10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended September 30, 2003

or

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

For the transition period from              to             

Commission File Number 0-30189

VYYO INC.

(Exact name of registrant as specified in its charter)

Delaware	94-3241270
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
4015 Miranda Avenue, First Floor, Palo Alto, California	94304
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code 650-319-4000

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨  No  x

As of October 28, 2003, there were 12,730,560 shares of Common Stock ($0.0001 par value) outstanding.

INDEX

VYYO INC.

		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited)
	Condensed consolidated balance sheets-September 30, 2003 and December 31, 2002	3
	Condensed consolidated statements of operations-three and nine months ended September 30, 2003 and September 30, 2002	4
	Condensed consolidated statements of cash flows-nine months ended September 30, 2003 and September 30, 2002	5
	Notes to condensed consolidated financial statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	36
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	37
Item 2.	Changes in Securities and Use of Proceeds	37
Item 3.	Defaults upon Senior Securities	37
Item 4.	Submission of Matters to a Vote of Security Holders	37
Item 5.	Other Information	38
Item 6.	Exhibits and Reports on Form 8-K	38
SIGNATURES.		39

2

Part I. Financial Information

Item 1. Condensed Consolidated Financial Statements

Vyyo Inc.

Condensed Consolidated Balance Sheets

(In Thousands)

	September 30, 2003			December 31, 2002
(Unaudited)
Assets
CURRENT ASSETS:
Cash and cash equivalents	$	11,173		$	15,071
Short-term investments		50,436			57,244
Accounts receivable		981			297
Inventories (note 2)		820			79
Other		732			537
Total current assets		64,142			73,228
PROPERTY AND EQUIPMENT, net		938			1,414
GOODWILL (note 3)		—			420
IDENTIFIABLE INTANGIBLE ASSETS (note 3)		—			2,574
Total assets	$	65,080		$	77,636
Liabilities and stockholders’ equity
CURRENT LIABILITIES:
Accounts payable	$	1,687		$	965
Accrued liabilities (note 4)		6,603			5,788
Accrued restructuring liability (note 4)		35			2,114
Total current liabilities		8,325			8,867
CONTINGENCIES (note 5)
STOCKHOLDERS’ EQUITY:
Common stock, $0.0001 par value and paid in capital; 200,000,000 shares authorized; 12,730,560 and 12,545,036 shares issued and outstanding at September 30, 2003 and December 31, 2002, respectively		229,414			229,115
Notes receivable from stockholders		(1,037	)		(1,037	)
Accumulated other comprehensive income		(3	)		315
Accumulated deficit		(171,619	)		(159,624	)
Total stockholders’ equity		56,755			68,769
Total liabilities and stockholders’ equity	$	65,080		$	77,636

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

3

Vyyo Inc.

Condensed Consolidated Statements of Operations

(In Thousands Except Per Share Data)

(Unaudited)

	Three Months ended September 30,						Nine Months ended September 30,
	2003			2002			2003			2002
NET REVENUES (note 8)	$	2,223		$	775		$	4,355		$	3,765
COST OF REVENUES		690			(89	)		1,236			1,089
GROSS PROFIT		1,533			864			3,119			2,676
OPERATING EXPENSES:
Research and development, net		1,083			979			2,832			3,057
Selling and marketing		1,124			721			2,876			2,719
General and administrative		995			1,210			3,627			4,210
Charge for restructuring		(24	)		(151	)		(24	)		(303	)
Total operating expenses		3,178			2,759			9,311			9,683
OPERATING LOSS		(1,645	)		(1,895	)		(6,192	)		(7,007	)
INTEREST INCOME, net		329			537			1,118			2,124
NET LOSS FROM CONTINUING OPERATIONS		(1,316	)		(1,358	)		(5,074	)		(4,883	)
DISCONTINUED OPERATIONS (note 3)		(1,276	)		(1,003	)		(6,921	)		(1,003	)
NET LOSS	$	(2,592	)	$	(2,361	)	$	(11,995	)	$	(5,886	)
NET LOSS PER COMMON SHARE -
Basic and diluted:
Continuing operations	$	(0.10	)	$	(0.11	)	$	(0.40	)	$	(0.40	)
Discontinued operations		(0.10	)		(0.08	)		(0.55	)		(0.08	)
	$	(0.20	)	$	(0.19	)	$	(0.95	)	$	(0.48	)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (IN THOUSANDS) -
Basic and diluted		12,722			12,395			12,691			12,284

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

4

Vyyo Inc.

Condensed Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)

	Nine Months ended September 30,
	2003			2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(11,995	)	$	(5,886	)
Adjustments to reconcile net loss to net cash used in operating activities:
Income and expenses not involving cash flows:
Depreciation and amortization		1,103			995
Impairment of identifiable intangible assets and property and equipment		2,224
Impairment of goodwill		420
Amortization and charge related to stock compensation		136			522
Capital gain on sale of fixed assets		(1	)
Changes in assets and liabilities:
Accounts receivable		(684	)		153
Other current assets		(195	)		(177	)
Inventories		(741	)		606
Accounts payable		722			(368	)
Accrued liabilities		815			(2,962	)
Restructuring liabilities		(2,079	)		(625	)
Net cash used in operating activities		(10,275	)		(7,742	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(277	)		(67	)
Proceeds from sale of property and equipment		1			15
Net cash used in the purchase of Shira Computers Ltd.					(12	)
Purchase of short-term investments		(60,688	)		(41,927	)
Proceeds from sales and maturities of short-term investments		67,178			55,626
Net cash provided by investing activities		6,214			13,635
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock		163			78
Proceeds from short term credit					(820	)
Loan to former Chief Executive Officer					(1,000	)
Net cash provided by (used in) financing activities		163			(1,742	)
Increase (decrease) in cash and cash equivalents		(3,898	)		4,151
Cash and cash equivalents at beginning of period		15,071			17,380
Cash and cash equivalents at end of period		11,173		$	21,531
Non-cash financing activities:
Issuance of common stock for notes receivable				$	37

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

5

Vyyo Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Vyyo Inc. have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the interim period are not necessarily indicative of the results that may be expected for the full year. For further information, refer to the consolidated financial statements and notes thereto for the year ended December 31, 2002, included in the annual report on Form 10-K for the year ended December 31, 2002, filed with the Securities and Exchange Commission.

Organization and Principles of Consolidation

The consolidated financial statements include the accounts of Vyyo Inc. and its wholly-owned subsidiaries (collectively, “Vyyo” or the “Company”). With respect to Shira Computers Ltd. (“Shira”), see note 3. All material intercompany balances and transactions have been eliminated in consolidation.

Accounting Principles

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

Use of Estimates

The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

6

Vyyo Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

Inventory

Inventory is valued at the lower of cost or market. Cost includes the cost of raw materials computed using the moving average basis and, for work in progress and finished goods, direct labor and an appropriate proportion of production overhead. Market is determined by reference to the sales proceeds of items sold in the ordinary course of business or management estimates based on prevailing market conditions.

During the year 2001, the Company recognized a write-down of excess inventory and purchase commitments of $8.45 million. The write-down was charged to the cost of revenues. In the three and nine months ended September 30, 2003, inventory that was previously written-down to $0 by taking a charge of $588,000 and $1,335,000, respectively, was sold for the amount of $897,000 and $2,522,000, respectively. In the three and nine months ended September 30, 2002, inventory that was previously written-down to $0 by taking a charge of $233,000 and $900,000, respectively, was sold for the amount of $333,000 and $981,000, respectively.

Impairment of Long-Lived Assets

The Company adopted in 2002 SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). SFAS 144 requires that long-lived assets including certain intangible assets, to be held and used 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 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 of such assets, an impairment loss would be recognized, and the assets are written down to their estimated fair values.

The Company performed an impairment test, based on Shira’s intangible assets, property and equipment as of June 30, 2003. The impairment test resulted in impairment charges of $2,224,000 (see also note 3(b)).

Goodwill

On January 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets”. SFAS No. 142 supersedes Accounting Principles Board Opinion (“APB”) No. 17, “Intangible Assets”. Among the most significant changes made by SFAS No. 142 are: (i) goodwill and intangible assets with indefinite lives will no longer be amortized; and (ii) goodwill and intangible assets deemed to have an indefinite life will be tested for impairment at least annually and whenever events or changes in circumstances indicate that the carrying amount of the goodwill may not be recoverable.

The Company identified its various reporting units, which consist of its operating segments. The Company has utilized expected future discounted cash flows to determine the fair value of the reporting units and whether any impairment of goodwill existed.

The Company’s goodwill is allocated to the Software Products segment.

As described in note 3(b) below, the Company performed a goodwill impairment test, based on Shira’s valuation as of June 30, 2003. The impairment test resulted in an impairment charge of $420,000.

7

Vyyo Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

Revenue Recognition

Net revenues from the Company’s fixed broadband wireless segment include product revenues and technology development or license revenues. Product revenues are derived primarily from sales of hubs and modems initially sold as a package to telecommunications service providers and to system integrators. Revenues from these products and from associated services are generally recorded when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred and customer acceptance requirements have been met, (iii) the price is fixed or determinable, and (iv) collection of payment is reasonably assured and the Company has no additional obligations. The Company accrues for estimated sales returns and exchanges and product warranty and liability costs upon recognition of product revenues.

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

Net revenues from the Company’s Software Products segment (as defined in note 3 below) are comprised of software products and software license fees. Revenue allocated to software is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, and collectibility is probable.

The Company and its subsidiaries provide for warranty costs at the same time as the revenue is recognized. The provision is calculated as a percentage of the sales, based on historical experience.

Loss per Share

Basic and diluted net losses per share are presented in accordance with FAS No. 128, “Earnings per share” (“FAS 128”), for all periods presented.

Employee Stock Based Compensation

The Company accounts for employee stock based compensation in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations. Charge for stock compensation represents the amortization of deferred compensation charges, which are based on the aggregate differences between the respective exercise price of stock options and purchase price of stock at their dates of grant or sale and the deemed fair market value of the common stock for accounting purposes. Deferred stock compensation is amortized over the vesting period of the underlying options.

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

8

Vyyo Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

Employee Stock Based Compensation (continued)

Pro forma information regarding net loss required under SFAS No. 148 has been determined as if the Company had accounted for its stock options under the fair value method of SFAS No. 123. The pro forma net loss per share below reflects both (i) the charge for stock included in the historical net loss and (ii) the expense allocation based on the SFAS No. 123 calculation. The fair value for stock options was estimated at the date of each option grant using the Black-Scholes option pricing model with the following weighted-average assumptions for the three and nine months ended September 30, 2003 and 2002: risk-free interest rates ranging from 1.09% to 4.57%; dividend yields of zero; weighted-average expected life of the options of approximately 4.19, 1.5, 4.05 and 3.07 years; and volatility ranging from 0.66 to 1.21.

The Company’s pro forma information is as follows:

	Three Months ended September 30,						Nine Months ended September 30,
	2003			2002			2003			2002
	In thousands (except per share data)						In thousands  (except per share data)
Net loss from continuing operations as reported	$	(1,316	)	$	(1,358	)	$	(5,074	)	$	(4,883	)
Deduct: stock based employee compensation expense, included in reported net loss		136						136			522
Add: stock based employee compensation expense determined under fair value method for all awards		(538	)		(349	)		(789	)		(1,814	)
Pro Forma net loss from continuing operations	$	(1,718	)	$	(1,707	)	$	(5,727	)	$	(6,175	)
Loss from discontinued operations as reported	$	(1,276	)	$	(1,003	)	$	(6,921	)	$	(1,003	)
Add: stock based employee compensation income (expense) determined under fair value method for all awards		1						(13	)
Pro Forma loss from discontinued operations	$	(1,275	)	$	(1,003	)	$	(6,934	)	$	(1,003	)
Pro forma net loss	$	(2,993	)	$	(2,710	)	$	(12,661	)	$	(7,178	)
Basic and diluted loss per share:
As reported:
Continuing operations	$	(0.10	)	$	(0.11	)	$	(0.40	)	$	(0.40	)
Discontinued operations		(0.10	)		(0.08	)		(0.55	)		(0.08	)
	$	(0.20	)	$	(0.19	)	$	(0.95	)	$	(0.48	)
Proforma:
Continuing operations	$	(0.14	)	$	(0.14	)	$	(0.45	)	$	(0.50	)
Discontinued operations		(0.10	)		(0.08	)		(0.55	)		(0.08	)
	$	(0.24	)	$	(0.22	)	$	(1.00	)	$	(0.58	)

Reclassifications

Certain comparative figures have been reclassified to conform to the current year presentation.

