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

       x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
                  For the fiscal year ended December 31, 2002
                                       OR

           o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
            For the transition period from __________ to __________
                         Commission file number 0-30394

                                 Metalink Ltd.
             (Exact name of Registrant as specified in its charter)
                                     Israel
                                (Jurisdiction of
                         incorporation or organization)
                    Yakum Business Park, Yakum 60972, Israel
                    (Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class                   Name of each exchange on which registered
       None                                           None
Securities registered or to be registered pursuant to Section 12(g) of the Act:
                  Ordinary Shares, NIS 0.1 par value per share
                                (Title of Class)
        Securities for which there is a reporting obligation pursuant to
                           Section 15(d) of the Act:
                                      None
                                (Title of Class)

     Indicate the number of outstanding  shares of each of the issuer's  classes
of capital or common  stock as of the close of the period  covered by the annual
report:

            18,552,056 Ordinary Shares, NIS 0.1 par value per share

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

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


<PAGE>

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

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

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

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

<PAGE>
                               TABLE OF CONTENTS
                                                                            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                                      64
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]                                                  83
                                    PART III
ITEM 17.          FINANCIAL STATEMENTS                                        84
ITEM 18.          FINANCIAL STATEMENTS                                        84
ITEM 19.          EXHIBITS                                                    85
<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, 2002, 2001 and 2000 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, 1999
and 1998 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,
                                 1998       1999       2000        2001        2002
                                 (In thousands, except share and per share data)
Statement of Operations Data:
Revenues                        $ 9,159   $ 11,708    $ 23,302     $ 14,049   $ 6,636
Cost of revenues:
 Costs and expenses               5,040      5,878       9,794        6,086     4,589
 Royalties to the Government
   of Israel                        143        209         469          364       144
Total cost of revenues            5,183      6,087      10,263        6,450     4,733
Gross profit                      3,976      5,621      13,039        7,599     1,903
Operating expenses:
  Gross research and
   development                    3,839      6,065      12,592       17,060    15,240
  Royalty bearing grant           1,301      1,965       3,381        3,457     3,213
  Research and development, net   2,538      4,100       9,211       13,603    12,027
  Sales and marketing, net        1,510      2,026       3,665        5,465     4,814
  General and administrative        798      1,138       3,042        3,526     2,884
  Non-cash compensation             182        382         791          745       799
Total operating expenses          5,028      7,646      16,709       23,339    20,524
Operating loss                   (1,052)    (2,025)     (3,670)     (15,740)  (18,621)
Financial income (expenses), net:
  Interest income (expenses), net   (63)       145       5,986        4,629     2,283
  Non-cash charge for warrants        -     (1,400)         -            -         -
  Total financial income
   (expenses), net                  (63)    (1,255)      5,986        4,629     2,283
Net (loss) profit               $(1,115)   $(3,280)    $ 2,316     $(11,111) $(16,338)
Earnings (loss) per share:
   Basic                      $   (0.09)   $ (0.27)    $  0.13     $  (0.61) $  (0.89)
   Diluted                    $   (0.09)   $ (0.27)    $  0.11     $  (0.61) $  (0.89)
Shares used in computing
  earnings (loss) per
  ordinary share:
    Basic                     12,010,745   12,309,339  18,269,556  18,260,798 18,407,190
    Diluted                   12,010,745   12,309,339  20,773,382  18,260,798 18,407,190

<PAGE>


                                                       As of December 31,
                                1998         1999        2000         2001       2002
         (In thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents   $    1,013     $ 4,281   $  8,851      $ 15,946  $  9,158
Short-term investments              -       42,816     86,268        64,967    20,691
Long-term investments               -        2,952     15,344         9,172    46,197
Working capital                  1,396      46,971     97,324        82,430    32,719
Total assets                     5,455      55,850    125,266       104,733    89,706
Short-term bank
 credits and loans                 500          -          -             -         -
Shareholders equity              2,351      50,991    117,632        98,497    83,558
</TABLE>


B. Capitalization and Indebtedness

Not Applicable.

C. Reasons for the Offer and Use of Proceeds

Not Applicable.


D.       Risk Factors


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

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

Telecommunications  service  providers  and their  customers  are the  principal
end-users  of  substantially  all of our  products.  During  2001 and 2002,  the
telecommunications  industry in much of the world,  including  in our  principal
markets, has been experiencing an apparent slowdown,  resulting in decreases and
delays in the procurement and deployment of new telecommunications equipment. As
a result,  we  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.

In the past six months we achieved  significant design wins across  Asia-Pacific
including Korea,  Japan,  China and Taiwan.  Should the SARS disease continue to
spread in the Asia Pacific  region,  it might have a material  adverse effect on
our ability to gain substantial revenues from these design wins.


<PAGE>

Our future  financial  performance  will depend  significantly on the successful
marketing, market acceptance , and our ability to increase the revenues from our
VDSL chip sets worldwide, and in the Asia pacific region, in particular.  If for
any reason our revenues from these chip sets decrease,  or do not increase,  our
results of operations  will be harmed.  Thus,  the spread of the SARS disease in
the Asia Pacific region,  and in particular in Korea,  Japan,  China and Taiwan,
may have a materially adverse effect on our revenues.

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  $3.7 million for the year ended December 31,
2000,  $15.7 million for the year ended December 31, 2001, and $18.6 million for
the year ended  December 31, 2002.  As of December  31,  2002,  our  accumulated
deficit was approximately  $33.9 million.  We reported revenues of approximately
$6.6 million for the year ended December 31, 2002.  Despite the fact that we are
making expenditures in anticipation of generating higher revenues,  our revenues
may  not  grow  and may  even  continue  to  decline.  Moreover,  even if we are
successful  in increasing  our  revenues,  we may be delayed in doing so. If our
revenues do not increase as  necessary or if our expenses  increase at a greater
pace than our  revenues,  we will not  likely  be able to  achieve,  sustain  or
increase  profitability on a quarterly or annual basis. Our quarterly  operating
results are volatile. This may cause our share price to decline.




Our quarterly  operating  results have varied  significantly in the past and are
likely to vary significantly in the future.

These  variations   result  from  a  number  of  factors,   many  of  which  are
substantially outside of our control, including:

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

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

o Year-end  customer  ordering patterns have caused our revenues to be strongest
in the  first  and  second  quarters  of 2001 and 2002 and to be weaker in other
quarters  of the year.  We can not assure you that  these  quarters  will be the
strongest  ones in the  future,  as these  facts  may be also a result  of other
factors such as the apparent slowdown in the  telecommunication  industry during
these years.

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

o Customers may cancel or postpone orders in our backlog.

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

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

o Changes in pricing by us or our competitors.

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

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

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

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

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

o General economic 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, or suffer a substantial reduction in orders from those
customers. In 2002, we had only one customer which accounted for more than 10%
of our revenues, namely ECI, which accounted for 45% of our revenues. We cannot
be certain that this customer will maintain these levels of purchases. We do not
have contracts with any of our customers that obligate them to continue to
purchase our chip sets, and these customers could cease purchasing our chip sets
at any time. We expect that sales of our chip sets to relatively few customers
will continue to account for a significant portion of our net revenues for the
foreseeable future.

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




DSL solutions compete with a variety of different 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 chip sets will decrease, and
we may not sell enough of our chip sets to achieve, sustain or increase
profitability.

Substantial  sales  of  our  chip  sets  will  not  occur  unless   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;

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;


<PAGE>

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

o evolving and current industry standards for DSL technologies that could affect
the end-market for our products; and

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. Recently a standards
working group in the United States reached consensus position to develop a draft
proposed American National Standard for VDSL using Multi Carrier Modulation
(DMT) and a draft proposed Committee T1 Technical Requirement (TRQ) document for
VDSL using Single Carrier Modulation (QAM). As Metalink's VDSL chip sets are
based on QAM, if DMT is ultimately adopted as a standard our business would be
adversely affected.

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

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


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


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

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

For the year  ended  December  31,  2002,  we derived  approximately  58% of our
revenues from our E1 HDSL and SDSL chip sets. Our future  financial  performance
will depend  significantly on the successful  marketing and market acceptance of
this  line of chip  sets.  If for any  reason  our  revenues  from this chip set
decrease, our results of operations will be harmed.

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

<PAGE>

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

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

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

o rapid technological changes;

o frequent new product introductions;

o changes in customer requirements; and

o evolving industry standards.


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

o invest significantly in research and development;

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

o gain market acceptance of our chip sets;

o anticipate customer requirements; and

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

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., GlobeSpanVirata,  Infineon Technologies AG, Ikanos Communications
Inc and ST Microelectronics  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 chip set  providers  and emerge as  significant  competitors.  In
addition,  competitors  may bundle their  products or incorporate a DSL chip set
component  into  existing  products  in a manner  that  renders  our  chip  sets
obsolete.


<PAGE>

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

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

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

The  volatility  of our  industry  has placed,  and will  continue  to place,  a
significant strain on our managerial,  operational and financial  resources.  We
must also  implement  sophisticated  inventory  and control  systems.  We cannot
assure you that our management team will be able to work together effectively to
manage our organization.

To manage resources effectively, particularly in slower economic times, we must:

o 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;

o hire, train, manage and retain qualified employees when the business is
growing, and, when industry conditions decline, reduce the workforce; and

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

We cannot assure you that we have made adequate allowances for the costs and
risks associated with this volatility, that our systems, procedures or controls
will be adequate to support our operations, or that our management will be able
to offer and expand our product categories successfully to meet changing market
conditions. 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.


<PAGE>

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

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

o potentially weak protection of intellectual property rights;

o economic and political instability;

o import or export licensing requirements;

o trade restrictions;

o difficulties in collecting accounts receivable;

 o longer payment cycles;

o unexpected changes in regulatory requirements and tariffs;

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

o the impact of SARS or other regional epidemics;


 o fluctuations in exchange rates; and

o potentially adverse tax consequences.

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

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

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

<PAGE>

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

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


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

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

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

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

o we may not be able to develop alternative sources for chip set components,  if
and as required in the future; o suppliers could  discontinue the manufacture or
supply of  components  used in our chip sets.  In such  event,  we might need to
modify  our  chip  sets,   which  may  cause  delays  in  shipments,   increased
manufacturing costs and increased chip sets prices; and

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

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

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

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

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

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

Upon  growth in our  business,  we will need to hire  additional  engineers  and
highly trained technical support personnel in Israel, 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 chip sets 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.


<PAGE>

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

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

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

At June 16, 2003,  10,717,451  ordinary shares (57.7%) are held by Messrs.  Tzvi
Shukhman and Uzi Rozenberg,  who are directors of the Company.  Mr.  Shukhman is
also ceo and chairman of the board of Metalink.  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 addition,  Messrs.  Shukhman and  Rozenberg are parties to a
voting  agreement,  pursuant  to which they act in concert  with  respect to the
nomination and election of directors.

Messrs.  Shukhman and Rozenberg  have filed a  registration  statement  with the
Securities and Exchange  Commission  relating to 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 five
unregistered  trademarks,  two patents in Israel and three patents in the United
States. We have also filed one additional  provisional 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.

<PAGE>

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

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

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

We expect that the net proceeds from our initial public offering and secondary
public offering and cash from operations will be sufficient to meet our working
capital and capital expenditure needs for at least the next twelve months. 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.

<PAGE>

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.

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.

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 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  which  produce
passive income,  exceed specified  levels,  we may be characterized as a passive
foreign investment company, or PFIC, for U.S. federal income tax purposes.  This
characterization   could  result  in  adverse  U.S.  tax   consequences  to  our
shareholders.  As previously announced, we believe that we were characterized as
a  PFIC  for  2001  and  2002.   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 or 2002 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.  The QEF
election would result in the U.S.  taxpayer  annually  including in income a pro
rata share of the  Company's  earnings  and net  capital  gains,  regardless  of
whether the Company distributes any gains. During 2001 and 2002, the Company did
not have  earnings,  so no income  was  includable  in U.S.  taxpayers'  income.
Alternatively, U.S. taxpayers were also able to make a "mark-to-market" election
under the Internal  Revenue Code,  under which the taxpayer treats the shares as
if they were sold and immediately repurchased at the close of each taxable year.
In a mark-to-market  election, the U.S. taxpayer must include as ordinary income
the amount of any  increase in the market value of the shares since the close of
the preceding  taxable year, or the beginning of the taxpayer's  holding period,
if less than one year.  We recommend  that  shareholders  consult  their own tax
advisers about the PFIC rules  generally and about the  advisability,  procedure
and timing of their making QEF or mark-to-market elections.

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.  Such
ongoing  hostilities may hinder Israel's  international  trade relations and may
limit  the  geographic  markets  where we can sell  our  products.  Furthermore,
certain  parties  with whom we do  business  have  declined  to travel to Israel
during this period, forcing us to make alternative arrangements where necessary,
and the United States Department of State has issued advisories regarding travel
to  Israel,  impeding  the  ability of  travelers  to attain  travel  insurance.
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.
<PAGE>





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. We cannot assess the full impact of these
requirements on our workforce or business if conditions should change and we
cannot predict the effect on us of any expansion or reduction of these
obligations.

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

The Israeli Companies Law generally requires that a statutory merger be approved
by a company's  board of directors and by a majority of the shares voting on the
proposed  merger.  With respect to 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 held by  shareholders  which are not the
other potential merger partner (nor a person who holds 25% or more of the shares
of capital  stock or has the right to appoint 25% or more of the  directors,  of
the other potential merger partner) vote against the merger. Upon the request of
any creditor of a party to the proposed merger, a court may delay or prevent the
merger if it concludes  that there is a reasonable  concern that, as a result of
the merger, the surviving company will be unable to satisfy its obligations.  In
addition,  a merger  may not be  completed  unless at least 70 days have  passed
since the filing of the merger proposal with the Israeli Registrar of Companies.

