RADVIEW SOFTWARE LTD - 10-K Annual Report

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o No ý

Aggregate market value, based upon the closing sale price of the shares as reported by the Nasdaq SmallCap Market, of voting shares held by non-affiliates at June 30, 2003: $2,822,536 (excludes shares held by executive officers, directors, and beneficial owners of more than 10% of the registrant's Ordinary Shares). Exclusion of shares held by any person should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the direction of management or policies of the registrant, or that such person is controlled by or under common control with the registrant. As of March 18, 2004, there were 20,401,097 shares of the registrant's Ordinary Shares outstanding, excluding 134,000 Ordinary Shares held by the registrant as treasury shares that are "dormant" shares for purposes of Israeli law.

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. In some cases, forward-looking statements are identified by words such as "believes," "anticipates," "expects," "intends," "plans," "will," "may," and similar expressions. In addition, any statements that refer to our plans, expectations, strategies or other characterizations of future events or circumstances are forward-looking statements. Factors that could cause actual results or conditions to differ from those anticipated by these and other forward-looking statements include those more fully described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the section titled "Risk Factors." Our business may have changed since the date hereof, and we undertake no obligation to update the forward-looking statements in this Annual Report of Form 10-K.

Unless the context otherwise requires, "RadView," "us," "we" and "our" refer to RadView Software Ltd. and its subsidiaries.

RadView provides innovative application testing software and services that enable companies to evaluate and measure the performance of their business-critical web applications. Our software allows companies to accelerate the development and deployment of their web applications and enables the successful implementation of their strategies involving their websites. We also provide support and maintenance services to our installed base of customers.

We were incorporated in Israel in 1991 and conducted our operations in Israel from 1993 until April 2000, when we relocated our corporate offices to the United States. We maintain our research and development operations in Israel. In August 2000, we completed the initial public offering of our ordinary shares, raising $35.3 million after offering costs.

Our software products are based on Internet standards and offer an integrated solution to comprehensively assess the scalability, efficiency and reliability of web applications. Our software provides detailed performance analysis and allows companies to verify the performance of their web applications throughout the development lifecycle. As a result, companies can better identify and quickly address performance bottlenecks and other problems, and accelerate the successful deployment of their web applications. Our products and their key features are:

Over 1,450 customers worldwide have purchased our products, including Fortune 1000 Companies such as Anheuser-Busch, Audi, Bank of America, Best Western, British Telecom, Federal Express,

Fidelity Investments, Hewlett-Packard, IBM, Microsoft, Mitsubishi, Philip Morris, Sun Microsystems and The Vanguard Group.

In February 2003, we entered into a distribution agreement with Ixia for the use of our WebLOAD product on Ixia's hardware platform to create a network application verification solution. This enables enterprise network users to validate, in a single integrated solution, both the application and network performance before deployment and prior to updates. We receive royalties from Ixia based on its sales of our product included in the network application verification solution. At any time before the second anniversary of the agreement, Ixia has the option to purchase a royalty-free license to distribute our WebLOAD product for a fee of $1.0 million plus a reduced royalty for the 12-month period after exercise.

In April 2003, we implemented a restructuring plan to lower our quarterly operating expenses by approximately 30% through a workforce reduction. The cost reductions contributed to the reduction in our net loss from $6.5 million in 2002 to $5.1 million in 2003.

In June 2003, we released new versions of two products, WebLOAD and WebFT. The key features of WebLOAD 6.0 are the ability to execute client-side browser activity in a scalable and portable manner and the addition of a new visual script development environment. WebFT 2.5 introduced support for testing web services and new reporting capabilities, followed by WebFT 3.0 in December 2003 featuring multiple browser testing capabilities.

In June 2003, we entered into an agreement to license and distribute, under a private label, technology from AltaWorks, Inc., a provider of performance management solutions. As a result of this agreement, in July 2003, we introduced WebLOAD Analyzer, a software solution for diagnosing and pinpointing the root-cause of performance problems prior to an application's rollout.

Historically, companies relied on traditional client/server applications to perform internal business processes and share information. The rapid growth and acceptance of the Internet has fundamentally changed the way companies now conduct business and has enabled the proliferation of distributed computing environments.

An integral element of software technology used in today's distributed computing environments is the web application.

Web applications are becoming the standard for new application software. We believe that web applications will eventually displace legacy client/server systems. Web applications have the following characteristics that present significant challenges to their successful development, deployment and ongoing operation:

As companies move various aspects of their businesses to corporate intranets, extranets and the Internet, they are placing greater reliance on their web applications. At the same time, web applications continue to become more complex, which produces a higher risk of failure. If a company's Web applications operate erroneously, perform poorly, or fail entirely, the resulting financial and business costs can be substantial, including lost revenues, customer defections, business interruptions and damage to a company's reputation. In order to successfully compete, companies must rapidly deploy Web applications of high quality and robust performance.

We believe that the distributed environment segment of the automated software quality, or ASQ, market is where virtually all the growth of the ASQ market will be realized in the next few years, and that there is a significant market opportunity for solutions that test and verify the integrity, scalability, efficiency and reliability of web applications to facilitate their rapid deployment. This is due to the expanded use of the Internet and corporate intranets and extranets, the need for high quality software, and the increase in the criticality of web applications for the success of businesses.

In our view, this growing market opportunity is best addressed by solutions that:

We are a premier provider of software that enables companies to assure the integrity and performance of business-critical web applications. We address the functionality and performance requirements of web applications throughout their product lifecycle, from initial design through development, deployment and ongoing modifications and upgrades. In meeting these requirements, companies are able to mitigate the financial and business costs that can result from unsuccessful deployment and failures of their web applications. Companies that test their web applications using our solutions benefit from earlier detection of potentially costly problems such as performance bottlenecks, scalability issues, and functionality limitations. This results in significantly reduced costs and increased speed to market needed to successfully launch high performing, reliable web applications.

Our objective is to be a leading provider of web application testing and performance software solutions that enable companies to successfully implement their web-based business strategies by assuring the performance of their business-critical web applications. Key elements of our strategy are:

Our net loss was $17.4 million in 2001, $6.5 million in 2002 and $5.1 million in 2003. The decrease in the net loss over the past three years has resulted from reduced operating costs as a result of our restructuring efforts, partially offset by a decline in our revenues. Following the global decline in information technology spending since 2001, we lowered our operating costs several times to more closely align costs with our expected revenues. We are focused on increasing our revenues in order to continue to reduce our operating loss and ultimately achieve operating income and positive cash flow.

We believe that our software provides the most comprehensive verification of web applications, including scalability, efficiency and reliability, and is the first solution supporting Document Object Model, or DOM-based, verification, which enables quicker identification and resolution of application errors. In addition to DOM, our award-winning software is based on Internet standards such as JavaScript and Extensible Markup Language, or XML, and has been recognized as an industry-leading solution that is used for benchmarking the performance of web applications by testing laboratories, trade media and independent software vendors.

In 2003, we introduced a web application testing solution that executes client-side browser activity in a scalable and portable manner. We also released a root-cause analysis testing tool in the pre-deployment stage of web applications development using technology provided a third party pursuant to a distribution agreement.

We intend to further extend our product leadership through the introduction of a product suite that will address all major areas of web application testing.

We believe that strategic relationships with industry leaders will enable us to accelerate our market penetration and visibility, and maintain our technology leadership. We collaborate with leading technology companies such as Sun Microsystems, as well as other Internet software and service providers. These strategic relationships help to ensure that our software is optimized for use with their product offerings and allow us to promote market awareness of our products. In February 2003, we formed a strategic relationship with Ixia for the use of our WebLOAD product on Ixia's hardware platform to create a network application verification solution. This new solution enables enterprise network users to validate, in a single integrated solution, both the application and network performance before deployment and prior to updates. We plan to continue to develop strategic technology and marketing relationships with leading providers of web-related software.

We will continue to capitalize on outsourcing trends by leveraging relationships with testing service providers, such as KeyLabs, and technology labs. Many companies are outsourcing the development, testing and hosting of their web applications to third parties. We continue to believe that web integration, testing and hosting service providers represent a market opportunity for our software.

Additionally, we plan to expand our indirect distribution capabilities both in the U.S. and internationally. In the U.S., we expect to add industry-specific distribution capabilities through distributors and resellers focusing on the government sector, including departments within U.S. Government. Internationally, we plan to expand our geographic coverage through the addition of distributors and resellers in geographic locations in which we currently do not have a direct presence, such as the Far East.

To date, we have licensed our software to over 1,450 companies worldwide, including companies such as Audi, Best Western, Deutsche Bank, Federal Express, Fidelity Investments, and Philip Morris. Approximately 50% of our product orders are received from existing customers. These orders are typically the result of upgrades or expansions to their previously purchased licenses. For example, upon payment of additional license fees, an existing customer of our load-testing product may increase either or both the maximum number of allowable simulated users that can be generated from within the product and the number of end-users allowed to operate the product. In addition, as we introduce new products that complement our existing products, we believe there is a significant opportunity to increase our revenues through our installed customer base.

Companies purchase testing solutions based on several criteria, including the total cost of ownership. Factors that contribute to the total cost of ownership for testing solutions include, among others, the costs of testing software, hardware used to simulate user load traffic, training, and designing, writing and maintaining test scripts. We believe our software contributes to a low total cost of ownership in many ways, including:

Together, our products provide a comprehensive solution that enables users to verify their application's integrity, scalability, efficiency and reliability at each point in the application development cycle. We believe our products are the only products that combine all aspects of the web application performance verification process into an integrated solution using a unified test script. Our products are designed specifically for web-based applications, and employ Internet-standard technologies. Using a standards-based approach makes our products easier to use and readily adaptable to new technology standards.

Comprehensive Performance Software. Our software provides an integrated solution to simultaneously verify the integrity, scalability, efficiency and reliability of web applications. In addition, our software can assure a web application's overall performance, the performance of an application's specific components and determine critical thresholds where performance starts to deteriorate.

Designed for Web Applications. Our software is specifically designed for the complex web-based computing environment and is based on Internet standards, such as JavaScript, Java, ActiveX, HTML, XML, and DOM. This enables efficient simulation of very large numbers of users, extreme fluctuations in traffic and complex user demands placed on web applications and allows our software to be readily adaptable to emerging Internet technologies.

Detailed Performance Analysis. Our software automatically monitors over 75 performance criteria and supports an extensive number of additional user-defined criteria. Unlike other solutions, companies using our products have the ability to verify the performance of web applications for each simulated user or transaction. By identifying the points in a user's interaction where a web application fails, our comprehensive measurement and reporting mechanisms expedite the process of problem resolution.

Verification Early in the Development Lifecycle. Our software assists companies in identifying and resolving issues with their web applications at every point in the development life cycle. Resolving issues as early as possible in the development life cycle can lower the cost of developing web applications and accelerate the deployment of scalable, high performance web applications.

Facilitate Collaboration Throughout the Development Process. Our software allows designers, developers, quality assurance and information technology professionals to store and share test scripts, test results and templates, allowing previously isolated technical teams within a company to work on a coordinated and collaborative basis.

Ease of Use. All of our performance and quality assessments are generated using JavaScript, the computer language most commonly used by web application developers. This avoids the learning curve and costs associated with other products that utilize proprietary scripting languages.

Efficient Use of Resources. We design our products to make efficient use of a company's available computer resources, thereby reducing the hardware requirements and investments needed to simulate heavy user traffic. In addition, our software allows users to share company resources on an as-needed basis.

Using WebLOAD, customers create scripts that simulate users' interactions with web applications. These scripts are built in JavaScript, the web standard for application scripting. WebLOAD includes recorders that enable customers to rapidly generate scripts by copying interactions between a web browser and a web application. WebLOAD also enables more advanced users to create highly complex interactions using JavaScript and WebLOAD's script authoring tools.

WebLOAD can run simultaneously multiple different scripts that reflect different user interactions with the underlying application. These differences may be task based, for example, a retail application might mix browsers with purchasers, or based on other user characteristics, such as their connection speed, the browser they are using, or their Secure Socket Layer, or SSL, which is an encryption configuration.

WebLOAD executes scripts for multiple simulated users, or virtual clients, on load generation machines, such as existing servers, that are centrally managed by the customer. The customer can schedule these virtual clients independently to simulate fluctuating user traffic patterns. Alternatively, a customer can use WebLOAD's Cruise Control feature, which steadily increases the number of virtual clients interacting with an application until that application fails to perform based on one or more customer-defined performance criteria. Cruise Control allows our customers to readily and rapidly determine the maximum user load their application can support while maintaining specified performance criteria.

WebLOAD efficiently generates large numbers of virtual clients requiring significantly less computer memory than competing products with comparable functionality. This benefits companies by significantly reducing the cost of hardware required to simulate large numbers of users.

While a performance session is running, WebLOAD generates over 75 different pre-defined statistical measurements, which are displayed to the user in real time. Our customers can also add an extensive number of user-defined measurements and timers, as well as monitor the performance profile of the components within a customer's Internet architecture. WebLOAD reports these data points on a per client and per transaction level, thus providing detailed information about the potential causes of any detected application failures during the simulation and allowing customers to rapidly and effectively address any performance issues. Customers can analyze this performance data and readily export it to industry-standard, third party formats, such as Microsoft Excel.

WebRM addresses the needs of companies to systematically verify web application quality and standardize their web application performance solution across the application design, development, quality assurance and information technology functions. It allows companies to share WebLOAD

resources, so that a web application's architecture, design, implementation and hardware environment can all be tested using the same technology at each step of the development life cycle. Verification performed earlier in the development process generally results in earlier problem detection, lower costs and more rapid application development. Companies using WebRM can therefore capitalize on WebLOAD's comprehensive, integrated, standard-based approach to facilitate the rapid delivery of higher quality web applications.

Flexible Management of Resources. Customers who license WebRM receive a fixed number simulated users, or virtual clients, which may be distributed throughout the enterprise on an as-needed basis. For example, a customer with a license for 10,000 virtual clients could allocate all 10,000 virtual clients for use in one performance session, or alternatively, could conduct several concurrent performance sessions with any number of virtual clients, up to an aggregate of 10,000 virtual clients.

Collaborative and Accelerated Development. By enabling the sharing of resources and verification technologies throughout the application development lifecycle, WebRM enables developers, QA engineers and IT staff to use a common solution across the entire project. Using the same technology in all phases of application development and deployment enables easy communication across these functions. For example, WebRM permits a QA engineer to save a test script that identified a problem in the web application, and allows a developer to share that test script in order to reproduce, diagnose and fix the problem. Similarly, by using WebRM early in the development phase, developers can share their test scripts with QA engineers, increasing the shared understanding of what verification work has already been performed and allowing the QA function to scale these tests further.

WebFT addresses the needs of companies to systematically verify the integrity of their web applications. WebFT offers accurate, reliable and highly efficient functional testing under real-world conditions across multiple applications and databases, isolating defects and problems that could impact web application performance. Once the functionality of the web application has been verified using WebFT, companies can share the same test scripts with WebLOAD or WebRM to verify that the functionality performs under user load.

Ease of Use: By providing a highly visual development environment, users can easily record and playback transaction activity in web applications to verify the functionality of the application. This allows novice users to become productive quickly while providing experienced users with an agenda testing tree that they can modify and work with to verify and handle complex testing cases.

Automated Support for Client-Side Java: This feature allows for easy recording and verification of client-side events.

Detailed Error Reporting: This feature allows for identification of any application failures through descriptive messages and alerts. In addition, reporting capabilities are enhanced through support for many formats including text, HTML, and Portable Document Format, or PDF.

WebLOAD Analyzer is a powerful solution for managing and ensuring optimal performance of your distributed application server environment by identifying the root cause of performance issues highlighted during load and stress testing. WebLOAD Analyzer monitors and collects detailed information on the application infrastructure and correlates that information with user transaction activity and traffic bursts. This combination of internal data with external activity provides detailed

information on areas that are operating outside of expected and acceptable thresholds, so users can quickly isolate and resolve their performance issues.

WebLOAD Analyzer works in conjunction with our load testing solution, WebLOAD, for an integrated and comprehensive perspective on performance. Measurements from end-user transactions and load levels generated by WebLOAD are integrated and correlated with the information collected by WebLOAD Analyzer's data adapters for a comprehensive view of performance at any layer of the distributed application system.

When performance issues are encountered, you can examine the relationship of the load level along with application servers, database servers, and operating system information occurring at the same time, to drill-down to the specific level. This integrated and detailed information allows rapid diagnosis and detection of inter-related performance issues that would previously have gone undetected or would consume extensive resources to pinpoint.

In July 2003, we introduced WebLOAD Analyzer. We license the technology for WebLOAD Analyzer from AltaWorks Corporation and distribute it under our private label. We are obligated to pay AltaWorks royalties based on our end-user revenues derived from WebLOAD Analyzer.

Services consist of support and maintenance and training services. Support and maintenance services include technical support services via telephone and e-mail and product enhancements. Support and maintenance arrangements are generally purchased for 12-month terms. Training services consist of introductory and advanced courses on the use of our software products.

To date, we have licensed our software to over 1,450 customers worldwide. Our customers include Fortune 1000 companies and other companies across a broad range of industries, including financial services, technology, retail, manufacturing, telecommunication, health care and education.

Our customers are located primarily in North America, Europe, Asia-Pacific, and the Middle East. Revenues derived from North America as a percent of total revenues were 70.2% in 2001, 61.4% in 2002 and 69.2% in 2003. While we expect to continue to derive the majority of our revenues from North America, we expect to derive an increasing percentage of our revenues from Europe and Asia-Pacific resulting from anticipated expansion of our international distribution capacity.

Sales. We sell our products principally through a direct sales force. Our direct sales force consists of sales personnel and sales engineers located at our corporate headquarters in Burlington, Massachusetts, as well as offices throughout the United States, Israel, Germany and the United Kingdom. In addition, we have indirect channel partners, principally consisting of web system integrators, web hosting companies, independent software vendors and international distributors in Europe, Israel and Asia. Revenues from our indirect distribution channels as a percentage of total revenues were 9.2% in 2001, 12.2% in 2002 and 12.4% in 2003. We expect revenues from indirect channels to increase as we expand our distribution capacity with resellers in Asia-Pacific and resellers to the U.S. Government.

Marketing. We engage in a variety of product marketing activities and provide product information through our website. We offer free trials of our WebLOAD and WebFT software that can be downloaded from our website. Our marketing programs are aimed at informing customers of the benefits of our software, increasing the market awareness of our products and generating demand for our products. Our marketing strategy includes public relations initiatives, focused lead generation

activities, participation in trade shows and conferences, web seminars, promoting special events and cultivating relationships with key technology analysts about the competencies and benefits of our products.

