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

                                    FORM 20-F
                                AMENDMENT NO. 2

|_|      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, 2004
                             -----------------

                                       OR



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

                         Commission file number 0-30394

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

                                     Israel
                 (Jurisdiction of incorporation or organization)

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

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

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

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

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:

             19,276,248 Ordinary Shares, NIS 0.1 par value per share

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

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

<PAGE>





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

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

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

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





<PAGE>



                                TABLE OF CONTENTS
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                                                                                                     Page





                                     PART I

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

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

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

ITEM 4.         INFORMATION ON THE COMPANY.............................................................22

ITEM 5.         OPERATING AND FINANCIAL REVIEW AND PROSPECTS...........................................33

ITEM 6.         DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.............................................46

ITEM 7.         MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS......................................60

ITEM 8.         FINANCIAL INFORMATION..................................................................62

ITEM 9.         THE OFFER AND LISTING..................................................................64

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

ITEM 11.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.............................86

ITEM 12.        DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.................................87

                                     PART II

ITEM 13.        DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES........................................88

ITEM 14.        MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS...........88

ITEM 15.        CONTROLS AND PROCEDURES................................................................88

ITEM 16.        [RESERVED].............................................................................89

ITEM 16A.       AUDIT COMMITTEE FINANCIAL EXPERT.......................................................89

ITEM 16B.       CODE OF ETHICS.........................................................................89

ITEM 16C.       PRINCIPAL ACCOUNTANT FEES AND SERVICES.................................................89

ITEM 16D.       EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES.................................89

ITEM 16E.  PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.......................89


                                    PART III

ITEM 17.        FINANCIAL STATEMENTS...................................................................90

ITEM 18.        FINANCIAL STATEMENTS...................................................................90

ITEM 19.        EXHIBITS...............................................................................91

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<PAGE>





                                     PART I

ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not applicable.

ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3.  KEY INFORMATION

A.       Selected Financial Data

         We have derived the following selected consolidated financial data from
our consolidated financial statements, which have been prepared in accordance
with accounting principles generally accepted in the U.S. The following data
were derived from our audited consolidated financial statements incorporated by
reference to this Annual Report (See Item 18):

         o    consolidated statement of income data for the years ended
December 31, 2002, 2003 and 2004; and

         o    consolidated balance sheet data as of December 31, 2003 and 2004.

The following data were derived from our audited consolidated financial
statements that are not included in this Annual Report

         o    consolidated statement of income data for the years ended
December 31, 2000 and 2001; and

         o consolidated balance sheet data as of December 31, 2000, 2001 and
2002.

         You should read the selected consolidated financial data together with
Item 5 of this annual report entitled "Operating and Financial Review and
Prospects" and our consolidated financial statements 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.

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                                                                              Year Ended December 31,
                                                   2000               2001               2002               2003             2004
                                                                  (In thousands, except share and per share data)
Statement of Operations Data:
Revenues.................................    $   23,302         $   14,049         $    6,636          $   14,943       $   22,112
Cost of revenues:
  Costs and expenses.....................         9,794              6,086              4,589               7,787           11,637
  Royalties to the Government of Israel..           469                364                144                 388              648
                                             ----------         ----------         ----------          ----------       ----------
Total cost of revenues...................        10,263              6,450              4,733               8,175           12,285
                                             ----------         ----------         ----------          ----------       ----------
Gross profit.............................        13,039              7,599              1,903               6,768            9,827
Operating expenses:
  Gross research and development.........        12,592             17,060             15,240              16,349           18,950
  Royalty bearing grants.................         3,381              3,457              3,213               3,394            4,083
                                             ----------         ----------         ----------          ----------       ----------
  Research and development, net..........         9,211             13,603             12,027              12,955           14,867
  Sales and marketing, net...............         3,665              5,465              4,814               5,884            6,566
  General and administrative.............         3,042              3,526              2,884               2,560            2,471
  Non-cash compensation..................           791                745                799                 612              206
                                             ----------         ----------         ----------          ----------       ----------
Total operating expenses.................        16,709             23,339             20,524              22,011           24,110
                                             ----------         ----------         ----------          ----------       ----------
Operating loss...........................        (3,670)           (15,740)           (18,621)            (15,243)         (14,283)
Financial income, net:                            5,986              4,629              2,283               1,684            1,352
Net (loss) profit........................    $    2,316         $  (11,111)        $  (16,338)         $  (13,559)      $  (12,931)
                                             ----------         -----------        -----------         -----------      -----------
Earnings (loss) per share:
  Basic..................................    $     0.13         $    (0.61)        $    (0.89)         $   (0.73)       $   (0.68)
                                             ----------         -----------        -----------         ----------       ----------
  Diluted................................   $      0.11        $     (0.61)       $     (0.89)        $    (0.73)      $    (0.68)
                                            -----------        ------------       ------------        -----------      -----------
Shares used in computing earnings (loss)
-----------------------------------------
  per ordinary share:
  Basic..................................    18,269,556         18,260,798           18,407,190          18,638,398       19,140,706
                                             ----------         ----------         ------------        ------------     ------------
  Diluted................................    20,773,382         18,260,798           18,407,190          18,638,398       19,140,706
                                             ----------         ----------        -------------       -------------     ------------

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

                                                                    As of December 31,
                                                  2000         2001        2002        2003         2004
                                                                      (In thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents....................   $  8,851    $ 15,946     $  9,158    $   16,225  $   12,239
Short-term investments.......................     86,268      64,967       12,967        16,191      20,691
Long-term investments........................     15,344       9,172       46,197        35,013      22,639
Working capital..............................     97,324      82,430       32,719        32,848      33,844
Total assets.................................    125,266     104,733       89,706        80,273      69,803

Shareholders' equity ........................    117,632      98,497       83,558        72,301      60,290

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B.       Capitalization and Indebtedness

Not Applicable.

C.       Reasons for the Offer and Use of Proceeds

Not Applicable.





D.       Risk Factors

         You should carefully consider the following risks before deciding to
purchase, hold or sell our stock. Set out below are the most significant risks,
as identified by management, but we may also face risks in the future that are
not presently foreseen. Our business, operating results or financial condition
could be materially and adversely affected by these and other risks. You should
also refer to the other information contained or incorporated by reference in
this Report, before making any investment decision regarding our company.


Risks Related to Our Business and Industry

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 $18.6 million for the year ended
December 31, 2002, $15.2 million for the year ended December 31, 2003, and $14.3
million for the year ended December 31, 2004. As of December 31, 2004, our
accumulated deficit was approximately $60.4 million. We reported revenues of
approximately $22.1 million for the year ended December 31, 2004. Despite the
fact that we are making expenditures in anticipation of generating higher
revenues, our revenues may not grow and may even decline. Moreover, even if we
are successful in increasing our revenues, we may be delayed in doing so. If our
revenues do not increase as necessary or if our expenses increase at a greater
pace than our revenues, we will not likely be able to achieve, sustain or
increase profitability on a quarterly or annual basis.

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

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

During 2004 we experienced increases in demand for our products compared to
2003. To date in 2005, however, demand in the first quarter of 2005 has not been
as strong as it was in the first quarter of 2004. We are unable to forecast
accurately the timing of any long-term industry downturns or recoveries, or the
duration of such downturns or recoveries.

We are in the process of developing a high-throughput wireless local area
network (HT-WLAN) chipsets, which require substantial resources and the results
of which are uncertain.

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

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

         Our long term revenue growth depends on revenues generated by the
high-throughput WLAN products. This is a new market for Metalink, and we can not
assure you that the development phase will succeed or that we will succeed in
selling WLAN products in the future.

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

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

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

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

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

o        Customers may cancel or postpone orders in our backlog;

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

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

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

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

o        Changes in pricing by us or our competitors;

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

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

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

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

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

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

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

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

o        Inventory write-offs and impairment of assets;

o        General economic and market /sector conditions.

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

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




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

respond to competitive pressures or unanticipated requirements.



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

Relatively few customers account for a large percentage of our net revenues. Our
business  will be  seriously  harmed if we do not generate as much revenue as we
expect  from  these  customers,  or if we  experience  a  loss  of  any  of  our
significant  customers,  particularly,  Tellion Inc., ADC Telecomunications Inc.
and ECI Telecom  Ltd, or suffer a  substantial  reduction  in orders from these
customers.  In 2004, we had three customers which accounted for more than 10% of
our revenues, namely Tellion, ADC and ECI, which accounted, directly and through
their respective  manufacturing  subcontractors,  for an aggregate of 45% of our
revenues.  We cannot be certain that these  customers will maintain these levels
of purchases or that they will even elect to continue working with us. We do not
have  contracts  with any of our  customers  that  obligate  them to continue to
purchase our chipsets,  and these customers could cease  purchasing our chipsets
at any time.  We expect that sales of our chipsets to  relatively  few customers
will continue to account for a  significant  portion of our net revenues for the
foreseeable future.



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

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

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

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

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

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

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

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

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

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.

Changes in current telecommunications laws or regulations or the imposition of
new laws or regulations could impede the sale of our planned wireless products
or otherwise harm our business.

      Wireless networks can only operate in the frequency bands, or spectrum,
allowed by regulators and in accordance with rules governing how the spectrum
can be used. The Federal Communications Commission, or the FCC, in the United
States, as well as regulators in other countries, have broad jurisdiction over
the allocation of frequency bands for wireless networks. We therefore rely on
the FCC and international regulators to provide sufficient spectrum and usage
rules. For example, countries such as China, Japan or Korea heavily regulate all
aspects of their wireless communication industries, and may restrict spectrum
allocation or usage, or may impose requirements that render our products or our
customers' products unmarketable in these jurisdictions. If this were to occur,
it would make it difficult for us to sell our products in that region. In
addition, some of our chipsets will operate in the 5 gigahertz, or GHz, band,
which is also used by government and commercial services such as military and
commercial aviation. The FCC and European regulators have traditionally
protected government uses of the 5GHz, bands by setting power limits and indoor
and outdoor designation and requiring that wireless local area networking
devices not interfere with other users of the band such as government and
civilian satellite services. Changes in current laws or regulations, reversal of
usage rights, or the imposition of new laws and regulations regarding the
allocation and usage of the 5 GHz band on us, our customers or the industries in
which we operate may materially and adversely impact the sale of our products
and our business, financial condition and results of operations.

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

      Evolving and current industry standards for DSL and wireless technologies
could affect the end-market for our products. In particular this may have
adverse effect on our VDSL and wireless business. For example, with regard to
the VDSL, in 2004, the International Telecommunication Union ("ITU") reached
agreement on a new global standard that specifies the application of the two
main technologies used for encoding signals for DSL - Discrete MultiTone (DMT)
technology and Quadrature Amplitude Modulation (QAM) - to VDSL (Very high-speed
Digital Subscriber Line) technology. The ITU has also determined to develop a
VDSL2 standard based on the existing ADSL2 and VDSL standards that specify DMT
modulation only. Our existing VDSL chipsets are based on QAM. Should the future
deployment of VDSL chipsets require the VDSL2 standard of DMT only, our sales
could be harmed, unless we also successfully develop and deploy DMT technology.
Our development of DMT technology may involve larger investments and/or longer
time to market compared to some of our competitors who already have the
technology available. With regard to the wireless products, we are designing our
products to conform to standards set by industry standards bodies such as the
Institute of Electrical and Electronics Engineers, Inc. We also depend on
industry groups such as the WiFi Alliance to certify and maintain certification
of our products. If our customers adopt new or competing industry standards with
which our products will not be compatible, or such industry groups fail to adopt
standards with which our products will be compatible, our sales would suffer.
For example, the IEEE has initiated working group proceedings directed at
promulgating a new wireless local area networking standard, called 802.11n. As
we design our products to comply with the 802.11n standard, any delay in
promulgating the new standard or any failure by us to comply with the new
standard will harm our business.

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

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

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

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

Adoption of VDSL technology outside existing markets may be limited.

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

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

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

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

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

o        rapid technological changes;

o        frequent new product introductions;

o        changes in customer requirements; and

o        evolving industry standards.

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

o        invest significantly in research and development;

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

o        gain market acceptance of our chipsets;

o        successful cost reduction activities;

o        anticipate customer requirements; and

o        comply with industry standards.

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

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

         Our market is highly competitive, and we expect competition to
intensify in the future. We may not be able to compete effectively in our
market, and we may lose market share to our competitors. Our principal
competitors include Conexant Systems, Inc., Infineon Technologies AG and Ikanos
Communications Inc. We expect to continue to face competition from these and
other competitors. Larger companies with substantial resources, brand
recognition and sales channels may form alliances or merge with, or acquire
competing DSL 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 chipsets obsolete.

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

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

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

         We are actively expanding our operations. We had 161 employees at
December 31, 2003 and 179 employees at December 31, 2004. The growth of our
business has placed, and will continue to place, a significant strain on our
managerial, operational and financial resources. We must also implement
sophisticated control systems. We cannot assure you that our management team
will be able to work together effectively to manage our organization as a public
company.

         To manage resources effectively, we must:

o        improve and expand our Management Information Systems ("MIS") from
time to time.

