RADVIEW SOFTWARE LTD - 10-K Annual Report

RADVIEW SOFTWARE LTD.
(Exact name of registrant as specified in its charter)

7 New England Executive Park
Burlington, MA 01803
(Address of principal executive offices)

Telephone Number (781) 238-1111
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(g) of the Act:
Ordinary Shares, NIS 0.01 par value
(Title of Class)

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. ý

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, 2004: $8,280,847 (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 22, 2005, there were 20,525,682 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.

We provide an integrated suite of products that comprehensively verifies the performance, scalability, and integrity of web applications throughout the development lifecycle. Together our award-winning products provide all the technology needed to implement an organized, efficient process for automated testing through central consoles, seamless script sharing and support for open-standards. By using our family of products customers can detect and resolve issues faster and improve the quality of their web applications.

Over 1,550 customers worldwide have purchased our products, such as 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 March 2004, we raised $1.8 million in net proceeds from a private placement of 3.3 million of our ordinary shares. The investors also received warrants to purchase an aggregate of up to 3.0 million ordinary shares at exercise prices ranging from $0.87 to $0.99 per share that are exercisable over terms of two years to four-and-one-half years from September 2004. Warrants to purchase 666,664 of our ordinary shares are no longer exercisable. In addition, we also granted the investors an option to purchase an additional 3.3 million ordinary shares at a purchase price of $0.81 per share that is exercisable over a one-year term from September 2004.

In May 2004, we launched the TestView product suite, a comprehensive web testing solution that integrates RadView's functional and load testing technology with new test management software through a central console. The TestView suite provides a framework for quality testing processes and

provides comprehensive reporting and automated test execution helping the testing and quality assurance professional to be efficient in rapidly delivering high-quality web applications.

In June 2004, we upgraded our sales organization, adding resources to manage the Asia-Pacific market, sharpening our focus in Europe, and integrating the sales teams across all geographies under one leadership, promoting William Spain to lead our worldwide sales operations.

In July 2004, we completed a $1.0 million technology license transaction for our WebLOAD product with Ixia, an original equipment manufacturer, pursuant to the exercise of an option by Ixia under the terms of a development, publishing and distribution agreement. The technology license provides Ixia with expanded rights including the right to access and use source code for the WebLOAD product and the right to create derivative products and provided that Ixia would pay to us reduced royalties on sales of WebLOAD through July 2005. In November 2004, Ixia exercised its right to make a payment of $250,000 to us in lieu of its obligations to pay the reduced royalty.

In December 2004, we entered into a license and distribution agreement with Allen Systems Group, or ASG, under which we granted ASG the non-exclusive right to distribute of our TestView suite of products. The distribution rights will provide ASG with a testing solution, in particular one targeted at businesses that are moving from mainframe applications to web applications. ASG is required to pay to us a royalty on its sales of TestView products and to distribute these products under its own name. We expect to benefit from the expanded geographic distribution provided by ASG into markets such as China and Brazil where mutually developed localized versions will be introduced. At any time within the first six months of the agreement ASG has the option to purchase a source code technology license for the TestView suite of products for $2.5 million, payable in two annual installments, and a reduced on-going royalty obligation to us for two years following the exercise date.

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 $6.5 million in 2002, $5.1 million in 2003 and $3.8 million in 2004. 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. We have lowered our operating costs over the past four years to more closely align costs with our expected revenues. We are focused on increasing our revenues in order to continue to reduce our net loss and ultimately achieve profitability and positive cash flow.

We market our products to and derive our revenues from customers located primarily in the United States, Canada, Europe, Israel, and Asia Pacific. A significant majority of our revenues is derived from customers in the United States. Our products are written and operated primarily in the English language. We believe there is a need for our products in other geographic regions around the world. We plan to continue to expand our international distribution capabilities through the addition of new regional distributors and resellers in Europe and Asia Pacific as well as through our original equipment manufacturing, or OEM, channel partners that already have well-established international distribution channels. In support of our various international distribution partners, we plan to introduce new versions of our existing products in 2005 that may be translated readily by third parties into other local languages. As we expand our geographic capabilities, we expect our revenues from international customers to increase as a percentage of our total revenues.

We believe that our software provides the most comprehensive verification of web applications, including scalability, efficiency and reliability. Our software supports 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 is used for benchmarking the performance of web applications by testing laboratories, trade media and independent software vendors.

In 2004, we introduced a comprehensive testing suite to address major areas of web application testing, including load testing, functional testing, root-cause analysis and test automation, all of which conveniently share the same script for greater efficiency.

We continue to work with third party technology partners to provide our customers with root-cause analysis solutions to reduce the time they spend locating problems within their web applications.

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. We plan to continue to develop strategic technology and marketing relationships with leading providers of web-related software.

We further believe that certain proprietary technologies used in our products may have alternative uses for other companies in their respective markets. For example, in February 2003, we formed a strategic relationship with Ixia for the use of our WebLOAD product on their 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. As a result of this relationship, we generated license revenues in the form of royalties and ultimately completed a technology license arrangement in July 2004 for a source code license that provided us with an up front cash payment that will be recognized as revenue through June 2005. We plan to continue to develop similar distribution relationships with other companies where our products and technologies may be beneficial.

To date, we have licensed our software to over 1,550 companies worldwide. 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 an 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. Our suite of products combines 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 assess 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. This also makes our software easier to use and allows it 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. Companies using our products have the ability to verify the performance of web applications for each simulated user or transaction.

By identifying and recording the root cause of a problem, 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 seamlessly share test scripts, templates and results between products, allowing previously isolated technical teams within a company to work on a coordinated and collaborative basis.

Ease of Use. All of our test scripts are generated using JavaScript, the programming 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 run on a variety of platforms and 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.

The TestView suite is a web application test management solution that automates the creation of sophisticated functional and load test scripts from one central location. With the TestView suite, customers can define, schedule, execute, and report test scripts from a centralized console. These capabilities address the needs of customers to build efficient, reliable, and organized test plans and processes. This allows them to successfully test and deploy high performing web applications.

Define and Store Sophisticated Test Scripts. The TestView suite enables customers to easily create a test-plan tree that consists of hundreds of automated tests. Once tests are defined, the TestView suite allows users to store them in a central repository where they can readily be accessed and reused.

Schedule and Execute Test Scripts. The TestView suite gives users the ability to schedule the execution of a test for anytime it is convenient—by time, by day, even overnight and during the weekend. The TestView suite fully automates the execution of tests, allowing users to work on other tasks while running tests. These capabilities save customers time and improve their efficiency.

Intelligent Results Reporting. The TestView suite provides users with intelligent summary reports that allow them rapidly assess the readiness of a web application for production. Users may view results of an entire test plan comprised of many individual test scripts, or if details are needed users may easily drill-down to quickly see the summary of a specific test script within a plan.

Using WebLOAD, customers create test scripts that simulate users' interactions with web applications. These scripts are written 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 site visitors that browse 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 patented 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 and ensure they perform as expected. 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 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 in a 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 recorded and 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, users 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 and time to recreate.

