METALINK LTD (Form: 20-F, Received: 04/30/2012 06:23:50)


	As of December 31,
	2007		2008		2009			2010		2011
	(In thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	7,291	$	5,166	$	2,273		$	4,357	$	5,321
Short-term investments		17,233		677		-			-		-
Long-term investments		2,200		-		-			-		-
Working capital		23,163		6,553		(4,678	)		4,323		4,807
Total assets		38,622		17,379		7,866			5,080		5,691

Shareholders’ equity		28,331		8,988		(3,102	)		4,127		4,874

B.	Capitalization and Indebtedness

Not Applicable.

C.	Reasons for the Offer and Use of Proceeds

Not Applicable.

D.	Risk Factors

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

Risks Related to Our Business and Industry

We have sold our principal operating business and currently conduct only limited business activities.

We sold our WLAN business to Lantiq in February 2010. Since then, we hold substantially all of our assets in cash and cash equivalents and we currently conduct only limited business activities related to our digital subscriber line, or DSL business. Our plan of operation is (1) to continue the marketing and sale of our DSL products and (2) to explore and consider strategic alternatives relating to our remaining DSL business as well as to other investments and opportunities, including a possible business combination or other strategic transaction with a domestic or foreign, private or public operating entity or a "going private" transaction, including with any of our affiliates.

We may not be successful in identifying and evaluating suitable business opportunities or to otherwise execute our plan of operations.

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

We have a history of operating losses.

Although we were profitable in the fiscal year ended December 31, 2011, we incurred significant operating losses since our inception. Our operating profits / losses from continuing operation (i.e., giving effect to the sale of the wireless local area network (WLAN) business to Lantiq) were approximately $0.16 million (loss) for the year ended December 31, 2009, $0.46 million (loss) for the year ended December 31, 2010, and $0.7 million (profit) for the year ended December 31, 2011. Even if we are able to sustain profitability, we cannot assure that future net income will offset our accumulated deficit, which, as of December 31, 2011, was approximately $144.1 million. This is likely to have an adverse impact on the value of our stock.

We are not likely to generate significant revenues from our DSL business.

In early 2008, we issued an “end-of-life” notice to our customers, according to which we are discontinuing the production of the majority of our DSL components. Consequently, we have not allocated any research and development resources for DSL chipsets and have significantly reduced the scope of these operations. While we expect revenues derived from the sale of our DSL chipsets to continue in the same pace in the near future ($1-2 million a year), future realization of revenues from our DSL activities may be impaired by the introduction of newer solutions by our competitors and the obsolescence of our proposed solutions. We therefore expect that our revenues from sales of our DSL chipsets will decline in the long term, subject to fluctuations due to one time or special orders of customers.

Products sold by us may infringe on the intellectual property rights of others.

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

We have received from time to time in the past, and may receive in the future, written notices and offers from research institutions, intellectual property holding firms and others claiming to have patent rights in certain technology and inviting us to license this technology and related patent rights for use in our products and methods or otherwise claiming that our products infringe on the intellectual property rights of others. For example, in the past we have received a notice that one of our WLAN chipsets may be infringing the patent rights of a third party and, to our knowledge, such third party is in the process of submiting lawsuits against various other participants in the WLAN market. While, to date, none of these notices has resulted in litigation against us, we cannot assure you that any of these or other third-parties will not pursue litigation or assert their patent and other intellectual property rights against us in the future.

It would be time consuming for us to defend any such claims, with or without merit, and any such claims could result in among others, costly litigation; divert management’s attention and resources; and require us to enter into royalty or licensing agreements and/or indemnify third parties. In particular, we have certain indemnification obligations to customers with respect to infringement of third-party patents and intellectual property rights by our products and underlying technology. We cannot assure you that our potential obligations to indemnify such third parties will not harm us, our business or our financial condition and results of operations. The results of any litigation are inherently uncertain and any infringement claim or litigation against us, whether with or without merit, could result in the expenditure of significant financial and managerial resources.

The loss of our key customers could result in a significant loss of revenues.

In the past several years, relatively few customers have accounted for a large portion of our DSL revenues. In 2011, one customer accounted for approximately 89% of such revenues and we expect that our dependence on a few customers will continue for the foreseeable future. Our DSL business will be negatively impacted if sales to our main customers fall short of our internal projections, or of we experience a loss of any significant customer. We do not have contracts with any of our customers that obligate them to purchase our chipsets, and these customers could cease purchasing our chipsets at any time. The loss of any of our key customers could result in a significant loss of revenues.

We are exposed to various other risks in connection with the operation of our DSL business.

We are exposed to various risks in connection with the operation of our DSL business, including due to the following:

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

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

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

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

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

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

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

We believe that the success of our business will depend in large part on the continued services of Tzvi Shukhman, our chief executive officer. Any loss of the services of Tzvi Shukhman could negatively affect our business, especially the DSL business.

Risk Factors Relating to Our Ordinary Shares

The limited market for our shares may reduce their liquidity and make our stock price more volatile. You may have difficulty selling your shares.

On April 21, 2011, our ordinary shares were delisted from the NASDAQ Capital Market and since then have been quoted on the "Pink Sheets", an electronic quotation medium. Securities traded on the Pink Sheets typically have low trading volumes and reduced liquidity. Market fluctuations and volatility, as well as general economic, market and political conditions, could reduce our share price. As a result, there may be only a limited public market for our ordinary shares, and it may be more difficult to dispose of or to obtain accurate quotations as to the market value of our ordinary shares. In addition, unlike the NASDAQ Stock Market and the various international stock exchanges, there are no corporate governance requirements imposed on Pink Sheets companies.

Our ordinary shares may become subject to the “penny stock” rules of the SEC which will make transactions in our ordinary shares cumbersome and may reduce the value of our shares.

The SEC has adopted Rule 3a51-1 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. While we believe that our ordinary shares are currently exempt from the definition of penny stock, there is no assurance that they will continue to be exempt from such definition. If our ordinary shares become subject to the “penny stock” rules of the SEC, it will make transactions in our ordinary shares cumbersome and may reduce the value of our shares. This is because for any transaction involving a penny stock, unless exempt, Rule 15g-9 generally requires:

that a broker or dealer approve a person's account for transactions in penny stocks; and

the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person's account for transactions in penny stocks, the broker or dealer must:

obtain financial information and investment experience objectives of the person; and

make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:

sets forth the basis on which the broker or dealer made the suitability determination; and

that the broker or dealer received a signed, written statement from the investor prior to the transaction.

Disclosure also has to be made by the broker or dealer about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our ordinary shares and cause a decline in our market value if we were to become subject to the said "penny stock" rules.

A majority of our outstanding shares are held by two individuals, who exert significant control over the Company’s direction. In addition, substantial future sales of our ordinary shares may depress our share price.

As of April 1, 2012, Messrs. Tzvi Shukhman and Uzi Rozenberg, who are directors of the Company, beneficially held an aggregate of 1,081,066 ordinary shares representing 40.18% of our outstanding shares. Mr. Shukhman is also our chief executive officer, and Mr. Rozenberg is also the Chairman of our Board of Directors. As a result, if these shareholders vote together, they could have a significant influence on the election of our directors and on other decisions by our shareholders on matters submitted to shareholder vote, including mergers, consolidations and the sale of all or substantially all of our assets. This concentration of ownership of our ordinary shares could delay or prevent proxy contests, mergers, tender offers, open-market purchase programs or other purchases of our ordinary shares that might otherwise give our shareholders the opportunity to realize a premium over the then-prevailing market price for our ordinary shares. This concentration of ownership may also adversely affect our share price.

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

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

As more fully described in Item 10 – “Additional Information - Taxation” under the caption “ Passive Foreign Investment Company Considerations ,” we may be classified as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes in 2012. If, for any taxable year, our passive income, or our assets that produce passive income, exceed specified levels, we may be characterized as a PFIC for that year and possibly also for later years. We satisfied the corpoate level test to be a PFIC during some of the years 2002 – 2011. Our ordinary shares will be shares in a PFIC in the case of any United States person that owned those shares in 2002 or 2003 and that person has not made any of certain elections that could permit the PFIC classification of our shares to terminate in a taxable year in which we did not satisfy the test to be a PFIC. If we are characterized as a PFIC, our U.S. shareholders may suffer adverse tax consequences. These consequences may include having gains realized on the sale of our ordinary shares treated as ordinary income, rather than capital gains, and having the highest possible tax rates in prior years, together with significant interest charges, apply to substantial portions of those gains and to certain distributions, if any, that we make, whether or not we have any earnings and profits. U.S. shareholders should consult their own U.S. tax advisers with respect to the U.S. tax consequences of investing in our ordinary shares.

If we fail to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, it could have a material adverse effect on our business, operating results and stock price.

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

Risks Relating to Our Location in Israel

Conditions in the Middle East affect our business and may limit our ability to persue our strategic alternatives.

We are incorporated under the laws of the State of Israel, and our principal offices are located in Israel. Accordingly, security, political and economic conditions in the Middle East in general, and in Israel in particular, affect our business.

Over the past several decades, a number of armed conflicts have taken place between Israel and its Arab neighbors and a state of hostility, varying in degree and intensity, has led to security and economic problems for Israel. Since late 2000, there has also been a high level of violence between Israel and the Palestinians which has strained Israel’s relationship with its Arab citizens, Arab countries and, to some extent, with other countries around the world. Terrorist attacks and hostilities within Israel as well as tensions between Israel and Iran, have also heightened these risks. In addition, since early 2011, riots and popular uprisings in various countries in the Middle East have led to severe political instability in those countries. This instability may lead to deterioration of the political and trade relationships that exist between the State of Israel and these countries. In addition, this instability may affect the global economy and marketplace. Any armed conflicts or political instability in the region, including acts of terrorism or any other hostilities involving or threatening Israel, might deter potential targets from effecting a business combination with an Israeli company. In addition, the operations and financial results of our remaining DSL business could be adversely affected if political, economic or military events curtailed or interrupted trade between Israel and its present trading partners or if major hostilities involving Israel should occur in the Middle East.

Provisions of Israeli law may delay, prevent or complicate merger or acquisition activity, which could depress the market price of our shares.

Provisions of Israeli corporate, securities and tax law may have the effect of delaying, preventing or making an acquisition of our company more difficult. For example, under the Companies Law, upon the request of a creditor of either party to a proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern that as a result of the merger the surviving company will be unable to satisfy the obligations of any of the parties to the merger. This and other provisions of Israeli law could cause our ordinary shares to trade at prices below the price for which third parties might be willing to pay to gain control of us, since third parties who are otherwise willing to pay a premium over prevailing market prices to gain control of us may be unable or unwilling to do so because of these provisions of Israeli law.

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

We generate substantially all of our revenues in dollars, but we incur a significant portion of our expenses, principally salaries, related personnel expenses and occupancy expenses, in NIS. As a result, we are exposed to the risk that our dollar costs in Israel will increase if the rate of inflation in Israel will exceed the rate of devaluation of the NIS in relation to the dollar or that the timing of this devaluation lags behind inflation in Israel or that the NIS is appreciated against the dollar. Our operations could be adversely affected if we are unable to protect ourselves against currency fluctuations in the future.

In 2011, we have not entered into any currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rate of the dollar against the NIS. We may however enter into additionl currency hedging transactions in the future. These measures, however, may not adequately protect us from serious harm due to the impact of inflation in Israel.

It may be difficult to enforce a U.S. judgment against us, our officers and directors or to assert U.S. securities laws claims in Israel.

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

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

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

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

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

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

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

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.

Since we received government grants for research and development expenditures, we are subject to ongoing restrictions and conditions.

We have received royalty-bearing grants from the Government of Israel through the Office of the Chief Scientist of the Israeli Ministry of Industry, Trade and Labor, or the Chief Scientist, for research and development programs that meet specified criteria. 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.

In addition, as more fully described in Item 8-A-"Legal Proceedings," in August 2011, we received a demand from the Chief Scientist to pay it royalties in the amount of approximately NIS 0.94 million (equal to approximately $246,000), excluding interest and linkeage to CPI. While we believe the claim has no merits, there is no assurance that we will necessarily prevail, which may harm our results of operations.

ITEM 4. INFORMATION ON THE COMPANY

A.	History and Development of the Company

Corporate History and Details

Metalink was incorporated in September 1992 as a corporation under the laws of the State of Israel. Our principal executive offices are located at Derech Menachem Begin 23, Tel Aviv, Israel. Our telephone number is 972-3-7111690.

From our inception through the third quarter of 1994, our operating activities related primarily to establishing a research and development organization, developing prototype chip designs which meet industry standards and developing strategic OEM partnerships with leading telecommunications equipment manufacturers. We shipped our first chipset in the fourth quarter of 1994. Since that time, we have continued to focus on developing additional products and applications, shaping new industry standards and building our worldwide indirect sales and distribution channels. In February 2010, we sold our wireless local area network (WLAN) business to Lantiq.

Recent Major Business Developments

Below is a summary of the major business developments in Metalink since January 1, 2011:

In April 2011, our ordinary shares were delisted from The NASDAQ Capital Market and are currently quoted on the "Pink Sheets" under the symbol "MTLK.PK".

In May 2011, Lantiq informed us that the WLAN business it acquired from us in February 2010 has not achieved the performance targets during the first earnout period and, consequently, that no additional earnout payments are due for the first earnout period.

In March 2012, Lantiq informed us that the WLAN business it acquired from us in February 2010 has not achieved the performance targets and, consequently, that no additional earnout payments are expected.

As part of the Lantiq transaction, we also agreed to provide consulting services to Lantiq in consideration for $400,000 per year. In July 2010, Lantiq exercised its right to terminate the agreement, effective as of July 31, 2011.

Principal Capital Expenditure and Divestitures

Capital expenditures were $9,000 for the year ended December 31, 2011, $0 for the year ended December 31, 2010 and $15,000 for the year ended December 31, 2009. These expenditures were principally for equipment and software for our operating activities.

During 2009, 2010 and 2011, we did not make any significant divestitures, except the sale of our WLAN business to Lantiq in February 2010.

B.	Business Overview

Overview

We sold our WLAN business to Lantiq in February 2010. Since then, our plan of operation is (1) to continue the marketing and sale of our DSL products, which business is described below, and (2) to explore and consider strategic alternatives relating to our remaining DSL business as well as to other investments and opportunities, including a possible business combination or other strategic transaction with a domestic or foreign, private or public operating entity or a "going private" transaction, including with any of our affiliates.

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

Products and Technology

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

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

HDSL2 and HDSL4. HDSL2 improves on the T1 HDSL 2-Pair solution by offering similar performance achieved using only a single copper wire pair. This is achieved by using the PAM-16 line code in combination with Trellis coding. This standard was further enhanced to support an extended reach 4 wire mode, using the same PAM-16 line code referred to as HDSL4 . G.SHDSL. G.SHDSL improves on the SDSL and HDSL technologies by providing rate adaptive solutions at rates of up to 2.320 Mbps, while increasing the maximum range of transmissions by 20%, compared to that allowed by the legacy technologies. G.SHDSL supports various encoding technologies, including the technologically-advanced Trellis coded PAM-16.

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

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

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

Chips	Function	Sampling Date	Maximum Transmission Rates (Mbps)
MtS 870 MtS 170 MtS 140 MtS 142	Octal SHDSL transceiver/framer Single SHDSL transceiver frame Single SHDSL AFE Single SHDSL/HDSL2/HDSL4 AFE with integrated line-driver.	4Q00 1Q01 4Q00 2Q01	4.640 4.640 4.640 4.640
MtS 180 MtS 172	SHDSL / HDSL2 / HDSL4 system on a chip for T1/E1/TDM transport applications SDSL / SHDSL / HDSL2 / HDSL4 transceiver with integrated T1/E1 framer.	1Q02 2Q02	4.640 4.640
MtV 9370 MtV 9141	Dual VDSL transceiver/framer for 3-band applications VDSL AFE for 2,3 and 4-band applications	3Q01 4Q01	52 52
MtV 9172 MtV 9470	Single trunk 2/3/4-band VDSL transceiver with integrated MAC for Ethernet & ATM applications (ONU & NT) Quad 2/3/4-band VDSL transceiver for Ethernet applications (ONU)	4Q02 4Q02	60 60
MtV 9473 MtV 9273 MtV 9143 MtV9120	Quad 2/3/4/5-band VDSL transceiver for Ethernet applications (ONU) Single trunk 2/3/4/5/6-band VDSL transceiver with integrated MAC for Ethernet & ATM applications (ONU & NT) VDSL AFE for 2,3,4, 5 and 6-band applications VDSL Line Driver for 2,3,4,5 and 6-band applications	1Q04 1Q04 1Q04 1Q04	100 100 100 100

The following table enumerates our product applications:

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

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

Customers

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

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

Our DSL chipsets are being incorporated into the following systems:

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

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;

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);

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

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

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

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

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

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

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

	Year ended December 31,
	2 0 09		2 0 10		2 0 11
	(in thousands)
Revenues:
Korea	$	31	$	-	$	-
Israel		1,217		359		222
Other foreign countries (mainly European)		2,040		454		1,828
	$	3,288	$	813	$	2,050

For the year ended December 31, 2011, two customers accounted for 100% of our revenues. For the year ended December 31, 2010, three customers accounted for approximately 99% of our revenues. For the year ended December 31, 2009, three customers accounted for approximately 71% of our revenues.

Sales and Marketing

We have only limited sales representatives and distributors, who are typically engaged on an ad-hoc basis. We also sell our products directly to selected customers in Israel, Europe and Asia.

Research and Development

Since the sale of the WLAN business to Lantiq in February 2010, we are not engaged in any research and development activites.

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

Manufacturing

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

We currently subcontract our semiconductor wafer manufacturing, packaging and testing to semiconductor manufacturing companies in Taiwan. The selection of these manufacturers was based on the breadth of available technology, quality, manufacturing capacity and support for design tools used by us. All of the fabrication, assembly and test facilities are ISO 9002 / QS9000 / SAC certified, or have a roadmap to comply with the above standards. Most of our chipsets are not manufactured by more than one contractor. In the event that one of our contractors notifies us that it intends to cease manufacturing a chip or that it is temporarily unable to manufacture a chip, we may not have an adequate opportunity to order sufficient quantities of the affected chip to prevent shipments to customers from being adversely affected while we qualify a new manufacturer.

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

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

Proprietary Rights

We rely on patent, copyright, trademark and trade secret laws, confidentiality agreements and other contractual arrangements with our employees, strategic partners and others to protect our technology. We do not currently own any registered trademarks or registered copyrights.

In addition, our NML technology is protected by three patents in the United States. Most of our DSL chipsets design is based on the NML technology. If that technology was not protected, or if it was deemed to be infringing on third party intellectual property rights, we would incur significant costs and competitive disadvantages in redesigning our products. In addition, other parties may assert rights as inventors of the underlying technologies, which could limit our ability to fully exploit the rights conferred by any patent that we receive. Our competitors may be able to design around any patent that we receive and other parties may obtain patents that we would need to license or circumvent in order to exploit our patents.

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

Competition

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

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

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

As time passes in the DSL market, we expect that the existing need for our chipsets to decline. Since we do not manufacture our own products, we may be unable to negotiate volume discounts with our foundries in order to reduce the costs of manufacturing our chipsets in response to declining average per unit selling prices. Many competitors are larger with greater resources and therefore may be able to achieve economies of scale and would be less vulnerable to price competition and may use our subcontractors manufacturing capacity causing us difficulties in supply from said manufaturers. Our inability to achieve manufacturing efficiencies would have an adverse impact on our operating results.

Government Regulations

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

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

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

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

The countries of the European Union, as a single end market for our products, accounted in 2011 for approximately 89% (56% in 2010) of our revenues. If our products fail to comply with WEEE or RoHS directives, the Code of Conduct or any other directive or similar regulation issued from time to time by the European Union or in other countries in which we operate, we could be subject to penalties and other sanctions that could have a material adverse affect on our results of operations and financial condition.

Israeli Office of the Chief Scientist . See Item 5.C under "Grants from the Office of Chief Scientist."

C.	Organizational Structure

We currently have one subsidiary:

Name		Country of Incorporation				Proportion of Ownership Interest				Portion of Voting Power Held
Metalink International Ltd.*			Republic of Seychelles				100	%			100	%

* Currently inactive

D.	Property, Plants and Equipment

During 2010, we terminated our leases for office space in Yakum, Israel and Taiwan as part of the Lantiq Transaction. In September 2010, our offices relocated to Gealya, Israel and in February 2012, our offices relocated to Tel-Aviv, Israel, as part of our engagement with an affiliate of Fahn Kanne-Grant Thornton Israel to provide CFO and other financial and accounting services to the Company. Total rent expenses for the year ended December 31, 2011 were approximately $0. Total rent expenses for the years ended December 31, 2010 and 2009 were $24,000 and $889,000, respectively.

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

ITEM 4A. UNRESOLVED STAFF COMMENTS

None.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The information contained in this section should be read in conjunction with our consolidated financial statements as of December 31, 2011 and related notes for the year then ended included elsewhere in this annual report. Our financial statements have been prepared in accordance with US GAAP.

On February 15, 2010, we have completed the sale of our WLAN business to Lantiq. As a result of this transaction, the results of operations of the WLAN business are reported as discontinued operations and the consolidated results from continuing operations no longer include revenues and expenses directly attributable to the WLAN business. Similarly, assets and liabilities relating to the WLAN business are presented in our balance sheet separately as assets and liabilities of discontinued operations. Our consolidated financial statements for prior periods have been reclassified to reflect these changes. See Note 1 to our consolidated financial statements included in this annual report.

