UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                               AMENDMENT NO. 1 TO
                                   FORM 20-F
        o REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                                       OR

       x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
                  For the fiscal year ended December 31, 2001

                                       OR

 o 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 0-30394
                                 Metalink Ltd.
             (Exact name of Registrant as specified in its charter)
                                     Israel
                (Jurisdiction of incorporation or organization)
                    Yakum Business Park, Yakum 60972, Israel
                    (Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
          Title of each class    Name of each exchange on which registered
                  None                               None

Securities registered or to be registered pursuant to Section 12(g) of the Act:
                  Ordinary Shares, NIS 0.1 par value per share
                                (Title of Class)
              Securities for which there is a reporting obligation
                     pursuant to Section 15(d) of the Act:
                                      None
                                (Title of Class)

     Indicate the number of outstanding  shares of each of the issuer's  classes
of capital or common  stock as of the close of the period  covered by the annual
report: 18,296,488 Ordinary Shares, NIS 0.1 par value per share

     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. x Yes o No

     Indicate by check mark which  financial  statement  item the registrant has
elected to follow. o Item 17 x Item 18


<PAGE>

     Except for the  historical  information  contained  herein,  the statements
contained  in this  annual  report are  forward-looking  statements,  within the
meaning of the Private Securities  Litigation Reform Act of 1995 with respect to
our business,  financial  condition and results of  operations.  Actual  results
could  differ  materially  from  those  anticipated  in  these   forward-looking
statements a result of various  factors,  including  all the risks  discussed in
"Item 3-Key  Information-Risk  Factors" and elsewhere in this annual report.

     We urge you to consider that statements  which use the terms "believe," "do
not believe," "expect," "plan," "intend," "estimate,"  "anticipate," and similar
expressions  are  intended  to  identify   forward-looking   statements.   These
statements reflect our current views with respect to future events and are based
on assumptions and are subject to risks and uncertainties. Except as required by
applicable law,  including the securities  laws of the United States,  we do not
intend to update or revise any forward-looking  statements,  whether as a result
of new information,  future events or otherwise.

     As used in this annual report,  the terms "we," "us," "our," and "Metalink"
mean Metalink Ltd., and our consolidated subsidiary, unless otherwise indicated.

     "Multi-Mode DSL(TM)," "NML(TM)," "Olympus-DSL" and "Turbo SDSL(TM)" are our
trademarks. All other trademarks and trade names appearing in this annual report
are owned by their respective holders.
<PAGE>


                                     PART I

ITEM 1.           IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS      1
ITEM 2.           OFFER STATISTICS AND EXPECTED TIMETABLE                    1
ITEM 3.           KEY INFORMATION                                            2
ITEM 4.           INFORMATION ON THE COMPANY                                 22
ITEM 5.           OPERATING AND FINANCIAL REVIEW AND PROSPECTS               32
ITEM 6.           DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                 43
ITEM 7.           MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS          56
ITEM 8.           FINANCIAL INFORMATION                                      59
ITEM 9.           THE OFFER AND LISTING                                      60
ITEM 10.          ADDITIONAL INFORMATION                                     62
ITEM 11.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 83
ITEM 12.          DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES     84

                                    PART II

ITEM 13.          DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES            85
ITEM 14.          MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
                    AND USE OF PROCEEDS                                      85
ITEM 15.          [RESERVED]                                                 85
ITEM 16.          [RESERVED]                                                 85

                                    PART III

ITEM 17.          FINANCIAL STATEMENTS                                       86
ITEM 18.          FINANCIAL STATEMENTS                                       86
ITEM 19.          EXHIBITS                                                   87
<PAGE>

PART I

ITEM 1.           IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not applicable.

ITEM 2.           OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3.           KEY INFORMATION

A.       Selected Financial Data

     We  have  derived  the  following  selected  consolidated   financial  data
presented  below for each of the years ended  December 31,  2001,  2000 and 1999
from our  consolidated  financial  statements  and notes included in this annual
report.  The  selected  consolidated  financial  data for the years  ended as of
December 31, 1998 and 1997 have been derived from audited  financial  statements
not included in this annual report. Our consolidated  financial  statements have
been  prepared  in  accordance  with U.S.  GAAP.  You should  read the  selected
consolidated  financial  data  together  with the section of this annual  report
entitled  "Operating and Financial  Review and  Prospects" and our  consolidated
financial statements included elsewhere in this annual report. Please see note 2
of our  consolidated  financial  statements  for an explanation of the number of
shares used in computing per share data.

<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                         1997         1998         1999         2000         2001
                                               (In thousands, except share and per share data)
<S>                                       <C>          <C>          <C>          <C>          <C>
Statement of Operations Data:
Revenues                                  $5,904       $9,159      $11,708      $23,302      $14,049
Cost of revenues:
  Costs and expenses                       3,867        5,040        5,878        9,794        6,086
  Royalties to the
  Government of Israel                        45          143          209          469          364
Total cost of revenues                     3,912        5,183        6,087       10,263        6,450
Gross profit                               1,992        3,976        5,621       13,039        7,599
Operating expenses:
  Gross research and development           2,823        3,839        6,065       12,592       17,060
  Royalty bearing grant                      879        1,301        1,965        3,381        3,457
  Research and development, net            1,944        2,538        4,100        9,211       13,603
  Sales and marketing, net                 1,150        1,510        2,026        3,665        5,465
  General and administrative                 696          798        1,138        3,042        3,526
  Non-cash compensation                       93          182          382          791          745
Total operating expenses                   3,883        5,028        7,646       16,709       23,339
Operating loss                           (1,891)      (1,052)      (2,025)      (3,670)     (15,740)
Financial income (expenses), net:
  Interest income (expenses), net             29         (63)          145        5,986        4,629
  Non-cash charge for warrants                 -            -      (1,400)            -            -
  Total financial income
    (expenses), net                           29         (63)      (1,255)        5,986        4,629
Net (loss) profit                       $(1,862)      (1,115)      (3,280)        2,316     (11,111)
Earnings (loss) per share:
   Basic                                  (0.16)       (0.09)       (0.27)         0.13       (0.61)
   Diluted                                (0.16)       (0.09)       (0.27)         0.11       (0.61)
Shares used in computing
   earnings (loss)
   per ordinary share:
   Basic                              11,627,190   12,010,745   12,309,339   18,269,556   18,260,798
   Diluted                            11,627,190   12,010,745   12,309,339   20,773,382   18,260,798


</TABLE>
<PAGE>
<TABLE>

<CAPTION>

Consolidated Balance Sheet Data:

                                             As of December 31,
                                  1997     1998     1999     2000    2001
                                           (In thousands)
<S>                               <C>       <C>      <C>      <C>    <C>

Cash and cash equivalents        1,773    1,013    4,281    8,851    15,946
Short-term investments             -        -     42,816   86,268    64,967
Long-term investments              -        -      2,952   15,344     9,172
Working capital                  2,324    1,396   46,971   97,324    82,430
Total assets                     5,212    5,455   55,850  125,266   104,733

Short-term bank credits
   and loans                       -        500     -        -         -
Shareholders equity              3,282    2,351   50,991  117,632    98,497

</TABLE>
<PAGE>

B.       Capitalization and Indebtedness

Not Applicable.

C.       Reasons for the Offer and Use of Proceeds

Not Applicable.

D.       Risk Factors

     Our business,  operating results and financial condition could be seriously
harmed due to any of the following risks. If we do not successfully  address any
of the risks described  below, we could  experience a material adverse effect on
our business, results of operations and financial condition, and our share price
may decline. We cannot assure you that we will successfully address any of these
risks.


     Slowdown in the  telecommunication  industry  might  continue to  adversely
affect our business and results of operations.

     Telecommunications  service providers and their customers are the principal
end-users  of  substantially  all  of  our  products.  Beginning  in  2001,  the
telecommunications  industry in much of the world,  including  in our  principal
markets,  experienced  a  slowdown,  resulting  in  decreases  and delays in the
procurement and deployment of new telecommunications  equipment. As a result, we
experienced  a  significant  decline in demand for our  products in 2001.  It is
likely  that  any  prolonged  and  substantial  curtailment  of  growth  in  the
telecommunications  industry will have an adverse effect, which may be material,
upon us. Any such curtailment may result from  circumstances  unrelated to us or
our product offerings and over which we have no control.  In addition,  a market
perception  that these  conditions  could have an impact on our company may harm
the trading  prices of our shares,  whether or not our  business  and results of
operations are actually affected.


     We have a  limited  operating  history,  which may limit  your  ability  to
evaluate our business.

     We commenced  operations in 1993. Our limited  operating  history may limit
your ability to evaluate our prospects due to:

     o our limited historical financial data;

     o our unproven potential to generate operating profitability; and

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

You should  consider  our  prospects  in light of the risks,  expenses  and
difficulties  we may  encounter in the new and rapidly  evolving  market for DSL
chip sets.


     We have a history of operating losses.

     We have incurred significant  operating losses since our inception,  and we
may not achieve operating  profitability for the foreseeable future. We reported
operating losses of approximately  $15.7 million for the year ended December 31,
2001,  and $3.7 million for the year ended December 31, 2000. As of December 31,
2001, our  accumulated  deficit was  approximately  $17.6  million.  We reported
revenues of approximately  $14 million for the year ended December 31, 2001, and
$23.3 million for the year ended December 31, 2000. Despite the fact that we are
making expenditures in anticipation of generating higher revenues,  our revenues
may  not  grow  and may  even  continue  to  decline.  Moreover,  even if we are
successful  in increasing  our  revenues,  we may be delayed in doing so. If our
revenues do not increase as  necessary or if our expenses  increase at a greater
pace than our  revenues,  we will not  likely  be able to  achieve,  sustain  or
increase profitability on a quarterly or annual basis.


     Our  quarterly  operating  results are  volatile.  This 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,  many of which are  substantially  outside  of our  control,
including:

     o Our revenues depend upon the size,  timing and shipment of orders for our
chip sets, especially large orders from some of our customers. We do not receive
orders in the same amounts each quarter.

     o Our  customers  may not be able to forecast  their needs or accurately or
efficiently manage their inventory positions.

     o  Customer  buying  patterns  may change  and may be  stronger  in certain
quarters of each year and weaker in other quarters of the year.

     o Our limited  order backlog  makes  revenues in any quarter  substantially
dependent on orders received and delivered in that quarter.

     o Customers may cancel or postpone orders in our backlog.

     o The timing and level of market  acceptance  for existing chip sets,  chip
sets under  development and new applications or chip sets introduced by us or by
our competitors is uncertain.

     o The  effectiveness  of our  customers in marketing  and selling their DSL
equipment.

     o Changes in pricing by us or our competitors.

     o  Unfavorable  changes  in the prices of the  components  we  purchase  or
license.

     o The amount of our expenses which are fixed,  rather than varying with our
revenues,  providing us with limited ability to attain  earnings  immediately if
revenue levels in any given quarter decline.

     o A delay in the receipt of revenue arising from  postponement of orders by
customers or, shipping delays of existing orders and delivery of products,  even
from one  customer,  may have a  significant  negative  impact on our results of
operations for a given period.  We have experienced such delays in the past, and
our  results of  operations  for those  periods  were,  as a result,  negatively
impacted.

     o The mix of chip sets  sold and the mix of sales  channels  through  which
they are sold.

     o Changes in resource  allocation by our  customers due to their  operating
budget cycles.

     o Deferrals of customer orders in  anticipation of new  applications or new
chip sets introduced by us or by our competitors.

     o Delays in delivery by the subcontractors who manufacture our chips.

     Because  of the  variations  which  we have  experienced  in our  quarterly
operating results,  we do not believe that  period-to-period  comparisons of our
results of operations are necessarily meaningful or should necessarily be relied
upon as indicators of future performance.

     Accordingly,  our  operating  results may be below public  expectations  in
future  fiscal  periods.  Our failure to meet these  expectations  may cause our
share price to decline.

     Any  reversal or slowdown in  deregulation  of  telecommunications  markets
could materially harm the markets for our products.

     Future growth in the markets for our products will depend,  in part, on the
continued    privatization,    deregulation    and    the    restructuring    of
telecommunications  markets  worldwide,  as  the  demand  for  our  products  is
generally higher when a competitive environment exists. Any reversal or slowdown
in  the  pace  of  this  privatization,   deregulation  or  restructuring  could
materially  harm the markets for our products.  Moreover,  the  consequences  of
deregulation  are  subject  to  many   uncertainties,   including  judicial  and
administrative   proceedings   that   affect  the  pace  at  which  the  changes
contemplated by deregulation occur, and other regulatory, economic and political
factors. Any invalidation, repeal or modification of the requirements imposed by
the  Telecommunications  Act of 1996,  the  local  telephone  competition  rules
adopted by the U.S. Federal  Communications  Commission to implement that Act or
similar international  regulation could materially harm our business,  financial
condition and results of operations.  Furthermore,  the uncertainties associated
with deregulation have in the past, and could in the future, cause our customers
to delay purchasing decisions pending the resolution of these uncertainties.


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

     Relatively  few  customers  account  for a  large  percentage  of  our  net
revenues.  Our business  will be seriously  harmed if we do not generate as much
revenue as we expect from these customers,  or if we experience a loss of any of
our significant  customers,  particularly,  Schmid  Telecommunication  Ltd., ECI
Telecom Ltd. and Primetech Electronics Inc, or suffer a substantial reduction in
orders from these customers. In 2001, our top three customers were Schmid, which
accounted for 35% of our revenues; ECI, which accounted for 19% of our revenues;
and  Primetech,  which  accounted for 19% of our revenues.  We cannot be certain
that these  customers  will maintain  these levels of purchases.  We do not have
contracts  with any of our customers  that obligate them to continue to purchase
our chip sets, and these customers  could cease  purchasing our chip sets at any
time.  We expect that sales of our chip sets to relatively  few  customers  will
continue  to  account  for a  significant  portion of our net  revenues  for the
foreseeable future.


     If the market for DSL solutions  does not continue to develop,  we will not
be able  to sell  enough  of our  chip  sets to  achieve,  sustain  or  increase
profitability.

     DSL  solutions  compete  with  a  variety  of  different  broadband  access
technologies, including but not limited to cable modem, wireless and FTTH (fiber
to the home)  technologies.  If any technology that competes with DSL technology
is more reliable, faster or less expensive,  reaches more customers or has other
advantages over DSL technology,  the demand for our chip sets will decrease, and
we may not  sell  enough  of our  chip  sets to  achieve,  sustain  or  increase
profitability.


     If ADSL  solutions gain in market share at the expense of our DSL products,
we may not be able to sell  enough  of our  chip  sets to  achieve,  sustain  or
increase  profitability.

     Currently our product line includes HDSL, SDSL, VDSL, and G.SHDSL products.
If the  ADSL  technology  that  competes  with  our DSL  products  becomes  more
reliable,  faster  or  less  expensive,  reaches  more  customers  or has  other
advantages over our products, the demand for our chip sets will decrease, and we
may  not  sell  enough  of  our  chip  sets  to  achieve,  sustain  or  increase
profitability.


     Substantial sales of our chip sets will not occur unless  telecommunication
service providers increasingly deploy DSL systems.

     The  success  of  our   products  is   dependent   upon  the   decision  by
telecommunication  service providers to deploy DSL systems and the timing of the
deployment. Factors that will impact the deployment include:

     o a prolonged  approval  process,  including  laboratory  tests,  technical
trials,  marketing  trials,  initial  commercial  deployment and full commercial
deployment;

     o the  development of a viable business model for DSL systems and services,
including the capability to market,  sell,  install and maintain DSL systems and
services;

     o cost  constraints,  such  as  installation  costs  and  space  and  power
requirements at the telecommunication service provider's central office;

     o varying and uncertain  conditions  of the local loop,  including the size
and length of the copper wire,  electrical  interference and  interference  with
existing voice and data telecommunication services;

     o  challenges  of  interoperability  among  DSL  equipment   manufacturers'
products;

     o evolving industry standards for DSL technologies; and

     o government regulations.

     If  telecommunication  service  providers do not expand their deployment of
DSL systems or if additional  telecommunication  service  providers do not offer
DSL services on a timely basis, our business will be harmed.


     If the DSL  equipment  manufacturers  which  utilize  our chip sets are not
successful  in  selling  their  systems,  sales of our chip  sets  will  decline
significantly.

     We rely  upon  DSL  equipment  manufacturers,  such as ECI and  Schmid,  to
integrate  our chip  sets into  their  DSL  systems.  If their  systems  are not
successful,  we will not be able to sell our  chip  sets to them in  substantial
quantities.  Their  systems may be  unsuccessful  for a large number of reasons,
substantially all of which are beyond our control.


     Our chip sets may not adequately serve the needs of end users.

     Our chip sets are sold primarily  through OEMs.  Thus, the feedback that we
receive  with  respect  to  the  field   performance   of  our  chip  sets  from
telecommunication  service  providers  and their users may be limited.  This may
impair our ability to design chip sets that are  responsive  to the needs of the
end users of our chip  sets.  This may harm the  market  acceptance  of our chip
sets.


     We currently  depend on sales of our European  standard,  or E1 HDSL,  chip
sets.

     For the year ended December 31, 2001, we derived  approximately  68% of our
revenues  from our E1 HDSL chip sets.  Our  future  financial  performance  will
depend  significantly on the successful  marketing and market acceptance of this
line of chip sets.  If for any reason our revenues  from this chip set decrease,
our results of operations will be harmed.


     If we do not achieve "design wins" with equipment  manufacturers during the
design stage of a new product, we may be unable to secure production orders from
these customers in the future.

     Once a DSL  equipment  manufacturer  has  designed  its system to include a
particular supplier's chip set, the DSL equipment  manufacturer may be reluctant
to change its source of chip sets.  Accordingly,  the failure to achieve  design
wins with key DSL equipment  manufacturers could create barriers to future sales
opportunities.

     We must develop new chip sets and new  applications  for our existing  chip
sets to remain  competitive.  If we fail to do so on a timely and cost effective
basis, we may lose market share.

     The markets for DSL solutions such as ours are characterized by:

     o rapid technological changes;

     o frequent new product introductions;

     o changes in customer requirements; and

     o evolving industry standards.

     Accordingly,  our future success will depend to a substantial extent on our
ability to:

     o invest significantly in research and development;

     o develop,  introduce  and support new chip sets and new  applications  for
existing chip sets on a timely basis;

     o gain market acceptance of our chip sets;

     o anticipate customer requirements; and

     o comply with industry standards.

     We may not be able to complete the development  and market  introduction of
new chip sets or new applications successfully. If we fail to develop and deploy
new chip sets and new  applications  on a timely basis, we may lose market share
to our  competitors  and our revenues  will  decline.  In addition any change in
industry  standards and regulations or adoption of a standard not implemented by
us,  may  have  an  adverse  effect  on the  business  of the  Company.


     Because competition in the market for our solutions is intense, we may lose
market  share,  and we may be unable to achieve or maintain  profitability.

     Our market is highly competitive, and we expect competition to intensify in
the future. We may not be able to compete  effectively in our market, and we may
lose market share to our competitors. Our principal competitors include Conexant
Systems,  Inc., GlobeSpan,  Inc., Virata corporation , Infineon Technologies AG,
and Broadcom  Corporation.  We expect to continue to face competition from these
and other  competitors.  Larger  companies  with  substantial  resources,  brand
recognition  and sales  channels may form  alliances  or merge with,  or acquire
competing  DSL chip set  providers and emerge as  significant  competitors.  For
example,  in December  2001,  two of our  principal  competitors,  GlobeSpan and
Virata,  announced the closing of their merger. Said merger may adversely affect
our  market  share  and as a  result  might  adversely  affect  our  results  of
operations. In addition,  competitors may bundle their products or incorporate a
DSL chip set component into existing  products in a manner that renders our chip
sets  obsolete.


     Competition may result in lower prices and a corresponding reduction in our
ability to recover our costs. This may impair our ability to achieve or maintain
profitability.

     We expect that price  competition  among DSL chip set suppliers will reduce
our gross margins in the future.  We anticipate  that average  selling prices of
DSL chip sets will continue to decline as product  technologies mature. Since we
do not  manufacture  our  own  chip  sets,  we  may  be  unable  to  reduce  our
manufacturing  costs in response to declining  average per unit selling  prices.
Many of our competitors are larger and have greater  resources than we do. These
competitors  may be able to achieve  greater  economies of scale and may be less
vulnerable to price  competition than we are. Declines in average selling prices
will generally lead to declines in gross margins for chip sets. If we are unable
to recover costs, we will likely be unable to achieve profitability.


     In  order  to  attain  profitability,  we must  manage  our  expansion  and
anticipated  growth  effectively.

     We had 88  employees at December  31,  1999,  and grew to 141  employees at
December 31, 2001.  The growth of our business has placed,  and will continue to
place,  a  significant  strain  on our  managerial,  operational  and  financial
resources.  We must also implement  sophisticated inventory and control systems.
We cannot  assure  you that our  management  team will be able to work  together
effectively to manage our organization.

     To manage growth  effectively,  we must continuously:

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

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

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

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


     Because we operate in international  markets,  we are subject to additional
risks.

     We  currently  offer  our  chip  sets in a  number  of  countries,  through
independent  sales  representatives  and  distributors,  and we  intend to enter
additional  geographic  markets.  Our  business  is subject to risks which often
characterize international markets, including:

     o potentially weak protection of intellectual property rights;

     o economic, political, and security instability;

     o import or export licensing requirements;

     o trade restrictions;

     o difficulties in collecting accounts receivable;

     o longer payment cycles;  o unexpected  changes in regulatory  requirements
and tariffs;

     o seasonal  reductions  in business  activities in some parts of the world,
such as during the summer months in Europe;

     o fluctuations in exchange rates; and

     o potentially adverse tax consequences.

     These risks may impair our ability to generate  revenues from our increased
global sales efforts.


     Because of our long product  development  process and sales  cycle,  we may
incur substantial expenses before we earn associated revenues.

     We incur substantial product  development and marketing  expenditures prior
to generating  associated revenues. We do not receive substantial orders for our
chip sets during the period that potential  customers test and evaluate our chip
sets. This period typically lasts from six to nine months or longer,  and volume
production of products that  incorporate  our chip sets typically does not begin
until  this test and  evaluation  period  has been  completed.  As a  result,  a
significant period of time may elapse between our product  development and sales
efforts and any  realization by us of revenues from volume  ordering of our chip
sets by our  customers,  or we may  never  realize  revenues  from our  efforts.


     Because  we do  not  have  long-term  contracts  with  our  customers,  our
customers  can  discontinue  purchases of our chip sets at any time.

     We sell our chip sets based on individual  purchase  orders.  Our customers
are not  obligated  by  long-term  contracts  to  purchase  our chip  sets.  Our
customers  can  generally  cancel  or  reschedule   orders  upon  short  notice.
Furthermore,  achieving a design win with a customer does not  necessarily  mean
that this customer will order large volumes of our products. A design win is not
a binding  commitment by a customer to purchase our chip sets.  Rather,  it is a
decision  by a  customer  to use our chip  sets in the  design  process  of that
customer's products. A customer can discontinue using our chip sets at any time.


     We currently rely on a limited number of  subcontractors to manufacture and
assemble our chips.

     We currently  rely on a single  subcontractor  for the  manufacture of each
chip included in our chip sets and on a limited number of subcontractors for the
assembly  of  finished  chips and other  related  services.  Our  subcontractors
manufacture, assemble and test our chips in Hong Kong, Ireland, Singapore, South
Korea,   the  Republic  of  China   (Taiwan)  and  the  United   States.   These
subcontractors  currently  have  limited  manufacturing  capacity,  which may be
inadequate  to meet our demand.  If the  operations of our  subcontractors  were
halted, even temporarily, or if they were unable to operate at full capacity for
an extended period of time, we could experience business interruption, increased
costs, loss of goodwill and loss of customers. Delays in the manufacture of chip
sets are typical in our industry,  and we have  experienced  these delays in the
past.


     We are dependent upon a limited number of suppliers of key components.

     We currently obtain key components from a single supplier or from a limited
number of suppliers.  We generally do not have long-term  supply  contracts with
our suppliers. These factors subject us to the following risks:

     o delays in delivery or shortages in components  could  interrupt and delay
the  manufacturing  and delivery of our chip sets and may result in cancellation
of orders by our customers;

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

     o we  may  not  be  able  to  develop  alternative  sources  for  chip  set
components, if and as required in the future;

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

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


     Changes in regulations affecting the telecommunications  industry worldwide
may reduce our customer  base and sales.

     Changes in regulations affecting the telecommunications  industry worldwide
may adversely affect our key customers' businesses.  As competition intensifies,
these  customers  may be forced to cut costs,  which may  negatively  impact our
sales. Also, these customers may be forced to combine with other  manufacturers,
thereby reducing the number of our potential customers.


     We may experience delays in the delivery of components from our suppliers.

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


     Undetected  hardware and software  errors may increase our costs and impair
the market acceptance of our chip sets.

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


     Our success depends on our ability to attract,  train and retain  qualified
engineers and sales and technical support personnel.

     Upon growth in our business,  we will need to hire additional engineers and
highly  trained  technical  support  personnel  in  Israel,  United  States  and
worldwide.  We currently have a small  technical  support staff. We will need to
increase our technical staff to support new customers and the expanding needs of
existing customers as well as our continued research and development operations.

     Hiring  engineers and technical  support  personnel is  competitive  in our
industry,  due to the  limited  number of people  available  with the  necessary
skills and  understanding of our products.  This is particularly true in Israel,
Northern  California and the east cost of the United States. Our success depends
upon our ability to attract,  train and retain  highly  qualified  engineers and
technical support personnel.

     Our chip sets require a  sophisticated  marketing and sales effort targeted
at several levels within a prospective customer's organization.  We plan to hire
additional sales personnel,  particularly in the United States, Europe and Asia.
In  addition  we may  decide to engage  with  additional  sales  representatives
worldwide. As competition for qualified sales personnel continues, we may not be
able to hire sufficient sales personnel to support our marketing efforts.


     We are dependent on our key personnel,  in particular  Tzvi  Shukhman,  our
chief executive officer,  the loss of whom would negatively affect 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 services of Tzvi Shukhman,  our chairman and chief executive officer. All of
our  employees  have entered into  employment  contracts  with us except for Mr.
Shukhman.  We do not carry key person life insurance on our senior management or
key  personnel.  Any loss of the  services of Tzvi  Shukhman,  other  members of
senior management or other key personnel could negatively affect our business.


<PAGE>

     Our  profitability   could  suffer  if  third  parties  infringe  upon  our
proprietary technology.

     Our  profitability   could  suffer  if  third  parties  infringe  upon  our
intellectual  property rights or misappropriate  our technologies and trademarks
for their own businesses.  To protect our intellectual  property rights, we rely
on  a  combination  of  patent,   trademark  and  copyright  law,  trade  secret
protection,  confidentiality  agreements and other contractual arrangements with
our employees,  affiliates, strategic partners and others. We currently own four
unregistered  trademarks,  two patents in Israel and three patents in the United
States.  We have also filed two  additional  patent  applications  in the United
States and Israel. The protective steps we have taken may be inadequate to deter
misappropriation of our proprietary information.  We may be unable to detect the
unauthorized  use of, or take  appropriate  steps to enforce,  our  intellectual
property rights. Moreover, pursuant to current U.S. and Israeli laws, we may not
be  able to  enforce  existing  non-competition  agreements.  Effective  patent,
trademark,  copyright and trade secret  protection may not be available in every
country in which we offer,  or intend to offer,  our  products.  Any  failure to
adequately  protect our  intellectual  property  could  devalue our  proprietary
content and impair our ability to compete  effectively.  Further,  defending our
intellectual  property  rights could result in the  expenditure  of  significant
financial and managerial resources.


     Our products may infringe on the intellectual property rights of others.

     Third parties may assert against us  infringement  claims or claims that we
have violated a patent or infringed a copyright,  trademark or other proprietary
right  belonging to them. For example,  the ownership by an  unaffiliated  third
party of a valid trademark with respect to the name Metalink, or the use of that
name by any unaffiliated  third party (whether or not a valid trademark exists),
could cause  confusion and  otherwise  have a material  adverse  effect upon our
business and financial condition.  In addition,  any infringement claim, even if
not  meritorious,  could result in the expenditure of significant  financial and
managerial  resources.


     We may need to raise  additional  funds,  which  may not be  available.

     We expect  that the net  proceeds  from our  initial  public  offering  and
secondary  public  offering and cash from  operations will be sufficient to meet
our working capital and capital  expenditure  needs for at least the next twelve
months. At some point, we may need to raise additional funds in the future for a
number of uses, including:

     o expanding research and development programs;

     o hiring additional qualified personnel;

     o implementing further marketing and sales activities; and

     o acquiring complementary businesses.

     o expending our business to new business  areas,  either by ourselves or in
cooperation  with  others.

     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:

     o develop new products;

     o enhance our existing products;

     o remain current with evolving industry standards;

     o take advantage of future opportunities; or

     o respond to competitive pressures or unanticipated requirements.

     o enter new business areas.


<PAGE>


We may encounter difficulties with acquisitions, which could harm our business.

We may make investments in other companies, products or technologies. If we
acquire a company, we may have difficulty integrating that company's personnel,
operations, products and technologies. These difficulties may disrupt our
ongoing business, distract our management and employees and increase our
expenses.


     Messrs. Shukhman and Rozenberg can control the outcome of matters requiring
shareholder approval.

     As  of  December  31,  2001,  Messrs.   Tzvi  Shukhman  and  Uzi  Rozenberg
beneficially  own  an  aggregate  of  8,581,519  ordinary  shares  (representing
approximately 46.9% of the ordinary shares then outstanding). These shareholders
will control the outcome of various actions that require  shareholder  approval.
For example,  these shareholders  could elect our directors,  delay or prevent a
transaction  in which  shareholders  might receive a premium over the prevailing
market price for their shares and prevent changes in control or management.

