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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-K

(Mark One)

|ý | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2001

OR

|o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------

Commission File Number: 0-31151

LOGO

RADVIEW SOFTWARE LTD.

(Exact name of registrant as specified in its charter)

Israel(State or other jurisdiction of
incorporation or organization)

Not applicable(I.R.S. Employer
Identification No.)


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(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Ordinary Shares, NIS 0.01 par value

(Title of Class)

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

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

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 February 28, 2002: $3,041,292 (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 February 28, 2002, there were 16,458,568 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.

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DOCUMENTS INCORPORATED BY REFERENCE

The information required under Part III of this Annual Report, to the extent not set forth herein, is incorporated by reference from the registrant's
definitive proxy statement relating to the annual meeting of shareholders to be held on or about June 3, 2002, which definitive proxy statement shall be filed with the Securities and Exchange
Commission within 120 days after the end of the fiscal year to which this Annual Report relates.

PART I

Item 1.    BUSINESS

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

Overview

RadView provides innovative application testing software and services that enable companies to evaluate and measure the performance of their business-critical web
applications. Our award-winning 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
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 continue to
maintain the core of 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.

In
1997, we introduced our first web-testing product, WebLOAD, which was initially focused on assessing the scalability of web applications. Since then, we have enhanced the
functionality of WebLOAD to provide an integrated solution to assess the performance and accelerate the deployment of web applications. In February 2000, we introduced WebRM. This product is
designed for enterprise implementations to assist in allocating resources while facilitating the systematic verification of web application quality throughout the application development lifecycle and
accelerating the deployment of high performance web applications. In August 2001, we introduced WebFT, a testing tool for verification of the functionality of web applications.

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



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We
have sold to 1,200 customers worldwide, including Fortune 1000 Companies such as Anheuser-Busch, American Express, Bank of America, British Telecom, Compaq, Dell Computer, Fidelity
Investments, Hewlett-Packard, IBM, Lucent Technologies, Mitsubishi, SAP, Toyota, Sun Microsystems, and Vanguard.

Industry Background

Growth and Evolution of the Internet

The Internet has emerged as a global medium that enables millions of people worldwide to communicate and obtain information, and is fundamentally changing the way
companies conduct business. Both Internet-based and traditional enterprises have recognized the potential of using websites to conduct business and provide business-related information and are
increasingly moving critical business processes and operations to the Internet. Companies are using the Internet to sell goods and services, interact with customers, suppliers and partners and
communicate with employees, as well as to streamline complex business processes and improve productivity.

Importance of Web Application Performance

Due to their increasing use of the Internet, companies have come to rely on the performance of their web applications. If a company's web applications perform
poorly, or fail entirely, the resulting financial and business costs can be substantial, including lost revenues, customer defections, business interruptions and damage to its reputation. For example,
if a company's web applications fail to deliver high levels of service to its customers, the company may lose customers and revenue opportunities. Similarly, if a manufacturer's web applications
perform poorly, the manufacturer could experience bottlenecks in its supply chain and decreased production rates. In order to successfully compete companies must rapidly deploy web applications and
assure the performance of these applications.

The
performance of web applications includes the following key elements:



Characteristics of Web Applications

Web applications have the following characteristics that present significant challenges to their successful development, deployment and ongoing operation:



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Our Market Opportunity

As companies move various aspects of their businesses to the web, they are placing greater reliance on their web applications and are increasingly exposed to the
risks associated with web application failures. The Meta Group estimates that as of December 2001, only 20% of companies deploying web applications currently test those applications before
going live.

To
date, companies have typically used conventional testing software to separately and sequentially test the scalability, efficiency and reliability of web applications. In addition,
this type of software is generally used just prior to deployment. Application errors identified late in the development cycle are often difficult to fix and result in extended development cycles,
delayed deployment, higher costs and lost business opportunities.

Website
deployments dominate the information technology market. The largest opportunities in the marketplace are with established corporations that follow formal information technology
budgeting and planning procedures. We believe that these companies will continue to invest in electronic commerce systems. The majority of the investments will be focused on systems with an emphasis
on return on investment within the following segments: customer relationship management; business-to-business supply chain systems; and on-line retailers.

We
believe that the expanded use of websites and the increased reliance on web applications create a significant market opportunity for solutions that assure the scalability, efficiency
and reliability of web applications and facilitate their rapid deployment. In our view, this opportunity is best addressed by solutions that:



Our Solution

We are a leading provider of software that enables companies to assure the performance of business-critical web applications. We address the performance
requirements of web applications throughout
their 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 associated with launching
web applications.

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Our Strategy

Our objective is to be the best-of-breed provider of 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:

Maintain and Extend Product Leadership

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

Develop and Expand Strategic Relationships

We believe that strategic relationships with industry leaders enable us to accelerate our market penetration and visibility, and maintain our technology
leadership. We collaborate with Compaq, Dell Computer, Hewlett Packard, Intel, IBM, and Sun Microsystems, as well as other Internet software and service providers. These relationships help to ensure
that our software is optimized for use with their product offerings and allows 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.

Additionally,
we will continue to capitalize on outsourcing trends by leveraging relationships with testing service providers and technology labs. Increasingly, many companies are
outsourcing the
development, testing and hosting of their web applications to third parties. We believe that web integration, testing and hosting service providers represent a significant market opportunity for our
software. We have an agreement with KeyLabs, formerly a division of Exodus Communications, Inc., for the use of our software to test the performance of its customers' web applications. We
intend to pursue partnerships with other web integration, testing and hosting service providers.

Leverage Our Installed Customer Base

To date, we have licensed our software to over 1,200 companies worldwide, including Fortune 1000 companies, such as American Express, Dell Computer, Deutsche
Bank, Fidelity Investments, Shell and Toyota. As our customers pursue additional web-related strategies and increase the capabilities of their web applications to accommodate increasing
numbers of users, we believe there is a significant opportunity to increase the use of our software within our installed customer base.

Achieve Positive Operating Cash Flow

To date, we have incurred losses from operations as a result of significant product development efforts, expansion of our direct sales force, implementation of
marketing programs, and building the infrastructure to support a publicly held company, all in anticipation of increased revenues. With the global decline in information technology spending in 2001,
we reduced our revenue forecasts for 2001 and 2002 and restructured our operating costs. With our revenue forecasts and our current level of operating spending, we will attempt to achieve positive
cash flow from operations within the next 12 to 18 months.

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Provide Solutions that Contribute to a Low Total Cost of Ownership

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:



Products

Our current product line consists of:



Together,
WebLOAD, WebRM and WebFT provide a comprehensive solution that enables users to verify their application's integrity, scalability, efficiency and reliability at each point in
the application development cycle. We believe WebLOAD, WebRM and WebFT are the only products that combine all aspects of the web application performance verification process into an integrated
solution with a unified script. Our products are designed specifically for the Internet, and employ Internet-standard technologies such as JavaScript, Java, ActiveX, Hypertext Markup Language, or
HTML, XML and DOM. Using a standards-based approach makes our products easier to use and readily adaptable to new technology standards.

Key
features of our software include:

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

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

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

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

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

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

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

WebLOAD

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

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

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

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

While
a performance session is running, WebLOAD generates over 75 different pre-defined statistical measurements, which are displayed to the user in real time. Our customers
can also add an extensive number of user-defined measurements and timers, as well as monitor the performance profile

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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.

WebLOAD
has received the following awards:



WebRM

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 centrally-manage and 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.

Key
features and benefits of WebRM include:

Coordinated 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. WebRM provides
central administrative controls for managing access to virtual clients and load generating hardware on a per-user, per-group basis.

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

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

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Key
features of WebFT, our functional testing product include:

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

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

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

Services

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.

Customers

To date, we have licensed our software to over 1,200 customers worldwide. Our customers include Fortune 1000 companies and other companies across a broad range of
industries, including financial services, technology, retail, manufacturing, telecommunication, health care and education.

Sales and Marketing

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, the United Kingdom and Sweden. In addition, we
have indirect channel partners, principally consisting of web system integrators and web hosting companies, and international distributors in Europe, Israel and Asia.

Marketing.We engage in a variety of product marketing activities and provide product information through our website. We
offer a free trial of our WebLOAD software that can be downloaded from our website. Our marketing programs are aimed at informing customers of the benefits of our software, increasing the market
awareness of our products and generating demand for our products. Our marketing strategy includes focused lead generation activities, participating in trade shows and conferences, web seminars,
promoting special events and cultivating relationships with key technology analysts about the competencies and benefits of our products.

Customer Support

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.

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Research and Development

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 provides 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 maintain our leadership role in providing innovative solutions for verifying the performance and scalability of web
applications.

Product Technology and Architecture

Our technologies are built on an open, portable architecture, based on industry standard technologies. Our products may be deployed on Windows 98, Windows NT,
Windows 2000, Sun Solaris and Linux operating systems. Our products incorporate the web 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 without the need for a browser graphical user interface, or GUI.
JavaScript exposes DOM to users. 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.

Competition

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 mainly offer application-testing software, such as Mercury Interactive. In addition, we compete
against companies that provide a broader spectrum of development tools that include some verification functionality, such as Rational Software.

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

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marketing and other resources than we do. In addition, 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.

We
believe the principal competitive factors affecting our market include:



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 relatively new and is developing rapidly. 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.

Proprietary Rights

Our success and ability to compete depend upon our proprietary technology. In addition, we rely on 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.

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Employees

As of December 31, 2001 we had 96 employees worldwide, of whom 40 were employed in research and development, 35 in sales and marketing, 11 in management
and administration and 10 in technical support. Of our employees, 24 are based in the United States, 64 are based in Israel and 8 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 Coordinating Bureau of Economic Organizations. These provisions and laws principally concern the
length of the workday, minimum daily wages for workers, procedures for dismissing employees, determination of severance pay and other conditions of employment.

Item 2.    PROPERTIES

We do not own any real property. We lease an 11,228 square foot facility in Burlington, Massachusetts for our corporate headquarters under a lease that expires in
2005. In addition, we lease 10,136 square feet in Tel Aviv, Israel for our principal research and development and international sales operations under a lease that expires in 2005. We also lease space
for our sales operations in the United Kingdom, Germany and Sweden.

Item 3.    LEGAL PROCEEDINGS

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

Item 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

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

Market for Ordinary Shares

Our Ordinary Shares traded on the Nasdaq National Market from August 10, 2000 until September 24, 2001, under the symbol RDVW. Since
September 25, 2001, our Ordinary Shares have traded on the Nasdaq SmallCap Market under the same symbol RDVW. The high and low sales prices for our Ordinary Shares for the quarterly periods
from August 10, 2000 through February 28, 2002 were as follows:

Low
Sales Price

High
Sales PriceFiscal 2000:Period from August 10, 2000 to September 30, 2000

$
6.25

$
9.13Quarter ended December 31, 2000

$
2.13

$
7.00Fiscal 2001:Quarter ended March 31, 2001

$
0.69

$
2.63Quarter ended June 30, 2001

$
0.40

$
1.23Quarter ended September 30, 2001

$
0.32

$
0.89Quarter ended December 31, 2001

$
0.20

$
0.51Fiscal 2002:Quarter ended March 31, 2002 (through February 28, 2002)

$
0.35

$
0.64


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Holders of Record

As of February 28, 2002, there were approximately 130 holders of record and, we believe, approximately 1,700 beneficial owners, of our Ordinary Shares.

Dividends

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.

Sales of Unregistered Securities

None.

Use of Proceeds from Sale of Registered Securities

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. The managing underwriters in the offering were Donaldson Lufkin Jenrette, Wit SoundView, Piper
Jaffrey, and DLJdirect.

On
August 15, 2000, we sold 4,000,000 of such ordinary shares at an initial public offering price of $10.00 per share, generating gross offering proceeds of $40 million.
After deducting $2.8 million in underwriting discounts and approximately $1.9 million in other related expenses, the net proceeds to us were approximately $35.3 million.