WebLOAD Analyzer was introduced in July 2003. We license the technology for WebLOAD Analyzer from Altaworks Corporation, and its successor OPNET Technologies, Inc., 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 1,550 customers worldwide. Our customers include companies across a broad range of industries, including financial services, technology, retail, manufacturing, telecommunication, health care and education.

Our customers are located primarily in the United States, Canada, Europe, Asia Pacific, and Israel. Revenues derived from customers in the United States as a percent of total revenues were 59.0% in 2002, 67.2% in 2003 and 73.1% in 2004. While we expect to continue to derive the majority of our revenues from the United States, we expect to derive an increasing percentage of our revenues from Europe and Asia Pacific as a result of our recent investments in international distribution capacity and the anticipated release of products that may be readily translated into local languages.

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 OEM partners, 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 12.2% in 2002, 12.8% in 2003 and 22.3% in 2004. We expect revenues from indirect channels to increase as we expand our distribution capacity with resellers in Asia Pacific and recognize revenue from existing and anticipated future OEM royalty and technology license fee arrangements.

Marketing. We engage in a variety of company and product marketing activities and provide product information through our website. We offer free trials of our TestView suite, WebLOAD and WebFT software that can be downloaded from our website. Our marketing programs are aimed at informing customers and prospects 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, and cultivating relationships with key technology analysts.

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 $3.3 million in 2002, $2.8 million in 2003, and $2.6 million in 2004.

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, Compuware, Empirix and Segue Software. We also compete against companies that provide a broader spectrum of development tools that include some verification functionality, such as IBM/Rational Software. In addition, we compete with companies like Quest Software whose main offering is application performance management software.

We expect that competition will continue to 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, and its successor OPNET Technologies, Inc., under a distribution agreement. Altaworks, and its successor, retains all intellectual property rights to its technology.

As of December 31, 2004, we had 57 employees worldwide, of whom 28 were employed in research and development, 15 in sales and marketing, 8 in management and administration and 6 in technical support. Of our employees, 18 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 4,929 square-feet in Burlington, Massachusetts for our corporate headquarters under a lease expiring in July 2009. 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 expiring in August 2005. We also lease space for our sales operations in Milpitas, California. 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.

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, AND RELATED SHAREHOLDER MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITIES

In September 2004, our ordinary shares were delisted from the Nasdaq SmallCap Market because we no longer satisfied the shareholders' equity, market capitalization and net income requirements for continued listing. Our shares are now traded on the Over-the-Counter Bulletin Board, or the OTCBB, under the trading symbol of "RDVWF."

The high and low sales prices for our ordinary shares for the quarterly periods since January 1, 2003, as reported on Nasdaq or the OTCBB, as applicable, were as set forth below: These quotations reflect inter-dealer prices, without retail markup, markdown or commission and may not necessarily represent actual transactions.

		Low Sales Price		High Sales Price
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 Ended December 31, 2004:
	Quarter ended March 31, 2004	$	0.60	$	0.98
	Quarter ended June 30, 2004	$	0.49	$	0.88
	Quarter ended September 30, 2004	$	0.19	$	0.52
	Quarter ended December 31, 2004	$	0.15	$	0.29
Year Ending December 31, 2005:
	Quarter ended March 31, 2005 (through March 22, 2005)	$	0.16	$	0.24

As of March 22, 2005, 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, 2004, we have used all 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, 2003 and 2004 and for each of the years ended December 31, 2002, 2003 and 2004 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, 2000, 2001, and 2002 and for the years ended December 31, 2000 and 2001 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, performance, efficiency and reliability of web applications. In May 2004, we introduced the TestView suite of products, which provides a comprehensive test management solution for test automation and reporting for web applications. The TestView suite efficiently integrates test management and automation with the functionality of our existing stand-alone products to include functional testing, load testing, and root-cause analysis.

We derive the majority of our software 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.

In 2004, a portion of our license revenues was derived from royalty fees and technology license fees from our OEM relationship with Ixia. We are recognizing the revenue from the technology license as a subscription arrangement over a 12-month period ending in June 2005. In December 2004, we entered into an OEM distribution agreement with ASG for the distribution of our TestView suite using ASG's private label in exchange for royalty fees to be paid to us. ASG also has an option to purchase by June 2005 a technology license to use the source code of our TestView suite for a license fee of $2.5 million payable in two annual installments. As we increase our relationships with OEM distribution partners and they become more productive, we expect that software license fees will increase as a percentage of our total revenues resulting from increased royalty and technology license fee revenues.

We measure our operating success using both financial and non-financial metrics. The financial metrics include revenue, gross profit, operating expenses, and loss from operations, as well as cash position and operating cash 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 $5.8 million in 2002, to $4.8 million in 2003 and $4.7 million in 2004, as a result of the following factors:

Although our annual revenues declined from 2003 to 2004, our quarterly revenues showed improvement in the second half of 2004. As we execute our plans to expand our distribution capacity with OEM partners and international resellers, we expect that our revenues in 2005 will increase compared to 2004.

We have incurred net losses since our inception. Our net loss was $6.5 million in 2002, $5.1 million in 2003 and $3.8 million in 2004. Net losses have declined as a result of significant cost reductions achieved through our restructuring efforts in previous 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 our operating expenses.

Cash used in operating activities was $5.4 million in 2002, $4.6 million in 2003 and $2.7 million in 2004, 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 will constitute a material use of our cash resources.

Our cash balance was $2.2 million as of December 31, 2004. In March 2005, we received a commitment letter for a one-year revolving line of credit facility with a bank for borrowings of up to $2.0 million. Advances under the facility would be limited to the lesser of $2.0 million or the sum of 75% of eligible accounts receivables plus $1.0 million. Borrowings under the revolving line of credit facility are subject to negotiation and execution of definitive agreements acceptable to the bank and us. We believe that our existing cash and cash equivalents, along with borrowings under the revolving line of credit facility, assuming the execution of definitive agreements related to this proposed borrowing, 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 U.S. accounting principles. 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 are normally 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 2002 and 2003, we recorded 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 estimated the costs for certain under-utilized facilities and 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.

Effective July 1, 2005, we will be required to recognize an expense for grants of stock options in accordance with new accounting requirements. See Note 2(q) to our consolidated financial statements for a description of these new requirements. The determination of the amount to be expensed will be based on a fair value model to be chosen by us that will require management to make estimates of values to calculate the appropriate expense to be included in our results of operations.