Overview

General

Prior to the consummation of the Lantiq Transaction in February 2010, we were a global provider and developer of high-throughput wireless local area network (HT-WLAN) silicon solutions for telecommunications, networking and home broadband equipment makers, and a provider of high performance wireline broadband communication silicon solutions for telecommunications equipment makers. Since then, we continued to support and market our DSL activities, that were not part of the “end-of-life” announcement we provided our customers with respect to most of our DSL components in 2008. Our plan of operation is (1) to continue the sale and marketing of our DSL products and (2) to explore and consider strategic alternatives relating to our remaining DSL business as well as to other investments and opportunities, including a possible business combination or other strategic transaction with a domestic or foreign, private or public operating entity or a "going private" transaction, including with any of our affiliates.

Revenues in 2011 were $2,050,000, an increase of 152% compared with revenues of $813,000 in 2010. The increase was due to a large purchase made by one costumer.

Operating profit for 2011 was $695,000, compared to an operating loss of $459,000 in 2010. Said increase was mainly due to the growth of revenues while operating expenses have decreased by almost half.

As of December 31, 2011 we had $5.3 million in cash and cash equivalents. As of the date of this annual report, we anticipate that we will be able to meet our cash requirements in the next 12 months without obtaining additional capital from external sources.

2012 Outlook

Revenues. In light of, among others, the “end-of-life” notification we issued for our DSL chipsets, we expect revenues derived from the sale of our DSL chipsets to decline in the long term, subject to fluctuations due to one time or special orders of customers. We expect revenues derived from the sale of our DSL chipsets to continue in the same pace in the near future (a range of $1-2 million a year).

Plan of Operations . Our plan of operation is to continue (1) the marketing and sale of our DSL products and (2) to explore and consider strategic alternatives relating to our remaining DSL business as well as to other investments and opportunities, including a possible business combination or other strategic transaction with a domestic or foreign, private or public operating entity or a "going private" transaction, including with any of our affiliates. There is no assurance that any of these alternatives will be pursued or, if one is pursued, the timing thereof or terms on which it would occur.

Critical Accounting Policies

Management's discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. A change in those accounting rules can have a significant effect on our reported results and may affect our reporting of transactions completed before a change is announced. Changes to those rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct our business. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods presented. These estimates include assessing the collectability of accounts receivable, and the use and recoverability of inventory. Actual results could differ from those estimates. The markets for our products are characterized by intense competition, rapid technological development and frequent new product introductions, all of which could impact the future realizability of our assets.

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

Revenue recognition

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

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

Inventories

Inventories are stated at the lower of cost or market. Cost is determined on a moving average basis. We regularly review inventory values and quantities on hand and write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. In making the determination, we consider future sales of related products and the quantity of inventory at the balance sheet date, assessed against each inventory items past usage rates and future expected usage rates. Changes in factors such as technology, customer demand, competing products and other matters could affect the level of our obsolete and excess inventory in the future.

A.	Operating Results

General

The following discussion of our results of operations for the years ended December 31, 2011, 2010 and 2009, including the following table, which presents selected financial information data in dollars and as a percentage of total revenues, is based upon our statements of operations contained in our financial statements for those periods, and the related notes, included in this annual report.

	Year Ended December 31,
	2009			2010			2011

Revenues		100	%		100	%		100	%
Cost of revenues:
Costs and expenses		31			12			33
Royalties to the Government of Israel		3			1			2
Total Cost of revenues		34			13			35
Gross profit		66			87			65
Operating expenses:
General and administrative		71			143			31
Total operating expenses		71			143			31
Operating profit (loss)		(5	)		(56	)		34
Financial income (expenses), net		(106	)		54			2
Net profit (loss) from continuing operation		(111	)%		(2	)%		36	%

Revenues . Our revenues in 2011 derived from sales of our DSL chipsets to our customers. Our revenues are generated in U.S. dollars, and the majority of our costs and expenses are incurred in dollars. Consequently, we use the dollar as our functional currency. For additional details regarding the manner in which we recognize revenues, see the discussion under the caption “ Critical Accounting Policies - - Revenue Recognition ” above.

Cost of Revenues. Our cost of revenues consists primarily of materials and components used in the manufacture and assembly of our chips, fees for subcontractors who manufacture, assemble and test our chipsets, and other overhead expenses and royalties paid to the Government of Israel.

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

Stock based Compensation. In 2006, we initially implemented ASC 718-10 (formerly known as SFAS No. 123(R), “Share Based Payment”). The implementation of ASC 718-10 resulted in 2011 and in 2010 in stock-based compensation expenses of $0 and $43,000, respectively.

Financial Income, Net. In 2011, financial income, net is primarily attributable to interest income and balance annulments. In 2010, financial income, net is primarily attributable to repayment of short-term loan and changes in cash and cash equivalents. In 2009, financial expenses, net are primarily attributable to the amortization of the short term loan discount, and to the increase in the fair value of the warrants issued under the loan agreement that are carried at fair value.

Taxes. Israeli companies are generally subject to Corporate Tax at the corporate rate of 24% for the 2011 tax year and 25% for the 2012 tax year and thereafter.

Year Ended December 31, 2011 Compared with Year Ended December 31, 2010

Revenues . Revenues in 2011 were $2.05 million, an increase of 153% compared with revenues of $0.81 million in 2010. Said increase is primarily due to a large purchase made by one costumer.

For the year ended December 31, 2011, two customers accounted for 100% of our revenues.

We sell our chipsets in Europe and Asia through independent sales representatives and distributors. We also sell our chipsets directly to selected customers. For the year ended December 31, 2011, approximately 11% of our sales were to a customer in Israel, and 89% were to another customer located in Asia.

Cost of Revenues . Cost of revenues was $0.72 million in 2011, an increase of $0.62 million compared with cost of revenues of $0.1 million in 2010. Said increase is attributable to the increase of $1.24 million in revenues. Cost of revenues as a percentage of revenues increased in 2011 to 35% from 13% in 2010 primarily because of the revenues derived from consulting services provided to Lantiq with low associated costs, which services ended in 2011.

General and Administrative . General and administrative expenses were $0.6 million in 2011, a decrease of $0.6 million compared with general and administrative expenses of $1.2 million in 2010. Said decrease was achieved mainly due to a decrease in level of operations as well as to the operating expenses reduction plan that we continued to implement throughout 2010 and 2011. General and administrative expenses as a percentage of revenues were 31% in 2011 compared to 143% in 2010.

Stock-based Compensation . Stock-based compensation expenses were $0 in 2011 compared with Stock-based compensation expenses of $43,000 in 2010. Stock-based compensation expenses are included in profit and loss items in 2010. Stock-based compensation expenses as a percentage of revenues in 2011 were 0% compared to 5.3% in 2010.

Financial income (expenses), net. Financial income, net was $52,000 in 2011, compared with financial income, net of $438,000 in 2010. Said decrease in the financial income is primarily smaller interest income and balance annulments.

Year Ended December 31, 2010 Compared with Year Ended December 31, 2009

Revenues . Revenues in 2010 were $0.8 million a decrease of 75% compared with revenues of $3.29 million in 2009. Said decrease is primarily due to a decrease in demand for both our SHDSL and for our VDSL products during 2010.

Cost of Revenues . Cost of revenues was $0.1 million in 2010, a decrease of $1.0 million compared with cost of revenues of $1.1 million in 2009. Said decrease is attributable to the increase of $0.36 million in revenues derived from consulting services provided to Lantiq with low associated costs. Cost of revenues as a percentage of revenues decreased in 2010 to 13% from 34% in 2009.

General and Administrative . General and administrative expenses were $1.2 million in 2010, a decrease of $1.1 million compared with general and administrative expenses of $2.3 million in 2009. Said decrease was achieved mainly due to a decrease in operation and an operating expenses reduction plan that we initiated in March 2008 and continued to implement throughout 2009 and 2010. General and administrative expenses as a percentage of revenues were 143% in 2010 compared to 71% in 2009.

Stock-based Compensation . Stock-based compensation expenses were $0.043 million in 2010 compared with Stock-based compensation expenses of $0.483 million in 2009, a decrease of $0.440 million. Said decrease is attributable to a decrease in stock options granted to employees in 2010 or vested during such period (options terminated as a result of Lantiq transaction) Stock-based compensation expenses are included in profit and loss items both in 2010 and 2009. Stock-based compensation expenses as a percentage of revenues in 2010 were 5.3% compared to 14.7% in 2009.

Financial income (expenses), net. Financial income, net was $0.4 million in 2010, compared with financial expenses, net of $3.5 million in 2009. Said decrease in the financial expenses was primarily attributable to the short-term loan repayment in 2010.

Impact of Inflation and Foreign Currency Fluctuations

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

The following table sets forth, for the periods indicated, (1) devaluation or appreciation of the U.S. dollar against the most significant currencies for our business, i.e., the NIS and the Euro; and (2) inflation as reflected in changes in the Israeli consumer price index.

	Year Ended December 31,
	2007			2008			2009			2010			2011
New Israeli Shekel (NIS)		(9.0	)%		(1.1	)%		(0.7	)%		(6.0	)%		7.6	%
Euro		(10.5	)%		4.5	%		(1.7	)%		8.2	%		2.3	%

Israeli Consumer Price Index		3.4	%		3.8	%		4.0	%		2.7	%		2.2	%

A revaluation of the NIS in relation to the dollar, as was the case in 2007 through 2010, has the effect of increasing the dollar amount of any of our expenses or liabilities which are payable in NIS (unless such expenses or payables are linked to the dollar). Such revaluation also has the effect of increasing 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 decrease in the value of the NIS in relation to the dollar, as was the case in 2011, has the effect of decreasing the dollar value of any unlinked NIS assets and the dollar amounts of any unlinked NIS liabilities and expenses.

In 2010 and 2011, foreign currency fluctuations and the rate of inflation in Israel did not have a material impact on our financial results. However, we cannot predict any future trends in the rate of inflation/deflation in Israel or the rate of devaluation/revaluation of the NIS against the dollar. We cannot assure you that we will not be adversely affected in the future if inflation in Israel exceeds the devaluation of the NIS against the dollar or if the timing of such devaluation lags behind increases in inflation in Israel or if the NIS will be appreciated against the dollar.

The effects of foreign currency re-measurements are reported in our consolidated financial statements in current operations.

Corporate Tax Rate

Israeli companies are generally subject to Corporate Tax at the corporate rate of 24% for the 2011 tax year and 25% for the 2012 tax year and thereafter.

In 1994, our facility was granted "approved enterprise" status under the Law for the Encouragement of Capital Investments, 1959, and consequently we are eligible, subject to compliance with certain requirements, for certain tax benefits beginning when such facility first generates taxable income, but not later than the 2008 tax year. In December 2000, our facility received an approval for extension of the "approved enterprise" status period, as a result of the additional capital investment in the Company resulting from the initial and the secondary public offerings conducted in December 1999 and March 2000. Such additional capital investment was a condition of the extension of the "approved enterprise" status period. Consequently we are eligible, subject to compliance with certain requirements, for certain tax benefits beginning when such facility first generates taxable income, but no later than the 2014 tax year. The period of tax benefits with respect to our approved enterprise has not yet commenced, because we have yet to realize taxable income in Israel. As a result of the foregoing, and of our accumulated tax loss carry-forwards (which totaled at approximately $202 million at December 31, 2010), and based on the current tax system in Israel, we do not anticipate being subject to income tax in Israel for the 2011 tax year.

Israeli Government Grants

We conducted a substantial part of our research and development operations in Israel. Some of our research and development efforts have been financed through internal resources and grants per project from the Office of the Chief Scientist. The Office of the Chief Scientist provided us grants for research and development efforts of approximately $1.9 million for the year ended December 31, 2009 (20% of total research and development expenses), $0.1 million for the year ended December 31, 2010 (86% of total research and development expenses) and none for the year ended December 31, 2011(there were no research and development expenses).

Since the grant program has the impact of lowering our research and development expenditures, and improving our operating margins, reduction in the Company’s participation in the program or in the benefits that the Company receives under the program could affect the Company’s financial condition and results of operations. Currently, we are obligated to pay royalties to the Office of the Chief Scientist at the rate of 3% to 4.5%. Due to our manufacturing outside of Israel, our aggregate payment amount with respect to grants received in 2009, 2010 and 2011 is 100% of the dollar-linked value of such grants. In 2003, we were required by the Office of the Chief Scientist to perform at least 50% of our manufacturing in Israel. See “Item 5(C)- Research and Development, Patents and Licenses, etc.- Grants from the Office of the Chief Scientist”.

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

We paid or accrued to the Office of the Chief Scientist $160,000 for the year 2009, $47,000 for the year 2010 and $48,000 for the year 2011. See also Item 8A – "legal Proceedings" regarding a pending claim of the Office of the Chief Scientist.

B.	Liquidity and Capital Resources

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

Principal Financing Activities

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

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

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

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

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

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

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

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

On December 30, 2009, we entered into a third amendment to the Loan Agreement (the "Third Amendment"), that became effective on January 5, 2010, whereby the repayment of the $4.3 million originally due upon the closing of a fundmanetal transaction, such as the Lantiq Transaction, was reduced to $4.1 million and repaid as follows: $3.75 million at closing of such transaction, which occurred on February 15, 2010, $0.3 million in December 15 2010 and $50,000 canelled accordingly to the new agreement.

The Third Amendment was accounted for an extinguishment. The difference between the carring value and the principal amount agreed under the Third Amendment was recognized in earnings. As of December 31, 2010 no loan remained outstanding.

In 2010, all Warrants were exercised or expired, and no Warrants are currently outstanding.

For additional details about the Loan Agreement, as amended, see below under Item 10.C "Additional Information—Material Agreements."

Working Capital and Cash Flows

On December 31, 2011, we had cash and cash equivalents of $5.3 million, and we had neither short-term or long-term investments nor outstanding borrowings. By comparison, on December 31, 2010, we had cash and cash equivalents of $4.4 million, and we had neither short-term nor long-term investments nor outstanding borrowings. On December 31, 2009, we had cash and cash equivalents of $2.3 million, we had no short-term or long-term investments and we had outstanding loans of approximately $4.1 million.

Our total proceeds from grants received from the Office of the Chief Scientist (DSL and WLAN), net of royalties paid, was approximately $28 million as of December 31, 2011, 2010 and 2009. We are committed to pay royalties to the Government of Israel on proceeds from the sale of our products and related services that incorporate know-how developed with grants from the Office of the Chief Scientist, up to the amount of 100% -150% of the grants received plus interest at LIBOR rate (in dollar terms). See also Item 8A – "Legal Proceedings" regarding a pending claim of the Office of the Chief Scientist.

Capital expenditures were $9,000 at the year ended December 31, 2011. No capital expenditures were made in our continuing operation for the year ended December 31, 2010, and capital expenditures were $15,000 for the year ended December 31, 2009.

Net cash provided by operating activities was $1.0 million for the year ended December 31, 2011. Net cash used in operating activities was $1.7 million for the year ended December 31, 2010 which were primarily attributable to capital gain from sale of the WLAN business to Lantiq, and $3.8 million for the year ended December 31, 2009.

Net cash used in investing activities was $0.01 million for the year ended December 31, 2011. Net cash provided by investing activities was $7.7 million for the year ended December 31, 2010, which was provided from the sale of the WLAN business to Lantiq, and $0.8 million for the year ended December 31, 2009. Since 2010, we no longer hold government treasury securities and we do not conduct interest rate or currency hedging activities.

There was no cash used in financing activities for the year ended December 31, 2011. Net cash used in financing activities was $3.8 million for the year ended December 31, 2010, primarily attributable to repayment of the loan at the amount of $4.0 million. Net cash provided by financing activities was $0.1 million for the year ended December 31, 2009.

For additional details about cash generated from the Lantiq Transaction during 2010, see the description of the Lantiq Transaction below under Item 10.C "Additional Information—Material Agreements."

Outlook

During 2011, we continued to perform cost reduction activities in order to improve our financial condition. During 2010 we performed several strategic and financing activities in order to improve our financial condition. These activities, which included the Lantiq Transaction and the cost reduction program we continued to implement during early 2012, resulted in (1) a decrease of our operating expenses and (2) an overall improvement in our cash balance and stockholders’ equity.

In light of the aforesaid, as well as other factors, such as our current cash position, we anticipate that our existing capital resources will be adequate to satisfy our working capital and capital expenditure requirements until at least April 2013.

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

Grants from the Office of Chief Scientist

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

Generally, grants from the Chief Scientist constitute up to 50% of qualifying research and development expenditures for particular approved projects. Under the terms of these Chief Scientist projects, a royalty of 3% to 5% is due on revenues from sales of products and related services that incorporate know-how developed, in whole or in part, within the framework of projects funded by the Chief Scientist. Royalty obligations are usually 100% of the dollar-linked amount of the grant, plus interest. The royalty rates applicable to our programs range from 3% to 4.5%. Due to our manufacturing outside of Israel, our aggregate payment amount with respect to grants received in 2001 and 2002 was 120% of the dollar-linked value of such grants. With respect to grants received in 2003-2010, our aggregate payment amount was 100% of the dollar-linked value of such grants.

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

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

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

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

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

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

See also Item 8A – "Legal Proceedings" regarding a pending claim of the Office of the Chief Scientist.

D.	Trend Information

See Item 5A – "Operating Results – Overview – 2012 Outlook."

E.	Off-balance sheet arrangements

We do not have any off-balance sheet arrangements, as such term is defined under Item 5E of the instructions to Form 20-F, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. In addition, we have no unconsolidated special purpose financing or partnership entities that are likely to create material contingent obligations.

F.	Tabular disclosure of Contractual Obligations.

There are no contractual obligations and commercial commitments as of December 31, 2011.

ITEM 6 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.	Directors and Senior Management

The following table lists our current directors and executive officers:

Name	Age	Position
Uzi Rozenberg	52	Chairman of the Board of Directors
Tzvi Shukhman	51	Chief Executive Officer and Director
Efi Shenhar *	54	Director
Hudi Zack	45	Director
Orly Etzion*	50	External Director
Yehuda Haiman *	54	External Director
Shay Evron	40	Chief Financial Officer

* Member of the Audit Committee.

Uzi Rozenberg , a co-founder of our company, has served as a director from 1992 until 1997 and from August 1999 to the present, and as Chairman of our Board of Directors since December 2007. Mr. Rozenberg is also the founder and Chief Executive Officer of USR Electronics Systems (1987) Ltd. since February 1987. Mr. Rozenberg served as a director of Orbot Ltd. from 1992 to 1996 and as a director of Gibor Sport Ltd. from 1993 to 1997. Mr. Rozenberg and Mr. Shenhar are brothers.

Tzvi Shukhman, a co-founder of our company, has served as our Chief Executive Officer from our inception in 1992 and as the Chairman of the Board of Directors from our inception until December 2007. Prior to May 1999, Mr. Shukhman also served as our President. From March 1989 until March 1993, Mr. Shukhman served as an independent consultant for RAD Data Communications and ECI Telecom. Prior thereto, Mr. Shukhman served in the Israel Defense Forces where he founded a group involved in digital signal processing applications. Mr. Shukhman has a B.Sc. and an M.Sc. from the Technion-Israel Institute of Technology.

Efi Shenhar has served as a director since 1995. Mr. Shenhar is the Corporate Chief Executive Officer & President of USR Group. Mr. Shenhar currently serves as a member of the board of directors of USR Electronic Systems (1987) Ltd. From 1987 until 2003, Mr. Shenhar has served as a Vice President of USR Electronics Systems (1987) Ltd., an electronic manufacturing services company. Mr. Shenhar has a B.A. in accounting and economics from Tel Aviv University and an M.B.A. from Herriot Watt University. Mr. Shenhar is a certified public accountant. Mr. Shenhar and Mr. Rozenberg are brothers.

Hudi Zack has served as a member of our Board of Directors since 2012. Mr. Zack is a founder and CEO of CorrSight Ltd. since 2010. Mr. Zack served as a President of the Product Business Unit at Amdocs Ltd. from 2005 to 2009 and as a Customer Business Executive at Amdocs Ltd. from 2004 to 2005. Mr. Zack also served as a CEO at Disksites Inc. in 2004. Mr. Zack served as a Executive Vice President of Strategic Corporate development at Saifun Semiconductors from 2003 to 2004 and as COO of Metalink from 2001 to 2003. Mr. Zack holds a B.Sc. degree in Math and Physics from the Hebrew University, Jerusalem and a M.Sc. degree in Electrical engineering from Tel-Aviv University.

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

Yehuda Haiman has served as our external director since January, 2012. Mr. Haiman serves as a Managing Director at The Metal, Electrical & Infrastructure Industries Association since 2003. Mr. Haiman also serves as a Deputy Director General of Marketing & Business Development at the Manufacturers Association of Israel since 2009. Mr. Haiman served as the Head of Department of Industrial and Business Economics of the Manufacturers Association of Israel from 1999 until 2003 and as a Managing Director of Orpark from 1994 until 1999. Mr. Haiman holds an LLM degree from the Bar-Ilan University, an MBA degree from the Tel Aviv University and a BA degree in Economy from the Tel Aviv University.

Shay Evron was appointed as our co-Chief Financial Officer since June 30, 2011, as part of the Company's engagement with an affiliate of Fahn Kanne-Grant Thornton Israel to provide CFO and other financial and accounting services to the Company. Effective July 15, 2011, Mr. Evron has continued as our sole CFO.

Other than Mr. Rozenberg and Mr. Shenhar, who are brothers, there are no family relations between the directors and executive officers named above.

Additional Information

In February 2011, Mrs. Neta Eshed, who served as our Legal Counsel & Company Secretary since August 2010, left our company.

B.	Compensation

The aggregate remuneration we paid for the year ended December 31, 2011 to our directors and executive officers (4 persons during 2011), was approximately $240,000 in salaries, fees, commissions and bonuses. This amount includes approximately $50,000 set aside or accrued to provide for pension, retirement or similar benefits.

Members of our board of directors (other than external directors) who are not executive officers do not receive compensation for their service on the board of directors or any committee of the board of directors, but they are reimbursed for their expenses for each board of directors meeting attended. External directors receive fixed compensation for their service on the board of directors or any committee of the board of directors of NIS 42,600 (equivalent to approximately $11,150), and in addition, receive proportional compensation for their participation the board of directors or any committee meetings of NIS 2,200 per meeting attended (equivalent to approximately $575). Other than officers of the Company who serve as directors, no directors have arrangements to receive benefits upon termination of employment.