Finally,  Israeli  tax law treats  some  acquisitions,  such as  stock-for-stock
exchanges  between an Israeli  company and a foreign company less favorably than
U.S. tax laws. For example,  Israeli tax law 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 and the uncertainties
surrounding such law may have the effect of delaying, preventing or making more
difficult a merger or acquisition of us. This could prevent a change of control
of us and depress the market price of our ordinary shares which otherwise might
rise as a result of such a change of control.

<PAGE>




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

We generate substantially all of our revenues in dollars, but we incur a portion
of our expenses, principally salaries, related personnel expenses and occupancy
expenses in NIS. As a result, we are exposed to the risk that the rate of
inflation in Israel will exceed the rate of devaluation of the NIS in relation
to the dollar or that the timing of this devaluation lags behind inflation in
Israel or that the NIS is appreciated against the dollar. In 2002 the NIS was
depreciated against the dollar in the rate of 7.27% while the rate of inflation
was 6.5%. We can not be certain that the trends which have affected us in 2002
will continue. If the dollar costs of our operations in Israel increase, our
dollar-measured results of operations will be adversely affected.


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

The tax benefits we  currently  receive  require us to meet several  conditions,
which we may fail to satisfy.

Our investment  programs were granted the status of an approved enterprise under
Israel's Law for Encouragement of Capital  Investments,  1959, pursuant to which
we have elected the alternative package of tax benefits.  To be eligible for tax
benefits  as a result of the  approved  enterprise  status  granted  to us under
Israeli  law, we must  continue to meet  certain  conditions,  including  making
certain investments in fixed assets,  financing a percentage of investments with
share capital and  maintaining  a minimum level of revenues.  If we fail to meet
such  conditions in the future,  the tax benefits would be canceled and we could
be required to refund the tax  benefits  already  received.  This could harm our
business and our profitability.

The tax benefits we currently receive may be reduced in the future.

The tax benefits we receive may not be continued in the future at their current
levels or at all. Israeli governmental authorities have indicated that the
government may reduce or eliminate these benefits in the future. The termination
or reduction of these tax benefits could harm our business and our
profitability.

The government programs we currently participate in require us to meet several
conditions, which we may fail to satisfy.
<PAGE>

We have received grants from the Office of the Chief Scientist of the Ministry
of Industry and Trade of the Government of Israel 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. If, for any reason, the
Office of the Chief Scientist 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.

The government programs in which we currently participate may be terminated or
reduced in the future.

The Israeli authorities have indicated that the government may reduce or abolish
grants from the Office of the Chief Scientist of the Ministry of Industry and
Trade in the future. Termination or substantial reduction of Chief Scientist
grants would require us to divert other funds to research and development and
increase our other operational costs.

It may be  difficult  to enforce a U.S.  judgment  against us, our  officers and
directors.

We are  incorporated  in Israel.  The  majority of our  executive  officers  and
directors are  nonresidents of the United States,  and a substantial  portion of
our  assets and the  assets of these  persons  are  located  outside  the United
States.  Therefore,  it may be difficult  to enforce a judgment  obtained in the
United States against us or any of these persons.




<PAGE>








ITEM 4.           INFORMATION ON THE COMPANY

A.       History and Development of the Company

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

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

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

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

Capital expenditures were $0.8 million for year 2002. The expenditures were
principally for capital equipment and software used in our research and
development activities.

B. Business Overview General

We design,  develop and market digital  subscriber  line (DSL) chip sets used by
manufacturers of telecommunication  equipment.  Our chip sets enable the digital
transmission of voice, video and data over copper wire  communications  lines at
speeds that are up to 1,000 times  faster than  transmission  rates  provided by
conventional  analog  modems.  Our chip sets  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 seven
million of our chips to original equipment manufacturers (OEMs) that incorporate
our chip sets into their own  products.  These OEMs,  which  include ECI Telecom
Ltd.,  Alcatel Networks  Corporation,  Schmid  Telecommunication  Ltd.,  Marconi
Communications  GmbH, Siemens AG, ADC  Telecommunications  Inc, and others, have
sold products  containing our chip sets to  telecommunication  service providers
throughout the world,  including Bell Canada, Qwest,  Verizon,  British Telecom,
Deutsche Telecom,  Telecom Italia and France Telecom. In addition,  we engage in
the research and  development  of  high-throughput  wireless local area networks
(HT-WLAN)  chipsets.  Solutions  under this category  enable  digital  broadband
communications  of voice,  video and data at  significantly  higher  rates  than
conventional wireless local area networking (WLAN) solutions.  We are an Israeli
company and our principal executive offices



<PAGE>



are located at Yakum Business Park, Yakum 60972, Israel. Our telephone number is
972-9-960-5555.

Products and Technology

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

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

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

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

HDSL2 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 are a contributor to the
standardization of G.SHDSL, and we have developed proprietary algorithms for the
efficient implementation of this technology. During the year 2001, we completed
the development and integration of our first generation SHDSL solution that
includes an eight-port G.SHDSL digital device, a single port G.SHDSL digital
device and an single port G.SHDSL analog front end. During 2001 we also
completed the development of a second generation digital device optimized for
T1/E1 transport applications. This device, incorporated the entire digital
functionality of a T1/E1 transport application combining the DSL transceiver and
framer, T1/E1 framer, host processor and RAM. To the best of our knowledge, this
is the only device available in the market with such high levels of optimization
and integration for T1/E1 transport applications. We offer a variety of SHDSL
products for CO, CPE and repeater applications which are being installed in
major operator networks including Deutche Telekom, France Telecom, Telecom
Italia and British Telecom.

VDSL. VDSL technology defines very high transmission rates over a single copper
wire pair. This includes symmetric transmission at a rate of up to 30 Mbps and
asymmetric transmission of 100 Mbps downstream and 6 Mbps upstream. VDSL is
typically deployed in combination with an optical network unit. This unit is
connected by copper wire to multiple subscribers located in large complexes,
such as large residential complexes, hotels and campuses. The unit multiplexes
the bandwidth of hundreds of subscribers onto a single fiber that carries the
information to the central office. VDSL applications include high bandwidth
data, multiple video and voice channels, broadband access and broadband wide
area networks (WANs). VDSL has been standardized by ANSI and ETSI and is
currently at its standardization stage in ITU-T and IEEE. We are an active
participant in all these standardization processes. Recently a standards working
group in the United States reached consensus position to develop a draft
proposed American National Standard for VDSL using Multi Carrier Modulation
(DMT) and a draft proposed Committee T1 Technical Requirement (TRQ) document for
VDSL using Single Carrier Modulation (QAM). 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.






<PAGE>



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

<PAGE>

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

<TABLE>
<CAPTION>

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

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

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

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

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

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




4.640
                  /TDM transport applications
MtS172            SHDSL/HDSL2/HDSL4 transciever with integrated T1/E1  2Q02
4.640
                  framer
MtV 9170          VDSL transceiver/framer for 2-band applications      1Q01                        26
MtV 9370          Dual VDSL transceiver/framer for 3-band applications 3Q01                        52
MtV 9171          VDSL transceiver/framer for 4-band applications      4Q01                        52
MtV 9141          VDSL AFE for 2,3 and 4-band applications             4Q01                        52

</TABLE>

<PAGE>

     The following table enumerates our product applications:

<TABLE>
<CAPTION>

Chip Set Applications                      Products                            Configuration

        <C>                                   <C>                                   <C>

Octal G.shdsl SHDSL CO application         MtS870       Each chip set 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 chip-set 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 chip-set 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 chip-set consist of a two DSP /
framer chip and two AFE chips.
                                           MtS140
                                           MtS142





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


Two pair T1 HDSL4                          MtS180       Each chip-set consist of a single system on a
chip, single DSM /Framer,
                                           MtS172       and two AFE devices
                                           MtS142

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

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

CPE two-band VDSL application              MtV9170      Each chip-set consist of a single DSP /
framer chip and four AFE chips.
 EoVDSL four-band CO application           MtV9141
                                           MtV9470
                                           MtV9141

EoVDSL CPE four band VDSL application      MtV9172      Each chip-set consist of a DSP /
framer chip and fsingle AFE chip.
                                           MtV9141

</TABLE>


Customers

Our customers, telecommunication equipment manufacturers, incorporate our chip
sets into the products that they sell to telecommunication service providers.
Since we commenced operations in 1993, we have shipped over seven million of our
chips to our customers, or OEM partners, including ECI, Marconi Communications,
Alcatel, Schmid, Siemens, ADC Telecommunications Inc, and others. These chips
are used in telecommunication equipment deployed worldwide by telecommunications
service providers including Bell Canada, Qwest, Verizon, British Telecom,
Deutshe Telekom, Telecom Italia and France Telecom. Our largest customer is ECI
which accounted for more than 10% of our total sales in 2002. We do not have
purchase contracts with any of our customers that obligate them to continue to
purchase our chip sets and these customers could cease purchasing our chip sets,
at any time.
<PAGE>

Our chip sets are being incorporated into the following systems:

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

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

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

o 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.  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.









<PAGE>




                                         Year ended December 31,
                                      2002         2001        2000
                                             (in thousands)

Revenues:
Israel                               $ 3,170     $ 3,070      $ 8,227
United States                          1,285         680          569
Italy                                    913         326          156
Switzerland                              144       5,329        6,356
Canada                                    93       2,989        6,053
Other foreign countries
 (mainly European)                     1,031       1,655        1,941
                                    $  6,636     $14,049      $23,302

Sales and Marketing

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

We have sales representative in the following countries:

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

Asia:  Republic of China (Taiwan),  People  Republic of China (Mainland  China),
Japan, Singapore 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.

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

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

Research and Development

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

As of May 31, 2003 our research and development staff consisted of 99 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
Georgia, Atlanta. 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.  See
"Item    5-Operating    and    Financial    Review    and    Prospects-Operating
Results-Government  Grants." We expect our research and development  expenses to
grow as we hire  additional  personnel  to develop  new,  and  upgrade  existing
products.




Manufacturing

We do not own or operate a semiconductor fabrication facility. As
a fabless provider of chip sets, we subcontract our entire semiconductor
manufacturing to third party contractors. Our chip sets are delivered to us
fully assembled and tested based on our proprietary designs. The use of the
fabless model allows us to focus substantially most of our resources on
determining customer requirements and on the design, development and support of
chip sets and to have significantly reduced capital requirements.
We currently subcontract our semiconductor wafer manufacturing to Chartered
Semiconductor Manufacturing Corporation in Singapore and Taiwan Semiconductor
Manufacturing Company (TSMC) and the packaging and testing of our chip sets to
Singapore Technologies Assembly and Test Services (STATS), Advanced
Semiconductor Engineering Inc. (ASE Inc.) & ASE Test Ltd and Amkor Technology
Inc in Korea. The selection of these manufacturers was based on the breadth of
available technology, quality, manufacturing capacity and support for design
tools used by us. All of the fabrication, assembly and test facilities are ISO
9002 / QS9000 / SAC certified.

None of our chip sets is currently manufactured by more than one contractor.  In
the  event  one  of our  contractors  notifies  us  that  it  intends  to  cease
manufacturing a chip or that it is temporarily  unable to manufacture a chip, we
may not have an  adequate  opportunity  to order  sufficient  quantities  of the
effected chip to prevent  shipments to customers from being  adversely  affected
while we qualify a new manufacturer.

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

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


Proprietary Rights

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

In addition,  our NML technology is protected by two patents in Israel and three
patents in the United States. One of the two Israeli patents was issued in favor
of us following a settlement agreement we entered into with an opposing company.
Most  of our  chip-sets  design  is  based  on the  NML  technology.  . 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  two
additional  patent   applications  in  the  United  States  and  Israel.   These
applications  may not result in any  patent or  patents  being  issued  and,  if
issued,  the patents may not provide  adequate  protection  against  competitive
technology and may not be held valid and enforceable if challenged. In addition,
other  parties may assert  rights as inventors of the  underlying  technologies,
which  could  limit our ability to fully  exploit  the rights  conferred  by any
patent that we receive.  Our competitors may be able to design around any patent
that we  receive  and other  parties  may obtain  patents  that we would need to
license or  circumvent  in order to exploit our patents.  Our  existing  patents
expire in 2015

Competition

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

We believe our principal competitors in the DSL market for HDSL, SDSL, HDSL2 and
G.SHDSL products include, GlobespanVirata,  Infineon and Conexant. 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  DSL  chip  set  market,
specifically ADSL IC companies targting introduction of VDSL DMT products.

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

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

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

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

C.       Organizational Structure

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

D.       Property, Plants and Equipment


Our headquarters and principal administrative, finance, sales and marketing
operations are located in approximately 45,000 square feet of leased office
space in Yakum, Israel. The lease expires in September 2010. In the United
States, we lease approximately 10,000 square feet of office space in Folsom,
California (the Folsom Lease") and we intend to lease 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 addition we currently lease sales and support office in San Jose, California
(864 square feet). Currently, our offices in San Jose are not occupied and we
intend to try and sublease these premises for the remainder of the lease period,
which concludes March 2004. Aggregate rental payments, at rates in effect at
December 31, 2002 are approximately $936,000 and the projected payments for 2003
are approximately $1,008,000. We may need to increase the size of our current
facilities, seek new facilities, close certain facilities or sublease portions
of our existing facilities in order to address our needs in the future.

Total rent expenses for the years ended December 31, 2002, 2001 and 2000 were
$936,000, $957,000 and $543,000, respectively.