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,
			2002		2003		2004
Revenues:
	Software licenses		58.8	%	52.7	%	52.7	%
	Services		41.2	%	47.3	%	47.3	%

		Total revenues	100.0	%	100.0	%	100.0	%

Cost of revenues:
	Software licenses		1.1	%	3.0	%	1.8	%
	Nonrecurring royalty reversal		(7.8	)%	0.0	%	0.0	%
	Services		11.0	%	8.8	%	7.0	%

		Total cost of revenues	4.3	%	11.8	%	8.9	%

Gross profit			95.7	%	88.2	%	91.1	%

Operating expenses:
	Sales and marketing		91.1	%	85.4	%	75.0	%
	Research and development		57.5	%	57.9	%	55.6	%
	General and administrative		38.6	%	36.5	%	39.2	%
	Stock-based compensation		8.8	%	8.0	%	1.8	%
	Restructuring charges		16.1	%	5.1	%	0.0	%

		Total operating expenses	212.1	%	192.9	%	171.6	%

Loss from operations			(116.4	)%	(104.7	)%	(80.5	)%

Other income, net:
	Interest income, net		2.3	%	0.7	%	0.4	%
	Other income (expense), net		0.6	%	(1.1	)%	(1.0	)%

Net loss			(113.5	)%	(105.1	)%	(81.1	)%

Total Revenues. Total revenues were $4.8 million in 2003 and $4.7 million in 2004. Total revenues decreased $173,000, or 3.6%, due to a $234,000 decrease in total revenues from international customers, partially offset by a $61,000 increase in total revenues from customers in the U.S. 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 $2.5 million in 2003 and $2.5 million in 2004. Software license revenues from U.S. customers increased $138,000 from $1.8 million in 2003 to $1.9 million in 2004, due primarily to the increase in software license revenue attributable to the technology license arrangement with Ixia. Software license revenues from international customers decreased $230,000 from $777,000 in 2003 to $546,000 in 2004, attributable to a decrease in orders from our Asia Pacific distributors and lower sales resulting from employee turnover in our Europe sales operation in 2004.

Services. Services revenues consist primarily of revenue from annual support and maintenance contracts and, to a lesser extent, training and consulting services. Services revenues were $2.3 million in 2003 and $2.2 million in 2004. Services revenues from U.S. customers decreased $77,000 from $1.6 million in 2003 to $1.5 million in 2004, with services revenues from international customers remaining relatively the same. This decrease in U.S. services revenues was primarily a result of a decline in training and consulting revenues due to lower customer demand for consulting services.

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 $147,000 in 2003, or 5.8% of software license revenue, compared to $86,000 in 2004, or 3.5% of software license revenue. The decrease in cost of software licenses resulted from lower spending on product packaging in addition to lower royalty costs as a result of a decline in orders for our products that result in third-party royalties.

Cost of Services. Cost of services consists principally of personnel-related costs associated with customer support and training. Cost of services was $426,000 in 2003, or 18.6% of services revenues, compared to $327,000 in 2004, or 14.8% of services 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 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 $4.1 million in 2003, or 85.4% of total revenues, compared to $3.5 million in 2004, or 75.0% of total revenues. These decreases were due primarily to headcount reductions of sales and marketing personnel during the first half of 2003.

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 $2.8 million in 2003, or 57.9% of total revenues, compared to $2.6 million in 2004, or 55.6% of total revenues. We expect that research and development expenses in 2005 will remain relatively constant compared to 2004.

General and Administrative. General and administrative expenses consist principally of executive, finance and administrative salaries and related expenses. General and administrative expenses were $1.8 million in 2003, or 36.5% of total revenues, compared to $1.8 million in 2004, or 39.2% of total revenues. We expect that general and administrative expenses in 2005 will remain relatively constant compared to 2004.

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 $387,000 in 2003 compared to $84,000 in 2004. This decrease resulted from the completion of all amortization of deferred compensation.

Restructuring Expenses. Restructuring expenses were $245,000 in 2003. There were no restructuring expenses in 2004. The restructuring expenses 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. Restructuring charges accrued but not paid as of December 31, 2004 totaled $29,000, and consist of estimated idle lease costs. Amounts payable within one year have been classified as a current liability.

Interest Income, Net. Interest income, net consists principally of interest earned on cash investments. Interest income, net was $32,000 in 2003 compared to $19,000 in 2004. The decrease resulted from lower invested cash balances and lower interest rates in 2004 as compared to 2003.

Other Income (Expense), Net. Other income (expense), net consists principally of currency translation gains and losses. Other expense, net was $51,000 in 2003 and $45,000 in 2004. The decrease resulted from exchange rate fluctuations.

Income Taxes. We have estimated net operating loss carry forwards for Israeli tax purposes totaling approximately $19.9 million through December 31, 2004 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 carry forwards for U.S. Federal and state tax purposes totaling approximately $31.6 million through December 31, 2004. 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 $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 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. 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 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 another 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 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 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.

Research and Development. 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.

General and Administrative. 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.

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.

Restructuring Expenses. Restructuring expenses were $929,000 in 2002 and $245,000 in 2003. The restructuring expenses recorded in 2002 were incurred as a result of the implementation of restructuring plans in an effort to further lower operating costs. The restructuring expenses 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.

The restructuring expenses 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 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, net was $34,000 in 2002 and other expense, net was $51,000 in 2003. The decrease resulted from exchange rate fluctuations.

Cash and cash equivalents totaled $3.1 million as of December 31, 2003 and $2.2 million as of December 31, 2004.

Cash used in operating activities was $5.4 million in 2002, $4.6 million in 2003 and $2.7 million in 2004. Cash used in operating activities have resulted substantially from our reported net losses partially reduced by noncash items such as depreciation and stock-based compensation, and changes in current assets and liabilities.

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 accrued expenses and a decrease of $292,000 in accrued restructuring charge, partially offset by noncash items and a decrease of $348,000 in accounts receivable. Accrued expenses decreased as a result of additional reductions of operating expenses in 2003. Accrued restructuring charge decreased as a result of the lease payments made in 2003. Accounts receivable decreased as a result of decreased order volume and favorable collection activities.

Cash used in operating activities in 2004 was due primarily to a net loss of $3.8 million, a decrease of $128,000 in accounts payable and a decrease of $291,000 in accrued restructuring charge, partially offset by noncash items and a decrease of $73,000 in accounts receivable. The accrued restructuring charge decreased as a result of the payments made in 2004. Accounts receivable decreased as a result of decreased order volume and favorable collection activities.

Cash used in investing activities was $182,000 in 2002, $43,000 in 2003 and $29,000 in 2004. 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 investing activities in 2004 was for the purchase of $65,000 in property and equipment partially offset by a decrease of $36,000 in other assets.

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. Cash provided by financing activities was $1.8 million in 2004 consisting primarily of the net proceeds from a private placement in March 2004 of 3,333,331 of our ordinary shares, plus warrants and additional investment rights for an aggregate purchase price of $2.0 million.

On March 28, 2005, we received a commitment letter for a one-year revolving line of credit facility with a bank for borrowings of up to $2.0 million. Advances under the facility will be limited to the lesser of $2.0 million or the sum of 75% of eligible accounts receivables plus $1.0 million. Borrowings under the revolving line of credit facility are subject to the negotiation and execution of definitive agreements acceptable to the bank and us. Under the terms of the commitment letter, borrowings under the facility would bear interest at the bank's prime rate plus 1.25%. We would be required to maintain compliance with financial covenants consisting of a minimum cash balance of $1.0 million and specified net income (loss) levels based on our operating budget. We believe we would currently satisfy these financial covenants. Based on our financial position as of December 31, 2004, we estimate that we would have been able to borrow an aggregate of $1.3 million under the proposed facility. In connection with the facility, the commitment letter provides that the bank would receive warrants with an aggregate price of $60,000 to purchase our ordinary shares at an exercise price equal to the market price on the date that the definitive agreements with respect to the facility are executed. If the closing had occurred on March 22, 2005, we would have been required to issue to the bank warrants to purchase approximately 325,000 of our ordinary shares at an exercise price of $0.185 per share. The fair value of these warrants, estimated to be approximately $48,000, will be charged to interest expense over the one-year term of the facility.