     Messrs. Shukhman and Rozenberg are parties to a voting agreement,  pursuant
to which they will act in concert with respect to the nomination and election of
directors.


     8,782,490,  or 48%, of our outstanding  ordinary shares are restricted from
immediate  resale  but may be sold  into  the  market  in  accordance  with  the
requirements of the federal  securities  laws. This could cause the market price
of our  ordinary  shares to drop  significantly,  even if our  business is doing
well.

     As of December 31, 2001, we had 18,296,488 ordinary shares outstanding.  Of
those,  8,782,490 ordinary shares (48% of our total outstanding ordinary shares)
are,  available  for  resale  in  the  public  market  in  accordance  with  the
requirements  of the United States federal  securities  laws. As restrictions on
resale end,  the market price could drop  significantly  if the holders of these
restricted  shares sell them or are perceived by the market as intending to sell
them.

     In  addition,  as of  December  31,  2001,  options to  purchase a total of
3,905,381  ordinary  shares under our share option  plans were  outstanding.  We
filed registration  statements  covering 5,522,433 ordinary shares issuable upon
the exercise of options under our share option  plans.  These  ordinary  shares,
when issued upon the  exercise of  options,  will be  available  for sale in the
public  market,  subject to the terms of the grant of the  related  options.  In
addition,  we have registered  160,000 ordinary shares issuable  pursuant to our
2000 Employee Stock Purchase Plan. Accordingly, ordinary shares purchased by our
employees  pursuant  to our 2000  Employee  Stock  Purchase  Plan,  will also be
available for sale in the public market.  As of December 31, 2001, 82,221 shares
were  purchased by our employees  pursuant to our 2000 Employee  Stock  Purchase
Plan.

     34,000 additional ordinary shares issuable upon the exercise of outstanding
warrants may be registered for sale pursuant to registration rights granted to a
shareholder,  which rights permit that shareholder,  in specified circumstances,
to demand to have its shares  registered and to have its shares  included in our
registration  statements.


     Volatility of our share price could adversely affect our shareholders.

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

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

     o announcements by us or our competitors of technological innovations;

     o introduction and adoption of new industry standards;

     o introductions of new products by us or our competitors;

     o  announcements  by us or by  securities  analysts of changes in financial
estimates; or

     o conditions or trends in our industry;

     o changes in the market valuations of our competitors;

     o announcements by us or our competitors of significant acquisitions;

     o  entry  into  strategic  partnerships  or  joint  ventures  by us or  our
competitors;

     o additions or departures of key personnel; and

     o sales of ordinary shares.

     Many of these factors are beyond our control and may  materially  adversely
affect the market price of our ordinary shares, regardless of our performance.

     Our  ordinary  shares have been  listed for trading on the Nasdaq  National
Market since December 2, 1999. As of December 3, 2000, our ordinary  shares have
also been listed for trading on the Tel Aviv Stock  Exchange.  Volatility of the
price of our ordinary  shares on either  market is likely to be reflected on the
price of our ordinary shares on the other market.  In addition,  fluctuations in
exchange  rate  between the New Israeli  Shekel or NIS and the dollar may affect
the  price of our  ordinary  shares on the Tel Aviv  Stock  Exchange  and,  as a
result,  may  affect  the  market  price of our  ordinary  shares on the  Nasdaq
National Market.

     Investors may not be able to resell their ordinary shares following periods
of volatility  because of the market's adverse reaction to that volatility.  The
stock market in general,  and the market for Israeli and technology companies in
particular,  has been highly  volatile.  We cannot  assure you that our ordinary
shares will trade at the same levels of shares of other technology  companies or
that shares of technology companies in general will sustain their current market
prices.  In addition,  the stock  market in either  country may be closed due to
facts or circumstances beyond our control.


     Our  management  has broad  discretion as to the use of the proceeds of our
public offerings.

     Our  management  has broad  discretion  as to how the net  proceeds  of our
public  offerings  are  used.  Investors  will be  relying  on the  judgment  of
management  regarding the  application of the proceeds of those  offerings.  The
results and the  effectiveness of the application of the proceeds are uncertain.
In  addition,  we have  changed  our  investment  mix in order  to  avoid  being
regulated  under the  Investment  Company Act of 1940,  which has  affected  the
income generated by our investment assets.


     Because we are  characterized  as a passive foreign  investment  company or
PFIC for 2001, and we may be characterized  as a PFIC for additional  years, our
U.S. shareholders may suffer adverse tax consequences.

     In taxable year 2001,  our assets which  produce  passive  income  exceeded
levels specified in the U.S.  Internal  Revenue Code ("IRC"),  which resulted in
characterizing  Metalink Ltd. as a passive foreign investment  company, or PFIC,
for U.S.  federal  income tax purposes  for 2001.  This  characterization  could
result in adverse U.S. tax consequences to our shareholders. In addition, we may
be characterized,  as a PFIC for additional taxable years if our passive income,
or our assets which  produce  passive  income,  exceed the levels set out in the
IRC. U.S.  shareholders  are encouraged to consult with their own U.S.  advisors
with respect to the U.S. tax  consequences of investing in our ordinary  shares.
See "Item  10-Taxation-United  States Federal Income Tax  Considerations-Passive
Foreign Investment Company Considerations"


     The  tragic  terrorist  attacks in the United  States  and  worldwide  have
affected  the global  economy  and could have a material  adverse  effect on our
results of operations.

     The tragic  terrorist  attacks in the United  States on September 11, 2001,
followed  by  military  action by the United  States and  threats of  biological
warfare,  have affected,  and may continue to affect for an unforeseen time, the
global economy.  The future course of this conflict and its effect on the global
economy and the telecommunications industry cannot be predicted.



     Risks Relating to Our Location in Israel


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

     Our principal  offices and research and development  facilities are located
in  Israel.  (We  also  have  a  research  and  development  center  in  Folsom,
California,  see "Item 4 - History and Development of the Company").  Political,
economic and military conditions in Israel directly affect our operations. Since
September  2000,  the State of Israel and its  citizens  have been  subjected to
repeated terrorist attacks.  The hostilities between the State of Israel and the
Palestinians increased during the past year and have intensified in the past few
months.  This conflict can have both direct and indirect impacts on our business
as a  result  of,  among  other  things,  military  service  obligations  of our
directors,  officers  and  employees,  changes in monetary  and fiscal  policies
including  but  not  limited  to  a  significant  increase  in  inflation,   the
willingness of customers outside Israel to buy our products, the interruption or
curtailment of trade between Israel and its trading  partners,  or a significant
downturn in the economic or financial  condition of Israel. We cannot assess the
full impact of these  requirements  on our  workforce or business if  conditions
should  change  and we  cannot  predict  the  effect on us of any  expansion  or
reduction of these obligations.

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

     All male adult citizens and permanent  residents of Israel under the age of
51 are,  unless  exempt,  obligated  to perform up to  approximately  31 days of
military  reserve duty annually.  Additionally,  these  residents are subject to
being called to active duty at any time under emergency  circumstances.  Many of
our officers and  employees are currently  obligated to perform  annual  reserve
duty. While we believe that we have operated relatively  efficiently given these
requirements  since we began operations and during the period of the increase in
hostilities  with the  Palestinians  since September 2000, we cannot assess what
the full impact of these  requirements  on our workforce or business would be if
the situation  with the  Palestinians  would change,  and we cannot  predict the
effect  on our  business  operations  of any  expansion  or  reduction  of these
requirements.

<PAGE>


     Changes to the Israeli tax system may have adverse tax  consequences for us
and our shareholders.

     The Israeli  government  recently  appointed a new  committee to review the
current tax system and propose possible reforms.  This may result in significant
changes to the Israeli tax system,  which may have adverse tax  consequences for
us  and  our  shareholders.  Because  we  cannot  predict  the  outcome  of  the
committee's  review and to the  extent,  if any,  its  recommendations  would be
enacted into law, we and our shareholders face uncertainties as to the potential
consequences of this tax reform initiative.


     Provisions of Israeli law may delay,  prevent or make difficult a merger or
acquisition  of us,  which  could  prevent a change of control  and  depress the
market price of our shares.

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


     Finally, Israeli tax law treats some acquisitions,  such as stock-for-stock
exchanges  between an Israeli  company and a foreign company less favorably than
U.S. tax laws. For example, Israeli tax law subjects a shareholder who exchanges
his  ordinary  shares for shares in another  corporation  to taxation on half of
such  shareholder's  ordinary  shares  for a period of two years  following  the
exchange  and for a period of four years on the  remaining  half of the ordinary
shares even if the  shareholder has not yet sold the ordinary shares acquired in
the  exchange.  These  provisions  of  Israeli  corporate  and  tax  law and the
uncertainties  surrounding such law may have the effect of delaying,  preventing
or making more  difficult a merger or  acquisition  of us. This could  prevent a
change of control of us and  depress  the market  price of our  ordinary  shares
which otherwise might rise as a result of such a change of control.


     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 NIS  against  the U.S.  dollar or if the NIS is
appreciated against the U.S. dollar.

     We generate  substantially  all of our revenues in dollars,  but we incur a
portion of our expenses,  principally  salaries,  related personnel expenses and
occupancy expenses in 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 or that the NIS is appreciated  against the dollar.  In 2000
the NIS was appreciated against the dollar in the rate of 2.7% while the rate of
inflation was 0%. In 2001 the NIS was depreciated against the dollar in the rate
of 9.3% while the rate of  inflation  was 1.4%.  We can not be certain  that the
trends which have benefited us in 2001 will continue. If the dollar costs of our
operations in Israel increase, our dollar-measured results of operations will be
adversely affected.

     To date,  we have not engaged in hedging  transactions.  In the future,  we
might enter into currency hedging transactions to decrease the risk of financial
exposure from  fluctuations  in the exchange rate of the dollar  against the New
Israeli  Shekel.  These  measures may not  adequately  protect us from  material
adverse effects due to the impact of inflation in Israel.


     The government  programs and benefits in which we currently  participate or
which we currently receive require us to satisfy  prescribed  conditions and may
be terminated or reduced in the future.  This would increase our costs and taxes
and could impact our manufacturing operations.

     We  currently  receive  grants from the  Government  of Israel  through the
Office of the Chief  Scientist  of the  Ministry of  Industry  and Trade for the
financing of a significant portion of our research and development  expenditures
in Israel and we intend to apply for additional  grants in the future. We cannot
assure you that we will  continue to receive  grants at the same rate or at all.
One of the conditions to the receipt of these grants is that we pay royalties to
the Office of the Chief Scientist on revenues  derived from the sale of products
and services resulting from the research and development funded by these grants.
The budget of the Office of the Chief  Scientist  has been subject to reductions
which may  affect  the  availability  of funds for  grants in the future and the
terms and conditions of these grants  (including the rates of royalty  payments)
as  determined in  government  regulations  that have been modified from time to
time. If we fail to comply with these conditions, we could be required to refund
any payments  previously received together with interest and penalties and would
likely  be  denied  receipt  of  these  grants  thereafter.   In  addition,  the
regulations  under  which we  received  these  grants  restrict  our  ability to
manufacture  products  or  transfer  technology  outside  of  Israel.  Since our
manufacturing  activities are performed by subcontractors outside of Israel, the
consent of the Office of the Chief  Scientist is required  for these  activities
and additional consents will be required in connection with the manufacturing of
products  developed in the future with Office of the Chief Scientist grants. The
letters of approval under which we received the grants do not specifically refer
to our manufacturing  activities outside of Israel. However, we believe that the
Office of the Chief  Scientist  has  adequately  expressed  its  consent to such
activities.  There can be no assurance that the consents  granted to date by the
Office of the Chief  Scientist  will be deemed to be adequate  under  applicable
laws and  regulations  or that such  consents will not be revoked or modified in
any way or that we will obtain  consents for such  activities  at all,  from the
Office  of the  Chief  Scientist  in the  future.  Failure  to  comply  with the
requirements  for consents for  manufacturing  outside of Israel could result in
penalties,  cancellation of the grants and denial of any future applications for
grants or these consents.  If the consents obtained from the Office of the Chief
Scientist to manufacture our chip sets outside of Israel are terminated or if we
are unable to obtain  similar  consents in the  future,  our  business  could be
harmed.  See Item 10  regarding  a  discussion  of a  pending  amendment  to the
Research Law under which the Office of the Chief Scientist operates.

     In addition, several of our capital investments have been granted "approved
enterprise" status under Israeli law. The portion of our income derived from our
approved  enterprise  programs will be exempt from tax for a period of two years
commencing  in the first  year in which we have  taxable  income  and we will be
subject  to a  reduced  tax for a  period  of five or  eight  additional  years,
depending  on the  percentage  of our share  capital held by  non-Israelis.  The
benefits   available  to  an  approved   enterprise  are  conditioned  upon  the
fulfillment  of  conditions  stipulated  in  applicable  law and in the specific
certificate of approval. If we fail to comply with these conditions, in whole or
in part, we may be required to pay  additional  taxes for the period in which we
benefited from the tax exemption or reduced tax rates and would likely be denied
these  benefits in the future.  From time to time,  the Government of Israel has
discussed  reducing or  eliminating  the benefits  available  under the approved
enterprise  program.  We  cannot  assure  you that  these tax  benefits  will be
continued in the future at their current levels or at all.


     It may be difficult to enforce a U.S. judgment against us, our officers and
directors who are nonresidents of the United States or to assert U.S. securities
laws claims in Israel or serve  process on our  officers and  directors  who are
nonresidents of the United States.

     We are incorporated in Israel.  The majority of our executive  officers and
directors 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  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.  Additionally,  it may be
difficult for you to enforce civil  liabilities  under U.S.  federal  securities
laws in original actions instituted in Israel.

<PAGE>


ITEM 4.           INFORMATION ON THE COMPANY


A. History and Development of the Company

     Metalink was incorporated in September 1992 as a corporation under the laws
of the State of Israel.  In September  2000,  we moved our  principal  executive
offices from  Tel-Aviv to a new location at Yakum  Business  Park,  Yakum 60972,
Israel.  Our  telephone  number is  972-9-960-5555.  In 1997,  we  established a
wholly-owned   subsidiary  in  the  United  States,   Metalink  Inc.,  which  is
incorporated in Delaware.  Metalink Inc. is involved in research and development
activities,  provides  technical  support  to our  customers  and  conducts  the
distribution of our products in North America.  Metalink Inc. is located at 105C
Lake  Forest  Way,  Folsom,  California  95630,  and  its  telephone  number  is
916-355-1580.

     In December  1999,  we completed our initial  public  offering of 4,600,000
ordinary shares and our ordinary shares commenced trading on the Nasdaq National
Market under the symbol "MTLK." In March 2000, we completed our secondary public
offering of  1,500,000  ordinary  shares.  As of December 3, 2000,  our ordinary
shares are traded also on the Tel-Aviv Stock Exchange.

     During the period between December 2000 and April 2001 we have purchased at
market  price  at  broker  transactions  898,500  of  our  ordinary  shares  for
approximately $9.88 million,  pursuant to a repurchase program authorized by our
board and approved by the Tel-Aviv District Court.

     In January 2001, we implemented a new enterprise resources planning system.
The new system supports the control of our operations.

     Capital expenditures were $3.4 million for year 2001. The expenditures were
principally  for  capital  equipment  and  software  used  in our  research  and
development  activities.


B. Business Overview

General

     We design,  develop and market digital subscriber line (DSL) chip sets used
by  manufacturers  of  telecommunication  equipment.  Our chip sets  enable  the
digital  transmission of voice,  video and data over copper wire  communications
lines at speeds that are up to 500 times faster than transmission rates provided
by  conventional  analog modems.  Our chip sets typically  include three to five
individual  integrated  circuits,  or chips, and include an analog front-end for
line  interfacing  with analog  signals,  a digital signal  processor  (DSP) for
signal processing and a framer to process the messages being transmitted. We are
a  leader  in DSL  semiconductor  technology  because  of our  expertise  in the
development  of  advanced  modem  algorithms,  in the design of very large scale
integrated  circuits and in digital signal  processing.  We have sold over seven
million of our chips to original equipment manufacturers (OEMs) that incorporate
our chip sets into their own  products.  These OEMs,  which  include ECI Telecom
Ltd., Alcatel Networks Corporation,  Primetech Electronics Inc, Portugal Telecom
Inovacao,  Quante Verkabelungsystem GmbH, Schmid Telecommunication Ltd., Siemens
AG, Tut Systems Inc. and others,  have sold products containing our chip sets to
telecommunication service providers throughout the world, including Bell Canada,
British Telecom,  France Telecom,  Deutsche Telecom,  Portugal Telecom and Italy
Telecom.

Products and Technology

     We  offer a broad  suite  of DSL chip set  solutions.  A  typical  chip set
consists  of an analog  front-end  (AFE)  device and a digital  device.  The AFE
serves as an interface  between the analog signals  transmitted along the copper
wire and the digital device.  The AFE performs various analog  signal-processing
functions,  such as  converting  the  analog  signals  into  digital  format and
vice-versa.   The  digital  device  include  multiple  functions  including  the
transceiver  (DSP) section  implementing  the modulation and demodulation of the
digital signal,  the framer section which serves as an interface between the DSP
functional  block and the  digital  network  system.  In some cases the  digital
device may contain additional functionality such as a network processor,  higher
layers processing etc.

     Our chip sets support the transmission of digital transmissions over copper
wire using different line codes,  including two bit per quadrant  (2BlQ),  pulse
amplitude  modulation (PAM) and quadrature  amplitude  modulation (QAM). Each of
our  chip  sets is  software  programmable  to meet the  specific  needs of each
customer.  This enables the implementation of multiple DSL configurations,  such
as high  bit-rate  DSL ( HDSL)  and  Symmetric  DSL  (SDSL),  a broad  range  of
transmission rates,  performance  enhancement and feature upgrades in compliance
with various industry standards.

     HDSL. HDSL is a cost-effective alternative to traditional repeatered T1 (in
North America) and El (in the rest of the world)  transmission  services,  which
generally offer transmission  speeds of 1.5 or 2.0 megabits per second, or Mbps.
The HDSL system creates a link between the central office and a customer network
premise over  unconditioned  copper wire. T1 HDSL has been  standardized  by the
American National Standards  Institute,  or ANSI, and allows the transmission of
1.544 Mbps over two copper  wire  pairs  using 2BlQ line code.  El HDSL has been
standardized by the European Telecom  Standards  Institute (ETSI) and allows the
transmission  of 2.320 Mbps over  either  one,  two or three  copper wire pairs,
depending on the operator's deployment strategy and generally uses the 2BlQ line
code.  ETSI's   specifications   for  1-Pair  HDSL  were  also  adopted  by  the
International  Telecommunication  Union (ITU).  We  currently  offer El HDSL for
1-Pair,  2-Pair and 3-Pair copper wire  configurations  and a T1 HDSL which is a
2-Pair  configuration,  each of which uses 2BlQ line coding. We believe that our
chip sets are the only chip sets that meet the  performance  criteria as defined
by the 1-Pair El HDSL 2BIQ  standard.  We were the driving  force in setting the
ETSI standard for 1-Pair El HDSL solutions.

     SDSL.  Similar to HDSL,  SDSL uses 2BlQ encoding to offer a symmetric  link
over a single copper wire at maximum symmetric rates of 2.320 Mbps. SDSL is used
by  competitive  local  exchange  carriers,  or CLECs,  to allow their  business
customers cost effective access to the network,  including  high-speed access to
the Internet and remote local area  networks  (LANs),  integrated  with multiple
transmissions  of voice  channels  and  video  conferencing.  To date,  the SDSL
technology has been recognized as an accepted specification and is not likely to
be adopted as a formal standard by any of the standardizing bodies. We currently
offer chip sets for SDSL-based systems in various configurations.

     HDSL2.  HDSL2 improves on the T1 HDSL 2-Pair  solution by offering  similar
performance  achieved using only a single copper wire pair.  This is achieved by
using the PAM-16 line code in combination with Trellis coding. This standard was
further enhanced to support an extended reach 4 wire mode, using the same PAM-16
line code referred to as HDSL4.

     G.SHDSL.  G.SHDSL  improves on the SDSL and HDSL  technologies by providing
rate  adaptive  solutions  at rates of up to 2.320 Mbps,  while  increasing  the
maximum range of  transmissions  by 20%,  compared to that allowed by the legacy
technologies.  G.SHDSL  supports various  encoding  technologies,  including the
technologically-advanced  Trellis  coded  PAM-16.  We are a  contributor  to the
standardization of G.SHDSL, and we have developed proprietary algorithms for the
efficient implementation of this technology.  During the year 2001, we completed
the  development  and  integration of our first  generation  SHDSL solution that
includes an eight-port  G.SHDSL  digital  device,  a single port G.SHDSL digital
device  and an  single  port  G.SHDSL  analog  front  end.  During  2001 we also
completed the development of a second  generation  digital device  optimized for
T1/E1  transport  applications.  This device,  incorporated  the entire  digital
functionality of a T1/E1 transport application combining the DSL transceiver and
framer, T1/E1 framer, host processor and RAM. To the best of our knowledge, this
is the only device available in the market with such high levels of optimization
and integration for T1/E1 transport applications.

     VDSL. VDSL technology  defines very high  transmission  rates over a single
copper wire pair.  This includes  symmetric  transmission  at a rate of up to 26
Mbps and asymmetric transmission of 52 Mbps downstream and 6 Mbps upstream. VDSL
is typically  deployed in combination with an optical network unit. This unit is
connected  by copper wire to multiple  subscribers  located in large  complexes,
such as large residential  complexes,  hotels and campuses. The unit multiplexes
the  bandwidth of hundreds of  subscribers  onto a single fiber that carries the
information  to the central  office.  VDSL  applications  include high bandwidth
data,  multiple video and voice  channels,  broadband  access and broadband wide
area  networks  (WANs).  VDSL  has  been  standardized  by ANSI  and ETSI and is
currently  at its  standardization  stage in ITU-T  and  IEEE.  We are an active
participant in all these standardization  processes.  We have developed powerful
algorithms  for VDSL,  including  NML,  that  optimize  the  performance  in the
operating  environment.  During 2001,  we finished the  development  and started
integration of two generations of VDSL solutions, including a single port 2-band
digital device,  a single port 4-band digital device,  a dual port 3-band device
and a single port 4-band  analog front end. To the best of our  knowledge  these
devices were the first available standard compliant  solutions  according to the
quadrature amplitude modulation (QAM)-based ETSI and ANSI standards.

<PAGE>

     The following is a table of our proprietary  chips which form the chip sets
offered    by   us   to    our    customers:

<TABLE>
<CAPTION>

 Chips                      Function                              Sampling Date      Maximum Transmission Rates(Mbps)
  <C>                         <C>                                      <C>                        <C>

MtH 1242          2BlQ AFE                                             2Q97                      1.168
MtH 2441          2BlQ AFE                                             3Q99                      2.320
MtH 2443          Low-power, small size 2BIQ AFE                       3Q99                      2.320
MtH 2445          2B1Q AFE                                                                       2.320

MtH 1210BL        2BlQ encoding/decoding DSP                           2Q97                      1.168
MtH 2410BL        Low-power 2BlQ encoding/decoding DSP                 1Q99                      2.320
MtH 2411          Advanced, low-power 2BlQ encoding/decoding DSP       3Q99                      2.320

MtH 2430CL        Universal T1 /El standards compliant framer          3Q98                      2.320
MtH 2431          Single Pair Framer                                                             2.320

MtH 2470 Dual     Advanced, low-power integrated dual                  3Q99                      2.320
                  DSP and dual framer

MtS 870           Octal SHDSL transceiver/framer                       4Q00                      4.640
MtS 170           Single SHDSL transceiver frame                       1Q01                      4.640
MtS 140           Single SHDSL AFE                                     4Q00                      4.640
MtS 142           Single SHDSL/HDSL2/HDSL4 AFE with integrated         2Q01                      4.640
                  line-driver

MtV 9170          VDSL transceiver/framer for 2-band applications      1Q01                        26
MtV 9370          Dual VDSL transceiver/framer for 3-band applications 3Q01                        52
MtV 9171          VDSL transceiver/framer for 4-band applications      4Q01                        52
MtV 9141          VDSL AFE for 2,3 and 4-band applications             4Q01                        52

</TABLE>


     The following table enumerates our product applications:

<TABLE>
<CAPTION>

Chip Set Applications                      Products                            Configuration

        <C>                                   <C>                                   <C>

2-pair E1/T1 HDSL                          MtH 1242      Each chip set consists of two AFE chips, two DSP chips and one framer chip.
                                           MtH 2441
                                           MtH 2445
                                           MtH 2410BL
                                           MtH 2411
                                           MtH 2430

Integrated 2-pair El/T1 HDSL               MtH 2443
                                           MtH 2470     Each chip set consists of two AFE chips and one integrated DSP/framer chip.

1-pair El HDSL                             MtH 2441
                                           MtH 2410AL
                                           MtH 2410BL
                                           MtH 2411
                                           MtH 2430     Each chip set consists of one AFE chip, one DSP chip and one framer chip.

Dual Channel 1-pair El HDSL                MtH 2443     Each chip set consists of two AFE chips and one integrated DSP/framer chip.
                                           MtH 2470

3-pair El HDSL                             MtH 1242     Each chip set consists of three AFE chips, three DSP chips and
                                           MtH l2l0BL   one framer chip.
                                           MtH 2430

Octal G.shdsl CO application               MtS870       Each chip set consists of one octal DSP / framer and eight AFE chips.
                                           MtS140
                                           MtS142

G.shdsl CPE application                    MtS170       Each chip-set consist of a single DSP / framer chip and a single AFE chip.
                                           MtS140
                                           MtS142

Single pair T1 HDSL2 and E1 G.SHDSL        MtS170       Each chip-set consist of a single DSP / framer chip and a single AFE chip.
                                           MtS140
                                           MtS142

Two pair T1 HDSL4 and E1 G.SHDSL           MtS170       Each chip-set consist of a two DSP / framer chips and two AFE chips.
                                           MtS140
                                           MtS142

CO dual three band VDSL application        MtV9370      Each chip-set consist of a DSP/ framer chip and two AFE chips.
                                           MtV9141

CO and CPE  four band VDSL application     MtV9171      Each chip-set consist of a single DSP / framer chip and a single AFE chip.
                                           MtV9141

CPE two-band VDSL application              MtV9170      Each chip-set consist of a single DSP / framer chip and a single AFE chip.
                                           MtV9141

</TABLE>

<PAGE>

Customers

     Our customers,  telecommunication equipment manufacturers,  incorporate our
chip  sets  into  the  products  that  they  sell to  telecommunication  service
providers.  Since we commenced  operations  in 1993,  we have shipped over seven
million of our chips to our customers,  or OEM partners,  including Lucent, Next
Level  Communications,  ECI,  Marconi  Communications,  Alcatel,  PT - Inovacao,
Datentechnik  (Quante)  , RAD  Data  Communications,  Schmid,  Siemens  and  Tut
Systems. These chips are used in telecommunication  equipment deployed worldwide
by  telecommunications  service providers including Qwest, Bell Canada,  British
Telecom,  and France  Telecom.  Our largest  customers  include ECI,  Schmid and
Primetech,  each of which  accounted for 10% or more of our total sales in 2001.
We do not have purchase  contracts  with any of our customers that obligate them
to continue to purchase our chip sets and these customers could cease purchasing
our chip sets, at any time.

     Our chip sets are being incorporated into the following systems:

     o T1/El transmission equipment, which is used by telecommunications service
provider to enable  transmission  speeds of 1.544 Mbps, for T1 lines,  and 2.048
Mbps, for El lines;

     o Digital subscriber line access multiplexers  (DSLAMs),  which are used to
terminate up to hundreds of lines in a central  office and  aggregate  them onto
high-speed lines for transmission to the communications backbone;

     o DSL enabled Digital loop carriers  (DLC),  which are used to terminate up
to hundreds of DSL and telephony  lines,  typically in a remote terminal (RT) or
an optical network unit (ONU);

     o DSL network interface units,  which are customer premises  equipment that
enable high-speed data transmission over the local loop;

     o  DSL-compatible  routers,  which are used to connect one or more personal
computers to the local loop;

     o DSL-integrated  access device (IAD) that combine voice and data transport
over single twisted pair; and

     o DSL  residential  gateways and set-top boxes (STB) that  combined  Video,
Voice and Data transport over single twisted pair.

     Our   customers    market   their    products   to   public   and   private
telecommunications  service providers. These service providers include incumbent
local exchange carriers or ILECs, CLECs and Internet service providers.

<PAGE>

     The  following  is a summary of revenues  by  geographic  area.  Revenue is
attributed to geographic region based on the location of the customers.

<TABLE>
<CAPTION>

                                       Year ended December 31,
                             1999                2000                2001
                                            (in thousands)

<S>                          <C>                  <C>                 <C>

Revenues:
Israel                     $ 4,859             $ 8,227             $ 3,070
Switzerland                  1,853               6,356               5,329
Canada                       1,681               6,053               2,989
Spain                          671                 630                 939
United States                1,864                 569                 680
Germany                         35                 493                 170
Other foreign countries
      (mainly European)        745                 974                 872

                          $ 11,708            $ 23,302            $ 14,049

</TABLE>


Sales and Marketing

     We  have   established   a   worldwide   network   of   independent   sales
representatives  and distributors.  These independent  entities are selected for
their ability to provide  effective field sales,  marketing  communications  and
technical support to our customers.

     We have sales representative in the following countries:

     Europe: Austria, Germany, Italy, Poland, Portugal and Spain.

     Asia:  Republic  of China  (Taiwan),  People  Republic  of China  (Mainland
China), Japan, Singapore and South Korea

     Australia

     North America: Canada and the United States

     South America: Brazil.

     The listed  sales  representatives,  also,  offer our  customers  technical
support and customer services.

