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

                                   FORM 20-F

[_]   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, 2009

                                       OR

[_]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934

            For the transition period from __________ to __________

                                       OR

[_]   SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934

          Date of event requiring this shell company report _________

                         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)

           ATTN: ERAN VITAL, TEL: +972-9-9605407 FAX: +972-9-9605737,
                    YAKUM BUSINESS PARK, YAKUM 60972, ISRAEL
              (Name, Telephone, E-mail and/or Facsimile number and
                       Address of Company Contact Person

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
----------------------------------     -----------------------------------------
ORDINARY SHARES, NIS 1.0 PAR VALUE                NASDAQ CAPITAL MARKET
           PER SHARE*

Securities registered or to be registered pursuant to Section 12(g) of the Act:
                                      NONE
                                (Title of Class)

 Securities for which there is a reporting obligation pursuant to Section 15(d)
                                  of the Act:
                                      NONE
                                (Title of Class)


<PAGE>


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:

            25,738,732 ORDINARY SHARES, NIS 0.1 PAR VALUE PER SHARE*

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.

                               [_] Yes     [X] No

If this report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

                               [_] Yes     [X] No

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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     [_] No

Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).

                               [_] Yes     [_] No

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

Large accelerated filer [_]   Accelerated filer [_]   Non-accelerated filer [X]

Indicate by check mark which basis of accounting the registrant has used to
prepare the financial statements included in this filing:

[X]   U.S. GAAP

[_]   International Financial Reporting Standards as issued by the International
      Accounting Standards Board

[_]   Other

If "Other" has been checked in response to the previous question indicate by
check mark which financial statements the registrant has elected to follow:

                          [_] Item 17     [_] Item 18

If this is an annual report, indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act).

                               [X] Yes     [_] No


<PAGE>


                                  INTRODUCTION

Unless indicated otherwise by the context, all references in this annual report
to:

o    "WE", "US", "OUR", "METALINK", or the "COMPANY" are to Metalink Ltd. and
     its consolidated subsidiaries;

o    "DOLLARS" OR "$" are to United States dollars;

o    "NIS" OR "SHEKEL" are to New Israeli Shekels;

o    the "COMPANIES LAW" or the "ISRAELI COMPANIES LAW" are to the Israeli
     Companies Law, 5759-1999;

o    the "SEC" are to the United States Securities and Exchange Commission;

o    "NASDAQ" are to the NASDAQ Capital Market (formerly, the Nasdaq SmallCap
     Market);

o    "SENIOR LOAN" are to the senior secured loan we borrowed from an
     institutional investor, or the Senior Lender, pursuant to a Loan Agreement,
     dated September 8, 2008, as amended on December 31, 2008, September 6, 2009
     and December 30, 2009;

o    "HT-WLAN" are to WLANPLUS(TM)products, a high-throughput wireless local
     area network based on the 802.11n standard draft 2.0;

o    "LANTIQ" are to Lantiq Israel Ltd. and Lantiq Beteiligungs - GmbH & Co. KG.
     Lantiq is a newly-formed fabless semiconductor company funded by Golden
     Gate Capital;

o    "LANTIQ TRANSACTION" are to the transactions consummated pursuant to that
     Asset Purchase Agreement, dated January 5, 2010, by and among Metalink,
     Lantiq Israel Ltd. and Lantiq Beteiligungs - GmbH & Co. KG.

                              *REVERSE SHARE SPLIT

       On February 22, 2010, we effected a one-for-ten reverse split of our
ordinary shares, and accordingly the par value of our ordinary shares was
changed from NIS 0.1 to NIS 1.0 per share. Unless otherwise indicated, all
ordinary share, option and per share figures in this annual report are presented
in pre-split values and do not give retroactive effect to the share split.

                                   TRADEMARKS

     We use "NML(TM)", "VDSLPLUS(TM)", "Total-VDSL(TM)" and "MIMODSL(TM)" as our
trademarks. All other trademarks and trade names appearing in this annual report
are owned by their respective holders.

                           INCORPORATION BY REFERENCE

       Statements made in this annual report concerning the contents of any
contract, agreement or other document are summaries of such contracts,
agreements or documents and are not complete descriptions of all of their terms.
If we filed any of these documents as an exhibit to this annual report or to any
registration statement or annual report that we previously filed, you may read
the document itself for a complete description of its terms, and the summary
included herein is qualified by reference to the full text of the document which
is incorporated by reference into this annual report.


                                       i
<PAGE>


           CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

        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, prospects and results of operations. Actual
results could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including our absence of significant
operations following the Lantiq Transaction and uncertainty as to our future
business model and our ability to identify and evaluate suitable business
opportunities; the fact that our U.S. shareholders may suffer adverse tax
consequences if we will be classified as a passive foreign investment company;
changes in general economic and business conditions; any unforeseen
developmental or technological difficulties with regard to our products; changes
in currency exchange rates and interest rates; as well as the other 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.


                                       ii
<PAGE>

                               TABLE OF CONTENTS

                                     PART I

ITEM 1.   IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS................1

ITEM 2.   OFFER STATISTICS AND EXPECTED TIMETABLE..............................1

ITEM 3.   KEY INFORMATION......................................................2

ITEM 4.   INFORMATION ON THE COMPANY..........................................13

ITEM 4A.  UNRESOLVED STAFF COMMENTS ..........................................26

ITEM 5.   OPERATING AND FINANCIAL REVIEW AND PROSPECTS........................27

ITEM 6.   DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES..........................44

ITEM 7.   MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS...................56

ITEM 8.   FINANCIAL INFORMATION...............................................59

ITEM 9.   THE OFFER AND LISTING...............................................65

ITEM 10.  ADDITIONAL INFORMATION..............................................67

ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..........89

ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES..............90

                                    PART II

ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.....................90

ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
          AND USE OF PROCEEDS.................................................90

ITEM 15.  CONTROLS AND PROCEDURES.............................................90

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT....................................92

ITEM 16B. CODE OF ETHICS......................................................92

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES..............................92

ITEM 16D. EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES..............92

ITEM 16E. PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND
          AFFILIATED PURCHASERS...............................................92

ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT........................93

ITEM 16G. CORPORATE GOVERNANCE................................................93


                                      iii
<PAGE>

                             TABLE OF CONTENTS (cont'd)
                                    PART III

ITEM 17.  FINANCIAL STATEMENTS................................................94

ITEM 18.  FINANCIAL STATEMENTS................................................94

ITEM 19.  EXHIBITS............................................................95


                                       iv
<PAGE>


                                     PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.


                                       1
<PAGE>


ITEM 3. KEY INFORMATION

A.    SELECTED FINANCIAL DATA

       We have derived the following selected consolidated financial data from
our consolidated financial statements, which have been prepared in accordance
with U.S. generally accepted accounting principles, or US GAAP.

       The following selected data is derived from our audited consolidated
financial statements included elsewhere in this annual report:

      o     consolidated statement of income data for the years ended December
            31, 2007, 2008 and 2009; and

      o     consolidated balance sheet data as of December 31, 2008 and 2009.

       The following selected data is derived from our audited consolidated
financial statements that are not included in this annual report:

      o     consolidated statement of income data for the years ended December
            31, 2005 and 2006; and

      o     consolidated balance sheet data as of December 31, 2005, 2006 and
            2007.

       YOU SHOULD READ THE SELECTED CONSOLIDATED FINANCIAL DATA TOGETHER WITH
ITEM 5 OF THIS ANNUAL REPORT ENTITLED "OPERATING AND FINANCIAL REVIEW AND
PROSPECTS" AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO AND THE
OTHER FINANCIAL INFORMATION APPEARING ELSEWHERE IN THIS ANNUAL REPORT. SEE ALSO
NOTE 2 TO OUR CONSOLIDATED FINANCIAL STATEMENTS FOR AN EXPLANATION OF THE NUMBER
OF SHARES USED IN COMPUTING PER SHARE DATA.

        ON FEBRUARY 15, 2010, WE HAVE COMPLETED THE SALE OF OUR WLAN BUSINESS TO
LANTIQ PURSUANT TO AN ASSET PURCHASE AGREEMENT, WHICH IS DESCRIBED BELOW UNDER
ITEM 10.C "ADDITIONAL INFORMATION--MATERIAL AGREEMENTS." AS THE SALE WAS
CONSUMMATED ON FEBRUARY 15, 2010, THE DATA PRESENTED BELOW AND IN OUR AUDITED
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS ANNUAL REPORT DO
NOT REFLECT THE RESULTS OF SUCH SALE, INCLUDING THE RECEIPT OF THE CONSIDERATION
OR THE DISCONTINUATION OF OUR OPERATIONS IN THE WLAN BUSINESS, AND ARE NOT
OTHERWISE INDICATIVE OF OUR FUTURE OPERATING RESULTS OR FINANCIAL POSITION. SUCH
CHANGES WILL ONLY BE REFLECTED IN OUR CONSOLIDATED FINANCIAL STATEMENTS FOR THE
FISCAL YEAR ENDING DECEMBER 31, 2010. YOU ARE ENCOURAGED TO READ THE UNAUDITED
CONDENSED COMBINED PRO FORMA FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER
31, 2009 INCLUDED ELSEWHERE IN THIS ANNUAL REPORT, WHICH REFLECT THE HISTORICAL
RESULTS OF METALINK, AS ADJUSTED TO GIVE EFFECT TO THE DISPOSITION OF THE WLAN
BUSINESS TO LANTIQ.


                                       2
<PAGE>

<TABLE>
<CAPTION>
                                                                       YEAR ENDED DECEMBER 31, 2009*
                                              2005                2006             2007              2008               2009
                                            ---------          ---------         ---------         ---------         ---------
                                                              (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S>                                         <C>                <C>               <C>               <C>               <C>
STATEMENT OF
OPERATIONS DATA:
Revenues                                    $  14,529          $  14,476         $  10,166         $   7,162         $   4,916
Cost of revenues:
Costs and expenses                              6,938              7,071             4,736             2,964             3,174
Royalties to the
Government of
Israel                                            392                436               297               218               160
                                            ---------          ---------         ---------         ---------         ---------
Total cost of
revenues                                        7,330              7,507             5,033             3,182             3,334
                                            ---------          ---------         ---------         ---------         ---------
Gross profit                                    7,199              6,969             5,133             3,980             1,582
Operating expenses:
Gross research and
development                                    20,117             20,498            25,474            22,516             9,627
Royalty bearing and
other grants                                    3,477              2,882             2,598             3,068             1,898
                                            ---------          ---------         ---------         ---------         ---------
Research and
development, net                               16,640             17,616            22,876            19,448             7,729
Sales and marketing                             5,765              4,892             5,427             4,502             1,397
General and
administrative                                  2,254              1,985             2,451             2,647             2,416
Non-cash
compensation                                       17                 --                --                --                --
                                            ---------          ---------         ---------         ---------         ---------
Total operating
expenses                                       24,676             24,493            30,754            26,597            11,542
                                            ---------          ---------         ---------         ---------         ---------
Operating loss                                (17,477)           (17,524)          (25,621)          (22,617)           (9,960)
Financial income,
net:                                            1,189              1,304             1,298             1,639            (3,494)
                                            ---------          ---------         ---------         ---------         ---------
Net loss                                    $ (16,288)         $ (16,220)        $ (24,323)        $ (20,978)        $ (13,454)
                                            =========          =========         =========         =========         =========
Loss per ordinary
share:
Basic                                       $    (8.4)         $    (8.3)        $   (11.4)        $    (8.9)        $    (5.4)
                                            =========          =========         =========         =========         =========
Diluted                                     $    (8.4)         $    (8.3)        $   (11.4)        $    (8.9)        $    (5.4)
                                            =========          =========         =========         =========         =========
Shares used in
computing loss
per ordinary share:
Basic                                       1,935,062          1,962,531         2,131,926         2,356,971         2,482,863
                                            =========          =========         =========         =========         =========
Diluted                                     1,935,062          1,962,531         2,131,926         2,356,971         2,482,863
                                            =========          =========         =========         =========         =========
</TABLE>

* Shares used for loss per share calculation have been adjusted retroactively to
reflect the one for ten reverse split of our ordinary shares dated February 22,
2010.


                                       3
<PAGE>

CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
                                                                                    AS OF DECEMBER 31,
                                                          2005             2006             2007            2008             2009
                                                        -------          -------          -------          -------         -------
                                                                                       (IN THOUSANDS)
<S>                                                     <C>              <C>              <C>              <C>             <C>
     Cash and cash
      equivalents                                       $ 7,134          $ 4,775          $ 7,291          $ 5,166         $ 2,273
     Short-term investments                              20,142           18,317           17,233              677              --
     Long-term investments                               10,589            5,520            2,200               --              --
     Working capital                                     31,098           22,956           23,163            6,553          (4,678)
     Total assets                                        52,853           40,286           38,622           17,379           7,866

     Shareholders' equity                                44,605           30,883           28,331            8,988          (3,102)
</TABLE>

UNAUDITED PRO-FORMA SELECTED DATA*

                                                AS OF  DECEMBER 31, 2009
                                                       ---------

STATEMENT OF OPERATIONS DATA:
Revenues                                               $   3,288
Cost of revenues:
Costs and expenses                                         1,028
Royalties to the Government of Israel                         97
                                                       ---------
Total cost of revenues                                     1,125
                                                       ---------
Gross profit                                               2,163
Operating expenses:
Gross research and development                                --

Royalty bearing and other grants                              --
                                                       ---------
Research and development, net                                 --
                                                       ---------
Sales and marketing                                           --

General and administrative                                 2,322
                                                       ---------
Total operating expenses                                   2,322
                                                       ---------
Operating loss                                              (159)
                                                       ---------
Financial income, net:                                    (3,494)
                                                       ---------
Net loss                                               $  (3,653)
                                                       =========
Loss per ordinary share:
Basic                                                  $   (1.47)
                                                       =========
Diluted                                                $   (1.47)
                                                       =========
Shares used in computing loss
per ordinary share:                                    2,482,863
                                                       =========
Basic                                                  2,482,863
                                                       =========

                                                AS OF  DECEMBER 31, 2009
                                                       ---------

CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents                               $ 7,973
Working capital                                           3,543
Total assets                                             11,964
Shareholders' equity                                      3,341

* Shares used for loss per share calculation have been adjusted retroactively to
reflect the one for ten reverse split of our ordinary shares dated February 22,
2010.


                                       4
<PAGE>


B.    CAPITALIZATION AND INDEBTEDNESS

Not Applicable.

C.    REASONS FOR THE OFFER AND USE OF PROCEEDS

Not Applicable.

D.    RISK FACTORS

       YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS BEFORE DECIDING TO
PURCHASE, HOLD OR SELL OUR STOCK. SET FORTH BELOW ARE THE MOST SIGNIFICANT
RISKS, AS IDENTIFIED BY OUR MANAGEMENT, BUT WE MAY ALSO FACE RISKS IN THE FUTURE
THAT ARE NOT PRESENTLY FORESEEN. OUR BUSINESS, OPERATING RESULTS OR FINANCIAL
CONDITION COULD BE MATERIALLY AND ADVERSELY AFFECTED BY THESE AND OTHER RISKS.
YOU SHOULD ALSO REFER TO THE OTHER INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS ANNUAL REPORT, BEFORE MAKING ANY INVESTMENT DECISION REGARDING
OUR COMPANY.

                   RISKS RELATED TO OUR BUSINESS AND INDUSTRY

WE HAVE SOLD OUR PRINCIPAL OPERATING BUSINESS AND CURRENTLY CONDUCT ONLY LIMITED
BUSINESS ACTIVITIES.

       We sold our WLAN business to Lantiq in February 2010. Since then, we hold
substantially all of our assets in cash and cash equivalents and we currently
conduct only limited business activities related to our remaining digital
subscriber line, or DSL business. Our plan of operation is (1) to continue the
marketing of our DSL products and (2) to explore and consider strategic
alternatives relating to our remaining DSL business as well as to other
investments and opportunities, including a possible business combination or
other strategic transaction with a domestic or foreign, private or public
operating entity or a "going private" transaction, including with any of our
affiliates. Other than activities relating to attempting to locate such
opportunities and activities relating to our DSL business and the investment of
our funds in short and long-term investments, we do not currently conduct any
operations.


                                       5
<PAGE>


WE MAY NOT BE SUCCESSFUL IN IDENTIFYING AND EVALUATING SUITABLE BUSINESS
OPPORTUNITIES OR TO OTHERWISE EXECUTE OUR PLAN OF OPERATIONS.

       There can be no assurance that we will be successful in identifying and
evaluating suitable business opportunities or to otherwise execute our plan of
operations. While we are actively exploring strategic transactions and
opportunities, we have not identified any particular opportunities. Accordingly,
we may enter into a business combination with a business entity having no
significant operating history or other negative characteristics such as having a
limited or no potential for immediate earnings, or otherwise pursue a strategic
transaction that will not necessarily provide us or our shareholders with
significant financial benefits in the short or long term. In the event that we
complete a business combination with an operating company, the success of our
operations will be dependent upon the management of the target company and
numerous other factors beyond our control. There is no assurance that we will be
able to negotiate a business combination on terms favorable to us, or at all, or
that we will otherwise be successful in executing our plan of operations. In
addition, if we do consummate a major strategic transaction, such as a business
combination, our shareholders may suffer a dilution of value of shares and we
may need to raise additional financing because a business combination normally
will involve the issuance of a significant number of additional Metalink shares
and may require us to raise funds through a public or private financing.

WE HAVE A HISTORY OF OPERATING LOSSES.

       We have incurred significant operating losses since our inception, and we
may not achieve operating profitability in the foreseeable future. We reported
operating losses of approximately $25.6 million for the year ended December 31,
2007, $22.6 million for the year ended December 31, 2008, and $10.0 million for
the year ended December 31, 2009. As of December 31, 2009, our accumulated
deficit was approximately $151.7 million. We reported revenues of approximately
$4.9 million for the year ended December 31, 2009, compared to $7.2 million for
the year ended December 31, 2008. Our revenues may not grow and are likely to
decline in the foreseeable future. Even if we achieve and are able to sustain
profitability, we cannot assure that future net income will offset our
accumulated deficit. This is likely to have an adverse impact on the value of
our stock.

WE ARE NOT LIKELY TO GENERATE SIGNIFICANT REVENUES FROM OUR DSL BUSINESS.

     In early 2008, we issued an "end-of-life" notice to our customers,
according to which we are discontinuing the production of the majority of our
digital subscriber line, or DSL, components. Consequently, we have not allocated
any research and development resources for DSL chipsets and have significantly
reduced the scope of these operations. As such, future realization of revenues
from our current remaining DSL activities may be impaired by the introduction of
newer solutions by our competitors and the obsolescence of our proposed
solutions. We expect that in the foreseeable future our revenues will be reduced
as sales of our DSL chipsets decline .


                                       6
<PAGE>


OUR FUTURE REVENUES ARE PRIMARILY DEPENDENT ON THE ABILITY OF LANTIQ TO
SUCCESSFULLY SELL OUR HT-WLAN PRODUCTS.

       As part of the Lantiq Transaction, we are entitled to earn-out payments
of up to an aggregate $8.0 million, contingent upon the acquired WLAN business's
achievement of specified performance targets through March 2012. The achievement
of these specified performance targets is primarily related to the ability of
Lantiq to successfully sell our HT-WLAN products, which, in turn, is dependent,
among others, on the development of the HT-WLAN market, including the
willingness of end-customer telecommunications service providers to deploy
802.11n standard based products that include WLAN chipsets and the timing of the
deployment.

WE ARE EXPOSED TO POTENTIAL LIABILITIES IN CONNECTION WITH THE LANTIQ
TRANSACTION.

       As part of the Lantiq Transaction, we have agreed to indemnify Lantiq for
several matters, including with respect to liabilities of the WLAN business that
were not assumed by Lantiq and breaches of the asset purchase agreement entered
between us, including in the case of breaches of representations and warranties
made by us in the asset purchase agreement. A claim against us could result in
substantial cost, which would have a negative impact on our financial condition.
In addition, we have generated a significant amount of income from this
transaction. Based on our assessment, we believe that we are in compliance with
all taxes due in relation with this transaction. The various tax authorities may
not agree with our view and any such disagreement or a subsequent tax dispute
could result in tax liabilities in amounts which we currently cannot estimate.

PRODUCTS SOLD BY US MAY INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.

Third parties may assert against us infringement claims or claims that WLAN and
DSL products sold by us in the past, as well as prouducts sold under our current
remaining DSL activities, have violated a patent or infringed a copyright,
trademark or other proprietary right belonging to them. In such event, we may
also be exposed to an indemnity claim by Lantiq in accordance with the asset
purchase agreement, as described elsewhere in this annual report.

We have received from time to time in the past, and may receive in the future,
written notices and offers from research institutions, intellectual property
holding firms and others claiming to have patent rights in certain technology
and inviting us to license this technology and related patent rights for use in
our products and methods or otherwise claiming that our products infringe on the
intellectual property rights of others. For example, we have recently received a
notice that one of our WLAN chipsets may be infringing the patent rights of a
third party and, to our knowledge, such third party is in the process of
submiting lawsuits against various other participants in the WLAN market. While,
to date, none of these notices has resulted in litigation against us, we cannot
assure you that any of these or other third-parties will not pursue litigation
or assert their patent and other intellectual property rights against us in the
future. It would be time consuming for us to defend any such claims, with or
without merit, and any such claims could result in. among others, costly
litigation; divert management's attention and resources; and require us to enter
into royalty or licensing agreements and/or indemnify third parties. In
particular, we have certain indemnification obligations to customers, as well as
to Lantiq (see above), with respect to infringement of third-party patents and
intellectual property rights by our products and underlying technology. We
cannot assure you that our potential obligations to indemnify such third parties
will not harm us, our business or our financial condition and results of
operations. The results of any litigation are inherently uncertain and any
infringement claim or litigation against us, whether with or without merit,
could result in the expenditure of significant financial and managerial
resources.

                                       7
<PAGE>


WE ARE EXPOSED TO VARIOUS OTHER RISKS IN CONNECTION WITH THE OPERATION OF OUR
REMAINING DSL BUSINESS.

       While we expect that in the foreseeable future our revenues will be
reduced as sales of our DSL chipsets decline, we are exposed to various risks in
connection with the operation of our remaining DSL business, including due to
the following:

    o  We currently rely on a single subcontractor for the manufacture of our
       current remaining DSL chipests and on a limited number of subcontractors
       for the assembly of finished chips and other related services. These
       subcontractors currently have limited manufacturing capacity, which may
       not be made available to us on a timely basis, or at all;

    o  We currently obtain key components from a single supplier or from a
       limited number of suppliers and we generally do not have long-term supply
       contracts with our suppliers;

    o  We may experience delays in the delivery of components from our
       suppliers. Due to the discontinuation of the production of the majority
       of our DSL components and our expectation that any purchase orders placed
       with us, will be limited in scale, our subcontract manufacturers may
       allocate available capacity to other customers, including customers that
       are larger or have long-term supply contracts in place;

    o  If our products fail to comply with European or other directives relating
       to the sale of electrical and electronic equipment, we could be subject
       to penalties and sanctions that could materially adversely affect our
       business;

    o  Because competition in the market for our DSL chipsets and alternative
       products is intense, we may not be able to effectively compete with other
       suppliers in our market; and

    o  Because we operate in international markets, we are subject to risks
       which often characterize international markets, including multiple,
       conflicting and changing laws and regulations; economic and political
       instability; and fluctuations in exchange rates.


WE ARE DEPENDENT ON TZVI SHUKHMAN, OUR CHIEF EXECUTIVE OFFICER, THE LOSS OF WHOM
WOULD NEGATIVELY AFFECT OUR BUSINESS.

We believe our future success will depend in large part on the continued
services of Tzvi Shukhman, our chief executive officer. Mr. Shukhman has not
entered into an employment contract with us. We do not carry a life insurance on
Mr.Shukhman. Any loss of the services of Tzvi Shukhman, could negatively affect
our business.


                                       8
<PAGE>


                  RISK FACTORS RELATING TO OUR ORDINARY SHARES

WE MAY NOT SATISFY THE NASDAQ CAPITAL MARKET'S REQUIREMENTS FOR CONTINUED
LISTING. IF WE CANNOT SATISFY THESE REQUIREMENTS, NASDAQ COULD DELIST OUR
ORDINARY SHARES.

       Our ordinary shares are listed on the NASDAQ Capital Market, or NASDAQ,
under the symbol MTLK. To continue to be listed on the NASDAQ, we will need to
satisfy a number of conditions. For example, since late 2008 and through
February 2010, we were not in compliance with NASDAQ's minimum bid price
requirement of $1.00 per share, which eventually led us to effect a reverse
share split of our ordinary shares.

       We cannot assure you that we will be able to continue to be in compliance
with the minimum bid requirment, or continue to meet the other continued listing
requirements of NASDAQ in the future. In particular, NASDAQ has, from time to
time, issued delisting notices to issuers that it believed to no longer have an
operating business or are otherwise considered a "public shell" based on certain
NASDAQ rules that generally provide NASDAQ with a discretionary authority
listing even though the securities meet all enumerated criteria for continued
inclusion in NASDAQ.

     If we are delisted from NASDAQ, trading in our ordinary shares may be
conducted, if available, on the "OTC Bulletin Board Service" or another medium.
In the event of such delisting, an investor would likely find it significantly
more difficult to dispose of, or to obtain accurate quotations as to the value
of our ordinary shares, and our ability to raise future capital through the sale
of our ordinary shares could be severely limited. If we are delisted from
NASDAQ, our shares will cease to qualify for the mark-to-market election under
the PFIC rules. See "Item 10E, Taxation--United States Federal Income Tax
Considerations--Passive Foreign Investment Company Considerations."

       In addition, if our ordinary shares were delisted from NASDAQ, our
ordinary shares could be considered a "penny stock" under the U.S. federal
securities laws. Additional regulatory requirements apply to trading by
broker-dealers of penny stocks that could result in the loss of an effective
trading market for our ordinary shares.

A MAJORITY OF OUR OUTSTANDING SHARES ARE HELD BY TWO INDIVIDUALS, WHO EXERT
SIGNIFICANT CONTROL OVER THE COMPANY'S DIRECTION. IN ADDITION, SUBSTANTIAL
FUTURE SALES OF OUR ORDINARY SHARES MAY DEPRESS OUR SHARE PRICE.

       As of June 24, 2010, Messrs. Tzvi Shukhman and Uzi Rozenberg, who are
directors of the Company, held an aggregate of 10,685,654 of ordinary shares (or
1,068,566 shares after the reverse share split effected February 22, 2010),
representing 39.71% of our outstanding shares. Mr. Shukhman is also our chief
executive officer, and Mr. Rozenberg is also the Chairman of our Board of
Directors. As a result, if these shareholders vote together, they could have a
significant influence on the election of our directors and on other decisions by
our shareholders on matters submitted to shareholder vote, including mergers,
consolidations and the sale of all or substantially all of our assets. This
concentration of ownership of our ordinary shares could delay or prevent proxy
contests, mergers, tender offers, open-market purchase programs or other
purchases of our ordinary shares that might otherwise give our shareholders the
opportunity to realize a premium over the then-prevailing market price for our
ordinary shares. This concentration of ownership may also adversely affect our
share price.


                                       9
<PAGE>


       In addition, if these shareholders sell substantial amounts of our
ordinary shares, or if the perception exists that they may sell a substantial
number of our ordinary shares, the market price of our ordinary shares may fall.

IF WE ARE CHARACTERIZED AS A PASSIVE FOREIGN INVESTMENT COMPANY, OUR U.S.
SHAREHOLDERS MAY SUFFER ADVERSE TAX CONSEQUENCES.

       As more fully described in Item 10 - "Additional Information - Taxation"
under the caption "PASSIVE FOREIGN INVESTMENT COMPANY CONSIDERATIONS," there is
a high likelihood that we will be properly classified as a passive foreign
investment company, or PFIC, for U.S. federal income tax purposes in 2010. If,
for any taxable year, our passive income, or our assets that produce passive
income, exceed specified levels, we may be characterized as a PFIC for that year
and possibly also for later years. We satisfied the corpoate level test to be a
PFIC during the years 2002 and 2003 but not in the years 2004-2009. Our ordinary
shares will be shares in a PFIC in the case of any United States person that
owned those shares in 2002 or 2003 and that person has not made any of certain
elections that could permit the PFIC classification of our shares to terminate
in a taxable year in which we did not satisfy the test to be a PFIC. If we are
characterized as a PFIC, our U.S. shareholders may suffer adverse tax
consequences. These consequences may include having gains realized on the sale
of our ordinary shares treated as ordinary income, rather than capital gains,
and having the highest possible tax rates in prior years, together with
significant interest charges, apply to substantial portions of those gains and
to certain distributions, if any, that we make, whether or not we have any
earnings and profits. U.S. shareholders should consult their own U.S. tax
advisers with respect to the U.S. tax consequences of investing in our ordinary
shares.

IF WE FAIL TO MAINTAIN EFFECTIVE INTERNAL CONTROLS IN ACCORDANCE WITH SECTION
404 OF THE SARBANES-OXLEY ACT OF 2002, IT COULD HAVE A MATERIAL ADVERSE EFFECT
ON OUR BUSINESS, OPERATING RESULTS AND STOCK PRICE.

       The Sarbanes-Oxley Act of 2002 imposes certain duties on us. Our efforts
to comply with the management assessment requirements of Section 404, which
apply to us beginning with year 2007, have resulted in increased general and
administrative expenses and a devotion of management time and attention to
compliance activities, and we expect these efforts to require the continued
commitment of significant resources. If we fail to maintain the adequacy of our
internal controls, we may not be able to ensure that we can conclude on an
ongoing basis that we have effective internal control over financial reporting.
We may also identify material weaknesses or significant deficiencies in our
internal control over financial reporting. In addition, our internal control
over financial reporting has not yet been audited by our independent registered
public accounting firm. In the future, if we are unable to assert that our
internal controls are effective, our investors could lose confidence in the
accuracy and completeness of our financial reports, which in turn could cause
our stock price to decline. Failure to maintain effective internal control over
financial reporting could also result in investigation and/or sanctions by
regulatory authorities, and could have a material adverse effect on our business
and operating results, investor confidence in our reported financial
information, and the market price of our ordinary shares.


                                       10
<PAGE>


                    RISKS RELATING TO OUR LOCATION IN ISRAEL

CONDITIONS IN ISRAEL AFFECT OUR RESULTS OF OPERATIONS AND MAY LIMIT OUR ABILITY
TO PERSUE OUR STRATEGIC ALTERNATIVES.

       We are incorporated under the laws of the State of Israel, and our
principal offices are located in Israel. Over the past several decades, a number
of armed conflicts have taken place between Israel and its Arab neighbors and a
state of hostility, varying in degree and intensity, has led to security and
economic problems for Israel. Since late 2000, there has been a high level of
violence between Israel and the Palestinians which has strained Israel's
relationship with its Arab citizens, Arab countries and, to some extent, with
other countries around the world. In addition, Iran has threatened to attack
Israel and is widely believed to be developing nuclear weapons. Any armed
conflicts or political instability in the region, including acts of terrorism or
any other hostilities involving or threatening Israel, might deter potential
targets from effecting a business combination with an Israeli company. In
addition, the operations and financial results of our remaining DSL business
could be adversely affected if political, economic or military events curtailed
or interrupted trade between Israel and its present trading partners or if major
hostilities involving Israel should occur in the Middle East.

PROVISIONS OF ISRAELI LAW MAY DELAY, PREVENT OR COMPLICATE MERGER OR ACQUISITION
ACTIVITY, WHICH COULD DEPRESS THE MARKET PRICE OF OUR SHARES.

       Provisions of Israeli corporate, securities and tax law may have the
effect of delaying, preventing or making an acquisition of our company more
difficult. For example, under the Companies Law, upon the request of a creditor
of either party to a 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. This and other provisions of Israeli law could cause
our ordinary shares to trade at prices below the price for which third parties
might be willing to pay to gain control of us, since third parties who are
otherwise willing to pay a premium over prevailing market prices to gain control
of us may be unable or unwilling to do so because of these provisions of Israeli
law.

BECAUSE SUBSTANTIALLY ALL OF OUR REVENUES ARE GENERATED IN U.S. DOLLARS WHILE A
SIGNIFICANT PORTION OF OUR EXPENSES ARE INCURRED IN NIS 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
significant portion of our expenses, principally salaries, related personnel
expenses and occupancy expenses in NIS. As a result, we are exposed to the risk
that our dollar costs in Israel will increase if 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. Historically, over time, the NIS has been
devalued against the dollar, generally reflecting inflation rate differentials.
Likewise, our operations could be adversely affected if we are unable to protect
ourselves against currency fluctuations in the future.


                                       11
<PAGE>


       In 2007, we entered into certain currency hedging transactions to
decrease the risk of financial exposure from fluctuations in the exchange rate
of the dollar against the NIS. In 2008 the Company settled all hedging
transactions and did not resume any such transactions during 2009. We may
however enter into additionl currency hedging transactions in the future. These
measures, however, may not adequately protect us from serious harm due to the
impact of inflation in Israel.

IT MAY BE DIFFICULT TO ENFORCE A U.S. JUDGMENT AGAINST US, OUR OFFICERS AND
DIRECTORS OR TO ASSERT U.S. SECURITIES LAWS CLAIMS IN ISRAEL.

       We are incorporated under the laws of the State of Israel. Service of
process upon us, our Israeli subsidiaries and our directors and officers, all of
whom reside outside the United States, may be difficult to obtain within the
United States. Furthermore, because the majority of our assets and investments,
and all of our directors and officers are located outside the United States, any
judgment obtained in the United States against us or any of them may not be
collectible within the United States.