See Item 6.C "Board Practices – Management and Director Service Contracts" for information regarding our consulting contracts with Mr. Tzvi Shukhman, our CEO and director, and Mr. Hudi Zack, one of our directors.

C.	Board Practices

Introduction

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

Board of Directors

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

According to our articles of association, our board of directors may consist of between four (4) and nine (9) directors. Our board of directors currently consists of six (6) directors.

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

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

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

External Directors

Qualifications of External Directors

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

the company;

any entity controlling the company;

any entity controlled by the company or by its controlling entity; or

in a company that does not have a controlling shareholder, affiliation with the chairman, the chief executive officer, the chief financial officer or a 5% shareholder of the company.

The term affiliation includes:

an employment relationship;

a business or professional relationship;

control; and

service as an office holder.

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

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

Until two years from termination of office, a company and its controlling shareholder generally not give any direct or indirect benefit to the former external director or his relative.

In addition, pursuant to the Companies Law, (1) an external director must have either “accounting and financial expertise” or “professional qualifications” (as such terms are defined in regulations promulgated under the Companies Law) and (2) at least one of the external directors must have “accounting and financial expertise.” Our external directors are Yehuda Haiman, who was elected to a three-year term in 2012, and Orly Etzion, who was elected to a three-year term in December, 2009. We have determined that Ms. Etzion has the requisite “accounting and financial expertise” and that Mr. Haiman has the requisite “professional qualifications”.

Election of External Directors

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

at least a majority of the shares of non-controlling shareholders voted at the meeting vote in favor of the external director’s election; or

the total number of shares of non-controlling shareholders that voted against the election of the external director does not exceed 2% of the aggregate voting rights in the company.

The initial term of an external director is three years and may be extended for up to two additional three-year terms.

Reelection of an external director may be effected through one of the following mechanisms: (1) the board of directors proposed the reelection of the nominee and the election was approved by the shareholders by the majority required to appoint external directors for their initial term as described above; or (2) a shareholder holding 1% or more of the voting rights proposed the reelection of the nominee, and the reelection is approved by a majority of the votes cast by the shareholders of the company, excluding the votes of controlling shareholders and those who have a personal interest in the matter as a result of their relations with the controlling shareholders; provided that the aggregate votes cast in favor of the reelection by such non-excluded shareholders constitute more than 2% of the voting rights in the company.

External directors may be removed from office only by the same percentage of shareholders as is required for their election, or by a court, only if the external directors cease to meet the statutory qualifications for their appointment or if they violate their duty of loyalty to the company.

Each committee of a company’s board of directors that exercises a power of the board of directors is required to include at least one external director, except for the audit committee, which is required to include all the external directors.

Independent Directors

While we are no longer subject to the NASDAQ Listing Rules, which require that a majority of our board of directors qualify as independent directors within the meaning of such rules, our board of directors has determined that all of our directors, except for Mr. Shukhman, our Chief Executive Officer, and Mr. Zack, one of our directors who is entitled to receive compensation for consulting services, would qualify as “independent directors” within the meaning of the NASDAQ Listing Rule 5605(a)(2).

Committees

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

Audit Committee

Under the Companies Law, our board of directors is required to appoint an audit committee, which must be comprised of at least three directors, include all of the external directors, a majority of its members must satisfy the independence standards under the Companies Law, and the chairman is required to be an external director.

The duties of the audit committee under the Companies Law include, among others, examining flaws in the business management of the company and suggesting remedial measures to the board, assessing the company's internal audit system and the performance of its internal auditor, and as more fully described below, approval of certain interested party transactions. An interested party is defined in the Companies Law to include 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.

Our Audit Committee adopted a written charter specifying the committee's duties and responsibilities, which include, among other :

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

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

Our Audit Committee consists of Efi Shenhar, Orly Etzion and Yehuda Haiman. Our board of directors has determined that Ms. Etzion qualifies as an “audit committee financial expert” within the meaning of the SEC rules.

Internal Auditor

Under the Companies Law, our board of directors is also required to appoint an internal auditor proposed by the audit committee. The role of the internal auditor is to examine, among other things, whether our activities comply with the law and orderly business procedure. The internal auditor may participate in all audit committee meetings and has the right to demand that the chairman of the audit committee convene a meeting. Under the Companies Law, the internal auditor may be an employee of the company but may not be an interested party, an office holder, or a relative of any of the foregoing, nor may the internal auditor be the company's independent accountant or its representative. We currently do not have an internal auditor but we intend to appoint one in the near future.

Approval of Specified Related Party Transactions Under Israeli Law

Fiduciary Duties of Office Holders

The Companies Law imposes a duty of care and a duty of loyalty on all office holders of a company, including directors and executive officers.

The duty of care requires an office holder to act with the level of care with which a reasonable office holder in the same position would have acted under the circumstances. The duty of care includes a duty to use reasonable means to obtain:

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

all other important information pertaining to the previous actions.

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

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

refrain from any activity that is competetive with the company;

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

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 and officers in public companies such as ours, generally require the approvals of the audit committee, the board of directors and, in the case of directors, the shareholders as well, 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.

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

other than in the ordinary course of business;

other than on market terms; or

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

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

If the transaction is an extraordinary transaction or involves the engagement terms of office holders, both the audit committee and the board of directors must approve the transaction. Under specific circumstances, shareholder approval may also be required. Generally, when a transaction is considered by the audit committee and board of directors, the interested director may not be present or vote, unless a majority of the members of the board of directors or the audit committee, as the case may be, has a personal interest in the matter. If a majority of members of the board of directors have a personal interest therein, shareholder approval is generally also required.

Exculpation, Insurance and Indemnification of Directors and Officers

Exculpation of Office Holders

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

Office Holder Insurance

Our articles of association provide that, we may, to the maximum extent permitted by the Companies Law, insure the liability of Officers. Without derogating from the foregoing, we may enter into a contract for the insurance of the liability of any of our office holders with respect to an act performed in the capacity of an office holder for:

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

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;

a financial liability imposed upon him in favor of another person;

expenses he or she incurs as a result of administrative proceedings that may be instituted against him or her under Israeli securities laws, if applicable, and payments made to injured persons under specific circumstances thereunder; and

any other matter in respect of which it is permitted or will be permitted under applicable law to insure the liability of an office holder.

Indemnification of Office Holders

We may, to the maximum extent permitted by the Companies Law, indemnify the liability of office holders. Without derogating from the foregoing, we may indemnify an office holder for acts or omissions committed in his or her capacity as an office holder of the Company for:

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

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

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;

any other matter in respect of which it is permitted or will be permitted under applicable law to indemnify an office holder.

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:

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;

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

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

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 with coverage $5,000,000 in aggragate. In addition, we entered into indemnification and exculpation agreements with our directors and executive officers in accordance with our articles of association.

Management and Director Service Contracts

We receive chief financial officer services from an affiliate of Fahn Kanne-Grant Thornton Israel as part of our engagement with Fahn Kanne-Grant Thornton Israel to provide us with CFO and other financial and accounting services.

At our annual general meeting of shareholders held on January 16, 2012, our shareholders approved a termination agreement and a consulting agreement with Mr. Shukhman, whereby his employment with us was terminated but he continues to serve as our CEO as an independent contractor by way of the consulting agreement.

The key terms of the Termination Agreement are as follows: (i) Mr. Shukhman's employment terminated as of December 31, 2011 (the "Termination Date"); (ii) Promptly following the Termination Date, Mr. Shukhman received $290,000 as severance payment for the term of his employment; (iii) Mr. Shukhman will be entitled to a special bonus equal to 12% of our gross profit on our DSL business during 2011, based on our audited financial statements for the year ended December 31, 2011. Promptly following the Termination Date, we paid $150,000 on account of such bonus and the balance, if any, shall be paid until June 30, 2012 based on the aforesaid audited financial statements; (iv) We will cash out 96 vacation days accumulated thus far by Mr. Shukhman (worth approximately $65,000); (v) Mr. Shukhman will also be entitled to (a) approximately $1,250 for recreation pay, and (b) retain our equipment for a 30-day period following the Termination Date, except that the company car, which was returned by March 31, 2012, and certain computer equipment that will be retained until termination of the consulting agreement; (vi) All payments made are subject to applicable withholding taxes and mandatory deductions as well as to a set-off mechanism for any expenses owed to us; and (vii) Mr. Shukhman released us from past claims (in his capacity as an employee).

The key terms of Mr. Shukhman's consulting agreement are as follows: (i) Starting January 1, 2012, Mr. Shukhman provides us with consulting services that will generally consist of his service as CEO of the Company ("CEO Services") and the provision of consulting services in relation to our DSL business ("DSL Services"); (ii) In consideration for his CEO Services, where he undertook to commit approximately 100 hours per quarter, Mr. Shukhman is entitled to a monthly fee of $8,333, payable until the 30th business day following the end of each month of service. Notwithstanding the foregoing, if the parties agree to reduce the scope of the consulting services such that they shall not include the CEO Services but only DSL Services, then Mr. Shukhman shall not be entitled to said monthly fee; (iii) In consideration for his DSL Services, Mr. Shukhman is entitled, for each fiscal quarter during the term of the Consulting Agreement, to a quarterly bonus equal to 29% of our gross profit on our DSL business payable within 10 business days following the publication of our unaudited consolidated financial statements for the applicable fiscal quarter (to the extent that the agreement expires during any fiscal quarter, he will receive a pro rata amount out of the bonus for that quarter, if any). In addition, he will be entitled to 50% of such bonuses for six (6) months following the termination of the consulting agreement by us, solely with respect to any invoice that was issued with respect to DSL products during the said six (6) months period; (iv) Mr. Shukhman will receive a one-time grant of options to purchase up to 100,000 ordinary shares of Metalink, in accordance with the following terms: (a) exercise price equal to $1.50 per share; (b) the options will vest in 24 equal monthly installments starting January 1, 2012; (c) the vesting of all options is fully accelerated in a change of control transaction or if we terminate the consulting agreement for no cause; and (d) all other terms and conditions in connection with the above options shall be as set forth in our stock option plan; (v) The consulting agreement will continue until terminated, among others, by either party upon 90 day prior written notice; and (vi) Mr. Shukhman agreed to a non-compete and non-solicitation undertaking for 12 months following termination.

At the shareholders' meeting, our shareholders also approved a consulting agreement with Mr. Hudi Zack (one of our directors nominated at such shareholders' meeting), whereby, at our request, he will provide us consulting services in the field of technical and operational aspects for compensation of NIS 400 (equivalent to approximately $105) per hour, provided that the maximum hours to be provided by Mr. Zack during any year shall not exceed 500.

Except as set forth above, there are no arrangements or understandings between us and any of our current directors for benefits upon termination of service.

Employees

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

	As at December 31,
	2011		2010		2009*
Approximate numbers of employees by geographic location
United States and Asia Pacific		-		-	10
Europe, Middle East		-		-	59

Total workforce		-		-	69
Approximate numbers of employees by category of activity
Research and development		-		-	50
Sales and marketing		-		-	6
Product and customer support		-		-	4

Management and administrative		1		1	9

Total workforce		1		1	69

· Includes the employees for these years that were transferred to Lantiq in connection with the WLAN business to Lantiq in February 2010.

The overall reduction in our workforce, from 69 employees in 2009 to one employee in 2011 is due primarily to the Lantiq Transaction.

As of January 2012, we do not have any employees. For further information as to the termination agreement which terminated the employment of our CEO, Mr. Shukhman, which was replaced with a consulting agreement, see Item 6.C "Board Practices – Management and Director Services."

E.	Share Ownership

The following table sets forth certain information regarding the ownership of our ordinary shares by our directors and officers as of April 1, 2012. The percentage of outstanding ordinary shares is based on 2,690,863 ordinary shares outstanding as of April 1, 2012.

Name	Number of Ordinary Shares Beneficially Owned (1)		Percentage of Outstanding Ordinary Shares (2)
Tzvi Shukhman (3)		603,531		22.43	%
Uzi Rozenberg		477,535		17.75	%
Orly Etzion		*		*
Efi Shenhar		*		*
Shay Evron		*		*
Directors and Officers as a group (consisting of 7 persons)		1,081,066		40.18	%

_______________________

*	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 April 1, 2012.

(2)	Ordinary shares deemed beneficially owned by virtue of the right of any person or group to acquire such shares within 60 days of April 1, 2012, are treated as outstanding only for the purposes of determining the percent owned by such person or group.

(3)	Includes options exercisable into 12,500 ordinary shares as of April 1, 2012, pursuant to the consulting agreement entered into between Mr. Shukhman and us. See Item 6.C "Board Practices – Management and Director Services."

Share Option Plans

We have two option plans, our Share Option Plan (2003), for our advisors and independent contractors, which is currently in use and one other plan. The expiration dates of the options granted under the Plans range from 4 to 25 years from the date of grant. Our Plans are administered currently by our board of directors. All of our employees and directors are eligible to participate in our Plans. Members of advisory board, if any and our independent contractors are eligible to receive options under our Share Option Plan (2003).

In 2011, no options were granted and, as of December 31, 2011 no options to purchase ordinary shares were outstanding.

For information regarding options granted to our CEO, Mr. Shukhman, in January 2012, within the framework of his consulting agreement, see Item 6.C "Board Practices – Management and Director Services". Other than the options granted to our CEO, we do not have any outstanding options.

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 April 1, 2012 by each person or entity known to own beneficially more than 5% of our outstanding ordinary shares based on information provided to us by the holders or disclosed in public filings with the SEC.

Name	Number of Ordinary Shares Beneficially Owned (1)		Percentage of Outstanding Ordinary Shares (2)
Tzvi Shukhman (3)(4)		603,531		22.43	%
Uzi Rozenberg (3)(5)		477,535		17.75	%
Harel Insurance and Harel PIA (6)		260,246		9.70	%

______________

(1)

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

(2)	The percentage of outstanding ordinary shares is based on 2,690,863 ordinary shares outstanding as of April 1, 2012.

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

(4)	Includes options exercisable into 12,500 ordinary shares as of April 1, 2012, pursuant to the consulting agreement entered into between Mr. Shukhman and us. See Item 6.C "Board Practices – Management and Director Services."

(5)	The record holder of 100,000 shares out of the 477,535 is U.S.R. Electronic Systems (1987) Ltd., an Israeli company wholly owned by Mr. Rozenberg and his wife, Shoshana Rozenberg.

(6)	As of December 31, 2010, based on a Schedule 13G/A filed by Harel Insurance Investments & Financial Services Ltd. ("Harel Insurance") and Harel PIA Mutual Funds Management Ltd. ("Harel PIA") with the SEC on February 14, 2011.

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

Record Holders

As of April 1, 2012, we had 12 shareholders of record, of whom 10 were registered with addresses in the United States, representing approximately 83% of our outstanding ordinary shares. These numbers are not representative of the number of beneficial holders of our shares nor is it representative of where such beneficial holders reside since many of these ordinary shares were held of record by brokers or other nominees (including one U.S. depository, CEDE & Co., which held approximately 69% of our outstanding ordinary shares as of said date).

B.	Related Party Transactions

For information regarding our consulting agreements with Tzvi Shukhman, our CEO and director, and with Hudi Zack, one of our directors, see Item 6.C "Board Practices – Management and Director Services."

C.	Interests of Experts and Counsel

Not applicable.

ITEM 8.

FINANCIAL INFORMATION

A.	Consolidated Statements and Other Financial Information

Consolidated Financial Statements

See Item 18 below – “Financial Statements”.

Other Financial Information

In the year ended December 31, 2011 the amount of our export sales was approximately $1.828 million, which represents 89% of our total sales.

Legal Proceedings

In August 2010, a former employee filed a claim against us and Lantiq in the Tel Aviv District Labor Court (the "Court") for approximately NIS 0.37 million (approximately $105,000) for certain rights with respect to termination of employment in connection with the Lantiq transaction. In October 2010, we filed with Lantiq a statement of defence and, in May 2011, a pretrial was conducted and the trial is in the discovery of documents stage.While we believe the claim has no merits, there is no asurance that we will necessarily prevail.

In August 2011, we received a demand from the Office of the Chief Scientist to pay it royalties in the amount of approximately NIS 0.94 million (equal to approximately $246,000), excluding interest and linkeage to CPI, due to the consideration we received from the Lantiq Transaction. We objected to the demand and asked the Office of the Chief Scientist to withdraw it. In February 2012, the Office of the Chief Scientist rejected our request and informed us that it intends to pursue full payment of such royalties. While we believe the claim has no merits, there is no assurance that we will necessarily prevail.

Dividend Policy

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

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

B.	Significant Changes

Except as otherwise disclosed in this annual report, no significant change has occurred since December 31, 2011.

ITEM 9 . THE OFFER AND LISTING

A.	Offer and Listing Details

The following table sets forth the high and low closing prices for our ordinary shares on the NASDAQ Global (through March 28, 2009), on the NASDAQ Capital Market (through April 20, 2011), and, starting April 21, 2011, on the Pink Sheets, for the periods indicated. The prices have been adjusted to retroactively reflect the one-for-ten reverse split of our ordinary shares we effected on February 22, 2010:

	High	Low
FIVE MOST RECENT YEARS
2007	$ 87.9	$44.3
2008	$ 47.5	$1.00
2009	$ 6.00	$1.00
2010	$1.97	$0.71
2011	$1.08	$0.4

EIGHT MOST RECENT QUARTERS

First Quarter 2010	$3.40	$1.30
Second Quarter 2010	$1.97	$0.78
Third Quarter 2010	$1.15	$0.71
Fourth Quarter 2010	$1.15	$0.85
First Quarter 2011	$1.08	$0.82
Second Quarter 2011	$0.90	$0.55
Third Quarter 2011	$0.75	$0.51
Fourth Quarter 2011	$0.75	$0.40

MOST RECENT SIX MONTHS

October 2011	$0.59	$0.40
November 2011	$0.61	$0.51
December 2011	$0.75	$0.51
January 2012	$0.68	$0.51
February 2012	$0.63	$0.60
March 2012	$0.63	$0.60

On April 27 , 2012, the last reported sale price of our ordinary shares on the Pink Sheets was $ 0.90 per share.

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, through June 14, 2010. The translation into dollars is based on the representative rate of exchange on December 31, 2011, as published by the Bank of Israel (NIS 3.821 per one dollar):

	High			Low
	$ NIS			$ NIS

2007		9.44	36.06		4.52	17.29
2008		4.83	18.47		0.09	0.33
2009		0.72	2.75		0.1	0.38
First Quarter 2010		0.42	1.6		0.12	0.48
Second Quarter 2010 (through June 10)		0.17	0.67		0.09	0.36

B.	Plan of Distribution

Not applicable.

Markets

Our ordinary shares began trading on the NASDAQ Global Market on December 2, 1999 under the symbol “MTLK”. In March 2009, our ordinary shares were transferred to the NASDAQ Capital Market.

As of December 3, 2000, our ordinary shares began trading also on the Tel Aviv Stock Exchange, or TASE, under the symbol “MTLK.” We voluntarily delisted our ordinary shares from trade on the TASE, effective June 14, 2010.

On April 21, 2011, our ordinary shares were delisted from The NASDAQ Capital Market and are quoted on the Pink Sheets under the symbol "MTLK.PK".

D.	Selling shareholders.

Not applicable.

Dilution.

Not applicable.

F.	Expenses of the Issue.

Not applicable.

ITEM 10. ADDITIONAL INFORMATION

A.	Share Capital

Not applicable.

B.	Memorandum and Articles of Association

Set out below is a description of certain provisions of our Memorandum of Association and Articles of Association, and of the Israeli Companies Law related to such provisions, unless otherwise specified. This description is only a summary and does not purport to be complete and is qualified by reference to the full text of the Memorandum and Articles, which are incorporated by reference as exhibits to this Annual Report, and to Israeli law.

Objects and Purposes

We were first registered under Israeli law on September 7, 1992 as a private company, and on December 14, 1999 became a public company. Our registration number with the Israeli registrar of companies is 52-004448-8. Our objects and purposes include a wide variety of business purposes as set forth in Section 2 of our Memorandum of Association, which was filed with the Israeli registrar of companies.

The Powers of the Directors

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

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

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

Rights attached to our Shares

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

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

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

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

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

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

Redemption Provisions . We may, subject to applicable law, issue redeemable shares and redeem the same, and our board may redeem, in the case of redeemable preference shares, and subject to applicable law, such shares or fractional shares sufficient to preclude or remove fractional share holdings.

Preemptive, First Refusal and Co-Sale Rights . All outstanding ordinary shares, are validly issued, fully paid and non-assessable and do not have preemptive rights, rights of first refusal or co-sale rights.

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

Modification of Rights

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

Shareholders’ Meetings and Resolutions

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

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

Under the Companies Law, shareholder meetings generally require prior notice of not less than 21 days or, with respect to certain matters, such as election of directors and affiliated party transactions, not less than 35 days.

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

Limitation on Owning Securities

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

Duties of Shareholders

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

Extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, and the engagement of a controlling shareholder as an office holder or employee, generally require the approval of the audit committee, the board of directors and the shareholders, in that order. The shareholder approval must include at least a majority of the shares of non-interested shareholders voted on the matter. However, the transaction can be approved by shareholders without this special majority approval if the total shares of non-interested shareholders that voted against the transaction do not represent more than 2% of the voting rights in the company.

In addition, any such extraordinary transaction whose term is longer than three years may require further shareholder approval every three years, unless, where permissible under the Israeli Companies Law, the audit committee approves that a longer term is reasonable under the circumstances.

General Duties of Shareholders. In addition, under the Companies Law, each shareholder has a duty to act in good faith toward the company and other shareholders and to refrain from abusing his or her power in the company, such as in shareholder votes. In addition, specified shareholders have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows that it possesses the power to determine the outcome of a shareholder vote and any shareholder who, pursuant to the provisions of the articles of association, has the power to appoint or prevent the appointment of an office holder or any other power with respect to the company.