2. Inventories

Inventory is comprised of the following:

	September 30, 2003		December 31, 2002
	In thousands
Raw materials	$	345
Work in process		255
Finished goods		220	$	79
	$	820	$	79

9

Vyyo Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

3. Shira – Discontinued Operations

(a) On May 14, 2002, the Company acquired all of the outstanding ordinary shares of Shira Computers Ltd. (“Shira”), an Israeli privately held company that provides software products for the prepress and publishing markets (the “Software Products” segment).

Due to the continuing decline in Shira’s sales, Shira’s recurring losses and its inability to penetrate the market, on August 12, 2003, the Company’s Board of Directors determined to cease substantially all of Shira’s business operations and terminate substantially all of Shira’s employees. On August 14, 2003, Shira’s remaining employees were terminated.

The cessation of Shira’s operations represents a disposal of a business segment under SFAS 144. Accordingly, current period results of the software segment have been classified as discontinued operations, and prior periods have been reclassified respectively.

Assets and liabilities of the discontinued operation were as follows:

	September 30, 2003		December 31, 2002
	In thousands
Current Assets	$	161	$	208
Fixed Assets	$	72	$	343
Goodwill	$	—	$	420
Identifiable intangible assets	$	—	$	2,574
Current liabilities *	$	1,571	$	1,567

* As of September 30, 2003, current liabilities included a provision for severance pay expenses and termination of contractual obligations in the amount of $340,000 which will be paid in the forth quarter of 2003.

Profit and loss of the discontinued operations were as follows:

	Three Months ended September 30,					Nine Months ended September 30,
	2003		2002			2003			2002
	In thousands					In thousands
Net revenues	$	80	$	151		$	307		$	151
Cost of revenues		28		286			590			286
Gross profit (loss)		52		(135	)		(283	)		(135	)
Loss from operations		1,273		966			6,907			966
Interest expenses, net		3		37			14			37
Net loss from discontinued operations	$	1,276	$	1,003		$	6,921		$	1,003

10

Vyyo Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

3. Shira - Discontinued Operations (continued)

Loss from discontinued operations includes:

(1) The Company amortized the identifiable intangible assets over a period of three years. The amortization of identifiable assets is as follows:

	Three Months ended September 30,		Nine Months ended September 30,
	2002		2003		2002
	In thousands		In thousands
Acquired technology	$	229	$	456	$	229
Customers list		30		60		30
	$	259	$	516	$	259

(2) Impairment charges of $2,644,000 see b below

(3) Severance expenses and termination of contractual obligations as follows:

	Severance expenses			Termination of contractual obligations		Total
	In thousands
Provision as of June 30, 2003	$	271		$	—	$	271
Expenses incurred in the period		181			146		327
Total expenses		452			146		598
Incurred expenses paid during the period		(258	)				(258	)
Balance as of September 30, 2003	$	194		$	146	$	340

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

The changes in the amount of identifiable intangible assets and in the carrying amount of goodwill for the period of nine months ended September 30, 2003 are as follows:

	Acquired technology			Customer list			Goodwill
	In thousands
Balance as of January 1, 2003	$	2,287		$	287		$	420
Amortization		(456	)		(60	)
Impairment in June 30, 2003		(1,831	)		(227	)		(420	)
Balance as of September 30, 2003	$	—		$	—		$	—

11

Vyyo Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

4. Current Liabilities

Accrued liabilities consist of the following:

	September 30, 2003		December 31, 2002
	In thousands
Compensation and benefits	$	1,889	$	1,940
Withholding tax		1,678		1,442
Royalties		943		1,137
Warranty *		472		395
Other		1,621		874
	$	6,603	$	5,788

* The changes in the balance during the periods are comprised of the following:

	Nine Months ended September 30,			Year ended December 31,
	2003			2002
	In thousands
Balance at beginning of period	$	395		$	1,363
Liability acquired upon Shira acquisition					141
Payments made under the warranty					(195	)
Product warranty issued for new sales		318			252
Changes in accrual in respect of warranty periods ending		(241	)		(1,166	)
Balance at end the of period	$	472		$	395

Accrued restructuring liability

In 2001, the Company implemented a restructuring program to reduce operating expenses. The Company recorded charges of $12.8 million, related to excess facilities, abandoned equipment and employees’ severance and other related benefits due to a reduction of approximately 180 employees, or approximately 75% of the Company’s workforce. In the three and nine months ended September 30, 2003, the Company recorded a restructuring income of $24,000, comprised of a positive adjustment of $160,000 adjustment less $136,000 in compensation charges with respect to variable compensation plan related to our former Chief Executive Officer (see note 6). In the three and nine months ended September 30, 2003, the Company utilized $35,000 and $1,919,000 from the restructuring expenses, respectively. The remaining restructuring liability balance to be utilized relates to the Company’s anticipated loss under a noncancelable lease agreement until it expires at the end of 2003.

12

Vyyo Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

5. Contingencies

Patent matter

In early 1999 and in April 2000, the Company received written notices from Hybrid Networks, Inc. (“Hybrid”), a former competitor whose assets were acquired by ioWave Inc. in 2002, in which Hybrid claimed to have patent rights in certain technology and requested that the Company review its products in light of eleven of Hybrid’s issued patents. The Company, with the advice of its legal counsel, believes that these patents are invalid or are not infringed by the Company’s products. However, Hybrid’s successor, ioWave Inc., may pursue litigation with respect to these or other claims. The results of any litigation are inherently uncertain. Any successful infringement claim or litigation against the Company could have a significant adverse impact on the Company’s operating results, cash flows and financial condition. No provision has been included in the financial statements.

Legal Claims regarding breach of leasing agreements

In 2001, Har Hotzvim Properties Ltd. (“Har Hotzvim”) filed a claim against our subsidiary, Vyyo Ltd., and the Company in the Jerusalem, Israel, District Court, alleging that Vyyo Ltd. and the Company breached obligations under a lease agreement and an amendment thereto between Vyyo Ltd. and Har Hotzvim. The complaint sought damages in the amount of 10 million New Israeli Shekels, or NIS, or approximately $2.2 million; however, this amount was claimed for purposes of court fees, and the actual amount sought in Har Hotzvim’s statement of claim was NIS 37 million, or approximately $8.2 million (the “Har Hotzvim Claim”). In connection with this dispute, Vyyo Ltd. also filed a claim in July 2001 against Har Hotzvim, claiming that Har Hotzvim’s actions constituted a breach of its obligations under the lease agreement. The court was requested to order Har Hotzvim to reimburse Vyyo Ltd. for its expenses in complying with the lease agreement in an aggregate amount of approximately NIS 8.7 million (the “Vyyo Ltd. Claim”).

On January 29, 2003, Har Hotzvim, Vyyo Ltd. and the Company entered into a settlement agreement (the “Settlement Agreement”), pursuant to which the parties agreed to dismiss the Har Hotzvim Claim and the Vyyo Ltd. Claim against a payment of $1.8 million from the Company to Har Hotzvim. Har Hotzvim, Vyyo Ltd. and the Company waived any and all claims against each other in connection with this dispute. On February 2, 2003, the District Court of Jerusalem approved and validated the Settlement Agreement. The Company has paid the agreed amount under the Settlement Agreement.

Former employees’ claims

The Company is involved in litigation with former employees in a total amount of approximately $60,000. The Company’s management believes that the provision included in the financial statements as of September 30, 2003 is sufficient to cover the Company’s exposure deriving from these claims.

13

Vyyo Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

6. Former Chief Executive Officer (“Former CEO”) separation agreement

In April 2002, pursuant to a separation agreement entered into in October 2001, the Company’s Former CEO drew down on the $1,000,000 loan provided for in the separation agreement. This loan is due on January 1, 2006, or earlier upon sales of the Company’s shares held by such officer or upon certain other circumstances. The loan is secured solely by the 266,667 options held by such officer and the shares of the Company’s common stock underlying these options.

Combined accounting is being done related to the 266,667 options issued and the related $1 million loan secured by such options. This results in variable accounting for the 266,667 options, with a minimum expense being recorded of $1 million. The total charge for the three months ended September 30, 2003 and 2002 associated with these options were $136,000 and $0, respectively, and for the nine months ended September 30, 2003 and 2002 were expense of $136,000 and an income of $152,000, respectively. The charges were recorded under restructuring charges.

7. Comprehensive Loss

The components of comprehensive loss are as follows (in thousands):

	Three Months ended September 30,						Nine Months ended September 30,
	2003			2002			2003			2002
	In thousands						In thousands
Net loss	$	(2,592	)	$	(2,361	)	$	(11,995	)	$	(5,886	)
Unrealized loss on available-for-sale securities		(118	)		56			(318	)		(471	)
Comprehensive loss	$	(2,710	)	$	(2,305	)	$	(12,313	)	$	(6,357	)

8. Segment Reporting

Following the cessation of business operation of Shira, as described in note 3 above, the Company has one business segment: “Fixed broadband wireless”.

Sales to major customers:

	Three Months ended September 30,				Nine Months ended September 30,
	2003		2002		2003		2002
Net revenues:
Customer A	53	%	11	%	60	%	28	%
Customer B	22	%			14	%
Customer C	10	%	37	%	12	%	28	%
Customer D	9	%	24	%	5	%	5	%
Customer E			15	%			14	%

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Vyyo Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

9. Recent Accounting Pronouncements

In January 2003, the FASB issued FASB Interpretation No. 46 “Consolidation of Variable Interest Entities” (FIN 46). Under FIN 46, entities are separated into two populations: (1) those for which voting interests are used to determine consolidation (this is the most common situation) and (2) those for which variable interests are used to determine consolidation. FIN 46 explains how to identify Variable Interest Entities (VIE) and how to determine when a business enterprise should include the assets, liabilities, noncontrolling interests, and results of activities of a VIE in its consolidated financial statements. FIN 46 is effective as follows: for variable interests in variable interest entities created after January 31, 2003, FIN 46 shall apply immediately, for variable interests in variable interest entities created before that date, FIN 46 shall apply - for calendar year-end company - as of December 31, 2003. The Company does not expect the adoption of FIN 46 to have a material effect on its consolidated financial statements.

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

The following information should be read in conjunction with the condensed consolidated interim financial statements and the notes thereto in Part I, Item 1 of this Quarterly Report and with Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2002, contained in Vyyo’s Annual Report (Form 10-K) for the year ended December 31, 2002, filed with the Securities and Exchange Commission. The matters addressed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, with the exception of the historical information presented, may contain forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Vyyo’s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, without limitation, those set forth under the heading “Risk Factors” following this Management’s Discussion and Analysis section, and elsewhere in this report.

Overview

In 2001, the global telecommunications market, and in particular the fixed wireless broadband access market, experienced a significant downturn that has continued throughout 2002 and to the present. We experienced dramatic decreases in the sales of our products and the adoption of our technology in 2001, and our sales have continued at a reduced level through the third quarter of 2003. While we expect that the telecommunications market may recover over time, any such recovery may occur only slowly. If the market does not recover in the near future and if our sales do not substantially increase from current levels, we will continue to incur losses, and may never achieve profitability.