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

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

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

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



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

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

o        potentially weak protection of intellectual property rights;

o        economic and political instability;

o        import or export licensing requirements;

o        trade restrictions;

o        difficulties in collecting accounts receivable;

o        longer payment cycles;

o        unexpected changes in regulatory requirements and tariffs;

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

o        the impact of regional epidemics;

o        fluctuations in exchange rates; and

o        potentially adverse tax consequences.

o        Language and cultural differences

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

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

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

Because we do not have long-term contracts with our customers, our customers can
discontinue purchases of our chipsets at any time, which may result in adverse
effect on our inventory levels.

         We sell our chipsets based on individual purchase orders. Our customers
are not obligated by long-term contracts to purchase our chipsets. Our customers
can generally cancel or reschedule orders upon short notice. Furthermore,
achieving a design win with a customer does not necessarily mean that this
customer will order large volumes of our products. A design win is not a binding
commitment by a customer to purchase our chipsets. Rather, it is a decision by a
customer to use our chipsets in the design process of that customer's products.
A customer can discontinue using our chipsets at any time. We have experienced
in the past cancellations or deferrals of purchase orders, and additional
cancellations and deferrals may occur from time to time. We have historically
placed firm orders for products with our foundries up to approximately 16 weeks
prior to the anticipated delivery date and typically prior to receiving an order
for the product. Therefore, our order volumes are based on our forecasts of
demand from our customers. This process requires us to make multiple demand
forecast assumptions, each of which may introduce error into our estimates. If
we overestimate customer demand or incorrectly estimate product mix, we may
allocate resources to manufacturing products that we may not be able to sell
when we expect or at all. As a result, we would have excess inventory, which
would harm our financial results. Conversely, if we underestimate customer
demand or if insufficient manufacturing capacity is available, we would forego
revenue opportunities, lose market share and damage our customer relationships.

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

We rely on a single subcontractor for the manufacture of majority of our chips
included in our chipsets and on a limited number of subcontractors for the
assembly of finished chips and other related services. Our subcontractors
manufacture, assemble and test our chips in Singapore, the Republic of China
(Taiwan), Hong Kong, China, and the United States. These subcontractors
currently have limited manufacturing capacity, which may be inadequate to meet
our demand. If the operations of our subcontractors were halted, even
temporarily, or if they were unable to operate at full capacity for an extended
period of time, we could experience business interruption, increased costs, loss
of goodwill and loss of customers. Delays in the manufacture of chipsets are
typical in our industry, and we have experienced these delays in the past. The
Asia-Pacific region has experienced significant earthquakes in the past and
could be subject to additional seismic activities. Natural disasters,
earthquakes, and regional epidemics, could also have a negative impact on our
suppliers, and as a result significantly disrupt our operations.


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 chipsets and
              may result in cancellation of orders by our customers;

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

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

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

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

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

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

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

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



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

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

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

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

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

         Our future success depends in large part on the continued services of
our senior management and key personnel. In particular, we are highly dependent
on the services of Tzvi Shukhman, our chairman and chief executive officer. All
of our employees have entered into employment contracts with us except for Mr.
Shukhman. Although Mr. Shukhman does not have an employment agreement, the
shareholders voted in November 2003 to approve his service as chairman of the
board and chief executive officer for an additional three-year period. 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 May 31, 2005, 10,919,016 ordinary shares (56.5%) are held by Messrs.
Tzvi Shukhman and Uzi Rozenberg, who are directors of the Company. Mr. Shukhman
is also our chairman and chief executive officer. Currently, Messrs. Shukhman
and Rozenberg control the outcome of various actions that require shareholder
approval. For example, these shareholders could elect all of our directors,
delay or prevent a transaction in which shareholders might receive a premium
over the prevailing market price for their shares and prevent changes in control
or management.

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

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

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

         Our profitability could suffer if third parties infringe upon our
intellectual property rights or misappropriate our technologies and trademarks
for their own businesses. To protect our rights to our intellectual property, we
rely on a combination of patent, trademark and copyright law, trade secret
protection, confidentiality agreements and other contractual arrangements with
our employees, affiliates, strategic partners and others. We currently own three
unregistered trademarks, two patents in Israel and three patents in the United
States. We have also filed one additional patent application, and one
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.

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. Our customers and we have received from time
to time in the past written notices and offers from research institutions,
intellectual property holding firms and others claiming to have patent rights in
certain technology and inviting us to license this technology and related patent
rights for use in our products and methods. These notices or offers have been
made directly to us and through our customers. We have responded directly, or
indirectly through our customers, to all of these notices. None of these notices
has resulted in litigation against us. We believe that the rights offered do not
infringe any valid claim to the issued patents identified to date. We cannot
assure you that any of these or other third-parties will not pursue litigation
or assert their patent and other intellectual property rights against us in the
future. We have certain indemnification obligations to customers with respect to
infringement of third-party patents and intellectual property rights by our
products. We cannot assure you that our potential obligations to indemnify such
customers will not harm us, our business or our financial condition and results
of operations. The results of any litigation are inherently uncertain. Any
successful infringement claim or litigation against us could result in the
expenditure of significant financial and managerial resources.

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

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

We may 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;

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

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

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

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

         Investors may not be able to resell their ordinary shares following
periods of volatility because of the market's adverse reaction to that
volatility. In addition, the stock market in general, and the market for Israeli
and technology companies in particular, has been highly 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 are characterized as a Passive Foreign Investment Company, our
 U.S. shareholders may suffer adverse tax consequences.

         If, for any taxable year, our passive income, or our assets that
produce passive income, exceed specified levels, we may be characterized as a
Passive Foreign Investment Company ("PFIC") for U.S. federal income tax
purposes. We were a PFIC during the years 2002 and 2003, but not 2004. We have
not yet determined whether we are likely to be characterized as a PFIC for 2005.

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

We have not yet evaluated our internal controls over financial reporting in
compliance with Section 404 of the Sarbanes-Oxley Act.

     We are required to comply with the internal control evaluation and
certification requirements of Section 404 of the Sarbanes-Oxley Act by no later
than the end of our 2006 fiscal year. We have only recently begun the process of
determining whether our existing internal controls over financial reporting
systems are compliant with Section 404. This process may take up to twelve
months to complete. If it is determined that we are not in compliance with
Section 404, we may be required to implement new internal control procedures and
reevaluate our financial reporting. We may experience higher than anticipated
operating expenses as well as outside auditor fees during the implementation of
these changes and thereafter. Further, we may need to hire additional qualified
personnel in order for us to be compliant with Section 404. If we are unable to
implement these changes effectively or efficiently, it could harm our
operations, financial reporting or financial results and could result in our
being unable to obtain an unqualified report on internal controls from our
independent auditors.

We are consolidating our two design centers in the U.S.

During  2005,  we  decided to  consolidate  our  research  and  development  and
operating centers in Folsom,  California and Atlanta,  Georgia into a one center
in  Atlanta,  Georgia.  As a result,  we  expect  to lose most of our  employees
working  currently in the Folsom center.  On a net basis,  the  consolidation is
expected to result in a reduction of our total workforce of less than 10%. We do
not  expect to incur  significant  extraordinary  costs in  connection  with the
consolidation  of the design centers,  but there can be no assurances that there
will not be employee claims or other unforeseen expenses.


Risks Relating to Our Location in Israel

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

         Our principal offices and research and development facilities are
located in Israel. Political, economic and military conditions in Israel
directly affect our operations. We could be adversely affected by any major
hostilities involving Israel, the interruption or curtailment of trade between
Israel and its trading partners, a significant increase in inflation, or a
significant downturn in the economic or financial condition of Israel. The
future of the "peace process" between Israel and the Palestinians is uncertain
and has deteriorated due to on-going violence between Israelis and Palestinians.
Moreover, several countries still restrict business with Israel and with Israeli
companies. We could be adversely affected by adverse developments in the "peace
process" or by restrictive laws or policies directed towards Israel or Israeli
businesses.

         Some of our directors, officers and employees are currently obligated
to perform annual reserve duty and are subject to being called to active duty at
any time under emergency circumstances and could be required to serve in the
military for extended periods of time. Our operations could be disrupted by the
absence for a significant period of time of one or more of our officers or key
employees, or a significant number of other employees because of military
service. The full impact on our workforce or business if some of our officers
and employees are called upon to perform military service, especially in times
of national emergency, is difficult to predict. Any disruption in our operations
as the result of military service by directors, officers or employees could harm
our business.

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

         The Israeli Companies Law generally requires that a merger be approved
by the board of directors and a majority of the shares voting on the proposed
merger. For purposes of the shareholder vote, unless a court rules otherwise,
the merger will not be deemed approved if shares, representing a majority of the
voting power present at the shareholders meeting, and which are not held by the
other party to the merger (or by any person who holds 25% or more of the shares
or the right to appoint 25% or more of the directors of the other party or its
general manager) have voted against the merger. Upon the request of any creditor
of a party to the proposed merger, a court may delay or prevent the merger if it
concludes that there is a reasonable concern that, as a result of the merger,
the surviving company will be unable to satisfy the obligations of the surviving
company. Finally, a merger may generally not be completed unless at least (i) 50
days have passed since the filing of a merger proposal signed by both parties
with the Israeli Registrar of Companies and (ii) 30 days have passed since the
merger was approved by the shareholders of each of the parties to the merger.
Also, in certain circumstances an acquisition of shares in a public company must
be made by means of a tender offer. Lastly, Israeli tax law treats some
acquisitions, such as stock-for-stock exchanges between an Israeli company and a
foreign company, less favorably than does the U.S. tax law. These provisions of
Israeli corporate and tax law may have the effect of delaying, preventing or
make more difficult an acquisition of or merger with us, which could depress our
share price.


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

         We generate substantially all of our revenues in dollars, but we incur
a significant portion of our expenses, principally salaries, related personnel
expenses and occupancy expenses in NIS. As a result, we are exposed to the risk
that 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. Thus, in
2004 the NIS was appreciated against the dollar in the rate of 1.6% and the rate
of inflation was 1.2%. If the dollar cost of our operations in Israel continues
to increase, our dollar-measured results of operations will be adversely
affected.

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

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

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

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

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

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

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

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

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

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


We derive certain tax benefits under Israeli law from our status as an "approved
enterprise," and other tax and program benefits under Israeli law. Such benefits
may require us to satisfy certain conditions, or may be reduced or eliminated in
the future. Our potential tax liability could increase if we fail to meet such
conditions, or if such programs are reduced or eliminated.

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

We may be required to pay stamp duty on agreements executed by us on or after
June 1, 2003. This would increase our taxes.

         The Israeli Stamp Duty on Documents Law, 1961, or the Stamp Duty Law,
provides that most documents signed by Israeli companies are subject to a stamp
duty, generally at a rate of between 0.4% and 1% of the value of the subject
matter of such document. The common practice in Israel has been to pay such
stamp duty when a document is filed with a governmental authority or with the
courts. As a result of an amendment to the Stamp Duty Law that came into effect
on June 1, 2003, the Israeli tax authorities have approached many companies in
Israel and requested the disclosure of all agreements signed by such companies
after June 1, 2003 with the aim of collecting stamp duty on such agreements. The
legitimacy of the aforementioned amendment to the Stamp Duty Law and such
actions by the Israeli tax authorities are currently under review by the Israeli
High Court of Justice. Collection of stamp duties from us could adversely affect
our results of operations. In January 2005, an order was signed ending the
requirement to pay stamp duty effective January 1, 2008.

Since we receive government grants for research and development expenditures, we
are subject to ongoing restrictions and conditions, including restrictions on
our ability to manufacture products and transfer technologies outside of Israel.
Such grants may be terminated or reduced in the future, which would increase our
costs.

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

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

         These programs may not continue in the future at their current levels
or at any level. From time to time, we may submit requests for new grants from
the Chief Scientist. These requests might not be approved, particularly in light
of the reduction in government spending in Israel. The termination or reduction
of these grants could materially harm our financial condition and results of
operations.

         In January 2004 we launched a research project, under the sixth
framework program of the European Commission, under which we are entitled to
grants based on certain approved expenditures of a research and development
plan. The European Commission provided us grants for research and development
efforts of approximately $0.5 million for the year ended December 31, 2004, but
the Company does not have a European Commission grant for 2006 and may not have
such grants in future years.





<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. Our agent for service in the
United States is our subsidiary, Metalink Inc., which has been located at 105C
Lake Forest Way, Folsom, California 95630 (telephone number 916-355-1580). As we
have recently initiated a process of consolidating our two design centers in the
U.S., the design center in Folsom will be closed by July 2005, and the Metalink
Inc. address will be changed to 3260 Pointe Parkway, Suite 400, Norcross,
Atlanta, Georgia,  30092 (telephone number 678-325-5430).

          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 were traded also on the Tel-Aviv Stock Exchange.

         In March 2005, our board of directors approved a plan to repurchase up
to $10 million of our ordinary shares, subject to market conditions, and the
approval of the board of directors of the Company. Through May 31, 2005, no
repurchases had been made pursuant to that plan.

         Capital expenditures were $1,504,000 for the year ended December 31,
2004, $1,991,000 for the year ended December 31, 2003, and $838,000 for the year
ended December 31, 2002. These expenditures were principally for equipment and
software for our research, development and manufacturing activities.

         Business Overview

General

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

         In addition, we are engaged in the research and development of
high-throughput wireless local area network (HT-WLAN) chipsets. These products
will enable transport of digital broadband media including video, voice and data
at significantly higher rates than conventional wireless local area networking
(WLAN) solutions.