     We also sell our  products  directly  to  select  customers  in Israel  and
Europe.  Direct sale customers include ECI, Schmid, and RAD Data Communications.
Our sales force,  technical support personnel and key engineers work together in
teams to support key customers.  We have located technical support  capabilities
in key geographic locations.

     Our  marketing  strategy  focuses on key customer  sponsorships  to promote
early  adoption of our chip sets in the products of DSL equipment  manufacturers
who are market innovators and market leaders. Through our ongoing relationships,
customers  provide  us  with  direct  feedback  on  product  specifications  and
applications  while  participating  in product testing  simultaneously  with our
certification  process.  This  approach  accelerates  customers'  time to market
enables us to achieve  early  design  wins and volume  commitments  for our chip
sets.

     We intend to  continue  to invest  resources  in  marketing  communications
efforts,  including  participation  in trade  shows and trade  events and direct
marketing  campaigns.   These  efforts  are  directed  at  enhancing  our  brand
recognition and building our reputation as a leading developer of DSL chip sets,
as well as our customer service and responsiveness.


Research and Development

     We believe that our future success will depend upon our ability to maintain
our technological  leadership, to enhance our existing products and to introduce
on a timely basis new commercially  viable products  addressing the needs of our
customers. Accordingly, we intend to continue to devote a significant portion of
our personnel and financial  resources to research and  development.  As part of
the product  development  process,  we seek to develop close  relationships with
industry  innovators  in our target  segments and engage in product  development
partnerships to meet their needs.

     As of March 31, 2002 our research  and  development  staff  consisted of 89
employees.  Research and development  activities take place at our facilities in
Yakum, Israel and at the design center of our subsidiary in Folsom,  California.
We intend to continue  adding  research  and  development  personnel in the near
future.  We deploy standard  procedures for the design,  development and quality
assurance of our new product developments.

     The Government of Israel,  through the Office of the Chief Scientist of the
Israeli  Ministry of Industry and Trade,  encourages  research  and  development
projects  which result in products for export.  Since 1994,  we received  grants
from the Office of the Chief Scientist for the development of our products.  See
"Item    5-Operating    and    Financial    Review    and    Prospects-Operating
Results-Government  Grants." We expect our research and development  expenses to
grow as we hire  additional  personnel  to develop  new,  and upgrade  existing,
products.


Manufacturing

     We do not own or operate a semiconductor fabrication facility. As a fabless
provider of chip sets, we subcontract our entire semiconductor  manufacturing to
third party  contractors.  Our chip sets are delivered to us fully assembled and
tested based on our proprietary  designs. The use of the fabless model allows us
to  focus   substantially   most  of  our  resources  on  determining   customer
requirements and on the design, development and support of chip sets and to have
significantly reduced capital requirements.

     We currently subcontract our semiconductor wafer manufacturing to Chartered
Semiconductor  Manufacturing  Corporation in Singapore and Taiwan  Semiconductor
Manufacturing  Company  (TSMC) and the packaging and testing of our chip sets to
Singapore   Technologies   Assembly   and  Test   Services   (STATS),   Advanced
Semiconductor  Engineering  Inc.  (ASE  Inc.)  &  ASE  TEST  LIMITED  and  Amkor
Technology Inc in Korea. The selection of these  manufacturers  was based on the
breadth of available technology, quality, manufacturing capacity and support for
design tools used by us. All of the  fabrication,  assembly and test  facilities
are ISO 9002 /  QS9000  / SAC  certified.  None of our  chip  sets is  currently
manufactured  by more than one  contractor.  In the event one of our contractors
notifies  us  that  it  intends  to  cease  manufacturing  a chip  or that it is
temporarily  unable  to  manufacture  a  chip,  we  may  not  have  an  adequate
opportunity  to order  sufficient  quantities  of the  effected  chip to prevent
shipments  to customers  from being  adversely  affected  while we qualify a new
manufacturer.

     We intend to continue for the  foreseeable  future to rely on third parties
for   substantially   all  of  our  wafer   manufacturing,   assembly  and  test
requirements.  All of our subcontract  manufacturers  produce products for other
companies.  We do not have long-term  manufacturing  agreements  with any of our
foundries.  Our  foundries  are not obligated to supply us with products for any
specific period,  in any specific  quantity or at any specific price,  except as
may be provided in a particular  purchase order that has been accepted by one of
our foundries.

     We must  place  orders  at  least 14 to 16 weeks  in  advance  of  expected
delivery.  As a result,  we have only a limited ability to react to fluctuations
in demand for our chip sets,  which  could cause us to have excess or a shortage
of inventory of a particular chip.


Proprietary Rights

     We  rely  on  patent,   copyright,   trademark   and  trade   secret  laws,
confidentiality   agreements  and  other   contractual   arrangements  with  our
employees,  strategic  partners  and others to protect  our  technology.  We own
unregistered  trademarks  for the names  NML,  Multi-Mode  DSL,  Turbo  SDSL and
Olympus-DSL. We do not currently own any registered copyrights.

     In addition,  our NML  technology is protected by two patents in Israel and
three patents in the United States. One of the two Israeli patents was issued in
favor of us  following a  settlement  agreement we entered into with an opposing
company.  Most of our chip-sets  design is based on the NML technology.  We have
filed two additional patent applications in the United States and Israel.  These
applications  may not result in any  patent or  patents  being  issued  and,  if
issued,  the patents may not provide  adequate  protection  against  competitive
technology and may not be held valid and enforceable if challenged. In addition,
other  parties may assert  rights as inventors of the  underlying  technologies,
which  could  limit our ability to fully  exploit  the rights  conferred  by any
patent that we receive.  Our competitors may be able to design around any patent
that we  receive  and other  parties  may obtain  patents  that we would need to
license or circumvent in order to exploit our patents.


Competition

     The DSL chip set market is intensely competitive.  We expect competition to
intensify  as  current  competitors  expand  their  product  offerings  and  new
competitors  enter the market. We believe that we must compete on the basis of a
variety of  factors,  including  time to market,  functionality,  conformity  to
industry  standards,  performance,  price,  breadth  of product  lines,  product
migration plans, and technical support.

     We believe our  principal  competitors  for HDSL,  SDSL,  HDSL2 and G.SHDSL
products  include,   GlobespanVirata,   Infineon  and  Conexant.  Our  principal
competition  for VDSL QAM based products  include  Broadcom and Infineon.  Other
competitors   offering   VDSL  DMT  based   products   include   Globespan,   ST
Microelectronics,  Zarlink and Ikanos. In addition to these  competitors,  there
have been  announcements by other integrated  circuit companies that they intend
to enter the DSL chip set market.

     We expect to continue to face competition from these and other competitors.
Larger  companies  with  substantial  resources,  brand  recognition  and  sales
channels may form  alliances or merge with,  or acquire  competing  DSL chip set
providers and emerge as significant competitors.  For example, in December 2001,
two of our principal competitors, GlobeSpan and Virata, announced the closing of
their merger.  Said merger may adversely effect our market share and as a result
might adversely  effect our result of operations.  In addition,  competitors may
bundle their  products or  incorporate  a DSL chip set  component  into existing
products in a manner that renders our chip sets obsolete.

     Further,  many of our customers  face  competition  from  companies,  which
design their own chip sets. Because these companies do not purchase all of their
chip sets from suppliers such as us, if these competitors displace our customers
in the DSL equipment  market,  our customers would no longer need our chip sets,
and our business would be seriously harmed.

     Many  of  our  competitors  have  greater  name   recognition,   their  own
manufacturing  capabilities,   significantly  greater  financial  and  technical
resources, and the sales, marketing and distribution strengths that are normally
associated with large multinational  companies.  These competitors may also have
preexisting  relationships  with our  customers  or potential  customers.  These
competitors  may  compete  effectively  with  us  because  in  addition  to  the
above-listed factors, they more quickly introduce new technologies, more rapidly
or effectively address customer  requirements or devote greater resources to the
promotion  and sale of their  products  than we do.  Further,  in the event of a
manufacturing  capacity  shortage,  these competitors may be able to manufacture
products when we are unable to do so.

     As the DSL market  matures,  the industry may become  subject to increasing
price  competition  driven  by the  lowest  cost  providers  of  chip  sets.  We
anticipate  that average per unit selling  prices of DSL chip sets will continue
to decline as product  technologies mature. If we are unable to reduce our costs
sufficiently  to offset  declines in the average per unit selling  prices or are
unable to introduce new higher performance products with higher average per unit
selling prices, our operating results will be seriously harmed.  Since we do not
manufacture  our own products,  we may be unable to negotiate  volume  discounts
with our foundries in order to reduce the costs of  manufacturing  our chip sets
in response to declining  average per unit selling prices.  Many competitors are
larger with greater  resources and therefore may be able to achieve economies of
scale  and would be less  vulnerable  to price  competition.  Our  inability  to
achieve manufacturing efficiencies would have an adverse impact on our operating
results.


C. Organizational Structure

     See "Item 5-Operating and Financial Review and Prospects-Over View"


D. Property, Plants and Equipment

     Our headquarters and principal administrative, finance, sales and marketing
operations  are located in  approximately  45,000  square feet of leased  office
space in Yakum,  Israel.  The lease  expires in  September  2010.  In the United
States,  we lease  approximately  10,000  square feet of office space in Folsom,
California.  The lease will expire in March 2005, and we will have the option to
extend the lease for two additional  five-year periods. In addition we currently
lease  sales and  support  office in San Jose,  California  (864  square  feet).
Currently,  our  offices in San Jose are not  occupied  and we intend to try and
sublease these premises for the remainder of the lease period,  which  concludes
March 2004.  Aggregate rental payments,  at rates in effect at December 31, 2001
are approximately $957,000 and the projected payments for 2002 are approximately
$932,000.  We may need to increase the size of our current facilities,  seek new
facilities,  close  certain  facilities  or sublease  portions  of our  existing
facilities in order to address our needs in the future.

     Total rent  expenses for the years ended  December  31,2001,  2000 and 1999
were $957,000, $543,000 and $290,000, respectively.


<PAGE>


ITEM 5.           OPERATING AND FINANCIAL REVIEW AND PROSPECTS


A.       Overview

     We design,  develop and market digital subscriber line (DSL) chip sets used
by  manufacturers  of  telecommunication  equipment.  Our chip sets  enable  the
digital  transmission of voice,  video and data over copper wire  communications
lines at speeds that are up to 500 times faster than transmission rates provided
by conventional analog modems.

     We were  incorporated  in  September  1992  under  the laws of the State of
Israel.  From our  inception  through the third  quarter of 1994,  our operating
activities   related  primarily  to  establishing  a  research  and  development
organization,  developing  prototype chip designs which meet industry  standards
and  developing  strategic  OEM  partnerships  with  leading   telecommunication
equipment manufacturers.  We shipped our first chip set in the fourth quarter of
1994.  Since that time,  we have  continued  to focus on  developing  additional
products  and  applications,  shaping new  industry  standards  and building our
worldwide  indirect sales and distribution  channels.  In addition,  in 1997, we
established a wholly owned subsidiary in the United States, Metalink Inc., which
is  incorporated  in  Delaware  and is  headquartered  in  Northern  California.
Metalink  Inc.  is involved in research  and  development  activities,  provides
technical support to our customers and conducts the distribution of our products
in North America.  In 1999, we established our Northern  California research and
development  design  center.  In December  1999, we completed our initial public
offering of 4,600,000  ordinary  shares,  from which we received net proceeds of
approximately  $49.8 million.  In March 2000, we completed our secondary  public
offering of 1,500,000  ordinary  shares,  from which we received net proceeds of
approximately $62.7 million.


B.       Critical Accounting Policies

     Management's discussion and analysis of our financial condition and results
of operations is based upon our consolidated  financial  statements,  which have
been prepared in accordance with accounting principles generally accepted in the
United  States.  The  preparation  of financial  statements in  conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting   periods   presented.   These   estimates   include   assessing   the
collectability  of  accounts  receivable,  and  the use  and  recoverability  of
inventory. Actual results could differ from those estimates. The markets for our
products  are  characterized  by  intense   competition,   rapid   technological
development  and frequent new product  introductions,  all of which could impact
the future realizability of our assets.

     We believe  the  following  critical  accounting  policies  affect our more
significant  judgments and estimates used in the preparation of our consolidated
financial statements.


Revenue Recognition

     Revenue from product  sales is  recognized  upon  shipment to the customer,
when the risk of loss has been transferred to the customer,  price and terms are
fixed, and when no significant  vendor  obligations  exist and collection of the
resulting  receivable is reasonably  assured.  Our revenue recognition policy is
significant  because  our  revenue  is a key  component  of our  operations.  In
addition,  our revenue  recognition  determines the timing of certain  expenses,
such as sales  commissions.  We follow very specific and detailed  guidelines in
measuring  revenue;  however,  certain  judgments  affect the application of our
revenue policy.  Revenue results are difficult to predict,  and any shortfall in
revenue or delay in  recognizing  revenue could cause our  operating  results to
vary  significantly from quarter to quarter and could result in future operating
losses.


Inventories

     Inventories  are stated at the lower of cost or market.  Cost is determined
on a moving average basis. We regularly  review  inventory values and quantities
on hand and write down our inventory for estimated  obsolescence or unmarketable
inventory  equal  to the  difference  between  the  cost  of  inventory  and the
estimated  market value based upon  assumptions  about future  demand and market
conditions.  Our estimates of future  product demand may prove to be inaccurate,
in which case we may have  understated or overstated the provision  required for
excess and obsolete  inventory.  If actual market  conditions are less favorable
than those  expected by  management,  additional  inventory  write-downs  may be
required.  If our  inventory  is  determined  to be  undervalued,  we  may  have
over-reported  our costs of goods sold in previous periods and would be required
to recognize such additional  operating  income at the time of sale.  Therefore,
although we make every effort to ensure the accuracy of our  estimates of future
product demand, any significant unanticipated changes in demand or technological
developments  could have a significant  impact on the value of our inventory and
our reported operating results.



<PAGE>



C.       Operating Results


General

     Revenues.  Our  revenues  are  derived  from  sales of our chip sets to our
customers  with which we have OEM  partnerships  for the  design of DSL  systems
based on our  solutions.  Our revenues are  generated in U.S.  dollars,  and the
majority of our  expenses  are  incurred in  dollars.  Consequently,  we use the
dollar as our functional  currency.  Our consolidated  financial  statements are
prepared in dollars in accordance with generally accepted accounting  principles
in the United  States.  For the year ended  December 31, 2001,  three  customers
accounted for approximately 73% of our revenues.

     We  sell  our  chip  sets in  Europe,  Israel  and  North  America  through
independent sales  representatives and distributors.  We also sell our chip sets
directly to select  customers in Israel and Europe.  For the year ended December
31,  2001,  approximately  76% of our sales were in Europe and Israel and 24% in
North America.

     Cost of Revenues.  Our cost of revenues consists primarily of materials and
components used in the manufacture and assembly of our chips, salaries and other
personnel   related   expenses  for  those  engaged  in  operations,   fees  for
subcontractors who manufacture,  assemble and test our chip sets, other overhead
expenses and royalties paid to the Government of Israel.

     Gross Research and Development.  Research and development  expenses consist
primarily  of  salaries  and other  personnel  related  expenses  related to the
design, development and enhancement of our products and other overhead expenses.
In addition,  we subcontract the layout and mask  development  production of our
chips to  unaffiliated  third parties.  All research and  development  costs are
expensed as  incurred.  We believe  that  continued  investment  in research and
development is critical to attaining our strategic product objectives. We expect
these  expenses to increase in the future as we continue to develop new products
and product applications.

     Research and Development, Net. The Government of Israel, through the Office
of the Chief  Scientist,  encourages  research and  development  projects  which
result in products for export.  In 1999,  2000 and 2001, we received grants from
the Office of the Chief Scientist for the development of our products.  Research
and  development  expenses  are net of  grants  received  or  accrued  from  the
Government of Israel.

     Sales and  Marketing.  Sales and marketing  expenses  consist  primarily of
salaries and other  personnel  related  expenses for those engaged in the sales,
marketing and support of our products,  as well as trade show,  promotional  and
public  relations  expenses.  Our success in increasing  revenues depends on our
ability to increase our customer  base,  achieve  design  wins,  drive  industry
standards and introduce new products and product applications.  Accordingly,  we
intend to pursue sales and marketing  campaigns,  and we therefore  expect these
expenses to increase in the future.

     General and  Administrative.  General and  administrative  expenses consist
primarily  of salaries  and other  personnel  related  expenses  for  executive,
accounting and  administrative  personnel,  professional fees, and other general
corporate  expenses.  As we incur  additional costs related to the growth of our
business  and our  becoming  a  public  company,  we  expect  that  general  and
administrative expenses will also increase.

     Amortization of Deferred Stock Compensation. Amortization of deferred stock
compensation  expenses  consist of the charge  incurred  by us arising  from the
grant of options to purchase  our ordinary  shares at exercise  prices below the
fair market value of our ordinary shares at the date of the grant. This discount
is recorded and charged to our earnings over the vesting  period of the options.
We have  recorded a total of  $3,868,000 of deferred  stock  compensation  as of
December 31,2001.  We have incurred  amortization of deferred stock compensation
expenses of $382,000 in 1999, $791,000 in 2000 and $745,000 in 2001.

     We expect to  recognize  stock  compensation  expenses of $799,000 in 2002,
$628,000 in 2003,  $208,000 in 2004 and  $15,000 in 2005.  We cannot  guarantee,
however,  that we will not accrue additional stock compensation  expenses in the
future or that our current  estimate of these costs will prove accurate,  either
of which events could seriously harm our business and results of operations.

     Financial Income (Expenses), Net. Financial income (expenses), net consists
primarily  of  interest  earned  on bank  deposits  and  securities  in which we
invested,  gains and losses from the exchange  differences  of monetary  balance
sheet items  denominated in non-dollar  currencies and interest  expense paid on
bank loans.

     Taxes.  Israeli  companies  are  generally  subject  to  income  tax at the
corporate  rate of 36%.  However,  we are eligible for tax benefits which should
result in our income being taxed at a lower rate for some time after we begin to
report taxable income and exhaust our net operating loss carry forwards.

     The table below sets  forth,  for the periods  indicated,  financial  data,
expressed as a percentage of total  revenues  which we believe to be significant
in analyzing our results of operations. The data is as follows:

<TABLE>
<CAPTION>

                                                 Year Ended December 31,
                                           1999           2000           2001
<S>                                         <C>            <C>            <C>

Revenues                                   100%           100%           100%
Cost of revenues:
   Costs and expenses                        50             42             43
   Royalties to the Government of Israel      2              2              3
Total Cost of revenues                       52             44             46
Gross profit                                 48             56             54
Operating expenses:
   Gross research and development            52             54            121
   Royalty bearing grant                     17             14             24
   Research and development, net             35             40             97
   Sales and marketing, net                  17             16             39
   General and administrative                10             13             25
   Non-cash compensation                      3              3              5
Total operating expenses                     65             72            166
Operating loss                             (17)           (16)          (112)
Financial income (expenses), net:
   Non-cash charge for warrants            (12)              -              -
   Interest income, net                       1             26             33
   Total financial income (expenses), net  (11)             26             33
Net Income (loss)                         (28)%            10%          (79)%

</TABLE>



Year Ended December 31, 2001 Compared with Year Ended December 31, 2000

     Revenues.  Revenues in 2001 were $14  million,  a decrease of $9.3  million
compared  with  revenues  of $23.3  million in 2000.  The  decrease  in revenues
reflects   general   economic   conditions   and   increased   weakness  in  the
telecommunication  market  in  North  America  and  Europe,  and the  fact  that
customers  have  reduced  orders  while   diminishing   inventories   previously
purchased.

     Cost of Revenues.  Cost of revenues was $6.4 million in 2001, a decrease of
$3.9  million  compared  with cost of  revenues of $10.3  million in 2000.  This
decrease is primarily attributable to the decrease in revenues. Cost of revenues
as a percentage of revenues increase to 46% in 2001 from 44% in 2000,  primarily
attributable  to the decrease in revenues  volume and the fixed cost elements in
the cost of good sold.

     Gross Research and  Development  Expenses.  Gross research and  development
expenses  were $17 million in 2001,  an increase of $4.4 million  compared  with
gross research and development  expenses of $12.6 million in 2000. This increase
is  primarily  attributable  to  enhancement  of our  research  and  development
focusing  in our  SHDSL  and VDSL  products,  including  increase  in  personnel
(increased  expenses of $3.1  million).  Inclusive  of stock based  compensation
charges,  Gross research and development expenses were $17.2 million in 2001, an
increase of $4.4 million  compared with gross research and development  expenses
of $12.8  million in 2000.  Gross  research and  development  as a percentage of
revenues  increased to 121% in 2001 from 54% in 2000 primarily  attributable  to
the decrease in revenues  volume,  and also the  increase in gross  research and
development  expenses  mentioned  above.   Inclusive  stock  based  compensation
charges, Gross research and development as a percentage of revenues increased to
123% in 2001  from 55% in 2000.  We  expect to  continue  investing  significant
resources in research and development programs for new products and enhancements
of existing products.

     Research  and  Development,  Net.  Grants  from  the  Office  of the  Chief
Scientist, totaling $3.5 million in 2001 compared with $3.4 million in 2000, are
applied as reductions to gross research and development  expenses.  Research and
development  expenses  (net) were $13.6  million  in 2001,  or 97% of  revenues,
compared  with  $9.2  million  in  2000,  or 40% of  revenues.  As  grants  were
approximately  the same in both 2000 and 2001,  the  increase  in  research  and
development, net, as a percentage of revenue is attributable, to the decrease in
revenues  volume,  and  also the  increase  in gross  research  and  development
expenses mentioned above.

     Sales and  Marketing.  Sales and  marketing  expenses  were $5.5 million in
2001, an increase of $1.8 million compared with sales and marketing  expenses of
$3.7 million in 2000. This increase is primarily  attributable to enhancement of
sales  channels  in  North  America  and the  resulting  increase  in  personnel
(increased   expenses  of  $1.1  million),   travel   expenses  and  promotional
activities.  Sales and marketing expenses, as a percentage of revenues, were 39%
in 2001  compared  to 16% in 2000  primarily  attributable  to the  decrease  in
revenues volume.

     General and Administrative.  General and administrative  expenses were $3.5
million  in  2001,   an  increase  of  $500,000   compared   with   general  and
administrative  expenses  of $3  million in 2000.  This  increase  is  primarily
attributable  to one time  provision  of $315,000  for  litigation.  See "Item 8
-Legal  Proceedings".  Inclusive stock based compensation  charges,  General and
administrative  expenses  were $3.9  million in 2001,  an  increase  of $600,000
compared  with  general and  administrative  expenses  of $3.3  million in 2000.
General and administrative expenses as a percentage of revenues increased to 25%
in 2001 from 13% in 2000  primarily  attributable  to the  decrease  in revenues
volume,  and increase of general and  administrative  expenses  mentioned above.
Inclusive stock based compensation charges,  General and administrative expenses
as a percentage of revenues increased to 27% in 2001 from 14% in 2000.

     Amortization of Deferred Stock Compensation. Amortization of deferred stock
compensation expenses were $745,000 in 2001, a decrease of $46,000 compared with
amortization of deferred stock  compensation  expenses of $791,000 in 2000. This
change is primarily  attributable  to periodical  amortization.  Amortization of
deferred stock compensation expenses as a percentage of revenues increased to 5%
in 2001 from 3% in 2000  primarily  attributable  to the  decrease  in  revenues
volume.

     Financial Income (Expenses), Net. Financial income, net was $4.6 million in
2001, a decrease of $1.4 million  compared with  financial  expenses,  net of $6
million in 2000.  This change is primarily  attributable  to general  decline in
interest rates and changes in our  investment  mix in order to avoid  Investment
Company Act constrains.


Year Ended December 31, 2000 Compared with Year Ended December 31, 1999

     Revenues. Revenues in 2000 were $23.3 million, an increase of $11.6 million
compared  with  revenues  of $11.7  million in 1999.  The growth in  revenues is
primarily  attributable  to an  increase in unit  volume  shipments  to existing
customers, mainly in Europe, North American and Israel.

     Cost of Revenues.  Cost of revenues was $10.3  million in 2000, an increase
of $4.2 million  compared  with cost of revenues of $6.1  million in 1999.  This
increase is primarily attributable to the increase in revenues. Cost of revenues
as a percentage of revenues declined to 44% in 2000 from 52% in 1999,  primarily
as a result of lower manufacturing costs due to increased use of our proprietary
products  in chip sets we have  manufactured  at the  foundries,  as compared to
buying fully assembled and tested chips from third parties.

     Gross Research and  Development  Expenses.  Gross research and  development
expenses were $12.6  million in 2000, an increase of $6.5 million  compared with
gross research and  development  expenses of $6.1 million in 1999. This increase
is primarily  attributable  to expansion of our research and development and the
resulting   increase  in  personnel   (increased   expenses  of  $2.6  million),
subcontracting  costs  (increased  expenses  of $2  million)  and other  related
expenses.  Gross research and development as a percentage of revenues  increased
to 54% in 2000 from 52% in 1999.

     Research  and  Development,  Net.  Grants  from  the  Office  of the  Chief
Scientist,  totaling $3.4 million in 2000 and in $2 million in 1999, are applied
as  reductions  to  gross  research  and  development  expenses.   Research  and
development  expenses,  net  were  $9.2  million  in 2000,  or 40% of  revenues,
compared with $4.1 million in 1999, or 35% of revenues, primarily as a result of
the increase in gross research and development expenses.

     Sales and Marketing.  Sales and marketing expenses,  which consist of gross
sales and  marketing  expenses,  were $3.7 million in 2000,  an increase of $1.7
million  compared  with  sales  and  marketing  expenses  of $2  million  (after
reduction  of grants from the Israeli  Government's  Fund for  Encouragement  of
Marketing  Activities) in 1999.  This increase is primarily  attributable to the
establishment of new distribution and sales channels in North America  resulting
in an expense of  $1,780,000  in 2000  compared  with an expense of  $687,000 in
1999.  Inclusive  of stock  based  compensation  charges,  sales  and  marketing
expenses, which consist of gross sales and marketing expenses, were $3.9 million
in 2000, an increase of $1.9 million compared with sales and marketing  expenses
of $2 million (after reduction of grants from the Israeli  Government's Fund for
Encouragement of Marketing Activities) in 1999. Sales and marketing expenses, as
a percentage of revenues, were 16% in 2000 compared to 17% in 1999. Inclusive of
stock based compensation charges,  sales and marketing expenses, as a percentage
of revenues, were 17% in 2000 as well as in 1999.

     General and  Administrative.  General and  administrative  expenses were $3
million  in  2000,  an  increase  of $1.9  million  compared  with  general  and
administrative  expenses of $1.1  million in 1999.  This  increase is  primarily
attributable to increase of $652,000 in professional expenses and to an increase
in personnel.  General and  administrative  expenses as a percentage of revenues
increased to 13% in 2000 from 10% in 1999.

     Amortization of Deferred Stock Compensation. Amortization of deferred stock
compensation  expenses were  $791,000 in 2000, an increase of $409,000  compared
with amortization of deferred stock  compensation  expenses of $382,000 in 1999.
This  increase  was  primarily  due to our Share  Option Plan (2000) under which
options to purchase 103,000 ordinary shares were granted during the year 2000.

     Amortization  of deferred  stock  compensation  expenses as a percentage of
revenues remained 3% in 2000 and 1999.

     Financial Income (Expenses),  Net. Financial income, net were $6 million in
2000,  compared with  financial  expenses,  net of $1.3 in 1999.  This change is
primarily  attributable to interest income on U.S.  Treasury notes and corporate
bonds we invested with the proceeds of our public offerings.


Impact of Inflation and Currency Fluctuations

     The dollar cost of our  operations is influenced by the extent to which any
increase in the rate of inflation in Israel is (or is not) offset,  or is offset
on a lagging  basis,  by the  devaluation  of the NIS in relation to the dollar.
Inflation  in Israel  will have a  negative  effect on our  profitability  as we
receive payment in dollars or  dollar-linked  NIS for  substantially  all of our
sales while we incur a portion of our expenses, principally salaries and related
personnel expenses,  in NIS, unless such inflation is offset by a devaluation of
the NIS.

     In 1997 and 1998, the  devaluation  of the NIS against the dollar  exceeded
the inflation in Israel and companies  experienced  decreases in the dollar cost
of their  operations in Israel.  In 1997 and 1998 rate of inflation was 7.0% and
8.6%, and the rate of devaluation was 8.8% and 17.6% in accordance.  In 1999 the
rate of  inflation  was 1.34% and the  appreciation  rate of the NIS against the
dollar was 0.2%. In 2000 the NIS was appreciated  against the dollar in the rate
of 2.7%  while the rate of  inflation  was 0%.  In 2001 the NIS was  depreciated
against the dollar in the rate of 9.3% while the rate of inflation  was 1.4%. We
can not be  certain  that  the  trends  which  have  benefited  us in 2001  will
continue.  If the  dollar  costs  of our  operations  in  Israel  increase,  our
dollar-measured  results of  operations  will be adversely  affected.  We cannot
assure you that we will not be  materially  adversely  affected in the future if
inflation in Israel exceeds the  devaluation of the NIS against the dollar or if
the timing of such  devaluation  lags behind increases in inflation in Israel or
if the NIS will be appreciated against the dollar.

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

     Because   exchange   rates  between  the  NIS  and  the  dollar   fluctuate
continuously  (albeit with a  historically  declining  trend in the value of the
NIS),  exchange rate  fluctuations and especially  larger periodic  devaluations
will have an impact on our profitability and period-to-period comparisons of our
results.  The effects of foreign  currency  remeasurements  are  reported in our
consolidated financial statements in current operations.


