showing from and to whom transferred.

Section 5. Record Date.

(a)     In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; providing, however, that the Board of Directors may fix a new record date for the adjourned meeting.

(b)     In order that the Corporation may determine the stockholders entitled

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to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

Section 6. Record Owners. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise required by law.

ARTICLE VI

NOTICES

Section 1. Notices. Whenever written notice is required by law, the Certificate of Incorporation or these Bylaws, to be given to any director, member of a committee or stockholder, such notice may be given by mail, addressed to such director, member of a committee or stockholder, at such person’s address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Written notice may also be given by facsimile, telex, telegram to the extent permitted by law.

Section 2. Waivers of Notice. Whenever any notice is required by law, the

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Certificate of Incorporation or these Bylaws, to be given to any director, member of a committee or stockholder, a waiver thereof in writing, signed, by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Attendance of a person at a meeting, present in person or represented by proxy, shall constitute a waiver of notice of such meeting, except where the person attends the meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened.

ARTICLE VII

GENERAL PROVISIONS

Section 1. Dividends. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, the requirements of the General Corporation Law of the State of Delaware (the “DGCL”), may be declared by the Board of Directors at any regular or special meeting of the Board of Directors (or any action by written consent in lieu thereof in accordance with Section 6 of Article III hereof), and may be paid in cash, in property, or in shares of the Corporation’s capital stock. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve.

Section 2. Disbursements. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.

Section 3. Fiscal Year. The fiscal year of the Corporation shall be fixed by

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resolution of the Board of Directors.

Section 4. Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words “Corporate Seal, Delaware”. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.

Section 5. Annual Report. The Board of Directors shall cause an annual report to be sent to each stockholder of the Corporation not later than one hundred twenty (120) days after the close of the Corporation’s fiscal year. Such report shall include a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year, accompanied by any report thereon of independent accounts or, if there is no such report, the certificate of an authorized officer of the Corporation that such statements were prepared without audit from the books and records of the Corporation.

ARTICLE VIII

INDEMNIFICATION

Section I. Power to Indemnify in Actions, Suits or Proceedings other than Those by or in the Right of the Corporation. Subject to Section 3 of this Article VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that such person is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director or officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with

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such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such person’s conduct was unlawful.

Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation. Subject to Section 3 of this Article VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in the best interests of the Corporation; provided, that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the

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case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

Section 3. Authorization of Indemnification. Any indemnification under this Article VIII (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standard of conduct set forth in Section 1 or Section 2 of this Article VIII, as the case may be. Such determination shall be made, with respect to a person who is a director or officer at the time of such determination, (i) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (ii) by a committee of such directors designated by a majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion or (iv) by the stockholders. Such determination shall be made, with respect to former directors and officers, by any person or persons having the authority to act on the matter on behalf of the Corporation. To the extent, however, that a present or former director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith, without the necessity of authorization in the specific case.

Section 4. Good Faith Defined. For purposes of any determination under Section 3 of this Article VIII, a person shall be deemed to have acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe such person’s conduct was unlawful, if such person’s action is based on the records or

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books of account of the Corporation or another enterprise, or on information supplied to such person by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The provisions of this Section 4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Section 1 or 2 of this Article VIII, as the case may be.

Section 5. Indemnification by a Court. Notwithstanding any contrary determination in the specific case under Section 3 of this Article VIII, and notwithstanding the absence of any determination thereunder, any director or officer may apply to the Court of Chancery in the State of Delaware for indemnification to the extent otherwise permissible under Sections 1 and 2 of this Article VIII. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standards of conduct set forth in Section 1 or 2 of this Article VIII, as the case may be. Neither a contrary determination in the specific case under Section 3 of this Article VIII nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the director or officer seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this Section 5 shall be given to the Corporation promptly upon the filing of such application. If successful, in whole or in part, the director or officer seeking indemnification shall also be entitled to be paid the expense of prosecuting such application.

Section 6. Expenses Payable in Advance. Expenses incurred by a director or

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officer in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation as authorized in this Article VIII.