Products and Technology

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

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

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

         HDSL2 and HDSL4. HDSL2 improves on the T1 HDSL 2-Pair solution by
offering similar performance achieved using only a single copper wire pair. This
is achieved by using the PAM-16 line code in combination with Trellis coding.
This standard was further enhanced to support an extended reach 4 wire mode,
using the same PAM-16 line code referred to as HDSL4. During 2002 we completed
the development and integration of our second generation HDSL2/HDSL4/SHDSL DSP
product, and the new device combined with our HDSL2/HDSL4/SHDSL AFE is now being
shipped in commercial volumes.

         G.SHDSL. G.SHDSL improves on the SDSL and HDSL technologies by
providing rate adaptive solutions at rates of up to 2.320 Mbps, while increasing
the maximum range of transmissions by 20%, compared to that allowed by the
legacy technologies. G.SHDSL supports various encoding technologies, including
the technologically-advanced Trellis coded PAM-16. We contributed to the
standardization of G.SHDSL, and we have developed proprietary algorithms for the
efficient implementation of this technology. During the year 2001, we completed
the development and integration of our first generation SHDSL solution that
includes an eight-port G.SHDSL digital device, a single port G.SHDSL digital
device and an single port G.SHDSL analog front end. During 2002 we also
completed the development of a second generation digital device optimized for
T1/E1 transport applications. This device, incorporated the entire digital
functionality of a T1/E1 transport application combining the DSL transceiver and
framer, T1/E1 framer, host processor and RAM. To the best of our knowledge, this
is the only device available in the market with such high levels of optimization
and integration for T1/E1 transport applications. We offer a variety of SHDSL
products for CO, CPE and repeater applications which are being installed in
major operator networks including Deutche Telekom, France Telecom, Telecom
Italia and British Telecom. During 2003 the ITU has completed an enhancement to
the G.SHDSL recommendation known as G.SHDSL.bis addressing enhancements such as
extended per pair bit rates and multi-pair aggregation. At the same time the
IEEE 802.3ah task-group is working on a specification for delivering Ethernet in
the first mile using SHDSL and SHDSL.bis technologies. We anticipate these new
standards and their derived applications to be key drivers in the development of
the symmetric DSL market and our product introduction into this segment.

         VDSL. VDSL technology defines very high transmission rates over a
single copper wire pair. This includes symmetric transmission at a rate of over
40 Mbps and asymmetric transmission of over 100 Mbps downstream. VDSL is
typically deployed in combination with an optical network unit. This unit is
connected by copper wire to multiple subscribers located in large complexes,
such as large residential complexes, hotels and campuses. The unit multiplexes
the bandwidth of tens to hundreds of subscribers onto a single fiber that
carries the information to the central office. VDSL applications include high
bandwidth data, multiple video and voice channels, High Definition TV (HDTV),
broadband access and broadband wide area networks (WANs). VDSL technology has
been standardized by ANSI, ETSI and the ITU and is currently at its
standardization stage in IEEE. We are an active participant in all these
standardization processes. In 2003 the standards working group in the ANSI
developed an American National Standard for VDSL using Multi Carrier Modulation
(DMT) and a Committee T1 Technical Requirement (TRQ) document for VDSL using
Single Carrier Modulation (QAM). Also in 2004, the ITU has reached agreement on
a new global standard that specifies the application of the two main
technologies used for encoding signals for DSL - Discrete MultiTone (DMT)
technology and Quadrature Amplitude Modulation (QAM) - to VDSL (Very high-speed
Digital Subscriber Line) technology. ITU has also decided to develop a VDSL2
standard based on the existing ADSL2 and VDSL standards that specify DMT
modulation only. Our existing VDSL chipsets are based on QAM. Should the future
deployment of VDSL chipsets require the VDSL2 standard of DMT only, our sales
could be harmed unless we also successfully develop and deploy DMT technology.

         We have developed powerful algorithms for VDSL, including NML, that
optimize the performance in the operating environment. During 2001, we finished
the development and started integration of two generations of VDSL solutions,
including a single port 2-band digital device, a single port 4-band digital
device, a dual port 3-band device and a single port 4-band analog front end. To
the best of our knowledge these devices were the first available standard
compliant solutions according to the quadrature amplitude modulation (QAM)-based
ETSI and ANSI standards. During 2002 we completed the development of our 3rd
generation VDSL product family including a Quad and Single port full 4-band VDSL
devices. These devices address the Ethernet over VDSL (EoVDSL) market
requirements which are rapidly evolving in the Asia-Pacific region. To the best
of our knowledge, the Quad device was the first to integrate four full 4-band
standard VDSL ports in a single package. We have introduced our 4th generation
VDSL product family to the market. This family incorporate our VDSLPlus
technology which is capable of delivering over 100 Mbps asymmetric bit rates
over a single copper pair. In 2005, this family was upgraded to offer 100Mbps
symmetric transmission in conformance with a new Japanese band plan drafted by
the Japanese TTC standardization body.

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

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


--------------------- ------------------------------------------------------------ ------------- --------------
                                                                                                    Maximum
                                                                                                 Transmission
                                                                                     Sampling        Rates
       Chips                                   Function                                Date         (Mbps)
--------------------- ------------------------------------------------------------ ------------- --------------
--------------------- ------------------------------------------------------------ ------------- --------------
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                                                         2Q97          2.320
MtH 1210BL            2BlQ encoding/decoding DSP                                       1Q99          1.168
MtH 2410BL            Low-power 2BlQ encoding/decoding DSP                             3Q99          2.320
MtH 2411              Advanced, low-power 2BlQ encoding/decoding DSP                   3Q98          2.320
MtH 2430CL            Universal T1 /El standards compliant framer                      3Q99          2.320
MtH 2431              Single pair framer                                               3Q99          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 line-driver.        2Q01          4.640

--------------------- ------------------------------------------------------------ ------------- --------------
--------------------- ------------------------------------------------------------ ------------- --------------
MtS 180               SHDSL / HDSL2 / HDSL4  system on a chip for T1/E1/TDM            1Q02          4.640
                      transport applications
MtS 172               SDSL / SHDSL / HDSL2 / HDSL4 transceiver with integrated         2Q02          4.640
                      T1/E1 framer.
--------------------- ------------------------------------------------------------ ------------- --------------
--------------------- ------------------------------------------------------------ ------------- --------------

MtV 9370              Dual VDSL transceiver/framer for 3-band applications             3Q01           52

MtV 9141              VDSL AFE for 2,3 and 4-band applications                         4Q01           52
--------------------- ------------------------------------------------------------ ------------- --------------
--------------------- ------------------------------------------------------------ ------------- --------------
MtV 9172              Single trunk 2/3/4-band VDSL transceiver with integrated         4Q02           60
                      MAC for Ethernet & ATM applications (ONU & NT)
MtV 9470              Quad 2/3/4-band VDSL transceiver for Ethernet applications       4Q02           60
                      (ONU)
--------------------- ------------------------------------------------------------ ------------- --------------
--------------------- ------------------------------------------------------------ ------------- --------------
MtV 9473              Quad 2/3/4/5-band VDSL transceiver for Ethernet                  1Q04           100
                      applications (ONU)
MtV 9273              Single trunk 2/3/4/5/6-band VDSL transceiver with                1Q04           100
                      integrated MAC for Ethernet & ATM applications (ONU & NT)
MtV 9143                                                                               1Q04           100
                      VDSL AFE for 2,3,4, 5 and 6-band applications
MtV9120                                                                                1Q04           100
                      VDSL Line Driver for 2,3,4,5 and 6-band applications
--------------------- ------------------------------------------------------------ ------------- --------------
</TABLE>

         The following table enumerates our product applications:
<TABLE>
<S>                                                 <C>                    <C>

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

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

Customers

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

         Our chipsets are being incorporated into the following systems:

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

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

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

o             Ethernet based Digital subscriber line access multiplexers
              (DSLAMs) and Ethernet Switches, which are used to terminate tens
              of lines in a building basement or street cabinet and aggregate
              them onto high-speed Optical Ethernet link for transmission to the
              communications backbone;

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

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

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

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

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

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

                                                                                 Year ended December 31,
                                                                     2 0 0 4             2 0 0 3            2 0 0 2
                                                                                     (in thousands)
   Revenues:
   Korea                                                                $ 6,348            $ 2,370              $   45
   United States                                                          4,034              4,101               1,285
   Israel                                                                 2,520              1,842               3,170
   Italy                                                                  1,473              1,120                 913
   Mexico                                                                    37              1,784                   -
   Other foreign countries (mainly European)                              7,700              3,726               1,223
                                                                        $22,112            $14,943             $ 6,636

</TABLE>


Sales and Marketing

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

         We have sales representatives in the following countries:

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

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

         North America: Canada and the United States

         South America: Brazil.

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

         We also sell our products directly to select customers in the United
States, Israel and Europe. 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 chipsets in the products of DSL and wireless equipment
manufacturers who are market innovators and market leaders. Through our ongoing
relationships, customers provide us with feedback on product specifications and
applications while participating in product testing simultaneously with our
certification process. This approach accelerates customers' time to market,
enables us to achieve early design wins and volume commitments for our chipsets.

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

Research and Development

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

         As of May 31, 2005 our research and development staff consisted of 107
employees. Research and development activities take place at our facilities in
Yakum, Israel and at the design centers of our subsidiary in Folsom, California,
and Atlanta, Georgia. Commencing in July 2005, the design center in Folsom will
be closed, and all the design activities in the U.S. shall be consolidated into
the design center in 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. In
addition, we are engaged in a research project, under the sixth framework
program of the European Commission, under which we are entitled to grants based
on certain approved expenditures of a research and development plan. See "Item
5--Operating and Financial Review and Prospects--Operating Results--Government
Grants." We expect our research and development expenses to grow as we hire
additional personnel to develop new, and upgrade existing products.

Manufacturing

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

         We currently subcontract our semiconductor wafer manufacturing to
Taiwan Semiconductor Manufacturing Company in Taiwan, Jazz Semiconductor in USA,
and to Semiconductor Manufacturing International (Shanghai) Corp. in China. The
packaging and testing of our chipsets is performed by Singapore Technologies
Assembly and Test Services, Advanced Semiconductor Engineering Inc. in Taiwan,
and ASAT Ltd in Hong Kong and China. The selection of these manufacturers was
based on the breadth of available technology, quality, manufacturing capacity
and support for design tools used by us. All of the fabrication, assembly and
test facilities are ISO 9002 / QS9000 / SAC certified or have a roadmap to
comply with the above standards. Most of our chipsets are not manufactured by
more than one contractor. In the event one of our contractors notifies us that
it intends to cease manufacturing a chip or that it is temporarily unable to
manufacture a chip, we may not have an adequate opportunity to order sufficient
quantities of the effected chip to prevent shipments to customers from being
adversely affected while we qualify a new manufacturer.

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

We must place orders at least 16 to 20 weeks in advance of expected delivery. As
a result, we have only a limited ability to react to fluctuations in demand for
our chipsets, which could cause us to have excess or a shortage of inventory of
a particular chip.


Proprietary Rights

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

          In addition, our NML technology is protected by two patents in Israel
and three patents in the United States. One of the two Israeli patents was
issued in favor of us following a settlement agreement we entered into with an
opposing company. Most of our chipsets design is based on the NML technology. If
that technology was not protected, or if it was deemed to be infringing on third
party intellectual property rights, we would incur significant costs and
competitive disadvantages in redesigning our products. We have filed additional
patent applications in the United States. These applications may not result in
any patent or patents being issued and, if issued, the patent may not provide
adequate protection against competitive technology and may not be held valid and
enforceable if challenged. In addition, other parties 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.

         We believe our principal competitors in the DSL market for HDSL, SDSL,
HDSL2 and G.SHDSL products include Conexant, Infineon and Mindspeed. Our
principal competition for VDSL based products include Infineon, Conexant, and
Ikanos. In addition to these competitors, there have been announcements by other
integrated circuit companies that they intend to enter the VDSL chip set market,
specifically ADSL IC companies targeting introduction of VDSL 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 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 chipsets obsolete.

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

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

As time passes in both the DSL and wireless markets,  we expect to be exposed to
increasing price competition driven by the lowest cost providers of chipsets. We
anticipate  that  average per unit selling  prices of DSL and wireless  chipsets
will continue to decline as product  technologies  and  technologies  associated
with the production of those  products  mature.  In  particular,  our ability to
introduce  products  into the  wireless  market  could be  hampered if we do not
provide  cost-competitive  products.  If we  are  unable  to  reduce  our  costs
sufficiently  to offset  declines in the average per unit selling  prices or are
unable to introduce new higher performance products with higher average per unit
selling prices, our operating results will be seriously harmed.  Since we do not
manufacture  our own products,  we may be unable to negotiate  volume  discounts
with our foundries in order to reduce the costs of manufacturing our chipsets in
response to declining  average per unit selling  prices.  Many  competitors  are
larger with greater  resources and therefore may be able to achieve economies of
scale  and  would  be  less  vulnerable  to  price  competition  and may use our
subcontractors  manufacturing  capacity  causing us  difficulties in supply form
said manufacturers.  Our inability to achieve  manufacturing  efficiencies would
have an adverse impact on our operating results.