We offer a range of support and training services to our customers. We believe that providing a high level of customer service and technical support is necessary to achieve rapid product implementation, which in turn, is essential to customer satisfaction and continued license sales and revenue growth. We provide telephone and e-mail technical support from our corporate office in Burlington, Massachusetts and from our development center in Israel. We track support requests through a series of customer databases, including current status reports and historical customer interaction logs. We use customer feedback as a source of ideas for product improvements and enhancements. We also provide training and consulting to assist our customers in the development and deployment of web-based applications using our products.

Our research and development efforts are focused on enhancing our core technology and developing additional functionality and capabilities for our products. We conduct our research and development principally from our facility in Israel. Our software development approach consists of a methodology that provides guidelines for planning, controlling and implementing projects. This approach uses a cross-functional, team-based development and release process. Our development group works closely with our sales and marketing groups, who provide customer and market requirements, and senior management who provide strategic input, to assist in defining product direction and to ensure that the right products are brought to market. Members of our research and development group have extensive experience working with web technologies and software testing solutions. We believe that our future performance will depend in large part on our ability to enhance our current product line, develop new products and provide innovative solutions for verifying the performance and scalability of web applications. Our research and development expenses were $6.0 million in 2001, $3.3 million in 2002, and $2.8 million in 2003.

Our technologies are built on an open, portable architecture, based on industry standard technologies. Our products may be deployed on Windows NT, Windows 2000, Windows XP, Windows 2003, Sun Solaris and Linux operating systems. Our products incorporate the Internet standard scripting language, JavaScript, enabling our customers to easily develop, deploy and manipulate the scripts required to assess the performance of their web applications. We have also extended JavaScript to enable integration of Java, ActiveX and XML and work with other standard web technologies, such as SSL encryption schemes. Integration with these standard technologies helps ensure our products are available for use regardless of the customer's operating environment.

Use of JavaScript as a core technology enables our products to perform extensive functional verification capabilities. Our DOM extensions readily make XML available to the script developer in a familiar setting making it easier to extend a web application to include XML interactions. Our efficient browser emulator minimizes the use of computer memory, thereby enabling companies to simulate a larger number of virtual clients in order to place considerable load, or stress, on the underlying application infrastructure.

We have developed an application architecture that scales to any arbitrary test size, delivering consistent throughput for any arbitrary load size, independent of the number of machines used to generate the load. We employ a 32-bit, multi-threaded and multi-process implementation, which

dynamically adjusts and allocates new processes as the load requirements are raised. This ensures that load generators are optimized for the test and the load demanded of them, as well as readily taking advantage of multi-processor machines to increase performance.

The web application performance and testing solutions market is intensely competitive, subject to rapid change and significantly affected by new product introductions and other activities of market participants. Our primary competitors include companies who offer application-testing software, such as Mercury Interactive and Empirix. We also compete against companies that provide a broader spectrum of development tools that include some verification functionality, such as Rational Software. In addition, we compete with companies like Quest Software whose main offering is application performance management software.

We expect that competition will intensify in the future. Increased competition is likely to result in pricing pressures, reduced margins and may result in the failure of our products to achieve or maintain market acceptance, any of which could have a material adverse effect on our business, results of operations and financial condition. Some of our competitors have longer operating histories, better brand recognition, a larger installed base of customers and substantially greater financial, technical, marketing and other resources than we do.

We anticipate that there will be continuing consolidation in the web application products market and related markets such as computer software, media and communications. Our competitors may be acquired by, receive investments from, or enter into other commercial relationships with, larger, well-established and well-financed companies. As a result, they may be able to respond more quickly to new or changing opportunities, technologies, standards or customer requirements. Many of these competitors also have broader and more established distribution channels that may be used to deliver competing products directly to customers through bundling or other means. If competitors were to bundle competing products with their products, the demand for our products might be substantially reduced and our ability to distribute our products successfully would be substantially diminished.

To expand our customer base, we must continue to innovate and improve the performance of our products. Although we believe that our products compete favorably with respect to these factors, our market is subject to constant change. We may not be able to maintain our competitive position against current and potential competitors, especially those with significantly greater financial, marketing, service, technical and other resources.

Our success and ability to compete depend upon our proprietary technology. In addition, we rely on patent, copyright, trade secret and trademark law to protect our proprietary information. We also typically enter into an agreement with each of our employees, consultants and customers to control their access to and distribution of our software, documentation and other proprietary information. Nevertheless, a third party could copy or otherwise obtain our software or other proprietary information without our authorization, or could develop software competitive to ours. Our means of protecting our proprietary rights may not be adequate and our competitors may independently develop similar technology or duplicate our products or our other intellectual property. In addition, the laws of some foreign countries do not protect our proprietary rights to as great an extent as do the laws of the United States. We expect that it will become more difficult for us to monitor the use of our products if we increase our international presence.

There has been substantial litigation in the software and Internet industries regarding intellectual property rights. It is possible that, in the future, third parties can claim that we, or our current or potential future products, infringe on their intellectual property. We expect that software product developers will increasingly be subject to infringement claims as the number of products and competitors in our industry segment grows and the functionality of products in industry segments overlaps. Any claims, with or without merit, could be time-consuming, result in costly litigation, cause product licensing delays or require us to license or pay royalties for certain products in order to continue to sell our products. Licensing or royalty agreements, if required, may not be available on terms acceptable to us or at all. As a result, our business could be harmed.

We license the technology for our WebLOAD Analyzer product from AltaWorks Corporation under a distribution agreement. AltaWorks retains all intellectual property rights to its technology.

As of December 31, 2003, we had 55 employees worldwide, of whom 28 were employed in research and development, 15 in sales and marketing, 6 in management and administration and 6 in technical support. Of our employees, 16 are based in the United States, 35 are based in Israel and 4 are based in Europe. None of our employees is represented by a labor union and we consider our relations with employees to be good.

Although our Israeli employees are not party to any collective bargaining agreement, all of our Israeli employees are subject to Israeli labor laws and certain provisions of collective bargaining agreements among the Government of Israel, the General Federation of Labor in Israel and one or more employer's associations. These provisions and laws concern the length of the workday, minimum daily wages for workers, procedures for dismissing employees, determination of severance pay, adjustments of wages to increases in the Israeli consumer price index, and other conditions of employment.

We are subject to the informational requirements of the Securities Exchange Act of 1934, or the Exchange Act. Therefore, we file periodic reports, proxy statements and other information with the Securities and Exchange Commission, or the SEC. Such reports, proxy statements and other information may be obtained by visiting the Public Reference Room of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet website at www.sec.gov that contains reports, proxy statements and other information regarding issuers that file electronically with the SEC.

You can access financial and other information on our Internet website at www.radview.com under the heading titled "Investors." We have made all reports and amendments to reports available on our website free of charge. We also make available, free of charge, copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC.

We do not own any real property. We lease an 11,228 square foot facility in Burlington, Massachusetts for our corporate headquarters under a lease that expires in December 2004. In addition, we lease 10,136 square feet in Tel Aviv, Israel for our principal research and development and international sales operations under a lease that expires in August 2005. We also lease space for our sales operations in Milpitas, California and in the United Kingdom. We believe that the properties leased by us are adequate for all of our present and near-term needs.

To our knowledge we are not involved in any legal proceedings that are material to our business or financial condition.

Director Nominee	Votes In Favor	Votes Withheld
Shai Beilis	15,600,799	22,723
Ilan Kinreich	15,600,199	23,323
William J. Geary	15,600,199	23,323
Kathleen A. Cote	15,611,899	11,623
Robert Steinkrauss (1)	15,610,999	12,523

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Our ordinary shares are traded on the Nasdaq SmallCap Market under the symbol "RDVW." The high and low intra-day sales prices for our ordinary shares for the quarterly periods from January 1, 2002 through March 18, 2004 were as follows:

		Low Sales Price		High Sales Price
Year Ended December 31, 2002:
	Quarter ended March 31, 2002	$	0.31	$	0.64
	Quarter ended June 30, 2002	$	0.20	$	0.40
	Quarter ended September 30, 2002	$	0.19	$	0.45
	Quarter ended December 31, 2002	$	0.11	$	0.45
Year Ended December 31, 2003:
	Quarter ended March 31, 2003	$	0.12	$	0.22
	Quarter ended June 30, 2003	$	0.12	$	0.52
	Quarter ended September 30, 2003	$	0.22	$	0.85
	Quarter ended December 31, 2003	$	0.54	$	1.35
Year Ending December 31, 2004:
	Quarter ended March 31, 2003 (through March 18, 2004)	$	0.61	$	0.98

On February 11, 2004, we received a letter from the Nasdaq under which we were informed that we do not comply with Marketplace Rule 4320(e)(2)(B). This rule requires a listed company to meet one of three tests involving shareholders' equity, market capitalization or net income. The staff is reviewing the Company's eligibility for continued listing on The Nasdaq SmallCap Market. We have provided the Nasdaq with our plan to achieve and sustain compliance with the Nasdaq SmallCap Market minimum shareholders' equity requirement of $2.5 million. Nasdaq is currently reviewing our plan. We may not be able to meet the listing requirements or to convince Nasdaq that our plan is sufficient.

As of March 18, 2004, there were approximately 150 holders of record and, we believe, approximately 1,700 beneficial owners of our ordinary shares.

We have never declared or paid any cash dividends on our capital stock and do not intend to pay any cash dividends in the foreseeable future.

On August 9, 2000, in connection with our initial public offering, the Securities and Exchange Commission declared effective a Registration Statement on Form F-1 (No. 333-41526) that registered 5,750,000 ordinary shares.

Through December 31, 2003, we have used $32.2 million of the net proceeds of $35.3 million from our initial public offering as follows:

The following is our historical selected consolidated financial data and is qualified by reference to and should be read in conjunction with the Consolidated Financial Statements and Notes thereto included elsewhere in this Annual Report. The selected consolidated financial data set forth below as of December 31, 2002 and 2003 and for each of the years ended December 31, 2001, 2002 and 2003 are derived from our audited financial statements, which are included in Item 8 of this Annual Report on Form 10-K. The selected consolidated financial data as of December 31, 1999, 2000, and 2001 and for the years ended December 31, 1999 and 2000 are derived from our audited consolidated financial statements, which are not included in this Annual Report on Form 10-K. The data should be read in conjunction with the Consolidated Financial Statements and the Notes thereto and with "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Annual Report on Form 10-K.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. In some cases, forward-looking statements are identified by words such as "believe," "anticipates," "expects," "intends," "plans," "will," "may," and similar expressions. In addition, any statements that refer to our plans, expectations, strategies or other characterizations of future events or circumstances are forward-looking statements. Our actual results could differ materially from those discussed in, or implied by, these forward-looking statements. Factors that could cause actual results or conditions to differ from those anticipated by these and other forward-looking statements include those more fully described later in this section under the title "Risk Factors." Our business may have changes since the date hereof, and we undertake no obligation to update these forward-looking statements.

We develop, market and support software that enables companies to assure the scalability, efficiency and reliability of web applications. In 1997, we introduced WebLOAD, a single-user load testing solution, which provides an integrated solution to assess the performance and accelerate the deployment of web applications. In February 2000, we introduced WebRM, a multiple-user load testing solution, which extends the functionality of WebLOAD to facilitate the collaborative testing efforts of both small and large testing teams to verify web application quality throughout the application development lifecycle. In August 2001, we introduced WebFT, a testing tool for verification of the functionality of web applications. In July 2003, we introduced WebLOAD Analyzer, a solution for identifying the root-cause of performance problems within web applications.

We derive the majority of our license revenues from perpetual licenses of our load testing products and, to a lesser extent, our functional testing and root-cause analysis products. We derive the majority of our services revenues from support and maintenance arrangements and, to a lesser extent, from training and consulting services. Substantially all of our revenues are denominated in U.S. dollars.

We measure our operating success using both financial and non-financial metrics. The financial metrics include revenue, gross profit, operating expenses, and income (loss) from continuing operations, as well as cash position and operating cash flow (deficit). Other key metrics include product orders by industry segment, average deal size, repeat customer orders, and the portion of revenue that is generated by indirect channels.

Our revenues have declined from $8.6 million in 2001, to $5.8 million in 2002 and $4.8 million in 2003, as a result of the following factors:

Although our annual revenues declined from 2002 to 2003, our quarterly revenues remained relatively stable throughout 2003. As we execute on our plan to release a web application testing suite and expand our distribution capacity with resellers and strategic partners, we believe that our quarterly revenues will increase gradually throughout 2004.

We have incurred net losses since our inception. Our net loss was $17.4 million in 2001, $6.5 million in 2002 and $5.1 million in 2003. Net losses have declined as a result of significant cost reductions achieved through our restructuring efforts over the last three years undertaken in response to the decline in our revenues over that same period. If we are to achieve future profitability, we must increase our revenues while maintaining the current levels of, or even decreasing, our operating expenses.

Cash used in operating activities was $15.7 million in 2001, $5.4 million in 2002 and $4.6 million in 2003, attributable primarily to our net losses, partially offset by noncash charges such as depreciation expense and stock based compensation along with changes in current assets and liabilities. We expect that operating expenses and, to a lesser extent, our planned capital expenditures, will constitute a material use of our cash resources.

Our cash balance was $3.1 million as of December 31, 2003. In March 2004, we completed a private placement of our ordinary shares, warrants and the right to purchase additional shares. We realized net proceeds of approximately $1.8 million from this private placement. We believe that our existing cash and cash equivalents, along with the net proceeds from this private placement, will be sufficient to meet our anticipated needs for working capital and capital expenditures for at least the next 12 months.

We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the U.S. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. To fully understand and evaluate our reported financial results, we believe it is important to understand the significant estimates and judgments applied as they relate to our policies for revenue recognition, software development costs, restructuring costs and accounting for stock options. More detailed descriptions of these policies are provided in Note 2 to the consolidated financial statements.

Our revenue recognition approach requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the fee is fixed and determinable; and (4) collectibility is reasonably assured. Determination of criteria (3) and (4) is based on management's judgments regarding the fixed nature of the fee charged for services rendered and products delivered, and the collectibility of those fees. Should changes in conditions cause management to determine these criteria are not met for certain future transactions, revenue recognized for any reporting period could be adversely affected.

Software development costs incurred from the point of reaching technological feasibility until the time of general product release should be capitalized. We define technological feasibility as the completion of a working model. The determination of technological feasibility requires the exercise of judgment by our management. Because we sell our products in a market that is subject to rapid technological change, new product development and changing customer needs, we have concluded that technological feasibility is not established until the development stage of the product is nearly complete. For us, the period in which we can capitalize software development costs is very short, so the amounts that could be capitalized are not material to our financial statements. Therefore, we have charged all such costs to research and development expense in the period incurred

In 2001, 2002 and 2003, we recorded significant restructuring charges. These restructuring charges included estimates pertaining to employee separation costs and the settlements of contractual obligations resulting from our actions. In addition, we have estimated the costs for certain under-utilized facilities and have made assumptions regarding a potential sub-lessee's future rental rate, as well as the amount of time required to identify a sub-lessee. To date, our actual restructuring costs have approximated the estimated costs recorded; however, actual future costs of amounts not yet paid may differ from these estimates.

We account for stock options issued to employees under the intrinsic method in accordance with Accounting Principles Board, or APB, Opinion No. 25, Accounting for Stock Issued to Employees. Under this approach we do not record any expense at the time the options are granted unless the exercise price of a granted option is below the fair market price of our ordinary shares on the date of grant. We have provided disclosures of impact to our reported net loss and net loss per share if we had applied the fair value method. The pro forma fair value disclosures requires the application of estimates, such as estimated expected life of the options and estimated market volatility for our ordinary shares. These estimates are based on management's review of historical option lives and computations of market volatility for our ordinary shares.

The following table sets forth the consolidated statement of operations data as a percentage of total revenues for the periods indicated:

			For the Year Ended December 31,
			2001		2002		2003
Revenues:
	Software licenses		67.4	%	58.8	%	52.7	%
	Services		32.6	%	41.2	%	47.3	%

		Total revenues	100.0	%	100.0	%	100.0	%

Cost of revenues:
	Software licenses		3.1	%	1.1	%	3.0	%
	Nonrecurring royalty reversal		0.0	%	(7.8	)%	0.0	%
	Services		13.6	%	11.0	%	8.8	%

		Total cost of revenues	16.7	%	4.3	%	11.8	%

Gross profit			83.3	%	95.7	%	88.2	%

Operating expenses:
	Sales and marketing		160.8	%	91.1	%	85.4	%
	Research and development		69.9	%	57.5	%	57.9	%
	General and administrative		33.0	%	38.6	%	36.5	%
	Stock-based compensation		10.2	%	8.8	%	8.0	%
	Restructuring charges		19.3	%	16.1	%	5.1	%

		Total operating expenses	293.2	%	212.1	%	192.9	%

Loss from operations			(209.9	)%	(116.4	)%	(104.7	)%

Other income, net:
	Interest income, net		8.0	%	2.3	%	0.7	%
	Other income (expense), net		0.3	%	0.6	%	(1.1	)%

Net loss			(201.6	)%	(113.5	)%	(105.1	)%

Total Revenues. Total revenues were $5.8 million in 2002 and $4.8 million in 2003. Total revenues decreased $932,000, or 16.2%, due to a $194,000 decrease in total revenues from customers in the U.S. and a $738,000 decrease in total revenues from international customers. The decreases in total revenues are attributable to lower unit volume sales of software licenses and, to a lesser extent, a decline in related services revenues.

Software Licenses. Software license revenues were $3.4 million in 2002 and $2.5 million in 2003, and decreased $840,000, or 24.8%. Software license revenues from U.S. customers decreased $125,000 from $1.9 million in 2002 to $1.8 million in 2003, as a result of weakness in the U.S. economy. Software license revenues from international customers decreased $715,000 from $1.5 million in 2002 to $777,000 in 2003, attributable to slower technology spending throughout Europe, and a decrease in orders from our Asia Pacific distributors.

Services. Services revenues consist primarily of revenue from annual support and maintenance contracts and, to a lesser extent, training and consulting services. Service revenues were $2.4 million in 2002 and $2.3 million in 2003, and decreased $92,000, or 3.9%. Service revenues from U.S. customers decreased $69,000 from $1.7 million in 2002 to $1.6 million in 2003. Service revenues from international customers decreased $23,000 from $719,000 in 2002 and $696,000 in 2003. These

decreases were due primarily as a result of a decline in related software license orders. The decrease in service revenues from international customers was less significant than the decrease in software licenses revenues from international customers due to improved renewals of annual support and maintenance contracts.

Cost of Software Licenses. Cost of software licenses consists principally of direct product costs, such as product media and packaging, as well as royalties due to third parties. Cost of software licenses was $63,000 in 2002, or 1.9% of software license revenue, compared to $147,000 in 2003, or 5.8% of software license revenue. The increase in cost of software licenses resulted primarily from a one-time license fee to a third-party in 2003 of $42,000 and royalties payable to a third party totaling $23,000 based on revenues from our WebLOAD Analyzer product introduced in 2003.