Through
December 31, 2001, we have used $22.1 million of the net proceeds from our initial public offering as follows:



Item 6.    SELECTED FINANCIAL DATA

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, 2000 and 2001 and for each of the
years ended December 31, 1999, 2000 and 2001 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, 1997, 1998, and 1999 and for the
years ended December 31, 1997 and 1998 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

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"Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Annual Report on Form 10-K.

|                                                                                                                     |                                | Year Ended December 31,  |       
|-------------------------------------------------------------------------------------------------------------------- | ------------------------------ | ------------------------ | ------
|
|
|Consolidated Statements of Operations Data:                                                                          |                                |                          |       
|Revenues:                                                                                                            |                                |                          |       
|                                                                                                                     | Software licenses              |                          | $     
|                                                                                                                     | Services                       |                          |       
|                                                                                                                     |                                |                          |       
|                                                                                                                     |                                | Total revenues           |       
|                                                                                                                     |                                |                          |       
|Cost of revenues:                                                                                                    |                                |                          |       
|                                                                                                                     | Software licenses              |                          |       
|                                                                                                                     | Services                       |                          |       
|                                                                                                                     |                                |                          |       
|                                                                                                                     |                                | Total cost of revenues   |       
|                                                                                                                     |                                |                          |       
|Gross profit                                                                                                         |                                |                          | 234   
|                                                                                                                     |                                |                          |       
|Operating expenses:                                                                                                  |                                |                          |       
|                                                                                                                     | Sales and marketing            |                          |       
|                                                                                                                     | Research and development       |                          |       
|                                                                                                                     | General and administrative     |                          |       
|                                                                                                                     | Stock-based compensation       |                          |       
|                                                                                                                     | Nonrecurring charges           |                          |       
|                                                                                                                     |                                |                          |       
|                                                                                                                     |                                | Total operating expenses |       
|                                                                                                                     |                                |                          |       
|Loss from operations                                                                                                 |                                |                          | (2,877
|                                                                                                                     |                                |                          |       
|Other income (expense):                                                                                              |                                |                          |       
|                                                                                                                     | Interest income (expense), net |                          |       
|                                                                                                                     | Other income (expense), net    |                          |       
|                                                                                                                     |                                |                          |       
|Net loss                                                                                                             |                                |                          | (3,005
|                                                                                                                     |                                |                          |       
|Dividend to certain preferred shareholders                                                                           |                                |                          |      
|                                                                                                                     |                                |                          |       
|Net loss attributable to ordinary shareholders                                                                       |                                | $                        | (3,005
|                                                                                                                     |                                |                          |       
|Basic and diluted net loss attributable to ordinary shareholders                                                     |                                | $                        | (1.28 
|                                                                                                                     |                                |                          |       
|Weighted average number of shares used in computing basic and diluted net loss attributable to ordinary shareholders |                                |                          | 2,356 
|                                                                                                                     |                                |                          |       

|                                 |                                                   | As of December 31,
|-------------------------------- | ------------------------------------------------- | ------------------
|
|
|Consolidated Balance Sheet Data: |                                                   |                   
|                                 | Cash, cash equivalents and short-term investments |                   
|                                 | Working capital (deficit)                         |                   
|                                 | Total assets                                      |                   
|                                 | Long-term debt, less current portion              |                   
|                                 | Related party loan, less current portion          |                   
|                                 | Total shareholders' equity (deficit)              |                   

13

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

The following discussion should be read in conjunction with the Consolidated Financial Statements and related Notes thereto included
elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from
those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under "Risk Factors" and elsewhere in this Annual Report on
Form 10-K. See "Special Note Regarding Forward-Looking Statements."

Overview

RadView develops, markets and supports software that enables companies to assure the scalability, efficiency and reliability of web applications. In 1997, we
introduced our first web-testing product, WebLOAD, which was initially focused on assessing the scalability of web applications. Since then, we have enhanced the functionality of WebLOAD
to provide an integrated solution to assess the performance and accelerate the deployment of web applications. In February 2000, we introduced WebRM, which is designed to facilitate the
systematic verification of web application quality throughout the application development lifecycle and to accelerate the deployment of high performance web applications. In August 2001, we
introduced WebFT, a testing tool for verification of the functionality of web applications.

Our
revenues were $5.1 million in 1999, $10.8 million in 2000, and $8.6 million in 2001. Our revenues are primarily derived from the license of our WebLOAD and WebRM
software products, and to a lesser extent, from our WebFT software product. We also derive revenues from related services including customer support, maintenance and training.

We
license our software primarily through a direct sales force and, to a lesser extent, through indirect channels. To date, we have licensed our software to customers in North America,
Europe, Asia-Pacific, and the Middle East. Revenues derived from North America as a percent of total revenues were 86.8% in 1999, 82.7% in 2000, and 70.2% in 2001. While we expect to
continue to derive the majority of our revenues from North America, we intend to derive an increasing percentage of our revenues from Europe and Asia-Pacific. Substantially all of our
sales are denominated in U.S. dollars.

Our
net loss was $2.7 million in 1999, $11.0 million in 2000, and $17.4 million in 2001. These net losses resulted primarily from the significant costs incurred in
the development of our software and in the expansion of our operations.

In
July and October 2001, we restructured our business through the termination of an aggregate of approximately 40% of our workforce and the termination of certain sales
facilities leases. As a result of these actions, we recorded restructuring charges totaling $1.4 million in 2001. In January 2002, we reduced our workforce by an additional 26 employees.
We expect to record an additional restructuring charge of approximately $350,000 in the first quarter of 2002 consisting of employee severance costs, idle lease facilities costs and fixed asset
impairment costs. As a result of these actions, we expect that operating expenses will be lower in 2002 than in 2001.

Significant Accounting Policies

General

We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the U.S. As such, we are required to make certain
estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the
date of the financial statements

14

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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 our policies
for revenue recognition and software development costs.

Revenue Recognition

We recognize software license revenues upon delivery of our software to customers, provided persuasive evidence of an agreement exists, the fee is fixed or
determinable and collection of the related receivable is probable. We allocate our software license revenues under arrangements where we sell software and services together under one contract to each
element based on our relative fair values, with these fair values being determined using the price charged when that element is sold separately. If fair value for a delivered element does not exist
but the fair value does exist for all undelivered elements, we defer the fair value of the undelivered elements and recognize the remaining value for the delivered elements.

We
generally recognize software license revenues from resellers or distributors at the time of shipment, provided that all other revenue recognition criteria set forth in governing
statements of position on software revenue recognition have been met. We recognize services revenues from software maintenance agreements ratably over the term of the maintenance period, typically one
year. We recognize services revenues from training as the services are performed. Amounts collected or billed prior to satisfying the above revenue recognition criteria are reflected as deferred
revenue.

Software Development Costs

We account for software development costs in accordance with SFAS No. 86,Accounting for the Costs of Computer Software to Be Sold,
Leased or Otherwise Marketed. Software development costs incurred from the point of reaching technological feasibility until the time of general product release should be
capitalized. We define technological feasibility as the completion of a working model. 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.

15

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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 31,1999

2000

2001Revenues:Software licenses

92.0
%
83.4
%
67.5
%Services

8.0
%
16.6
%
32.5
%Total revenues

100.0
%
100.0
%
100.0
%Cost of revenues:Software licenses

6.7
%
5.3
%
3.1
%Services

1.3
%
4.4
%
13.5
%Total cost of revenues

8.0
%
9.7
%
16.6
%Gross profit

92.0
%
90.3
%
83.4
%Operating expenses:Sales and marketing

77.7
%
107.5
%
160.7
%Research and development

33.4
%
48.4
%
70.0
%General and administrative

23.3
%
28.4
%
33.0
%Stock-based compensation

4.6
%
13.2
%
10.2
%Nonrecurring charges

0.0
%
0.0
%
19.3
%Total operating expenses

139.0
%
197.5
%
293.2
%Loss from operations

(47.0
)%
(107.2
)%
(209.8
)%Other income (expense):Interest income (expense), net

(6.0
)%
5.2
%
8.0
%Other income (expense), net

(0.7
)%
0.2
%
0.2
%Net loss

(53.7
)%
(101.8
)%
(201.6
)%


Years Ended December 31, 2000 and 2001

Revenues

Total Revenues.Total revenues decreased $2.1 million, or 19.9%, from $10.8 million in 2000 to
$8.6 million in 2001. Total revenues decreased due to a $2.8 million decrease in total revenues from customers in the U.S. offset, in part, by a $700,000 increase in total revenues from
international customers. Total revenues from U.S. customers decreased from $8.9 million in 2000 to $6.1 million in 2001 due to lower unit volume sales of software licenses experienced
primarily in the second half of 2001, offset, in part, by an increase in service revenues. Total revenues from international customers increased from $1.9 million in 2000 to $2.6 million
in 2001 due to higher unit volume sales of software licenses and an increase in service revenues.

Software Licenses.Software license revenues decreased $3.2 million, or 35.2%, from $9.0 million in 2000 to
$5.8 million in 2001. Total software license revenues from U.S. customers decreased from $7.4 million in 2000 to $3.8 million in 2001 due to lower unit volume sales arising
primarily in the second half of 2001 attributable to weakness in the U.S. economy, slower technology spending, and uncertainty after the events on September 11, 2001. Total revenues from
international customers increased from $1.6 million in 2000 to $2.0 million in 2001 due to higher unit volume sales due to the

16

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expansion of our European sales force and establishment of distribution channels in Japan in the second half of 2000.

Services.Service revenues increased $1.0 million, or 56.8%, from $1.8 million in 2000 to $2.8 million
in 2001. This increase was due to provision of support and maintenance services to a larger installed customer base in both the U.S. and internationally.

Cost of Revenues

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 $572,000 in 2000, or 6.4% of software license revenue, compared to $271,000 in 2001, or 4.6% of software license
revenue. The decrease was due to lower royalty costs for third-party software in 2001.

Cost of Services.Cost of services consists principally of personnel-related costs associated with customer support and
training. Cost of services was $478,000 in 2000, or 26.6% of service revenues, compared to $1.2 million in 2001, or 41.6% of service revenue. The increase was due to an increase in the number
of employees providing support and maintenance services.

Operating Expenses

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 $11.6 million in 2000, or 107.5% of total
revenues, compared to $13.9 million in 2001, or 160.7% of total revenues. The increase was due to higher spending in 2001 for marketing programs, such as advertising, trade shows and
lead-generation
activities and the expansion of our sales and marketing workforce during the first half of 2001. In the second half of 2001, we reduced our sales and marketing workforce from 82 employees at
June 30, 2001 to 45 employees at December 31, 2001, a decrease of 37 employees, or approximately 45%. Sales and marketing expenses were reduced by $292,000 in the fourth quarter of 2001
as a result of the reversal of previously accrued annual bonuses and related expenses because of the reduction in our work force. This adjustment reduced total sales and marketing expenses by 15.0% in
the fourth quarter of 2001 and 2.0% in 2001. We expect that sales and marketing expenses will be lower in 2002 than in 2001.

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 $5.2 million in 2000, or 48.4% of total revenues, compared to $6.0 million in 2001, or 70.0% of total revenues.
The increase was due to increased personnel costs incurred during the first half of 2001. In the second half of 2001, we reduced our research and development workforce from 52 employees at
June 30, 2001 to 40 employees at December 31, 2001, a decrease of 12 employees, or approximately 23%. Research and development expenses were reduced by $110,000 in the fourth quarter of
2001 as a result of the reversal of previously accrued annual bonuses and related expenses and year-end employee benefit programs because of the reduction in our work force. This
adjustment reduced total research and development expenses by 10.7% in the fourth quarter of 2001 and 1.8% in 2001. We expect that research and development expenses will be lower in 2002 than in 2001.

General and Administrative.General and administrative expenses consist principally of executive, finance and administrative
salaries and related expenses and costs. General and administrative expenses were $3.1 million in 2000, or 28.4% of total revenues, compared to $2.9 million in 2001, or 33.0% of total
revenues. The decrease was due to a reduction during the second half of 2001 in our general and administrative workforce from 24 employees at June 30, 2001 to 11 employees at
December 31, 2001, a decrease of 13 employees, or approximately 54%. General and administrative expenses were reduced by $198,000 in the fourth quarter of 2001 as a result of the reversal of
previously accrued annual bonuses

17

---

and related expenses and year-end employee benefit programs because of the reduction in our work force. This adjustment reduced total general and administrative expenses by 32.6% in the
fourth quarter of 2001 and 6.5% in 2001. We expect that general and administrative expenses will be lower in 2002 than in 2001.

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 and to all equity instruments issued to nonemployees. For stock options granted to employees, the difference between the exercise
price and the estimated 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 $1.4 million in 2000 compared to $878,000 in 2001. 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 $1.4 million at December 31, 2001, and will result in additional charges to operations through May 2004.

