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


                                    FORM 20-F
          o REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                                       OR

      |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 2003

                                       OR

          |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
             For the transition period from __________ to __________

                         Commission file number 0-30394

                                  Metalink Ltd.
             (Exact name of Registrant as specified in its charter)

                                     Israel
                 (Jurisdiction of incorporation or organization)

                    Yakum Business Park, Yakum 60972, Israel
                    ----------------------------------------
                    (Address of principal executive offices)

 Securities registered or to be registered pursuant to Section 12(b) of the Act:
          Title of each class Name of each exchange on which registered
          ------------------- -----------------------------------------
                  None                               None

 Securities registered or to be registered pursuant to Section 12(g) of the Act:
                  Ordinary Shares, NIS 0.1 par value per share
                  --------------------------------------------
                                (Title of Class)

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




<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:

             18,956,817 Ordinary Shares, NIS 0.1 par value per share

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

Indicate by check mark which financial statement item the registrant has elected
to follow. |_| Item 17 |X| Item 18





<PAGE>




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

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

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

         "NML(TM)", "VDSLPlus(TM)", "WLANPlusTM" and "Total-VDSLTM" are our
trademarks. All other trademarks and trade names appearing in this annual report
are owned by their respective holders.





<PAGE>



                                                 TABLE OF CONTENTS
<TABLE>
<S>               <C>                                                                         <C>
                                                                                              Page

                                                      PART I

ITEM 1.            IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
                  ADVISORS                                                                       1
ITEM 2.           OFFER STATISTICS AND EXPECTED TIMETABLE                                        1
ITEM 3.           KEY INFORMATION                                                                2
ITEM 4.           INFORMATION ON THE COMPANY                                                     20
ITEM 5.           OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                   31
ITEM 6.           DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                     43
ITEM 7.           MAJOR SHAREHOLDERS AND RELATED PARTY
                  TRANSACTIONS                                                                   56
ITEM 8.           FINANCIAL INFORMATION                                                          58
ITEM 9.           THE OFFER AND LISTING                                                          60
ITEM 10.          ADDITIONAL INFORMATION                                                         62
ITEM 11.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
                  MARKET RISK                                                                    81
ITEM 12.          DESCRIPTION OF SECURITIES OTHER THAN EQUITY
                  SECURITIES                                                                     82

                                                      PART II

ITEM 13.          DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                                83
ITEM 14.          MATERIAL MODIFICATIONS TO THE RIGHTS OF
                  SECURITY HOLDERS AND USE OF PROCEEDS                                           83
ITEM 15.          CONTROLS AND PROCEDURES                                                        83
ITEM 16.          [RESERVED]                                                                     84

                                                     PART III

ITEM 17.          FINANCIAL STATEMENTS                                                           85
ITEM 18.          FINANCIAL STATEMENTS                                                           85
ITEM 19.          EXHIBITS                                                                       86



</TABLE>

<PAGE>





                                                      PART I

ITEM 1.           IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
                  ADVISORS

Not applicable.

ITEM 2.           OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.




<PAGE>




ITEM 3.           KEY INFORMATION

A.       Selected Financial Data

         We have derived the following selected consolidated financial data
presented below for each of the years ended December 31, 2003, 2002 and 2001
from our consolidated financial statements and notes included in this annual
report. The selected consolidated financial data for the years ended as of
December 31, 2000 and 1999 have been derived from audited financial statements
not included in this annual report. Our consolidated financial statements have
been prepared in accordance with U.S. GAAP. You should read the selected
consolidated financial data together with the section of this annual report
entitled "Operating and Financial Review and Prospects" and our consolidated
financial statements incorporated by reference to this annual report. Please see
note 2 of our consolidated financial statements for an explanation of the number
of shares used in computing per share data.


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

                                              Year Ended December 31,
                                  1999       2000        2001        2002       2003
                                 (In thousands, except share and per share data)
Statement of Operations Data:
Revenues                        $11,708    $ 23,302     $ 14,049   $ 6,636    $ 14,943
Cost of revenues:
 Costs and expenses               5,878       9,794        6,086     4,589       7,787
 Royalties to the Government
   of Israel                        209         469          364       144         388
Total cost of revenues            6,087      10,263        6,450     4,733       8,175
Gross profit                      5,621      13,039        7,599     1,903       6,768
Operating expenses:
  Gross research and
   development                    6,065      12,592       17,060    15,240      16,349
  Royalty bearing grant           1,965       3,381        3,457     3,213       3,394
  Research and development, net   4,100       9,211       13,603    12,027      12,955
  Sales and marketing, net        2,026       3,665        5,465     4,814       5,884
  General and administrative      1,138       3,042        3,526     2,884       2,560
  Non-cash compensation             382         791          745       799         612
Total operating expenses          7,646      16,709       23,339    20,524      22,011
Operating loss                   (2,025)     (3,670)     (15,740)  (18,621)    (15,243)
Financial income (expenses), net:
  Interest income (expenses), net   145       5,986        4,629     2,283       1,684
  Non-cash charge for warrants   (1,400)         -            -         -           -
  Total financial income
   (expenses), net               (1,255)      5,986        4,629     2,283       1,684
Net (loss) profit               $(3,280)    $ 2,316     $(11,111) $(16,338)   $(13,559)
Earnings (loss) per share:
   Basic                      $   (0.27)    $  0.13     $  (0.61) $  (0.89)   $  (0.73)
   Diluted                    $   (0.27)    $  0.11     $  (0.61) $  (0.89)   $  (0.73)
Shares used in computing earnings (loss) per ordinary share:
    Basic                     12,309,339  18,269,556  18,260,798 18,407,190  18,638,398
    Diluted                   12,309,339  20,773,382  18,260,798 18,407,190  18,638,398




                                                       As of December 31,
                                1999        2000         2001       2002        2003
         (In thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents   $    4,281   $  8,851      $ 15,946  $  9,158     $ 16,225
Short-term investments          42,816     86,268        64,967    20,691       12,967
Long-term investments            2,952     15,344         9,172    46,197       35,013
Working capital                 46,971     97,324        82,430    32,719       32,848
Total assets                    55,850    125,266       104,733    89,706       80,273

Shareholders equity             50,991    117,632        98,497    83,558       72,301
</TABLE>


B.       Capitalization and Indebtedness




<PAGE>



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 out below are the most significant risks,
as identified by 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 Report, before making any investment decision regarding our company.

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

         Telecommunications service providers and their customers are the
principal end-users of substantially all of our products. From time to time, the
telecommunications industry in much of the world, including in our principal
markets, has experienced significant downturns, resulting in decreases and
delays in the procurement and deployment of new telecommunications equipment.
For example, we experienced a significant decline in demand for our products in
2001 and 2002. It is likely that any prolonged and substantial curtailment of
growth in the telecommunications industry will have an adverse effect, which may
be material, upon us. Any such curtailment may result from circumstances
unrelated to us or our product offerings and over which we have no control. In
addition, a market perception that these conditions could have an impact on our
company may harm the trading prices of our shares, whether or not our business
and results of operations are actually affected. During 2003 we experienced
increases in demand for out products compared to 2002. We are unable to forecast
accurately the timing of any long-term industry downturns or recoveries, or the
duration of such downturns or recoveries.

         We are in the process of developing a high-throughput wireless local
area networks (HT-WLAN) chipsets, which require substantial resources and the
results of which are uncertain. In addition to DSL, we engage in the research
and development of high-throughput wireless local area networks (HT-WLAN)
chipsets. We cannot be certain that the results of this research and development
will yield any revenues in the future. Our success with the wireless product
line is challenged, among other things, by new technological barriers associated
with wireless technologies, as well as with sales and marketing challenges
associated with penetration a new market with no previous track record for us.

         Our long-term revenue growth depends on revenues generated by the
high-throughput WLAN products.

         Our long term revenue growth depends on revenues generated by the
high-throughput



<PAGE>



WLAN products. This is a new market for Metalink, and we can not assure you that
the development phase will succeed or that we will succeed in selling WLAN
products in the future.

We have a history of operating losses.

         We have incurred significant operating losses since our inception, and
we may not achieve operating profitability for the foreseeable future. We
reported operating losses of approximately $15.7 million for the year ended
December 31, 2001, $18.6 million for the year ended December 31, 2002, and $15.2
million for the year ended December 31, 2003. As of December 31, 2003, our
accumulated deficit was approximately $47.5 million. We reported revenues of
approximately $14.9 million for the year ended December 31, 2003. Despite the
fact that we are making expenditures in anticipation of generating higher
revenues, our revenues may not grow and may even decline. Moreover, even if we
are successful in increasing our revenues, we may be delayed in doing so. If our
revenues do not increase as necessary or if our expenses increase at a greater
pace than our revenues, we will not likely be able to achieve, sustain or
increase profitability on a quarterly or annual basis.

Our quarterly operating results are volatile. This may cause our share price to
decline.

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

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

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

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

o        Customers may cancel or postpone orders in our backlog;

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


o The need to enter into new markets and expansion in current market may delay
revenues and cause additional expenses;

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



<PAGE>



o Our profitability can be affected by the payment of royalties and commissions
to subcontractors such as intellectual property vendors or sales
representatives;

o        Changes in pricing by us or our competitors;

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

o Because only a small portion of our expenses varies with our revenues, if
revenue levels for a quarter fall below our expectations, our earnings will
decrease;

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

o The mix of chipsets sold and the mix of sales channels through which they are
sold;

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

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

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

o New definition of products needed for the markets we address;

o        Inventory write-offs and impairment of assets;

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

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

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

Relatively few customers account for a large percentage of our net revenues. Our
business will be seriously harmed if we do not generate as much revenue as we
expect from these customers, or if we experience a loss of any of our
significant customers, particularly, ADC Telecommunications Inc. and Motorola
Next Level Communications, or suffer a substantial reduction in orders from
these customers. In 2003, we had only two customers which accounted for more
than 10% of our revenues, namely ADC and Motorola Next Level Communications,



<PAGE>



which accounted, directly and through their respective manufacturing
subcontractors, for an aggregate of 40% of our revenues. We cannot be certain
that these customers will maintain these levels of purchases or that they will
even elect to continue working with us. We do not have 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. We expect that sales
of our chipsets to relatively few customers will continue to account for a
significant portion of our net revenues for the foreseeable future.

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

         DSL solutions compete with a variety of different high-speed data
transmission technologies, including cable modem, satellite and wireless
technologies. If any technology that competes with DSL technology is more
reliable, faster or less expensive, reaches more customers or has other
advantages over DSL technology, the demand for our chipsets will decrease, and
we may not sell enough of our chipsets to achieve, sustain or increase
profitability.

Substantial sales of our chipsets will not occur unless end-customer
telecommunication service providers increasingly deploy DSL systems.

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

o a prolonged approval process, including laboratory tests, technical trials,
marketing trials, initial commercial deployment and full commercial deployment.
This process usually takes approximately a year in Europe and United States and
around six months in the Asia Pacific region. During this process we are subject
to numerous tests and trials, under which we may not continue to the final stage
of commercial deployment. However, the above mentioned process may take longer
than expected to conclude, for reasons we can not anticipate;

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

o cost constraints, such as installation costs and space and power requirements
at the telecommunication service provider's central office, affect purchases of
DSL systems that contain our chipsets;

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

o challenges of interoperability among DSL equipment manufacturers' products,
which may affect sales of the systems in which our chipsets are contained; and



<PAGE>



o government regulations, including regulation of telecommunication service
providers' rates and ability to recapture capital expenditures on DSL systems,
by governments in the United States and around the world.

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

Evolving and current industry standards for DSL technologies could affect the
end-market for our products.

         Evolving and current industry standards for DSL technologies could
affect the end-market for our products. In particular this may have adverse
effect on our VDSL business. Recently, the International Telecommunication Union
("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 MultiTone (DMT) technology and Quadrature Amplitude Modulation (QAM) -
to VDSL (Very high-speed Digital Subscriber Line) technology. The ITU has also
determined to develop a VDSL2 standard based on the existing ADSL2 and VDSL
standards that specify DMT modulation only. Our existing VDSL chipsets are based
on QAM. Should the future deployment of VDSL chipsets require the VDSL2 standard
of DMT only, our sales could be harmed unless we also develop DMT technology.
Development of DMT technology may need larger investments and/or longer time to
market compared to some of our competitors who already have the technology
available.

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

         We rely upon DSL equipment manufacturers, such as ADC and Motorola Next
Level Communications, to integrate our chipsets into their DSL systems. If their
systems are not successful, or they choose not to purchase our chipsets, or they
fail to incorporate our chipsets into their systems, we will not be able to sell
our chipsets to them in substantial quantities. Their systems may be
unsuccessful for a large number of reasons, substantially all of which are
beyond our control.




<PAGE>




Our chipsets may not adequately serve the needs of end users.

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

Adoption of VDSL technology outside existing markets may be limited.

         At the moment VDSL deployment is occurring mainly in Korea and Japan.
In other countries a high percentage of broadband subscribers are served with
ADSL technology, with which our VDSL technology competes. However, should the
market in all these other countries and our customers insist on getting ADSL and
not VDSL, the potential growth of our VDSL products will be limited.

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

         Once a DSL or a wireless equipment manufacturer has designed its system
to include a particular supplier's chipset, the DSL/wireless equipment
manufacturer may be reluctant to change its source of chipsets. Accordingly, the
failure to achieve a customer to develop and test the chipsets within their
system, or failure to achieve design wins with key DSL/wireless equipment
manufacturers could create barriers to future sales opportunities. In addition,
cooperation and review by potential customers of products in the development
stages facilitates "design wins." Thus, our ability to achieve "alpha partner"
cooperation will affect our long-term success.

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

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

o        rapid technological changes;

o        frequent new product introductions;

o        changes in customer requirements; and

o        evolving industry standards.

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

o        invest significantly in research and development;



<PAGE>



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

o        gain market acceptance of our chipsets;

o        successful cost reduction activities;

o        anticipate customer requirements; and

o        comply with industry standards.

         We may not be able to complete the development and market introduction
of new chipsets or new applications successfully. If we fail to develop and
deploy new chipsets and new applications on a timely basis, we may lose market
share to our competitors and our revenues will decline.

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

         Our market is highly competitive, and we expect competition to
intensify in the future. We may not be able to compete effectively in our
market, and we may lose market share to our competitors. Our principal
competitors include Conexant Systems, Inc., Infineon Technologies AG and Ikanos
Communications Inc. We expect to continue to face competition from these and
other competitors. Larger companies with substantial resources, brand
recognition and sales channels may form alliances or merge with, or acquire
competing DSL chipset providers and emerge as significant competitors. In
addition, competitors may bundle their products or incorporate a DSL chipset
component into existing products in a manner that renders our chipsets obsolete.

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

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

In order to attain and maintain profitability, we must manage our resources
effectively in a volatile market.




<PAGE>



         We are actively expanding our operations. We had 152 employees at
December 31, 2002 and 161 employees at December 31, 2003. The growth of our
business has placed, and will continue to place, a significant strain on our
managerial, operational and financial resources. We must also implement
sophisticated inventory and control systems. We cannot assure you that our
management team will be able to work together effectively to manage our
organization as a public company.