Corporate Tax Rate

     Israeli  companies  are  generally  subject  to tax at the  rate  of 36% of
taxable income. However, in 1994, our facility was granted "approved enterprise"
status under the Law for the  Encouragement  of Capital  Investments,  1959, and
consequently we are eligible,  subject to compliance with certain  requirements,
for certain tax benefits  beginning when such facility first  generates  taxable
income. In December 2000, our facility received an approval for extension of the
"approved  enterprise"  status, in the form of an additional capital investment.
The source of funding for the  extension of the  "approved  enterprise"  was the
initial and the  secondary  public  offering  offered on December 1999 and March
2000. We have derived,  and expect to continue to derive, a substantial  portion
of our income from our approved enterprise facility.  Subject to compliance with
applicable  requirements,  the portion of our income  derived  from the approved
enterprise is tax-exempt for a period of two years  commencing in the first year
in which there is taxable income and will be subject for the  subsequent  period
of five or  eight  years to a  reduced  company  tax of up to 25% (the  rate and
period of benefits will depend upon the percentage of non-Israeli holders of our
ordinary  shares).  The period of tax  benefits  with  respect  to our  approved
enterprise has not yet commenced, because we have yet to realize taxable income.
As a result of the  foregoing,  and of our  accumulated  tax loss  carryforwards
(which totaled  approximately  $25.7 million at December 31, 2001), and based on
the current tax system in Israel,  we do not anticipate  being subject to income
tax in Israel in 2002. Our effective corporate tax rate may substantially exceed
the  Israeli  tax  rate.  Our U.S.  subsidiary  will  generally  be  subject  to
applicable  federal,  state,  local  and  foreign  taxation,  and we may also be
subject to taxation in the other foreign  jurisdictions  in which we own assets,
have  employees  or  conduct  activities.  Our  U.S.  subsidiary  had  net  loss
carry-forwards of approximately  $2.9 million available at December 31, 2001 for
federal and state income tax purposes.  These  carry-forwards will offset future
taxable income.  Because of the complexity of these local tax provisions,  it is
not possible to  anticipate  the actual  combined  effective  corporate tax rate
which will apply to us.


Government Grants

     We conduct a substantial part of our research and development operations in
Israel. Our research and development efforts have been financed through internal
resources  and grants per project  from the Office of the Chief  Scientist.  The
Office of the Chief  Scientist  provided  grants for  research  and  development
efforts of approximately  $1.3 million for the year ended December 31, 1998 (34%
of total  research  and  development  expenses),  $2 million  for the year ended
December 31, 1999 (32% of total research and development expenses), $3.4 million
for the year December 31, 2000 (27% of total research and development expenses),
and $3.5 million for the year ended December 31, 2001 (20% of total research and
development expenses). Under Israeli law, royalties on the revenues derived from
products  and  services  developed  using such grants are payable to the Israeli
Government.  Currently, we pay royalties at the rate of 4%-4.5% of revenues. The
maximum aggregate royalties payable cannot exceed 100%-300% of the dollar-linked
value of the total grants received  depending on different  factors as described
below (We currently  pay  100%-120%).  Royalties  payable with respect to grants
received under programs approved after January 1, 1999, however, will be subject
to interest on the dollar-linked value of the total grants received at an annual
rate of LIBOR applicable to dollar deposits.

     The  Government  of Israel does not own  proprietary  rights in  technology
developed  using  its  funding  and  there is no  restriction  on the  export of
products manufactured using the technology.  The technology is, however, subject
to other legal restrictions, including the obligation to manufacture the product
based on such  technology  in Israel and to obtain the  consent of the Office of
the Chief  Scientist to transfer the technology to a third party.  The Office of
the Chief  Scientist  may consent to the  manufacture  of the  products  outside
Israel by identified  manufacturers  and, in such cases, may require the payment
of  increased  royalties,  ranging from 120% to 300% of the amount of the grant,
depending on the percentage of foreign manufacture.  Therefore, in 2001 Metalink
was required by the Office of the Chief Scientist to pay increased  royalties of
120% of the amount of year 2001 grant. These restrictions continue to apply even
after we shall have paid the full amount of royalties  payable in respect of the
grants.  Since our  manufacturing  activities  are  performed by  subcontractors
outside of Israel,  the consent of the Office of the Chief Scientist is required
for these activities and additional consents will be required in connection with
the  manufacturing of products  developed in the future with Office of the Chief
Scientist grants.  The letters of approval under which we received the grants do
not  specifically  refer to our  manufacturing  activities  outside  of  Israel,
however,  we  believe  that the  Office of the Chief  Scientist  has  adequately
expressed  its consent to such  activities.  There can be no assurance  that the
consents  granted to date by the Office of the Chief Scientist will be deemed to
be adequate under applicable laws and regulations or that such consents will not
be reversed or  modified  in any way or that we will  obtain  consents  for such
activities at all from the Office of the Chief Scientist in the future.  Failure
to comply with the requirement for consents for manufacturing  outside of Israel
could  result in  penalties,  cancellation  of grants  and  denial of any future
applications for grants or for these consents. If the consents obtained from the
Office of the Chief Scientist to manufacture our chip sets outside of Israel are
terminated  or if we are unable to obtain  similar  consents in the future,  our
business could be harmed.  Based upon the aggregate  grants received to date, we
expect  that we will  continue  to pay  royalties  to the  Office  of the  Chief
Scientist  on sales of our products  and related  services  for the  foreseeable
future.  From time to time,  provisions  of Israeli law relating to the terms of
the Office of the Chief  Scientist  participations  have been amended and may be
further  amended in the future.  The budget of the Office of the Chief Scientist
has been subject to reductions and such  reductions may affect the  availability
of funds for the Office of the Chief Scientist participations in the future.

     The  Government  of Israel,  through the marketing  fund,  awards grants to
Israeli  companies  for  overseas  marketing  expenses,  including  expenses for
maintaining  branches,  advertising,   catalogs,  exhibitions  and  surveys.  We
received grants from the marketing fund totaling $126,000 in 1998 and $20,000 in
1999. We are required to pay royalties in connection  with such grants at a rate
of 4% of the increase in foreign sales up to the total  dollar-linked  amount of
such grants.  If we fail to satisfy the terms and  conditions of the grants,  we
may be required to refund the grants already received.

     We  paid  or  accrued  to the  Office  of the  Chief  Scientist  and to the
marketing fund $212,000 for the year ended  December 31, 1998,  $385,000 for the
year ended  December 31,  1999,  $469,000  for the year  December 31, 2000,  and
$364,000 for the year December 31, 2001.


D. Liquidity and Capital Resources

     At December 31, 2001, we had cash and cash  equivalents  of $15.95  million
and short-term investments of $65 million. At December 31, 2000, we had cash and
cash  equivalents of $8.85 million and short-term  investments of $86.3 million.
In December 1999, we completed our initial public offering of 4,600,000 ordinary
shares,  from which we received net proceeds of approximately  $49.8 million. In
March 22,  2000,  we completed  our  secondary  offering of  1,500,000  ordinary
shares, from which we received net proceeds of approximately $62.7 million.

     Our total proceeds,  net of royalties paid or accrued, from royalty-bearing
government  grants was $10 million as of  December  31,  2001,  $7 million as of
December 31, 2000, and $4 million as of December 31, 1999.

     Capital  expenditures  were $698,000 for the year ended  December 31, 1999,
$5,373,000  for the year ended  December  31, 2000 and  $3,420,000  for the year
ended  December  31,  2001.  These  expenditures  were  principally  for capital
equipment and software for our research and development activities. We expect to
invest additional resources for capital equipment and software.

     Net cash used in operating  activities  was  $7,874,000  for the year ended
December  31,  2001.  Net cash  used in  operating  activities  during  2001 was
primarily  due  to  net  loss  and  offset  by  depreciation  and  amortization,
amortization of deferred stock compensation and decrease in working capital. The
decrease in working capital resulting from decrease in trade account receivables
is primarily  attributablee  to the  decrease in revenue;  and decrease in other
receivables and prepaid  expenses that is primarily  attributable to decrease in
grants to receive from the Government of Israel.  The corresponding  decrease in
trade  accounts  payables  primarily  attributable  to  decreases  in  inventory
purchasing;  and  the  increase  in  inventories  primarily  attributable  to an
increase in finished  products  were not  sufficient to off set  completely  the
decrease in working  capital.  Net cash  provided by  operating  activities  was
$2,245,000  for the year ended  December  31,  2000.  Net cash used in operating
activities was $509,000 in 1999.

     Net cash  provided by investing  activities  was $23.7 million for the year
ended  December  31,  2001.  $27.1  million  cash  was  provided  from  sales of
marketable debt securities held in Metalink's tressury and $3.4 million was used
for the  purchase  of  property  and  equipment.  Net  cash  used  in  investing
activities was $61.2 million in 2000, and $45.9 million in 1999.

     Net cash used in financing  activities  was $8.8 million for the year ended
December 31, 2001 and was primarily  attributable  to  repurchase  (buy-back) of
shares  that  then  became  treasury  stock.  Net  cash  provided  by  financing
activities  was $63.5  million  for the year  ended  December  31,  2000 and was
primarily  attributable to the proceeds of our secondary  public  offering.  Net
cash  provided  by  financing  activities  was  $49.6  million  in 1999  and was
primarily attributable to the proceeds of our initial public offering.

     We believe that cash generated from  operations,  our unused cash balances,
governmental  research and  development  in Israel and the net proceeds from our
initial public offering and our secondary  offering will provide sufficient cash
resources to finance our operations and the projected expansion of our sales and
marketing and research and  development  activities for at least the next twelve
months.  However, if our operations do not generate cash to the extent currently
anticipated  or if we  grow  more  rapidly  than  currently  anticipated,  it is
possible that we will require additional funds at some point in the future.


     E.  Research  and  Development,  Patents and  Licenses,  etc. See "Item 4 -
Information  on the  Company - Business  Overview - Research  and  Development,"
"Item 4 - Information on the Company - Business  Overview - Proprietary  Rights"
and " - Operating Results."

     F.  Trend  Information   Telecommunications  service  providers  and  their
customers  are the  principal  end-users of  substantially  all of our products.
Recently, the telecommunications industry in much of the world, including in our
principal  geographic  markets,  has been  experiencing  an  apparent  slowdown,
resulting in  decreases  and delays in the  procurement  and  deployment  of new
telecommunications  equipment.  As a result,  we have  experienced a significant
decline in demand for our products in 2001  compared to 2000.  It is likely that
any prolonged and  substantial  curtailment of growth in the  telecommunications
industry will have an adverse effect,  which may be material,  upon us. Any such
curtailment  may  result  from  circumstances  unrelated  to us or  our  product
offerings and over which we have no control.

<PAGE>


ITEM 6   DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES


A.       Directors and Senior Management

     The following table lists our current directors and executive officers:

<TABLE>
<CAPTION>

Name                      Age                             Position
<C>                       <C>                                <C>

Tvzi Shukhman              41       Chairman of the Board of Directors and Chief Executive Officer
J. Francois Crepin         55       President, Member of the Office of the CEO and Director
Ofer Lavie                 57       Chief Financial Officer
Hudi Zack                  36       Chief Operating Officer
Ronen Avron                45       Vice President, International Sales
Danny Gur                  44       Vice President, Business Development
Daniel Manor               32       Vice President, Marketing
Aviva Gatt                 48       Vice President of Human Resources
Uzi Rozenberg              42       Director
Efi Shenhar                46       Director
Sarit Weiss-Firon          36       Director
Joe Markee                 49       Director
Syrus Madavi               52       Director
Meir Bar-El                58       Director

</TABLE>

     Tzvi  Shukhman,  a  co-founder  of our  company,  has  served  as our Chief
Executive  Officer and Chairman of our Board of Directors  from our inception in
1992.  Prior to May 1999, Mr. Shukhman also served as our President.  From March
1989 until March 1993, Mr. Shukhman served as an independent  consultant for RAD
Data  Communications  and ECI. Prior thereto,  Mr. Shukhman served in the Israel
Defense Forces where he founded a group  involved in digital  signal  processing
applications.  Mr. Shukhman has an M.Sc. from The Technion,  Israel Institute of
Technology.

     J. Francois Crepin has served as our President, Member of the Office of the
CEO, since January 2001 and as a director  since May 1999.  Since May 1999 until
December 2000 Mr. Crepin  served as our President and Chief  Operating  Officer.
From  February  1997 to April l999,  Mr. Crepin served as President of Bandwidth
Communications  Management,  a privately  held  consulting  company  focusing on
semiconductor  companies.  From January 1986 to February  1997,  Mr. Crepin held
different Vice President  positions at Level One, including  marketing and sales
and  business  development.  Prior to joining  Level One, Mr.  Crepin  served as
Director of Strategic  Planning  for  Information  Communications  for LSI Logic
Corporation.  Mr. Crepin holds a B.Sc. in mathematics  from Grenoble  University
and an M.B.A. from the University of Paris.

     Ofer Lavie has served as our Chief  Financial  Officer since November 1999.
Mr.  Lavie has also  served  as a member  of the board of Ophir  Tours Ltd since
August 2001.  Prior thereto from April 1991, Mr. Lavie served as Chief Financial
Officer of  Electro-Optics  Industries  Ltd., a company  engaged in research and
development  and production of military  systems and other  commercial  business
areas.  From October 1990 to March 1991,  Mr. Lavie served as the  President and
Chief  Executive  Officer of GMA  Communications  Ltd., a company engaged in the
manufacture of telephone key systems. From November 1984, to September 1990, Mr.
Lavie held different  corporate  positions at Tadiran Electronics Ltd. Mr. Lavie
has a B.Sc. in economics from Tel Aviv University.

     Hudi Zack has served as our Chief  Operating  Officer  since  January 2001.
Since May 1995 until  December  2000,  Mr.  Zack  served as our Vice  President,
Engineering.  From  October  1997 to April  1999,  Mr.  Zack  served as a senior
program  manager  at BVR  Systems  (1998)  Ltd.,  where he was in  charge  of an
innovative  simulation system project.  From September 1995 to October 1997, Mr.
Zack  served as a project  manager  at Israel  Aircraft  Industries  Ltd.  Prior
thereto,  from January 1989, Mr. Zack served as a project  officer in the Israel
Air Force,  where he supervised  various  large-scale  communications  and radar
development  projects.  Mr. Zack has a M.S.E.E.  from Tel Aviv  University and a
B.Sc. in mathematics and physics from the Hebrew University of Jerusalem.

     Ronen Avron has served as our Vice President of  International  Sales since
May,  2002.  From  September  1999 till April 2002, Mr. Avron served as Regional
Director  in  Gilat   Satellite   Networks   Ltd  having   business   and  sales
responsibility  for all of the  Pacific  area.  Prior  thereto  during the years
1995-1999,  Mr.  Avron was  stationed  in Seoul  Korea,  managing the Korean and
Taiwanese  offices of Rafael  Armaments  Development  Authority  of the state of
Israel with  responsibility  for Sales,  Marketing and Business  Development for
that  territory.  Previous to that during the years 1993- 1995 Mr. Avron was the
Sales  and  Marketing  Manager  for Asia and  Pacific  Rim of RND Ltd of the RAD
Group.  Mr.  Avron  served  in the  Israeli  Air  Force as a pilot  for 7 years,
1975-1982.  Mr. Avron holds  degrees of BSEE from Tel Aviv  University,  and MBA
from Boston University (London Branch).

     Danny Gur has  served as our Vice  President,  Business  Development  since
1995. In addition,  Mr. Gur has served as President of Metalink,  Inc. since its
inception in 1997. Prior thereto,  Mr. Gur held various  technical and marketing
positions  at Scitex  Corp.,  Opal Ltd.,  Opal Inc. and Eurom Ltd. Mr. Gur has a
B.Sc,  in  mathematics  and  computer  science  and  an  M.B.A.  from  Tel  Aviv
University.

     Daniel  Manor has served as our Vice  President,  Marketing  since  October
2001, and as Associate Vice  President,  Marketing - Networking  Solutions since
March 2001.  From July 2000 to February  2001,  Mr.  Manor served as Director of
Marketing in Tioga Technologies Ltd. From 1995 to 2000, Mr. Manor held different
marketing and research and developments  positions in Orckit Communications Ltd.
Mr.  Manor holds a B.Sc.  Degree in Math and Physics from the  Jerusalem  Hebrew
University.

     Aviva Gatt has served as our VP Human  Resources  since March,  2000.  From
1998  to 2000  Ms.  Gatt  served  as  Director  of  Human  Resources  for  Texas
Instruments Cable Broadband Communications. From 1994 to 1998 Ms. Gatt served as
Director of Human  Resources at Nice Systems.  From 1991 to 1998 Ms. Gatt served
as recruitment manager at Tadiran Telecommunications. Ms. Gatt holds a Bachelors
in Social Work from  Jerusalem's  Hebrew  University  and an MBA from New York's
Polytechnic University.

     Uzi Rozenberg,  a co-founder of our company,  has served as a director from
1992 until 1997 and since  August  1999.  Mr.  Rozenberg is also the founder and
Chief  Executive  Officer of USR  Electronics  Ltd.  since  February  1987.  Mr.
Rozenberg served as a director of Orbot Ltd. from 1992 to 1996 and as a director
of Gibor  Sport  Ltd.  from 1993 to 1997.  Mr.  Rozenberg  and Mr.  Shenhar  are
brothers.

     Efi Shenhar has served as a director since July 1995. From March 1987 until
February 1999,  Mr.  Shenhar has served as a Vice  President of USR  Electronics
Systems (1987) Ltd., an electronic  manufacturing  services company. Mr. Shenhar
has a B.A. in accounting  and economics  from Tel Aviv  University and an M.B.A.
from Herriot Watt University.  Mr. Shenhar is a certified public accountant. Mr.
Shenhar and Mr. Rozenberg are brothers.

     Sarit  Weiss-Firon  has  served  as a  director  since  October  2000.  Ms.
Weiss-Firon  currently  serves as the Chief  Financial  Officer of P-Cube,  Inc.
since 2000. From 1997 to 1999 Ms.  Weiss-Firon served as Chief Financial Officer
of Radcom.  From 1995 to 1996, Ms. Weiss-Firon served as vice-comptroller at Rad
Company for six months before being  appointed  comptroller.  From 1992 to 1994,
Ms. Weiss-Firon was an intern at Kesselmann & Kesselman  Accountants.  Ms. Weiss
Firon has a B.A. in Accounting and Economics from Tel Aviv University.

     Joe  Markee  has  served as a director  since  July 23,  2001.  Mr.  Markee
currently  serves  as a member  of the board of  directors  of  Copper  Mountain
Networks.  Mr.  Markee is the  Founder  and was  Chairman of the Board of Copper
Mountain.  Prior to founding  Copper  Mountain,  Mr.  Markee was a co-founder of
Primary  Access,  a  leading  remote  access  server  company  acquired  by 3Com
Corporation  in 1995.  At  3Com/Primary  Access,  Mr. Markee was a member of the
senior  management  team,  serving  as Vice  President  of  Operations  and Vice
President  of Support.  Mr.  Markee began his career in product  management  and
engineering  capacities at General Instrument  Corporation and M/A-Com Linkabit.
Mr. Markee holds a B.S. Degree in Electrical  Engineering  and Computer  Science
from the University of California at Davis.

     Syrus Madavi has served as a director  since  October 29, 2001.  Mr. Madavi
currently  serves as  chairman  of the  Board,  and  executive  chairman  for ON
Semiconductor  Corporation.  From September 2000 to March 2002 Mr. Madavi served
as a senior vice president of Texas  Instruments  Corporation.  Until  September
2000,  Mr.  Madavi was Chairman,  CEO and  President of Burr-Brown  Corporation.
During September 2000, Burr-Brown was acquired by Texas Instruments Corporation.
Prior to joining Burr-Brown,  Mr. Madavi was President of Raytheon Semiconductor
Corporation.  Mr. Madavi's  professional  engineering  work experience  includes
employment with General  Electric  developing  hardware and software for imaging
systems  and he has also held  several  other  positions  designing  and trouble
shooting various types of electronic systems. Mr. Madavi has a BSEE degree and a
Masters degree in Computer Science from Stevens Institute of Technology, as well
as an MBA from UCLA in Finance.

     Meir Bar-El was  approved by the board on June 2002 for  submission  to the
shareholders to be elected as external director.  Mr. Bar-El currently serves as
the Deputy  General  Director,  and  Director  of the  General  Division  of the
Manufacturers' Association of Israel, a General Director of the Israeli Plastics
& Rubber Industry,  and a Genaral Director of the Israeli  Furniture  Industries
Association.  Mr.  Bar-El also has served as External  Director for Mifalley Etz
Carmiel Ltd since June 1998,  External Director for Ophir Tours Ltd since August
1998,  and as a Director  for the Wood  Products  &  Furniture  Export  Economic
Company. Mr. Bar-El has a B.A. in Economics from Jerusalem University.


B.       Compensation

     The aggregate  remuneration we paid for the year ended December 31, 2001 to
all executive officers as a group (11 persons), was approximately  $1,708,000 in
salaries,  fees,  commissions and bonuses.  This amount  includes  approximately
$145,000  set aside or accrued to provide  for  pension,  retirement  or similar
benefits provided to our directors and executive officers.

     Members of our board of directors  (other than external  directors) who are
not  executive  officers do not receive  compensation  for their  service on the
board of directors  or any  committee  of the board of  directors,  but they are
reimbursed for their expenses for each board of directors meeting attended.

     During 2001 we granted to our directors and executive  officers  options to
purchase 237,000 ordinary shares under our option plans, of which 20,000 options
are subject to  shareholder  approval.  The weighted  average  exercise price of
these  options was $5.7 per share and they expire  within 10 years from the date
they were issued.


C.       Board Practices

     Our  directors,  other than our external  directors,  are elected at annual
general  meetings by the vote of the  holders of a majority of the voting  power
represented  at such meeting in person or by proxy and voting on the election of
directors.  Each director shall serve,  subject to our articles of  association,
until the annual general  meeting next  following the annual general  meeting at
which such director was elected.


External Directors

     We are  subject  to  the  provisions  of the  new  Israeli  Companies  Law,
5759-1999,  which became  effective on February 1, 2000  superseding most of the
provisions of the Israeli  Companies  Ordinance  (New Version),  5743-1983.  The
Companies Law authorizes the Minister of Justice to adopt regulations  exempting
from the provisions described below companies,  like us, whose shares are traded
outside of Israel.

     Under the Companies Law,  companies  incorporated  under the laws of Israel
whose  shares  have been  offered  to the  public in or  outside  of Israel  are
required to appoint two external  directors.  The  Companies Law provides that a
person  may not be  appointed  as an  external  director  if the  person  or the
person's relative,  partner,  employer or any entity under the person's control,
has, as of the date of the person's  appointment to serve as external  director,
or had,  during the two years  preceding  that date,  any  affiliation  with the
company,  any entity  controlling  the company or any entity  controlled  by the
company or by this controlling entity. The term affiliation includes:

     o an employment relationship;

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

     o service as an office holder.

     No person can serve as an  external  director if the  person's  position or
other business creates,  or may create,  conflict of interests with the person's
responsibilities  as an  external  director.  Until the lapse of two years  from
termination of office, a company may not engage an external director to serve as
an office holder and cannot employ or receive services from that person,  either
directly or  indirectly,  including  through a  corporation  controlled  by that
person.

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

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

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

     The initial term of an external director is three years and may be extended
for an additional three years.  Each committee of a company's board of directors
is required to include at least one external  director.  On June 20,  2002,  the
board of directors  approved Mr. Meir Bar-El for submission to the  shareholders
to be elected as an external director,  at the next annual shareholders  meeting
of the  company,  joining Ms.  Sarit  Weiss-Firon  who has served as an external
director since October 2000.


Audit Committee

     Under the  Companies  Law,  the board of  directors  of any company that is
required to nominate  external  directors must also appoint an audit  committee,
comprised of at least three directors  including all of the external  directors,
but excluding a:

     o chairman of the board of directors;

     o general manager;

     o chief executive officer; and

     o controlling  shareholder and any director  employed by the company or who
provides services to the company on a regular basis.

     The  role of the  audit  committee  is to  examine  flaws  in the  business
management of the company,  in  consultation  with the internal  auditor and the
company's  independent  accountants and suggest appropriate course of action. In
addition,  the approval of the audit  committee is required to effect  specified
actions and transactions with office holders and interested parties.

     An  interested  party is  defined in the  Companies  Law as a 5% or greater
shareholder, any person or entity who has the right to designate one director or
more or the  general  manager  of the  company  or any  person  who  serves as a
director or as a general manager.

     An audit  committee  may not  approve  an action or a  transaction  with an
interested party or with an office holder unless at the time of approval the two
external  directors  are serving as members of the audit  committee and at least
one of whom was present at the meeting in which an approval was granted.

     Under the  Companies  Law,  the board of  directors  must also  appoint  an
internal  auditor  proposed  by the audit  committee.  The role of the  internal
auditor is to  examine,  whether  the  company's  actions  comply  with the law,
integrity and orderly business procedure.  Under the Companies Law, the internal
auditor may not be an interested party, an office holder, or an affiliate,  or a
relative of an interested  party,  an office  holder or  affiliate,  nor may the
internal auditor be the company's independent  accountant or its representative.
On April 2001, we appointed Mr.  Jonathan  Glazer as our internal  auditor.  See
"-Committees" for information relating to our audit committee.


Approval  of  Specified  Related  Party   Transactions  Under  Israeli  Law

     Fiduciary Duties of Office Holders

     The  Companies  Law  imposes  a duty of care and a duty of  loyalty  on all
office holders of a company,  including  directors and executive  officers.  The
duty of care  requires an office holder to act with the level of care with which
a reasonable  office holder in the same position would have acted under the same
circumstances.  The  duty of care  includes  a duty to use  reasonable  means to
obtain:

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

     o all other important information pertaining to the previous actions.

     The duty of loyalty of an office holder includes a duty to:

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

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

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

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

     Each person  listed in the table under  "Directors  and Senior  Management"
above is an office holder.  Directors'  compensation  arrangements  also require
audit committee approval before board approval and shareholder approval.

     The  Companies  Law requires  that an office  holder of a company  promptly
disclose  any  personal  interest  that he may  have  and all  related  material
information known to him in connection with any existing or proposed transaction
by the company.  A personal interest of an office holder includes an interest of
a company in which the office holder is, directly or indirectly, a 5% or greater
shareholder, director or general manager or in which he has the right to appoint
at least one director or the general manager.  In the case of an  "extraordinary
transaction",  the office  holder's duty to disclose  applies also to a personal
interest of the office holder's  relative.  The office holder must also disclose
any personal  interest held by the office holder's  spouse,  siblings,  parents,
grandparents,  descendants,  spouse's  descendants and the spouses of any of the
foregoing.

     Under Israeli law, an extraordinary transaction is a transaction:

     o other than in the ordinary course of business;

     o other than on market terms; or

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

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

     If  the  transaction  is  an  extraordinary  transaction,  both  the  audit
committee  and the  board of  directors  must  approve  the  transaction.  Under
specific  circumstances,  shareholder  approval may also be required.  An office
holder who has a personal  interest in a matter which is considered at a meeting
of the board of  directors  or the audit  committee  may not be  present  at the
meeting or vote on the matter.

     Disclosure of Personal Interests of a Controlling Shareholder

     Under the  Companies  Law, the  disclosure  requirements  which apply to an
office holder also apply to a controlling  shareholder  of a public  company.  A
controlling  shareholder  includes a  shareholder  that holds 25% or more of the
voting rights in a public company if no other  shareholder owns more than 50% of
the voting rights in the company.  Extraordinary transactions with a controlling
shareholder or in which a controlling  shareholder has a personal interest,  and
the terms of compensation of a controlling  shareholder who is an office holder,
require the  approval of the audit  committee,  the board of  directors  and the
shareholders of the company.  Shareholder approval is satisfied by the vote of a
majority  of the voting  power  present  and voting (in  person,  by proxy or by
written ballot) at a shareholder meeting, so long as either:

     o the approving  majority  includes at least one-third of the  shareholders
who have no personal interest in the transaction; or

     o the  shareholders  who have no personal  interest in the  transaction who
vote  against  the  transaction  do not  represent  more than one percent of the
voting rights in the company.

     For information  concerning the direct and indirect  personal  interests of
certain of our office holders and principal shareholders in certain transactions
with us, see "Item 7- Major Shareholders and Related Party Transactions."


Exculpation, Insurance and Indemnification of Directors and Officers

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

     Office Holder Insurance

     Our articles of association  provide that, subject to the provisions of the
Companies  Law, we may enter into a contract for the  insurance of the liability
of any of our office holders with respect to:

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

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

     o a  financial  liability  imposed  upon  him in favor  of  another  person
concerning an act performed by him in his capacity as an office holder.

     Indemnification of Office Holders

     Our articles of association  provide that we may indemnify an office holder
against:

     o a financial  liability  imposed on him in favor of another  person by any
judgement,  including a settlement or an arbitrator's  award approved by a court
concerning an act performed in his capacity as an office holder; and

     o reasonable  litigation  expenses,  including attorneys' fees, expended by
the office  holder or charged to him by a court,  in  proceedings  we  institute
against him or instituted on our behalf or by another  person,  or in a criminal
charge  from  which  he was  acquitted,  or a  criminal  charge  in which he was
convicted for a criminal offense that does not require proof of intent,  in each
case relating to an act performed in his capacity as an office holder.

     Under the new Companies  Law,  these  provisions are subject to shareholder
approval.

     Limitations on Insurance and Indemnification

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

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

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

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

     o any fine levied against the office holder.

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

     We have obtained director's and officer's liability insurance.  In addition
we entered into  indemnification  agreements  with our  directors  and executive
officers in accordance with our articles of association.