<PAGE>

ITEM 5.           OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Overview

We design,  develop and market digital  subscriber  line (DSL) chip sets used by
manufacturers of telecommunication  equipment.  Our chip sets enable the digital
transmission of voice, video and data over copper wire  communications  lines at
speeds that are up to 1,000 times  faster than  transmission  rates  provided by
conventional  analog  modems.  In  addition,  we  engage  in  the  research  and
development of high-throughput  wireless local area networks (HT-WLAN) chipsets.
Solutions under this category enable digital broadband  communications of voice,
video and data at significantly  higher rates than  conventional  wireless local
area networking (WLAN) solutions.

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


<PAGE>

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

Revenue recognition

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

Inventories

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

A.       Operating Results

General

Revenues. Our revenues are derived from sales of our chip sets to our customers
with which we have OEM partnerships for the design of DSL systems based on our
solutions. Our revenues are generated in U.S. dollars, and the majority of our
expenses are incurred in dollars. Consequently, we use the dollar as our
functional currency. Our consolidated financial statements are prepared in
dollars in accordance with generally accepted accounting principles in the
United States. For the year ended December 31, 2002, one customer accounted for
approximately 45% of our revenues.

<PAGE>

We sell our chip sets in Europe, Israel, North America and Asia through
independent sales representatives and distributors. We also sell our chip sets
directly to select customers in Israel and Europe. For the year ended December
31, 2002, approximately 76% of our sales were in Europe and Israel, 21% in North
America and 3% in Asia.

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

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

Research and Development, Net. The Government of Israel, through the Office of
the Chief Scientist, encourages research and development projects which result
in products for export. In 2000, 2001 and 2002, we received grants from the
Office of the Chief Scientist for the development of our products. Research and
development expenses are net of grants received or accrued from the Government
of Israel.

Sales and Marketing. Sales and marketing expenses consist primarily of salaries
and other personnel related expenses for those engaged in the sales, marketing
and support of our products, as well as 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 related to the growth of our
business and our becoming a public company, we expect that general and
administrative expenses will also increase.

Amortization of Deferred Stock Compensation. Amortization of deferred stock
compensation expenses consist of the charge incurred by us arising from the
grant of options to purchase our ordinary shares at exercise prices below the
fair market value of our ordinary shares at the date of the grant. This discount
is recorded and charged to our earnings over the vesting period of the options.
We have recorded a total of $4,667,000 of deferred stock compensation as of
December 31,2002. We have incurred amortization of deferred stock compensation
expenses of $791,000 in 2000, $745,000 in 2001 and $799,000 in 2002.
<PAGE>


We expect to recognize stock compensation expenses of $626,000 in 2003, $206,000
in 2004, $15,000 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,
                                                     2000     2001     2002

Revenues                                              100%    100%     100%
Cost of revenues:
  Costs and expenses                                   42      43       69
Royalties to the Government of Israel                   2       3        2
Total Cost of revenues                                 44      46       71

Gross profit                                           56      54       29
Operating expenses:
Gross research and development                         54     121      230
Royalty bearing grant                                  14      24       48
Research and development, net                          40      97      182
Sales and marketing, net                               16      39       73
General and administrative                             13      25       43
Non-cash compensation                                   3       5       12
Total operating expenses                               72     166      310
Operating loss                                        (16)   (112)    (281)
Financial income, net                                  26      33       34
Net loss                                               10%    (79)%   (247)%


Year Ended December 31, 2002 Compared with Year Ended December 31, 2001
<PAGE>

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
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.
<PAGE>

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.

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.



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

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

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

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

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

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




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

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

Financial Income  (Expenses),  Net.  Financial  income,  net was $4.6 million in
2001, a decrease of $1.4 million  compared with  financial  expenses,  net of $6
million in 2000.  This change is primarily  attributable  to general  decline in
interest rates, to 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 $20,000 to $50,000 reduction
in financial income during 2001.

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.
<PAGE>

In 2000 the NIS was appreciated against the dollar in the rate of 2.7% while the
rate of inflation was 0%. In 2001 the NIS was depreciated against the dollar in
the rate of 9.3% while the rate of inflation was 1.4%. In 2002 the NIS was
depreciated against the dollar in the rate of 7.3% while the rate of inflation
was 6.5%. We can not be certain that the trends which have benefited us in 2002
will continue. If the dollar costs of our operations in Israel increase, our
dollar-measured results of operations will be adversely affected. We cannot
assure you that we will not be materially adversely affected in the future if
inflation in Israel exceeds the devaluation of the NIS against the dollar or if
the timing of such devaluation lags behind increases in inflation in Israel or
if the NIS will be appreciated against the dollar.

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

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

Corporate Tax Rate

Israeli  companies  are  generally  subject to tax at the rate of 36% of taxable
income.  However, in 1994, our facility was granted "approved enterprise" status
under  the  Law  for  the  Encouragement  of  Capital  Investments,   1959,  and
consequently we are eligible,  subject to compliance with certain  requirements,
for certain tax benefits  beginning when such facility first  generates  taxable
income,  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.




<PAGE>






The period of tax benefits with respect to our Approved Enterprise has not yet
commenced, because we have yet to realize taxable income. As a result of the
foregoing, and of our accumulated tax loss carryforwards (which totaled
approximately $43.4 million at December 31, 2002), and based on the current tax
system in Israel, we do not anticipate being subject to income tax in Israel in
2003. Our effective corporate tax rate may substantially exceed the Israeli tax
rate. Our U.S. subsidiary will generally be subject to applicable federal,
state, local and foreign taxation, and we may also be subject to taxation in the
other foreign jurisdictions in which we own assets, have employees or conduct
activities. Our U.S. subsidiary had net loss carry- forwards of approximately
$3.9 million available at December 31, 2002 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  $1.3 million for the year ended December 31, 1998 (34%
of total  research  and  development  expenses),  $2 million  for the year ended
December 31, 1999 (32% of total research and development expenses), $3.4 million
for the year December 31, 2000 (27% of total research and development expenses),
$3.5  million for the year ended  December  31, 2001 (20% of total  research and
development  expenses) and 3.2 million for the year ended December 31, 2002 (21%
of total research and development expenses). Under Israeli law, royalties on the
revenues  derived from  products and  services  developed  using such grants are
payable to the Israeli Government.  Currently, we are obligated to pay royalties
at the rate of 4%-4.5% of related  revenues.  The  maximum  aggregate  royalties
payable cannot exceed 100%-300% of the  dollar-linked  value of the total grants
received  depending on different  factors as described  below (we  currently pay
100%-120%).  Royalties  payable with respect to grants  received  under programs
approved  after  January 1, 1999,  however,  will be subject to  interest on the
dollar-linked  value of the total  grants  received  at an annual  rate of LIBOR
applicable to dollar deposits.

The 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 does not own proprietary rights in technology
developed using its funding and there is no restriction on the export of
products manufactured using the technology. The technology is, however, subject
to other legal restrictions, including the obligation to manufacture the product
based on such technology in Israel and to obtain the consent of the Office of
the Chief Scientist to transfer the technology to a third party. The Office of
the Chief Scientist may consent to the manufacture of the products outside
Israel by identified manufacturers and, in such cases, may require the payment
of increased grants, ranging from 120% to 300% of the amount of the grant,
depending on the percentage of foreign manufacture. Therefore, in 2001 and 2002
Metalink was required by the Office of the Chief Scientist to pay increased
royalties of 120% of the amount of years 2001 and 2002 grants in the years
mentioned. These restrictions continue to apply even after we shall have paid
the full amount of royalties payable in respect of the grants. Since our
manufacturing activities are performed by subcontractors outside of Israel, the
consent of the Office of the Chief Scientist is required for these activities.
See "Item 10-Additional Information-Taxation-Grants under the Law for the
Encouragement of Industrial Research and Development, 1984"



<PAGE>



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 $212,000 for the year ended December 31, 1998, $385,000 for the year ended
December 31, 1999, $469,000 for the year December 31, 2000, $414,000 for the
year December 31, 2001 and $94,000 for the year December 31, 2002.

B.       Liquidity and Capital Resources

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. At December 31, 2001, we had cash and cash equivalents of $16 million,
short-term investments of $65 million and long-term investments of $9.2 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 22, 2000, we completed our secondary offering of 1,500,000 ordinary
shares, from which we received net proceeds of approximately $62.7 million.
Our total proceeds, net of royalties paid or accrued, from royalty-bearing
government grants was $13.1 million as of December 31, 2002, $10 million as of
December 31, 2001, and $7 million as of December 31, 2000.

Capital expenditures were $5,373,000 for the year ended December 31, 2000,
$4,084,000 for the year ended December 31, 2001 and $838,000 for the year ended
December 31, 2002. These expenditures were principally for capital equipment and
software for our research and development activities. We expect to invest
additional resources for capital equipment and software.

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

Net cash  provided by operating  activities  was  $1,989,000  in 2000.  Net cash
provided by investing  activities  was $4.8 million for the year ended  December
31, 2002. $177.3 million cash was provided from maturity and sales of marketable
debt securities and  certificate of deposits held in Metalink's  treasury offset
by $171.8  million  cash used in  purchase of  marketable  debt  securities  and
deposits,  and by $0.8  million  that was used for the  purchase of property and
equipment.  Net cash provided by investing activities was $22.9 million in 2001.
Net cash used in investing activities was $61 million in 2000.

<PAGE>

Net cash provided by financing activities was $0.6 million for the year ended
December 31, 2002 and was primarily attributable to exercise of employees option
and shares. Net cash used in financing activities was $8.8 million for the year
ended December 31, 2001 and was primarily attributable to repurchase (buy-back)
of shares that then became treasury stock. Net cash provided by financing
activities was $63.5 million for the year ended December 31, 2000 and
was primarily attributable to the proceeds of our secondary public offering. We
believe that cash generated from operations, our unused cash balances,
governmental research and development in Israel and the net proceeds from our
initial public offering and our secondary offering will provide sufficient cash
resources to finance our operations and the projected expansion of our sales and
marketing and research and development activities for at least the next twelve
months. However, if our operations do not generate cash to the extent currently
anticipated or if we grow more rapidly than currently anticipated, it is
possible that we will require additional funds at some point in the future.

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

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

D.       Trend Information

Telecommunications service providers and their customers are the principal
end-users of substantially all of our products. Recently, the telecommunications
industry in much of the world, including in our principal geographic markets,
has been experiencing an apparent slowdown, resulting in decreases and delays in
the procurement and deployment of new telecommunications equipment. As a result,
we have experienced a significant decline in demand for our products in 2002
compared to 2001. It is likely that any prolonged and substantial curtailment of
growth in the telecommunications industry will have an adverse effect, which may
be material, upon us. Any such curtailment may result from circumstances
unrelated to us or our product offerings and over which we have no control.

E. Off-balance sheet arrangements

Not applicable

<PAGE>







F. Tabular disclosure of Contractual Obligations.

Future aggregate minimum annual rental payments pursuant to the existing lease
commitments in effect as of December 31, 2002, are as follows:


Year              Amount (in thousands)

2003              $ 1,008
2004                1,008
2005                  890
2006                  854
2007-on             3,203

In addition, on March 2003 the Company signed a long-term contract with one of
its suppliers, pursuant to which the Company's payment commitments are $718,000,
$956,000 and $956,000 for 2003, 2004 and 2005, respectively. Other than that,
the Company has no long-term debt, or other long-term contracts or obligations.
The Company owes royalties to Israel with respect to products developed using
Israeli research and development grants, but the levels of those payments are
contingent on the level of product sales and do not have to be paid if product
sales do not occur.

<PAGE>

ITEM 6   DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.       Directors and Senior Management

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

Name                       Age      Position
Tvzi Shukhman              42       Chairman of the Board of Directors and Chief Executive Officer
J. Francois Crepin         56       President, Member of the Office of the CEO and Director
Ofer Lavie                 58       Chief Financial Officer
Ronen Avron                46       Vice President, International Sales
Daniel Manor               33       Vice President, Marketing
Aviva Gatt                 49       Vice President of Human Resources
Guy Shochet.............   36       Vice President, Wireless Products
Shmulik Shemesh......      34       Vice President, Operations
David Pereg.............   34       Vice President, Engineering
John Camagna..........     35       Vice President, Engineering
Avi Nudler...............  39       Vice President, Business Development
Uzi Rozenberg              43       Director
Efi Shenhar                47       Director
Sarit Weiss-Firon          37       Director
Joe Markee                 50       Director
Syrus Madavi               53       Director
Meir Bar-El                59       Director
</TABLE>

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

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

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

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

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

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

Guy Shochet has served as our Vice  President  of Wireless  Products  since June
2002.  Mr.  Shochet  has  been at  Metalink  since  1993,  holding  several  R&D
positions,  including  a position  of  Associate  Vice  President,  Engineering,
Networking Solutions since 2001. Prior to Metalink,  Mr. Shochet was a member of
the technical  staff in the Israel  Communications  Force  from1984 to 1990. Mr.
Shochet holds a Master in Business  Administration  from Boston University and a
B.S.E.E. from the University of New-Haven.
<PAGE>

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 an M.Sc. in Quality Assurance & Reliablity 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  Ltd. since February 1987. Mr.  Rozenberg
served as a director of Orbot Ltd.  from 1992 to 1996 and as a director of Gibor
Sport Ltd. from 1993 to 1997. Mr. Rozenberg and Mr. Shenhar are brothers.

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

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

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.