Section 7. Nonexclusivity of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by or granted pursuant to this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the Certificate of Incorporation, any Bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in Sections 1 and 2 of this Article VIII shall be made to the fullest extent permitted by law. The provisions of this Article VIII shall not be deemed to preclude the indemnification of any person who is not specified in Section 1 or 2 of this Article VIII but whom the Corporation has the power or obligation to indemnify under the provisions of the DGCL.

Section 8. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the Corporation would have the power or the obligation to indemnify such person against such liability under the provisions of this Article VIII.

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Section 9. Certain Definitions. For purposes of this Article VIII, references to “the Corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, shall stand in the same position under the provisions of this Article VIII with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article VIII, references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the Corporation” shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Corporation” as referred to in this Article VIII.

Section 10. Survival of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person.

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Section 11. Limitation on Indemnification. Notwithstanding anything contained in this Article VIII to the contrary, except for proceedings to enforce rights to indemnification (which shall be governed by Section 5 hereof), the Corporation shall not be obligated to indemnify any director or officer in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Corporation.

Section 12. Indemnification of Employees and Agents. The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article VIII to directors and officers of the Corporation.

ARTICLE IX

AMENDMENTS

Section 1. Amendments. These Bylaws may be altered, amended or repealed, in whole or in part, or new Bylaws may be adopted by the stockholders or by the Board of Directors, provided, however, that notice of such alteration, amendment, repeal or adoption of new Bylaws be contained in the notice of the meeting of stockholders or Board of Directors, as the case may be. All amendments must be approved by either sixty-six and two-thirds percent (66 2/3%) of the outstanding capital stock entitled to vote thereon or by a majority of the entire Board of Directors then in office.

Section 2. Entire Board of Directors. As used in this Article IX and in these Bylaws generally, the term “entire Board of Directors” means the total number of directors which the Corporation would have if there were no vacancies.

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* * *

Adopted as of: May 10, 2007

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EX-10.1

Exhibit 10.1

INDEMNIFICATION AGREEMENT

THIS INDEMNIFICATION AGREEMENT (this “Agreement”) is made and entered into this ____ day of ________, 2007 by and between Vyyo Inc., a Delaware corporation (the “Company”), and [name] (“Indemnitee”).  This Agreement supersedes any and all indemnification agreement(s) previously entered into between the Company and Indemnitee.

RECITALS

A.            It is essential to the Company to retain and attract as directors and officers the most capable persons available.

B.            Indemnitee is a director or officer of the Company or its affiliates.

C.            Both the Company and Indemnitee recognize the increased risk of litigation and other claims being asserted against directors and officers of public companies in today’s environment.

D.            The Amended and Restated Bylaws and Fourth Amended and Restated Certificate of Incorporation (collectively, the “Charter Documents”) require the Company to indemnify and advance expenses to its directors and officers to the full extent permitted by the Delaware General Company Law, as amended (the “DGCL”), and Indemnitee intends to continue serving as a director or officer of the Company in part in reliance on such Charter Documents and the DGCL.

E.             In recognition of Indemnitee’s need for substantial protection against personal liability in order to enhance Indemnitee’s continued service to the Company in an effective manner, the Company wishes to provide in this Agreement for the indemnification of and the advancing of expenses to Indemnitee to the fullest extent (whether partial or complete) permitted by law and as set forth in this Agreement.

AGREEMENT

NOW, THEREFORE, in consideration of the premises and of Indemnitee continuing to serve the Company directly or, at its request, another enterprise, and intending to be legally bound hereby, the parties hereto agree as follows:

1.             Certain Definitions:

a.             Change in Control:  Shall be deemed to have occurred if (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the total voting power represented by the Company’s then outstanding Voting Securities; or (ii) during any period of two (2) consecutive years, individuals

who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least eighty percent (80%) of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of transactions) all or substantially all the Company’s assets.

b.             Claim:  Any threatened, pending or completed action, suit or proceeding, or any inquiry or investigation, whether instituted by or on behalf of or in the name of the Company or any other party, that Indemnitee in good faith believes might lead to the institution of any such action, suit or proceeding, whether civil, criminal, administrative, investigative or other.