Nonrecurring Royalty Reversal. The nonrecurring royalty reversal in 2002 relates to a change in estimate of our royalty obligations to the Government of Israel, through the Office of Chief Scientist. Through 1996, we received grants totaling $605,000 from the Office of the Chief Scientist that were used to fund a predecessor product. We were obligated to pay royalties based on revenues derived from sales of products funded with these grants, up to 150% of certain grant amounts received. In October 2002, the Office of Chief Scientist completed its examination of our technology and our use of grant funds and concluded that our remaining royalty obligation was $166,000. As a result, we reversed $448,000 of accrued royalties, which has been reflected as a reduction in cost of product sales during the fourth quarter of 2002.

Cost of Services. Cost of services consists principally of personnel-related costs associated with customer support and training. Cost of services was $631,000 in 2002, or 26.5% of service revenues, compared to $426,000 in 2003, or 18.6% of service revenue. This decrease was due to reduced personnel costs to provide support and maintenance services resulting from the headcount reductions taken in the first half of 2002 and the first half of 2003.

Sales and Marketing. Sales and marketing expenses consist principally of salaries and commissions earned by sales personnel, recruiting costs, trade show costs, travel and other marketing costs such as advertising and product promotion. Sales and marketing expenses were $5.3 million in 2002, or 91.1% of total revenues, compared to $4.1 million in 2003, or 85.4% of total revenues. This decrease was due primarily to a 24% reduction of headcount in sales and marketing personnel and approximately $75,000 in reductions in discretionary marketing program costs in 2003. We expect that the continuing effect of the 2003 cost reductions will result in lower sales and marketing expenses in 2004.

Research and Development. Research and development expenses consist principally of salaries and related expenses required to develop and enhance our products. Research and development expenses were $3.3 million in 2002, or 57.5% of total revenues, compared to $2.8 million in 2003, or 57.9% of total revenues. This decrease was due primarily to a 34% reduction of headcount in research and development personnel. We believe that our current staffing resources are sufficient to achieve our product delivery objectives in 2004. We expect that the continuing effect of the 2003 cost reductions will result in lower research and development expenses in 2004.

General and Administrative. General and administrative expenses consist principally of executive, finance and administrative salaries and related expenses. General and administrative expenses were $2.2 million in 2002, or 38.5% of total revenues, compared to $1.8 million in 2003, or 36.5% of total revenues. The decrease in absolute dollars was due to a 25% reduction of headcount in general and

administrative personnel. We expect that general and administrative expenses in 2004 will remain relatively constant compared to 2003.

Stock-based Compensation. Stock-based compensation expense reflects the accounting charge relating to the issuance of equity instruments to employees at an exercise price below fair market value at date of grant and to all equity instruments issued to nonemployees. For stock options granted to employees, the difference between the exercise price and the fair value of the ordinary shares on the date options are granted is charged to operations as stock-based compensation expense over the vesting period of the underlying options. For stock options granted to nonemployees, the value of a particular grant as determined by the Black-Scholes valuation model is charged to operations as stock-based compensation expense over the service period or vesting period of the underlying option. Stock-based compensation expense was $509,000 in 2002 compared to $387,000 in 2003. The decrease resulted from the cancellation of employee stock options for terminated employees for whom stock-based compensation was originally recorded.

Deferred compensation on the unvested options is included as a component of shareholders' equity and amortized to stock-based compensation expense over the vesting period of the underlying options. Deferred stock-based compensation totaled $89,000 at December 31, 2003, and will result in additional charges to operations through May 2004.

Restructuring Expenses. Restructuring expenses were $929,000 in 2002 and $245,000 in 2003.

The restructuring charges recorded in 2002 were incurred as a result of the implementation of restructuring plans in an effort to further lower operating costs. The restructuring charges of $929,000 in 2002 consisted of severance costs for terminated employees of $349,000, idle-lease costs of $474,000, property and equipment impairment of $96,000 and other costs of $10,000. A total of 28 employees were terminated, or approximately 31% of the then current workforce, of whom 15 employees were from sales and marketing, 11 employees were from research and development, and two employees were from general and administrative. Restructuring charges accrued but not paid as of December 31, 2003 totaled $320,000, and consist of estimated idle lease costs. Amounts payable within one year have been classified as a current liability.

The restructuring charges of $245,000 in 2003 consisted of severance costs for terminated employees of $207,000, lease termination costs of $26,000, and vendor contract termination fees and other costs of $12,000. A total of 20 employees were terminated, or approximately 27% of the then current workforce, of whom 6 employees were from sales and marketing, 11 employees were from research and development, and three employees were from general and administrative.

Interest Income, Net. Interest income, net consists principally of interest earned on cash investments. Interest income, net was $127,000 in 2002 compared to $32,000 in 2003. The decrease resulted from lower invested cash balances and lower interest rates in 2003 as compared to 2002.

Other Income (expense), Net. Other income (expense), net consists principally of currency translation gains and losses. Other income, net was $34,000 in 2002 and other expense, net was $51,000 in 2003. The decrease resulted from exchange rate fluctuations.

Income Taxes. We have estimated net operating loss carryforwards for Israeli tax purposes totaling approximately $19.5 million through December 31, 2003 that would reduce future Israeli income taxes, if any. These net operating losses may be carried forward indefinitely and offset against future taxable business income. We expect that during the period these losses are utilized, our income would be substantially tax exempt. Accordingly, there will be no tax benefit available from these losses and no deferred income taxes have been included in our financial statements.

Our U.S. subsidiary has net operating loss carryforwards for U.S. Federal and state tax purposes totaling approximately $28.0 million through December 31, 2003. These losses are available to offset

any future U.S. taxable income of the U.S. subsidiary and will expire between 2012 and 2023. We have recorded a full valuation allowance against its deferred tax asset due to the uncertainty surrounding the ability and the timing of the realization of these tax benefits.

Total Revenues. Total revenues were $8.6 million in 2001 and $5.8 million in 2002. Total revenues decreased $2.9 million, or 33.3%, from due to a $2.5 million decrease in total revenues from customers in the U.S. and a $355,000 decrease in total revenues from international customers. Total revenues from U.S. customers decreased from $6.1 million in 2001 to $3.6 million in 2002 due to lower unit volume sales of software licenses experienced primarily in the second half of 2001 and continuing throughout 2002 and a reduction in related service revenues. Total revenues from international customers decreased from $2.6 million in 2001 to $2.2 million in 2002 due to lower unit volume sales of software licenses, partially offset by an increase in service revenues.

Software Licenses. Software license revenues were $5.8 million in 2001 to $3.4 million in 2002, and decreased $2.4 million, or 41.9%. Total software license revenues from U.S. customers decreased from $3.8 million in 2001 and $1.9 million in 2002 due to lower unit volume sales arising primarily in the second half of 2001 and continuing throughout 2002 attributable to weakness in the U.S. economy and slower technology spending. Total revenues from international customers decreased from $2.0 million in 2001 to $1.5 million in 2002 due to lower unit volume sales due to slower technology spending throughout Europe.

Services. Service revenues were $2.8 million in 2001 and $2.4 million in 2002, and decreased $2.4 million, or 41.9%. The decrease was due to a decline of $608,000 of service revenues in the U.S., partially offset by an increase of $170,000 in services revenues from international customers. Service revenues from U.S. customers decreased from $2.3 million in 2001 to $1.7 million in 2002 due to a slow-down in product revenues, from which services revenues are derived. Service revenues from international customers increased from $549,000 in 2001 to $719,000 in 2002 due to a larger installed customer base internationally.

Cost of Software Licenses. Cost of software licenses was $271,000 in 2001, or 4.6% of software license revenue, compared to $63,000 in 2002, or 1.9% of software license revenue. The decrease was due to the absence in 2002 of royalty costs to the Government of Israel, through the Office of Chief Scientist, as we had fully provided for our maximum liability for these royalties in 2001.

Nonrecurring Royalty Reversal. The nonrecurring royalty reversal relates to a change in estimate of our royalty obligations to the Government of Israel, through the Office of Chief Scientist, as previously discussed.

Cost of Services. Cost of services consists principally of personnel-related costs associated with customer support and training. Cost of services was $1.2 million in 2001, or 41.5% of service revenues, compared to $631,000 in 2002, or 26.5% of service revenue. This decrease was due to reduced personnel costs to provide support and maintenance services resulting from the headcount reductions taken in the second half of 2001 and the first half of 2002.

Sales and Marketing. Sales and marketing expenses were $13.9 million in 2001, or 160.7% of total revenues, compared to $5.3 million in 2002, or 91.1% of total revenues. This decrease was due

primarily to a 65% reduction of headcount in sales and marketing personnel and a reduction in discretionary marketing program costs of $1.8 million.

General and Administrative. General and administrative expenses were $2.9 million in 2001, or 33.0% of total revenues, compared to $2.2 million in 2002, or 38.5% of total revenues. The decrease in absolute dollars was due to a 58% reduction of headcount in general and administrative personnel.

Stock-based Compensation. Stock-based compensation expense was $878,000 in 2001 compared to $509,000 in 2002. The decrease resulted from the cancellation of employee stock options for terminated employees for whom stock-based compensation was originally recorded.

Restructuring Expenses. Restructuring expenses were $1.7 million in 2001 and $929,000 in 2002. Restructuring expenses in 2001 consisted of restructuring charges of $1.4 million and a payment of $237,000 for the termination of a facility lease agreement in March 2001.

The restructuring charges recorded in 2001 totaled $1.4 million and were incurred in July 2001 and October 2001, when we implemented two separate restructuring plans to lower operating costs. The restructuring plans and related charges recorded in 2001 consisted of severance costs for terminated employees of $634,000, idle lease space costs of $339,000, fixed asset impairment costs of $369,000 and vendor contract termination fees of $91,000. A total of 62 employees were terminated, or approximately 40% of the workforce, of whom 37 employees were from sales and marketing, 12 employees were from research and development, and 13 employees were from general and administrative.

Interest Income, Net. Interest income, net consists principally of interest earned on cash investments partially offset by interest expense incurred in connection with long-term debt. Interest income, net was $693,000 in 2001 compared to $127,000 in 2002. The decrease resulted from lower invested cash balances and lower interest rates in 2002 as compared to 2001.

Other Income, Net. Other income, net consists principally of currency translation gains and losses. Other income, net was $20,000 in 2001 and $34,000 in 2002. The increase resulted from exchange rate fluctuations.

Cash and cash equivalents totaled $7.6 million as of December 31, 2002 and $3.1 million as of December 31, 2003.

Cash used in operating activities was $15.7 million in 2001, $5.4 million in 2002 and $4.6 million in 2003. Cash used in operating activities have resulted substantially from our reported net losses partially reduced by noncash items such as, such as depreciation, asset impairment write-offs, and stock-based compensation, and changes in current assets and liabilities.

Cash used in operating activities in 2001 and was due primarily to a net loss of $17.4 million and a decrease of $2.0 million in accounts payable and accrued expenses, partially offset by noncash items and a decrease of $1.0 million in accounts receivable. Accrued expenses and accounts payable decreased as a result of a reduction of operating expenses in 2001. Accounts receivable decreased as a result of decreased order volume combined with improved collection efforts.

Cash used in operating activities in 2002 was due primarily to a net loss of $6.5 million, a decrease of $903,000 in accounts payable and accrued expenses and a decrease of $306,000 in deferred revenue, partially offset by noncash items and a decrease of $419,000 in accounts receivable, and an increase of $381,000 in accrued restructuring charge. Accrued expenses and accounts payable decreased as a result of further reductions of operating expenses in 2002. Accounts receivable and deferred revenues decreased as a result of decreased order volume. Accrued restructuring charge increased as a result of additional restructuring activities in 2002.

Cash used in operating activities in 2003 was due primarily to a net loss of $5.1 million, a decrease of $514,000 in accounts payable and a decrease of $292,000 in accrued restructuring charge, partially offset by noncash items and a decrease of $348,000 in accounts receivable. Accounts payable decreased as a result of additional reductions of operating expenses in 2003. Accrued restructuring charge decreased as a result of the payments made in 2003. Accounts receivable decreased as a result of decreased order volume and favorable collection activities.

Cash used in investing activities was $677,000 in 2001, $182,000 in 2002 and $43,000 in 2003. Cash used in investing activities in 2001 was for the purchase of $605,000 in property and equipment and an increase of $72,000 in other assets. Cash used in investing activities in 2002 was for the purchase of $111,000 in property and equipment and an increase of $71,000 in other assets. Cash used in investing activities in 2003 was for the purchase of $83,000 in property and equipment offset by a decrease of $40,000 in other assets.

Cash used in financing activities was $3.9 million in 2001 and consisted of $3.8 million for the repayment of long-term loans with a bank and $100,000 for the purchase of our ordinary shares. There was no cash activity from financing activities in 2002. Cash provided by financing activities was $183,000 in 2003 and consisted of proceeds from exercise of stock options.

In April 2001, our board of directors approved a stock repurchase program under which we may repurchase our ordinary shares for an aggregate consideration that shall not exceed $2.5 million. Purchases may be made based on market conditions from time-to-time at the discretion of management in open market purchases or privately negotiated transactions. In 2001, we repurchased 134,000 of our ordinary shares at an aggregate cost of $100,000. We did not repurchase any of our shares in 2002 or 2003.

In March 2004, we sold 3,333,331 of our ordinary shares for an aggregate purchase price of $2.0 million in a private placement. The investors also received four series of warrants to purchase an aggregate of up to 2,999,996 ordinary shares at exercise prices ranging from $0.87 to $0.99 per share. In addition, we granted the investors an option to purchase within one year an additional 3,333,331 ordinary shares at a purchase price of $0.81 per share. We realized net proceeds of approximately $1.8 million from this offering.

We expect that operating expenses and, to a lesser extent, our planned capital expenditures, will constitute a material use of our cash resources. We believe that our existing cash and cash equivalents, along with the net proceeds from our recent private placement, will be sufficient to meet our anticipated needs for working capital and capital expenditures for at least the next 12 months. We may find it necessary to obtain additional equity or debt financing. In the event additional financing is required, we may not be able to complete financing on acceptable terms or at all.

We lease all of our office facilities under noncancellable operating leases that expire over varying terms through 2005.

A large portion of our revenues is received, and a large portion of our expenses is incurred, in U.S. dollars. Revenues denominated in U.S. dollars as a percent of total revenues were 92.9% in 2001, 89.9% in 2002 and 92.6% in 2003. Expenses denominated in U.S. dollars as a percent of total expenses were 70.4% in 2001, 75.8% in 2002, and 55.1% in 2003.

A portion of our expenses, mainly salary and personnel costs related to our employees in Israel, is incurred in New Israeli Shekels, or NIS. The salaries of our Israel-based employees are partially linked to increases in the Israeli consumer price index. As a result, the U.S. dollar cost of our Israeli operations is influenced by inflation in Israel as well as the currency exchange rate between the NIS in relation to the U.S. dollar. Any increase in the rate of inflation in Israel may have a negative effect on our operating results, unless such inflation is offset by a devaluation of the NIS in relation to the U.S. dollar. Exchange rates between the NIS and the dollar fluctuate continuously, and therefore exchange rate fluctuations and especially larger periodic devaluations will have an impact on our operating results and period-to-period comparisons of its results. The effects of foreign currency translations are reported in our financial statements in current operating results. We believe that neither inflation in Israel, nor exchange rate fluctuations between the NIS and the U.S. dollar, historically has had a material effect on our operations.

In addition to our operations in Israel, we also conduct operations in Germany and the United Kingdom. Transactions denominated in currencies other than the U.S. dollar or NIS were not material.

The Government of Israel, through the Office of the Chief Scientist, encourages research and development projects that result in products for export. Through 1996, we received grants totaling $605,000 from the Office of the Chief Scientist that were used primarily to fund a predecessor product. We were obligated to pay royalties based on revenues derived from sales of products funded with these grants, up to 150% of certain grant amounts received. In October 2002, the Office of Chief Scientist completed its examination of our technology and use of grant funding and concluded that our remaining royalty obligation was $166,000, which we have since paid. As a result, we reversed $448,000 of accrued royalties that had been recorded as a reduction in cost of product sales during the fourth quarter of 2002. We believe that we will have no future obligations to the Office of Chief Scientist.

Israeli companies are generally subject to tax at the rate of 36% of taxable income. However, we have derived, and expect to continue to derive, a substantial portion of our income under our Approved Enterprise capital investment program. Subject to compliance with applicable requirements, this income will be tax exempt for a period of two years and will be subject to a reduced corporate tax rate of 25% in the following five to eight years, subject to the level of foreign shareholders holdings in the Company. Tax benefits for each capital investment program are only effective in restricted periods according to the Encouragement of Capital Investments Law. If we do not comply with the applicable requirements, the tax benefits may be canceled. We believe that we comply with these conditions. If we operate under more than one approval, or if our capital investments are only partially approved, our effective tax rate will be a weighted combination of the various applicable tax rates. We may not be able to obtain approval for additional Approved Enterprise programs. Since we have incurred tax losses through December 31, 2003, we have not yet used the tax benefits for which we are eligible.

We currently do not invest in, or hold for trading or other purposes, any financial instruments subject to market risk. We currently do not have any outstanding borrowings or other credit facilities.

In June 2002, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standard, or SFAS, No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured, initially at fair value, only when the liability is incurred; therefore, nullifying Emerging Issues Task Force Issue, or EITF, No. 94-3, Liability Recognition for Certain Employee Termination benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring), that required a liability for an exit cost to be recognized at the date of an entity's commitment to an exit plan. The adoption of SFAS No. 146 is expected to result in delayed recognition for certain types of costs as compared to the provisions of EITF No. 94-3, especially for facility closure costs. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. Since SFAS No. 146 is effective only for new exit or disposal activities, the adoption of this standard will not affect amounts related to prior year restructuring activities currently reported in the Company's consolidated financial statements and did not have a material effect on the restructuring activities in 2003. The adoption of SFAS 146 could affect the types and timing of costs included in future business consolidation and restructuring programs

In May 2003, the FASB issued SFAS No. 150, Accounting For Certain Financial Instruments with Characteristics of Both Liabilities and Equity, which establishes standards for how an issuer of financial instruments classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability, or an asset in some circumstances, if, at inception, the monetary value of the obligation is based solely or predominantly on a fixed monetary amount known at inception, variations in something other than the fair value of the issuer's equity shares or variations inversely related to changes in the fair value of the issuer's equity shares. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS 150 is not expected to have a material impact on the Company's consolidated financial statements.

