---

---

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

---

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, 2002

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)

---

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

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

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

Aggregate market value, based upon the closing sale price of the shares as reported by the Nasdaq SmallCap
Market, of voting shares held by non-affiliates at June 30, 2002: $1,900,807 (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, 2003, there were 16,471,177 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.

---

---

---



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:



Over
1,350 customers worldwide, including Fortune 1000 Companies such as Anheuser-Busch, American Express, Bank of America, British Telecom, Dell Computer, Fidelity Investments, Hewlett-
Packard, IBM, Lucent Technologies, Microsoft, Mitsubishi, SAP, Toyota, Sun Microsystems, and Vanguard have purchased our products.

1

---

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 Integrity and Performance

Due to their increasing use of the Internet, companies have come to rely on the integrity and performance of their web applications. If a company's web
applications operate erroneously, perform poorly, or fail entirely, the resulting financial and business costs can be substantial, including lost revenues, customer defections, business interruptions
and damage to 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 provide inaccurate information and 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 quality and 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:



2

---



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. According to IDC, a leading industry research firm, the market is expected to grow at a 25% annual growth rate through 2006, to approximately
$2.0 billion.

To
date, companies have typically used conventional testing software to separately and sequentially test the functionality, 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 application development 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; web services; on-line retailers;
and internal applications.

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 integrity, 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 integrity and performance of business-critical web applications. We address the
functionality and 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.

3

---

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:

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 since
2001, we restructured our operating costs to more closely align with our planned revenues. 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 months.

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 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 intend to pursue partnerships with web integration, testing and hosting service providers.

Leverage Our Installed Customer Base

To date, we have licensed our software to over 1,350 companies worldwide, including Fortune 1000 companies, such as American Express, Dell Computer, Deutsche
Bank, Fidelity Investments, Shell and Toyota. Our customers can leverage their initial investment in our technology and pursue additional web-related strategies and increase the
capabilities of their web applications to accommodate increasing numbers of users. In addition, as we introduce new products that complement our existing products, we believe there is a significant
opportunity to increase our revenues through our installed customer base.

4

---

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 integrity,
scalability, efficiency and reliability of web applications. In addition, our software can assure a web application's overall performance, the performance of an application's specific components and
determine critical thresholds where performance starts to deteriorate.

Designed for Web Applications.Our software is specifically designed for the complex 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.

5

---

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

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

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

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

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

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

6

---

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.

7

---

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 1,350 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 and the United Kingdom. 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 free trials of our WebLOAD and WebFT software that can be downloaded from our website. Our marketing programs are aimed at informing customers of the benefits of our software, increasing the
market awareness of our products and generating demand for our products. Our marketing strategy includes public relations initiatives, focused lead generation activities, 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

8

---

enhancements. We also provide training and consulting to assist our customers in the development and deployment of web-based applications using our products.

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 provide strategic input, to assist in defining product direction and to ensure that the
right products are brought to market. Members of our research and development group have extensive experience working with web technologies and software testing solutions. We believe that our future
performance will depend in large part on our ability to enhance our current product line, develop new products and 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

9

---

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

10

---



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.

Employees

As of December 31, 2002, we had 71 employees worldwide, of whom 32 were employed in research and development, 21 in sales and marketing, 10 in management
and administration and 8 in technical support. Of our employees, 24 are based in the United States, 42 are based in Israel and 5 are based in Europe. None of our employees is represented by a labor
union and we consider our relations with employees to be good.

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

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
December 2004. In addition, we lease 10,136 square feet in Tel Aviv, Israel for our principal research and development and international sales operations under a lease that expires in 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

For information concerning our Extraordinary Meeting of Shareholders held on November 6, 2002, reference is made to our Quarterly Report on
Form 10-Q for the quarter ended September 30, 2002.