c.             Expenses:  Include attorneys’ fees and all other costs, expenses and obligations paid or incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, be a witness in or participate in, any Claim relating to any Indemnifiable Event.

d.             Indemnifiable Event:  Any event or occurrence related to the fact that Indemnitee is or was a director, officer, employee, agent or fiduciary of the Company, or is or was serving at the request of the Company as a director, officer, employee, trustee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, or by reason of anything done or not done by Indemnitee in any such capacity.

e.             Independent Legal Counsel:  An attorney or firm of attorneys, selected in accordance with the provisions of Section 3, who shall not have otherwise performed services for the Company or Indemnitee within the last five (5) years (other than with respect to matters concerning the rights of Indemnitee under this Agreement, or of other indemnitees under similar indemnity agreements).

f.              Reviewing Party:  Any appropriate person or body consisting of a member or members of the Company’s Board of Directors or any other person or body appointed by the Board who is not a party to the particular Claim for which Indemnitee is seeking indemnification, or Independent Legal Counsel.

g.             Voting Securities:  Any securities of the Company which vote generally in the election of directors.

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2.            Basic Indemnification Arrangement.

a.             In the event Indemnitee was, is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, a Claim by reason of (or arising in part out of) an Indemnifiable Event, the Company shall indemnify Indemnitee to the fullest extent permitted by law as soon as practicable but in any event no later than thirty days after written demand is presented to the Company, against any and all Expenses, judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines, penalties or amounts paid in settlement) of such Claim.  If so requested by Indemnitee, the Company shall advance (within two business days of such request) any and all Expenses to Indemnitee (an “Expense Advance”).

 b.            Notwithstanding the foregoing, (i) the obligations of the Company under Section 2(a) shall be subject to the condition that the Reviewing Party shall not have determined (in a written opinion, in any case in which the Independent Legal Counsel referred to in Section 3 hereof is involved) that Indemnitee would not be permitted to be indemnified under applicable law; and (ii) the obligation of the Company to make an Expense Advance pursuant to Section 2(a) shall be subject to the condition that, if, when and to the extent that the Reviewing Party determines that Indemnitee would not be permitted to be so indemnified under applicable law, the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid; provided, however, that if Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Reviewing Party that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expense Advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed).  If there has not been a Change in Control, the Reviewing Party shall be selected by the Board of Directors, and if there has been such a Change in Control (other than a Change in Control which has been approved by a majority of the Company’s Board of Directors who were directors immediately prior to such Change in Control), the Reviewing Party shall be the Independent Legal Counsel referred to in Section 3 hereof.  If there has been no determination by the Reviewing Party or if the Reviewing Party determines that Indemnitee substantively would not be permitted to be indemnified in whole or in part under applicable law, Indemnitee shall have the right to commence litigation in any court in the States of California or Delaware having subject matter jurisdiction thereof and in which venue is proper seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and the Company hereby consents to service of process and to appear in any such proceeding.  Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and Indemnitee.

3.            Change in Control.  The Company agrees that if there is a Change in Control of the Company (other than a Change in Control which has been approved by a majority of the Company’s Board of Directors who were directors immediately prior to such Change in Control) then with respect to all matters thereafter arising concerning the rights of Indemnitee to indemnity payments and Expense Advances under this Agreement or any other agreement or Charter Document now or

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hereafter in effect relating to Claims for Indemnifiable Events, the Company shall seek legal advice only from Independent Legal Counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld).  Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent the Indemnitee would be permitted to be indemnified under applicable law.  The Company agrees to pay the reasonable fees of the Independent Legal Counsel referred to above and to indemnify fully such counsel against any and all expenses (including attorneys’ fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

4.            Indemnification for Additional Expenses.  The Company shall indemnify Indemnitee against any and all expenses (including attorneys’ fees) and, if requested by Indemnitee, shall (within two (2) business days of such request) advance such expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for (i) indemnification or advance payment of Expenses by the Company under this Agreement or any other agreement or Charter Document now or hereafter in effect relating to Claims for Indemnifiable Events; and/or (ii) recovery under any directors’ and officers’ liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advance expense payment or insurance recovery, as the case may be.