While we are continuing to operate our traditional wireless business and have increased our sales and marketing efforts and research and development efforts to address the China market and other new markets. We also continue to explore alternatives relating to the license, purchase or acquisition of other products, technology, assets or businesses. We have invested, and we expect that we will continue to invest, significant time and resources searching for and investigating new business opportunities. We may not be able to successfully effect any of these alternatives on a timely basis or at all.

We supply broadband wireless access systems used by telecommunications service providers to deliver wireless, high-speed data connections to business and residential subscribers. We sell our systems directly to service providers, as well as to system integrators that deploy our systems as part of their end-to-end network solutions for service providers. We have incurred significant losses since our inception, and we expect to continue to incur net losses for the foreseeable future. We incurred net losses of approximately $12 million for the nine months ended September 30, 2003. As of September 30, 2003, our accumulated deficit was approximately $172 million.

On May 14, 2002, Vyyo acquired all of the outstanding ordinary shares of Shira Computers Ltd. (“Shira”), an Israeli privately held company that provides software products for the prepress and publishing markets (the “Software Products” segment).

Due to the continuing decline in Shira’s sales, Shira’s recurring losses and its inability to penetrate the market, on August 12, 2003, Vyyo’s Board of Directors determined to cease substantially all of Shira’s business operations and terminate substantially all of Shira’s employees. On August 14, 2003, Shira’s remaining employees were terminated.

The cessation of Shira’s operations represents a disposal of a business segment under SFAS 144. Accordingly, current period results of the software segment have been classified as discontinued operations, and prior periods have been reclassified respectively.

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Critical Accounting Policies

The discussion and analysis of our financial conditions and results of operations are based upon our 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 and judgments 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 under different assumption and conditions.

Our significant accounting policies are described in the notes to the annual consolidated financial statements as of and for the year ended December 31, 2002. We determined the critical principles by considering accounting policies that involve the most complex or subjective decisions or assessments. We believe our most critical accounting policies include the following:

Inventory Valuation. In 2001, due to the dramatic slowdown in the telecommunications sector and the economy in general, we recorded a write-down of excess inventory and purchase commitments of $8.45 million. Our estimate was based on our expectations for sales of our products in the foreseeable future due to the uncertainty of selling our existing products if and when the market recovers. In the three and nine months ended September 30, 2003, inventory that was previously written-down to $0 by taking a charge of $588,000 and $1.3 million, respectively, was sold for the amount of $897,000 and $2.5 million, respectively.

Restructuring expenses. In 2001, we implemented a restructuring program that resulted in a reduction in force of approximately 75% of our employees and in excess facilities and equipment, and accordingly, we recorded a charge of $12.8 million. In the three and nine months ended September 30, 2003, we utilized $35,000 and $1.9 million from the restructuring expenses, respectively. In the three and nine months ended September 30, 2003, we recorded a restructuring income item of $24,000, comprised of a $160,000 adjustment less $136,000 in compensation charges with respect to a variable compensation plan related to our former Chief Executive Officer. The remaining restructuring liability balance to be utilized relates to the Company’s anticipated loss under a noncancelable lease agreement expiring at the end of 2003.

Valuation of Identifiable Intangible Assets and Goodwill. Upon the acquisition of Shira, we recorded identifiable intangible assets of $3,091,000 and goodwill of $820,000. We amortized the identifiable intangible assets over a period of three years. We assessed the identifiable intangible assets and goodwill for recoverability through the estimated future cash flows resulting from the use of the assets. Our assessment for recoverability, based on Shira’s valuation as of June 30, 2003, resulted in impairment charges of $2,644,000, out of which $1,831,000 related to the acquired technology, $227,000 related to the customer list, $420,000 related to the goodwill recorded upon Shira’s acquisition and $166,000 related to property and equipment.

Products Warranty. We accrue for estimated sales returns and exchanges and product warranty costs upon recognition of product revenues. The annual provision is calculated as a percentage of the sales based on historical experience according to the obligations to customers.

This discussion and analysis should be read in conjunction with our condensed consolidated interim financial statements and related notes included elsewhere in this report.

Results of Operations

Net Revenues

Net revenues from fixed broadband wireless include product revenues and technology developments or license revenues. Net revenues are derived from sales of hubs and modems initially sold as a package to telecommunications service providers and to system integrators. Revenues from these products and from associated services are generally recorded when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred and customer acceptance requirements have been met, (iii) the price is fixed or determinable, and (iv) collection of payment is reasonably assured and we have no additional obligations. We accrue for estimated sales returns and exchanges and product warranty and liability costs upon recognition of product revenues.

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

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

Net revenues increased by 187% to $2.2 million in the third quarter of 2003 from $775,000 in the third quarter of 2002, and by 16% to $4.4 million in the first nine months of 2003 from $3.8 million in the first nine months of 2002. The increase in revenues in the third quarter and in the first nine months of 2003, primarily reflects the increased shipments of our products, particularly to the China market. Net revenues include revenues from sales of inventory that was previously written down to $0 in 2001 of approximately $897,000 in the third quarter of 2003 and $333,000 in the third quarter of 2002, and of approximately $2.5 million in the first nine months of 2003 and $981,000 in the first nine months of 2002. As a result of the write-down in 2001, the cost of revenues associated with the sales of this inventory has been accounted for as $0.

Cost of Revenues

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

Cost of revenues increased to $690,000 in the third quarter of 2003 from an income of $89,000 in the third quarter of 2002, and to $1.2 million in the first nine months of 2003 from $1.1 million in the first nine months of 2002. The increase in cost of revenues in the third quarter and in the first nine months of 2003, were primarily attributable to the increase in shipments of our products and purchases of new inventories in order to supply the demand to our products; and a reversal of a warranty accrual in the third quarter of 2002 of $400,000. As a result of the write-down of inventories to $0 in 2001, cost of revenues does not include $588,000 in the third quarter of 2003 and $233,000 in the third quarter of 2002, and $1.3 million in the first nine months of 2003 and $900,000 in the first nine months of 2002, related to the sale of such inventories. We anticipate that our cost of revenues will increase, and our gross margin will decrease, in future periods as and to the extent that we deplete our previously written-down inventories and sell products from newly acquired inventories. While we expect that the telecommunications industry may recover over time, substantial uncertainty exists as to our ability to sell our existing products if and when the market recovers.

Research and Development Expenses

Research and development expenses consist primarily of personnel, facilities, equipment and supplies for our research and development activities. Substantially all of our wireless research and development activities are carried out in our facility in Jerusalem, Israel. These expenses are charged to operations as incurred. Our research and development expenses increased to $1.1 million in the third quarter of 2003 from $1 million in the third quarter of 2002, and decreased to $2.8 million in the first nine months of 2003 from $3.1 million in the first nine months of 2002. The increase in research and development expenses in the third quarter of 2003 was due to an increase in the third quarter of 2003 in development efforts for new wireless products. The decrease in expenses in the first nine months of 2003 was due to a decrease in expenses in our wireless business in the first six months of 2003 because of the previous reductions in our workforce and subcontractors, effected in the third and fourth quarters of 2002. Although we have recently increased our research and development expenses, as a result of the previous decreases in research and development activities, we may be unable to develop next generation products and new products to meet the demands of the market. We anticipate that research and development expenses will increase in future periods as we increase our efforts to develop new wireless products to address the China market and other new markets.

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Selling and Marketing Expenses

Sales and marketing expenses consist of salaries and related costs of sales and marketing employees, consulting fees and expenses for travel, trade shows and promotional activities. Sales and marketing expenses increased to $1.1 million in the third quarter of 2003 from $721,000 in the third quarter of 2002, and to $2.9 million in the first nine months of 2003 from $2.7 million in the first nine months of 2002. The increase in sales and marketing expenses in the third quarter and the first nine months of 2003 was due to an increase in the second and third quarter of 2003 in sales efforts for our wireless products in China and other new markets, including expenses from a marketing agreement with one of our Chinese OEM customers amounting to $660,000. The increase in expenses in the first nine months of 2003 was partially offset by a decrease in expenses in our wireless business due to previous reductions in the number of sales and marketing personnel and the level of trade show and other promotional activities effected in 2002 in response to the significant downturn in the global telecommunications industry and the decrease in orders for and sales of our products. As part of this reduction in expenses, we effected a reduction in our sales and marketing workforce in the first quarter of 2002. In connection with this reduction in the first quarter of 2002, we incurred a one-time charge of approximately $300,000. We anticipate that sales and marketing expenses will increase in future periods as we increase our efforts to sell our products in the China market and other new markets.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel and related costs for general corporate functions, including finance, accounting, strategic and business development, human resources and legal. General and administrative expenses decreased to $1 million in the third quarter of 2003 from $1.2 million in the third quarter of 2002, and to $3.6 million in the first nine months of 2003 from $4.2 million in the first nine months of 2002. The decrease in general and administrative expenses in the third quarter and first nine months of 2003 were primarily due to a decrease in travel expenses, a decrease in insurances expenses and charges for stock compensation of approximately $0 recorded in the first nine months of 2003 and $480,000 recorded in the first nine months of 2002. The decrease was partially offset by an increase in professional fees in the first nine months of 2003. General and administrative expenses also included expenses of $528,000 for the first nine months of 2003, paid to an unaffiliated third party management company in connection with several charters of an aircraft for business travel purposes. While we chartered the aircraft directly from the management company, the chartered aircraft is leased by Harmony Management, Inc., of which Davidi Gilo and a trust for his benefit are the sole shareholders. Payments made by us to the management company for the aircraft charters were ultimately paid to Harmony Management, after deductions for certain operating costs and charter management fees. Harmony Management has advised us that the hourly rate charged by the management company for these charters was substantially less than the standard rate charged for similar charters to other unaffiliated parties.

Restructuring Charges

In 2001, we implemented a restructuring program to reduce operating expenses due to the dramatic and continuing slowdown in the telecommunications sector and the general economy. In connection with this restructuring, we recorded charges of $12.8 million in 2001. These charges are costs related to excess facilities, abandoned equipment and employees’ severance and other related benefits. The restructuring included a workforce reduction of approximately 180 employees, or approximately 75% of our workforce. In the third quarter of 2003, we recorded restructuring income of $24,000, comprised of a positive adjustment of $160,000 adjustment less $136,000 in compensation charges with respect to a variable compensation plan related to our former Chief Executive Officer. The remaining restructuring liability balance to be utilized relates to the Company’s anticipated loss under a noncancelable lease agreement until it expires at the end of 2003.

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Interest Income, Net

Interest income, net, includes interest and investment income, foreign currency remeasurement gains and losses. Net interest income was $329,000 in the third quarter of 2003 and $537,000 in the third quarter of 2002, and $1.1 in the first nine months of 2003 and $2.1 million in the first nine months of 2002, mainly from our cash and short-term investment balances from proceeds from our initial and follow-on public offerings effected in 2000. We expect that our interest income will continue to decrease due to decreasing cash balances and reduced interest rates in financial markets.

Income Taxes

As of December 31, 2002, we had approximately $70 million of Israeli net operating loss carryforwards from our Israeli subsidiaries, $4.7 million of United States federal net operating loss carryforwards, and $4.3 million of state net operating loss carryforwards. The Israeli net operating loss carryforwards have no expiration date and have not been recorded as tax assets because the losses are expected to be utilized during a tax exempt period. The United States federal net operating loss carryforwards expire in various amounts between the years 2011 and 2022. The state net operating loss carryforwards expire in various amounts between the years 2004 and 2007. We have provided a full valuation allowance against our United States federal and state deferred tax assets as the future realization of the tax benefit is not sufficiently assured.