In January 2003, the FASB issued Interpretation, or FIN, No. 46, Consolidation of Variable Interest Entities. The objective of FIN No. 46 is to improve financial reporting by companies involved with variable interest entities. A variable interest entity is a corporation, partnership, trust, or any other legal

structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN No. 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. FIN No. 46 also requires disclosures about variable interest entities that the company is not required to consolidate but in which it has a significant variable interest. The consolidation requirements of FIN No. 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period ending after March 15, 2004. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. As of December 31, 2003, the Company does not expect the adoption of FIN No. 46 to have a material impact on its consolidated financial statements.

We will be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes in any tax year if, in such tax year, either 75% or more of our gross income is passive in nature, also referred to as the Income Test, or, on average for such tax year, 50% or more of our assets, at fair value, produce or are held for the production of passive income, also referred to as the Asset Test. We must make a separate determination each year as to whether we are a PFIC. As a result, our PFIC status may change. Classification of a company as a PFIC has important and adverse tax implications to any U.S. holder of a foreign corporation's stock, or a U.S. Holder.

For purposes of this summary, a U.S. Holder is a holder that is, for U.S. income tax purposes:

In applying the Asset Test, a foreign corporation will be classified as a PFIC if the average percentage of its assets during the tax year which produce, or are held for the production of, passive income, or Passive Assets, is 50% or more of its total assets. Our cash and cash equivalents are considered to be Passive Assets. The value of the total assets of a publicly traded foreign corporation is generally equal to the sum of the aggregate value of its outstanding stock plus its liabilities. The Asset Test for a tax year generally is applied by averaging the results determined as of the end of each quarter of the tax year.

We believe we were a PFIC for the taxable years ended 2002 and 2003 due primarily to the decline in the market price of our ordinary shares relative to the value of our Passive Assets. If we were indeed a PFIC for these periods, a U.S. Holder who owned our shares in 2002 or 2003 will be subject to reporting requirements for that year and succeeding years, even if in subsequent years we are no longer a PFIC. U.S. Holders may also be subject to increased U.S. tax liabilities. If we cease to be a

PFIC, a U.S. Holder may avoid PFIC classification for subsequent years upon making shareholder elections in certain circumstances, as described in greater detail below.

We expect that we will be a PFIC in 2004. If our expectation is accurate, the same reporting obligations and tax consequences described below will apply to U.S. Holders who acquire shares during the 2004 taxable year.

There are no U.S. federal income tax consequences to a non-U.S. Holder if we are classified as a PFIC.

If we are a PFIC for U.S. federal income tax purposes for any year during a U.S. Holder's holding period of our ordinary shares and such U.S. Holder does not make either of the special elections described later, any gain recognized by a U.S. Holder upon the sale of ordinary shares, or upon the receipt of certain distributions, would be treated as ordinary income. Such income generally would be allocated ratably over a U.S. Holder's holding period with respect to our ordinary shares. The amount allocated to prior years, with certain exceptions, will be subject to tax at the highest tax rate in effect for those years and an interest charge would be imposed on the amount of deferred tax on the income allocated to the prior taxable years.

Although we generally will be treated as a PFIC as to any U.S. Holder if we are a PFIC for any year during a U.S. Holder's holding period, if we cease to satisfy the requirements for PFIC classification, the U.S. Holder may avoid PFIC classification for subsequent years if the U.S. Holder elects to recognize gain based on the unrealized appreciation in the ordinary shares through the close of the tax year in which we cease to be a PFIC. Additionally, if we are a PFIC, a U.S. Holder who acquires ordinary shares from a decedent would be denied the normally available step-up in tax basis for our ordinary shares to fair market value at the date of death and instead would have a tax basis equal to the decedent's tax basis.

For any tax year in which we are determined to be a PFIC, U.S. Holders may elect to treat their ordinary shares as an interest in a qualified electing fund, or a QEF Election, in which case the U.S. Holders would be required to include in income currently their proportionate share of our earnings and profits in years in which we are a PFIC regardless of whether distributions of such earnings and profits are actually distributed to such U.S. Holders. Any gain subsequently recognized upon the sale of their ordinary shares by such U.S. Holders generally would be taxed as capital gain and a denial of the basis step-up at death would not apply.

A shareholder may make a QEF Election with respect to a PFIC for any taxable year of the shareholder. A QEF Election is effective for the year in which the election is made and all subsequent taxable years of the shareholder. Procedures exist for both retroactive elections and the filing of protective statements. A U.S. Holder making the QEF Election must make the election on or before the due date, as extended, for the filing of the shareholder's income tax return for the first taxable year to which the election will apply.

A U.S. Holder must make a QEF Election by completing Form 8621, Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund, and attaching it to their U.S. federal income tax return, and must satisfy additional filing requirements each year the election remains in effect. We intend to provide to each shareholder, upon request, the tax information required to make a QEF Election and to make subsequent annual filings.

As an alternative to a QEF Election, a U.S. Holder generally may be able to avoid the imposition of the special tax and interest charge described above by electing to mark to market the ordinary shares, or a Mark-to-Market Election, recognizing as ordinary income or loss for each taxable year, subject to certain limitations, the difference between the fair market value of the U.S. Holder's

ordinary shares and the adjusted tax basis of such ordinary shares. Losses would be allowed only to the extent of the net mark-to-market gain accrued under the election. If a Mark-to-Market Election with respect to ordinary shares is in effect on the date of a U.S. Holder's death, the normally available step-up in tax basis to fair market value will not be available. Rather, the tax basis of such ordinary shares in the hands of a U.S. Holder who acquired them from a decedent will be the lesser of the decedent's tax basis or the fair market value of the ordinary shares.

U.S. Holders should consult their own tax advisors regarding the eligibility, manner and advisability of making a QEF Election or a Mark-to-Market Election, and the effect of these elections on the calculation of the amount of foreign tax credit that may be available to a U.S. Holder.

A U.S. Holder who beneficially owns shares of a PFIC must file Form 8621 with the U.S. Internal Revenue Service for each tax year in which the U.S. Holder holds stock in a PFIC. This form describes any distributions received with respect to these shares and any gain realized upon the disposition of these shares.

The summary above is based on current provisions of the United States Internal Revenue Code of 1986, as amended, the final, temporary and proposed U.S. Treasury Regulations promulgated thereunder, and administrative and judicial interpretations thereof, all of which are subject to change, possibly with retroactive effect. This summary is limited to a description of certain of the material U.S. federal income tax consequences to U.S. Holders of our status as a PFIC and does not consider any other aspects of U.S. federal income taxation that may be relevant to U.S. Holders, nor does it consider all aspects of the PFIC regime that may be relevant to particular U.S. Holders by reason of their particular circumstances. This summary is directed only to U.S. Holders that hold ordinary shares as capital assets and does not address the considerations that may be applicable to particular classes of U.S. Holders, including tax-exempt organizations; holders of ordinary shares as part of a "straddle," "hedge" or "conversion transaction"; U.S. Holders who own, directly, indirectly or through attribution, 10% or more of our outstanding ordinary shares; and persons who own ordinary shares through a partnership or other pass-through entity.

Rules relating to a PFIC are very complex. U.S. Holders are urged to consult their own tax advisors regarding the application of PFIC rules to their investments in our ordinary shares.

A number of uncertainties exist that could affect our operating results, including, without limitation, the following:

We have had losses since our inception and expect to incur losses for the foreseeable future.

We incurred net losses of $17.4 million in 2001, $6.5 million in 2002 and $5.1 million in 2003. As of December 31, 2003, we had an accumulated deficit of $53.1 million. We expect to incur losses for the foreseeable future and cannot be certain if or when we will achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis in the future.

Our quarterly operating results may fluctuate, and if we fail to meet the expectations of our investors, our share price may decrease significantly and shareholders could lose part or all of their investment.

Our quarterly revenues and operating results have varied significantly in the past and are likely to continue to vary significantly in the future. Our future quarterly operating results may fluctuate significantly and may not meet the expectations of investors. The factors that may cause fluctuations of our operating results include the following:

Due to these and other factors, we believe that period-to-period comparisons of our results of operations may not be meaningful and should not be relied upon as indicators of our future performance. It is possible that in future periods our results of operations may be below the expectations of public market analysts and investors. If this occurs, the price of our ordinary shares may decline.

We may need additional capital to finance our operations and may not be able to raise additional financing.

We will need to raise additional capital to finance our operations unless we are able to generate cash from operations. Cash used in operating activities was $15.7 million in 2001, $5.4 million in 2002 and $4.6 million in 2003.

In March 2004, we completed a private placement of our ordinary shares, additional investment rights and warrants to purchase our ordinary shares, for which we received approximately $1.8 million of net proceeds. In the future, we may need to raise additional funds through public or private financing, which may include the sale of equity securities. The issuance of these equity securities could result in dilution to our shareholders.

If we need to raise additional capital, we cannot be certain that we will be able to do so on commercially reasonable terms, or at all. Our limited available working capital has adversely affected our results of operations during the past two years. If we are unable to raise sufficient working capital

or to generate cash from operation to support our working capital needs, results of our operations will continue to be adversely affected and our ability to become profitable will also be negatively impacted.

The slow-down in technology spending has had and could continue to have a material adverse effect on our results of operations.

The deterioration of economies around the world and economic uncertainty that began in 2000 continued throughout most of 2003. This has resulted in a curtailment of technology spending by many businesses across many industries. It has also reduced our ability to forecast orders, also referred to as "low visibility". While we believe that technology spending has shown signs of improvement, we are still uncertain as to whether the improvement will continue, if at all, and how rapidly such improvement will occur. The decline in technology spending has reduced our revenues, and if the recent trends of improvements reverse, there would likely be a material adverse effect on the results of our operations.

We expect to depend on sales of our WebLOAD and WebRM products for substantially all of our revenues for the foreseeable future.

We anticipate that revenues from our WebLOAD and WebRM products will constitute substantially all of our revenues for the foreseeable future. Consequently, any decline in the demand for our WebLOAD and WebRM products would seriously harm our business.

If we fail to develop new products and enhance our existing products to respond to emerging technologies and industry trends, we may lose market share to our competitors and revenues may decline.

The target market for our products is characterized by rapid technological change, frequent new product introductions, changes in customer requirements, evolving industry standards and significant competition. We expect to introduce new products and develop enhancements to our existing products. Our future financial performance depends upon our ability to timely identify new market trends and Internet technology and to develop and commercialize software that is compatible with these emerging trends and technologies. We may not accurately identify trends and technologies or we may experience difficulties that delay or prevent the successful development, introduction or marketing of new or enhanced software products in the future. In addition, our products may not meet the requirements of the marketplace or achieve market acceptance. If we fail to successfully and timely develop and deploy new products or product enhancements, we may lose market share to our competitors and our revenues may decline.

In addition, our existing software products could become obsolete and unmarketable with the introduction of products, web applications or computer systems employing new technologies or industry standards. If our current software products become obsolete and we fail to introduce new products, our business will not be viable. Further, if our competitors introduce products earlier or that are more responsive than our products to emerging technologies and market trends, we will lose market share to our competitors and our revenues may decline.

We face significant competition from other technology companies and we may not be able to compete effectively.

The web application performance and testing solutions market is intensely competitive, subject to rapid change and significantly affected by new product introductions and other activities of market participants. Our primary competitors include companies who offer application-testing software, such as Mercury Interactive and Compuware. We also compete against companies that provide a broader spectrum of development tools that include some verification functionality, such as Rational Software. In addition, we compete with companies like Quest Software whose main offering is application performance management software.

We expect that competition will intensify in the future and that additional competitors will enter the market with competing products as the size and visibility of the market opportunity increases. Increased competition is likely to result in pricing pressures, reduced margins and may result in the failure of our products to achieve or maintain market acceptance, any of which could have a material adverse effect on our business, results of operations and financial condition.

Some of our competitors have longer operating histories, better brand recognition, a larger installed base of customers and substantially greater financial, technical, marketing and other resources than we do. As a result, they may be able to respond more quickly to new or changing opportunities, technologies, standards or customer requirements.

Many of our competitors also have broader and more established distribution channels that may be used to deliver competing products directly to customers through bundling or other means. If competitors were to bundle competing products with their products, the demand for our products might be substantially reduced and our ability to distribute our products successfully would be substantially diminished. The entry of new competitors into our market could reduce our sales, require us to lower our prices, or both. Many of the factors that affect competition are outside our control, and there can be no assurance that we can maintain or enhance our competitive position against current and future competitors.

Our sales cycle depends partly on factors outside our control and may cause our revenues to vary significantly.

Our customers view the purchase of our products as an important decision. As a result, our customers may take a long time to evaluate our products before making their purchase decisions and this could result in a long, and often unpredictable, sales and implementation cycle for our products. This may cause our revenues and results of operations to vary significantly from period to period. In addition, we may expend significant sales and marketing expenses during the evaluation period before the customer places an order with us. Our customers often begin by purchasing our products on a pilot basis before they decide whether or not to purchase additional licenses for broader use within their organizations.

We usually have no significant order backlog. This makes revenues in any quarter substantially dependent upon orders we receive and deliver in that quarter. Because of this, our revenues and results of operations in any quarter may not meet market expectations or be indicative of future performance and it may be difficult for an investor to evaluate our prospects.

Defects in our products may increase our costs and diminish the demand for our products.

Our products are complex and they have occasionally contained, and may in the future contain, undetected errors when first introduced or when new versions are released. If our products do not perform as intended in specific company environments, we may incur warranty and repair costs, be subject to liability and experience delays. Regardless of the source of the errors, we must divert the attention of our engineering personnel from our research and development efforts to address any errors. We may incur warranty or repair costs, be subject to liability claims for damages related to product errors or experience delays as a result of these errors in the future. Any insurance policies that we may have may not provide sufficient protection should a claim be asserted. Moreover, the occurrence of errors, whether caused by our products or the products of another vendor, may result in significant customer relation problems and injury to our reputation and may impair the market acceptance of our products and technology.

We believe that our success in penetrating our target markets depends in part on our ability to develop and maintain strategic relationships with resellers, systems integrators and distribution partners.

If we are unable to maintain our existing marketing and distribution relationships, or fail to enter into additional relationships, we will have to devote substantially more resources to direct sales and marketing of our products. In addition, licenses of our products through indirect channels have been limited to date. Our existing relationships do not, and any future relationships may not, afford us exclusive marketing or distribution rights. Therefore, our partners could reduce their commitment to us at any time in the future. In addition, many of these partners have multiple relationships and they may not regard us as significant for their business. In addition, these partners may terminate their relationships with us, pursue other relationships with our competitors or develop or acquire products that compete with our products. Even if we succeed in entering into these relationships, they may not result in additional customers or revenues.

If we fail to manage our geographically dispersed organization, we may fail to implement our business plan and our revenues may decline.

We have our principal executive offices in the U.S. and conduct our research and development primarily in Israel. In addition, we have sales offices in the U.S., Israel, Germany and the United Kingdom. Our directors, executive officers and other key employees are similarly dispersed throughout the world. Our management must devote resources to manage geographically diverse operations. In addition, conducting international operations subjects us to risks we do not face in the United States. These include:

Failure to manage our geographically dispersed organization could harm our business.

The success of our business depends on our senior management, including Ilan Kinreich, our Chief Executive Officer and President, whose knowledge of our business and expertise would be difficult to replace.

Our success depends largely on the continued contributions of our senior management. In particular, we depend on the services of Ilan Kinreich, our Chief Executive Officer and President. Employment agreements with our senior management team and other key personnel, including Mr. Kinreich, do not require a specified service obligation. We also do not carry life insurance on our senior management or other key personnel. If one or more members of our senior management were to terminate their employment, we could experience delays in product development, loss of sales and diversion of management resources.

We may not be able to retain our existing personnel, which could negatively impact development, sales and support of our products.

In July 2001, October 2001, January 2002 and April 2003, we reduced the number of our employees in order to reduce our operating expenses. As a result, our success depends on our ability to retain our existing experienced employees. If we fail to retain our current employees, our revenues could decline. Competition for qualified personnel is intense, and we may not be able to retain our

highly qualified personnel. Our future success also depends upon the continued service of our key sales, marketing and support personnel. In addition, our products and technologies are complex and we are substantially dependent upon the continued service of our existing engineering personnel. None of our key employees are bound by an employment agreement that requires a specified service obligation. If we are not able to retain our existing personnel, we could have difficulty developing, selling or supporting our products.

We may not be able to protect our intellectual property rights and we may lose a valuable asset or incur costly and time-consuming litigation attempting to protect our rights.

Our success depends upon the protection of our technology, trade secrets and trademarks. To protect our rights to our intellectual property, we rely on a combination of trade secret protection, patent law, trademark law, confidentiality agreements and other contractual arrangements. The protective steps we have taken may be inadequate to deter infringement or misappropriation. We may be unable to detect the unauthorized use of our intellectual property or take appropriate steps to enforce our intellectual property rights. Policing unauthorized use of our products and technology is difficult. In addition, the laws of some foreign countries in which we currently or may in the future sell our products do not protect our proprietary rights to as great an extent as do the laws of the United States.

Failure to adequately protect against or to promptly detect unauthorized use of our intellectual property could devalue our proprietary content and impair our ability to compete effectively. Defending our intellectual property rights could result in the expenditure of significant financial and managerial resources, whether or not the defense is successful. Our means of protecting our proprietary rights may not be adequate and our competitors may independently develop similar technology, or duplicate our products or our other intellectual property. We may have to resort to litigation to enforce our intellectual property rights, to protect our trade secrets or know-how or to determine the scope, validity or enforceability of our intellectual property rights. Our protective measures may prove inadequate to protect our proprietary rights, and any failure to enforce or protect our rights could cause us to lose a valuable asset.

We may be subject to intellectual property infringement claims that, with or without merit, could be costly to defend or settle.

Substantial litigation regarding intellectual property rights exists in the software industry. We expect that software products may be increasingly subject to third-party infringement claims as the number of competitors in our industry segments grows and the functionality of products in different industry segments overlaps. Third parties may make a claim of infringement against us with respect to our products and technology or claims that our intellectual property rights are invalid. Any claims, with or without merit, could:

In addition, if our products were found to infringe a third party's proprietary rights, we could be required to enter into royalty or licensing agreements in order to continue to be able to sell our products. Royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all. A successful claim of product infringement against us and our failure or inability to license the infringed or similar technology could harm our business.

We do not have sufficient insurance to cover all of our potential product liability and warranty claims.

Companies use our products to assure the performance of their web applications. In many cases, web applications serve critical business functions. The sale and support of our products may entail the risk of product liability or warranty claims based on our products not detecting critical errors or problems with web applications that fail in a "live" environment and cause companies financial loss. In addition, the failure of our products to perform to customer expectations could give rise to warranty claims. Although we seek to limit our exposure to claims under our license terms and we carry general liability insurance, it is unlikely that our insurance would cover potential claims of this type and our insurance may not be adequate to protect us from all liability that may be imposed. If we are subject to any claims, our results of operations may be harmed.