We expect that operating expenses will constitute a material use of our cash resources. We believe that our existing cash and cash equivalents, along with amounts available under the revolving line of credit facility, assuming the execution of definitive agreements related to the proposed borrowing, will be sufficient to meet our anticipated needs for working capital 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 2009.

A substantial majority of our revenues is received, and a majority of our expenses is incurred, in U.S. dollars. Revenues denominated in U.S. dollars as a percent of total revenues were 89.9% in 2002, 92.6% in 2003 and 94.8% in 2004. Expenses denominated in U.S. dollars as a percent of total expenses were 75.8% in 2002, 55.1% in 2003, and 57.9% in 2004.

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 currently subject to tax at the rate of 35% of taxable income for 2004, 34% for 2005, 32% for 2006 and 30% for 2007 and later years. 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, 2004, 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 December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 123 (Revised 2004), Share-Based Payment, or SFAS No. 123(R), which replaces SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values beginning with the first interim or annual period after June 15, 2005, with early adoption encouraged. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement recognition. We are required to adopt SFAS 123(R) in the third quarter of fiscal 2005, beginning July 1, 2005. Under SFAS 123(R), we must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. The transition methods include prospective and retroactive adoption options. Under the retroactive option, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The prospective method requires that compensation expense be recorded for all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS 123(R), while the retroactive methods would record compensation expense for all unvested stock options and restricted stock beginning with the first period restated. We are evaluating the requirements of SFAS 123(R) and expect that the adoption of SFAS 123(R) will not have a material impact on our consolidated results of operations and net loss per share. We have not yet determined the method of adoption or the effect of adopting SFAS 123(R), and have not determined whether the adoption will result in amounts that are similar to the current pro forma disclosures under SFAS 123.

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, determined based on the fair market value of the assets. Our cash and cash equivalents are considered to be Passive Assets. The rules for determining the fair market value of our assets for this purpose are unclear. 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. However, we are no longer "publicly traded" for this purpose. Nevertheless, we believe our share price continues to provide the best indication of the fair value of our assets. 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, 2003 and 2004. If we were indeed a PFIC for these periods, a U.S. Holder who owned our shares in 2002, 2003 or 2004 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 2005. 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 2005 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 lower of fair market value or 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 of PFIC stock which is "marketable" 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. However, our ordinary shares ceased being "marketable" for the purposes of the Mark-to-Market Election in 2004. As a result, any such election made by a U.S. Holder for a prior year will have terminated automatically as of the beginning of our 2004 taxable year.

U.S. Holders should consult their own tax advisors regarding the eligibility, manner and advisability of making a QEF Election, the consequences of the automatic termination of any existing Mark-to-Market Election in 2004, 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 there under, 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 $6.5 million in 2002, $5.1 million in 2003 and $3.8 million in 2004. As of December 31, 2004, we had an accumulated deficit of $56.8 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 $5.4 million in 2002, $4.6 million in 2003, and $2.7 million in 2004. While in March 20005, we received a commitment letter with a bank with respect to a revolving line of credit of up to $2.0 million, definitive agreements with respect to this line of credit have not yet been negotiated or executed. We cannot be certain that definitive agreements will be executed or that, if executed, we will be able to borrow the maximum amount permitted under the revolving line of credit. Failure to execute definitive agreements with respect to this revolving line of credit would have a material adverse affect on us.

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 any 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 three 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.

We expect to depend on sales of our WebLOAD product for a substantial majority of our revenues for the foreseeable future. We are licensing WebLOAD to others and sales by our licensees may compete with our sales of this product.

We anticipate that revenues from our WebLOAD product will constitute a substantial majority of our revenues for the foreseeable future. Consequently, any decline in the demand for our WebLOAD product would seriously harm our business. We have entered into distribution arrangements with Ixia and ASG that include, or may potentially include, licenses to use the technology underlying the product and we may enter into additional licenses in the future. These licenses will generate revenues for only a specified period of time. Our licensees may compete with us for sales of WebLOAD and their product offerings may contain features in addition to those contained in WebLOAD. Competition from our licensees could reduce the amount of revenues we generate from our sales of these products in an amount that exceeds any license revenues recognized by us directly from the licensee. This could have an adverse affect on our results of operations.

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

Four times in the past four years we have 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.

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

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

Our ordinary shares are listed on the Over-the-Counter Bulletin Board, or OTCBB.

On September 20, 2004, our ordinary shares were delisted from the Nasdaq SmallCap Market, following the receipt of a Nasdaq Staff Determination letter dated September 8, 2004 indicating that we failed to comply with the shareholders' equity, market capitalization and net income requirements for continued listing. As a result, our shares are now quoted on the OTCBB.

As a result of being traded on the OTCBB, we and our shareholders may experience negative consequences, including:

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

Our share 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 have outstanding the following securities:

If our shareholders sell substantial amounts of our ordinary shares, including shares issued upon the exercise of outstanding options, additional investment rights and warrants, then 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 February 28, 2004, our principal shareholders, executive officers, and directors beneficially owned 54.3% 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. Since September 2000, there has been a marked increase in hostilities between Israel and the Palestinians. We cannot predict how the death of Yasser Arafat will affect the relations between Israel and the Palestinians. Several countries still restrict business with Israeli companies as a result of the Israeli-Arab conflict. 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 periodic 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%. In 2004, the rate of inflation in Israel was 1.2% and the value of the U.S. dollar decreased in relation to the NIS by 1.6%. 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.

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, 2004
IN U.S. DOLLARS

INDEX


Report of Independent Registered Public Accounting Firm
Report of Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Shareholders' Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of RadView Software Ltd. and its subsidiaries (the "Company") as of December 31, 2003 and 2004 and the related consolidated statements of operations, shareholders' equity (deficit) and cash flows for each of the two years in the period ended December 31, 2004. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of RadView Software Ltd. and its subsidiaries as of December 31, 2003 and 2004 and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 2004 in conformity with U.S. generally accepted accounting principles.

We have audited the accompanying consolidated statements of operations, shareholders' equity (deficit) and cash flows of RadView Software Ltd. and its subsidiaries (the "Company") for the year ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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, RadView Software Ltd. and its subsidiaries consolidated results of operations and their cash flows for the year ended December 31, 2002 in conformity with U.S. generally accepted accounting principles.

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 (DEFICIT)
(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 $6.5 million in 2002, $5.1 million in 2003 and $3.8 million in 2004, and had an accumulated deficit of approximately $56.8 million as of December 31, 2004. The Company has funded these losses principally from proceeds from equity financing, including an initial public offering in August 2000 and a private placement in March 2004. In each of 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 4).