Committees

     Our  board  of  directors  has  formed  an  executive  committee,  an audit
committee and a share incentive committee. The executive committee exercises the
power of the board of directors  with respect to matters that require the action
of the board of directors, between meetings of the board of directors subject to
section 112 of the Companies  Law. The audit  committee,  which  consists of Ms.
Weiss-Firon,  Mr. Meir Bar-El and Mr. Joe  Markee,  exercises  the powers of the
board of  directors  with respect to our  accounting,  reporting  and  financial
control practices.  Our share incentive  committee  administers our share option
plans but  pursuant to Section  122 of the  Companies  Law,  may only advise our
Board of Directors  with regard to the granting of options and the actual grants
must be performed by the Board of Directors.


Management Employment Agreements

     We have  entered  into  employment  agreements  with each of our  executive
officers,  other than our chief  executive  officer.  These  agreements  contain
various provisions,  including provisions relating to assignment of intellectual
property rights to us and  confidentiality and are in effect until terminated by
either party upon advance  notice or otherwise in  accordance  with the terms of
the particular agreement.  All of these agreements also contain  non-competition
provisions.  Under the Companies  Law, in a company whose shares are traded on a
stock exchange the company's chairman of the board may not be the person serving
as chief executive officer. However, the shareholders of the company may approve
the service of the chief executive officer also as a chairman of the board for a
period of up to three years, provided,  that at least two-thirds of the votes of
non-controlling   shareholders   present   and  voting  at  the   meeting   vote
affirmatively.  Accordingly,  on October  2000,  our  shareholders  approved the
service of Tzvi  Shukhman as our chief  executive  officer  and  chairman of the
board.


D.       Employees

     As of March 31,  2002,  we had 147  employees  worldwide,  of which 89 were
employed  in  research  and  development,  23  in  sales  and  marketing,  16 in
management and administration, and 19 in operations and quality assurance. As of
March 31, 2002,  122 of our employees  were based in Israel and 25 were based in
the United States.  We had 141 employees  worldwide as of December 31, 2001, 133
employees  worldwide as of December 31, 2000,  and 88 employees  worldwide as of
December  31,  1999.  We have  standard  employment  agreements  with all of our
employees,  other than our chief executive officer. All of our employees,  other
than our chief executive officer, have executed employment agreements, including
confidentiality and non-compete provisions with us.

     We are  subject  to labor  laws and  regulations  in Israel  and the United
States. We and our Israeli  employees are also subject to certain  provisions of
the general  collective  bargaining  agreements  between the Histadrut  (General
Federation  of  Labor  in  Israel)  and  the  Coordination  Bureau  of  Economic
Organizations (including the Industrialists Association) by order of the Israeli
Ministry of Labor and Welfare.  None of our employees is  represented by a labor
union and we have not experienced any work stoppages.

<PAGE>


E.       Share Ownership

     The following table sets forth certain information  regarding the ownership
of our ordinary  shares by our directors and officers as of March 31, 2002.  The
percentage of outstanding ordinary shares is based on 18,325,438 ordinary shares
outstanding as of March 31, 2002.

<TABLE>
<CAPTION>

Name                     Number of Ordinary Shares     Percentage of Outstanding     Number of Options
                           Beneficially Owned(1)           Ordinary Shares(2)
<C>                                <C>                           <C>                        <C>

Tzvi Shukhman                   4,776,424                       26.1%                        -
Uzi Rozenberg                   3,986,095                       21.8%                        -
Danny Gur(3)                        -                             -                       100,829
Efi Shenhar(4)                      *                             *                        36,095
Erez Kleinman(5)                    *                             *                        63,000
J. Francois Crepin(6)               *                             *                       399,500
Danny Manor (7)                     *                             *                        79,000
Ofer Lavie(8)                       -                             -                       194,500
Hudi Zack(9)                        -                             -                       226,550
Syrus Madavi (10)                   -                             -                        40,000
Aviva Gatt(11)                      -                             -                        66,000
Joe Markee(12)                      -                             -                        40,000
Ronen Avron(13)                     -                             -                        60,000
Sarit Weiss-Firon                   -                             -                           -
Zohar Gilon(14)                     -                             -                           -
Alan Litchfield(15)                 -                             -                           -
Meir Bar-El                         -                             -                           -
All directors and
executive officers as
a group (16 persons)           8,794,798                       48.00%                   1,305,474

</TABLE>

------------------------
*        Less than 1%.

     (1) Except as otherwise noted and pursuant to applicable community property
laws,  each person named in the table has sole voting and investment  power with
respect  to  all  ordinary  shares  listed  as  owned  by  such  person.  Shares
beneficially  owned include shares that may be acquired pursuant to options that
are exercisable within 60 days of March 31, 2002.

     (2) Ordinary shares deemed beneficially owned by virtue of the right of any
person or group to acquire  such shares  within 60 days of March 31,  2002,  are
treated as outstanding only for the purposes of determining the percent owned by
such person or group.

     (3)  Includes  (i)  options  to  purchase  329  ordinary  shares  which are
exercisable as of March 31, 2002 at an exercise  price of $2.27 per share,  (ii)
options to purchase 90,000 ordinary  shares,  of which 46,500 are exercisable as
of March 31, 2002 and 43,500 are  exercisable  over the period between June 2002
and November  2004,  at an exercise  price of $8.00 per share,  (iii) options to
purchase 4,500 ordinary  shares,  which are exercisable as of March 31, 2002, at
an exercise  price of $21.625  per share,  and (iv)  options to  purchase  6,000
ordinary shares which are exercisable  between June 2002 and January 2003, at an
exercise price of $3.07 per share.

     (4)  Includes (i) options to purchase  12,095  ordinary  shares,  which are
exercisable  as of March 31,  2002 at per value,  and (ii)  options to  purchase
24,000 ordinary shares, of which 13,333 are exercisable as of March 31, 2002 and
10,667 are exercisable over the period between June 2002 and January 2004, at an
exercise price of $15.75 per share.

     (5)  Includes  (i) options to purchase  60,000  ordinary  shares,  of which
33,000 are exercisable as of March 31, 2002 and 27,000 are exercisable  over the
period  between June 2002 and September  2004, at an exercise price of $4.00 per
share, and (ii) options to purchase 3,000 ordinary shares, which are exercisable
as of March 31, 2002, at an exercise price of $21.625 per share. As of March 31,
2002 Mr.  Klienman is no longer our vice president of operations.  Nevertheless,
Mr. Klienman remained to work for Metalink in the operations department.

     (6)  Includes (i) options to purchase  370,000  ordinary  shares,  of which
250,000 are exercisable as of March 31, 2002 and 120,000 are exercisable between
June 2002 and May 2003, at an exercise price of $5.00 per share, (ii) options to
purchase 9,500 ordinary  shares,  which are exercisable as of March 31, 2002, at
an exercise price of $21.625 per share, (iii) options to purchase 3,000 ordinary
shares,  which are  exercisable  as of March 31, 2002,  at an exercise  price of
$2.29 per share,  and (iv) options to purchase  17,000 ordinary shares which are
exercisable  between June 2002 and January 2003,  at an exercise  price of $3.07
per share.

     (7)  Includes  (i) options to purchase  50,000  ordinary  shares,  of which
15,625 are exercisable as of March 31, 2002 and 34,375 are  exercisable  between
June 2002 and March 2005, at an exercise price of $9.00 per share,  (ii) options
to purchase 15,000  ordinary shares which are exercisable  between June 2002 and
June  2004,  at an  exercise  price of $6.19 per  share,  and (iii)  options  to
purchase  14,000  ordinary  shares which are  exercisable  between June 2002 and
January 2003, at an exercise price of $3.07 per share.

     (8)  Includes (i) options to purchase  180,000  ordinary  shares,  of which
116,250 are exercisable as of March 31, 2002 and 63,750 are exercisable over the
period  between June 2002 and October  2003,  at an exercise  price of $7.65 per
share,  (ii) options to purchase 4,500 ordinary  shares which are exercisable as
of March 31, 2002, at an exercise price of $21.625 per share,  and (iii) options
to purchase 10,000  ordinary shares which are exercisable  between June 2002 and
January 2003, at an exercise price of $3.07 per share.

     (9)  Includes (i) options to purchase  125,050  ordinary  shares,  of which
75,030 are exercisable as of March 31, 2002 and 50,020 are exercisable  over the
period  between June 2002 and May 2004, at an exercise price of $5.00 per share,
(ii) options to purchase 18,000 ordinary shares,  of which 9,300 are exercisable
as of March 31, 2002 and 8,700 are exercisable over the period between June 2002
and November  2004,  at an exercise  price of $8.00 per share,  (iii) options to
purchase 6,500 ordinary shares which are exercisable as of March 31, 2002, at an
exercise price of $21.625 per share,  (iv) options to purchase  10,000  ordinary
shares,  which are  exercisable  as of March 31, 2002,  at an exercise  price of
$9.25 per share, (v) options to purchase 50,000 ordinary shares, of which 10,000
are exercisable as of March 31, 2002 and 40,000 are exercisable  over the period
between June 2002 and December  2005,  at an exercise  price of $9.25 per share,
and (vi)  options to  purchase  17,000  ordinary  shares  which are  exercisable
between June 2002 and January 2003, at an exercise price of $3.07 per share.

     (10)  Includes  options  to  purchase  40,000  ordinary  shares,  which are
exercisable  between June 2002 and October 2003,  at an exercise  price of $2.09
per share.

     (11)  Includes (i) options to purchase  1,000  ordinary  shares,  which are
exercisable  as of March 31,  2002,  at an exercise  price of $21.625 per share,
(ii) options to purchase 50,000 ordinary shares, of which 26,000 are exercisable
as of March 31, 2002 and 24,000 are  exercisable  over the period  between  June
2002 and March 2005, at an exercise price of $16.50 per share,  (iii) options to
purchase 5,000 ordinary  shares,  which are exercisable as of March 31, 2002, at
an  exercise  price of $9.25 per share,  and (iv) ) options to  purchase  10,000
ordinary shares which are exercisable  between June 2002 and January 2003, at an
exercise price of $3.07 per share.

     (12) Includes options to purchase 40,000 ordinary  shares,  of which 20,000
are exercisable as of March 31, 2002, and 20,000 are exercisable over the period
between June 2002 and May 2003, at an exercise price of $9.00 per share.

     (13)  Includes  options  to  purchase  60,000  ordinary  shares,  which are
exercisable  between June 2002 and May 2006,  at an exercise  price of $4.15 per
share.

     (14) Mr. Gilon resigned  effective on October 4, 2001.

     (15) Mr. Litchfield terminated employment on September 30, 2001.

<PAGE>


Share Option Plans

     We have five employee  share option plans and one  additional  option plan,
Share Option Plan (2000), for our advisors and independent contractors.  Options
granted under our option plans  generally vest over a period of five years.  The
expiration  dates of the  options  range  from 10 to 25  years  from the date of
grant. Our share option plans are administered by the share incentive  committee
of our board of directors or, if the board of directors  deems fit, by our board
of  directors.  Under  section  112 of the  Israeli  Companies  Law,  the  share
incentive  committee  may only advise our board of directors  with regard to the
grant of options,  and the actual grant is performed by our board of  directors.
All of our employees and directors are eligible to  participate  in our employee
option plans. Members of our advisory board and our independent  contractors are
eligible to receive options under our Share Option Plan (2000).  As of March 31,
2002, options to purchase 3,891,070 ordinary shares under our share option plans
were outstanding.

     As of March 31, 2002, an additional  903,983  ordinary shares were reserved
for issuance  pursuant to options  issuable under our share option plans. We may
increase the number of ordinary shares reserved for issuance pursuant to options
issuable under our plans.


Stock Purchase Plan

     On October 2000 we initiated our 2000 Employee  Stock  Purchase  Plan.  The
plan is implemented by consecutive  offering  periods with new offering  periods
commencing  on the first  trading  day on or after  November  14 and May 14 each
year,  or on such  other  date as our  board  shall  determine,  and  continuing
thereafter until  terminated.  The plan enables eligible  employees who elect to
participate in the plan to purchase  ordinary shares through payroll  deductions
at a price of 85% of the fair market value of the  ordinary  shares on the first
or the last day of each offering period, which ever is lower.  Participants will
be limited to a maximum of $25,000  deducted from their  compensation  under the
plan during each  calendar  year.  The maximum  number of ordinary  shares which
shall be  available  for sale under the plan shall be  160,000  shares,  plus an
annual  increase to be added by the first day of the year  commencing 2001 equal
to the lesser of (i) 140,000  shares or (ii) 3/4% of the  outstanding  shares on
such date or (iii) a lesser amount  determined  by our board.  The plan shall be
administered by our board or a committee  appointed by the board. The plan shall
terminate on October 31, 2010. As of March 31, 2002, 82,221 ordinary shares were
issued  under the plan.  As of March 31,  2002 an  additional  355,002  ordinary
shares are reserved for issuance under the plan.


<PAGE>


ITEM 7.           MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS


A.       Major Shareholders

     The following table sets forth certain information regarding the beneficial
ownership of our ordinary  shares as of March 31, 2002, by each person or entity
known to own beneficially more than 5% of our outstanding  ordinary shares based
on information provided to us by the holders or disclosed in public filings with
the Securities and Exchange Commission.

<TABLE>
<CAPTION>

Name                   Number of Ordinary Shares       Percentage of Outstanding
                         Beneficially Owned(1)            Ordinary Shares (2)
<C>                               <C>                             <C>

Tzvi Shukhman(3)               4,776,424                         26.1%
Uzi Rozenberg(3)               3,986,095                         21.8%

</TABLE>


     Although the shares they own do not possess  voting rights  different  from
those of other  shares,  due to the size of  their  shareholdings  Messrs.  Tzvi
Shukhman  and Uzi  Rozenberg  will  control the outcome of various  actions that
require shareholder approval.  For example,  these shareholders could elect most
of our  directors,  delay or prevent a transaction in which  shareholders  might
receive a premium over the prevailing  market price for their shares and prevent
changes  in control or  management.  Messrs.  Shukhman  and  Rozenberg  are also
parties to a voting  agreement,  pursuant to which they will act in concert with
respect to the  nomination  and election of  directors.  See " 3/4 Related Party
Transactions".

     On March 31, 2002,  we had  approximately  17  shareholders  of record with
United States address, including banks, brokers and nominees. On March 31, 2002,
these United States record holders  represented  ownership of 8,626,077 ordinary
shares,  representing  approximately 47.1% of our ordinary shares outstanding as
of March 31, 2002.  Because those holders of record include  banks,  brokers and
nominees,  the beneficial  owners of these ordinary  shares may include  persons
residing outside of the United States.

--------------
(1) Except as otherwise noted and pursuant to applicable community property
laws, each person named in the table has sole voting and investment power with
respect to all ordinary shares listed as owned by such person.
(2) The percentage of outstanding ordinary shares is based on 18,325,438
ordinary shares outstanding as of March 31, 2002. (3) Our major shareholders do
not have voting rights different from the voting rights of our other
shareholders.

<PAGE>


B.       Related Party Transactions


Private Placements

     In November  1999,  we entered into  agreements to borrow $2.0 million from
ECI, one of our largest  customers,  $1.0 million from RAD Data  Communications,
our customer and an affiliate of Mr. Zisapel (who held, directly and indirectly,
4.2% of the  Company's  shares),  and $500,000  from Tut Systems,  our customer.
These loans were repaid in  December  1999.  In  connection  with the loans,  we
granted  ECI a warrant  to  purchase  80,000 of our  ordinary  shares,  RAD Data
Communications  a warrant  to  purchase  40,000 of our  ordinary  shares and Tut
Systems a warrant  to  purchase  20,000 of our  ordinary  shares.  In  addition,
pursuant to  preemptive  rights of a former  employee,  we issued an  additional
warrant to purchase 280 of our ordinary  shares.  These warrants are exercisable
at an  exercise  price  per share  equal to the  nominal  value of our  ordinary
shares,  NIS 0.10. The warrants  expire four years after the date of grant.  The
warrants  holders  were also  granted  registration  rights with  respect to the
ordinary  shares  issuable  upon  exercise  of the  warrants.  We  recognized  a
one-time,  non-cash charge of  approximately  $1.4 million for the fair value of
the  warrants on the date of grant  immediately  upon  repayment of the loans in
December 1999.  Warrants for 106,000  ordinary  shares were exercised  after the
completion of our initial public offering.


Registration Rights

     In connection with the private placement of our ordinary shares, several of
our  shareholders  were  granted  registration  rights  with  respect  to  their
outstanding ordinary (8,687,536 ordinary shares in the aggregate as of April 30,
2001) and warrants  (34,000  ordinary shares in the aggregate).  Each of (i) the
holders of a majority of the shares owned by the investors  which are parties to
the Share  Purchase  Agreement  dated as of  September  19, 1996  together  with
Messrs. Shukhman, Zohar Zisapel and Rozenberg as a group and (ii) the holders of
a majority  of the  shares  purchased  by the  investors  pursuant  to the Share
Purchase Agreement dated as of August 14, 1997, ECI, RAD Data Communications and
Tut  Systems,  as a group,  have the  right to a  demand  on two  occasions  the
registration  of their  ordinary  shares  outstanding at the time of our initial
public offering in 1999,  provided that the demand covers shares  representing a
market  value  of  at  least  $3  million.   These  registration  rights  became
exercisable at any time following the first  anniversary of the  consummation of
our initial public  offering.  In addition,  each of these  shareholders has the
right to have its  ordinary  shares  included  in  certain  of our  registration
statements.


Voting Agreement

     Messrs. Shukhman and Rozenberg,  who together own an aggregate of 8,762,519
ordinary  shares  (representing  approximately  47.8%  of  our  ordinary  shares
outstanding as of March 31, 2002), are parties to a voting  agreement.  Pursuant
to the voting agreement, they will act in concert with respect to the nomination
and election of directors.


Employment Agreements

     We have  entered  into  employment  agreements  with each of our  executive
officers,   other  than  our  chief   executive   officer.   See  "Item  6-Board
Practices-Management  Employment Agreements."


Indemnification Agreements

     We have entered into indemnification  agreements with each of our executive
officers and directors. See "Item 6 - Directors, Senior Management and Employees
- Board  Practices-Exculption,  Insurance and  Indemnification  of Directors and
Officers."


C. Interests of Exports and Counsel

     Not applicable.

<PAGE>


ITEM 8.           FINANCIAL INFORMATION



A.       Consolidated Statements and Other Financial Information


Consolidated Financial Statements

     The financial statements required by this item are found at the end of this
annual report, beginning on page F-1.


Other Financial Information

     In the year ended  December  31,  2001 the  amount of our export  sales was
approximately $10.98 million which represents 78.1% of our total sales.


Legal Proceedings

     On July 9, 1998, a former employee filed a claim against us in the Tel Aviv
District  Labor Court  stating  that we are  obligated  to issue to him ordinary
shares  and to pay on his  behalf  any  taxes  relating  to  such  issuance.  In
addition,  this former  employee  is stating  that we are  obligated  to pay him
statutory  severance pay together with the statutory penalty for late payment of
such severance pay and travel  expenses.  The former  employee is also demanding
that we would release his manager  insurance and continuing  education  fund. We
have filed a  counterclaim  against this former  employee.  In November  2000 we
started mediation  proceedings.  In March 2001,  pursuant to previous agreements
with the former employee, the Tel Aviv District Labor Court ordered that certain
of the  disputes  between the parties,  which were not  settled,  be referred to
arbitration,  to be conducted in two stages. According to the court's order, and
based on agreements between the parties, we issued 75,765 ordinary shares (which
are held in trust) in favor of the former  employee in March  2001.  The Company
had  previously  granted  this  employee  options to purchase  said  shares.  In
addition,  in January  2002,  the Company  paid the former  employee  $15,797 in
payment of statutory severance pay and reimbursement of travel expenses.

     We are not a party to any material legal proceedings.


Dividend Policy

     We have never declared or paid any cash  dividends on our ordinary  shares.
We do not  anticipate  paying any cash  dividends on our ordinary  shares in the
foreseeable future. We currently intend to retain all future earnings for use in
the development of our business.


B.       Significant Changes

     Not applicable.

<PAGE>


ITEM 9.           THE OFFER AND LISTING


A.       Offer and Listing Details

     The  following  table  sets  forth the high and low  closing  price for our
ordinary  shares as  reported  by the Nasdaq  National  Market  for the  periods
indicated:

                                                 High       Low


                   1999

Fourth Quarter (commencing December 2)         $ 23.81    $ 19.19


                   2000

First Quarter                                  $ 72.00    $ 16.50
Second Quarter                                 $ 38.75    $ 15.75
Third Quarter                                  $ 34.00    $ 18.00
Fourth Quarter                                 $ 18.50    $  9.25

                   2001
First Quarter                                  $ 17.38    $  7.31
Second Quarter                                 $ 10.00    $  6.19
Third Quarter                                  $  6.97    $  2.25

Fourth Quarter                                 $  5.95    $  2.04
         October                               $  2.51    $  2.04
         November                              $  4.72    $  2.24
         December                              $  5.95    $  4.25

                   2002
First Quarter                                  $  6.5     $  4.15
         January                               $  6.5     $  4.70
         February                              $  5.16    $  4.15
         March                                 $  5.1     $  4.20

Second Quarter (to May 31)                     $  4.48    $  3.00
April                                          $  4.48    $  3.40
May                                            $  3.54    $  3.00




     The  following  table  sets  forth the high and low  closing  price for our
ordinary  shares as  reported  by the Tel Aviv Stock  Exchange  for the  periods
indicated.  The  translation  into dollars is based on the daily  representative
rate of exchange on the relevant date, as published by the Bank of Israel.

<TABLE>
<CAPTION>
<S>                                          <C>        <C>             <C>       <C>

                                                   High                       Low

                                               $        NIS              $        NIS

               2000

Fourth Quarter (commencing December 3)       14.17     58.00            9.51     38.54

               2001

First Quarter                                17.54     72.70            7.47     31.48
Second Quarter                                9.86     41.20            5.99     25.02
Third Quarter                                 7.53     31.45            2.23      9.75

Fourth Quarter                                5.91     24.98            2.1       9.16
         October                              2.42     10.41            2.1       9.16
         November                             4.04     17.14            2.27      9.71
         December                             5.91     24.98            4.31     18.26

               2002

First Quarter                                 6.33     28.59            4.00     18.91
         January                              6.33     28.59            4.75     21.85
         February                             5.1      23.89            4.00     18.91
         March                                5.05     23.57            4.17     19.50

Second Quarter (to May 31)                    4.23     20.22            3.01     14.66
         April                                4.23     20.22            3.62     17.67
         May                                  3.53     17.25            3.01     14.66

</TABLE>


B.       Plan of Distribution

     Not applicable.


C.       Markets

     Our ordinary shares began trading on the Nasdaq National Market on December
2, 1999 under the symbol  "MTLK".  Prior to that date,  there had been no market
for our  ordinary  shares.  As of December 3, 2000,  our  ordinary  shares began
trading also on the Tel-Aviv Stock Exchange under the symbol "MTLK."


D.       Selling shareholders.

     Not applicable.


E.       Dilution.

     Not applicable.


F.       Expenses of the Issue.

     Not applicable.


<PAGE>



ITEM 10.          ADDITIONAL INFORMATION


A.       Share Capital

     Not applicable.

B.       Memorandum and Articles of Association

Objects and Purposes

     We were  first  registered  under  Israeli  law on  September  7, 1992 as a
private  company,  and  on  December  2,  1999  became  a  public  company.  Our
registration number with the Israeli registrar of companies is 52-004448-8.  Our
objects and purposes include a wide variety of business purposes as set forth in
Section 2 of our  Memorandum  of  Association,  which was filed with the Israeli
registrar of companies.

Transactions Requiring Special Approval

     An "office  holder" is defined in the Companies Law as a director,  general
manager,  chief business manager,  deputy general manager,  vice general manager
and any person assuming the  responsibilities  of any of the foregoing positions
without  regard to such  person's  title and any other  manager  who is directly
subject to the general manager.

     The  Companies  Law  imposes  a duty of care and a duty of  loyalty  on all
office holders of a company,  including  directors and executive  officers.  The
duty of care  requires  an office  holder to act with the level of care  which a
reasonable  office holder in the same  position  would have acted under the same
circumstances.  The  duty of care  includes  a duty to use  reasonable  means to
obtain:

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

     o all other important  information  pertaining to the previous actions. The
duty of loyalty of an office holder includes a duty to:

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

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

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

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

     Each person listed in the table under "Item 6-Directors,  Senior Management
and Employees-Directors and Senior Management" is an office holder.

     The  Companies  Law  requires  from any office  holder to  disclose  to the
company any personal  interest that he or she may have, and all related material
information  known to him or her, in  connection  with any  existing or proposed
transaction  by the company.  The disclosure is required to be made promptly and
in any  event,  no  later  than the  board of  directors  meeting  in which  the
transaction is first discussed. A personal interest of an office holder includes
an interest of a company in which the office holder is,  directly or indirectly,
a 5% or greater  shareholder,  director or general manager or in which he or she
has the right to appoint at least one  director or the general  manager.  If the
transaction  is an  extraordinary  transaction,  the  office  holder  must  also
disclose any personal interest held by his or her relative.

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

     o not in the ordinary course of business;

     o not on market terms; or

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

     Under the  Companies  Law,  once an office  holder  complies with the above
disclosure  requirement,  the board of  directors  may approve the  transaction,
unless the company's articles of association  provide  otherwise.  A transaction
that  is  adverse  to  the  company's  interest  may  not  be  approved.  If the
transaction is an  extraordinary  transaction,  then it also must be approved by
the audit committee, before the board approval, and under certain circumstances,
by the shareholders of the company.  A director who has a personal interest in a
matter which is  considered  at a meeting of the board of directors or the audit
committee  may not be  present  at this  meeting  or vote on this  matter.  If a
majority  of  the  directors  has  a  personal   interest  in  an  extraordinary
transaction,  these  directors  are  permitted  to  be  present  and  vote,  but
shareholder approval is also required.

     Under the  Companies  Law, the  disclosure  requirements  which apply to an
office holder also apply to a controlling  shareholder  of a public  company.  A
controlling  shareholder  includes a  shareholder  that holds 25% or more of the
voting rights in a public company if no other  shareholder owns more than 50% of
the voting rights in the company.  Extraordinary transactions with a controlling
shareholder or in which a controlling  shareholder has a personal interest,  and
the terms of compensation of a controlling  shareholder who is an office holder,
require the  approval of the audit  committee,  the board of  directors  and the
shareholders of the company. The shareholder approval may include either:

     o at least one-third of the shareholders  who have no personal  interest in
the  transaction and are present and voting,  in person,  by proxy or by written
ballot, at the meeting; or

     o a majority of the voting  power  present and  voting,  provided  that the
shareholders  who have no personal  interest in the transaction who vote against
the  transaction  do not represent more than one percent of the voting rights in
the company.

     For information  concerning the direct and indirect  personal  interests of
certain of our office holders and principal shareholders in certain transactions
with us, see "Item 7-Major  Shareholders and Related Party  Transactions-Related
Party Transactions."


Directors Compensation

     Under the Companies  Law, all  arrangements  as to  compensation  of office
holders  who are not  directors  require  approval  of the  board of  directors.
Arrangements  as to  compensation  of  directors  also require  audit  committee
approval,  before  board  approval,  and  shareholder  approval.   Nevertheless,
pursuant to our articles of  association,  our  directors  (other than  external
directors)  shall not be paid any  remuneration for their services unless it was
expressly approved by the general meeting of our shareholders.


Directors Borrowing Powers

     Our board of directors may from time to time, in its discretion,  cause the
Company  to  borrow or secure  the  payment  of any sum or sums of money for the
purposes of the Company. Such borrowing powers may be exercised by a majority of
the board in accordance with our articles of association.


Rights attached to our Shares

     Dividend  Rights.  Our  articles of  association  provide that our board of
directors  may from time to time,  declare  such  dividend  as may  appear to be
justified.  Under the  Companies  Law, the  declaration  of a dividend  does not
require the approval of the  shareholders  of the company,  unless the company's
articles of association require otherwise.  Subject to the rights of the holders
of shares with  preferential  or other special  rights that may be authorized in
the  future,  holders of  ordinary  shares  are  entitled  to receive  dividends
according to their rights and  interest in our profits.  Any dividend  unclaimed
after a  period  of seven  years  from  the  date of its  declaration,  shall be
forfeited  and  reverted to us,  provided,  however,  that our board may, at its
discretion,  cause us to pay any such dividend or any part thereof,  to a person
who would have been entitled thereto, had the same not reverted to us.

     Voting Rights.  Holders of ordinary  shares have one vote for each ordinary
shares held on all matters  submitted  to a vote of  shareholders.  These voting
rights may be affected by the grant of any special  voting rights to the holders
of a class of shares  with  preferential  rights that may be  authorized  in the
future. The ordinary shares do not have cumulative voting rights in the election
of directors.  As a result,  holders of ordinary shares that represent more than
50% of the  voting  power  have  the  power to elect  all the  directors  to the
exclusion of the remaining shareholders.

     Rights to Share in the Company's Profits.  Our board has the power to cause
any moneys,  investments,  or other assets forming part of the undivided profits
of the company,  standing to the credit of a reserve fund for the  redemption of
capital,  to be capitalized and distributed  among such shareholders as would be
entitled to receive the same if distributed by way of dividend.

     Liquidation Rights. In the event of our liquidation,  after satisfaction of
liabilities  to  creditors,  our assets  will be  distributed  to the holders of
ordinary shares in proportion to their  respective  holdings.  This  liquidation
right may be affected by the grant of  preferential  dividends  or  distribution
rights to the holders of a class of shares with preferential  rights that may be
authorized in the future.

     Redemption Provisions.  We may, subject to applicable law, issue redeemable
shares and redeem the same, and our board may redeem,  in the case of redeemable
preference  shares,  and subject to  applicable  law,  such shares or fractional
shares sufficient to preclude or remove  fractional share holdings.  Preemptive,
First Refusal and Co-Sale Rights.  All outstanding  ordinary shares, are validly
issued, fully paid and non-assessable and do not have preemptive rights,  rights
of first refusal or co-sale rights.