Nonrecurring Expenses.Nonrecurring expenses consist of restructuring charges and other nonrecurring costs. There were no
nonrecurring expenses in 2000. Nonrecurring expenses were $1.7 million in 2001 that consisted of restructuring charges of $1.4 million and a payment of $237,000 to a landlord incurred
upon the termination of a facility lease agreement in March 2001.

The
$1.4 million in restructuring charges were incurred in July 2001 and October 2001, when we implemented two separate restructuring plans in an effort to lower
operating costs. The restructuring plans and related charges recorded in 2001 consisted of severance costs for terminated employees of $634,000, idle lease space costs of $339,000, fixed asset
impairment costs of $369,000 and vendor contract termination fees of $91,000. A total of 62 employees were terminated, or approximately 40% of the workforce, of whom 37 employees were from sales and
marketing, 12 employees were from research and development, and 13 employees were from general and administrative. Restructuring charges accrued but not paid as of December 31, 2001 totaled
$231,000, and consist of estimated idle lease costs. Amounts payable within one year have been classified as a current liability.

In
January 2002, we reduced our workforce by an additional 26 employees. We expect to record additional restructuring expenses of approximately $350,000 in the first quarter of
2002 consisting of employee severance costs, idle lease facilities costs, and fixed asset impairment costs.

Interest Income, Net.Interest income, net consists principally of interest earned on cash investments offset, in part, by
interest expense incurred in connection with long-term debt. Interest income, net was $565,000 in 2000 compared to $693,000 in 2001. Interest income, net increased due to an increase in
interest income in 2001 from investment of the net proceeds of the initial public offering of our ordinary shares in August 2000 and a decrease in interest expense resulting from the repayment
of all outstanding long-term debt during the first quarter of 2001.

Other Income, Net.Other income, net consists principally of currency translation gains and losses. Other income, net was
$18,000 in 2000 and $20,000 in 2001. The change was due to exchange rate fluctuations.

Income Taxes.We have estimated net operating loss carryforwards for Israeli tax purposes totaling approximately
$13.0 million as of December 31, 2001 that would reduce future Israeli income taxes, if

18

---

any. These net operating losses may be carried forward indefinitely and offset against future taxable income. We expect that during the period in which these tax losses are utilized our 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 our financial statements.

Our
U.S. subsidiary has net operating loss carryforwards for U.S. Federal and state tax purposes totaling approximately $21.5 million as of December 31, 2001. These losses
are available to offset any future U.S. taxable income of the U.S. subsidiary and will expire between 2012 and 2021. We have recorded a full valuation allowance against our deferred tax assets due to
the uncertainty surrounding the ability and the timing of the realization of these tax benefits.

Years Ended December 31, 1999 and 2000

Revenues

Total Revenues.Total revenues increased $5.7 million, or 111.2%, from $5.1 million in 1999 to
$10.8 million in 2000.

Software Licenses.Software license revenues increased $4.3 million, or 91.3%, from $4.7 million in 1999 to
$9.0 million in 2000. The increase was due to the expansion of our sales force in 2000, the increased market acceptance of our WebLOAD product, and the introduction of our WebRM product in
February 2000, which represented 34.3% of total software license revenues in 2000.

Services.Services revenues increased $1.4 million, or 339.1%, from $409,000 in 1999 to $1.8 million in 2000.
The increase was due to higher maintenance and training revenues resulting from an increase in our customer base.

Cost of Revenues

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 $340,000 in 1999, or 7.2% of software license revenue, compared to $572,000 in 2000, or 6.4% of software license
revenue. The dollar increase was primarily due to an increase in product-related costs associated with licensing of our software. The percentage decrease was due to economies of scale associated with
a larger customer base.

Cost of Services.Cost of services consists principally of personnel-related costs associated with customer support and
training. Cost of services was $67,000 in 1999, or 16.4% of service revenue, compared to $478,000 in 2000, or 26.6% of service revenue. The increase was due to increased personnel costs to provide
support and maintenance services.

Operating Expenses

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 communication costs such as advertising and product promotion. Sales and marketing expenses were $4.0 million in 1999, or 77.7% of
total revenues, compared to $11.6 million in 2000, or 107.5% of total revenues. The increase was due to the expansion of our sales force, higher commission expenses associated with greater
revenues, hiring of additional marketing personnel, increased advertising spending, and higher occupancy and travel costs.

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 $1.7 million in 1999, or 33.4% of total revenues, compared to $5.2 million in 2000, or 48.4% of total revenues.
The increase was due to an increase in the number of software engineering personnel

19

---

and related spending associated with the establishment of a software development organization at our headquarters in Massachusetts during late 1999 and early 2000.

General and Administrative.General and administrative expenses consist principally of finance, executive and administrative
salaries and related expenses and costs. General and administrative expenses were $1.2 million in 1999, or 23.3% or total revenues, compared to $3.1 million in 2000, or 28.4% of total
revenues. The increase was due to an increase in the number of finance and administrative personnel to accommodate our growing U.S. operations.

Stock-based Compensation.Stock-based compensation expense was $234,000 in 1999, or 4.6% of total revenues, compared to
$1.4 million in 2000, or 13.2% of total revenues. The increase compensation expense resulted from the issuance of stock options to employees at exercise prices below fair market value prior to
the completion of the initial public offering of our ordinary shares in August 2000.

Interest Income, Net.Interest income, net consists principally of interest expense incurred in connection with
long-term debt, offset by interest earned on cash investments. There was net interest expense of $305,000 in 1999 compared to net interest income of $565,000 in 2000. Interest income, net
increased due to higher interest earnings resulting from the investment of proceeds from the Series B preferred share financing in December 1999 and the initial public offering completed
in August 2000 and a decrease in interest expense due to the payment of related party loans in September 2000.

Other Income, Net.Other income, net consists principally of currency translation gains and losses. There was net other
expense of $35,000 in 1999 compared to net other income of $18,000 in 2000. The changes were due to exchange rate fluctuations.

Liquidity and Capital Resources

As of December 31, 2001, cash and cash equivalents totaled $13.2 million compared to $33.5 million as of December 31, 2000.

Cash
used in operating activities was $1.5 million in 1999, $6.3 million in 2000 and $15.7 million in 2001. Cash used in operating activities in 1999 was due to a
net loss of $2.7 million, an increase of $1.1 million in accounts receivable and an increase of $222,000 in prepaid expenses, offset, in part, by depreciation of $251,000, amortization
of deferred compensation of $234,000, other non-cash charges of $417,000, an increase of $1.2 million in accounts payable and accrued liabilities and an increase of $401,000 in
deferred revenue. Cash used in operating activities in 2000 was due to a net loss of $11.0 million, an increase of $1.2 million in accounts receivable and an increase of 406,000 in
prepaid expenses, offset, in part, by depreciation of $668,000, amortization of deferred compensation of $1.4 million, other non-cash charges of $475,000, an increase of
$2.7 million in accounts payable and accrued liabilities and an increase of $1.0 million in deferred revenue. Cash used in operating activities in 2001 was due to a net loss of
$17.4 million, a decrease of $2.0 million in accounts payable and accrued expenses and a decrease of $102,000 in deferred revenue, offset, in part, by depreciation of
$1.1 million, $369,000 of asset impairment write-offs, amortization of deferred compensation of $878,000, other non-cash charges of $92,000, a decrease of
$1.0 million in accounts receivable, a decrease of $229,000 in prepaid expenses, and an increase of $231,000 in accrued restructuring charges.

Cash
used in investing activities was $884,000 in 1999, $2.1 million in 2000 and $677,000 in 2001. Cash used in investing activities in 1999 was primarily for purchases of
$197,000 in short-term investments, $587,000 in property and equipment and an increase of $100,000 in other assets. Cash used in investing activities in 2000 was primarily for purchases of
$2.4 million in property and equipment and an increase of $241,000 in other assets, offset, in part, by $513,000 in proceeds from the sale of short-term
investments. Cash used in investing activities in 2001 was primarily for purchases of $605,000 in property and equipment and an increase of $72,000 in other assets.

20

---

Cash
provided by financing activities was $8.9 million in 1999 and $34.2 million in 2000. Cash used in financing activities was $3.9 million in 2001. Cash provided
by financing activities in 1999 consisted principally of $8.9 million in net proceeds from the issuance of preferred stock. Cash provided by financing activities in 2000 consisted of
$35.3 million in net proceeds from the initial public offering and $406,000 from the issuance of ordinary and preferred shares prior to the completion of the initial public offering, offset, in
part, by $1.4 million used for the repayment of principal on the related party loans. Cash used in financing activities in 2001 consisted of $3.8 million for the repayment of
long-term loans with a bank and $100,000 for the purchase of our ordinary shares.

In
April 2001, our board of directors approved a stock repurchase program under which we may repurchase our ordinary shares for an aggregate consideration that shall not exceed
$2.5 million. Purchases may be made based on market conditions from time-to-time at the discretion of management in open market purchases or privately negotiated
transactions. Through December 31, 2001, we repurchased 134,000 of our ordinary shares at an aggregate cost of $100,000.

We
lease all of our office facilities under noncancellable operating leases that expire over varying terms through 2005. As of December 31, 2001, the future total lease payments
under these leases were as follows: $628,000 in 2002, $511,000 in 2003, $517,000 in 2004, and $166,000 in 2005.

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

Impact of Inflation and Currency Fluctuations

A large portion of our revenues is received, and a large portion of our expenses is incurred, in U.S. dollars. Revenues denominated in U.S. dollars as a percent
of total revenues were 92.0% in 1999, 82.7% in 2000, and 92.9% in 2001. Expenses denominated in U.S. dollars as a percent of total expenses were 60.0% in 1999, 69.0% in 2000, and 70.4% in 2001.

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 inflation in Israel. 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, the United Kingdom and Sweden. Transactions denominated in currencies other than the U.S. dollar or NIS
were not material.

Government Grants

The Government of Israel, through the Office of the Chief Scientist, encourages research and development projects that result in products for export. We received
grants of $605,000 from the Office of the Chief Scientist through December 31, 1996, which were used to fund a predecessor product.

21

---

Since December 31, 1996, we have neither applied for nor received any additional grants from the Office of the Chief Scientist. Pursuant to the terms of these grants, we are obligated to pay
royalties of 3.0% to 5.0% of revenues derived from sales of products funded with these grants, up to 100.0% to 150.0% of certain grant amounts received. The terms of the grant also require that the
know-how from the research and development that is used to produce the product may not be transferred to third parties without the approval of the research committee. As of
December 31, 2001 our maximum potential royalty obligation to the Office of the Chief Scientist in respect of grants received is $670,000, of which $614,000 has been accrued and $56,000 has
been paid.

Effective Corporate Tax Rate

Israeli companies are generally subject to tax at the rate of 36.0% of taxable income. However, we have derived, and expect to continue to derive, a substantial
portion of our income under our Approved Enterprise capital investment program. Subject to compliance with applicable requirements, this income will be tax exempt for a period of two years and will be
subject to a reduced corporate tax rate of 25.0% in the following five years. 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, 2001, we have not yet used the tax benefits for which we are eligible.

Market Risk

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.

Recently Issued Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board, or FASB, issued Statement on Financial Accounting Standards, or SFAS, No. 141, Business
Combinations. SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the
purchase method. The adoption of SFAS No. 141 did not have an impact on the Company's consolidated financial statements.

In
July 2001, the FASB also issued SFAS No. 142,Goodwill and Other Intangible Assets. Under SFAS No. 142, goodwill
is no longer subject to amortization over its estimated useful life. Rather, goodwill is subject to at least an annual assessment for impairment by applying a fair-value-based test. Also
under SFAS No. 142, intangible assets acquired in conjunction with a business combination should be separately recognized if the benefit of the intangible asset is obtained through contractual
or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented or exchanged, regardless of the acquirer's intent to do so. Intangible assets will continue to be amortized
over their respective useful lives under SFAS No. 142. The Company must adopt SFAS No. 142 on January 1, 2002. The adoption of SFAS No. 142 did not have an impact on the
Company's consolidated financial statements.