To manage resources effectively, we must:

         improve and expand our Management Information Systems ("MIS").
Specifically, in January 2001, we implemented a new Enterprise Resources
Planning ("ERP") system - "Oracle Application System" - in order to manage our
information systems. The new system supports the control of our operations. In
order to better manage our organization to deal with potential growth in the
future, we are considering implementation of additional modules and enhanced
existing ones in the ERP system;

- As a company with publicly traded shares, adopt additional processes to ensure
compliance with securities regulations;

- hire, train, manage and retain qualified employees for current business and
especially when the business is growing, and, when industry conditions decline,
reduce the workforce; and

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

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

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

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

o        potentially weak protection of intellectual property rights;

o        economic and political instability;

o        import or export licensing requirements;



<PAGE>




o        trade restrictions;

o        difficulties in collecting accounts receivable;

o        longer payment cycles;

o        unexpected changes in regulatory requirements and tariffs;

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

o        the impact of regional epidemics;

o        fluctuations in exchange rates; and

o        potentially adverse tax consequences.

o        Language and cultural differences

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

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

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

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


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



<PAGE>



can discontinue using our chipsets at any time.

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

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

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

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

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

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

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

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

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

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

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



<PAGE>



operations.

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

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

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

         As our business continues to grow, we will need to hire additional
engineers and highly trained technical support personnel in Israel, North
America, Europe and in the Asia Pacific region. We currently have a small
technical support staff. To support any growth, we will need to increase our
technical staff to support new customers and the expanding needs of existing
customers as well as our continued research and development operations.

         Hiring highly qualified engineers and technical support personnel is
competitive in our industry, due to the limited number of people available with
the necessary skills and understanding of our products. Our success depends upon
our ability to attract, train and retain highly qualified engineers and
technical support personnel.

         Our chipsets require a sophisticated marketing and sales effort
targeted at several levels within a prospective customer's organization. As
competition for qualified sales personnel continues, we may not be able to hire
sufficient sales personnel to support our marketing efforts.

We are dependent on our key personnel, in particular Tzvi Shukhman, our chief
executive officer, the loss of whom would negatively affect our business.

         Our future success depends in large part on the continued services of
our senior management and key personnel. In particular, we are highly dependent
on the services of Tzvi Shukhman, our chairman and chief executive officer. All
of our employees have entered into employment contracts with us except for Mr.
Shukhman. Although Mr. Shukhman does not have an employment agreement, the
shareholders voted in November 2003 to approve his service as chairman of the
board and chief executive officer for an additional three years period. We do



<PAGE>



not carry key person life insurance on our senior management or key personnel.
Any loss of the services of Tzvi Shukhman, other members of senior management or
other key personnel could negatively affect our business.

A majority of the Company's outstanding shares are held by two individuals, who
exert significant control over the Company's direction.

         At May 31, 2004, 10,842,016 ordinary shares (56.8%) are held by Messrs.
Tzvi Shukhman and Uzi Rozenberg, who are directors of the Company. Mr. Shukhman
is also our chairman and chief executive officer. Currently, Messrs. Shukhman
and Rozenberg control the outcome of various actions that require shareholder
approval. For example, these shareholders could elect all of our directors,
delay or prevent a transaction in which shareholders might receive a premium
over the prevailing market price for their shares and prevent changes in control
or management.

         In 2003, Messrs. Shukhman and Rozenberg filed a registration statement
with the Securities and Exchange Commission relating to the sale of 10,565,651
shares. Were they to sell all of those shares, they would no longer have the
ability to direct the voting of those shares, and new management could be
elected.

         In addition, because these shares are held by affiliates of the
Company, they are not generally considered to be included in the "public float"
of the Company's tradable shares. The market price for all shares could drop
significantly as these shares are sold, or as the market perceives such a sale
as imminent.

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

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

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




<PAGE>



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

Our products may require licensing of the intellectual property rights of
others.

We incorporate certain third party technology into our products, including
memory cells, input/output cells and core processor logic. Were we unable to use
or license these technologies on commercially viable terms, we could sustain
damage to our margins. If these third party technologies contain or develop
defects, we may be subject to warranty or other claims that could damage our
business.



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

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

o        expanding research and development programs;

o        hiring additional qualified personnel;

o        implementing further marketing and sales activities; and

o        acquiring complementary businesses.

         We may not be able to obtain additional funds on acceptable terms or at
all. If we cannot raise needed funds on acceptable terms, we may not be able to:

o        develop new products;

o        enhance our existing products;

o        remain current with evolving industry standards;

o        take advantage of future opportunities; or

o        respond to competitive pressures or unanticipated requirements.

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

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

Volatility of our share price could adversely affect our shareholders.




<PAGE>



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

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

o        announcements by us or our competitors of technological innovations;

o        introduction and adoption of new industry standards;

o        introductions of new products by us or our competitors;

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

o        conditions or trends in our industry;

o        changes in the market valuations of our competitors;

o        announcements by us or our competitors of significant acquisitions;

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

o        additions or departures of key personnel;

o        sales of ordinary shares;

o        announcements by us or our competitors of significant events; or

o        sales by controlling shareholders that change materially the number of
         shares available for trading in the public market.

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

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

         Investors may not be able to resell their ordinary shares following
periods of volatility because of the market's adverse reaction to that
volatility. In addition, the stock market in general, and the market for Israeli
and technology companies in particular, has been highly



<PAGE>



volatile. We cannot assure you that our ordinary shares will trade at the same
levels of shares of other technology companies or that shares of technology
companies in general will sustain their current market prices.

If we continue to be characterized as a Passive Foreign Investment Company, our
U.S. shareholders may suffer adverse tax consequences.

         If, for any taxable year, our passive income, or our assets that
produce passive income, exceed specified levels, we may be characterized as a
Passive Foreign Investment Company ("PFIC") for U.S. federal income tax
purposes. We were a PFIC during the years 2001, 2002 and 2003, but have not yet
determined whether we are likely to be characterized as a PFIC for 2004.

These considerations, and other tax considerations, are described in additional
detail under the caption "Taxation" at Item 10(E) of this Report.


Risks Relating to Our Location in Israel

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

         Our principal offices and research and development facilities are
located in Israel. Political, economic and military conditions in Israel
directly affect our operations. We could be adversely affected by any major
hostilities involving Israel, the interruption or curtailment of trade between
Israel and its trading partners, a significant increase in inflation, or a
significant downturn in the economic or financial condition of Israel. The
future of the "peace process" between Israel and the Palestinians is uncertain
and has deteriorated due to on-going violence between Israelis and Palestinians.
Moreover, several countries still restrict business with Israel and with Israeli
companies. We could be adversely affected by adverse developments in the "peace
process" or by restrictive laws or policies directed towards Israel or Israeli
businesses. Some of our directors, officers and employees are currently
obligated to perform annual reserve duty and are subject to being called to
active duty at any time under emergency circumstances and could be required to
serve in the military for extended periods of time. Our operations could be
disrupted by the absence for a significant period of time of one or more of our
officers or key employees, or a significant number of other employees because of
military service. The full impact on our workforce or business if some of our
officers and employees will be called upon to



<PAGE>



perform military service, especially in times of national emergency, is
difficult to predict. Any disruption in our operations as the result of military
service by directors, officers or employees could harm our business.

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

         Provisions of Israeli corporate law may have the effect of delaying,
preventing or making more difficult a merger with, or acquisition of us. The
Israeli Companies Law generally requires that a merger be approved by a
company's board of directors and by a majority of the shares present and voting
on the proposed merger at a meeting called upon at least 21 days' notice. For
purposes of the shareholder vote of each potential merger partner, unless a
court rules otherwise, the merger will not be deemed approved if a majority of
the ordinary shares not held by the other party to the merger (or any party
person who holds 25% or more of the shares or has the right to appoint 25% or
more of the directors of the other party to the merger, or its general manager)
have voted against the merger. Upon the request of any creditor of a party to
the proposed merger, a court may delay or prevent the merger if it concludes
that there is a reasonable concern that, as a result of the merger, the
surviving company will be unable to satisfy the obligations of the surviving
company. In addition, a merger may not be completed unless at least 70 days have
passed since the filing of the merger proposal signed by both parties with the
Israeli Registrar of Companies.

         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, unless there is already another 25% or greater shareholder of the
company. Similarly, an acquisition of shares 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 majority
shareholder of the company. In any event, if as a result of an acquisition of
shares the acquirer will hold more than 90% of a company's shares, the
acquisition must be made by means of a tender offer for all of the shares.

         Finally, Israeli tax law treats some acquisitions, such as
stock-for-stock exchanges between an Israeli company and a foreign company, less
favorably than U.S. tax laws. For example, Israeli tax law 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.

         These provisions of Israeli corporate and tax law may have the effect
of delaying, preventing or making more difficult a merger or acquisition of us.
This could depress the market price of our ordinary shares which otherwise might
rise as a result of such a change of control.

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



<PAGE>



         We generate substantially all of our revenues in dollars, but we incur
a portion of our expenses, principally salaries, related personnel expenses and
occupancy expenses in NIS. As a result, we are exposed to the risk that the rate
of inflation in Israel will exceed the rate of devaluation of the NIS in
relation to the dollar or that the timing of this devaluation lags behind
inflation in Israel or that the NIS is appreciated against the dollar. In 2003
the NIS was appreciated against the dollar in the rate of 7.5% while the rate of
deflation was 1.9%. If the dollar costs of our operations in Israel continues to
increase, our dollar-measured results of operations will be adversely affected.

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

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

         We are incorporated in Israel. The majority of our executive officers
and directors are nonresidents of the United States, and a substantial portion
of our assets and the assets of these persons are located outside the United
States. Service of process upon our directors and officers named herein may be
difficult to effect within the United States because some of these people reside
outside the United States. Any judgment obtained in the United States against us
or these individuals or entities may not be enforceable within the United
States.



<PAGE>



         There is doubt as to the enforceability of civil liabilities under the
Securities Act and the Securities Exchange Act in original actions instituted in
Israel. However, subject to specified time limitations, Israeli courts may
enforce a U.S. final executory judgment in a civil matter, provided that:

o adequate  service of process has been  effected  and the  defendant  has had a
reasonable opportunity to be heard;

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 obtained after due process before a court of competent
jurisdiction according to the rules of private international law prevailing in
Israel;

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

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; and

o the U.S.  court is not  prohibited  from  enforcing  the  judgments of Israeli
courts.

         If a foreign judgment is enforced by an Israeli court, it generally
will be payable in new Israeli shekels, which can then be converted into
non-Israeli currency and transferred out of Israel. The usual practice in an
action to recover an amount in non-Israeli currency is for the Israeli court to
render judgment for the equivalent amount in new Israeli shekels at the rate of
exchange on the date of payment, but the judgment debtor also may make payment
in non-Israeli currency. Pending collection, the amount of the judgment of an
Israeli court stated in new Israeli shekels ordinarily will be linked to the
Israel Consumer Price Index plus interest at the annual rate (set by Israeli
law) prevailing at that time. Judgment creditors bear the risk of unfavorable
exchange rates.


We derive certain tax benefits under Israeli law from our status as an "approved
enterprise," and 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. The Investments Law will expire on June 30, 2004, unless
its terms will be extended. Accordingly, requests for new programs or expansions
that are not approved on or before June 30, 2004 will not confer any tax
benefits, unless the term of the law will be extended. This program and others
that can have a material tax impact on us or on our shareholders, are described
in detail under the caption: "Taxation" at Item 10 (E) of this Report.

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

We 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 for the financing of a significant portion of our research and development
expenditures in Israel and we intend to apply for additional grants in the
future. With regard to grants from the Office of Chief Scientist, see Item
10-Additional Information-Taxation-Grants under the Law for the Encouragement of
Industrial Research and Development, 1984.



ITEM 4.           INFORMATION ON THE COMPANY

A. History and Development of the Company

         Metalink was incorporated in September 1992 as a corporation under the
laws of the State of Israel. In September 2000, we moved our principal executive
offices from Tel-Aviv to a new location at Yakum Business Park, Yakum 60972,
Israel. Our telephone number is 972-9-960- 5555. Our agent for service in the
United States is our subsidiary, Metalink Inc., 105C Lake Forest Way, Folsom,
California 95630, and its telephone number is 916-355-1580.

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

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

         Capital expenditures were approximately $2 million for year 2003. The
expenditures were principally for capital equipment and software used in our
research and development and manufacturing activities.



<PAGE>



B.       Business Overview

General

         We design, develop and market digital subscriber line (DSL) chipsets
used by manufacturers of telecommunication equipment. Our 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 are
a leader in DSL semiconductor technology because of our expertise in the
development of advanced modem algorithms, in the design of very large scale
integrated circuits and in digital signal processing. We have sold over eight
million of our chips to original equipment manufacturers (OEMs) that incorporate
our chipsets into their own products. These OEMs have sold products containing
our chipsets to telecommunication service providers throughout the world.

         We have recently determined to engage in the research and development
of high-throughput wireless local area networks (HT-WLAN) chipsets. Solutions
under this category enable transport of digital broadband media including video,
voice and data at significantly higher rates than conventional wireless local
area networking (WLAN) solutions.

Products and Technology

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

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

         HDSL. HDSL is a cost-effective alternative to traditional repeatered T1
(in North America) and El (in the rest of the world) transmission services,
which generally offer transmission speeds of 1.5 or 2.0 megabits per second,
(Mbps). The HDSL system creates a link



<PAGE>



between the central office and a customer network premise over unconditioned
copper wire. T1 HDSL has been standardized by the American National Standards
Institute, or ANSI, and allows the transmission of 1.544 Mbps over two copper
wire pairs using 2BlQ line code. El HDSL has been standardized by the European
Telecom Standards Institute (ETSI) and allows the transmission of 2.320 Mbps
over either one, two or three copper wire pairs, depending on the operator's
deployment strategy and generally uses the 2BlQ line code. ETSI's specifications
for 1-Pair HDSL were also adopted by the ITU. We currently offer El HDSL for
1-Pair, 2-Pair and 3-Pair copper wire configurations and a T1 HDSL which is a
2-Pair configuration, each of which uses 2BlQ line coding. We were the driving
force in setting the ETSI standard for 1-Pair El HDSL solutions.

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

         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. During 2002 we completed
the development and integration of our second generation HDSL2/HDSL4/SHDSL DSP
product, and the new device combined with our HDSL2/HDSL4/SHDSL AFE is now being
shipped in commercial volumes.

         G.SHDSL. G.SHDSL improves on the SDSL and HDSL technologies by
providing rate adaptive solutions at rates of up to 2.320 Mbps, while increasing
the maximum range of transmissions by 20%, compared to that allowed by the
legacy technologies. G.SHDSL supports various encoding technologies, including
the technologically-advanced Trellis coded PAM-16. We contributed to the
standardization of G.SHDSL, and we have developed proprietary algorithms for the
efficient implementation of this technology. During the year 2001, we completed
the development and integration of our first generation SHDSL solution that
includes an eight-port G.SHDSL digital device, a single port G.SHDSL digital
device and an single port G.SHDSL analog front end. During 2002 we also
completed the development of a second generation digital device optimized for
T1/E1 transport applications. This device, incorporated the entire digital
functionality of a T1/E1 transport application combining the DSL transceiver and
framer, T1/E1 framer, host processor and RAM. To the best of our knowledge, this
is the only device available in the market with such high levels of optimization
and integration for T1/E1 transport applications. We offer a variety of SHDSL
products for CO, CPE and repeater applications which are being installed in
major operator networks including Deutsche Telekom, France Telecom, Telecom
Italia and British Telecom. During 2003 the ITU has completed an enhancement to
the G.SHDSL recommendation known as G.SHDSL.bis addressing



<PAGE>



enhancements such as extended per pair bit rates and multi-pair aggregation. At
the same time the IEEE 802.3ah task-group is working on a specification for
delivering Ethernet in the first mile using SHDSL and SHDSL.bis technologies. We
anticipate these new standards and their derived applications to be key drivers
in the development of the symmetric DSL market and our product introduction into
this segment.