       We have been informed by our legal counsel in Israel that it may be
difficult to assert U.S. securities law claims in original actions instituted in
Israel. Israeli courts may refuse to hear a claim based on a violation of U.S.
securities laws because Israel is not the most appropriate forum to bring such a
claim. In addition, even if an Israeli court agrees to hear a claim, it may
determine that Israeli law and not U.S. law is applicable to the claim. If U.S.
law is found to be applicable, the content of applicable U.S. law must be proved
as a fact, which can be a time-consuming and costly process. Certain matters of
procedure will also be governed by Israeli law. There is little binding case law
in Israel addressing these matters.

       Subject to specified time limitations and legal procedures, under the
rules of private international law currently prevailing in Israel, Israeli
courts may enforce a U.S. final judgment in a civil matter, including judgments
based upon the civil liability provisions of the U.S. securities laws and
including a monetary or compensatory judgment in a non-civil matter, provided
that:

      o     the judgment is enforceable in the state in which it was given;

      o     adequate service of process has been effected and the defendant has
            had a reasonable opportunity to present his arguments and evidence;

      o     the judgment and its enforcement are not contrary to the law, public
            policy, security or sovereignty of the State of Israel;

      o     the judgment was not obtained by fraud and does not conflict with
            any other valid judgment in the same matter between the same
            parties; and

      o     an action between the same parties in the same matter is not pending
            in any Israeli court at the time the lawsuit is instituted in the
            U.S. court.


                                       12
<PAGE>


WE DERIVE CERTAIN TAX BENEFITS UNDER ISRAELI LAW FROM OUR STATUS AS AN "APPROVED
ENTERPRISE", IN ADDITION TO OTHER TAX AND PROGRAM BENEFITS UNDER ISRAELI LAW.
SUCH BENEFITS MAY REQUIRE US TO SATISFY CERTAIN CONDITIONS, OR MAY BE REDUCED OR
ELIMINATED IN THE FUTURE. OUR POTENTIAL TAX LIABILITY COULD INCREASE IF WE FAIL
TO MEET SUCH CONDITIONS, OR IF SUCH PROGRAMS ARE REDUCED OR ELIMINATED.

       Several of our capital investments have been granted "approved
enterprise" status under the Israeli Law for the Encouragement of Capital
Investments, 1959, or the Investments Law. An approved enterprise is eligible
for tax benefits on taxable income derived from its approved enterprise
programs. The benefits available to an approved enterprise are dependent upon
the fulfillment of conditions stipulated in applicable law and the certificate
of approval. If we fail to comply with these conditions, in whole or in part,
with respect to any approved enterprise program we establish, we may be required
to pay additional taxes for the period in which we benefited from the tax
exemption or reduced tax rates and we would likely be denied these benefits in
the future. This could harm our business and our profitability. In addition, the
Israeli government may reduce or eliminate in the future tax benefits available
to approved enterprise programs. Our approved enterprise program and the tax
benefits thereunder may not continue in the future at their current levels or at
any level. The termination or reduction of these tax benefits would likely
increase our taxes.

SINCE WE RECEIVED GOVERNMENT GRANTS FOR RESEARCH AND DEVELOPMENT EXPENDITURES,
WE ARE SUBJECT TO ONGOING RESTRICTIONS AND CONDITIONS, INCLUDING RESTRICTIONS ON
OUR ABILITY TO MANUFACTURE PRODUCTS AND TRANSFER TECHNOLOGIES OUTSIDE OF ISRAEL.

       We have received royalty-bearing grants from the Government of Israel
through the Office of the Chief Scientist of the Israeli Ministry of Industry,
Trade and Labor, or the Chief Scientist, for the financing of a significant
portion of our research and development expenditures in Israel and we may to
apply for additional grants in the future. To maintain our eligibility for these
grants we must continue to meet several conditions under the grant programs,
including paying royalties with respect to the grants received. If we fail to
comply with any of the conditions imposed by the Chief Scientist, we may be
required to refund any payments previously received, together with interest and
penalties.

       In addition, the terms of the Chief Scientist grants limit our ability to
manufacture products or transfer technologies, outside of Israel, if such
products or technologies were developed using know-how developed with or based
upon Chief Scientist grants. Any non-Israeli who becomes a holder of 5% or more
of our share capital is generally required to notify the Chief Scientist and to
undertake to observe the law governing the grant programs of the Chief
Scientist, the principal restrictions of which are the transferability limits
described above in this paragraph.

ITEM 4. INFORMATION ON THE COMPANY

A. HISTORY AND DEVELOPMENT OF THE COMPANY

CORPORATE HISTORY AND DETAILS

       Metalink was incorporated in September 1992 as a corporation under the
laws of the State of Israel. Our principal executive offices are located at
Yakum Business Park, Yakum 60972, Israel. Our telephone number is
972-9-960-5555. Our agent for service in the United States is National
Registered Agents, Inc. 160 Greentree Drive, Suite 101 Dover, DE 19904.


                                       13
<PAGE>


       Our address on the Internet is www.MTLK.com. The information on our
website is not incorporated by reference into this annual report.

       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 telecommunications
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 December 1999, we completed our initial public offering of 4,600,000
ordinary shares and our ordinary shares commenced trading on the NASDAQ Global
Market under the symbol "MTLK". In March 2000, we completed our secondary public
offering of 1,500,000 ordinary shares and, in December 2000, our ordinary shares
commenced trading also on the TASE.

RECENT MAJOR BUSINESS DEVELOPMENTS

       On January 5, 2010, we entered into an Asset Purchase Agreement with
Lantiq Israel Ltd. and Lantiq Beteiligungs - GmbH & Co. KG (together, "Lantiq")
for the sale of the assets of, and certain specified liabilities related to, our
wireless local area network (WLAN) business to Lantiq, a newly-formed fabless
semiconductor company funded by Golden Gate Capital, in consideration for a
total purchase price of up to $16.9 million in cash. On February 15, 2010 we
completed the transaction. As part of the transaction, we entered into several
additional agreements with Lantiq whereby, among other things, we agreed to
provide Lantiq certain consulting services and Lantiq agreed to provide us with
certain transition services for a limited period following the closing. FOR
ADDITIONAL DETAILS ABOUT THE LANTIQ TRANSACTION, SEE BELOW UNDER ITEM 10.C
"ADDITIONAL INFORMATION--MATERIAL AGREEMENTS."

       On September 8, 2008, we entered into a loan agreement with the Senior
Lender, whereby the Senior Lender extended us a senior secured loan of up to
$8.0 million, $3.5 million of which were drawn on September 9, 2008, and $2.25
million were drawn on January 2, 2009 as part of an amendment to the loan
agreement. On September 6, 2009, we entered into a second amendment to the Loan
Agreement, whereby the maturity date was extended from September 9, 2009 to
March 9, 2010. As part of the such amendment, we repaid the Senior Lender $2.0
million out of the outstanding $5.75 million. On December 30, 2009, we entered
into a third amendment to the Loan Agreement, whereby a repayment of $4,312,500
originally due upon the closing of the Lantiq Transaction would be reduced to
$4,100,000 and repaid in four installments: $3,750,000, which was paid at the
closing of the Lantiq Transaction, and the remainder in three installments by
March 31, 2011. FOR ADDITIONAL DETAILS ABOUT THE LOAN AGREEMENT, SEE BELOW UNDER
ITEM 10.C "ADDITIONAL INFORMATION--MATERIAL AGREEMENTS."

       On November 30, 2009, NASDAQ staff informed us that our securities will
be delisted from Nasdaq as we have failed to meet the Nasdaq $1.00 minimum
bid price requirement and minimum shareholders' equity requirement of $2.5
million


                                       14
<PAGE>


       On February 22, 2010 we effected a one-for-ten reverse split of the
Company's outstanding ordinary shares that was designed to assist us in
regaining compliance with the $1.00 minimum bid price requirement. After the
reverse split, the number of the Company's authorized Ordinary Shares was
decreased from 50 million to 5 million and the par value per Ordinary Share was
increased from NIS 0.1 to NIS 1.0.

       On March 8, 2010, following the aforesaid reverse share split and the
increase in our shareholders' equity that occurred as a result of the closing of
the Lantiq Transaction, NASDAQ staff informed us that we have regained
compliance with the minimum bid price requirement and the minimum shareholders'
equity requirement. Accordingly, the staff determined to continue the listing of
our securities on The Nasdaq Stock Market.

       On March 11, 2010, we voluntary delisted our ordinary shares from
trading on the Tel Aviv Stock Exchange (TASE), which delisting became effective
on June 14, 2010.

PRINCIPAL CAPITAL EXPENDITURE AND DIVESTITURES

       Capital expenditures were $15,000 for the year ended December 31, 2009,
$793,000 for the year ended December 31, 2008, and $1,975,000 for the year ended
December 31, 2007. These expenditures were principally for equipment and
software for our research, development and manufacturing activities.

       During 2007, 2008 and 2009, we did not make any significant divestitures.
In early 2008, we issued "end of life" notices to our DSL customers regarding
most of our DSL products and, as described elsewhere in this annual report, we
sold our WLAN business to Lantiq in February 2010.

B.    BUSINESS OVERVIEW

                                EXPLANATORY NOTE

     Upon the sale of our WLAN business to Lantiq in February 2010, we ceased
substantially all of the operations of our business as conducted prior thereto.
Since then, our plan of operation is (1) to continue the marketing of our
digital subscriber line, or DSL products and (2) to explore and consider
strategic alternatives relating to our remaining DSL business as well as to
other investments and opportunities, including a possible business combination
or other strategic transaction with a domestic or foreign, private or public
operating entity or a "going private" transaction, including with any of our
affiliates. In addition, as a result of the Lantiq Transaction, the results of
operations of the WLAN business in future periods will be reported as
discontinued operations and the consolidated results from continuing operations
will no longer include revenues and expenses attributable to such business.
Nevertheless, since the operations of the WLAN business comprised one of our
principal activities in the past years, we have divided this Item 4 into the
following two primary sections (1) DSL Business - Continued Operations, and (2)
Sale of WLAN Business to Lantiq.


                                       15
<PAGE>


                      DSL BUSINESS - CONTINUED OPERATIONS

GENERAL

       We sell DSL chipsets used by manufacturers of telecommunications
equipment. Our DSL chipsets enable the digital transmission of voice, video and
data over copper wire communications lines at speeds that are up to 2,000 times
faster than transmission rates provided by conventional analog modems. Our
chipsets typically include two individual integrated circuits, or chips, and
include an analog front-end (AFE) for line interfacing with analog signals and a
digital signal processor (DSP) / framer for signal and data processing of the
messages being transmitted. We have sold over fifteen million of our chips to
OEMs that incorporate our chips into their own products. These OEMs have sold
products containing our chipsets to telecommunications service providers
throughout the world.

PRODUCTS AND TECHNOLOGY

       DSL. A typical DSL 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 includes 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.

       SDSL. SDSL uses 2BlQ encoding to offer a symmetric link over a single
copper wire at maximum symmetric rates of 2.320 megabits per second (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.

       HDSL2 AND HDSL4. 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.


                                       16
<PAGE>


       VDSL. VDSL technology defines very high transmission rates over a single
copper wire pair. This includes symmetric transmission at a rate of up to 100
Mbps. 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 tens to hundreds of subscribers onto a single
fiber that carries the information to the central office. VDSL technology has
been standardized by the American National Standards Institute, or ANSI, and the
ITU. In 2003 the standards working group in the ANSI developed an American
National Standard for VDSL using Multi Carrier Modulation (DMT) and a Committee
T1 Technical Requirement (TRQ) document for VDSL using Single Carrier Modulation
(QAM). In 2004, the ITU has reached agreement on a new global standard that
specifies the application of the two main technologies used for encoding signals
for DSL - Discrete Multi Tone (DMT) technology and Quadrature Amplitude
Modulation (QAM) - to VDSL (Very high-speed Digital Subscriber Line) technology.
In May 2005 the ITU has ratified a VDSL2 standard based on the existing ADSL2
and VDSL standards that specify DMT modulation only. Our existing VDSL chipsets
are based on QAM. Currently most of the future deployment of VDSL chipsets
require the VDSL2 standard of DMT only. Thus, our VDSL sales suffer from lack of
demand, and we expect them to continue to diminish in the near future.

       In early 2008, we issued "end of life" notices to our DSL customers
regarding most of our DSL products and we are not currently engaged in
development of any DSL chipsets.

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

<TABLE>
<CAPTION>
--------         ----------------------------------------------------------------------------   -------------  -----------
                                                                                                                MAXIMUM
                                                                                                              TRANSMISSION
                                                                                                  SAMPLING       RATES
CHIPS                                  FUNCTION                                                     DATE         (MBPS)
--------         ----------------------------------------------------------------------------   -------------  -----------
<S>              <C>                                                                                <C>           <C>
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 line-driver.                          2Q01          4.640
--------         ----------------------------------------------------------------------------   -------------  -----------
MtS 180          SHDSL / HDSL2 / HDSL4 system on a chip for T1/E1/TDM transport applications        1Q02          4.640
MtS 172          SDSL / SHDSL / HDSL2 / HDSL4 transceiver with integrated T1/E1 framer.             2Q02          4.640
--------         ----------------------------------------------------------------------------   -------------  -----------
MtV 9370         Dual VDSL transceiver/framer for 3-band applications                               3Q01             52

MtV 9141         VDSL AFE for 2,3 and 4-band applications                                           4Q01             52
--------         ----------------------------------------------------------------------------   -------------  -----------
MtV 9172         Single trunk 2/3/4-band VDSL transceiver with integrated MAC for
                 Ethernet & ATM applications (ONU & NT)                                             4Q02             60
MtV 9470         Quad 2/3/4-band VDSL transceiver for Ethernet applications (ONU)                   4Q02             60
--------         ----------------------------------------------------------------------------   -------------  -----------
MtV 9473         Quad 2/3/4/5-band VDSL transceiver for Ethernet applications (ONU)                 1Q04            100
MtV 9273         Single trunk 2/3/4/5/6-band VDSL transceiver with integrated MAC
                 for Ethernet & ATM applications (ONU & NT)                                         1Q04            100

MtV 9143         VDSL AFE for 2,3,4, 5 and 6-band applications                                      1Q04            100

MtV 9120         VDSL Line Driver for 2,3,4,5 and 6-band applications                               1Q04            100
--------         ----------------------------------------------------------------------------   -------------  -----------
</TABLE>


                                       17
<PAGE>


       The following table enumerates our product applications:

<TABLE>
<CAPTION>
------------------------------------------------- ------------- --------------------------------------
        CHIP SET APPLICATIONS                       PRODUCTS             CONFIGURATION
------------------------------------------------- ------------- --------------------------------------
<S>                                                  <C>        <C>
Octal G.shdsl SHDSL CO application                   MtS870     Each chip set consists of one octal
                                                     MtS140     DSP / framer and eight AFE chips.
                                                      OR
                                                     MtS142     DSP / framer and eight AFE chips.
------------------------------------------------- ------------- --------------------------------------
G.shdsl SHDSL CPE application                        MtS170     Each chip-set consist of a single DSP
                                                     MtS140     / framer chip and a single AFE chip.
                                                     OR
                                                     MtS142     / framer chip and a single AFE chip.
------------------------------------------------- ------------- --------------------------------------
Single pair T1 HDSL2 and E1 G.SHDSL                  MtS180     Each chip-set consist of a single DSP
                                                     MtS140     / framer chip and a single AFE chip.
                                                     OR
                                                     MtS142     / framer chip and a single AFE chip.
------------------------------------------------- ------------- --------------------------------------
Two pair T1 HDSL4 and E1 G.SHDSL                     MtS180     Each chip-set consist of a two DSP /
                                                     MtS172     framer chips and two AFE chips.
                                                     MtS140
                                                     OR
                                                     MtS142     framer chips and two AFE chips.
------------------------------------------------- ------------- --------------------------------------
Single pair T1 HDSL2                                 MtS180     Each chip-set consist of a single DSP
                                                     MtS142     / framer chip and a single AFE chip.
------------------------------------------------- ------------- --------------------------------------
Two pair T1 HDSL4                                    MtS180     Each chip-set consist of a single
                                                     MtS172     System on Chip, single DSM/Framer and
                                                     MtS142     two AFE devices.
------------------------------------------------- ------------- --------------------------------------
CO/ONU dual three band VDSL application              MtV9370    Each chip-set consist of a DSP/
                                                     MtV9141    framer chip and two AFE chips.
------------------------------------------------- ------------- --------------------------------------
CO/ONU Quad four-band EoVDSL application             MtV 9470   Each chip-set consist of a DSP/framer
                                                     MtV9141    chip and four AFE chips
------------------------------------------------- ------------- --------------------------------------
EoVDSL CPE four band VDSL application                MtV9172    Each chip-set consist of a single DSP
                                                     MtV9141    / framer chip and a single AFE chip.
------------------------------------------------- ------------- --------------------------------------
CO/ONU Quad five-band EoVDSL application             MtV 9473   Each chip-set consist of a DSP/framer
                                                     MtV9143    chip and four AFE chips and four line
                                                     MtV9120    driver chips
------------------------------------------------- ------------- --------------------------------------
EoVDSL CPE five band VDSL application                MtV9172    Each chip-set consist of a single DSP
                                                     MtV9141    / framer chip two AFE chips and a
                                                     MtV9120    single line driver chip.
------------------------------------------------- ------------- --------------------------------------
ONU and CPE six-band VDSL application                MtV9273    Each chip-set consist of a single DSP
                                                     MtV9143    / framer chip, a single AFE chip and
                                                     MtV9120    a single line driver chip.
------------------------------------------------- ------------- --------------------------------------
</TABLE>

       Older products are approaching a point of obsolence, and as the market
for those products diminishes, we will slow or stop production of those products
altogether.

CUSTOMERS

       Our customers for the DSL products, primarily telecommunications
equipment manufacturers, incorporate our chipsets into the products that they
sell to telecommunications service providers. Since we commenced operations in
1993, we have shipped over fifteen million of our DSL chips to our customers or
OEM partners, including ADC, Alcatel, ECI Telecom, Marconi, Motorola Wireline
Networks, Primeteck, RAD, Schmid, Tellion, Tellabs and others. These chips are
used in telecommunications equipment deployed worldwide by telecommunications
service providers. We do not have purchase contracts with any of our customers
that obligate them to continue to purchase our chipsets, and these customers
could cease purchasing our chipsets, at any time.


                                       18
<PAGE>


     At the beginning of year 2008, we provided our customers an "end-of-life"
announcement, according to which we are discontinuing the production of most of
our digital subscriber line, or DSL, components.

       Our DSL chipsets are being incorporated into the following systems:

    o  T1/El transmission equipment, which is used by telecommunications service
       providers 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  Ethernet based digital subscriber line access multiplexers (DSLAMs) and
       Ethernet switches, which are used to terminate tens of lines in a
       building basement or street cabinet and aggregate them onto a high-speed
       optical Ethernet link for transmission to the communications backbone;

    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 combine 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.


                                       19
<PAGE>


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


                                            YEAR ENDED DECEMBER 31,
                                  ----------------------------------------------
                                    2 0 0 9          2 0 0 8          2 0 0 7
                                  ----------      ------------     -------------
                                                 (IN THOUSANDS)
                                  ----------------------------------------------

REVENUES:
Korea                             $      336      $        542     $       1,051
Israel                                 1,218             1,554             2,023
United States                          1,308                75             2,284
Other foreign countries
(mainly European)                      2,054             4,991             4,808
                                  ----------      ------------     -------------

                                  $    4,916      $      7,162     $      10,166
                                  ==========      ============     =============

For the year ended December 31, 2009, three customers accounted for
approximately 71% of our revenues. For the year ended December 31, 2008, three
customers accounted for approximately 63% of our revenues. For the year ended
December 31, 2007, four customers accounted for approximately 69% of our
revenues.

       The following is a summary of revenues by product line.

                                                  YEAR ENDED DECEMBER 31,
                                          --------------------------------------
                                           2 0 0 9       2 0 0 8        2 0 0 7
                                          ---------     ---------     ----------
                                                      (IN THOUSANDS)
                                          --------------------------------------

REVENUES:
DSL                                       $   3,288     $   7,108     $    9,855
WLAN (discontinued see ITEM 10C)              1,628            54            311
                                          ---------     ---------     ----------
                                          $   4,916     $   7,162     $   10,166
                                          =========     =========     ==========

SALES AND MARKETING

       Since the sale of the WLAN business to Latiq in February 2010, we have
only limited sales representatives and distributors, who are typically engaged
on an ad-hoc basis. Until the sale of the WLAN business, we marketed our
products through a worldwide network of independent agents, sales
representatives and distributors.

       We also sell our products directly to selected customers in the United
States, Israel and Europe.

RESEARCH AND DEVELOPMENT

        Since the sale of the WLAN business to Latiq in February 2010, we are
not engaged in any research and development activites. Until the sale of the
WLAN business, we invested significant resources in research and development
activities and, as of December 31, 2009 our research and development staff
consisted of 50 employees.

       The Government of Israel, through the Office of the Chief Scientist of
the Israeli Ministry of Industry, Trade and Labor, encourages research and
development projects. Since 1995, we received grants from the Office of the
Chief Scientist for the development of our products. In addition, we were
engaged in a research project, under the sixth framework program of the European
Commission, under which we were entitled to grants based on certain approved
expenditures of a research and development plan. See "Item 5(A)--Operating and
Financial Review and Prospects--Operating Results--Government Grants."


                                       20
<PAGE>


MANUFACTURING

       We have never owned or operated a semiconductor fabrication facility. As
a fabless provider of chipsets, we subcontract our entire semiconductor
manufacturing to third party contractors. Our chipsets are delivered to us fully
assembled and tested based on our proprietary designs.

       We currently subcontract our semiconductor wafer manufacturing to Taiwan
Semiconductor Manufacturing Company in Taiwan, Jazz Semiconductor in USA, and to
Semiconductor Manufacturing International (Shanghai) Corp. in China. The
packaging and testing of our chipsets are performed by Singapore Technologies
Assembly and Test Services, Advanced Semiconductor Engineering Inc. in Taiwan,
and ASAT Ltd. in Hong Kong and China. 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, or have a roadmap to
comply with the above standards. Most of our chipsets are not manufactured by
more than one contractor. In the event that 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 affected 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, packaging and testing
agreements with any of our subcontractors, except for one foundry. Most of our
foundries, and packaging and testing subcontractors 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 subcontractors.

       We must place orders at least 16 to 20 weeks in advance of expected
delivery. As a result, we have only a limited ability to react to fluctuations
in demand for our chipsets, 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 do not
currently own any registered trademarks or registered copyrights.

        In addition, our NML technology is protected by three patents in the
United States. Most of our chipsets design is based on the NML technology. If
that technology was not protected, or if it was deemed to be infringing on third
party intellectual property rights, we would incur significant costs and
competitive disadvantages in redesigning our products. 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.


                                       21
<PAGE>


       One of our existing U.S. patents will expire in 2015. Our other two U.S.
patents will expire in 2018.

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 in the DSL market include Ikanos,
Lantiq and Mindspeed. As described above, at the beginning of year 2008, we
provided our customers an "end-of-life" announcement with respect to most of our
DSL components.

       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 may 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 time passes in the DSL market, we expect that the existing need for
our chipsets to decline. 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 chipsets 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 and may use our subcontractors manufacturing capacity causing us
difficulties in supply from said manufaturers. Our inability to achieve
manufacturing efficiencies would have an adverse impact on our operating
results.

GOVERNMENT REGULATIONS

       ENVIRONMENTAL DIRECTIVES. A directive issued by the European Union on the
Restriction of the Use of Certain Hazardous Substances in Electrical and
Electronic Equipment, or "RoHS," came into effect in July 2006. The RoHS
directive lists a number of substances including, among others, lead, mercury,
cadmium and hexavalent chromium, which must either be removed or reduced to
within maximum permitted concentrations in any products containing electrical or
electronic components that are sold within the European Union. Our products meet
the requirements of the RoHS directive and we are making every effort in order
to maintain compliance, without otherwise adversely affecting the quality and
functionalities of our products.


                                       22
<PAGE>


       We, like other manufacturers, are dependent on our suppliers for certain
components and sub-system modules to comply with these requirements and on their
ability to monitor such compliance.

       A further European Union directive on Waste Electrical and Electronic
Equipment, or "WEEE," approved by the European Union in 2003, promotes waste
recovery with a view to reducing the quantity of waste for disposal and saving
natural resources, in particular by reuse, recycling and recovery of waste
electrical and electronic equipment. The WEEE directive covers all electrical
and electronic equipment used by consumers and electronic equipment intended for
professional use. The directive, which partly came into effect in August 2005,
requires that all new electrical and electronic equipment put on the market in
European Union be appropriately labeled regarding waste disposal and contains
other obligations regarding the collection and recycling of waste electrical and
electronic equipment. We support the WEEE and conform to the industry standard
practices wherever practical. If we fail to maintain compliance, we may be
restricted from conducting certain business in the European Union, which could
adversely affect our results of operations.

       An additional European Code of Conduct on Energy Consumption of Broadband
Equipment Conduct, or the Code of Conduct, has set out the basic principles to
be followed by all parties involved in broadband equipment, operating in the
European Community, in respect of energy efficient equipment. The Code of
Conduct requires Customer-premises equipment, or CPE and home appliances to meet
certain maximum power cunsmpution targets. Though this requeirment is on the
overall device manfucaturred by our customers, it influences the requriments
from our products which are integrated into such devices. If we fail to maintain
compliance with the Code of Conduct, we may be restricted from conducting
certain business in the European Union, which could adversely affect our results
of operations.

       The countries of the European Union, as a single market for our products,
accounted in 2009 for approximately 42% of our revenues. If our products fail to
comply with WEEE or RoHS directives, the Code of Conduct or any other directive
or similar regulation issued from time to time by the European Union or in other
countries in which we operate, we could be subject to penalties and other
sanctions that could have a material adverse affect on our results of operations
and financial condition.

       ISRAELI OFFICE OF THE CHIEF SCIENTIST. See "Item 5(A)--Operating and
Financial Review and Prospects--Operating Results--Government Grants."


                                       23
<PAGE>


SALE OF WLAN BUSINESS TO LANTIQ

       On February 15, 2010, we completed a transaction to sell our WLAN
business to Lantiq, as described under "ITEM 10C. MATERIAL CONTRACTS - LANTIQ
TRANSACTION" below. As a result of this transaction, the results of operations
of the WLAN business in future periods will be reported as discontinued
operations and the consolidated results from continuing operations will no
longer include revenues and expenses attributable to such business.
Nevertheless, since the operations of the WLAN business comprised one of our
principal activities in past years, the following is a brief description of the
WLAN business prior to February 15, 2010. Accordingly, the following description
of the WLAN business, to the extent the descrioption below uses current tense,
does not purport to describe the current operations of Metalink. For example, we
no longer sell or own rights to WLANPLUS chipsets and such chipsets are sold by
Lantiq.

GENERAL

       Until the Lantiq Transaction, we designed and sold. Our HT-WLAN chipsets,
commercialy sold as WLANPLUS, were designed to enable transport of digital
broadband media including video, voice and data at significantly higher rates
than conventional wireless local area networking (WLAN) solutions. Our HT-WLAN
products support the IEEE 802.11n standard.

PRODUCTS AND TECHNOLOGY

       Commercialy sold as the WLANPLUS, this family of products was developed
to comply with the IEEE 802.11n standard. Previous WLAN solutions were
inadequate to meet the needs of the emerging multimedia environment: a minimum
of 60 Mbps effective throughput at 60 feet, together with a high level of
Quality of Service (QoS) is needed to support the required applications, such as
streaming three streams of HDTV throughout the home. There is also an increasing
requirement to provide distribution of broadband content arriving into the home
to various consumer devices, such as distributing IPTV from a residentual
gateway to a TV. Our WLANPLUS features implementation of real-MIMO technology to
enhance performance provides QoS features to facilitate multimedia connectivity,
supports high-throughput, rich-content, quality-critical applications and
delivers a significant increase in WLAN throughput and range compared to legacy
802.11a,b,g solutions.

       The MtW817X / MtW815X is Metalink's IEEE 802.11n 802.11m Certified
dual-band chip-set series. It has been sampling since the first quarter of 2007
and became commercially available at the end of the third quarter of 2007.
WLANPLUS is designed to provide the optimal performance in home environments,
supporting both data and HD video delivery throughout the home. These
performance advantages were demonstrated and validated by customers, partners
and independent test houses. We partner with other chip vendors, such as makers
of decoders and network processors, to provide their customers with complete
solutions.

CUSTOMERS

       We sold our HT-WLAN chipsets directly to ODMs, who may include our
chipsets in their products, and to OEMs. These inlcude Set-Top-Boxes,
Televisions, Video Bridges, Personal Video Recorders, Routers and residential
gateway manufacturers. We generated insignificant revenues from our HT-WLAN
products.


                                       24
<PAGE>


       Our HT-WLAN chipsets were incorporated into Video Bridges, which are used
to connect the home router or PC to a TV or Game console which enables the end
users to transfer high definition video from the PC (via the router) to the TV
in order to watch high definition, or HD, movies or play HD games over the
internet.

       For a summary of revenues by product line, see above under "DSL Business
- Continued Operations - Customers."

SALES AND MARKETING

       We sold and provided technical suppot to our HT-WLAN chipsets, through
independent consultatnts, sales representatives and distributors, in Europe,
Asia and North America. Following the Lantiq Transaction, we terminated
substantialy all of our agreements with such representatives and consultatnts.

RESEARCH AND DEVELOPMENT

       Prior to the closing of the Lantiq Transaction, we devoted a significant
portion of our personnel and financial resources to research and development of
HT-WLAN chipsets.

       As of December 31, 2009, our research and development staff consisted of
50 employees. Research and development activities take place at our facilities
in Yakum, Israel, and at the design center of our representative office in
Taiwan. Additionally, we retain form time to time consultants and other
subcontractors to provide us with development services.

       See "Item 5(A)--Operating and Financial Review and Prospects--Operating
Results--Government Grants."

MANUFACTURING

       As a fabless provider of chipsets, we subcontracted our entire
semiconductor manufacturing to third party contractors. Our HT-WLAN chipsets
were delivered to us fully assembled and tested based on our proprietary
designs.

PROPRIETARY RIGHTS

       Our HT-WLAN chipsets were protected by one patent and 8 patent
applications in the United states and 3 additional patents and patent
applications in other jurisdictions. We also relied on trade secret laws,
confidentiality agreements and contractual arrangements with employees and
partners for the protection of our proprietary rights.

COMPETITION

       The wireless chip set market is intensely competitive, due to a variety
of factors, including among others, time to market, functionality, conformity to
industry standards, performance, price, breadth of product lines, product
migration plans, and technical support.


                                       25
<PAGE>


       Our principal competitors for HT-WLAN based products included Atheros,
Qualcomm, Broadcom, Marvell, Ralink, Celeno and Quantenna. Broadcom, Atheros,
Qualcomm, and Marvel, all of whom possess a broad portfolio of telecom
semiconductor products in addition to their WLAN product lines, which enables
them to provide bundled offerings at competitive pricing.

C.    ORGANIZATIONAL STRUCTURE

       We currently have the following subsidiaries:

----------------------------    --------------        -------------  -----------
                                                        PROPORTION      PORTION
                                  COUNTRY OF          OF OWNERSHIP     OF VOTING
           NAME                  INCORPORATION           INTEREST     POWER HELD
----------------------------    --------------        -------------  -----------
METALINK INTERNATIONAL LTD.*    Republic of
                                Seychelles                 100%            100%
----------------------------    --------------        -------------  -----------

* CURRENTLY INACTIVE

D.    PROPERTY, PLANTS AND EQUIPMENT

     Our headquarters and principal office is located in Yakum, Israel. During
2010, we terminated our leases for office space in Yakum, Israel and Taiwan as
part of the Lantiq Transaction and secured under our Transition Services
Agreement with Lantiq, as described below under Item 10.C "Additional
Information-Material Agreements," a sublease of one room per employee for up to
6 employees, at a maximum size of 15sqm per person. Such sublease rights include
all related administration and cleaning services, parking and storage space of
40sqm.

       Total rent expenses for the years ended December 31, 2009, 2008 and 2007
were $889,000, $1,451,000, and $1,126,000, respectively. The total rent expenses
for 2010 are expected to be approximately $31,000.

       We believe that the aforesaid office space is suitable and adequate for
our operations as currently conducted and as currently foreseen. In the event
that additional or substitute offices and facilities are required, we believe
that we could obtain such offices and facilities at commercially reasonable
rates.

ITEM 4A. UNRESOLVED STAFF COMMENTS

         None.


                                       26
<PAGE>


ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

THE INFORMATION CONTAINED IN THIS SECTION SHOULD BE READ IN CONJUNCTION WITH OUR
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2009 AND RELATED NOTES FOR
THE YEAR THEN ENDED INCLUDED ELSEWHERE IN THIS ANNUAL REPORT. OUR FINANCIAL
STATEMENTS HAVE BEEN PREPARED IN ACCORDANCE WITH US GAAP.

ON FEBRUARY 15, 2010 WE HAVE COMPLETED THE SALE OF OUR WLAN BUSINESS TO LANTIQ
FOR UP TO $16.5 MILLION IN CASH (SEE NOTE 1 TO THE FINANCIAL STATEMENTS). AS THE
SALE OF OUR WLAN BUSINESS TO LANTIQ WAS CONSUMMATED ON FEBRUARY 15, 2010, OUR
AUDITED CONSOLIDATED FINANCIAL STATEMENTS DO NOT REFLECT THE RESULTS OF SUCH
SALE, INCLUDING THE RECEIPT OF THE CONSIDERATION OR THE DISCONTINUING OF OUR
OPERATIONS IN THE WLAN BUSINESS. SUCH CHANGES WILL ONLY BE REFLECTED IN OUR
CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2010.
THEREFORE, THE DATA PRESENTED IN OUR AUDITED CONSOLIDATED FINANCIAL STATEMENTS
AND IN OUR DISCUSSION BELOW ARE NOT INDICATIVE OF OUR FUTURE OPERATING RESULTS
OR FINANCIAL POSITION.