Our ordinary shares may be delisted from the Nasdaq SmallCap Market if we are unable to comply with their listing requirements.

In addition, a delisting from the Nasdaq SmallCap Market would trigger exercisability of two series of warrants for the purchase of up to 1,333,328 ordinary shares at exercise prices ranging from $0.87 to $0.99 per share. We issued these warrants in connection with our recent private placement.

The market price of our ordinary shares has fluctuated and may continue to fluctuate significantly.

Our stock price has fluctuated and may continue to fluctuate significantly. Fluctuations in our share price can occur for reasons that may be unrelated to operating results, including stock market-wide downturns and events in the technology industry as well as in Israel. These fluctuations may adversely affect the market price of our ordinary shares.

There may be an adverse effect on the market price of our shares as a result of shares being available for sale in the future.

In connection with our private placement in March 2004, we issued to investors the following securities:

The significant number of ordinary shares that may be issuable at prices that could be less than the then current market price of our ordinary shares could adversely affect the market price of our ordinary shares.

If our shareholders sell substantial amounts of our ordinary shares, including shares issued upon the exercise of outstanding options, additional investment rights and warrants, the market price of our ordinary shares may decline. These sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and place that we deem appropriate.

Our principal shareholders, executive officers and directors have substantial influence over most matters submitted to a vote of the shareholders, thereby limiting the power of other shareholders to influence corporate action.

As of March 18, 2004, our officers, directors and principal shareholders beneficially owned 47.5% of our outstanding ordinary shares. As a result, these shareholders may have the power to substantially influence the outcome of most matters submitted to a vote of shareholders, including the election of members of our board and the approval of significant corporate transactions. This concentration of ownership may also have the effect of making it more difficult to obtain approval for a change in control of us.

Conditions in Israel affect our operations and may limit our ability to produce and sell our products, which could have a material adverse effect on our business.

We are incorporated under Israeli law and our primary research and development facilities are located in Israel. Political, economic and military conditions in Israel directly affect our operations. Since the establishment of the State of Israel in 1948, a state of hostility, varying in degree and intensity, has led to security and economic problems for Israel. Several countries still restrict business with Israeli companies as a result of the Israeli-Arab conflict. In particular, the hostilities between the

State of Israel and the Palestinians have increased in the past three years. The future of peace efforts between Israel and its Arab neighbors is uncertain. Any major hostilities involving Israel could lead to attacks on our suppliers, employees, customers or research facilities, military service obligations of our key employees, interruption or curtailment of trade between Israel and its trading partners, a significant increase in inflation, or a significant downturn in the economic or financial condition of Israel, any of which could have a material adverse effect on our business.

If our key personnel are required to perform military service, we could experience disruptions in our business.

A number of our key personnel in Israel have standing obligations to perform periodical reserve duty in the Israel Defense Forces and are subject to be called for active military duty at any time. If our key personnel are absent from our business for a significant period of time, we may experience disruptions in our business that could affect the development, sales or technical support of our products. As a result, we might not be able to compete in the market and our results of operations could be harmed.

Because substantially all of our revenues are generated in U.S. dollars, while a portion of our expenses is incurred in New Israeli Shekels, or NIS, inflation in Israel could harm our results of operations.

Substantially all of our revenues are generated in U.S. dollars, while a portion of our expenses, primarily salaries and related expenses incurred in our Israeli facility, is in NIS. Our Israeli-based employees' salaries are influenced by inflation in Israel. As a result, any increase in the rate of inflation in Israel may have a negative impact on our dollar-measured operating results unless the inflation in Israel is offset by a devaluation of the NIS in relation to the U.S. dollar. In 2002, the rate of inflation in Israel was 6.5%. In 2003, the rate of deflation in Israel was 1.9% and the value of the U.S. dollar decreased in relation to the NIS by 7.6%. We cannot predict any future trends in the rate of inflation in Israel or trends in the rate of exchange between the NIS and the dollar. If the dollar cost of our operations in Israel increases, our dollar-measured results of operations will be adversely affected.

Israeli regulations may impact our ability to engage in research and development and export of our products in accordance with our current practices.

Israeli law requires us to obtain a government license to engage in research and development of, and export of, the encryption technology incorporated in our products. We currently have government licenses to engage in production of our encryption technology in our products in their 40- and 128-bit versions. Our research and development activities in Israel would need to be modified to transfer this activity to our U.S. development organization, and our current practice of exporting our products from Israel to the U.S., with embedded encryption technology, would need to be changed if:

We currently benefit from government programs and tax benefits that may be discontinued or reduced.

We received grants and currently receive tax benefits under Government of Israel programs. In order to maintain our eligibility for these programs and benefits, we must continue to meet specified conditions, including making specified investments in property and equipment. We may not be able to continue to meet all of these conditions. In addition, some of these programs restrict our ability to manufacture particular products or transfer particular technology outside of Israel. If we fail to comply with these conditions in the future, the benefits received could be canceled and we could be required

to refund any payments previously received under these programs or to retroactively pay tax on any income at a higher tax rate than that applying under these benefits. The Government of Israel has reduced the benefits available under these programs in recent years and we cannot guarantee that these programs and tax benefits will continue in the future at their current levels or at all. If the Government of Israel reduces or ends these tax benefits, our business, financial condition and results of operations could be materially adversely affected.

It may be difficult to enforce a U.S. judgment against us or certain of our directors, or to assert U.S. securities laws claims in Israel or serve process on these persons.

We are incorporated in Israel. The chairman of the board of our directors and one other director are nonresidents of the United States and a portion of our assets and the assets of these persons are located outside the United States. Therefore, it may be difficult to enforce a judgment obtained in the United States against us or any of those persons or to effect service of process upon these persons in the United States. It may also be difficult to enforce civil liabilities under U.S. federal securities laws in original actions instituted in Israel.

The Israeli Companies Law may cause uncertainties regarding corporate governance.

The Israeli Companies Law, 1999, which became effective on February 1, 2000, has brought about significant changes to Israeli corporate law. This law provides for new arrangements in various corporate areas, including shareholder voting rights, fiduciary obligations of shareholders and directors, mergers, tender offers, transactions involving related parties or significant shareholders, and anti-takeover provisions. Until a body of case law develops with respect to this new law, uncertainties will exist regarding its interpretation. These uncertainties could have the effect of inhibiting third party attempts to acquire us, and other transactions and decisions by or involving us.

Provisions of the Israeli law could delay, prevent, or make difficult, a change of control, thereby depressing the price of our ordinary shares.

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

The Israeli Companies Law also provides that an acquisition of shares in a public company must be made by means of a tender offer if, as a result of the acquisition, the purchaser will become a 25% or greater shareholder of the company unless there is already another 25% or greater shareholder of the company. Similarly, an acquisition of shares must be made by means of a tender offer if as a result of the acquisition the purchaser would become a 45% or greater shareholder of the company, unless there is already a majority shareholder of the company. In any event, if as a result of an acquisition of shares the acquirer will hold more than 90% of a company's shares, the acquisition must be made by means of a tender offer for all of the shares.

Finally, Israeli tax law treats some acquisitions, such as stock-for-stock exchanges between an Israeli company and a foreign company, less favorably than United States tax law. For example, Israeli tax law may subject a shareholder who exchanges our ordinary shares for shares in another corporation to immediate taxation.

These Israeli laws could have the effect of inhibiting third party attempts to acquire us.

We do not use derivative financial instruments in our investing portfolio. We place our investments in instruments that meet high credit quality standards such as money market funds, government securities, and commercial paper. We limit the amount of credit exposure to any one issuer. We do not expect any material loss with respect to our investment portfolio.

We conduct business in various foreign currencies, primarily in Europe and the Middle East. As a result, we are exposed to the effect of foreign currency exchange rate fluctuations on the U.S. dollar value of foreign currency-denominated revenues and expenses. We do not use foreign exchange forward contracts to hedge our foreign currency denominated receivables. Looking forward, there can be no assurance that changes in foreign currency rates, relative to the U.S. dollar, will not materially adversely affect our consolidated results.

RADVIEW SOFTWARE, LTD. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003
IN U.S. DOLLARS

		Page
Reports of Independent Auditors		41
Consolidated Balance Sheets		44
Consolidated Statements of Operations		45
Consolidated Statements of Shareholders' Equity		46
Consolidated Statements of Cash Flows		47
Notes to Consolidated Financial Statements		48

We have audited the accompanying consolidated balance sheets of RadView Software Ltd. and its subsidiaries (the "Company") as of December 31, 2003 and the related consolidated statements of operations, shareholders' equity and cash flows for the year ended December 31, 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audit in accordance with auditing standards generally accepted in the 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 RadView Software Ltd. and its subsidiaries as of December 31, 2003 and the consolidated results of their operations and cash flows for the year ended December 31, 2003 in conformity with accounting principles generally accepted in the United States.

We have audited the accompanying consolidated balance sheets of RadView Software Ltd. and its subsidiaries (the "Company") as of December 31, 2002 and the related consolidated statements of operations, shareholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The consolidated financial statements of the Company for the year ended December 31, 2001 were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those financial statements in their report dated February 2, 2002.

We conducted our audits in accordance with auditing standards generally accepted in the 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 RadView Software Ltd. and its subsidiaries as of December 31, 2002 and the consolidated results of their operations and cash flows for each of the year then ended in conformity with accounting principles generally accepted in the United States.

This is a copy of the previously issued Independent Public Accountants' report of Arthur Andersen.
The report has not been reissued by Arthur Andersen.

We have audited the accompanying consolidated balance sheets of RadView Software Ltd. and its subsidiaries as of December 31, 2000 and 2001 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of RadView Software Ltd. and its subsidiaries as of December 31, 2000 and 2001 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States.

RADVIEW SOFTWARE LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

The accompanying notes are an integral part of these consolidated financial statements.

RADVIEW SOFTWARE LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

The accompanying notes are an integral part of these consolidated financial statements.

RADVIEW SOFTWARE LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share data)

The accompanying notes are an integral part of these consolidated financial statements.

RADVIEW SOFTWARE LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

RADVIEW SOFTWARE LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RadView Software Ltd., an Israeli corporation, and its subsidiaries (collectively, the "Company") develops, markets and supports software that enables organizations to verify the scalability, efficiency and reliability of web applications, and facilitates their rapid development.

The Company incurred net losses of $17.4 million in 2001, $6.5 million in 2002 and $5.1 million in 2003, and had an accumulated deficit of approximately $53.1 million as of December 31, 2003. The Company has funded these losses principally from proceeds from equity financing. In each of 2001, 2002 and 2003, the Company restructured its business to reduce total operating expenses by more than 60% through reductions in workforce and the termination of certain leases (see Note 3).

In March 2004, the Company completed a private placement of its ordinary shares (see Note 13). Management believes that existing cash and cash equivalents, along with the proceeds from the private placement, will be adequate to fund operations into 2005.

The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The significant accounting policies followed in the preparation of the consolidated financial statements, applied on a consistent basis, are as follows:

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

Substantially all of the Company's revenues are in U.S. dollars. In addition, most expenses are incurred in U.S. dollars. The Company's management believes that the U.S. dollar is the primary currency of the economic environment in which the Company operates. Thus, the functional and reporting currency of the Company is the U.S. dollar.

Transactions and balances denominated in U.S. dollars are presented at their original amounts. Transactions and balances in other currencies are remeasured into U.S. dollars in accordance with the principles set forth in Financial Accounting Standards Board of the United States ("FASB") Statement of Accounting Standards ("SFAS") No. 52, Foreign Currency Translation. Accordingly, items have been remeasured as follows:

All exchange gains and losses from the above-mentioned remeasurement are reflected in the statements of operations and were not material for all periods presented. The representative rate of

exchange was U.S. $1.00 to 4.416 New Israeli Shekel ("NIS") at December 31, 2001, U.S. $1.00 to NIS 4.737 at December 31, 2002 and U.S. $1.00 to NIS 4.379 at December 31, 2003.

The consolidated financial statements include the accounts of RadView Software Ltd. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Cash equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less. The Company's cash equivalents are invested in U.S. Treasury securities as of December 31, 2002 and 2003.

The Company provides for reserves against its accounts receivable that consist of an allowance for doubtful accounts. The allowance for doubtful accounts is computed for specific accounts, the collectibility of which is doubtful based upon the Company's experience. A summary of the allowance for doubtful accounts is as follows:

		Year Ended December 31,
		2001			2002			2003
		(In thousands)
Balance at the beginning of year		$	345		$	209		$	171
	Provision (benefit)		136			138			(18	)
	Write-offs		(272	)		(176	)		(81	)

Balance at the end of year		$	209		$	171		$	72

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful life of the assets as follows:

Category		Estimated Useful Life (In years)
Equipment		3
Office furniture		3 to 5
Leasehold improvements		Over the shorter of the term of the lease or the life of the asset

The Company's long-lived assets are reviewed for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of

assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Impairment losses were in respect of restructuring changes and amounted to $369,000 in 2001, $97,000 in 2002 and none in 2003 (see Note 3).

In accordance with Israeli compensation law, the Company is required to make severance payments to Israeli employees upon their termination of employment. The amount of such severance payments is based on the most recent monthly salary multiplied by the number of years of employment as of the balance sheet date. The Company has accrued for the estimated total cost of severance pay as computed as of the balance sheet date. Severance expense totaled to $92,000 in 2001, $50,000 in 2002 and $178,000 in 2003.

The Company has partially funded its severance pay obligations by monthly deposits for insurance policies. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to Israeli severance pay law or labor agreements. The value of the deposited funds is based on the cash surrender value of these policies and is presented as an asset in the consolidated balance sheets (see Note 5).

The Company generates revenues mainly from licensing the rights to use its software products. The Company also generates revenues from support and maintenance services and, to a lesser extent, training and consulting services. The Company sells its products primarily through its direct sales force and, to a lesser extent, through resellers and distributors considered as end-users.

The Company recognizes revenue in accordance with Statement of Position ("SOP") 97-2, Software Revenue Recognition, and SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions. SOP 98-9 requires the use of the residual method for recognition of revenues when vendor-specific objective evidence exists for undelivered elements but does not exist for delivered elements of a software arrangement when all other revenue recognition criteria set forth in SOP 97-2 are met. If fair value for a delivered element does not exist but the fair value does exist for all undelivered elements, the Company defers the fair value of the undelivered elements and recognizes the remaining value for the delivered elements.

Revenues from software product licenses are recognized upon delivery of the software provided there is persuasive evidence of an agreement, the fee is fixed or determinable and collection of the related receivable is probable and no further obligations exist. Revenues under multiple-element arrangements, which may include software licenses, support and maintenance, and training and consulting services, are allocated to each element based on their respective fair values, based on vendor-specific objective evidence. This objective evidence represents the price of products and services when sold separately. Revenue is recognized for software licenses sold to resellers or distributors at the time of shipment, provided that all revenue recognition criteria set forth in SOP 97-2 are fulfilled.

Revenues from support and maintenance agreements are recognized ratably over the term of the maintenance period, which is typically one year. Revenues from training arrangements are recognized as the services are performed.

The Company generally does not grant a right of return to its customers. When a right of return exists, revenue is deferred until the right of return expires, at which time revenue is recognized provided that all other revenue recognition criteria are met.

Amounts collected or billed prior to satisfying the above revenue recognition criteria are reflected as deferred revenue. Deferred revenue primarily represents deferred maintenance revenue.

Advertising expenses are charged to the consolidated statements of operations as they are incurred. Advertising expenses totaled $218,000 in 2001, $40,000 in 2002, and $62,000 in 2003.

The Company has evaluated the establishment of technological feasibility of its products in accordance with SFAS No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed. The Company sells products in a market that is subject to rapid technological change, new product development and changing customer needs. Accordingly, the Company has concluded that technological feasibility is not established until the development stage of the product is nearly complete. The Company defines technological feasibility as the completion of a working model. The time period during which costs could be capitalized from the point of reaching technological feasibility until the time of general product release is very short. Consequently, the amounts that could be capitalized are not material to the Company's financial position or results of operations. Therefore, the Company has charged all such costs to research and development expense in the period incurred.

The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. SFAS No. 109 prescribes the use of the liability method whereby deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to be reversed. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.

The Company has elected to follow Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Options Issued to Employees and FASB Interpretation ("FIN") No. 44, Accounting for Certain Transactions Involving Stock Compensation, in accounting for its employee stock option plans. Under APB No. 25, when the exercise price of an employee stock option is equivalent to or above the market price of the underlying stock on the date of grant, no compensation expense is recognized. The Company adopted the disclosure provisions of SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure, which amended certain provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation, effective as of the beginning of the fiscal year. The Company continues to apply the provisions of APB No. 25 in accounting for stock-based compensation.

Pro forma information regarding the Company's net loss and net loss per share is required by SFAS No. 123 and has been determined as if the Company had accounted for its employee stock options under the fair value method prescribed by SFAS No. 123. The following table illustrates the

effect on net loss and net loss per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation.

		Year Ended December 31,
		2001			2002			2003
		(In thousands, except per share data)
Net loss, as reported		$	(17,431	)	$	(6,549	)	$	(5,085	)
Add: Stock-based employee compensation included in reported net loss			870			498			379
Deduct: Total stock-based employee compensation expense under fair value based methods			(1,622	)		(1,073	)		(873	)

Pro forma net loss		$	(18,183	)	$	(7,124	)	$	(5,579	)

Basic and diluted net loss per share:
	As reported	$	(1.07	)	$	(0.40	)	$	(0.31	)

	Pro forma	$	(1.11	)	$	(0.43	)	$	(0.34	)

The fair value for options granted in 2001, 2002 and 2003 is amortized over their vesting period and estimated at the date of grant using a Black-Scholes options pricing model with the following weighted average assumptions:

	Year Ended December 31,
	2001		2002		2003
Expected life of option	4 years		5 years		5 years
Dividend yield	—		—		—
Expected volatility	120	%	140	%	135	%
Risk-free interest rate	4.6	%	4.0	%	4.0	%

The Company applies SFAS No. 123 and Emerging Issues Task Force ("EITF") No. 96-18, Accounting for Equity Instruments that Are Issued to Other than Employee for Acquiring, or in Conjunction with Selling Goods or Services, with respect to options and warrants issued to nonemployees. SFAS No. 123 requires the use of option valuation models to measure the fair value of the options and warrants at the date of grant.

Basic and diluted net loss per share is presented in conformity with SFAS No. 128, Earnings Per Share, for all periods presented. Basic and diluted net loss per ordinary share was determined by dividing net loss attributable to ordinary shareholders by the weighted average ordinary shares outstanding during the period. Diluted net loss per ordinary share is the same as basic net loss per ordinary share for all periods presented, as the effects of the Company's potential additional ordinary shares were antidilutive.