In
August 2001, the FASB issued SFAS No. 144,Accounting for Impairment or Disposal of Long-Lived Assets. This
statement supersedes SFAS No. 121,Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
of,and the accounting and reporting provisions of APB Opinion No. 30,Reporting the Results of OperationsReport the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. Under this statement it is required that one accounting
model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and it broadens the presentation of discontinued operations to include
more disposal transactions. The provisions of this statement are effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim period within those
fiscal years, with early adoption permitted. The Company does

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not believe the adoption of this statement will have a material impact on the Company's consolidated financial statements.

In
November 2001, the Emerging Issues Task Force issued Topic No. D-103 relating to the accounting for reimbursements received for
out-of-pocket expenses. In accordance with Topic No. D-103, reimbursements received for out-of-pocket expenses incurred should be
characterized as revenue in the statements of operations. The Company has historically accounted for reimbursements received for out-of-pocket expenses incurred as a reduction
to cost of service revenue in the statement of operations to offset the costs incurred. The Company will adopt Topic No. D-103 in financial reporting periods beginning after
December 31, 2001 and comparative financial statements for prior periods will be reclassified to comply with the guidance in Topic No. D-103. There were no reimbursed
out-of pocket expenses in 1999. Reimbursed out-of-pocket expenses were $18,000 in 2000 and $16,000 in 2001. If the provisions of Topic No. D-103
had been adopted during 2000 and 2001, service revenues and cost of service revenues would have been higher by the amounts noted. However, the amount of gross profit would not have changed, but the
gross profit as a percentage of total revenues, or gross margin, would have decreased.

Special Note Regarding Forward-Looking Statements

Statements in this Annual Report of Form 10-K concerning our business outlook or future performance; anticipated revenues, expenses or other
financial items; product introductions and plans and objectives related thereto; and statements concerning assumptions made or expectations as to any future events, conditions, performance or other
matters, are "forward-looking statements" as that term is defined under U.S. federal securities laws. Discussions containing forward-looking statements may be found in the material set forth under
"Management's Discussion and Analysis of Financial Condition and Results of Operations" as well as in this report generally. We generally uses words such as "believe," "may," "could," "will,"
"intend," "estimate," "expect," "anticipate," "plan," and similar expressions to identify forward-looking statements. Forward-looking statements are subject to various risks, uncertainties and other
factors that could cause actual results to differ materially from those stated in such statements. These risks, uncertainties and factors include, but are not limited to: our limited operating history
and history of losses; significant competition; and other factors detailed in our filings with the Securities and Exchange Commission, including this Annual Report on Form 10-K.
Although we believe the expectations reflected in the forward-looking statements are reasonable, they related only to events as of the date on which the statements are made, and we cannot assure you
that its future results, levels of activity, performance or achievements will meet these expectation. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness
of the forward-looking statements. We do not intend to update any of the forward-looking statements after the date of this report to conform these statements to actual results or to changes in our
expectations, except as required by law.

Passive Foreign Investment Company Status

General

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 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 includes holders that are:

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

Our Determination of PFIC Status

We believe we were a PFIC for the taxable year ended 2001 due primarily to the decline in the market price of our ordinary shares relative to the value of our
Passive Assets. If we were indeed a PFIC for the 2001 taxable year, a U.S. Holder who owned our shares in 2001 will be subject to reporting requirements for 2001 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 are a PFIC, even if in subsequent years we are no longer a PFIC, although shareholder
elections may apply in certain circumstances, as described in greater detail below.

We
expect that we will be a PFIC in 2002. If our expectation is accurate, the same reporting obligations and tax consequences will apply to U.S. Holders who acquire shares during the
2002 taxable year.

Tax Consequences if We Are a PFIC

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 over a U.S. Holder's holding period with respect to our ordinary shares. The amount allocated to prior years will be subject to tax at the highest tax rate in effect for
that year and an interest charge would be imposed on the amount of deferred tax on the income allocated to 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 were a PFIC, a U.S. Holder who acquires ordinary shares from a decedent would be denied the normally available step-up in
tax basis for our ordinary shares to fair market value at the date of death and instead would have a tax basis equal to the decedent's tax basis.

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For
any tax year in which we are determined to be a PFIC, a U.S. Holder 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. Holder 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. Holder. Any gain subsequently recognized upon the sale of their ordinary shares by such U.S. Holder generally would be taxed as capital gain
and a denial of the basis step-up at death would not apply.

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

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

As
an alternative to a QEF Election, a U.S. Holder generally may elect annually to mark to market their ordinary shares, or a Mark-to-Market Election, recognizing as ordinary income or
loss, subject to certain limitations, the difference between the fair market value of the U.S. Holder's ordinary shares and the adjusted tax basis of such ordinary shares. Losses would be allowed only
to the extent of the net mark-to-market gain accrued under the election. If a Mark-to-Market Election with respect to ordinary shares is in effect on the date of a U.S. Holder's death, the normally
available step-up in tax basis to fair market value will not be available. Rather, the tax basis of such ordinary shares in the hands of a U.S. Holder who acquired them from a decedent will be the
lesser of the decedent's tax basis or the fair market value of the ordinary shares.

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

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

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

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RISK FACTORS

Certain Factors That May Affect Future Results

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

Risks Related to Our Operations

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

We incurred net losses of $2.7 million in 1999, $11.0 million in 2000 and $17.4 million in 2001. As of December 31, 2001, we had an
accumulated deficit of $41.4 million. Moreover, we expect to continue to incur significant sales and marketing, research and development and general and administrative expenses. 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 securities analysts or our investors, our share price may
decrease significantly and you could lose part or all of your 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 securities analysts or 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.

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

The deterioration of economies around the world and economic uncertainty that began in 2000 continued throughout 2001. This has resulted in a curtailment of
technology spending by many businesses across many industries. It has also reduced our ability to forecast orders, also referred to as "low visibility". We believe that this slow down in technology
spending will continue for the foreseeable future and are uncertain as to when this slow-down will end. As a result of this slow-down, our revenues decreased from
$10.8 million in 2000 to $8.6 million in 2001, and we do not expect revenues to increase in 2002. The decline in technology spending has reduced our revenues, and may result in pressure
on the price of our products and prolong the time until we are paid, all of which would have a material adverse effect on the results of our operations.

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The terrorist attacks in the United States are impacting the global economy and could have a material adverse effect on our results of operations.

The terrorist attacks in the United States on September 11, 2001, followed by military action by the United States, are impacting the global economy. The
future course of this conflict and its effect on the global economy and technology spending cannot be predicted. Terrorist attacks can have both direct and indirect impact on our business as a result
of, among other things, attacks on our suppliers, employees, customers or research facilities, military service obligations of our key employees and changes in monetary and fiscal policies, all of
which may have a material adverse effect on the results of our operations.

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

Our WebLOAD product accounted for all of our revenues prior to February 2000. We anticipate that revenues from our WebLOAD and WebRM products will
constitute substantially all of our revenues for the foreseeable future. Consequently, any decline in the demand for our WebLOAD and WebRM products or their failure to achieve broad market acceptance,
would seriously harm our business.

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

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

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

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

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

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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, particularly with respect to WebRM, which we introduced in February 2000. 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. With respect to WebRM, we spend time educating and providing information to our
prospective customers regarding its use and benefits. 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 you 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.

Failure to develop strategic relationships could limit our growth.

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

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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.

Future acquisitions may be difficult to integrate, disrupt our business, dilute shareholder value or divert management attention.

As part of our business strategy, we may seek to acquire or invest in businesses, products or technologies that we believe would complement or expand our
business, augment our market coverage, enhance our technical capabilities or otherwise offer growth opportunities. Acquisitions could create risks for us, including:



In
addition, if we consummate acquisitions through an exchange of our securities, shareholders could suffer significant dilution. Any future acquisitions, even if successfully completed,
may not generate any additional revenue or provide any benefit to our business.

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, the United Kingdom and Sweden. 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.

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

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

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

In July 2001, October 2001, and January 2002, we reduced the number of our employees in order to reduce our operating expenses. As a result,
our success depends on our ability to retain our existing experienced employees. If we fail to retain our current employees, our revenues could decline. Competition for qualified personnel is intense,
and we may not be able to retain our highly qualified personnel. Our future success also depends upon the continued service of our key sales, marketing and support personnel. In addition, our products
and technologies are complex and we are substantially dependent upon the continued service of our existing engineering personnel. None of our key employees are bound by an employment agreement that
requires a specified service obligation. If we are not able to retain our existing personnel, we could have difficulty developing, selling or supporting our products.

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

Our success depends upon the protection of our technology, trade secrets and trademarks. To protect our rights to our intellectual property, we rely on a
combination of trade secret protection, 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

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

We may need to raise additional capital to finance our operations if we are unable to generate cash flow from operations. Through December 31, 2001, we
have been using cash in operating our business. We cannot be certain that we will be able to obtain additional financing on commercially reasonable terms, or at all. This could inhibit our ability to
run our business.

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

Our stock price has fluctuated and may continue to fluctuate significantly. The price of our ordinary shares has decreased significantly since August 2000.
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.

If our shareholders sell substantial amounts of our ordinary shares, including shares issued upon the exercise of outstanding options, 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.

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Our principal shareholders, executive officers and directors have substantial control 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, 2002, our officers, directors and principal shareholders beneficially owned 72.9% of our outstanding ordinary shares. As a result, these
shareholders may have the power to control 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.

Risks Relating to Our Industry and the Internet

Our future revenues and profits, if any, depend upon the use of the Internet as an effective medium of business and communication.

Our success will depend, in large part, on the acceptance of the Internet to conduct business and on the ability of third parties to provide a reliable Internet
infrastructure network with the speed, data capacity and security necessary for reliable Internet access and services. To the extent that the Internet continues to experience increased numbers of
users, increased frequency of use or increased bandwidth requirements of users, the Internet infrastructure may not be able to support the demands placed on it and the performance or reliability of
the Internet could suffer, resulting in decreased users and resulting harm to our business.

Our performance depends on the demand for high technology products and services.

Our success depends heavily on the demand for products and services related to the high technology sector of the economy. Growth within this sector has slowed or
even declined over the past 18 months. If demand for high technology products and services does not grow or even experiences negative growth, demand for our products and services will be
reduced and our revenues will be negatively impacted

Risks Relating to Our Location in Israel

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

We are incorporated under Israeli law and our primary research and development facilities are located in Israel. Political, economic and military conditions in
Israel directly affect our operations. Since the establishment of the State of Israel in 1948, a state of hostility, varying in degree and intensity, has led to security and economic problems for
Israel. Several countries still restrict business with Israeli companies as a result of the Israeli-Arab conflict. In particular, the hostilities between the State of Israel and the
Palestinians have increased in the past year and have intensified in the past few months. The future of peace efforts between Israel and its Arab neighbors is uncertain. Any major hostilities
involving Israel could lead to attacks on our suppliers, employees, customers or research facilities,
military service obligations of our key employees, interruption or curtailment of trade between Israel and its trading partners, a significant increase in inflation, or a significant downturn in the
economic or financial condition of Israel, any of which could have a material adverse effect on our business.

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

A number of our key personnel in Israel have standing obligations to perform periodical reserve duty in the Israel Defense Forces and are subject to be called for
active military duty at any time. If

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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 personnel expenses related to 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
operating results unless the inflation in Israel is offset by a devaluation of the NIS in relation to the U.S. dollar. In 2001, the rate of inflation in Israel was 1.4%. 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. Our current government licenses to engage in production of our encryption technology pertain to our products in their 40- and 128-bit versions and expire on
May 30, 2002, and October 31, 2002, respectively. We intend to apply for renewal of these licenses. 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 fixed assets and paying royalties with respect to grants received. 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.

33

---

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

We are incorporated in Israel. Our Chief Executive Officer and President resides in the United States under a L-1 visa, the chairman of the board of
our directors is a nonresident of the United States and a portion of our assets and the assets of these persons are located outside the United States. Therefore, it may be difficult to enforce a
judgment obtained in the United States against us or any of those persons or to effect service of process upon these persons in the United States. It may also be difficult to enforce civil liabilities
under U.S. federal securities laws in original actions instituted in Israel.

The new Israeli Companies Law may cause uncertainties regarding corporate governance; Israeli tax law may inhibit an acquisition of us.

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

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.

Item 7A.    QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

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.

