MTLK Metalink, Ltd. (MM)

 METALINK LTD.

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

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES

 A. The significant accounting policies followed in the preparation of
 these interim financial statements are identical to those applied in
 the preparation of the latest annual financial statements.

 B. Use of estimates

 The preparation of financial statements in conformity with generally
 accepted accounting principles requires management to make estimates
 and assumptions that affect the amounts reported in the financial
 statements and accompanying notes. Actual results could differ from
 those estimates.

 C. Recently Issued Accounting Pronouncements

 On May 28, 2009, the FASB issued Statement 165, which provides
 guidance on management's assessment of subsequent events.
 Historically, management had relied on U.S. auditing literature for
 guidance on assessing and disclosing subsequent events. Statement 165
 represents the inclusion of guidance on subsequent events in the
 accounting literature and is directed specifically to management,
 since management is responsible for preparing an entity's financial
 statements. Statement 165 is not expected to significantly change
 practice because its guidance is similar to that in AU Section 560,
 with some important modifications. The new standard clarifies that
 management must evaluate, as of each reporting period, events or
 transactions that occur after the balance sheet date "through the date
 that the financial statements are issued or are available to be
 issued." Management must perform its assessment for both interim and
 annual financial reporting periods. SFAS No. 165 is effective for the
 interim or annual financial periods ending after June 15, 2009. The
 adoption of SFAS No. 165 did not have a material impact on the Company
 consolidated financial statements.

 On June 29, 2009 the FASB issued Statement 168. The FASB notes that
 "the FASB Accounting Standards Codification(TM) (Codification) will
 become the source of authoritative U.S. GAAP recognized by the FASB to
 be applied by nongovernmental entities. Once the Codification is in
 effect, all of its content will carry the same level of authority,
 effectively superseding Statement 162. In other words, the GAAP
 hierarchy will be modified to include only two levels of GAAP:
 authoritative and nonauthoritative". SFAS No. 168 will be effective
 for financial statements issued for interim and annual periods ending
 after September 15, 2009. The Company does not expect that the
 adoption of SFAS No. 168 to have a material impact on its consolidated
 financial statements.

 On June 12, 2009, the FASB issued Statement 166 "Accounting for
 Transfers of Financial Assets" ("SFAS No. 166"). SFAS No. 166 is a
 revision to Statement No. 140, "Accounting for Transfers and Servicing
 of Financial Assets and Extinguishments of Liabilities", and will
 require more information about transfers of financial assets,
 including securitization transactions, and where companies have
 continuing exposure to the risks related to transferred financial
 assets. It eliminates the concept of a "qualifying special-purpose
 entity," changes the requirements for derecognizing financial assets,
 and requires additional disclosures. SFAS No. 166 enhances information
 reported to users of financial statements by providing greater
 transparency about transfers of financial assets and a company's
 continuing involvement in transferred financial assets. SFAS No. 166
 will be effective at the start of a company's first fiscal year
 beginning after November 15, 2009. The Company does not expect that
 the adoption of SFAS No. 166 to have a material impact on its
 consolidated financial statements.


 F - 8

 METALINK LTD.

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

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)

 C. Recently Issued Accounting Pronouncements (Cont.)

 On April 2009 the FASB issued FASB staff position 107-1 and APB 28-1,
 "Interim Disclosures about Fair Value of Financial Instruments". This
 FSP applies to all financial instruments within the scope of Statement
 107 held by publicly traded companies, as defined by Opinion 28 and
 are effective for interim reporting periods ending after June 15,
 2009, with early adoption permitted for periods ending after March 15,
 2009. FSP FAS 107-1 and APB 28-1 relates to fair value disclosures for
 any financial instruments that are not currently reflected on the
 balance sheet of companies at fair value. Prior to issuing this FSP,
 fair values for these assets and liabilities were only disclosed once
 a year. The FSP now requires these disclosures on a quarterly basis,
 providing qualitative and quantitative information about fair value
 estimates for all those financial instruments not measured on the
 balance sheet at fair value. The adoption of FSP FAS 107-1 and APB
 28-1 did not have a material impact on the Company consolidated
 financial statements.

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


 F - 9

 METALINK LTD.