Stock options outstanding as of each year end that were not included in the calculation of diluted net loss per share as their inclusion would be antidilutive totaled approximately 3,140,000 in 2001, 4,667,000 in 2002 and 3,710,000 in 2003.

The Company's financial instruments consist mainly of cash and cash equivalents, accounts receivable, and accounts payable. The carrying amounts of these instruments approximate their fair value due to their short-term maturity of such instruments.

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and accounts receivables.

Cash and cash equivalents are invested mainly in U.S. dollars with major banks in Israel and the United States. Such deposits in the United States may be in excess of insured limits and are not insured in other jurisdictions. Management believes that the financial institutions that hold the Company's investments are financially sound and, accordingly, minimal credit risk exists with respect to these investments.

Accounts receivable are derived from sales to customers located in the United States, Europe, Israel and Japan. The Company performs on-going credit evaluations of its customers and to date has not experienced any material losses. An allowance for doubtful accounts is maintained with respect to those amounts that the Company has determined to be doubtful of collection.

The Company has no significant off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements.

For each of the three years ended December 31, 2003, no customer individually comprised greater than 10% of total revenue. At December 31, 2002 and 2003, no customer represented greater than 10% of total accounts receivable.

In May 2003, the FASB issued SFAS No. 150, Accounting For Certain Financial Instruments with Characteristics of Both Liabilities and Equity, which establishes standards for how an issuer of financial instruments classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) if, at inception, the monetary value of the obligation is based solely or predominantly on a fixed monetary amount known at inception, variations in something other than the fair value of the issuer's equity shares or variations inversely related to changes in the fair value of the issuer's equity shares. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 is not expected to have a material impact on the Company's consolidated financial statements.

In January 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest Entities. The objective of FIN No. 46 is to improve financial reporting by companies involved with variable interest entities. A variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN No. 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. FIN No. 46 also requires disclosures about variable interest entities that the company is not required to consolidate but in which it has a significant

variable interest. The consolidation requirements of FIN No. 46 apply in the first fiscal year or interim period ending after March 15, 2004. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. As of December 31, 2003, the Company does not expect the adoption of FIN No. 46 to have a material impact on its consolidated financial statements.

Restructuring expenses totaled $1.7 million in 2001, which consisted of a $237,000 payment for the termination of a facility lease agreement in March 2001 and $1.4 million of restructuring charges. Restructuring expenses totaled $929,000 in 2002 and $245,000 in 2003 and consisted exclusively of restructuring charges.

The following is a reconciliation of the accrued restructuring charges for the years ended December 31, 2001, 2002 and 2003.

Accrued restructuring charges payable within one year have been classified as a current liability in the consolidated balance sheets.

The restructuring charges in 2001 were incurred in July 2001 and October 2001 when the Company implemented two separate restructuring plans to lower operating costs, in response to weak market conditions. Employee severance costs resulted from the termination of 61 employees, of whom 35 were sales and marketing employees, 12 were research and development employees, and 14 were general and administrative employees. The Company also incurred idle lease space and termination payments for

offices worldwide that were no longer required as a result of the reduction in personnel. In determining the costs of idle lease space, the Company has estimated the vacancy period and sub-lease income.

The restructuring charges in 2002 were incurred in January 2002 and December 2002, and related to additional employee severance costs, facility termination charges, property and equipment impairment, idle-lease space costs and vendor contract termination fees. Employee severance costs resulted from the termination of 28 employees, of whom 15 were sales and marketing employees, 11 were research and development employees, and 2 were general and administrative employees.

The restructuring charges in 2003 were incurred in April 2003, and related to additional employee severance costs, facility termination charges, idle-lease space costs and vendor contract termination fees. Employee severance costs, which were paid in 2003, resulted from the termination of 20 employees, of whom 6 were sales and marketing employees, 11 were research and development employees, and 3 were general and administrative employees.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured, initially at fair value, only when the liability is incurred; therefore, nullifying EITF No. 94-3, Liability Recognition for Certain Employee Termination benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring), that required a liability for an exit cost to be recognized at the date of an entity's announcement and commitment to an exit plan. The adoption of SFAS No. 146 is expected to result in delayed recognition for certain types of costs as compared to the provisions of EITF No. 94-3, especially for facility closure costs. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. Since SFAS 146 is effective only for new exit or disposal activities, the adoption of this standard did not affect amounts related to prior year restructuring currently reported in the Company's consolidated financial statements and did not have a material effect on the 2003 restructuring. The adoption of SFAS 146 could affect the types and timing of costs included in future business consolidation and restructuring programs.

	December 31,
	2002		2003
	(In thousands)
Equipment	$	3,374	$	3,454
Office furniture		215		218
Leasehold improvements		194		194

		3,783		3,866
Less—Accumulated depreciation		2,957		3,533

	$	826	$	333

Depreciation expense was $1.1 million in 2001, $875,000 in 2002, and $576,000 in 2003.

	December 31,
	2002		2003
	(In thousands)
Employee compensation and related costs	$	994	$	727
Accrued royalties (1)		110		—
Other accrued expenses		399		262

	$	1,503	$	989

The Company operates primarily from leased facilities. Lease agreements expire through August 2005. Annual minimum future rental payments due under the lease agreements as of December 31, 2003 are as follows:

In June 2003, the Company entered into an agreement for rights to re-brand, market and distribute certain software products of a third party under the Company's private label name of WebLOAD Analyzer. The Company is required to pay royalties based on selling price at rates decreasing from 50% to 20% based on specified revenue volume levels through December 2005. Royalty expense payable under this agreement is classified as cost of license revenues and was $25,000 in 2003.

As of December 31, 2003, the Company has authorized 40,000,000 ordinary shares NIS 0.01 par value. Ordinary shares confer upon their holders voting rights, the right to receive dividends or bonus shares, if declared, and the right to share in the excess assets upon liquidation of the Company.

In April 2001, the Company's board of directors approved a share repurchase program under which the Company may repurchase its ordinary shares for an aggregate consideration that shall not exceed $2.5 million. Purchases may be made based on market conditions from time-to-time at the discretion of management in open market purchases or privately negotiated transactions. Through December 31, 2003, the Company has repurchased 134,000 of ordinary shares at an aggregate cost of $100,000. Although such shares are legally considered outstanding, the Company has no dividend or voting rights associated with its treasury shares.

The Company has never paid cash dividends to shareholders. The Company intends to retain future earnings for use in its business and does not anticipate paying cash dividends on its ordinary

shares in the foreseeable future. Any future dividend policy will be determined by the board of directors and will be based upon conditions then existing, including results of operations, financial condition, current and anticipated cash needs, contractual restrictions and other conditions as the board of directors may deem relevant.

In November 2002, the Company established an employee share purchase plan (the "ESPP") which permits the eligible employees of the Company to purchase shares of the Company's ordinary shares at 85% of the closing market price on either the first day or the last day of the applicable three-month period, whichever is lower. Employees may participate in the ESPP through regular payroll deductions of up to 10% of their pre-tax gross salary. Subject to adjustment for stock splits, stock dividends and similar events, a maximum of 1,500,000 ordinary shares may be issued under the ESPP. Through December 31, 2002, 8,209 ordinary shares have been issued under the ESPP at a weighted average purchase price of $0.21 per share. No ordinary shares were issued in connection with the ESPP in 2003. As of December 31, 2003, there are 1,491,791 ordinary shares available for future issuance under the ESPP.

The Company has approved for issuance an aggregate of 7,811,862 ordinary shares for the issuance of stock options under three stock option plans as follows:

The 1996 Option Plan provides for the grant by the Company of option awards to officers and employees of the Company and its subsidiaries and to non-employees. The options granted under the 1996 Option Plan vest ratably over vesting periods ranging from three to five years of employment and expire 62 months from the date of issuance.

The 1997 Option Plan provides for the grant by the Company of nonqualified option awards to employees of RAD-Bynet Group of companies, which are affiliated companies. Options granted under this plan vest ratably over four years and expire 62 months from date of issuance. Through December 31, 2000, all available authorized options under this plan had been granted. No options were granted under this plan in 2001, 2002 and 2003. The Company accounted for these options in accordance with SFAS No. 123 utilizing the Black-Scholes option-pricing model. The Company has charged to operations $8,000 in 2001, $11,000 in 2002, and $8,000 in 2003.

The 2000 Option Plan provides for the grant by the Company of option awards to officers and employees of its U.S. subsidiary. Options granted under the 2000 Option Plan vest ratably over four years of employment and expire 10 years from the date of issuance.

Under all option plans, any options that are cancelled or forfeited before expiration become available for future grants. As of December 31, 2003, there were 2,826,294 options available for future grant.

Transactions related to the Company's stock option plans for the three years in the period ended December 31, 2003 are summarized as follows:

		Options Outstanding		Weighted Average Exercise Price Per Share		Weighted Average Fair Value of Options Granted
Outstanding, December 31, 2000		1,481,311		$	0.38
	Granted	1,784,000			1.56	$	1.19
	Exercised	(151,150	)		0.00
	Forfeited or cancelled	(1,848,733	)		2.00

Outstanding, December 31, 2001		3,139,606			1.85
	Granted	2,310,000			0.33	$	0.23
	Exercised	(64,100	)		0.55
	Forfeited or cancelled	(718,308	)		1.95

Outstanding, December 31, 2002		4,667,198			1.10
	Granted	817,500			0.17	$	0.15
	Exercised	(589,368	)		0.31
	Forfeited or cancelled	(1,185,166	)		1.59

Outstanding, December 31, 2003		3,710,164		$	0.87

Exercisable, December 31, 2001		1,276,063		$	1.48

Exercisable, December 31, 2002		2,108,995		$	1.35

Exercisable, December 31, 2003		2,125,761		$	1.16

The following table summarizes information about options outstanding and exercisable at December 31, 2003:

The amount of stock-based compensation arising from the difference between the exercise price and the fair market value on the date of the grant is included in shareholders' equity as deferred compensation and totaled $8.5 million in 2000, and none in 2001 and 2002. Under APB Opinion No. 25, deferred compensation is amortized over the vesting periods of the underlying options as stock-based compensation expense. Stock-based compensation expense included in the reported net loss totaled $878,000 in 2001, $509,000 in 2002 and $387,000 in 2003. Unamortized deferred compensation totaled $89,000 as of December 31, 2003.

During 2003, the Company extended the exercise period for a former employee. The extension was accounted for under FIN No. 44, by applying a new measurement date, which resulted in no additional compensation expenses.

The following table summarizes the weighted average fair value of options granted for each of the three years in the period ended December 31, 2003:

(a) Measurement of taxable income under the Income Tax (Inflationary Adjustments) Law, 1985:

Results for tax purposes of RadView Software Ltd. are measured and reflected in accordance with the change in the Israeli Consumer Price Index ("CPI"). As described in Note 2(b), the Company's consolidated financial statements are presented in U.S. dollars. The difference between the change in the Israeli CPI and the exchange rate between the U.S. dollar and the NIS causes a difference between taxable income or loss and the income or loss before taxes reflected in the consolidated financial statements. In accordance with SFAS No. 109, the Company has not provided deferred income taxes on this difference between the reporting currency and the tax bases of assets and liabilities.

(b) Tax benefits under the Law for the Encouragement of Capital Investments, 1959 ("the Law")

In 1998, the Company's investment program totaling $66,000 was granted "Approved Enterprise" status under the Law. The Company elected to adopt the "Alternative Benefits Program Status." This status entitles the Company to a benefit period of seven years on income derived from this program as follows: (a) a full income tax exemption for the first two years and (b) a reduced income tax rate of 25%, instead of the regular rate of 36%, for the remaining five-year period. Depending on the level of non-Israel investments in the Company, the period for which the Company is entitled to a reduced tax rate of 25% can be extended to eight years. The period of the benefit is limited to 12 years from commencement of production or 14 years from the date of approval. As the Company has not yet reported any taxable income, the benefit period has not yet commenced.

The benefits from the Company's approved enterprise programs are dependent upon the Company fulfilling the conditions stipulated by the Law for Encouragement of Capital Investments, 1959 and the regulations published under this law, as well as the specific criteria in the Company's approved enterprise programs. If the Company does not comply with these conditions, the tax benefits may be canceled, and the Company may be required to refund the amount of the canceled benefits, with the

addition of linkage differences and interest. As of the date of these financial statements, the Company believes it complies with these conditions.

If the Company distributes a cash dividend out of retained earnings which were tax exempt due to its approved enterprise status, the Company would have to pay a 25% corporate tax on the amount distributed, and a further 15% withholding tax would be deducted from the amounts distributed to the recipients.

Income derived from sources other than the approved enterprise programs is taxable at the regular corporate tax rate of 36%.

By virtue of this law, the Company is entitled to claim accelerated depreciation on equipment used by the "Approved Enterprise" during five tax years. The Company has received final approval in respect to the investment program.

(c) Tax benefits under Israel's Law for the Encouragement of Industry (Taxation), 1969

The Company currently qualifies as an "Industrial Company" under the Law for Encouragement of Industry (Taxes), 1969 and is therefore entitled to tax benefits, mainly accelerated depreciation of machinery and equipment and deduction of expenses incurred in connection with a public offering.

	Year Ended December 31,
	2001			2002			2003
	(In thousands)
Israel	$	(4,899	)	$	(916	)	$	(1,104	)
Foreign		(12,532	)		(5,633	)		(3,981	)

	$	(17,431	)	$	(6,549	)	$	(5,085	)

As of December 31, 2003, the Company's net operating loss carryforwards for Israeli tax purposes amounted to approximately $19.5 million. These net operating losses may be carried forward indefinitely and offset against future taxable business income. The Company expects that during the period in which these tax losses are utilized its income would be substantially tax-exempt. There will be no tax benefit available from these losses and no deferred income taxes have been included in these financial statements. Deferred taxes in respect of other temporary differences are immaterial.

Through December 31, 1995, the Company's losses for tax purposes were assigned to a shareholder, and are not available to the Company.

The U.S. subsidiary's carryforward tax losses through December 31, 2003 amounted to approximately $28.0 million. These losses are available to offset future U.S. taxable income of the U.S. subsidiary and will expire between the years 2012 and 2023. Net operating loss carryforwards are subject to review and possible adjustments by the Internal Revenue Service and may be limited in the event of certain cumulative changes in excess of 50% in the ownership interests of significant shareholders over a three-year period.

The components of the Company's U.S. deferred tax asset are approximately as follows:

	December 31,
	2002		2003
	(In thousands)
Net operating loss carryforwards	$	10,485	$	11,207
Temporary differences		133		78

		10,618		11,285
Less—Valuation allowance		10,618		11,285

Net deferred tax asset	$	—	$	—

The Company has recorded a full valuation allowance against its deferred tax asset due to the uncertainty surrounding the timing of the realization of these tax benefits.

The main reconciling items between the statutory tax rate of the Company and the effective tax rate are the non-recognition of tax benefits from accumulated net operating losses carry forward among the various subsidiaries worldwide due to the uncertainty of the realization of such tax benefits and the effect of approved enterprise.

The Company has received final tax assessments regarding tax years through the end of 1995.

On January 1, 2003, a comprehensive tax reform took effect in Israel. Pursuant to the reform, resident companies are subject to Israeli tax on income accrued or derived in Israel or abroad.

In addition, the concept of a "controlled foreign corporation" was introduced, according to which an Israeli company may become subject to Israeli taxes on certain income of a non-Israeli subsidiary if the subsidiary's primary source of income is passive income (such as interest, dividends, royalties, rental income or capital gains). The tax reform also substantially changed the system of taxation of capital gains.

	December 31,
	2002		2003
	(In thousands)
Accounts receivable	$	7		$	2
Accounts payable and accrued expenses		5			6

	Year Ended December 31,
	2001			2002			2003
	(In thousands)
Revenues	$	50		$	—		$	—
Costs and expenses		(110	)		(30	)		(34	)
Property and equipment purchased		195			4			—

Management believes that all related party transactions have been conducted on an arm's-length basis.

The Company has adopted SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information. The Company operates in one reportable segment (see Note 1 for a brief description of the Company's business). The total revenues are attributed to geographic areas based on the location of the end-user customer.

	Year Ended December 31,
	2001		2002		2003
	(In thousands)
United States	$	5,890	$	3,403	$	3,251
Europe		1,798		1,275		933
Israel		229		199		110
Other		729		891		542

	$	8,646	$	5,768	$	4,836

The following table presents a summary of quarterly results of operations for the years ended December 31, 2002 and 2003:

	Mar. 31, 2002			June 30, 2002			Sept. 30, 2002			Dec. 31, 2002
	(In thousands)
Total revenues	$	1,574		$	1,418		$	1,264		$	1,512

Gross profit	$	1,401		$	1,247		$	1,095		$	1,779

Net loss	$	(1,945	)	$	(1,637	)	$	(1,576	)	$	(1,391	)

Basic and diluted net loss per share	$	(0.12	)	$	(0.10	)	$	(0.10	)	$	(0.08	)

	Mar. 31, 2003			June 30, 2003			Sept. 30, 2003			Dec. 31, 2003
	(In thousands)
Total revenues	$	1,220		$	1,211		$	1,152		$	1,253

Gross profit	$	1,081		$	1,085		$	996		$	1,101

Net loss	$	(1,541	)	$	(1,395	)	$	(1,062	)	$	(1,087	)

Basic and diluted net loss per share	$	(0.09	)	$	(0.08	)	$	(0.06	)	$	(0.06	)

On March 10, 2004, the Company entered into an agreement for the private placement of 3,333,331 of its ordinary shares for an aggregate purchase price of $2.0 million. The investors also received four series of warrants to purchase an aggregate of up to 2,999,996 ordinary shares at exercise prices ranging from $0.87 to $0.99 per share. In addition, the Company granted the investors an option to purchase within one year an additional 3,333,331 ordinary shares at a purchase price of $0.81 per share. The Company realized net proceeds of approximately $1.8 million from this offering.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

As of December 31, 2003, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), an evaluation of the effectiveness of the Company's disclosure controls and procedures was performed. Based on this evaluation, the CEO and CFO have concluded that the Company's disclosure controls and procedures are effective to ensure that material information is recorded, processed, summarized and reported by management of the Company on a timely basis in order to comply with the Company's disclosure obligations under the Securities Exchange Act of 1934 and the SEC rules thereunder.

There were no significant changes in the Company's internal controls or in other factors during the fourth quarter of 2003 that have materially affected, or are reasonably likely to materially affect, the Company's internal controls.