Syrus Madavi has served as a director since October 2001.  Mr. Madavi  currently
serves as Chief  Operating  Officer and  President of JDS Uniphase  Corporation.
From April 2002 to July 2002 Mr.  Madavi  served as chairman  of the Board,  and
executive  chairman for ON  Semiconductor  Corporation.  From  September 2000 to
March 2002 Mr.  Madavi  served as a senior vice  president of Texas  Instruments
Corporation.  Until August 2000,  Mr. Madavi was Chairman,  CEO and President of
Burr-Brown Corporation.  During September 2000, Burr-Brown was acquired by Texas
Instruments Corporation.  Prior to joining Burr-Brown,  Mr. Madavi was President
of Raytheon  Semiconductor  Corporation.  Mr. Madavi's professional  engineering
work experience  includes  employment  with General  Electric as well as several
other engineering  positions.  Mr. Madavi has a BSEE degree and a Masters degree
in Computer Science from Stevens Institute of Technology, as well as an MBA from
UCLA in Finance.

Meir Bar-El 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, 2002 to all
executive officers as a group (17 persons), was approximately $1,799,000 in
salaries, fees, commissions and bonuses. This amount includes approximately
$160,000 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.

During 2002 we granted to our directors and executive officers options to
purchase 145,000 ordinary shares under our option plans. The weighted average
exercise price of these options was $3.43 per share and they expire within 10
years from the date they were issued. C. Board Practices Our directors, other
than our external directors, are elected at annual general meetings by the vote
of the holders of a majority of the voting power represented at such meeting in
person or by proxy and voting on the election of directors. Each director shall
serve, subject to our articles of association, until the annual general meeting
next following the annual general meeting at which such director was elected.





External Directors

We are subject to the provisions of the Israeli Companies Law, 5759-1999 (the
"Companies Law"). The Companies Law authorizes the Minister of Justice to adopt
regulations exempting from the provisions described below companies, like us,
whose shares are traded outside of Israel.

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


o an employment relationship;

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

o control; and

o service as an office holder.

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

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

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

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




The initial term of an external  director is three years and may be extended for
an additional  three years.  Each committee of a company's board of directors is
required  to include at least one  external  director.  Mr.  Meir Bar-El and Ms.
Sarit Weiss-Firon are our external directors.  Ms. Sarit Weiss-Firon was elected
as an external director at the 2000 annual shareholders meeting, held on October
2000.  Mr.  Bar-El  was  elected  as an  external  director  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.

<PAGE>


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

Approval of Specified  Related  Party  Transactions  Under Israeli Law Fiduciary
Duties of Office Holders

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

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

o all other important information pertaining to the previous actions.

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

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

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

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

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

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

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

         Under Israeli law, an extraordinary transaction is a transaction:

o        other than in the ordinary course of business;

o        other than on market terms; or

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

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

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

Disclosure of Personal Interests of a Controlling Shareholder

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

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

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

         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
judgement,  including a settlement or an arbitrator's  award approved by a court
concerning an act performed in his capacity as an office holder; and

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


<PAGE>

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 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, Ms.
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.


<PAGE>

Management Employment Agreements

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

D.       Employees

As of May 31, 2003, we had 159 employees worldwide, of which 99 were employed in
research and development, 26 in sales and marketing, 15 in management and
administration, and 19 in operations and quality assurance. As of May 31, 2003,
134 of our employees were based in Israel and 25 were based in the United
States. We had 152 employees worldwide as of December 31, 2002, 141 employees
worldwide as of December 31, 2001, and 133 employees worldwide as of December
31, 2000. We have standard employment agreements with all of our employees,
other than our chief executive officer. All of our employees, other than our
chief executive officer, have executed employment agreements, including
confidentiality and non-compete provisions with us.

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


<PAGE>

E.       Share Ownership

The following  table sets forth certain  information  regarding the ownership of
our  ordinary  shares by our  directors  and  officers as of May 31,  2003.  The
percentage of outstanding ordinary shares is based on 18,655,413 ordinary shares
outstanding as of May 31, 2003.
<TABLE>
<S>                     <C>                <C>                     <C>

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


Tzvi Shukhman           5,681,356         30.5%                        -
Uzi Rozenberg           4,986,095         26.8%                        -
J. Francois Crepin(3)      *                *                       382,500
Ofer Lavie                 -                -                          *
Ronen Avron                -                -                          *
Danny Manor                -                -                          *
Aviva Gatt                 -                -                          *
Guy Shochet                -                -                          *
Shmuel Shemesh             *                *                          *
David Pereg                *                *                          *
John Camagna               -                -                          *
Avi Nudler                 -                -                          *
Efi Shenhar                *                *                          *
Sarit Weiss-Firon          -                -                          -
Joe Markee                 -                -                          *
Syrus Madavi               -                -                          *
Meir Bar-El                -                -                          -



------------------------
</TABLE>

*        Less than 1%.

(1) Except as otherwise noted and pursuant to applicable community property
laws, each person named in the table has sole voting and investment power with
respect to all ordinary shares listed as owned by such person. Shares
beneficially owned include shares that may be acquired pursuant to options that
are exercisable within 60 days of May 31, 2003. As of June 15, 2003, Mr.
Shukhman owned 5,731,356 shares as a result of open market purchases.

(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,  2003,  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, 2003, at an exercise  price of $5.00 per share,  (ii)
options to purchase 9,500 ordinary  shares,  which are exercisable as of May 31,
2003, at an exercise  price of $21.625 per share,  and (iii) options to purchase
3,000 ordinary shares,  which are exercisable as of May 31, 2003, at an exercise
price of $2.29 per share.


         Since November 2001, Tzvi Shukhman has acquired 1,335,932 shares (7.2%)
in open market transactions and Uzi Rozenberg has acquired beneficial ownership
of 1,000,000 shares (5.3%) in block trades from public securities holders.
Messrs. Shukhman and Rozenberg have filed a registration statement with the
Securities and Exchange Commission relating to 10,565,651 shares.
<PAGE>

As of May 31, 2003 there were 409,125 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.

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, 2003, options to purchase 3,672,225 ordinary shares under our
share option plans were outstanding. As of May 31, 2003, an additional 1,014,141
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 on or after November 14 and May 14 each
year, or on such other date as our board shall determine, and continuing
thereafter until terminated. The plan enables eligible employees who elect to
participate in the plan to purchase ordinary shares through payroll deductions
at a price of 85% of the fair market value of the ordinary shares on the first
or the last day of each offering period, which ever is lower. Participants will
be limited to a maximum of $25,000 deducted from their compensation under the
plan during each calendar year. The maximum number of ordinary shares which
shall be available for sale under the plan shall be 160,000 shares, plus an
annual increase to be added by the first day of the year commencing 2001 equal
to the lesser of (i) 140,000 shares or (ii) 3/4% of the outstanding shares on
such date or (iii) a lesser amount determined by our board. The plan shall be
administered by our board or a committee appointed by the board. The plan shall
terminate on October 31, 2010. As of May 31, 2003, 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.
<PAGE>

ITEM 7.           MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.       Major Shareholders

The following  table sets forth  certain  information  regarding the  beneficial
ownership of our ordinary  shares as of June 15, 2003,  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)           5,731,356                              30.7%
Uzi Rozenberg(3)(4)        4,986,095                              26.7%


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

--------------  (1)  Except  as  otherwise  noted  and  pursuant  to  applicable
community  property  laws,  each  person  named in the table has sole voting and
investment  power with  respect to all ordinary  shares  listed as owned by such
person.

(2) The  percentage  of  outstanding  ordinary  shares  is based  on  18,655,413
ordinary shares outstanding as of May 31, 2003.

(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.

<PAGE>

B.       Related Party Transactions

Voting Agreement

As of June 15, 2003, Messrs. Shukhman and Rozenberg, who together own an
aggregate of 10,717,451 ordinary shares (representing approximately 57.4% of our
ordinary shares outstanding as of May 31, 2003), are parties to a voting
agreement. Pursuant to the voting agreement, they will act in concert with
respect to the nomination and election of directors.

Employment Agreements



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

Indemnification Agreements

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


C. Interests of Exports and Counsel

Not applicable.

<PAGE>

ITEM 8.           FINANCIAL INFORMATION

A.       Consolidated Statements and Other Financial Information

Consolidated Financial Statements

The financial statements required by this item are incorporated by reference to
the Company's filing with the Securities and Exchange Commission on Form 6-K on
June 16, 2003. Other Financial Information In the year ended December 31, 2002
the amount of our export sales was approximately $3.46 million which represents
52.2% 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. The Company had previously
granted this employee options to purchase said shares. In addition, in January
2002, the Company paid the former employee $15,797 in payment of statutory
severance pay and reimbursement of travel expenses. 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). The former employee will be entitled to file a
second claim before the arbitrators if, by October 10, 2003, the market price of
Company's ordinary shares does not reach the price of $25.00 per share, or if
the Company does not repurchase the shares issued on behalf of the former
employee at said price (pursuant to an option we have to do so). Such second
claim, if filed, will be limited to financial damages in connection with the
alleged delay in issuing the shares to the former employee. If such second claim
is filed, we will be entitled to file a counter claim against the former
employee. In addition, if such second claim is filed, the parties are obligated
to conduct mediation proceedings before the arbitration proceedings commence. We
believe that the resolution of this matter will not have a material adverse
effect on our financial condition nor cause a material change in the number of
our outstanding ordinary shares. However, there can be no assurance that we will
necessarily prevail if a second claim is filed, due to the inherent
uncertainties in litigation.

We are not a party to any material legal proceedings.
<PAGE>

Dividend Policy

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

B.       Significant Changes

Not applicable.


<PAGE>

ITEM 9.           THE OFFER AND LISTING

A. Offer and Listing Details 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:
                                                          High           Low
1999
Fourth Quarter (commencing December 2)                $  23.81    $    19.19

2000
First Quarter                                            72.00         16.50
Second Quarter                                           38.75         15.75
Third Quarter                                            34.00         18.00
Fourth Quarter                                           18.50          9.25

2001
First Quarter                                            17.38          7.31
Second Quarter                                           10.00          6.19
Third Quarter                                             6.97          2.25
Fourth Quarter                                            5.95          2.04

2002
First Quarter                                             6.50          4.21
Second Quarter                                            4.48          2.23
Third Quarter                                             2.46          1.84
  July                                                    2.40          2.06
  August                                                  2.40          1.95
  September                                               2.46          1.84

Fourth Quarter                                            2.84          1.71
  October                                                 1.94          1.71
  November                                                2.72          1.99
  December                                                2.84          2.59

2003
First Quarter                                             3.80          2.74
  January                                                 3.18          2.74
  February                                                3.75          3.00
  March                                                   3.80          3.39
<PAGE>

Second Quarter (Until June 25)                            6.29          3.38
  April                                                   3.77          3.38
  May                                                     5.82          3.62
  June                                                    6.29          4.79



<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
Fourth Quarter (commencing December 3)      14.17       58.00        9.51            38.54

2001
First Quarter                               17.54       72.70        7.47            31.48
Second Quarter                               9.86       41.20        5.99            25.02
Third Quarter                                7.53       31.45        5.51            23.16
Fourth Quarter                               2.42       10.41        2.10             9.16

2002

First Quarter                                6.33       28.59        4.00            18.91
Second Quarter                               4.23       20.22        2.17            10.51
Third Quarter                                2.52       11.95        2.01             9.58
Fourth Quarter                               2.75       13.05        1.67             8.00
  October                                    1.98        9.62        1.67             8.00
  November                                   2.74       12.76        1.91             9.12
  December                                   2.75       13.05        2.56            12.14

2003
First Quarter                                3.79       18.40        2.55            12.11
January                                      3.11       15.00        2.55            12.11
February                                     3.74       18.25        2.86            13.85
March                                        3.79       18.40        3.39            15.98

Second Quarter (Until June 25)               6.33       27.72        3.46            16.14
  April                                      3.71       16.99        3.46            16.14
  May                                        5.77       25.44        3.68            16.53
  June                                       6.33       27.72        4.58            20.24
</TABLE>





B.       Plan of Distribution

Not applicable.
<PAGE>

C.       Markets

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

D. Selling shareholders.

Not applicable.

 E. Dilution.

Not applicable.

F.       Expenses of the Issue.

Not applicable.

<PAGE>

ITEM 10.          ADDITIONAL INFORMATION

A. Share Capital

Not applicable.

B.       Memorandum and Articles of Association

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

C.       Material Contracts

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

D.       Exchange Controls




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

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

E.       Taxation

Israeli Tax Considerations and Government Programs

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

Holders of our ordinary  shares 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,  including,  in particular,  the
effect of any foreign, state or local taxes.
<PAGE>

Tax Reform

On January 1, 2003, the Law for Amendment of the Income Tax Ordinance (Amendment
No. 132),  5762-2002,  known as the Tax Reform, came into effect,  following its
enactment by the Israeli  Parliament on July 24, 2002. On December 17, 2002, the
Israeli Parliament approved a number of amendments to the Tax Reform, which came
into effect on January 1, 2003.

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:

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

(ii) 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;

(iii) 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, 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;

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

(v) Introduction of a new regime for the taxation of shares and options issued
to employees and officers (including directors).


<PAGE>

General Corporate Tax Structure

Israeli companies are generally subject to company tax at the rate of 36% of
taxable income, and are subject to capital gains tax at a rate of 25% for
capital gains 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.

Tax Benefits and Grants for Research and Development


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




<PAGE>



 Tax Benefits Under the Law for the Encouragement of Capital Investments, 1959
The Law for the Encouragement of Capital Investments, 1959 (the "Investment
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 (the "Investment Center"), be designated as an "Approved
Enterprise". Such approvals may be granted only for applications submitted until
December 31, 2003. 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 Investment Law also provides that a company that has an Approved Enterprise
is entitled to accelerated depreciation on its property and equipment that are
included in an approved investment program.