Charge for Stock Based Compensation

Charge for stock compensation represents the amortization of deferred compensation charges which are based on the aggregate differences between the respective exercise price of stock options and purchase price of stock at their dates of grant or sale and the deemed fair market value of our common stock for accounting purposes, as well as stock compensation charges incurred in connection with modifications of stock awards in 2001. Deferred stock compensation is amortized over the vesting period of the underlying options. Charges related to stock compensation were $136,000 in the third quarter of 2003 and $0 in the third quarter of 2002. The charges for stock compensation were $136,000 in the first nine months of 2003 and gross charges of $674,000 in the first nine months of 2002, with a decrease in compensation of $152,000 related to an accounting variable plan in the first quarter of 2002.

Discontinued Operation

On May 14, 2002, we acquired all of the outstanding ordinary shares of Shira Computers Ltd. (“Shira”), an Israeli privately held company that provides software products for the prepress and publishing markets (the “Software Products” segment).

Due to the continuing decline in Shira’s sales, Shira’s recurring losses and its inability to penetrate the market, on August 12, 2003, Vyyo’s Board of Directors determined to cease substantially all of Shira’s business operations and terminate substantially all of Shira’s employees. On August 14, 2003, Shira’s remaining employees were terminated.

The cessation of Shira’s operations represents a disposal of a business segment under SFAS 144. Accordingly, current period results of the software segment have been classified as discontinued operations, and prior periods have been reclassified respectively.

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Assets and liabilities of the discontinued operations were as follows:

	September 30, 2003		December 31, 2002
	In thousands
Current Assets	$	161	$	208
Fixed Assets	$	72	$	343
Goodwill	$	—	$	420
Identifiable intangible assets	$	—	$	2,574
Current liabilities *	$	1,571	$	1,567

* As of September 30, 2003, current liabilities included a provision for severance pay expenses and termination of contractual obligations in the amount of $340,000 which will be paid in the forth quarter of 2003.

Profit and loss of the discontinued operations were as follows:

	Three Months ended September 30,					Nine Months ended September 30,
	2003		2002			2003			2002
	In thousands					In thousands
Net revenues	$	80	$	151		$	307		$	151
Cost of revenues		28		286			590			286
Gross profit (loss)		52		(135	)		(283	)		(135	)
Loss from operations		1,273		966			6,907			966
Interest expenses, net		3		37			14			37
Net loss from discontinued operations	$	1,276	$	1,003		$	6,921		$	1,003

Loss from discontinued operations includes:

(1) Amortization of identifiable assets (we amortized the identifiable intangible assets over a period of three years)

	Three Months ended September 30,		Nine Months ended September 30,
	2002		2003		2002
	In thousands		In thousands
Acquired technology	$	229	$	456	$	229
Customers list		30		60		30
	$	259	$	516	$	259

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(2) Severance expenses and termination of contractual obligations as follows:

	Severance expenses			Termination of contractual obligations		Total
	In thousands
Provision as of June 30, 2003	$	271		$	—	$	271
Expenses incurred in the period		181			146		327
Total expenses		452			146		598
Incurred expenses paid during the period		(258	)				(258	)
Balance as of September 30, 2003	$	194		$	146	$	340

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

The changes in the amount of identifiable intangible assets and in the carrying amount of goodwill for the period of nine months ended September 30, 2003 are as follows:

	Acquired technology			Customers list			Goodwill
	In thousands
Balance as of January 1, 2003	$	2,287		$	287		$	420
Amortization		(456	)		(60	)
Impairment in June 30, 2003		(1,831	)		(227	)		(420	)
Balance as of September 30, 2003	$	—		$	—		$	—

Liquidity and Capital Resources

As of September 30, 2003, we had $61.6 million of cash, cash equivalents and short-term investments. In the first nine months of 2003, net cash used in operations was $10.3 million, comprised of our net loss of $12 million and changes in other working capital accounts of $2.2 million, capital gain of $1,000, and partially offset by a non-cash charges of $1.1 million for depreciation and amortization, $2.6 million of impairment of identifiable intangible assets, property and equipment and goodwill. In the first nine months of 2002, cash used in operations was $7.7 million, comprised of our net loss of $5.9 million and changes in other working capital accounts of $3.4 million, and partially offset by non-cash charges of $522,000 for deferred stock compensation charges and $995,000 for depreciation and amortization.

In the first nine months of 2003, net cash provided by investing activities was $6.2 million, comprised of our proceeds from sales and maturities of short-term investments net of our purchase of short-term investments of $6.5 million, proceeds from sale of property and equipment amounting to approximately $1,000, and partially offset by an outflow of approximately $277,000 for investments in property and equipment. In the first nine months of 2002, net cash provided by investing activities was $13.6 million, comprised of our proceeds from sales and maturities of short-term investments net of our purchase of short-term investments of $13.7 million as well as proceeds from sale of property and equipment amounting to approximately $15,000, partially offset by an outflow of approximately $79,000 for investments in property and equipment and in the purchase of Shira.

Financing activities in the first nine months of 2003 amounted to approximately $163,000 of proceeds from purchases of stock under the employee stock purchase plan. Financing activities in the first nine months of

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2002 resulted in a net outflow of approximately $1.7 million from a loan to our former Chief Executive Officer and from proceeds from short term debt, partially offset by proceeds from stock option exercises and purchases of stock under the employee stock purchase plan.

Our capital requirements depend on numerous factors, including market acceptance of our products, the resources we devote to developing, marketing, selling and supporting our products, the timing and extent of establishing additional international operations and other factors. We expect that our cash and investment balances will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. After that, we may need to raise additional funds for a number of uses. We may not be able to obtain additional funds on acceptable terms, or at all. We expect to devote substantial capital resources to search for, investigate and, potentially, acquire new businesses, companies or technologies. The sale of additional equity or convertible debt securities may result in additional dilution to our stockholders.

New Accounting Pronouncements

In January 2003, the FASB issued FASB Interpretation No. 46 “Consolidation of Variable Interest Entities” (FIN 46). Under FIN 46 entities are separated into two populations: (1) those for which voting interests are used to determine consolidation (this is the most common situation) and (2) those for which variable interests are used to determine consolidation. FIN 46 explains how to identify Variable Interest Entities (VIE) and how to determine when a business enterprise should include the assets, liabilities, noncontrolling interests, and results of activities of a VIE in its consolidated financial statements. FIN 46 is effective as follows: for variable interests in variable interest entities created after January 31, 2003, FIN 46 shall apply immediately, for variable interests in variable interest entities created before that date, FIN 46 shall apply - for calendar year-end company - as of December 31, 2003. We do not expect the adoption of FIN 46 to have a material effect on our consolidated financial statements.

RISK FACTORS

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

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

We have incurred significant losses since our inception, and we expect to continue to incur net losses for the foreseeable future. We incurred net losses of approximately $9.2 million in 2002 and $12 million in the first nine months of 2003. As of September 30, 2003, our accumulated deficit was approximately $172 million. In response to the significant decline in our business and revenues which began in 2001 and has continued through the present, we have decreased our operating expenses in our wireless business; however, our expenses will continue to be significantly greater than our gross margin on revenues for the foreseeable future. In addition, we recently increased our sales and marketing expenditures and research and development expenditures in connection with our increased efforts in China. Our revenues and gross margins may not grow or even continue at their current level and may decline even further. Our gross margins have been favorably affected by sales of inventory that had been previously written off. If our revenues do not rapidly increase, or if our expenses increase at a greater pace than our revenues, we will never become profitable.

Economic weakness has adversely affected, and could continue to affect adversely, our revenue, gross margin and expenses.

Our revenue and gross margin depend significantly on general economic conditions and the demand for fixed wireless broadband access systems. Weak demand for our products and services caused by ongoing economic weakness over the past several years has resulted, and may result, in decreased revenue, gross margin, earnings or growth rates and problems with our ability to manage inventory levels and realize customer

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receivables. Economic and market conditions continue to be challenging. As a result, individuals and companies have delayed or reduced expenditures, including those for technology. In addition, if our customers experience financial difficulties, we could experience increases in bad debt write-offs and additions to reserves in our receivables portfolio, our lessees may be unable to make required payments. Continued uncertainty about future economic conditions makes it difficult to forecast operating results and to make decisions about future investments. Further delays or reductions in broadband wireless technology spending could have a material adverse effect on demand for our products and services and consequently our results of operations, prospects and stock price.

If the adoption of broadband wireless technology continues to be limited, we will not be able to sustain our business and may need to shut it down.

Our future success in the telecommunications business 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 or expand. The major service providers in the United States, including WorldCom, which is currently in Chapter 11 reorganization proceedings, and Sprint have ceased, delayed or reduced their rollouts and may further delay or reduce rollouts in the future. 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 and may be required to cease operations in this business.

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

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

In addition, commencing in 2001 and continuing through the first nine months of 2003, the market for telecommunications equipment significantly declined, which severely adversely affected the entire telecommunications industry, including service providers, systems integrators and equipment providers, and reduced the business outlook and visibility of the industry. In connection with the deterioration of global economic conditions, many of our customers and potential customers are also currently unable to obtain debt or equity financing for deployment of their wireless access networks and therefore do not currently have adequate capital resources to purchase our products. If the telecommunications market, and in particular the market for broadband wireless access equipment, does not improve and grow, our business would be substantially harmed.

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

Our future success is dependent upon the growth of the communications industry and, in particular, the Internet. The growth of the global communications and Internet industries has slowed significantly over the past two years. Furthermore, 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. 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.

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

Sales outside of North America accounted for approximately 80% of our revenues in the first nine months of 2003 and 34% of our revenues in 2002. Sales to China accounted for approximately 92% of our revenues outside of North America in the first nine months of 2003 and approximately 73% of our sales outside of North America in 2002. We expect that international sales, and in particular sales to China, will account for a substantial portion of our revenues in future periods. In addition, we maintain research and development facilities in Israel. Our reliance on international sales, operations and suppliers exposes us to foreign political and economic risks, which may impair our ability to generate revenues. These risks include:

• economic 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;

• 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.

Terrorist acts, international conflicts and acts of war may seriously harm our business and revenue, costs and expenses and financial condition and stock price.

Terrorist acts or acts of war (wherever located around the world) may cause damage or disruption to the Company, our employees, facilities, partners, suppliers, distributors or customers, which could significantly impact our revenue, costs and expenses and financial condition. The terrorist attacks that took place in the United States on September 11, 2001 and subsequent terrorist attacks in other countries have created many economic and political uncertainties, some of which may materially harm our business and results of operations. The potential for future terrorist attacks, the national and international responses to terrorist attacks or perceived threats to national security, and other actual or potential conflicts or acts of war, including the ongoing military operations in Afghanistan and Iraq as well as the threat of conflict with North Korea, have created many economic and political uncertainties that could adversely affect our business, results of operations and stock price in ways that we cannot presently predict. We are predominantly uninsured for losses and interruptions caused by terrorist acts and acts of war. Any political, economic or other instability in the United States, Taiwan, China or Israel in particular could adversely affect our suppliers and our business.

Our sales and operations in China could be disrupted if SARS continues to spread.

The spread of Severe Acute Respiratory Syndrome (“SARS”) in China, and in particular in Beijing, recently disrupted commerce in China and caused a severe disruption of businesses in Beijing. In addition, both internal and international flights into and out of Beijing were reduced. Although SARS appears to have been contained, if SARS re-emerges and spreads in Beijing and China, the markets for our products there may be adversely affected. In addition, we will likely restrict the travel of our sales and technical personnel to China if SARS is not contained, which could adversely affect our ability to market and sell our products in China and provide technical assistance to our customers in China. In addition, a restriction of flights in China could disrupt shipments of our products into China and delay or curtail sales of our products. If SARS spreads beyond China, other world markets for our products may also be adversely affected.

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Since we have significantly reduced our workforce and expenses, we may not be able to address successfully the telecommunications market if and when it recovers.