B.       Organizational Structure

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

C.       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 2,400 square feet of office in
Atlanta Georgia. The Folsom Lease will expire in March 2006, and we do not
intend to extend it further. We are in the process of attempting to sublease the
Folsom premises. Commencing in July 2005, the design center in Folsom will be
closed, and all the design activities in the U.S. shall be consolidated into the
design center in Atlanta. See "Item 4--Information on the Company--History and
Development of the Company." We intend to expand our design center in Atlanta to
approximately 3,400 square feet. In South-Korea, we lease approximately 62
square feet in Seoul. We may need to increase the size of our current
facilities, seek new facilities, close certain facilities or sublease portions
of our existing facilities in order to address our needs in the future. The
facilities are used primarily for product design, sales and administrative
functions.

         Total rent expenses for the years ended December 31, 2004, 2003 and
2002 were $1,044,000, $983,000, and $936,000, respectively. The projected
payments for 2005 are expected to be approximately $1,120,000.



<PAGE>







ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Overview

         We are a global provider and developer of high performance wireline and
wireless broadband communication silicon solutions for telecommunication,
networking and home broadband equipment makers. Metalink's silicon solutions
address key elements of the "broadband home" market through cost effective, very
high-speed delivery of broadband applications over public, home and enterprise
networks. Metalink's wireline DSL products enable network operators to offer
broadband services over ATM, TDM, and Ethernet-IP copper infrastructure.
Metalink's wireless solutions, MIMO-based WLANPlus, are designed to meet the
ever-increasing demand for wireless LAN speed and reach, critical for home and
office multi-media applications.

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

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

         We began investing substantially in the wireless developments in 2004,
to diminish our reliance on the wireline market, even though the wireline
telecommunications business showed improvement in 2004 over prior years.

         The 2001 decline in the telecommunications industry, at a time when we
had begun expanding our R&D and other expenditures, caused an operating loss of
$15.7 million. During 2002, during a time of even further industry declines, we
cut expenditures, but still sustained an operating loss of $18.6 million. Our
2003 revenues more than doubled from 2002, and surpassed those of 2001, but we
expanded our R&D efforts and the operating loss was $15.2 million. Revenues for
2004 were $22.1 million, almost 50% growth compared to 2003 and close to 2000
record level. However, as we expanded our R&D and Sales and Marketing efforts,
our operating loss narrowed only to $14.3 million.

We were  incorporated  in September  1992 under the laws of the State of Israel.
From our inception  through the third quarter of 1994, our operating  activities
related  primarily  to  establishing  a research and  development  organization,
developing  prototype chip designs which meet industry  standards and developing
strategic   OEM   partnerships   with   leading   telecommunication    equipment
manufacturers.  We shipped  our first  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 1997, we established a wholly owned
subsidiary  in the  United  States,  Metalink  Inc.,  which is  incorporated  in
Delaware and has been  headquartered  in Northern  California.  Metalink Inc. is
involved in research and development  activities,  provides technical support to
our customers and conducts the distribution of our products in North America. In
1999, we established our Northern  California  research and  development  design
center,  and in 2003 we established our Atlanta research and development  design
center for our wireless activities, both are part of Metalink Inc. In 2005,
we decided to close the site in Northern  California.  Thus as of July 2005, all
the design activities in the U.S., as well as Metalink Inc.  headquarter will be
located in Atlanta,  Georgia. In 2003, we established a wholly-owned  subsidiary
in South Korea,  Metalink Asia Pacific Ltd. Metalink Asia Pacific is involved in
introducing  and promoting  the sale of our products in South Korea,  as well as
technical support.  In 2004, we established a wholly-owned  subsidiary in Japan,
Metalink Japan K.K. Metalink Japan K.K. is involved in display,  advertising and
marketing  our  products,  as well as technical  support.  During 2004,  we also
established a representative office in Beijing, China.

         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.
         We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements. Revenue recognition
                  Revenue is recognized upon the shipment of products to the
customer provided that persuasive evidence of an arrangement exists, title has
been transferred, the price is fixed, collection of resulting receivables is
probable and there are no remaining significant obligations. We generally
provide a warranty period for up to 12 months at no extra charge. No warranty
provision has been recorded for any of the reported periods, since based on the
past experience, such amounts have been insignificant.

         Our revenue recognition policy is significant because our revenue is a
key component of our operations. In addition, our revenue recognition determines
the timing of certain expenses, such as royalties and sales commissions. Our
revenue recognition policy requires that we make a judgment as to whether
collectability is reasonably assured. Our judgment is made for each customer on
a case-by-case basis, and, among other factors, we take into consideration the
individual customer's payment history and its financial strength. In some cases,
we secure payments by a letter of credit or other instrument. Inventories
         Inventories are stated at the lower of cost or market. Cost is
determined on a moving average basis. We regularly review inventory values and
quantities on hand and write down our inventory for estimated obsolescence or
unmarketable inventory equal to the difference between the cost of inventory and
the estimated market value based upon assumptions about future demand and market
conditions. In making the determination, we consider future sales of related
products and the quantity of inventory at the balance sheet date, assessed
against each inventory item's past usage rates and future expected usage rates.
Changes in factors such as technology, customer demand, competing products and
other matters could affect the level of our obsolete and excess inventory in the
future.

A.       Operating Results

General

         Revenues. Our revenues are derived from sales of our chipsets to our
customers with 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 costs and 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, 2004, three customers
accounted for approximately 45% of our revenues.

         We sell our chipsets in North America, Asia and Europe through
independent sales representatives and distributors. We also sell our chipsets
directly to selected customers. For the year ended December 31, 2004,
approximately 43% of our sales were to customers in Europe and Israel, 35% in
Asia and 22% in North America.

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

         Gross Research and Development. Research and development expenses
consist primarily of salaries and other personnel related expenses for those
engaged in the design, development and enhancement of our products, software
license fees, depreciation and amortization of equipment and software used in
research and development, and other overhead expenses. In addition, we
subcontract the mask development production of our chips to unaffiliated third
parties. Research and development costs are expensed as incurred. We believe
that continued investment in research and development is critical to attaining
our strategic product objectives. 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 2002, 2003 and 2004, we received grants
from the Office of the Chief Scientist for the development of our products. In
addition, the European Commission encourages research and development projects,
which are performed as part of an international consortium. In 2004, we received
grants from the European Commission for the development of our products. The
research and development grants are presented in the statements of operations as
an offset to research and development expenses.

          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, we expect that general and administrative expenses will also increase.

         Amortization of Deferred Stock Compensation. Amortization of deferred
stock compensation expenses consist of the charge incurred by us arising from
the grant of options to purchase our ordinary shares. These expenses are
recorded and charged to our earnings over the vesting period of the options. We
have recorded a total of $5,485,000 of deferred stock compensation as of
December 31, 2004. We have incurred amortization of deferred stock compensation
expenses of $799,000 in 2002, $612,000 in 2003 and $206,000 in 2004.

         We expect to recognize stock compensation expenses of approximately
$30,000 in 2005. We anticipate that in 2006 and thereafter, stock-based
compensation expenses will increase due to adoption of SFAS No. 123(R).

         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 35% for the 2004 tax year, 34% for the 2005 tax year, 32% for
the 2006 tax year and 30% for the 2007 tax year and thereafter, and are subject
to capital gains tax at a rate of 25% for capital gains (other than gains
deriving from the sale of listed securities) derived after January 1, 2003.
However, we are eligible for tax benefits under our "approved enterprise"
programs, 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 following table sets forth, for the periods indicated, financial
data, expressed as a percentage of total revenues which we believe to be
significant in analyzing our results of operations.

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

                                                                   Year Ended December 31,
                                                           2002            2003            2004

Revenues...........................................         100%              100%            100%
Cost of revenues:
     Costs and expenses............................           69               52              53
     Royalties to the Government of Israel.........            2                3               3
                                                           -----            -----           -----
Total Cost of revenues.............................           71               55              56
                                                           -----            -----           -----
Gross profit.......................................           29               45              44
Operating expenses:
     Gross research and development................          230              110              86
     Royalty bearing grant.........................           48               23              19
                                                           -----            -----           -----
     Research and development, net.................          182               87              67
     Sales and marketing...........................           73               39              30
     General and administrative....................           43               17              11
     Non-cash compensation.........................           12                4               1
                                                           -----            -----           -----
Total operating expenses...........................          310              147             109
                                                           -----            -----           -----
Operating loss.....................................         (281)            (102)            (65)
Financial income, net                                         34               11               6
Net loss...........................................         (247)%           (91)%           (59)%
                                                           -------          ------          ------
</TABLE>




Year Ended December 31, 2004 Compared with Year Ended December 31, 2003

         Revenues. Revenues in 2004 were $22.1 million, an increase of $7.2
million compared with revenues of $14.9 million in 2003. The increase in
revenues is primarily attributable to sales generated from our VDSL products
mainly in Asia, and increased demand for our SHDSL products in Europe and
Israel, offset by decreased demand for our products in North America.

         Cost of Revenues. Cost of revenues was $12.3 million in 2004, an
increase of $4.1 million compared with cost of revenues of $8.2 million in 2003.
This increase is primarily attributable to the increase in revenues. Cost of
revenues as a percentage of revenues was 56% remaining approximately the same as
2003 level. Cost of revenues was affected by the increase in revenues volume,
lower gross margin in Asia, and offset by an excess inventory benefit of $0.4
million related to inventory previously written off and sold during 2004. Said
inventory of $0.4 million was included in 2003 inventory provision.

         Gross Research and Development Expenses. Gross research and development
expenses were $19 million in 2004, an increase of $2.7 million compared with
gross research and development expenses of $16.3 million in 2003. This increase
is primarily attributable to enhancement of our Wireless LAN products research
and development efforts, offset partially by a decrease in our DSL products
research and development expenses. Inclusive of stock based compensation
charges, gross research and development expenses were $19 million in 2004, an
increase of $2.5 million compared with gross research and development expenses
of $16.5 million in 2003. Gross research and development as a percentage of
revenues decreased to 86% in 2004 from 110% in 2003 primarily attributable to
the increase in revenues volume, offset by an increase in gross research and
development expenses mentioned above. Inclusive of stock based compensation
charges, Gross research and development as a percentage of revenues decreased to
86% in 2004 from 110% in 2003. 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 and the European Commission, totaling $4.1 million in 2004 compared
with $3.4 million in 2003, are applied as reductions to gross research and
development expenses. Research and development expenses, net, were $14.9 million
in 2004, or 67% of revenues, compared with $13 million in 2003, or 87% of
revenues. The decrease in research and development, net, as a percentage of
revenue is primarily attributable, to the increase in revenues volume and
grants, offset by increase in gross research and development expenses mentioned
above.

          Sales and Marketing. Sales and marketing expenses were $6.6 million in
2004, an increase of $0.7 million compared with sales and marketing expenses of
$5.9 million in 2003. This increase is primarily attributable to our growing
sales and marketing efforts in the Asia Pacific region that included the
development of new sales channels and the resulting increase in personnel and
related expenses. Sales and marketing expenses, as a percentage of revenues,
were 30% in 2004 compared to 39% in 2003 primarily attributable to the increase
in revenues volume.

         General and Administrative. General and administrative expenses were
$2.5 million in 2004, a decrease of $0.1 million compared with general and
administrative expenses of $2.6 million in 2003. Inclusive of stock based
compensation charges, General and administrative expenses were $2.5 million in
2004, a decrease of $0.2 million compared with general and administrative
expenses of $2.7 million in 2003. General and administrative expenses as a
percentage of revenues decreased to 11% in 2004 from 17% in 2003, primarily
attributable to the increase in revenues volume. Inclusive of stock based
compensation charges, General and administrative expenses as a percentage of
revenues decreased to 11% in 2004 from 18% in 2003.

         Amortization of Deferred Stock Compensation. Amortization of deferred
stock compensation expenses were $206,000 in 2004, a decrease of $406,000
compared with amortization of deferred stock compensation expenses of $612,000
in 2003. This change is primarily attributable to periodical amortization.
Amortization of deferred stock compensation expenses as a percentage of revenues
decreased to 1% in 2004 from 4% in 2003 primarily attributable to the increase
in revenues volume.

         Financial Income, net. Financial income, net was $1.4 million in 2004,
a decrease of $0.3 million compared with financial income, net of $1.7 million
in 2003. This change is primarily attributable to the decrease in total cash,
short term and long term investments balance.

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

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

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

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

         Research and Development, Net. Grants from the Office of the Chief
Scientist, totaling $3.4 million in 2003 compared with $3.2 million in 2002, are
applied as reductions to gross research and development expenses. Research and
development expenses, net, were $13 million in 2003, or 87% of revenues,
compared with $12 million in 2002, or 182% of revenues. As grants were
approximately the same in both 2002 and 2003, the decrease in research and
development, net, as a percentage of revenue is primarily attributable, to the
increase in revenues volume, offset by increase in gross research and
development expenses mentioned above.

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

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

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

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

Impact of Inflation and Currency Fluctuations

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

         In 2001 the NIS was depreciated against the dollar in the rate of 9.3%
while the rate of inflation was 1.4%. In 2002 the NIS was depreciated against
the dollar in the rate of 7.3% while the rate of inflation was 6.5%. In 2003 the
NIS was appreciated against the dollar in the rate of 7.5% while the rate of
deflation was 1.9%. In 2004 the NIS was appreciated against the dollar in the
rate of 1.6% while the rate of inflation was 1.2%. We can not predict any future
trends in the rate of inflation/deflation in Israel or the rate of
devaluation/revaluation of the NIS against the dollar. If the dollar costs of
our operations in Israel increase, our dollar-measured results of operations
could be adversely affected. We cannot assure you that we will not be materially
adversely affected in the future if inflation in Israel exceeds the devaluation
of the NIS against the dollar or if the timing of such devaluation lags behind
increases in inflation in Israel or if the NIS will be appreciated against the
dollar.