Change of Control

There are no specific provisions of our Memorandum or Articles of Association that would have an effect of delaying, deferring or preventing a change in control of us or that would operate only with respect to a merger, acquisition or corporate restructuring involving us (or our subsidiary). 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 "special tender offer" if as a result of the acquisition the purchaser would become a 25% or greater shareholder of the company and there is no existing 25% or greater shareholder of the company. 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.

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 "full tender offer" for all of the outstanding shares. In general, if less than 5% of the outstanding shares are not tendered in the tender offer and more than half of the offerees who have no personal interest in the offer tendered their shares, all the shares that the acquirer offered to purchase will be transferred to it. Shareholders may request appraisal rights in connection with a full tender offer for a period of six months following the consummation of the tender offer, but the acquirer is entitled to stipulate that tendering shareholders will forfeit such appraisal rights.

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

C.	Material Contracts

Lantiq Transaction

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

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

$5.7 million to be paid concurrently with the closing;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

$5.7 million was paid concurrently with the closing; and

$2.0 million was paid throughout the year 2010.

In May 2011, Lantiq informed us that the acquired WLAN business has not achieved the performance targets during the first earnout period and, consequently, that no additional earnout payments are due for the first earnout period. In March 2012, Lantiq informed us that the acquired WLAN business has not achieved the performance targets during the second earnout period and, consequently, that no additional earnout payments are due for the second earnout period.

In July 2010, Lantiq exercised its right to terminate the consulting agreement, effective as of July 31, 2011.

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.

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

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

Tax Benefits and Grants for Research and Development

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

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

The Law for the Encouragement of Capital Investments, 1959, or the Investments Law, provides that a proposed capital investment in eligible facilities may be designated as an approved enterprise. See discussion below regarding an amendment to the Investments Law that came into effect in 2005 and a reform of the Investments Law that came into effect in 2011. Prior to the aforementioned amendment, such status was contingent upon the receipt of an applicable certificate of approval from the Investment Center of the Ministry of Industry and Trade of the State of Israel, known as the Investment Center.

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

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

A company owning an approved enterprise may elect to forego certain government grants extended to approved enterprises in return for an alternative package of benefits. Under the alternative package of benefits, a company’s undistributed income derived from an approved enterprise will be exempt from corporate tax for a period of between two and ten years from the first year of taxable income, depending on the geographic location of the approved enterprise within Israel, and such company will be eligible for a reduced tax rate for the remainder of the benefits period. The tax benefits under the Investments Law shall also apply to income generated by a company from the grant of a usage right with respect to know-how developed by the approved enterprise, income generated from royalties, and income derived from a service which is auxiliary to such usage right or royalties, provided that such income is generated within the approved enterprise’s ordinary course of business.

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

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. 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.

Amendment to the Investments Law

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

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

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

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

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

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

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

Reform of the Investments Law - 2011

On December 29, 2010, the Israeli parliament approved an amendment to the Investments Law, effective as of January 1, 2011, which constitutes a reform of the incentives regime under such law. This amendment revises the objectives of the Investments Law to focus on achieving enhanced growth in the business sector, improving the Israeli industry’s competitiveness in international markets and creating employment and development opportunities in remote areas of Israel. The amendment allows enterprises meeting certain required criteria to enjoy grants as well as tax benefits. The amendment also introduces certain changes to the map of geographic development areas for purposes of the Investments Law, which will take effect in future years.

The amendment generally abolishes the previous tax benefit routes that were afforded under the Investments Law, specifically the tax-exemption periods previously allowed, and introduces new tax benefits for industrial enterprises meeting the criteria of the law, which include the following:

A reduced corporate tax rate for industrial enterprises, provided that more than 25% of annual income is derived from export, which will apply to the enterprise’s entire preferred income so that in the tax years 2011-2012 the reduced tax rate will be 10% for preferred income derived from industrial facilities located in development area A and 15% for those located elsewhere in Israel; in the tax years 2013-2014 the reduced tax rate will be 7% for development area A and 12.5% for the rest of Israel; and in the tax year 2015 and onwards the reduced tax rate will be 6% for development area A and 12% for the rest of Israel.

The reduced tax rates will no longer be contingent upon making a minimum qualifying investment in productive assets.

A definition of “preferred income” was introduced into the Investments Law to include certain types of income that are generated by the Israeli production activity of a preferred enterprise.

A reduced dividend withholding tax rate of 15% will apply to dividends paid from preferred income to both Israeli and non-Israeli investors, with an exemption from such withholding tax applying to dividends paid to an Israeli company.

A special tax benefits route will be granted to certain industrial enterprises entitling them to a reduced tax rate of 5% for preferred income derived from industrial facilities located in development area A and 8% for those located elsewhere in Israel, provided certain threshold requirements are met and such enterprise can demonstrate its significant contribution to Israel’s economy and promotion of national market objectives.

The amendment will generally apply to preferred income produced or generated by a Preferred Company (as defined in the Investments Law) commencing from January 1, 2011. The amendment provides various transition provisions which allow, under certain circumstances, application of the new regime to investment programs previously approved or elected under the Investments Law in its previous form. Although this recent amendment took effect on January 1, 2011, the transitional provisions of its adoption also allow the company to defer its adoption to future years.

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:

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

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

accelerated depreciation rates on equipment and buildings; and

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

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

Israeli Transfer Pricing Regulations

On November 29, 2006, Income Tax Regulations (Determination of Market Terms), 2006, promulgated under Section 85A of the Israeli Income Tax Ordinance (New Version), 1961 (the “Tax Ordinance”), came into force (the “TP Regs”). Section 85A of the Tax Ordinance and the TP Regs generally require that all cross-border transactions carried out between related parties will be conducted on an arm’s length principle basis and will be taxed accordingly.

Capital Gains Tax

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

As of January 1, 2012, the tax rate generally applicable to capital gains derived from the sale of shares, whether listed on a stock market or not, is 25% for Israeli individuals, unless such shareholder claims a deduction for financing expenses in connection with such shares, in which case the gain will generally be taxed at a rate of 30%. Additionally, if such shareholder is considered a “Significant Shareholder” at anytime during the 12-month period preceding such sale, i.e. such shareholder holds directly or indirectly, including with others, at least 10% of any means of control in the company, the tax rate shall be 30%. However, the foregoing tax rates will not apply to: (i) dealers in securities; and (ii) shareholders who acquired their shares prior to an initial public offering (that may be subject to a different tax arrangement). Israeli Companies are subject to the Corporate Tax rate on capital gains derived from the sale of listed shares.

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

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

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

Provisions of Israeli tax law may treat a sale of securities listed on a stock exchange differently than the sale of other securities. In the past, the Israeli Tax Authority, or the ITA, has indicated that it does not recognize the OTC Bulletin Board or the Pink Sheets as a “stock exchange” for purposes of the Tax Ordinance. However, the current position of the ITA is to view securities quoted on the OTC Bulletin Board or the Pink Sheets as listed on a “stock exchange” where such securities were previously delisted from a “stock exchange” (such as the Nasdaq Global Market or the Tel Aviv Stock Exchange), such as our ordinary shares.

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

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

Taxation of Non-Residents on Receipt of Dividends

On distributions of dividends other than bonus shares, or stock dividends, income tax is withheld at the source. Non-residents of Israel are subject to Israeli income tax on the receipt of dividends paid on our ordinary shares, at the rate of 25%, or 30% for a shareholder that is considered a Significant Shareholder at any time during the 12-month period preceding such distribution, unless the dividends are paid from income derived from an Approved or Benefited Enterprise during the applicable benefit period, or a different rate is provided in a treaty between Israel and the shareholder’s country of residence. Under the U.S.-Israel Tax Treaty, the maximum tax on dividends paid to a holder of our ordinary shares who is a Treaty U.S. Resident will be 25%. However, dividends paid from income derived during any period for which the Israeli company is not entitled to the reduced tax rate applicable to an Approved or Benefited Enterprise under the Investments Law, the maximum tax will be 12.5% if the holder is a U.S. company holding shares representing at least 10% of the issued voting power during the part of the taxable year preceding the date of payment of dividends and during the whole of the prior taxable year, and provided that not more than 25% of the Israeli company’s gross income consists of interest or dividends. Dividends paid from income derived during any period for which the Israeli company is entitled to the reduced tax rate applicable to an Approved or Benefited Enterprise will be subject to a 15% tax rate.

United States Federal Income Tax Considerations

General

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

a citizen or individual resident of the United States;

a corporation (or other entity treated as a corporation for U.S. federal tax purposes) created or organized in the United States or under the law of the United States or of any State or the District of Columbia;

an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or

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

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

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

broker-dealers, including dealers in securities or currencies;

insurance companies;

taxpayers that have elected mark-to-market accounting;

tax-exempt organizations;

financial institutions or “financial services entities”;

taxpayers who hold the ordinary shares as part of a straddle, "hedge", constructive sale, "conversion transaction" or other risk reduction transaction;

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

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

taxpayers who acquire our ordinary shares as compensation.

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

Material aspects of U.S. federal income tax relevant to a Non-U.S. Holder are also discussed below. In general, a Non-U.S. Holder is a beneficial owner of our ordinary shares who or that is for U.S. federal income tax purposes: (i) a nonresident alien individual, (ii) a corporation (or an entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the law of a country other than the United States or a political subdivision thereof or, (iii) an estate or trust that is not a U.S. Holder. Each prospective investor is advised to consult that person’s own tax adviser with respect to the specific tax consequences to that person of purchasing, holding or disposing of our ordinary shares.

Taxation of Dividends Paid on Ordinary Shares

We have never paid cash dividends. In the event that we do pay a dividend, and subject to the discussion of the passive foreign investment company, or PFIC, rules below, a U.S. Holder will be required to include in gross income as a dividend the amount of any distribution paid on our ordinary shares, including any Israeli taxes withheld from the amount paid, on the date the distribution is received to the extent the distribution is paid out of our current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. Distributions in excess of those earnings and profits will be applied against and will reduce the U.S. Holder's basis in the ordinary shares and, to the extent in excess of that basis, will be treated as a gain from the sale or exchange of the ordinary shares. The legislation until the end of 2010 provided that dividend income generally would be taxed to noncorporate taxpayers at the rates applicable to long-term capital gains, provided certain holding period and other requirements (including a requirement that we are not a PFIC in the year of the dividend or in the preceding year) are satisfied. Dividends received after 2010 will be taxable as ordinary income.

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

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

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:

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

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

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

Taxation of the Disposition of Ordinary Shares

Subject to the discussion of the PFIC rules below, upon the sale, exchange or other disposition of our ordinary shares, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between that U.S. Holder's basis in the ordinary shares, which is usually the U.S. dollar cost of those shares, and the amount realized on the disposition. A disposition of the ordinary shares will be considered to occur on the “trade date,” regardless of the U.S. Holder’s method of accounting. A U.S. Holder that uses the cash method of accounting calculates the U.S. dollar value of the proceeds received on the sale as of the date that the sale settles. However, a U.S. Holder that uses an accrual method of accounting is required to calculate the value of the proceeds of the sale as of the “trade date” and may therefore realize foreign currency gain or loss, unless that U.S. Holder has elected to use the settlement date to determine its proceeds of sale for purposes of calculating that foreign currency gain or loss. Capital gain from the sale, exchange or other disposition of the ordinary shares held more than one year is long-term capital gain. Long-term capital gains of noncorporate taxpayers are eligible for reduced rates of taxation.

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

The deductibility of a capital loss recognized on the sale, exchange or other disposition of the ordinary shares is subject to limitations. In addition, a U.S. Holder that receives foreign currency upon disposition of the ordinary shares and converts the foreign currency into U.S. dollars subsequent to receipt will have foreign exchange gain or loss based on any appreciation or depreciation in the value of the foreign currency against the U.S. dollar, which will generally be U.S. source ordinary income or loss.

Passive Foreign Investment Company Considerations

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

We believe that we satisfied the test to be a PFIC in 2001, 2002 and 2003 but not in 2004 - 2011. Although we will endeavor to avoid characterization as a PFIC in the future, we may not be able to do so. Although the Code contains an exception to PFIC classification for certain corporations that change their business, that exception is not available to a corporation that was, as we were, a PFIC in any prior taxable year.

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

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

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

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

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

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

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

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

the U.S. Holder will be required for each taxable year in which we are a PFIC to include in income a pro-rata share of our (i) net ordinary earnings as ordinary income (which income is not eligible for any 15 percent maximum tax rate applicable to certain dividends) and (ii) net capital gain as long-term capital gain, subject to a separate election to defer payment of taxes, which deferral is subject to an interest charge.

the U.S. Holder will not be required under these rules to include any amount in income for any taxable year during which we do not have net ordinary earnings or capital gains; and

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

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

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

Any U.S. Holder who would like to receive a PFIC ANNUAL INFORMATION STATEMENT for years 2001, or 2002, 2003 can contact our CFO.

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

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

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

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

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

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

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

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

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

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

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

U.S. Information Reporting and Backup Withholding

U.S. Holders generally are subject to information reporting requirements with respect to dividends paid in the United States on our ordinary shares. In addition, U.S. Holders are subject to U.S. backup withholding at a rate of 28 percent on dividends paid in the United States on the ordinary shares unless the U.S. Holder provides an IRS Form W-9 or otherwise establishes an exemption. U.S. Holders are subject to information reporting and backup withholding at a rate of 28 percent on proceeds paid from the sale, exchange, redemption or other disposition of the ordinary shares unless the U.S. Holder provides an IRS Form W-9 or otherwise establishes an exemption.

Non-U.S. Holders generally are not subject to information reporting or backup withholding with respect to dividends paid on, or proceeds from the sale, exchange, redemption or other disposition of, the ordinary shares, provided that the Non-U.S. Holders provide a taxpayer identification number, certify to their foreign status or otherwise establish an exemption.

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

F.	Dividends and Paying Agents

Not applicable.

G.	Statements by Experts.

Not applicable.

H.	Documents on Display

We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, applicable to foreign private issuers and fulfill our obligations with respect to such requirements by filing reports with the SEC. You may read and copy any document we file with the SEC without charge at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. Copies of such material may be obtained by mail from the Public Reference Branch of the SEC at such address, at prescribed rates. Please call the SEC at l-800-SEC-0330 for further information on the public reference room.

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

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Risk

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

Since 2008, we have not engaged in any hedging or other transactions intended to manage risks relating to foreign currency exchange rate or interest rate fluctuations.

For additional qualitative disclosure, see Item 5 – “Impact of Inflation and Foreign Currency Fluctuations“.

Interest Rate Risk

Historically, our exposure to market risk with respect to changes in interest rates related primarily to our short- and long-term investments and borrowings. We do not have any short- and long-term investments and borrowings.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Not applicable.

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

Not applicable.

ITEM 15. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, including our chief executive officer, or CEO, and our chief financial officer, or CFO, are responsible for establishing and maintaining our disclosure controls and procedures (within the meaning of Rule 13a-15(e) of the Exchange Act). These controls and procedures were designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information was accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. We evaluated these disclosure controls and procedures under the supervision of our CEO and CFO as of December 31, 2011. Based upon that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures are effective.

Management’s Annual Report on Internal Control Over Financial Reporting

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

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

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

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

Our management recognizes that there are inherent limitations in the effectiveness of any system of internal control over financial reporting, including the possibility of human error and the circumvention or override of internal control. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation, and may not prevent or detect all misstatements. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2011 based on the framework for Internal Control-Integrated Framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on such evaluation, our management, including the CEO and CFO, has concluded that our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended) as of December 31, 2011 is effective.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the year ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

Ms. Orly Etzion, an independent member of our audit committee, serves as, and qualifies as, a financial expert under the applicable regulations. Ms. Etzion also qualifies as an “independent director” using the NASDAQ Stock Market definition of independence, in NASDAQ Listing Rule 5605(a)(2).

ITEM 16B. CODE OF ETHICS

In April 2004, we adopted Code of Business Conduct and Ethics (the “Code”) that applies to the Company’s employees and directors.

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 $34,000 for 2011 and $37,000 for 2010 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 2011 and 2010, our principal accountant billed us aggregate amounts of approximately $5,000 for services relating to tax compliance, tax advice and tax planning.

All Other Fees. For 2011 and 2010, our principal accountant did not bill us for other services.

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

ITEM 16D. EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable .

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

None .

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

None.

ITEM 16G. CORPORATE GOVERNANCE

Not applicable.

ITEM 16H. MINE SAFETY DISCLOSURE

Not applicable.

PART III

ITEM 17. FINANCIAL STATEMENTS

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

ITEM 18. FINANCIAL STATEMENTS

Our consolidated financial statements and related auditors’ report for the year ended December 31, 2011 are enclosed as part of this annual report.

ITEM 19. EXHIBITS

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

Exhibit No.	Description
1.1*	Memorandum of Association, as amended and restated through February 22, 2010 (translated from Hebrew) (incorporated herein by reference to Exhibit 1.1 to the Registrant’s Annual Report on Form 20-F filed with the SEC on June 30, 2010).

1.2	Articles of Association, as amended and restated through January 16, 2012.

4.1*	2003 Share Option Plan (incorporated herein by reference to Exhibit 4.10 to the Registrant's Report on Form 20-F, filed with the SEC on June 26, 2003).

4.2*	2003 International Employee stock option Plan (incorporated herein by reference to Exhibit 4.11 to the Registrant's Report on Form S-8, filed with the SEC on April 1, 2004).

4.3*	Form of Note issued to certain investors (incorporated herein by reference to Exhibit 99.3 to the Registrant’s Current Report on Form 6-K, filed with the SEC on September 9, 2008).

4.4*	Form of Warrant to purchase Ordinary Shares issued to certain investors (incorporated herein by reference to Exhibit 99.4 to the Registrant’s Current Report on Form 6-K, filed with the SEC on September 9, 2008).

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

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

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

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

4.9*	Amendment to Loan Agreement between the Registrant and certain investors, dated December 31, 2008 (incorporated herein by reference to the Registrant’s Current Report on Form 6-K filed with the SEC on January 5, 2009).

4.10*	Second Amendment to Loan Agreement between the Registrant and certain investors, dated September 6, 2009 (incorporated herein by reference to the Registrant’s Current Report on Form 6-K filed with the SEC on September 8, 2009).

4.11*	Third Amendment to Loan Agreement between the Registrant and certain investors, dated December 30, 2009 (incorporated herein by reference to Exhibit 4.20 to the Registrant’s Annual Report on Form 20-F filed with the SEC on June 30, 2010).

4.12*	Asset Purchase Agreement by and among the Registrant, Lantiq Israel Ltd. and Lantiq Beteiligungs - GmbH & Co. KG, dated January 5, 2010 (incorporated herein by reference to Exhibit 4.21 to the Registrant’s Annual Report on Form 20-F filed with the SEC on June 30, 2010).

4.13*	Consulting Agreement by and between the Registrant and Lantiq Israel Ltd., dated February 15, 2010 (incorporated herein by reference to Exhibit 4.22 to the Registrant’s Annual Report on Form 20-F filed with the SEC on June 30, 2010).

4.14*	Transition Services Agreement by and between the Registrant and Lantiq Israel Ltd., dated February 15, 2010 (incorporated herein by reference to Exhibit 4.23 to the Registrant’s Annual Report on Form 20-F filed with the SEC on June 30, 2010).

4.15*	Cross License Agreement by and between the Registrant and Lantiq Israel Ltd., dated February 15, 2010 (incorporated herein by reference to Exhibit 4.24 to the Registrant’s Annual Report on Form 20-F filed with the SEC on June 30, 2010).

4.16*	Sublease Agreement by and between the Registrant and Lantiq Israel Ltd., dated February 15, 2010 (incorporated herein by reference to Exhibit 4.25 to the Registrant’s Annual Report on Form 20-F filed with the SEC on June 30, 2010).

4.17	Consulting Services Agreement, dated January 1, 2012, between the Registrant and Mr. Tzvi Shukhman.

4.18*	Form of Indemnity Letter to Office Holders (incorporated herein by reference to Appendix B to the Registrant’s Proxy Statement filed on Report of Foreign Private Issuer on Form 6-K submitted to the SEC on December 12, 2011).

8	List of Subsidiaries.

11.	Code of Business Conduct and Ethics, adopted in April 2004.

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

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

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

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

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

_________________

* Incorporated by reference.

METALINK LTD.

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2011

METALINK LTD.

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2011

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page


Report of Independent Registered Public Accounting Firm		F-2

Consolidated Balance Sheets as of December 31, 2011 and 2010		F-3

Consolidated Statements of Operations for the years ended December 31, 2011, 2010 and 2009		F-4

Statements of Shareholders' Equity and Comprehensive Income (Loss) for the years ended December 31, 2011, 2010 and 2009		F-5-F-6

Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010 and 2009		F-7-F-8

Notes to Consolidated Financial Statements		F-9-F-27

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Shareholders of Metalink Ltd.

We have audited the accompanying consolidated balance sheets of Metalink, Ltd ("the Company") and its subsidiary as of December 31, 2011 and 2010 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2011. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company and its subsidiary as of December 31, 2011 and 2010, and the consolidated results of its operations and its consolidated cash flows for each of the three years in the period ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America.

Brightman Almagor Zohar & Co.

Certified Public Accountants

A member firm of Deloitte Touche Tohmatsu

Tel Aviv, Israel

April 30, 2012

- F - 2 -

METALINK LTD.

CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands)

	December 31,			December 31,
	2011			2010
ASSETS
Current assets
Cash and cash equivalents	$	5,321		$	4,357
Trade accounts receivable		39			92
Other receivables (Note 11A)		-			266
Government institutions		9			66
Prepaid expenses		3			8
Advance to supply		-			175
Inventories (Note 3)		252			37
Total current assets		5,624			5,001

Property and equipment, net (Note 4)		67			79
Total assets	$	5,691		$	5,080

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities
Trade accounts payable	$	30		$	102
Other payables and accrued expenses (Note 11B)		497			576
Accrued severance pay		290			-
Total current liabilities		817			678

Accrued severance pay		-			275

Shareholders' equity
Ordinary shares of NIS 1 par value (Authorized - 5,000,000 shares, issued and outstanding 2,780,707 shares (including treasury stock) as of December 31, 2011 and 2010)		790			790
Additional paid-in capital		158,111			158,111
Accumulated deficit		(144,142	)		(144,889	)
		14,759			14,012

Treasury stock, at cost: 89,850 as of
December 31, 2011 and 2010		(9,885	)		(9,885	)
Total shareholders' equity		4,874			4,127

Total liabilities and shareholders' equity	$	5,691		$	5,080


	Uzi Rozenberg Chairman of the Board		Tzvika Shukhman CEO		Shay Evron CFO

The accompanying notes are an integral part of the financial statements

- F - 3 -

METALINK LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

(U.S. dollars in thousands except share data)

		Year ended December 31 ,
		2011		2010			2009

Revenues (Note 12)	$	2,050	$	813		$	3,288
Cost of revenues: (Note 12)
Costs and expenses		669		97			1,028
Royalties to the Government of Israel (Note 6)		48		12			97
Total cost of revenues		717		109			1,125

Gross profit		1,333		704			2,163

General and administrative		638		1,163			2,322

Operating profit (loss)		695		(459	)		(159	)

Financial income (expenses), net		52		438			(3,494	)

Net profit (loss) from continuing operation	$	747	$	(21	)	$	(3,653	)

Discontinued operation
Operating loss from discontinued operation		-		(107	)	$	(9,801	)
Capital gain from sale of discontinued operation		-		6,907			-
Net profit (loss) from Discontinued operation		-	$	6,800		$	(9,801	)

Net profit (loss)	$	747	$	6,779		$	(13,454	)

Per share data-
Basic and Diluted earnings (loss) from continuing operations	$	0.278	$	(0.008	)	$	(1.471	)

Basic and Diluted earnings (loss) from discontinued operations		-	$	2.451		$	(3.947	)

Basic and Diluted earnings (loss)	$	0.278	$	2.443		$	(5.418	)

Shares used in computing loss per ordinary share*:

Basic and Diluted		2,690,857		2,690,857			2,482,863

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

The accompanying notes are an integral part of the financial statements

- F - 4 -

METALINK LTD.

STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)

(U.S. dollars in thousands, except share data)

												Accumulated
	Number of		Number of				Additional		Treasury			other						Total
	Outstanding		treasury		Share		paid-in		Stock			comprehensive			Accumulated			Comprehensive
	Shares		shares		Capital		capital		(at cost)			income (loss)			deficit			income (loss)			Total
Balance at
January 1, 2009		2,475,223		89,850	$	711	$	156,500	$	(9,885	)	$	(124	)	$	(138,214	)				$	8,988

Changes during 2009:
Exercise of employee options & issuance of
Restricted Stock Units (RSU’s)		5,000		-		1		-		-			-			-			-			1
Employee stock-based
compensation		-		-		-		483		-			-			-			-			483
Exercise of warrants (Note 8)		183,500		-		47		709		-			-			-			-			756
Other comprehensive income:
Unrealized gain on marketable securities		-		-		-		-		-			124			-			124			124
Loss for the year		-		-		-		-		-			-			(13,454	)		(13,454	)		(13,454	)
Total comprehensive loss																		$	(13,330	)
Balance at
December 31, 2009		2,663,723		89,850	$	759	$	157,692	$	(9,885	)	$	-		$	(151,668	)				$	(3,102	)

* The number of shares has been adjusted retroactively to reflect the one for ten reverse split of our ordinary shares dated February 22, 2010.

The accompanying notes are an integral part of the financial statements

- F - 5 -

METALINK LTD.

STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS) (CONT.)

(U.S. dollars in thousands, except share data)

	Number of		Number of				Additional		Treasury						Total
	Outstanding		treasury		Share		paid-in		Stock			Accumulated			Comprehensive
	Shares		shares		Capital		capital		(at cost)			deficit			income (loss)			Total
Balance at
December 31, 2009		2,663,723		89,850	$	759	$	157,692	$	(9,885	)	$	(151,668	)				$	(3,102	)

Changes during 2010:
employee stock-based
compensation		-		-		-		43		-			-			-			43
Exercise of warrants (note 8)		116,984		-		31		376		-			-			-			407
Other comprehensive income:
profit for the year		-		-		-		-		-			6,779			6,779			6,779
Total comprehensive income															$	(6,779	)
Balance at
December 31, 2010		2,780,707		89,850	$	790	$	158,111	$	(9,885	)		(144,889	)				$	4,127

Changes during 2011:
Other comprehensive income:
profit for the year	-	-		-		-		-			747			747		747
Total comprehensive income													$	747
Balance at
December 31, 2011	2,780,707	89,850	$	790	$	158,111	$	(9,885	)	$	(144,142	)			$	4,874

* The number of shares has been adjusted retroactively to reflect the one for ten reverse split of our ordinary shares dated February 22, 2010.

The accompanying notes are an integral part of the financial statements

- F - 6 -

METALINK LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in thousands)

	Year ended December 31,
	2 0 1 1			2 0 10			2 0 0 9
	(in thousands)

Cash flows from operating activities:
Net income (loss)	$	747		$	6,779		$	(13,454	)
Adjustments to reconcile net loss to net cash used in operating activities (Appendix)		226			(8,542	)		9,626
Net cash provided by (used in) continuing operating activities		973			(1,763	)		(3,828	)

Cash flows from investing activities:
Proceeds from maturity and sales of marketable debt securities and certificates of deposits		-			-			800
Proceeds from disposal of property and equipment		-			-			48
Cash from sale of WLAN operation		-			7,700			-
Purchase of property and equipment		(9	)		-			(15	)
Net cash provided by (used in) investing activities		(9	)		7,700			833

Cash flows from financing activities:
Proceeds from issuance of shares and exercise of options, net		-			162			21
Proceeds from issuance of warrants to issue shares		-			35			123
Loan received, net of issuance costs		-			-			1,958
Repayment of loan		-			(4,050	)		(2,000	)
Net cash provided by (used in) financing activities		-			(3,853	)		102


Increase (decrease) in cash and cash equivalents		964			2,084			(2,893	)
Cash and cash equivalents at beginning of year		4,357			2,273			5,166
Cash and cash equivalents at end of year	$	5,321		$	4,357		$	2,273

The accompanying notes are an integral part of the financial statements

- F - 7 -

METALINK LTD.

APPENDIX TO CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in thousands)

	Year ended December 31,
	2 0 1 1			2 0 10			2 0 0 9
	(in thousands)

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

Depreciation and amortization	$	21		$	48		$	1,160
Amortization of marketable debt securities and deposit premium and accretion of discount		-			-			(1	)
Amortization of deferred charges and loan discount and		-
increase in the face value of the loan		-			-			2,305
Increase in warrants to issue shares		-			83			706
Write off of short term loan		-			(50	)		-
Increase (decrease) in accrued severance pay, net		15			(1,523	)		(634	)
Employee stock-based compensation		-			(52	)		483
Capital gain from selling of operation		-			(6,907	)		-

Changes in assets and liabilities:

Decrease (increase) in assets:
Trade accounts receivable		53			6			2,054
Other receivables and prepaid expenses		328			(374	)		1,050
Inventories		(40	)		414			1,440
Increase (decrease) in liabilities:
Trade accounts payable		(72	)		138			803
Other payables and accrued expenses		(79	)		(325	)		260

	$	226		$	(8,542	)	$	9,626

The accompanying notes are an integral part of the financial statements

- F - 8 -

METALINK LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

NOTE 1 - GENERAL

Metalink Ltd. (the "Company"), an Israeli fabless semiconductor Company, is engaged in the sale of high performance broadband access chip sets used by telecommunications and networking equipment manufacturers. Company’s broadband silicon solutions enable very high speed streaming video, voice and data transmission and delivery throughout worldwide communication networks. The Company operates in one business segment. The Company generates revenues from the sale of its products mainly in Asia.

Sales of the WLAN operation

On February 15, 2010 the Company has completed the sale of the wireless local area network (WLAN) business to Lantiq , a newly-formed fabless semiconductor company funded by Golden Gate Capital for up to $16,604 in cash as follows:

$5,700 was paid concurrently with the closing, of which $3,750 was used to repay the first installment under Metalink's loan agreement with an institutional investor. For further details on the loan agreement see Note 7.

$2,000 was paid throughout the year 2010;

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

Moving forward the Company is continuing to support its current DSL activities.

On March 8, 2010 the NASDAQ staff informed the Company that it has regained compliance with the minimum bid price requirement in Listing Rule 5550(a)(2) and the minimum shareholders' equity requirement in Listing Rule 5550(b)(1). On April 21, 2011, our ordinary shares were delisted from The NASDAQ Capital Market and are currently quoted on the "Pink Sheets" under the symbol "MTLK.PK".

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

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

Use of Estimates in Preparation of Financial Statements

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

- F - 9 -

METALINK LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Financial Statements in U.S. Dollars

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

Transactions and balances originally denominated in dollars are presented at their original amounts. Non-dollar transactions and balances have been remeasured into dollars in accordance with the principles set forth in ASC 830 (“Foreign Currency Matters”). All exchange gains and losses from remeasurement of monetary balance sheet items resulting from transactions in non-dollar currencies are reflected in the statements of operations as they arise

Principles of Consolidation

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

Cash Equivalents

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

Marketable Debt Securities

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

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

During 2009 the company sold all of its marketable securities investments.

- F - 10 -

METALINK LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Allowance for doubtful accounts

The allowance for doubtful accounts has been made on the specific identification basis. The Company maintains an allowance for doubtful accounts, which management believes adequately covers all anticipated losses in respect of trade receivables. As of December 31, 2011 and 2010 no amounts for doubtful accounts were required.

Inventories

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

Raw materials, components and finished products - on the moving average basis.

Work-in-process - on the basis of actual manufacturing costs.

Property and Equipment

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

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

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

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

Revenue Recognition

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

such amounts have been insignificant.

- F - 11 -

METALINK LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Research and Development Expenses

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

Deferred Income Taxes

Deferred income taxes are provided for temporary differences between the assets and liabilities, as measured in the financial statements and for tax purposes, at tax rates expected to be in effect when these differences reverse, in accordance with ASC 740-10 (formerly SFAS No. 109, “Accounting for Income Taxes”).

Net Profit (Loss) Per Ordinary Share

Basic and diluted net profit (loss) per share have been computed in accordance with ASC 260-10 (formerly SFAS No. 128, “Earnings per Share”) using the weighted average number of ordinary shares outstanding. Basic profit (loss) per share excludes any dilutive effect of options and warrants.

Stock-based compensation

The Company applies ASC 718-10 (formerly SFAS No. 123(R), “Share Based Payment”). The Company’s net profit (loss) for the year ended December 31, 2011, 2010 and 2009 includes $0, $43 and $483 of compensation expenses related to the Company’s share-based compensation awards, respectively.

For purposes of estimating fair value in, the Company utilized the Black-Scholes option-pricing model. The following assumptions were utilized in such calculations for the years 2011, 2010 and 2009:

	2 0 1 1	2 0 1 0	2 0 0 9

Risk-free interest rate	none	none	1.44%-2.9%
Expected life (in years)	none	none	0.1-3.00
Expected volatility (*)	none	none	43%-81%
Expected dividend yield	none	none	none

- F - 12 -

METALINK LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Stock-based compensation (Cont.)

The Company is utilizing the simplified method, to determine the expected life used in fair valuation of newly granted awards. We believe that recent business structural changes have made historical information less relevant and reliable and, consequently, we implemented the simplified method.

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

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

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

The Company determined the risk-free interest rate in accordance with ASC 718-10-55-28. The Company uses U.S. treasury zero-coupon issues with remaining time equal the expected term.

Concentrations of Credit Risk

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

(i)

As of December 31, 2011, the Company had cash and cash equivalents that totaled to $5,321 all of which are deposited in a major Israeli financial institution. As of December 31, 2010, the Company had cash and cash equivalents that totaled to $4,357 all of which are deposited in a major Israeli financial institution. Management believes that the financial institutions holding the Company's cash and cash equivalents and its deposits are financially sound.

(ii)

Most of the Company's revenues are generated in Asia and Europe from a small number of customers (see Note 12). The Company generally does not require security from its customers.

Fair Value of Financial Instruments

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

- F - 13 -

METALINK LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Reclassification

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

Recently Issued Accounting Pronouncements

In January 2010, the FASB issued, “Fair Value Measurements and Disclosures”, that requires reporting entities to make new disclosures about recurring or nonrecurring fair-value measurements including significant transfers into and out of Level 1 and Level 2 fair-value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair-value measurements. The FASB also clarified existing fair-value measurement disclosure guidance about the level of disaggregation, inputs, and valuation techniques. The new and revised disclosures are required to be implemented in interim or annual periods beginning after December 15, 2009, except for the gross presentation of the Level 3 rollforward, which is required for annual reporting periods beginning after December 15, 2010. The adoption of this update did not have a material impact on the Company’s consolidated financial statements.

NOTE 3 - INVENTORIES

Comprised as follows:

	December 31,
	2 0 1 1		2 0 1 0
	(in thousands)


Raw materials and components		-	$	37
Finished products	$	252		-
	$	252	$	37

*The inventory is presented as the lower price between the cost and the fair value (the selling price).

- F - 14 -

METALINK LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

NOTE 4 - PROPERTY AND EQUIPMENT

Comprised as follows:

	December 31,
	2 0 1 1		2 0 1 0
	(in thousands)
Cost:
Computers and equipment	$	19	$	10
Furniture and fixtures		3		3
Vehicles		143		143
	$	165	$	156
Accumulated depreciation and amortization:
Computers and equipment	$	11	$	10
Furniture and fixtures		3		2
Vehicles		84		65
	$	98	$	77
Property and equipment, net	$	67	$	79

NOTE 5 - ACCRUED SEVERANCE PAY, NET

The Company's liability for severance pay is calculated in accordance with Israeli law based on the latest salary paid to employees and the length of employment in the Company. For employees joining the Company subsequent to November 2006 the Company adopted the provisions of Section No.14 of the Severance Compensation Act, 1963 ("Section 14"). Section 14 allows the Company to make deposits in the severance pay funds according to the employees' current salary. Such deposits are releasing the Company from any further obligation with this regard. The deposits made are available to the employee at the time when the employer - employee relationship ends, regardless of cause of termination. The Company's liability for severance pay is fully provided for. Part of the liability is funded through individual insurance policies. The policies are assets of the Company and, under labor agreements, subject to certain limitations, they may be transferred to the ownership of the beneficiary employees.

The severance pay expenses for the years ended December 31, 2011, 2010 and 2009 were $15, $52, and $226, respectively.

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

- F - 15 -

METALINK LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

NOTE 6 - COMMITMENTS AND CONTINGENT LIABILITIES

Royalties

(i)

The Company is committed to pay royalties to the Government of Israel on proceeds from the sale of products in the research and development of which the Government has participated by way of grants (received under the Chief Scientist program), up to the amount of 100% - 150% of the grants received plus interest at LIBOR rate (in dollar terms). The royalties are payable at a rate range of 3% to 4.5%. The total amount of grants received, net of royalties paid, as of December 31, 2011 was $28,614.

The research and development grants are presented in the statements of operations as an offset to research and development expenses.

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

Royalty expenses to the Government of Israel for the years ended December 31, 2011, 2010 and 2009 were $48, $12 and $97, respectively.

(ii)

The Company is obligated to pay royalties to certain third parties, based on agreements, which allow the Company to incorporate their products into the Company's products. Royalty expenses to these parties for the years ended December 31, 2011, 2010 and 2009 were $0, $23 and $171, respectively.

(iii)

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

Lease Commitments

The Company leases its motor vehicles under cancelable operating lease agreements, for periods ended in 2011. The minimum payment under these operating leases upon cancellation of these lease agreements, amounted to $2 as of December 31, 2011. Lease expenses for the years ended December 31, 2011, 2010 and 2009, were $28, $170 and $432, respectively.

Legal Claim

In August 2010, a former employee filed a claim against the Company and Lantiq Israel LTD ("Lantiq") in the Tel Aviv District Labor Court (the "Court") demanding a pay of $100. The former employee claims that both defendants has breached his rights and unjustified dismissed him from continuing working in Lantiq. In addition the former employee claimed the Company has broken its contractual obligations and thus causing financial damage. On October 2010, The Company, together with Lantiq, filed a statement of defense, dismissing the prosecutor's claims.

Prosecutor's declaration was submitted in December 2011.

- F - 16 -

METALINK LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

NOTE 6 - COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

Legal Claim (Cont.)

The Company required filing its declaration of first testimony until May 2012.

Due to the early stage of prior to the evidence procedure, we cannot estimate the chances of succeeding to annul the claim.

In August 30, 2011, the company received a letter from Tmura Fund (from The Office of the Chief Scientist within the Ministry of Industry and Trade) (hereby "the fund") according the company is required to pay The Office of the Chief Scientist a sum of $247 for royalties to The Office of the Chief Scientist on the basis of income derived from the sale of the WLAN business to Lantiq.

In September 15, 2011 the company has replied that it disagrees to the company's obligation of paying any amount on the basis of income derived from the selling agreement.

In January 16, 2012 a meeting with representatives of the fund took place to settle the disagreement. Until this day, the disagreement has yet resolved. Due to the early stage and the issue of the disagreement, we cannot estimate the chances of succeeding to annul the funds claim.

NOTE 7 - SHORT-TERM LOAN

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

The key terms of the loan agreement were as follows:

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

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

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

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

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

In addition, in consideration for the First Loan, the Company issued to the lender five-year warrants to purchase up to a total of 200.000 ordinary shares at exercise prices per share of $0.1 (for 100,000 warrants) and $5 (for the balance), post split. In consideration for the first tranche of the Second Loan, the Company issued to the lender five-year warrants to purchase up to a total of 1,100,000 ordinary shares at exercise prices per share of $0.01 (for 935,000 warrants) and $0.50 (for the balance), subject to adjustments.

- F - 17 -

METALINK LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

NOTE 7 - SHORT-TERM LOAN (Cont.)

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

In January 2009 the company received half of the Second Loan at the amount of $2,250 (“Second Loan”) offset by issuance expenses in the amount of $169. The Company allocated the amount received between the loan and the warrants. In accordance with ASC 470-20 (formerly known as APB 14), the Company allocated to the warrants $123, which was equal to the estimated fair value of the warrants using the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg L.P with the following assumptions: risk free interest rate of 4%; dividend yield of zero; expected volatility of 178.5%; and an expected life of five years. The remaining amount was attributed to the loan. As a result a discount was attributed to the loan at the amount equal to the amount that was attributed to the warrants. The loan discount amortized by using the effective interest method through the payment of the loan as of September 2009. For the year ended December 31, 2009, the Company recorded $123 of financial expenses related to the amortization of the loan discount.

On September 6, 2009, the Company entered into a second amendment to the Loan Agreement (the "Second Amendment"), whereby the maturity date was extended from September 9, 2009 to March 9, 2010. As part of the Second Amendment, the Company immediately repaid the Lender $2,000 out of the outstanding $5,750 million. The Company also agreed that in the event of a fundamental transaction (such as the contemplated sale to Lantiq described in Note 1), the repayment amount will be $4,312.

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

On December 30, 2009, the Company entered into a third amendment to the Loan Agreement (the "Third Amendment"), that became effective on January 5, 2010, whereby the repayment of the $4,312 originally due upon the closing of the Lantiq transaction will be reduced to $4,100 and repaid as follows: $3,750 at closing, which occurred on February 15, 2010, $300 in December 15, 2010 and $50 cancelled accordingly to the new agreement.

- F - 18 -

METALINK LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

NOTE 7 - SHORT-TERM LOAN (Cont.)

The second and third amendment was accounted as an extinguishment. The difference between the carring value and the principal amount agreed under the third amendment was recognized in earnings. As of December 31, 2010 no loan was outstanding.

In accordance with ASC 815-10 the warrants were recorded on the balance sheet as derivative liability and carried at fair value, due to the fact that in certain circumstances the warrants may be paid off in cash at the lender’s discretion. Gains and losses resulting from changes in the fair values of the warrants are recorded in financial expenses, net on the consolidated statement of operations. For the year ended December 31, 2010, the Company recorded $118 of financial expenses related to the increase in the fair value of these warrants.

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

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

The issuance of the Warrants contemplated in the Loan Agreement, triggered the adjustment of the exercise price of the warrants issued in August 2007 (see Note 9A). According to this adjustment the warrants issued originally with $8 per share, was adjusted to $6.5 per share according to the original terms of the warrants.

In 2010 all warrants were exercised or expired and no warrants are outstanding as of December 31, 2011.

NOTE 8 - Fair Value measurements

The Company adopted the provisions of ASC 820-10.

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

- F - 19 -

METALINK LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

NOTE 9 - SHARE CAPITAL

In December 1999, the Company completed an initial public offering in the United States and issued 4,600,000 ordinary shares (including the underwriters' over-allotment) for net proceeds of $49,838. Following the public offering, the Company's shares are traded on the Over-the-counter market and were listed on the NASDAQ National Market, until March 13, 2009 upon which listing of the Company’s securities was transferred to the NASDAQ Capital Market.

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

Since December 2000, the shares of the Company are also traded on the Tel-Aviv Stock Exchange.

In October 2000 and March 2001, the Board of Directors of the Company approved the purchase of up to 1,000,000 of the Company's ordinary shares for up to $10,000. Through December 31, 2003, the Company had purchased 898,500 of its ordinary shares, in the aggregate amount of $9,885.

In April 2005, the Board of Directors of the Company approved the purchase of shares of the Company for up to $10,000, subject to market conditions and approval by the Board of Directors.