         VDSL. VDSL technology defines very high transmission rates over a
single copper wire pair. This includes symmetric transmission at a rate of over
40 Mbps and asymmetric transmission of over 100 Mbps downstream. VDSL is
typically deployed in combination with an optical network unit. This unit is
connected by copper wire to multiple subscribers located in large complexes,
such as large residential complexes, hotels and campuses. The unit multiplexes
the bandwidth of tens to hundreds of subscribers onto a single fiber that
carries the information to the central office. VDSL applications include high
bandwidth data, multiple video and voice channels, High Definition TV (HDTV),
broadband access and broadband wide area networks (WANs). VDSL technology has
been standardized by ANSI, ETSI and the ITU and is currently at its
standardization stage in IEEE. We are an active participant in all these
standardization processes. 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). Recently, 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 MultiTone (DMT) technology and
Quadrature Amplitude Modulation (QAM) - to VDSL (Very high-speed Digital
Subscriber Line) technology. ITU has also decided to develop a VDSL2 standard
based on the existing ADSL2 and VDSL standards that specify DMT modulation only.
Our existing VDSL chipsets are based on QAM. Should the future deployment of
VDSL chipsets require the VDSL2 standard of DMT only, our sales could be harmed
unless we also develop DMT technology. We have developed powerful algorithms for
VDSL, including NML, that optimize the performance in the operating environment.
During 2001, we finished the development and started integration of two
generations of VDSL solutions, including a single port 2-band digital device, a
single port 4-band digital device, a dual port 3-band device and a single port
4-band analog front end. To the best of our knowledge these devices were the
first available standard compliant solutions according to the quadrature
amplitude modulation (QAM)-based ETSI and ANSI standards. During 2002 we
completed the development of our 3rd generation VDSL product family including a
Quad and Single port full 4-band VDSL devices. These devices address the
Ethernet over VDSL (EoVDSL) market requirements which are rapidly evolving in
the Asia-Pacific region. To the best of our knowledge, the Quad device was the
first to integrate four full 4-band standard VDSL ports in a single package. We
are in the process of introducing our 4th generation VDSL product family to the
market. This family incorporate our VDSLPlus technology which is capable of
delivering over 100 Mbps asymmetric bit rates over a single copper pair.

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


<TABLE>
<CAPTION>

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

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

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

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

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

MtS 870           Octal SHDSL transceiver/framer                       4Q00                      4.640
MtS 170           Single SHDSL transceiver frame                       1Q01                      4.640
MtS 140           Single SHDSL AFE                                     4Q00                      4.640
MtS 142           Single SHDSL/HDSL2/HDSL4 AFE with integrated         2Q01                      4.640
                  line-driver
MtS180            SHDSL/HDSL2/HDSL4 system on a chip for T1/E1         1Q02                      4.640
                  /TDM transport applications
MtS172            SHDSL/HDSL2/HDSL4 transceiver with integrated T1/E1  2Q02                      4.640
                  framer

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        4Q02                     60
                  integrated MAC for Ethernet & ATM applications
                  (ONU & NT)
MtV 9470          Quad 2/3/4-band VDSL transceiver for Ethernet        4Q02                     60
                  applications  (ONU)
MtV 9473          Quad 2/3/4/5-band VDSL transceiver for Ethernet      1Q04                    100
                  applications (ONU)
MtV 9273          Single trunk 2/3/4/5-band VDSL transceiver with      1Q04                    100
                  integrated MAC for Ethernet & ATM applications
                  (ONU & NT)
MtV 9143          VDSL AFE for 2,3,4 and 5-band applications           1Q04                    100

MtV9120           VDSL Line Driver for 2,3,4 and 5-band applications   1Q04                    100



</TABLE>

<PAGE>

     The following table enumerates our product applications:

<TABLE>
<CAPTION>

chipset Applications                      Products                            Configuration

        <C>                                   <C>                                   <C>

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

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

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


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

Single pair T1 HDSL2                       MtS180           Each chipset consist of a single
                                           MtS142           DSP / framer chip and a single AFE
                                                            chip.

Two                                        pair T1 HDSL4 MtS180 Each chipset
                                           consist of a single MtS172 System on
                                           Chip, single DSM/Framer MtS142 and
                                           two AFE devices.

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

CO/ONU                                     Quad four-band EoVDSL application MtV
                                           9470 Each chipset consist of a
                                           MtV9141 DSP/framer chip and four AFE
                                           chips

EoVDSL CPE four band VDSL application      MtV9172          Each chipset consist of a single
                                           MtV9141          DSP / framer chip and a single AFE
                                                            chip.

CO/ONU                                     Quad five-band EoVDSL application MtV
                                           9473 Each chipset consist of a
                                           MtV9143 DSP/framer chip and four AFE
                                           chips MtV9120 and four line driver
                                           chips

EoVDSL CPE five band VDSL application      MtV9172          Each chipset consist of a single
                                           MtV9141          DSP / framer chip two AFE chips and
                                           MtV9120          a single line driver chip.


</TABLE>

Older products are  approaching a point of  obsolescence,  and as the market for
those



<PAGE>



products diminishes we will slow or stop production of those parts.






Customers

         Our customers, telecommunication equipment manufacturers, incorporate
our chipsets into the products that they sell to telecommunication service
providers. Since we commenced operations in 1993, we have shipped over eight
million of our chips to our customers, or OEM partners, including ECI, Marconi,
Alcatel, Schmid, ADC, Motorola Next Level Communications, Primetech, RAD, TUT
and others. These chips are used in telecommunication 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.

Our chipsets are being incorporated into the following systems:

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

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

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

o 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 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 combined Video, Voice
and Data transport over single twisted pair.

         Our customers market their products to public and private
telecommunications service providers.




<PAGE>



         These service providers include incumbent local exchange carriers or
ILECs, CLECs and Internet service providers.

         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 3    2 0 0 2       2 0 0 1
                                              (in thousands)
Revenues:
United States                             $ 4,101   $  1,285   $  680
Korea                                       2,370         45       14
Israel                                      1,842      3,170    3,070
Mexico                                      1,784         -        -
Italy                                       1,120        913      326
Canada                                        313         93    2,989
Switzerland                                    92        144    5,329
Other foreign countries (mainly European)   3,321        986    1,641
                                          $14,943   $  6,636  $14,049


Sales and Marketing

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

         We have sales representatives in the following countries:

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

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

         North America: Canada and the United States

         South America: Brazil.

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

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



<PAGE>



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

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


Research and Development

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

         As of May 31, 2004 our research and development staff consisted of 102
employees. Research and development activities take place at our facilities in
Yakum, Israel and at the design centers of our subsidiary in Folsom, California,
and Atlanta, Georgia. We intend to continue adding research and development
personnel in the near future. We deploy standard procedures for the design,
development and quality assurance of our new product developments.

         The Government of Israel, through the Office of the Chief Scientist of
the Israeli Ministry of Industry and Trade, encourages research and development
projects which result in products for export. Since 1995, we received grants
from the Office of the Chief Scientist for the development of our products. In
addition, we have recently launched a research project, under the sixth
framework program of the European Commission, under which we are entitled to
grants based on certain approved expenditures of a research and development
plan. See "Item 5-Operating and Financial Review and Prospects-Operating
Results-Government Grants." We expect our research and development expenses to
grow as we hire additional personnel to develop new, and upgrade existing
products.

Manufacturing

         We do not own or operate a semiconductor fabrication facility. As a
fabless provider of 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. The use of the fabless
model allows us to focus substantially most of our resources on determining



<PAGE>



customer requirements and on the design, development and support of chipsets and
to have significantly reduced capital requirements.

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

         We intend to continue for the foreseeable future to rely on third
parties for substantially all of our wafer manufacturing, assembly and test
requirements. All of our subcontract manufacturers produce products for other
companies. We do not have long-term manufacturing, packaging and testing
agreements with any of our subcontractors, except for one foundry, which has yet
to perform any production for us. 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 own
unregistered trademarks for the names NML, VDSLPlus, "WLANPlus and Total-VDSL.
We do not currently own any registered copyrights.

         In addition, our NML technology is protected by two patents in Israel
and three patents in the United States. One of the two Israeli patents was
issued in favor of us following a settlement agreement we entered into with an
opposing company. Most of our 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. We have filed additional
patent application in the United States. This application may not result in any
patent or patents being issued and, if issued, the patent may not provide
adequate protection against competitive technology and may not be held valid and
enforceable if challenged. In addition, other parties



<PAGE>



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. Our existing patents expire in 2015.

Competition

         The DSL and the wireless chipset 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 for HDSL, SDSL,
HDSL2 and G.SHDSL products include, Conexant (GlobespanVirata), Infineon and
Mindspeed. Our principal competition for VDSL QAM based products include
Infineon. Other competitors offering VDSL DMT based products include ST
Microelectronics and Ikanos. In addition to these competitors, there have been
announcements by other integrated circuit companies that they intend to enter
the VDSL chipset market, specifically ADSL IC companies targeting introduction
of VDSL DMT products and potential additional VDSL QAM product makers.

         We expect to continue to face competition from these and other
competitors. Larger companies with substantial resources, brand recognition and
sales channels may form alliances or merge with, or acquire competing DSL chip
set providers and emerge as significant competitors. For example, in March 2004,
two of our principal competitors, GlobespanVirata and Conexant, announced the
completion of the merger. Said merger may adversely effect our market share and
as a result might adversely effect our result of operations. In addition,
competitors may bundle their products or incorporate a DSL chipset component
into existing products in a manner that renders our chipsets obsolete.

         Further, some of our customers face competition from companies, which
design their own chipsets. Because these companies do not purchase all of their
chipsets from suppliers such as us, if these competitors displace our customers,
our customers would no longer need our chipsets, and our business would be
seriously harmed.

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




<PAGE>



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

C.       Organizational Structure

         See "Item 5-Operating and Financial Review and Prospects-Overview"

D.       Property, Plants and Equipment

         Our headquarters and principal administrative, finance, sales and
marketing operations are located in approximately 45,000 square feet of leased
office space in Yakum, Israel. The lease expires in September 2010. In the
United States, we lease approximately 10,000 square feet of office space in
Folsom, California (the Folsom Lease") and 1,300 square feet of office in
Atlanta Georgia. The Folsom Lease will expire in March 2005, and we will have
the option to extend the lease for two additional five-year periods. In
South-Korea, we lease approximately 1,100 square feet in Seoul. We may need to
increase the size of our current facilities, seek new facilities, close certain
facilities or sublease portions of our existing facilities in order to address
our needs in the future. The facilities are used primarily for product design,
sales and administrative functions.

         Total rent expenses for the years ended December 31, 2003, 2002 and
2001 were $983,000, $936,000and $957,000, respectively. The projected payments
for 2004 are approximately $1,077,000.


ITEM 5.           OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Overview

         We are a global provider and developer of high performance wireline and
wireless broadband communication silicon solutions for telecommunication,
networking and home broadband equipment makers. Metalink's silicon solutions
address key elements of the "broadband home" market through cost effective, very
high-speed delivery of broadband applications over public, home and enterprise
networks. Metalink's wireline DSL products



<PAGE>



enable network operators to offer broadband services over ATM, TDM, and
Ethernet-IP copper infrastructure. Metalink's wireless solutions, MIMO-based
WLANPlus, are designed to meet the ever-increasing demand for wireless LAN
speed and reach, critical for home and office multi-media applications.

        We
believe that leveraging our expertise in the wireline broadband silicon industry
to enter the wireless silicon industry will provide us with the opportunity to
tap a market with significant growth potential. Entering the wireless market
successfully would permit us to expand our revenue beyond what would be possible
competing solely in the wireline market.

        Accordingly, we have reallocated
research and development resources and budgeting to address both markets.

         We are undertaking this initiative at a time when the wireline
telecommunications business is showing improvement, but because of our
experience in recent years, we do not wish to rely solely on the wireline
market.

         The 2001 decline in the telecommunications industry, at a time when we
had begun expanding our R&D and other expenditures, caused an operating loss of
$15.7 million. During 2002, during a time of even further industry declines, we
cut expenditures, but still sustained an operating loss of $18.6 million. Our
2003 revenues more than double from 2002, and surpassed those of 2001, but we
expanded our R&D efforts and the operating loss was $15.2 million.

         We were incorporated in September 1992 under the laws of the State of
Israel. From our inception through the third quarter of 1994, our operating
activities related primarily to establishing a research and development
organization, developing prototype chip designs which meet industry standards
and developing strategic OEM partnerships with leading telecommunication
equipment manufacturers. We shipped our first chipset in the fourth quarter of
1994. Since that time, we have continued to focus on developing additional
products and applications, shaping new industry standards and building our
worldwide indirect sales and distribution channels. In addition, in 1997, we
established a wholly owned subsidiary in the United States, Metalink Inc., which
is incorporated in Delaware and is headquartered in Northern California.
Metalink Inc. is involved in research and development activities, provides
technical support to our customers and conducts the distribution of our products
in North America. In 1999, we established our Northern California research and
development design center, and in 2003 we established our Atlanta research and
development design center for our wireless activities, both are part of Metalink
Inc. In 2003, we established a wholly-owned subsidiary in South Korea, Metalink
Asia Pacific Ltd. Metalink Asia Pacific is involved in introducing and promoting
the sale of our products in South Korea.

         In December 1999, we completed our initial public offering of 4,600,000
ordinary shares, from which we received net proceeds of approximately $49.8
million. In March 2000, we completed our secondary public offering of 1,500,000
ordinary shares, from which we received net proceeds of approximately $62.7
million.

Critical Accounting Policies

Management's  discussion and analysis of our financial  condition and results of
operations



<PAGE>



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

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

Revenue recognition

         Revenue from product sales is recognized upon shipment to the customer,
when the risk of loss has been transferred to the customer, price and terms are
fixed, and when no significant vendor obligations exist and collection of the
resulting receivable is reasonably assured. Our revenue recognition policy is
significant because our revenue is a key component of our operations. In
addition, our revenue recognition determines the timing of certain expenses,
such as sales commissions. 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, as demonstrated by its financial reports or through a
third-party credit check. 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 item's 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.

A.       Operating Results

General

         Revenues. Our revenues are derived from sales of our chipsets to our
customers with



<PAGE>



which we have OEM partnerships for the design of DSL systems based on our
solutions. Our revenues are generated in U.S. dollars, and the majority of our
expenses are incurred in dollars. Consequently, we use the dollar as our
functional currency. Our consolidated financial statements are prepared in
dollars in accordance with generally accepted accounting principles in the
United States. For the year ended December 31, 2003, two customers accounted for
approximately 40% of our revenues.