The tax benefits derived from any such certificate of approval relate only to
taxable income attributable to the specific Approved Enterprise. In the event
that a company is operating under more than one approval or that its capital
investments are only partly approved, its effective company tax rate is the
result of a weighted combination of the various applicable rates. A company
owning an Approved Enterprise may elect to forego certain government grants
extended to Approved Enterprises in return for an alternative package of
benefits. Under the alternative package, 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. Under an amendment to the Investments Law that was made within
the framework of the tax reform, it was clarified that 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



<PAGE>



will be subject to tax in respect of the amount distributed (including the tax
thereon) at the rate which would have been applicable had it not elected the
alternative package of benefits (generally 10%-25%, depending on the extent of
foreign shareholders holding our ordinary shares). The dividend recipient is
taxed at the reduced rate applicable to dividends from Approved Enterprises
(15%), if the dividend is distributed during the tax exemption period or within
12 years thereafter. We must withhold this tax at source, regardless of whether
the dividend is converted into foreign currency.

Subject to certain provisions concerning income under the alternative package of
benefits, all dividends are considered to be attributable to the entire
enterprise and their effective tax rate is the result of a weighted combination
of the various applicable tax rates. We are not obliged to distribute exempt
retained profits under the alternative package of benefits, and we may generally
decide from which year's profits to declare dividends. We currently intend to
reinvest the amount of our tax-exempt income and not to distribute such income
as a dividend. The Investment Center bases its decision as to whether or not to
approve an application, on the criteria set forth in the Investment Law and
regulations, the then prevailing policy of the Investment Center, and the
specific objectives and financial criteria of the applicant. Accordingly, there
can be no assurance that any such application will be approved. In addition, the
benefits available to an Approved Enterprise are conditional upon the
fulfillment of conditions stipulated in the Investment Law and its regulations
and the criteria set forth in the specific certificate of approval, as described
above. In the event that a company does not meet these conditions, it would be
required to refund the amount of tax benefits, with the addition of the consumer
price index linkage adjustment and interest.

The Ministry of Finance has announced that it may seek to reduce, or even
cancel, some or all of the benefits under the Investment Law. Grants under the
Law for the Encouragement of Industrial Research and Development, 1984 Under the
Law for the Encouragement of Industrial Research and Development, 1984 (the "R&D
Law"), research and development programs performed until year 2002, which meet
certain criteria and are approved by a governmental committee of the Office of
the Chief Scientist ("Chief Scientist") were eligible for grants of up to 50% of
the project's expenditure, as determined by the research committee, in return
for the payment of royalties from the sale of the product developed in
accordance with the program.

Regulations promulgated under the Research Law generally provide for the payment
of royalties to the Chief Scientist ranging from 3% to 3.5% or in some cases,
such as ours, ranging from 4% to 4.5%, on revenues from products developed using
such grants until 100-120% of the dollar-linked grant is repaid. Following the
full repayment of the grant, there is no further liability for payment. See
"Item 5-Operating and Financial Review and Prospects". The terms of the grants
we received from the Office of Chief Scientist require that the manufacture of
products developed under the funded plans be performed in Israel, unless prior
approval is received from the Office of the Chief Scientist to the manufacture
of such products outside Israel. Ordinarily, any such approval requires the
payment of increased aggregate royalties, ranging from 120% to 300% of the U.S.
dollar-linked value of the total grants, depending on the percentage of the
manufacturing volume to be performed outside Israel, and the acceleration of the
royalty payment rate.







<PAGE>



              In November 2002, the Israeli parliament approved an amendment to
the R&D Law. The amendment became effective on April 1, 2003. As opposed to the
R&D Law prior to the amendment, which requires an undertaking in the application
that all manufacturing will be performed in Israel, the amendment to the R&D Law
allows for the approval of grants in cases in which the applicant declares that
part of the manufacturing will not be performed in Israel. This declaration is
required to include details regarding the locations in which the manufacture of
the product will be performed in Israel and out of Israel, the manufacture
activities to be performed in such locations (including the reasons for
performing such manufacture activities out of Israel) and the proportionate
manufacturing expenditures in Israel and out of Israel. This declaration will be
a significant factor in the determination of the Chief Scientist whether to
approve a plan and the amount and other terms of benefits to be granted.
In accordance with the amendment to the R&D Law, a plan will be approved if the
applicant is an Israeli corporation and as a result of the plan the applicant
will develop in Israel, by Israeli residents, a new product or a significant
improvement to an existing product, unless the Chief Scientist is convinced that
it is essential for the execution of the plan that part of it will be performed
out of Israel or by non-Israeli residents.

The amendment to the R&D Law further allows the Chief Scientist to provide
grants for portions of 20%, 30%, 40% or 50% of certain approved expenditures of
a research and development. The R&D Law prior to the amendment only allowed for
grants covering 50% of such expenditures. This amendment and the budget of the
Chief Scientist may affect the rate of additional grants that may be requested
by us in the future.

In addition, the amendment to the R&D Law adds reporting requirements with
respect to certain changes in the ownership of a grant recipient. The amendment
requires the grant recipient and its controlling shareholders and interested
parties to notify the Chief Scientist of any change in control of the recipient
or a change in the holdings of the means of control of the recipient that
results in a non-Israeli becoming an interested party directly in the recipient
and requires the new interested party to undertake to the Chief Scientist to
comply with the R&D Law. 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 and 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, absent an exemption, any non-Israeli who
acquires 5% or more of our ordinary shares will be required to notify the Chief
Scientist that it has become an interested party and to sign an undertaking to
comply with the R&D Law.

The proposed amendment to the R&D Law that would have allowed in certain
circumstances the transfer of the ownership of the technology developed with the
funding of the Chief Scientist to third parties outside of Israel was not
approved at this time.

The Company's manufacturing operations outside Israel have always been disclosed
in the



<PAGE>



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 Chief Scientist to overseas manufacturing operations, but we believe that
the implicit annual consent of the Chief Scientist to these operations is
represented by the awarding of the approved grant itself for the past 8 years.
We have sought, and received, grants for the past 8 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 Chief Scientist withdrew its support for our 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 our operating expenses. See "Item 5-Operating and Financial Review
and Prospects-Operating Results-Government Grants".

The funds available for Chief Scientist grants were reduced in 1998, and the
Israeli authorities have indicated that the government may further reduce or
abolish Chief Scientist grants in the future. Even if these grants are
maintained, we cannot presently predict what would be the amounts of future
grants, if any, that we might receive.

Tax Benefits and Grants for Research and Development

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

         (a) amortization of the cost of purchased know-how and patents over an
eight-year period for tax purposes;

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

         (c) accelerated depreciation rates on equipment and buildings; and (d)
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



<PAGE>






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

         (a) There is a special tax adjustment for the preservation of equity
whereby certain corporate assets are classified broadly into Fixed 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).

(b) 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.

         (c) 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.

         (d) Taxable gains on certain traded securities (which were previously
exempt from tax), are taxable at a reduced rate following the Tax Reform.
However, dealers in securities are subject to the regular tax rules applicable
to business income in Israel. Capital Gains Tax Israeli law generally imposes on
residents and non-residents of Israel a capital gains tax on the sale of capital
assets in Israel, including our ordinary shares, 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 in the month of sale
and the month of purchase.

Prior to the Tax Reform, gains on sales of our ordinary shares by individuals
were, generally, exempt from Israeli capital gains tax for so long as: (1) our
shares were quoted on Nasdaq or another stock exchange recognized by the Israeli
Controller of Foreign Currency and (2) we qualified as an Industrial Company.
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) subject to a necessary determination by the Israeli Minister of Finance,
Israeli companies publicly traded on a recognized stock exchange outside of
Israel. This tax rate is contingent upon the shareholder not claiming a
deduction for financing expenses (in which case the gain will be taxed at a rate
of 25%), and does not apply to: (i) 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); (ii) shareholders that report in accordance with the Inflationary
Adjustment Law (who will be taxed at a rate of 36% for corporations and at a
marginal tax rate of up to 50% for individuals); or (iii) shareholders who
acquired their shares prior to an initial public offering (that are 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



<PAGE>



such average price.

Non-Israeli residents are exempt from Israeli capital gains tax on any gains
derived from the sale of shares publicly traded on the TASE, 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 exchange outside of
Israel, provided that such capital gains are not derived from a permanent
establishment in Israel and that such shareholders did not acquire their shares
prior to the issuer's initial public offering. However, non-Israeli corporations
will not be entitled to such exemption if 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 any event, the provisions of the Tax Reform shall not effect the exemption
from capital gains tax for gains accrued before January 1, 2003, as described
above. 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




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

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 the 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 the 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 Israel's Law for the Encouragement of Capital Investments,
1959, the maximum tax will be 12.5% if the holder is a U.S. company holding
shares representing 10% or more of the voting power during the part of the
taxable year preceding the date of payment of dividends and during the whole of
its prior taxable year, if any, 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



<PAGE>







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;

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 Includable 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.

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



<PAGE>



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

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

A U.S. Holder will be denied a foreign tax credit with respect to Israeli income
tax withheld from dividends received on the ordinary shares: o if such U.S.
Holder has not held the ordinary shares for at least 16 days of the 30-day
period beginning on the date which is 15 days before the ex-dividend date; or o
to the extent such U.S. Holder is under an obligation to make related payments
on substantially similar or related property.

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






<PAGE>



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.

As previously announced, we believe that we were characterized as a PFIC for
2001 and 2002. 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 or 2002 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



<PAGE>



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 and 2002 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 and 2002, 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 and/or 2002 ,
if a U.S shareholder made a valid QEF election for 2001 and/or 2002 with respect
to Metalink shares:

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

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

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

Metalink did not have net ordinary earnings or net capital gain for 2001 and
2002 tax years. Therefore, any U.S shareholder who makes a QEF election for 2001
and/or 2002 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 and 2003 Metalink sent to its shareholders the required
information to report income and gain under a






<PAGE>



QEF election - a "PFIC ANNUAL INFORMATION STATEMENT" for the years 2001 and 2002
respectively. Any U.S shareholder who would like to receive PFIC ANNUAL
INFORMATION STATEMENT for years 2001 and/or 2002 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 or 2002 with respect to
Metalink shares would not be subject to deemed ratable allocations of gain, the
interest charge, and the denial of basis step-up at death described above.
Subject to shares of Metalink ever ceasing to be marketable, a mark-to-market
election is irrevocable without obtaining the consent of the IRS and would
continue to apply even in years that Metalink was no longer a PFIC.

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

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

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

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




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

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

U.S. Information Reporting and Backup Withholding

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



<PAGE>



Non-U.S. Holders generally are not subject to information reporting or back-up
withholding with respect to dividends paid on, or proceeds upon the sale,
exchange, redemption or other disposition of, the ordinary shares, provided that
such Non-U.S. Holder provides a taxpayer identification number, certifies to its
foreign status, or otherwise establishes an exemption. The amount of any backup
withholding will be allowed as a credit against such U.S. Holder's or Non-U.S.
Holder's United States federal income tax liability and may entitle such holder
to a refund, provided that the required information is furnished to the U.S.
Internal Revenue Service.

F. Dividends and Paying Agents

Not applicable.

G. Statements by Exports.

 Not applicable.






H. Documents on Display

We are subject to the informational requirements of the Securities Exchange Act
of 1934, as amended, applicable to foreign private issuers and fulfill the
obligation with respect to such requirements by filing reports with the
Securities and Exchange Commission. You may read and copy any document we file
with the Securities and Exchange Commission without charge at the Securities and
Exchange Commission's public reference room at 450 Fifth Street, N.W,
Washington, D.C. 20549. Copies of such material may be obtained by mail from the
Public Reference Branch of the Securities and Exchange Commission at such
address, at prescribed rates. Please call the Securities and Exchange Commission
at l-800-SEC-0330 for further information on the public reference room.
As a foreign private issuer, we are exempt from the rules under the Exchange Act
prescribing the furnishing and content of proxy statements, and our officers,
directors and principal shareholders are exempt from the reporting and
"short-swing" profit recovery provisions contained in Section 16 of the Exchange
Act. In addition, we are not be required under the Exchange Act to file periodic
reports and financial statements with the Securities and Exchange Commission as
frequently or as promptly as United States companies whose securities are
registered under the Exchange Act. A copy of each report submitted in accordance
with applicable United States law is available for public review at our
principal executive offices.

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, 2002 and






<PAGE>



December 31, 2001, we did not own any market risk sensitive instruments.
However, we may in the future undertake hedging or other similar transactions or
invest in market risk sensitive instruments if management determines that it is
necessary to offset these risks. See "Item 3-Key Information-Risk Factors-Risks
Relating to our location in Israel."

Interest Rate Risk

Our exposure to market
risk with respect to changes in interest rates relates primarily to our short-
and long-term investments. Our short- and long-term investments consist of
primarily, certificates of deposits and 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, 2002.

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 2003

U.S. dollar debt securities and               20,691
certificates of deposit with
fixed interest rate

 Weighted Average Interest Rate               2.39%

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

Marketable debt securities                    Maturity date at year 2004-on

U.S. dollar debt securities
with fixed interest rate                          46,197

Weighted average interest rate                      3.09%

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 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, 2002, approximately $38 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



<PAGE>



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]



PART III

ITEM 17.          FINANCIAL STATEMENTS

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

ITEM 18.          FINANCIAL STATEMENTS



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

ITEM 19.          EXHIBITS

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

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



<PAGE>



Exhibit 10.3 to the Registrant's Registration Statement on Form F-1 (No.
333-11118) filed with the Securities and Exchange Commission on November 10,
1999).