The Company has not purchased any of its ordinary shares following the April 2005 approval.

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

In February 2010, the Company has implemented a one-for-ten reverse stock split of its outstanding ordinary shares. Pursuant to this reverse stock split, each ten (10) shares of common stock of the Company’s issued and outstanding shares as of the date following the reverse stock split was converted into one (1) share of the Company’s common stock. All shares referred to in these financial statements are presented after giving effect to the reverse stock split

Employee Stock Purchase Plan

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

Any employee of the Company is eligible to participate in the ESPP. Employee stock purchases are made through payroll deductions. Under the terms of the ESPP, employees may not deduct an amount exceeding $25 in total value of stock in any one year. The purchase price of the stock will be 85% of the lower of the fair market value of an ordinary share on the first day of the offering

- F - 20 -

METALINK LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

NOTE 9 - SHARE CAPITAL (Cont.)

Employee Stock Purchase Plan (Cont.)

period and the fair market value on the last day of the offering period. The offering period was determined to be six months.

In April 2005 the Board of Directors of the Company resolved to suspend the ESPP until further notice and on 2010 this plan terminated.

Stock Options

(i)

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

(ii)

Pursuant to the Plans, as of December 31, 2011, no options of the Company are available for future grants.

(iii)

The options granted generally vest over periods of up to 3 years from the date of the grant. The options granted subsequent to 2005 expire after 4 years.

(iv)

In October 2007, the Board of Directors of the Company allowed the grant of Restricted Stock Units (“RSU”) under each of the Company’s Plans. RSU is a right to receive a share of the Company, under certain provisions, for a consideration of no more than the underlying share’s nominal value (NIS 0.1). In addition, upon the lapse of the vesting period of RSU, such RSU shall automatically vest into the Company’s ordinary share and the grantee shall pay to the Company its nominal value as a precondition to any receipt of such share. In 2008 and 2009 the Company granted 293,500 RSU and 20,000 RSU respectively. In 2010 and 2011 the Company did not granted RSU.

- F - 21 -

METALINK LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

NOTE 9 - SHARE CAPITAL (Cont.)

Stock Options (Cont.)

A summary of the status of the Company's stock option plans to employees and directors of the Company, including RSU as of December 31, 2011, 2010 and 2009 and changes during the years then ended are as follows:

	December 31, 2011					December 31, 2010					December 31, 2009
				Weighted					Weighted					Weighted
				average					average					average
				exercise					exercise					exercise
	Shares			Price		Shares			Price		Shares			Price
Options outstanding at
beginning of year		2,165			0.3		143,814			57.0		297,352		$	55.0
Granted during year		-			-		-			-		2,810			2.0
Forfeited during year		(2,165	)		0.3		(137,527	)		59.6		(151,348	)		54.0
Exercised during year		-			-		(4,122	)		0.3		(5,000	)		0.3

Outstanding at end of year		-			-		2,165			0.3		143,814			57.0

Options exercisable at end
of year		-			-		2,165			0.3		134,638			58.2

Weighted average fair
value of options & RSU granted
during year		-					-				$	3.5

Forfeited average intrinsic value during year		-					-					-
Exercised average intrinsic value during year		-					1.0					2.8

- F - 22 -

METALINK LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

NOTE 10 - TAXES ON INCOME

Taxation under Various Laws

(i)

The Company and its subsidiary are assessed for tax purposes on an unconsolidated basis. The Company is assessed under the provisions of the Israeli Income Tax Ordinance. The Company's foreign subsidiary is subject to the tax rules in their countries of incorporation.

(ii)

“Approved Enterprise”

The Company have been granted "Approved Enterprise" status in two separate programs under the Law for the Encouragement of Capital Investments, 1959, as amended. Under this law, income attributable to each of these enterprises, is fully exempt from tax for two years, commencing with the first year in which such enterprise generates taxable income, and is entitled to a reduced tax rate (25%) for a further eight years, respectively. The expiration date of the period of benefits is limited to the earlier of twelve years from commencement of production or fourteen years from the date of the approval. As of December 31, 2011, the period of benefits had not yet commenced.

Income derived from sources other than the "Approved Enterprise" is taxable at the ordinary corporate tax rate of 24% in 2011 (regular "Company Tax"). The regular Company Tax rate in 2012 and thereafter - 25%.

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

Profits (Losses) from Continuing Operations

	Year ended December 31,
	2 0 1 1		2 0 1 0			2 0 0 9
	(in thousands)

Israeli company	$	747	$	(21	)	$	(3,653	)
U.S. subsidiary		-		-			-
	$	747	$	(21	)	$	(3,653	)

- F - 23 -

METALINK LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

NOTE 10 - TAXES ON INCOME (Cont.)

Reconciliation of Income Taxes

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

	Year ended December 31,
	2 0 1 1			2 0 1 0			2 0 0 9
	(in thousands)
Net profit (loss) as reported in the
consolidated statements of operations	$	747		$	(21	)	$	(3,653	)
Statutory tax rate		24	%		25	%		26	%
Income Tax under statutory tax rate	$	179		$	(5	)	$	(950	)

Unrecognized temporary differences		(179	)		5			-
Tax benefit arising from the Approved
Enterprise		-			-			803
Increase (decrease) in valuation allowance		-			-			(235	)
Permanent differences, net		-			-			382

Actual income tax	$	-		$	-		$	-

Deferred Taxes

Under ASC 740-10 deferred tax assets are to be recognized for the anticipated tax benefits associated with net operating loss carry forwards and deductible temporary differences, unless it is more likely than not that some or all of the deferred tax assets will not be realized. The adjustment is made by a valuation allowance.

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

Tax loss carry forwards of the Company are $181 million (NIS690 million) for December 2009, $188 million (NIS717 million) for December 2010 and expected to be $188 million (NIS716 million) for December 2011. This loss is unlimited in duration, denominated in nominal NIS.

Tax Assessments

The Company and its subsidiary have not received final tax assessments for income tax purposes since incorporation. Though according to Israeli tax laws assessments considered to be final until and including the year ended in 2006.

- F - 24 -

METALINK LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

NOTE 11 - SUPPLEMENTARY BALANCE SHEET INFORMATION

Other Receivables

Comprised as follows:

	December 31,
	2 0 1 1		2 0 1 0
	(in thousands)

Research and development participation from the Government of Israel		-	$	32
Others		-		234
		-	$	266

Other Payables and Accrued Expenses

Comprised as follows:

	December 31,
	2 0 1 1		2 0 1 0
	(in thousands)

Payroll and related amounts	$	204	$	278
Accrued expenses		273		288
Royalties to the Government of Israel		20		10
	$	497	$	576

- F - 25 -

METALINK LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

NOTE 12 - SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION

Geographic Information

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

	Year ended December 31,
	2 0 1 1		2 0 1 0		2 0 0 9
	(in thousands)
Revenues :
Israel	$	222	$	359	$	1,217
Other foreign countries (mainly European and Asia)		1,828		454		2,071
	$	2,050	$	813	$	3,288

	December 31,
	2 0 1 1		2 0 1 0		2 0 0 9
	(in thousands)
Long-lived assets:
Israel	$	67	$	79	$	1,871
Taiwan		-		-		274
	$	67	$	79	$	2,145

Sales to Major Customers

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

	Year ended December 31,
	2 0 1 1			2 0 1 0			2 0 0 9

Customer A		89	%		45	%		21	%
Customer B		11	%		43	%		24	%
Customer C		0	%		11	%		26	%
Customer D		0	%		(	*)		(	*)

(*) Less than 10%.

- F - 26 -

METALINK LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

NOTE 12 - SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION (Cont.)

Cost of Revenues :

	Year ended December 31,
	2 0 1 1		2 0 1 0		2 0 0 9
	(in thousands)

Materials and production expenses	$	623	$	61	$	865
Salaries, wages and employee benefits		-		-		29
Depreciation and amortization		-		-		12
Other manufacturing costs		46		36		122
		669		97		1,028
Royalties to the Government of Israel		48		12		97
	$	717	$	109	$	1,125

NOTE 13 - RELATED PARTIES

Payroll and related amounts to related parties in 2011, 2010 and 2009 were $147, $334 and $238, respectively.

On December 8, 2011 the Company has signed a termination agreement with Mr. Tzvika Shukhman, the Company's current CEO, effective from December 31, 2011. From January 1, 2012 Mr. Tzvika Shukhman will be hired as an external consultant to provide Metalink with consulting services.

This agreement and the termination agreement have been duly approved by the Audit Committee and Board of Directors of the Company and the shareholders of the Company.

The key terms of the termination agreement are as follows: Promptly following the termination date, Mr. Shukhman will receive $290, as severance payment for the term of his employment. Mr. Shukhman will be entitled to a special bonus equal to 12% of our gross profit on our DSL business during 2011, based on our audited financial statements for the year ended December 31, 2011. Promptly following the termination date, we will pay $150 on account of such bonus and the balance, if any, shall be paid until June 30, 2012 based on the aforesaid audited financial statements. We will cash out 96 vacation days accumulated thus far by Mr. Shukhman (worth approximately $65). Mr. Shukhman will also be entitled to (i) approximately $1.2 for recreation pay, and (ii) retain the Company's equipment for a 30-day period following the termination date, except that the Company's car will be returned by March 31, 2012 and certain computer equipment that will be retained until termination of the Consulting Agreement. Mr. Shukhman releases the Company from past claims (in his capacity as an employee).

The key terms of the consulting agreement: Starting January 1, 2012, Mr. Shukhman will provide us consulting services that will generally consist of his service as CEO of the Company ("CEO Services") and the provision of consulting services in relation to our DSL business ("DSL Services"). In consideration for his CEO Services, where he undertook to commit approximately 100 hours per quarter, Mr. Shukhman will be entitled to a monthly fee of $8.3, payable until the 30th business day following the end of each month of service. Notwithstanding the foregoing, if the parties agree to reduce the scope of the consulting services such that they shall not include the CEO Services but only DSL Services, then Mr. Shukhman shall not be entitled to said monthly fee. In consideration for his DSL Services, Mr. Shukhman will be entitled, for each fiscal quarter during the term of the Consulting Agreement, to a quarterly bonus equal to 29% of our gross profit on our DSL business payable within 10 business days following the publication of the Company's unaudited consolidated financial statements for the applicable fiscal quarter (to the extent that the agreement expires during any fiscal quarter, he will receive a pro rata amount out of the bonus for that quarter, if any). In addition, he will be entitled to 50% of such bonuses for six (6) months following the termination of the Consulting Agreement by the Company, solely with respect to any invoice that was issued with respect to DSL products during the said six (6) months period. Mr. Shukhman will receive a one-time grant of options to purchase up to 100,000 ordinary shares of the Company, in accordance with the following terms: (i) exercise price equal to $1.50 per share; (ii) the options will vest in 24 equal monthly installments starting January 1, 2012; (iii) the vesting of all options is fully accelerated in a change of control transaction or if the Company terminates the Consulting Agreement for no cause; and (iv) all other terms and conditions in connection with the above options shall be as set forth in the Company's stock option plan. The Consulting Agreement will continue until terminated, among others, by either party upon 90 day prior written notice. Mr. Shukhman agreed to a non-compete and non-solicitation undertaking for 12 months following termination.

- 27 -

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/ Tzvi Shukhman
		Name: Tzvi Shukhman
		Title: Chief Executive Officer

Date: April 30, 2012

THE COMPANIES LAW

A COMPANY LIMITED BY SHARES

ARTICLES OF ASSOCIATION

METALINK LTD.

____________________

Amended and Restated as of January 16, 2012

GENERAL PROVISIONS

1. Object and Purpose of the Company

(a) The object and purpose of the Company shall be as set forth in the Company’s Memorandum of Association, as the same shall be amended from time to time in accordance with applicable law.

(b) In accordance with Section 11(a) of the Companies Law 5759 - 1999 (the “Companies Law”), the Company may contribute a reasonable amount to a worthy cause.

2. Limitation of Liability

The liability of the shareholders is limited to the payment of the nominal value of the shares in the Company allotted to them and which remains unpaid, and only to that amount. If the Company’s share capital shall include at any time shares without a nominal value, the shareholders’ liability in respect of such shares shall be limited to the payment of up to NIS 0.01 for each such share allotted to them and which remains unpaid, and only to that amount.

3. Interpretation

(a) Unless the subject or the context otherwise requires: words and expressions used herein which are defined in the Memorandum of Association of the Company shall have the meanings therein defined, and words and expressions defined in the Companies Law in force on the date when these Articles or any amendment thereto, as the case may be, first became effective shall have the same meanings herein; words and expressions importing the singular shall include the plural and vice versa; words and expressions importing the masculine gender shall include the feminine gender; and words and expressions importing persons shall include bodies corporate.

(b) The captions in these Articles are for convenience only and shall not be deemed a part hereof or affect the construction of any provision hereof.

3A Amendment

The approval of a resolution adopted in a General Meeting approved by a simple majority of the voting power represented at the meeting in person or by proxy and voting thereon (a “Shareholders’ Resolution”) is required to approve any amendment to these Articles of Association.

SHARE CAPITAL

4. Share Capital

The share capital of the Company is Five Million New Israeli Shekels (NIS 5,000,000) divided into Five Million (5,000,000) Ordinary A Shares, par value One New Israeli Shekel (NIS 1.00) each.

5. Increase of Share Capital

(a) The Company may, from time to time, by a Shareholders Resolution, whether or not all the shares then authorized have been issued, and whether or not all the shares theretofore issued have been called up for payment, increase its share capital by the creation of new shares. Any such increase shall be in such amount and shall be divided into shares of such nominal amounts, and such shares shall confer such rights and preferences, and shall be subject to such restrictions, as such resolution shall provide.

(b) Except to the extent otherwise provided in such resolution, such new shares shall be subject to all the provisions applicable to the shares of the original capital.

6. Special Rights; Modifications of Rights

(a) Without prejudice to any special rights previously conferred upon the holders of existing shares in the Company, the Company may, from time to time, by Shareholders Resolution, provide for shares with such preferred or deferred rights or rights of redemption or other special rights and/or such restrictions, whether in regard to dividends, voting, repayment of share capital or otherwise, as may be stipulated in such resolution.

(b) (i) If at any time the share capital is divided into different classes of shares, the rights attached to any class, unless otherwise provided by these Articles, may be modified or abrogated by the Company, by Shareholders Resolution, subject to the sanction of a resolution passed by a majority of the holders of a majority of the shares of such class present and voting at a separate General Meeting of the holders of the shares of such class.

(ii) The provisions of these Articles relating to General Meetings shall, mutatis mutandis, apply to any separate General Meeting of the holders of the shares of a particular class.

(iii) Unless otherwise provided by these Articles, the enlargement of an existing class of shares, or the issuance of additional shares thereof, shall not be deemed, for purposes of this Article 6(b), to modify or abrogate the rights attached to the previously issued shares of such class or of any other class.

7. Consolidation, Subdivision, Cancellation and Reduction of Share Capital

(a) The Company may, from time to time, by Shareholders Resolution (subject, however, to the provisions of Article 6(b) hereof and to applicable law):

(i) consolidate and divide all or any of its issued or unissued share capital into shares of larger nominal value than its existing shares,

(ii) subdivide its shares (issued or unissued) or any of them, into shares of smaller nominal value than is fixed by these Articles of Association (subject, however, to the provisions of the Companies Law), and the Shareholders Resolution whereby any share is subdivided may determine that, as among the holders of the shares resulting from such subdivision, one or more of the shares may, as compared with the others, have any such preferred or deferred rights or rights of redemption or other special rights, or be subject to any such restrictions, as the Company has power to attach to unissued or new shares,

(iii) cancel any shares which, at the date of the adoption of such resolution, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so canceled, or

(iv) reduce its share capital in any manner, and with and subject to any incident authorized, and consent required, by law.

(b) With respect to any consolidation of issued shares into shares of larger nominal value, and with respect to any other action which may result in fractional shares, the Board of Directors may settle any difficulty which may arise with regard thereto, as it deems fit, including, inter alia , resort to one or more of the following actions:

(i) determine, as to the holder of shares so consolidated, which issued shares shall be consolidated into each share of larger nominal value;

(ii) allot, in contemplation of or subsequent to such consolidation or other action, such shares or fractional shares sufficient to preclude or remove fractional share holdings;

(iii) redeem, in the case of redeemable preference shares, and subject to applicable law, such shares or fractional shares sufficient to preclude or remove fractional share holdings;

(iv) cause the transfer of fractional shares by certain shareholders of the Company to other shareholders thereof so as to most expediently preclude or remove any fractional shareholdings, and cause the transferees to pay the transferors the fair value of fractional shares so transferred, and the Board of Directors is hereby authorized to act as agent for the transferors and transferees with power of substitution for purposes of implementing the provisions of this sub-Article 7(b)(iv).

8. Issuance of Share Certificates; Replacement of Lost Certificates

(a) Share certificates shall be issued under the seal or stamp of the Company and shall bear the signature of one Director, or of any other person or persons authorized thereto by the Board of Directors.

(b) Each holder of shares shall be entitled to one numbered certificate for all the shares of any class registered in his name, and if reasonably requested by such member, to several certificates, each for one or more of such shares.

(c) A share certificate registered in the names of two or more persons shall be delivered to the person first named in the Registrar of Members in respect of such co-ownership.

(d) If a share certificate is defaced, lost or destroyed, it may be replaced, upon payment of such fee, and upon the furnishing of such evidence of ownership and such indemnity, as the Board of Directors may think fit.

(e) The Company may issue bearer shares.

9. Registered Holder

Except as otherwise provided in these Articles, the Company shall be entitled to treat the registered holder of any share as the absolute owner thereof, and, accordingly, shall not, except as ordered by a court of competent jurisdiction, or as required by statute, be bound to recognize any equitable or other claim to, or interest in such share on the part of any other person.

10. Allotment of Shares

The unissued shares from time to time shall be under the control of the Board of Directors, who shall have the power to allot shares or otherwise dispose of them to such persons, on such terms and conditions (including inter alia terms relating to calls as set forth in Article 12(f) hereof), and either at par or at a premium, or, subject to the provisions of the Companies Law, at a discount, and at such times, as the Board of Directors may think fit, and the power to give to any person the option to acquire from the Company any shares, either at par or at a premium, or, subject as aforesaid, at a discount, during such time and for such consideration as the Board of Directors may think fit.

11. Payment in Installments

If by the terms of allotment of any share, the whole or any part of the price thereof shall be payable in installments, every such installment shall, when due, be paid to the Company by the then registered holder(s) of the share of the person(s) entitled thereto.

12. Calls on Shares

(a) The Board of Directors may, from time to time, make such calls as it may think fit upon holders of shares in respect of any sum unpaid in respect of shares held by such holders which is not, by the terms of allotment thereof or otherwise, payable at a fixed time, and each such holder shall pay the amount of every call so made upon him (and of each installment thereof if the same is payable in installments), to the person(s) and at the time(s) and place(s) designated by the Board of Directors, as any such time(s) may be thereafter extended and/or such person(s) or place(s) changed. Unless otherwise stipulated in the resolution of the Board of Directors (and in the notice hereafter referred to), each payment in response to a call shall be deemed to constitute a pro rata payment on account of all shares in respect of which such call was made.

(b) Notice of any call shall be given in writing to the holder(s) in question not less than fourteen (14) days prior to the time of payment, specifying the time and place of payment, and designating the person to whom such payment shall be made, provided, however, that before the time for any such payment, the Board of Directors may, by notice in writing to such holder(s), revoke such call in whole or in part, extend such time, or alter such person and/or place. In the event of a call payable in installments, only one notice thereof need be given.

(c) If, by the terms of allotment of any share or otherwise, any amount is made payable at any fixed time, every such amount shall be payable at such time as if it were a call duly made by the Board of Directors and of which due notice had been given, and all the provisions herein contained with respect to such calls shall apply to each such amount.

(d) The joint holders of a share shall be jointly and severally liable to pay all calls in respect thereof and all interest payable thereon.

(e) Any amount unpaid in respect of a call shall bear interest from the date on which it is payable until actual payment thereof, at such rate (not exceeding the then prevailing debitory rate charged by leading commercial banks in Israel), and at such time(s) as the Board of Directors may prescribe.

(f) Upon the allotment of shares, the Board of Directors may provide for differences among the allottees of such shares as to the amount of calls and/or the times of payment thereof.

13. Prepayment

With the approval of the Board of Directors, any holder of shares may pay to the Company any amount not yet payable in respect of his shares, and the Board of Directors may approve the payment of interest on any such amount until the same would be payable if it had not been paid in advance, at such rate and time(s) as may be approved by the Board of Directors. The Board of Directors may at any time cause the Company to repay all or any part of the money so advanced, without premium or penalty. Nothing in this Article 13 shall derogate from the right of the Board of Directors to make any call before or after receipt by the Company of any such advance.

14. Forfeiture and Surrender

(a) If any holder fails to pay any amount payable in respect of a call, or interest thereon as provided for herein, on or before the day fixed for payment of the same, the Company, by resolution of the Board of Directors, may at any time thereafter, so long as the said amount or interest remains unpaid, forfeit all or any of the shares in respect of which said call had been made. Any expense incurred by the Company in attempting to collect any such amount or interest, including, inter alia, attorneys' fees and costs of suit, shall be added to, and shall, for all purposes (including the accrual of interest thereon), constitute a part of the amount payable to the Company in respect of such call.

(b) Upon the adoption of a resolution of forfeiture, the Board of Directors shall cause notice thereof to be given to such holder, which notice shall state that, in the event of the failure to pay the entire amount so payable within a period stipulated in the notice (which period shall not be less than fourteen (14) days and which may be extended by the Board of Directors), such shares shall be ipso facto forfeited, provided, however, that, prior to the expiration of such period, the Board of Directors may nullify such resolution of forfeiture, but no such nullification shall estop the Board of Directors from adopting a further resolution of forfeiture in respect of the non-payment of the same amount.