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

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)

 C. Recently Issued Accounting Pronouncements (Cont.)

 On April 2009 the FASB issued FASB staff position 157-4, "Determining
 Fair Value When the Volume and Level of Activity for the Asset or
 Liability Have Significantly Decreased and Identifying Transactions
 That Are Not Orderly". This FSP applies to all assets and liabilities
 within the scope of accounting pronouncements that require or permit
 fair value measurements, except as discussed in paragraphs 2 and 3 of
 statement 157. The FSP is Effective for interim and annual reporting
 periods ending after June 15, 2009, and shall be applied
 prospectively. FSP FAS 157-4 relates to determining fair values when
 there is no active market or where the price inputs being used
 represent distressed sales. It reaffirms what Statement 157 states is
 the objective of fair value measurement--to reflect how much an asset
 would be sold for in an orderly transaction (as opposed to a
 distressed or forced transaction) at the date of the financial
 statements under current market conditions. Specifically, it reaffirms
 the need to use judgment to ascertain if a formerly active market has
 become inactive and in determining fair values when markets have
 become inactive. FSP FAS 157-4 provides guidance on (1) estimating the
 fair value of an asset or liability (financial and nonfinancial) when
 the volume and level of activity for the asset or liability have
 significantly decreased and (2) identifying transactions that are not
 orderly. The adoption of FSP FAS 157-4 did not have a material impact
 on the Company consolidated financial statements.

NOTE 4 - CONTINGENCIES

 From time to time the Company is a party to legal proceedings, much of
 which is ordinary routine litigation incidental to the business, and
 is regularly required to expend time and resources in connection with
 such proceedings. Accordingly, the Company, in consultation with its
 legal advisors, accrued $500 that management believes it is probable
 the Company will be required to expend in connection with all legal
 proceedings to which it is a party.

NOTE 5 - STOCK-BASED COMPENSATION

 A. The Company applies SFAS No. 123(R), "Share-Based Payment" ("SFAS No.
 123(R)"). The Company's net loss for the six-month periods ended June
 30, 2009 and 2008 includes $319 and $924 of compensation expenses
 related to the Company's share-based compensation awards,
 respectively.


 F - 10

 METALINK LTD.

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

NOTE 5 - STOCK-BASED COMPENSATION (CONT.)

 For purposes of estimating fair value in accordance with SFAS No.
 123(R) in the six-month periods ended June 30, 2009 and 2008, the
 Company utilized the Black-Scholes-Merton option-pricing model. The
 following assumptions were utilized in such calculations (all in
 weighted averages):



 SIX MONTH PERIOD ENDED JUNE 30,
 ---------------------------
 2009 2008
 ---------- ----------
 UNAUDITED

Risk-free interest rate 2.23% 2.25%
Expected life (in years) 2.97 2.51
Expected volatility 60% 38%
Expected dividend yield none none


 The Company is utilizing the simplified method, prescribed in Staff
 Accounting Bulletin ("SAB") 107 of the U.S. Securities and Exchange
 Commission (SEC) as amended by SAB 110, to determine the expected life
 used in fair valuation of newly granted awards.

 B. A summary of the status of the Company's stock option plans including
 Restricted Stock Units (RSU's) for employees and directors as of June
 30, 2009, 2008 and changes during the periods then ended are as
 follows:



 JUNE 30, 2009 JUNE 30, 2008
 --------------------------- ---------------------------
 WEIGHTED WEIGHTED
 AVERAGE AVERAGE
 EXERCISE EXERCISE
 SHARES PRICE SHARES PRICE
 ---------- ---------- ---------- ----------

Options outstanding at
 beginning of year 2,973,528 $ 5.50 4,533,398 $ 6.41
Granted during six months period 28,100 0.23 1,833,082 2.57
Forfeited during six months period (425,423) 5.33 (873,634) 5.67
Exercised during six months period (50,000) 0.03 (12,000) 0.17
 ---------- ----------

Outstanding at end of six months period 2,526,205 5.58 5,480,846 5.26
 ========== ==========

Options exercisable at end
 of six months period 2,219,972 5.61 2,423,985 6.61
 ========== ==========

Weighted average fair
 value of options & RSU granted
 during six months period $ 0.35 $ 0.62
 ========== ==========



 F - 11

 METALINK LTD.

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

NOTE 5 - STOCK-BASED COMPENSATION (CONT.)