         We sell our chipsets in North America, Asia and Europe through
independent sales representatives and distributors. We also sell our chipsets
directly to selected customers. For the year ended December 31, 2003,
approximately 40% of our sales were to customers in Europe and Israel, 41% in
North America and 19% 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 used in research and
development, and other overhead expenses. Research and development costs are
expensed as incurred. We believe that continued investment in research and
development is critical to attaining our strategic product objectives. We expect
these expenses to increase in the future as we continue to develop new products
and product applications.

         Research and Development, Net. The Government of Israel, through the
Office of the Chief Scientist, encourages research and development projects
which result in products for export. In 2001, 2002 and 2003, we received grants
from the Office of the Chief Scientist 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.

         Sales and Marketing. Sales and marketing expenses consist primarily of
salaries and other personnel related expenses for those engaged in the sales,
marketing and support of our products, as well as 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.
Accordingly, we intend to pursue sales and marketing campaigns, and we therefore
expect these expenses to increase in the future.

         General and Administrative. General and administrative expenses consist
primarily of salaries and other personnel related expenses for executive,
accounting and administrative personnel, professional fees, and other general
corporate expenses. As we incur additional costs



<PAGE>



related to the growth of our business, we expect that general and administrative
expenses will also increase.

         Amortization of Deferred Stock Compensation. Amortization of deferred
stock compensation expenses consist of the charge incurred by us arising from
the grant of options to purchase our ordinary shares. These expenses are
recorded and charged to our earnings over the vesting period of the options. We
have recorded a total of $5,279,000 of deferred stock compensation as of
December 31, 2003. We have incurred amortization of deferred stock compensation
expenses of $745,000 in 2001, $799,000 in 2002 and $612,000 in 2003.

         We expect to recognize stock compensation expenses of approximately
$199,000 in 2004, $17,000 in 2005 and $5,000 in 2006. We cannot guarantee,
however, that we will not accrue additional stock compensation expenses in the
future or that our current estimate of these costs will prove accurate, either
of which events could seriously harm our business and results of operations.

         Financial Income, Net. Financial income, net consists primarily of
interest earned on marketable debt securities and certificates of deposits in
which we invested, gains and losses from the exchange differences of monetary
balance sheet items denominated in non-dollar currencies and bank commissions.

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

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

                                                      Year Ended December 31,
                                                   2001       2002        2003

Revenues                                            100%      100%        100%
Cost of revenues:
Costs and expenses                                   43        69          52
Royalties to the Government of Israel                 3         2           3
Total Cost of revenues                               46        71          55
Gross profit                                         54        29          45
Operating expenses:
Gross research and development                      121       230         110
Royalty bearing grant                                24        48          23
Research and development, net                        97       182          87



<PAGE>



Sales and marketing                                  39       73           39
General and administrative                           25       43           17
Non-cash compensation                                 5       12            4
Total operating expenses                            166      310          147
Operating loss                                     (112)    (281)        (102)
Financial income, net                                33       34           11
Net loss                                            (79)%   (247)%        (91)%


Year Ended December 31, 2003 Compared with Year Ended December 31, 2002

         Revenues. Revenues in 2003 were $14.9 million, an increase of $8.3
million compared with revenues of $6.6 million in 2002. The increase in revenues
is primarily attributable to sales generated from our VDSL products mainly in
North America and in Asia, and increased demand for our SHDSL products from
existing and new customers.

         Cost of Revenues. Cost of revenues was $8.2 million in 2003, an
increase of $3.5 million compared with cost of revenues of $4.7 million in 2002.
This increase is primarily attributable to the increase in revenues. Cost of
revenues as a percentage of revenues decreased to 55% in 2003 from 71% in 2002,
primarily attributable to the increase in revenues volume.

         Gross Research and Development Expenses. Gross research and development
expenses were $16.3 million in 2003, an increase of $1.1 million compared with
gross research and development expenses of $15.2 million in 2002. This increase
is primarily attributable to enhancement of our Wireless LAN products research
and development effort offset partially by a decrease in our DSL products
research and development expenses. Inclusive of stock based compensation
charges, Gross research and development expenses were $16.5 million in 2003, an
increase of $1.1 million compared with gross research and development expenses
of $15.4 million in 2002. Gross research and development as a percentage of
revenues decreased to 110% in 2003 from 230% in 2002 primarily attributable to
the increase in revenues volume, offset by increase in gross research and
development expenses mentioned above. Inclusive of stock based compensation
charges, Gross research and development as a percentage of revenues decreased to
111% in 2003 from 232% in 2002.We expect to continue investing significant
resources in research and development programs for new products and enhancements
of existing products.

         Research and Development, Net. Grants from the Office of the Chief
Scientist, totaling $3.4 million in 2003 compared with $3.2 million in 2002, are
applied as reductions to gross research and development expenses. Research and
development expenses, net, were $13 million in 2003, or 87% of revenues,
compared with $12 million in 2002, or 182% of revenues. As



<PAGE>



grants were approximately the same in both 2002 and 2003, the decrease in
research and development, net, as a percentage of revenue is primarily
attributable, to the increase in revenues volume, offset by increase in gross
research and development expenses mentioned above.

Sales and Marketing. Sales and marketing expenses were $5.9 million in 2003, an
increase of $1.1 million compared with sales and marketing expenses of $4.8
million in 2002. This increase is primarily attributable to our growing sales
and marketing efforts in the Asia Pacific region that included the development
of new sales channels and the resulting increase in personnel and travel
expenses, in addition to marketing costs attributable to VDSL standards. Sales
and marketing expenses, as a percentage of revenues, were 39% in 2003 compared
to 73% in 2002 primarily attributable to the increase in revenues volume.

         General and Administrative. General and administrative expenses were
$2.6 million in 2003, a decrease of $0.3 million compared with general and
administrative expenses of $2.9 million in 2002. This decrease is primarily
attributable to decrease in salary expenses. Inclusive of stock based
compensation charges, General and administrative expenses were $2.7 million in
2003, a decrease of $0.5 million compared with general and administrative
expenses of $3.2 million in 2002. General and administrative expenses as a
percentage of revenues decreased to 17% in 2003 from 43% in 2002 primarily
attributable to the increase in revenues volume. Inclusive of stock based
compensation charges, General and administrative expenses as a percentage of
revenues decreased to 18% in 2003 from 49% in 2002.

         Amortization of Deferred Stock Compensation. Amortization of deferred
stock compensation expenses were $612,000 in 2003, a decrease of $187,000
compared with amortization of deferred stock compensation expenses of $799,000
in 2002. This change is primarily attributable to periodical amortization.
Amortization of deferred stock compensation expenses as a percentage of revenues
decreased to 4% in 2003 from 12% in 2002 primarily attributable to the increase
in revenues volume.

         Financial Income, net. Financial income, net was $1.7 million in 2003,
a decrease of $0.6 million compared with financial income, net of $2.3 million
in 2002. This change is primarily attributable to general decline in interest
rates and the decrease in total cash, short term and long term investments
balance.

         Year Ended December 31, 2002 Compared with Year Ended December 31, 2001
Revenues. Revenues in 2002 were $6.6 million, a decrease of $7.4 million
compared with revenues of $14 million in 2001. The decrease in revenues reflects
general economic conditions and increased weakness in the telecommunication
market in North America and Europe, and the fact that customers have reduced
orders while diminishing inventories previously purchased.

         Cost of Revenues. Cost of revenues was $4.7 million in 2002, a decrease
of $1.7 million compared with cost of revenues of $6.4 million in 2001. This
decrease is primarily attributable to the decrease in revenues. Cost of revenues
as a percentage of revenues increased to 71% in 2002 from 46% in 2001, primarily
attributable to the decrease in revenues volume and the fixed cost elements in
the cost of good sold.

Gross Research and Development Expenses. Gross research and development expenses



<PAGE>



were $15.2 million in 2002, a decrease of $1.8 million compared with gross
research and development expenses of $17 million in 2001. This decrease is
primarily attributable to decrease in subcontractors and salaries expenses.
Inclusive of stock based compensation charges, Gross research and development
expenses were $15.4 million in 2002, a decrease of $1.8 million compared with
gross research and development expenses of $17.2 million in 2001. Gross research
and development as a percentage of revenues increased to 230% in 2002 from 121%
in 2001 primarily attributable to the decrease in revenues volume, offset by
decrease in gross research and development expenses mentioned above. Inclusive
stock based compensation charges, Gross research and development as a percentage
of revenues increased to 232% in 2002 from 123% in 2001.We expect to continue
investing significant resources in research and development programs for new
products and enhancements of existing products.

         Research and Development, Net. Grants from the Office of the Chief
Scientist, totaling $3.2 million in 2002 compared with $3.5 million in 2001, are
applied as reductions to gross research and development expenses. Research and
development expenses (net) were $12 million in 2002, or 181% of revenues,
compared with $13.6 million in 2001, or 97% of revenues. As grants were
approximately the same in both 2001 and 2002, the increase in research and
development, net, as a percentage of revenue is primarily attributable, to the
decrease in revenues volume, offset by decrease in gross research and
development expenses mentioned above.

         Sales and Marketing. Sales and marketing expenses were $4.8 million in
2002, a decrease of $0.7 million compared with sales and marketing expenses of
$5.5 million in 2001. This decrease is primarily attributable to decrease in
promotional activities expenses and employees recruitment expenses. Sales and
marketing expenses, as a percentage of revenues, were 73% in 2002 compared to
39% in 2001 primarily attributable to the decrease in revenues volume.

         General and Administrative. General and administrative expenses were
$2.9 million in 2002, a decrease of $0.6 million compared with general and
administrative expenses of $3.5 million in 2001. This decrease is primarily
attributable to one time provision for litigation made in 2001, See "Item 8
-Legal Proceedings" and decrease in professional expenses. Inclusive of stock
based compensation charges, General and administrative expenses were $3.2
million in 2002, a decrease of $0.7 million compared with general and
administrative expenses of $3.9 million in 2001. General and administrative
expenses as a percentage of revenues increased to 43% in 2002 from 25% in 2001
primarily attributable to the decrease in revenues volume. Inclusive of stock
based compensation charges, General and administrative expenses as a percentage
of revenues increased to 49% in 2002 from 27% in 2001.

         Amortization of Deferred Stock Compensation. Amortization of deferred
stock compensation expenses were $799,000 in 2002, an increase of $54,000
compared with amortization of deferred stock compensation expenses of $745,000
in 2001. This change is primarily attributable to periodical amortization.
Amortization of deferred stock compensation expenses as a percentage of revenues
increased to 12% in 2002 from 5% in 2001 primarily attributable to the decrease
in revenues volume.




<PAGE>



         Financial Income, net. Financial income, net was $2.3 million in 2002,
a decrease of $2.3 million compared with financial income, net of $4.6 million
in 2001. This change is primarily attributable to general decline in interest
rates, the decrease in total cash, short term and long term investments balance,
and to changes in our investment mix in order to avoid Investment Company Act
constraints, resulting in an estimated $85,000 to $170,000 reduction in
financial income during 2002.

Impact of Inflation and Currency Fluctuations

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

In 2001 the NIS was depreciated against the dollar in the rate of 9.3% while the
rate of inflation was 1.4%. In 2002 the NIS was depreciated against the dollar
in the rate of 7.3% while the rate of inflation was 6.5%. In 2003 the NIS was
appreciated against the dollar in the rate of 7.5% while the rate of deflation
was 1.9%. We can not 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 materially adversely affected in the future if
inflation in Israel exceeds the devaluation of the NIS against the dollar or if
the timing of such devaluation lags behind increases in inflation in Israel or
if the NIS will be appreciated against the dollar.

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

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

         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.



<PAGE>




Corporate Tax Rate

         Israeli companies are generally subject to tax at the rate of 36% of
taxable income. However, in 1994, our facility was granted "approved enterprise"
status under the Law for the Encouragement of Capital Investments, 1959, and
consequently we are eligible, subject to compliance with certain requirements,
for certain tax benefits beginning when such facility first generates taxable
income, initially by not later than year 2008. 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 in 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 year 2014. 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 carryforwards (which totaled
approximately $50.9 million at December 31, 2003), and based on the current tax
system in Israel, we do not anticipate being subject to income tax in Israel in
2004. Our effective corporate tax rate may substantially exceed the Israeli tax
rate. Our U.S. and South Korean subsidiaries will generally be subject to
applicable home country and foreign taxation, and we may also be subject to
taxation in the other foreign jurisdictions in which we own assets, have
employees or conduct activities. Our U.S. subsidiary had net loss carry-
forwards of approximately $4 million available at December 31, 2003 for federal
tax purposes. These carry-forwards will offset future taxable income. Because of
the complexity of these local tax provisions, it is not possible to anticipate
the actual combined effective corporate tax rate which will apply to us.

Government Grants

         We conduct a substantial part of our research and development
operations in Israel. Our research and development efforts have been financed
through internal resources and grants per project from the Office of the Chief
Scientist. The Office of the Chief Scientist provided grants for research and
development efforts of approximately, $2 million for the year ended December 31,
1999 (32% of total research and development expenses), $3.4 million for the year
December 31, 2000 (27% of total research and development expenses), $3.5 million
for the year ended December 31, 2001 (20% of total research and development
expenses), 3.2 million for the year ended December 31, 2002 (21% of total
research and development expenses), and $3.4 million for the year ended December
31, 2003 (21% of total research and development expenses). Currently, we are
obligated to pay royalties to the Office of the Chief Scientist at the rate of
4% to 4.5%. Due to our manufacturing outside of Israel, our aggregate payment
amount with respect to grants received in 2001 and 2002 is 120% of the
dollar-linked value of such grants. With respect to grants we received in 2003,
our aggregate payment amount 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 its manufacturing in Israel. Since our manufacturing activities are
performed by subcontractors outside of Israel, the consent of the Office of the
Chief Scientist is



<PAGE>



required for these activities. See "Item 10-Additional
Information-Taxation-Grants under the Law for the Encouragement of Industrial
Research and Development, 1984".

The refund of the grants is contingent on future sales and the Company has no
obligation to refund these grants, if sales are not generated.

The Government of Israel, through the marketing fund, awards grants to Israeli
companies for overseas marketing expenses, including expenses for maintaining
branches, advertising, catalogs, exhibitions and surveys. We received grants
from the marketing fund totaling $126,000 in 1998 and $20,000 in 1999. In 2002
we refunded all grants received from the marketing fund of the Government of
Israel, and as of December 31, 2002 we have no liability towards the marketing
fund.

We paid or accrued to the Office of the Chief Scientist and to the marketing
fund $385,000 for the year ended December 31, 1999, $469,000 for the year
December 31, 2000, $414,000 for the year December 31, 2001, $94,000 for the year
December 31, 2002, and $388,000 for the year December 31, 2003.