     Transfer of Shares.  Fully paid  ordinary  shares are issued in  registered
form and may be transferred pursuant to our articles of association, unless such
transfer  is  restricted  or  prohibited  by another  instrument  and subject to
applicable securities laws.


Modification of Rights

     Unless otherwise  provided by our articles of association,  rights attached
to any class may be modified or abrogated  by a resolution  adopted in a general
meeting  approved by a simple  majority of the voting power  represented  at the
meeting in person or by proxy and voting  thereon,  subject to the sanction of a
resolution passed by majority of the holders of a majority of the shares of such
class  present and voting as a separate  general  meeting of the holders of such
class.


Shareholders' Meetings and Resolutions

     The quorum required for an ordinary meeting of shareholders  consists of at
least two  shareholders  present  in person or by proxy,  who hold or  represent
between them at least 33-1/3% of the outstanding voting shares, unless otherwise
required by applicable rules. A meeting adjourned for lack of a quorum generally
is adjourned to the same day in the following week at the same time and place or
any  time  and  place  as the  chairman  of the  board  may  designate.  At such
reconvened  meeting the required  quorum  consists of any two members present in
person or by proxy.

     Unless  otherwise  prescribed  by law, each  shareholder  of record will be
provided  at least 7 calendar  days' prior  notice of any  general  shareholders
meeting.

     Under the Companies Law and our articles of association, all resolutions of
our shareholders  require a simple majority of the shares present,  in person or
by proxy, and voting on the matter. However, the Companies Law requires that the
first amendment of a company's articles of association after February 1, 2000 be
approved  by  holders of at least 75% of the voting  rights  represented  at the
meeting,  in person or by proxy,  and  voting  thereon.  On  October  2000,  our
shareholders  approved the  amendment to our article of  association  and to our
memorandum of association.  Under the Companies Law, our articles of association
are  deemed to include a  provision  requiring  a majority  of 75% of the voting
shareholders  at a general  meeting of  shareholders  convened  for  purposes of
approving a merger.

     Under the Companies  Law, each and every  shareholder  has a duty to act in
good faith in exercising his rights and fulfilling  his  obligations  towards us
and other shareholders, such as in voting in the general meeting of shareholders
on the following matters:

     o any amendment to the articles of association;

     o an increase of our authorized share capital;

     o a merger; or

     o approval of certain actions and  transactions  which require  shareholder
approval.

     In  addition,  each and every  shareholder  has the general duty to refrain
from depriving other shareholders of their rights.

     Our annual  general  meetings are held once in every  calendar year at such
time (within a period of not more than fifteen  months after the last  preceding
annual general  meeting) and at such place  determined by our board. All general
meetings  other  than  annual  general  meetings  shall be called  extraordinary
general   meetings.   Our  board  may,   whenever  it  thinks  fit,  convene  an
extraordinary general meeting at such time and place as it determines, and shall
be  obligated  to do so upon a  requisition  in writing in  accordance  with the
Companies Law.


Limitation on Owning Securities

     The  ownership  of our  ordinary  shares by  nonresidents  of Israel is not
restricted  in  any  way  by our  memorandum  of  association  and  articles  of
association or the laws of the State of Israel, except for citizens of countries
which are in a state of war with Israel,  who may not be recognized as owners of
our ordinary shares.


Mergers and Acquisitions under Israeli Law

     The  Israeli  Companies  Law  includes   provisions  that  allow  a  merger
transaction  and requires that each company that is a party to a merger have the
transaction approved by its board of directors and a vote of the majority of its
shares, at a shareholders' meeting called on at least 21 days' prior notice. For
purposes of the shareholders  vote,  unless a court rules otherwise,  the merger
will not be deemed  approved if a majority  of the shares held by parties  other
than the other  party to the  merger,  or by any person who holds 25% or more of
the shares or the right to  appoint  25% or more of the  directors  of the other
party,  vote against the merger.  Upon the request of a creditor of either party
of the  proposed  merger,  the  court  may  delay or  prevent  the  merger if it
concludes that there exists a reasonable concern that as a result of the merger,
the surviving  company will be unable to satisfy the  obligations  of any of the
parties to the merger.  In  addition,  a merger may not be  completed  unless at
least 70 days have  passed  from the time that a proposal of the merger has been
filed with the Israeli Registrar of Companies.

     The Companies Law also provides that an  acquisition  of shares of a public
company  must  be  made  by  means  of a  tender  offer  if as a  result  of the
acquisition  the  purchaser  would become a 25%  shareholder  of the company and
there is no existing 25% or greater  shareholder in the company.  If there is no
existing 50% or greater  shareholder in the company,  the Companies Law provides
that an  acquisition  of shares of a public  company  must be made by means of a
tender offer if as a result of the  acquisition the purchaser would become a 45%
shareholder of the company.  This rule does not apply if someone else is already
a majority  shareholder in the company.  If following any acquisition of shares,
the acquirer will hold 90% or more of the company's shares,  the acquisition may
not be made other than  through a tender  offer to acquire  all of the shares of
such  class.  If more than 95% of the  outstanding  shares are  tendered  in the
tender  offer,  all the shares that the  acquiror  offered to  purchase  will be
transferred to it.  However,  the remaining  minority  shareholders  may seek to
alter the consideration by court order.

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


C.       Material Contracts

     For a summary of our material contracts, see "Item 7-Major Shareholders and
Related Party Transactions-Related Party Transactions" and "Item 4 - Information
on the Company - Property, Plants and Equipment."


D. Exchange Controls Israeli law and

     regulations do not impose any material  foreign  exchange  restrictions  on
non-Israeli  holders of our ordinary shares. In May 1998, a new "general permit"
was issued under the Israeli  Currency  Control Law, 1978, which removed most of
the  restrictions  that  previously  existed under the law, and enabled  Israeli
citizens to freely invest outside of Israel and freely convert Israeli  currency
into non-Israeli currencies.

     Dividends,  if any, paid to holders of our ordinary  shares and any amounts
payable upon our dissolution, liquidation or winding up, as well as the proceeds
of any sale in Israel of our ordinary shares to an Israeli resident, may be paid
in non-Israeli  currency or, if paid in Israeli currency,  may be converted into
freely  repatriable  dollars at the rate of exchange  prevailing  at the time of
conversion.


E.       Taxation


Israeli Tax Considerations and Government Programs

     The  following  is a summary of the current  tax  structure  applicable  to
companies in Israel,  with special  reference to its effect on us. The following
also  contains  a  discussion   of  material   Israeli  and  United  States  tax
consequences to purchasers of our ordinary shares and certain Israeli Government
programs  benefiting  us. To the extent that the  discussion is based on new tax
legislation   which  has  not  been   subject  to  judicial  or   administrative
interpretation,  there  can be no  assurance  that the  views  expressed  in the
discussion will be accepted by the tax  authorities in question.  The discussion
is not  intended,  and should not be  construed,  as legal or  professional  tax
advice.


     Holders of our ordinary  shares  should  consultare  encouraged  to consult
their  own  tax  advisors  as  to  the  United  States,  Israeli  or  other  tax
consequences  of the purchase,  ownership and  disposition  of ordinary  shares,
including, in particular, the effect of any foreign, state or local taxes.

     General Corporate Tax Structure

     Israeli  companies  are  subject  to  "Company  Tax" at the  rate of 36% of
taxable  income.  However,  the  effective  tax rate payable by a company  which
derives income from an approved  enterprise (as further  discussed below) may be
considerably less.

     Tax Benefits Under the Law for the  Encouragement  of Capital  Investments,
1959

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

     Taxable income of a company derived from an approved  enterprise is subject
to company  tax at the  maximum  rate of 25%  (rather  than 36%) for the benefit
period.  This  period  is seven  years  commencing  with  the year in which  the
approved  enterprise  first  generates  taxable  income,  and is  limited to the
earlier of twelve years from  commencement  of production or fourteen years from
the date of approval,  whichever is earlier.  The  Investment  Law also provides
that a company  that has an  approved  enterprise  is  entitled  to  accelerated
depreciation  on its  property  and  equipment  that are included in an approved
investment program.

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

     In 1994,  our request for  designation  of our  capital  investment  at our
facility as an "approved  enterprise"  program was approved under the Investment
Law.  For this  approved  enterprise,  we  elected  the  alternative  package of
benefits.  On December  2000,  we received an approval  for  additional  capital
investment in our approved enterprise.

     A company  that has elected the  alternative  package of benefits  and that
subsequently pays a dividend out of income derived from the approved  enterprise
during the tax exemption  period will be subject to tax in respect of the amount
distributed  (including  the tax  thereon)  at the rate  which  would  have been
applicable  had it not elected the  alternative  package of benefits  (generally
10%-25%,  depending on the extent of foreign  shareholders  holding our ordinary
shares).  The  dividend  recipient is taxed at the reduced  rate  applicable  to
dividends from approved enterprises (15%), if the dividend is distributed during
the tax exemption  period or within 12 years  thereafter.  We must withhold this
tax at source,  regardless  of whether the  dividend is  converted  into foreign
currency.  See "-United  States  Federal Income Tax  Considerations-Taxation  of
Dividends  Paid On  Ordinary  Shares" and Note 9 to the  Consolidated  Financial
Statements.

     Subject to  certain  provisions  concerning  income  under the  alternative
package of benefits,  all dividends are  considered  to be  attributable  to the
entire  enterprise  and their  effective  tax rate is the  result of a  weighted
combination  of the  various  applicable  tax  rates.  We  are  not  obliged  to
distribute  exempt retained  profits under the alternative  package of benefits,
and we may generally decide from which year's profits to declare  dividends.  We
currently  intend to  reinvest  the amount of our  tax-exempt  income and not to
distribute such income as a dividend.

     The Investment Center bases its decision as to whether or not to approve an
application,  on the criteria set forth in the Investment  Law and  regulations,
the then prevailing policy of the Investment Center, and the specific objectives
and financial criteria of the applicant.  Accordingly, there can be no assurance
that any such application will be approved. In addition,  the benefits available
to an approved  enterprise are  conditional  upon the  fulfillment of conditions
stipulated in the Investment Law and its  regulations and the criteria set forth
in the specific certificate of approval, as described above. In the event that a
company  does not meet  these  conditions,  it would be  required  to refund the
amount of tax  benefits,  with the addition of the consumer  price index linkage
adjustment and interest.

     We have derived, and expect to continue to derive, a substantial portion of
our income from our approved enterprise  facilities.  Subject to compliance with
applicable  requirements,  income derived from our approved  enterprise facility
will be tax exempt for a period of two years  after we have  taxable  income and
will be subject to a reduced company tax of up to 25% depending on the extent of
foreign shareholders holding our ordinary shares for the following five or eight
years.

     Grants  under the Law for the  Encouragement  of  Industrial  Research  and
Development, 1984

     Under the Law for the Encouragement of Industrial Research and Development,
1984,  research and  development  programs  which meet certain  criteria and are
approved by a  governmental  committee of the Office of the Chief  Scientist are
eligible for grants of up to 50% of the project's expenditure,  as determined by
the research committee,  in return for the payment of royalties from the sale of
the product  developed in accordance with the program.  Regulations  promulgated
under the  Research  Law  generally  provide for the payment of royalties to the
Chief Scientist ranging from 3% to 3.5% or in some cases, such as ours,  ranging
from 4% to 4.5%,  on revenues from  products  developed  using such grants until
100-150% of the dollar-linked  grant is repaid.  Following the full repayment of
the grant, there is no further liability for payment.  See "Item 5-Operating and
Financial  Review  and  Prospects"  and  Note  7 to the  Consolidated  Financial
Statements.

     The terms of the Israeli  government  participation  also  require that the
manufacture of products developed with government grants be performed in Israel.
However, under the regulations  promulgated under the Research Law, in the event
that any of the  manufacturing  is performed  outside Israel by any entity other
than us, if approval is received from the Office of the Chief Scientist for such
foreign manufacturing and the identity of the foreign  manufacturers,  we may be
required  to pay  increased  royalties.  If the  manufacturing  volume  that  is
performed  outside of Israel is less than 50%,  the total amount to be repaid to
the Office of the Chief  Scientist may be adjusted to 120% of the grant.  If the
manufacturing  volume that is performed outside of Israel is between 50% and 90%
the total  amount  may be  adjusted  to 150% of the grant and if it is more than
90%,  the  total  amount  may be  adjusted  to  300%  of the  grant.  Since  our
manufacturing  activities are performed by subcontractors outside of Israel, the
consent of the Office of the Chief  Scientist is required  for these  activities
and additional consents will be required in connection with the manufacturing of
products  developed in the future with Office of the Chief Scientist grants. The
letters of approval under which we received the grants do not specifically refer
to our manufacturing  activities outside of Israel, however, we believe that the
Office of the Chief  Scientist  has  adequately  expressed  its  consent to such
activities.  There can be no assurance that the consents  granted to date by the
Office of the Chief  Scientist  will be deemed to be adequate  under  applicable
laws and  regulations  or that such consents will not be reversed or modified in
any way or that we will  obtain  consents  for such  activities  at all from the
Office  of the  Chief  Scientist  in the  future.  Failure  to  comply  with the
requirements  for consents for  manufacturing  outside of Israel could result in
penalties,  cancellation  of grants and denial of any  future  applications  for
grants or for these  consents.  If the consents  obtained from the Office of the
Chief Scientist to manufacture our chip sets outside of Israel are terminated or
if we are unable to obtain similar consents in the future, our business could be
harmed.  The technology  developed pursuant to the terms of these grants may not
be  transferred  to third parties  without the prior  approval of a governmental
committee  under the Research  Law. Such approval is not required for the export
of any products  resulting  from such research or  development.  Approval of the
transfer  of  technology  may be granted in  certain  circumstances  only if the
recipient  abides by all the  provisions  of the  Research  Law and  regulations
promulgated  thereunder,  including the restrictions on the transfer of know-how
and the  obligation to pay  royalties in an amount that may be increased.  There
can be no assurance that such consent, if requested,  will be granted. See "Item
5-Operating  and  Financial  Review and  Prospects-Operating  Results-Government
Grants".

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

     In October  2001,  the  Israeli  government  submitted  legislation  to the
Israeli  parliament  to amend the  Research  and  Development  Law. The proposed
legislation  aims to make the Research and  Development Law more compatible with
the current business environment by, among other things,  relaxing  restrictions
on transfer of technology or manufacturing abroad.

     However,  the proposed  amendment to the declared  purposes of the Research
and  Development  Law may imply that future  grants from the Office of the Chief
Scientist will be available only to those  applicants who can  demonstrate  that
their proposed program will substantially contribute to the Israeli economy as a
whole. This may result in future,  unforeseen,  difficulties to obtain approvals
from the Office of the Chief Scientist for additional grants.

     Moreover,  while the proposed  bill would,  among other  things,  allow the
transfer of technology or know-how  developed  with the funding of the Office of
the Chief  Scientist to third parties  outside of Israel,  such  transfer  would
still require the approval of the Office of the Chief  Scientist and may require
a material payment. Generally, the proposed bill would mandate the Office of the
Chief  Scientist  to grant  such  approval  to  transferors  if  either  (1) the
transferee granted the transferor an irrevocable  worldwide exclusive license to
use and benefit from the  technology,  or (2) the Office of the Chief  Scientist
receives  payment  based  on (x)  150%  of the  total  benefits  granted  to the
participant,  linked to the Israeli  consumer price index,  plus  interest,  or,
depending on certain variables,  such as the market valuation of the participant
and the  amount  of  benefits  granted,  and (y) an amount  equal to the  market
valuation of the  transferor  at the time of transfer  multiplied  by the deemed
holdings of the Office of the Chief Scientist in the transferor, plus a premium.
The deemed holdings of the Office of the Chief Scientist in the transferor would
be  determined  based on the amount of funds  granted by the Office of the Chief
Scientist in relation to other investments in the transferor.

     As  opposed  to  the  Research  and  Development  Law,  which  requires  an
undertaking in the grant application that all manufacturing will be performed in
Israel,  the proposed bill allows for the  possibility of the approval of grants
in cases of prior declaration by the applicant that the  manufacturing  will not
take place,  in whole or in part, in Israel.  Such a  declaration  will be taken
into  consideration in the evaluation of the grant  application.  Similar to the
regulations  promulgated  under the law, the proposed bill would also permit for
the manufacture of products outside Israel,  even if not included in the initial
application,  if prior  approval  is  received  from  the  Office  of the  Chief
Scientist.  This  approval  may be  subject  to a  payment  of up to 120% of the
grants, linked to the Israeli consumer price index, plus interest. However, this
payment  would not be required if only 10% of the  manufacturing  capability  is
being transferred.

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

     Prior to the proposed  amendment  described above, the Israeli  authorities
indicated  that the  government  may reduce or abolish grants from the Office of
the Chief Scientist in the future. Even if these grants are maintained, there is
no assurance we will receive Office of the Chief Scientist grants in the future.
In addition,  each  application to the Office of the Chief Scientist is reviewed
separately,  and  grants  are  based on the  program  approved  by the  Research
Committee.  Generally,  expenditures supported under other incentive programs of
the State of Israel are not  eligible  for  grants  from the Office of the Chief
Scientist.  There is no assurance that  applications  to the Office of the Chief
Scientist will be approved and, until  approved,  the amounts of any such grants
are not determinable.

     Tax Benefits and Grants for Research and Development

     Israeli tax law allows,  under certain  conditions,  a tax deduction in the
year incurred for expenditures  (including  capital  expenditures) in scientific
research  and  development  projects,  if the  expenditures  are approved by the
relevant Israeli government  Ministry  (determined by the field of research) and
the research and  development  is for the  promotion  of the  enterprise  and is
carried out by or on behalf of the company seeking such deduction.  Expenditures
not so approved are deductible over a three-year period.  However,  expenditures
made out of proceeds  made  available  to us through  government  grants are not
deductible, according to Israeli law.

     Tax Benefits Under the Law for the Encouragement of Industry (Taxes), 1969

     According to the Law for the  Encouragement of Industry  (Taxes),  1969, or
the "Industry  Encouragement Law", an "Industrial Company" is a company resident
in Israel,  at least 90% of the income of which, in any tax year,  determined in
Israeli currency  (exclusive of income from certain  government  loans,  capital
gains, interest and dividends), is derived from an "Industrial Enterprise" owned
by it. An  "Industrial  Enterprise"  is defined  as an  enterprise  whose  major
activity in a given tax year is industrial  production activity. We believe that
we currently  qualify as an  "Industrial  Company"  within the definition of the
Industry Encouragement Law.

     Under the Industry  Encouragement Law, Industrial Companies are entitled to
the following preferred corporate tax benefits:

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

     (b) right to elect under  certain  conditions  to file a  consolidated  tax
return with additional related Israeli Industrial Companies; and

     (c) accelerated depreciation rates on equipment and buildings.

Eligibility for the benefits under the Industry Encouragement Law is not subject
to receipt of prior approval from any governmental authority. No assurance can
be given that we will continue to qualify as an "Industrial Company" or that the
benefits described above will be available in the future.


     Special Provisions Relating to Taxation Under Inflationary Conditions

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

     (a)  There is a  special  tax  adjustment  for the  preservation  of equity
whereby certain  corporate  assets are classified  broadly into fixed (inflation
resistant)  assets and non-fixed  (soft) assets.  Where a company's  equity,  as
defined in such law,  exceeds the depreciated  cost of fixed assets, a deduction
from taxable income that takes into account the effect of the applicable  annual
rate of  inflation  on such excess is allowed (up to a ceiling of 70% of taxable
income in any single tax year,  with the unused portion  permitted to be carried
forward on a linked basis).  If the  depreciated  cost of fixed assets exceeds a
company's  equity,  then such excess multiplied by the applicable annual rate of
inflation is added to taxable income.

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

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

     Capital Gains Tax on Sales of Our Ordinary Shares

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

     Under  current law,  sales of our  ordinary  shares are exempt from Israeli
capital  gains  for so long as they are  quoted  on  Nasdaq or listed on a stock
exchange in a country  appearing in a list approved by the Controller of Foreign
Currency and we qualify as an Industrial  Company, or so long as they are quoted
on the Tel Aviv Stock Exchange.  There can be no assurance that we will maintain
such qualification or our status as an Industrial  Company.  Notwithstanding the
foregoing,  dealers  in  securities  in Israel  are taxed at  regular  tax rates
applicable to business income.

     Pursuant to the  Convention  Between the Government of the United States of
America  and the  Government  of Israel  with  Respect  to Taxes on  Income,  as
amended,  the sale,  exchange or disposition of ordinary  shares by a person who
qualifies  as a resident  of the United  States  within the meaning of the U.S.-
Israel Tax Treaty and who is  entitled  to claim the  benefits  afforded to such
person by the U.S.-  Israel  Tax  Treaty  generally  will not be  subject to the
Israeli capital gains tax unless such Treaty U.S.  Resident  holds,  directly or
indirectly,  shares representing 10% or more of our voting power during any part
of the 12-month period preceding such sale, exchange or disposition,  subject to
certain  conditions.  A sale,  exchange or disposition  of ordinary  shares by a
Treaty U.S. Resident who holds, directly or indirectly,  shares representing 10%
or more of our voting power at any time during such  preceding  12-month  period
would be subject to such Israeli tax, to the extent applicable;  however,  under
the  U.S.-Israel  Tax Treaty,  such Treaty U.S.  Resident  would be permitted to
claim a credit for such taxes against the U.S.  federal  income tax imposed with
respect to such sale,  exchange or  disposition,  subject to the  limitations in
U.S. laws applicable to foreign tax credits. The U.S.-Israel Tax Treaty does not
relate to U.S. state or local taxes.

     Taxation of Non-Resident Holders of Shares

     Non-residents  of Israel are  subject  to income  tax on income  accrued or
derived from sources in Israel.  Such sources of income  include  passive income
such as dividends,  royalties and interest,  as well as non-passive  income from
services  rendered in Israel.  On  distributions  of dividends  other than bonus
shares (stock dividends), income tax at the rate of 25% (12.5% for dividends not
generated by an approved  enterprise if the  non-resident is a U.S.  corporation
and  holds  10% of our  voting  power,  and 15% for  dividends  generated  by an
approved enterprise) is withheld at source,  unless a different rate is provided
in a treaty between Israel and the shareholder's country of residence. Under the
U.S.-Israel  Tax  Treaty,  the  maximum  tax on  dividends  paid to a holder  of
ordinary  shares who is a Treaty U.S.  Resident will be 25% (however,  under the
Investment Law, dividends  generated by an approved  enterprise are taxed at the
rate  of  15%).  Under  an  amendment  to  the  Inflationary   Adjustments  Law,
non-Israeli  corporations  may be subject to Israeli taxes on the sale of traded
securities in an Israeli  company,  subject to the  provisions of any applicable
double taxation treaty.

     Proposed Reform of Taxes on Income in Israel

     The Israeli government recently appointed a committee to review the current
tax system and propose possible reforms.  This may result in significant changes
to the Israeli  tax system,  and have  adverse tax  consequences  for us and our
shareholders.  Because we cannot predict the outcome of the  committee's  review
and to what extent,  if any, its  recommendations  would be enacted into law, we
and our shareholders face uncertainties as to the potential consequences of this
tax reform initiative.


United States Federal Income Tax Considerations

     General

     Subject  to the  limitations  described  below,  the  following  discussion
describes the material  United States federal income tax  consequences to a U.S.
Holder (as defined below) that is a beneficial  owner of our ordinary shares and
that holds them as capital assets. For purposes of this summary, a "U.S. Holder"
is a beneficial  owner of our ordinary  shares who or that is for United  States
federal income tax purposes:

     o a citizen or resident of the United States;

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

     o an estate,  the income of which is  includible in gross income for United
States federal income tax purposes regardless of its source; or

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

     This  summary  is  not   comprehensive   description  of  all  of  the  tax
considerations  that may be relevant to each individual  investor's  decision to
purchase,  sell,  or hold  ordinary  shares.  We  recommend  that  owners of our
ordinary shares consult their own tax advisers with respect to the U.S. federal,
state and local tax consequences,  as well as to non-U.S.  tax consequences,  of
the acquisition,  ownership and disposition of our ordinary shares applicable to
their particular tax situations.

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

     o broker-dealers, including dealers in securities or currencies;

     o insurance companies;

     o taxpayers that have elected mark-to-market accounting;

     o tax-exempt organizations;

     o financial institutions or "financial services entities";

     o taxpayers who hold the ordinary shares as part of a straddle,  "hedge" or
"conversion transaction" with other investments;

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

     o taxpayers whose functional currency is not the U.S. dollar; and

     o taxpayers who acquire our ordinary shares as compensation.

     This  discussion  does not address any aspect of United States federal gift
or estate tax, or state,  or local tax laws.  Additionally,  the discussion does
not consider the tax treatment of  partnerships or persons who hold our ordinary
shares through a partnership or other pass-through  entity.  Material aspects of
United  States  federal  income tax relevant to a beneficial  owner other than a
U.S.  Holder,  or a Non-U.S.  Holder,  are also  discussed  below.  The  Company
recommends that each investor consult such person's own tax advisor with respect
to the  specific  tax  consequences  to such  person of  purchasing,  holding or
disposing of our ordinary shares.

     Taxation of Dividends Paid on Ordinary Shares

     We have never paid cash  dividends,  and we  currently do not intend to pay
cash  dividends  in the  foreseeable  future.  In  the  event  that  we do pay a
dividend,  and  subject to the  discussion  of the  passive  foreign  investment
company,  or PFIC,  rules  below,  a U.S.  Holder will be required to include in
gross  income as  ordinary  income  the amount of any  distribution  paid on our
ordinary  shares,  including any Israeli taxes withheld from the amount paid, on
the date the distribution is received to the extent the distribution is paid out
of our current or  accumulated  earnings and profits,  as determined  for United
States federal income tax purposes. Distributions in excess of such earnings and
profits will be applied  against and will reduce the U.S.  Holder's basis in the
ordinary shares and, to the extent in excess of such basis, will be treated as a
gain from the sale or exchange of the ordinary shares.

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

     U.S.  Holders  will have the option of  claiming  the amount of any Israeli
income taxes  withheld at source either as a deduction from gross income or as a
dollar-for-dollar   credit  against  their  United  States  federal  income  tax
liability. Individuals who do not claim itemized deductions, but instead utilize
the standard deduction,  may not claim a deduction for the amount of any Israeli
income taxes  withheld,  but such  individuals  may still claim a credit against
their United States federal  income tax liability.  The amount of foreign income
taxes  which  may be  claimed  as a credit  in any year is  subject  to  complex
limitations and restrictions, which must be determined on an individual basis by
each shareholder.  The total amount of allowable foreign tax credits in any year
cannot exceed the  pre-credit  U.S. tax liability for the year  attributable  to
foreign source taxable income.

     A U.S.  Holder will be denied a foreign tax credit with  respect to Israeli
income tax withheld from dividends received on the ordinary shares:

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

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

     Any days during which a U.S. Holder has  substantially  diminished its risk
of loss on the ordinary shares are not counted toward meeting the 16 day holding
period  required  by the  statute.  In  addition,  distributions  of  current or
accumulated  earnings  and profits  will be foreign  source  passive  income for
United States foreign tax credit purposes and will not qualify for the dividends
received deduction otherwise available to corporations.

     Taxation of the Disposition of Ordinary Shares

     Subject to the discussion of the PFIC rules below, upon the sale,  exchange
or other  disposition  of our  ordinary  shares,  a U.S.  Holder will  recognize
capital  gain or loss in an amount  equal to the  difference  between  such U.S.
Holder's basis in the ordinary shares,  which is usually the U.S. dollar cost of
such shares, and the amount realized on the disposition.  If the ordinary shares
are publicly  traded, a disposition of the ordinary shares will be considered to
occur on the "trade date," regardless of the U.S. Holder's method of accounting.
A U.S. Holder that uses the cash method of accounting calculates the U.S. dollar
value of the proceeds received on the sale as of the date that the sale settles.
However, a U.S. Holder that uses the accrual method of accounting is required to
calculate  the value of the  proceeds of the sale as of the "trade date" and may
therefore  realize  foreign  currency gain or loss,  unless such U.S. Holder has
elected  to use the  settlement  date to  determine  its  proceeds  of sale  for
purposes of calculating  such foreign  currency gain or loss.  Capital gain from
the sale,  exchange or other  disposition of the ordinary  shares held more than
one year is long-term  capital gain. Gain or loss recognized by a U.S. Holder on
a sale,  exchange or other  disposition of our ordinary shares generally will be
treated as United States  source  income or loss for United  States  foreign tax
credit  purposes.  The  deductibility  of a capital loss recognized on the sale,
exchange or other  disposition of the ordinary shares is subject to limitations.
In addition,  a U.S. Holder that receives  foreign  currency upon disposition of
the  ordinary  shares  and  converts  the  foreign  currency  into U.S.  dollars
subsequent  to  receipt  will have  foreign  exchange  gain or loss based on any
appreciation or depreciation  in the value of the foreign  currency  against the
U.S.  dollar,  which will generally be United States source  ordinary  income or
loss.

     Passive Foreign Investment Company Considerations

     Generally a foreign  corporation is treated as a passive foreign investment
company, or PFIC, for United States federal income tax purposes,  if either, (i)
75% or more of its gross income in a taxable year,  including the pro-rata share
of the gross income of any company,  U.S. or foreign,  in which such corporation
is considered to own 25% or more of the shares by value, is passive  income,  or
(ii) 50% or more of the  assets in a taxable  year,  averaged  over the year and
ordinarily  determined  based on fair market  value and  including  the pro-rata
share of the assets of any company in which such  corporation  is  considered to
own 25% or more of the  shares  by  value,  are held for the  production  of, or
produce, passive income.