In March 2005, subsequent to the balance sheet date, the Company obtained a commitment for a one-year revolving line of credit facility with a bank for up to $2.0 million (see Note 15). Management believes that existing cash and cash equivalents, along with borrowings that would be available from the revolving line of credit facility, will be adequate to fund operations into 2006.

The Company's consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. 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 U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from 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 4.737 New Israeli Shekel ("NIS") at December 31, 2002, U.S. $1.00 to NIS 4.379 at December 31, 2003 and U.S. $1.00 to NIS 4.308 at December 31, 2004.

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. As of December 31, 2003, the Company's cash equivalents were invested in U.S. Treasury securities. As of December 31, 2004, there were no cash equivalents.

The Company provides for reserve 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,
		2002			2003			2004
		(In thousands)
Balance at the beginning of year		$	209		$	171		$	72
	Provision (benefit)		138			(18	)		25
	Write-offs		(176	)		(81	)		(25	)

Balance at the end of year		$	171		$	72		$	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 $97,000 in 2002 (see Note 4). No impairment was identified in 2003 and 2004.

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 $50,000 in 2002, $178,000 in 2003 and $192,000 in 2004.

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 6).

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. Under SOP 97-2, 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. When vendor-specific objective evidence of fair value exists for undelivered elements but does not exist for delivered elements of a software arrangement, the Company uses the residual method for recognition of revenues, when all other revenue recognition criteria are met. Under the residual method, the Company defers revenues related to the undelivered elements based on their vendor specific objective evidence of fair value and recognizes the remaining arrangement fee for the delivered elements. When vendor-specific objective evidence of fair value for undelivered elements does not exist, revenues from the entire arrangement are recognized over the term of the agreement.

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

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.

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 $40,000 in 2002, $62,000 in 2003, and $177,000 in 2004.

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,
		2002			2003			2004
		(In thousands, except per share data)
Net loss, as reported		$	(6,549	)	$	(5,085	)	$	(3,780	)
Add: Stock-based employee compensation included in reported net loss			498			379			84
Deduct: Total stock-based employee compensation expense under fair value based methods			(1,073	)		(873	)		(347	)

Pro forma net loss		$	(7,124	)	$	(5,579	)	$	(4,043	)

Basic and diluted net loss per share:
	As reported	$	(0.40	)	$	(0.31	)	$	(0.19	)

	Pro forma	$	(0.43	)	$	(0.34	)	$	(0.20	)

The fair value for options granted in 2002, 2003 and 2004 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,
	2002	2003	2004
Expected life of option	5 years	5 years	4 years
Dividend yield	—	—	—
Expected volatility	140%	135%	110%
Risk-free interest rate	4.0%	4.0%	3.4%

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 measurement date.

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 number of 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.

The calculation of diluted net loss per share excludes outstanding stock options, warrants and additional investment rights held by certain investors because their inclusion would be antidilutive, as set forth in the following table.

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.

One customer represented 16% of total revenue in 2004 and no single customer represented greater than 10% of total revenues in 2002 and 2003. One customer represented 16% of total accounts receivable at December 31, 2004 and no customer represented greater than 10% of total accounts receivable at December 31, 2003.

In December 2004, the FASB issued SFAS No. 123R (Revised 2004) ("SFAS 123(R)"), Share-Based Payment, which replaces SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values beginning with the first interim or annual period after June 15, 2005, with early adoption encouraged. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement recognition. The Company is required to adopt SFAS 123(R) in the third quarter of fiscal 2005, beginning July 1, 2005. Under SFAS 123(R), the

Company must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. The transition methods include prospective and retroactive adoption options. Under the retroactive option, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The prospective method requires that compensation expense be recorded for all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS 123(R), while the retroactive methods would record compensation expense for all unvested stock options and restricted stock beginning with the first period restated. The Company is evaluating the requirements of SFAS 123(R) and expects that the adoption of SFAS 123(R) will not have a material impact on its consolidated results of operations and net loss per share. The Company has not yet determined the method of adoption or the effect of adopting SFAS 123(R), and has not determined whether the adoption will result in amounts that are similar to the current pro forma disclosures under SFAS 123.

On July 7, 2004, the Company received $1,000,000 in cash from a technology license transaction for its WebLOAD product with Ixia, an original equipment manufacturer, pursuant to the exercise of an option by Ixia under the terms of a former development, publishing and distribution agreement. As a result of the option exercise, the technology license provides Ixia with expanded license rights including the right to access and use source code for the WebLOAD product and the right to create derivative products. Under the terms of the original agreement, Ixia was required to continue to pay to the Company royalties on its sale of WebLOAD at a reduced rate through July 7, 2005. Ixia was also granted a right to make a single lump-sum payment of $250,000 to the Company in lieu of its reduced royalty obligations. In November 2004, Ixia exercised its right and made payment to the Company. Accordingly, Ixia has no further license fee or royalty payment obligations to the Company pursuant to this arrangement.

The Company is obligated to provide product updates and technical and engineering support to Ixia until July 2005. The Company is recognizing the $1,000,000 technology license fee as revenue over the 12-month period that commenced on July 7, 2004, over the term of the Company committed to provide support services to Ixia. The Company is also recognizing as revenue the lump-sum payment in lieu of royalties over the same 12-month period. The Company has recognized revenue under this technology license transaction totaling $575,000 in 2004 that has been classified as software licenses revenues in the consolidated statements of operations. Amounts collected but not recognized as revenues are included in deferred revenues (see Note 8).

Restructuring expenses totaled $929,000 in 2002 and $245,000 in 2003. There was no restructuring expense in 2004. The following is a reconciliation of the accrued restructuring charges for the years ended December 31, 2002, 2003 and 2004.

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

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 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.

Restructuring charges in 2003 were incurred in April 2003 and related to additional employee severance costs, facility termination charges, idle-lease space 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.

	December 31,
	2003		2004
	(In thousands)
Equipment	$	3,454	$	3,514
Office furniture		218		218
Leasehold improvements		194		199

		3,866		3,931
Less—Accumulated depreciation		3,533		3,767

	$	333	$	164

Depreciation expense was $875,000 in 2002, $576,000 in 2003, and $234,000 in 2004.

	December 31,
	2003		2004
	(In thousands)
Maintenance contracts	$	983	$	1,082
Technology license arrangements (Note 3)		—		725
Other deferred revenues		81		98

	$	1,064	$	1,905

The Company operates primarily from leased facilities. Lease agreements expire through July 2009. Annual minimum future rental payments due under the lease agreements as of December 31, 2004 are as follows:

		Amount
		(In thousands)
For the Year Ending December 31,
	2005	$	240
	2006		81
	2007		86
	2008		89
	2009		52

			548
Less: Idle-lease costs included in accrued restructuring			29

		$	519

Rent expense, net of sublease income and idle-lease restructuring credits, was $560,000 in 2002, $335,000 in 2003, and $541,000 in 2004.