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

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

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

Corporate Tax Rate

         Israeli companies are generally subject to corporate tax on their
taxable income at the rate of 35% for the 2004 tax year, 34% for the 2005 tax
year, 32% for the 2006 tax year and 30% for the 2007 tax year and thereafter,
and are subject to Capital Gains Tax at a rate of 25% for capital gains (other
than gains deriving from the sale of listed securities) derived after January 1,
2003. However, in 1994, our facility was granted "approved enterprise" status
under the Law for the Encouragement of Capital Investments, 1959, and
consequently we are eligible, subject to compliance with certain requirements,
for certain tax benefits beginning when such facility first generates taxable
income, initially by not later than year 2008. In December 2000, our facility
received an approval for extension of the "approved enterprise" status period,
as a result of the additional capital investment in the Company in the initial
and the secondary public offerings conducted in December 1999 and March 2000.
Such additional capital investment was a condition of the extension of the
"approved enterprise" status period. Consequently we are eligible, subject to
compliance with certain requirements, for certain tax benefits beginning when
such facility first generates taxable income, but no later than year 2014. The
period of tax benefits with respect to our Approved Enterprise has not yet
commenced, because we have yet to realize taxable income in Israel. As a result
of the foregoing, and of our accumulated tax loss carryforwards (which totaled
at approximately $68.5 million at December 31, 2004), and based on the current
tax system in Israel, we do not anticipate being subject to income tax in Israel
for the 2005 tax year. Our effective corporate tax rate may substantially exceed
the Israeli tax rate. Our U.S., South Korean and Japanese subsidiaries will
generally be subject to applicable domestic 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, 2004 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

         Israeli Government Grants

         We conduct a substantial part of our research and development
operations in Israel. Some of our research and development efforts have been
financed through internal resources and grants per project from the Office of
the Chief Scientist. The Office of the Chief Scientist provided us grants for
research and development efforts of approximately $3.4 million for the year
ended December 31, 2000 (27% of total research and development expenses), $3.5
million for the year ended December 31, 2001 (20% of total research and
development expenses), 3.2 million for the year ended December 31, 2002 (21% of
total research and development expenses), $3.4 million for the year ended
December 31, 2003 (21% of total research and development expenses) and $3.6
million for the year ended December 31, 2004 (19% of total research and
development expenses).

Since the grant  program has the impact of lowering the  Company's  research and
development expenditures,  and improving the Company's margins, reduction in the
Company's  participation  in the  program or in the  benefits  that the  Company
receives  under the program could affect the Company's  financial  condition and
results of  operations.  Currently,  we are  obligated  to pay  royalties to the
Office  of  the  Chief  Scientist  at  the  rate  of  4% to  4.5%.  Due  to  our
manufacturing  outside of Israel,  our aggregate  payment amount with respect to
grants  received  in 2001  and 2002 is 120% of the  dollar-linked  value of such
grants.  With  respect to grants we  received  in 2003 and 2004,  our  aggregate
payment amount is 100% of the  dollar-linked  value of such grants.  In 2003, we
were  required by the Office of the Chief  Scientist  to perform at least 50% of
its manufacturing in Israel. See "Item 5C- Research and Development, Patents and
Licenses, etc.- Grants from the Office of the Chief Scientist".

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

         The Government of Israel, through the fund for encouragement of
marketing abroad, 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 $469,000 for the year 2000, $414,000 for the year 2001, $94,000
for the year 2002, $388,000 for the year 2003, and $648,000 for the year 2004.

         European Commission Grants

         In addition to the Office of the Chief Scientist benefit programs, in
January 2004 we have launched a research project, under the sixth framework
program of the European Commission, under which we are entitled to grants based
on certain approved expenditures of a research and development plan. The
European Commission provided us grants for research and development efforts of
approximately $0.5 million for the year ended December 31, 2004 (2.6% of total
research and development expenses).

B.       Liquidity and Capital Resources

         At December 31, 2004, we had cash and cash equivalents of $12.2
million, short-term investments of $16.2 million and long-term investments of
$22.6 million. At December 31, 2003, we had cash and cash equivalents of $16.2
million, short-term investments of $13 million and long-term investments of $35
million. In December 1999, we completed our initial public offering of 4,600,000
ordinary shares, from which we received net proceeds of approximately $49.8
million. In March 2000, we completed our secondary offering of 1,500,000
ordinary shares, from which we received net proceeds of approximately $62.7
million.

         Our total annual proceeds, net of royalties paid or accrued, from
royalty-bearing government grants was $19.1 million as of December 31, 2004, was
$16.3 million as of December 31, 2003, and $13.1 million as of December 31,
2002.

         Capital expenditures were $1,504,000 for the year ended December 31,
2004, $1,991,000 for the year ended December 31, 2003, and $838,000 for the year
ended December 31, 2002. These expenditures were principally for equipment and
software for our research, development and manufacturing activities. We expect
to invest additional resources in equipment and software.

         Net cash used in operating activities was $11,572,000 for the year
ended December 31, 2004. Net cash used in operating activities during 2004 was
primarily due to net loss, an increase in Government grants to receive balance,
trade accounts receivable and inventories, which were partially offset by
decrease in Trade accounts payable and other payables and accrued expenses and
depreciation and amortization. Net cash used in operating activities was
$10,551,000 for the year ended December 31, 2003. Net cash used in operating
activities was $12,094,000 in 2002.

         Net cash provided by investing activities was $6.5 million for the year
ended December 31, 2004. $24.2 million cash was provided from maturity and sales
of marketable debt securities and certificate of deposits held in Metalink's
treasury offset by $16.2 million cash used in purchase of marketable debt
securities and deposits, and by $1.5 million that was used for the purchase of
property and equipment. Net cash provided by investing activities was $16.1
million in 2003. Net cash provided by investing activities was $4.7 million in
2002. Metalink holds treasury securities primarily in instruments denominated in
U.S. dollars, with the goals of capital preservation and generation of income,
at fixed rates. We do not conduct interest rate or currency hedging activities.

         Net cash provided by financing activities was $1.1 million for the year
ended December 31, 2004, $1.5 million for the year ended December 31, 2003 and
$0.6 million for the year ended December 31, 2002, all of which were primarily
attributable to exercise of employees' option and shares.

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

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

         During the fiscal years 2002, 2003, and 2004, we spent $15.2 million,
$16.3 million, and $19 million, respectively, on gross R&D expenses, or $12
million, $13 million, and $14.9 million, respectively, for R&D net of grants
from the Chief Scientist and the European commission. During 2004, the increase
in R&D expenses was primarily attributable to increasing R&D for our wireless
products, with some offsetting decline in R&D expenses associated with wireline
products. See "Item 4 - Information on the Company - Business Overview -
Research and Development," "Item 4 - Information on the Company - Business
Overview - Proprietary Rights" and " - Operating Results."

Grants from the Office of the Chief Scientist

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

         Under the R&D Law, research and development programs that meet
specified criteria and are approved by the research committee of the Office of
the Chief Scientist are eligible for grants of up to 50% of certain approved
expenditures of such programs, as determined by the research committee of the
Chief Scientist. In exchange, the recipient of such grants is required to pay
the Office of the Chief Scientist royalties from the revenues derived from
products incorporating know-how developed within the framework of each such
program or derived from such program (including ancillary services in connection
with such program), usually up to an aggregate of 100% of the dollar-linked
value of the total grants received in respect of such program, plus interest.
The royalty rates applicable to our programs range from 4% to 4.5%. Due to our
manufacturing outside of Israel, our aggregate payment amount with respect to
grants received in 2001 and 2002 was 120% of the dollar-linked value of such
grants. With respect to grants received in 2003, our aggregate payment amount
was 100% of the dollar-linked value of such grants. With respect to grants
received in 2004, our aggregate payment amount was 100% of the dollar-linked
value of such grants.

         The R&D Law generally requires that the product developed under a
program be manufactured in Israel. However, upon the approval of the Chief
Scientist, some of the manufacturing volume may be performed outside of Israel,
provided that the grant recipient pays royalties at an increased rate, which may
be substantial, and the aggregate repayment amount is increased up to 300% of
the grant, depending on the portion of the total manufacturing volume that is
performed outside of Israel. Effective April 1, 2003, the R&D Law also allows
for the approval of grants in cases in which the applicant declares that part of
the manufacturing will be performed outside of Israel or by non-Israeli
residents and the research committee is convinced that doing so is essential for
the execution of the program. This declaration will be a significant factor in
the determination of the Office of Chief Scientist whether to approve a program
and the amount and other terms of benefits to be granted. For example, the
increased royalty rate and repayment amount will be required in such cases.

         The R&D Law also provides that know-how developed under an approved
research and development program may not be transferred to third parties in
Israel without the approval of the research committee. Such approval is not
required for the sale or export of any products resulting from such research or
development. The R&D Law further provides that the know-how developed under an
approved research and development program may not be transferred to any third
parties outside Israel.

         In March 2005, an amendment to the R&D Law was approved by Israel's
Parliament, which amendment is intended to make the R&D Law more compatible with
the global business environment by, among other things, relaxing restrictions on
the transfer of manufacturing rights outside Israel and on the transfer of Chief
Scientist-funded know-how outside of Israel. As described above, currently, the
law permits the Office of the Chief Scientist to approve the transfer of
manufacturing rights outside Israel, in exchange for payment of higher
royalties. The amendments further permit the Office of the Chief Scientist,
among other things, to approve the transfer of manufacturing rights outside
Israel in exchange for an import of different manufacturing into Israel as a
substitute, in lieu of increased royalties. The amendment further permits, under
certain circumstances and subject to the Office of the Chief Scientist's prior
approval, the transfer outside Israel of know-how that has been funded by Office
of the Chief Scientist, generally in the following cases:

o        the subject company pays to the Office of the Chief Scientist a
portion of the consideration paid for such funded know-how
         (according to certain formulas),

o        the subject company receives know-how from a third party in exchange
for its funded know-how, or

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

     This amendment was effective June 7, 2005. To our knowledge, the Israeli
government intends to amend the royalty regulations promulgated under the R&D
Law to reflect this amendment. This amendment to the regulations may also
include an update to the royalty rates.

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

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

D.       Trend Information

         Asian market share of broadband deployment continues to be large. The
Asian markets in general and Korea, Japan and China in particular represent a
large portion of the broadband deployment worldwide, particularly for the DSL
market. Thus, as of the end of the fourth quarter of 2004, out of 96.9 million
DSL lines worldwide, 25.3 million lines were deployed in Asia according to
analyst Point Topic in their January 2005 report. Our ability to increase our
penetration in this region and specifically our ability to take share of the
broadband market in Japan and China will affect our revenue growth. During
fiscal year 2004 we incorporated a wholly owned subsidiary in Japan (in addition
to our wholly owned subsidiary already incorporated during year 2003 in Korea)
and established a representative office in China. However, while the level of
expenses as a result of our efforts to penetrate the Asian market increase, we
can not be certain that the level of revenues derived from that region will
increase in proportion to the expenses, or even to cover these expenses.

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

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

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

         Consolidation in the broadband IC market. In 2004 we experienced
consolidation in our market, as two of our principal competitors,
GlobespanVirata and Conexant, announced the completion of their merger. If this
merger signal an industry trend, this trend may adversely effect our market
share and might adversely effect our operational results. We may find ourselves
competing with companies significantly larger than Metalink. The difference in
size will probably benefit the larger companies which have broader sales and
marketing channels, as well as greater capabilities to integrate several
technologies such as xDSL, WLAN, networking, security and video processing into
a single solution for the broadband home.

         VDSL2 Standardization. In May of 2005 the ITU brought out a new
international standard for VDSL called VDSL2. While Metalink is developing a
compliant chipset, currently it does not have such a product. Three competitors
(Ikanos, Conexant, and Infineon) have announced compliant devices. If carriers
abandon current VDSL technology in favor of this new VDSL2 technology prior to
our ability to bring VDSL2 compliant products to market, our business will be
adversely impacted.


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

E.       Off-balance sheet arrangements

Not applicable.



F.       Tabular disclosure of Contractual Obligations.

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


                                                          Payments Due By Period (in thousands $)
                                                                                                        2009 and
Contractual Obligations                         Total        2005       2006        2007       2008   thereafter
Long-Term Debt Obligations



Operating lease obligations                    5,679       1,120      1,008         947        947        1,657
Purchase obligations (vendors of
equipment and services)                        3,568       1,570      1,021         977


Total contractual cash obligations             9,247       2,690      2,029       1,924        947        1,657

</TABLE>



         We lease our motor vehicles under cancelable operating lease
agreements, for periods through 2006. The minimum payment under these operating
leases upon cancellation of these lease agreements, amounted to $141,000 as of
December 31, 2004.