34

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Item 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

RADVIEW SOFTWARE, LTD.  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                               |  | Page
|-------------------------------------------------------------------------------------------------------------- |  | ----
|Report of Independent Public Accountants                                                                       |  | 36  
|Consolidated Balance Sheets as of December 31, 2000 and 2001                                                   |  | 37  
|Consolidated Statements of Operations for the Years Ended
December 31, 1999, 2000 and 2001                     |  | 38  
|Consolidated Statements of Shareholders' Equity (Deficit) for the Years Ended
December 31, 1999, 2000 and 2001 |  | 39  
|Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 2000 and 2001                     |  | 40  
|Notes to Consolidated Financial Statements                                                                     |  | 41  

35

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To
the Shareholders of
RadView Software Ltd.:

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

We
conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our 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 financial position of RadView Software Ltd. and subsidiaries
as of December 31, 2000 and 2001 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States.

Luboshitz
Kasierer
Arthur Andersen

Tel-Aviv,
Israel
February 6, 2002

36

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RADVIEW SOFTWARE LTD.        CONSOLIDATED BALANCE SHEETS        (In thousands, except share data)

|                                     |                                                                                                                                                            | December 31, |                                           
|------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------ | ------------------------------------------
|
|ASSETS                               |                                                                                                                                                            |              |                                           
|Current Assets:                      |                                                                                                                                                            |              |                                           
|                                     | Cash and cash equivalents                                                                                                                                  |              | $                                         
|                                     | Accounts receivable, net of reserves of $345 at December 31, 2000 and $209 at December 31, 2001                                                            |              |                                           
|                                     | Prepaid expenses and other current assets                                                                                                                  |              |                                           
|                                     |                                                                                                                                                            |              |                                           
|                                     |                                                                                                                                                            |              | Total Current Assets                      
|                                     |                                                                                                                                                            |              |                                           
|Property and Equipment, net          |                                                                                                                                                            |              | 2,503                                     
|Other Assets                         |                                                                                                                                                            |              | 540                                       
|                                     |                                                                                                                                                            |              |                                           
|                                     |                                                                                                                                                            |              | Total Assets                              
|                                     |                                                                                                                                                            |              |                                           
|LIABILITIES AND SHAREHOLDERS' EQUITY |                                                                                                                                                            |              |                                           
|Current Liabilities:                 |                                                                                                                                                            |              |                                           
|                                     | Current maturities of long-term loans                                                                                                                      |              | $                                         
|                                     | Accounts payable                                                                                                                                           |              |                                           
|                                     | Accrued expenses                                                                                                                                           |              |                                           
|                                     | Accrued restructuring charge, current portion                                                                                                              |              |                                           
|                                     | Deferred revenue                                                                                                                                           |              |                                           
|                                     |                                                                                                                                                            |              |                                           
|                                     |                                                                                                                                                            |              | Total Current Liabilities                 
|                                     |                                                                                                                                                            |              |                                           
|Long-term Liabilities:               |                                                                                                                                                            |              |                                           
|                                     | Accrued restructuring charge, less current portion                                                                                                         |              |                                           
|                                     | Accrued severance                                                                                                                                          |              |                                           
|                                     |                                                                                                                                                            |              |                                           
|                                     |                                                                                                                                                            |              | Total Long-Term Liabilities               
|                                     |                                                                                                                                                            |              |                                           
|                                     |                                                                                                                                                            |              | Total Liabilities                         
|                                     |                                                                                                                                                            |              |                                           
|Commitments (Note 10)                |                                                                                                                                                            |              |                                           
|Shareholders' Equity:                |                                                                                                                                                            |              |                                           
|                                     | Ordinary shares, NIS 0.01 par valueAuthorized40,000,000 shares; Issued16,366,572 shares at December 31, 2000 and 16,532,868 shares at December 31, 2001 |              |                                           
|                                     | Additional paid-in capital                                                                                                                                 |              |                                           
|                                     | Deferred compensation                                                                                                                                      |              |                                           
|                                     | Accumulated deficit                                                                                                                                        |              |                                           
|                                     | Treasury shares, at costnone at December 31, 2000 and 134,000 shares at December 31, 2001                                                                 |              |                                           
|                                     |                                                                                                                                                            |              |                                           
|                                     |                                                                                                                                                            |              | Total Shareholders' Equity                
|                                     |                                                                                                                                                            |              |                                           
|                                     |                                                                                                                                                            |              | Total Liabilities and Shareholders' Equity
|                                     |                                                                                                                                                            |              |                                           

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

37

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RADVIEW SOFTWARE LTD.        CONSOLIDATED STATEMENTS OF OPERATIONS        (In thousands, except per share data)

|                                                                   |                                | Year Ended December 31,  |       
|------------------------------------------------------------------ | ------------------------------ | ------------------------ | ------
|
|Revenues:                                                          |                                |                          |       
|                                                                   | Software licenses              |                          | $     
|                                                                   | Service                        |                          |       
|                                                                   |                                |                          |       
|                                                                   |                                | Total Revenues           |       
|                                                                   |                                |                          |       
|Cost of Revenues:                                                  |                                |                          |       
|                                                                   | Software licenses              |                          |       
|                                                                   | Service                        |                          |       
|                                                                   |                                |                          |       
|                                                                   |                                | Total Cost of Revenues   |       
|                                                                   |                                |                          |       
|Gross Profit                                                       |                                |                          | 4,703 
|                                                                   |                                |                          |       
|Operating Expenses:                                                |                                |                          |       
|                                                                   | Sales and marketing            |                          |       
|                                                                   | Research and development       |                          |       
|                                                                   | General and administrative     |                          |       
|                                                                   | Stock-based compensation (1)   |                          |       
|                                                                   | Nonrecurring expenses (Note 4) |                          |       
|                                                                   |                                |                          |       
|                                                                   |                                | Total Operating Expenses |       
|                                                                   |                                |                          |       
|Operating loss                                                     |                                |                          | (2,401
|                                                                   |                                |                          |       
|Interest income                                                    |                                |                          | 89    
|Interest expense                                                   |                                |                          | (394  
|Other income, net                                                  |                                |                          | (35   
|                                                                   |                                |                          |       
|Net loss                                                           |                                | $                        | (2,741
|                                                                   |                                |                          |       
|Noncash stock dividend to preferred shareholders                   |                                |                          |      
|                                                                   |                                |                          |       
|Net loss attributable to ordinary shareholders                     |                                | $                        | (2,741
|                                                                   |                                |                          |       
|Net loss per share attributable to ordinary shareholders (Note 3): |                                |                          |       
|Net loss per shareBasic and diluted                               |                                | $                        | (0.80 
|                                                                   |                                |                          |       
|Weighted average shares outstanding                               |                                |                          |       
|                                                                   | Basic and diluted              |                          |       
|                                                                   |                                |                          |       

---

|                                                                                                 |                                | Year Ended December 31,
|------------------------------------------------------------------------------------------------ | ------------------------------ | -----------------------
|
|(1) The following summarizes the departmental allocation of the stock-based compensation charge: |                                |                        
|                                                                                                 | Sales and marketing            |                        
|                                                                                                 | Research and development       |                        
|                                                                                                 | General and administrative     |                        
|                                                                                                 |                                |                        
|                                                                                                 | Total stock-based compensation |                        
|                                                                                                 |                                |                        

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

38

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

|                           |                                                                                         | Preferred Shares |            | Ordinary Shares |    |     |            |           |   |    |    | Treasury Shares |        |        |  
|-------------------------- | --------------------------------------------------------------------------------------- | ---------------- | ---------- | --------------- | -- | --- | ---------- | --------- | - | -- | -- | --------------- | ------ | ------ | -
|
|Balance, December 31, 1998 |                                                                                         | 1,314,200        |            | $               | 4  |     | 2,598,600  |           | $ | 8  |    | $               | 6,623  |        | $
|                           | Issuance of ordinary shares                                                             |                  |           |                 |    |    |            | 1,595,400 |   |    | 4  |                 |        |       |  
|                           | Issuance of preferred shares, net of issuance costs $239                                |                  | 3,927,565  |                 |    | 9   |            |          |   |    |   |                 |        | 8,891  |  
|                           | Issuance of warrants to a bank                                                          |                  |           |                 |    |    |            |          |   |    |   |                 |        | 137    |  
|                           | Interest imputed on related party loan                                                  |                  |           |                 |    |    |            |          |   |    |   |                 |        | 43     |  
|                           | Deferred compensation                                                                   |                  |           |                 |    |    |            |          |   |    |   |                 |        | 582    |  
|                           | Amortization of deferred compensation                                                   |                  |           |                 |    |    |            |          |   |    |   |                 |        |       |  
|                           | Adjustment for forfeiture of stock options                                              |                  |           |                 |    |    |            |          |   |    |   |                 |        | (7     | )
|                           | Net loss                                                                                |                  |           |                 |    |    |            |          |   |    |   |                 |        |       |  
|                           |                                                                                         |                  |            |                 |    |     |            |           |   |    |    |                 |        |        |  
|Balance, December 31, 1999 |                                                                                         | 5,241,765        |            |                 | 13 |     | 4,194,000  |           |   | 12 |    |                 | 16,269 |        |  
|                           | Issuance of preferred shares, net of issuance costs of $5                               |                  | 23,810     |                 |    |    |            |          |   |    |   |                 |        | 45     |  
|                           | Exercise of options and warrants                                                        |                  |           |                 |    |    |            | 2,648,497 |   |    | 7  |                 |        | 355    |  
|                           | Conversion of preferred shares into ordinary shares                                     |                  | (5,265,575 | )               |    | (13 | )          | 5,265,575 |   |    | 13 |                 |        |       |  
|                           | Stock dividend to preferred shareholders                                                |                  |           |                 |    |    |            | 258,500   |   |    |   |                 |        |       |  
|                           | Issuance of ordinary shares in initial public offering, net of offering costs of $4,714 |                  |           |                 |    |    |            | 4,000,000 |   |    | 10 |                 |        | 35,276 |  
|                           | Interest imputed on related party loan                                                  |                  |           |                 |    |    |            |          |   |    |   |                 |        | 27     |  
|                           | Deferred compensation                                                                   |                  |           |                 |    |    |            |          |   |    |   |                 |        | 8,494  |  
|                           | Amortization of deferred compensation                                                   |                  |           |                 |    |    |            |          |   |    |   |                 |        |       |  
|                           | Adjustment for forfeiture of stock options                                              |                  |           |                 |    |    |            |          |   |    |   |                 |        | (1,814 | )
|                           | Net loss                                                                                |                  |           |                 |    |    |            |          |   |    |   |                 |        |       |  
|                           |                                                                                         |                  |            |                 |    |     |            |           |   |    |    |                 |        |        |  
|Balance, December 31, 2000 |                                                                                         |                 |            |                 |   |     | 16,366,572 |           |   | 42 |    |                 | 58,688 |        |  
|                           | Exercise of options                                                                     |                  |           |                 |    |    |            | 166,296   |   |    |   |                 |        |       |  
|                           | Purchase of treasury shares                                                             |                  |           |                 |    |    |            |          |   |    |   |                 |        |       |  
|                           | Issuance of options to consultants                                                      |                  |           |                 |    |    |            |          |   |    |   |                 |        | 15     |  
|                           | Amortization of deferred compensation                                                   |                  |           |                 |    |    |            |          |   |    |   |                 |        |       |  
|                           | Adjustment for forfeiture of stock options                                              |                  |           |                 |    |    |            |          |   |    |   |                 |        | (3,473 | )
|                           | Net loss                                                                                |                  |           |                 |    |    |            |          |   |    |   |                 |        |       |  
|                           |                                                                                         |                  |            |                 |    |     |            |           |   |    |    |                 |        |        |  
|Balance, December 31, 2001 |                                                                                         |                 |            | $               |   |     | 16,532,868 |           | $ | 42 |    | $               | 55,230 |        | $
|                           |                                                                                         |                  |            |                 |    |     |            |           |   |    |    |                 |        |        |  