(c) Whenever shares are forfeited as herein provided, all dividends theretofore declared in respect thereof and not actually paid shall be deemed to have been forfeited at the same time.

(d) The Company, by resolution of the Board of Directors, may accept the voluntary surrender of any share.

(e) Any share forfeited or surrendered as provided herein shall become the property of the Company, and the same, subject to the provisions of these Articles, may be sold, re-allotted or otherwise disposed of as the Board of Directors thinks fit.

(f) Any holder whose shares have been forfeited or surrendered shall cease to be a holder in respect of the forfeited or surrendered shares, but shall, notwithstanding, be liable to pay, and shall forthwith pay, to the Company, all calls, interest and expenses owing upon or in respect of such shares at the time of forfeiture or surrender, together with interest thereon from the time of forfeiture or surrender until actual payment, at the rate prescribed in Article 12(e) above, and the Board of Directors, in its discretion, may enforce the payment of such moneys, or any part thereof, but shall not be under any obligation to do so. In the event of such forfeiture or surrender, the Company, by resolution of the Board of Directors, may accelerate the date(s) of payment of any or all amounts then owing by the holder in question (but not yet due) in respect of all shares owned by such holder, solely or jointly with another, and in respect of any other matter or transaction whatsoever.

(g) The Board of Directors may at any time, before any share so forfeited or surrendered shall have been sold, re-allotted or otherwise disposed of, nullify the forfeiture or surrender on such conditions as it thinks fit, but no such nullification shall estop the Board of Directors from re-exercising its powers of forfeiture pursuant to this Article 14.

15. Lien

(a) Except to the extent the same may be waived or subordinated in writing, the Company shall have a first and paramount lien upon all the shares registered in the name of each holder (without regard to any equitable or other claim or interest in such shares on the part of any other person), and upon the proceeds of the sale thereof, for his debts, liabilities and engagements arising from any cause whatsoever, solely or jointly with another, to or with the Company, whether the period for the payment, fulfillment or discharge thereof shall have actually arrived or not. Such lien shall extend to all dividends from time to time declared in respect of such share. Unless otherwise provided, the registration by the Company of a transfer of shares shall be deemed to be a waiver on the part of the Company of the lien (if any) existing on such shares immediately prior to such transfer.

(b) The Board of Directors may cause the Company to sell any shares subject to such lien when any such debt, liability or engagement has matured, in such manner as the Board of Directors may think fit, but no such sale shall be made unless such debt, liability or engagement has not been satisfied within fourteen (14) days after written notice of the intention to sell shall have been served on such holder, his executors or administrators.

(c) The net proceeds of any such sale, after payment of the costs thereof, shall be applied in or toward satisfaction of the debts, liabilities or engagements of such holder (whether or not the same have matured), or any specific part of the same (as the Company may determine), and the residue (if any) shall be paid to the holder, his executors, administrators or assigns.

16. Sale after Forfeiture or Surrender or in Enforcement of Lien

Upon any sale of shares after forfeiture or surrender or for enforcing a lien, the Board of Directors may appoint some person to execute an instrument of transfer of the shares so sold and cause the purchaser's name to be entered in the Register of Members in respect of such shares, and the purchaser shall not be bound to see to the regularity of the proceedings, or to the application of the purchase money, and after his name has been entered in the Register of Members in respect of such shares, the validity of the sale shall not be impeached by any person, and the remedy of any person aggrieved by the sale shall be in damages only and against the Company exclusively.

17. Redeemable Shares

The Company may, subject to applicable law, issue redeemable shares and redeem the same.

18. [reserved]

TRANSFER OF SHARES

19. Effectiveness and Registration

No transfer of shares shall be registered unless a proper instrument of transfer (in form and substance satisfactory to the Board of Directors) has been submitted to the Company or its agent, together with any share certificate(s) and such other evidence of title as the Board of Directors may reasonably require. Until the transferee has been registered in the Register of Members in respect of the shares so transferred, the Company may continue to regard the transferor as the owner thereof. The Board of Directors, may, from time to time, prescribe a fee for the registration of a transfer.

20. Record Date for General Meetings

Notwithstanding any provision to the contrary in these Articles, for the determination of the holders entitled to receive notice of and to participate in and vote at a General Meeting, or to express consent to or dissent from any corporate action in writing, or to receive payment of any dividend or other distribution or allotment of any rights or to exercise any rights in respect of shares of the Company, the Board of Directors may fix, in advance, a record date, which, subject to applicable law, shall not be earlier than ninety (90) days prior to the General Meeting or other action, as the case may be. No persons other than holders of record of shares as of such record date shall be entitled to notice of and to participate in and vote at such General Meeting, or to exercise such other right, as the case may be. A determination of holders of record with respect to a General Meeting shall apply to any adjournment of such meeting, provided that the Board of Directors may fix a new record date for an adjourned meeting.

TRANSMISSION OF SHARES

21. Decedents' Shares

(a) In case of a share registered in the names of two or more holders, the Company may recognize the survivor(s) as the sole owner(s) thereof unless and until the provisions of Article 21(b) have been effectively invoked.

(b) Any person becoming entitled to a share in consequence of the death of any person, upon producing evidence of the grant of probate or letters of administration or declaration of succession (or such other evidence as the Board of Directors may reasonably deem sufficient that he sustains the character in respect of which he proposes to act under this Article or of his title), shall be registered as a holder in respect of such share, or may, subject to the regulations as to transfer herein contained, transfer such share.

22. Receivers and Liquidators

(a) The Company may recognize the receiver or liquidator of any corporate shareholder in winding-up or dissolution, or the receiver or trustee in bankruptcy of any shareholder, as being entitled to the shares registered in the name of such shareholder.

(b) The receiver or liquidator of a corporate shareholder in winding-up or dissolution, or the receiver or trustee in bankruptcy of any shareholder, upon producing such evidence as the Board of Directors may deem sufficient that he sustains the character in respect of which he proposes to act under this Article or of his title, shall with the consent of the Board of Directors (which the Board of Directors may grant or refuse in its absolute discretion), be registered as a shareholder in respect of such shares, or may, subject to the regulations as to transfer herein contained, transfer such shares.

GENERAL MEETINGS

23. Annual General Meeting

An Annual General Meeting shall be held once in every calendar year at such time (within a period of not more than fifteen (15) months after the last preceding Annual General Meeting) and at such place either within or without the State of Israel as may be determined by the Board of Directors.

24. Extraordinary General Meetings

All General Meetings other than Annual General Meetings shall be called "Extraordinary General Meetings." The Board of Directors may, whenever it thinks fit, convene an Extraordinary General Meeting at such time and place, within or without the State of Israel, as may be determined by the Board of Directors, and shall be obliged to do so upon a requisition in writing in accordance with Sections 63(b)(1) or (2) and 63(c) of the Companies Law.

25. Notice of General Meetings

The Company is not required to give notice under Section 69(b) of the Companies Law. The Company is required to give such prior notice of a General Meeting as required by law or applicable stock exchange rules, but in any event not less than seven (7) days. The accidental omission to give notice of a meeting to any shareholder or the non-receipt of notice by one of the shareholders shall not invalidate the proceedings at any meeting.

PROCEEDINGS AT GENERAL MEETINGS

26. Quorum

(a) Two or more shareholders (not in default in payment of any sum referred to in Article 32(a) hereof), present in person or by proxy and holding shares conferring in the aggregate thirty-three and one-third percent (33 1/3%) of the voting power of the Company (subject to rules and regulations, if any, applicable to the Company), shall constitute a quorum at General Meetings. No business shall be transacted at a General Meeting, or at any adjournment thereof, unless the requisite quorum is present when the meeting proceeds to business.

(b) If within an hour from the time appointed for the meeting a quorum is not present, the meeting, if convened upon requisition under Sections 63(b)(1) or (2), 64 or 65 of the Companies Law, shall be dissolved, but in any other case it shall stand adjourned to the same day in the next week, at the same time and place, or to such day and at such time and place as the Chairman may determine with the consent of the holders of a majority of the voting power represented at the meeting in person or by proxy and voting on the question of adjournment. No business shall be transacted at any adjourned meeting except business which might lawfully have been transacted at the meeting as originally called. At such adjourned meeting, any two (2) shareholders (not in default as aforesaid) present in person or by proxy, shall constitute a quorum (subject to rules and regulations, if any, applicable to the Company).

(c) The Board of Directors may determine, in its discretion, the matters that may be voted upon at the meeting by proxy in addition to the matters listed in Section 87(a) to the Companies Law.

27. Chairman

The Chairman, if any, of the Board of Directors shall preside as Chairman at every General Meeting of the Company. If there is no such Chairman, or if at any meeting he is not present within fifteen (15) minutes after the time fixed for holding the meeting or is unwilling to act as Chairman, the shareholders present shall choose someone of their number to be Chairman. The office of Chairman shall not, by itself, entitle the holder thereof to vote at any General Meeting nor shall it entitle such holder to a second or casting vote (without derogating, however, from the rights of such Chairman to vote as a shareholder or proxy of a shareholder if, in fact, he is also a shareholder or such proxy).

28. Adoption of Resolutions at General Meetings

(a) Unless otherwise indicated herein, a Shareholders Resolution shall be deemed adopted if approved by the holders of a majority of the voting power represented at the meeting in person or by proxy and voting thereon.

(b) A Shareholders Resolution approving a merger (as defined in the Companies Law) of the Company shall be deemed adopted if approved by the holders of a majority of the voting power represented at the meeting in person or by proxy and voting thereon.

(c) Every question submitted to a General Meeting shall be decided by a show of hands, but if a written ballot is demanded by any shareholder present in person or by proxy and entitled to vote at the meeting, the same shall be decided by such ballot. A written ballot may be demanded before the proposed resolution is voted upon or immediately after the declaration by the Chairman of the results of the vote by a show of hands. If a vote by written ballot is taken after such declaration, the results of the vote by a show of hands shall be of no effect, and the proposed resolution shall be decided by such written ballot. The demand for a written ballot may be withdrawn at any time before the same is conducted, in which event another shareholder may then demand such written ballot. The demand for a written ballot shall not prevent the continuance of the meeting for the transaction of business other than the question on which the written ballot has been demanded.

(d) A declaration by the Chairman of the meeting that a resolution has been carried unanimously, or carried by a particular majority, or lost, and an entry to that effect in the minute book of the Company, shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favor of or against such resolution.

29. Resolutions in Writing

A resolution in writing signed by all shareholders of the Company then entitled to attend and vote at General Meetings or to which all such shareholders have given their written consent (by letter, facsimile [telecopier], telegram, telex or otherwise), or their oral consent by telephone (provided that a written summary thereof has been approved and signed by the Chairman of the Board of Directors of the Company) shall be deemed to have been unanimously adopted by a General Meeting duly convened and held.

30. Power to Adjourn

(a) The Chairman of a General Meeting at which a quorum is present may, with the consent of the holders of a majority of the voting power represented in person or by proxy and voting on the question of adjournment (and shall if so directed by the meeting), adjourn the meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting except business which might lawfully have been transacted at the meeting as originally called.

(b) It shall not be necessary to give any notice of an adjournment, whether pursuant to Article 26(b) or Article 30(a), unless the meeting is adjourned for thirty (30) days or more in which event notice thereof shall be given in the manner required for the meeting as originally called.

31. Voting Power

Subject to the provisions of Article 32(a) and subject to any provision hereof conferring special rights as to voting, or restricting the right to vote, every shareholder shall have one vote for each share held by him of record, on every resolution, without regard to whether the vote hereon is conducted by a show of hands, by written ballot or by any other means.

32. Voting Rights

(a) No shareholder shall be entitled to vote at any General Meeting (or be counted as a part of the quorum thereat), unless all calls and other sums then payable by him in respect of his shares in the Company have been paid, but this Article shall not apply to separate General Meetings of the holders of a particular class of shares pursuant to Article 6(b).

(b) A company or other corporate body being a shareholder of the Company may, by resolution of its directors or any other managing body thereof, authorize any person to be its representative at any meeting of the Company. Any person so authorized shall be entitled to exercise on behalf of such shareholder all the power which the latter could have exercised if it were an individual shareholder. Upon the request of the Chairman of the meeting, written evidence of such authorization (in form acceptable to the Chairman) shall be delivered to him.

(c) Any shareholder entitled to vote may vote either personally or by proxy (who need not be a shareholder of the Company), or, if the shareholder is a company or other corporate body, by a representative authorized pursuant to Article 32(b).

(d) If two or more persons are registered as joint holders of any share, the vote of the senior who tenders a vote, in person or by proxy, shall be accepted to the exclusion of the vote(s) of the other joint holder(s); and for this purpose seniority shall be determined by the order in which the names stand in the Register of Members.

PROXIES

33. Instrument of Appointment

(a) The instrument appointing a proxy shall be in writing and shall be substantially in the following form:

"I _____________________ of __________________________________

(Name of Shareholder) (Address of Shareholder)

being a member of ___________________________ hereby appoint

(Name of the Company)

________________________of _____________________________

(Name of Proxy) (Address of Proxy)

as my proxy to vote for me and on my behalf at the General Meeting of the Company to be held on the _____ day of ___________, 20__ and at any adjournment(s) thereof.

Signed this ______ day of ____________, 20__.

_________________________

(Signature of Appointer)"

or in any usual or common form or in such other form as may be approved by the Board of Directors. It shall be duly signed by the appointer or his duly authorized attorney or, if such appointer is a company or other corporate body, under its common seal or stamp or the hand of its duly authorized agent(s) or attorney(s).

(b) The instrument appointing a proxy (and the power of attorney or other authority, if any, under which such instrument has been signed) shall either be delivered to the Company (at its Registered Office, or at its principal place of business or at the offices of its registrar and/or transfer agent or at such place as the Board of Directors may specify) not less than seventy-two (72) hours (or such shorter period as determined by the Board of Directors) before the time fixed for the meeting at which the person named in the instrument proposes to vote.

34. Effect of Death of Appointor or Revocation of Appointment

A vote cast pursuant to an instrument appointing a proxy shall be valid notwithstanding the previous death of the appointing shareholder (or of his attorney-in-fact, if any, who signed such instrument), or the revocation of the appointment or the transfer of the share in respect of which the vote is cast, provided no written intimation of such death, revocation or transfer shall have been received by the Company or by the Chairman of the meeting before such vote is cast and provided, further, that the appointing shareholder, if present in person at said meeting, may revoke the appointment by means of a writing, oral notification to the Chairman, or otherwise.

BOARD OF DIRECTORS

35. Powers of Board of Directors

(a) In General

The management of the business of the Company shall be vested in the Board of Directors, which may exercise all such powers and do all such acts and things as the Company is authorized to exercise and do, and are not hereby or by law required to be exercised or done by the Company in General Meeting. The authority conferred on the Board of Directors by this Article 35 shall be subject to the provisions of the Companies Law, of these Articles and any regulation or resolution consistent with these Articles adopted from time to time by the Company in General Meeting, provided, however, that no such regulation or resolution shall invalidate any prior act done by or pursuant to a decision of the Board of Directors which would have been valid if such regulation or resolution had not been adopted.

(b) Borrowing Power

The Board of Directors may from time to time, in its discretion, cause the Company to borrow or secure the payment of any sum or sums of money for the purposes of the Company, and may secure or provide for the repayment of such sum or sums in such manner, at such times and upon such terms and conditions in all respects as it thinks fit, and, in particular, by the issuance of bonds, perpetual or redeemable debentures, debenture stock, or any mortgages, charges, or other securities on the undertaking or the whole or any part of the property of the Company, both present and future, including its uncalled or called but unpaid capital for the time being.

The Board of Directors may, from time to time, set aside any amount(s) out of the profits of the Company as a reserve or reserves for any purpose(s) which the Board of Directors, in its absolute discretion, shall think fit, and may invest any sum so set aside in any manner and from time to time deal with and vary such investments, and dispose of all or any part thereof, and employ any such reserve or any part thereof in the business of the Company without being bound to keep the same separate from other assets of the Company, and may subdivide or redesignate any reserve or cancel the same or apply the funds therein for another purpose, all as the Board of Directors may from time to time think fit.

36. Exercise of Powers of Directors

(a) A meeting of the Board of Directors at which a quorum is present (in person, by means of a conference call or any other device allowing each director participating in such meeting to hear all the other directors participating in such meeting) shall be competent to exercise all the authorities, powers and discretions vested in or exercisable by the Board of Directors.

(b) A resolution proposed at any meeting of the Board of Directors shall be deemed adopted if approved by a majority of the Directors present when such resolution is put to a vote and voting thereon.

(c) A resolution may be adopted by the Board of Directors without convening a meeting if all Directors then in office and lawfully entitled to vote thereon (as conclusively determined by the Chairman of the Audit Committee, and, in the absence of such determination, by the Chairman of the Board of Directors) having given their consent (in any manner whatsoever) not to convene a meeting. Such a resolution shall be adopted if approved by a majority of the Directors entitled to vote thereon (as determined as aforesaid). The Chairman of the Board shall sign any resolutions so adopted, including the decision to adopt said resolutions without a meeting.

37. Delegation of Powers

(a) The Board of Directors may, subject to the provisions of the Companies Law, delegate any or all of its powers to committees, each consisting of two or more persons (all of whose members must be Directors), and it may from time to time revoke such delegation or alter the composition of any such committee. Any Committee so formed (in these Articles referred to as a "Committee of the Board of Directors"), shall, in the exercise of the powers so delegated, conform to any regulations imposed on it by the Board of Directors. The meetings and proceedings of any such Committee of the Board of Directors shall, mutatis mutandis, be governed by the provisions herein contained for regulating the meetings of the Board of Directors, so far as not superseded by any regulations adopted by the Board of Directors under this Article. Unless otherwise expressly provided by the Board of Directors in delegating powers to a Committee of the Board of Directors, such Committee shall not be empowered to further delegate such powers.

(b) Without derogating from the provisions of Article 50, the Board of Directors may, subject to the provisions of the Companies Law, from time to time appoint a Secretary to the Company, as well as officers, agents, employees and independent contractors, as the Board of Directors may think fit, and may terminate the service of any such person. The Board of Directors may, subject to the provisions of the Companies Law, determine the powers and duties, as well as the salaries and emoluments, of all such persons, and may require security in such cases and in such amounts as it thinks fit.

(c) The Board of Directors may from time to time, by power of attorney or otherwise, appoint any person, company, firm or body of persons to be the attorney or attorneys of the Company at law or in fact for such purpose(s) and with such powers, authorities and discretions, and for such period and subject to such conditions, as it thinks fit, and any such power of attorney or other appointment may contain such provisions for the protection and convenience of persons dealing with any such attorney as the Board of Directors may think fit, and may also authorize any such attorney to delegate all or any of the powers, authorities and discretions vested in him.

38. Number of Directors

The Board of Directors shall consist of such number of Directors (not less than four (4) nor more than nine (9) as may be determined by Shareholder Resolution of the Company.

39. Election and Removal of Directors

(a) If at any time, the Company shall be required to appoint independent or external directors such as a public director or directors of any other type as the may be required by law (“External Directors”) such directors shall serve on the Board according to the number required by law. External Directors will be appointed and removed pursuant to and shall be governed by the relevant provisions of the law which applies to External Directors. If permitted by applicable law, External Directors will be appointed by the Board.

(b) The members of the Board of Directors shall be called Directors, and other than External Directors (who will be chosen and appointed, and whose term will expire, in accordance with applicable law,) they shall be appointed in accordance with the provisions of this Article.

(c) Directors (other than External Directors) shall be elected at the Annual General Meeting 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, or by the Board of Directors. In the event that Directors are appointed by the Board of Directors, such appointment of Directors shall be adopted by Shareholders’ Resolution at the first extraordinary or annual general meeting of the shareholders following the date upon which the Director was appointed by the Board of Directors. Each Director shall serve, subject to Article 42 hereof, and with respect to a Director appointed pursuant to Article 41 hereof, subject to such Article, until the Annual General Meeting next following the Annual General Meeting at which such Director was appointed, or his earlier removal pursuant to this Article 39. The shareholders shall be entitled to remove any Director(s) from office, all subject to applicable law.

40. Qualification of Directors

No person shall be disqualified to serve as a Director by reason of his not holding shares in the Company or by reason of his having served as a Director in the past.

41. Continuing Directors in the Event of Vacancies

In the event of one or more vacancies in the Board of Directors, the continuing Directors may continue to act in every matter, and may temporarily fill any such vacancy until the next Annual General Meeting, provided, however, that if they number less than the minimum number provided for pursuant to Article 38 hereof, they may only act in an emergency, and may call a General Meeting of the Company for the purpose of electing Directors to fill any or all vacancies, so that at least a majority of the number of Directors provided for pursuant to Article 38 hereof are in office as a result of said meeting.

42. Vacation of Office

(a) The office of a Director shall be vacated, ipso facto, upon his death, or if he be found lunatic or become of unsound mind, or if he becomes bankrupt, or, if the Director is a company, upon its winding-up.

(b) The office of a Director shall be vacated by his written resignation. Such resignation shall become effective on the date fixed therein, or upon the delivery thereof to the Company, whichever is later.

43. Remuneration of Directors

No Director shall be paid any remuneration by the Company for his services as Director except as may be approved by the Company in a General Meeting (including, but not limited to, the grant of options for the Company’s shares) and except for reimbursement of reasonable expenses incurred in connection with carrying out his duties as a Director.

44. Conflict of Interests

Subject to the provisions of the Companies Law, the Company may enter into any contract or otherwise transact any business with any Director in which contract or business such Director has a personal interest, directly or indirectly; and may enter into any contract of otherwise transact any business with any third party in which contract or business a Director has a personal interest, directly or indirectly.

45. Alternate Directors

(a) A Director may, by written notice to the Company, appoint a natural person for himself (in these Articles referred to as "Alternate Director"), remove such Alternate Director and appoint another Alternate Director in place of any Alternate Director appointed by him whose office has been vacated for any reason whatsoever. Unless the appointing Director, by the instrument appointing an Alternate Director or by written notice to the Company, limits such appointment to a specified period of time or restricts it to a specified meeting or action of the Board of Directors, or otherwise restricts its scope, the appointment shall be for an indefinite period, but will expire upon the expiration of the appointing Director’s term, and shall be for all purposes.