The following table contains certain information about the directors and executive officers of the registrant:

Name	Age	Position
Shai Beilis	55	Chairman of the Board
Ilan Kinreich	46	Chief Executive Officer, President and Director
Christopher Dineen	34	Chief Financial Officer
William J. Geary	45	Director
Robert Steinkrauss	52	Director
Kathleen A. Cote	55	Director
David Assia	52	Director

SHAI BEILIS has served as a Director since May 1998. Mr. Beilis was elected as Chairman of the Board in May 2001. Mr. Beilis has been the Chairman and Managing Partner of Formula Ventures Ltd. since December 1998. From January 1995 until joining Formula Ventures Ltd., Mr. Beilis served as the Chief Executive Officer of Argotec Ltd., a wholly-owned subsidiary of Formula Systems (1985) Ltd. established in 1993 to capitalize on investment opportunities in the IT sector where he was responsible for initiating, overseeing and managing Argotec's investments. Before joining Formula Systems (1985) Ltd., Mr. Beilis served as Chief Executive Officer of Clal Computers and Technology Ltd. and was employed by Digital Equipment Corporation. Mr. Beilis serves as a director for Blue Phoenics Ltd., Applicom Software Industries Ltd. and several private companies. Mr. Beilis holds a B.S. degree in Mathematics and Economics from the Hebrew University in Jerusalem and a M.S. in Computer Science from the Weizmann Institute of Science.

ILAN KINREICH has served as a Director and our Chief Executive Officer and President since inception of our operations in 1993. From August 1989 to February 1991, Mr. Kinreich was a co-founder and Vice President of Research and Development at Mercury Interactive, a software testing

company. From May 1985 until joining Mercury Interactive, Mr. Kinreich held the position of Research and Development Manager at Daisy Systems. Prior to that, Mr. Kinreich was part of the integration team for the Lavi jet fighter. Prior to this, Mr. Kinreich served seven years in the Israel Defense Forces, holding the rank of Captain, where he led development and deployment of command and control systems. Mr. Kinreich holds a B.Sc. in Mathematics and Computer Science from Bar Ilan University.

CHRISTOPHER DINEEN has served as our Chief Financial Officer since June 2003. From June 2000 until his appointment as Chief Financial Officer, Mr. Dineen served as our Vice President of Finance. From September 1991 until joining us in June 2000, Mr. Dineen was an auditor with Arthur Andersen LLP serving clients in varied industries, including software, manufacturing, and advertising. Mr. Dineen has a B.S. in accounting from Northeastern University and is a Certified Public Accountant.

WILLIAM J. GEARY has served as a Director since December 1999. Mr. Geary is, and since the inception of North Bridge Venture Partners II, L.P. in 1996, has been, a general partner in multiple entities that serve as the general partner of multiple venture capital limited partnerships of North Bridge Venture Partners. Prior to 1996, Mr. Geary was a principal of the general partner of North Bridge Venture Partners, L.P. Mr. Geary holds a B.S. from Boston College, School of Management.

ROBERT STEINKRAUSS has served as a Director since the completion of our initial public offering in August 2000. Since December 2003, Mr. Steinkrauss has served as President and Chief Executive Officer of Ingrian Networks, Inc., a provider of data privacy network solutions. From March 2002 to December 2003, Mr. Steinkrauss has served as Treasurer for Wildcat Springs, a water distribution company he co-founded. From October 2000 to March 2002, Mr. Steinkrauss served as Chief Executive Officer of Taqua Systems. From November 1999 to April 2000, Mr. Steinkrauss served as Vice President and General Manager of the WAN Systems Group of Lucent Technologies Inc. Prior to that, Mr. Steinkrauss served as President of Xedia Corporation from February 1998 to November 1999. From February 1995 to February 1998, Mr. Steinkrauss served as Chairman, President and Chief Executive Officer of Raptor Systems Inc., which was sold to Axent Technologies Inc. in February 1998. Mr. Steinkrauss is a director of GeoTrust. Mr. Steinkrauss received a B.A. from Boston College, magna cum laude, and is a Certified Public Accountant.

KATHLEEN A. COTE has served as a Director since May 2001. From May 2001 to June 2003, Ms. Cote was the Chief Executive Officer of Worldport Communications, Inc., a company that provides managed hosting services to mid sized companies principally in Europe. Ms. Cote has also served as President of Seagrass Partners from September 1998 to May 2001. Seagrass Partners is a consulting firm that focuses on early-stage Internet companies. From 1996 to 1998, Ms. Cote served as President and Chief Executive Officer of Computervision Corporation and served as President and Chief Operating Officer of from 1995 to 1996. Ms. Cote currently serves on the board of directors of Forgent Networks, Inc and Western Digital Corporation. Ms. Cote is a former director of MediaOne Group, Baynetworks Inc., and Worldport Communications, Inc. Ms. Cote holds a B.A. from University of Massachusetts and an M.B.A. from Babson College.

DAVID ASSIA has served as an External Director of the Company since November 2002. Mr. Assia, a co-founder of Magic Software Enterprises Ltd., has served as Chairman and/or Vice Chairman of Magic Software since 1986, and as a director of Magic Software since its inception in 1984. From 1986 until September 1997, he was Chief Executive Officer of Magic Software. He also serves as a Director of Aladdin Knowledge Systems Ltd., Babylon Ltd. and Enformia Ltd. Mr. Assia holds B.A. and M.B.A. degrees from Tel Aviv University.

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers, and persons who own more than ten percent of a registered class of the Company's equity securities, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of ordinary share and other equity securities of the Company.

The Company believes that during the 2003 fiscal year, the officers, directors and holders of more than 10% of the Company's ordinary shares complied with all Section 16(a) filing requirements, with the following exceptions:

An affiliated group of companies consisting of Formula Ventures, L.P., FV-PEH, L.P. and Formula Ventures (Israel) L.P. sold an aggregate of 500,000 of the Company's ordinary shares in 25 transactions between October 27, 2003 and October 29, 2003. Beneficial ownership of these ordinary shares is also attributed to Shai Beilis, who is a director of Formula Ventures, Ltd., which manages each of the affiliated companies. These transactions were reported by Shai Beilis on a Form 4 filed on October 31, 2003, and were reported by each of Formula Ventures, L.P., FV-PEH, L.P. and Formula Ventures (Israel) L.P. on a Form 4 filed on November 6, 2003.

The Audit Committee of our Board of Directors is comprised of David Assia, Kathleen A. Cote and Robert Steinkrauss. The Board of Directors has determined that all three members of the Audit Committee are "audit committee financial experts" as that term is defined in Item 401 of Regulation S-K under the Securities Exchange Act of 1934. Each of the members of the Audit Committee satisfies the independence requirements under Rule 10-A3 of the Securities Exchange Act of 1934 and under Rule 4200(a)(15) of the Nasdaq Marketplace Rules and is an "independent director," as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934.

We have adopted a code of ethics and business conduct, or Code of Ethics, that applies to our principal executive officer, principal financial officer, principal accounting officer or controller and persons performing similar functions. Our Code of Ethics is located on our Internet website at www.radview.com. Any amendments or waivers to our Code of Ethics that apply to our principal executive officer, principal financial officer, principal accounting officer or controller and persons performing similar functions will be disclosed on our internet website within five business days following such amendment or waiver. The information contained on or connected to our Internet website is not incorporated by reference into this Form 10-K and should not be considered part of this or any other report we file with or furnish to the Securities and Exchange Commission.

The following tables set forth certain information with respect to compensation paid or accrued for services rendered to the Company in all capacities for each of the three fiscal years ended December 31, 2003 by its Chief Executive Officer and the other most highly compensated executive officer of the Company whose salary and bonus during the fiscal year ended December 31, 2003 exceeded $100,000 (collectively, the "Named Executive Officers"). No other executive officer of the Company earned greater than $100,000 in the fiscal year ended December 31, 2003.

		Annual Compensation				Long Term Compensation Awards
Name and Principal Position	Fiscal Year	Salary		Bonus		Other Annual Compensation	Number of Securities Underlying Options
Ilan Kinreich Chief Executive Officer and President	2003 2002 2001	$	179,038 190,000 184,000		$	— — 43,763		— — —		— 800,000 150,000
Christopher Dineen(1) Chief Financial Officer	2003 2002 2001		100,962 97,500 97,500			— — 11,500		— — —		75,000 60,000 37,000
Brian E. LeClair Vice President and Chief Financial Officer(2)	2003 2002 2001		106,985 200,000 200,000			— — 20,689	$	139,924 — —	(5)	25,000 175,000 35,000	(3) (3) (4)

Employment Contracts, Termination of Employment and Change of Control Arrangements

At the start of their employment, our employees in the United States generally sign offer letters specifying basic terms and conditions of employment as well as agreements that include confidentiality, non-compete provisions and assignment of intellectual property rights related to their employment. At the start of their employment, our employees in Israel generally sign written employment agreements that include confidentiality and non-compete provisions.

In addition, certain key employees of the Company, including Messrs. Kinreich and Dineen have a change of control agreement with the Company under which (i) fifty percent (50%) of unvested stock options and/or restricted shares then held by the employee shall immediately vest upon a change of control of the Company; (ii) they will receive a severance package consisting of six months' base salary, plus any accrued compensation, reimbursements and vacation time owed; and (iii) the remaining unvested stock options and/or restricted shares then held by the employee shall immediately vest, if the employee terminates his employment with the Company for a good reason, as defined therein, or his employment is terminated without cause, each within twelve (12) months of a change in control of the Company. Under the terms of the change of control agreements, a change of control will be deemed to have occurred upon the following events: a sale, lease or other transfer of all or substantially all of the assets of the Company; persons constituting the Board of Directors of the Company on the date of the agreement or new directors approved by those persons cease to constitute a majority of the members of the Board of Directors; a merger of the Company with another entity following which the shareholders of the Company do not own 50% of the voting power of the securities of the entity acquiring the Company; a third party acquires 25% or more of the total number of votes that may be cast for the

Directors of the Company; or the Directors adopt a resolution stating that a change in control has occurred for the purposes of the agreement.

The following table presents each grant of ordinary share options during the fiscal year ended December 31, 2003 to each of the Named Executive Officers.


		Number of Securities Underlying Options Granted*		Percent of Total Options Granted To Employees In 2003(1)
Name		Exercise Price Per Share(2)		Expiration Date
	5%		10%
Ilan Kinreich		—		—			—	—		—		—
Christopher Dineen		75,000	(4)	9.2	%	$	0.28	5/16/13	$	13,207	$	33,469

The following table sets forth information with respect to (i) stock options exercised in the fiscal year ended December 31, 2003 by the Named Executive Officers and (ii) unexercised stock options held by such individuals.


Name		Shares Acquired on Exercise(#)		Value Realized
	Exercisable		Unexercisable		Exercisable	Unexercisable
Ilan Kinreich		—			—	680,678	790,222	$	48,000	$	208,000
Christopher Dineen		—			—	94,968	107,032		15,271		26429
Brian E. LeClair(1)		87,456		$	39,924	—	—		—		—

This report is submitted by the Compensation Committee. The Compensation Committee consists of David Assia, Shai Beilis and William J. Geary. Each of the members of the Compensation Committee is an independent director under the rules of the SEC and Nasdaq. Pursuant to authority delegated by the Board of Directors, the Compensation Committee is responsible for reviewing and administering the Company's stock option plans and reviewing and approving salaries and other incentive compensation of the Company's officers and employees, including recommendations to the Board of Directors with respect to the grant of stock options to officers and employees.

Compensation Philosophy. The Company's executive compensation program is designed to attract, retain and reward executives in a competitive industry. To achieve this goal, the Compensation Committee applies the philosophy that compensation of executive officers should be linked to meeting specified performance goals.

Under the direction of the Compensation Committee, the Company has developed and implemented compensation policies. The Compensation Committee's executive compensation policies are designed to (i) enhance operating results of the Company and shareholder value, (ii) integrate compensation with the Company's annual and long-term performance goals, (iii) reward corporate performance, (iv) recognize individual initiative, achievement and hard work, and (v) assist the Company in attracting and retaining qualified executive officers. Currently, compensation under the executive compensation program is comprised of cash compensation in the form of annual base salary and bonus and long-term incentive compensation in the form of stock options.

Base Salary. The Compensation Committee reviews salaries periodically. The Compensation Committee's policy is to consider amounts paid to senior executives with comparable qualifications, experience and responsibilities at other publicly-held companies of similar size and engaged in a similar type of business to that of the Company, all of whom are constituent companies of the Nasdaq Computer Index. The Compensation Committee does not take into account the Company's relative performance as compared to comparable companies. The Compensation Committee also considers compensation information pertaining to the Company's industry including salary surveys, industry reports and other available information. The Compensation Committee analyzes this information to

recommend salaries. The Compensation Committee does not use a fixed or rigid formula to recommend salaries.

The salary compensation for the executive officers is based upon their qualifications, experience and responsibilities, as well as the attainment of planned objectives. Mr. Kinreich's planned objectives included: (1) implementing the 2003 operating plan, (2) building strategic relationships, and (3) executing product release plans. The Chief Executive Officer makes recommendations to the Compensation Committee regarding the planned objectives and executive compensation levels. The overall plans and operating performance levels upon which management compensation is based are reviewed and approved by the Compensation Committee on a periodic basis.

Bonus Compensation. Our executive officers are eligible for quarterly cash bonuses, which are based primarily on corporate achievements and individual performance objectives that are reviewed and approved by the Compensation Committee and established at the beginning and in the course of each year. After the completion of each quarter, the Compensation Committee reviews the attainment of corporate and individual objectives and recommends bonuses based on the extent to which corporate objectives were met or exceeded and individual contributions to the Company's overall performance. For the most recent fiscal year, the Company did not pay any bonus compensation to its executive officers.

Stock Options. The Company relies on incentive compensation in the form of stock options to retain and motivate executive officers and employees, which generally is provided through initial option grants at the date of hire and periodic additional grants. Incentive compensation in the form of stock options is designed to provide long-term incentives to executive officers and other employees, to encourage the executive officers and other employees to remain with the Company and to enable them to develop and maintain a stock ownership position in the Company's ordinary shares.

Awards take into account each officer's scope of responsibility and specific assignments, strategic and operational goals applicable to the officer, anticipated performance and contributions of the officer and competitive market data for similar positions. Options are granted with an exercise price equal to the fair market value of our ordinary shares on the date of grant. The standard vesting schedule provides that a portion of the shares subject to each option vest and become exercisable annually and quarterly over three- to four-year periods.

Option grants to executive officers are based on such factors as initiative, achievement and performance. In administering grants to executive officers, the Compensation Committee evaluates each officer's total equity compensation package. The Compensation Committee generally reviews the option holdings of each of the executive officers, including their vesting and exercise prices and the then current value of any unvested options. The Compensation Committee considers equity compensation to be an integral part of a competitive executive compensation package and an important mechanism to align the interests of management with those of the Company's shareholders.

Mr. Kinreich's stock-based compensation principally was tied to the Company's objectives of implementing the Company's operating plan, acquiring new customers and building strategic relationships and executing the Company's product release plans and was intended as a retention and incentive device for Mr. Kinreich.

David Assia, Shai Beilis and William J. Geary constitute the Company's Compensation Committee. None of our executive officers serve as a member of the board of directors or compensation committee of any entity that has any executive officer serving as a member of our Board of Directors or Compensation Committee.

We reimburse our Directors for expenses incurred to attend meetings of our Board of Directors and any committees of the Board of Directors. We also make an annual cash payment in the amount of $5,000 to our Directors, other than Mr. Kinreich, and grant options to purchase ordinary shares to our Directors from time to time and to comply with Israeli regulations.

The following graph shows the cumulative shareholder return of the Company's ordinary shares from August 10, 2000 through December 31, 2003 as compared with that of the Nasdaq Composite and the Nasdaq Computer Index. The graph assumes the investment of $100 in the Company's ordinary shares and each of the comparison groups on August 10, 2000 and assumes the reinvestment of dividends. The Company has never declared a dividend on its ordinary shares. The ordinary share price performance depicted in the graph below is not necessarily indicative of future price performance. This graph is not "soliciting material," is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference in any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934 whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

The following table sets forth certain information known to us regarding the beneficial ownership of our ordinary shares as of March 18, 2004, unless otherwise indicated, by: (i) each person known by us to beneficially own more than 5% of our ordinary shares; (ii) each Director of the Company; (iii) each executive officer named in the Summary Compensation Table above; and (iii) all of our Directors and executive officers as a group. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, ordinary shares under options and warrants held by that person that are currently exercisable or exercisable within 60 days of March 18, 2004 are considered outstanding. These shares, however, are not considered outstanding when computing the percentage ownership of each other person. Except as indicated in the footnotes to this table and pursuant to state community property laws, each shareholder named in the table has sole voting and investment power for the shares shown as beneficially owned by them. Ownership percentages are based on 20,401,097 ordinary shares outstanding on March 18, 2004. Unless otherwise noted below, each shareholder's address is c/o RadView Software Ltd., 7 New England Executive Park, Burlington, Massachusetts 01803.

The following table sets forth certain information, as of December 31, 2003, regarding the Company's equity compensation plans.

The Key Employee Plan is administered by the Compensation Committee, which has the authority to submit recommendations to the Board of Directors as to the issuance of options under the plan. All employees, directors and consultants of the Company and its affiliates are eligible to participate in the Key Employee Plan.

Options granted under the Key Employee Plan after January 1, 2003 are intended to comply with the "capital gains" provision of Section 102 of the Israeli Income Tax Ordinance.

Stock options granted under the Key Employee Plan may not be granted at a price less than the par value of the ordinary shares on the date of grant. If any option award, or any part thereof, under the Key Employee Plan has not been exercised and the shares covered thereby not paid for within sixty-two (62) months after the date of grant (or any other period set forth in the instrument granting such option award), such option award, or such part thereof, terminates. An option granted under the Key Employee Plan is exercisable, during the optionholder's lifetime, only by the optionholder and is not transferable by him or her except by will or by the laws of descent and distribution.

After the termination of an optionholder's employment with the Company, or cessation of status as a director or consultant of the Company (other than by reason of death, disability or termination for cause as defined in the Key Employee Plan), all rights in respect of options granted under the Key Employee Plan and held at the date of termination terminate within two weeks after the termination or cessation of status. Generally, in the event of the optionholder's termination for cause, all outstanding and unexercised options granted under the Key Employee Plan are forfeited.

The Key Employee Plan may be amended by the Board of Directors of the Company. Each grantee is responsible for all personal tax consequences of the grant, the exercise and the sale of shares thereof.

The Company's Board of Directors approved the Affiliate Employees Option Plan (the "Affiliate Plan") in 1997. The Company has reserved 75,240 ordinary shares for issuance under the Affiliate Plan. The Company "s Board of Directors has adopted a resolution providing that from the date of its initial public offering and thereafter it will not issue any additional options under the Affiliate Plan.