B.       Liquidity and Capital Resources

         At December 31, 2003, we had cash and cash equivalents of $16.2
million, short-term investments of $13 million and long-term investments of $35
million. At December 31, 2002, we had cash and cash equivalents of $9.2 million,
short-term investments of $20.7 million and long-term investments of $46.2
million. In December 1999, we completed our initial public offering of 4,600,000
ordinary shares, from which we received net proceeds of approximately $49.8
million. In March 2000, we completed our secondary offering of 1,500,000
ordinary shares, from which we received net proceeds of approximately $62.7
million.

         Our total annual proceeds, net of royalties paid or accrued, from
royalty-bearing government grants was $16.3 million as of December 31, 2003,
$13.1 million as of December 31, 2002, and $10 million as of December 31, 2001.

Capital expenditures were $1,991,000 for the year ended December 31, 2003,
$838,000 for the year ended December 31, 2002, and $4,084,000 for the year ended
December 31, 2001. These expenditures were principally for capital equipment and
software for our research, development and manufacturing activities. We expect
to invest additional resources for capital equipment and software.

         Net cash used in operating activities was $10,551,000 for the year
ended December 31, 2003. Net cash used in operating activities during 2003 was
primarily due to net loss, an increase in trade accounts receivable and in
inventories, which were partially offset by decrease in other payables and
accrued expenses, depreciation and amortization, amortization of marketable debt
securities and deposit premium and amortization of deferred stock compensation.
Net cash used in operating activities was $12,094,000 for the year ended
December 31, 2002. Net cash used in operating activities was $7,019,000 in 2001.



<PAGE>



Net cash provided by investing activities was $16.2 million for the year ended
December 31, 2003. $29.3 million cash was provided from maturity and sales of
marketable debt securities and certificate of deposits held in Metalink's
treasury offset by $11.1 million cash used in purchase of marketable debt
securities and deposits, and by $2 million that was used for the purchase of
property and equipment. Net cash provided by investing activities was $4.7
million in 2002. Net cash provided by investing activities was $22.9 million in
2001. Metalink holds treasury securities primarily in instruments denominated in
U.S. dollars, with the goals of capital preservation and generation of income,
at fixed rates in the majority of cases. We do not conduct interest rate or
currency hedging activities.

         Net cash provided by financing activities was $1.5 million for the year
ended December 31, 2003 and $0.6 million for the year ended December 31, 2002,
both of which were primarily attributable to exercise of employees' option. Net
cash used in financing activities was $8.8 million for the year ended December
31, 2001 and was primarily attributable to repurchase (buy-back) of shares that
then became treasury stock. We believe that cash generated from operations, our
unused cash and short term investments balances, and the governmental support
for research and development in Israel will provide sufficient cash resources to
finance our operations and the projected expansion of our sales and marketing
and research and development activities for at least the next twelve months.
However, if our operations do not generate cash to the extent currently
anticipated or if we grow more rapidly than currently anticipated, it is
possible that we will require additional funds at some point in the future.

C. Research and Development, Patents and Licenses, etc.

         During the fiscal years 2001, 2002, and 2003, we spent $17.0 million,
$15.2 million, and $16.3 million, respectively, on gross R&D expenses, or $
$13.6 million, $12.0 million, and $13.0 million, respectively, for R&D net of
grants from the Chief Scientist. During 2003, the increase in R&D expenses was
primarily attributable to increasing R&D for wireless products, with some
offsetting decline in R&D expenses associated with wireline products. See "Item
4 - Information on the Company - Business Overview - Research and Development,"
"Item 4 - Information on the Company - Business Overview - Proprietary Rights"
and " - Operating Results."

D.       Trend Information

         Further increase of Asian markets share in broadband deployment. The
Asian markets in general and Korea, Japan and China in particular represent a
growing portion of the broadband deployment worldwide, particularly for the DSL
market. Thus, as of the end of the first quarter of 2004, out of 73.4 million
DSL lines worldwide, 36.2 million lines were deployed in Asia according to
"Point Topic" analysis issued in June 2004. Our ability to increase our
penetration in this region and specifically our ability to take share of the
broadband market in China will affect our revenue growth. During fiscal year
2003 we incorporated a wholly owned subsidiary in South Korea, established a
local office in Japan, and by the end of the first quarter of 2004, we
strengthened our presence in China by expanding our sales and marketing team
there. However, while the level of expenses as a result of our efforts to
penetrate the Asian market increase, we can not be certain that the level of
revenues derived from that region will increase in proportion



<PAGE>



to the expenses, or even to cover these expenses.

         Continued Increase in Broadband Deployment Speeds. Telecom service
providers continuously strive to improve and lower price of their broadband
services. For example in Korea and Japan broadband speeds has increased from 1-8
Mbps to 50-100 Mbps during the past three years. While this trend potentially
increases the demand for VDSL products, other competing technologies such as
ADSL2+ have improved their performance, and thus are also selected by some
providers. In addition, the continuing price decline creates continuing price
pressure on broadband equipment pricing, resulting in price pressure on
broadband chipset companies such as Metalink.

         Increased focus on values added broadband services. Broadband service
providers are shifting focus from increasing the customer base increase for pure
connectivity, to increasing revenues per customer, and minimizing subscriber
churn (subscribers replacing their service provider) by introducing value added
services such as VoIP, Broadcast and On-demand Video and Home Networking. This
trend in general is creating demand for faster broadband speeds and in some
cases particularly for VDSL.

         Higher functionality integrated into broadband CPEs. Introduction of
advanced services, while maintaining low broadband equipment cost, requires
higher and higher integration level on broadband CPE chipsets and specifically
VDSL CPE chipsets. Many of our competitors have vast experience and a large
product portfolio with respect to integration of additional functions into their
xDSL CPE solutions, compared to Metalink.

         Consolidation in the broadband IC market. In December 2001, two of our
principal competitors, GlobeSpan and Virata, announced the closing of their
merger. In 2004 we experienced additional consolidation in our market, as two of
our principal competitors, GlobespanVirata and Conexant, announced the
completion of their merger. Previously, in August 2003, GlobespanVirata
announced it has completed the acquisition of the Wireless Networking Products
Group of Intersil Corporation. This trend may adversely effect our market share
and as a result might adversely effect our result of operations, as we find
ourselves competing with companies significantly larger than Metalink. The
difference in size will probably benefit the larger companies, in a broader
sales and marketing channels, as well as improving their capabilities to
integrate several technologies such as xDSL, WLAN, networking, security and
video processing into a single solution for the broadband home.

Outlook. We expect our business outlook to continue to improve during 2004
compared to 2003 as a result of the following:

o Acceleration of VDSL deployment by the two largest broadband operators in
Korea;

o Metalink's 150 Mbps VDSLPlus(TM), designed-in by top-tier broadband equipment
providers in Japan, moving from trials to deployment by Japan's leading
broadband operators;

o Metalink's Long Reach VDSL, allowing reaches exceeding 5Km (currently served
by



<PAGE>



lower speed ADSL), moving from trials to deployment across Asia; and

o Continued improvement in the demand for our Symmetric DSL chipsets, serving
business applications worldwide.

         However, the continuing strong price pressure, and uncertainties
regarding VDSL standardization, may have a material adverse effect on our future
results.

         Our sales are made primarily pursuant to standard purchase orders for
delivery of products. Due to industry practice that allows customers to cancel
or change orders with limited advance notice prior to shipment, we do not
believe that backlog is a reliable indicator of future revenue levels.

         Risk Factors. In addition, our results of operations and financial
condition may be affected by various other factors discussed in "Item 3-D: Risk
Factors", including the length of our sales cycle, market acceptance of our
products, changes in political, military or economic conditions in Israel and in
the Middle East, general slowing of local or global economies and decreased
economic activity in the telecommunication industry.

E. Off-balance sheet arrangements

Not applicable.

F. Tabular disclosure of Contractual Obligations.

<TABLE>

         Payments Due By Period  (in U.S. dollars, in thousands)
<S>                                 <C>       <C>     <C>      <C>      <C>      <C>
Contractual Obligations             Total    2004    2005     2006     2007     2008 and thereafter
Operating lease obligations
    (vehicles and facilities)       6,356   1,077     960      923     905      2,491
Purchase obligations (vendors
     of equipment and services)     2,637   1,307   1,307       23

Total contractual cash obligations  8.993   2,384   2,267      946     905      2,491

</TABLE>


ITEM 6   DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES




<PAGE>



A.       Directors and Senior Management

The following table lists our current directors and executive officers:
<TABLE>
<S>                        <C>      <C>

Name                       Age     Position

Tvzi Shukhman              43      Chairman of the Board of Directors and Chief Executive
                                     Officer

J. Francois Crepin 57 President, Member of the Office of the CEO and Director

Ofer Lavie                 59      Chief Financial Officer

Ronen Avron                47      Vice President, Worldwide Sales

Daniel Manor               34      Vice President, Marketing

Aviva Gatt                 50      Vice President, Human Resources

Oz Micka                   37      Vice President, Engineering Wireless Products

Shmulik Shemesh            35      Vice President, Operations

David Pereg                35      Vice President, Engineering

John Camagna               36      Vice President, Engineering

Avi Nudler                 40      Vice President, Business Development

Uzi Rozenberg              44      Director

Efi Shenhar                48      Director

Sarit Weiss-Firon          38      Director

Joe Markee                 51      Director

Meir Bar-El                60      Director
</TABLE>


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



<PAGE>



of Technology.

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

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

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

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

         Aviva Gatt has served as our Vice President Human Resources since March
2000. From 1998 to 2000 Ms. Gatt served as Director of Human Resources for Texas
Instruments Cable Broadband Communications. From 1994 to 1998 Ms. Gatt served as
Director of Human Resources at Nice Systems. From 1991 to 1998 Ms. Gatt served
as recruitment manager at



<PAGE>



Tadiran  Telecommunications.  Ms.  Gatt holds a  Bachelors  in Social  Work from
Jerusalem's Hebrew University and an MBA from New York's Polytechnic University.

         Oz Micka has served as our Vice President of Engineering, Wireless
Products since January 2004. Mr. Micka joined Metalink in 1997 and he had held
several engineering positions, including Director of the VDSL Project, before
assuming his present position. From 1995 to 1996, Mr. Micka was a member of the
Faculty of Electrical Engineering at the Tel Aviv University. Prior to that,
from 1989 to 1994, he served as an officer in Israel Defense Forces, supervising
various projects in communications and digital signal processing. He holds an
M.S.E.E and a B.S.E.E, both cum laude from Tel Aviv University.

         Shmulik Shemesh has served as Vice President of Operations at Metalink
since June 2002. Mr. Shemesh held various positions at Metalink since 1998,
including Director of Quality & Reliability and Director of Products & Test
Engineering. Between 1990 and 1997 Mr. Shemesh served as a project officer in
the Israel Defense Forces. Mr. Shemesh holds a M.Sc. in Quality Assurance &
Reliability and a B.S.E.E. from the Technion.

         David Pereg has served as our Vice President of Engineering since June
2002. Mr. Pereg has been at Metalink since 1999, holding several R&D positions
including a position of Associate Vice President for DSL Modem from 2001 to
2002. Between 1990 and 1998 Mr. Pereg served as a project officer in the Israel
Defense Forces. Mr. Pereg holds a B.S.E.E. and an M.S.E.E. from Tel Aviv
University.

         John Camagna has served as our Vice President of Engineering since June
2002. Mr. Camagna joined us in 1999 as Director of Engineering, North America
and since then held several managerial R&D positions in the company. Before
coming to Metalink Mr. Camagna was a Design Manager at Level One Communications.
Prior to that he held positions at Crystal Semiconductor/Cirrus Logic and at
Applied Signal Technology. Mr. Camagna has a B.S. and an M.S. from the
University of California at Berkeley.

         Avi Nudler has served as our Vice President Business Development since
September 2002. Between 2001 and 2002 Mr. Nudler has served as Entrepreneur in
Resident at Benchmark VC. During 1999 to 2001 Mr. Nudler was the CEO of
TelesciCom. From 1985 to 1999 Mr. Nudler held several executive positions at an
elite R&D Unit in the Israeli Intelligence Corps. Mr. Nudler holds a B.Sc. and
M.Sc. from the Tel Aviv University.

Uzi Rozenberg,  a co-founder of our company,  has served as a director from 1992
until 1997 and since  August 1999.  Mr.  Rozenberg is also the founder and Chief
Executive  Officer of USR  Electronics  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.

Efi  Shenhar has served as a director  since July 1995.  Mr.  Shenhar  currently
serves as a member of the board of directors of USR  Electronic  Systems  (1987)
Ltd.  From March 1987 until  February  2003,  Mr.  Shenhar  has served as a Vice
President of USR Electronics Systems



<PAGE>



(1987) Ltd., an electronic manufacturing services company. Mr. Shenhar has a
B.A. in accounting and economics from Tel Aviv University and an M.B.A. from
Herriot Watt University. Mr. Shenhar is a certified public accountant. Mr.
Shenhar and Mr. Rozenberg are brothers.

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

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

         Meir Bar-El has served as a director since November 2002. 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 External
Director for Mifalley Etz Carmiel Ltd since June 1998, External Director for
Ophir Tours Ltd since August 1998, and as a Director for the Wood Products &
Furniture Export Economic Company. Mr. Bar-El has a B.A. in Economics from
Jerusalem University.

B.       Compensation

         The aggregate remuneration we paid for the year ended December 31, 2003
to all executive officers as a group (17 persons), was approximately $1,834,000
in salaries, fees, commissions and bonuses. This amount includes approximately
$327,000 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.
Other than officers of the Company who serve as directors, no directors have
arrangements to receive benefits upon termination of employment. Regarding
officers of the Company who are board members, see the discussion under the
caption "Management Employment Agreements" below.



<PAGE>



         During 2003 we granted one of our directors and executive officers
options to purchase 4,000 ordinary shares under our option plans. The weighted
average exercise price of these options was $6.99 per share and they expire
within 10 years from the date they were issued.

C.       Board Practices

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

External Directors

         We are subject to the provisions of the Israeli Companies Law,
5759-1999, and the regulations promulgated thereunder, or the Companies Law.
Under the Companies Law, companies incorporated under the laws of Israel whose
shares have been offered to the public in or outside of Israel are required to
appoint two external directors. The Companies Law provides that a person may not
be appointed as an external director if the person or the person's relative,
partner, employer or any entity under the person's control, has, as of the date
of the person's appointment to serve as external director, or had, during the
two years preceding that date, any affiliation with the company, any entity
controlling the company or any entity controlled by the company or by this
controlling entity. The term affiliation includes:

o        an employment relationship;

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

o        control; and

o        service as an office holder.

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

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

o at least one  third of the  shares of  non-controlling  shareholders,  vote in
favor of the election; or

o the total number of shares voted against the election of the external director
does not



<PAGE>



exceed one percent of the aggregate number of voting shares of the company.

The initial term of an external  director is three years and may be extended for
an additional  three years.  Each committee of a company's board of directors is
required  to include at least one  external  director.  Mr.  Meir Bar-El and Ms.
Sarit  Weiss-Firon  are  our  external  directors.  Ms.  Sarit  Weiss-Firon  was
re-elected as an external  director for a second term of three years at the 2003
annual shareholders  meeting,  held on November 25, 2003. Mr. Bar-El was elected
as an external director for a three years term, at the 2002 annual  shareholders
meeting, held on November 26, 2002.