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

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

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





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

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

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

4.10*   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 20-F,  filed with
the Securities and Exchange Commission on June 26, 2003).

4.12* Form of Executive Employment Agreement.  (incorporated herein by reference
to Exhibit  4.10 to the  Registrant's  Report on Form 20-F for the period  ended
December  31,  2001,  as amended  and filed  with the  Securities  and  Exchange
Commission on June 16, 2003).

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).

32.1 Certification by Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

32.2
Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to section 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 26, 2003



<PAGE>




                           CERTIFICATION PURSUANT TO
                SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002

I, Tzvika Shukhman, 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 report, fairly present in all material respects the
financial condition,  results of operations and cash flows of the company as of,
and for, the periods presented in this report;

4.  The  company's  other  certifying  officer(s)  and  I  are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal  control over financial
reporting  (as defined in Exchange Act Rules  13a-15(f) and  15d-15(f))  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) Designed  such internal  control over  financial  reporting,  or caused such
internal control over financial  reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial  statements for external purposes in accordance
with generally accepted accounting principles;

(c)  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

(d) Disclosed in this report any change in the company's  internal  control over
financial reporting that occurred during the period covered by the 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(s) 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 the 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: August 29, 2003

/s/   Tzvika Shukhman_
Tzvika Shukhman
Chief Executive Officer &
Chairman of the Board






<PAGE>




                           CERTIFICATION PURSUANT TO
                SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002

I, Ofer Lavie, 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 report, fairly present in all material respects the
financial condition,  results of operations and cash flows of the company as of,
and for, the periods presented in this report;

4.  The  company's  other  certifying  officer(s)  and  I  are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal  control over financial
reporting  (as defined in Exchange Act Rules  13a-15(f) and  15d-15(f))  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) Designed  such internal  control over  financial  reporting,  or caused such
internal control over financial  reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial  statements for external purposes in accordance
with generally accepted accounting principles;

(c)  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

(d) Disclosed in this report any change in the company's  internal  control over
financial reporting that occurred during the period covered by the 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(s) 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 the 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: August 29, 2003

/s/   Ofer Lavie
Ofer Lavie
Chief Financial Officer







<PAGE>

 METALINK LTD.

                       CONSOLIDATED FINANCIAL STATEMENTS
                            AS OF DECEMBER 31, 2002

<PAGE>



                                 METALINK LTD.

                       CONSOLIDATED FINANCIAL STATEMENTS
                            AS OF DECEMBER 31, 2002




INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>


                                                                            Page
<S>                                                                         <C>

Report of Independent Auditors                                               2

Consolidated balance sheets as of December 31, 2002 and 2001                 3

Consolidated Statements of Operations
 for the years ended December 31, 2002, 2001 and 2000                        4

Statements of Changes in Shareholders' Equity
 for the years ended December 31, 2002, 2001 and 2000                       5-6

Consolidated Statements of Cash Flows
 for the years ended December 31, 2002, 2001 and 2000                       7-8
Notes to Consolidated Financial Statements                                  9-26

</TABLE>

<PAGE>

                         REPORT OF INDEPENDENT AUDITORS


To the Board of Directors and
Shareholders of Metalink Ltd.


     We have audited the  accompanying  consolidated  balance sheets of Metalink
Ltd.  ("the  Company") and its  subsidiary as of December 31, 2002 and 2001, and
the related  consolidated  statements of  operations,  changes in  shareholders'
equity and cash flows for each of the three years in the period  ended  December
31, 2002.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material respects, the consolidated financial position of
the  Company  and  its  subsidiary  at  December  31,  2002  and  2001  and  the
consolidated  results of their operations and their  consolidated cash flows for
each of the three years in the period ended  December 31,  2002,  in  conformity
with accounting principles generally accepted in the United States of America.


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

Tel Aviv, Israel
January 27, 2003

<PAGE>

                                 METALINK LTD.

                          CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>

                                                           December 31,
                                                        2002          2001
                                                (in thousands except share data)
<S>                                                     <C>            <C>

ASSETS
 Current assets
 Cash and cash equivalents                           $  9,158     $  15,946
 Short-term investments (Note 3)                       20,691        64,967
 Trade accounts receivable                              1,036         1,966
 Other receivables (Note 10)                            1,444           796
 Prepaid expenses                                         735           706
 Inventories (Note 4)                                   3,904         2,806
     Total current assets                              36,968        87,187

Long-term investments (Note 3)                         46,197         9,172

Severance pay fund (Note 6)                             1,189           827

Property and equipment, net (Note 5)                    5,352         7,547

     Total assets                                    $ 89,706     $ 104,733

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
 Trade accounts payable                              $  1,750     $   1,473
 Other payables and accrued expenses (Note 10)          2,499         3,284
     Total current liabilities                          4,249         4,757
 Accrued severance pay (Note 6)                         1,899         1,479

Shareholders' equity (Note 8)
 Ordinary shares NIS 0.1 par value
   (Authorized - 50,000,000 shares, issued and
   outstanding 19,450,556 and 19,194,988 shares
   as of December 31, 2002 and 2001,
   respectively)                                         586           580
 Additional paid-in capital                          127,578       127,029
 Deferred stock-based compensation                     (846)       (1,650)
 Accumulated other comprehensive income                   40             -
 Accumulated deficit                                (33,915)      (17,577)
                                                      93,443       108,382
 Treasury stock, at cost; 898,500 shares as of
   December 31, 2002 and 2001                        (9,885)       (9,885)
 Total shareholders' equity                           83,558        98,497

     Total liabilities and shareholders' equity     $ 89,706     $ 104,733

</TABLE>

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


<PAGE>

                                 METALINK LTD.

                     CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>

                                                           December 31,
                                                   2002      2001      2000
                                                  (in thousands except share
                                                      and per share data)
<S>                                                 <C>       <C>       <C>


Revenues (Note 11)                               $ 6,636   $ 14,049   $ 23,302
Cost of revenues (Note 11):
 Costs and expenses (excluding non-cash
   compensation of $51, $53 and $58,
   respectively)                                   4,589      6,086      9,794
 Royalties to the Government of Israel               144        364        469
     Total cost of revenues                        4,733      6,450     10,263


   Gross profit                                    1,903      7,599     13,039

Operating expenses:
 Gross research and development (excluding
   non-cash compensation of $165, $188 and $242,
   respectively)                                  15,240     17,060     12,592
 Less - Royalty bearing grants                     3,213      3,457      3,381
 Research and development, net                    12,027     13,603      9,211
 Selling and marketing (excluding non-cash
   compensation of $233, $172 and $205,
   respectively)                                   4,814      5,465      3,665
 General and administrative (excluding non-cash
   compensation of $350, $332 and $286,
   respectively)                                   2,884      3,526      3,042
 Non-cash compensation                               799        745        791
     Total operating expenses                     20,524     23,339     16,709

   Operating loss                               (18,621)   (15,740)    (3,670)

   Interest income, net                            2,283      4,629      5,986

   Net income (loss)                          $ (16,338) $ (11,111)    $ 2,316

Earnings (loss) per ordinary share:
  Basic                                       $   (0.89) $   (0.61)    $  0.13
  Diluted                                     $   (0.89) $   (0.61)    $  0.11

Shares used in computing earnings (loss) per ordinary share:
  Basic                                      18,407,190  18,260,798  18,269,556
  Diluted                                    18,407,190  18,260,798  20,773,382

</TABLE>


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

<PAGE>





<TABLE>
<CAPTION>

                                                  METALINK LTD.

                                   STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                          (in thousands, expect share data)
<S>                          <C>         <C>        <C>     <C>           <C>       <C>      <C>           <C>    <C>          <C>

                                                                                           Accumulated              Total
                           Number of  Number of          Additional  Deferred    Treasury   Other          Accum-   Compre-
                         outstanding  Treasury   Share    paid-in    Stock-based  Stock    Comprehensive ulated     hensive
                           shares     shares     capital  Capital   compensation (at cost)  income       deficit  income(loss) Total



Balance at
  January 1, 2000        16,792,400         -   $  523    $ 61,562    $ (2,312)    $   -     $   -      $ (8,782)           $ 50,991
Changes during 2000:
Issuance of shares in
  public offering, net
  of issuance costs       1,500,000                 37      62,665            -        -         -              -      -      62,702
Purchase of treasury
  stock                           -      (40,000)    -           -            -    (392)         -              -      -       (392)
Exercise of options         539,624         -       14       1,210            -        -         -              -      -       1,224
Deferred stock-based
  compensation related
  to stock option grants
  to consultants and
  subcontractors                  -         -        -         824        (824)        -         -              -      -           -
Cancellation of deferred
  stock-based compensation
  due to resignation of
  employees                       -         -        -       (319)         319         -         -              -      -           -
Amortization of deferred
  stock-based compensation        -         -        -           -         791         -         -              -      -         791

Income for the year               -         -        -           -           -         -         -          2,316   2,316      2,316
  Total comprehensive
  income                                                                                                          $ 2,316
Balance at
   December 31, 2000    18,832,024   (40,000)     574      125,942     (2,026)     (392)         -        (6,466)            117,632

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

</TABLE>

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

<PAGE>

                                                               METALINK LTD.
<TABLE>
<CAPTION>

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

                                               STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                                    (in thousands, except share data)

                                                                                           Accumulated            Total
                           Number of  Number of          Additional  Deferred    Treasury   Other        Accum-  Compre-
                         outstanding  Treasury   Share    paid-in    Stock-based  Stock    Comprehensive ulated  hensive
                           shares     shares     capital  Capital   compensation (at cost)  income       deficit income(loss)  Total

Balance at
  January 1, 2002         19,194,988 (898,500)  $   580  $ 127,029  $  (1,650)  $ (9,885)   $    -     $(17,577)            $ 98,497

Changes during 2002:
Exercise of employee
  options and shares         255,568         -        6        554          -           -        -              -      -         560
Deferred stock-based
  compensation related
  to stock option
  grants to consultants            -         -        -          4        (4)           -        -              -      -           -
Cancellation of deferred
  stock-based compensation
  due to  resignation of
  employees                        -         -        -        (9)         9            -        -              -      -           -
Amortization of deferred
  stock-based compensation         -         -        -          -       799            -        -              -      -         799
Other comprehensive income:
  Unrealized gain on
    marketable securities          -         -        -          -         -            -       40              -     40          40
Loss for the year                  -         -        -          -         -            -        -       (16,338)  (16,338) (16,338)
Total comprehensive loss                                                                                          $(16,298)
Balance at
   December 31, 2         19,450,556   898,500   $  586  $ 127,578   $ (846)    $ (9,885)     $ 40     $(33,915)           $ 83,558

</TABLE>


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

<PAGE>


METALINK LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS



<TABLE>
<CAPTION>

                                                           December 31,
                                                   2002        2001        2000
                                                          (in thousands)
<S>                                                 <C>        <C>         <C>

Cash flows from operating activities:
Net income (loss)                             $ (16,338)  $ (11,111)    $  2,316
Adjustments to reconcile net income (loss)
  to net cash provided by (used in)
  operating activities (Appendix A)                4,244       4,092       (327)
Net cash provided by (used in) operating
  activities                                    (12,094)     (7,019)       1,989

Cash flows from investing activities:

Purchase of marketable debt securities
  and certificates of deposits                 (171,758)   (262,189)   (300,558)
Proceeds from maturity and sales of
  marketable debt securities and
  certificates of deposits                      177,342      289,156     244,970
Purchase of property and equipment                (838)      (4,084)     (5,373)
Proceeds from disposal of property and
  equipment                                           -            -           8
Net cash provided by (used in) investing
  activities                                      4,746       22,883    (60,953)

Cash flows from financing activities:
Proceeds from issuance of shares and
  exercise of options, net                          560          724      63,926
Purchase of treasury stock                            -      (9,493)       (392)




Net cash provided by (used in) financing
  activities                                        560      (8,769)      63,534
Increase (decrease)  in cash and cash
  equivalents                                   (6,788)        7,095       4,570
Cash and cash equivalents at beginning
  of year                                        15,946        8,851       4,281
Cash and cash equivalents at end of year       $  9,158    $  15,946    $  8,851

</TABLE>

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

<PAGE>

<TABLE>
<CAPTION>

                                 METALINK LTD.

               APPENDIX TO CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                           December 31,
                                                   2002        2001        2000
                                                          (in thousands)
<S>                                                 <C>        <C>         <C>

Appendix A

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

   Depreciation and amortization                 $  3,033   $  1,937    $  1,208
   Amortization of marketable debt securities
     and deposit  premium and accretion of
     discount                                         979        190       (256)
   Increase in accrued severance pay, net              58        216         171
   Amortization of deferred stock-based
     compensation                                     799        745         791
   Capital loss                                         -          -          90

Changes in assets and liabilities:

Decrease (increase) in assets:
  Trade accounts receivable                           930      1,816     (1,293)
  Other receivables and prepaid expenses               51      1,876     (2,300)
  Inventories                                     (1,098)      (793)     (1,187)
Increase (decrease) in liabilities:
  Trade accounts payable                              277    (2,158)       2,143
  Other payables and accrued expenses               (785)        263         306
                                                 $  4,244   $  4,092    $  (327)

</TABLE>


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

<PAGE>


NOTE 1 - GENERAL

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

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

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

     A. Use of Estimates in Preparation of Financial Statements

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

     B. Financial Statements in U.S. Dollars

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

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

     C. Principles of Consolidation

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

     D. Cash Equivalents

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

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

     E. Marketable Debt Securities


     The Company  accounts  for its  investments  in  marketable  securities  In
accordance with SFAS No. 115,  "Accounting  for Certain  Investments in Debt and
Equity Securities".