 The following table summarizes information relating to stock options
 outstanding as of June 30, 2009:

 OPTIONS & RSU'S OUTSTANDING OPTIONS & RSU'S EXERCISABLE
 ---------------------------------------- -------------------------
 WEIGHTED
 NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
 OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
 JUNE 30, CONTRACTUAL EXERCISE JUNE 30, EXERCISE
EXERCISE PRICE 2009 LIFE (IN YEARS) PRICE 2009 PRICE
 ------------- ---------- ---------- ---------- ---------- ----------

$ 0.00 - 2.66 796,356 4.60 1.71 742,956 1.75
$ 2.76 - 3.28 24,800 2.39 3.05 24,800 3.05
$ 3.39 - 4.00 105,246 1.14 3.91 77,246 3.95
$ 4.04 - 5.00 497,927 1.30 4.66 482,927 4.67
$ 5.04 - 7.00 331,100 1.50 5.90 232,067 5.88
$ 7.01 - 8.95 456,692 1.27 7.47 345,892 7.52
$ 9.00 - 22.06 314,084 1.15 14.51 314,084 14.51
 ---------- ----------
 2,526,205 2.35 5.58 2,219,972 5.61
 ========== ==========


 C. Options issued to consultants

 In April 2000, the Company adopted the "Share Option Plan - 2000" to
 provide for the grant of options to members of the advisory board of
 the Company and independent contractors. The options are exercisable
 over up to ten years. As of June 30, 2009, 253,000 options have been
 granted under this plan to certain sales representatives and advisors
 of the Company at an exercise price of $ 1.83 - $ 22.13 per share. The
 Company accounted for these options under the fair value method of FAS
 No. 123 and EITF 96-18. The fair value was determined using the
 Black-Scholes pricing model with the following assumptions: risk-free
 interest rate of 1.95%-6.50%; volatility rate of 37%- 109%; dividend
 yields of 0% and an expected life of one to ten years.


 F - 12

 METALINK LTD.

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

NOTE 6 - SUBSEQUENT EVENTS

 On September 8, 2008 the Company has 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 $3.5 million at the first stage ("First Loan"), which the Company
 received in September 2008, and agreed to extend at the request of the
 Company, an additional loan of up to $4.5 million ("Second Loan").

 The key terms of the loan agreement are as follows:

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

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

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

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

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

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


 F - 13

 METALINK LTD.

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

NOTE 6 - SUBSEQUENT EVENTS (CONT.)

 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
 each. The first tranche was provided in January 2009, such that the company
 has drawn down a total of $5.75 million under the loan agreement. In
 addition, in consideration for the first tranche, 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.

 Subsequent to the balance sheet date, on September 6, 2009 the Company has
 entered into an amendment to the loan agreement, whereby the maturity date
 was extended from September 9, 2009 to March 9, 2010. As part of the
 amendment, the Company repaid the lender $2 million out of the outstanding
 $5.75 million. The Company also agreed that the repayment amount will be
 between 105% and 115% of the $3.75 million balance of the loan amount,
 depending on the timing of the repayment (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 lender was adjusted from $0.50 to $0.03 per share.


 F - 14

 METALINK LTD.

 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
 RESULTS OF OPERATIONS

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

 o "we", "us", "our", "Metalink", or the "Company" are to Metalink Ltd.
 and its consolidated subsidiaries; and

 o "dollars" or "$" are to United States dollars.

YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS IN CONJUNCTION WITH OUR
INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED
JUNE 30, 2009, AND NOTES THERETO, AND TOGETHER WITH OUR AUDITED CONSOLIDATED
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2008 FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION AS PART OF THE COMPANY'S ANNUAL REPORT ON
FORM 20-F FOR THE YEAR ENDED DECEMBER 31, 2008. THE FOLLOWING SECTIONS MAY
CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. OUR
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS.

SIX MONTHS ENDED JUNE 30, 2009 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2008

 REVENUES. Total revenues increased by 11.5% to $3.7 million in the first
six months of 2009 from $3.3 million in the first six months of 2008. The
increase in our revenues is primarily attributable to the increase in demand for
our WLANPLUS chipsets.

 COST OF REVENUES. Our cost of revenues increased by 24.6% to $1.9 million
in the first six months of 2009 from $1.5 million in the first six months of
2008. The increase in our cost of revenues is attributed to both the increase in
our revenues and to the increase in the portion of our revenues associated with
our WLANPLUS chipsets, which have a lower gross margin than our SHDSL and VDSL
products. Cost of revenues, as a percentage of revenues, increased in the first
six month of 2009 to 50.6% from 45.3% in the first six month of 2008.

 RESEARCH AND DEVELOPMENT, NET. Grants from the Office of the Chief
Scientist, totaling $0.87 million in the first six months of 2009 compared with
grants from the Office of the Chief Scientist of $0.94 million in the first six
months of 2008, are applied as reductions to gross research and development
expenses. Research and development expenses, net, were $4.9 million in the first
six months of 2009, or 132% of revenues, compared with $14.1 million in the
first six months of 2008, or 424% of revenues.