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

39

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RADVIEW SOFTWARE LTD.        CONSOLIDATED STATEMENTS OF CASH FLOWS        (In thousands)

|                                                                       |                                                                             | Year Ended December 31,                      |                                          
|---------------------------------------------------------------------- | --------------------------------------------------------------------------- | -------------------------------------------- | -----------------------------------------
|
|Cash Flows from Operating Activities:                                  |                                                                             |                                              |                                          
|                                                                       | Net loss                                                                    |                                              | $                                        
|                                                                       | Adjustments to reconcile net loss to net cash used in operating activities |                                              |                                          
|                                                                       |                                                                             | Depreciation and amortization                |                                          
|                                                                       |                                                                             | Fixed asset impairment write-off (Note 4)    |                                          
|                                                                       |                                                                             | Amortization of deferred compensation        |                                          
|                                                                       |                                                                             | Interest on long-term loans                  |                                          
|                                                                       |                                                                             | Accrued severance pay                        |                                          
|                                                                       |                                                                             | Changes in operating assets and liabilities |                                          
|                                                                       |                                                                             |                                              | Accounts receivable                      
|                                                                       |                                                                             |                                              | Prepaid expenses and other current assets
|                                                                       |                                                                             |                                              | Accounts payable                         
|                                                                       |                                                                             |                                              | Accrued expenses                         
|                                                                       |                                                                             |                                              | Accrued restructuring charge (Note 4)    
|                                                                       |                                                                             |                                              | Deferred revenue                         
|                                                                       |                                                                             |                                              |                                          
|                                                                       |                                                                             |                                              |                                          
|                                                                       |                                                                             |                                              |                                          
|Cash Flows from Investing Activities:                                  |                                                                             |                                              |                                          
|                                                                       | (Purchase) Sale of short-term investments                                   |                                              |                                          
|                                                                       | Purchases of property and equipment                                         |                                              |                                          
|                                                                       | Increase in other assets                                                    |                                              |                                          
|                                                                       |                                                                             |                                              |                                          
|                                                                       |                                                                             |                                              |                                          
|                                                                       |                                                                             |                                              |                                          
|Cash Flows from Financing Activities:                                  |                                                                             |                                              |                                          
|                                                                       | Payment of short-term loans                                                 |                                              |                                          
|                                                                       | Proceeds from long-term loans                                               |                                              |                                          
|                                                                       | Payment of long-term loans                                                  |                                              |                                          
|                                                                       | Proceeds from issuance of ordinary and preferred shares                     |                                              |                                          
|                                                                       | Payment of offering costs from initial public offering                      |                                              |                                          
|                                                                       | Purchases of treasury shares                                                |                                              |                                          
|                                                                       |                                                                             |                                              |                                          
|                                                                       |                                                                             |                                              |                                          
|                                                                       |                                                                             |                                              |                                          
|Increase (decrease) in cash and cash equivalents                       |                                                                             |                                              | 6,526                                    
|Cash and cash equivalents, beginning of year                           |                                                                             |                                              | 1,126                                    
|                                                                       |                                                                             |                                              |                                          
|Cash and cash equivalents, end of year                                 |                                                                             | $                                            | 7,652                                    
|                                                                       |                                                                             |                                              |                                          
|Cash paid during period for interest                                   |                                                                             | $                                            | 21                                       
|                                                                       |                                                                             |                                              |                                          
|Supplemental disclosure of noncash financing and investing activities: |                                                                             |                                              |                                          
|                                                                       | Conversion of preferred shares to ordinary shares                           |                                              | $                                        
|                                                                       |                                                                             |                                              |                                          
|                                                                       | Noncash dividend to shareholders                                            |                                              | $                                        
|                                                                       |                                                                             |                                              |                                          
|                                                                       | Reversal of deferred compensation due to option forfeitures                 |                                              | $                                        
|                                                                       |                                                                             |                                              |                                          

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

40

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RADVIEW SOFTWARE LTD.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Operations

RadView Software Ltd. (the "Company") is an Israeli corporation. 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 $2.7 million in 1999, $11.0 million in 2000, and $17.4 million in 2001, and had an accumulated deficit of approximately
$41.4 million as of December 31, 2001. The Company has funded these losses principally from proceeds from equity financing. During the second half of 2001 and first quarter of 2002, 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). Management believes
that existing cash and cash equivalents will be adequate to fund operations into 2003.

2.    Significant Accounting Policies

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

(a)  Financial Statements in U.S. Dollars

The consolidated financial statements of the Company have been prepared in U.S. dollars because the currency of the primary economic environment in which the
operations of the Company are conducted is the U.S. dollar. Substantially all of the Company's sales are in U.S. dollars. Most purchases of materials and components and most marketing costs are
denominated in U.S. dollars. Therefore, the functional 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 4.153 New Israeli Shekel ("NIS") at December 31, 1999, U.S. $1.00 to NIS 4.041 at December 31, 2000 and U.S. $1.00 to NIS 4.416 at December 31,
2001.

(b)  Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries in the United States, the United Kingdom, Germany and
Sweden. All material intercompany balances and transactions have been eliminated in consolidation.

41

---

(c)  Reclassification

Certain prior year account balances have been reclassified to be consistent with the current year's presentation.

(d)  Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ from these estimates.

(e)  Cash Equivalents

Cash equivalents are highly liquid investments with original maturities of less than 90 days. The Company accounts for investments under SFAS
No. 115, Accounting for Certain Investments in Debt and Equity Securities. Under SFAS No. 115, investments for which the Company has the
positive intent and ability to hold to maturity, consisting of cash equivalents, are reported at amortized cost, which approximates fair market value. As of December 31, 2001, the Company's
cash equivalents are invested in U.S. Treasury securities.

(f)  Property and Equipment

Property and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful life of
the assets. In accordance with SFAS No. 121,Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, the Company reviews its long-lived assets, which consist of property and equipment, for impairment as events and circumstances indicate the carrying amount of
an asset may not be recoverable. Management believes that, as of each of the balance sheet dates presented, none of the Company's long-lived assets were impaired.

(g)  Revenue Recognition

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

Revenues
from software product licenses are recognized upon delivery of the software provided there is persuasive evidence of an agreement, the fee is fixed or determinable and
collection of the related receivable is probable. Revenues under multiple-element arrangements, which may include software, software maintenance and training, are allocated to each element based on
their respective fair values, based on vendor-specific objective evidence. This objective evidence represents the price of products and services when sold separately. Revenue is recognized for
software licenses sold to resellers

42

---

or distributors at the time of shipment, provided that all revenue recognition criteria set forth in SOP 97-2 are fulfilled.

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

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

(h)  Cost of Revenues

Cost of software license revenues consists of costs to distribute the product, including the cost of the media on which it is delivered and royalty payments to
third-party vendors. Cost of software license revenues also includes the amounts related to the royalties due to an agency of the Israel government (see Note 6). Cost of service revenues
consists primarily of training and customer support personnel salaries and related costs.

(i)  Research and Development Costs

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.

(j)  Income Taxes

The Company accounts for income taxes under the liability method of accounting. Under the liability method, deferred taxes are determined based on the differences
between the financial statement and tax bases of assets and liabilities at enacted tax rates in effect in the year in which the differences are expected to reverse. Valuation allowances are
established, when necessary, to reduce deferred tax assets to amounts expected to be realized.

(k)  Employee Stock Options

SFAS No. 123,Accounting for Stock-Based Compensation, requires the measurement of the fair value of
employee and director stock options or warrants to be included in the statement of operations or disclosed in the notes to financial statements. The Company accounts for stock-based compensation for
employees under the Accounting Principles Board ("APB") Opinion No. 25,Accounting for Stock Issued to Employees, and follows the
disclosure-only alternative under SFAS No. 123 (see Note 11(f)).

43

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(l)  Comprehensive Income (Loss)

SFAS No. 130,Reporting Comprehensive Income, requires disclosure of all components of comprehensive income
(loss) on an annual and interim basis. Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from
nonowner sources. The Company's comprehensive loss is equal to net loss for all periods presented.

(m)  Fair Value of Financial Instruments

Financial instruments consist mainly of cash and cash equivalents, accounts receivable, accounts payable and long-term loans. The carrying amounts of
these instruments approximate their fair value.

(n)  Concentrations of Credit Risk

SFAS No. 105,Disclosure of Information about Financial Instruments with Off-Balance-Sheet Risk and Financial
Instruments with Concentrations of Credit Risk, requires disclosure of any significant off-balance-sheet and credit risk concentrations. The Company has no
significant off-balance-sheet concentrations such as foreign exchange contracts, option contracts or other foreign hedging arrangements. The Company's accounts receivable credit risk is
concentrated in the United States, Europe and Japan.

For
the years ended December 31, 1999, 2000 and 2001, no customer individually comprised greater than 10% of total revenue. At December 31, 2000, no customer represented
greater than 10% of total accounts receivable. At December 31, 2001, one customer represented 12% of total accounts receivable.

(o)  Recent Accounting Standards

In July 2001, the FASB issued SFAS No. 141,Business Combinations. SFAS No. 141 requires all
business combinations initiated after June 30, 2001 to be accounted for using the purchase method. The adoption of SFAS No. 141 did not have an impact on the Company's consolidated
financial statements.

In
July 2001, the FASB also issued SFAS No. 142,Goodwill and Other Intangible Assets. Under SFAS No. 142, goodwill
is no longer subject to amortization over its estimated useful life. Rather, goodwill is subject to at least an annual assessment for impairment by applying a fair-value-based test. Also
under SFAS No. 142, intangible assets acquired in conjunction with a business combination should be separately recognized if the benefit of the intangible asset is obtained through contractual
or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented or exchanged, regardless of the acquirer's intent to do so. Intangible assets will continue to be amortized
over their respective useful lives under SFAS No. 142. The Company must adopt SFAS No. 142 on January 1, 2002. The adoption of SFAS No. 142 did not have an impact on the
Company's consolidated financial statements.

In
August 2001, the FASB issued SFAS No. 144,Accounting for Impairment or Disposal of Long-Lived Assets. This
statement supersedes SFAS No. 121,Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of,and the accounting and reporting provisions of APB Opinion No. 30,Reporting the Results of OperationsReport the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. Under this statement it is required that one accounting
model be used for long-lived assets to be

44

---

disposed of by sale, whether previously held and used or newly acquired, and it broadens the presentation of discontinued operations to include more disposal transactions. The provisions of this
statement are effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim period within those fiscal years, with early adoption permitted. The
adoption of SFAS No. 144 is not expected to have a material impact on the Company's consolidated financial statements.

In
November 2001, the Emerging Issues Task Force issued Topic No. D-103 relating to the accounting for reimbursements received for
out-of-pocket expenses. In accordance with Topic No. D-103, reimbursements received for out-of-pocket expenses incurred should be
characterized as revenue in the statements of operations. The Company has historically accounted for reimbursements received for out-of-pocket expenses incurred as a reduction
to cost of service revenue in the statement of operations to offset the costs incurred. The Company will adopt Topic No. D-103 in financial reporting periods beginning after
December 31, 2001 and comparative financial statements for prior periods will be reclassified to comply with the guidance in Topic No. D-103. There were no reimbursed
out-of-pocket expenses in 1999. Reimbursed out-of-pocket expenses were $18,000 in 2000 and $16,000 in 2001. If the provisions of Topic
No. D-103 had been adopted during 2000 and 2001, service revenues and cost of service revenues would have been higher by the amounts noted. The amount of gross profit would not have
changed, but the gross profit as a percentage of total revenues, or gross margin, would have decreased.

3.    Earnings Per Share

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

The
net loss attributable to ordinary shareholders used in the computation of basic and diluted net loss per share in 2000 has been increased by the value of the stock dividend issued to
certain Series A preferred shareholders at the closing of the initial public offering.

The
following table summarizes the securities outstanding as of each year end that were not included in the calculation of diluted net loss per share as their inclusion would be
antidilutive.

As of December 31,1999

2000

2001(In thousands)Description of SecurityStock options to purchase ordinary shares

1,481

3,355

3,140Warrants to purchase ordinary shares

143



Convertible preferred shares

5,266






4.    Nonrecurring Expenses

Nonrecurring expenses consist of restructuring charges and other nonrecurring costs. Nonrecurring expenses totaled $1.7 million in 2001, which consisted of
$1.4 million of restructuring charges and a

45

---

$237,000 payment to a landlord incurred upon the termination of a facility lease agreement in March 2001. There were no nonrecurring expenses in 1999 and 2000.

The
restructuring charges were incurred in July 2001 and October 2001, when the Company implemented two separate restructuring plans in an effort to lower operating costs.
The restructuring charges recorded in 2001 totaled $1.4 million and consisted of the following:



Restructuring
charges accrued but not paid as of December 31, 2001 totaled $231,000, consisting of estimated idle lease costs. Amounts payable within one year have been classified
as a current liability in the accompanying consolidated balance sheet.