On July 20, 2004, the Company amended the lease on its office space in Burlington, Massachusetts. Under the amendment, the Company substituted its original space for a smaller office at a lower base rent. The new space is for 4,929 square feet and expires in July 2009. The original lease was for 11,228 square feet and would have expired in March 2005.

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 June 2005. Royalty expense incurred under this agreement totaled $25,000 in 2003 and $26,000 in 2004 and has been classified as cost of license revenues.

Through 1996, the Company received grants totaling $605,000 from the Israeli Office of the Chief Scientist that were used to fund a predecessor product. The Company was 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 the Company's technology and its use of grant funds and concluded that the Company's remaining royalty obligation was $166,000. As a result, the Company reversed $448,000 of accrued royalties, which was reflected as a reduction in cost of product sales in 2002. As of December 31, 2004, the Company has no outstanding payment obligations to the OCS.

As of December 31, 2004, 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.

As of December 31, 2004, the Company holds 134,000 of ordinary shares as treasury 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.

In March 2004, the Company completed a private placement (the "Private Placement") of its ordinary shares, additional investment rights to purchase ordinary shares (the "Additional Investment Rights") and four series of warrants to purchase ordinary shares (the "Warrants") pursuant to a securities purchase agreement (the "Purchase Agreement") between the Company and certain purchasers named therein (the "Purchasers"), in reliance on an exemption under Section 4(2) of the Securities Act of 1933, as amended, and Regulation D promulgated thereunder.

The Company issued 3,333,331 ordinary shares to the Purchasers for aggregate gross proceeds of $2.0 million. The Company also issued Additional Investment Rights and Warrants to the Purchasers. The Company received net proceeds of $1.8 million from the Private Placement.

In accordance with the Purchase Agreement, the Company was required to register for resale on Form S-3 (the "Registration Statement") the ordinary shares issued in the Private Placement and the ordinary shares issuable upon exercise of the Additional Investment Rights and Warrants. The Registration Statement was declared effective on June 17, 2004. The Company must maintain the effectiveness of the Registration Statement for a period of up to two years from the effective date of the Registration Statement.

In connection with the Private Placement, the Company issued to the Purchasers Additional Investment Rights to purchase 3,333,331 ordinary shares at an exercise price of $0.81 per share, exercisable from March 11, 2004 until June 17, 2005.

Series	Term	Exercise Price		Number of Shares
Series A warrants	Four and a half years	$	0.992	1,000,000
Series B warrants	Two years	$	0.873	666,668
Series C warrants	Four and a half years	$	0.992	666,664
Series D warrants	Two years	$	0.873	666,664

				2,999,996

The Warrants were initially exercisable for the number of shares indicated above, subject to customary anti-dilution adjustments and, with respect to the Series C and D warrants, subject to additional conditions indicated below. The Series A and Series B warrants became exercisable beginning September 11, 2004 for a term as noted in the table above. One half of the Series C and Series D warrants became exercisable on September 20, 2004, the date the Company's ordinary shares were delisted from the Nasdaq SmallCap Market. Because the Additional Investment Rights were not exercised before the delisting event, the other one-half of the Series C and D warrants will not become exercisable.

The Company may require the Purchasers to exercise their right to purchase ordinary shares pursuant to the Additional Investment Rights or Warrants if the closing price of the ordinary shares on an eligible market exceeds the respective exercise prices of the Additional Investment Rights or any series of the Warrants by at least 100% for twenty consecutive trading days on which the average daily trading volume of the ordinary shares is at least 250,000 Ordinary Shares, excluding blocks of 25,000 or more ordinary shares.

Pursuant to an evaluation of the terms of the Purchase Agreement under the provisions of EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock, the Company has classified all the above derivative financial instruments issued in connection with the private placement as equity.

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 and 2004. As of December 31, 2004, 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 $11,000 in 2002, $8,000 in 2003 and $3,000 in 2004.

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, 2004, there were 3,141,074 options available for future grant.

Transactions related to the Company's stock option plans for the three years in the period ended December 31, 2004 are summarized as follows:

		Options Outstanding		Weighted Average Exercise Price Per Share		Weighted Average Fair Value of Options Granted
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
	Granted	192,500			0.45	$	0.34
	Exercised	(131,806	)		0.24
	Forfeited or cancelled	(507,280	)		0.97

Outstanding, December 31, 2004		3,263,578		$	0.85

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

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

Exercisable, December 31, 2004		2,307,738		$	1.08

The following table summarizes information about options outstanding and exercisable at December 31, 2004:

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 through 2004. 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 $509,000 in 2002, $387,000 in 2003 and $84,000 in 2004.

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, 2004:

(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 elsewhere, 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 35%, 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 tax benefit will expire in 2007.

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 35% of taxable income for 2004, 34% for 2005, 32% for 2006 and 30% for 2007 and thereafter.

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,
	2002			2003			2004
	(In thousands)
Israel	$	(916	)	$	(1,104	)	$	(185	)
Foreign		(5,633	)		(3,981	)		(3,595	)

	$	(6,549	)	$	(5,085	)	$	(3,780	)

As of December 31, 2004, the Company's net operating loss carry forwards for Israeli tax purposes amounted to approximately $19.9 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 carry forward tax losses through December 31, 2004 amounted to approximately $31.6 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 carry forwards 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,
	2003		2004
	(In thousands)
Net operating loss carry forwards	$	11,207	$	12,638
Temporary differences		78		67

		11,285		12,704
Less—Valuation allowance		11,285		12,704

Net deferred tax asset	$	—	$	—

As of December 31, 2004 the Company had provided valuation allowances of approximately $12,704,000 in respect of deferred tax assets resulting from tax loss carry forwards, and other temporary differences. The valuation allowance increased $1,419,000 in 2002, $667,000 in 2003, and $1,782,000 in 2004. Management currently believes that since the Company has a history of losses, it is not likely that those deferred tax deductions will be realized in the foreseeable future.

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 1999.

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,
	2003		2004
	(In thousands)
Accounts receivable	$	2		$	3
Accounts payable and accrued expenses		6			12

	Year Ended December 31,
	2002			2003			2004
	(In thousands)
Revenues	$	10		$	2		$	2
Costs and expenses		(30	)		(34	)		(46	)
Property and equipment purchased		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,
	2002		2003		2004
	(In thousands)
United States	$	3,403	$	3,251	$	3,409
Europe		1,275		933		731
Israel		199		110		258
Other		891		542		265

	$	5,768	$	4,836	$	4,663

The following table presents a summary of quarterly results of operations for the years ended December 31, 2003 and 2004:

On March 28, 2005, the Company received a commitment letter for a one-year revolving line of credit facility with a bank for borrowings of up to $2.0 million. Advances under the facility will be limited to the lesser of $2.0 million or the sum of 75% of eligible accounts receivables plus $1.0 million. Borrowings under the revolving line of credit facility are subject to the negotiation and execution of definitive agreements acceptable to the bank and the Company.