 GROSS RESEARCH AND DEVELOPMENT. Gross research and development expenses
were $5.8 million in the first six months of 2009, a decrease of $9.3 million
compared with gross research and development expenses of $15.1 million in the
first six months of 2008. Said decrease was achieved mainly due to an operating
expenses reduction plan that the company initiated in March 2008. Gross research
and development expenses as a percentage of revenues decreased to 156% in the
first six months of 2009 from 452% in the first six months of 2008.

 SELLING AND MARKETING. Selling and marketing expenses decreased by 74.3% to
$0.8 million in the first six months of 2009 from $3.1 million in the first six
months of 2008. Said decrease was achieved mainly due to an operating expenses
reduction plan that the company initiated in March 2008. Selling and marketing
expenses, as a percentage of revenues, were 21.5% in the first six months of
2009 compared to 93.3% in the first six months of 2008.

 GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
by 2.5% to $1.5 million in the first six months of 2009 from $1.4 million in the
first six months of 2008. This increase is primarily attributable to a one-time
allowance for legal costs which was offset by a decrease in personnel and
related expenses and professional expenses.

 STOCK-BASED COMPENSATION. Stock-based compensation expenses decreased by
65% to $319,000 in the first six months of 2009 from $924,000 in the first six
months of 2008. This decrease is primarily attributable to a decrease in stock
options grants to employees. Stock-based compensation expenses as a percentage
of revenues in the first six months of 2009 were 8.6% compared to 27.8% in the
first six months of 2008.

 OPERATING LOSS. Based on the foregoing, we recorded an operating loss of
$5.4 million in the first six month of 2009 compared to an operating loss of
$16.8 million in the first six month of 2008.

 FINANCIAL Expenses, NET. Financial expenses, net were $2.5 million in the
first six months of 2009, compared to financial income, net of $0.4 million in
the first six months of 2008. Said increase in the financial expenses is
primarily attributable to the increase in the fair value of the warrants issued
under a short term secured loan agreement with an institutional investor that
are carried at fair value accompanied by a smaller amount of financial income
earned on our total cash, short term and long term investments balance.

Liquidity and Capital Resources

 As of June 30, 2009, we had cash and cash equivalents of $6.6 million. As
of December 31, 2008, we had cash and cash equivalents of $5.2 million and
short-term investments of $0.7 million.

 Net cash used in operating activities was $1.5 million for the first six
months of 2009, which were primarily attributable to research and development
expenditures. Net cash used in operating activities during the first six months
of 2008 was $16.3 million.

 Net cash provided by investing activities was $0.8 million for the first
six months of 2009 whereas investing activities for the first six months of 2008
provided $11.8 million. In the first six months of 2009, $0.8 million of cash
was provided from sales of marketable debt securities held in our treasury and
$49,000 were attributable to the proceeds we received from disposal of property
and equipment which was offset by $15,000 that were used for the purchase of
property and equipment. We hold treasury securities primarily in instruments
denominated in U.S. dollars, with the goals of capital preservation and
generation of income, at fixed rates.

 Net cash provided by financing activities was $2.1 million for the first
six months of 2009, primarily attributable to the $2.25 million loan we received
in January 2009. Net cash provided by financing activities was $0 for the first
six months of 2008.

 SHORT TERM LOAN. On September 8, 2008 we entered into a short term secured
loan agreement with an institutional investor.

 According to the loan agreement, the 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.

 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 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.

 On September 6, 2009 we entered into an amendment to the loan agreement,
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 million out of the
outstanding $5.75 million. We also agreed that the repayment amount will be
between 105% and 115% of the $3.75 million balance of the loan amount, depending
on the timing of the repayment (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 lender
was adjusted from $0.50 to $0.03 per share.

GOING CONCERN

 As of the date of this filing, we anticipate that despite the six months
extension of the maturity of part of the short term loan described above, we
will not be able to meet our cash requirements before January 2010, without
obtaining additional capital from external sources.

 In July 2008, we initiated a process to raise additional financing or
pursue other strategic alternatives and in parallel, we started implementing a
comprehensive plan to reduce our operating expenses. As of the date of this
filing, we are continuing to pursue our strategic alternatives, including a
financing or a sale of the company or its business. If we cannot raise
sufficient funds or consummate another strategic transaction on acceptable terms
before January 2010, we may be unable to continue as going concern, meet our
business objectives and are likely to face liquidity problems, which may force
us to scale down or even cease our operations.

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