In
January 2002, the Company further reduced its workforce by an additional 26 employees. The Company expects to record an additional restructuring expense of $350,000 in the
first quarter of 2002 consisting of employee severance costs of $225,000, idle lease facility costs of $50,000, and fixed asset impairment costs of $75,000.

5.    Properties and Equipment

Property and equipment consists of the following:

|                       |                                                |               |  | December 31,
|---------------------- | ---------------------------------------------- | ------------- |  | ------------
|
|
|Equipment              |                                                | 3             |  | $           
|Office furniture       |                                                | 3 to 5        |  |             
|Leasehold improvements |                                                | Life of Lease |  |             
|                       |                                                |               |  |             
|                       |                                                |               |  |             
|                       | LessAccumulated depreciation and amortization |               |  |             
|                       |                                                |               |  |             
|                       |                                                |               |  | $           
|                       |                                                |               |  |             

46

---

6.    Accrued Expenses

Accrued expenses consists of the following:

December 31,2000

2001(In thousands)Employee compensation and related costs

$
1,391

$
1,126Royalties due to third parties


614


614Other accrued expenses


797


611$
2,802

$
2,351


Accrued
royalties due to third parties consist of amounts potentially due to the Government of Israel through the Ministry of Industry and Trade and Office of the Chief Scientist (the
"OCS"). In connection with its research and development activities, the Company received $605,000 of participation payments from the OCS. In return for the OCS's participation, the Company was
committed to pay royalties at a rate of 3% to 5% of sales of the developed product, up to 100% and 150% for certain
grant amounts received. The Company's maximum royalty obligation to the OCS totaled $670,000, of which $56,000 has been paid as of December 31, 2001.

7.    Related Party Loan

In 1993, the Company entered into a loan agreement with a shareholder (the "Related Party Loan"). The Related Party Loan was linked to the Israeli Consumer Price
Index ("CPI") and bore no stated rate of interest. The Company has recorded the estimated incremental interest expense of 3% that the Company would have incurred if the loan had been entered into with
a third party. Increases in the principal amount of the loan due to fluctuations in the Israeli CPI were charged to interest expense. The amounts charged to interest expense due to fluctuations in the
Israeli CPI were $31,000 in 1999 and $52,000 in 2000. The loan was repaid in full in September 2000.

8.    Long-Term Loans

The Company had two loans with a bank that bore annual interest of London Interbank Offered Rate plus 1.5%. Both loans, totaling $3,814,000, were repaid in full
in 2001. In connection with the loans, the Company issued warrants to the bank (see Note 11(e)). The fair value of the warrants was recorded as a discount against these loans and was amortized
as interest expense over the term of the loans.

9.    Accrued Severance Pay

Under Israeli law and labor agreements, the Company is required to make severance payments to dismissed employees leaving the Company in certain circumstances.
Accrued severance pay was $630,000 at December 31, 2000 and $722,000 at December 31, 2001, and has been recorded as a long-term liability in the accompanying consolidated
balance sheets. Severance pay expense amounted to $76,000 in 1999, $291,000 in 2000 and $92,000 in 2001. The Company has partially funded this liability through the purchase of insurance policies in
the name of the Company. The value of the funded insurance policies totaled $328,000 at December 31, 2000 and $423,000 at December 31, 2001, and is included in other assets in the
accompanying consolidated balance sheets.

47

---

10.    Commitments

The Company operates primarily from leased facilities. Lease agreements expire through year 2005. Annual minimum future rental payments due under the lease
agreements are as follows:

Amount
(In thousands)For the Year Ended December 31,2002

$
6282003


5112004


5172005


1662006


1,822Less amounts accrued for idle lease costs


231$
1,591


Rent
expense was $213,000 in 1999, $635,000 in 2000, and $896,000 in 2001.

11.    Shareholders' Equity

(a)  Authorized Share Capital

During 1998, the Company authorized 3,500,000 Series A preferred shares ("Series A"). During 1999, the Company authorized 5,000,000 Series B
preferred shares ("Series B"). As of December 31, 2001, the Company has authorized 40,000,000 ordinary shares NIS 0.01 par value.

(b)  Initial Public Offering

On August 15, 2000, the Company completed its initial public offering of 4,000,000 shares of its ordinary shares at $10.00 per share (the "IPO"). Proceeds
to the Company, net of underwriting discounts, commissions and offering costs, were $35.3 million.

In
connection with the IPO, all outstanding preferred shares were converted into 5,265,575 ordinary shares and 602,757 ordinary shares were issued to certain security-holders upon the
exercise of certain options and warrants. In addition, the Company issued 258,500 ordinary shares to certain of its Series A preferred shareholders, which has been accounted for as a stock
dividend. The Company has recorded a charge to additional paid-in capital for the par value of the ordinary shares issued and the amount of net loss attributable to ordinary shareholders
used in the computation of basic and diluted net loss per share has been increased by the fair value of the ordinary shares issued.

(c)  Preferred Shares

In 1998, the Company issued 1,314,200 shares of Series A, with rights to purchase additional preferred and ordinary shares, to investors in consideration
for $3.8 million. In July 1999, the Company issued 1,022,800 shares of Series A to investors in consideration for approximately $3.0 million. In December 1999, the
Company issued 2,172,238 shares of Series B-1 preferred shares NIS 0.01 par value each and 732,527 shares of Series B-2 preferred shares NIS 0.01 par value each,
both at $2.10

48

---

per share for gross proceeds of $6.1 million. All outstanding preferred shares were converted into ordinary shares upon the completion of the initial public offering described above.

(d)  Share Purchase Agreements

Through several finance closings in 1998, in accordance with Series A purchase agreements, the Company issued to the investors warrants to purchase up to
1,314,200 additional shares of Series A preferred shares at an exercise price of $2.97 per share. In 1999, the Company issued 1,022,800 shares of Series A in consideration for
$3.0 million pursuant to the exercise of a portion of these warrants. The remaining unexercised warrants to purchase 291,400 shares of Series A have expired.

The
Company also granted the investors options to purchase 2,050,000 ordinary shares at an exercise price of NIS 0.01 per share ("Share Par Value"). In 1999, the Company issued 1,595,400
ordinary shares pursuant to the exercise of a portion of the options to purchase ordinary shares described above.
The Company issued 454,600 ordinary shares pursuant to exercise of the remaining options upon the closing of the IPO in August 2000.

In
connection with one of the closings of the Series A rounds in 1998, certain investors were given the right to receive a number of ordinary shares equal to 3% of the Company's
outstanding share capital at the time of the Series A financing, but not greater than 258,500 total ordinary shares upon the closing of the IPO. In connection with the IPO, the Company issued
all 258,500 ordinary shares as a stock dividend. In August 2000, the Company recorded the stock dividend with a charge to additional paid-in capital valued at the Share Par Value of
the ordinary shares.

(e)  Ordinary Share Warrants

In March 1999, the Company granted to a bank a fully vested warrant to purchase 142,857 ordinary shares at $2.10 per share. This warrant was exercised in
full at an exercise price of $2.10 per share in August 2000, concurrent with the closing of the IPO. The Company valued the warrant using the Black-Scholes option pricing model with the
following assumptions: (1) life of two years, (2) no dividend yield, (3) volatility of 80%, (4) risk-free interest rate of 5% and (5) the warrant is
exercised at $2.10 per share. The Company determined the value to be $137,000, which was amortized to interest expense over the two-year term of the note.

(f)  Stock Option Plans

The Company has approved for issuance an aggregate of 5,811,862 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

49

---

1996 Option Plan vest ratably over vesting periods ranging from three to five years 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. Through
December 31, 2000, all available authorized options under this plan had been granted. No options were granted under this plan in 2001. The Company accounted for these options in accordance with
SFAS No. 123 utilizing the Black-Scholes option pricing model with the following assumptions: (1) expected life of four years, (2) no dividend yield, (3) volatility of 80%
and (4) a risk-free interest rate of 5%. The aggregate value of the options granted to nonemployees was $176,000. The Company has charged to operations $24,000 in 1999, $23,000 in
2000 and $8,000 in 2001.

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 and expire 10 years from the date of issuance.

Transactions
related to the Company's stock option plans for the three years in the period ended December 31, 2001 are summarized as follows:

Options
Outstanding

Weighted
Average
Exercise
Price
Per Share

Weighted
Average Fair
Value of
Options GrantedOutstanding, December 31, 1998

651,050

$
0.00Granted

857,061


0.68

$
1.04Forfeited

(26,800
)

0.60Outstanding, December 31, 1999

1,481,311


0.38Granted

2,863,500


2.69

$
3.60Exercised

(470,786
)

0.12Forfeited

(518,536
)

2.59Outstanding, December 31, 2000

3,355,489


2.05Granted

1,784,000


1.56

$
1.19Exercised

(151,150
)

Forfeited

(1,848,733
)

2.00Outstanding, December 31, 2001

3,139,606

$
1.85Exercisable, December 31, 1999

767,055

$
0.14Exercisable, December 31, 2000

883,549

$
0.64Exercisable, December 31, 2001

1,276,063

$
1.48


50

---



The following table summarizes information about options outstanding and exercisable at December 31, 2001:

|             |  | Options Outstanding |  |     |  |  
|------------ |  | ------------------- |  | --- |  | -
|
|
|
|$           |  | 93,980              |  | 0.4 |  | $
|$0.27        |  | 7,500               |  | 5.0 |  |  
|$0.63$0.69  |  | 801,673             |  | 4.6 |  |  
|$0.95$1.00  |  | 1,366,443           |  | 4.8 |  |  
|$2.14$2.70  |  | 583,750             |  | 6.6 |  |  
|$4.50        |  | 36,000              |  | 6.1 |  |  
|$8.21$10.00 |  | 250,260             |  | 4.9 |  |  
|             |  |                     |  |     |  |  
|             |  | 3,139,606           |  | 5.0 |  | $
|             |  |                     |  |     |  |  

In
1999, the Company issued options that had performance based vesting provisions. The performance criteria were based on the Company attaining defined revenue and profitability amounts
for 1999. In January 2000, the Company's Board of Directors approved the modification of these performance-based options to provide for time-based vesting. Accordingly, with this
modification, the options are now fixed grants. The Company accounted for the options with performance criteria as variable options through December 31, 1999, marking them to market for the
then current fair market value. The Company charged to operations $144,000 in 1999 for these performance-based options.

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 $438,000 in 1999, $8.5 million in 2000, and none in 2001. 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 totaled $234,000 in 1999, $1.4 million in 2000 and $878,000 in 2001. Unamortized deferred compensation
totaled $1.4 million as of December 31, 2001.

51

---

If
stock-based compensation had been determined under the alternative fair value accounting method provided for under SFAS No. 123, the Company's net loss and net loss per share
would have been increased to the following pro forma amounts:

Year Ended December 31,1999

2000

2001(In thousands, except
per share data)Net loss attributable to ordinary shareholders:As reported

$
(2,741
)
$
(13,570
)
$
(17,431
)Pro forma

$
(2,831
)
$
(13,947
)
$
(18,175
)Net loss per share attributable to ordinary shareholders:As reported

$
(0.80
)
$
(1.51
)
$
(1.07
)Pro forma

$
(0.83
)
$
(1.56
)
$
(1.11
)


Under
SFAS No. 123, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with weighted-average assumptions used for
grants as follows:

Year Ended December 31,1999

2000

2001Expected life of option

2 to 4 years

2 to 4 years

4 yearsDividend yield





Expected volatility

80%

61%

120%Risk-free interest rate

5.0%

5.0%

4.6%


12.    Taxes on Income

(a)  Alternative Benefits Method

The Company's investment program totaling $66,000 has been granted "Approved Enterprise" status under the Israeli Law for Encouragement of Capital Investments,
1959. The Company is entitled to a benefit period of seven years, on income derived from this program, as follows: a full income tax exemption for the first two years and a reduced income tax rate of
25% (instead of the regular rate of 36%) for the remaining five-year period. If foreign shareholdings in the Company exceed 25%, the period for which the Company is entitled to a reduced
income tax is extended to eight years.

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.

Should
the Company derive income from sources other than the approved enterprise programs during the relevant period of benefits, such income will be taxable at the regular corporate tax
rate, which is 36%.