5.            Partial Indemnity, etc.  If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses, judgments, fines, penalties and amounts paid in settlement of a Claim but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.  Moreover, notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any or all Claims relating in whole or in part to an Indemnifiable Event or in defense of any issue or matter therein, including dismissal without prejudice, Indemnitee shall be indemnified against all Expenses incurred in connection therewith.

6.            Burden of Proof.  In connection with any determination by the Reviewing Party or otherwise as to whether Indemnitee is entitled to be indemnified hereunder the burden of proof shall be on the Company to establish that Indemnitee is not so entitled.

7.            No Presumptions.  For purposes of this Agreement, the termination of any claim, action, suit or proceeding, by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law.  In addition, neither the failure of the Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by the Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that Indemnitee should be indemnified under applicable law shall be a defense to Indemnitee’s claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not

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have any particular belief. The Company hereby waives any collateral estoppel effect that any such judgment, order, settlement or conviction may have with respect to Indemnitee.

8.            Nonexclusivity, etc.  The rights of the Indemnitee hereunder shall be in addition to any other rights Indemnitee may have under the Company’s Bylaws or the DGCL or otherwise.  To the extent that a change in the DGCL (whether by statute or judicial decision) permits greater indemnification by agreement than would be afforded currently under the Company’s Bylaws and this Agreement, Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change.

9.            Liability Insurance.  To the extent the Company maintains an insurance policy or policies providing directors’ and officers’ liability insurance, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any Company director or officer.

10.         Period of Limitations.  No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against Indemnitee, Indemnitee’s spouse, heirs, executors or personal or legal representatives after the expiration of two (2) years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two (2) year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action such shorter period shall govern.

11.         Amendments, etc.  No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto.  No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

12.         Subrogation.  In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights.

13.         No Duplication of Payments.  The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, Charter Document or otherwise) of the amounts otherwise indemnifiable hereunder.

14.         Binding Effect, etc.  This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company, spouses, heirs, executors and personal and legal representatives.  This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as an officer or director of the Company or of any other enterprise at the Company’s request.

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15.         Severability.  The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable in any respect, and the validity and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired and shall remain enforceable to the fullest extent permitted by law.

16.         Governing Law.  This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in such state without giving effect to the principles of conflicts of laws.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the day and year first above written.

VYYO INC.			INDEMNITEE
By:		By:
	(Signature)		(Signature)
(Print Name & Title)			(Print Name & Title)
			(Address)
			(Address)
			(Phone/Fax)

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EX-31.1

EXHIBIT 31.1

CERTIFICATE OF CHIEF EXECUTIVE OFFICER
OF
VYYO INC.

I, Wayne H.  Davis, Chief Executive Officer of Vyyo Inc., certify that:

1.I have reviewed this quarterly report on Form 10-Q of Vyyo Inc. (the “registrant”);

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)[paragraph reserved pursuant to SEC Release 33-8238]

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 15, 2007	/s/ Wayne H. Davis
	Wayne H. Davis, Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATE OF CHIEF FINANCIAL OFFICER
OF
VYYO INC.

I, Arik Levi, Chief Financial Officer of Vyyo Inc., certify that:

1.I have reviewed this quarterly report on Form 10-Q of Vyyo Inc. (the “registrant”);

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)[paragraph reserved pursuant to SEC Release 33-8238]

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 15, 2007	/s/ Arik Levi
	Arik Levi, Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATE OF CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER
OF
VYYO INC.

In connection with the Quarterly Report of Vyyo Inc. (the “Company”) on Form 10-Q for the quarter ending March 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Davidi Gilo, as Chief Executive Officer of the Company, and Arik Levi, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Wayne H. Davis

Wayne Davis

Chief Executive Officer

May 15, 2007

/s/ Arik Levi

Arik Levi

Chief Financial Officer

May 15, 2007