The purpose of the Affiliate Plan was to provide incentives to employees, directors and consultants of affiliates of the Company belonging to the RAD-Bynet group of companies, by providing them with opportunities to purchase shares in the Company, in order to provide them with incentives to assist in the promotion of the Company's business. The Affiliate Plan is administered by the Compensation Committee.

If any option award under the Affiliate Plan has not been exercised and the shares covered thereby not paid for within 62 months after the date of grant, unless otherwise agreed to by the Compensation Committee, such option award terminates. An option granted under the Affiliate Plan is exercisable, during the optionholder's lifetime, only by the optionholder and is not transferable by him or her except by will or by the laws of descent and distribution.

After the termination of the optionholder's employment with any affiliate of the Company, or cessation of status as a director or consultant of any affiliate of the Company (other than by reason of death or disability), all rights in respect of options held at the date of termination terminate within two weeks after the termination or cessation of status. Generally, in the event of the optionholder's termination for cause, all outstanding and unexercised options are forfeited.

The Affiliate Plan may be amended by the Company's Board of Directors. Each grantee is responsible for all personal tax consequences of the grant, the exercise and the sale of shares thereof.

The following table presents the aggregate fees for professional audit services and other services rendered by the Company's independent auditors, Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, in 2002 and 2003.

Audit Fees consist of fees billed for the annual audit and the quarterly reviews of the Company's consolidated financial statements. They also include fees billed for other audit services, which are those services that only the external auditor reasonably can provide, and include the review of documents filed with the SEC.

Tax Fees include fees billed for tax compliance services, including the preparation of tax returns and claims for refund and tax consultations.

The Audit Committee is required to approve in advance any audit or non-audit services performed by the Company's independent public accountants that do not meet the pre-approval standards established by the audit committee. The pre-approval policies and procedures established by the Audit Committee require that the Audit Committee meet with the independent auditor and financial management prior to the audit to review planning and staffing, the scope of the proposed audit for the current year, the audit procedures to be utilized, and the proposed fees. During 2003, 100% of the tax fees were pre-approved by the Audit Committee.

In March 2004, the Company adopted a comprehensive corporate governance program, including corporate governance guidelines for the Board of Directors and new charters for the Company's Audit and Compensation Committees. The Company maintains a corporate investor relations website at www.radview.com where shareholders and other interested persons may review, among other things, the Company's corporate governance materials and certain SEC filings, such as the Company's annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, annual reports, Section 16 reports reflecting certain changes in the stock ownership of our directors and Section 16 executive officers, and certain other documents filed with the Commission, each of which are generally available on such site on the same business day as the filing date with the Commission.

In addition, the Company will post the latest versions of its corporate governance guidelines, the Company's Audit Committee and Compensation Committee charter, as well as the Company's code of business conduct, which includes the Company's code of ethics for senior financial officers, each of which the Company will provide in print, without charge, upon written request to RadView Software, Inc., 7 New England Executive Park, Burlington, MA 01803, attn: Investor Relations.

All schedules have been omitted because either they are not required, are not applicable, or the information is otherwise set forth in the Consolidated Financial Statements and notes thereto.

Exhibit No.		Description
3.1		Memorandum of Association of Registrant (English translation) (filed as Exhibit 3.1 to the Company's Registration Statement on Form F-1, No. 333-41526, and incorporated herein by reference)
3.2		Amended and Restated Form of Articles of Association of Registrant (filed as Appendix B to the Company's Proxy Statement Pursuant to Section 14(a) for the Year Ended December 31, 2000, and incorporated herein by reference)
4.1		Form of Ordinary Share Certificate (filed as Exhibit 4.1 to the Company's Registration Statement on Form F-1, No. 333-41526, and incorporated herein by reference)
4.2		Investor Rights Agreement (filed as Exhibit 4.2 to the Company's Registration Statement on Form F-1, No. 333-41526, and incorporated herein by reference)
10.1		Lease Agreement for 2 Habarzel St., Tel-Aviv, 69710, Israel (English Translation) (filed as Exhibit 10.1 to the Company's Registration Statement on Form F-1, No. 333-41526, and incorporated herein by reference)
10.2		Lease Agreement for 7 New England Executive Park, Burlington, Massachusetts, 01803 (filed as Exhibit 10.2 to the Company's Registration Statement on Form F-1, No. 333-41526, and incorporated herein by reference)
10.3		Lease Agreement for 890 Hillview Court, Suite 130, Milpitas, California 95035 (filed as Exhibit 10.3 to the Company's Registration Statement on Form F-1, No. 333-41526, and incorporated herein by reference)
10.4		Amended and Restated Key Employee Share Incentive Plan (1996)
10.5		Amended and Restated United States Share Incentive Plan (2000) (filed as Exhibit 99.2 to the Company's Registration Statement on Form S-8, No. 333-67086, and incorporated herein by reference)
10.6		Form of Indemnification Agreement (filed as Exhibit 10.7 to the Company's Registration Statement on Form F-1, No. 333-41526, and incorporated herein by reference)
10.7		Employee Share Purchase Plan (filed as Exhibit 10.1 to the Company's Form10-Q for the quarterly period ended September 30, 2002, and incorporated herein by reference)
10.8		Employment Agreement dated February 6, 2001 with Ilan Kinreich, President and Chief Executive Officer (filed as Exhibit 10.1 to the Company's Form 10-Q for the quarterly period ended March 31, 2001, and incorporated herein by reference)
10.9		Employment Agreement dated September 16, 2003 with Christopher Dineen, Chief Financial Officer (filed as Exhibit 10.1 to the Company's Form 10-Q for the quarter ended September 30, 2003, and incorporated herein by reference)

Pursuant to the requirements of the Securities Act of 1934, the registrant, RadView Software Ltd., has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Burlington, in the Commonwealth of Massachusetts, on this 26th day of March, 2004.

Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated:

		Page
	PART I
Item 1.	Business	1
	Company Overview	1
	2003 Business Highlights	2
	Industry Background	2
	Distributed Computing Environments	2
	Characteristics of Web Applications	3
	Importance of Web Application Integrity and Performance	3
	Our Market Opportunity	3
	Our Solution	4
	Our Strategy	4
	Products	6
	Services	9
	Customers	9
	Sales and Marketing	9
	Customer Support	10
	Research and Development	10
	Product Technology and Architecture	10
	Competition	11
	Proprietary Rights	12
	Employees	12
	Available Information	12
Item 2.	Properties	13
Item 3.	Legal Proceedings	13
Item 4.	Submission of Matters to a Vote of Security Holders	13
	PART II
Item 5.	Market for Registrant's Common Equity and Related Stockholder Matters	14
Item 6.	Selected Consolidated Financial Data	15
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	16
	Risk Factors	30
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	39
Item 8.	Financial Statements and Supplementary Data	40
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	65
Item 9A.	Controls and Procedures	65
	PART III
Item 10.	Directors and Executive Officers of the Registrant	65
Item 11.	Executive Compensation	67
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	73
	Equity Compensation Plan Information	75
Item 13.	Certain Relationships and Related Transactions	76
	PART IV	77
Item 14.	Principal Accountant Fees and Services	77
Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	78
	Signatures	80

			Year Ended December 31,
			1999			2000			2001			2002			2003
			(In thousands)
Consolidated Statements of Operations Data:
Revenues:
	Software licenses		$	4,701		$	8,994		$	5,829		$	3,389		$	2,549
	Services			409			1,796			2,817			2,379			2,287

		Total revenues		5,110			10,790			8,646			5,768			4,836

Cost of revenues:
	Software licenses			340			572			271			63			147
	Nonrecurring royalty reversal			—			—			—			(448	)		—
	Services			67			478			1,169			631			426

		Total cost of revenues		407			1,050			1,440			246			573

Gross profit				4,703			9,740			7,206			5,522			4,263

Operating expenses:
	Sales and marketing			3,973			11,599			13,898			5,255			4,131
	Research and development			1,705			5,223			6,046			3,316			2,802
	General and administrative			1,192			3,068			2,857			2,223			1,764
	Stock-based compensation			234			1,418			878			509			387
	Restructuring charges			—			—			1,671			929			245

		Total operating expenses		7,104			21,308			25,350			12,232			9,329

Loss from operations				(2,401	)		(11,568	)		(18,144	)		(6,710	)		(5,066	)

Other income (expense):
	Interest income (expense), net			(305	)		565			693			127			32
	Other income (expense), net			(35	)		18			20			34			(51	)

Net loss				(2,741	)		(10,985	)		(17,431	)		(6,549	)		(5,085	)

Dividend to certain preferred shareholders				—			2,585			—			—			—

Net loss attributable to ordinary shareholders			$	(2,741	)	$	(13,570	)	$	(17,431	)	$	(6,549	)	$	(5,085	)

Basic and diluted net loss attributable to ordinary shareholders			$	(0.80	)	$	(1.51	)	$	(1.07	)	$	(0.40	)	$	(0.31	)

Weighted average number of shares used in computing basic and diluted net loss attributable to ordinary shareholders				3,414			8,968			16,346			16,455			16,595

		As of December 31,
		1999		2000		2001		2002		2003
		(In thousands)
Consolidated Balance Sheet Data:
	Cash, cash equivalents and short-term investments	$	8,165	$	33,469	$	13,182	$	7,566	$	3,075
	Working capital		7,002		26,591		10,935		5,915		1,534
	Total assets		10,850		39,713		17,425		10,607		5,155
	Long-term debt, less current portion		3,562		—		—		—		—
	Related party loan, less current portion		1,332		—		—		—		—
	Total shareholders' equity		2,851		29,004		12,351		6,311		1,796

	Payments due by Period
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(In Thousands)
Operating leases	$	675	$	546	$	129	$	—	$	—
Severance pay(1)		619		—		—		—		619

Total	$	1,294	$	546	$	129	$	—	$	619

			December 31,
			2002			2003
ASSETS
Current Assets:
	Cash and cash equivalents		$	7,566		$	3,075
	Accounts receivable, net of reserves of $171 at December 31, 2002 and $72 at December 31, 2003			1,026			678
Prepaid expenses and other current assets				506			426

		Total Current Assets		9,098			4,179

	Property and Equipment, net			826			333
	Other Assets			683			643

		Total Assets	$	10,607		$	5,155

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
	Accounts payable		$	358		$	367
	Accrued expenses			1,503			989
	Accrued restructuring charges, current portion			271			225
	Deferred revenue			1,051			1,064

		Total Current Liabilities		3,183			2,645

Long-term Liabilities:
	Accrued restructuring charges, less current portion			341			95
	Accrued severance pay			772			619

		Total Long-Term Liabilities		1,113			714

		Total Liabilities		4,296			3,359

Commitments (Note 7)
Shareholders' Equity:
	Ordinary shares, NIS 0.01 par value— Authorized—40,000,000 shares; Issued—16,605,177 shares at December 31, 2002 and 17,194,545 shares at December 31, 2003; and Outstanding—16,471,177 shares at December 31, 2002 and 17,060,545 shares at December 31, 2003			42			43
	Treasury shares, at cost—134,000 shares at December 31, 2002 and 2003			(100	)		(100	)
	Additional paid-in capital			54,888			55,010
	Deferred compensation			(536	)		(89	)
	Accumulated deficit			(47,983	)		(53,068	)

		Total Shareholders' Equity		6,311			1,796

		Total Liabilities and Shareholders' Equity	$	10,607		$	5,155


		Kost Forer Gabbay & Kasierer A Member of Ernst & Young Global


		Luboshitz Kasierer An affiliate member of Ernst & Young International

		Ordinary Shares				Treasury Shares
		Number of Shares	Value			Number of Shares	Value			Additional Paid-In Capital			Deferred Compensation			Accumulated Deficit			Total Shareholders' Equity
Balance, December 31, 2000		16,366,572	$	42		—	$	—		$	58,688		$	(5,723	)	$	(24,003	)	$	29,004
	Exercise of options	166,296		(*	)	—		—			—			—			—			—
	Purchase of treasury shares	—		—		134,000		(100	)		—			—			—			(100	)
	Issuance of options to consultants	—		—		—		—			15			(15	)		—			—
	Amortization of deferred compensation	—		—		—		—			—			878			—			878
	Adjustment for forfeiture of stock options	—		—		—		—			(3,473	)		3,473			—			—
	Net loss	—		—		—		—			—			—			(17,431	)		(17,431	)

Balance, December 31, 2001		16,532,868	$	42		134,000	$	(100	)	$	55,230		$	(1,387	)	$	(41,434	)	$	12,351
	Exercise of options	64,100		(*	)	—		—			—			—			—			—
	Issuance of shares pursuant to employee share purchase plan	8,209		(*	)	—		—			—			—			—			—
	Amortization of deferred compensation	—		—		—		—			—			509			—			509
	Adjustment for forfeiture of stock options	—		—		—		—			(342	)		342			—			—
	Net loss	—		—		—		—			—			—			(6,549	)		(6,549	)

Balance, December 31, 2002		16,605,177	$	42		134,000	$	(100	)	$	54,888		$	(536	)	$	(47,983	)	$	6,311
	Exercise of options	589,368		1		—		—			182			—			—			183
	Amortization of deferred compensation	—		—		—		—			—			387			—			387
	Adjustment for forfeiture and cancellations of stock options	—		—		—		—			(60	)		60			—			—
	Net loss	—		—		—		—			—			—			(5,085	)		(5,085	)

Balance, December 31, 2003		17,194,545	$	43		134,000	$	(100	)	$	55,010		$	(89	)	$	(53,068	)	$	1,796

(*) Represents an amount less than $1.

Description		Balance, Beginning of Year		Provision		Payments and Write-offs			Balance, End of Year
		(In thousands)
Year Ended— December 31, 2001:
	Employee severance costs	$	—	$	634	$	(634	)	$	—
	Idle-lease costs		—		339		(108	)		231
	Property and equipment impairment		—		369		(369	)		—
	Vendor contract termination fees		—		92		(92	)		—

		$	—	$	1,434	$	(1,203	)	$	231

December 31, 2002:
	Employee severance costs	$	—	$	349	$	(349	)	$	—
	Idle-lease costs		231		474		(93	)		612
	Property and equipment impairment		—		97		(97	)		—
	Vendor contract termination fees		—		9		(9	)		—

		$	231	$	929	$	(548	)	$	612

December 31, 2003:
	Employee severance costs	$	—	$	215	$	(215	)	$	—
	Idle-lease costs		612		22		(314	)		320
	Vendor contract termination fees		—		8		(8	)		—

		$	612	$	245	$	(537	)	$	320

		Amount
		(In thousands)
For the Year Ending December 31,
	2004	$	546
	2005		129

			675
Less: Idle-lease cost amounts included in accrued restructuring			320

		$	355

	Options Outstanding				Options Exercisable
Exercise Price	Number Outstanding at December 31, 2003	Weighted Average Remaining Contractual Life in Years	Weighted Average Exercise Price		Number Outstanding at December 31, 2003	Weighted Average Exercise Price
$0.16	442,068	4.2	$	0.16	151,918	$	0.16
$0.25–$0.39	1,643,133	8.0		0.28	583,261		0.28
$0.63–$1.00	1,398,703	3.2		0.91	1,214,879		0.92
$2.25	95,000	3.7		2.25	65,312		2.25
$8.21–$10.00	131,260	3.3		9.22	110,391		9.24

	3,710,164	5.5	$	0.87	2,125,761	$	1.16

		For Options on the Grant Date that:
For the Year Ended:		Exercise Price is Less than Market Price	Exercise Price is Equal to Market Price		Exercise Price is Greater than Market Price
December 31, 2001:
	Weighted average exercise price	—	$	1.26	$	2.14
	Weighted average fair value on grant date	—	$	1.06	$	1.79
December 31, 2002:
	Weighted average exercise price	—	$	0.27	$	0.77
	Weighted average fair value on grant date	—	$	0.24	$	0.19
December 31, 2003:
	Weighted average exercise price	—	$	0.16	$	0.32
	Weighted average fair value on grant date	—	$	0.14	$	0.24

Name of Beneficial Owner:		Total Shares Beneficially Owned	Percentage of Ordinary Shares
Five Percent Shareholders:
	Computer Associates International, Inc. (1)	1,635,067	8.0	%
	Formula Ventures (2)	1,825,623	8.9	%
	North Bridge Venture Partners (3)	1,666,666	8.2	%
	Zohar Zisapel (4)	2,079,522	10.2	%
	Yehuda Zisapel (5)	2,079,522	10.2	%
Directors and Executive Officers:
	Ilan Kinreich (6)	1,201,781	5.7	%
	Christopher Dineen (7)	119,822	*
	Shai Beilis (2) (8)	1,969,373	9.6	%
	William Geary (3) (9)	1,810,416	8.8	%
	Robert Steinkrauss (10)	143,750	*
	Kathleen A. Cote (11)	143,750	*
	David Assia (12)	100,000	*
	All executive officers and Directors as a group (7 persons) (2) (3) (6) (7) (8) (9) (10) (11)(12)	5,488,892	25.0	%

Plan Category	Number of Securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)	(b)		(c)
Equity compensation plans approved by security holders (1)	1,855,477	$	0.63	3,458,635
Equity compensation plans not approved by security holders (2)	1,854,687	$	1.11	859,450

Total	3,710,164	$	0.87	4,318,085

	Year Ended December 31,
	2002		2003
Audit Fees	$	60,000	$	60,000
Audit Related Fees		—		—
Tax Fees		5,000		5,000
All Other Fees		—		—

	$	65,000	$	65,000

21.1		Subsidiaries of the Registrant (filed as Exhibit 21.1 to the Company's Form 10-K for the year ended December 31, 2001, and incorporated herein by reference)
23.1*		Notice Regarding Lack of Consent of Arthur Andersen LLP
23.2*		Consent of Independent Auditors, Luboshitz Kasierer, an affiliate member of Ernst & Young International
23.3*		Consent of Independent Auditors, Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global
31.1*		Certification by Chief Executive Officer pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification by Chief Financial Officer pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32*		Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

		RADVIEW SOFTWARE LTD.
		By:		/s/ ILAN KINREICH Ilan Kinreich President and Chief Executive Officer

Signature	Title	Date

/s/ ILAN KINREICH Ilan Kinreich	President, Chief Executive Officer and Director	March 26, 2004
/s/ SHAI BEILIS Shai Beilis	Director and Chairman of the Board	March 26, 2004
/s/ WILLIAM GEARY William Geary	Director	March 26, 2004
/s/ ROBERT STEINKRAUSS Robert Steinkrauss	Director	March 26, 2004
/s/ KATHLEEN A. COTE Kathleen A. Cote	Director	March 26, 2004
/s/ DAVID ASSIA David Assia	Director	March 26, 2004
/s/ CHRISTOPHER DINEEN Christopher Dineen	Chief Financial Officer	March 26, 2004