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

     As of December 31, 2002 all  marketable  debt  securities are designated as
available-for-sale and accordingly are stated at fair value, with the unrealized
gains and losses reported as a separate component of shareholders'  equity under
accumulated other  comprehensive  income.  Realized gains and losses on sales of
investments,  as determined on a specific  identification basis, are included in
the consolidated statement of operations.
     As of December 31, 2001 all marketable  debt  securities were designated as
held-to-maturity  and,  accordingly,  were stated at  amortized  cost.  Interest
income  including the  amortization of premium and discount were included in the
consolidated statement of operations.

     F. Inventories

     Inventories  are stated at the lower of cost or market.  Cost is determined
as follows:  Raw  materials,  components  and finished  products - on the moving
average basis. Work-in-process - on the basis of actual manufacturing costs.

     G. Property and Equipment

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

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

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

<PAGE>

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

     G. Property and Equipment (Cont.)

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

     H. Revenue Recognition

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

     I. Research and Development Expenses

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

     J. Deferred Income Taxes

     Deferred  income taxes are provided for temporary  differences  between the
assets and  liabilities,  as measured in the  financial  statements  and for tax
purposes,  at tax rates expected to be in effect when these differences reverse,
in accordance with SFAS 109.

     K. Net Earnings (Loss) Per Ordinary Share

     Basic and  diluted  net  earnings  (loss) per share have been  computed  in
accordance  with SFAS No.  128 using the  weighted  average  number of  ordinary
shares outstanding.  Basic earnings (loss) per share exclude any dilutive effect
of options and warrants. Diluted earnings per share give effect to all potential
dilutive issuances of ordinary shares that were outstanding during the period. A
total  of  282,016  and  764,042  incremental  shares  were  excluded  from  the
calculation  of  diluted  net  loss  per  ordinary  share  for  2002  and  2001,
respectively due to the anti-dilutive  effect, and 2,503,826  incremental shares
were used to calculate diluted earnings per ordinary share for 2000.

<PAGE>

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

     L. Stock-based compensation

     The Company  accounts for employee  stock-based  compensation in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees"  ("APB 25") and in accordance with FASB  Interpretation  No. 44 ("FIN
44").  Pursuant  to  these  accounting   pronouncements,   the  Company  records
compensation  for stock options  granted to employees over the vesting period of
the options based on the difference,  if any,  between the exercise price of the
options and the market price of the underlying shares at that date. With respect
to variable awards, changes in the market price of the underlying shares at each
balance  sheet  date  affect  the  aggregate  amount of  compensation  recorded.
Deferred  compensation  is  amortized to  compensation  expense over the vesting
period of the options.  For purposes of estimating fair value in accordance with
SFAS 123, the Company  utilized the Black-  Scholes  option-pricing  model.  The
following  assumptions  were utilized in such  calculations  for the years 2002,
2001 and 2000 (all in weighted averages):

<TABLE>
<CAPTION>

                                                          2002     2001     2000
<S>                                                        <C>     <C>      <C>

Risk-free interest rate                                   2.60%    6.50%   4.50%
Expected life of options                                5 years  5 years 5 years
Expected volatility                                         70%     109%     70%
Expected dividend yield                                    none     none    none

</TABLE>


     Had compensation  cost for the Company's stock option plans been determined
based on fair  value at the grant  dates for all awards  made in 2002,  2001 and
2000 in  accordance  with SFAS 123, as amended by SFAS 148,  the  Company's  pro
forma income (loss) per share would have been as follows:

<TABLE>
<CAPTION>

                                                   2002        2001        2000
                                                          (in thousands)
<S>                                                 <C>        <C>         <C>

Pro forma Net income (loss)
Net income (loss) for the year, as reported   $ (16,338)   $ (11,111)    $ 2,316
Deduct  - stock-based compensation
determined under APB-25                              464          123        579
Add - stock-based compensation
determined under SFAS 123                        (3,686)      (4,418)    (2,626)
Pro forma net income (loss)                   $ (19,560)   $ (15,406)    $   269


Diluted net income (loss) per share:
As reported                                   $  (0.89)    $   (0.61)    $  0.11
Pro forma                                     $  (1.06)    $   (0.85)    $  0.01





</TABLE>
<PAGE>

                                 METALINK LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

     M. Concentrations of Credit Risk

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

     (i) As of  December  31,  2002  and  2001,  the  Company  had cash and cash
equivalents,  short-term  and long-term  investments  totaling  $76,046,000  and
$90,085,000,respectively,  most of which are  deposited in major U.S.  financial
institutions.  Management believes that the financial  institutions  holding the
Company's cash and cash  equivalents and its deposits are financially  sound. In
addition,  the  marketable  debt  securities  held  by the  Company  consist  of
highly-rated  corporate  bonds.  Accordingly,  limited  credit  risk exists with
respect to this item.

     (ii) Most of the  Company's  revenues are  generated in Europe,  Israel and
North  America  from a small  number of  customers  (see Note 11),  mainly large
industrial corporations.  The Company generally does not require securities from
its customers.  The Company maintains an allowance for doubtful accounts,  which
management believes adequately covers all anticipated losses in respect of trade
receivables. At December 31, 2002 the amount for doubtful accounts is $92,000.


     N. Concentrations of Available Sources of Supply of Products

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

     O. Fair Value of Financial Instruments

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

<PAGE>

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

     P. Reclassification

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

     Q. Effects of recently issued accounting standards

     In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated
with Exit or Disposal Activities" ("SFAS No. 146"). SFAS No. 146 requires that a
liability for costs  associated with an exit or disposal  activity be recognized
only when the  liability  is  incurred,  rather  than at the date of an entity's
commitment  to an exit  plan.  SFAS  No.  146  requires  that the  liability  be
initially measured at fair value. SFAS No. 146 is effective for exit or disposal
activities  that are  initiated  after  December 31, 2002.  Management  does not
expect that adoption of SFAS No. 146 will have material  impact on its financial
statements.

     In  November  2002,  the FASB  issued  Interpretation  No. 45  "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees of Indebtedness of Others" ("FIN 45"), which clarifies disclosure and
recognition/measurement   requirements   related  to  certain  guarantees.   The
disclosure  requirements  are effective for  financial  statements  issued after
December 15, 2002 and the recognition/measurement  requirements are effective on
a prospective  basis for guarantees  issued or modified after December 31, 2002.
The application of the  requirements of FIN 45 did not have a material impact on
the Company's financial statements.

In November 2002, the Emerging Issue Task Force reached a consensus on EITF
Issue No. 00-21 (EITF 00-21), Revenue Arrangements with Multiple Deliverables.
The Issue addresses certain aspects of the accounting for arrangements under
which a vendor will perform multiple revenue-generating activities. EITF 00-21
addresses when a revenue arrangement with multiple deliverables should be
divided into separate units of accounting and, if separation is appropriate, how
the arrangement consideration should be allocated to the identified accounting
units. The Company is required to adopt the provisions of EITF 00-21 effective
July 1, 2003, and the Company does not expect the adoption of EITF 00-21 to have
a material impact on its results of operations or financial condition.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure" ("SFAS No.148"). SFAS No. 148 amends
SFAS No. 123, to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
transition guidance and annual disclosure provisions of SFAS No. 148 are
effective for fiscal years ending after December 15, 2002. The interim
disclosure provisions are effective for financial reports containing financial
statements for interim periods beginning after December 15, 2002. As the Company
did not make a voluntary change to the fair value based method of accounting for
stock-based employee compensation in 2002, the adoption of SFAS No. 148 did not
have a material impact on the Company's financial position and results of
operations.


<PAGE>

NOTE 3 - INVESTMENT IN MARKETABLE SECURITIES AND DEPOSITS

     A. Short-term investments

<TABLE>
<CAPTION>

Comprised as follows:
                                                                 December 31,
                                                             2002           2001
                                                               (in thousands)
<S>                                                           <C>           <C>

Certificates of deposit                                     14,118        35,252
Corporate bonds                                              6,573        29,715
                                                        $   20,691    $   64,967

Fair Value                                              $   20,691    $   65,140

</TABLE>


     B. Long-term investments

<TABLE>
<CAPTION>

Comprised as follows:
                                                                 December 31,
                                                             2002           2001
                                                               (in thousands)
<S>                                                           <C>           <C>

Certificates of deposit                                    20,146            414

U.S. Government agencies                                    9,000              -
Corporate bonds                                            17,051          8,758
                                                           46,197          9,172

Fair Value                                             $   46,197      $   9,181

</TABLE>

     As of  December  31,  2002 the  aggregate  maturities  of  marketable  debt
securities and deposits are as follows:

<TABLE>
<CAPTION>

Year     (in thousands)
<S>           <C>

2004       $ 17,426
2005         15,704
2006          8,200
2007          4,867

</TABLE>





     As of December 31, 2002, all the  investments  are classified in accordance
with  SFAS115  as  "Available  for sale" and in  December  31,  2001 as "Held to
maturity".

<PAGE>

NOTE 4 - INVENTORIES

<TABLE>
<CAPTION>

Comprised as follows:
                                                                 December 31,
                                                             2002           2001
                                                               (in thousands)
<S>                                                           <C>           <C>

Raw materials and components                              $    945      $    538
Work-in-process                                                629           142
Finished products                                            2,330         2,126
                                                          $  3,904      $  2,806

</TABLE>

     The balances are net of write-downs of $619,000 and $150,000 as of December
31,2002 and 2001, respectively.

NOTE 5 - PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>

Comprised as follows:
                                                                 December 31,
                                                             2002           2001
                                                               (in thousands)
<S>                                                           <C>           <C>

Cost:

Computers and manufacturing equipment                    $  10,456     $  10,622
Furniture and fixtures                                         534           531
Leasehold improvements                                         850           842
                                                         $  11,840     $  11,995
Accumulated depreciation and amortization:
Computers and manufacturing equipment                    $   6,199     $   4,259
Furniture and fixtures                                          98            86
Leasehold improvements                                         191           103
                                                           $ 6,488       $ 4,448


</TABLE>


<PAGE>

NOTE 6 - ACCRUED SEVERANCE PAY, NET

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

     The severance pay expenses for the years ended December 31, 2002,  2001 and
2000 were $538,000 $831,000 and $542,000, respectively.

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




NOTE 7 - COMMITMENTS AND CONTINGENT LIABILITIES

     A. Royalties

(i) The Company is committed to pay  royalties  to the  Government  of Israel on
proceeds from the sale of products in the research and  development of which the
Government has  participated by way of grants,  up to the amount of 100%-150% of
the grants received plus interest at LIBOR rate (in dollar terms). The royalties
are payable at a rate of 4% for the first three years of product  sales and 4.5%
thereafter.  The total  amount  of grants  received,  net of  royalties  paid or
accrued,  as of December 31, 2002 was $13,117,000.  The research and development
grants are  presented in the  statements  of operations as an offset to research
and development expenses. The refund of the grants is contingent on future sales
and the Company  has no  obligation  to refund  these  grants,  if sales are not
generated.  The repayment of the grant is contingent upon the successful outcome
of the research and development and the attainment of sales.  The financial risk
is assumed  completely by the Government of Israel. The grants are received from
the Government on a project by project  basis.  If the project fails the Company
has no obligation to repay any grant received for the specific  unsuccessful  or
aborted project.


     Royalty  expenses to the  Government of Israel for the years ended December
31, 2002, 2001 and 2000 were $144,000, $364,000 and $469,000, respectively.
     (ii) The Company is obligated to pay royalties to certain parties, based on
agreements  which  allow the  Company to  incorporate  their  products  into the
Company's  products.  Royalty  expenses  to these  parties  for the years  ended
December 31, 2002, 2001 and 2000 were $80,000 $ 22,000 and $ 2,000 respectively.


     B. Lease Commitments

     (i) The  premises  of the Company in Israel are rented  under an  operating
lease  agreement  expiring in September  2010. In addition,  the premises of the
subsidiary  in the United States are rented under an operating  lease  agreement
till March 2005, with an option to extend the lease for two additional five-year
periods.

<PAGE>



NOTE 7 - COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

     B. Lease Commitments (Cont.)

     Future  aggregate  minimum annual rental payments  pursuant to the existing
lease commitments in effect as of December 31, 2002, are as follows:

<TABLE>
<CAPTION>

Year               (in thousands)
<S>                      <C>

2003                 $   1,008
2004                     1,008
2005                       890
2006                       854
2007 and thereafter      3,203

</TABLE>



     The Company  arranged  for a bank  guarantee in favor of the lessors of the
premises in Israel and in United States totaling  $217,000.  Total rent expenses
for the years ended December 31, 2002, 2001 and 2000 were $936,000, $957,000 and
$543,000, respectively.

     (ii) The Company leases its motor vehicles under cancelable operating lease
agreements,  for periods through 2005. The minimum payment under these operating
leases upon cancellation of these lease  agreements,  amounted to $265,000 as of
December 31, 2002.  Lease expenses for the years ended  December 31, 2002,  2001
and 2000, were $732,000, $720,000 and $388,000, respectively.

     C. Legal Claim

     On July 9, 1998, a former employee filed a claim against the Company in the
Tel Aviv District  Labor Court for the issuance to him of ordinary  shares,  the
payment on his behalf of any taxes  relating to such  issuance and certain other
payments and damages.  Pursuant to the court's  order,  and based on  agreements
between the parties  following a mediation  process,  the Company  issued 75,765
ordinary  shares  (which are held in trust) in favor of the former  employee  in
March 2001. The Company had previously granted this employee options to purchase
said shares. In addition,  in January 2002, the Company paid the former employee
$15,797  in payment  of  statutory  severance  pay and  reimbursement  of travel
expenses.  In September 2002, the Company paid $390,761 in damages to the former
employee  pursuant  to an  arbitrators'  judgment  following  the first stage of
arbitration between the parties.