Under the terms of the commitment letter, borrowings under the facility will bear interest at the bank's prime rate plus 1.25%. The Company would be required to maintain compliance with financial covenants consisting of a minimum cash balance of $1.0 million and specified net income (loss) levels based on its operating budget.

In connection with the facility, the commitment letter provides that the bank will receive warrants with an aggregate exercise price of $60,000 to purchase the Company's ordinary shares at an exercise price equal to the market price on the date definitive agreements with respect to the facility are executed. If the closing had occurred on March 22, 2005, the Company would have been required to issue to the bank warrants to purchase approximately 325,000 of the Company's ordinary shares at an exercise price of $0.185 per share. The fair value of these warrants, estimated to be approximately $48,000, would be charged to interest expense over the one-year term of the facility.

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

As of December 31, 2004, 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 (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) 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 2004 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	56	Chairman of the Board
Ilan Kinreich	47	Chief Executive Officer, President and Director
Christopher Dineen	35	Chief Financial Officer
William J. Geary	46	Director
Kathleen A. Cote	56	Director
David Assia	53	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.

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 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.

Mr. Robert Steinkrauss voluntarily resigned from service as an External Director in February 2005. Israeli law requires us to have two External Directors. We are in the process of searching for an appropriate replacement for Mr. Steinkrauss.

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 2004 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.

The Audit Committee of our Board of Directors is currently comprised of David Assia and Kathleen A. Cote. The Board of Directors has determined that both 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 10A-3 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, which 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, 2004 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, 2004 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, 2004.

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.

There were no grants of ordinary share options during the fiscal year ended December 31, 2004 to any of the Named Executive Officers.

The following table sets forth information with respect to (i) stock options exercised in the fiscal year ended December 31, 2004 by the Named Executive Officers and (ii) unexercised stock options held by such individuals.

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 2004 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.

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. For the most recent fiscal year, the Company did not pay any stock compensation to its executive officers.

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, 2004 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 February 28, 2005, 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 February 28, 2005 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 20,525,682 ordinary shares outstanding on February 28, 2005. 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, 2004, 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 2003 and 2004.

Audit Fees consist of fees billed for the annual audit and the quarterly reviews of the Company's consolidated financial statements.

Audit Related Fees 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 2004, 100% of the fees for services rendered by the Company's independent auditors 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 has posted to its website at www.radview.com 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. The Company will provide each of these documents 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)
10.2a		First Amendment to Lease Agreement for 7 New England Executive Park, Burlington, Massachusetts, 01803 dated July 20, 2004 (filed as Exhibit 10.1 to the Company's Form 10-Q for the quarterly period ended June 30, 2004, 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) (filed as Exhibit 99.1 to the Company's Registration Statement on Form S-8, No. 333-67086, and incorporated herein by reference)
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)

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 31st day of March, 2005.

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:

ý	Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2004
OR
o	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


PART I
Item 1.		Business
		Company Overview
		2004 Business Highlights
		Industry Background
		Distributed Computing Environments
		Characteristics of Web Applications
		Importance of Web Application Integrity and Performance
		Our Market Opportunity
		Our Solution
		Our Strategy
		Products
		Services
		Customers
		Sales and Marketing
		Customer Support
		Research and Development
		Product Technology and Architecture
		Competition
		Proprietary Rights
		Employees
		Available Information
Item 2.		Properties
Item 3.		Legal Proceedings
Item 4.		Submission of Matters to a Vote of Security Holders
PART II
Item 5.		Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities
Item 6.		Selected Consolidated Financial Data
Item 7.		Management's Discussion and Analysis of Financial Condition and Results of Operations
		Risk Factors
Item 7A.		Quantitative and Qualitative Disclosures about Market Risk
Item 8.		Financial Statements and Supplementary Data
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.		Controls and Procedures
Item 9B.		Other Information
PART III
Item 10.		Directors and Executive Officers of the Registrant
Item 11.		Executive Compensation
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
		Equity Compensation Plan Information
Item 13.		Certain Relationships and Related Transactions
Item 14.		Principal Accountant Fees and Services
PART IV
Item 15.		Exhibits, Financial Statement Schedules and Reports on Form 8-K
		Signatures

			Year Ended December 31,
			2000			2001			2002			2003			2004
			(In thousands, except per share data)
Consolidated Statements of Operations Data:
Revenues:
	Software licenses		$	8,994		$	5,829		$	3,389		$	2,549		$	2,456
	Services			1,796			2,817			2,379			2,287			2,207

		Total revenues		10,790			8,646			5,768			4,836			4,663

Cost of revenues:
	Software licenses			572			271			63			147			86
	Nonrecurring royalty reversal			—			—			(448	)		—			—
	Services			478			1,169			631			426			327

		Total cost of revenues		1,050			1,440			246			573			413

Gross profit				9,740			7,206			5,522			4,263			4,250

Operating expenses:
	Sales and marketing			11,599			13,898			5,255			4,131			3,498
	Research and development			5,223			6,046			3,316			2,802			2,594
	General and administrative			3,068			2,857			2,223			1,764			1,828
	Stock-based compensation			1,418			878			509			387			84
	Restructuring charges			—			1,671			929			245			—

		Total operating expenses		21,308			25,350			12,232			9,329			8,004

Loss from operations				(11,568	)		(18,144	)		(6,710	)		(5,066	)		(3,754	)

Other income (expense):
	Interest income, net			565			693			127			32			19
	Other income (expense), net			18			20			34			(51	)		(45	)

Net loss				(10,985	)		(17,431	)		(6,549	)		(5,085	)		(3,780	)

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

Net loss attributable to ordinary shareholders			$	(13,570	)	$	(17,431	)	$	(6,549	)	$	(5,085	)	$	(3,780	)

Basic and diluted net loss per share attributable to ordinary shareholders			$	(1.51	)	$	(1.07	)	$	(0.40	)	$	(0.31	)	$	(0.19	)

Weighted average number of shares used in computing basic and diluted net loss per share attributable to ordinary shareholders				8,968			16,346			16,455			16,595			19,826

		As of December 31,
		2000		2001		2002		2003		2004
		(In thousands)
Consolidated Balance Sheet Data:
	Cash, cash equivalents and short-term investments	$	33,469	$	13,182	$	7,566	$	3,075	$	2,163
	Working capital		26,591		10,935		5,915		1,534		(142	)
	Total assets		39,713		17,425		10,607		5,155		3,914
	Total shareholders' equity (deficit)		29,004		12,351		6,311		1,796		(84	)

	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	$	548	$	240	$	256	$	52	$	—
Severance pay (1)		713		—		—		—		713

Total	$	1,261	$	240	$	256	$	52	$	713

			December 31,
			2003			2004
ASSETS
Current Assets:
	Cash and cash equivalents		$	3,075		$	2,163
	Accounts receivable, net of reserves of $72 at December 31, 2003 and 2004			678			605
	Prepaid expenses and other current assets			426			375

		Total Current Assets		4,179			3,143

	Property and Equipment, net			333			164
	Other Assets			643			607

		Total Assets	$	5,155		$	3,914

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
	Accounts payable		$	367		$	239
	Accrued expenses			989			1,112
	Accrued restructuring charges, current portion			225			29
	Deferred revenue			1,064			1,905