During 2001, the global telecommunications market, and in particular the fixed wireless broadband access market, experienced a significant downturn. We experienced dramatic decreases in the sales of our products and the adoption of our technology in 2001, and our sales have continued at a reduced level through the first nine months of 2003. In this environment, we determined in 2001 that significant expenditures in our historical products and technology were not justified, and we reduced our workforce by approximately 75%, from 240 employees to 60 employees. During 2002 and the first quarter of 2003, our workforce in the wireless broadband access business further declined by seven employees, to 53 employees at March 31, 2003. In the second and third quarters of 2003, we increased our sales and marketing expenses and research and development expenses in connection with our increased efforts in China, although such expenses continue to be at low levels. While we expect that the telecommunications market may recover over time, any such recovery may occur only slowly. If the market does not recover in the near future and if our sales do not substantially increase from current levels, we will continue to incur losses and may never achieve profitability. We may be unable effectively to sell and market our products without substantially further increasing sales and marketing expenses. Furthermore, substantial uncertainty exists as to the ability of our existing products and technology to address this market when it returns. Moreover, our ability to develop and market products that effectively address customer needs in the telecommunications market as it evolves with new and competitive products and technologies may be limited due to, among other things, our limited research and development budget.

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 September 30,				Nine Months ended September 30,
	2003		2002		2003		2002
Net revenues:
Customer A	53	%	11	%	60	%	28	%
Customer B	22	%			14	%
Customer C	10	%	37	%	12	%	28	%
Customer D	9	%	24	%	5	%	5	%
Customer E			15	%			14	%

We expect that we will continue to depend on a limited number of customers for a substantial portion of our revenues in future periods. The loss of a major customer could seriously harm our ability to sustain revenue levels, which would seriously harm our operating results. In addition, many of our customers are dependent on obtaining funding for their deployments. The continued inability of our customers to obtain such funding will adversely affect their deployments, which would adversely affect our business.

We may not be able to sell Shira on acceptable terms, or at all.

In August 2003, the Board of Directors determined to cease substantially all of Shira’s business operations and terminate substantially all of Shira’s employees. On August 14, 2003, Shira’s remaining employees were terminated. In addition, Vyyo is exploring the sale of Shira’s operations and assets to Shira’s former management; however, if it is unable to negotiate a sale on acceptable terms, Vyyo expects to complete the winding down of Shira within the next three months. Vyyo made this decision due to the continuing decline in Shira’s sales, Shira’s recurring losses and its inability to penetrate the market. Vyyo would likely receive only minimal value, if any, in a sale of Shira.

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

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

Our Chief Financial Officer, one of our directors and many 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. Our business cannot assess the full impact of these requirements on our workforce or business if conditions should change, and we cannot predict the effect on us of any expansion or reduction of these obligations.

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

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

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

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

If we determine to pursue alternatives to our traditional wireless business, we may not be successful in effecting any such transactions on favorable terms, or at all, which could adversely affect our future prospects.

While we are continuing to operate our traditional wireless business and have increased our sales and marketing efforts in the China market, sales in other markets have not significantly increased and may not increase in the foreseeable future; therefore, we are also considering a variety of alternatives to this business, including the sale, divestiture, license or restructuring of a substantial portion or all of our fixed broadband wireless access technology or assets. In the event of any such transaction, the value we may realize in the current market could be minimal. In addition to our acquisition of Shira in 2002, we also continue to explore alternatives relating to the licensing, purchase or acquisition of other products, technology, assets or businesses. We have invested, and we expect that we will continue to invest, significant time and resources searching for and investigating new business opportunities. We may not be able to successfully effect any of these alternatives on a timely basis or at all.

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

We continue to explore investments in or acquisitions of other companies, products or technologies, including companies or technologies that are not complementary or related to our current wireless broadband access business. We may be unsuccessful in operating such other businesses profitably, just as we were unsuccessful in operating Shira as a successful business. In addition, we may have difficulty integrating other companies’ personnel, operations, products and technologies into our current business. These difficulties may disrupt our ongoing business, divert the time and attention of our management and employees and increase our expenses. Moreover, the anticipated benefits of any acquisition may not be realized. Future acquisitions could result in dilutive issuances of equity securities, the incurrence of debt, contingent liabilities or amortization expenses related to goodwill and other identifiable intangible assets and the incurrence of large and immediate write-offs, any of which could seriously harm our business. In addition, we expect that we will expend significant resources in searching for and investigating new business opportunities and may be unsuccessful in acquiring new businesses.

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

Countries worldwide are considering or are in the process of allocating frequencies for fixed wireless applications, but not all markets have done so. In addition, in October 2001, the United States Federal Communications Commission indicated that existing MMDS license holders may be able in the future to deploy mobile services using the MMDS frequencies. If service providers in the United States will use mobile technology such as 3G cellular technology in the MMDS band, it will harm our business because Vyyo’s current technology does not support mobile services. If the United States and/or other countries do not provide sufficient spectrum for fixed wireless applications or reallocate spectrum in the fixed wireless frequency bands for other purposes, our customers may delay or cancel deployments in fixed broadband wireless, which could seriously harm our business. Internationally, there has been delay in the allocation of 3.5Ghz licenses, although China has recently begun issuing operating licenses for fixed wireless in the 3.5Ghz band to service providers in a number of provinces. Any further delays will adversely affect our customers’ deployments and could significantly harm our business.

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 wireless broadband access systems by the major service providers;

• the ability of our existing and potential direct customers to obtain financing for the deployment of broadband wireless access 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, may have a significant negative impact on our results of operations for a given period. Also, because only a small portion of our expenses vary with our revenues, if revenue levels for a quarter fall below our expectations, we will not be able to timely adjust expenses accordingly, which would harm our operating results in that period. We believe that period-to-period comparisons of our results of operations are not meaningful and should not be relied upon as indicators of future performance. If our operating results fall below the expectations of investors in future periods, our share price will likely decline.

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

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

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

The market for broadband access systems is intensely competitive, rapidly evolving and subject to rapid technological change. 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 and established relationships with system integrators and service providers. Our primary competitors are Alvarion Inc., Wi-LAN Inc., Netro Corporation, Harris Corporation, REMEC, Inc. and ZTE Corporation. Most of these competitors have existing relationships with one or more of our prospective customers, and many of these companies are operating and increasing their presence in the China market, on which we believe a substantial portion our business will depend. We also face competition from technologies such as digital subscriber line, fiber and cable. We may not be able to compete successfully against our current and future competitors, and competitive pressures may seriously harm our business.

Undetected hardware defects or software errors may increase our costs and impair the market acceptance of our systems, which would adversely affect our future operating results.

Our systems may contain undetected defects or errors. This may result either from defects in components supplied by third parties or from errors or defects in our software or hardware that we have failed to detect. We have in the past experienced, and may experience from time to time in the future, defects in new or enhanced products and systems after commencement of commercial shipments, or defects in deployed systems. 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 may also be subject to liability claims for damages related to these defects or errors. The occurrence of defects or errors, whether caused by our systems or the components of another vendor, may result in significant customer relationship problems and injury to our reputation and may impair the market acceptance of our systems.

We depend on contract manufacturers and third party equipment and technology suppliers, and these manufacturers and suppliers may be unable to fill our orders or develop 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 fixed broadband wireless systems, which contractors are located in Israel, Taiwan and China. These relationships may be terminated by either party with little or no notice. If our manufacturers are unable or unwilling to continue manufacturing our systems in required volumes, we would have to identify qualified alternative manufacturers, which would result in delays that could cause our results of operations to suffer. Our limited experience with these manufacturers does not provide us with a reliable basis on which to project their ability to meet delivery schedules, yield targets or costs. If we are required to find alternative manufacturing

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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 agreement or relationship with a manufacturer for our modem products. Our current inventory of modems will likely be insufficient to fulfill anticipated demand, and we will therefore be required to find a manufacturer in the near future. Our inability to identify and enter into a relationship 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 to service providers equipment manufactured by third party suppliers and to integrate this equipment with the equipment we manufacture. We are particularly dependent on third party radio suppliers in selling our 3.5 Ghz and other products. We currently have no formal relationship with any third party supplier. If we are unable to establish relationships with suppliers, or if these suppliers are unable to provide equipment that meets the specifications of our customers on the delivery schedules required by our customers, and at acceptable prices, our business would be substantially harmed.

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

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

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

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

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

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

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

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

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

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

If we do not effectively manage our costs in response to the decline in the business outlook, our business could be substantially harmed.

Although we reduced the costs of our fixed broadband wireless operations in response to the decline in our business outlook, we have recently increased certain expenses to address the market opportunity in China, and we will need to continue to monitor closely our costs and expenses. If the market and our business does not expand, we may need to reduce further our operations.

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

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

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

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

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

We expect that we may be subject to license offers and infringement claims from time to time. In this regard, in early 1999, and again in April 2000, we received written notices from Hybrid Networks in which Hybrid claimed to have patent rights in certain technology. Hybrid requested that we review our products in light of 11 of Hybrid’s issued patents. Hybrid’s assets were acquired by ioWave, Inc. in 2002.

Third parties, including ioWave Inc. as Hybrid’s successor, 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.

We also may experience infringement claims based on Shira’s technology and products. Accordingly, any infringement claim or litigation against us could significantly harm our business, operating results and financial condition.

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

Our success depends in part on our ability to protect our proprietary technologies. We rely on a combination of patent, copyright and trademark laws, trade secrets and confidentiality and other contractual provisions to establish and protect our proprietary rights. Our pending or future patent applications may not be approved and the claims covered by such applications may be reduced. If allowed, our patents may not be of sufficient scope or strength, 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.

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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 fixed broadband wireless systems. We may not be able to secure all desired intellectual property protection relating to such derivative products. Furthermore, because of the rapid pace of change in the broadband wireless industry, much of our business and many of our products rely on technologies that evolve constantly and this continuing uncertainty make it difficult to forecast future demand for our products.

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

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

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

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

• acquiring technologies or businesses;

• hiring additional qualified personnel; and

• implementing further marketing and sales activities.

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

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

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

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

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

Several of our capital investments have been granted “approved enterprise” status under Israeli law providing us with 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 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.

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

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

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

Our management collectively own approximately 45% of our outstanding common stock. As a result, these stockholders, acting together, will be able to control the outcome of all matters submitted for stockholder action, including:

• electing members to our board of directors;

• approving significant change-in-control transactions;

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

• controlling our management and operations.

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

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

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

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

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

• introduction and adoption of new industry standards;

• changes in financial estimates or recommendations by securities analysts;

• changes in the market valuations of our competitors;

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

• sales of our common stock.

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

If our stock price falls below $1.00 per share, our common stock may be delisted from the Nasdaq National Market.

In order for our common stock to continue to be quoted on the Nasdaq National Market, we must satisfy various listing maintenance standards established by Nasdaq, including the requirement that our common stock maintain a minimum bid price of at least $1.00 per share. Under Nasdaq’s listing maintenance standards, if the closing bid price of our common stock remains below $1.00 per share for 30 consecutive trading days, Nasdaq will issue a deficiency notice to Vyyo. If the closing bid price subsequently does not reach $1.00 per share or higher for a minimum of ten consecutive trading days during the 90 calendar days following the issuance of the deficiency notice from Nasdaq, Nasdaq may de-list our common stock from trading on the Nasdaq National Market. During the third quarter of 2002, our stock price had a closing bid price below $1.00 for over 30 consecutive trading days, although the price has since increased to over $1.00 as a result of the 1-for-3 reverse stock split effected by Vyyo in August 2002. Vyyo cannot predict whether the market price for our common stock will remain above $1.00. A delisting may negatively impact the value of the stock, since stocks trading on the over-the-counter market are typically less liquid and trade with larger variations between the bid and ask price.

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

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

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

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

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

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

• stockholders are not able 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 U.S. judgment against us and our nonresident Chief Financial Officer, director and experts.