YOU ARE ENCOURAGED TO READ THE ENCLOSED UNAUDITED CONDENSED COMBINED PRO FORMA
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2009 INCLUDED ELSEWHERE IN
THIS ANNUAL REPORT, WHICH REFLECT THE HISTORICAL RESULTS OF METALINK, AS
ADJUSTED TO GIVE EFFECT TO THE DISPOSITION OF THE WLAN BUSINESS TO LANTIQ.

OVERVIEW

       Prior to the consummation of the Lantiq Transaction in February 2010, we
were a global provider and developer of high-throughput wireless local area
network (HT-WLAN) silicon solutions for telecommunications, networking and home
broadband equipment makers, and a provider of high performance wireline
broadband communication silicon solutions for telecommunications equipment
makers.

     On January 5, 2010, we entered into an Asset Purchase Agreement with Lantiq
Israel Ltd. and Lantiq Beteiligungs - GmbH & Co. KG (together, "Lantiq") for the
sale of the assets of, and certain specified liabilities related to, our
wireless local area network (WLAN) business to Lantiq, a newly-formed fabless
semiconductor company funded by Golden Gate Capital, in consideration for a
total purchase price of up to $16.9 million in cash. On February 15, 2010 we
completed the transaction. As part of the transaction, we entered into several
additional agreements with Lantiq whereby, among other things, we agreed to
provide Lantiq certain consulting services and Lantiq agreed to provide us with
certain transition services for a limited period following the closing. FOR
ADDITIONAL DETAILS ABOUT THE LANTIQ TRANSACTION, SEE BELOW UNDER ITEM 10.C
"ADDITIONAL INFORMATION--MATERIAL AGREEMENTS."

       On September 8, 2008 we entered into a short term secured loan agreement,
or the Loan Agreement, with an institutional investor, or the Senior Lender, as
amended on December 31, 2008 and September 6, 2009.


                                       27
<PAGE>


       On December 30, 2009, we entered into a third amendment to the Loan
Agreement, that became effective on January 5, 2010, whereby the repayment of
$4.3 million originally due under the loan agreement was reduced to $4.1 million
and repaid in four installments: $3.7 million at closing of the Lantiq
Transaction, which occurred on February 15, 2010, and the remainder in three
installments by March 31, 2011.

       As of the date of this annual report, we are required to repay the Senior
Lender $100,000 on September, 30 2010; $100,000 on December, 31 2010; and
$150,000 on March, 31 2011. See Item 5B and 10C below.

       Revenues in 2009 were $4.9 million, a decrease of 32% compared with
revenues of $7.2 million in 2008. The decrease was due to decline in demand for
both our SHDSL and for our VDSL products, which was partialy offset by increase
in demand for our WLANPlus chipsets.

       Operating loss for 2009 was $10.0 million, compared to operating loss of
$22.6 million in 2008. Said decrease was achieved mainly due to operating
expenses reduction plan that we initiated in March 2008 and continued to
implement throughout 2009.

       As of December 31, 2009 and as of March 31, 2010, we had $2.3 million
and $ 3.8 million, respectively, in cash, cash equivalents and short term
investments. As of the date of this annual report, we anticipate that we will be
able to meet our cash requirements in the next 12 months without obtaining
additional capital from external sources. FOR ADDITIONAL DETAILS, SEE ITEM 5B -
LIQUIDITY AND CAPITAL RESOURCES BELOW.

       Moving forward we will continue supporting our current remaining DSL
activities, that were not part of the "end-of-life" announcement we provided our
customers with respect to most of our DSL components in 2008. In addition, we
expect a substantial decrease in our level of revenues in year 2010 derived from
sale of chipsets compared to previous years. Our plan of operation is (1) to
continue the marketing of our digital subscriber line, or DSL products and (2)
to explore and consider strategic alternatives relating to our remaining DSL
business as well as to other investments and opportunities, including a possible
business combination or other strategic transaction with a domestic or foreign,
private or public operating entity or a "going private" transaction, including
with any of our affiliates.

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. A change in those accounting rules can have a significant
effect on our reported results and may affect our reporting of transactions
completed before a change is announced. Changes to those rules or the
questioning of current practices may adversely affect our reported financial
results or the way we conduct our business. 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.


                                       28
<PAGE>


       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 is recognized upon the shipment of products to the customer
provided that persuasive evidence of an arrangement exists, title has been
transferred, the price is fixed, collection of resulting receivables is probable
and there are no remaining significant obligations. We generally provide a
warranty period for up to 12 months at no extra charge. No warranty provision
has been recorded for any of the reported periods, since based on the past
experience, such amounts have been insignificant.

       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 royalties and sales commissions. Our
revenue recognition policy requires that we make a judgment as to whether
collectability is reasonably assured. Our judgment is made for each customer on
a case-by-case basis, and, among other factors, we take into consideration the
individual customer's payment history and its financial strength. In some cases,
we secure payments by a letter of credit or other instrument.

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. In making the determination, we consider future sales of related
products and the quantity of inventory at the balance sheet date, assessed
against each inventory items past usage rates and future expected usage rates.
Changes in factors such as technology, customer demand, competing products and
other matters could affect the level of our obsolete and excess inventory in the
future.

STOCK-BASED COMPENSATION

       The Company applies ASC 718-10 (formerly known as SFAS No. 123(R),
"Share Based Payment"). The Company's net loss for the year ended December 31,
2009, 2008 and 2007 includes $0.5 million, $1.8 million and $1.5 million of
compensation expenses related to the Company's share-based compensation awards,
respectively. The stock based compensation accounting is critical because of the
discretion of management in determining the inputs that is used in calculation
of the fair value of options granted. Such inputs include the Company's share
volatility, and the expected term of options granted.


                                       29
<PAGE>


RECENT ACCOUNTING PRONOUNCEMENTS

       In May 28, 2009, the FASB issued ASC 855-10 (formerly SFAS 165), which
provides guidance on management's assessment of subsequent events. Historically,
management had relied on U.S. auditing literature for guidance on assessing and
disclosing subsequent events. ASC 855-10 represents the inclusion of guidance on
subsequent events in the accounting literature and is directed specifically to
management, since management is responsible for preparing an entity's financial
statements. ASC 855-10 is not expected to significantly change practice because
its guidance is similar to that in AU Section 560, with some important
modifications. The new standard clarifies that management must evaluate, as of
each reporting period, events or transactions that occur after the balance sheet
date "through the date that the financial statements are issued or are available
to be issued." Management must perform its assessment for both interim and
annual financial reporting periods. ASC 855-10 is effective for the interim or
annual financial periods ending after June 15, 2009. The adoption of ASC 855-10
did not have a material impact on our consolidated financial statements.

       In April 2009 the FASB issued an amendment to ASC 320-10-65 (Investments
- Debt and Equity Securities) Through the issuance of FASB staff position 115-2
and 124-2, "Recognition and Presentation of Other-Than-Temporary Impairments"
("OTTI") for investment in debt securities . This amendment applies to all
entities and is effective for interim and annual reporting periods ending after
June 15, 2009, with early adoption permitted for periods ending after March 15,
2009. Earlier adoption for periods ending before March 15, 2009, is not
permitted. Under the amendment, the primary change to the OTTI model for debt
securities is the change in focus from an entity's intent and ability to hold a
security until recovery. Instead, an OTTI is triggered if (1) an entity has the
intent to sell the security, (2) it is more likely than not that it will be
required to sell the security before recovery, or (3) it does not expect to
recover the entire amortized cost basis of the security. In addition, the
amendment changes the presentation of an OTTI in the income statement if the
only reason for recognition is a credit loss (i.e., the entity does not expect
to recover its entire amortized cost basis). That is, if the entity has the
intent to sell the security or it is more likely than not that it will be
required to sell the security, the entire impairment (amortized cost basis over
fair value) will be recognized in earnings. However, if the entity does not
intend to sell the security and it is not more likely than not that the entity
will be required to sell the security, but the security has suffered a credit
loss, the impairment charge will be separated into the credit loss component,
which is recorded in earnings, and the remainder of the impairment charge, which
is recorded in other comprehensive income (OCI). The adoption of ASC 320-10-65
(FSP FAS 115-2 and FAS 124-2) did not have a material impact on our consolidated
financial statements.

       In October 2009, the FASB issued "Accounting Standards Update ("ASU")
2009-13 Multiple Deliverable Revenue Arrangements a consensus of EITF" (formerly
topic 08-1) an amendment to ASC 605-25. The update provides amendments to the
criteria in Subtopic 605-25 for separating consideration in multiple-deliverable
arrangements. The amendments in this update establish a selling price hierarchy
for determining the selling price of a deliverable. The selling price used for
each deliverable will be based on vendor-specific objective evidence if
available, third-party evidence if vendor-specific objective evidence is not
available, or estimated selling price if neither vendor-specific objective
evidence nor third-party evidence is available. The amendments in this update
also will replace the term "fair value" in the revenue allocation guidance with
the term "selling price" in order to clarify that the allocation of revenue is
based on entity-specific assumptions rather than assumptions of a marketplace
participant.


                                       30
<PAGE>


       The amendments will also eliminate the residual method of allocation and
require that arrangement consideration be allocated at the inception of the
arrangement to all deliverables using the relative selling price method. The
relative selling price method allocates any discount in the arrangement
proportionally to each deliverable on the basis of each deliverable's selling
price.

       The update will be effective for revenue arrangements entered into or
modified in fiscal year beginning on or after June 15, 2010 with earlier
adoption permitted. We are currently evaluating the impact of adopting this
standard on our consolidated financial statements.

A.    OPERATING RESULTS

GENERAL

       REVENUES. Our revenues in the first half of 2009 derived mainly from
sales of our DSL chipsets to our customers. In the second half of 2009 our
revenues derived solely from sales of our WLANPlus chipsets. Our revenues are
generated in U.S. dollars, and the majority of our costs and expenses are
incurred in dollars. Consequently, we use the dollar as our functional currency.
For the year ended December 31, 2009, three customers accounted for
approximately 71% of our revenues.

       We sell our chipsets in Europe, Asia and North America through
independent sales representatives and distributors. We also sell our chipsets
directly to selected customers. For the year ended December 31, 2009,
approximately 67% of our sales were to customers in Europe and Israel, 26% in
North America and 7% in Asia.

       COST OF REVENUES. Our cost of revenues consists primarily of materials
and components used in the manufacture and assembly of our chips, depreciation
and amortization of equipment used in the manufacturing process, salaries and
other personnel related expenses for those engaged in operations, fees for
subcontractors who manufacture, assemble and test our chipsets, and other
overhead expenses and royalties paid to the Government of Israel and to certain
third parties.

       GROSS RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of salaries and other personnel related expenses for those engaged in
the design, development and enhancement of our products, software license fees,
depreciation and amortization of equipment and software used in research and
development, and other overhead expenses. In addition, we subcontract certain
activities mainly the mask development production of our chips to unaffiliated
third parties. 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.


                                       31
<PAGE>


       RESEARCH AND DEVELOPMENT, NET. The Government of Israel, through the
Office of the Chief Scientist, encourages certain research and development
projects. In 2006, 2007, 2008 and 2009 we received grants from the Office of the
Chief Scientist for the development of our products. In addition, the European
Commission encourages research and development projects, which are performed as
part of an international consortium. In 2004, 2005 and 2006, we received grants
from the European Commission for the development of our products. The research
and development grants are presented in the statements of operations as an
offset to research and development expenses.

       SELLING AND MARKETING. Selling 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 commissions, 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.

       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.

       STOCK BASED COMPENSATION. In 2006 we initially implemented ASC 718-10
(formerly known as SFAS No. 123(R), "Share Based Payment"). The implementation
of ASC 718-10 resulted in 2009 and in 2008 in stock-based compensation expenses
of $0.5 million and $1.8 million, respectively.

       FINANCIAL INCOME, NET In 2009, Financial expenses, net are primarily
attributable to the amortization of the short term loan discount, amortization
of deferred expenses related to the loan and to the increase in the fair value
of the warrants issued under the loan agreement that are carried at fair value.
In 2008, Financial Income, net is primarily attributable to the decrease in the
fair value of the warrants issued under the loan that are carried at fair value,
accompanied by a smaller amount of financial income earned on our total cash,
short term and long term investments balance. In 2007, Financial income, net
consisted primarily of interest earned on marketable debt securities and
certificates of deposits in which we invested and gains and losses from the
exchange differences of monetary balance sheet items denominated in non-dollar
currencies.

       TAXES. Israeli companies are generally subject to Corporate Tax at the
corporate rate of 26% for the 2009 tax year and 25% for the 2010 tax year.
Following an amendment to the Israeli Income Tax Ordinance (New Version), 1961
(the "Tax Ordinance"), which came into effect on January 1, 2009, the Corporate
Tax rate is scheduled to decrease as follows: 24% for the 2011 tax year, 23% for
the 2012 tax year, 22% for the 2013 tax year, 21% for the 2014 tax year, 20% for
the 2015 tax year and 18% for the 2016 tax year and thereafter. Israeli
companies are generally subject to capital gains tax at a rate of 25% for
capital gains (other than gains deriving from the sale of listed securities)
derived after January 1, 2003. However, we are eligible for tax benefits under
our "approved enterprise" programs, which should result in our taxable income
being taxed at a lower rate for some time after we begin to report taxable
income and exhaust our net loss carry forwards.


                                       32
<PAGE>


       The following table 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 (in US$ thousands).

                                                YEAR ENDED DECEMBER 31,
                                             ---------------------------
                                              2007       2008      2009
                                             ------     ------    ------

Revenues                                        100%       100%      100%
Cost of revenues:
     Costs and expenses                          47         41        65
     Royalties to the Government of Israel        3          3         3
                                             ------     ------    ------
Total Cost of revenues                           50         44        68
                                             ------     ------    ------
Gross profit                                     50         56        32
Operating expenses:
     Gross research and development             251        314       196
     Royalty bearing grant                       26         43        39
                                             ------     ------    ------
     Research and development, net              225        271       157
     Selling and marketing                       53         63        29
     General and administrative                  24         37        49
                                             ------     ------    ------
Total operating expenses                        302        371       235
                                             ------     ------    ------
Operating loss                                 (252)      (315)     (203)
Financial income, net                            13         23       (71)
                                             ------     ------    ------
Net loss                                       (239)%     (292)%    (274)%
                                             ======     ======    ======

YEAR ENDED DECEMBER 31, 2009 COMPARED WITH YEAR ENDED DECEMBER 31, 2008

       REVENUES. Revenues in 2009 were $4.9 million a decrease of 32% compared
with revenues of $7.2 million in 2008. Said decrease is primarily due to a
decrease in demand for both our SHDSL and for our VDSL products during 2009,
partly offset by increase in demand for our WLANPlus chipsets.

       COST OF REVENUES. Cost of revenues was $3.3 million in 2009, an increase
of $0.1 million compared with cost of revenues of $3.2 million in 2008. Said
increase is attributed to the increase in the portion of our revenues associated
with our WLANPlus chipsets, which have a lower gross margin than our SHDSL and
VDSL products, which was offset by the decrease in our revenues. Cost of
revenues as a percentage of revenues increased in 2009 to 68% from 44% in 2008.

       GROSS RESEARCH AND DEVELOPMENT EXPENSES. Gross research and development
expenses were attributable solely to development of HT-WLAN products and
amounted to $9.6 million in 2009, a decrease of $12.9 million compared with
gross research and development expenses of $22.5 million in 2008. Said decrease
was achieved mainly due to operating expenses reduction plan that the company
initiated in March 2008 and continued to implement throughout 2009. Gross
research and development as a percentage of revenues decreased to 196% in 2009
from 314% in 2008.


                                       33
<PAGE>


       RESEARCH AND DEVELOPMENT, NET. Grants from the Office of the Chief
Scientist, totaling $1.9 million in 2009 compared with grants from the Office of
the Chief Scientist of $3.1 million in 2008, are applied as reductions to gross
research and development expenses. Research and development expenses, net, were
$7.7 million in 2009, or 157% of revenues, compared with $19.5 million in 2008,
or 271% of revenues.

       SELLING AND MARKETING. Selling and marketing expenses were $1.4 million
in 2009, a decrease of $3.1 million compared with selling and marketing expenses
of $4.5 million in 2008. Said decrease was achieved mainly due to an operating
expenses reduction plan that the company initiated in March 2008 and continued
to implement throughout 2009. Selling and marketing expenses, as a percentage of
revenues, were 29% in 2009 compared to 63% in 2008.

       GENERAL AND ADMINISTRATIVE. General and administrative expenses were $2.4
million in 2009, a decrease of $0.2 million compared with general and
administrative expenses of $2.6 million in 2008. Said decrease was achieved
mainly due to an operating expenses reduction plan that the company initiated in
March 2008 and continued to implement throughout 2009, which was offset by a
one-time allowance for legal costs . General and administrative expenses as a
percentage of revenues were 49% in 2009 compared to 37% in 2008.

       STOCK-BASED COMPENSATION. Stock-based compensation expenses were $0.5
million in 2009 compared with Stock-based compensation expenses of $1.8 million
in 2008, a decrease of $1.3 million. Said decrease is attributable to a decrease
in stock options grants to employees in 2009 compared to 2008. Stock-based
compensation expenses are included in profit and loss items both in 2009 and
2008. Stock-based compensation expenses as a percentage of revenues in 2009 were
10.2% compared to 24.9% in 2008.

       FINANCIAL EXPENSES, NET. Financial expenses, net were $3.5 million in
2009, compared with financial income, net of $1.6 million in 2008. Said increase
in the financial expenses is primarily attributable to the increase in
amortization of short term loan discount and amortization of deferred expenses
and to the increase in the fair value of the warrants carried at fair value.

YEAR ENDED DECEMBER 31, 2008 COMPARED WITH YEAR ENDED DECEMBER 31, 2007

       REVENUES. Revenues in 2008 were $7.2 million a decrease of 30% compared
with revenues of $10.2 million in 2007. In 2008 we faced a decrease in demand
for both our SHDSL and for our VDSL products.

       COST OF REVENUES. Cost of revenues was $3.2 million in 2008, a decrease
of $1.8 million compared with cost of revenues of $5 million in 2007. Said
decrease is in-line with the Company's decrease in revenues. Cost of revenues as
a percentage of revenues decreased in 2008 to 44% from 50% in 2007.

       GROSS RESEARCH AND DEVELOPMENT EXPENSES. Gross research and development
expenses were $22.5 million in 2008, a decrease of $3 million compared with
gross research and development expenses of $25.5 million in 2007. Said decrease
was achieved mainly due to operating expenses reduction plan that the company
implemented in 2008. Gross research and development as a percentage of revenues
increased to 314% in 2008 from 251% in 2007.


                                       34
<PAGE>


       RESEARCH AND DEVELOPMENT, NET. Grants from the Office of the Chief
Scientist, totaling $3.1 million in 2008 compared with grants from the Office of
the Chief Scientist of $2.6 million in 2007, are applied as reductions to gross
research and development expenses. Research and development expenses, net, were
$19.5 million in 2008, or 271% of revenues, compared with $22.9 million in 2007,
or 225% of revenues.

       SELLING AND MARKETING. Selling and marketing expenses were $4.5 million
in 2008, a decrease of $0.9 million compared with selling and marketing expenses
of $5.4 million in 2007. This decrease is primarily attributable to personal and
related expenses due to the decrease in selling and marketing personnel in 2008
compared to 2007. Selling and marketing expenses, as a percentage of revenues,
were 63% in 2008 compared to 53% in 2007.

       GENERAL AND ADMINISTRATIVE. General and administrative expenses were $2.6
million in 2008, an increase of $0.1 million compared with general and
administrative expenses of $2.5 million in 2007. This increase is primarily
attributable to professional expenses. General and administrative expenses as a
percentage of revenues were 37% in 2008 compared to 24% in 2007.

       STOCK-BASED COMPENSATION. Stock-based compensation expenses were $1.8
million in 2008 compared with Stock-based compensation expenses of $1.5 million
in 2007, an increase of $0.3 million. The increase is attributable to an
increase in Restricted Stock Units (RSU) grants to employees in 2008 compared to
2007. Stock-based compensation expenses are included in profit and loss items
both in 2008 and 2007. Stock-based compensation expenses as a percentage of
revenues in 2008 were 24.9% compared to 14.7% in 2007.

       FINANCIAL INCOME, NET. Financial income, net was $1.6 million in 2008, an
increase of $0.3 million compared with financial income, net of $1.3 million in
2007. Said increase is primarily attributable to the decrease in the fair value
of the warrants carried at fair value accompanied by a smaller amount of
financial income earned on our total cash, short term and long term investments
balance.

IMPACT OF INFLATION AND FOREIGN 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 has 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 2009, the NIS appreciated against the dollar at the rate of 0.71%
while the rate of inflation increased by 3.91%. We cannot predict any future
trends in the rate of inflation/deflation in Israel or the rate of
devaluation/revaluation of the NIS against the dollar. If the dollar costs of
our operations in Israel increase, our dollar-measured results of operations
could be adversely affected. We cannot assure you that we will not be 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.


                                       35
<PAGE>


       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 revaluation of the NIS in relation to the
dollar has the effect of increasing 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 revaluation 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 re-measurements are reported in our
consolidated financial statements in current operations.

       Because Israeli labor costs and most of our leasing expenses on one hand,
and grants received from the Office of the Chief Scientist on the other hand,
are incurred in NIS, even though we report them in U.S. dollars, inflation and
exchange rate variations can have a material impact on this component of our
expenses.

CORPORATE TAX RATE

       Israeli companies are generally subject to Corporate Tax at the corporate
rate of 26% for the 2009 tax year and 25% for the 2010 tax year. Following an
amendment to the Israeli Income Tax Ordinance (New Version), 1961 (the "Tax
Ordinance"), which came into effect on January 1, 2009, the Corporate Tax rate
is scheduled to decrease as follows: 24% for the 2011 tax year, 23% for the 2012
tax year, 22% for the 2013 tax year, 21% for the 2014 tax year, 20% for the 2015
tax year and 18% for the 2016 tax year and thereafter.

       Israeli companies are generally subject to Capital Gains Tax at a rate of
25% for capital gains (other than gains deriving from the sale of listed
securities) derived after January 1, 2003. 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, but not later than the 2008 tax
year. In December 2000, our facility received an approval for extension of the
"approved enterprise" status period, as a result of the additional capital
investment in the Company resulting from the initial and the secondary public
offerings conducted in December 1999 and March 2000. Such additional capital
investment was a condition of the extension of the "approved enterprise" status
period. Consequently we are eligible, subject to compliance with certain
requirements, for certain tax benefits beginning when such facility first
generates taxable income, but no later than the 2014 tax year. The period of tax
benefits with respect to our approved enterprise has not yet commenced, because
we have yet to realize taxable income in Israel. As a result of the foregoing,
and of our accumulated tax loss carry-forwards (which totaled at approximately
$183 million at December 31, 2009), and based on the current tax system in
Israel, we do not anticipate being subject to income tax in Israel for the 2010
tax year.


                                       36
<PAGE>


ISRAELI GOVERNMENT GRANTS

       We conducted a substantial part of our research and development
operations in Israel. Some of 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 us grants for
research and development efforts of approximately $2.6 million for the year
ended December 31, 2007 (8.6% of total research and development expenses), $3.1
million for the year ended December 31, 2008 (14% of total research and
development expenses) and $1.9 million for the year ended December 31, 2009
(19.7% of total research and development expenses).

       Since the grant program has the impact of lowering our research and
development expenditures, and improving our operating margins, reduction in the
Company's participation in the program or in the benefits that the Company
receives under the program could affect the Company's financial condition and
results of operations. Currently, we are obligated to pay royalties to the
Office of the Chief Scientist at the rate of 3% to 4.5%. Due to our
manufacturing outside of Israel, our aggregate payment amount with respect to
grants received in 2007, 2008 and 2009 is 100% of the dollar-linked value of
such grants. In 2003, we were required by the Office of the Chief Scientist to
perform at least 50% of our manufacturing in Israel. See "Item 5(C)- Research
and Development, Patents and Licenses, etc.- Grants from the Office of the Chief
Scientist".

       The refund of the grants is contingent on future sales (or related
services) and we have no obligation to refund these grants, if sales are not
generated.

       We paid or accrued to the Office of the Chief Scientist $297,000 for the
year 2007,$ 218,000 for the year 2008 and $160,000 for the year 2009.

B.    LIQUIDITY AND CAPITAL RESOURCES

       Historically, we have financed our operations primarily through funds
generated by our public offerings in 1999 and 2000 as well as research and
development and marketing grants, primarily from the Government of Israel. In
the past few years, we have also financed our operations through private equity
investments and, on a limited basis, through short-term loans.

PRINCIPAL FINANCING ACTIVITIES

       On September 8, 2008 we entered into a short term secured loan agreement,
or the Loan Agreement, with an institutional investor, or the Senior Lender.

       According to the Loan Agreement, the Senior Lender agreed to extend us a
loan of $3.5 million at the first stage ("First Loan"), which we received in
September 2008 and agreed to extend us at our request, an additional loan of up
to $4.5 million ("Second Loan"). Under the Loan Agreement, the outstanding
principal amount will accrue interest at an annual rate of 10% payable, in cash
or ordinary shares, at our election, on a quarterly basis.

       In addition, in consideration for the First Loan, we issued to the lender
five-year warrants to purchase up to a total of 2,000,000 ordinary shares at
exercise prices per share of $0.01 (for 1,000,000 warrants) and $0.50 (for the
balance), subject to adjustments. In consideration for the Second Loan, we
undertook to issue to the lender five-year warrants to purchase up to a total of
2,200,000 ordinary shares at exercise prices per share of $0.01 (for 1,870,000
warrants) and $0.50 (for the balance), subject to adjustments.


                                       37
<PAGE>


       The First Loan we received was offset by issuance expenses in the amount
of $313,000. We allocated the amount received between the loan and the warrants.
In accordance with ASC 470-20 (formerly known as APB 14), we allocated to the
warrants $1,838,000 which was equal to the estimated fair value of the warrants
using the Black Scholes Option Pricing Model obtained from the "OV" function on
Bloomberg L.P with the following assumptions: risk free interest rate of 1.59%;
dividend yield of zero; expected volatility of 85.75%; and an expected life of
five years. The remaining amount was attributed to the loan. As a result, a
discount was attributed to the loan at the amount equal to the amount that was
attributed to the warrants. The loan discount amortized by using the effective
interest method through the payment of the loan as of September 2009. For the
year ended December 31,2009, we recorded $1,419,000 of financial expenses
related to the amortization of the First Loan discount.

       On December 31, 2008, the Loan Agreement was amended, such that, among
other things, the Second Loan will be provided in two tranches of $2.25 million
each. The first tranche was provided in January 2009, such that we have drawn
down a total of $5.75 million under the loan agreement. In addition, in
consideration for the first tranche, we issued to the lender additional
five-year warrants to purchase up to a total of 1,100,000 ordinary shares at
exercise prices per share of $0.01 (for 935,000 warrants) and $0.50 (for the
balance), subject to adjustments.

       The Second Loan was offset by issuance expenses in the amount of
$169,000. We allocated the amount received between the loan and the warrants. In
accordance with ASC 470-20 (formerly known as APB 14), we allocated to the
warrants $123,000 which was equal to the estimated fair value of the warrants
using the Black Scholes Option Pricing Model obtained from the "OV" function on
Bloomberg L.P with the following assumptions: risk free interest rate of 0.04%;
dividend yield of zero; expected volatility of 178.5%; and an expected life of
five years. The remaining amount was attributed to the loan. As a result, a
discount was attributed to the loan at the amount equal to the amount that was
attributed to the warrants. The loan discount amortized by using the effective
interest method through the payment of the loan as of September 2009. For the
year ended December 31,2009, we recorded $123,000 of financial expenses related
to the amortization of the Second Loan discount.

       In accordance with ASC 815-10 (formerly known as FAS 133), the warrants
are recorded on the balance sheet as derivative liability and carried at fair
value, due to the fact that in certain circumstances the warrants could be paid
off in cash according to the Senior Lender's decision. Gains and losses
resulting from changes in the fair values of the warrants are recorded in
financial expenses, net on the consolidated statement of operations. For the
year ended December 31, 2009, the Company recorded $706,000 of financial
expenses related to the increase in the fair value of these warrants.

       On September 6, 2009 we entered into a second amendment to the Loan
Agreement (the "Second Amendment"), whereby the maturity date was extended from
September 9, 2009 to March 9, 2010. As part of the amendment, we repaid to the
lender $2.0 million out of the outstanding $5.75 million. We also agreed that in
the event of a fundamental transaction, the repayment amount will be $4.3
million. (with interest at the annual rate of 10% will continue to accrue on the
original amount outstanding). Pursuant to the amendment, the exercise price of
1,165,000 warrants that were previously issued to the Senior Lender was adjusted
from $0.50 to $0.03 per share.


                                       38
<PAGE>


       On December 30, 2009, we entered into a third amendment to the Loan
Agreement (the "Third Amendment"), that became effective on January 5, 2010,
whereby the repayment of the $4.3 million originally due upon the closing of a
fundmanetal transaction, such as the Lantiq Transaction, was reduced to $4.1
million and repaid in four installments: $3.7 million at closing of such
transaction, which occurred on February 15, 2010, and the remainder in three
installments by March 31, 2011.

       As of the date of this annual report, we are required to repay the Senior
Lender $100,000 on September 30, 2010; $100,000 on December 31 2010; and
$150,000 on March, 31 2011.

       In 2009, 1,835,000 warrants were exercised for 1,835,000 shares of common
stock for a total of $18,000. In 2008, 100,000 warrants were exercised for
100,000 shares of common stock for a total of $1,000.

       The issuance of the Warrants contemplated in the Loan Agreement,
triggered the adjustment of the exercise price of the warrants issued in August
2007 (see Note 10A). According to this adjustment the warrants issued originally
with $8 per share, was adjusted to $6.5 per share according to the original
terms of the warrants.

       FOR ADDITIONAL DETAILS ABOUT THE LOAN AGREEMENT, AS AMENDED, SEE BELOW
UNDER ITEM 10.C "ADDITIONAL INFORMATION--MATERIAL AGREEMENTS."

WORKING CAPITAL AND CASH FLOWS

       On December 31, 2009, we had cash and cash equivalents of $2.3 million,
and we had no short-term or long-term investments. By comparison, on December
31, 2008, we had cash and cash equivalents of $5.2 million, short-term
investments of $0.7 million and we had no long-term investments. On December 31,
2007, we had cash and cash equivalents of $7.3 million, short-term investments
of $17.2 million and long-term investments of $2.2 million.

       Our total proceeds from grants received from the Office of the Chief
Scientist, net of royalties paid, was $28 million as of December 31, 2009, $26
million as of December 31, 2008, and $23 million as of December 31, 2007. We are
committed to pay royalties to the Government of Israel on proceeds from the sale
of products and related services that incorporate know-how developed with grants
from the Office of the Chief Scientist, up to the amount of 100% -150% of the
grants received plus interest at LIBOR rate (in dollar terms). The refund of the
grants is contingent upon the successful outcome of the Company's research and
development programs and the attainment of sales. The Company has no obligation
to refund these grants, if sales are not generated, such that the financial risk
is assumed completely by the Government of Israel. The grants are received from
the Government on a project-by-project basis. If the project fails the Company
has no obligation to repay any grant received for the specific unsuccessful or
aborted project.


                                       39
<PAGE>


       Capital expenditures were $15,000 for the year ended December 31, 2009,
$793,000 for the year ended December 31, 2008, and $1,975,000 for the year ended
December 31, 2007. These expenditures were principally for equipment and
software for our research, development and manufacturing activities.

       Net cash used in operating activities was $3.8 million for the year ended
December 31, 2009, which were primarily attributable to research and development
expenditures. Net cash used in operating activities was $23.1 million for the
year ended December 31, 2008 and $20.1 million for the year ended December 31,
2007.

       Net cash provided by investing activities was $833,000 for the year ended
December 31, 2009. $800,000 of cash was provided from sales of marketable debt
securities held in our treasury and $48,000 were attributable to the proceeds we
received from disposal of property and equipment which was offset by $15,000
that were used for the purchase of property and equipment. Net cash provided by
investing activities was $17.8 million for the year ended December 31, 2008 and
$2.4 million for the year ended December 31, 2007. We held treasury securities
primarily in instruments denominated in U.S. dollars, with the goals of capital
preservation and generation of income, at fixed rates. We no longer hold
treasury securities and we do not conduct interest rate or currency hedging
activities.

       Net cash provided by financing activities was $0.1 million for the year
ended December 31, 2009, primarily attributable to the $2.25 million loan we
received in January 2009 which was offset by the partial repayment of the loan
at the amount of $2.1 million. Net cash provided by financing activities was
$3.2 million for the year ended December 31, 2008 and $20.2 million for the year
ended December 31, 2007.

       FOR ADDITIONAL DETAILS ABOUT CASH GENERATED FROM THE LANTIQ TRANSACTION
DURING 2010, SEE THE DESCRIPTION OF THE LANTIQ TRANSACTION BELOW UNDER ITEM 10.C
"ADDITIONAL INFORMATION--MATERIAL AGREEMENTS."

OUTLOOK

       During 2009 and early 2010, we performed several strategic and financing
activities in order to improve our financial condition. These activities, which
included the Loan Agreement, as amended, the Lantiq Transaction and the cost
reduction program implemented during 2009, resulted in (1) a decrease of our
operating expenses from approximately $26.6 million in 2008 to approximately
$11.5 million in 2009 and an additional reduction is expected in 2010 due to the
Lanqtiq Transaction and (2) an overall improvement in our cash balance and
stockholders' equity.

       In light of the aforesaid, as well as other factors, such as our current
cash position and contemplated mandatory (as opposed to contingent) payments
from the Lantiq Transaction, we anticipate that our existing capital resources
will be adequate to satisfy our working capital and capital expenditure
requirements until at least June 2011. If we will not be able to satisfy our
working capital and capital expenditure requirements from our internal cash
resources, we may need to raise additional funds to provide the capital
necessary therefor.