<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.................    44    Chairman of the Board of Directors and Chief Executive Officer
David Pereg .............         36    Vice President, Corporate Development, Office of the CEO
Yuval Ruhama..................    35    Vice President, Finance
Ron Cates.....................    49    Vice President, North American Sales & Marketing
Yaniv Dinur...................    42    Vice President, Marketing
Liron Frenkel............         39    Vice President, Engineering
Aviva Gatt ...................    51    Vice President, Human Resources
Shmulik Shemesh ......            36    Vice President, Operations
Barry Volinskey.......            35    Associate Vice President, Marketing, Broadband Home Products
Uzi Rozenberg.................    45    Director
Efi Shenhar...................    49    Director
Gideon Barak............          44    Director
Sarit Weiss-Firon.............    39    Director
Joe Markee....................    52    Director
Meir Bar-El...................    61    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.

         David Pereg has served as our Vice President, Corporate Development,
Office of the CEO since 2004, and in key engineering positions, including Vice
President, Engineering since 1999. From 1990 to 1998 Mr. Pereg served as a
project officer in the Israel Defense Forces, where he developed and supervised
various projects in communications and digital signal processing. Mr. Pereg
holds a B.S.E.E cum laude and an M.S.E.E from Tel Aviv University and is a
graduate of the Advanced Management Program of Harvard Business School.

         Yuval Ruhama has served as our Vice President of Finance since April
2005 after serving as our Legal & Equity Director and Company Secretary since
June 2000. Previously, Mr. Ruhama worked for a year at Vexler Bergman LLP, an
Israeli law firm, and for four years at KPMG Somekh Chaikin. Mr. Ruhama holds an
LL.B. in Law and Accounting from Tel Aviv University (Cum Laude in Accounting),
and an MBA Cum Laude from Bar Ilan University.

         Ron Cates joined Metalink as Associate Vice President of Sales and
Business Development, assuming his current position in 2005. Mr. Cates has
extensive experience in the semiconductor industry, holding various
executive-level positions, including Vice President and General Manager of the
Broadband Access Business Unit at Connexant Systems and Vice President of World
Wide Sales at Peregrine Semiconductor. He holds B.S. and M.S. degrees in
Electrical Engineering from the University of California at Los Angeles (UCLA)
and an MBA from San Diego State University.


         Yaniv Dinur has served as our Vice President, International Sales,
since February 2005. From 2002 to 2004, Mr. Dinur served as Vice President,
Worldwide Sales & Business Development of Emblaze Ltd., an Israel-based
developer of wireless multimedia products. Previously, Mr. Dinur served as the
Vice President of Sales for Comverse Technology Inc.'s Mobile Internet division.
Mr. Dinur holds an MBA from the Technion - Israel Institute of Technology.

         Liron Frenkel has served as our Vice President, Engineering since July
2004, and as Director of Wireline Engineering since 2003. From 1994 to 2003, Mr.
Frenkel held several key R&D positions at Orckit and Tioga, including managing
the algorithms and system group and leading the various system on a chip
projects. From 1993 to 1994, Mr. Frenkel was a member of the Faculty of
Electrical Engineering at the Tel Aviv University. Prior to that, Mr. Frenkel
served in a professional unit of the Israel Defense Forces managing and
developing computer databases (1984-1987). He holds a B.S.E.E Cum Laude and an
M.Sc. in EE from TA university.


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

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

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

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

Gideon Barak has served as our  director  since July 2004.  Mr. Barak  currently
serves as a board  member of Modem Art Ltd, and is a founder and Chairman of IXI
Mobile  Inc.  From  2000 to 2004 Mr.  Barak  served  as a member of the board of
Widcomm  Inc,  which was  acquired by  Broadcom  Corporation  in 2004,  and as a
founder and chairman of Envara Inc.,  which was acquired by Intel in 2004.  From
1999 till 2004,  Mr. Barak  served as a board  member of RFWaves Ltd.  which was
acquired  by  Vishay  in 2004.  From 1995 till  1999,  Mr.  Barak  served as the
chairman of Butterfly  VLSI,  which was acquired by Texas  Instruments  in 1999.
From 1991 till 1994,  Mr. Barak served as founder and CEO of DSP  Communications
Ltd.,  which was sold to Intel in 2001. From 1988 till 1991, Mr. Barak served as
CFO of DSP Group.  Mr.  Barak  holds a B.A.  degree in  Economics  and an M.B.A.
degree from the Tel-Aviv University

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

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

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


B........Compensation

         The aggregate remuneration we paid for the year ended December 31, 2004
to all executive officers as a group (15 persons), was approximately $1,011,000
in salaries, fees, commissions and bonuses. This amount includes approximately
$175,000 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 2004 we granted one of our directors and executive officers
options to purchase 142,667 ordinary shares under our option plans. The weighted
average exercise price of these options was $4.76 per share and they expire
within 10 years from the date they were issued.

C.       Board Practices

Introduction

         According to the Israeli Companies Law, 5759-1999, and the regulations
promulgated thereunder, or the Companies Law, and our articles of association,
the management of our business is vested in our board of directors. The board of
directors may exercise all powers and may take all actions that are not
specifically granted to our shareholders. As part of its powers, our board of
directors may cause us to borrow or secure payment of any sum or sums of money
for our purposes, at times and upon terms and conditions as it determines,
including the grant of security interests in all or any part of our property. No
members of the Board have service contracts with the Company or its subsidiaries
providing for benefits upon termination of service.


Election of Directors

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


External Directors

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

o        an employment relationship;

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

o        control; and

o        service as an office holder.

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

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

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

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

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

Independent Directors

         The Nasdaq Marketplace Rules currently require us to have at least two
independent directors on our Board of Directors. Under new Nasdaq Marketplace
Rules promulgated pursuant to the Sarbanes-Oxley Act of 2002, effective as of
July 31, 2005, a majority of our board of directors must qualify as independent
directors within the meaning of the Nasdaq Marketplace Rules and our Audit
Committee must have at least three members and be comprised only of independent
directors each of whom satisfies the respective "independence" requirements of
the SEC and Nasdaq.

         We have a majority of independent board members, and all of the members
of our Audit Committee are "independent directors" under SEC rules.

Committees Of The Board

         Our board of directors has formed an audit committee, an executive
committee and a share incentive committee. Both the executive and the share
incentive committees were inactive during 2004.

         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.
         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.


The audit committee, which consists of Mr. Joe Markee, Mrs. Weiss-Firon, and
 Mr. Meir Bar-El, exercises the powers of the board of
directors with respect to our accounting, reporting and financial control
 practices.

         Mrs. Weiss-Firon is the "financial expert" on the 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.

Internal Auditor

Under the Companies Law, our board of directors is also required to appoint an
internal auditor proposed by the audit committee. The role of the internal
auditor is to examine, among other things, whether our activities comply with
the law and orderly business procedure. The internal auditor may not be an
interested party or officer holder, or a relative of any interested party or
officer holder, and may not be a member of our independent accounting firm. The
Companies Law defines the term "interested party" to include a person who holds
5% or more of the company's outstanding share capital or voting rights, a person
who has the right to appoint one or more directors or the general manager, or
any person who serves as a director or as the general manager. On April 2001, we
appointed Mr. Jonathan Glazer as our internal auditor.

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. Under the Companies Law, all arrangements as to
compensation of directors in public companies such as ours generally require the
approvals of the audit committee, the board of directors and the shareholders,
in that order.

         Disclosure of Personal Interests of an Office Holder. The Companies Law
requires that an office holder of a company promptly disclose any personal
interest that he may have and all related material information known to him in
connection with any existing or proposed transaction by the company. A personal
interest of an office holder includes an interest of a company in which the
office holder is, directly or indirectly, a 5% or greater shareholder, director
or general manager or in which he has the right to appoint at least one director
or the general manager. In the case of an "extraordinary transaction", the
office holder's duty to disclose applies also to a personal interest of the
office holder's relative. 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. When an
extraordinary transaction is considered by the audit committee and board of
directors, the interested director may not be present or vote, unless a majority
of the members of the board of directors or the audit committee, as the case may
be, has a personal interest in the matter. If a majority of members of the board
of directors have a personal interest therein, shareholder approval is also
required..

...................Disclosure of Personal Interests of a Controlling Shareholder

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

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

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

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

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

Exculpation, Insurance and Indemnification of Directors and Officers

         Exculpation of Office Holders

Under the Companies Law, an Israeli company may not exempt an office holder from
liability with respect to a breach of his duty of loyalty, but may exempt in
advance an office holder from his liability to the company, in whole or in part,
with respect to a breach of his duty of care (except in connection with
distributions); provided that the articles of association of the company allow
it to do so. Our articles of association allow us to exempt our office holders
to the fullest extent permitted by law.


     Office Holder Insurance

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

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

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

o             a financial liability imposed on him in favor of another person by
              any judgment, including a settlement or an arbitrator's award
              approved by a court. Such indemnification may be approved (i)
              after the liability has been incurred or (ii) in advance, provided
              that our undertaking to indemnify is limited to events that our
              board of directors believes are foreseeable in light of our actual
              operations at the time of providing the undertaking and to a sum
              or criterion that our board of directors determines to be
              reasonable under the circumstances;

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

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

     Limitations on Insurance and Indemnification

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

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

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

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.

Management Employment Agreements

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

D.       Employees

         As of May 31, 2005, we had 161 employees worldwide, of which 101 were
employed in research and development, 27 in sales and marketing, 14 in
management and administration, and 19 in operations and quality assurance. As of
May 31, 2005, 136 of our employees were based in Israel, 22 were based in the
United States and 3 were based in the Asia Pacific. We had 179 employees
worldwide as of December 31, 2004. We had 158 employees worldwide as of December
31, 2003, and 152 employees worldwide as of December 31, 2002. We have standard
employment agreements with all of our employees, other than our chief executive
officer. All of our employees, other than our chief executive officer, have
executed employment agreements, including confidentiality and non-compete
provisions with us.

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

E.       Share Ownership

         The following table sets forth certain information regarding the
ownership of our ordinary shares by our directors and officers as of May 31,
2005. The percentage of outstanding ordinary shares is based on 19,313,381
ordinary shares outstanding as of May 31, 2005.

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


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

Tzvi Shukhman................            5,932,921                    30.7                      --
Uzi Rozenberg................            4,986,095                    25.8                      --
David Pereg..................             *                           *                         *
Yuval Ruhama.................             *                           *                         *
Ron Cates....................             --                          --                        *
Yaniv Dinur..................             --                          --                        *
Liron Frenkel................             *                           *                         *
Aviva Gatt...................             *                           *                         *
Shmuel Shemesh...............             *                           *                         *
Barry Volinskey..............             --                          --                        *
Efi Shenhar..................             *                           *                         *
Gideon Barak.................             --                          --                        *
Sarit Weiss-Firon............             --                          --                        --
Joe Markee...................             *                           *                         *
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, 2005.

(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, 2005,
       are treated as outstanding only for the purposes of determining the
       percent owned by such person or group.



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

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, 2005 options to purchase 3,453,185 ordinary shares under
our share option plans were outstanding. As of May 31, 2005, an additional
2,004,772 ordinary shares were reserved for issuance pursuant to options
issuable under our share option plans. We may increase the number of ordinary
shares reserved for issuance pursuant to options issuable under our plans.

Stock Purchase Plan

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

         As of May 31, 2005, 329,080 ordinary shares were issued under the ESPP,
and an additional 108,143 ordinary shares are reserved for issuance. The last
ESPP offering period ended in August 2004, following which 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 May 31, 2005 by each person or
entity known to own beneficially more than 5% of our outstanding ordinary shares
based on information provided to us by the holders or disclosed in public
filings with the Securities and Exchange Commission.

<TABLE>
<S>                                     <C>                                     <C>
                                                                                  Percentage of
                                             Number of Ordinary               Outstanding Ordinary
                Name                    Shares Beneficially Owned(1)                Shares(2)
  Tzvi Shukhman(3)                               5,932,921                             30.7%
  Uzi Rozenberg(3)(4)                            4,986,095                             25.8%

</TABLE>

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

         During the past three years, Mr. Shukhman has increased his ownership
of Metalink by 1,537,497 shares (Approximately 8% of the currently outstanding
shares) and Mr. Rozenberg has increased his ownership of Metalink by 1,000,000
shares (Approximately 5% of the currently outstanding shares). As of May 31,
2005 there were 2,090,643 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.

         Except with respect to the major shareholders, the Company is not
directly or indirectly controlled by any other corporation, foreign government
or other natural or legal person.

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

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

(2)   The percentage of outstanding ordinary shares is based on 19,313,381
ordinary shares outstanding as of May 31, 2005.

(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


Record Holders

         As of May 31, 2005, we had 27 shareholders of record, of whom 20 were
registered with addresses in the United States, representing approximately 33%
of our outstanding ordinary shares. These numbers are not representative of the
number of beneficial holders of our shares nor is it representative of where
such beneficial holders reside since many of these ordinary shares were held of
record by brokers or other nominees (including one U.S. nominee company, CEDE &
Co., which held approximately 33% of our outstanding ordinary shares as of said
date).

B.       Related Party Transactions

         None.

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 March 31, 2005.

Other Financial Information

         In the year ended December 31, 2004 the amount of our export sales was
approximately $19.6 million, which represents 88.6% of our total sales.

Legal Proceedings

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

         In December 2003 the former employee filed a claim in the second phase
of the arbitration in the amount of $3.9 million. We contested this
claim and filed a claim for damages against the former employee in the amount of
$950,000 and for a refund of the $435,000 already paid to him according to the
foregoing judgment and of the $35,000 paid as statutory severance pay and
reimbursement of travel expenses.