Our Chief Financial Officer, one of our directors, and some of the experts named in this report are nonresidents 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 3. Quantitative and Qualitative Disclosures about Market Risk

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

As of September 30, 2003, we had cash, cash equivalents and short-term investments of $61.6 million. Substantially all of these amounts consisted of corporate and government fixed income securities and money market funds that invest in corporate and government fixed income securities that are subject to interest rate risk. We place our investments with high credit quality issuers and by policy limit the amount of the credit exposure to any one issuer.

Our general policy is to limit the risk of principal loss and ensure the safety of invested funds by limiting market and credit risk. 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.

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Quantitative Interest Rate Disclosure As of September 30, 2003

If market interest rates were to increase on September 30, 2003 immediately and uniformly by 10%, the fair value of the portfolio would decline by approximately $43,000 or approximately 0.08% of the total portfolio (approximately 0.07% of total assets). Assuming that the average yield to maturity on our portfolio at September 30, 2003 remains constant throughout the fourth quarter of 2003 and assuming that our cash, cash equivalents and short-term investments balances at September 30, 2003 remain constant for the duration of the fourth quarter of 2003, interest income for the fourth quarter of 2003 would be approximately $669,000. Assuming a decline of 10% in the market interest rates at September 30, 2003, interest income for the fourth quarter of 2003 would be approximately $667,000, which represents a decrease in interest income of approximately $2,000. 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 September 30, 2003. These amounts are determined by considering the impact of the hypothetical interest rates on our cash equivalents and available-for-sale securities at September 30, 2003, over the remaining contractual lives.

Item 4. Controls and Procedures

(a) Disclosure Controls and Procedures. Vyyo’s management, with the participation of Vyyo’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of Vyyo’s 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, Vyyo’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, Vyyo’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by Vyyo in the reports it files or submits under the Exchange Act.

(b) Internal Control Over Financial Reporting. There have not been any changes in Vyyo’s 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, Vyyo’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

None.

Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

On May 2, 2000, we completed an initial public offering of shares of our common stock, $0.0001 par value. The shares of common stock sold in the offering were registered under the Securities Act of 1933 on a Registration Statement on Form S-1 (No. 333-96129). The Registration Statement was declared effective by the Securities and Exchange Commission on April 3, 2000. The initial public offering price was $40.50 per share for an aggregate initial public offering of $104.8 million. After deducting the underwriting discounts and commissions of $7.3 million and the offering expenses of approximately $2.6 million, the net proceeds to us from the offering were approximately $94.9 million.

From April 3, 2000, until September 30, 2003, we used approximately $6.7 million of the net offering proceeds for purchases of property, plant and equipment, approximately $2.4 million of the net proceeds for repayment of short term debt obligations, approximately $11.4 million of the net proceeds for repurchase of our common stock, and approximately $64.1 million of the net offering proceeds for working capital.

On September 19, 2000, we completed an underwritten public offering of our common stock. The shares of common stock sold in the offering were registered under the Securities Act of 1933 on a Registration Statement on Form S-1 (No. 333-45132). The Registration Statement was declared effective by the Commission on September 13, 2000. The public offering price was $94.688 per share for an aggregate public offering price of the shares we sold of $55.2 million. After deducting the underwriting discounts and commissions of $2.9 million and the offering expenses of approximately $1.0 million, the net proceeds to us from the offering were approximately $51.3 million.

From September 13, 2000, until September 30, 2003, we used none of the net proceeds from this offering. Our temporary investments of the net proceeds from both of the offerings have been in cash, cash equivalents and investment grade, short-term interest bearing securities.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

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Item 5. OTHER INFORMATION

The Company has entered into a Sublease Agreement with Tibco Software, Inc. commencing on or around November 1, 2003 for the lease of approximately 14,565 square feet of commercial office space in Palo Alto, California for the Company’s principal place of business (the “Lease”). Consummation of the Lease remains subject to the final approval of the master landlord and the ground lessor. The scheduled term of the Lease is sixty-six (66) months from commencement.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

10.1 Sublease Agreement by and between Tibco Software, Inc. and the Company

31.1 Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

31.2 Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

32.1 Certificate of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

(b) Reports on Form 8-K.

On August 14, 2003, Vyyo filed a report on Form 8-K furnishing under Item 7 of Form 8-K, and pursuant to Item 12 of Form 8-K, its financial results for the quarter ended June 30, 2003.

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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:	October 30, 2003
VYYO INC.
By:	/s/ Davidi Gilo
	Davidi Gilo, 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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EX-10.1

Exhibit 10.1

BASIC SUBLEASE INFORMATION

DEFINED TERM:	DEFINITION OF DEFINED TERM:
SUBLEASE DATE: (same as date in first paragraph of Lease)	October 10, 2003
SUBTENANT:	Vyyo Inc, a Delaware corporation
SUBTENANT’S NOTICE ADDRESS:	Same as Subleased Premises, ATTN: President with a copy to Attn: General Counsel
SUBTENANT’S BILLING ADDRESS:	Same as Subleased Premises
SUBTENANT                                    Michael Corwin CONTACT:	PHONE NUMBER: FAX NUMBER:	408-863-2322                 408-863-2321
SUBLANDLORD:	TIBCO Software, Inc., a Delaware corporation
SUBLANDLORD’S NOTICE ADDRESS:	3303 Hillview Avenue, Palo Alto, CA 94304 Attn: General Counsel, with copy to Attn: Gwen Waddell
SUBLANDLORD’S REMITTANCE ADDRESS:	Sares Regis Group 393 Vintage Park Drive, Foster City Ca. 94404 Attn: Dan McGill
SUBLANDLORD CONTACT:	Dan McGill; telephone: 650-377-5710
MASTER LEASE	That certain Lease with the Lease Date January 21, 2000 by and between Master Landlord as “Landlord” and Sublandlord as “Tenant”
MASTER LANDLORD:	Equity Office Properties Trust (f/k/a Spieker Properties, L.P.)
MASTER LANDLORD’S NOTICE ADDRESS:	1740 Technology Drive, Suite 150 San Jose, CA 95110 Tel: 408-346-4000 Contact: Rene Santiago (408) 487-4158
MASTER LANDLORD’S REMITTANCE ADDRESS:	Equity Office Properties EOP Operating Limited Partnership PO Box 45587 Dept #10564 San Francisco, CA 94145-0587
Project Description:	That four (4) building research and development park commonly known as Foothill Research Center in Palo Alto, California. The Project is outlined in green on Exhibit B.
Master Lease Premises:	Approximately Twenty-Four Thousand Five Hundred Forty-One (24,541) rentable square feet (the “Building A Premises”) in the building located at 4009 Miranda Avenue, Palo Alto, California (“Building A”); and approximately Forty-One Thousand Five Hundred Four (41,504) rentable square feet (the “Building B Premises”) in the building located at 4005 Miranda Avenue, Palo Alto, California (“Building B”); and approximately Thirty Thousand Six Hundred Thirty (30,630) rentable square feet (the “Building C Premises”) in the building located at 4015 Miranda Avenue, Palo Alto, California (“Building C”).
Subleased Premises	14,565 rentable square feet on the First Floor in Building C located at 4015 Miranda Avenue, Palo Alto, California 94304
Permitted Use:	General office use in compliance with all applicable laws, including laws and ordinances of the City of Palo Alto and in compliance with the Master Lease and any CC & R’s or regulations imposed by Stanford University.

Parking Density:	3.3 spaces per 1,000 rentable square feet of the Premises. There are no assigned parking spaces.
Commencement Date:	November 1, 2003 or the date that Subtenant Occupies the Subleased Premises, whichever is later, but in no event later than the date of completion of the Tenant Improvements listed in Exhibit E. For purposes of this section, “Occupies” means that date which Subtenant first occupies the premises for purposes other than those described in Section 3.1 of this Sublease Agreement.
Scheduled Length of Term:	Sixty Six (66) months from the Commencement Date, which shall be referred to in this Sublease as the “Lease Term” or the “Term”.
Master Lease Term Expiration Date:	December 31, 2010
Rent:	Triple Net (“NNN”)

NNN Base Rent:	Months	Rent per SqFt		SqFt	Base Monthly Rent
	01-07	$	0	14,565	$	0
	08-12	$	1.35	14,565	$	19,662.75
	13-24	$	1.39	14,565	$	20,245.35
	25-36	$	1.43	14,565	$	20,827.95
	37-48	$	1.48	14,565	$	21,556.20
	49-60	$	1.52	14,565	$	22,138.80
	61-66	$	1.57	14,565	$	22,867.05

Prepaid Rent	Base Monthly Rent due for Month 08 = $19,662.75, due on execution of Sublease.
Security Deposit:	Two (2) months NNN Base Rent = $39,325.50, due on execution of Sublease, adjusted in accordance with Section 4.3.
Sublandlord’s Proportionate Share:
Of Building:	Building A – 45.59% Building B – 77.10% Building C – 100%
Of Project:	50.32%
Subtenant’s Proportionate Share:	47.55% of Sublandlord’s 100% Share of Building C
Landlord’s Broker		Cresa Partners
Tenant’s Broker		Cornish & Carey Commercial
After Hours Utility Charge		Landlord’s Actual Cost. Subtenant shall have the right, subject to the Master Landlord’s approval, to install a separate electric meter at Subtenant’s sole cost and expense.
Ground Lease		That certain “Ground Lease” described in Paragraph 39G of the Master Lease to which the Master Lease is subordinate and under which Master Landlord is the lessee and the Board of Trustees of the Leland Stanford University (“Ground Lessor”) is the lessor.
Signage		In accordance with the Master Lease and Section 14.4 of this Sublease Agreement.

The foregoing Basic Sublease Information is incorporated into and made a part of this Sublease. Each reference in this Sublease to any of the Basic Sublease Information shall mean the respective information above and shall be construed to incorporate all of the terms provided under the particular Sublease paragraph pertaining to such information. In the event of any conflict between the Basic Sublease Information and the Sublease, the latter shall control.

SUBLANDLORD	SUBTENANT
TIBCO Software, Inc., a Delaware corporation	VYYO Inc. a Delaware corporation
By:	By:	/s/    MICHAEL CORWIN
Name:	Name:	Michael Corwin
Title:	Title:	President and COO

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By:	By:	/s/    ANDREW FRADKIN
Name:	Name:	Andrew Fradkin
Title:	Title:	Secretary

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SUBLEASE AGREEMENT

This SUBLEASE AGREEMENT (“Sublease”) is made as of Sublease Date by and between TIBCO SOFTWARE, INC. a Delaware corporation (“Sublandlord”) and VYYO INC., a Delaware corporation (“Subtenant”).

RECITALS

This terms defined in the Basic Lease Information are hereby incorporated into this Sublease and this Sublease is made with regard to the following facts:

A. Sublandlord is the Tenant under the Master Lease and the lessee under the Ground Lease. A copy of that Master Lease is attached to this Sublease and marked as Exhibit A. Pursuant to the Master Lease, Sublandlord leases the Master Lease Premises from Master Landlord.

B. Subtenant desires to sublease from Sublandlord a portion of the Master Lease Premises (the “Subleased Premises”). Sublandlord has agreed to sublease the Subleased Premises to Subtenant on the terms, covenants and conditions stated in this Sublease.

NOW, THEREFORE, in consideration of the mutual covenants contained in this Sublease, and for valuable consideration, the receipt and sufficiency of which are acknowledged by the parties, the parties agree as follows:

1. Sublease. Sublandlord subleases to Subtenant and Subtenant subleases from Sublandlord the Subleased Premises, subject to the terms, covenants, and conditions contained in this Sublease.

2. Subleased Premises. The Subleased Premises is generally described in the Basic Sublease Information and more particularly described in Exhibit B attached to this Sublease. The Subleased Premises are or shall be situated in a building (the “Building”) located at 4015 Miranda Avenue, Palo Alto, California 94304. The parties have negotiated the rent and other terms of this Sublease on the basis that the Subleased Premises contain 14,565 rentable square feet. If the actual number of rentable square feet in the Subleased Premises is more or less than such agreed amount, there shall be NO adjustment in the Base Rent or other terms of this Sublease.