                                       40
<PAGE>


C.    RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

       During the fiscal years 2007, 2008 and 2009, we spent $25.5 million,
$22.5 million and $9.6 million, respectively, on gross R&D expenses, $22.9
million, $19.5 million and $7.7 million, respectively, for R&D net of grants
from the Office of the Chief Scientist and the European Commission. See "Item
4(B) - Information on the Company - Business Overview - Research and
Development," Item 4(B) - Information on the Company - Business Overview -
Proprietary Rights" and "Item 5(A) - Operating and Financial Review and
Prospects - Operating Results."

GRANTS FROM THE OFFICE OF THE CHIEF SCIENTIST

       The Government of Israel encourages research and development projects
through the Office of Chief Scientist of the Israeli Ministry of Industry, Trade
and Labor, or the Office of the Chief Scientist, pursuant to the Law for the
Encouragement of Industrial Research and Development, 1984, and the regulations
promulgated there under, commonly referred to as the "R&D Law". Grants received
under such programs are generally repaid through a mandatory royalty based on
revenues from products (and ancillary services) incorporating know-how
developed, in whole or in part, with the grants. This government support is
condition upon our ability to comply with certain applicable requirements and
conditions specified in the Office of the Chief Scientist's programs and with
the provisions of the R&D Law.

       Generally, grants from the Chief Scientist constitute up to 50% of
qualifying research and development expenditures for particular approved
projects. Under the terms of these Chief Scientist projects, a royalty of 3% to
5% is due on revenues from sales of products and related services that
incorporate know-how developed, in whole or in part, within the framework of
projects funded by the Chief Scientist. Royalty obligations are usually 100% of
the dollar-linked amount of the grant, plus interest. The royalty rates
applicable to our programs range from 3% to 4.5%. Due to our manufacturing
outside of Israel, our aggregate payment amount with respect to grants received
in 2001 and 2002 was 120% of the dollar-linked value of such grants. With
respect to grants received in 2003, 2004, 2005, 2006, 2007, 2008 and 2009, our
aggregate payment amount was 100% of the dollar-linked value of such grants.

       The R&D Law generally requires that the product developed under a program
be manufactured in Israel. However, upon a notification to the Office of the
Chief Scientist a portion of up to 10% of the manufacturing volume may be
performed outside of Israel; furthermore, upon the approval of the Office of the
Chief Scientist, a greater portion of the manufacturing volume may be performed
outside of Israel, provided that the grant recipient pays royalties at an
increased rate, which may be substantial, and the aggregate repayment amount is
increased up to 300% of the grant, depending on the portion of the total
manufacturing volume that is performed outside of Israel. The R&D Law further
permits the Office of the Chief Scientist, among other things, to approve the
transfer of manufacturing rights outside Israel in exchange for an import of
different manufacturing into Israel as a substitute, in lieu of the increased
royalties. The R&D Law also allows for the approval of grants in cases in which
the applicant declares that part of the manufacturing will be performed outside
of Israel or by non-Israeli residents and the research committee is convinced
that doing so is essential for the execution of the program.


                                       41
<PAGE>


       The R&D Law also provides that know-how developed under an approved
research and development program may not be transferred to third parties in
Israel without the approval of the Research Committee. Such approval is not
required for the sale or export of any products resulting from such research or
development. The R&D Law further provides that the know-how developed under an
approved research and development program may not be transferred to any third
parties outside Israel, except in certain circumstances and subject to the
Office of the Chief Scientist's prior approval. The Office of the Chief
Scientist may approve the transfer of Chief Scientist-funded know-how outside
Israel, generally in the following cases:

            o     the grant recipient pays to the Chief Scientist a portion of
                  the sale price paid in consideration for such Chief
                  Scientist-funded know-how (according to certain formulas);

            o     the grant recipient receives know-how from a third party in
                  exchange for its Chief Scientist-funded know-how; or

            o     such transfer of Chief Scientist-funded know-how arises in
                  connection with certain types of cooperation in research and
                  development activities.

       The R&D Law imposes reporting requirements with respect to certain
changes in the ownership of a grant recipient. The law requires the grant
recipient and its controlling shareholders and foreign interested parties to
notify the Office of the Chief Scientist of any change in control of the
recipient or a change in the holdings of the means of control of the recipient
that results in a non-Israeli becoming an interested party directly in the
recipient and requires the new interested party to undertake to the Office of
the Chief Scientist to comply with the R&D Law. In addition, the rules of the
Office of the Chief Scientist may require additional information or
representations in respect of certain of such events. For this purpose,
"Control" is defined as the ability to direct the activities of a company other
than any ability arising solely from serving as an officer or director of the
company. A person is presumed to have control if such person holds 50% or more
of the means of control of a company. "Means of Control" refers to voting rights
or the right to appoint directors or the chief executive officer. An "interested
party" of a company includes a holder of 5% or more of its outstanding share
capital or voting rights, its chief executive officer and directors, someone who
has the right to appoint its chief executive officer or at least one director,
and a company with respect to which any of the foregoing interested parties owns
25% or more of the outstanding share capital or voting rights or has the right
to appoint 25% or more of the directors. Accordingly, any non-Israeli who
acquires 5% or more of our ordinary shares will be required to notify the Office
of the Chief Scientist that it has become an interested party and to sign an
undertaking to comply with the R&D Law.

       The funds available for Office of the Chief Scientist grants out of the
annual budget of the State of Israel have been reduced in the past and may be
further reduced in the future. We cannot predict whether, if at all, we would be
entitled to any future grants or the amounts of any such grants.

D.    TREND INFORMATION

       INDUSTRY. In May 2005 the ITU has ratified a VDSL2 standard based on the
existing ADSL2 and VDSL standards that specify DMT modulation only. Our existing
VDSL chipsets are based on QAM. Currently most of the future deployment of VDSL
chipsets require the VDSL2 standard of DMT only. Thus, our VDSL sales have
essentialy deminshed due to lack of demand.


                                       42
<PAGE>


       DSL REVENUES. As described elsewhere in this annual report, we expect
revenues derived from the sale of our DSL chipsets, to continue to decline in
the near future and, in light of the "end-of-life" notification we issued for
our DSL chipsets, even in a greater pace.

       PLAN OF OPERATIONS. Our plan of operation is (1) to continue the
marketing of our digital subscriber line, or DSL products and (2) to explore and
consider strategic alternatives relating to our remaining DSL business as well
as to other investments and opportunities, including a possible business
combination or other strategic transaction with a domestic or foreign, private
or public operating entity or a "going private" transaction, including with any
of our affiliates. There is no assurance that any of these alternatives will be
pursued or, if one is pursued, the timing thereof or terms on which it would
occur. Since this may result in the engagement of new areas of operations, our
financial data reported in this annual report is not necessarily indicative of
our future operating results or financial position.

E.    OFF-BALANCE SHEET ARRANGEMENTS

       We are not a party to any material off-balance sheet arrangements. In
addition, we have no unconsolidated special purpose financing or partnership
entities that are likely to create material contingent obligations.

F.    TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS.

       The following table summarizes our contractual obligations and commercial
commitments related to our long-term debt and operating leases, as of December
31, 2009 and the effect we expect them to have on our liquidity and cash flow in
future periods.

<TABLE>
<CAPTION>
                                                           LESS THAN 1                         MORE THAN
CONTRACTUAL OBLIGATIONS                         TOTAL         YEAR      1-3 YEARS  3-5 YEARS    5 YEARS
                                              --------     ----------   ---------   --------    --------
<S>                                              <C>            <C>            <C>        <C>         <C>
Long-Term Debt Obligations                          --             --          --         --          --

Operating lease obligations                        634            617          17         --          --

Purchase obligations (vendors of
equipment and services)                            800            800          --         --          --
                                                 -----          -----       -----      -----       -----
TOTAL CONTRACTUAL CASH OBLIGATIONS               1,434          1,417          17         --          --
                                                 =====          =====       =====      =====       =====
</TABLE>

     We lease our motor vehicles under cancelable operating lease agreements,
for periods through 2011. The minimum payment under these operating leases upon
cancellation of these lease agreements, amounted to $30,000 as of December 31,
2009. Substantially all of the liability under the operating lease agreements
was transferred to Lantiq.


                                       43
<PAGE>


ITEM 6 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.    DIRECTORS AND SENIOR MANAGEMENT

       The following table lists our current directors and executive officers:


NAME                            AGE                   POSITION
----                            ---                   --------
Uzi Rozenberg*                   50    Chairman of the Board of Directors
Tzvi Shukhman                    49    Chief Executive Officer and Director
Efi Shenhar**                    52    Director
Rony Eizenshtein                 45    Chief Financial Officer
Orly Etzion**                    48    External Director
Meir Bar-El**                    64    External Director
Eran Vital                       33    Legal Counsel & Company Secretary

* Designated as an "independent director" in accordance with NASDAQ Marketplace
Rules.

** Designated as an "independent director" in accordance with NASDAQ Marketplace
Rules, and a Member of the Audit Committee.

       UZI ROZENBERG, a co-founder of our company, has served as a director from
1992 until 1997 and from August 1999 to the present, and as Chairman of our
Board of Directors since December 2007. Mr. Rozenberg is also the founder and
Chief Executive Officer of USR Electronics Systems (1987) 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.

       TZVI SHUKHMAN, a co-founder of our company, has served as our Chief
Executive Officer from our inception in 1992 and as the Chairman of the Board of
Directors from our inception until December 2007. 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
Telecom. Prior thereto, Mr. Shukhman served in the Israel Defense Forces where
he founded a group involved in digital signal processing applications. Mr.
Shukhman has a B.Sc. and an M.Sc. from the Technion-Israel Institute of
Technology.

       RONY EIZENSHTEIN, was appointed as our Chief Financial Officer during
March 2010. Mr. Eizenshtein is a certified public accountant and a senior
manager at Brooks-Keret Ltd., a reputable Israeli provider of financial and
accounting services. He is an experienced certified public accountant who served
as a CFO in EZ Energy Ltd., PeerTV Ltd. and other various Hi-Tech companies. Mr.
Eizenshtein has a B.A, in Accounting and Economics from Ben-Gurion University
and an M.B.A. from Herriot Watt University.

       EFI SHENHAR has served as a director since 1995. Mr. Shenhar is the
Corporate Chief Executive Officer & President of USR Group. Mr. Shenhar
currently serves as a member of the board of directors of USR Electronic Systems
(1987) Ltd. From 1987 until 2003, 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.


                                       44
<PAGE>


       ORLY ETZION, has served as a director since December, 2009. Ms. Etzion is
the CFO of Coriolis Wind Inc. From February 2005 until March 2009, Ms. Etzion
served as the CFO of Precede Technologies Ltd. From May 2004 until January 2005,
Ms. Etzion served as the CFO of The People's Voice, Ltd. From October 2002 until
April 2004, Ms. Etzion served as the Manager of finance at Millimetrix Broadband
Networks Ltd. and from March 1998 until February 2002 Ms. Etzion served as the
controller of Chromatis networks Ltd. Ms. Etzion holds a BA degree in Economics
from the Tel Aviv University and an MBA degree, specializing in Finance, from
The Colman College.

       MEIR BAR-EL has served as a director since November 2002. Mr. Bar-El
currently serves as a director of Extra Plastic Ltd. 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 General Director of the Israeli Furniture Industries
Association. Mr. Bar-El also has served as a Director for the Wood Products &
Furniture Export Economic Company. Mr. Bar-El has a B.A. in Economics from
Jerusalem University.

       ERAN VITAL has served as legal counsel and company secretary since
October 2008. From August 2004 until September 2008, he served as legal advisor
to On Track Innovations Ltd. Mr. Vital holds an LL.B. from the Haifa University
and is a member of the Israel Bar Association.

       In February 2010, Yuval Ruhama, who served as our Chief Financial Officer
since January 2006, left our company and was replaced by Rony Eizenshtein, as
part of the Company's engagement with Brooks-Keret to provide CFO and other
financial and accounting services to the Company.

B.    COMPENSATION

       The aggregate remuneration we paid for the year ended December 31, 2009
to all executive officers as a group (8 persons during 2009, including 7 persons
who are no longer in the Company's employ), was approximately $1,000,000 in
salaries, fees, commissions and bonuses. This amount includes approximately
$40,000 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.
External directors receive fixed compensation for their service on the board of
directors or any committee of the board of directors of NIS 42,600 (equivalent
to approximately $ 10,770), and in addition, receive proportional compensation
for their participation the board of directors or any committee meetings of NIS
2,200 per meeting attended (equivalent to approximately $555). In addition, all
board members received options to purchase shares of the Company, except our CEO
and Chairman of the Board (see Item 6(E) below). Other than officers of the
Company who serve as directors, no directors have arrangements to receive
benefits upon termination of employment. Regarding officers, who are directors,
see the discussion under the caption "Management Employment Agreements" below.


                                       45
<PAGE>


C.    BOARD PRACTICES

CORPORATE GOVERNANCE PRACTICES

       We are incorporated in Israel and therefore are subject to various
corporate governance practices under the Israeli Companies Law, relating to such
matters as external directors, the audit committee, the internal auditor and
approvals of interested party transactions. These matters are in addition to the
ongoing listing conditions of NASDAQ and other relevant provisions of U.S.
securities laws.

       Under the NASDAQ rules, a majority of our directors are required to be
"independent directors" as defined in NASDAQ rules. We are also required to have
an audit committee, all of whose members are "independent directors" as defined
in NASDAQ and SEC rules. Four out of the five members of our board of directors,
namely, Messrs. Rozenberg, Shenhar, Bar-El and Ms. Etzion, are independent
directors under the NASDAQ requirements. Messrs. Shenhar, Bar-El and Ms. Etzion
are the members of our audit committee.

       The NASDAQ rules also require that director nominees be selected or
recommended for the board's selection either by a committee composed solely of
independent directors or by a majority of independent directors. The
compensation of a company's chief executive officer and other executive officers
is required to be approved either by a majority of the independent directors on
the board or a committee comprised solely of independent directors. Accordingly,
these matters are approved by a majority of our independent directors.

BOARD OF DIRECTORS

       According to the Companies Law and our articles of association, the
oversight of the management of our business is vested in our board of directors.
The board of directors may exercise all powers and may take all actions that are
not specifically granted to our shareholders. As part of its powers, our board
of directors may cause us to borrow or secure payment of any sum or sums of
money for our purposes, at times and upon terms and conditions as it thinks fit,
including the grant of security interests in all or any part of our property.
Our board of directors may consist of between four (4) and nine (9) directors
and currently consists of five (5) directors.

       Under the Companies Law, our board of directors must determine the
minimum number of directors having financial and accounting expertise, as
defined in the regulations, that our board of directors should have. In
determining the number of directors required to have such expertise, the board
of directors must consider, among other things, the type and size of the company
and the scope and complexity of its operations. Our board of directors has
determined that we require at least one director with the requisite financial
and accounting expertise and that Ms. Etzion has such expertise.


                                       46
<PAGE>


       Our directors are elected at annual meetings of shareholders by a vote of
the holders of a majority of the ordinary shares voting thereon. Directors
generally hold office until the next annual meeting of shareholders. Our annual
meeting of shareholders is required to be held at least once during every
calendar year and not more than fifteen months after the last preceding meeting.
The board of directors generally may temporarily fill vacancies in the board.

       A resolution proposed at any meeting of the board of directors is deemed
adopted if approved by a majority of the directors present and voting on the
matter.

EXTERNAL DIRECTORS

       QUALIFICATIONS OF EXTERNAL DIRECTORS

       Under the Israeli Companies Law, companies incorporated under the laws of
Israel whose shares are listed for trading on a stock exchange or have been
offered to the public in or outside of Israel are required to appoint at least
two external directors. External directors are required to possess professional
qualifications as set out in regulations promulgated under the Companies Law.
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 an outside director, or had, during the two years preceding that date,
any affiliation with:

      o     the company;

      o     any entity controlling the company; or

      o     any entity controlled by the company or by its 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.

       The Companies Law defines the term "office holder" of a company to
include a director, the chief executive officer and any officer of the company
who reports directly to the chief executive officer.

       No person can serve as an external director if the person's position or
other business creates, or may create, a conflict of interest with the person's
responsibilities as an external director or may otherwise interfere with the
person's ability to serve as an external director.

       Until 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.


                                       47
<PAGE>


       ELECTION OF EXTERNAL DIRECTORS

       External directors are elected at meetings of shareholders by a vote of
the holders of a majority of the ordinary shares voting thereon, provided that
either:

      o     at least one third of the shares of non-controlling shareholders
            voted at the meeting vote in favor of the external director's
            election; or

      o     the total number of shares of non-controlling shareholders that
            voted against the election of the external director does not exceed
            one percent of the aggregate voting rights in the company.

       The initial term of an external director is three years and may be
extended for one additional term of three years. Thereafter, he or she may be
reelected by our shareholders for additional periods of up to three years each
only if the audit committee and the board of directors confirm that, in light of
the external director's expertise and special contribution to the work of the
board of directors and its committees, the reelection for such additional period
is beneficial to the company. Each committee of a company's board of directors
that exercises a power of the board of directors is required to include at least
one external director, except for the audit committee, which is required to
include all the external directors.

       Our external directors are Meir Bar-El, who was elected to a third
three-year term in 2008, and Orly Etzion, who was elected to a three-year term
in December, 2009.

COMMITTEES

       Subject to the provisions of the Companies Law, our board of directors
may delegate its powers to committees consisting of board members. Our board has
formed an audit committee.

AUDIT COMMITTEE

       Under the Israeli Companies Law, our board of directors is required to
appoint an audit committee, comprised of at least three directors, including all
of the external directors, but excluding:

      o     the chairman of our board of directors;

      o     a controlling shareholder or a relative of a controlling
            shareholder; and

      o     any director employed by us or who provides services to us on a
            regular basis.

       Under the Companies Law, the role of the audit committee is to identify
flaws in the management of our business, including in consultation with the
internal auditor and our independent accountants, to suggest remedial measures
and to approve specified related party transactions. Under the Companies Law,
the audit committee may not approve an action or a transaction with related
parties or with its office holders unless at the time of approval at least two
outside directors are serving as members of the audit committee and at least one
of whom was present at the meeting in which any approval was granted. 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.


                                       48
<PAGE>


       Our Audit Committee consists of Efi Shenhar, Orly Etzion and Meir Bar-El.

       As required by the NASDAQ rules, our Audit Committee has adopted a formal
written charter, which is available on our website at www.MTLK.com. Each of
Messrs. Shenhar and Bar-El and Ms. Etzion is "independent" under the applicable
SEC and NASDAQ rules. In addition, the board of directors has determined that
Ms. Etzion qualifies as an "audit committee financial expert" within the meaning
of the SEC rules.

       Our Audit Committees' functions also include:

    o  Overseeing financial and operational matters involving accounting,
       corporate finance, internal and independent auditing, internal control
       over financial reporting, compliance, and business ethics.

    o  Overseeing other financial audit and compliance functions as assigned by
       the board of directors.

    o  Reviewing areas of potential significant financial risk to the Company.

    o  Authority to oversee the Company's independent registered public
       accounting firm and recommend to our shareholders to appoint or remove
       them.

    o  Sole authority to approve non-audit services to be performed by the
       independent registered public accounting firm.

    o  Providing an avenue of communications among the independent registered
       public accounting firm, management and the board of directors.

    o  Determining whether to approve "related party transactions."

INTERNAL AUDITOR

       Under the Companies Law, our board of directors is also required to
appoint an internal auditor proposed by the audit committee. The role of the
internal auditor is to examine, among other things, whether our activities
comply with the law and orderly business procedure. The internal auditor may
participate in all audit committee meetings and has the right to demand that the
chairman of the audit committee convene a meeting. Under the Companies Law, the
internal auditor may be an employee of the company but may not be an interested
party, an office holder, or a relative of any of the foregoing, nor may the
internal auditor be the company's independent accountant or its representative.
Mr. Yossi Ginossar, CPA, a manager partner in Fahn Kanne, serves as our internal
auditor.

NOMINATION POLICY

       It is our policy that our independent directors review and consider all
candidates for nomination and election as directors who may be suggested by any
director or executive officer of the Company. Our policy is also to refer to our
independent directors for consideration any director candidate recommended by
any shareholder if made in accordance with the Company's articles of association
and applicable law.


                                       49
<PAGE>


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 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/her approval or performed by him/her by virtue of his/her
            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 competetive 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. Under the Companies Law, all arrangements as to
compensation of directors in public companies such as ours, generally require
the approvals of the audit committee, the board of directors and the
shareholders, in that order.

       DISCLOSURE OF PERSONAL INTERESTS OF AN OFFICE HOLDER.

       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.


                                       50
<PAGE>


       Under the Companies 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.
Nevertheless, 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. Generally,
when a transaction is considered by the audit committee and board of directors,
the interested director may not be present or vote, unless a majority of the
members of the board of directors or the audit committee, as the case may be,
has a personal interest in the matter. If a majority of members of the board of
directors have a personal interest therein, shareholder approval is also
required.

EXCULPATION, INSURANCE AND INDEMNIFICATION OF DIRECTORS AND OFFICERS

       EXCULPATION OF OFFICE HOLDERS

       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 (except in connection
with distributions), provided that the articles of association of the company
allow it to do so. Our articles of association allow us to exempt our office
holders to the fullest extent permitted by law.

       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 an act performed in the
capacity of an office holder for:

      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.


                                       51
<PAGE>


       INDEMNIFICATION OF OFFICE HOLDERS

       Subject to certain qualifications, the Companies Law also permits us to
indemnify an office holder for acts or omissions committed in his or her
capacity as an office holder of the company for:

      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. Such indemnification may be approved (i) after
            the liability has been incurred, or (ii) in advance, provided that
            our undertaking to indemnify is limited to events that our board of
            directors believes are foreseeable in light of our actual operations
            at the time of providing the undertaking and to a sum or criterion
            that our board of directors determines to be reasonable under the
            circumstances;

      o     reasonable litigation expenses, including attorneys' fees, expended
            by the office holder as a result of an investigation or proceeding
            instituted against him by a competent authority, provided that such
            investigation or proceeding concluded without the filing of an
            indictment against him and either (i) concluded without the
            imposition of any financial liability in lieu of criminal
            proceedings, or (ii) concluded with the imposition of a financial
            liability in lieu of criminal proceedings but relates to a criminal
            offense that does not require proof of criminal intent; and

      o     reasonable litigation expenses, including attorneys' fees, expended
            by the office holder or charged to him or her by a court, resulting
            from the following: proceedings we institute against him or her or
            instituted on our behalf or by another person; a criminal indictment
            from which he or she was acquitted; or a criminal indictment in
            which he or she was convicted for a criminal offense that does not
            require proof of intent.

       LIMITATIONS ON INSURANCE AND INDEMNIFICATION

       The Companies Law provides that a company may not exculpate or 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, with
            respect to insurance coverage or indemnification, 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, unless the breach was done
            negligently;

      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.


                                       52
<PAGE>

       We have obtained director's and officer's liability insurance with
coverage $5,000,000 in aggragate. In addition, we entered into indemnification
and exculpation agreements with our directors and executive officers in
accordance with our articles of association.

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.

DIRECTORS' SERVICE CONTRACTS

       There are no arrangements or understandings between us and any of our
current directors, including our Chief Executive Officer, for benefits upon
termination of service.

D.    EMPLOYEES

       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.

       The following table details certain data on the workforce of Metalink and
its consolidated subsidiaries for the periods indicated*:

<TABLE>
<CAPTION>
                                                                            As at December 31,
                                                                        ----------------------------
                                                                        2009        2008        2007
                                                                        ----        ----        ----
<S>                                                                       <C>         <C>        <C>
APPROXIMATE NUMBERS OF EMPLOYEES BY GEOGRAPHIC LOCATION
    United States and Asia Pacific                                        10          17          38
    Europe, Middle East                                                   59          66         192
                                                                        ----        ----        ----

    TOTAL WORKFORCE                                                       69          83         230
                                                                        ====        ====        ====
APPROXIMATE NUMBERS OF EMPLOYEES BY CATEGORY OF ACTIVITY
    Research and development                                              50          57         172
    Sales and marketing                                                    6           8          22
    Product and customer support                                           4           7          21
    Management and administrative                                          9          11          15
                                                                        ----        ----        ----

    TOTAL WORKFORCE                                                       69          83         230
                                                                        ====        ====        ====
</TABLE>

* Includes the employees for these years that were transferred to Lantiq in
connection with the WLAN business to Lantiq in February 2010. As of June 24,
2010, we had 3 employees.


                                       53
<PAGE>


      The overall reduction in our workforce, from 83 employees in 2008 to 69
employees in 2009, is due primarily to the cost reduction plan. The reduction in
our workforce from 69 to 3 in February 2010 is due primarily to the Lantiq
Transaction.

      We are subject to labor laws and regulations in Israel. 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.

E.    SHARE OWNERSHIP

      The following table sets forth certain information regarding the ownership
of our ordinary shares by our directors and officers as of June 24, 2010. The
percentage of outstanding ordinary shares is based on 2,690,863 ordinary shares
outstanding as of June 24, 2010, subsequent to the reverse share split affected
on February 22, 2010 at a ratio of one to ten.


                                  NUMBER OF ORDINARY        PERCENTAGE OF
                                 SHARES BENEFICIALLY     OUTSTANDING ORDINARY
     NAME                               OWNED(1)                SHARES
--------------                          -------                 ------

Tzvi Shukhman                           591,031                  21.96%
Uzi Rozenberg                           477,535                  17.75%
Orly Etzion                                   *                      *
Efi Shenhar                                   *                      *
Eran Vital                                    *                      *
Meir Bar-El                                   *                      *
Rony Eizenshtein                              *                      *

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

*     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 June 24, 2010.

(2)   Ordinary shares deemed beneficially owned by virtue of the right of any
      person or group to acquire such shares within 60 days of June 24, 2010,
      are treated as outstanding only for the purposes of determining the
      percent owned by such person or group.

SHARE OPTION PLANS

       We have seven employee share option plans and one additional option plan,
our Share Option Plan (2000), for our advisors and independent contractors, or,
together, the Plans. The expiration dates of the options granted under the Plans
range from 4 to 25 years from the date of grant. Our Plans are administered
currently by our board of directors. All of our employees and directors are
eligible to participate in our Plans. Members of advisory board, if any, and our
independent contractors are eligible to receive options under our Share Option
Plan (2000).


                                       54
<PAGE>


      As of June 2, 2010 options to purchase 63,681 ordinary shares, or 636,810
prior to the reverse share split affected February 22, 2010 at a ratio of one to
ten, under our share option plans were outstanding. As of June 2, 2010, an
additional 7,125,630 ordinary shares or 712,563 options subsequent to above
reverse share split were reserved for issuance pursuant to options issuable
under our share option plans.

      In 2009, we granted options exercisable into 39,100 ordinary shares, or
3,910 options subsequent to above reverse share split, under our share option
plans. Such options will expire in 2012. Of the total options granted in 2009,
none of our directors and executive officers were granted options exercisable
into ordinary shares. As part of the Lantiq Transaction, options exercisable
into 677,640 (or 67,764 options subsequent to above reverse share split), were
canceled within 90 days from transfer of the employees to Lantiq.

      In October 2007, our board of directors approved the increase of 2,100,000
in the number of outstanding shares reserved under the plans. We may further
increase the number of ordinary shares reserved for issuance under the plans.

      The following table summarizes information relating to stock options
outstanding, to employees and directors of the Company, as of December 31, 2009:

<TABLE>
<CAPTION>
                                                        OPTIONS & RSU OUTSTANDING                       OPTIONS & RSU EXERCISABLE
                                      -------------------------------------------------------        ------------------------------
                                                                  WEIGHTED
                                          NUMBER                   AVERAGE           WEIGHTED           NUMBER             WEIGHTED
                                     OUTSTANDING AT               REMAINING          AVERAGE         EXERCISABLE AT         AVERAGE
                                       DECEMBER 31,              CONTRACTUAL         EXERCISE          DECEMBER 31         EXERCISE
EXERCISE PRICE                             2009                LIFE (IN YEARS)        PRICE               2009               PRICE
----------------                      --------------          ---------------        --------        --------------        --------
<S>                                        <C>                           <C>            <C>               <C>                 <C>
 $ 0.00-2.66                                 677,883                     3.43            1.69               639,417            1.70
 $ 2.76-3.28                                  22,100                     0.71            3.05                22,100            3.05
 $ 3.39-4.00                                  33,200                     0.38            3.80                15,000            3.80
 $ 4.04-5.00                                  49,127                     1.09            4.36                49,127            4.36
 $ 5.04-7.00                                 168,150                     0.57            5.99               147,850            5.94
 $ 7.01-8.95                                 229,600                     1.17            7.30               214,800            7.30
$ 9.00-22.06                                 258,084                     0.46           15.34               258,084           15.34
                                      --------------                                                 --------------
                                           1,438,144*                    2.01            5.70             1,346,378            5.82
                                      ==============                                                 ==============
</TABLE>

* As part of the Lantiq Transaction, options exercisable into 677,640 (or 67,764
options subsequent to above reverse share split), were canceled within 90 days
from transfer of the employees to Lantiq.

STOCK PURCHASE PLAN

      In October 2000 we initiated our 2000 Employee Stock Purchase Plan, or the
ESPP. The plan is implemented through consecutive offering periods with new
offering periods commencing on the first trading day following the last day of
the previous period, and continuing thereafter until terminated. It 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,
whichever is lower. Participants were 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 was available for sale under the plan was
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) 0.75% of the
outstanding shares on such date or (iii) a lesser amount determined by our
board. The plan is currently administered by our board, who may delegate such
power to a committee appointed by the board. The plan terminates on October 31,
2010. As of June 24, 2010, 329,080 ordinary shares had been issued under the
ESPP, and an additional 108,143 ordinary shares are reserved for issuance. The
last ESPP offering period ended in August 2004 and in April 2005, our board of
directors resolved to suspend the ESPP until further notice.


                                       55
<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 June 24, 2010 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 SEC.

                               NUMBER OF ORDINARY         PERCENTAGE
                              SHARES BENEFICIALLY       OF OUTSTANDING
     NAME                           OWNED (1)         ORDINARY SHARES(2)
     ----                            -------                ------

Tzvi Shukhman(3)                     591,031                 21.96%
Uzi Rozenberg(3)(4)                  477,535                 17.75%
Harel Insurance and
Harel PIA (5)                        253,254                  9.41%

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

(1)   Beneficial ownership is determined in accordance with the rules of the SEC
      and generally includes voting or investment power with respect to
      securities. Ordinary shares relating to options currently exercisable or
      exercisable within 60 days of the date of this table are deemed
      outstanding for computing the percentage of the person holding such
      securities but are not deemed outstanding for computing the percentage of
      any other person. Except as indicated by pursuant to applicable community
      property laws, the persons named in the table above have sole voting and
      investment power with respect to all shares shown as beneficially owned by
      them.

(2)   The percentage of outstanding ordinary shares is based on 2,690,863
      ordinary shares outstanding as of June 24, 2010, subsequent to the reverse
      share split affected February 22, 2010 at a ratio of one to ten.

(3)   Our major shareholders do not have voting rights different from the voting
      rights of our other shareholders.

(4)   The record holder of 100,000 shares out of the 477,535 is not Uzi
      Rozenberg, but U.S.R. Electronic Systems (1987) Ltd., an Israeli company
      wholly owned by Mr. Rozenberg and his wife, Shoshana Rozenberg.

(5)   As of December 31, 2009, based on a Schedule 13G/A filed by Harel
      Insurance Investments & Financial Services Ltd. ("Harel Insurance") and
      Harel PIA Mutual Funds Management Ltd. ("Harel PIA") with the SEC on March
      1, 2010.


                                       56
<PAGE>


      As a result of the size of their share ownership, Messrs. Tzvi Shukhman
and Uzi Rozenberg, if they vote together, could have a significant influence on
the election of our directors and on other decisions by our shareholders on
matters submitted to shareholder vote. Except with respect to effect of the
concentration of ownership by said major shareholders, the Company is not
directly or indirectly controlled by any other corporation, foreign government
or other natural or legal person.

RECORD HOLDERS

      As of June 24, 2010, we had 32 shareholders of record, of whom 24 were
registered with addresses in the United States, representing approximately 17%
of our outstanding ordinary shares. These numbers are not representative of the
number of beneficial holders of our shares nor is it representative of where
such beneficial holders reside since many of these ordinary shares were held of
record by brokers or other nominees (including one U.S. depository, CEDE & Co.,
which held approximately 71% of our outstanding ordinary shares as of said
date).

DUTIES OF SHAREHOLDERS

      DISCLOSURE BY CONTROLLING SHAREHOLDERS. Under the Companies Law, the
disclosure requirements that apply to an office holder also apply to a
controlling shareholder of a public company. A controlling shareholder is a
shareholder who has the ability to direct the activities of a company, including
a shareholder that owns 25% or more of the voting rights if no other shareholder
owns more than 50% of the voting rights, but excluding a shareholder whose power
derives solely from his or her position on the board of directors or any other
position with the company.

      Extraordinary transactions with a controlling shareholder or in which a
controlling shareholder has a personal interest, and the engagement of a
controlling shareholder as an office holder or employee, generally require the
approval of the audit committee, the board of directors and the shareholders, in
that order. The shareholder approval must include at least one-third of the
shares of non-interested shareholders voted on the matter. However, the
transaction can be approved by shareholders without this one-third approval if
the total shares of non-interested shareholders that voted against the
transaction do not represent more than one percent of the voting rights in the
company.

      GENERAL DUTIES OF SHAREHOLDERS. In addition, under the Companies Law, each
shareholder has a duty to act in good faith toward the company and other
shareholders and to refrain from abusing his or her power in the company, such
as in shareholder votes. In addition, specified shareholders have a duty of
fairness toward the company. These shareholders include any controlling
shareholder, any shareholder who knows that it possesses the power to determine
the outcome of a shareholder vote and any shareholder who, pursuant to the
provisions of the articles of association, has the power to appoint or prevent
the appointment of an office holder or any other power with respect to the
company. However, the Companies Law does not define the substance of this duty
of fairness.