The  former  employee  will  be  entitled  to file a  second  claim  before  the
arbitrators  if, by October 10, 2003,  the market  price of  Company's  ordinary
shares does not reach the price of $25.00 per share,  or if the Company does not
repurchase  the shares  issued on behalf of the former  employee  at said price.
Such second claim, if filed,  will be limited to financial damages in connection
with the  alleged  delay in issuing the shares to the former  employee.  If such
second  claim is filed,  the Company  will be  entitled to file a counter  claim
against the former  employee.  The Company  believes that the resolution of this
matter will not have a material  adverse  effect on its  results of  operations,
liquidity and its financial  condition nor cause a material change in the number
of its outstanding ordinary shares.  However, there can be no assurance that the
Company will necessarily prevail if a second claim is filed, due to the inherent
uncertainties in litigation.
<PAGE>

NOTE 8 - SHARE CAPITAL

     A. In December  1999, the Company  completed an initial public  offering in
the  United  States  and  issued  4,600,000   ordinary  shares   (including  the
underwriters'  over-allotment)  for net proceeds of  $49,838,000.  Following the
public offering, the Company's shares are traded on the over-the-counter  market
and are  listed on the  NASDAQ  National  Market.  In March  2000,  the  Company
completed a second  public  offering in the United  States and issued  1,500,000
ordinary shares for net proceeds of $ 62,702,000.

     Since  December  2000,  the shares of the  Company  are also  traded on the
Tel-Aviv Stock Exchange.  In October 2000 and March 2001, the Board of Directors
of the  Company  approved  the  purchase  of up to  1,000,000  of the  Company's
ordinary  shares for up to $10,000,000.  Through  December 31, 2002, the Company
had  purchased  898,500  of its  ordinary  shares,  in the  aggregate  amount of
$9,885,000.

     B. Employee Stock Purchase Plan

     During 2000,  the Board of Directors  approved an Employee  Stock  Purchase
Plan (the "ESPP"), effective October 2000. Under the ESPP, the maximum number of
shares to be made  available is 160,000  with an annual  increase to be added on
the first day of the year  commencing 2001 equal to the lesser of 140,000 shares
or 3/4 % of the outstanding shares on such date or a lesser amount determined by
the Board of Directors.

     Any  employee  of the  Company  is  eligible  to  participate  in the ESPP.
Employee stock purchases are made through payroll deductions. Under the terms of
the ESPP, employees may not deduct an amount exceeding $25,000 in total value of
stock in any one year.  The  purchase  price of the stock will be the 85% of the
lower of the fair  market  value of an  ordinary  share on the  first day of the
offering  period  and the fair  market  value  on the  last day of the  offering
period.  The offering  period was  determined  to be six months.  The ESPP shall
terminate  on  October  31,  2010,  unless  terminated  earlier  by the Board of
Directors.  As of December 31, 2002,  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.

     C. Stock Options

     1.  Under the  Company's  five Stock  Option  Plans  (the  "Plans"),  up to
5,630,645  options  approved to be granted to  employees  and  directors  of the
Company or its subsidiary.

     2. Pursuant to the Plans,  as of December 31, 2002, an aggregate of 778,303
options of the Company are still available for future grant.


     3. The options  granted  vest over  periods  ranging from one to five years
from the date of the grant, and most of them will expire after 10 years from the
date of the grant.  With respect to options granted at exercise prices below the
fair  market  value of the  underlying  shares  at the date of  grant,  deferred
compensation  is recorded and charged to earnings over the vesting period of the
options in accordance with APB 25 and FIN 44.


<PAGE>

NOTE 8 - SHARE CAPITAL (Cont.)

     C. Stock Options (Cont.)

     A summary of the status of the Company's  stock option plans as of December
31, 2002, 2001 and 2000 and changes during the years then ended are as follows:

<TABLE>
<CAPTION>

                                     December 31, 2002          December 31, 2001              December 31, 2000
                                                  Weighted                   Weighted                      Weighted
                                                  average                    average                       average
                                                  exercise                   exercise                      exercise
                                     Shares       price      Shares          price          Shares         price

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

Options outstanding at

Beginning of year                   3,666,381    $ 7.00     3,715,822       $ 7.59         3,058,172      $
4.14
Granted during year                   360,447      3.27       837,100         5.09         1,429,894       12.89
Forfeited during year                (275,126)     8.79      (681,563)        9.46          (288,621)       6.57
Exercised during year                 (66,076)     1.93      (204,978)        1.72          (483,623)       2.06

Outstanding at end of year          3,685,626      6.59     3,666,381         7.00         3,715,822
7.59

Options exercisable at end
of year                             2,218,214   $  6.52     1,654,630       $ 6.46         1,056,231      $ 3.35

Weighted average fair
value of options granted
during year                           $  1.51                 $  3.03                        $  7.10

</TABLE>




     The  following  table  summarizes  information  relating  to stock  options
outstanding as of December 31, 2002:

<TABLE>
<CAPTION>

                         Options outstanding                     Options exercisable
                                   Weighted
                       Number      average        Weighted      Number         Weighted
                  outstanding at   remaining      average     exercisable at   average
                   December 31,    contractual    exercise    December 31,     exercise
Exercise price         2002      life (in years)  price           2002         price

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

$ 0.00 - 2.65       489,257         13.18           1.44        335,708        1.15
$ 2.76 - 3.28       429,400         9.14            3.06        140,250        3.07
$ 3.40 - 4.00       566,975         5.99            3.92        422,543        3.92
$ 4.15 - 5.00       647,050         7.03            4.84        417,333        5.00
$ 5.04 - 7.00       56,800          8.63            5.71         11,500        6.01
$ 7.31 - 8.95       540,792         7.09            7.87        351,832        7.84
$ 9.00 - 22.06      955,352         7.74           12.93        539,048       13.11
                  3,685,626         8.15            6.59      2,218,214        6.52

</TABLE>

<PAGE>


NOTE 8 - SHARE CAPITAL (Cont.)

     D. Options issued to consultants

     In April  2000,  the  Company  adopted  the "Share  Option  Plan - 2000" to
provide for the grant of options to members of the advisory board of the Company
and independent contractors.  The options are exercisable over five years. As of
December 31, 2002, 216,000 options had been granted (16,000,  97,000 and 103,000
for  2002,  2001 and  2000,  respectively)  under  this  plan to  certain  sales
representatives  and advisors of the Company at an exercise  price of $ 1.85 - $
15.75 per share.  The Company  accounted  for these options under the fair value
method of FAS No. 123 and EITF 96-18.  The fair value was  determined  using the
Black-Scholes pricing model with the following  assumptions:  risk-free interest
rate of 2.6%-6.50%; volatility rate of 70%- 108.9%; dividend yields of 0% and an
expected life of one to five years.  The Company recorded  deferred  stock-based
compensation of $4,000, $428,000 and $824,000 for the years 2002, 2001 and 2000,
respectively.  Compensation  expenses of  $334,000,  $257,000 and $ 213,000 were
recognized for the years ended December 31, 2002, 2001 and 2000, respectively.

NOTE 9 - TAXES ON INCOME

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

     The Company's foreign subsidiary is subject to the tax rules in its country
of  incorporation.  The  production  facilities of the Company have been granted
"approved  enterprise"  status in two  separate  programs  under the Law for the
Encouragement of Capital Investments,  1959, as amended.  Under this law, income
attributable  to each of these  enterprises,  is fully  exempt  from tax for two
years, commencing with the first year in which such enterprise generates taxable
income,  and is entitled to a reduced tax rate (25%) for a further  eight years,
respectively.  The  expiration  date of the period of benefits is limited to the
earlier of twelve years from  commencement  of production or fourteen years from
the date of the  approval.  As of December 31, 2002,  the period of benefits had
not yet  commenced.  Income  derived  from  sources  other  than  the  "approved
enterprise" is taxable at the ordinary corporate tax rate of 36%.

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

<PAGE>

NOTE 9 - TAXES ON INCOME (Cont.)

     B. Income (Losses) from Continuing Operations

<TABLE>
<CAPTION>

Comprised as follows:
                                                    Year ended December 31,
                                                   2002       2001       2000
                                                        (in thousands)
<S>                                                 <C>        <C>        <C>

Israeli company                               $  (15,109)  $  (9,262)   $  1,972

U.S. subsidiary                                   (1,229)     (1,849)        344
                                              $  (16,338)  $ (11,111)   $  2,316

</TABLE>


     C. Theoretical Income Taxes

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

<TABLE>
<CAPTION>

                                                    Year ended December 31,
                                                   2002       2001       2000
                                                        (in thousands)
<S>                                                 <C>        <C>        <C>

Net income (loss) as reported in the
consolidated statement of operations           $ (16,338)  $(11,111)   $  2,316

Theoretical tax on the above amount            $  (5,882)  $ (4,000)   $    834

Tax benefit arising from the approved
enterprise                                          4,684      2,871      (611)

Increase in valuation allowance                     1,161      1,451         38
Permanent differences, net                              3      (322)      (261)
Effective income tax rate                      $        -  $       -   $      -

</TABLE>


<PAGE>

NOTE 9 - TAXES ON INCOME (Cont.)

     D. Deferred Taxes

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

<TABLE>
<CAPTION>




                                                              December 31,
                                                           2002          2001
                                                             (in thousands)
<S>                                                         <C>           <C>

Deferred tax assets
Net operating loss carry forwards in Israel            $   2,170        $ 1,287
Net operating loss carry forwards of non-Israeli
  subsidiary                                               1,326          1,027
Other reserve and allowances                                  55             76
Total gross deferred tax assets                            3,551          2,390
Less - Valuation allowance                                 3,551          2,390
Total deferred tax asset                               $       -        $     -

</TABLE>

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

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

     Tax loss carryforwards of the Company totaling $43,392,000 are unlimited in
duration, denominated in NIS and linked to the Israeli CPI.

     Tax loss  carryforwards  of a U.S.  subsidiary  totaling $ 3,901,000 expire
between 2017 and 2021.


     E. Tax Assessments

     The Company and its subsidiary  have not received final tax assessments for
income tax purposes since incorporation.


NOTE 10 - SUPPLEMENTARY BALANCE SHEET INFORMATION

     A. Other Receivables

Comprised as follows:




<TABLE>
<CAPTION>

                                                              December 31,
                                                           2002          2001
                                                             (in thousands)
<S>                                                         <C>           <C>

Research and development participation
from the Government of Israel                            $    447      $   160
Interest receivable on long-term investments                  634          283
Tax authorities                                               209          264
Advance to suppliers                                           49            -
Loans to employees                                             86           67
Others                                                         19           22
                                                         $  1,444      $   796

</TABLE>

     B. Other Payables and Accrued Expenses

Comprised as follows:

<TABLE>
<CAPTION>

                                                              December 31,
                                                           2002          2001
                                                             (in thousands)
<S>                                                         <C>           <C>

Payroll and related amounts                             $   2,035     $   1,766
Accrued expenses                                              419         1,140
Royalties to the Government of Israel                          43           359
Others                                                          2            19
                                                        $   2,499     $   3,284
</TABLE>

<PAGE>

NOTE 11 - SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION

     A. Geographic Information

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

<TABLE>
<CAPTION>
                                                    Year ended December 31,
                                                   2002       2001       2000
                                                        (in thousands)
<S>                                                 <C>        <C>        <C>


Revenues:
Israel                                         $   3,170    $  3,070   $   8,227
United States                                      1,285         680         569
Italy                                                913         326         156
Switzerland                                          144       5,329       6,356
Canada                                                93       2,989       6,053
Other foreign countries (mainly European)          1,031       1,655       1,941
                                               $   6,636    $ 14,049   $  23,302
Long-lived assets:
Israel                                         $   4,781    $  6,330   $   3,874
United States                                        571       1,217       1,526
                                               $   5,352    $  7,547   $   5,400

</TABLE>


     B. Sales to Major Customers

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

<TABLE>
<CAPTION>

                                                    Year ended December 31,
                                                   2002       2001       2000

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

Customer A                                           45%       19%        26%
Customer B                                           (*)       35%        23%
Customer C                                           (*)       19%        (*)
Customer D                                           (*)       (*)        22%
Customer E                                           (*)       (*)        10%
(*) - Less than 10%.

</TABLE>
<PAGE>

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


     C. Cost of Revenues:

<TABLE>
<CAPTION>

                                                    Year ended December 31,
                                                   2002       2001       2000
                                                        (in thousands)
<S>                                                 <C>        <C>        <C>

Materials and production expenses               $  4,110    $  5,650   $  9,519
Salaries, wages and
employee benefits                                    402         522        718
Depreciation and amortization                        412         243        110
Other manufacturing costs                            217         316        432
Sub-contractors                                      139          27         84
                                                   5,280       6,758     10,863
Increase in finished
products and work-in-process                       (691)       (672)    (1,069)
                                                   4,589       6,086      9,794
Royalties to the Government of Israel                144         364        469
                                               $   4,733   $   6,450   $ 10,263
</TABLE>



NOTE 12 - RELATED PARTIES

Transactions with Related Parties
<TABLE>
<CAPTION>

                                                    Year ended December 31,
                                                   2002       2001       2000
                                                        (in thousands)
<S>                                                 <C>        <C>        <C>


Sales                                            $    -     $     -     $  1,029
Subcontractors                                        -           -           36
Salaries                                            406         259          298
Purchase of materials                                 -           -            9
Purchase of property and equipment                    -           -           54


</TABLE>