         The parties failed to reach agreement as to identity of the arbitrators
who will adjudicate the second phase of the arbitration and the former employee
filed a motion petitioning the court to appoint an arbitrator. We filed
a claim in which it seeks a declaratory judgment that the arbitration agreement
between the parties and all the arbitration proceedings under it are null and
void. We also filed our response to the motion for the appointment of
an arbitrator. The former employee filed a statement of defense contesting oure
claim.

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

         We are not a party to any material legal proceedings.

Dividend Policy

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

B.       Significant Changes

         Except as otherwise disclosed in this Annual Report, no significant
change has occurred since December 31, 2004.



<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:

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



                           FIVE MOST RECENT YEARS                                 High           Low
2000 ....................................................................      $ 72.00         $ 9.25
2001 ....................................................................      $ 17.38         $ 2.04
2002 ....................................................................      $  6.50         $ 1.71
2003 ....................................................................      $  8.32         $ 2.74
2004 ....................................................................      $  9.05         $ 4.20


EIGHT MOST RECENT QUARTERS AND SUBSEQUENT PERIOD
Second Quarter 2003................................................            $  6.29         $ 3.38
Third Quarter 2003..................................................           $  6.85         $ 4.45
Fourth Quarter 2003.................................................           $  8.32         $ 5.10
First Quarter 2004 ...................................................         $  9.05         $ 6.98
Second Quarter 2004 ..............................................             $  8.19         $ 5.97
Third Quarter 2004..................................................           $  6.89         $ 4.59
Fourth Quarter 2004.................................................           $  6.02         $ 4.20
First Quarter 2005 ...................................................         $  5.72         $ 4.22
Second Quarter 2005 (Until June 22)............................                $  4.93         $ 4.17




                          MOST RECENT SIX MONTHS




 December 2004......................................................           $ 6.02          $ 5.30
January 2005.........................................................          $ 5.72          $ 4.70
February 2005........................................................          $ 5.22          $ 4.50
March 2005...........................................................          $ 4.89          $ 4.22
April 2005............................................................         $ 4.56          $ 4.17
May 2005.............................................................          $ 4.93          $ 4.30
June 2005 (Until June 22)..........................................            $ 4.85          $ 4.50
</TABLE>

<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
                      FOUR MOST RECENT YEARS                              $       NIS          $       NIS
                      ----------------------
2001..................................................................   17.54      72.70     2.10       9.16
2002..................................................................    6.33      28.59     1.67       8.00
2003 ..................................................................   8.48      38.39     2.55      12.11
2004 ..................................................................   9.37      41.03     4.09      18.24

EIGHT MOST RECENT QUARTERS AND SUBSEQUENT PERIOD
Second Quarter 2003 ..............................................        6.33      27.72     3.46      16.14
Third Quarter 2003.................................................       6.69      29.38     4.48      20.02
Fourth Quarter 2003....................... ........................       8.48      38.39     5.03      22.30
First Quarter 2004..................................................      9.37      41.03     6.86      30.68
Second Quarter 2004 ..............................................        8.43      37.98     6.04      27.28
Third Quarter 2004.................................................       6.92      31.03     4.57      20.50
Fourth Quarter 2004................................................       6.00      26.08     4.09      18.24
First Quarter 2005..................................................      5.81      25.31     4.24      18.57
Second Quarter 2005 (Until June 22)............................           4.86      21.27     4.22      18.49


                   MOST RECENT SIX MONTHS
December 2004 .....................................................       6.00      26.08     5.26      22.99
January 2005.........................................................     5.81      25.31     4.66      20.60
February 2005........................................................     5.22      22.86     4.65      20.30
March 2005..........................................................      4.87      21.11     4.24      18.57
April 2005............................................................    4.50      19.64     4.22      18.49
May 2005.............................................................     4.86      21.27     4.31      18.84
June 2005 (Until June 22).........................................        4.79      21.17     4.54      19.34
</TABLE>

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















B.       Plan of Distribution

Not applicable.

C.       Markets

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

D.       Selling shareholders.

Not applicable.

E.       Dilution.

Not applicable.

F.       Expenses of the Issue.

Not applicable.


<PAGE>



ITEM 10. ADDITIONAL INFORMATION

A.       Share Capital

Not applicable.

B.       Memorandum and Articles of Association

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

Change of Control

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

         The Companies Law includes provisions that allow a merger transaction
and requires that each company that is a party to the merger have the
transaction approved by its board of directors and a vote of the majority of its
shares. For purposes of the shareholder vote of each party, unless a court rules
otherwise, the merger will not be deemed approved if shares, representing a
majority of the voting power present at the shareholders meeting and which are
not held by the other party to the merger (or by any person who holds 25% or
more of the voting power or the right to appoint 25% or more of the directors of
the other party), vote against the merger. Upon the request of a creditor of
either party to the proposed merger, the court may delay or prevent the merger
if it concludes that there exists a reasonable concern that as a result of the
merger the surviving company will be unable to satisfy the obligations of any of
the parties to the merger. In addition, a merger may not be completed unless at
least (i) 50 days have passed from the time that the requisite proposals for
approval of the merger have been filed with the Israeli Registrar of Companies
by each merging company and (ii) 30 days have passed since the merger was
approved by the shareholders of each merging company.

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

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

         Lastly, Israeli tax law treats some acquisitions, such as
stock-for-stock exchanges between an Israeli company and a foreign company, less
favorably than U.S. tax laws. For example, Israeli tax law may, under certain
circumstances, subject a shareholder who exchanges his ordinary shares for
shares in another corporation to taxation prior to the sale of the shares
received in such stock-for-stock swap.

C.       Material Contracts

         For a summary of our material contracts, see "Item 4 - Information on
the Company - Property, Plants and Equipment."

D.       Exchange Controls

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

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

E.       Taxation

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

         Holders of our ordinary shares are encouraged to consult their own tax
advisors as to the United States, Israeli or other tax consequences of the
purchase, ownership and disposition of ordinary shares.

 Israeli Tax

     General Corporate Tax Structure

         Israeli companies are generally subject to corporate tax on their
taxable income at the rate of 35% for the 2004 tax year, 34% for the 2005 tax
year, 32% for the 2006 tax year and 30% for the 2007 tax year and thereafter,
and are subject to capital gains tax at a rate of 25% for capital gains (other
than gains deriving from the sale of listed securities) derived after January 1,
2003. However, the effective tax rate payable by a company which derives income
from an Approved Enterprise (as further discussed below) may be considerably
less.

     Tax Benefits and Grants for Research and Development

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

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

         The Law for the Encouragement of Capital Investments, 1959, or the
Investments Law, provides that a proposed capital investment in eligible
facilities may, upon application to the Investment Center of the Ministry of
Industry and Trade of the State of Israel, known as the Investment Center, be
designated as an Approved Enterprise. See discussion below regarding a recent
amendment to the Investments Law.

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

         The tax benefits derived from any such certificate of approval relate
only to taxable income attributable to the specific Approved Enterprise. In the
event that a company is operating 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 corporate tax for
a period of between two and ten years from the first year of taxable income,
depending on the geographic location of the Approved Enterprise within Israel,
and such company will be eligible for a reduced tax rate for the remainder of
the benefits period. The tax benefits under the Investments Law shall also apply
to income generated by a company from the grant of a usage right with respect to
know-how developed by the Approved Enterprise, income generated from royalties,
and income derived from a service which is auxiliary to such usage right or
royalties, provided that such income is generated within the Approved
Enterprise's ordinary course of business.

         In 1994, our request for designation of our capital investment at our
facility as an "Approved Enterprise" program was approved under the Investment
Law. For this Approved Enterprise, we elected the alternative package of
benefits. On December 2000, we received an approval for additional capital
investment in our Approved Enterprise under the alternative package of benefits.
We have derived, and expect to continue to derive, a substantial portion of our
income from our Approved Enterprise facilities.

         A company that has elected the alternative package of benefits and that
subsequently pays a dividend out of income derived from the Approved Enterprise
during the tax exemption period will be subject to tax in respect of the amount
distributed (including the tax thereon) at the rate which would have been
applicable had it not elected the alternative package of benefits (generally
10%-25%, depending on the extent of foreign investment in such company). The
dividend recipient is subject to withholding tax at the rate applicable to
dividends from Approved Enterprises (15%), if the dividend is distributed during
the tax exemption period or within 12 years thereafter. We must withhold this
tax at source, regardless of whether the dividend is converted into foreign
currency.

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

         The benefits available to an Approved Enterprise are conditional upon
the fulfillment of conditions stipulated in the Investments Law and its
regulations and the criteria set forth in the specific certificate of approval,
as described above. In the event that a company does not meet these conditions,
it would be required to refund the amount of tax benefits, with the addition of
the consumer price index linkage adjustment and interest.

         Recent Amendment to the Investments Law

         On April 1, 2005, an amendment to the Investments Law came into force.
Pursuant to the amendment, a company's facility will be granted the status of
"Approved Enterprise" only if it is proven to be an industrial facility (as
defined in the Investments Law) that contributes to the economic independence of
the Israeli economy and is a competitive facility that contributes to the
Israeli gross domestic product. The amendment provides that the Israeli Tax
Authority and not the Investment Center will be responsible for an Approved
Enterprise under the alternative package of benefits, referred to as a
Benefiting Facility. A company wishing to receive the tax benefits afforded to a
Benefiting Facility is required to select the tax year from which the period of
benefits under the Investment Law are to commence by simply notifying the
Israeli Tax Authority within 12 months of the end of that year. In order to be
recognized as owning a Benefiting Facility, a company is required to meet a
number of conditions set forth in the amendment, including making a minimal
investment in manufacturing assets for the Benefiting Facility and having
completed a cooling-off period of no less than two to four years from the
company's previous year of commencement of benefits under the Investments Law.

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

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

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

o             A special tax route that provides a full exemption from corporate
              tax and from tax with respect to dividends for companies with an
              annual income of at least NIS 13-20 billion that have invested a
              total of between NIS 600-900 million in facilities in certain
              geographical locations in Israel.

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

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

     The amendment will apply to Approved Enterprise programs in which the year
of commencement of benefits under the Investments Law is 2004 or later, unless
such programs received approval from the Investment Center on or prior to
December 31, 2004 in which case the provisions of the amendment will not apply.

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

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

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

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

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

o        accelerated depreciation rates on equipment and buildings; and

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

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

     Special Provisions Relating to Taxation Under Inflationary Conditions

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

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

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

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

o                     Taxable gains on certain traded securities which are taxed
                      at a reduced rate with respect to individuals, are taxable
                      at the corporate tax rate in certain circumstances.

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

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

Capital Gains Tax

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

         Generally, capital gains tax is imposed on Israeli residents at a rate
of 15% on real gains derived on or after January 1, 2003, from the sale of
shares in (i) companies publicly traded on the Tel Aviv Stock Exchange ("TASE"),
or (ii) Israeli companies publicly traded on NASDAQ or another recognized stock
market in a country that has a treaty for the prevention of double taxation with
Israel, or (iii) companies dually traded on both the TASE and NASDAQ or a
recognized stock market outside of Israel. This tax rate is contingent upon the
shareholder not claiming a deduction for financing expenses in connection with
such shares (in which case the gain will be taxed at a rate of 25%), and does
not apply to: (i) the sale of shares to a relative (as defined in the Israeli
Income Tax Ordinance); (ii) the sale of shares by dealers in securities (who
will be taxed at the corporate tax rate for corporations and at marginal tax
rates of up to 49% for individuals); (iii) the sale of shares by shareholders
that report in accordance with the Inflationary Adjustments Law (who will be
taxed at the corporate tax rate for corporations and at marginal tax rates of up
to 49% for individuals); or (iv) the sale of shares by shareholders who acquired
their shares prior to an initial public offering (that may be subject to a
different tax arrangement). The tax basis of shares acquired prior to January 1,
2003 will be determined in accordance with the average closing share price in
the three trading days preceding January 1, 2003. However, a request may be made
to the tax authorities to consider the actual adjusted cost of the shares as the
tax basis if it is higher than such average price.

         Non-Israeli residents are exempt from Israeli capital gains tax on any
gains derived from the sale of shares publicly traded on the TASE, provided such
gains did not derive from a permanent establishment of such shareholders in
Israel, and are exempt from Israeli capital gains tax on any gains derived from
the sale of shares of Israeli companies publicly traded on a recognized stock
market outside of Israel (such as the NASDAQ), provided that such capital gains
are not derived from a permanent establishment in Israel, that such shareholders
are not subject to the Inflationary Adjustment Law 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 some instances where our shareholders may be liable to Israeli tax
on the sale of their ordinary shares, the payment of the consideration may be
subject to the withholding of Israeli tax at the source.

Application of the U.S.-Israel Tax Treaty to Capital Gains Tax

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


Taxation of Non-Residents on Receipt of Dividends

         Non-residents of Israel will be subject to Israeli income tax on the
receipt of dividends paid on our ordinary shares at the rate of 25%, which tax
will be withheld at source, unless the dividends are paid from income derived
from an approved enterprise during the applicable benefit period, or a different
rate is provided in a treaty between Israel and the shareholder's country of
residence. Under the U.S.-Israel Tax Treaty, the maximum tax on dividends paid
to a holder of our ordinary shares who is a Treaty U.S. Resident will be 25%.
However, when dividends are paid from income derived during any period for which
the Israeli company is not entitled to the reduced tax rate applicable to an
Approved Enterprise under the Investments Law, the maximum tax will be 12.5% if
the holder is a U.S. company holding shares representing at least 10% of the
issued voting power during the part of the taxable year preceding the date of
payment of dividends and during the whole of the prior taxable year, and
provided that not more than 25% of the Israeli company's gross income consists
of interest or dividends. When dividends are paid from income derived during any
period for which the Israeli company is entitled to the reduced tax rate
applicable to an Approved Enterprise, then the tax will be 15% if the conditions
in the preceding sentence are met.