     As  previously  announced  in a press  release  dated  January 2, 2002,  we
believe  that we should be  characterized  as a PFIC for 2001.  Although we will
endeavor to avoid such  characterization in the future, we may not be able to do
so. Any U.S. person who held our shares at any time during 2001 can mitigate the
consequences  of  our  PFIC  characterization  by  electing  to  treat  us  as a
"qualified  electing fund" or QEF under the Internal Revenue Code ((as described
below).  Alternatively,  such U.S. persons may make a "mark-to-market"  election
under the Internal Revenue Code (as described below).

     A U.S. Holder who did not make a qualifying election either to (i) treat us
as a "qualified  electing  fund",  or a QEF, or (ii) mark our ordinary shares to
market will be subject to the following:

     o gain recognized by the U.S  shareholder  upon the disposition of, as well
as income  recognized  upon receiving  certain  dividends on the shares would be
taxable as ordinary income;

     o the U.S  shareholder  would be required to allocate such dividend  income
and/or  disposition gain ratably over such  shareholder's  entire holding period
for such Metalink ordinary shares;

     o the amount  allocated  to each year  other than the year of the  dividend
payment or  disposition  would be subject to tax at the highest  applicable  tax
rate, and an interest  charge would be imposed with respect to the resulting tax
liability;

     o the U.S  shareholder  would be required  to file an annual  return on IRS
Form 8621 regarding  distributions  received on, gain recognized on dispositions
of, Metalink shares; and

     o any U.S.  shareholder  who acquired the ordinary shares upon the death of
the  shareholder  would not receive a step-up to market  value of his income tax
basis for such shares. Instead such U.S shareholder beneficiary would have a tax
basis equal to the decedent's basis, if lower.

     Although the determination of Metalink's status as a PFIC for year 2001 was
made only with respect to that year, and will be revisited  annually,  the above
described  consequences shall apply for all future years to U.S shareholders who
held shares in the  corporation  at any time  during year 2001,  and who neither
made a QEF election nor a  mark-to-market  election  (as  discussed  below) with
respect to such shares with their tax return that  included  the last day of the
corporation's  first  taxable year as a PFIC - December  31, 2001.  This will be
true even if the corporation ceases to be a PFIC in later years.  However,  with
respect to a PFIC that does not make any distributions or deemed  distributions,
the above tax treatment would apply only to U.S shareholders who realize gain on
their disposition of the shares in the PFIC.

     With  respect to the  treatment  of Metalink  as a PFIC for 2001,  if a U.S
shareholder makes a valid QEF election for 2001 with respect to Metalink shares:

     o the U.S  shareholder  would be required  for each  taxable year for which
Metalink is a PFIC to include in income a pro-rata  share of Metalink's  (i) net
ordinary  earnings as ordinary  income and (ii) net  capital  gain as  long-term
capital gain,  subject to a separate  election to defer payment of taxes,  which
deferral is subject to an interest charge.

     o the U.S  shareholder  would not be required  under these rules to include
any amount in income for any taxable  year during which  Metalink  does not have
net ordinary earnings or capital gains; and

     o the U.S  shareholder  would not be required  under these rules to include
any amount in income for any taxable year for which Metalink is not a PFIC.

     Metalink  did not have net  ordinary  earnings or net capital  gain for the
2001 tax year. Therefore,  any U.S shareholder who makes a QEF election for 2001
will not be  required  to  include  any  amount  in  income  as a result of such
election.

     The QEF election is made on a  shareholder-by-shareholder  basis and can be
revoked only with the consent of the IRS. A QEF  election  applies to all shares
of the  PFIC  held  or  subsequently  acquired  by an  electing  U.S  holder.  A
shareholder  makes a QEF  election  by  attaching  a  completed  IRS Form  8621,
including the PFIC annual information statement, to a timely filed United States
federal income tax return and by filing such form with the IRS Service Center in
Philadelphia, Pennsylvania. Even if a QEF election is not made, a shareholder in
a PFIC who is a U.S.  person  must file a  completed  IRS Form 8621 every  year.
During January 2002 Metalink sent to its shareholders  the required  information
to report  income and gain under a QEF  election  - a "PFIC  ANNUAL  INFORMATION
STATEMENT" for the year 2001.

     Any U.S  shareholder  who would like to  receive  PFIC  ANNUAL  INFORMATION
STATEMENT for year 2001 can contact Mr. Ofer Lavie, Metalink Ltd, Yakum Business
park, Yakum 60972, Israel.

     Alternatively,  a U.S.  Holder of PFIC stock which is publicly traded could
elect to mark the stock to market  annually,  recognizing as ordinary  income or
loss each year the shares are held, as well as on the disposition of the shares,
an amount equal to the difference  between the U.S.  Holder's adjusted tax basis
in the PFIC stock and its fair market value. Losses would be allowed only to the
extent of net mark-to-market  gain previously  included by the U.S. Holder under
the  election  for  prior  taxable  years.  As  with  the  QEF  election,  a U.S
shareholder  who  makes a  mark-to-market  election  for 2001  with  respect  to
Metalink shares would not be subject to deemed ratable  allocations of gain, the
interest  charge,  and the  denial of basis  step-up at death  described  above.
Subject to shares of Metalink ever ceasing to be  marketable,  a  mark-to-market
election  is  irrevocable  without  obtaining  the  consent of the IRS and would
continue to apply even in years that Metalink was no longer a PFIC.


     U.S.  Holders of Metalink  shares are strongly  urged to consult  their tax
advisors about the PFIC rules, including the advisability,  procedure and timing
of making a  mark-to-market  or QEF election  with  respect to their  holding of
Metalink  ordinary  shares,  including  warrants  or rights to acquire  Metalink
ordinary shares.

     Tax Consequences for Non-U.S. Holders of Ordinary Shares

     Except as described in "U.S. Information Reporting and Back-up Withholding"
below, a Non-U.S.  Holder who is a beneficial  owner of our ordinary shares will
not be subject to United States federal income or withholding tax on the payment
of dividends on, and the proceeds from the disposition of, the ordinary  shares,
unless:

     o such item is  effectively  connected  with the  conduct  by the  Non-U.S.
Holder  of a trade  or  business  in the  United  States  and,  in the case of a
resident of a country  which has a treaty with the United  States,  such item is
attributable to a permanent  establishment  or, in the case of an individual,  a
fixed place of business, in the United States;

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

     o the  Non-U.S.  Holder is subject to tax  pursuant  to the  provisions  of
United States tax law applicable to U.S. expatriates.

     U.S. Information Reporting and Backup Withholding

     U.S. Holders  generally are subject to information  reporting  requirements
with respect to dividends paid in the United States on our ordinary  shares.  In
addition, U.S. Holders are subject to U.S. backup withholding at a rate of up to
31% on dividends  paid in the United  States on the ordinary  shares  unless the
U.S. Holder provides an IRS Form W-9 or otherwise establishes an exemption. U.S.
Holders are subject to information reporting and backup withholding at a rate of
up to 31% on  proceeds  paid  from  the  sale,  exchange,  redemption  or  other
disposition of the ordinary  shares unless the U.S.  Holder provides an IRS Form
W-9 or otherwise establishes an exemption.

     Non-U.S.  Holders  generally  are not subject to  information  reporting or
back-up  withholding  with  respect to dividends  paid on, or proceeds  upon the
sale,  exchange,  redemption  or other  disposition  of,  the  ordinary  shares,
provided that such Non-U.S.  Holder provides a taxpayer  identification  number,
certifies to its foreign status, or otherwise establishes an exemption.

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


F.       Dividends and Paying Agents

     Not applicable.


G.       Statements by Exports.

     Not applicable.


H.       Documents on Display

     We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended,  applicable to foreign  private issuers and fulfill the
obligation  with  respect  to such  requirements  by  filing  reports  with  the
Securities and Exchange  Commission.  You may read and copy any document we file
with the Securities and Exchange Commission without charge at the Securities and
Exchange   Commission's   public  reference  room  at  450  Fifth  Street,  N.W,
Washington, D.C. 20549. Copies of such material may be obtained by mail from the
Public  Reference  Branch of the  Securities  and  Exchange  Commission  at such
address, at prescribed rates. Please call the Securities and Exchange Commission
at l-800-SEC-0330 for further information on the public reference room.

     As a  foreign  private  issuer,  we are  exempt  from the  rules  under the
Exchange Act prescribing the furnishing and content of proxy statements, and our
officers, directors and principal shareholders are exempt from the reporting and
"short-swing" profit recovery provisions contained in Section 16 of the Exchange
Act. In addition, we are not be required under the Exchange Act to file periodic
reports and financial  statements with the Securities and Exchange Commission as
frequently  or as promptly  as United  States  companies  whose  securities  are
registered under the Exchange Act. A copy of each report submitted in accordance
with  applicable  United  States  law is  available  for  public  review  at our
principal executive offices.


<PAGE>


ITEM 11.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Foreign Currency Risk

     All of our sales are made in US dollars. In addition, a substantial portion
of our costs is incurred in dollars. Since the dollar is the primary currency of
the  economic  environment  in which we  operate,  the dollar is our  functional
currency, and accordingly, monetary accounts maintained in currencies other than
the dollar  (principally  cash and cash  equivalents,  short-term  deposits  and
liabilities) are remeasured using the foreign exchange rate at the balance sheet
date.  Operational accounts and non-monetary balance sheet accounts are measured
and recorded at the rate in effect at the date of the transaction. The effect of
foreign currency remeasurement is reported in current operations.

     We do not presently engage in any hedging or other transactions intended to
manage  risks  relating  to foreign  currency  exchange  rate or  interest  rate
fluctuations.  At December 31, 2001 and  December  31, 2000,  we did not own any
market  risk  sensitive  instruments.  However,  we may in the future  undertake
hedging  or other  similar  transactions  or  invest in  market  risk  sensitive
instruments if management determines that it is necessary to offset these risks.
See "Item  3-Key  Information-Risk  Factors-Risks  Relating  to our  location in
Israel."


Interest Rate Risk

     Our  exposure  to market  risk with  respect to changes in  interest  rates
relates  primarily  to our  short-  and  long-term  investments.  Our short- and
long-term  investments  consist of primarily,  certificates of deposits and debt
securities  of  highly-rated  corporations.  The fair  value of our  short-  and
long-term investments is based upon their market value as of December 31, 2001.

     The table below  present  principal  amounts and related  weighted  average
rates by date of maturity for our short- and long-term investments:

<TABLE>
<CAPTION>

                                   Short-Term
                          (U.S. dollars in thousands)
               <C>                                          <C>

Marketable debt securities                        Maturity date at year 2002

U.S. dollar debt securities and certificates              61,063
of deposit with fixed interest rate

Weighted Average Interest Rate                              3.8%

U.S. dollar debt securities with floating                  3,904
interest rate

Weighted Average Interest Rate                              2.2%

</TABLE>

<TABLE>
<CAPTION>

                                   Long-Term
                          (U.S. dollars in thousands)
               <C>                                          <C>

Marketable debt securities                        Maturity date at year 2003

U.S. dollar debt securities with                          9,172
fixed interest rate

Weighted average interest rate                             3.6%

</TABLE>



<PAGE>

ITEM 12.          DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

     Not applicable.



<PAGE>

PART II


ITEM 13.          DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

     Not applicable.


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


Use of Proceeds

     Our initial public  offering  commenced on December 1, 1999, and terminated
after the sale of all the securities registered. The managing underwriter of the
offering was Banc of America  Securities LLC. We registered  4,600,000  ordinary
shares in the offering,  including shares issued pursuant to the exercise of the
underwriter's  over-allotment option. Of such shares, we sold 4,600,000 ordinary
shares at an aggregate offering price of $55.2 million ($12.00 per share). Under
the terms of the offering, we incurred  underwriting  discounts of approximately
$3.86  million.  We  also  incurred  estimated  expenses  of  $1.54  million  in
connection  with the  offering.  None of the expenses  consisted of amounts paid
directly or indirectly to any of our directors,  officers,  general  partners or
their  associates,  any  persons  owning  10% or more of any class of our equity
securities,  or any of our  affiliates.  The net proceeds  that we received as a
result of the offering  were  approximately  $49.8  million.  As of December 31,
2001,  approximately  $21.03  million of the net proceeds have been used for the
enhancement of our research and development, sales and marketing and for general
and administrative expenses. In addition, $9.88 million of the net proceeds have
been used for the  buy-back  of  898,500  Metalink  shares  during the period of
December  2000 to April 2001.  None of the use of proceeds  consisted of amounts
paid directly or indirectly to any of our directors,  officers, general partners
or their  associates,  any persons owning 10% or more of any class of our equity
securities, or any of our affiliates.


ITEM 15.          [RESERVED]


ITEM 16.          [RESERVED]



PART III


ITEM 17.          FINANCIAL STATEMENTS

     We have responded to Item 18 in lieu of this item.


ITEM 18.          FINANCIAL STATEMENTS

     The Financial Statements required by this item are found at the end of this
Annual Report, beginning on page F-1.


ITEM 19.          EXHIBITS

     The exhibits filed with or incorporated  into this annual report are listed
on the index of exhibits  below.

<TABLE>
<CAPTION>

Exhibit No.    Description
    <C>        <C>

1.1*           Memorandum  of Association,  as amended,  (English translation  accompanied by Hebrew original) (incorporated
               herein  by  reference   to  Exhibit  4.2  to  the   Registrant's Registration Statement  on Form S-8,  filed with
               the  Securities  and  Exchange Commission  on April 17,  2001).

1.2*           Articles  of  Association,  as  amended, (English  translation  accompanied by Hebrew original) (incorporated
               herein by reference to Exhibit 4.3 to the Registrant's Registration Statement on Form S-8, filed with the Securities
               and Exchange  Commission on April 17, 2001).

3*             Voting Agreement,  dated August 11,  1999,  between  Tzvi  Shukhman  and Zvi  Rosenberg (incorporated   herein  by
               reference  to  Exhibit  10.1  to  the   Registrant's Registration Statement on Form F-1 (No. 333-11118) filed with
               the Securities and Exchange Commission on November 10, 1999).

4.1*           Employee Share Option Plan (1997) (incorporated herein by reference to Exhibit 10.2 to the Registrant's Registration
               Statement on Form F-1 (No. 333-11118) filed with the Securities and Exchange Commission on November 10, 1999).

4.2*           Employee Share Option Plan (1997), Section 102 (incorporated herein by reference to Exhibit 10.3 to the Registrant's
               Registration Statement on Form F-1 (No. 333-11118) filed with the Securities and Exchange Commission on
               November 10, 1999).

4.3*           International Employee Stock Option Plan (incorporated herein by reference to Exhibit 10.4 to the Registrant's
               Registration Statement on Form F-1 (No.333-11118) filed with the Securities and Exchange Commission on
               November 10, 1999).

4.4*           Employee Share Option Plan (1999) (incorporated herein by reference to Exhibit 10.5 to the Registrant's Registration
               Statement on Form F-1 (No. 333-11118) filed with the Securities and Exchange Commission on November 10, 1999).

4.5*           Employee Share Option Plan (1999a) (incorporated herein by reference to Exhibit 10.6 to the Registrant's
               Registration Statement on Form F-1 (No. 333-11118) filed with the Securities and Exchange Commission on
               November 10, 1999).

4.6*           Unprotected Lease Agreement, dated June 6, 2000, between Yakum Development Ltd. and the Registrant (English summary
               accompanied by Hebrew original)(incorporated herein by reference to Exhibit 4.6 to the Registrant's Annual Report on
               Form 20-F for the fiscal year ended December 31, 1999).

4.7*           Standard Industrial/Commercial Multi-Tenant Lease - Net, dated December 12, 1999, between Garaventa Properties and
               Metalink, Inc. (incorporated herein by reference to Exhibit 4.7 to the Registrant's Annual Report on Form 20-F for
               the fiscal year ended December 31, 1999). 4.8* 2000 Employee Stock Purchase Plan (incorporated herein by reference
               to Exhibit 4.5 to the Registrant Registration Statement on Form S-8, filed with the Securities and Exchange
               Commission on April 17, 2001).

4.9*           Share Option Plan (2000) (incorporated herein by reference to Exhibit 4.9 to the Registrant's Registration Statement
               on Form 20-F, filed with the Securities and Exchange Commission on June 29, 2001).

4.10           Form of Executive Employment Agreement.

8*             List of Subsidiaries (incorporated herein by reference to Exhibit 2.1 to the Registrant's Registration Statement on
               Form F-1 (No. 333-11118) filed with the Securities and Exchange Commission on November 10, 1999).

-----------------
* Incorporated by reference.
</TABLE>


<PAGE>

SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing
on Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf. METALINK LTD.
By:_______________
         Name:  Ofer Lavie
         Title:    Chief Financial Officer
Date:  June 24, 2002




<PAGE>


                                 METALINK LTD.

                       CONSOLIDATED FINANCIAL STATEMENTS
                            AS OF DECEMBER 31, 2001





                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                           Page

Report of Independent Auditors                                               2

Consolidated balance sheets as of December 31, 2001 and 2000                 3

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

Statements of Changes in Shareholders' Equity for the years                 5-6
  ended December 31, 2001, 2000 and 1999

Consolidated Statements of Cash Flows for the years ended                   7-8
  December 31, 2001, 2000 and 1999

Notes to Consolidated Financial Statements                                 9-24



                         REPORT OF INDEPENDENT AUDITORS


To the Board of Directors and
Shareholders of Metalink Ltd.


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

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

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


Brightman Almagor & Co.
Certified Public Accountants
A member of Deloitte Touche Tohmatsu

Tel Aviv, Israel
January 24, 2002

<PAGE>

                                                   METALINK LTD.

                                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>

                                                                              December 31,
                                                                        2001               2000
                                                                             (in thousands)

<S>                                                                      <C>                <C>

ASSETS
Current assets
 Cash and cash equivalents                                           $ 15,946            $ 8,851
 Short-term investments (Note 3)                                       64,967             86,268
 Trade accounts receivable                                              1,966              3,782
 Other receivables (Note 10)                                              796              2,397
 Prepaid expenses                                                         706                665
 Inventories (Note 4)                                                   2,806              2,013
   Total current assets                                                87,187            103,976

Long-term investments (Note 3)                                          9,172             15,344

Severance pay fund (Note 6)                                               827                546

Property and equipment (Note 5)
 Cost                                                                  11,995              7,911
 Less - Accumulated depreciation and amortization                       4,448              2,511
                                                                        7,547              5,400

     Total assets                                                   $ 104,733          $ 125,266


LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
 Trade accounts payable                                               $ 1,473            $ 3,631
 Other payables and accrued expenses (Note 10)                          3,284              3,021
     Total current liabilities                                          4,757              6,652

Accrued severance pay (Note 6)                                          1,479                982

Shareholders' equity (Note 8)
 Ordinary shares NIS 0.1 par value
  (Authorized - 50,000,000 shares, issued and
  outstanding - 19,194,988 and 18,832,024
  shares as of December 31, 2001 and 2000,
  respectively)                                                           580                574

 Additional paid-in capital                                           127,029            125,942
 Deferred stock-based compensation                                    (1,650)            (2,026)
 Accumulated deficit                                                 (17,577)            (6,466)
                                                                      108,382            118,024
 Treasury stock, at cost; 898,500 and 40,000 shares as of
  December 31, 2001 and 2000, respectively                            (9,885)              (392)

                                                                       98,497            117,632

     Total liabilities and shareholders' equity                     $ 104,733          $ 125,266

</TABLE>

The accompanying notes are an integral part of the financial statements.



                                                   METALINK LTD.

                                       CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>

                                                                                              Year ended December 31,
                                                                                       2001             2000            1999
                                                                                 (in thousands, except share and per share data)

<S>                                                                                     <C>              <C>             <C>


Revenues (Note 11)                                                                  $ 14,049         $ 23,302        $ 11,708
Cost of revenues (Note 11):
 Costs and expenses (excluding non-cash
  compensation of $53, $58 and $49, respectively)                                      6,086            9,794           5,878
 Royalties to the Government of Israel                                                   364              469             209

     Total cost of revenues                                                            6,450           10,263           6,087

 Gross profit                                                                          7,599           13,039           5,621

Operating expenses:
 Gross research and development (excluding non-cash
  compensation of $188, $242 and $146, respectively)                                  17,060           12,592           6,065
 Less - Royalty bearing grants                                                         3,457            3,381           1,965
 Research and development, net                                                        13,603            9,211           4,100
 Selling and marketing (excluding non-cash
  compensation of $172, $205 and $17, respectively)                                    5,465            3,665           2,026
 General and administrative (excluding non-cash
  compensation of $332, $286 and $170, respectively)                                   3,526            3,042           1,138
 Non-cash compensation                                                                   745              791             382
     Total operating expenses                                                         23,339           16,709           7,646

 Operating loss                                                                     (15,740)          (3,670)         (2,025)

Financial income (expenses), net:
 Interest income                                                                       4,629            5,986             145
 Non-cash charge for warrants                                                              -                -         (1,400)
  Total financial income (expenses), net       4,629    5,986   (1,255)

 Net income (loss)                                                                $ (11,111)          $ 2,316       $ (3,280)

Earnings (loss) per ordinary share:
 Basic                                                                              $ (0.61)           $ 0.13        $ (0.27)
 Diluted                                                                            $ (0.61)           $ 0.11        $ (0.27)

Shares used in computing earnings (loss) per ordinary share:
 Basic                                                                            18,260,798       18,269,556      12,309,339
 Diluted                                                                          18,260,798       20,773,382      12,309,339

</TABLE>

The accompanying notes are an integral part of the financial statements.


<TABLE>
<CAPTION>

                                                   METALINK LTD.

                                   STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

                                                          Receipts on
                        Number of    Number of  Share      account     Additional  Deferred      Treasury   Accum-        Total
                       outstanding   treasury   Capital    of share     paid-in    Stock-based   Stock      ulated
                         Shares      shares                capital      capital    compensation  (at cost)  deficit

                                                                (in thousands, except  share data)

<S>                       <C>          <C>        <C>        <C>         <C>          <C>           <C>        <C>         <C>

Balance at
January 1, 1999       12,010,745           -   $     2    $     2     $  7,934       $  (85)      $    -   $ (5,502)    $ 2,351

Changes during 1999:
Issuance of shares in
 initial public
 offering, net of
 issuance costs        4,600,000           -       109          -       49,729             -           -          -      49,838
Exercise of employees
 options                 181,655           -         4        (2)          298             -           -          -         300
Issuance of share
 dividend                      -           -       408          -        (408)             -           -          -           -
Deferred stock-based
 compensation related
 to stock option grants
 to employees                  -           -         -          -        2,609       (2,609)           -          -           -
Warrants granted in
 connection with
 short-term loans              -           -         -          -        1,400             -           -          -       1,400
Amortization of
 deferred stock-based
 compensation                  -           -         -          -            -           382           -          -         382
Loss for the year              -           -         -          -            -             -           -    (3,280)     (3,280)
Balance at
  December 31, 1999   16,792,400           -       523          -       61,562       (2,312)           -    (8,782)      50,991


Changes during 2000:
Issuance of shares
 in public offering,
 net of issuance costs 1,500,000           -        37                  62,665            -            -         -       62,702
Purchase of treasury
 stock                         -    (40,000)         -          -            -            -        (392)         -        (392)
Exercise of options      539,624           -        14          -        1,210            -            -         -        1,224
Deferred stock-based
 compensation related
 to stock option grants
 to consultants and
 subcontractors                -           -         -          -          824        (824)            -         -            -
Cancellation of
 deferred stock-
 based comoensation
 due to resignation
 of employees                  -           -         -          -        (319)         319             -         -            -
Amortization of
 deferred stock-
 based compensation           -            -         -          -           -          791             -         -           791
Income for the year           -            -         -          -           -            -             -     2,316         2,316
Balance at
   December 31, 2000 18,832,024     (40,000)       574          -     125,942      (2,026)         (392)    (6,466)      117,632

</TABLE>

<TABLE>
<CAPTION>

                                                        METALINK LTD.

                                   STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (con't)

                                                          Receipts on
                        Number of    Number of  Share      account     Additional  Deferred      Treasury   Accum-        Total
                       outstanding   treasury   Capital    of share     paid-in    Stock-based   Stock      ulated
                         Shares      shares                capital      capital    compensation  (at cost)  deficit

                                                                (in thousands, except  share data)

<S>                       <C>          <C>        <C>        <C>         <C>          <C>           <C>        <C>         <C>

Balance at
   January 1, 2000    18,832,024   (40,000)       574         -        125,942      (2,026)       (392)    (6,466)       117,632

Changes during 2001:
Purchase of treasury
 stock                         -  (858,500)         -         -              -            -     (9,493)          -        (9,493)
Exercise of employee
 options and shares      362,964          -         6         -            718            -           -          -            724
Deferred stock-based
 compensation related
 to stock option
 grants to consultants         -          -         -         -            428        (428)           -          -              -
Cancellation of deferred
 stock-based compensation
 due to  resignation of
 employees                     -          -         -         -           (59)           59           -          -              -
Amortization of
 deferred stock-based
 compensation                  -                    -         -             -           745           -          -            745
Loss for the year              -          -         -         -             -             -           -   (11,111)       (11,111)
Balance at
   December 31, 2001  19,194,988  (898,500)     $ 580      $  -     $ 127,029     $ (1,650)   $ (9,885)   $ (17,577)     $ 98,497

</TABLE>

The accompanying notes are an integral part of the financial statements.





                                                   METALINK LTD.

                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                                           Year ended December 31,
                                                                                    2001            2000            1999
                                                                                              (in thousands)
<S>                                                                                  <C>             <C>             <C>



Cash flows from operating activities:
Net income (loss)                                                              $ (11,111)         $ 2,316        $ (3,280)
Adjustments to reconcile net income (loss) to net cash provided by
  (used in) operating activities (Appendix A)                                       4,092           (327)            2,771
Net cash provided by (used in) operating activities                               (7,019)           1,989            (509)

Cash flows from investing activities:
Purchase of marketable debt securities and certificates of deposits             (262,189)       (300,558)         (45,163)
Proceeds from maturity and sales of marketable debt securities and
  certificates of deposits                                                        289,156         244,970                -
Purchase of property and equipment                                                (4,084)         (5,373)            (698)
Proceeds from disposal of property and equipment                                        -               8                -
Net cash provided by (used in) investing activities                                22,883        (60,953)         (45,861)

Cash flows from financing activities:
Proceeds from issuance of shares and exercise of options, net                         724          63,926           50,138
Purchase of treasury stock                                                        (9,493)           (392)
Short-term bank credit and loans                                                        -               -            (500)
Net cash provided by (used in) financing activities                               (8,769)          63,534           49,638

Increase in cash and cash equivalents                                               7,095           4,570            3,268
Cash and cash equivalents at beginning of year                                      8,851           4,281            1,013
Cash and cash equivalents at end of year                                         $ 15,946         $ 8,851          $ 4,281

Supplemental disclosure of cash flow information:
Cash paid during the year for interest                                                $ 3             $ 2             $ 43

</TABLE>

The accompanying notes are an integral part of the financial statements.



                                  METALINK LTD.

                APPENDIX TO CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>


                                                                                           Year ended December 31,
                                                                                    2001           2000             1999
         (in thousands)
<S>                                                                                  <C>            <C>              <C>

Appendix A

Adjustments to reconcile net income (loss) to net
cash provided by (used in)operating activities:

Depreciation and amortization                                                     $ 1,937        $ 1,208            $ 492
Amortization of marketable debt securities and deposit
premium and accretion of discount                                                     190          (256)                -
Increase in accrued severance pay, net                                                216            171               93
Amortization of deferred stock-based compensation                                     745            791              382
Charge for warrants granted in connection with short-term  loans                        -              -            1,400
Capital loss                                                                            -             90                -


Changes in assets and liabilities:

Decrease (increase) in assets:
 Trade accounts receivable                                                           1,816        (1,293)            (393)
 Other receivables and prepaid expenses                                              1,876        (2,300)            (842)
 Inventories                                                                         (793)        (1,187)            (389)
Increase (decrease) in liabilities:
 Trade accounts payable                                                            (2,158)          2,143              243
 Other payables and accrued expenses                                                   263            306            1,785
                                                                                   $ 4,092        $ (327)          $ 2,771

</TABLE>

The accompanying notes are an integral part of the financial statements.


NOTE 1 - GENERAL

     Metalink  Ltd.  (the  "Company"),   an  Israeli   Company,   is  a  fabless
semiconductor  Company,  develops and markets high performance  broadband access
chip sets used by telecommunications and networking equipment makers.  Company's
broadband  silicon  solutions  enable cost effective,  very high speed streaming
video,   voice  and  data   transmission  and  delivery   throughout   worldwide
communication  networks.  The Company  operates  in one  business  segment.  The
Company  generates  revenues  from its  products  mainly in  Europe,  Israel and
Canada.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

     The financial  statements  have been prepared in accordance with accounting
     principles generally accepted in the United States of America.

     A. Use of Estimates in Preparation of Financial Statements

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

     B. Financial Statements in U.S. Dollars

     The reporting currency of the Company is the U.S. dollar ("dollar" or "$").
The currency of the primary economic  environment in which the operations of the
Company and its US subsidiary  are  conducted is the dollar,  and the dollar has
been determined to be the Company's functional currency.

     Transactions and balances  originally  denominated in dollars are presented
at their  original  amounts.  Non-dollar  transactions  and  balances  have been
remeasured into dollars in accordance with the principles set forth in Statement
of Financial  Accounting Standard ("SFAS") No. 52. All exchange gains and losses
from  remeasurement of monetary balance sheet items resulting from  transactions
in  non-dollar  currencies  are reflected in the statement of operations as they
arise.

     C. Principles of Consolidation

     The consolidated  financial  statements include the financial statements of
the  Company  and  its  wholly-owned  subsidiary.   All  material  inter-company
transactions and balances have been eliminated.