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

52

---

regulations published under this law, as well as the criteria in the approval for the specific investment 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.

(b)  Inflationary Adjustments

The Company is subject to the Income Tax Law (Inflationary Adjustments), 1985 measuring income on the basis of changes in the Israeli Consumer Price Index.

(c)  Industrial Company

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.

(d)  Net Operating Losses

As of December 31, 2001, the Company's net operating loss carryforwards for Israeli tax purposes amounted to approximately $13.0 million. These net
operating losses may be carried forward indefinitely and offset against future taxable business income. The Company expects that during the period in which these tax losses are utilized its income
would be substantially tax-exempt. There will be no tax benefit available from these losses and no deferred income taxes have been included in these financial statements. Deferred taxes in
respect of other temporary differences are immaterial.

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

The
U.S. subsidiary's carryforward tax losses through December 31, 2001 amounted to approximately $21.5 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 2021. Net operating loss carryforwards are subject to review and possible adjustments by the Internal Revenue Service and may
be limited in the event of certain cumulative changes in excess of 50% in the ownership interests of significant shareholders over a three-year period.

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

December 31,2000

2001(In thousands)Net operating loss carryforwards

$
3,084

$
8,598Temporary items


164


2383,248


8,836LessValuation allowance


3,248


8,836Net deferred tax asset

$


$



53

---

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

(e)  Final Tax Assessments

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

13.    Related Party Balances and Transactions

Management believes that all related party transactions have been conducted on an arm's-length basis. Balances with related parties consisted of the following:

December 31,2000

2001(In thousands)Accounts receivable

$
62

$
16Accounts payable and accrued expenses


62


18


Transactions
with related parties consisted of the following:

Year Ended December 31,1999

2000

2001(In thousands)Revenues

$
64

$


$
50Costs and expenses


(58
)

(93
)

(110
)Finance expenses


(33
)

(52
)

Property and equipment purchased


1


63


195


14.    Valuation and Qualifying Accounts

Summaries of the allowance for doubtful accounts and sales returns and accrued restructuring reserve are as follows:

Year Ended December 31,1999

2000

2001(In thousands)Allowance for Doubtful Accounts and Sales Returns:Balance, beginning of year

$


$
150

$
345Additions


150


266


136Write-offs





(71
)

(272
)Balance, end of year

$
150

$
345

$
209Accrued Restructuring Reserve (Note 4):Balance, beginning of year

$


$


$
Provision for restructuring costs








1,434Restructuring payments








(834
)Asset impairment write-offs








(369
)Balance, end of year

$


$


$
231


54

---

15.    Disclosures About Segments of an Enterprise

The Company has adopted SFAS No. 131,Disclosures about Segments of an Enterprise and Related Information.SFAS No. 131 establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in
interim financial reports issued to shareholders. SFAS No. 131 also establishes standards for related
disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for
evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance.

The
Company's chief operating decision makers, as defined under SFAS No. 131, are the Chief Executive Officer and the Chief Financial Officer. To date, the Company has viewed its
operations and has managed its business as principally one operating segment.

The
Company's revenues by its customers' geographic locations are as follows:

Year Ended December 31,1999

2000

2001(In thousands)United States

$
4,433

$
8,927

$
5,890Europe


413


1,137


1,798Israel


241


551


229Other


23


175


729$
5,110

$
10,790

$
8,646


The
Company established subsidiaries in the United Kingdom and Germany in 2000 and Sweden in 2001. Operations in various geographic areas for each of the three years in the period ended
December 31, 2001 are summarized as follows:

United
States

Israel

Europe

Eliminations

Consolidated(In thousands)Year EndedDecember 31, 1999Total revenues

$
4,413

$
697

$


$


$
5,110Net loss

$
(2,080
)
$
(661
)
$


$


$
(2,741
)Identifiable assets

$
2,720

$
12,615

$


$
(4,485
)
$
10,850December 31, 2000Total revenues

$
8,927

$
1,863

$


$


$
10,790Net loss

$
(5,080
)
$
(6,368
)
$
463

$


$
(10,985
)Identifiable assets

$
4,368

$
43,750

$
217

$
(8,622
)
$
39,713December 31, 2001Total revenues

$
6,080

$
5,305

$
1,420

$
(4,159
)
$
8,646Net income (loss)

$
(12,582
)
$
(4,899
)
$
50

$


$
(17,431
)Identifiable assets

$
2,207

$
38,150

$
224

$
(23,156
)
$
17,425


55

---

16.    Quarterly Statement of Operations Information (Unaudited)

The following table presents a summary of quarterly results of operations for the years ended December 31, 2000 and 2001:

Mar. 31,
2000

June 30,
2000

Sept. 30,
2000

Dec. 31,
2000(In thousands)Total revenues

$
2,266

$
2,701

$
3,102

$
2,721Gross profit

$
2,061

$
2,458

$
2,821

$
2,400Net loss

$
(1,050
)
$
(2,076
)
$
(3,314
)
$
(4,545
)Net loss attributable to ordinary shareholders

$
(1,050
)
$
(2,076
)
$
(5,899
)
$
(4,545
)Basic and diluted net loss per share attributable to ordinary shareholders

$
(0.25
)
$
(0.49
)
$
(0.54
)
$
(0.28
)


Mar. 31,
2001

June 30,
2001

Sept. 30,
2001

Dec. 31,
2001(In thousands)Total revenues

$
2,303

$
2,603

$
1,738

$
2,002Gross profit

$
1,891

$
2,184

$
1,342

$
1,789Net loss

$
(5,453
)
$
(5,271
)
$
(5,143
)
$
(1,564
)Basic and diluted net loss per share attributable to ordinary shareholders

$
(0.33
)
$
(0.32
)
$
(0.32
)
$
(0.10
)


56

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

None.

PART III

Item 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item is incorporated herein by reference to the section titled "Proposal OneElection of Directors" in our definitive
Proxy Statement (the "Proxy Statement") relating to our Annual Meeting of Shareholders to be held on or about June 3, 2002, to be filed pursuant to Regulation 14A of the Securities
Exchange Act of 1934 with the Securities and Exchange Commission within 120 days after the end of the Company's fiscal year to which this Annual Report on Form 10-K relates.

Item 11.    EXECUTIVE COMPENSATION

The information required by this item is incorporated herein by reference to the section titled "Executive Compensation" included in the Company's Proxy Statement
for the Annual Meeting of Shareholders to be held on or about June 3, 2002, which will be filed with the Securities and Exchange Commission within 120 days after the end of the Company's
fiscal year to which this Annual Report on Form 10-K relates.

Item 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated herein by reference to the section titled "Security Ownership of Certain Beneficial Owners and Management"
included in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on or about June 3, 2002, which will be filed with the Securities and Exchange Commission within
120 days after the end of the Company's fiscal year to which this Annual Report on Form 10-K relates.

Item 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated herein by reference to the section titled "Compensation Committee Interlocks and Insider Participation," and
"Certain Relationships and Related Transactions" included in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on or about June 3, 2002, which will be filed with
the Securities and Exchange Commission within 120 days after the end of the Company's fiscal year to which this Annual Report on Form 10-K relates.

PART IV

Item 14.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1)    Financial Statements.

Financial statements are shown in the index in Item 8 of this report.

(a)(2)    Schedules.

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.

57

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(a)(3)    Exhibits.

The following exhibits are filed as part of this Annual Report on Form 10-K.

|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                                                                                                                                                                          
|4.1         |  | Form of Ordinary Share Certificate (filed as Exhibit 4.1 to the Company's Registration Statement on Form F-1, No. 333-41526, and incorporated herein by reference)                                                                          
|4.2         |  | Investor Rights Agreement (filed as Exhibit 4.2 to the Company's Registration Statement on Form F-1, No. 333-41526, and incorporated herein by reference)                                                                                   
|10.1        |  | Lease Agreement for 2 Habarzel St., Tel-Aviv, 69710, Israel (English Translation) (filed as Exhibit 10.1 to the Company's Registration Statement on Form F-1, No. 333-41526, and incorporated herein by reference)                          
|10.2        |  | Lease Agreement for 7 New England Executive Park, Burlington, Massachusetts, 01803 (filed as Exhibit 10.2 to the Company's Registration Statement on Form F-1, No. 333-41526, and incorporated herein by reference)                         
|10.3        |  | Lease Agreement for 890 Hillview Court, Suite 130, Milpitas, California 95035 (filed as Exhibit 10.3 to the Company's Registration Statement on Form F-1, No. 333-41526, and incorporated herein by reference)                              
|10.4        |  | Amended and Restated Key Employee Share Incentive Plan (1996) (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)                                             
|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        |  | 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)
|10.8*       |  | Employment Agreement dated January 6, 2001 with Brian E. LeClair, Vice President and Chief Financial Officer                                                                                                                                
|10.9*       |  | Severance Agreement dated July 20, 2001 with James Clemens, Vice President, Sales                                                                                                                                                           
|21.1*       |  | Subsidiaries of the Registrant                                                                                                                                                                                                              
|23.1*       |  | Consent of Independent Public Accountants                                                                                                                                                                                                   
|99.1*       |  | Letter to Commission Pursuant to Temporary Note 3T dated March 20, 2002                                                                                                                                                                     

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(a)(4) Reports on Form 8-K.

No reports on Form 8-K were filed in the three-month period ended December 31, 2001.

58

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SIGNATURES

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 25th day of March, 2002.

| |  | RADVIEW SOFTWARE LTD.
| |  | ---------------------
| |  | By:                  

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:

|Signature                               |  | Title                                           |  | Date          
|--------------------------------------- |  | ----------------------------------------------- |  | --------------
|                                        |  |                                                 |  |               
|/s/ILAN KINREICHIlan Kinreich           |  | President, Chief Executive Officer and Director |  | March 25, 2002
|/s/SHAI BEILISShai Beilis               |  | Director and Chairman of
the Board              |  | March 25, 2002
|/s/WILLIAM J. GEARYWilliam J. Geary     |  | Director                                        |  | March 25, 2002
|/s/ROBERT STEINKRAUSSRobert Steinkrauss |  | Director                                        |  | March 25, 2002
|/s/CHRISTOPHER STONEChristopher Stone   |  | Director                                        |  | March 25, 2002
|/s/KATHLEEN A. COTEKathleen A. Cote     |  | Director                                        |  | March 25, 2002
|/s/BRIAN E. LECLAIRBrian E. LeClair     |  | Vice President and Chief Financial Officer      |  | March 25, 2002

59

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EXHIBIT INDEX

|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                                                                                                                                                                          
|4.1         |  | Form of Ordinary Share Certificate (filed as Exhibit 4.1 to the Company's Registration Statement on Form F-1, No. 333-41526, and incorporated herein by reference)                                                                          
|4.2         |  | Investor Rights Agreement (filed as Exhibit 4.2 to the Company's Registration Statement on Form F-1, No. 333-41526, and incorporated herein by reference)                                                                                   
|10.1        |  | Lease Agreement for 2 Habarzel St., Tel-Aviv, 69710, Israel (English Translation) (filed as Exhibit 10.1 to the Company's Registration Statement on Form F-1, No. 333-41526, and incorporated herein by reference)                          
|10.2        |  | Lease Agreement for 7 New England Executive Park, Burlington, Massachusetts, 01803 (filed as Exhibit 10.2 to the Company's Registration Statement on Form F-1, No. 333-41526, and incorporated herein by reference)                         
|10.3        |  | Lease Agreement for 890 Hillview Court, Suite 130, Milpitas, California 95035 (filed as Exhibit 10.3 to the Company's Registration Statement on Form F-1, No. 333-41526, and incorporated herein by reference)                              
|10.4        |  | Amended and Restated Key Employee Share Incentive Plan (1996) (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)                                             
|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        |  | 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)
|10.8*       |  | Employment Agreement dated January 6, 2001 with Brian E. LeClair, Vice President and Chief Financial Officer                                                                                                                                
|10.9*       |  | Severance Agreement dated July 20, 2001 with James Clemens, Vice President, Sales                                                                                                                                                           
|21.1*       |  | Subsidiaries of the Registrant                                                                                                                                                                                                              
|23.1*       |  | Consent of Independent Public Accountants                                                                                                                                                                                                   
|99.1*       |  | Letter to Commission Pursuant to Temporary Note 3T dated March 20, 2002                                                                                                                                                                     

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