                                       57
<PAGE>


B.    RELATED PARTY TRANSACTIONS

       None.

C.    INTERESTS OF EXPERTS AND COUNSEL

       Not applicable.


                                       58
<PAGE>


ITEM 8. FINANCIAL INFORMATION

A.    CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

CONSOLIDATED FINANCIAL STATEMENTS

See Item 18 below - "Financial Statements".

OTHER FINANCIAL INFORMATION

      In the year ended December 31, 2009 the amount of our export sales was
approximately $3.7 million, which represents 75% of our total sales.

LEGAL PROCEEDINGS

      1998 CLAIM. In July 1998, a former employee filed a claim against us in
the Tel Aviv District Labor Court (the "Court") demanding that we issue him
ordinary shares and pay on his behalf any taxes relating to such issuance; that
the Company pay him statutory severance pay together with the statutory penalty
for late payment of such severance pay and travel expenses; and that we release
his managers insurance and continuing education fund. We filed a counterclaim
against this former employee. In March 2001, the Court ordered that certain of
the disputes between the parties be referred to a two-stage arbitration and
pursuant to the Court's order we issued 75,765 ordinary shares (which were held
in trust) in favor of the former employee. In addition, in January 2002, we paid
the former employee $16,000 in payment of statutory severance pay and
reimbursement of travel expenses. In August 2002, the arbitrators in the first
stage of the arbitration awarded $391,000 to the former employee (which we paid
in September 2002).

      In December 2003, the former employee filed a claim in the second phase of
the arbitration (the "Second Arbitration") in the amount of $3.2 million and at
least $2.9 million before deductions and also a sum of $3.8 million for funding
differences. We contested this claim and filed a claim for damages against the
former employee in the amount of $950,000 and for a refund of the NIS 1.9
million ($435,000) already paid to him according to the foregoing judgment and
of the $35,000 paid as statutory severance pay and reimbursement of travel
expenses.

      In May 2010, we entered into a settlement agreement with the former
employee, whereby both parties agreed to finally and irrevocably waive all
rights, claims and causes of action against the other. As part of the settlement
agreement, we agreed to pay the former employee a sum of $200,000.

      On June 14, 2010 the Tel Aviv District Labor Court sanctioned the
settlement agreement.

     2010 Claim. On May 24, 2010, we received a notice from a former employee
     claiming certain rights with respect to termination of employment in the
     amount of approximately $100,000. We rejected this notice as being without
     merits. However, there is no assurance that the claimant will not pursue
     litigation or that if litigation is pursued that we will necessarily
     prevail.


                                       59
<PAGE>


DIVIDEND POLICY

      We have never declared or paid any cash dividends on our ordinary shares.
Rather, we have elected to retain earnings and other cash resources to continue
the development and expansion of our business. Any future dividend policy will
be determined by our board of directors and will be based upon conditions then
existing, including our results of operations, financial condition, current and
anticipated cash needs, contractual restrictions and other conditions.

      According to the Israeli Companies Law, a company may distribute dividends
only out of its "profits," as such term is defined in the Israeli Companies Law,
as of the end of the most recent fiscal year or as accrued over a period of two
years, whichever is higher. Our board of directors is authorized to declare
dividends, provided that there is no reasonable concern that payment of the
dividend will prevent us from satisfying our existing and foreseeable
obligations as they become due. Notwithstanding the foregoing, dividends may be
paid with the approval of a court, provided that there is no reasonable concern
that payment of the dividend will prevent us from satisfying our existing and
foreseeable obligations as they become due. Profits, for purposes of the Israeli
Companies Law, means the greater of retained earnings or earnings accumulated
during the preceding two years, after deduction of previous distributions that
were not already deducted from the surpluses, as evidenced by financial
statements prepared no more than six months prior to the date of distribution.

B.    SIGNIFICANT CHANGES

      Except as otherwise disclosed in this annual report, no significant change
has occurred since December 31, 2009.

UNAUDITED PRO FORMA FINANCIAL STATEMENT


                                       60
<PAGE>


          UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

      The following unaudited condensed combined pro forma financial statements
for the year ended December 31, 2009 reflect the historical results of Metalink
Ltd, adjusted to give effect to the disposition of the WLAN business to Lantiq.

      We derived this information from the audited consolidated financial
statements of Metalink Ltd for the year ended December 31, 2009. This
information should be read together with our consolidated financial statements
and related notes included elsewhere in this Form 6-K.

      The following unaudited pro forma condensed balance sheet as of December
31, 2009 adjusted to give pro forma effect to the disposition of the WLAN
business to Lantiq as if it had occurred on December 31, 2009. The following
unaudited pro forma condensed results of operations for the year ending December
31, 2009 adjusted to give pro forma effect to the disposition of the WLAN
business to Lantiq as if it had occurred on January 1, 2009.

      The pro forma adjustments are preliminary, and the unaudited pro forma
condensed combined financial statements are not necessarily indicative of the
financial position or results of operations that may have actually occurred had
the disposition taken place on the dates noted, or the future financial position
or operating results of Metalink Ltd. The pro forma adjustments are based upon
available information and assumptions that we believe are reasonable. Any
material change in estimates would materially impact results of operations after
the disposition.


                                       61
<PAGE>


PRO-FORMA INFORMATION

The following Pro forma statement relates to the balance sheet of the Company as
of December 31, 2009 as if the sale of the wireless local area network (WLAN)
business to Lantiq had occurred on December 31, 2009.

                                 METALINK LTD.

                          CONSOLIDATED BALANCE SHEETS
                           U.S. DOLLARS IN THOUSANDS

<TABLE>
<CAPTION>
                                                                                       DECEMBER 31, 2009
                                                                            -----------------------------------------
                                                                             2 0 0 9        ADJUSTMENT      2 0 0 9
                                                                            ----------      ----------     ----------
                                                                            AUDITED (1)    UNAUDITED (2)  UNAUDITED (3)
                                                                            ----------      ----------     ----------
<S>                                                                         <C>                  <C>       <C>
ASSETS
CURRENT ASSETS
  Cash and cash equivalents                                                 $    2,273           5,700(7)  $    7,973
  Trade accounts receivable                                                        461            (461)             -
  Other receivables                                                                602           2,812          3,414
  Prepaid expenses                                                                  88             (54)            34
  Inventories                                                                    1,068            (771)           297
                                                                            ----------                     ----------
     Total current assets                                                        4,492                         11,718
                                                                            ----------                     ----------

SEVERANCE PAY FUND                                                               1,229          (1,083)           146
                                                                            ----------                     ----------

PROPERTY AND EQUIPMENT, NET                                                      2,145          (2,045)           100
                                                                            ==========                     ==========

     Total assets                                                           $    7,866                     $   11,964
                                                                            ==========                     ==========

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
  Trade accounts payable                                                    $    1,542            (305)    $    1,237
  Other payables and accrued expenses                                            3,239            (690)         2,549
  Short-term loan                                                                4,100                          4,100
  Warrants to issue shares                                                         289                            289
                                                                            ----------                     ----------
     Total current liabilities                                                   9,170                          8,175
                                                                            ----------                     ----------

ACCRUED SEVERANCE PAY                                                            1,798          (1,350)           448
                                                                            ----------                     ----------

SHAREHOLDERS' EQUITY (DEFICIENCY)
  Ordinary shares of NIS 0.1 par value (Authorized - 50,000,000 shares,
    issued and outstanding 26,637,232 shares as of December 31, 2009)              759                            759
  Additional paid-in capital                                                   157,692                        157,692
  Accumulated deficit                                                         (151,668)          6,443       (145,225)
                                                                            ----------                     ----------
                                                                                 6,783                         13,226
                                                                            ----------                     ----------
  Treasury stock, at cost; 898,500 shares as of
    December 31, 2009                                                           (9,885)                        (9,885)
                                                                            ----------                     ----------
  Total shareholders' equity (deficiency)                                       (3,102)                         3,341
                                                                            ==========                     ==========

       Total liabilities and shareholders' equity (deficiency)              $    7,866                     $   11,964
                                                                            ==========                     ==========
</TABLE>


                                       62
<PAGE>


PRO-FORMA INFORMATION

The following Pro forma statement relates to the results of operations of the
Company for the year ending December 31, 2009 as if the sale of the wireless
local area network (WLAN) business to Lantiq had occurred on January 1, 2009.

                                 METALINK LTD.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                 U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                      --------------------------------------------
                                                        2 0 0 9         ADJUSTMENT       2 0 0 9
                                                      -----------      -----------     -----------
                                                      AUDITED (4)     UNAUDITED (5)   UNAUDITED (6)
                                                      -----------      -----------     -----------
<S>                                                   <C>                   <C>        <C>
  Revenues                                            $     4,916           (1,628)    $     3,288
                                                      -----------                      -----------
  Cost of revenues:
    Costs and expenses                                      3,174           (2,146)          1,028
    Royalties to the Government of Israel                     160              (63)             97
                                                      -----------                      -----------
         Total cost of revenues                             3,334                            1,125
                                                      ===========                      ===========

    GROSS PROFIT                                            1,582                            2,163

  Operating expenses:
    Gross research and development                          9,627           (9,627)              -
    Less - Royalty bearing and other grants                 1,898           (1,898)              -
                                                      -----------                      -----------
    Research and development, net                           7,729                                -
                                                      -----------                      -----------
    Selling and marketing                                   1,397           (1,397)              -
    General and administrative                              2,416              (94)          2,322
                                                      -----------                      -----------
         Total operating expenses                          11,542                            2,322
                                                      ===========                      ===========

    OPERATING LOSS                                         (9,960)                            (159)

  Financial expenses, net                                  (3,494)                          (3,494)
                                                      -----------                      -----------

    NET LOSS                                          $   (13,454)                     $    (3,653)
                                                      ===========                      ===========

  Loss per ordinary share:
    Basic                                             $      (5.4)                     $     (1.47)
                                                      ===========                      ===========
    Diluted                                           $      (5.4)                     $     (1.47)
                                                      ===========                      ===========

Shares used in computing loss per ordinary share*:

    Basic                                               2,482,863                        2,482,863
                                                      ===========                      ===========
    Diluted                                             2,482,863                        2,482,863
                                                      ===========                      ===========
</TABLE>

* Shares used for loss per share calculation have been adjusted retroactively to
reflect the one for ten reverse split of our ordinary shares dated February 22,
2010.


                                       63
<PAGE>


METALINK LTD.

      NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

On February 15, 2010 the Company completed the sale of the wireless local area
network (WLAN) business to Lantiq, a newly-formed fabless semiconductor company
funded by Golden Gate Capital for up to $16,500 in cash as follows:

      o     $5,700 was paid concurrently with the closing, of which $3,750 was
            used to repay the first installment under Metalink's loan agreement
            with an institutional investor.

      o     $812 was paid on March 31, 2010; and $2,000 to be paid in four
            installments throughout the year 2010;

      o     Earn-out payments of up to an aggregate of $8,000, contingent upon
            the acquired business' achievement of specified performance targets
            through March 2012.

1)    The audited financial data in the balance sheets is identical to the
      financial data in the balance sheets of the company as it appears in our
      financial statements.

2)    This column reflects adjustments to the balance sheets of the company as
      of December 31, 2009, as if the sale of the WLAN business to Lantiq had
      occurred on December 31, 2009.

3)    This column reflects the balance sheets of the Company as of December 31,
      2009, as if the sale of the WLAN business to Lantiq had occurred on
      December 31, 2009. As such on December 31, 2009 substantially all of the
      assets and liabilities relating to the WLAN business with the exception of
      specific assets and liabilities as defined in the Purchase Agreement were
      transferred to Lantiq.

4)    The audited financial data in the statement of operations is identical to
      the results of operation as it appears in the financial statements of the
      company.

5)    This column reflects adjustments of our results of operation for the
      current year as if the sale of the WLAN business to Lantiq had occurred on
      January 1, 2009.

6)    This column reflects the results of operations of the Company for the year
      ending December 31, 2009 as if the sale of the WLAN business to Lantiq had
      occurred on January 1, 2009. As such in 2009 there would have been no
      revenues and associated cost of revenues derived from the sale of WLAN
      chipsets, nor selling, marketing expenses and research and development
      expenses relating to the WLAN business.

7)    The proceeds from the sale were used to retire our debt owed to
      institutional investor in the amount of $3,750. The remainder of the debt
      owed is scheduled to be paid in three installments throughout the years
      2010 and the beginning of 2011.


                                       64
<PAGE>


ITEM 9. THE OFFER AND LISTING

A.    OFFER AND LISTING DETAILS

                                LISTING DETAILS

      The following table sets forth the high and low closing prices for our
ordinary shares as reported by the NASDAQ Global and, commnecing March 2009, the
NASDAQ Capital Market, for the periods indicated. The prices have been adjusted
to retroactively reflect the one-for-ten reverse split of our ordinary shares we
effected on February 22, 2010:


       FIVE MOST RECENT YEARS                           HIGH            LOW
       ----------------------                        ----------     ----------

2005                                                 $     57.2     $     38.5
2006                                                 $     64.9     $     43.6
2007                                                 $     87.9     $     44.3
2008                                                 $     47.5     $      1.0
2009                                                 $      6.0     $      1.0

EIGHT MOST RECENT QUARTERS AND SUBSEQUENT PERIOD
------------------------------------------------

Third Quarter 2008                                   $     11.3     $      5.7
Fourth Quarter 2008                                  $      5.9     $      1.0
First Quarter 2009                                   $      1.9     $      1.0
Second Quarter 2009                                  $      6.0     $      1.6
Third Quarter 2009                                   $      5.0     $      3.3
Fourth Quarter 2009                                  $      3.9     $      2.1
First Quarter 2010                                   $      3.4     $      1.3
Second Quarter 2010 (through June 24)                $     1.97     $     0.78

      MOST RECENT SIX MONTHS
      ----------------------

December 2009                                        $      3.2     $      2.1
January 2010                                         $      3.4     $     2.45
February 2010                                        $      2.4     $     1.55
March 2010                                           $     1.84     $      1.3
April 2010                                           $     1.97     $      1.3
May  2010                                            $     1.45     $     1.19
June 2010 (through June 24)                          $      1.2     $     0.78

We voluntarily delisted our ordinary shares from trade on the TASE, effective
June 14, 2010.


                                       65
<PAGE>


     The following table sets forth the high and low closing prices for our
ordinary shares as reported by the Tel Aviv Stock Exchange for the periods
indicated. The translation into dollars is based on the representative rate of
exchange on December 31, 2009, as published by the Bank of Israel (NIS 3.775 per
one dollar):

FIVE MOST RECENT YEARS                              HIGH               LOW
                                               -------------     --------------
                                                 $       NIS       $       NIS
                                                ---     ----     -----    -----

2005                                            6.7    25.31      4.69    17.71
2006                                           7.54    28.48       5.5    20.77
2007                                           9.55    36.06      4.58    17.29
2008                                           4.89    18.47      0.08     0.33
2009                                           0.72     2.75       0.1     0.38

EIGHT MOST RECENT QUARTERS AND SUBSEQUENT PERIOD

Third Quarter 2008                             1.07     4.06      0.31     1.18
Fourth Quarter 2008                            0.59     2.24      0.08     0.33
First Quarter 2009                             0.23     0.88       0.1     0.38
Second Quarter 2009 (through June 24)          0.72     2.75      0.19     0.75
Second Quarter 2009                            0.41     1.55      0.37     1.41
Third Quarter 2009                             0.54     2.04      0.33     1.27
Fourth Quarter 2009                            0.38     1.45      0.22     0.85
First Quarter 2010                             0.42      1.6      0.12     0.48
Second Quarter 2010 (through June 10)          0.17     0.67      0.09     0.36

MOST RECENT SIX MONTHS

December 2009                                  0.38     1.45      0.22     0.85
January 2010                                   0.42      1.6      0.23     0.90
February 2010                                  0.24     0.93      0.16     0.62
March 2010                                     0.18     0.68      0.12     0.48
April 2010                                     0.17     0.67      0.12     0.49
May 2010                                       0.13     0.51      0.11     0.44
June 2009 (through June 10)                    0.11     0.44      0.09     0.36

B.    PLAN OF DISTRIBUTION

      Not applicable.

C.    MARKETS

      Our ordinary shares began trading on the NASDAQ Global Market on December
2, 1999 under the symbol "MTLK". In March 2009, we transferred the listing of
our securities to the NASDAQ Capital Market under the symbol "MTLK". As of
December 3, 2000, our ordinary shares began trading also on the Tel Aviv Stock
Exchange, or TASE, under the symbol "MTLK." We voluntarily delisted our ordinary
shares from trade on the TASE, effective June 14, 2010.

D.    SELLING SHAREHOLDERS.

      Not applicable.

E.    DILUTION.

      Not applicable.

F.    EXPENSES OF THE ISSUE.

      Not applicable.


                                       66
<PAGE>


ITEM  10. ADDITIONAL INFORMATION

A.    SHARE CAPITAL

      Not applicable.

B.    MEMORANDUM AND ARTICLES OF ASSOCIATION

      SET OUT BELOW IS A DESCRIPTION OF CERTAIN PROVISIONS OF OUR MEMORANDUM OF
ASSOCIATION AND ARTICLES OF ASSOCIATION, AND OF THE ISRAELI COMPANIES LAW
RELATED TO SUCH PROVISIONS, UNLESS OTHERWISE SPECIFIED. THIS DESCRIPTION IS ONLY
A SUMMARY AND DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED BY REFERENCE TO
THE FULL TEXT OF THE MEMORANDUM AND ARTICLES, WHICH ARE INCORPORATED BY
REFERENCE AS EXHIBITS TO THIS ANNUAL REPORT, AND TO ISRAELI LAW.

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.

THE POWERS OF THE DIRECTORS

      Under the provisions of the Israeli Companies Law and our articles of
association, a director generally cannot participate in a meeting nor vote on a
proposal, arrangement or contract in which he or she is personally interested.
In addition, our directors generally cannot vote compensation to themselves or
any members of their body without the approval of our audit committee and our
shareholders at a general meeting. See Item 6(C). "Directors, Senior Management
and Employees - Board Practices - Approval of Specified Related Party
Transactions Under Israeli Law."

      The authority of our directors to enter into borrowing arrangements on our
behalf is not limited, except in the same manner as any other transaction by us.

      Under our articles of association, retirement of directors from office is
not subject to any age limitation and our directors are not required to own
shares in our company in order to qualify to serve as directors.

RIGHTS ATTACHED TO OUR SHARES

      Our authorized share capital consists of 5,000,000 ordinary shares of a
nominal value of NIS 1.0 each.


                                       67
<PAGE>


      The key rights attached to our ordinary shares are as follows:

      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 present at the meeting have the power to elect all the
directors, other than external directors.

      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.


                                       68
<PAGE>


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 our articles of association, as amended, all resolutions of our
shareholders require a simple majority of the shares present, in person or by
proxy, and voting on the matter, unless otherwise required by the Companies Law.

      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 are 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 non-residents 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.

CHANGE OF CONTROL

      There are no specific provisions of our Memorandum or Articles of
Association that would have an effect of delaying, deferring or preventing a
change in control of us or that would operate only with respect to a merger,
acquisition or corporate restructuring involving us (or any of our
subsidiaries). However, certain provisions of the Companies Law may have such
effect.

      The Companies Law includes provisions that allow a merger transaction and
requires that each company that is a party to the 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 shareholder vote of each party, unless a court rules otherwise, the merger
will not be deemed approved if shares, representing a majority of the voting
power present at the shareholders meeting and which are not held by the other
party to the merger (or by any person who holds 25% or more of the voting power
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 to 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 obligation of any of the parties to the
merger. In addition, a merger may not be completed unless at least (i) 50 days
have passed from the time that the requisite proposals for approval of the
merger have been filed with the Israeli Registrar of Companies by each merging
company and (ii) 30 days have passed since the merger was approved by the
shareholders of each merging company.


                                       69
<PAGE>


      The Companies Law also provides that an acquisition of shares in 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% or greater shareholder of the
company. This rule does not apply if there is already another 25% or greater
shareholder of the company. Similarly, the Companies Law provides that an
acquisition of shares in 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% or
greater shareholder of the company, unless there is already a 45% or greater
shareholder of the company. These requirements do not apply if, in general, the
acquisition (1) was made in a private placement that received shareholder
approval, (2) was from a 25% or greater shareholder of the company which
resulted in the acquirer becoming a 25% or greater shareholder of the company,
or (3) was from a 45% or greater shareholder of the company which resulted in
the acquirer becoming a 45% or greater shareholder of the company. The tender
offer must be extended to all shareholders, but the offeror is not required to
purchase more than 5% of the company's outstanding shares, regardless of how
many shares are tendered by shareholders. The tender offer may be consummated
only if (i) at least 5% of the company's outstanding shares will be acquired by
the offeror and (ii) the number of shares tendered in the offer exceeds the
number of shares whose holders objected to the offer.

      If, as a result of an acquisition of shares, the acquirer will hold more
than 90% of a company's outstanding shares, the acquisition must be made by
means of a tender offer for all of the outstanding shares. If less than 5% of
the outstanding shares are not tendered in the tender offer, all the shares that
the acquirer offered to purchase will be transferred to it. The Companies Law
provides for appraisal rights if any shareholder files a request in court within
three months following the consummation of a full tender offer. If more than 5%
of the outstanding shares are not tendered in the tender offer, then the
acquirer may not acquire shares in the tender offer that will cause his
shareholding to exceed 90% of the outstanding shares.

      Lastly, 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 may, under certain circumstances,
subject a shareholder who exchanges his ordinary shares for shares in another
corporation to taxation prior to the sale of the shares received in such
stock-for-stock swap.

C.    MATERIAL CONTRACTS

LANTIQ TRANSACTION

      On January 5, 2010, we entered into an Asset Purchase Agreement, or the
Purchase Agreement, with Lantiq Israel Ltd. and Lantiq Beteiligungs - GmbH & Co.
KG (together, "Lantiq"), for the sale of the assets of, and certain specified
liabilities related to, our wireless local area network (WLAN) business to
Lantiq. Lantiq is a newly-formed fables semiconductor company funded by Golden
Gate Capital.


                                       70
<PAGE>


      In consideration for the acquired WLAN business, Lantiq has agreed to pay
us a total of up to $16.9 million in cash, consisting of the following:

      o     $5.7 million to be paid concurrently with the closing;

      o     Up to $1.2 million (subject to downward adjustments) to be paid on
            March 31, 2010; and

      o     Earn-out payments of up to $10.0 million in the aggregate,
            contingent upon the acquired business' achievement of specified
            performance targets during a two-year period ending March 31, 2012.
            Pursuant to the Purchase Agreement, $2.0 million out of the $10.0
            million earn-out payments are guaranteed payments, or the Guaranteed
            Payments, that, if not otherwise earned pursuant to the established
            performance targets, will be paid in four installments throughout
            the year 2010.

      The performance targets are based on the gross profits generated by the
acquired business during two earnout periods of April 1, 2010 through March 31,
2011 (the "first earnout period") and April 1, 2011 through March 31, 2012 (the
"second earnout period"). During the first earnout period, if gross profits are
between $2.0 million and greater than $10.0 million, the earnout payment is
between $0.5 million and $9.0 million based on a sliding scale of increasing
gross profits. During the second earnout period, if gross profits are between
$8.0 million and greater than $15.0 million, the earnout payment is between $0.5
million and $9.0 million based on a sliding scale of increasing gross profits.
Under no circumstances will the minimum aggregate earnout payments be less than
$2.0 million, nor will the maximum aggregate earnout payments be greater than
$10.0 million, as described above.

      Other key terms of the Purchase Agreement include, among other things:

      o     Lantiq has agreed to reimburse us for costs related to the operation
            of the acquired business in the period prior to closing, subject to
            certain limitations and caps;

      o     Subject to certain exceptions, we made a number of customary
            representations and warranties to Lantiq. Lantiq made customary
            representations and warranties to us;

      o     During the pre-closing period, we agreed to act in the ordinary
            course of business and not take certain specified actions without
            obtaining Lantiq's prior written consent;

      o     Lantiq agreed to make an offer of continued employment to most of
            our WLAN business employees, to generally be no less favorable in
            the aggregate than their existing terms of employment;

      o     We agreed that, subject to closing, until March 31, 2012 we shall
            not compete with the acquired WLAN business nor solicit any employee
            or consultant working for Lantiq in such business. In connection
            therewith, Mr. Shukhman, our Chief Executive Officer, has entered
            into a similar non-competition agreement with Lantiq, which became
            effective at closing;


                                       71
<PAGE>


      o     We agreed that, subject to closing and for a period of six (6)
            months thereafter, Lantiq shall have the non-exclusive right to use
            certain trade names and trademarks in connection with the operation
            of the acquired business;

      o     The parties agreed to indemnify each other for breaches of
            representations, warranties, covenants and other liabilities under
            certain circumstances, subject to certain limitations, including (1)
            a cap of $4 million on our obligation to indemnify Lantiq for
            breaches of representations and warranties, except for a breach of
            certain fundamental representations, which are not capped and (ii) a
            cap of $2 million on the obligation of Lantiq to indemnify us for
            breaches of representations and warranties. The representations and
            warranties made by the parties survive the closing and, in general,
            expire on March 31, 2012; and

      o     The Purchase Agreement could be terminated by either party due to
            legal restraints or certain breaches of representations or covenants
            of the other party; by mutual consent of the parties; or by the
            non-failing party if the transaction has not closed by March 31,
            2010.

      The transaction closed on February 15, 2010, following satisfaction of the
customary closing conditions contained in the Purchase Agreement and relating
to, among other things, obtaining a specified list of consents and the approval
of the Israeli Office of the Chief Scientist.

      As contemplated by the Purchase Agreement, we entered into the following
additional agreements at the closing:

      o     Consulting Agreement, whereby we agreed to provide Lantiq certain
            consulting services for up to two years in consideration for
            $400,000 per year;

      o     Transition Services Agreement, whereby Lantiq agreed to provide us
            with certain transition services for a limited period following the
            closing for an insignificant monthly payment. Such transition
            services included, among other things, entering into a Sublease
            Agreement allowing us to continue using a portion of our existing
            office space in Yakum, Israel; and

      o     Cross-License Agreement, whereby (1) we agreed to grant Lantiq a
            royalty-free non-exclusive license to our intellectual property
            rights (not sold as part of the transaction to Lantiq) and (ii)
            Lantiq agreed to grant us a royalty-free non-exclusive license to
            the intellectual property rights we sold as part of the transaction,
            to be used by us in connection with our retained DSL business.


                                       72
<PAGE>


      To date, Lantiq paid us the following amounts as contemplated by the
Purchase Agreement (excluding payments under the Consulting Agreement):

      o     $5.70 million which were paid concurrently with the closing;

      o     $0.57 million, reflecting certain payments on account of expense
            reimbursements which were paid on February18, 2010;

      o     $0.10 million of the Guaranteed Payments were paid on March 31,
            2010;

      o     $0.81 million (following downward adjustment from $1.2 million) were
            paid on March 31, 2010 ;

      Accordingly, as contemplated in the Purchase Agreement, we are entitled to
receive the remaining $1.9 million on account of the Guaranteed Payments in
three additional installments by December 31, 2010, unless we generated
sufficient earn-out payments in lieu thereof.

      THE FOREGOING DESCRIPTION OF THE LANTIQ TRANSACTION AND THE AGREEMENTS
ENTERED IN CONNECTION THEREWITH IS ONLY A SUMMARY AND DOES NOT PURPORT TO BE
COMPLETE AND IS QUALIFIED BY REFERENCE TO THE FULL TEXT OF THE THESE AGREEMENTS,
WHICH ARE INCORPORATED BY REFERENCE AS EXHIBITS 4.21, 4.22, 4.23, 4.24 AND 4.25
TO THIS ANNUAL REPORT.

SENIOR LOAN

      On September 8, 2008 we entered into a short term secured loan agreement,
or the Loan Agreement, with an institutional investor, or the Senior Lender.
According to the Loan Agreement, the Senior Lender agreed to extend us a loan of
$3.5 million at the first stage ("First Loan"), which we received in September
2008, and agreed to extend us at our request, an additional loan of up to $4.5
million ("Second Loan"). Under the Loan Agreement, the outstanding principal
amount will accrue interest at an annual rate of 10% payable, in cash or
ordinary shares, at our election, on a quarterly basis.

      In addition, in consideration for the First Loan, we issued to the lender
five-year warrants to purchase up to a total of 2,000,000 ordinary shares at
exercise prices per share of $0.01 (for 1,000,000 warrants) and $0.50 (for the
balance), subject to adjustments. In consideration for the Second Loan, we
undertook to issue to the Senior Lender five-year warrants to purchase up to a
total of 2,200,000 ordinary shares at exercise prices per share of $0.01 (for
1,870,000 warrants) and $0.50 (for the balance), subject to adjustments.

      The outstanding principal amount is evidenced by Senior Secured Promissory
Notes, or the Notes. In connection with the loan, we entered into an Israeli
Security Agreement granting the Lender a first priority fixed charge on all of
our intellectual property and a first priority floating charge on all of our
other assets. Our U.S. subsidiary entered into a U.S. Security Agreement
granting the Senior Lender a security interest in its assets to secure our
obligations under the Notes and obligations under the Notes are guaranteed by
our wholly owned subsidiaries pursuant to a Subsidiary Guarantee. The
transaction documents also contain customary representations, warranties and
covenants, including various limitations on, among other things, our ability to
incur additional debt or sell the collateral, without the consent of the Senior
Lender.

      FIRST AMENDMENT. On December 31, 2008, the Loan Agreement was amended,
such that, among other things, the Second Loan will be provided in two tranches
of $2.25 million each. The first tranche was provided in January 2009, such that
we have drawn down a total of $5.75 million under the Loan Agreement. In
addition, in consideration for the first tranche, we issued to the Senior Lender
additional five-year warrants to purchase up to a total of 1,100,000 ordinary
shares at exercise prices per share of $0.01 (for 935,000 warrants) and $0.50
(for the balance), subject to adjustments.


                                       73
<PAGE>


      SECOND AMENDMENT. On September 6, 2009 we entered into a second amendment
to the Loan Agreement (the "Second Amendment"), whereby the maturity date was
extended from September 9, 2009 to March 9, 2010. As part of the amendment, we
repaid to the lender $2.0 million out of the outstanding $5.75 million. We also
agreed that in the event of a fundamental transaction, the repayment amount will
be $4.3 million (with interest at the annual rate of 10% will continue to accrue
on the original amount outstanding). Pursuant to the amendment, the exercise
price of 1,165,000 warrants that were previously issued to the Senior Lender was
adjusted from $0.50 to $0.03 per share.

      THIRD AMENDMENT. On December 30, 2009, we entered into a third amendment
to the Loan Agreement (the "Third Amendment"), that became effective on January
5, 2010, whereby the repayment of the $4.3 million originally due upon the
closing of a fundmanetal transaction, such as the Lantiq Transaction, was
reduced to $4.1 million and repaid in four installments: $3.7 million at closing
of such transaction, which occurred on February 15, 2010, and the remainder in
three installments by March 31, 2011. As part of the Third Amendment and the
closing of the Lantiq Transaction, the charges on our assets were removed.

      THE FOREGOING DESCRIPTION OF THE SENIOR LOAN AND THE AGREEMENTS ENTERED IN
CONNECTION THEREWITH IS ONLY A SUMMARY AND DOES NOT PURPORT TO BE COMPLETE AND
IS QUALIFIED BY REFERENCE TO THE FULL TEXT OF THE THESE AGREEMENTS, WHICH ARE
INCORPORATED BY REFERENCE AS EXHIBITS 4.11, 4.18, 4.19 AND 4.20 TO THIS ANNUAL
REPORT.

D.    EXCHANGE CONTROLS

      There are currently no Israeli currency control restrictions on payments
of dividends or other distributions with respect to our ordinary shares or the
proceeds from the sale of our shares, except for the obligation of Israeli
residents to file reports with the Bank of Israel regarding some transactions.
However, legislation remains in effect under which currency controls can be
imposed by administrative action at any time.

      The ownership or voting of our ordinary shares by non-residents of Israel,
except with respect to citizens of countries which are in a state of war with
Israel, is not restricted in any way by our articles of association or by the
laws of the State of Israel.

E.    TAXATION

      The following is a summary of the current tax structure applicable to
companies in Israel, with special reference to its effect on us and certain
Israeli Government programs benefiting us. The following also contains a
discussion of material Israeli and United States tax consequences to purchasers
of our ordinary shares. 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 of the courts.
The discussion is not intended, and should not be construed, as legal or
professional tax advice.


                                       74
<PAGE>


      HOLDERS OF OUR ORDINARY SHARES ARE 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.

ISRAELI TAX

      GENERAL CORPORATE TAX STRUCTURE

      For a discussion of the current corporate tax stucture applicable to
companies in Israel - see Item 5A above "Operating Reuslts - Corporate Tax
Rate".

      Following a Temporary Order, which came into effect on January 1, 2009 and
expired at the end of one year, an Israeli corporation may elect a 5% rate of
corporate tax (instead of 25%) for dividend distributions received in 2009 from
a foreign subsidiary, which is used in Israel either in 2009 or within one year
after actual receipt of the dividend, whichever is later. The 5% tax rate is
subject to various conditions, which include conditions with regard to the
identity of the corporation that distributes the dividends, the source of the
dividend, the nature of the use of the dividend income, and the period during
which the dividend income will be used in Israel.

      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 depreciation on capital expenditures,
in scientific research and development projects, if the expenditures are
approved by the relevant Israeli government ministry, determined by 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. However, the amount of such deductible expenses shall be reduced by
the sum of any funds received through government grants for the finance of such
scientific research and development projects. Expenditures not so approved or
funded, are deductible over a three-year period.