Audit Committee

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

o        chairman of the board of directors;

o        general manager;

o        chief executive officer; and

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

         The role of the audit committee is to examine flaws in the business
management of the company, in consultation with the internal auditor and the
company's independent accountants and suggest appropriate course of action. In
addition, the approval of the audit committee is required to effect specified
actions and transactions with office holders and interested parties. An
interested party is defined in the Companies Law as a 5% or greater shareholder,
any person or entity who has the right to designate one director or more or the
general manager of the company or any person who serves as a director or as a
general manager.

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

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



<PAGE>



relating to our audit committee.

The audit committee consists of Mr. Joe Markee, Mrs.  Weiss-Firon,  and Mr. Meir
Bar-El. Mrs. Weiss-Firon is the "financial expert" on the audit committee.

Approval of Specified Related Party Transactions Under Israeli Law

Fiduciary Duties of Office Holders

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

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

o        all other important information pertaining to the previous actions.

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

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

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

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

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


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

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



<PAGE>



holder's relative. The office holder must also disclose any personal interest
held by the office holder's spouse, siblings, parents, grandparents,
descendants, spouse's descendants and the spouses of any of the foregoing.

         Under Israeli law, an extraordinary transaction is a transaction:

o        other than in the ordinary course of business;

o        other than on market terms; or

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

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

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

Disclosure of Personal Interests of a Controlling Shareholder

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

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

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

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



<PAGE>




Exculpation, Insurance and Indemnification of Directors and Officers

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

Office Holder Insurance

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

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

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

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

Indemnification of Office Holders

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

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

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

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

Limitations on Insurance and Indemnification

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

o a breach by the office holder of his duty of loyalty  unless the office holder
acted in good



<PAGE>



faith and had a reasonable basis to believe that the act would not prejudice the
company;

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

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

o        any fine levied against the office holder.

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

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

Committees

         Our board of directors has formed an executive committee, an audit
committee and a share incentive committee. The executive committee exercises the
power of the board of directors with respect to matters that require the action
of the board of directors, between meetings of the board of directors subject to
section 112 of the Companies Law. The audit committee, which consists of Mr. Joe
Markee, Mrs. Weiss-Firon, and Mr. Meir Bar-El, exercises the powers of the board
of directors with respect to our accounting, reporting and financial control
practices. Our share incentive committee administers our share option plans but
pursuant to Section 122 of the Companies Law, may only advise our Board of
Directors with regard to the granting of options and the actual grants must be
performed by the Board of Directors. The members of the share incentive
committee are Mr. Tzvika Shukhman and Mr. Uzi Rozenberg. No other remuneration
committee exists.

Management Employment Agreements

         We have entered into employment agreements with each of our executive
officers, other than our chief executive officer. These agreements contain
various provisions, including provisions relating to assignment of intellectual
property rights to us and confidentiality and are in effect until terminated by
either party upon advance notice or otherwise in accordance with the terms of
the particular agreement. All of these agreements also contain non-competition
provisions. Under the Companies Law, in a company whose shares are traded on a
stock exchange the company's chairman of the board may not be the person serving
as chief executive officer. However, the shareholders of the company may approve
the service of the chief executive officer also as a chairman of the board for a
period of up to three years, provided, that at least two-thirds of the votes of
non-controlling shareholders present and voting at the meeting vote
affirmatively. Accordingly, on November 2003, our shareholders approved the
service of Tzvi Shukhman as our chief executive officer and chairman of the
board for an additional term of



<PAGE>



three years.

D.       Employees

         As of May 31, 2004, we had 161 employees worldwide, of which 101 were
employed in research and development, 27 in sales and marketing, 14 in
management and administration, and 19 in operations and quality assurance. As of
May 31, 2004, 136 of our employees were based in Israel, 22 were based in the
United States and 3 were based in the Asia Pacific. We had 158 employees
worldwide as of December 31, 2003. We had 152 employees worldwide as of December
31, 2002, and 141 employees worldwide as of December 31, 2001. We have standard
employment agreements with all of our employees, other than our chief executive
officer. All of our employees, other than our chief executive officer, have
executed employment agreements, including confidentiality and non-compete
provisions with us.

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

E.       Share Ownership

         The following table sets forth certain information regarding the
ownership of our ordinary shares by our directors and officers as of May 31,
2004. The percentage of outstanding ordinary shares is based on 19,082,564
ordinary shares outstanding as of May 31, 2004.





<PAGE>



Name              Number of Ordinary   Percentage of
                 Shares Beneficially    Outstanding
                      Owned(1) OrdinaryShares(2) Number of Options

Tzvi Shukhman           5,855,921         30.7                        -
Uzi Rozenberg           4,986,095         26.1                        -
J. Francois Crepin(3)        *              *                      382,500
Ofer Lavie (4)               -              *                      194,500
Ronen Avron                  -              -                         *
Danny Manor                  *              *                         *
Aviva Gatt                   -              -                         *
Oz Micka                     -              -                         *
Shmuel Shemesh               *              *                         *
David Pereg                  *              *                         *
John Camagna                 -              -                         *
Avi Nudler                   -              -                         *
Efi Shenhar                  *              *                         *
Sarit Weiss-Firon            -              -                         -
Joe Markee                   -              -                         *
Meir Bar-El                  -              -                         -
------------------------
*        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 May 31, 2004.

(2) Ordinary shares deemed beneficially owned by virtue of the right of any
person or group to acquire such shares within 60 days of May 31, 2004, are
treated as outstanding only for the purposes of determining the percent owned by
such person or group.

(3) Includes (i) options to purchase 370,000 ordinary shares which are
exercisable as of May 31, 2004, at an exercise price of $5.00 per share,
expiring as of May 30, 2009 (ii) options to purchase 9,500 ordinary shares,
which are exercisable as of May 31, 2004, at an exercise price of $21.625 per
share, expiring as of January 17, 2010 and (iii) options to purchase 3,000
ordinary shares, which are exercisable as of May 31, 2004, at an exercise price
of $2.29 per share, expiring as of October 29, 2011.

(4) Includes (i) options to purchase 180,000 ordinary shares which are
exercisable as of May 31, 2004, at an exercise price of $7.65 per share,
expiring as of October 25, 2009 (ii) options to purchase 4,500 ordinary shares,
which are exercisable as of May 31, 2004, at an exercise price of $21.625 per
share, expiring as of January 17, 2010, and (iii) options to purchase 10,000
ordinary shares, which are exercisable as of May 31, 2004, at an exercise price
of $3.07 per share, expiring as of December 31, 2011.

         Messrs. Shukhman and Rozenberg have filed a registration statement with
the Securities and Exchange Commission relating to the sale of 10,565,651
shares, but to the date hereof no sales have been conducted under that
registration statement.





<PAGE>



Share Option Plans

         We have seven employee share option plans and one additional option
plan, Share Option Plan (2000), for our advisors and independent contractors.
The expiration dates of the options range from 10 to 25 years from the date of
grant. Our share option plans are administered by the share incentive committee
of our board of directors or, if the board of directors deems fit, by our board
of directors. Under section 112 of the Israeli Companies Law, the share
incentive committee may only advise our board of directors with regard to the
grant of options, and the actual grant is performed by our board of directors.
All of our employees and directors are eligible to participate in our employee
option plans. Members of our advisory board and our independent contractors are
eligible to receive options under our Share Option Plan (2000).

         As of May 31, 2004 options to purchase 3,101,714 ordinary shares under
our share option plans were outstanding. As of May 31, 2004, an additional
1,229,493 ordinary shares were reserved for issuance pursuant to options
issuable under our share option plans. We may increase the number of ordinary
shares reserved for issuance pursuant to options issuable under our plans.

Stock Purchase Plan

         On October 2000 we initiated our 2000 Employee Stock Purchase Plan
("ESPP"). The plan is implemented by 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. The plan
enables eligible employees who elect to participate in the plan to purchase
ordinary shares through payroll deductions at a price of 85% of the fair market
value of the ordinary shares on the first or the last day of each offering
period, which ever is lower. Participants will be limited to a maximum of
$25,000 deducted from their compensation under the plan during each calendar
year. The maximum number of ordinary shares which shall be available for sale
under the plan shall be 160,000 shares, plus an annual increase to be added by
the first day of the year commencing 2001 equal to the lesser of (i) 140,000
shares or (ii) 3/4% of the outstanding shares on such date or (iii) a lesser
amount determined by our board. The plan shall be administered by our board or a
committee appointed by the board. The plan shall terminate on October 31, 2010.
As of May 31, 2004, 271,713 ordinary shares were issued under the ESPP, and an
additional 165,510 ordinary shares are reserved for issuance. As of November 14,
2002 the Board of Directors of the Company resolved to suspend the ESPP until
further notice. Thus, during 2003 no shares were issued under the ESPP. The ESPP
was reinitiated in 2004, and the first offering period in 2004 commenced on
March 1, 2004.






ITEM 7.           MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS




<PAGE>



A.       Major Shareholders

         The following table sets forth certain information regarding the
beneficial ownership of our ordinary shares as of May 31, 2004 by each person or
entity known to own beneficially more than 5% of our outstanding ordinary shares
based on information provided to us by the holders or disclosed in public
filings with the Securities and Exchange Commission.

Name                   Number of Ordinary            Percentage of Outstanding
                   Shares Beneficially Owned(1)         Ordinary Shares(2)
Tzvi Shukhman(3)           5,855,921                          30.7%
Uzi Rozenberg(3)(4)        4,986,095                          26.1%



--------------
(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. (2) The
percentage of outstanding ordinary shares is based on 19,082,564 ordinary shares
outstanding as of May 31, 2004. (3) Our major shareholders do not have voting
rights different from the voting rights of our other shareholders. (4) The
record holder of 1,000,000 shares out of the 4,986,095 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

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

         During the past three years, Mr. Shukhman has increased his ownership
of Metalink by 1,460,497 shares (7.7% of the currently outstanding shares) and
Mr. Rozenberg has increased his ownership of Metalink by 1,000,000 shares (5.2%
of the currently outstanding shares). As of May 31, 2004 there were 1,860,703
MTLK shares that had been registered for trading in the Tel-Aviv Stock Exchange.
We have no information regarding the beneficial owners of such shares.





B. Related Party Transactions



<PAGE>



Employment Agreements

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

Indemnification Agreements

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

C.       Interests of Exports and Counsel

Not applicable.

ITEM 8.           FINANCIAL INFORMATION

A.       Consolidated Statements and Other Financial Information

Consolidated Financial Statements

         The financial statements required by this item are incorporated by
reference to the Company's filing with the Securities and Exchange Commission on
Form 6-K on April 1, 2004.

Other Financial Information

         In the year ended December 31, 2003 the amount of our export sales was
approximately $13.1 million, which represents 87.7% of our total sales.

Legal Proceedings

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



<PAGE>



payment of statutory severance pay and reimbursement of travel expenses. In
August 2002, the arbitrators issued their judgment in the first stage of the
arbitration, in which they accepted certain of the claims made by each of the
parties and awarded $390,761 to the former employee (we paid this amount to the
former employee in September 2002).

         In December 2003 the former employee filed a second claim before the
arbitrators in the sum of $ 3.9 million for financial damages in connection with
the alleged delay in issuing the shares to the former employee. The Company
filed a claim against the former employee stating that the former employee is
not entitled to said amount and that he should compensate the Company in the sum
of $ 950,000 for damages he caused the Company, and in addition that the former
employee should refund the NIS 1,905,808 already paid to him according to the
judgment from the first stage of the arbitration, and the NIS 153,268 paid as
statutory severance pay and reimbursement of travel expenses. Pursuant to
agreement between the parties, these claims were to have been submitted to
mediation before the arbitrators, prior to commencement of the second stage of
the arbitration.

         During mediation proceedings, the former employee refused to continue
to adjudicate the dispute before the arbitrators and the 45-day mediation
proceedings have ended without success. The parties failed to reach agreement as
to the identity of the arbitrators who will adjudicate the claims in the second
phase of the arbitration and the former employee filed a motion petitioning the
court to appoint an arbitrator. The Company filed a claim seeking to cancel the
mediation agreement and the arbitration agreement, together with a motion to
postpone the deadline for the Company to file its response to the motion to
appoint an arbitrator until the court rules in the Company's claim. The former
employee filed an objection to the Company's motion to postpone the deadline to
file its response to the motion to appoint an arbitrator and filed a statement
of defense in the Company's claim in which he contested the grounds for
canceling the mediation agreement and the arbitration agreement. The court has
not yet rendered a decision in any of these proceedings. The parties have agreed
that statements of defense in the second phase of the arbitration will only be
filed after the arbitrator or arbitrators are appointed.

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

We are not a party to any material legal proceedings.




Dividend Policy

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



<PAGE>



B.       Significant Changes

Not applicable.

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 National Market for the periods
indicated:

FIVE MOST RECENT YEARS
                                                        High           Low
1999
Fourth Quarter (commencing December 2)                $  23.81      $  19.19
2000                                                  $  72.00      $   9.25
2001                                                  $  17.38      $   2.04
2002                                                  $   6.50      $   1.71
2003                                                  $   8.32      $   2.74

EIGHT MOST RECENT QUARTERS AND SUBSEQUENT PERIOD


2002
Second Quarter                                        $    4.48     $     2.23
Third Quarter                                         $    2.46     $     1.84
Fourth Quarter                                        $    2.84     $     1.71

2003
First Quarter                                         $    3.80     $     2.74
Second Quarter                                        $    4.48     $     2.23
Third Quarter                                         $    2.46     $     1.84
Fourth Quarter                                        $    2.84     $     1.71

2004
First Quarter                                         $    9.05     $     6.98
Second Quarter (until June 28)                        $    8.19     $     5.97

MOST RECENT SIX MONTHS

December 2003                                         $    8.18     $     6.80
January 2004                                          $    9.05     $     6.99
February 2004                                         $    8.19     $     7.00
March 2004                                            $    7.97     $     6.98
April 2004                                            $    8.19     $     6.97
May 2004                                              $    7.02     $     5.97
June 2004 (until June 28)                             $    7.10     $     5.99



<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 daily representative rate of exchange on the date of the relevant closing
price, as published by the Bank of Israel:
<TABLE>
<S>                                            <C>            <C>           <C>         <C>

                                                   High                       Low
                                              $          NIS            $             NIS

2000 (commencing December 3)                  14.17       58.00        9.51            38.54
2001                                          17.54       72.70        2.10             9.16
2002                                           6.33       28.59        1.67             8.00
2003                                           8.48       38.39        2.55            12.11

EIGHT MOST RECENT QUARTERS AND SUBSEQUENT PERIOD
Second Quarter 2002                            4.23       20.22        2.17            10.51
Third Quarter 2002                             2.52       11.95        2.01             9.58
Fourth Quarter 2002                            2.75       13.05        1.67             8.00
First Quarter 2003                             3.79       18.40        2.55            12.11
Second Quarter 2003                            6.33       27.72        3.46            16.14
Third Quarter 2003                             6.69       29.38        4.48            20.02
Fourth Quarter 2003                            8.48       38.39        5.03            22.30
First Quarter 2004                             9.37       41.03        6.86            30.68
Second Quarter 2004                            8.43       37.98        6.04            27.28

                   MOST RECENT SIX MONTHS
December 2003                                  8.48       37.63        6.92            30.12
January 2004                                   9.37       41.03        7.27            31.98
February 2004                                  8.04       35.92        6.86            30.68
March 2004                                     8.25       37.32        6.99            31.38
April 2004                                     8.43       37.98        7.33            33.62
May 2004                                       7.12       32.66        6.16            28.03
June 2004 (until June 28)                      7.19       32.35        6.04            27.28

</TABLE>

B.       Plan of Distribution

Not applicable.