     D. Cash Equivalents

     Cash equivalents consist of short-term,  highly liquid investments that are
readily  convertible into cash with original  maturities when purchased of three
months or less.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

     E. Marketable Debt Securities

     Investments   in   marketable    debt    securities   are   classified   as
"held-to-maturity"  in  accordance  with the  provisions of SFAS No. 115 and are
stated at cost. Interest income is included in financial income.

     F. Inventories

     Inventories  are stated at the lower of cost or market.  Cost is determined
as follows:

     Raw  materials,  components  and finished  products - on the moving average
basis. Work-in-process - on the basis of actual manufacturing costs.

     G. Property and Equipment

     Property and  equipment are stated at cost.  Depreciation  is calculated by
the straight-line method over the estimated useful lives of assets, as follows:

Computers and manufacturing equipment       3-7 years
Furniture and fixtures                    10-15 years

     Leasehold  improvements are amortized by the straight-line  method over the
term of the  lease,  which is  shorter  than the  estimated  useful  life of the
improvements.

     In  accordance  with  SFAS  No.  121,  "Accounting  for the  Impairment  of
Long-Lived  Assets and for  Long-Lived  Assets to be Disposed  Of ",  management
reviews  long-lived  assets  for  impairment   whenever  events  or  changes  in
circumstances  indicate  that  the  carrying  amount  of an  asset  may  not  be
recoverable based on estimated future cash flows.

     H. Revenue Recognition

     In December  1999, the SEC issued Staff  Accounting  Bulletin No. 101 ("SAB
101"), as amended in June 2000,  which  summarizes the staff's views in applying
generally  accepted  accounting  principles to revenue  recognition in financial
statements. The Company adopted SAB 101 during the fourth quarter of 2000, which
did not have an effect on its results of operations or financial position.

     The Company  recognizes  revenue  upon the  shipment of its products to the
customer provided that persuasive evidence of an arrangement  exists,  title has
transferred, the price is fixed, collection of resulting receivables is probable
and there are no remaining significant obligations.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

     I. Research and Development Expenses

     Research and development expenses,  net of third-party grants, are expensed
as incurred.  The Company has no obligation  to repay the grants,  if sufficient
sales are not generated.

     J. Deferred Income Taxes

     Deferred  income taxes are provided for temporary  differences  between the
assets and  liabilities,  as measured in the  financial  statements  and for tax
purposes, at tax rates expected to be in effect when these differences reverse.

     K. Net Earnings (Loss) Per Ordinary Share

     Basic and  diluted  net  earnings  (loss) per share have been  computed  in
accordance  with SFAS No.  128 using the  weighted  average  number of  ordinary
shares outstanding.  Basic earnings (loss) per share exclude any dilutive effect
of options and warrants. Diluted earnings per share give effect to all potential
dilutive issuances of ordinary shares that were outstanding during the period. A
total of 764,042  incremental  shares  were  excluded  from the  calculation  of
diluted net loss per ordinary  share for 2001 due to the  anti-dilutive  effect,
and 2,503,826  incremental  shares were used to calculate  diluted  earnings per
ordinary share for 2000.

     L. Concentrations of Credit Risk

     (i) As of  December  31,  2001  and  2000,  the  Company  had cash and cash
equivalents  and short-term  investments  totaling  $80,913,000  and $95,119,000
respectively,  most of which are  deposited in major U.S. and Israeli  financial
institutions.  Management believes that the financial  institutions  holding the
Company's cash and cash  equivalents  are financially  sound.  In addition,  the
marketable debt securities held by the Company consist of highly-rated corporate
bonds. Accordingly, limited credit risk exists with respect to this item.

     (ii) Most of the  Company's  revenues are  generated in Europe,  Israel and
Canada from a small number of customers (see Note 11),  mainly large  industrial
corporations.  The Company  generally does not require  collateral.  The Company
maintains  an  allowance  for  doubtful  accounts,   which  management  believes
adequately  covers all anticipated  losses in respect of trade  receivables.  At
December 31, 2001 the amount for doubtful accounts is $46,000 .




NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

     M. Concentrations of Available Sources of Supply of Products

     Certain components used in the Company's  products are currently  available
to the Company from only one source and other components are currently available
from only a limited  number of  sources.  The  Company  does not have  long-term
supply  contracts with its suppliers.  In addition,  the Company employs several
unaffiliated  subcontractors  outside of Israel for the  manufacture of its chip
sets. While the Company has been able to obtain adequate  supplies of components
and has  experienced no material  problems with  subcontractors  to date, in the
event  that any of these  suppliers  or  subcontractors  is  unable  to meet the
Company's  requirements  in a timely  manner,  the  Company  may  experience  an
interruption in production.  Any such disruption,  or any other  interruption of
such suppliers' or subcontractors'  ability to provide components to the Company
and  manufacture  its chip  sets,  could  result in  delays  in  making  product
shipments, which could have a material adverse impact on the Company's business,
financial condition and results of operations.

     N. Fair Value of Financial Instruments

     The financial  instruments  of the Company  consist mainly of cash and cash
equivalents,  short-term  investments,  current accounts  receivable,  long-term
investments,  accounts payable and accruals.  In view of their nature,  the fair
value of the financial instruments included in working capital of the Company is
usually identical or substantially similar to their carrying amounts.

     O. Effects of recently issued accounting standards

     In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
141,  "Business  Combinations".   SFAS  141  requires  the  purchase  method  of
accounting  for  business  combinations   initiated  after  June  30,  2001  and
eliminates the  pooling-of-interests  method.  The Company does not believe that
the  adoption  of SFAS 141  will  have a  significant  impact  on its  financial
statements.

     In July 2001,  the FASB issued  SFAS 142,  "Goodwill  and Other  Intangible
Assets",  which is effective  January 1, 2002.  SFAS 142  requires,  among other
things, the discontinuance of goodwill  amortization.  In addition, the standard
includes  provisions for the  reclassification  of certain  existing  recognized
intangibles as goodwill, reassessment of the useful lives of existing recognized
intangibles,  reclassification of certain intangibles out of previously reported
goodwill and the  identification  of  reporting  units for purposes of assessing
potential future impairments of goodwill.  SFAS 142 also requires the Company to
complete a  transitional  goodwill  impairment  test six months from the date of
adoption. The Company does not believe that the adoption of SFAS 142 will have a
significant impact on its financial statements.

     In  August  2001,  the  FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment  or  Disposal  of  Long-Lived  Assets",   which  addresses  financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for  Long-Lived  Assets to be Disposed  Of", and the  accounting  and  reporting
provisions of APB Opinion No. 30,  "Reporting the Results of Operations",  for a
disposal  of a segment of a business.  SFAS 144 is  effective  for fiscal  years
beginning  after December 15, 2001,  with earlier  application  encouraged.  The
Company  has not yet  determined  what  the  effect  of SFAS  144 will be on the
earnings and financial position of the Company.


NOTE 3 - INVESTMENT IN MARKETABLE DEBT SECURITIES AND DEPOSITS

     A. Short-term investments

     Comprised as follows:
<TABLE>
<CAPTION>

                                                                  December 31,
                                                               2001        2000
                                                                (in thousands)
<S>                                                             <C>         <C>

Certificates of deposit                                      $ 35,252   $      -
Marketable debt securities:                                    29,715     86,268
Corporate bonds                                              $ 64,967   $ 86,268

</TABLE>

     The market value of the Short-term  investments as of December 31, 2001 and
     2000 is $65,140 and $86,603 respectively.

     B. Long-term investments

     Comprised as follows:
<TABLE>
<CAPTION>

                                                                  December 31,
                                                               2001        2000
                                                                (in thousands)
<S>                                                             <C>         <C>

Certificates of deposit                                     $    414    $      -
Marketable debt securities:                                    8,758      15,344
Corporate bonds                                             $  9,172    $ 15,344

</TABLE>

     The market value of the Long-term  investments  as of December 31, 2001 and
     2000 is $9,181 and $15,480 respectively.

     The long term  investments held by the company as of December 31, 2001 will
     mature in 2003.


NOTE 4 - INVENTORIES

     Comprised as follows:
<TABLE>
<CAPTION>
                                                                  December 31,
                                                               2001        2000
                                                                (in thousands)
<S>                                                             <C>         <C>

Raw materials and components                                $    538    $    417
Work-in-process                                                  142         173
Finished products                                              2,126       1,423
                                                            $  2,806    $  2,013

</TABLE>


NOTE 5 - PROPERTY AND EQUIPMENT

     Comprised as follows:
<TABLE>
<CAPTION>
                                                                  December 31,
                                                               2001        2000
                                                                (in thousands)
<S>                                                             <C>         <C>

Cost:

     Computers and manufacturing equipment                  $ 10,622    $  6,820
     Furniture and fixtures                                      531         508
     Leasehold improvements                                      842         583
                                                            $ 11,995    $  7,911

Accumulated depreciation and amortization:

     Computers and manufacturing equipment                  $  4,259    $  2,442
     Furniture and fixtures                                       86          48
     Leasehold improvements                                      103          21
                                                            $  4,448    $  2,511

</TABLE>


NOTE 6 - ACCRUED SEVERANCE PAY, NET

     The Company's  liability for severance pay is calculated in accordance with
Israeli  law based on the  latest  salary  paid to  employees  and the length of
employment in the Company.  The  Company's  liability for severance pay is fully
provided. Part of the liability is funded through individual insurance policies.
The policies are assets of the Company and, under labor  agreements,  subject to
certain limitations; they may be transferred to the ownership of the beneficiary
employees.

     The severance pay expenses for the years ended December 31, 2001,  2000 and
1999 were $831,000, $567,000 and $307,000, respectively.

     The Company has no liability for pension expenses to its employees.


NOTE 7 - COMMITMENTS AND CONTINGENT LIABILITIES

     A. Royalties

     (i) The Company is committed to pay  royalties to the  Government of Israel
on proceeds from the sale of products in the research and  development  of which
the Government has participated by way of grants,  up to the amount of 100%-150%
of the  grants  received  (from  1999 - up to the  amount of 100% of the  grants
received  plus  interest at LIBOR rate) (in dollar  terms).  The  royalties  are
payable at a rate of 3.5% for the first  three  years of product  sales and 4.5%
thereafter.  The total  amount  of grants  received,  net of  royalties  paid or
accrued,  as of December  31,  2001 and 2000 was $  10,048,000  and  $6,955,000,
respectively.   The  research  and  development  grants  are  presented  in  the
statements of operations as an offset to research and development expenses.  The
refund  of the  grants is  contingent  on future  sales and the  Company  has no
obligation to refund these grants, if sufficient sales are not generated.

     (ii) Royalty  expenses to the Office of the Chief  Scientist  for the years
ended December 31, 2001, 2000 and 1999 were $ 364,000,  $ 469,000 and $ 209,000,
respectively.

     B. Lease Commitments

     (i) The  premises  of the Company in Israel are rented  under an  operating
lease  agreement  expiring in September  2010. In addition,  the premises of the
subsidiary  in the United States are rented under an operating  lease  agreement
till March 2005, with an option to extend the lease for two additional five-year
periods.  Future  aggregate  minimum  annual  rental  payments  pursuant  to the
existing lease commitments in effect as of December 31, 2001, are as follows:

<TABLE>
<CAPTION>

Year ended December 31,    (in thousands)
<S>                             <C>

2002                            932
2003                            975
2004                          1,004
2005                            896
2006 and thereafter           4,084

</TABLE>

     The Company  arranged  for a bank  guarantee in favor of the lessors of the
premises in Israel and in United States totaling  $219,000.  Total rent expenses
for the years ended December 31, 2001, 2000 and 1999 were $957,000, $543,000 and
$290,000, respectively.

     (ii) The Company leases its motor vehicles under cancelable operating lease
agreements,  for periods through 2004. The minimum payment under these operating
leases upon cancellation of these lease  agreements,  amounted to $140,000 as of
December 31, 2001.  Lease expenses for the years ended  December 31, 2001,  2000
and 1999, were $720,000, $388,000 and $281,000, respectively.

     C. Legal Claim

     In July 1998, a former  employee filed a claim against the Company  stating
that the  Company is  obligated  to issue to him shares and to pay on his behalf
any taxes  relating to such issuance.  The Company has  previously  granted this
employee  options to purchase shares for a substantial  portion of the number of
shares that is in dispute.  In March 2, 2001 the Tel Aviv  District  labor court
ordered that this matter would be referred to arbitrator.  The Company estimates
that the  resolution  of this  matter  will not have a  material  impact  on its
financial statements.


NOTE 8 - SHARE CAPITAL

     A. In December 1999, the Company effected an initial public offering in the
United States and issued 4,600,000  ordinary shares (including the underwriters'
over-allotment) for net proceeds of $49,838,000.  Following the public offering,
the Company's shares are traded on the over-the-counter market and are listed on
the NASDAQ National Market.  In March 2000, the Company effected a second public
offering  in the  United  States and issued  1,500,000  ordinary  shares for net
proceeds of $ 62,702,000.  Since  December  2000,  the shares of the Company are
also traded on the Tel-Aviv Stock Exchange.  In October 2000 and March 2001, the
Board of  Directors  of the Company  approved the purchase of up to 1,000,000 of
the Company's ordinary shares for up to $10,000,000.  Through December 31, 2001,
the Company had  purchased  898,500 of its  ordinary  shares,  in the  aggregate
amount of $9,885,000.

     B. Employee Stock Purchase Plan

     During 2000,  the Board of Directors  approved an Employee  Stock  Purchase
Plan (the "ESPP"), effective October 2000. Under the ESPP, the maximum number of
shares to be made  available is 160,000  with an annual  increase to be added on
the first day of the year  commencing 2001 equal to the lesser of 140,000 shares
or 3/4 % of the outstanding shares on such date or a lesser amount determined by
the Board of Directors.  Any employee of the Company is eligible to  participate
in the ESPP. Employee stock purchases are made through payroll deductions. Under
the terms of the ESPP,  employees may not deduct an amount exceeding  $25,000 in
total value of stock in any one year.  The  purchase  price of the stock will be
the 85% of the lower of the fair market value of an ordinary  share on the first
day of the  offering  period  and the fair  market  value on the last day of the
offering period.  The offering period was determined to be six months.  The ESPP
shall terminate on October 31, 2010, unless  terminated  earlier by the Board of
Directors. As of December 31, 2001, 82,221 ordinary shares were issued under the
ESPP, and an additional 215,003 ordinary shares are reserved for issuance.

     C. Stock Options

     The Company has adopted five stock option plans to provide for the grant of
options to certain  officers and  employees.  As of December 31, 2001  3,666,381
options, had been granted under the plans. The options granted vest over periods
ranging from one to five years from the date of the grant, and will expire after
10 years from the date of the grant. With respect to options granted at exercise
prices  below  the fair  market  value of the  underlying  shares at the date of
grant,  deferred  compensation  is recorded  and  charged to  earnings  over the
vesting  period of the options in accordance  with FIN 44 and APB 25 "Accounting
for Stock Issued to Employees."


NOTE 8 - SHARE CAPITAL (Cont.)

     C. Stock Options (Cont.)

     A summary of the status of the Company's  stock option plans as of December
31, 2001, 2000 and 1999 and changes during the years then ended are as follows:

<TABLE>
<CAPTION>

                                           December 31, 2001               December 31, 2000               December 31, 1999
                                         Shares     Weighted             Shares     Weighted             Shares     Weighted
                                                    average                         average                         average
                                                    exercise                        exercise                        exercise
                                                    price                           price                           price

<S>                                       <C>         <C>                  <C>        <C>                  <C>        <C>

Options outstanding at
beginning of year                      3,715,822    $ 7.59              3,058,172   $ 4.14              1,688,175   $ 2.09
Granted during year                      837,100      5.09              1,429,894    12.89              1,677,840     6.03
Forfeited during year                  (681,563)      9.46              (288,621)     6.57              (206,802)     3.28
Exercised during year                  (204,978)      1.72              (483,623)     2.06              (101,041)     2.97

Outstanding at end of year             3,666,381      7.00              3,715,822     7.59              3,058,172     4.14

Options exercisable at end
 of year                               1,654,630    $ 6.46              1,056,231   $ 3.35                850,286   $ 1.21

Weighted average fair value of
options granted during year           $     3.03                       $     7.10                      $     5.02

</TABLE>

The following table summarizes information relating to stock options outstanding
as of December 31, 2001:

<TABLE>
<CAPTION>

                                Options outstanding                          Options exercisable
<S>                      <C>             <C>              <C>               <C>               <C>

                                      Weighted
                        Number        average          Weighted           Number           Weighted
                    outstanding at   remaining         average        exercisable at       average
                     December 31,    contractual       exercise        December 31,        exercise
Exercise price           2001       life (in years)    price               2001             price

$ 0.00 - $ 2.66       461,633           5.81            $ 1.25            337,062         $ 0.89
$ 3.07 - $ 3.90       767,353           7.90              3.56            341,447           3.90
$ 4.00 - $ 5.00       672,050           7.67              4.80            322,945           4.83
$ 5.04 - $ 7.00        58,675           9.56              5.75              1,800           6.98
$ 7.31 - $ 8.00       615,593           8.02              7.85            239,982           7.84
$ 8.48 - $ 9.90       626,310           9.02              9.30            202,981           9.29
$ 10.03 - $ 22.06     464,767           8.41             17.52            208,413          17.88
                    3,666,381           7.90            $ 7.00          1,654,630         $ 6.46

</TABLE>


NOTE 8 - SHARE CAPITAL (Cont.)

     D. Options issued to consultants

In April 2000, the Company adopted the "Share Option Plan - 2000" to provide for
the grant of  options  to  members  of the  advisory  board of the  Company  and
independent  contractors.  The options are  exercisable  over five years.  As of
December 31, 2001,  200,000  options had been granted under this plan to certain
sales  representatives and advisors of the Company at an exercise price of $ 4.6
- $ 15.75 per share.  The Company  accounted  for these  options  under the fair
value method of FAS No. 123 and EITF 96-18.  The fair value was determined using
the  Black-Scholes  pricing  model  with the  following  assumptions:  risk-free
interest rate of 4.50%-6.50%; volatility rate of 70%- 108.9%; dividend yields of
0% and an expected life of one to five years.

     The Company  recorded  deferred  stock-based  compensation  of $428,000 and
$824,000  for the years 2001 and 2000  respectively.

     Compensation  expenses of $257,000  and $ 213,000 were  recognized  for the
period ended December 31, 2001 and December 31, 2000 respectively.

     E. Fair Value Disclosures:

     Had  compensation  expenses for the  Company's  employee  option plans been
determined  on the basis of the fair value at the grant dates,  as prescribed in
SFAS No. 123, the  Company's  net income  (loss) and net income (loss) per share
would have been as follows:

<TABLE>
<CAPTION>

                                                    Year ended December 31,
                                               2001         2000         1999
                                                        (in thousands)
<S>                                            <C>           <C>          <C>

Net income (loss):
 As reported                              $ (11,111)     $  2,316    $ (3,280)
 Pro forma                                $ (15,406)     $    269    $ (4,004)
Basic net income (loss) per share:
 As reported                              $   (0.61)     $   0.13    $  (0.27)
 Pro forma                                $   (0.85)     $   0.01    $  (0.33)
Diluted net income (loss) per share:
 As reported                              $   (0.61)     $   0.11    $  (0.27)
 Pro forma                                $   (0.85)     $   0.01    $  (0.33)

</TABLE>

     F. Data in Respect of Option Plans

     The fair  value of each  option  grant is  estimated  on the  Black-Scholes
method for grants made after the Company became a public  entity.  The following
assumptions  were  used:  Dividend  yield of 0.00%  for all  periods;  risk-free
interest  rate of  4.5%-6.5% in 2001,  6.5% in 2000 and 5.17% in 1999;  weighted
average  expected lives of 5 years granted in all periods and a volatility  rate
of 70%- 108.9% using the Black-Scholes method.

     Because the  determination  of the fair value of all options  granted after
the Company became a public entity included an expected  volatility  factor,  in
addition  to the  factors  described  in the  preceding  paragraph  and  because
additional  option grants are expected to be made each year, the above pro forma
disclosures  are not  representative  of the pro forma  effects of reported  net
income for future years.


NOTE 9 - TAXES ON INCOME

     A. Taxation under Various Laws

     The  Company  and  its  subsidiary  are  assessed  for tax  purposes  on an
unconsolidated  basis.  The  Company is  assessed  under the  provisions  of the
Israeli  Income Tax Law  (Inflationary  Adjustments),  1985,  pursuant  to which
results for tax purposes are  measured in NIS in real terms in  accordance  with
changes in the Israeli CPI.

     The Company's foreign subsidiary is subject to the tax rules in its country
of  incorporation.  The  production  facilities of the Company have been granted
"approved  enterprise"  status in two  separate  programs  under the Law for the
Encouragement of Capital Investments,  1959, as amended.  Under this law, income
attributable  to each of these  enterprises,  is fully  exempt  from tax for two
years, commencing with the first year in which such enterprise generates taxable
income,  and is entitled to a reduced tax rate (25%) for a further  eight years,
respectively.  The  expiration  date of the period of benefits is limited to the
earlier of twelve years from  commencement  of production or fourteen years from
the date of the  approval.  As of December 31, 2001,  the period of benefits had
not yet commenced.

     Income derived from sources other than the "approved enterprise" is taxable
at the ordinary corporate tax rate of 36%.

     In the  event  of a  distribution  of cash  dividends  to  shareholders  of
earnings  subject to the exemption,  the Company will be liable to tax at a rate
of 25%.


     B. Income (Losses) from Continuing Operations

<TABLE>
<CAPTION>

                                                    Year ended December 31,
                                               2001         2000         1999
                                                        (in thousands)
<S>                                            <C>           <C>          <C>

Israeli company                           $  (9,262)     $  1,972    $ (2,617)
U.S. subsidiary                              (1,849)          344        (663)
                                          $ (11,111)     $  2,316    $ (3,280)

</TABLE>



NOTE 9 - TAXES ON INCOME (Cont.)

     C. Theoretical Income Taxes

     The following is a reconciliation  of the taxes on income assuming that all
income is taxed at the ordinary  statutory  corporate tax rate in Israel and the
effective income tax rate:

<TABLE>
<CAPTION>

                                                    Year ended December 31,
                                               2001         2000         1999
                                                        (in thousands)
<S>                                            <C>           <C>          <C>

Net income (loss) as reported in the
consolidated statement of operations      $ (11,111)     $  2,316   $  (3,280)

Theoretical tax on the above amount       $  (4,000)     $    834   $  (1,180)

Tax benefit arising from the approved
enterprise                                     2,871        (611)          811
Increase in valuation allowance                1,451           38          406
Permanent differences, net                     (322)        (261)         (37)
Effective income tax rate                $         -    $       -   $        -


</TABLE>



     D. Deferred Taxes

     The main components of the Company's deferred tax assets are as follows:

<TABLE>
<CAPTION>

                                                                 December 31,
                                                              2001         2000
                                                               (in thousands)
<S>                                                            <C>          <C>

Deferred tax assets
Net operating loss carry forwards in Israel               $   1,287     $    485
Net operating loss carry forwards of non-Israeli subsidiary   1,027          408
Accrued vacation pay, severance pay and other                    76           46
Total gross deferred tax assets                               2,390          939
Less - Valuation allowance                                    2,390          939
Total deferred tax asset                                 $        -     $      -

</TABLE>


NOTE 9 - TAXES ON INCOME (Cont.)

     D. Deferred Taxes (Cont.)

     Under  SFAS No.  109,  deferred  tax assets  are to be  recognized  for the
anticipated  tax benefits  associated with net operating loss carry forwards and
deductible temporary differences, unless it is more likely than not that some or
all of the deferred tax assets will not be realized. The adjustment is made by a
valuation allowance.

     Since  the  realization  of the  net  operating  loss  carry  forwards  and
deductible temporary  differences is less likely than not, a valuation allowance
has been established for the full amount of the tax benefits.

     Tax loss carry forwards of the Company  totaling $ 25,740,000 are unlimited
in duration, denominated in NIS and linked to the Israeli CPI.

     Tax loss carry forwards of a U.S.  subsidiary  totaling $ 3,020,000  expire
between 2017 and 2020.

     E. Tax Assessments

     The  Company  and its  subsidiary  have not been  assessed  for  income tax
purposes since incorporation.


NOTE 10 - SUPPLEMENTARY BALANCE SHEET INFORMATION

     A. Other Receivables

<TABLE>
<CAPTION>

Comprised as follows:

                                                                 December 31,
                                                              2001         2000
                                                               (in thousands)
<S>                                                            <C>          <C>

Research and development participation
from the Government of Israel                              $    160    $   1,619
Interest receivable on long-term investments                    283          313
Value added tax                                                   -          118
Income tax authorities                                          264          153
Advance to suppliers                                              -           75
Loans to employees                                               67           53
Others                                                           22           66
                                                          $     796    $   2,397

</TABLE>



NOTE 10 - SUPPLEMENTARY BALANCE SHEET INFORMATION (Cont.)

     B. Other Payables and Accrued Expenses

<TABLE>
<CAPTION>

Comprised as follows:

                                                                 December 31,
                                                              2001         2000
                                                               (in thousands)
<S>                                                            <C>          <C>

Payroll and related amounts                               $   1,766    $   1,267
Accrued expenses                                              1,140        1,157
Royalties to the Government of Israel                           359          520
Others                                                           19           77
                                                          $   3,284    $   3,021

</TABLE>


NOTE 11 - SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION

     A. Geographic Information

     The following is a summary of revenues and long-lived  assets by geographic
area.  Revenue is attributed  to geographic  region based on the location of the
customers.

<TABLE>
<CAPTION>

                                                    Year ended December 31,
                                               2001         2000         1999
                                                        (in thousands)
<S>                                            <C>           <C>          <C>

Revenues:
Israel                                     $   3,070    $   8,227    $   4,859
Switzerland                                    5,329        6,356        1,853
Canada                                         2,989        6,053        1,681
Spain                                            939          630          671
United States                                    680          569        1,864
Germany                                          170          493           35
Other foreign countries
  (mainly European)                              872          974          745
                                           $  14,049    $  23,302    $  11,708
Long-lived assets:
Israel                                     $   6,330    $   3,874    $   1,113
United States                                  1,217        1,526          220
                                           $   7,547    $   5,400    $   1,333

</TABLE>


NOTE 11 - SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION (Cont.)

     B. Sales to Major Customers:

     The following  table  summarizes  the  percentage of revenues from sales to
major customers (exceeding 10% of total revenues for the year).

<TABLE>
<CAPTION>

                                                    Year ended December 31,
                                               2001         2000         1999
                                                        (in thousands)
<S>                                            <C>           <C>          <C>

Customer A                                     35%           23%          15%
Customer B                                     (*)           10%          (*)
Customer C                                     19%           26%          33%
Customer D                                     (*)           22%          14%
Customer E                                     (*)           (*)          16%
Customer F                                     19%           (*)          (*)
(*) - Less than 10%.

</TABLE>


     C. Cost of Revenues:

 <TABLE>
<CAPTION>

                                                    Year ended December 31,
                                               2001         2000         1999
                                                        (in thousands)
<S>                                            <C>           <C>          <C>

Materials and components                   $   5,650    $   9,519    $   5,591
Salaries, wages and
employee benefits                                522          718          240
Sub-contractors                                   27           84           58
Depreciation and amortization                    243          110           48
Other manufacturing costs                        316          432          188
                                               6,758       10,863        6,125
Decrease (increase) in finished
products and work-in-process                   (672)      (1,069)        (247)
                                               6,086        9,794        5,878
Royalties to the Government of Israel            364          469          209
                                           $   6,450    $  10,263    $   6,087

</TABLE>


NOTE 12 - NON-CASH CHARGE FOR WARRANTS

     In October  1999,  the Company  entered into  agreements  with three of its
customers (two significant customers exceeding 10% of the revenues and a related
party) with respect to loans. Pursuant to the agreement, the Company borrowed an
aggregate  of $ 3,500,000  convertible  loans and issue  warrants to purchase an
aggregate of 140,000  ordinary shares of the Company at nominal value. The loans
were  for a  period  of 12  months  bearing-interest  of 6% per  annum  and were
convertible into ordinary shares of the Company at a conversion rate of $ 10 per
share.  According  to the  agreement,  if the Company had  completed  an initial
public  offering  of its  shares  within  12  months  of the  date  of the  loan
agreements or had sold a substantial amount of all of its assets, or if at least
75% of the  Company's  shareholders  had sold their  shares in the  Company in a
series of related transactions,  then the Company should, within 30 days of such
events,  have  repaid the entire  amount of the loans and accrued  interest.  If
neither of the above events had occurred during the 12 months following the date
of the loan  agreements,  each of the customers had to notify the Company of its
election to either  receive the  repayment  of the loan by the Company or effect
the conversion of the loan into ordinary shares.

     The warrants were exercisable  immediately within four years of the date of
the loan agreements.  In addition, the Company has agreed to grant each customer
10% of the  warrants  it  received  for each  month  that  the loan and  accrued
interest thereon have not been repaid or converted  following the 12 months from
the date of the loan agreements.

     Following the Company's  initial  public  offering,  the Company repaid the
entire amount of the loans.  The Company  recognized a charge of $ 1,400,000 for
the fair value of the  warrants on the date of the grant upon  repayment  of the
loan.


NOTE 13 - RELATED PARTIES

Transactions with Related Parties
<TABLE>
<CAPTION>

                                                    Year ended December 31,
                                               2001         2000         1999
                                                        (in thousands)
<S>                                            <C>           <C>          <C>

Sales                                      $       -    $   1,029    $     977
Subcontractors                                     -           36           85
Salaries                                         259          298          186
Purchase of materials                              -            9           51
Purchase of property and equipment                 -           54            3

</TABLE>


     As of  December  31,  2001 and 2000  there  are no  balances  with  Related
Parties.