      TAX BENEFITS UNDER THE LAW FOR THE ENCOURAGEMENT OF CAPITAL INVESTMENTS,
1959

      The Law for the Encouragement of Capital Investments, 1959, or the
Investments Law, provides that a proposed capital investment in eligible
facilities may be designated as an approved enterprise. See discussion below
regarding an amendment to the Investments Law that came into effect in 2005.
Prior to the aforementioned amendment, such status was contingent upon the
receipt of an applicable certificate of approval from the Investment Center of
the Ministry of Industry and Trade of the State of Israel, known as the
Investment Center.

      Taxable income of a company derived from an approved enterprise is subject
to company tax at the maximum rate of 25% (rather than regular corporate tax
rates) for the benefit period. The benefit period is seven or ten years
(depending on the extent of foreign investment in the company) 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 start of the tax year in which the approval was obtained
, whichever is earlier. The Investments 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.


                                       75
<PAGE>


      The tax benefits derived from any such certificate of approval relate only
to taxable income attributable to the specific approved enterprise. In the event
that a company is operating under more than one approval or that its capital
investments are only partly approved, its effective company tax rate is the
result of a weighted combination of the various applicable rates.

      A company owning an approved enterprise may elect to forego certain
government grants extended to approved enterprises in return for an alternative
package of benefits. Under the alternative package of benefits, a company's
undistributed income derived from an approved enterprise will be exempt from
corporate 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. The tax benefits under the Investments Law
shall also apply to income generated by a company from the grant of a usage
right with respect to know-how developed by the approved enterprise, income
generated from royalties, and income derived from a service which is auxiliary
to such usage right or royalties, provided that such income is generated within
the approved enterprise's ordinary course of business.

      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. In December 2000, we received an approval for additional capital
investment in our approved enterprise under the alternative package of benefits.
We have derived, and expect to continue to derive, a substantial portion of our
income from our approved enterprise facilities.

      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 investment in such company). The
dividend recipient is subject to withholding tax at the 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.

      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 benefits available to an approved enterprise are conditional upon the
fulfillment of conditions stipulated in the Investments 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.


                                       76
<PAGE>


      AMENDMENT TO THE INVESTMENTS LAW

      On April 1, 2005, an amendment to the Investments Law came into force.
Pursuant to the amendment, a company's facility will be granted the status of
"Approved Enterprise" (which following such amendment is referred to as a
Benefited Enterprise) only if it is proven to be an industrial facility (as
defined in the Investments Law) that contributes to the economic independence of
the Israeli economy and is a competitive facility that contributes to the
Israeli gross domestic product. The amendment provides that the Israeli Tax
Authority and not the Investment Center will be responsible for a Benefited
Enterprise under the alternative package of benefits. A company wishing to
receive the tax benefits afforded to a benefited enterprise is required to
select the tax year from which the period of benefits under the Investment Law
are to commence by simply notifying the Israeli Tax Authority within 12 months
of the end of that year, or in the tax return for that year, whichever is
earlier. In order to be recognized as owning a benefited enterprise, a company
is required to meet a number of conditions set forth in the amendment, including
making a minimal investment in manufacturing assets for the benefited enterprise
and having completed a cooling-off period from the company's previous year of
commencement of benefits under the Investments Law.

      Pursuant to the amendment, a company with a benefited enterprise is
entitled, in each tax year, to accelerated depreciation for the manufacturing
assets used by the benefited enterprise and to certain tax benefits, provided
that no more than 12 to 14 years have passed since the beginning of the year of
commencement of benefits under the Investments Law. The tax benefits granted to
a benefited enterprise, as applicable to us, are determined according one of the
following new tax routes:

      o     Similar to the currently available alternative route, exemption from
            corporate tax on undistributed income for a period of two to ten
            years, depending on the geographic location of the benefited
            enterprise within Israel, and a reduced corporate tax rate of 10% to
            25% for the remainder of the benefits period, depending on the level
            of foreign investment in each year. Benefits may be granted for a
            term of from seven to ten years, depending on the level of foreign
            investment in the company. If the company pays a dividend out of
            income derived from the benefited enterprise during the tax
            exemption period, such income will be subject to corporate tax at
            the applicable rate (10%-25%). The company is required to withhold
            tax at the source at a rate of 15% from any dividends distributed
            from income derived from the benefited enterprise.

      o     A special tax route enabling companies owning facilities in certain
            geographical locations in Israel to pay corporate tax at the rate of
            11.5% on income of the benefited enterprise. The benefits period is
            ten years. Upon payment of dividends, the company is required to
            withhold tax at source at a rate of 15% for Israeli residents and at
            a rate of 4% for foreign residents (subject to certain conditions).

      Generally, a company that is abundant in Foreign Investment (as defined in
the Investments Law) is entitled to an extension of the benefits period by an
additional five years, depending on the rate of its income that is derived in
foreign currency.


                                       77
<PAGE>


      The amendment changes the definition of "foreign investment" in the
Investments Law so that instead of an investment of foreign currency in the
company, the definition now requires a minimal investment of NIS 5 million by
foreign investors. Furthermore, such definition now also includes the purchase
of shares of a company from another shareholder, provided that the company's
outstanding and paid-up share capital exceeds NIS 5 million. Such changes to the
aforementioned definition are retroactive from 2003.

     The amendment applies to Benefited Enterprise programs in which the year of
commencement of benefits under the Investments Law is 2004 or later, unless such
programs received"Approved Enterprise" approval from the Investment Center on or
prior to March 31, 2005 in which case the amendment provides that terms and
benefits included in any certificate of approval already granted will remain
subject to the provisions of the law as they were on the date of such approval.

      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, if we qualify as an "Industrial
Company" we are entitled to the following preferred corporate tax benefits,
among others:

      o     deduction of the cost of purchased know-how and patents over an
            eight-year period for tax purposes;

      o     the right to elect under certain conditions to file a consolidated
            tax return with additional related Israeli Industrial Companies;

      o     accelerated depreciation rates on equipment and buildings; and

      o     deduction over a three-year period of expenses involved with the
            issuance and listing of shares on a stock exchange.

      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.

      ISRAELI TRANSFER PRICING REGULATIONS

      On November 29, 2006, Income Tax Regulations (Determination of Market
Terms), 2006, promulgated under Section 85A of the Tax Ordinance, came into
force (the "TP Regs"). Section 85A of the Tax Ordinance and the TP Regs
generally require that all cross-border transactions carried out between related
parties will be conducted on an arm's length principle basis and will be taxed
accordingly.


                                       78
<PAGE>


      CAPITAL GAINS TAX

      Israeli law generally imposes a capital gains tax on the sale of any
capital assets by residents of Israel, as defined for Israeli tax purposes, and
on the sale of assets in Israel, including our ordinary shares, by non-residents
of Israel, unless a specific exemption is available or unless a tax treaty
between Israel and the shareholder's country of residence provides otherwise.
The law distinguishes between the real gain and inflationary surplus. Real gain
is the difference between the total capital gain and the inflationary surplus.
The inflationary surplus is computed on the basis of the difference between the
Israeli consumer price index or, in certain circumstances, a foreign currency
exchange rate, on the date of sale and the date of purchase.

      The tax rate generally applicable to capital gains derived from the sale
of shares, whether listed on a stock market or not, is 20% for Israeli
individuals, unless such shareholder claims a deduction for financing expenses
in connection with such shares, in which case the gain will generally be taxed
at a rate of 25%. Additionally, if such shareholder is considered a "Significant
Shareholder" at anytime during the 12-month period preceding such sale, i.e.
such shareholder holds directly or indirectly, including with others, at least
10% of any means of control in the company, the tax rate shall be 25%. Israeli
Companies are subject to the Corporate Tax rate on capital gains derived from
the sale of listed shares. However, the foregoing tax rates will not apply to:
(i) dealers in securities; and (ii) shareholders who acquired their shares prior
to an initial public offering (that may be subject to a different tax
arrangement).

      The tax basis of our shares acquired prior to January 1, 2003 will
generally be determined in accordance with the average closing share price in
the three trading days preceding January 1, 2003. However, a request may be made
to the tax authorities to consider the actual adjusted cost of the shares as the
tax basis if it is higher than such average price.

      Non-Israeli residents are exempt from Israeli capital gains tax on any
gains derived from the sale of shares publicly traded on the TASE, provided such
gains did not derive from a permanent establishment of such shareholders in
Israel, and are exempt from Israeli capital gains tax on any gains derived from
the sale of shares of Israeli companies publicly traded on a recognized stock
market outside of Israel (such as the NASDAQ), provided that such capital gains
are not derived from a permanent establishment in Israel and that such
shareholders did not acquire their shares prior to the issuer's initial public
offering. However, non-Israeli corporations will not be entitled to such
exemption if Israeli residents (i) have a controlling interest of 25% or more in
such non-Israeli corporation, or (ii) are the beneficiaries of or are entitled
to 25% or more of the revenues or profits of such non-Israeli corporation,
whether directly or indirectly.

      In some instances where our shareholders may be liable to Israeli tax on
the sale of their ordinary shares, the payment of the consideration may be
subject to the withholding of Israeli tax at the source.


                                       79
<PAGE>


      APPLICATION OF THE U.S.-ISRAEL TAX TREATY TO CAPITAL GAINS TAX

      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 "the U.S.- Israel Tax Treaty"), the sale, exchange or disposition of our
ordinary shares by a person who qualifies as a resident of the United States and
is entitled to claim the benefits afforded to a resident, or a Treaty U.S.
Resident, will not be subject to Israeli capital gains tax unless (i) that
Treaty U.S. Resident held, directly or indirectly, shares representing 10% or
more of our voting power during any part of the 12-month period preceding the
sale, exchange or disposition; or (ii) the capital gains from such sale can be
allocated to a permanent establishment in Israel. A sale, exchange or
disposition of our ordinary shares by a Treaty U.S. Resident who held, directly
or indirectly, shares representing 10% or more of our voting power at any time
during the 12-month period preceding the sale, exchange or disposition will be
subject to Israeli capital gains tax, to the extent applicable. However, under
the U.S.-Israel Tax Treaty, this Treaty U.S. Resident would be permitted to
claim credit for these taxes if required to be paid against U.S. income tax
imposed with respect to such sale, exchange or disposition, subject to the
limitations set in U.S. laws applicable to foreign tax credits. The U.S.-Israel
Tax Treaty does not relate to state or local taxes.

      TAXATION OF NON-RESIDENTS ON RECEIPT OF DIVIDENDS

      On distributions of dividends other than bonus shares, or stock dividends,
income tax is withheld at the source. Non-residents of Israel are subject to
Israeli income tax on the receipt of dividends paid on our ordinary shares, at
the rate of 20%, or 25% for a shareholder that is considered a Significant
Shareholder at any time during the 12-month period preceding such distribution,
unless the dividends are paid from income derived from an Approved or Benefited
Enterprise during the applicable benefit period, or 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 our
ordinary shares who is a Treaty U.S. Resident will be 25%. However, dividends
paid from income derived during any period for which the Israeli company is not
entitled to the reduced tax rate applicable to an Approved or Benefited
Enterprise under the Investments Law, the maximum tax will be 12.5% if the
holder is a U.S. company holding shares representing at least 10% of the issued
voting power during the part of the taxable year preceding the date of payment
of dividends and during the whole of the prior taxable year, and provided that
not more than 25% of the Israeli company's gross income consists of interest or
dividends. Dividends paid from income derived during any period for which the
Israeli company is entitled to the reduced tax rate applicable to an Approved or
Benefited Enterprise will be subject to a 15% tax rate.

UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

      GENERAL

      Subject to the limitations described below, the following discussion
describes the material U.S. 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 U.S. federal income
tax purposes:


                                       80
<PAGE>


      o     a citizen or individual resident of the United States;

      o     a corporation (or other entity treated as a corporation for U.S.
            federal tax purposes) created or organized in the United States or
            under the law 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 U.S.
            federal income tax purposes regardless of its source; or

      o     a trust if (1) a court within the United States is able to exercise
            primary supervision over the administration of the trust, and one or
            more United States persons have the authority to control all
            substantial decisions of the trust, or (2) the trust was in
            existence on August 20, 1996 and properly elected to continue to be
            treated as a United States person.

      This summary is not a 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 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 (the "Code"), 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 U.S.
federal income taxation that may be relevant to any particular holder based on
that holder's individual circumstances. In particular, this discussion does not
address the potential application of the alternative minimum tax or the U.S.
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", constructive sale, "conversion transaction" or other risk
            reduction transaction;

      o     holders owning directly, indirectly or by attribution shares having
            at least ten percent of the total voting power of all our shares;

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

      o     taxpayers who acquire our ordinary shares as compensation.


                                       81
<PAGE>


      This discussion does not address any aspect of U.S. federal gift or estate
tax or state or local tax laws. Additionally, the discussion does not consider
the tax treatment of partnerships or other entities treated as pass-throughs for
U.S. federal income tax purposes or persons who hold our ordinary shares through
a partnership or other pass-through entity.

      Material aspects of U.S. federal income tax relevant to a Non-U.S. Holder
are also discussed below. In general, a Non-U.S. Holder is a beneficial owner of
our ordinary shares who or that is for U.S. federal income tax purposes: (i) a
nonresident alien individual, (ii) a corporation (or an entity treated as a
corporation for U.S. federal income tax purposes) created or organized in or
under the law of a country other than the United States or a political
subdivision thereof or, (iii) an estate or trust that is not a U.S. Holder. Each
prospective investor is advised to consult that person's own tax adviser with
respect to the specific tax consequences to that 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 a dividend 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 U.S. federal
income tax purposes. Distributions in excess of those 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 that basis, will be treated as a gain
from the sale or exchange of the ordinary shares. Pursuant to current
legislation that is scheduled to expire for taxable years beginning after
December 31, 2010, dividend income generally will be taxed to noncorporate
taxpayers at the rates applicable to long-term capital gains, provided certain
holding period and other requirements (including a requirement that we are not a
PFIC in the year of the dividend or in the preceding year) are satisfied.
Dividends received after 2010 will be taxable as ordinary income.

      Distributions out of current or accumulated earnings and profits paid in
foreign currency to a U.S. Holder will be includible in the income of the 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 U.S. 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 those individuals may still claim a credit against
their U.S. federal income tax liability. The amount of foreign income taxes that
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.


                                       82
<PAGE>


      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 the U.S. Holder has not held the ordinary shares for at least 16
            days of the 31-day period beginning on the date which is 15 days
            before the ex-dividend date; or

      o     to the extent the 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 his or
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 generally will be foreign source
passive income for U.S. 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 that U.S.
Holder's basis in the ordinary shares, which is usually the U.S. dollar cost of
those shares, and the amount realized on the disposition. 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 an
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 that U.S. Holder has elected to use the settlement date to
determine its proceeds of sale for purposes of calculating that 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. Long-term
capital gains of noncorporate taxpayers are eligible for reduced rates of
taxation.

      Gain or loss recognized by a U.S. Holder on a sale, exchange or other
disposition of our ordinary shares generally is treated under the U.S. Internal
Revenue Code as U.S. source income or loss for U.S. foreign tax credit purposes,
and thus a U.S. Holder ordinarily would not be entitled to claim a foreign tax
credit for taxes paid to Israel with respect to gains. However, under the U.S.-
Israel Tax Treaty, gains derived from the sale, exchange or other disposition of
our ordinary shares generally are considered to be from Israeli sources if the
sale, exchange or other disposition occurs in Israel, and a U.S. Holder who is
entitled to claim the benefits of that treaty is permitted to claim a foreign
tax credit for taxes paid to Israel with respect to the sale, exchange or
disposition, subject to the limitations on foreign tax credits under U.S.
federal income tax law. The U.S. Israel Tax Treaty does not relate to state or
local taxes. (See Israeli Tax -- Application of the U.S.-Israel Tax Treaty to
Capital Gains Tax).

      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 U.S. source ordinary income or loss.


                                       83
<PAGE>


      PASSIVE FOREIGN INVESTMENT COMPANY CONSIDERATIONS

      If we are characterized as a PFIC for U.S. federal income tax purposes,
adverse tax consequences can arise for our shareholders. Generally a foreign
corporation is treated as a PFIC if either (i) 75 percent 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 that corporation is considered to own 25
percent or more by value of the shares, is passive income, or (ii) 50 percent or
more of its assets in a taxable year, averaged over the year and ordinarily
determined based on quarter-end fair market values and including the pro-rata
share of the assets of any company in which that corporation is considered to
own 25 percent or more by value of the shares, produce, or, are held for the
production of, passive income. In general, passive income for this purpose
means, with certain designated exceptions, dividends, interest, rents, royalties
(other than certain rents and royalties derived in the active conduct of trade
or business), annuities, net gains from dispositions of certain assets, net
foreign currency gains, income equivalent to interest, income from notional
principal contracts and payments in lieu of dividends.

      We believe that we satisfied the test to be a PFIC in 2001, 2002 and 2003
but not in 2004, 2005, 2006, 2007 or 2008. Although we will endeavor to avoid
characterization as a PFIC in the future, we may not be able to do so. In
particular, our holding of the proceeds of the sale of our WLAN business on
February 15, 2010 likely will cause us to be a PFIC in 2010 and possibly also in
later years unless and until we invest a sufficient porton of those proceeds in
assets that do not produce passive income. Although the Code contains an
exception to PFIC classification for certain corporations that change their
business, that exception is not available to a corporation that was, as we were,
a PFIC in any prior taxable year.

      The determination of whether a foreign corporation is a PFIC is a factual
determination made annually and is therefore subject to change. However, once
stock in a foreign corporation is stock in a PFIC in the hands of a particular
shareholder that is a United States person, it remains stock in a PFIC in the
hands of that shareholder, even if in later taxable years the foreign
corporation ceases to satisfy the test to be a PFIC, unless the shareholder
makes any of certain elections. As described below, those elections include a
"qualified electing fund", or QEF, election and a mark-to-market election.

      A U.S. Holder who is subject to the PFIC rules and who does not make a QEF
election or a mark to-market election will be subject to the following rules:

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

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

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


                                       84
<PAGE>


      o     the U.S. Holder will be subject to information reporting
            requirements each year and will be required to report distributions
            received on, and gain recognized on dispositions of, our shares; and

      o     any U.S. Holder who acquired our ordinary shares upon the death of a
            shareholder will not receive a step-up in the tax basis of those
            shares to fair market value but instead, the U.S. Holder beneficiary
            will have a tax basis equal to the decedent's basis, if lower.

      In the case of a U.S. Holder that made, or, as described below, is treated
as having made, a QEF election for the first taxable year the U.S. Holder owns
our ordinary shares and we are a PFIC (that taxable year hereafter being
referred to as the "First PFIC Year"), the following U.S. federal income tax
consequences will arise:

      o     the U.S. Holder will be required for each taxable year in which we
            are a PFIC to include in income a pro-rata share of our (i) net
            ordinary earnings as ordinary income (which income is not eligible
            for any 15 percent maximum tax rate applicable to certain dividends)
            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. Holder will not be required under these rules to include
            any amount in income for any taxable year during which we do not
            have net ordinary earnings or capital gains; and

      o     the U.S. Holder will not be required under these rules to include
            any amount in income for any taxable year for which we are not a
            PFIC.

      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 U.S. federal
income tax return and by filing that form with the IRS Service Center in
Philadelphia, Pennsylvania. Continuation of a QEF election requires ongoing
annual filing of the PFIC annual information statement that we provide. Even if
a QEF election is not made, a shareholder in a PFIC who is a United States
person must satisfy information reporting requirements to the IRS every year.
During January 2002, 2003 and 2004, we sent to our shareholders the required
information to report income and gain under a QEF election - a "PFIC ANNUAL
INFORMATION STATEMENT" for the years 2001, 2002, and 2003 respectively.

      We did not have net ordinary earnings or net capital gain for our
2001-2003 taxable years. Therefore, any U.S. Holder who made a timely QEF
election for those periods was not required to include any amount in income in
those years as a result of that election.

      Any U.S. Holder who would like to receive a PFIC ANNUAL INFORMATION
STATEMENT for years 2001, or2002, 2003 or 2010 can contact Mr. Eran Vital,
Metalink Ltd., Yakum Business Park, Yakum 60972, Israel.


                                       85
<PAGE>


      Alternatively, provided our ordinary shares qualify as marketable stock, a
U.S. Holder can elect to mark our ordinary shares to market annually,
recognizing as ordinary income or loss each year that we are a PFIC and the U.S.
Holder either holds or disposes of the shares, an amount equal to the difference
between the U.S. Holder's adjusted tax basis in our ordinary shares and their
fair market value or amount realized. Losses would be allowed only to the extent
of net mark-to-market gain included in income by the U.S. Holder for prior
taxable years pursuant to the mark-to-market election. As with the QEF election,
a U.S. Holder who makes a mark-to-market election with respect to our shares
would not be subject to deemed ratable allocations of distributions or gain, the
interest charge, or the denial of basis step-up at death described above (except
for the first year that the election applies, if that is not the first PFIC
Year). We believe that our shares should be treate as marketable stock for
purposes of this mark-to-market election. Subject to our shares not being or
ceasing to be marketable, a mark-to-market election is irrevocable without the
consent of the IRS. If our shares are de-listed from NASDAQ, our shares would no
longer be treated as marktable.

      As noted above, once stock in a foreign corporation is stock in a PFIC in
the hands of a particular U.S. shareholder, it remains stock in a PFIC in the
hands of that shareholder, even if in later taxable years the foreign
corporation ceases to satisfy the test to be a PFIC, unless the shareholder
makes a QEF election for the First PFIC Year makes or the mark-to-market
election.

      If a U.S. shareholder makes a QEF election for the First PFIC Year, and if
in any later year the foreign corporation does not satisfy the test to be a
PFIC, the PFIC rules do not apply to the stock of the foreign corporation owned
by that shareholder in that year. However, if the foreign corporation
subsequently becomes a PFIC in a later taxable year, the QEF rules once again
will apply to that stock. A U.S. shareholder who or that did not make a QEF
election in the First PFIC Year may make a QEF election in a later taxable year,
and if the U.S. shareholder also makes another election, sometimes called a
"purging" election, pursuant to which the U.S. shareholder may be required to
pay additional tax and interest, the U.S. shareholder will be treated as having
made a QEF election in the First PFIC Year.

      If a U.S. shareholder makes the mark-to-market election for the stock in a
PFIC, the stock will cease to be stock in a PFIC in any later year the foreign
corporation does not satisfy the test to be a PFIC. However, if the foreign
corporation subsequently becomes a PFIC in a later taxable year, the
mark-to-market rules once again will apply to that stock. If a United States
person makes a mark-to-market election after the First PFIC Year, his or its
mark-to-market gain, if any, will be subject to the PFIC rules that apply when
there is no special election, described above, but those rules will not
thereafter apply in subsequent taxable years.

      We believe that we satisfied the test to be a PFIC in 2001, 2002 and 2003
but not in 2004, 2005, 2006, 2007 or 2008. In that event, based on the rules
described above, in the hands of any U.S. Holder that owned our ordinary shares
in 2001, 2002 or 2003 and that has made, or is treated as having made, a QEF
election for the First PFIC Year or that has made a mark-to-market election, our
ordinary shares will not be shares in a PFIC in any year after 2003 in which we
do not satisfy the test to be a PFIC. In addition, any U.S. Holder that acquired
our ordinary shares in 2004, 2005, 2006, 2007 or 2008 (or in a later year, if
any, in which we were or are not a PFIC) will not be subject to the PFIC rules,
unless in a subsequent year we again satisfy the test to be a PFIC. However, any
U.S. Holder that owned our ordinary shares in 2001, 2002 or 2003 (or any later
year we are a PFIC) and did not and does not make a QEF election effective for
the First PFIC Year and has not made an does not make a mark-to-market election
will remain subject to the PFIC rules that apply when no special election is in
effect.


                                       86
<PAGE>


      U.S. HOLDERS OF OUR SHARES ARE STRONGLY URGED TO CONSULT THEIR TAX
ADVISERS ABOUT THE PFIC RULES, INCLUDING THE AVAILABILITY, ADVISABILITY AND
TIMING OF, AND PROCEDURE FOR, MAKING A QEF OR MARK-TO-MARKET ELECTION WITH
RESPECT TO THEIR HOLDING OF OUR ORDINARY SHARES, INCLUDING WARRANTS OR RIGHTS TO
ACQUIRE OUR ORDINARY SHARES.

      TAX CONSEQUENCES FOR NON-U.S. HOLDERS OF ORDINARY SHARES

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

      o     that item is effectively connected with the conduct by the Non-U.S.
            Holder of 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,
            that 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
            U.S. 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 28
percent 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
28 percent 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
backup withholding with respect to dividends paid on, or proceeds from the sale,
exchange, redemption or other disposition of, the ordinary shares, provided that
the Non-U.S. Holders provide a taxpayer identification number, certify to their
foreign status or otherwise establish an exemption.

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

F.    DIVIDENDS AND PAYING AGENTS

      Not applicable.


                                       87
<PAGE>


G.    STATEMENTS BY EXPERTS.

      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 our obligations with respect to such requirements by filing reports with
the SEC. You may read and copy any document we file with the SEC without charge
at the SEC's public reference room at 100 F Street, N.E., Washington, D.C.
20549. Copies of such material may be obtained by mail from the Public Reference
Branch of the SEC at such address, at prescribed rates. Please call the SEC 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 required under the Exchange Act to file periodic
reports and financial statements with the SEC 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.


                                       88
<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.

      In 2007, the Company entered into currency-forward and zero cost Collar
transactions (NIS/dollar) of $5.0 milion with settlement date through 2007 and
2008, designed to reduce the variability in cash-flow of NIS denominated
expenses in the amount of $5.0 milion. The Company designed the hedge such that
the critical terms of the hedged item and the hedging item match. As a result,
the Company recorded in 2007 the amount of $43,000 as change in fair market
value of hedging activities in "Other Comprehensive Income" relating to the
unsettled transactions as of December 31, 2007. In 2008, the Company settled all
the hedging transactions and reclassified it from "Other Comprehensive Income"
to earnings concurrent with the effect of the hedged transaction on earning. 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.For additional qualitative disclosure see Item 5 - " Impact of
Inflation and Foreign Currency Fluctuations".

      Had the NIS exchange rate versus the US dollar been appreciated by 10%,
operating loss for 2008 would have been increased from current operating loss of
$22.6 million to $24.5 million, an increase of approximately $1.9 million.

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 primarily of certificates of deposits and
marketable debt securities of highly-rated corporations. On December 31, 2008,
we had no long-term investments. As of December 31, 2009 we had no short- and
long-term investments.

      The table below present principal amounts of our financial instruments
sensitive to interest rate and related weighted average rates by date of
maturity for our short- and long-term investments and short- term loans.


                                       89
<PAGE>


--------------------------------------------------------------------------------
                           Short-Term
                    (U.S. dollars in thousands)
--------------------------------------------------------------------------------
MARKETABLE DEBT SECURITIES                 MATURITY DATE OF UP TO 1 YEAR
-------------------------------- -----------------------------------------------
Auction Rates Securities                                 -
-------------------------------- -----------------------------------------------
Weighted Average Interest Rate                           -
-------------------------------- -----------------------------------------------
TRADE RECEIVABLES                   MATURITY OF UP TO 1 YEAR BEARING NO INTEREST
-------------------------------- -----------------------------------------------
Trade receivables                                       461
-------------------------------- -----------------------------------------------
SHORT- TERM LOANS                          MATURITY DATE OF UP TO 1 YEAR
-------------------------------- -----------------------------------------------
Short- term loan                                       4,100
-------------------------------- -----------------------------------------------
Fixed Interest Rate                                     10%
-------------------------------- -----------------------------------------------

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

      Not applicable.

                                     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

      As described elsewhere in this annual report, on December 29, 2009 our
shareholders approved a one-to-ten reverse share split, which we effected on
February 22, 2010. Since all of our shareholders were affected, the share split
did not result in a dilution of the percentage of aggregate equity ownership.

ITEM 15. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

      Our principal executive and principal financial officers have concluded
that, as of December 31, 2009, the Company's disclosure controls and other
procedures were effective to ensure that information required to be disclosed by
the Company in the reports that we file or submit to the SEC under the
Securities Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the SEC's rules and forms and that such
information was accumulated and communicated to our management, including the
principal executive and principal financial officers, as appropriate to allow
timely decisions regarding required disclosure.


                                       90
<PAGE>


INTERNAL CONTROL OVER FINANCIAL REPORTING

      Our management, including our chief executive officer, or CEO, and our
principal financial officer, or CFO, is responsible for establishing and
maintaining adequate internal control over financial reporting for us. We
performed an evaluation of the effectiveness of our internal control over
financial reporting that is designed by, or under the supervision of, our
principal executive and principal financial officers, and effected by our board
of directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP and includes
those policies and procedures that:

      o     pertain to the maintenance of records that in reasonable detail
            accurately and fairly reflect the transactions and dispositions of
            the assets of the Company;

      o     provide reasonable assurance that transactions are recorded as
            necessary to permit preparation of financial statements in
            accordance with generally accepted accounting principles, and that
            receipts and expenditures of the Company are being made only in
            accordance with authorizations of management and directors of the
            Company; and

      o     provide reasonable assurance regarding prevention or timely
            detection of unauthorized acquisition, use or disposition of the
            Company's assets that could have a material effect on the financial
            statements.

      Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
conducted an evaluation of the effectiveness of our internal control over
financial reporting as of December 31, 2009 based on the framework for Internal
Control-Integrated Framework set forth by the Committee of Sponsoring
Organizations of the Treadway Commission.

      Based on such evaluation, our management, including the CEO and CFO, has
concluded that the Company's internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934,
as amended) as of December 31, 2007 is effective.

INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS

      Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate. Therefore,
internal control over financial reporting determined to be effective provides
only reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles.


                                       91
<PAGE>


      THIS ANNUAL REPORT DOES NOT INCLUDE AN ATTESTATION REPORT OF OUR
REGISTERED PUBLIC ACCOUNTING FIRM REGARDING INTERNAL CONTROL OVER FINANCIAL
REPORTING. MANAGEMENT'S REPORT WAS NOT SUBJECT TO ATTESTATION BY OUR REGISTERED
PUBLIC ACCOUNTING FIRM PURSUANT TO TEMPORARY RULES OF THE SEC THAT PERMIT US TO
PROVIDE ONLY MANAGEMENT'S REPORT IN THIS ANNUAL REPORT.

      There were no changes in the Company's internal control over financial
reporting that occurred during the year ended December 31, 2009 that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

      Ms. Orly Etzion, an independent member of our audit committee, serves as,
and qualifies as, a financial expert under the applicable regulations. Ms.
Etzion also qualifies as an "independent director" under the NASDAQ rules.

ITEM 16B. CODE OF ETHICS

      In April 2004, we adopted Code of Business Conduct and Ethics (the "Code")
that applies to the Company's employees and directors. The Code is available on
our website at www.MTLK.com. If we make any amendment to the Code or grant any
waivers, including any implicit waiver, from a provision of the Code, which
applies to our chief executive officer, chief financial officer, chief
accounting officer or controller, or persons performing similar functions, we
will disclose the nature of such amendment or waiver on our website.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT FEES. Brightman Almagor & Co., Certified Public Accountants (Israel), a
member of Deloitte Touche Tohmatsu billed us aggregate annual amounts of
approximately $40 thousand, for 2009, and 2008 audit of our annual financial
statements, review of our quarterly financial results, consultations on various
accounting issues and performance of local statutory audits.

TAX FEES. For 2009 and 2008, our principal accountant billed us aggregate
amounts of approximately $10 thousand and $0, respectively, for services
relating to tax compliance, tax advice and tax planning.

ALL OTHER FEES. For 2009 and 2008 our principal accountant billed us aggregate
amounts of approximately $0 and $3.5 thousand, respectively for other services.

PRE-APPROVAL POLICIES AND PROCEDURES. Our audit committee approves each audit
and non-audit service to be performed by our independent accountant before the
accountant is engaged.

ITEM 16D. EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES

      Not applicable.

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
          PURCHASERS.

      Not applicable.


                                       92
<PAGE>


ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT

      Not applicable.

ITEM 16G. CORPORATE GOVERNANCE

      We are a foreign private issuer whose ordinary shares are listed on the
NASDAQ Capital Market. As such, we are required to comply with U.S. federal
securities laws, including the Sarbanes-Oxley Act, and the NASDAQ rules,
including the NASDAQ corporate governance requirements. The NASDAQ rules provide
that foreign private issuers may follow home country practice in lieu of certain
qualitative listing requirements subject to certain exceptions and except to the
extent that such exemptions would be contrary to U.S. federal securities laws,
so long as the foreign issuer discloses that it does not follow such listing
requirement and describes the home country practice followed in its reports
filed with the SEC. Below is a concise summary of the significant ways in which
our corporate governance practices differ from the corporate governance
requirements of NASDAQ applicable to domestic U.S. listed companies:

   o  The NASDAQ rules require that an issuer have a quorum requirement for
      shareholders meetings of at least one-third of the outstanding shares of
      the issuer's common voting stock. We have chosen to follow home country
      practice with respect to the quorum requirements of an adjourned
      shareholders meeting. Our articles of association, as permitted under the
      Israeli Companies Law and Israeli practice, provide that the quorum
      requirements for an adjourned meeting are the presence of a minimum of two
      shareholders present in person.

   o  The NASDAQ rules require shareholder approval of stock option plans
      available to officers, directors or employees. We have decided to follow
      home country practice in lieu of obtaining shareholder approval for our
      stock option plans. However, subject to exceptions permitted under the
      Companies Law, we are required to seek shareholder approval of any grants
      of options to directors and controlling shareholders or plans that require
      shareholder approval for other reasons.

   o  Additionally, we have chosen to follow our home country practice in lieu
      of the requirements of NASDAQ Rule 4350(b)(1)(A), relating to an issuer's
      furnishing of its annual report to shareholders.


                                       93
<PAGE>


                                    PART III

ITEM 17. FINANCIAL STATEMENTS

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

ITEM 18. FINANCIAL STATEMENTS

      Our consolidated financial statements and related auditors' report for the
year ended December 31, 2009 are enclosed as part of this annual report.