C.       Markets

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

D. Selling shareholders.

Not applicable.

E. Dilution.

Not applicable.

F. Expenses of the Issue.

Not applicable.

ITEM 10.          ADDITIONAL INFORMATION

A.       Share Capital

Not applicable.


B.       Memorandum and Articles of Association

         Previously reported in the Company Report on Form 20-F for fiscal year
2001.

C.       Material Contracts



<PAGE>



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

D.       Exchange Controls

         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

Israeli Tax Considerations and Government Programs

         The following is a summary of the current tax structure applicable to
companies in Israel, with special reference to its effect on us 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.

         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.

Tax Reform

         On January 1, 2003, the Law for Amendment of the Income Tax Ordinance
(Amendment No. 132), 5762-2002, as amended, known as the Tax Reform, came into
effect.

         The Tax Reform, aimed at broadening the categories of taxable income
and reducing the tax rates imposed on employment income, introduced the
following changes, among others:

o Reduction of the tax rate levied on real capital gains (other than gains
deriving from the sale of listed securities) derived after January 1, 2003, to a
general rate of 25% for both individuals and corporations. Regarding assets
acquired prior to January 1, 2003, the reduced tax rate will apply to a
proportionate part of the gain, in accordance with the holding periods of the



<PAGE>



asset, before or after January 1, 2003, on a linear basis;

o Imposition of Israeli tax on all income of Israeli residents, individuals and
corporations, regardless of the territorial source of income, including income
derived from passive sources such as interest, dividends and royalties;

o Introduction of controlled foreign corporation (CFC) rules into the Israeli
tax structure. Generally, under such rules, an Israeli resident who holds,
directly or indirectly, 10% or more of the rights in a foreign corporation whose
shares are not publicly traded (or which has offered less than 30% of its shares
or any rights to its shares to the public), in which more than 50% of the rights
are held directly or indirectly by Israeli residents, and a majority of whose
income in a tax year is considered passive income, will be liable for tax on the
portion of such income attributed to his or her holdings in such corporation, as
if such income were distributed to him or her as a dividend;

o Imposition of capital gains tax on capital gains, realized by Israeli
individuals as of January 1, 2003, from the sale of shares of publicly traded
companies on the Tel Aviv Stock Exchange and from the sale of shares of publicly
traded Israeli companies on certain other stock markets (such gain was
previously exempt from capital gains tax in Israel in certain cases). For
information with respect to the applicability of Israeli capital gains taxes on
the sale of ordinary shares, see "Capital Gains Tax" below;

o Effectuation of a new regime for the taxation of shares and options issued to
employees and officers (including directors); and

o Introduction of tax at a rate of 25% on dividends paid by one Israeli company
to another (which are generally not subject to tax), if the source of such
dividends is income that was derived outside of Israel.

General Corporate Tax Structure

         Israeli companies are generally subject to Corporate Tax at the rate of
36% on taxable income, and are 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, the effective tax rate payable by a
company which derives income from an Approved Enterprise (as further discussed
below) may be considerably less. On June 2, 2004, the Israeli government
introduced a bill to the Israeli parliament proposing, among others, changes to
the Corporate Tax rate. The bill proposes to reduce the Corporate Tax rate from
36% to 35% for the 2004 tax year, 34% for the 2005 tax year, 32% for the 2006
tax year and 30% for the 2007 tax year and thereafter. In order to enact the
bill as law, the bill must be approved by the Israeli parliament and published.
The bill might be modified prior to enactment or might not be enacted at all.
Accordingly, we cannot predict the consequences of the bill to us.

Tax Benefits and Grants for Research and Development




<PAGE>



         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,
upon application to the Investment Center of the Ministry of Industry and Trade
of the State of Israel, known as the Investment Center, be designated as an
Approved Enterprise. The Investments Law will expire on June 30, 2004, unless
its terms will be extended. Accordingly, requests for new programs or expansions
that are not approved on or before June 30, 2004 will not confer any tax
benefits, unless the term of the law will be extended. Each certificate of
approval for an Approved Enterprise relates to a specific investment program
delineated both by its financial scope, including its capital sources, and by
its physical characteristics, for example, the equipment to be purchased and
utilized pursuant to the program.

         Taxable income of a company derived from an Approved Enterprise is
subject to company tax at the maximum rate of 25% (rather than 36%) for the
benefit period, such income includes income derived in the years 2003 to 2005
from interest accrued on funds obtained in a public offering outside of Israel,
provided however that such funds are held in a banking institution outside of
Israel and have yet to be utilized by such company. This period is seven or ten
years (depending on the extent of foreign shareholders holding of our ordinary
shares) commencing with the year in which the Approved Enterprise first
generates taxable income, and is limited to the earlier of twelve years from
commencement of production or fourteen years from the date of approval,
whichever is earlier. The 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.

         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



<PAGE>



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, a
company's undistributed income derived from an Approved Enterprise will be
exempt from company tax for a period of between two and ten years from the first
year of taxable income, depending on the geographic location of the Approved
Enterprise within Israel, and such company will be eligible for a reduced tax
rate for the remainder of the benefits period. 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. On 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 shareholders holding our ordinary
shares). 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 Investment Center bases its decision as to whether or not to
approve an application, on the criteria set forth in the Investments Law and
regulations, the then prevailing policy of the Investment Center, and the
specific objectives and financial criteria of the applicant. Accordingly, there
can be no assurance that any such application will be approved. In addition, the
benefits available to an Approved Enterprise are conditional upon the
fulfillment of conditions stipulated in the 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



<PAGE>



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.

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

         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 for the financing of a significant portion of our research and
development expenditures in Israel and we intend to apply for additional grants
in the future. The terms and conditions of these grants (including the rates of
royalty payments) are determined by the terms of each grant approval and the
applicable provisions of the law for the encouragement of Research and
Development in Industry, 1984, and the regulations promulgated thereunder,
commonly referred to as the R&D Law. Based upon the aggregate grants received to
date (which total approximately $18.1 million, of which $3,394,000 was granted
in 2003 and $3,213,000 was granted in 2002), we expect that we will continue to
pay royalties to the Office of the Chief Scientist on sales of our funded
products and related services for the foreseeable future. From time to time, the
applicable provisions of Israeli law and regulations relating to the terms and
conditions of the Office of the Chief Scientist's participation in research and
development projects have been amended, and may be further amended in the
future. Currently, we are not aware of any such proposed further amendment that,
if enacted as legislation, would impose upon us increased royalty rates in
comparison to those we are currently required to pay. However, we can not assure
you that in the future an amendment to the R&D Law will not impose an increased
royalty rates on us in comparison to those we are currently required to pay.

         Under the R&D Law, research and development programs that meet
specified criteria and are approved by the research committee of the Office of
the Chief Scientist are eligible for grants of up to 50% of certain approved
expenditures of such programs, as determined by the committee. In 2004, the
Office of the Chief Scientist approved grants for us for 40% of certain approved
expenditures.

         Since the grant program has the impact of lowering the Company's
research and development expenditures, and improving the Company's 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. The Company's research and development
expense was offset by grants of $3,394,000 (20.8% of total research and
development expense) during 2003, and by grants of $3,213,000 (21.1% of total
research and development expense) during 2002.

         In exchange, the recipient of such grants is required to pay the Office
of Chief Scientist royalties from the revenues derived from products
incorporating know-how developed within the framework of each such program or
derived from such program (including ancillary services in connection with such
program), usually up to an aggregate of 100% of the dollar-linked value of the
total grants received. We are obligated to pay royalties at the rate of 4% to
4.5%.

The R&D Law generally requires that the product developed under a program be



<PAGE>



manufactured in Israel. However, with the approval of the Office of the Chief
Scientist, some 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 to 120%, 150% or
300% of the grant, depending on the portion of the total manufacturing volume
that is performed outside of Israel. Due to our manufacturing outside of Israel,
our aggregate payment amount with respect to grants received in 2001 and 2002 is
120% of the dollar-linked value of such grants. With respect to grants received
in 2003, our aggregate payment amount is 100% of the dollar-linked value of such
grants. Effective April 1, 2003, 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. This declaration will be a significant factor in the determination of
the Office of the Chief Scientist as to whether to approve a program and the
amount and other terms of benefits to be granted. For example, the increased
royalty rate and repayment amount will be required in such cases.. The R&D Law
also provides that know-how developed under an approved research and development
program may not be transferred to another person or entity in Israel without the
approval of the research committee. Such approval is not required for the 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 another person or entity outside Israel.

         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 interested parties to notify the
Office of the Chief Scientist of any change in 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 prior approval of the Office of the Chief
Scientist or 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 were reduced in 1998, and the Israeli
authorities have indicated in the past that the government may further reduce or
abolish Office of the Chief Scientist grants in the future. Even if these grants
are maintained, we cannot presently predict what would be the amounts of future



<PAGE>



grants, if any, that we might receive.

         The Company's manufacturing operations outside Israel have always been
disclosed in the Company's applications for grants, which were filed, received
and approved on a yearly basis, including the details of the subcontractors
abroad. The application did not contain a mechanism to demonstrate formally the
consent of the Office of Chief Scientist to overseas manufacturing operations,
but we believe that the implicit annual consent of the Office of the Chief
Scientist to these operations is represented by the awarding of the approved
grant itself for the past 9 years.

         We have sought, and received, grants for the past 9 years. The impact
of such grants has been to reduce the effective research and development expense
for the Company, even after taking into account that the royalty rate on the
grants is higher than for companies with Israel-only manufacturing operations.
If, for any reason, the Office of the Chief Scientist withdrew its support for
the Company's grant applications, or if is determined that we have not complied
with the terms of our grants or the R&D Law, or it is determined that an
approval for a grant was knowingly obtained due to false or misleading
statements, we could be exposed to penalties, suspension or cancellation of the
grant approvals, the refund of benefits previously granted (plus linkage to the
consumer price index and interest) and denial of any future applications for
grants or these consents, and the savings that have been previously realized in
our research and development programs as a result of these grants would no
longer be available to us, potentially increasing the Company's operating
expenses.

         In addition to the Office of the Chief Scientist benefit programs, in
January 2004 we have launched a research project, under the sixth framework
program of the European Commission, under which we are entitled to grants based
on certain approved expenditures of a research and development plan.

Tax Benefits and Grants for Research and Development

         Israeli tax law allows, under specified conditions, a tax deduction for
expenditures, including capital expenditures, for the year in which they are
incurred. These expenses must relate to scientific research and development
projects and must be approved by the relevant Israeli government ministry,
determined by the field of research, and the research and development must be
for the promotion of the company and 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 are deductible over a three-year period.

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



<PAGE>



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.

Special Provisions Relating to Taxation Under Inflationary Conditions

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

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

o If the depreciated cost of Fixed Assets exceeds a company's equity, then such
excess multiplied by the applicable annual rate of inflation is added to taxable
income.

o Subject to certain limitations, depreciation deductions on Fixed Assets and
losses carried forward are adjusted for inflation based on the increase in the
consumer price index, or, the CPI.

o Taxable gains on certain traded securities which are taxed at a reduced rate
with respect



<PAGE>



to individuals following the Tax Reform, are taxable at the Corporate Tax rate
(currently 36%) in certain circumstances.

         However, the Minister of Finance may, with the approval of the Knesset
Finance Committee, determine by order, during a certain fiscal year (or until
February 28th of the following year) in which the rate of increase of the CPI
would not exceed or shall not have exceeded, as applicable, 3%, that all or some
of the provisions of this law shall not apply to such fiscal year, or, that the
rate of increase of the CPI relating to such fiscal year shall be deemed to be
0%, and to make the adjustments required to be made as a result of such
determination.

         The Israeli Tax Law and certain regulations promulgated thereunder
allow "Foreign-Invested Companies," which maintain their accounts in U.S.
dollars in compliance with the regulations published by the Israeli Minister of
Finance, to base their tax returns on their operating results as reflected in
the dollar financials statements or to adjust their tax returns based on
exchange rate changes rather than changes in the Israeli CPI, in lieu of the
principles set forth by the Inflationary Adjustments Law. For these purposes, a
Foreign-Invested Company is a company, more than 25% of whose share capital, in
terms of rights to profits, voting and appointment of directors, and of whose
combined share and loan capital is held by persons who are not residents of
Israel. A company that elects to measure its results for tax purposes based on
the dollar exchange rate cannot change that election for a period of three years
following the election. We believe that we qualify as a Foreign Investment
Company within the meaning of the Inflationary Adjustments Law. We have not yet
elected to measure our results for tax purposes based on the U.S. dollar
exchange rate, but may do so in the future. Capital Gains Tax

         Israeli law generally 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 both residents and
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.

         Pursuant to the Tax Reform, generally, capital gains tax is imposed at
a rate of 15% on real gains derived on or after January 1, 2003, from the sale
of shares in (i) companies publicly traded on the Tel Aviv Stock Exchange
("TASE"), or (ii) Israeli companies publicly traded on NASDAQ or another
recognized stock market in a country that has a treaty for the prevention of
double taxation with Israel, or (iii) companies dually traded on both the TASE
and NASDAQ or a recognized stock market outside of Israel. This tax rate is
contingent upon the shareholder not claiming a deduction for financing expenses
in connection with such shares (in which case the gain will be taxed at a rate
of 25%), and does not apply to: (i) the sale of shares to a relative (as defined
in the Tax Reform); (ii) the sale of shares by dealers in securities (who will
be taxed at a rate of 36% for corporations and at a marginal tax rate of up to
50% for individuals); (iii) the sale of shares by shareholders that report in
accordance with the Inflationary Adjustments Law (who



<PAGE>



will be taxed at a rate of 36% for corporations and at a marginal tax rate of up
to 50% for individuals); or (iv) the sale of shares by shareholders who acquired
their shares prior to an initial public offering (that may be subject to a
different tax arrangement). The tax basis of shares acquired prior to January 1,
2003 will 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.

         In December 2003 regulations promulgated pursuant to the tax reform
were amended so that, in certain circumstances, capital gains derived from the
sale and subsequent (same day) repurchase of shares traded on the TASE or from
shares of Israeli companies publicly traded on a recognized stock market in a
country that has a treaty for the prevention of double taxation with Israel, may
be taxed at a rate equal to the withholding tax rate applicable to revenues
derived from such sale. In accordance with an announcement published by the
Israeli Income Tax Commission, the withholding tax rate applicable to the sale
of such shares until the end of the 2003 tax year, which was equal at such time
to 1% of the revenues generated in their sale, was determined as the final tax
rate applicable to such sale in 2003. The amended regulations also determined
that the day of such sale and repurchase shall be considered the new date of
purchase of such shares. The foregoing was not applicable to: (i) dealers in
securities; (ii) shareholders that report in accordance with the Inflationary
Adjustment Law; (iii) shareholders who acquired their shares prior to an initial
public offering; (iv) in some cases, shareholders that received their shares
within the framework of an employer-employee relationship; or (v) shareholders
claiming a deduction for financing expenses in connection with such shares. The
regulations further provided that with respect to shares of Israeli companies
traded on a stock market outside of Israel, the market price determined at the
close of the trading day preceding the day of sale and repurchase of such
shares, shall constitute the new tax basis for any future sale of such shares.
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. In
addition, non-Israeli corporations will not be entitled to such exemption if an
Israeli resident (i) has a controlling interest of 25% or more in such
non-Israeli corporation, or (ii) is the beneficiary of or is 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.