(b) Any notice given to the Company pursuant to Article 45(a) shall become effective on the date fixed therein, or upon the delivery thereof to the Company, whichever is later.

(c) An Alternate Director shall have all the rights and obligations of the Director who appointed him, provided, however, that he may not in turn appoint an alternate for himself (unless the instrument appointing him otherwise expressly provides), and provided further that an Alternate Director shall have no standing at any meeting of the Board of Directors or any committee thereof while the Director who appointed him is present.

(d) An Alternate Director shall alone be responsible for his own acts and defaults, and he shall not be deemed the agent of the Director(s) who appointed him.

(e) The office of an Alternate Director shall be vacated under the circumstances, mutatis mutandis, set forth in Article 42, and such office shall ipso facto be vacated if the Director who appointed such Alternate Director ceases to be a Director.

(f) Notwithstanding Article 45(a), (i) no person shall be appointed as the Alternate Director for more than one Director and (ii) except as otherwise specifically permitted by the Companies Law, (A) no External Director may appoint an Alternate Director and (B) no Director may serve as an Alternate Director.

PROCEEDINGS OF THE BOARD OF DIRECTORS

46. Meetings

(a) The Board of Directors may meet and adjourn its meetings and otherwise regulate such meetings and proceedings as the Board of Directors think fit. Notice of the meetings of the Board of Directors shall be sent to each Director at the last address that the Director provided to the Company, or via telephone, facsimile or e-mail message.

(b) Any Director may at any time, and the Secretary, upon the request of such Director, shall, convene a meeting of the Board of Directors, but not less than seven (7) days' notice (oral or written) shall be given of any meeting so convened. The failure to give notice to a Director in the manner required hereby may be waived by such Director.

47. Quorum

Until otherwise unanimously decided by the Board of Directors, a quorum at a meeting of the Board of Directors shall be constituted by the presence of a majority of the Directors then in office who are lawfully entitled to participate in the meeting (as conclusively determined by the Chairman of the Audit Committee and in the absence of such determination - by the Chairman of the Board of Directors), but shall not be less than two.

48. Chairman of the Board of Directors

The Board of Directors may from time to time elect one of its members to be the Chairman of the Board of Directors, remove such Chairman from office and appoint another in its place. The Chairman of the Board of Directors shall preside at every meeting of the Board of Directors, but if there is no such Chairman, or if at any meeting he is not present within fifteen (15) minutes of the time fixed for the meeting, or if he is unwilling to take the chair, the Directors present shall choose one of their number to be the chairman of such meeting.

49. Validity of Acts Despite Defects

Subject to the provisions of the Companies Law, all acts done bona fide at any meeting of the Board of Directors, or of a Committee of the Board of Directors, or by any person(s) acting as Director(s), shall, notwithstanding that it may afterwards be discovered that there was some defect in the appointment of the participants in such meetings or any of them or any person(s) acting as aforesaid, or that they or any of them were disqualified, be as valid as if there were no such defect or disqualification.

GENERAL MANAGER

50. General Manager

The Board of Directors may from time to time appoint one or more persons, whether or not Directors, as General Manager(s) of the Company and may confer upon such person(s), and from time to time modify or revoke, such title(s) (including Managing Director, President, Director General or any similar or dissimilar title) and such duties and authorities of the Board of Directors as the Board of Directors may deem fit, subject to such limitations and restrictions as the Board of Directors may from time to time prescribe. Such appointment(s) may be either for a fixed term or without any limitation of time, and the Board of Directors may from time to time (subject to the provisions of the Companies Law and of any contract between any such person and the Company) fix his or their salaries and emoluments, remove or dismiss him or them from office and appoint another or others in his or their place or places.

MINUTES

51. Minutes

(a) Minutes of each General Meeting and of each meeting of the Board of Directors shall be recorded and duly entered in books provided for that purpose. Such minutes shall, in all events, set forth the names of the persons present at the meeting and all resolutions adopted thereat.

(b) Any minutes as aforesaid, if purporting to be signed by the chairman of the meeting or by the chairman of the next succeeding meeting, shall constitute prima facia evidence of the matters recorded therein.

DIVIDENDS

52. Declaration and Payment of Dividends

The Board of Directors may from time to time declare, and cause the Company to pay, such dividend as may appear to the Board of Directors to be justified. The Board of Directors shall determine the time for payment of such dividends, and the record date for determining the shareholders entitled thereto.

53. [Deleted]

54. Amount Payable by Way of Dividends

Subject to the rights of the holders of shares with special rights as to dividends, any dividend paid by the Company shall be allocated among the members entitled thereto in proportion to their respective holdings of the shares in respect of which such dividend is being paid.

55. Interest

No dividend shall carry interest as against the Company.

56. Payment in Specie

Upon the declaration of the Board of Directors, a dividend may be paid, wholly or partly, by the distribution of specific assets of the Company or by distribution of paid up shares, debentures or debenture stock of the Company or of any other companies, or in any one or more of such ways.

57. Capitalization of Profits, Reserves etc.

Upon the resolution of the Board of Directors, the Company -

(a) may cause any moneys, investments, or other assets forming part of the undivided profits of the Company, standing to the credit of a reserve fund, or to the credit of a reserve fund for the redemption of capital, or in the hands of the Company and available for dividends, or representing premiums received on the issuance of shares and standing to the credit of the share premium account, to be capitalized and distributed among such of the shareholders as would be entitled to receive the same if distributed by way of dividend and in the same proportion, on the footing that they become entitled thereto as capital, or may cause any part of such capitalized fund to be applied on behalf of such shareholders in paying up in full, either at par or at such premium as the resolution may provide, any unissued shares or debentures or debenture stock of the Company which shall be distributed accordingly, in payment, in full or in part, of the uncalled liability on any issued shares or debentures or debenture stock; and

(b) may cause such distribution or payment to be accepted by such shareholders in full satisfaction of their interest in the said capitalized sum.

58. Implementation of Powers under Articles 56 and 57

For the purpose of giving full effect to any resolution under Articles 56 or 57, and without derogating from the provisions of Article 7(b) hereof, and subject to applicable law, the Board of Directors may settle any difficulty which may arise in regard to the distribution as it thinks expedient, and, in particular, may issue fractional certificates, and may fix the value for distribution of any specific assets, and may determine that cash payments shall be made to any members upon the footing of the value so fixed, or that fractions of less value than the nominal value of one share may be disregarded in order to adjust the rights of all parties, and may vest any such cash, shares, debentures, debenture stock or specific assets in trustees upon such trusts for the persons entitled to the dividend or capitalized fund as may seem expedient to the Board of Directors.

59. Deductions from Dividends

The Board of Directors may deduct from any dividend or other moneys payable to any member in respect of a share any and all sums of money then payable by him to the Company on account of calls or otherwise in respect of shares of the Company and/or on account of any other matter of transaction whatsoever.

60. Retention of Dividends

(a) The Board of Directors may retain any dividend or other moneys payable or property distributable in respect of a share on which the Company has a lien, and may apply the same in or toward satisfaction of the debts, liabilities, or engagements in respect of which the lien exists.

(b) The Board of Directors may retain any dividend or other moneys payable or property distributable in respect of a share in respect of which any person is, under Articles 21 or 22, entitled to become a member, or which any person is, under said Articles, entitled to transfer, until such person shall become a member in respect of such share or shall transfer the same.

61. Unclaimed Dividends

All unclaimed dividends or other moneys payable in respect of a share may be invested or otherwise made use of by the Board of Directors for the benefit of the Company until claimed. The payment by the Directors of any unclaimed dividend or such other moneys into a separate account shall not constitute the Company a trustee in respect thereof, and any dividend unclaimed after a period of seven (7) years from the date of declaration of such dividend, and any such other moneys unclaimed after a like period from the date the same were payable, shall be forfeited and shall revert to the Company, provided, however, that the Board of Directors may, at its discretion, cause the Company to pay any such dividend or such other moneys, or any part thereof, to a person who would have been entitled thereto had the same not reverted to the Company.

62. Mechanics of Payment

Any dividend or other moneys payable in cash in respect of a share may be paid by check or warrant sent through the post to, or left at, the registered address of the person entitled thereto or by transfer to a bank account specified by such person (or, if two or more persons are registered as joint holders of such share or are entitled jointly thereto in consequence of the death or bankruptcy of the holder or otherwise, to any one of such persons or to his bank account), or to such person and at such address as the person entitled thereto may by writing direct. Every such check or warrant shall be made payable to the order of the person to whom it is sent, or to such person as the person entitled thereto as aforesaid may direct, and payment of the check or warrant by the banker upon whom it is drawn shall be a good discharge to the Company. Every such check or warrant shall be sent at the risk of the person entitled to the money represented thereby.

63. Receipt from a Joint Holder

If two or more persons are registered as joint holders of any share, or are entitled jointly thereto in consequence of the death or bankruptcy of the holder or otherwise, any one of them may give effectual receipts for any dividend or other moneys payable or property distributable in respect of such share.

ACCOUNTS

64. Books of Account

The Board of Directors shall cause accurate books of account to be kept in accordance with the provisions of the Companies Law and of any other applicable law. Such books of account shall be kept at the Registered Office of the Company, or at such other place or places as the Board of Directors may think fit, and they shall always be open to inspection by all Directors. No member, not being a Director, shall have any right to inspect any account or book or other similar document of the Company, except as conferred by law or authorized by the Board of Directors or by a Shareholders Resolution.

65. Audit

At least once in every fiscal year the accounts of the Company shall be audited and the correctness of the profit and loss account and balance sheet certified by one or more duly qualified auditors.

66. Auditors

The appointment, authorities, rights and duties of the auditor(s) of the Company, shall be regulated by applicable law. The Audit Committee of the Company shall have the authority to fix, in its discretion, the remuneration of the auditor(s) for the auditing services.

BRANCH REGISTERS

67. Branch Registers

Subject to and in accordance with the provisions of the Companies Law and to all orders and regulations issued thereunder, the Company may cause branch registers to be kept in any place outside Israel as the Board of Directors may think fit, and, subject to all applicable requirements of law, the Board of Directors may from time to time adopt such rules and procedures as it may think fit in connection with the keeping of such branch registers.

RIGHTS OF SIGNATURE, STAMP AND SEAL

68. Rights of Signature, Stamp and Seal

(a) The Board of Directors shall be entitled to authorize any person or persons (who need not be Directors) to act and sign on behalf of the Company, and the acts and signature of such person(s) on behalf of the Company shall bind the Company insofar as such person(s) acted and signed within the scope of his or their authority.

(b) The Company shall have at least one official stamp.

(c) The Board of Directors may provide for a seal. If the Board of Directors so provides, it shall also provide for the safe custody thereof. Such seal shall not be used except by the authority of the Board of Directors and in the presence of the person(s) authorized to sign on behalf of the Company, who shall sign every instrument to which such seal is affixed.

NOTICES

69. Notices

(a) Any written notice or other document may be served by the Company upon any shareholder either personally, or by facsimile transmission, or by sending it by prepaid mail (airmail or overnight air courier if sent to an address on a different continent from the place of mailing) addressed to such shareholder at his address as described in the Register of Members or such other address as he may have designated in writing for the receipt of notices and other documents. Any written notice or other document may be served by any shareholder upon the Company by tendering the same in person to the Secretary or the General Manager of the Company at the principal office of the Company, or by facsimile transmission, or by sending it by prepaid registered mail (airmail or overnight air courier if posted outside Israel) to the Company at its Registered Address. Any such notice or other document shall be deemed to have been served (i) in the case of mailing, two (2) business days after it has been posted (seven (7) business days if sent internationally), or when actually received by the addressee if sooner than two (2) days or seven (7) days, as the case may be, after it has been posted; (ii) in the case of overnight air courier, on the third (3 rd ) business day following the day sent, with receipt confirmed by the courier, or when actually received by the addressee if sooner than three (3) business days after it has been sent; (iii) in the case of personal delivery, on the date such notice was actually tendered in person to such shareholder (or to the Secretary or the General Manager); (iv) in the case of facsimile transmission, on the date on which the sender receives automatic electronic confirmation by the recipient’s facsimile machine that such notice was received by the addressee. The mailing or publication date and the date of the meeting shall be counted as part of the days comprising any notice period. If a notice is, in fact, received by the addressee, it shall be deemed to have been duly served, when received, notwithstanding that it was defectively addressed or failed, in some respect, to comply with the provisions of this Article 69(a).

(b) All notices to be given to the shareholders shall, with respect to any share to which persons are jointly entitled, be given to whichever of such persons is named first in the Register of Members, and any notice so given shall be sufficient notice to the holders of such share.

(c) Any shareholder whose address is not described in the Register of Members, and who shall not have designated in writing an address for the receipt of notices, shall not be entitled to receive any notice from the Company.

(d) Notwithstanding anything to the contrary herein,(i) notice by the Company of a General Meeting which is published in two (2) daily newspapers in the State of Israel, if at all, shall be deemed to have been duly given on the date of such publication to any shareholder whose address as registered in the Register of Members (or as designated in writing for the receipt of notices and other documents) is located in the State of Israel and (ii)notice by the Company of a General Meeting which is published in one (1) daily newspaper in the United States shall be deemed to have been duly given on the date of such publication to any member whose address as registered in the Registrar of Members (or as designated in writing for the receipt of notices and other documents) is located outside the State of Israel. Notwithstanding the foregoing, notice by the Company of a General Meeting which is published in one international wire service shall be deemed to have been duly given on the date of such publication to any shareholder, whether located in or outside the State of Israel.

INSURANCE AND INDEMNITY

70. Exculpation, Indemnity and Insurance

(a) For purposes of these Articles, the term "Office Holder" shall mean every Director and every officer of the Company, including, without limitation, each of the persons defined as "Nosei Misra" in the Companies Law.

(b) Subject to the provisions of the Companies Law, the Company may prospectively exculpate an Office Holder from all or some of the Office Holder’s responsibility for damage resulting from the Office Holder’s breach of the Office Holder’s duty of care to the Company.

(c) The Company may, to the maximum extent permitted by the Companies Law, indemnify the liability of Officers. Without derogating from the foregoing, the Company may indemnify an Office Holder in respect of an obligation or expense specified below imposed on or incurred by the Office Holder in respect of an act performed in his capacity as an Office Holder, as follows:

(i) a financial obligation imposed on him in favor of another person by a court judgment, including a compromise judgment or an arbitrator's award approved by court;

(ii) reasonable litigation expenses, including attorney’s 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 or in connection with a financial sanction;

(iii) reasonable litigation expenses, including attorneys' fees, expended by an Office Holder or charged to the Office Holder by a court, in a proceeding instituted against the Office Holder by the Company or on its behalf or by another person, or in a criminal charge from which the Office Holder was acquitted, or in a criminal proceeding in which the Office Holder was convicted of an offense that does not require proof of criminal intent;

(iv) a payment which he is obligated to make to an injured party as set forth in Section 52(54)(a)(1)(a) of the the Israeli Securities Law, 5728-1968 (the "Securities Law"),, if applicable, and expenses that he incurred in connection with a proceeding under Chapters H'3, H'4 or I'1 of the Securities Law, if applicable, including reasonable legal expenses, which term includes attorney fees; and

(v) any other matter in respect of which it is permitted or will be permitted under applicable law to indemnify an Office Holder.

The Company may undertake to indemnify an Office Holder as aforesaid, (aa) prospectively, provided that in respect of Article 70(c)(i), the undertaking is limited to events which in the opinion of the Board of Directors are foreseeable in light of the Company’s actual operations when the undertaking to indemnify is given, and to an amount or criteria set by the Board of Directors as reasonable under the circumstances, and further provided that such events and amount or criteria are set forth in the undertaking to indemnify, and (bb) retroactively.

(d) The Company may, to the maximum extent permitted by the Companies Law, insure the liability of Officers. Without derogating from the foregoing, the Company may enter into a contract for the insurance of all or part of the liability of any Office Holder imposed on the Office Holder in respect of an act performed in his capacity as an Office Holder, in respect of each of the following:

(i) a breach of his duty of care to the Company or to another person;

(ii) a breach of his duty of loyalty to the Company, provided that the Office Holder acted in good faith and had reasonable cause to assume that such act would not prejudice the interests of the Company;

(iii) a financial obligation imposed on him in favor of another person;

(iv) a payment which he is obligated to make to an injured party as set forth in Section 52(54)(a)(1)(a) of the Securities Law, if applicable, and expenses that he incurred in connection with a proceeding under Chapters H'3, H'4 or I'1 of the Securities Law, if applicable, including reasonable legal expenses, which term includes attorney fees; and

(v) any other matter in respect of which it is permitted or will be permitted under applicable law to insure the liability of an Office Holder.

(e) The provisions of Articles 70(a), 70(b) and 70(c) above are not intended, and shall not be interpreted, to restrict the Company in any manner in respect of the procurement of insurance and/or in respect of indemnification (i) in connection with any person who is not an Office Holder, including, without limitation, any employee, agent, consultant or contractor of the Company who is not an Office Holder, and/or (ii) in connection with any Office Holder to the extent that such insurance and/or indemnification is not specifically prohibited under law; provided that the procurement of any such insurance and/or the provision of any such indemnification shall be approved by the Audit Committee of the Company.

WINDING UP

71. Winding Up

(a) A resolution adopted in a General Meeting approved by 75% of the voting shares represented at such meeting in person or by proxy is required to approve the winding up of the Company.

(b) If the Company be wound up, then, subject to applicable law and to the rights of the holders of shares with special rights upon winding up, the assets of the Company available for distribution among the members shall be distributed to them in proportion to the nominal value of their respective holdings of the shares in respect of which such distribution is being made.

WHEREAS	Metalink is a public company engaged in (1) the marketing and sale of its legacy DSL products (the " DSL Business ") and (2) exploring strategic alternatives as well as to other investments and opportunities, including a possible business combination or other strategic transaction with a domestic or foreign, private or public operating entity or a "going private" transaction;

WHEREAS	Concurrently with the execution of this Agreement, the parties have executed that certain termination agreement, whereby Consultant's employment with the Company shall terminate on the terms set forth therein (the " Termination Agreement "); and

WHEREAS	the Consultant preferred and the Company gave its consent that the services under this Agreement will be provided by the Consultant as an independent contractor;

/s/ Shay Evron		/s/ Tzvika Shukhman
Metalink Ltd.		The Consultant: Tzvika Shukhman

Date: April 30, 2012	By:	/s/ Shay Evron
		Name: Shay Evron
		Title: Chief Financial Officer

	By:	/s/ Shay Evron
		Name: Shay Evron
		Title: Chief Financial Officer

		Page

ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	1
ITEM 2.	OFFER STATISTICS AND EXPECTED TIMETABLE	1
ITEM 3.	KEY INFORMATION	2
ITEM 4.	INFORMATION ON THE COMPANY	13
ITEM 4A.	UNRESOLVED STAFF COMMENTS	22
ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS	22
ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	35
ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	47
ITEM 8.	FINANCIAL INFORMATION	49
ITEM 9.	THE OFFER AND LISTING	51
ITEM 10.	ADDITIONAL INFORMATION	53
ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	74
ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	75
PART II
ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	75
ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	75
ITEM 15.	CONTROLS AND PROCEDURES	75
ITEM 16A.	AUDIT COMMITTEE FINANCIAL EXPERT	77
ITEM 16B.	CODE OF ETHICS	77
ITEM 16C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	77
ITEM 16D.	EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES	77
ITEM 16E.	PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	77
ITEM 16F.	CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT	77
ITEM 16G.	CORPORATE GOVERNANCE	78
ITEM 16H.	MINE SAFETY DISCLOSURE	78

PART III
ITEM 17.	FINANCIAL STATEMENTS	79
ITEM 18.	FINANCIAL STATEMENTS	79
ITEM 19.	EXHIBITS	80

	Year Ended December 31, 2011*
		2007**			2008			2009			2010			2011
	(U.S. dollars in thousands, except share and per share data)
Statement of Operations Data:
Revenues	$	10,166		$	7,053		$	3,288		$	813		$	2,050
Cost of revenues:
Costs and expenses		4,736			2,487			1,028			97			669
Royalties to the Government of Israel		297			215			97			12			48
Total cost of revenues		5,033			2,702			1,125			109			717
Gross profit		5,133			4,351			2,163			704			1,333
Operating expenses:
Sales and marketing		5,427			-			-			-			-
General and administrative		2,451			2,549			2,322			1,163			638
Total operating expenses		7,878			2,549			2,322			1,163			638
Operating profit (loss)		(2,745	)		1,892			(159	)		(459	)		695
Financial income (expenses), net:		1,298			1,639			(3,494	)		438			52
Net profit (loss) from continuing operation	$	(1,447	)	$	3,531		$	(3,653	)	$	(21	)	$	747
Discontinued operation
Operating loss from discontinued operation		(22,876	)		(24,419	)		(9,801	)		(107	)		-
Capital gain from sale of discontinued operation		-			-			-			6,907			-
Net profit (loss) from discontinued operation	$	(22,876	)	$	(24,419	)	$	(9,801	)	$	6,800			-
Net profit (loss)	$	(24,323	)	$	(20,978	)	$	(13,454	)	$	6,779		$	747
Per share data:
Basic and diluted earnings (loss) from continuing operation	$	(0.68	)	$	1.46		$	(1.47	)	$	(0.01	)	$	0.28
Basic and diluted earnings (loss) from discontinued operation	$	(10.73	)	$	10.40		$	(3.95	)	$	2.45			-
Basic and diluted earnings (loss)	$	(11.40	)	$	(8.90	)	$	(5.42	)	$	2.44		$	0.28
Shares used in computing loss per ordinary share:
Basic and diluted		2,131,926			2,356,971			2,482,863			2,690,857			2,690,857