                                       94
<PAGE>


ITEM 19. EXHIBITS

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

   EXHIBIT NO.    DESCRIPTION

      1.1         Memorandum of Association, as amended and restated through
                  Febrary 22, 2010 (translated from Hebrew).

      1.2         Articles of Association, as amended and restated through
                  Febrary 22, 2010.

      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 SEC 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 SEC 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 SEC 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 SEC 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 SEC 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*        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 SEC on April 17, 2001).

      4.8*        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 SEC on June 29, 2001).

      4.9*        2003 Share Option Plan (incorporated herein by reference to
                  Exhibit 4.10 to the Registrant's Report on Form 20-F, filed
                  with the SEC on June 26, 2003).


                                       95
<PAGE>


      4.10*       2003 International Employee stock option Plan (incorporated
                  herein by reference to Exhibit 4.11 to the Registrant's Report
                  on Form S-8, filed with the SEC on April 1, 2004).

      4.11*       Loan Agreement between the Registrant and certain investors;
                  filed as Exhibit 99.2 to the Registrant's Current Report on
                  Form 6-K, filed with the SEC on September 9, 2008, and
                  incorporated herein by reference.

      4.12*       Form of Note issued to certain investors; filed as Exhibit
                  99.3 to the Registrant's Current Report on Form 6-K, filed
                  with the SEC on September 9, 2008, and incorporated herein by
                  reference.

      4.13*       Form of Warrant to purchase Ordinary Shares issued to certain
                  investors; filed as Exhibit 99.4 to the Registrant's Current
                  Report on Form 6-K, filed with the SEC on September 9, 2008,
                  and incorporated herein by reference.

      4.14*       Form of Israeli Security Agreement between the Registrant and
                  certain investors; filed as Exhibit 99.5 to the Registrant's
                  Current Report on Form 6-K, filed with the SEC on September 9,
                  2008, and incorporated herein by reference.

      4.15*       Form of U.S. Security Agreement between the Registrant and
                  certain investors; filed as Exhibit 99.6 to the Registrant's
                  Current Report on Form 6-K, filed with the SEC on September 9,
                  2008, and incorporated herein by reference.

      4.16*       Form of Subsidiary Guarantee between the Registrant and
                  certain investors; filed as Exhibit 99.7 to the Registrant's
                  Current Report on Form 6-K, filed with the SEC on September 9,
                  2008, and incorporated herein by reference.

      4.17*       Form of Placement Agent Agreement between the Registrant and
                  the placement agent; filed as Exhibit 99.8 to the Registrant's
                  Current Report on Form 6-K, filed with the SEC on September 9,
                  2008, and incorporated herein by reference.

      4.18*       Amendment to Loan Agreement between the Registrant and certain
                  investors, dated December 31, 2008; filed on Form 6-K filed
                  with the SEC on January 5, 2009, and incorporated herein by
                  reference.

      4.19*       Second Amendment to Loan Agreement between the Registrant and
                  certain investors, dated September 6, 2009; filed on Form 6-K
                  filed with the SEC on September 8, 2009, and incorporated
                  herein by reference.

      4.20        Third Amendment to Loan Agreement between the Registrant and
                  certain investors, dated December 30, 2009.


                                       96
<PAGE>


      4.21        Asset Purchase Agreement by and among the Registrant, Lantiq
                  Israel Ltd. and Lantiq Beteiligungs - GmbH & Co. KG, dated
                  January 5, 2010.

      4.22        Consulting Agreement by and between the Registrant and Lantiq
                  Israel Ltd., dated February 15, 2010.

      4.23        Transition Services Agreement by and between the Registrant
                  and Lantiq Israel Ltd., dated February 15, 2010.

      4.24        Cross License Agreement by and between the Registrant and
                  Lantiq Israel Ltd., dated February 15, 2010.

      4.25        Sublease Agreement by and between the Registrant and Lantiq
                  Israel Ltd., dated February 15, 2010.

      8           List of Subsidiaries.

      12.1        Certification by CEO pursuant to 17 CFR 240.13a-14(a), as
                  adopted pursuant to ss.302 of the Sarbanes-Oxley Act of 2002.

      12.2        Certification by CFO pursuant to 17 CFR 240.13a-14(a), as
                  adopted pursuant to ss.302 of the Sarbanes-Oxley Act of 2002.

      13.1        Certification of CEO pursuant to 18 U.S.C. ss.1350, as adopted
                  pursuant to ss.906 of the Sarbanes-Oxley Act of 2002.

      13.2        Certification of CFO pursuant to 18 U.S.C. ss.1350, as adopted
                  pursuant to ss.906 of the Sarbanes-Oxley Act of 2002.

      15          Consent of Brightman Almagor & Co., independent auditors.

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

* Incorporated by reference.


                                       97
<PAGE>


                                 METALINK LTD.

                       CONSOLIDATED FINANCIAL STATEMENTS
                            AS OF DECEMBER 31, 2009

<PAGE>

                                 METALINK LTD.

                       CONSOLIDATED FINANCIAL STATEMENTS
                            AS OF DECEMBER 31, 2009

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                    PAGE
                                                                    ----

Report of Independent Registered Public Accounting Firm              F-2

Consolidated Balance Sheets as of December 31, 2009 and 2008         F-3

Consolidated Statements of Operations
   for the years ended December 31, 2009, 2008 and 2007              F-4

Statements of Shareholders' Equity and Comprehensive Income (Loss)
   for the years ended December 31, 2009, 2008 and 2007            F-5-F-6

Consolidated Statements of Cash Flows
   for the years ended December 31, 2009, 2008 and 2007            F-7-F-8

Notes to Consolidated Financial Statements                         F-9-F-32

<PAGE>

[DELOITTE LOGO]
                                                Brightman Almagor
                                                1 Azrieli Center
                                                Tel Aviv 67021
                                                P.O.B. 16593, Tel Aviv 61164
                                                Israel

                                                Tel:     +972(3)608 5555
                                                Fax:     +972(3)609 4022
                                                info@deloitte.co.il
                                                www.deloitte.com

            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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, 2009 and 2008 and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the three years in the period ended December 31,
2009. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, 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, such consolidated financial statements, present fairly, in all
material respects, the consolidated financial position of the Company and its
subsidiary as of December 31, 2009 and 2008, and the consolidated results of its
operations and its consolidated cash flows for each of the three years in the
period ended December 31, 2009 in conformity with accounting principles
generally accepted in the United States of America.

As discussed in Note 1, the Company sold its principal line of business, the
WLAN business, to Lantiq, A newly-formed fabless semiconductor company founded
by Golden Gate Capital.

BRIGHTMAN ALMAGOR ZOHAR & CO.
CERTIFIED PUBLIC ACCOUNTANTS
A MEMBER FIRM OF DELOITTE TOUCHE TOHMATSU

Tel Aviv, Israel
March 29, 2010

                                     F - 2

<PAGE>

                                 METALINK LTD.

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                           DECEMBER 31,
                                               --------------------------------
                                                    2009              2008
                                               --------------     -------------
                                                         (IN THOUSANDS)
                                               --------------------------------
<S>                                            <C>                <C>
ASSETS
CURRENT ASSETS
   Cash and cash equivalents                   $        2,273     $       5,166
   Short-term investments (Note 3)                          -               677
   Trade accounts receivable                              461             2,515
   Other receivables (Note 12)                            602             1,529
   Prepaid expenses                                        88               209
   Deferred charges (Note 8)                                -               242
   Inventories (Note 4)                                 1,068             2,508
                                               --------------     -------------
           Total current assets                         4,492            12,846
                                               --------------     -------------

SEVERANCE PAY FUND (Note 6)                             1,229             1,195
                                               --------------     -------------

PROPERTY AND EQUIPMENT, NET (Note 5)                    2,145             3,338
                                               ==============     =============

           Total assets                        $        7,866     $      17,379
                                               ==============     =============

LIABILITIES AND SHAREHOLDERS' EQUITY
   (DEFICIENCY)
CURRENT LIABILITIES
   Trade accounts payable                      $        1,542     $         739
   Other payables and accrued expenses
      (Note 12)                                         3,239             3,257
   Short-term loan  (Note 8)                            4,100             2,101
   Warrants to issue shares  (Note 8)                     289               196
                                               --------------     -------------
          Total current liabilities                     9,170             6,293
                                               --------------     -------------

COMMITMENTS AND CONTINGENT LIABILITIES (Note 7)

ACCRUED SEVERANCE PAY (Note 6)                           1,798           2,098
                                                --------------     -----------

SHAREHOLDERS' EQUITY (DEFICIENCY) (Note 10)
  Ordinary shares of NIS 0.1 par value
   (Authorized - 50,000,000 shares, issued and
   outstanding 26,637,232 and 24,752,232 shares
   as of December 31, 2009 and December 31, 2008,
   respectively)                                           759             711
  Additional paid-in capital                           157,692         156,500
  Accumulated other comprehensive loss                       -            (124)
  Accumulated deficit                                 (151,668)       (138,214)
                                                --------------     -----------
                                                         6,783          18,873
                                                --------------     -----------
  Treasury stock, at cost; 898,500 shares as of
    December 31, 2009 and 2008                          (9,885)         (9,885)
                                                --------------     -----------
           Total shareholders' equity
             (deficiency)                               (3,102)          8,988
                                                ==============     ===========

           Total liabilities and shareholders'
             equity (deficiency)                $        7,866     $    17,379
                                                ==============     ===========

</TABLE>

The accompanying notes are an integral part of the financial statements

                                     F - 3

<PAGE>

                                 METALINK LTD.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                             YEAR ENDED DECEMBER 31,
                                                                                  ----------------------------------------------
                                                                                        2009             2008          2007
                                                                                  ----------------   ------------  -------------
                                                                                  (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
                                                                                  ----------------------------------------------
<S>                                                                               <C>                <C>           <C>
Revenues (Note 13)                                                                $          4,916   $     7,162   $    10,166
                                                                                  ----------------   -----------   -----------
Cost of revenues (Note 13):
  Costs and expenses                                                                         3,174         2,964         4,736
  Royalties to the Government of Israel (Note 7)                                               160           218           297
                                                                                  ----------------   -----------   -----------
       Total cost of revenues                                                                3,334         3,182         5,033
                                                                                  ================   ===========   ===========

 GROSS PROFIT                                                                                1,582         3,980         5,133

Operating expenses:
  Gross research and development                                                             9,627        22,516        25,474
  Less - Royalty bearing and other grants                                                    1,898         3,068         2,598
                                                                                  ----------------   -----------   -----------
  Research and development, net                                                              7,729        19,448        22,876
                                                                                  ----------------   -----------   -----------
  Selling and marketing                                                                      1,397         4,502         5,427
  General and administrative                                                                 2,416         2,647         2,451
                                                                                  ----------------   -----------   -----------
       Total operating expenses                                                             11,542        26,597        30,754
                                                                                  ================   ===========   ===========

 OPERATING LOSS                                                                             (9,960)      (22,617)      (25,621)

Financial income (expenses), net                                                            (3,494)        1,639         1,298
                                                                                  ----------------   -----------   -----------

 NET LOSS                                                                         $        (13,454)  $   (20,978)  $   (24,323)
                                                                                  ================   ===========   ===========
Loss per ordinary share:
  Basic                                                                           $           (5.4)  $      (8.9)  $     (11.4)
                                                                                  ================   ===========   ===========
  Diluted                                                                         $           (5.4)  $      (8.9)  $     (11.4)
                                                                                  ================   ===========   ===========

Shares used in computing loss per ordinary share:
  Basic                                                                                  2,482,863     2,356,971     2,131,926
                                                                                  ================   ===========   ===========
  Diluted                                                                                2,482,863     2,356,971     2,131,926
                                                                                  ================   ===========   ===========

</TABLE>

 The accompanying notes are an integral part of the financial statements

                                     F - 4

<PAGE>

                                 METALINK LTD.

     STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
                       (in thousands, except share data)

<TABLE>
<CAPTION>
                                                                                                                 ACCUMULATED
                                                   NUMBER  OF   NUMBER OF             ADDITIONAL    TREASURY        OTHER
                                                   OUTSTANDING  TREASURY    SHARE      PAID-IN       STOCK      COMPREHENSIVE
                                                     SHARES      SHARES    CAPITAL     CAPITAL     (AT COST)    INCOME (LOSS)
                                                   ----------- ---------   -------   ----------   ----------   --------------
<S>                                                 <C>           <C>      <C>       <C>           <C>         <C>
BALANCE AT
   DECEMBER 31, 2006                                20,653,826    898,500  $    614  $   133,119   $  (9,885)  $          (52)

Changes during 2007:
Exercise of employee options                           523,406          -        13        2,156           -                -
Employee stock-based
   compensation                                              -          -         -        1,494           -                -
Issuance of shares (Note10(A))                       3,200,000          -        74       17,934           -                -
Other comprehensive income:
   Unrealized gain on marketable securities                  -          -         -            -           -               57
   Change in fair market value of hedging
       derivatives                                           -          -         -            -           -               43
Loss for the year                                            -          -         -            -           -                -
                                                   -----------  ---------  --------  -----------   ---------   --------------
Total comprehensive loss

BALANCE AT
   DECEMBER 31, 2007                                24,377,232    898,500  $    701  $   154,703   $  (9,885)  $           48
                                                   ===========  =========  ========  ===========   =========   ==============

Changes during 2008:
Exercise of employee options & issuance of
   Restricted  Stock Units (RSU's)                     275,000          -         8            2           -                -
Employee stock-based
   compensation                                              -          -         -        1,781           -                -
Exercise of  warrants  (Note 8)                        100,000          -         2           16           -                -
Expenses related to issuance of shares                       -          -         -           (2)          -                -
Other comprehensive income:
   Unrealized gain on marketable securities                  -          -         -            -           -             (129)
   Reclassification of fair value of derivatives
       Used in cash flow hedge                               -          -         -            -           -              (43)
Loss for the year                                            -          -         -            -           -                -
                                                   -----------  ---------  --------  -----------   ---------   --------------
Total comprehensive loss

BALANCE AT
   DECEMBER 31, 2008                                24,752,232    898,500  $    711  $   156,500   $  (9,885)  $         (124)
                                                   ===========  =========  ========  ============  ==========  ===============
</TABLE>

<TABLE>
<CAPTION>
                                                                       TOTAL
                                                    ACCUMULATED    COMPREHENSIVE
                                                      DEFICIT      INCOME (LOSS)     TOTAL
                                                   ------------   --------------   ---------
<S>                                                <C>            <C>              <C>
BALANCE AT
   DECEMBER 31, 2006                               $    (92,913)                   $ 30,883

Changes during 2007:
Exercise of employee options                                  -                -      2,169
Employee stock-based
   compensation                                               -                -      1,494
Issuance of shares (Note10(A))                                -                -     18,008
Other comprehensive income:
   Unrealized gain on marketable securities                   -               57         57
   Change in fair market value of hedging
       derivatives                                            -               43         43
Loss for the year                                       (24,323)         (24,323)   (24,323)
                                                   ------------   --------------   --------
Total comprehensive loss                                          $      (24,223)
                                                                  ==============
BALANCE AT
   DECEMBER 31, 2007                               $   (117,236)                   $ 28,331
                                                   ============                    ========

Changes during 2008:
Exercise of employee options & issuance of
   Restricted  Stock Units (RSU's)                            -                -         10
Employee stock-based
   compensation                                               -                -      1,781
Exercise of  warrants  (Note 8)                               -                -         18
Expenses related to issuance of shares                        -                -         (2)
Other comprehensive income:
   Unrealized gain on marketable securities                   -             (129)      (129)
   Reclassification of fair value of derivatives
       Used in cash flow hedge                                -              (43)       (43)
Loss for the year                                       (20,978)         (20,978)   (20,978)
                                                   ------------   --------------   --------
Total comprehensive loss                                          $      (21,150)
                                                                  ==============
BALANCE AT
   DECEMBER 31, 2008                               $   (138,214)                   $  8,988
                                                   ============                    ========
 </TABLE>

The accompanying notes are an integral part of the financial statements

                                     F - 5

<PAGE>

                                 METALINK LTD.

   STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS) (CONT.)
                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                                           ACCUMULATED
                                              NUMBER  OF   NUMBER OF            ADDITIONAL    TREASURY        OTHER
                                              OUTSTANDING  TREASURY    SHARE      PAID-IN      STOCK      COMPREHENSIVE
                                                SHARES      SHARES    CAPITAL     CAPITAL    (AT COST)    INCOME (LOSS)
                                              -----------  ---------  --------  -----------  ----------  ---------------
<S>                                            <C>           <C>      <C>       <C>          <C>         <C>
BALANCE AT
   DECEMBER 31, 2008                           24,752,232    898,500  $    711  $   156,500  $  (9,885)  $         (124)

Changes during 2009:
Exercise of employee options & issuance of
   Restricted  Stock Units (RSU's)                 50,000          -         1            -          -                -
Employee stock-based
   compensation                                         -          -         -          483          -                -
Exercise of  warrants  (Note 8)                 1,835,000          -        47          709          -                -
Other comprehensive income:
   Unrealized gain on marketable securities             -          -         -            -          -              124
Loss for the year                                       -          -         -            -          -                -
                                              -----------  ---------  --------  -----------  ---------   --------------
Total comprehensive loss

BALANCE AT
   DECEMBER 31, 2009                           26,637,232    898,500  $    759  $   157,692  $  (9,885)  $            -
                                              ===========  =========  ========  ===========  =========   ==============
</TABLE>


<TABLE>
<CAPTION>
                                                                  TOTAL
                                               ACCUMULATED    COMPREHENSIVE
                                                 DEFICIT      INCOME (LOSS)     TOTAL
                                              ------------   --------------   --------
<S>                                           <C>            <C>              <C>
BALANCE AT
   DECEMBER 31, 2008                          $   (138,214)                   $  8,988

Changes during 2009:
Exercise of employee options & issuance of
   Restricted  Stock Units (RSU's)                       -                -          1
Employee stock-based
   compensation                                          -                -        483
Exercise of  warrants  (Note 8)                          -                -        756
Other comprehensive income:
   Unrealized gain on marketable securities              -              124        124
Loss for the year                                  (13,454)         (13,454)   (13,454)
                                              ------------   --------------   --------
Total comprehensive loss                                     $      (13,330)
                                                             ==============
BALANCE AT
   DECEMBER 31, 2009                          $   (151,668)                   $ (3,102)
                                              ============                    ========
</TABLE>

The accompanying notes are an integral part of the financial statements

                                     F - 6

<PAGE>

                                 METALINK LTD.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                  YEAR ENDED DECEMBER 31,
                                                                                              ------------------------------
                                                                                                2009       2008        2007
                                                                                              --------   --------   --------
                                                                                                     (IN THOUSANDS)
                                                                                              ------------------------------
<S>                                                                                           <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                                                      $(13,454)  $(20,978)  $(24,323)
Adjustments to reconcile net loss to net cash
used in operating activities (Appendix)                                                          9,626     (2,169)     4,238
                                                                                              --------   --------   --------
NET CASH USED IN OPERATING ACTIVITIES                                                           (3,828)   (23,147)   (20,085)
                                                                                              --------   --------   --------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable debt securities and certificates of deposits                                  -          -    (44,794)
Proceeds from maturity and sales of marketable debt securities and certificates of deposits        800     18,491     49,181
Proceeds from disposal of property and equipment                                                    48        128         12
Purchase of property and equipment                                                                 (15)      (793)    (1,975)
                                                                                              --------   --------   --------
NET CASH PROVIDED BY INVESTING ACTIVITIES                                                          833     17,826      2,424
                                                                                              --------   --------   --------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of shares and exercise of options, net                                       21          8     20,177
Proceeds from issuance of warrants to issue shares, as part of the
   loan received (Note 8)                                                                          123      1,838          -
Loan received, net of issuance costs                                                             1,958      1,350          -
Repayment of loan                                                                               (2,000)         -          -
                                                                                              --------   --------   --------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                                          102      3,196     20,177
                                                                                              ========   ========   ========

Increase (decrease) in cash and cash equivalents                                                (2,893)    (2,125)     2,516
Cash and cash equivalents at beginning of year                                                   5,166      7,291      4,775
                                                                                              --------   --------   --------
Cash and cash equivalents at end of year                                                      $  2,273   $  5,166   $  7,291
                                                                                              ========   ========   ========
</TABLE>

The accompanying notes are an integral part of the financial statements


                                     F - 7

<PAGE>

                                              METALINK LTD.

                            APPENDIX TO CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31,
                                                              --------------------------------------------
                                                               2 0 0 9          2 0 0 8          2 0 0 7
                                                              ----------       ----------       ----------
                                                                             (IN THOUSANDS)
                                                              --------------------------------------------
<S>                                                           <C>              <C>              <C>
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
  CASH USED IN OPERATING ACTIVITIES:

  Depreciation and amortization                               $    1,160       $    1,397       $    1,302
  Amortization of marketable debt securities and deposit
   premium and accretion of discount                                  (1)             (36)              57
  Amortization of deferred charges and loan discount and
     increase in the face value of the loan                        2,305              488                -
  Increase (decrease) in warrants to issue shares                    706           (1,622)               -
  Increase (decrease) in accrued severance pay, net                 (334)            (311)             104
  Employee stock-based compensation                                  483            1,781            1,494
  Capital (gain) loss                                                  -               96               (4)

CHANGES IN ASSETS AND LIABILITIES:

Decrease (increase) in assets:
  Trade accounts receivable                                        2,054           (1,838)           1,348
  Other receivables and prepaid expenses                           1,050            1,146           (1,674)
  Inventories                                                      1,440             (743)           1,406
Increase (decrease) in liabilities:
  Trade accounts payable                                             803             (825)            (716)
  Other payables and accrued expenses                                (40)          (1,702)             921
                                                              ----------       ----------       ----------

                                                              $    9,626       $   (2,169)      $    4,238
                                                              ==========       ==========       ==========
</TABLE>

The accompanying notes are an integral part of the financial statements


                                    F - 8

<PAGE>

                                 METALINK LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

NOTE 1  - GENERAL

          Metalink Ltd. (the "Company"), an Israeli fabless semiconductor
          Company, is engaged in the research and development of high-throughput
          wireless local area network chipsets, and in the sale of high
          performance broadband access chipsets used by telecommunications and
          networking equipment manufacturers. The Company's broadband silicon
          solutions enable 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 the sale of its products mainly in Asia, Europe and
          North America.

          SUBSEQUENT EVENTS -

          On February 15, 2010 the Company completed the sale of the wireless
          local area network (WLAN) business to Lantiq, a newly-formed fabless
          semiconductor company funded by Golden Gate Capital for up to $16,500
          in cash as follows:

               o    $5,700 was paid concurrently with the closing, of which
                    $3,750 was used to repay the first installment under
                    Metalink's loan agreement with an institutional investor.
                    For further details on the loan agreement see Note 8.

               o    Up to $800 (subject to downward adjustments) to be paid
                    on March 31, 2010; and $2,000 to be paid in four
                    installments throughout the year 2010;

               o    Earn-out payments of up to an aggregate $8,000,
                    contingent upon the acquired business' achievement of
                    specified performance targets through March 2012.

          Moving forward the Company will continue supporting its current DSL
          activities.

          On March 8, 2010 the NASDAQ staff informed the Company that it has
          regained compliance with the minimum bid price requirement in Listing
          Rule 5550(a)(2) and the minimum shareholders' equity requirement in
          Listing Rule 5550(b)(1). Accordingly, the staff has determined to
          continue the listing of the Company's securities on the Nasdaq Stock
          Market.

NOTE 2  - SIGNIFICANT ACCOUNTING POLICIES

          The financial statements have been prepared in accordance with U.S.
          generally accepted accounting principles.

          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.

                                     F - 9

<PAGE>

                                 METALINK LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

NOTE 2  - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

          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
               subsidiaries 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 at the spot rate on
               the day of the transaction. All exchange gains and losses from
               remeasurement of monetary balance sheet items resulting from
               transactions in non-dollar currencies are reflected in the
               statements of operations as they arise.

          C.   PRINCIPLES OF CONSOLIDATION

               The consolidated financial statements include the financial
               statements of the Company and its wholly-owned subsidiaries. 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.

          E.   MARKETABLE DEBT SECURITIES

               The Company accounts for its investments in marketable securities
               in accordance with ASC 320-10 (formerly known as SFAS No. 115,
               "Accounting for Certain Investments in Debt and Equity
               Securities").

               Management determines the appropriate classification of the
               Company's investments in marketable debt securities at the time
               of purchase and reevaluates such determinations at each balance
               sheet date. Held-to-maturity securities include debt securities
               for which the Company has the intent and ability to hold to
               maturity. Debt securities for which the Company does not have the
               intent or ability to hold to maturity are classified as
               available-for-sale.

               During 2009 the company sold all of its marketable securities
               investments. As of December 31, 2008 all marketable debt
               securities were designated as available-for-sale and accordingly
               were stated at fair value, with the unrealized gains and losses
               reported in shareholders' equity under accumulated other
               comprehensive income (loss). Realized gains and losses on sales
               of investments, are determined based on specific identification
               and are included in the consolidated statement of operations.

                                     F - 10

<PAGE>

                                 METALINK LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

          F.   ALLOWANCE FOR DOUBTFUL ACCOUNTS

               The allowance for doubtful accounts has been made on the specific
               identification basis. The Company maintains an allowance for
               doubtful accounts, which management believes adequately covers
               all anticipated losses in respect of trade receivables. As of
               December 31, 2009 and 2008 no provision was required.

          G.   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.

          H.   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 equipment     3-7 years
               Furniture and fixtures     10-15 years

               Leasehold improvements are amortized by the straight-line method
               over the shorter of the term of the lease or the estimated useful
               life of the improvements.

               The Company periodically assesses the recoverability of the
               carrying amount of property and equipment based on expected
               undiscounted cash flows. If an asset's carrying amount is
               determined to be not recoverable, the Company recognizes an
               impairment loss based upon the difference between the carrying
               amount and the fair value of such assets, in accordance with ASC
               360-10 (formerly known as SFAS No. 144, "Accounting for the
               Impairment or Disposal of Long-Lived Assets").

          I.   REVENUE RECOGNITION

               The Company recognizes revenue upon the shipment of its products
               to the customer provided that persuasive evidence of an
               arrangement exists, title has been transferred, the price is
               fixed, collection of resulting receivables is probable and there
               are no remaining significant obligations. The Company generally
               provides a warranty period for up to 12 months at no extra
               charge. No warranty provision has been recorded for any of the
               reported periods, since based on the past experience, such
               amounts have been insignificant.

                                     F - 11

<PAGE>

                                 METALINK LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)

          J.   RESEARCH AND DEVELOPMENT EXPENSES

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

          K.   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, in accordance with ASC
               740-10 (formerly known as SFAS No. 109, "Accounting for Income
               Taxes").

          L.   NET LOSS PER ORDINARY SHARE

               Basic and diluted net loss per share have been computed in
               accordance with ASC 260-10 (formerly known as SFAS No. 128,
               "Earnings per Share") using the weighted average number of
               ordinary shares outstanding. Basic loss per share excludes any
               dilutive effect of options and warrants. A total of 25,420,046,
               8,356,748 and 204,399 incremental shares were excluded from the
               calculation of diluted net loss per ordinary share for 2009, 2008
               and 2007, respectively due to the anti-dilutive effect.

          M.   STOCK-BASED COMPENSATION

               The company applies ASC 718-10 (formerly known as SFAS No.
               123(R), "Share Based Payment"). The Company's net loss for the
               year ended December 31, 2009, 2008 and 2007 includes $483, $1,781
               and $1,494 of compensation expenses related to the Company's
               share-based compensation awards, respectively.

               For purposes of estimating fair value , the Company utilized the
               Black-Scholes option-pricing model. The following assumptions
               were utilized in such calculations for the years 2009, 2008 and
               2007 (all in weighted averages):

<TABLE>
<CAPTION>
                            2009      2008      2007
                          --------  -------   -------
<S>                          <C>       <C>       <C>
Risk-free interest rate      2.23%     2.25%     4.26%
Expected life (in years)     2.97      2.51      2.43
Expected volatility (*)        60%       38%       32%
Expected dividend yield      None      None      None
</TABLE>

                                     F - 12

<PAGE>

                                 METALINK LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

NOTE 2  - SIGNIFICANT ACCOUNTING POLICIES (CONT.)

          M.   STOCK-BASED COMPENSATION (CONT.)

               The Company is utilizing the simplified method, to determine the
               expected life used in fair valuation of newly granted awards.

               The Company believes that this calculation provides a reasonable
               estimate of expected life for the Company's employee stock
               options. No adjustments to previous years assumptions have been
               made.

               (*) Volatility is determined using historical quotes commensurate
               with expected term of the option under evaluation.

               The grant date fair value of the Restricted Stock Units (RSU),
               was determined using the closing price of the Company's stock at
               NASDAQ on the day of issuance.

          N.   CONCENTRATIONS OF CREDIT RISK

               Financial instruments that potentially subject the Company to
               concentrations of credit risk consist principally of cash and
               cash equivalents, bank deposits, marketable securities and trade
               receivables.

               (i)  As of December 31, 2009, the Company had cash and cash
                    equivalents that totaled to $2,273 all of which are
                    deposited in a major Israeli financial institution. As of
                    December 31, 2008, the Company had cash and cash equivalents
                    and short-term investments that totaled to $5,843, most of
                    which were deposited in major U.S. financial institutions.
                    Management believes that the financial institutions holding
                    the Company's cash and cash equivalents and its deposits are
                    financially sound.

               (ii) Most of the Company's revenues are generated in Asia,
                    Europe and North America from a small number of customers
                    (see Note 13). The Company generally does not require
                    security from its customers.

          O.   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 chipsets. 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 chipsets,
               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.

                                     F - 13

<PAGE>

                                 METALINK LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

NOTE 2  - SIGNIFICANT ACCOUNTING POLICIES (CONT.)

          P.   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 and long-term investments
               of the Company is usually identical or substantially similar to
               their carrying amounts.

          Q.   RECLASSIFICATION

               Certain prior years amounts have been reclassified in conformity
               with current year's financial statements presentation.

          R.   DERIVATIVE FINANCIAL INSTRUMENTS

               ASC 815-10 (formerly known as SFAS No. 133, "Accounting for
               Derivative Instruments and Hedging Activities" as amended),
               requires, principally, the presentation of all derivatives as
               either assets or liabilities on the balance sheet and the
               measurement of those instruments at fair value. Gains and losses
               resulting from changes in the fair values of derivative
               instruments would be accounted for depending on the use of the
               derivative and whether it qualifies for hedge accounting.

               See Note 15 for disclosure of the derivative financial
               instruments in accordance with such pronouncements.

          S.   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

               In May 28, 2009, the FASB issued ASC 855-10 (formerly SFAS 165),
               which provides guidance on management's assessment of subsequent
               events. Historically, management had relied on U.S. auditing
               literature for guidance on assessing and disclosing subsequent
               events. ASC 855-10 represents the inclusion of guidance on
               subsequent events in the accounting literature and is directed
               specifically to management, since management is responsible for
               preparing an entity's financial statements

                                     F - 14

<PAGE>

                                 METALINK LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

NOTE 2  - SIGNIFICANT ACCOUNTING POLICIES (CONT.)

          S.   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (CONT.)

               ASC 855-10 is not expected to significantly change practice
               because its guidance is similar to that in AU Section 560, with
               some important modifications. The new standard clarifies that
               management must evaluate, as of each reporting period, events or
               transactions that occur after the balance sheet date "through the
               date that the financial statements are issued or are available to
               be issued." Management must perform its assessment for both
               interim and annual financial reporting periods. ASC 855-10 is
               effective for the interim or annual financial periods ending
               after June 15, 2009. The adoption of ASC 855-10 did not have a
               material impact on the Company consolidated financial statements.

               In April 2009 the FASB issued an amendment to ASC 320-10-65
               (Investments - Debt and Equity Securities) Through the issuance
               of FASB staff position 115-2 and 124-2, "Recognition and
               Presentation of Other-Than-Temporary Impairments" ("OTTI") for
               investment in debt securities . This amendment applies to all
               entities and is effective for interim and annual reporting
               periods ending after June 15, 2009, with early adoption permitted
               for periods ending after March 15, 2009. Earlier adoption for
               periods ending before March 15, 2009, is not permitted. Under the
               amendment, the primary change to the OTTI model for debt
               securities is the change in focus from an entity's intent and
               ability to hold a security until recovery. Instead, an OTTI is
               triggered if (1) an entity has the intent to sell the security,
               (2) it is more likely than not that it will be required to sell
               the security before recovery, or (3) it does not expect to
               recover the entire amortized cost basis of the security. In
               addition, the amendment changes the presentation of an OTTI in
               the income statement if the only reason for recognition is a
               credit loss (i.e., the entity does not expect to recover its
               entire amortized cost basis). That is, if the entity has the
               intent to sell the security or it is more likely than not that it
               will be required to sell the security, the entire impairment
               (amortized cost basis over fair value) will be recognized in
               earnings. However, if the entity does not intend to sell the
               security and it is not more likely than not that the entity will
               be required to sell the security, but the security has suffered a
               credit loss, the impairment charge will be separated into the
               credit loss component, which is recorded in earnings, and the
               remainder of the impairment charge, which is recorded in other
               comprehensive income (OCI). The adoption of ASC 320-10-65 (FSP
               FAS 115-2 and FAS 124-2) did not have a material impact on the
               Company consolidated financial statements.

                                     F - 15

<PAGE>

                                 METALINK LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

NOTE 2  - SIGNIFICANT ACCOUNTING POLICIES (CONT.)