		Total Current Liabilities		2,645			3,285

Long-term Liabilities:
	Accrued restructuring charges, less current portion			95			—
	Accrued severance pay			619			713

		Total Long-Term Liabilities		714			713

		Total Liabilities		3,359			3,998

Commitments and Contingent Liabilities (Note 9)
Shareholders' Equity (Deficit):
	Ordinary shares, NIS 0.01 par value—Authorized—40,000,000 shares; Issued—17,194,545 shares at December 31, 2003 and 20,659,682 shares at December 31, 2004; Outstanding—17,060,545 shares at December 31, 2003 and 20,525,682 shares at December 31, 2004			43			51
	Treasury shares, at cost — 134,000 shares at December 31, 2003 and 2004			(100	)		(100	)
	Additional paid-in capital			55,010			56,813
	Deferred compensation			(89	)		—
	Accumulated deficit			(53,068	)		(56,848	)

		Total Shareholders' Equity (Deficit)		1,796			(84	)

		Total Liabilities and Shareholders' Equity (Deficit)	$	5,155		$	3,914

		Ordinary Shares				Treasury Shares
		Number of Shares	Value			Number of Shares	Value			Additional Paid-In Capital			Deferred Compensation			Accumulated Deficit			Total Share-holders' Equity (Deficit)
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 and cancellations 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
	Exercise of options	131,806		1		—		—			31			—			—			32
	Proceeds from private placement of ordinary shares and warrants, net of offering costs of $216,000	3,333,331		7		—		—			1,777			—			—			1,784
	Amortization of deferred compensation	—		—		—		—			—			84			—			84
	Adjustment for forfeiture and cancellations of stock options	—		—		—		—			(5	)		5			—			—
	Net loss	—		—		—		—			—			—			(3,780	)		(3,780	)

Balance, December 31, 2004		20,659,682	$	51		134,000	$	(100	)	$	56,813		$	—		$	(56,848	)	$	(84	)

(*) 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, 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

December 31, 2004:
	Employee severance costs	$	—	$	—	$	—		$	—
	Idle-lease costs		320		—		(291	)		29

		$	320	$	—	$	(291	)	$	29

	Options Outstanding				Options Exercisable
Exercise Price	Number Outstanding at December 31, 2004	Weighted Average Remaining Contractual Life in Years	Weighted Average Exercise Price		Number Outstanding at December 31, 2004	Weighted Average Exercise Price
$0.16	371,491	3.5	$	0.16	225,657	$	0.16
$0.26–$0.33	1,540,181	7.2		0.28	806,865		0.28
$0.63–$1.00	1,180,646	3.0		0.95	1,107,706		0.96
$2.25	60,000	3.6		2.25	56,250		2.25
$8.21–$10.00	111,260	2.4		9.35	111,260		9.35

	3,263,578	5.0	$	0.85	2,307,738	$	1.08

		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, 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
December 31, 2004:
	Weighted average exercise price	—	$	0.45		—
	Weighted average fair value on grant date	—	$	0.34		—

	Mar. 31, 2003			June 30, 2003			Sept. 30, 2003			Dec. 31, 2003
	(In thousands, except per share data)
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	)

	Mar. 31, 2004			June 30, 2004			Sept. 30, 2004			Dec. 31, 2004
	(In thousands, except per share data)
Total revenues	$	980		$	1,068		$	1,286		$	1,329

Gross profit	$	869		$	973		$	1,187		$	1,221

Net loss	$	(1,151	)	$	(995	)	$	(768	)	$	(866	)

Basic and diluted net loss per share	$	(0.06	)	$	(0.05	)	$	(0.04	)	$	(0.04	)

							Long Term Compensation Awards
		Annual Compensation					Long Term Compensation Awards
Name and Principal Position	Fiscal Year	Annual Compensation				Other Annual Compensation	Number of Securities Underlying Options
Name and Principal Position	Fiscal Year	Salary		Bonus		Other Annual Compensation	Number of Securities Underlying Options
Ilan Kinreich, Chief Executive Officer and President	2004 2003 2002	$	171,000 179,038 190,000	$	18,311 — —	— — —	— — 800,000
Christopher Dineen Chief Financial Officer	2004 2003 2002		118,096 100,962 97,500		22,111 — —	— — —	— 75,000 60,000

			Number of Securities Underlying Unexercised Options at December 31, 2004
					Value of Unexercised in-the-Money Options at December 31, 2004
Name	Shares Acquired on Exercise (#)	Value Realized
Name	Shares Acquired on Exercise (#)	Value Realized	Exercisable	Unexercisable	Exercisable	Unexercisable
Ilan Kinreich	—	—	770,679	552,711	—	—
Christopher Dineen	—	—	141,933	60,067	—	—

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	8.1%
	Zohar Zisapel (4)	2,079,522	10.1%
	Yehuda Zisapel (5)	2,079,522	10.1%
Directors and Executive Officers:
	Ilan Kinreich (6)	1,189,061	5.6%
	Christopher Dineen (7)	157,224	*
	Shai Beilis (2) (8)	1,975,623	9.6%
	William Geary (3) (9)	1,816,666	8.8%
	Kathleen A. Cote (10)	150,000	*
	David Assia (11)	131,250	*
	All executive officers and Directors as a group (6 persons) (2) (3) (6) (7) (8) (9) (10) (11)	5,419,824	24.6%

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)	1,851,181	$	0.63	3,383,063
Equity compensation plans not approved by security holders (2)	1,412,397	$	1.15	1,249,802

Total	3,263,578	$	0.85	4,632,865

	Year Ended December 31,
	2003		2004
Audit Fees	$	60,000	$	60,000
Audit Related Fees		—		2,500
Tax Fees		5,000		5,000
All Other Fees		—		—

	$	65,000	$	67,500

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 Form 10-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)
10.10		Development, Publishing and Distribution Agreement, dated as of February 7, 2003, between Ixia and RadView Software Ltd. (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on July 7, 2004 and incorporated herein by referenced) **
10.11		Amendment Number One to the Development, Publishing and Distribution Agreement, dated July 7, 2004, between Ixia and RadView Software Ltd. (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed on July 7, 2004 and incorporated herein by referenced) **
10.12*		License and Distribution Agreement between Allen Systems Group and Radview Software Ltd., dated as of December 21, 2004 **
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*		Consent of Independent Auditors, Luboshitz Kasierer, an affiliate member of Ernst & Young International
23.2*		Consent of Independent Registered Public Accounting Firm, 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 31, 2005
/s/ SHAI BEILIS Shai Beilis	Director and Chairman of the Board	March 31, 2005
/s/ WILLIAM GEARY William Geary	Director	March 31, 2005
/s/ KATHLEEN A. COTE Kathleen A. Cote	Director	March 31, 2005
/s/ DAVID ASSIA David Assia	Director	March 31, 2005
/s/ CHRISTOPHER DINEEN Christopher Dineen	Chief Financial Officer	March 31, 2005