United States Federal Income Tax Considerations

     General

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

o        a citizen or resident of the United States;

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

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

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

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

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

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

o        insurance companies;

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

o        tax-exempt organizations;

o        financial institutions or "financial services entities";

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

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

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

o        taxpayers who acquire our ordinary shares as compensation.

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

     Taxation of Dividends Paid on Ordinary Shares

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

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

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

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

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

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

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

     Taxation of the Disposition of Ordinary Shares

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

     Passive Foreign Investment Company Considerations

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

         we believe that we were not characterized as a PFIC for 2004. However,
our non-PFIC status for 2004 does not change the 2001, 2002, or 2003 tax impacts
to U.S. persons who held shares during those periods, in which years Metalink
was a PFIC. As previously announced, we believe that we were characterized as a
PFIC for 2001, 2002 and 2003. Although we will endeavor to avoid such
characterization in the future, we may not be able to do so. Any U.S. person who
held our shares at any time during 2001, 2002 or 2003 was eligible to mitigate
the consequences of our PFIC characterization by electing to treat us as a
"qualified electing fund" or QEF under the Internal Revenue code as specified
below. Alternatively, U.S. taxpayers were also able to make a "mark-to-market"
election under the Internal Revenue Code as specified below.
         A U.S. Holder who did not make a qualifying election either to (i)
treat us as a "qualified electing fund", or a QEF, or (ii) mark our ordinary
shares to market will be subject to the following:


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

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

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

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

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

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

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

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

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


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

         The QEF election is made on a shareholder-by-shareholder basis and can
be revoked only with the consent of the IRS. A QEF election applies to all
shares of the PFIC held or subsequently acquired by an electing U.S. holder. A
shareholder makes a QEF election by attaching a completed IRS Form 8621,
including the PFIC annual information statement, to a timely filed United States
federal income tax return and by filing such form with the IRS Service Center in
Philadelphia, Pennsylvania. Even if a QEF election is not made, a shareholder in
a PFIC who is a U.S. person must file a completed IRS Form 8621 every year.
During January 2002, 2003, and 2004 Metalink sent to its shareholders the
required information to report income and gain under a QEF election - a "PFIC
ANNUAL INFORMATION STATEMENT" for the years 2001, 2002, and 2003 respectively.

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

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

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

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

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

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

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

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

     U.S. Information Reporting and Backup Withholding

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

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

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

F.       Dividends and Paying Agents

Not applicable.

G.       Statements by Exports.

Not applicable.

H.       Documents on Display

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

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

         Notwithstanding the foregoing, we are soliciting proxies and furnish
proxy statements for all meetings of shareholders pursuant to Nasdaq Marketplace
Rule 4350(g), a copy of which proxy statement is filed promptly thereafter with
the SEC under Current Report on Form 6-K. However, in accordance with Rule
4350(a)(1) of the Rules of Corporate Governance of The Nasdaq Stock Market,
Inc., we have received an exemption from the requirement to distribute an annual
report to our shareholders prior to our annual meeting of shareholders. The
basis for the exemption is that the generally accepted business practice in
Israel, where we are incorporated, is not to distribute an annual report to
shareholders. We post our Annual Report on Form 20-F on our web site
(www.metalinkbb.com) as soon as practicable following the filing of the Annual
Report on Form 20-F with the SEC.


<PAGE>



ITEM 11.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT

<PAGE>



                  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, 2004 and December 31, 2003, we did not own
any market risk sensitive instruments, other than instruments that can be
affected by changes in interest rates. Our financial instruments were not held
for trading. However, we may in the future undertake hedging or other similar
transactions or invest in market risk sensitive instruments if management
determines that it is necessary to offset these risks. See "Item 3--Key
Information--Risk Factors--Risks Relating to our location in Israel."

Interest Rate Risk

         Our exposure to market risk with respect to changes in interest rates
relates primarily to our short- and long-term investments. Our short- and
long-term investments consist of primarily, certificates of deposits and
marketable debt securities of highly-rated corporations. The fair value of our
short- and long-term investments is based upon their market value as of December
31, 2004. We manage our exposure to interest rate risk by varying the maturities
of the instruments that we purchase, with the objective of capital preservation
and generation of income.

















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

------------------------------------------------------------------------------
                              Short-Term
                      (U.S. dollars in thousands)
------------------------------------------------------------------------------
------------------------ -----------------------------------------------------
Marketable debt securities                   Maturity date at year 2005
----------------------------------- ------------------------------------------
U.S. dollar debt securities and
certificates of                                 16,191
deposit with fixed
interest rate
----------------------------------- ------------------------------------------
Weighted Average Interest Rate                   2.70%
------------------------------------------------------------------------------
                              Long-Term
                        (U.S. dollars in thousands)
------------------------------------------------------------------------------
-------------------------------- -------------------------------------------
Marketable debt securities                  Maturity date at year 2006-on
----------------------------- -----------------------------------------------
----------------------------- -----------------------------------------------
U.S. dollar debt securities and
 certificates of
deposit with fixed
interest rate                                    22,639
----------------------------- ---------------------------------------------
Weighted average interest rate                    2.91%
----------------------------------------------------------------------------


ITEM 12.          DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.


<PAGE>



                                     PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Not applicable.

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


Not applicable

ITEM 15. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

         Our principal executive and principal financial officers have concluded
that, as of the end of the last fiscal year, the Company's disclosure controls
and other procedures were effective to ensure that information required to be
disclosed by the Company in the reports that we file or submit to the Securities
and Exchange Commission under the Securities Exchange Act was accumulated and
communicated to our management, including the principal executive and principal
financial officers, as appropriate to allow timely decisions regarding required
disclosure.

ITEM 16. [RESERVED]



ITEM 16A.          AUDIT COMMITTEE FINANCIAL EXPERT

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

ITEM 16B.          CODE OF ETHICS

         In April 2004, we adopted Code of Business Conduct and Ethics (this
"Code") that applies to the Company's employees and directors. The Code is
available on our website. We undertake to provide to any person without charge,
upon request, a copy of our code of ethics, which you may request from our legal
department, tel: +972-9-9605555.

ITEM 16C.          PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees.  Brightman Almagor & Co., Certified Public Accountants  (Israel),  a
member of  Deloitte  Touche  Tohmatsu  billed us  aggregate  annual  amounts  of
approximately $35,000 and $43,000 respectively,  for audits of our 2004 and 2003
audit of our annual  financial  statements,  review of our  quarterly  financial
results,  consultations  on various  accounting  issues and performance of local
statutory audits.

Tax Fees.  For 2004 and  2003,  our  principal  accountant  billed us  aggregate
amounts of approximately $12,000 and $7,000, respectively, for services relating
to tax compliance, tax advice and tax planning.

All Other Fees.   Not applicable.

Pre-approval Policies and Procedures. Our audit committee approves each audit
and non-audit service to be performed by our independent accountant before the
accountant is engaged.



ITEM 16D.  EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

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

Not applicable.

<PAGE>





                                                     PART III

ITEM 17. FINANCIAL STATEMENTS

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

ITEM 18. FINANCIAL STATEMENTS

The Financial Statements required by this item are incorporated by reference to
our report on Form 6-K filed March 31, 2005.


<PAGE>



ITEM 19. EXHIBITS

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

   Exhibit No.     Description
      1.1*         Memorandum of Association, as amended, (English translation
                   accompanied by Hebrew original) (incorporated herein by
                   reference to Exhibit 4.2 to the Registrant's Registration
                   Statement on Form S-8, filed with the Securities and Exchange
                   Commission on April 17, 2001).
      1.2*         Articles of Association, as amended, (English translation
                   accompanied by Hebrew original) (incorporated herein by
                   reference to Exhibit 4.3 to the Registrant's Registration
                   Statement on Form S-8, filed with the Securities and Exchange
                   Commission on April 17, 2001).

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

      4.1*         Employee Share Option Plan (1997) (incorporated herein by
                   reference to Exhibit 10.2 to the Registrant's Registration
                   Statement on Form F-1 (No. 333-11118) filed with the
                   Securities and Exchange Commission on November 10, 1999).
      4.2*         Employee Share Option Plan (1997), Section 102 (incorporated
                   herein by reference to Exhibit 10.3 to the Registrant's
                   Registration Statement on Form F-1 (No. 333-11118) filed with
                   the Securities and Exchange Commission on November 10, 1999).
      4.3*         International Employee Stock Option Plan (incorporated herein
                   by reference to Exhibit 10.4 to the Registrant's Registration
                   Statement on Form F-1 (No. 333-11118) filed with the
                   Securities and Exchange Commission on November 10, 1999).
      4.4*         Employee Share Option Plan (1999) (incorporated herein by
                   reference to Exhibit 10.5 to the Registrant's Registration
                   Statement on Form F-1 (No. 333-11118) filed with the
                   Securities and Exchange Commission on November 10, 1999).
      4.5*         Employee Share Option Plan (1999a) (incorporated herein by
                   reference to Exhibit 10.6 to the Registrant's Registration
                   Statement on Form F-1 (No. 333-11118) filed with the
                   Securities and Exchange Commission on November 10, 1999).
      4.6*         Unprotected Lease Agreement dated June 6, 2000, between Yakum
                   Development Ltd. and the Registrant (English summary
                   accompanied by Hebrew original) (incorporated herein by
                   reference to Exhibit 4.6 to the Registrant's Annual Report on
                   Form 20-F for the fiscal year ended December 31, 1999).
      4.7*         Standard Industrial/Commercial Multi-Tenant Lease - Net,
                   dated December 12, 1999, between Garaventa Properties and
                   Metalink, Inc. (incorporated herein by reference to Exhibit
                   4.7 to the Registrant's Annual Report on Form 20-F for the
                   fiscal year ended December 31, 1999).
      4.8*         2000 Employee Stock Purchase Plan (incorporated herein by
                   reference to Exhibit 4.5 to the Registrant Registration
                   Statement on Form S-8, filed with the Securities and Exchange
                   Commission on April 17, 2001).
      4.9*         Share Option Plan (2000) (incorporated herein by reference to
                   Exhibit 4.9 to the Registrant's Registration Statement on
                   Form 20-F, filed with the Securities and Exchange Commission
                   on June 29, 2001).
      4.10*        2003 Share Option Plan (incorporated herein by reference to
                   Exhibit 4.10 to the Registrant's Report on Form 20-F, filed
                   with the Securities and Exchange Commission on June 26,
                   2003).
      4.11*        2003 International Employee stock option Plan (incorporated
                   herein by reference to Exhibit 4.11 to the Registrant's
                   Report on Form S-8, filed with the Securities and Exchange
                   Commission on April 1, 2004).

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

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

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

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

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

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

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


<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/ Yuval Ruhama______
                               Name: Yuval Ruhama
                              Title:    Vice President of Finance
Date:  June 22, 2005



<PAGE>






<PAGE>






                                  EXHIBIT 12.1

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


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

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


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


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


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

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

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

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


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

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

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


Date: June 22, 2005


                   /S/Tzvika Shukhman

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


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

I, Yuval Ruhama, Vice President of Finance of Metalink Ltd., certify that:

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


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


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


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


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


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


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


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

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

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


Date: June 22, 2005




                        /s/Yuval Ruhama
                        Name: Yuval Ruhama
                        Title: Vice President of Finance




<PAGE>




                                  EXHIBIT 13.1

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


        In connection with the annual report on Form 20-F for the fiscal year
ended December 31, 2004 of Metalink Ltd. (the "Company") as filed with the U.S.
Securities and Exchange Commission (the "Commission") on the date hereof (the
"Report"), and pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, I, Tzvika Shukhman, Chief
Executive Officer and Chairman of the Board, certify that:


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

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

Date: June 22, 2005


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







<PAGE>




                                  EXHIBIT 13.2

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


       In connection with the annual report on Form 20-F for the fiscal year
ended December 31, 2004 of Metalink Ltd. (the "Company") as filed with the U.S.
Securities and Exchange Commission (the "Commission") on the date hereof (the
"Report"), and pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, I, Yuval Ruhama, Vice President
of Finance, certify that:


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

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

Date: June 22, 2005


       /s/ Yuval Ruhama
       Name: Yuval Ruhama
       Title: Vice President of Finance

  EXHIBIT 15

                         CONSENT OF INDEPENDENT AUDITORS


We consent to the incorporation by reference in this Report on Form 20-F of our
report, dated January 26, 2005, with respect to the consolidated financial
statements of Metalink Ltd. (the "Company") for the year ended December 31,
2004, which were originally filed with the Securities and Exchange Commission in
a Report on Form 6-K dated March 31, 2005.

We further consent to the incorporation by reference of our report, dated
January 26, 2005, on the consolidated financial statements of the Company for
the year ended December 31, 2004 into the Registration Statements on Form S-8,
No. 333-121901, No. 333-12064, 333-88172 and 333-112755, and on Form F-3 No.
333-104147, and No. 333-13806.



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

Tel Aviv, Israel
June 22, 2005