          S.   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (CONT.)

               In October 2009, the FASB issued "Accounting Standards Update
               ("ASU") 2009-13 Multiple Deliverable Revenue Arrangements a
               consensus of EITF" (formerly topic 08-1) an amendment to ASC
               605-25. The update provides amendments to the criteria in
               Subtopic 605-25 for separating consideration in
               multiple-deliverable arrangements. The amendments in this update
               establish a selling price hierarchy for determining the selling
               price of a deliverable. The selling price used for each
               deliverable will be based on vendor-specific objective evidence
               if available, third-party evidence if vendor-specific objective
               evidence is not available, or estimated selling price if neither
               vendor-specific objective evidence nor third-party evidence is
               available. The amendments in this update also will replace the
               term "fair value" in the revenue allocation guidance with the
               term "selling price" in order to clarify that the allocation of
               revenue is based on entity-specific assumptions rather than
               assumptions of a marketplace participant.

               The amendments will also eliminate the residual method of
               allocation and require that arrangement consideration be
               allocated at the inception of the arrangement to all deliverables
               using the relative selling price method. The relative selling
               price method allocates any discount in the arrangement
               proportionally to each deliverable on the basis of each
               deliverable's selling price.

               The update will be effective for revenue arrangements entered
               into or modified in fiscal year beginning on or after June 15,
               2010 with earlier adoption permitted.The Company is currently
               evaluating the impact of adopting this standard on its
               consolidated financial statements.

                                     F - 16

<PAGE>

                                 METALINK LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

NOTE 3  - INVESTMENT IN MARKETABLE SECURITIES AND DEPOSITS

          A.   SHORT-TERM INVESTMENTS

               Comprised  as  follows:

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                            -----------------------------------------------------------------------------------------------
                                                  2009                                            2008
                            -----------------------------------------------   ---------------------------------------------

                              AMORTIZED    UNREALIZED   UNREALIZED   MARKET   AMORTIZED    UNREALIZED   UNREALIZED   MARKET
                                COST         LOSSES        GAINS      VALUE      COST        LOSSES        GAINS      VALUE
                            -------------  -----------  ----------- ------    ----------  ------------  -----------  ------
<S>                         <C>            <C>          <C>         <C>       <C>         <C>           <C>          <C>
Available for sale:

Auction Rate Securities
  (ARS)                     $           -  $         -  $         - $      -  $      801  $      (124)  $         -  $   677
                            -------------  -----------  ----------- --------  ----------  -----------   -----------  -------
Total available for sale:
  Marketable securities     $           -  $         -  $         - $      -  $      801  $      (124)  $         -  $   677
                            =============  ===========  =========== ========  ==========  ===========   ===========  =======

</TABLE>

          The Company's financial income, net for the year ended December 31,
          2009 and 2008 includes $0 and $15 of realized gains, respectively.

          During 2009 the company sold all of its marketable securities
          investments .As of December 31, 2008 all the investments are
          classified in accordance with ASC 320-10 (formerly known as SFAS 115)
          as available-for-sale.

NOTE 4 - INVENTORIES

          Comprised as follows:

<TABLE>
<CAPTION>
                                                       DECEMBER 31,
                                             ------------------------------
                                                   2009            2008
                                             ---------------  -------------
                                                     (IN THOUSANDS)
                                             ------------------------------
<S>                                          <C>              <C>
Raw materials and components                 $           288  $       1,630
Work-in-process                                          179             23
Finished products                                        601            855
                                             ---------------  -------------
                                             $         1,068  $       2,508
                                             ===============  =============
</TABLE>

          The balances are net of write-downs of $1,230 and $1,334 as of
          December 31, 2009 and 2008, respectively.

                                     F - 17

<PAGE>

                                 METALINK LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

NOTE 5  - PROPERTY AND EQUIPMENT

          Comprised as follows:

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                           ------------------------------
                                                                 2009           2008
                                                           ---------------  -------------
                                                                    (IN THOUSANDS)
                                                           ------------------------------
<S>                                                        <C>              <C>
              Cost:
               Computers and equipment                     $        13,158  $      13,201
               Furniture and fixtures                                  495            571
               Leasehold improvements                                1,363          1,363
                                                           ---------------  -------------
                                                           $        15,016  $      15,135
                                                           ===============  =============

              Accumulated depreciation and amortization:
               Computers and equipment                     $        11,398  $      10,578
               Furniture and fixtures                                  233            223
               Leasehold improvements                                1,240            996
                                                           ---------------  -------------
                                                           $        12,871  $      11,797
                                                           ===============  =============
               Property and equipment, net                 $         2,145  $       3,338
                                                           ===============  =============
 </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. For employees joining the Company
          subsequent to November 2006 the Company adopted the provisions of
          Section No.14 of the Severance Compensation Act, 1963 ("Section 14").
          Section 14 allows the Company to make deposits in the severance pay
          funds according to the employees' current salary. Such deposits are
          releasing the Company from any further obligation with this regard.
          The deposits made are available to the employee at the time when the
          employer - employee relationship ends, regardless of cause of
          termination. The Company's liability for severance pay is fully
          provided for. 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, 2009, 2008
          and 2007 were $226, $1,058, and $961, respectively.

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

                                     F - 18

<PAGE>

                                 METALINK LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

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 (received under the Chief
                    Scientist program), up to the amount of 100% - 150% of the
                    grants received plus interest at LIBOR rate (in dollar
                    terms). The royalties are payable at a rate of between 3% to
                    4.5%. The total amount of grants received, net of royalties
                    paid or accrued, as of December 31, 2009 was $28,693

                    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 upon the successful
                    outcome of the Company's research and development programs
                    and the attainment of sales. The Company has no obligation
                    to refund these grants, if sales are not generated. The
                    financial risk is assumed completely by the Government of
                    Israel. The grants are received from the Government on a
                    project-by-project basis. If the project fails the Company
                    has no obligation to repay any grant received for the
                    specific unsuccessful or aborted project.

                    Royalty expenses to the Government of Israel for the years
                    ended December 31, 2009, 2008 and 2007 were $160, $218 and
                    $297, respectively.

               (ii) The Company is obligated to pay royalties to certain
                    third parties, based on agreements, which allow the Company
                    to incorporate their products into the Company's products.
                    Royalty expenses to these parties for the years ended
                    December 31, 2009, 2008 and 2007 were $171, $113 and $188
                    respectively.

              (iii) Subsequent to the reporting date the Company assigned
                    its royalties commitments related to the wireless activities
                    to Lantiq as part of the sale of the wireless local area
                    network (WLAN) business (see note 1).

          B.   LEASE COMMITMENTS

               (i)  The premises of the Company in Israel are rented under
                    an operating lease agreements expiring in September 2010,
                    the premises of the Company in Taiwan is rented under an
                    operating lease agreement expiring in July 2010.

                    Future aggregate minimum annual rental payments pursuant to
                    the existing lease commitments in effect as of December 31,
                    2009, are as follows:

                          YEAR                      $
                          ----                     ----

                          2010                      604

                    The Company arranged for a bank guarantee in favor of the
                    lessors of the premises in Israel in the amount of $193.

                    Total rent expenses for the years ended December 31, 2009,
                    2008 and 2007 were $889, $1,451 and $1,126, respectively.

                                     F - 19

<PAGE>

NOTE 7  - COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)

          B.   LEASE COMMITMENTS (CONT.)

               Subsequent to the reporting date the company assigned its rental
               payments pursuant to the existing lease commitments to Lantiq as
               part of the sale of the wireless local area network (WLAN)
               business (see note 1).

          (ii) The Company leases its motor vehicles under cancelable
               operating lease agreements, for periods through 2011. The minimum
               payment under these operating leases upon cancellation of these
               lease agreements, amounted to $30 as of December 31, 2009. Lease
               expenses for the years ended December 31, 2009, 2008 and 2007,
               were $432, $1,147 and $1,224, respectively. Subsequent to the
               reporting date, the company assigned to Lantiq its leasing
               commitments related to the transferred motor vehicles, as part of
               the sale of the wireless local area network (WLAN) business (see
               note 1).

          C.   LEGAL CLAIM

               In July 1998, a former employee filed a claim against the Company
               in the Tel Aviv District Labor Court (the "Court") demanding that
               the Company issue him ordinary shares and pay on his behalf any
               taxes relating to such issuance; that the Company pay him
               statutory severance pay together with the statutory penalty for
               late payment of such severance pay and travel expenses; and that
               the Company release his managers insurance and continuing
               education fund. The Company filed a counterclaim against this
               former employee. In March 2001 the Court ordered that certain of
               the disputes between the parties be referred to a two-stage
               arbitration and pursuant to the Court's order the Company issued
               75,765 ordinary shares (which were held in trust) in favor of the
               former employee. In addition, in January 2002, the Company paid
               the former employee $16 in payment of statutory severance pay and
               reimbursement of travel expenses. In August 2002, the arbitrators
               in the first stage of the arbitration awarded $391 to the former
               employee (which the Company paid in September 2002).

               In December 2003 the former employee filed a claim in the second
               phase of the arbitration (the "Second Arbitration") in the amount
               of $3.2 million and at least $2.9 million before deductions and
               also a sum of $3.8 million for Funding differences. The Company
               contested this claim and filed a claim for damages against the
               former employee in the amount of $250,000 and for a refund of the
               NIS1.9 million already paid to him according to the foregoing
               judgment and of the sum paid as statutory severance pay and
               reimbursement of travel expenses.

               Both parties have filed their pleadings, affidavits, and expert
               opinions. Cross-examination started in 2009, during which motions
               for disclosure of documents, summoning witnesses and temporary
               remedies were filled. These motions are still pending.

               The Company believes that the resolution of this matter will not
               have a material adverse effect on the results of operations,
               liquidity, or financial condition, nor cause a material change in
               the number of outstanding ordinary shares, but there can be no
               assurance that the Company will necessarily prevail, due to the
               inherent uncertainties in litigation.

                                     F - 20

<PAGE>

                                 METALINK LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

NOTE 8  - SHORT-TERM LOAN

          In September 2008, the Company entered into a short term secured loan
          agreement with an institutional investor. According to the loan
          agreement, the lender agreed to extend to the company a loan of $3,500
          at the first stage ("First Loan") and, at the request of the Company,
          an additional loan of up to $4,500 ("Second Loan"). On December 31,
          2008, the Loan Agreement was amended such that, among other things,
          the Second Loan will be provided in two tranches of $2,250 each.

          The key terms of the loan agreement are as follows:

               o    The outstanding principal amount (including of the Second
                    Loan) is due and payable in one payment 12 months after the
                    first closing;

               o    The outstanding principal amount will accrue interest at an
                    annual rate of 10% payable, in cash or ordinary shares, at
                    the Company's election, on a quarterly basis;

               o    The loan may be prepaid by the Company at any time and is
                    subject to a mandatory prepayment upon a change of control;
                    and

               o    The loan is secured by a first priority fixed charge on all
                    of the Company's intellectual property and a first priority
                    floating charge on all of its other assets.

          The transaction documents contain customary representations,
          warranties and covenants, including various limitations on, among
          other things, the Company's ability to incur additional debt or sell
          the collateral, without the consent of the lender.

          In addition, in consideration for the First Loan, the Company issued
          to the lender five-year warrants to purchase up to a total of
          2,000,000 ordinary shares at exercise prices per share of $0.01 (for
          1,000,000 warrants) and $0.50 (for the balance), subject to
          adjustments. In consideration for the first tranche of the Second
          Loan, the Company issued to the lender five-year warrants to purchase
          up to a total of 1,100,000 ordinary shares at exercise prices per
          share of $0.01 (for 935,000 warrants) and $0.50 (for the balance),
          subject to adjustments.

          Under the agreement, the Company received in September 2008 a loan in
          the amount of $3,500 ("First Loan") offset by issuance expenses in the
          amount of $313. The Company allocated the amount received between the
          loan and the warrants. In accordance with ASC 470-20 (formerly known
          as APB 14), the Company allocated to the warrants $1,838, which was
          equal to the estimated fair value of the warrants using the Black
          Scholes Option Pricing Model obtained from the "OV" function on
          Bloomberg L.P with the following assumptions: risk free interest rate
          of 1.59%; dividend yield of zero; expected volatility of 85.75%; and
          an expected life of five years. The remaining amount was attributed to
          the loan. As a result a discount was attributed to the loan at the
          amount equal to the amount that was attributed to the warrants. The
          loan discount amortized by using the effective interest method through
          the payment of the loan as of September 2009. For the year ended
          December 31,2009, the Company recorded $1,419 of financial expenses
          related to the amortization of the First Loan discount.

                                     F - 21

<PAGE>

                                 METALINK LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

NOTE 8  - SHORT-TERM LOAN (CONT.)

          In January 2009 the company received half of the Second Loan at the
          amount of $2,250 ("Second Loan") offset by issuance expenses in the
          amount of $169. The Company allocated the amount received between the
          loan and the warrants. In accordance with ASC 470-20 (formerly known
          as APB 14), the Company allocated to the warrants $123, which was
          equal to the estimated fair value of the warrants using the Black
          Scholes Option Pricing Model obtained from the "OV" function on
          Bloomberg L.P with the following assumptions: risk free interest rate
          of 0.04%; dividend yield of zero; expected volatility of 178.5%; and
          an expected life of five years. The remaining amount was attributed to
          the loan. As a result a discount was attributed to the loan at the
          amount equal to the amount that was attributed to the warrants. The
          loan discount amortized by using the effective interest method through
          the payment of the loan as of September 2009. For the year ended
          December 31,2009, the Company recorded $123 of financial expenses
          related to the amortization of the Second Loan discount.

          On September 6, 2009, the Company entered into a second amendment to
          the Loan Agreement (the "Second Amendment"), whereby the maturity date
          was extended from September 9, 2009 to March 9, 2010. As part of the
          Second Amendment, the Company immediately repaid the Lender $2,000 out
          of the outstanding $5,750. The Company also agreed that in the event
          of a fundamental transaction (such as the contemplated sale to Lantiq
          described in Note 1), the repayment amount will be $4,312.5.

          Pursuant to the Second Amendment, the exercise price of 1,165,000
          warrants that were previously issued to the lender was adjusted from
          $0.50 to $0.03 per share.

          On December 30, 2009, the Company entered into a third amendment to
          the Loan Agreement (the "Third Amendment"), that became effective on
          January 5, 2010, whereby the repayment of the $4,312.5 originally due
          upon the closing of the Lantiq transaction will be reduced to $4,100
          and repaid in four installments: $3,750 at closing , which occurred on
          February 15, 2010, and the remainder in three installments by March
          31, 2011.

          In accordance with ASC 815-10 (formerly known as FAS 133), the
          warrants are recorded on the balance sheet as derivative liability and
          carried at fair value, due to the fact that in certain circumstances
          the warrants may be paid off in cash according to the lender's
          decision. Gains and losses resulting from changes in the fair values
          of the warrants are recorded in financial expenses, net on the
          consolidated statement of operations. For the year ended December 31,
          2009, the Company recorded $706 of financial expenses related to the
          increase in the fair value of these warrants.

          In 2009, 1,835,000 warrants were exercised for 1,835,000 shares of
          common stock for a total of $18.

          In 2008, 100,000 warrants were exercised for 100,000 shares of common
          stock for a total of $1.

          The issuance of the Warrants contemplated in the Loan Agreement,
          triggered the adjustment of the exercise price of the warrants issued
          in August 2007 (see Note 10A). According to this adjustment the
          warrants issued originally with $8 per share, was adjusted to $6.5 per
          share according to the original terms of the warrants.

                                     F - 22

<PAGE>

                                 METALINK LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

NOTE 9  - FAIR VALUE MEASUREMENTS

          The Company adopted the provisions of ASC 820-10 (formerly known as
          SFAS No. 157), effective January 1, 2008, concurrent with the adoption
          of ASC 470-20-25-21(formerly known as SFAS 159, "The Fair Value Option
          for Financial Assets and Financial Liabilities").

          Fair values of the warrants were determined utilizing the income
          approach using the UV Bloomberg Merton formula.

          Recurring Fair Value Measurements Using the Indicated Inputs:

          Liabilities:

<TABLE>
<CAPTION>
                                                SIGNIFICANT
                                                   OTHER
                                                 OBSERVABLE
                                                  INPUTS
                           DECEMBER 31, 2009     (LEVEL 2)
                          ------------------  ---------------
<S>                       <C>                 <C>
Warrants                  $              289  $           289
                          ------------------  ---------------
                          $              289  $           289
                          ==================  ===============

</TABLE>

NOTE 10 - SHARE  CAPITAL

          A.   In December 1999, the Company completed 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. Following the public offering, the Company's
               shares are traded on the Over-the-counter market and were listed
               on the NASDAQ National Market, until March 13, 2009 upon which
               listing of the Company's securities was transferred to the NASDAQ
               Capital Market.

               In March 2000, the Company completed a second public offering in
               the United States and issued 1,500,000 ordinary shares for net
               proceeds of $62,702.

               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.
               Through December 31, 2003, the Company had purchased 898,500 of
               its ordinary shares, in the aggregate amount of $9,885.

               In April 2005, the Board of Directors of the Company approved the
               purchase of shares of the Company for up to $10,000, subject to
               market conditions and approval by the Board of Directors. The
               Company has not purchased any of its ordinary shares following
               the April 2005 approval.

                                     F - 23

<PAGE>

                                 METALINK LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

NOTE 10 - SHARE CAPITAL (CONT.)

               In August 2007, the Company has entered into Purchase Agreements
               with institutional investors. Pursuant to the Purchase
               Agreements, the Company agreed to sell 3,200,000 ordinary shares
               at $6.00 per share. The purchasers also received five-year
               warrants to purchase ordinary shares at an exercise price of
               $8.00 per share (subject to adjustments). The Company evaluated
               each component in the Purchase agreement to determine whether it
               should be classified as equity or liability. The Company
               determined that all components (warrants and shares) were
               determined to be eligible for equity classification. As such the
               warrants were initially recorded in equity at their fair value at
               the date of issuance, with no subsequent remeasurement, with the
               remainder of the proceeds allocated to the shares. The fair value
               of the warrants amounted to $1,081.

               In February 2010, the Company has implemented a one-for-ten
               reverse stock split of its outstanding ordinary shares. Pursuant
               to this reverse stock split, each ten (10) shares of common
               stock of the Company's issued and outstanding shares as of the
               date following the reverse stock split was converted into one
               (1) share of the Company's common stock. Options in the
               following Notes 10 B through D are represented in their original
               pre-split value, loss per share calculation have been adjusted
               retroactively to reflect the one for ten reverse stock split.

          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 in total value of stock in any one year.
               The purchase price of the stock will be 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,
               2004, 329,080 ordinary shares were issued under the ESPP, and an
               additional 108,143 ordinary shares are available for issuance.

               In April 2005 the Board of Directors of the Company resolved to
               suspend the ESPP until further notice.

          C.   STOCK OPTIONS

               (i)  Under the Company's six Stock Option Plans (the
                    "Plans"), up to 10,142,433 options approved to be granted to
                    employees and directors of the Company or its subsidiary.

               (ii) Pursuant to the Plans, as of December 31, 2009, an
                    aggregate of 4,058,762 options of the Company are still
                    available for future grants.

              (iii) The options granted vest over periods of up to five
                    years from the date of the grant. Most of the options
                    granted in previous years expire after 10 years from the
                    date of the grant while most of the options granted
                    subsequent to 2005 expire after 4 years.

                                     F - 24

<PAGE>

                                 METALINK LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

NOTE 10 - SHARE CAPITAL (CONT.)

          C.   STOCK OPTIONS (CONT.)

               (iv) In October 2007, the Board of Directors of the Company
                    allowed the grant of Restricted Stock Units ("RSU") under
                    each of the Company's Plans. RSU is a right to receive a
                    share of the Company, under certain provisions, for a
                    consideration of no more than the underlying share's nominal
                    value (NIS 0.1). In addition, upon the lapse of the vesting
                    period of RSU, such RSU shall automatically vest into the
                    Company's ordinary share and the grantee shall pay to the
                    Company its nominal value as a precondition to any receipt
                    of such share. In 2007 ,2008 and 2009 the Company granted
                    10,000 RSU, 293,500 RSU and 20,000 RSU respectively.

               A summary of the status of the Company's stock option plans to
               employees and directors of the Company, including RSU as of
               December 31, 2009, 2008 and 2007 and changes during the years
               then ended are as follows:

<TABLE>
<CAPTION>
                                        DECEMBER 31, 2009                     DECEMBER 31, 2008           DECEMBER 31, 2007
                                ---------------------------------------  ------------------------------  ----------------------
                                                          WEIGHTED                            WEIGHTED                WEIGHTED
                                                          AVERAGE                              AVERAGE                 AVERAGE
                                                          EXERCISE                            EXERCISE                EXERCISE
                                      SHARES               PRICE               SHARES           PRICE      SHARES       PRICE
                                ------------------   ------------------  ------------------   ---------  ----------  ----------
<S>                             <C>                  <C>                 <C>                  <C>        <C>          <C>
Options outstanding at
  beginning of year                      2,973,528   $             5.50           4,533,398   $    6.41   3,761,629   $    4.46
Granted during year                         28,100                 0.20           2,111,582        2.25   1,608,100        6.66
Forfeited during year                   (1,513,484)                5.40          (3,407,452)       5.11    (317,925)       5.54
Exercised during year                      (50,000)                0.03            (264,000)       0.03    (518,406)       4.13
                                ------------------                       ------------------              ----------

Outstanding at end of year               1,438,144                 5.70           2,973,528        5.50   4,533,398        6.41
                                ==================                       ==================              ==========

Options exercisable at end
of year                                  1,346,378                 5.82           2,176,676        6.22   2,344,223        6.64
                                ==================                       ==================              ==========

Weighted average fair
value of options & RSU granted
during year                     $             0.35                       $             0.65              $     1.85
                                ==================                       ==================              ==========

</TABLE>

                                     F - 25

<PAGE>

                                 METALINK LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

NOTE 10 - SHARE CAPITAL (CONT.)

          C.   STOCK OPTIONS (CONT.)

               The following table summarizes information relating to stock
               options outstanding, to employees and directors of the Company,
               as of December 31, 2009:

<TABLE>
<CAPTION>
                             OPTIONS & RSU OUTSTANDING                     OPTIONS & RSU EXERCISABLE
                 -----------------------------------------------------  ----------------------------------
                                                     WEIGHTED
                          NUMBER                     AVERAGE            WEIGHTED      NUMBER      WEIGHTED
                      OUTSTANDING AT                REMAINING           AVERAGE   EXERCISABLE AT  AVERAGE
                       DECEMBER 31,                CONTRACTUAL          EXERCISE   DECEMBER 31,   EXERCISE
EXERCISE PRICE             2009                  LIFE (IN YEARS)         PRICE         2009        PRICE
---------------  -------------------------  --------------------------  --------  --------------  --------
<S>                              <C>                              <C>      <C>         <C>           <C>
0.00 - 2.66                        677,883                        3.43      1.69         639,417      1.70
2.76 - 3.28                         22,100                        0.71      3.05          22,100      3.05
3.39 - 4.00                         33,200                        0.38      3.80          15,000      3.80
4.04 - 5.00                         49,127                        1.09      4.36          49,127      4.36
5.04 - 7.00                        168,150                        0.57      5.99         147,850      5.94
7.01 - 8.95                        229,600                        1.17      7.30         214,800      7.30
9.00 - 22.06                       258,084                        0.46     15.34         258,084     15.34
                 -------------------------                                        --------------
                                 1,438,144                        2.01      5.70       1,346,378      5.82
                 =========================                                        ==============
</TABLE>

          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, 2009, 253,000
               options have been granted (0 in 2009, 1,000 in 2008 and 30,000 in
               2007) under this plan to certain sales representatives and
               advisors of the Company at an exercise price of $ 1.83 - $ 22.13
               per share. The fair value was determined using the Black-Scholes
               pricing model with the following assumptions: risk-free interest
               rate of 1.95%-6.50%; volatility rate of 37%- 109%; dividend
               yields of 0% and an expected life of one to ten years.

                                     F - 26

<PAGE>

                                 METALINK LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

NOTE 11 - TAXES ON INCOME

          A.   TAXATION UNDER VARIOUS LAWS

               (i)  The Company and its subsidiaries 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 subsidiaries are subject to the tax rules in their
                    countries of incorporation.

               (ii) "Approved Enterprise"

                    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, 2009, 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
                    26% in 2009 (regular "Company Tax"). The regular Company Tax
                    rate in 2010 and thereafter will be reduced to 25%.

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

                    On July 23, 2009, the Economic Efficiency Act (Revised Law
                    for Implementation of the Economic Plan for 2009-2010),
                    5769-2009 (the "Arrangements Law") was published. Under the
                    Arrangements Law, the Income Tax Ordinance (New Version),
                    5721-1961 (the "Income Tax Ordinance") was amended such that
                    the 26% and 25% tax rates imposed upon Israeli companies in
                    the years 2009 and 2010, respectively, will be gradually
                    reduced beginning in the 2011 tax year, for which the
                    corporate tax rate will be set at 24%, until the 2016 tax
                    year, for which the corporate tax rate will be set at 18%.
                    The company did not realize any deferred tax income as a
                    result of the amendment to the Income Tax Ordinance.

                                     F - 27

<PAGE>

                                 METALINK LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

NOTE 11 - TAXES  ON  INCOME  (CONT.)

          B.   LOSSES FROM CONTINUING OPERATIONS

<TABLE>
<CAPTION>
                                              YEAR ENDED DECEMBER 31,
                                          --------------------------------
                                             2009        2008       2007
                                          ----------   --------   --------
                                                   (IN THOUSANDS)
                                          --------------------------------
<S>                                       <C>          <C>        <C>
Israeli company                           $  (13,435)  $(21,072)  $(24,512)
U.S. subsidiary                                  (19)        94        189
                                          ----------   --------   --------
                                          $  (13,454)  $(20,978)  $(24,323)
                                          ==========   ========   ========
</TABLE>

          C.   RECONCILIATION OF 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,
                                                           --------------------------------
                                                              2009        2008       2007
                                                           ----------   --------   --------
                                                                     (IN THOUSANDS)
                                                           --------------------------------
<S>                                                        <C>          <C>        <C>
Net loss as reported in the
   consolidated statements of operations                   $  (13,454)  $(20,978)  $(24,323)
Statutory tax rate                                                 26%        27%        29%
Income Tax under statutory tax rate                        $   (3,498)  $ (5,664)  $ (7,054)

Tax benefit arising from the Approved
   Enterprise                                                   2,956      4,847      6,128
Increase (decrease) in valuation allowance                       (866)       972        459
Permanent differences, net                                      1,408       (155)       467
                                                           ----------   --------   --------

Actual income tax                                          $        -   $      -   $      -
                                                           ==========   ========   ========
</TABLE>

          D.   DEFERRED TAXES

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

<TABLE>
<CAPTION>
                                                                                       DECEMBER 31,
                                                                            ------------------------------
                                                                                 2009             2008
                                                                            ---------------   ------------
                                                                                     (IN THOUSANDS)
                                                                            ------------------------------
<S>                                                                         <C>               <C>
Net operating loss carry forwards in Israel                                 $         7,320   $      6,698
Net operating loss carry forwards of non-Israeli subsidiary                               -          1,176
Other allowances                                                                        455            767
                                                                            ---------------   ------------
        Total gross deferred tax assets                                               7,775          8,641
Less - Valuation allowance                                                            7,775          8,641
                                                                            ---------------   ------------
        Total deferred tax asset                                            $             -   $          -
                                                                            ===============   ============
</TABLE>

                                     F - 28

<PAGE>

                                 METALINK LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

NOTE 11 - TAXES ON INCOME (CONT.)

          D.   DEFERRED TAXES (CONT.)

               Under ASC 740-10 (formerly known as FASB Statement No. 109),
               deferred tax assets are to be recognized for the anticipated tax
               benefits associated with net operating loss carryforwards 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 carryforwards 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 carryforwards of the Company totaling $183,012 are
               unlimited in duration, denominated in NIS and linked to the
               Israeli CPI.

          E.   TAX ASSESSMENTS

               The Company and its subsidiary have not received final tax
               assessments for income tax purposes since incorporation.

          F.   FASB INTERPRETATION NO. 48, "ACCOUNTING FOR UNCERTAINTY IN
               INCOME TAXES - AN INTERPRETATION OF FASB STATEMENT NO. 109" ("FIN
               48"), AS CODIFIED INTO ASC 740-10.

               On July 13, 2006, the FASB issued Interpretation No. 48,
               "Accounting for Uncertainty in Income Taxes - an interpretation
               of FASB Statement No. 109" ("FIN 48"), as codified into ASC
               740-10, which clarifies the accounting for uncertainty in tax
               positions. This Interpretation requires recognition in the
               financial statements of the impact of a tax position, if that
               position is more likely than not of being sustained on audit,
               based on the technical merits of the position. The provisions of
               FIN 48 are effective for the 2007 fiscal year with the cumulative
               effect of the change in accounting principle recorded as an
               adjustment to opening balance of retained earnings. The Company
               adopted the provisions of FIN 48 in 2007. The adoption of FIN 48
               did not have a material impact on the Company's consolidated
               financial statements.

                                     F - 29

<PAGE>

                                 METALINK LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

NOTE 12 - SUPPLEMENTARY  BALANCE  SHEET  INFORMATION

          A.   OTHER RECEIVABLES

               Comprised as follows:

<TABLE>
<CAPTION>
                                                                              DECEMBER 31,
                                                                    ------------------------------
                                                                          2009           2008
                                                                    ---------------  -------------
                                                                          (IN THOUSANDS)
                                                                    ------------------------------
<S>                                                                 <C>              <C>
               Research and development participation from the
                  Government of Israel                              $           311  $       1,437
               Loan to former employee (*)                                       45             45
               Others                                                           246             47
                                                                    ---------------  -------------
                                                                    $           602  $       1,529
                                                                    ===============  =============
</TABLE>

               (*)  Interest bearing loan granted to former employee under
                    arbitration proceedings between the Company and the former
                    employee. For further details see Note 7C.

          B.   OTHER PAYABLES AND ACCRUED EXPENSES

               Comprised as follows:
<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                      ------------------------------
                                                             2009          2008
                                                      ---------------  --------------
                                                              (IN THOUSANDS)
                                                      -------------------------------
<S>                                                   <C>              <C>
               Payroll and related amounts            $           924  $        1,147
               Accrued expenses                                 1,516           1,046
               Royalties to the Government of Israel               46             115
               Others                                             753             949
                                                      ---------------  --------------
                                                      $         3,239  $        3,257
                                                      ===============  ==============

</TABLE>

                                     F - 30

<PAGE>


                                 METALINK LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

NOTE 13 - SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION

          A.   GEOGRAPHIC INFORMATION

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

<TABLE>
<CAPTION>


                                                             YEAR ENDED DECEMBER 31,
                                                          -----------------------------
                                                             2009       2008    2007
                                                          ---------  --------  --------
                                                                  (IN THOUSANDS)
                                                          -----------------------------
<S>                                                       <C>        <C>       <C>
REVENUES:
Korea                                                     $     336  $    542  $  1,051
Israel                                                        1,218     1,554     2,023
United States                                                 1,308        75     2,284
Other foreign countries (mainly European)                     2,054     4,991     4,808
                                                          ---------  --------  --------
                                                          $   4,916  $  7,162  $ 10,166
                                                          ===================  ========
</TABLE>

<TABLE>
<CAPTION>
                                            DECEMBER 31,
                                   ----------------------------
                                      2009      2008     2007
                                   ---------  -------  --------
                                            (IN THOUSANDS)
                                   ----------------------------
<S>                                <C>        <C>      <C>
LONG-LIVED ASSETS:
Israel                             $   1,871  $ 2,895  $  3,279
Taiwan                                   274      443       583
United States                              -        -       320
                                   ---------  -------  --------
                                   $   2,145  $ 3,338  $  4,182
                                   =========  =======  ========
</TABLE>

          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,
                                              ------------------------
                                               2009     2008     2007
                                              -----    -----   -------
<S>                                             <C>       <C>      <C>
Customer A                                      21%       31%      17%
Customer B                                      24%       16%      19%
Customer C                                      26%       (*)      (*)
Customer D                                      (*)       16%      (*)
Customer E                                      (*)       (*)      20%
Customer F                                      (*)       (*)      13%

</TABLE>
               (*)  Less  than  10%.

                                     F - 31

<PAGE>

                                 METALINK LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

NOTE 13 - SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION (CONT.)

          C.   COST OF REVENUES:

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                                       -----------------------------
                                                           2009      2008     2007
                                                       -----------  -------  -------
                                                                (IN THOUSANDS)
                                                       -----------------------------
<S>                                                    <C>          <C>      <C>
Materials and production expenses                      $     2,753  $ 1,975  $ 3,004
Salaries, wages and  employee benefits                          60      348      440
Depreciation and amortization                                   23       28       43
Other manufacturing costs                                      240      243      320
                                                       -----------  -------  -------
                                                             3,076    2,594    3,807
Decrease in finished
     products and work-in-process                               98      370      929
                                                       -----------  -------  -------
                                                             3,174    2,964    4,736
Royalties to the Government of Israel                          160      218      297
                                                       -----------  -------  -------
                                                       $     3,334  $ 3,182  $ 5,033
                                                       ===========  =======  =======
</TABLE>

NOTE 14 - RELATED PARTIES

          Payroll and related amounts to related parties in 2009, 2008 and 2007
          were $238, $251 and $253, respectively.

NOTE 15 - DERIVATIES FINANCIAL INSTRUMENTS

          In 2007, the Company entered into currency-forward and zero cost
          Collar transactions (NIS/dollar) of $5,000 with settlement date
          through 2007 and 2008, designed to reduce the variability in cash-flow
          of NIS denominated expenses in the amount of $5,000. The Company
          designed the hedge such that the critical terms of the hedged item and
          the hedging item match and as such recorded in 2007 $43 as change in
          fair market value of hedging activities in "Other Comprehensive
          Income" relating to the unsettled transactions as of December 31,
          2007. In 2008 the Company settled all the hedging transactions and
          reclassified it from "Other Comprehensive Income" to earnings
          concurrent with the effect of the hedged transaction on earning.

                                     F - 32

<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: /s/ Rony Eizenshtein
                                                 --------------------
                                                 Name:  Rony Eizenshtein
                                                 Title: Chief Financial Officer
Date: June 29, 2010