3. Term. Subject to the condition set forth in Section 14.1, below, the terms and provisions of this Sublease shall be effective between Sublandlord and Subtenant as of the Sublease Date. The term of this Sublease will commence on the Commencement Date, and will expire, unless sooner terminated as provided in this Sublease or the Master Lease, at the end of the Term.

3.1. Early Occupancy. Subject to Sublandlord removing a current tenant that occupies a portion of the Subleased Premises, which Sublandlord undertakes commercially reasonable efforts to accomplish at the earliest possible date, Subtenant shall have the right to enter the Subleased Premises, prior to the Commencement Date, at no cost to Subtenant, not for full occupancy, but for the sole purpose of installing Subtenant’s office equipment, moving and set up of furniture, installation of network, voice, and data cabling, and to prepare for

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Subtenant’s occupancy. Such early entrance or occupancy shall occur as soon as: (i) the Sublease is fully executed, and (ii) receipt of the consent from the Master Lessor and Stanford Management Company is received. During such early occupancy, Subtenant shall not in any way interfere with or delay any work from being completed by Sublandlord or otherwise cause additional cost or expense to Sublandlord.

3.2 Option to Cancel. Subtenant shall have the right to cancel this Sublease anytime after the 36^th month of occupancy, by providing six (6) months written notice to Sublandlord. Subtenant shall pay unamortized real estate commissions, as listed in Basic Sublease Information Section at the beginning of this Sublease, as a condition for the right to exercise such cancellation.

3.3 Option to Renew. Subtenant shall have the option to request one (1) one option to extend this Sublease for a term of one (1) year at a rate of ninety five percent (95%) of then fair market value of the Premises, based on fair market value of other general use buildings in the Stanford Industrial Park, as determined by a local broker selected by agreement between Sublandlord and Subtenant. Subtenant shall provide Sublandlord with six (6) months advance written notice of intent to exercise such option to renew.

4. Base Rent. Subtenant will pay Base Rent during the term of this Sublease in the amounts specified for particular portions of the Term in the Basic Sublease Information. The Base Rent shall be payable by Subtenant to Sublandlord monthly in advance on the first day of each month. In the event that the Term of this Sublease begins or ends on a date that is not the first day of a month, Base Rent will be prorated as of that date.

4.1. Prepaid Rent. In addition to the Security Deposit, concurrently with execution of this Sublease Subtenant shall pay to Sublandlord the amount of the Base Rent due for the 8th month of the Term.

4.2. Security Deposit. Concurrently with Subtenant’s execution hereof, Subtenant shall pay to Sublandlord a security deposit for the faithful performance of all terms, covenants and conditions of this Sublease. The amount and character of such deposit is specified in the Basic Sublease Information. Subtenant agrees that Sublandlord may apply such deposit to remedy any failure by Subtenant to pay rent or repair or maintain the Premises or to perform any other obligations hereunder. If Subtenant has kept and performed all terms, covenants and conditions of this Sublease during the Term hereof, Sublandlord shall, upon the expiration or termination hereof, promptly return such deposit to Subtenant, or the last permitted assignee of Subtenant’s interest hereunder. Should Sublandlord use any portion of such deposit pursuant to the foregoing, Subtenant shall replenish such deposit to such original amounts within ten (10) days following Sublandlord’s written request therefor. Sublandlord shall not be required to keep such deposit separate from its general funds, and Subtenant shall not be entitled to interest on any such deposit.

4.3. Reduction in Security Deposit. Provided that there has been no default or late payments under this Sublease by Subtenant, then Sublandlord shall return to Subtenant one-half of the security deposit ($19,662.75) on the thirty-sixth (36^th) month of the Term.

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5. Additional Rent. Subtenant acknowledges that pursuant to the terms of the Master Lease, Sublandlord is obligated to pay as Additional Rent, Sublandlord’s Proportionate Share of Operating Expenses as specified in Paragraph 7 of the Master Lease. Subtenant agrees that in addition to the Base Rent due under Section 3 above, Subtenant shall pay to Sublandlord as additional rent an amount equal to the amount of Additional Rent payable by Sublandlord to the Master Landlord pursuant to the Master Lease multiplied by Subtenant’s Proportionate Share. Subtenant shall pay Subtenant’s Proportionate Share to Sublandlord at least five days prior to the date Sublandlord must pay its Proportionate Share to Master Landlord pursuant to the terms of the Master Lease. Even though Base Rent for some period as specified in the Basic Sublease Information will be free, Subtenant will nevertheless be responsible for paying Additional Rent during such months. Sublandlord agrees that the amount of Additional Rent Subtenant is required to pay for Subtenant’s Proportionate Share of Operating Expenses is initially eighty cents ($0.80) multiplied times the agreed rentable square feet in the Subleased Premises, but is subject to recalculation. Additional Rent shall include all charges for any tax, insurance, janitorial service, or maintenance/repair work, but in any event shall not include any amount not included in the definition of Operating Expenses in the Master Lease. In the event Sublandlord receives or is entitled to a refund or credit of Operating Expenses from Master Landlord on account of overpayment of Sublandlord’s Operating Expenses as specified in Paragraph 7 of the Master Lease, attributable to the period of the Term, Sublandlord agrees to refund to Subtenant an amount equal to such refund or credit multiplied by Subtenant’s Proportionate Share.

Notwithstanding the foregoing, Subtenant ‘s Proportionate Share of Operating Expenses shall not include any expense attributable to the maintenance, repair or replacement of the elevator, it being agreed that such expenses are solely attributable to the existing second floor subtenant.

6. Use. Subtenant agrees to use the Subleased Premises in only accordance with the provisions of the Master Lease and the Permitted Use under this Sublease, and for no other purpose.

7. Subtenant Improvements; “As Is” Condition of Subleased Premises; Furniture.

Except for the Subtenant Improvements described below and subject to Paragraph 7.2, Sublandlord will deliver, and Subtenant shall accept, the Subleased Premises to Subtenant “broom clean” and in its current “as is” condition.

7.1. Subtenant Improvements. Sublandlord at Sublandlord’s sole cost and expense, shall cause the following improvements to be constructed or installed in the Subleased Premises pursuant to plans approved by Sublandlord and Subtenant and attached hereto as Exhibit E (the “SubTenant Improvements”). All Subtenant improvements are subject to approval by Master Landlord.

(A)                                 ;

(B)                                 ;

(C)                                 ;

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7.2. Condition. Notwithstanding anything to the contrary in this Sublease, Sublandlord warrants that as of the Commencement Date the Subleased Premises, including the roof, HVAC, electrical, elevator, plumbing, doors, and lighting are in good working order, condition, and repair. Sublandlord makes no representations or warranties with respect to the environmental condition of the Subleased Premises or the Project, and Subtenant hereby specifically acknowledges it is aware of and accepts: (i) the provisions of the Master Lease, Section 39B(l) describing certain Existing Conditions relating to the Project, and (ii) the provisions of the Master Lease: Article 37 (Hazardous Materials). Sublessor represents that the Premises complies with the provisions of the Americans With Disabilities Act (ADA) as of the Commencement Date. Any improvements needed to the Premises, as of the Commencement Date, to comply with ADA codes, shall be at the sole cost of Sublessor.

7.3. Furniture and Equipment. Sublandlord and Subtenant agree that the Subleased Premises will contain the furniture listed on Exhibit C to this Sublease (the “Furniture”). Subtenant shall have the right to use the Furniture at no additional charge throughout the Term and will not remove any of the Furniture either during the Term or at the expiration of the term of this Sublease. The Furniture shall at all times remain the property of Sublandlord. After the Commencement Date, Subtenant shall be responsible for the costs of furniture installation, moving, connection and partitioning the telephone switch, if any. Subtenant shall be responsible for all costs of maintenance, insurance and services fees for the Furniture during the Term. Subtenant accepts the Furniture in its current “AS-IS” condition.

7.4. Restoration. Upon the expiration or earlier termination of this Sublease, Subtenant agrees to restore the Subleased Premises to its condition prior to the construction of any Subtenant improvements and otherwise in accordance with the provisions of the Master Lease; provided, however, such restoration obligation shall not extend to the Subtenant Improvements made by Sublandlord as contemplated pursuant to Section 7.1 hereof.

7.5. Lease Improvement Agreement. The Master Lease Agreement, Exhibit C (Lease Improvement Agreement) shall govern the construction of Subtenant Improvements except that: (i) Section 4.2 of such Lease Improvement Agreement shall not apply and Subtenant will NOT be entitled to receive any tenant improvement allowance in connection with the Subtenant improvements and (ii) Section 7.1 of such Lease Improvement Agreement shall not apply.

8. Master Lease. Terms of Master Lease Govern Sublease. Except as otherwise expressly provided in Section 10 of this Sublease, the covenants, agreements, provisions, and conditions of the Master Lease-to the extent that they relate to the Subleased Premises and to the extent that they are not inconsistent with the terms of this Sublease-are made a part of and incorporated into this Sublease as if recited in full in this Sublease.

8.2. Terms “Landlord” and “Tenant”. Except as otherwise expressly provided in Section 10 of this Sublease ,as applied to this Sublease, the words “Landlord” and “Tenant” in the Master Lease will be deemed to refer to Sublandlord and Subtenant, respectively, under this Sublease and the rights and obligations of the Master Landlord and the Tenant under the Master Lease will be deemed the rights and obligations of Sublandlord and Subtenant, respectively, under this Sublease, and will inure to the benefit of, and be binding on, Sublandlord and Subtenant, respectively.

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8.3. Conflicts Between Master Lease and Sublease. As between the parties to this Sublease only, in the event of a conflict between the terms of the Master Lease and the terms of this Sublease, the terms of this Sublease will control.

9. Performance by Sublandlord; Status of Master Lease

9.1. Sublandlord’s Performance Conditioned on Master Landlord’s Performance.

Subtenant recognizes that Sublandlord is not in a position to render any of the services or to perform any of the obligations required of Master Landlord by the terms of the Master Lease. Therefore, despite anything to the contrary in this Sublease, Subtenant agrees that performance by Sublandlord of its obligations under this Sublease is conditioned on performance by the Master Landlord of its corresponding obligations under the Master Lease, and Sublandlord will not be liable to Subtenant for any default of the Master Landlord under the Master Lease.

9.2. No Claim Against Sublandlord; Sublease Remains in Force. Subtenant will not have any claim against Sublandlord based on the Master Landlord’s failure or refusal to comply with any of the provisions of the Master Lease unless that failure or refusal is a result of Sublandlord’s act or failure to act. Despite the Master Landlord’s failure or refusal to comply with any of those provisions of the Master Lease, this Sublease will remain in full force and effect and Subtenant will pay the Base Rent and additional rent and all other charges provided for in this Sublease without any abatement, deduction or setoff, except to the extent that Sublandlord is entitled to abatement, deduction or setoff under the Master Lease.

9.3. Obtaining Master Landlord’s Consent. Whenever the consent of the Master Landlord is required under the Master Lease, and whenever the Master Landlord fails to perform its obligations under the Master Lease, Sublandlord agrees to use its reasonable, good faith efforts to obtain, at Subtenant’s sole cost and expense, that consent or performance on behalf of Subtenant, provided however that obtaining the Master Landlord’s consent to this Sublease shall be at the sole cost and expense of Sublandlord.

9.4. No Existing Defaults. Sublandlord represents and warrants to Subtenant that the Master Lease is in full force and effect, and Sublandlord has neither given nor received a notice of default under the Master Lease.

9.5. Preservation of Master Lease. Sublandlord agrees not to terminate the Master Lease voluntarily, or modify the Master Lease in a manner that materially adversely affects Subtenant’s rights under this Sublease. Subtenant and Sublandlord will each refrain from any act or omission that would result in the failure or breach of any of the covenants, provisions, or conditions of the Master Lease on the part of the Tenant under the Master Lease.