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 U.S.- Israel



<PAGE>



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

         Nonresidents of Israel will be subject to Israeli income tax on the
receipt of dividends paid on our ordinary shares at the rate of 25%, which tax
will be withheld at source, unless the dividends are paid from income derived
from an approved 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, when dividends are paid from income derived during any period for which
the Israeli company is not entitled to the reduced tax rate applicable to an
Approved Enterprise under the Investments Law, the maximum tax will be 12.5% if
the holder is a U.S. company holding shares representing 10% or more 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. When dividends are paid from income derived during any
period for which the Israeli company is entitled to the reduced tax rate
applicable to an Approved Enterprise, then the tax will be 15% if the conditions
in the preceding sentence are met.

United States Federal Income Tax Considerations

General

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

o        a citizen or resident of the United States;




<PAGE>



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

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

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

         This summary is not 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 to non-U.S. tax consequences, of
the acquisition, ownership and disposition of our ordinary shares applicable to
their particular tax situations.

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

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

o        insurance companies;

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

o        tax-exempt organizations;

o        financial institutions or "financial services entities";

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

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

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

o        taxpayers who acquire our ordinary shares as compensation.



<PAGE>



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

Taxation of Dividends Paid on Ordinary Shares

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

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

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

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

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



<PAGE>



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

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

Taxation of the Disposition of Ordinary Shares

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

Passive Foreign Investment Company Considerations

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




<PAGE>



         As previously announced, we believe that we were characterized as a
PFIC for 2001, 2002 and 2003. Although we will endeavor to avoid such
characterization in the future, we may not be able to do so. Any U.S. person who
held our shares at any time during 2001, 2002 or 2003 was eligible to mitigate
the consequences of our PFIC characterization by electing to treat us as a
"qualified electing fund" or QEF under the Internal Revenue code as specified
below. Alternatively, U.S. taxpayers were also able to make a "mark-to-market"
election under the Internal Revenue Code as specified below.

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

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

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

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


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

o any U.S. shareholder who acquired the ordinary shares upon the death of the
shareholder would not receive a step-up to market value of his income tax basis
for such shares. Instead such U.S. shareholder beneficiary would have a tax
basis equal to the decedent's basis, if lower. Although the determination of
Metalink's status as a PFIC for years 2001, 2002 and 2003 was made only with
respect to those years, and will be revisited annually, the above described
consequences shall apply for all future years to U.S. shareholders who held
shares in the corporation at any time during years 2001-2003, and who neither
made a QEF election nor a mark-to-market election (as discussed below) with
respect to such shares with their tax return that included the last day of the
corporation's first taxable year as a PFIC. This will be true even if the
corporation ceases to be a PFIC in later years. However, with respect to a PFIC
that does not make any distributions or deemed distributions, the above tax
treatment would apply only to U.S. shareholders who realize gain on their
disposition of the shares in the PFIC. With respect to the treatment of Metalink
as a PFIC for 2001-2003, if a U.S. shareholder made a valid QEF election during
those periods with respect to Metalink shares:

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



<PAGE>



payment of taxes, which deferral is subject to an interest charge.

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

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

         Metalink did not have net ordinary earnings or net capital gain for
2001-2003 tax years. Therefore, any U.S. shareholder who makes a QEF election
for those periods will not be required to include any amount in income as a
result of such election.

         The QEF election is made on a shareholder-by-shareholder basis and can
be revoked only with the consent of the IRS. A QEF election applies to all
shares of the PFIC held or subsequently acquired by an electing U.S. holder. A
shareholder makes a QEF election by attaching a completed IRS Form 8621,
including the PFIC annual information statement, to a timely filed United States
federal income tax return and by filing such form with the IRS Service Center in
Philadelphia, Pennsylvania. Even if a QEF election is not made, a shareholder in
a PFIC who is a U.S. person must file a completed IRS Form 8621 every year.
During January 2002, 2003, and 2004 Metalink sent to its 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.

         Any U.S. shareholder who would like to receive PFIC ANNUAL INFORMATION
STATEMENT for years 2001, 2002 and/or 2003 can contact Mr. Ofer Lavie, Metalink
Ltd, Yakum Business Park, Yakum 60972, Israel.

         Alternatively, a U.S. Holder of PFIC stock which is publicly traded
could elect to mark the stock to market annually, recognizing as ordinary income
or loss each year the shares are held, as well as on the disposition of the
shares, an amount equal to the difference between the U.S. Holder's adjusted tax
basis in the PFIC stock and its fair market value. Losses would be allowed only
to the extent of net mark-to-market gain previously included by the U.S. Holder
under the election for prior taxable years. As with the QEF election, a U.S.
shareholder who makes a mark-to-market election for 2001-2003 with respect to
Metalink shares would not be subject to deemed ratable allocations of gain, the
interest charge, and the denial of basis step-up at death described above.
Subject to shares of Metalink ever ceasing to be marketable, a mark-to-market
election is irrevocable without obtaining the consent of the IRS and would
continue to apply even in years that Metalink was no longer a PFIC.

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




<PAGE>



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

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

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

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

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



U.S. Information Reporting and Backup Withholding

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

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

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

F.       Dividends and Paying Agents




<PAGE>



Not applicable.

G. Statements by Exports.

Not applicable.

H.       Documents on Display

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

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

ITEM 11.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
                  MARKET RISK

Foreign Currency Risk

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

         We do not presently engage in any hedging or other transactions
intended to manage risks relating to foreign currency exchange rate or interest
rate fluctuations. At December 31, 2003 and December 31, 2002, we did not own
any market risk sensitive instruments, other than instruments that can be
affected by changes in interest rates. Our financial instruments were not



<PAGE>



held for trading. However, we may in the future undertake hedging or other
similar transactions or invest in market risk sensitive instruments if
management determines that it is necessary to offset these risks. See "Item
3-Key Information-Risk Factors-Risks Relating to our location in Israel."

Interest Rate Risk

         Our exposure to market risk with respect to changes in interest rates
relates primarily to our short-and long-term investments. Our short- and
long-term investments consist of primarily, certificates of deposits and
marketable debt securities of highly-rated corporations. The fair value of our
short- and long-term investments is based upon their market value as of December
31, 2003. We manage our exposure to interest rate risk by varying the maturities
of the instruments that we purchase, with the objective of capital preservation
and generation of income.

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


Short-Term(U.S. dollars in thousands)

Marketable debt securities          Maturity date at year 2004

U.S. dollar debt securities and certificates of deposit with fixed interest rate
 12,967
Weighted Average Interest Rate               2.72%

Long-Term( U.S. dollars in thousands)

Marketable debt securities          Maturity date at year 2005-on

U.S. dollar debt securities
  with fixed interest rate                 35,013
Weighted average interest rate               2.93%

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

Use of Proceeds




<PAGE>



         Our initial public offering commenced on December 1, 1999, and
terminated after the sale of all the securities registered. The managing
underwriter of the offering was Banc of America Securities LLC. We registered
4,600,000 ordinary shares in the offering, including shares issued pursuant to
the exercise of the underwriter's over-allotment option. Of such shares, we sold
4,600,000 ordinary shares at an aggregate offering price of $55.2 million
($12.00 per share). Under the terms of the offering, we incurred underwriting
discounts of approximately $3.86 million. We also incurred estimated expenses of
$1.54 million in connection with the offering. None of the expenses consisted of
amounts paid directly or indirectly to any of our directors, officers, general
partners or their associates, any persons owning 10% or more of any class of our
equity securities, or any of our affiliates. The net proceeds that we received
as a result of the offering were approximately $49.8 million. As of December 31,
2003, approximately $54 million of the net proceeds have been used mainly for
the enhancement of our operating expenses, capital investments, and buy-back of
Metalink shares. None of the use of proceeds consisted of amounts paid directly
or indirectly to any of our directors, officers, general partners or their
associates, any persons owning 10% or more of any class of our equity
securities, or any of our affiliates.


ITEM 15.          CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

         Based on their evaluation as of a date within 90 days of the filing
date of this Report, our Chief Executive Officer and Chief Financial Officer
have concluded that our disclosure controls and procedures (as defined in Rules
13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the "Exchange
Act")) are effective to ensure that information required to be disclosed by the
Company in reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported in a timely manner.

Changes in internal controls

         There were no significant changes in the Company's internal controls or
in other factors that could significantly affect these controls subsequent to
the date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

ITEM 16.          [RESERVED]

ITEM 16A.          AUDIT COMMITTEE FINANCIAL EXPERT

         Sarit Weiss-Firon, an independent member of our audit committee, serves
as, and qualifies as, a financial expert under the applicable regulations.

ITEM 16B.          CODE OF ETHICS

In April 2004, we adopted Code of Business Conduct and Ethics (this "Code") that



<PAGE>



applies to the Company's employees and directors. The Code is available on our
website. We undertake to provide to any person without charge, upon request, a
copy of our code of ethics, which you may request from our legal department,
tel: +972-9-9605555

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 $43,000 and $35,000, respectively, for audits of our 2003 and 2002
annual financial statements, review of our quarterly financial results,
consultations on various accounting issues and performance of local statutory
audits.

Tax Fees

         For 2003 and 2002, our principal accountant billed us aggregate amounts
of approximately $ 7,000 and $ 24,000, respectively, for services relating to
tax compliance, tax advice and tax planning.

All Other Fees

Not applicable. Pre-approval Policies and Procedures

         Our audit committee will approve 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.


                                                     PART III

ITEM 17.          FINANCIAL STATEMENTS

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

ITEM 18.          FINANCIAL STATEMENTS

The Financial Statements required by this item are incorporated by reference to
our report on Form 6-K filed April 1, 2004.



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

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

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

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

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

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

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

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

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



<PAGE>



         fiscal year ended December 31, 1999).

4.7      Standard Industrial/Commercial Multi-Tenant Lease - Net, dated December
         12, 1999, between Garaventa Properties and Metalink, Inc. (incorporated
         herein by reference to Exhibit 4.7 to the Registrant's Annual Report on
         Form 20-F for the fiscal year ended December 31, 1999).

4.8      2000 Employee Stock Purchase Plan (incorporated herein by reference to
         Exhibit 4.5 to the Registrant Registration Statement on Form S-8, filed
         with the Securities and Exchange Commission on April 17, 2001).

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

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

4.11     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 Securities and Exchange Commission on April 1, 2004).

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

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

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

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

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

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

-----------------
* Incorporated by reference.





<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/ Ofer Lavie
                                               Name:  Ofer Lavie
                                               Title:    Chief Financial Officer

Date:  June 30, 2004


















<PAGE>

EXHIBIT 10.1


CONSENT OF INDEPENDENT AUDITORS

We consent to the  incorporation by reference in this Report on Form 20-F of our
report,  dated  January 26,  2004,  with respect to the  consolidated  financial
statements  of Metalink  Ltd. (the  "Company") for the year ended  December 31,
2003, which were originally filed with the Securities and Exchange Commission in
a Report on Form 6-K April 1, 2004.

We further  consent to the  incorporation  by  reference  of our  report,  dated
January 26, 2004, with respect to the consolidated  financial  statements of the
Company for the year ended December 31, 2003, into the  Registration  Statements
on Form  S-8,  No.  333-12064,  333-88172  and  333-112755,  and on Form F-3 No.
333-104147, and No. 333-13806.


_____________________________
BRIGHTMAN ALMAGOR & CO
Certified Public Accountants
A member of Deloitte Touche Tohmatsu

Tel Aviv, Israel
June 30, 2003






<PAGE>









                                  EXHIBIT 12.1

            Certification of Principal Executive Officer pursuant to
              17CFR 240.13a-14(a), as adopted pursuant to ss.302 of
                         the Sarbanes-Oxley Act of 2002


I, Tzvika Shukhman,  Chief Executive Officer & Chairman of the Board of Metalink
Ltd., certify that:

         1. I have reviewed this annual report on Form 20-F of Metalink Ltd.;

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

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

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

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




<PAGE>



                  b) evaluated the effectiveness of the company's disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and

                  c) disclosed in this report any change in the company's
internal control over financial reporting that occurred during the period
covered by this annual report that has materially affected, or is reasonably
likely to materially affect, the company's internal control over financial
reporting; and

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

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

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


Date: June 30, 2004


/s/ Tzvika Shukhman
Name: Tzvika Shukhman
Title:  Chief Executive Officer and Chairman of the Board




















<PAGE>















                                  EXHIBIT 12.2

            Certification of Principal Financial Officer pursuant to
              17CFR 240.13a-14(a), as adopted pursuant to ss.302 of
                         the Sarbanes-Oxley Act of 2002


         I, Ofer Lavie, Chief Financial Officer of Metalink Ltd., certify that:

         1. I have reviewed this annual report on Form 20-F of Metalink Ltd.;

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

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

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

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

                  b) evaluated the effectiveness of the company's disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and




<PAGE>



                  c) disclosed in this report any change in the company's
internal control over financial reporting that occurred during the period
covered by this annual report that has materially affected, or is reasonably
likely to materially affect, the company's internal control over financial
reporting; and

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

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

                  d) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the company's
internal control over financial reporting.


Date: June 30, 2004


/s/ Ofer Lavie
Name: Ofer Lavie
Title:  Chief Financial Officer
























<PAGE>













                                  EXHIBIT 13.1

            Certification of Principal Executive Officer pursuant to
              18 USC ss.1350, as adopted pursuant to ss.906 of the
                           Sarbanes-Oxley Act of 2002

         In connection with the annual report on Form 20-F for the fiscal year
ended December 31, 2003 of Metalink Ltd. (the "Company") as filed with the U.S.
Securities and Exchange Commission (the "Commission") on the date hereof (the
"Report"), and pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, I, Tzvika Shukhman, Chief
Executive Officer and Chairman of the Board, certify that:

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

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


Date: June 30, 2004


/s/ Tzvika Shukhman
Name:  Tzvika Shukhman
Title:  Chief Executive Officer and
        Chairman of the Board













<PAGE>











                                  EXHIBIT 13.2

            Certification of Principal Financial Officer pursuant to
              18 USC ss.1350, as adopted pursuant to ss.906 of the
                           Sarbanes-Oxley Act of 2002

         In connection with the annual report on Form 20-F for the fiscal year
ended December 31, 2003 of Metalink Ltd. (the "Company") as filed with the U.S.
Securities and Exchange Commission (the "Commission") on the date hereof (the
"Report"), and pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, I, Ofer Lavie, Chief Financial
Officer, certify that:

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

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


Date: June 30, 2004


/s/ Ofer Lavie
Name: Ofer Lavie
Title: Chief Financial Officer