10. Variations from Master Lease. As between Sublandlord and Subtenant, the terms and conditions of the Master Lease are modified as stated below in this Section 10:

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10.1. Basic Sublease Information. To the extent that any of the Definitions of Defined Terms in the Basic Sublease Information are different than the Basic Lease Information in the Master Lease, the Definitions of Defined Terms in the Basic Sublease Information shall be deemed substituted as the definitions of the defined terms as such terms as used in the Master Lease

10.2. Brokers. The parties to this Sublease warrant to each other that neither party dealt with any broker or finder in connection with the consummation of this Sublease other than the Brokers specified in the Basic Sublease Information (“Broker”) and each party agrees to protect, defend, indemnify and hold the other party harmless from and against any and all claims or liabilities for brokerage commissions or finder’s fees arising out of that party’s acts in connection with this Sublease to anyone other than a Broker. The provisions of this Section 10.2 will survive the expiration or earlier termination of this Sublease. Sublandlord shall pay the Subtenant’s Broker a fee equal to 6% of the total Base Rent and Subtenant shall not be obligated to pay any broker fee or commission, except in the event that Subtenant terminates this lease early, pursuant to Section 3.2, in which event Subtenant shall reimburse Sublandland for any unamortized Broker fees, based on a 66 month amortization. The Broker fees are as follows:

1.	Procuring Broker:	$	75,154.00
2.	Listing Broker:	$	31,971.00
3.	Sares Regis Group	$	25,489.00

10.3. Insurance and Condemnation Proceeds. Despite anything contained in the Master Lease to the contrary, as between Sublandlord and Subtenant only, in the event of damage to or condemnation of the Subleased Premises, all insurance proceeds or condemnation awards received by Sublandlord under the Master Lease will be deemed to be the property of Sublandlord, and Sublandlord will have no obligation to rebuild or restore the Subleased Premises; provided, however, Sublandlord will pay to Subtenant such portion of any such insurance proceeds or condemnation awards attributable to Tenant’s fixtures, equipment or other property in the Premises.

10.4. Notices. All notices, demands, statements and requests required or permitted to be given under this Sublease as between Sublandlord and Subtenant shall be in writing and shall be delivered by one of the following methods of delivery:

10.4.1. Personal Service. Personal service, in which event the notice shall be deemed to have been given upon actual receipt;

10.4.2. Courier. Federal Express, Airborne Express or another nationally recognized overnight courier service, in which event the notice shall be deemed to have been given on the date indicated in the courier’s records as the date of delivery or first attempted delivery to the address of the addressee;

10.5. Amounts Payable. All amounts payable under this Sublease by Subtenant are payable directly to Sublandlord.

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10.6. Provisions of Master Lease Not Applicable. The provisions of the following Paragraphs of the Master Lease will not apply to this Sublease:

•	21	Assignment and Subletting
•	39A	Term Commencement Date
•	39C	Rent
•	39D	Early Occupancy of the Building B Premises
•	39E	Letter of Credit

11. Indemnity. Subtenant agrees to protect, defend, indemnify, and hold Sublandlord harmless from and against any and all liabilities, claims, expenses, losses and damages (including reasonable attorney fees and costs), that may at any time be asserted against Sublandlord by (a) the Master Landlord for failure of Subtenant to perform any of the covenants, agreements, terms, provisions, or conditions contained in the Master Lease that Subtenant is obligated to perform under the provisions of this Sublease; or (b) any person as a result of Subtenant’s use or occupancy of the Subleased Premises. The provisions of this Section 11 will survive the expiration or earlier termination of the Master Lease or this Sublease and are in addition to any indemnities contained in the Master Lease.

Sublandlord agrees to protect, defend, indemnify, and hold Subtenant harmless from and against any and all liabilities, claims, expenses, losses and damages (including reasonable attorney fees and costs), that may at any time be asserted against Subtenant by the Master Landlord for failure of Sublandlord to perform any of the covenants, agreements, terms, provisions, or conditions contained in the Master Lease that Sublandlord is obligated to perform under the provisions of this Sublease. The provisions of this Section 11 will survive the expiration or earlier termination of the Master Lease or this Sublease and are in addition to any indemnities contained in the Master Lease.

12. Cancellation of Master Lease. In the event the Master Lease is canceled or terminated for any reason, or involuntarily surrendered by operation of law before the expiration date of this Sublease, Subtenant agrees, at the sole option of the Master Landlord, to attorn to the Master Landlord for the balance of the term of this Sublease and on the then executory terms of this Sublease. Such attornment will be evidenced by an agreement in form and substance reasonably satisfactory to the Master Landlord. Subtenant agrees to execute and deliver such an agreement at any time within ten (10) business days after request by the Master Landlord. Subtenant waives the provisions of any law now or later in effect that may provide Subtenant any right to terminate this Sublease or to surrender possession of the Subleased Premises in the event any proceeding is brought by the Master Landlord to terminate the Master Lease.

13. Assignment or Subleasing. Subject to Subtenant obtaining such consents and approvals as are required from the Master Landlord pursuant to the Master Lease and the Ground Lessor pursuant to the Ground Lease, upon compliance with the following, Subtenant may sublease all or a portion of the Subleased Premises with Sublandlord’s prior written consent, which consent

10

shall not be unreasonably withheld. Notwithstanding the foregoing, Subtenant shall be permitted to sublease all or a portion of the Subleased Premises without Sublandlord’s prior consent to any entity that is controlling, controlled by, under common control with at least at 51% interest, by Subtenant (a “Permited Sub-sublease”) provided that any such Permitted Sub-sublease shall be subject and subordinate to this Sublease and the sub-subleased portion of the Subleased Premises shall not be separately demised, and Subtenant shall remain liable to Sublandlord for all obligations hereunder, including, without limitation, all rent payment obligations.

13.1. Notice to Sublandlord. Subtenant shall give Sublandlord written notice at least thirty (30) days prior to the anticipated effective date of the proposed sublease, which notice shall identify the proposed subtenant, shall specify the rent and other principal terms of the proposed sublease arrangement, and shall indicate the proposed date upon which such subtenant shall be entitled to occupancy of the Sublease Premises or portion thereof. Thereafter, Subtenant agrees to provide to Sublandlord such additional information regarding such subtenant and the proposed sublease as Sublandlord shall request. Such sublease must provide that such subtenant acknowledges that such sublease is subject to this Sublease, the Master Lease and the Ground Lease. Prior to the date upon which such subtenant takes occupancy of the Subleased Premises, Subtenant shall deliver to Sublandlord a copy of the executed sublease.

13.2. Access and Security Coordination. Subtenant agrees to cause any party subleasing from Subtenant all or a portion of the Subleased Premises to comply with such rules and restrictions as Sublandlord may deem reasonable to impose regarding access to the Subleased Premises and security for the Subleased Premises and the remainder of the Project.

13.3. Bonus Rent. Any Rent or other consideration realized by Subtenant under any such sublease in excess of the Rent payable pursuant to this Sublease after reasonable subleasing costs (including broker fees (not to exceed the then market rate) and attorney fees (not to exceed $5,000) incurred by Subtenant shall be divided and paid, fifty percent (50%) to Subtenant and fifty percent (50%) to Sublandlord.

14. General Provisions.

14.1. Consent of Landlord and Ground Lessor. The Master Landlord’s written consent to this Sublease in accordance with the terms of the Master Lease and the written consent of the Ground Lessor under the Ground Lease are both conditions subsequent to the validity of this Sublease. The form of consent of both the Master Landlord and the Ground Lessor shall be subject to the review and approval of Sublandlord and Subtenant and if not approved, then this Lease shall be null and void and Sublandlord and Subtenant shall have no further right or obligation hereunder. If the Master Landlord’s and Ground Lessor’s consent has not been obtained and a copy of that consent delivered to Subtenant by the thirtieth (30th) day following the date of this Sublease, Subtenant shall thereafter have the ongoing right, subject to the terms of this Section 14.1, to terminate this Sublease pursuant to a notice (the “Termination Notice”) so stating delivered to Sublandlord. If Sublandlord fails to deliver to Subtenant the consent of Master Landlord and Ground Lessor to this Sublease within ten (10) days following receipt of the Termination Notice (the “Termination Date”), this Sublease shall automatically terminate and the parties shall be released from any further obligations

11

under this Sublease. If, however, Sublandlord delivers to Subtenant the consent of Master Landlord and Ground Lessor on or before the Termination Date, the condition subsequent set forth in this Section 14.1 shall be satisfied and this Sublease shall continue in full force and effect.

14.2. Capitalized Terms. All terms spelled with initial capital letters in this Sublease that are not expressly defined in this Sublease will have the respective meanings given such terms in the Master Lease.

14.3. Word Usage. Unless the context clearly requires otherwise, (a) the plural and singular numbers will each be deemed to include the other; (b) the masculine, feminine, and neuter genders will each be deemed to include the others; (c) “shall,” “will,” “must,” “agrees,” and “covenants” are each mandatory; (d) “may” is permissive; (e) “or” is not exclusive; and (f) “includes” and “including” are not limiting.

14.4. Signage. Subtenant shall have the right to install directory and door signage, subject to the approval of Sublandlord, Master landlord, the City of Palo Alto and any other parties as required in the Master Lease. Subtenant shall be responsible for all costs of installation, maintenance, damage and removal of Subtenant’s signage upon the expiration or earlier termination of this Sublease. Subtenant shall also have the right to install façade signage, subject to the approval of Master Landlord and Ground Lessor at their sole discretion.

14.5. Disclosures. See Exhibit D

14.6. Confidentiality of Lease Subtenant and Subtenant’s Broker agree to keep the terms of this Sublease confidential and shall not disclose same to any other person not a party hereto, without the prior written consent of Sublandlord, provided that Subtenant may disclose the terms hereof to Subtenant’s accountants, attorneys, managing employees, and others in privity with Subtenant to the extent reasonably necessary for Subtenant’s business purposes without such prior written consent.

14.7 Use of Common Area. Subject to the consent of the existing second floor subtenant of the premises, Subtenant shall have the right to use the first floor common area vestibule of the premises as its reception area, and shall have the right to use the existing reception furniture for said purpose. Sublandlord shall use commercially reasonable efforts to obtain the consent of the existing second floor subtenant.

The parties have executed this Sublease as of the date specified above.

SUBLANDLORD: TIBCO Software Inc., a Delaware corporation	SUBTENANT: Vyyo Inc., a Delaware corporation
By:	By:	/s/    MICHAEL CORWIN
Name:	Name:	Michael Corwin
Title:	Title:	President and COO
By:	By:	/s/    ANDREW FRADKIN
Name:	Name:	Andrew Fradkin
Title:	Title:	Secretary

12

Exhibit A

[Master Lease]

13

Exhibit B

[Description of Subleased Premises]

14

Exhibit C

[List of Included Furniture and Equipment]

15

Exhibit D

[Disclosures]

16

Exhibit E

[Plans for SubTenant Improvements]

17

EX-31.1

EXHIBIT 31.1

CERTIFICATE OF CHIEF EXECUTIVE OFFICER

OF

VYYO INC.

I, Davidi Gilo, certify that:

1. I have reviewed this 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(s) 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 officers 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 function):

(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: October 30, 2003	/s/ Davidi Gilo
	Davidi Gilo, Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATE OF CHIEF FINANCIAL OFFICER

OF

VYYO INC.

I, Arik Levi, certify that:

1. I have reviewed this 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(s) 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 officers 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 function):

(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: October 30, 2003	/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 September 30, 2003, 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) 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/ Davidi Gilo

Davidi Gilo

Chief Executive Officer

October 30, 2003

/s/ Arik Levi

Arik Levi

Chief Financial Officer

October 30, 2003

The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosure document.

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.