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

11

---

for our Ordinary Shares for the quarterly periods from August 10, 2000 through February 28, 2003 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

$
0.31

$
0.64Quarter ended June 30, 2002

$
0.20

$
0.40Quarter ended September 30, 2002

$
0.19

$
0.45Quarter ended December 31, 2002

$
0.11

$
0.45Fiscal 2003:Quarter ended March 31, 2003 (through February 28, 2003)

$
0.12

$
0.22


Holders of Record

As of February 28, 2003, there were approximately 140 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, 2002, we have used $27.7 million of the net proceeds from our initial public offering as follows:



12

---



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, 2001 and 2002 and for each of the
years ended December 31, 2000, 2001 and 2002 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, 1998, 1999, and 2000 and for the years ended December 31, 1998 and 1999 are derived from our audited consolidated financial statements,
which are not included in this Annual Report on Form 10-K. The data should be read in conjunction with the Consolidated Financial Statements and the Notes thereto and with
"Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Annual Report on Form 10-K.

|                                                                                                                     |                                | Year Ended December 31,  |       
|-------------------------------------------------------------------------------------------------------------------- | ------------------------------ | ------------------------ | ------
|
|
|Consolidated Statements of Operations Data:                                                                          |                                |                          |       
|Revenues:                                                                                                            |                                |                          |       
|                                                                                                                     | Software licenses              |                          | $     
|                                                                                                                     | Service                        |                          |       
|                                                                                                                     |                                |                          |       
|                                                                                                                     |                                | Total revenues           |       
|                                                                                                                     |                                |                          |       
|Cost of revenues:                                                                                                    |                                |                          |       
|                                                                                                                     | Software licenses              |                          |       
|                                                                                                                     | Nonrecurring royalty reversal  |                          |       
|                                                                                                                     | Service                        |                          |       
|                                                                                                                     |                                |                          |       
|                                                                                                                     |                                | Total cost of revenues   |       
|                                                                                                                     |                                |                          |       
|Gross profit                                                                                                         |                                |                          | 885   
|                                                                                                                     |                                |                          |       
|Operating expenses:                                                                                                  |                                |                          |       
|                                                                                                                     | Sales and marketing            |                          |       
|                                                                                                                     | Research and development       |                          |       
|                                                                                                                     | General and administrative     |                          |       
|                                                                                                                     | Stock-based compensation       |                          |       
|                                                                                                                     | Nonrecurring charges           |                          |       
|                                                                                                                     |                                |                          |       
|                                                                                                                     |                                | Total operating expenses |       
|                                                                                                                     |                                |                          |       
|Loss from operations                                                                                                 |                                |                          | (2,580
|                                                                                                                     |                                |                          |       
|Other income (expense):                                                                                              |                                |                          |       
|                                                                                                                     | Interest income (expense), net |                          |       
|                                                                                                                     | Other income (expense), net    |                          |       
|                                                                                                                     |                                |                          |       
|Net loss                                                                                                             |                                |                          | (2,715
|                                                                                                                     |                                |                          |       
|Dividend to certain preferred shareholders                                                                           |                                |                          |      
|                                                                                                                     |                                |                          |       
|Net loss attributable to ordinary shareholders                                                                       |                                | $                        | (2,715
|                                                                                                                     |                                |                          |       
|Basic and diluted net loss attributable to ordinary shareholders                                                     |                                | $                        | (1.04 
|                                                                                                                     |                                |                          |       
|Weighted average number of shares used in computing basic and diluted net loss attributable to ordinary shareholders |                                |                          | 2,599 
|                                                                                                                     |                                |                          |       

13

---

|                                 |                                                   | 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)              |                   

14

---

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

We develop, market and support 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 $10.8 million in 2000, $8.6 million in 2001 and $5.8 million in 2002. 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 82.7% in 2000, 70.2% in 2001 and 61.4% in 2002. 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 $11.0 million in 2000, $17.4 million in 2001 and $6.5 million in 2002. These net losses resulted primarily from the expansion of our operations
through 2001 and the significant costs incurred in the development of our software.

In
January 2002, we restructured our business through the termination of 27% of the then current workforce. As a result of the restructuring, we recorded a restructuring charge of
$334,000 in the first quarter of 2002 consisting of employee severance costs, idle lease facilities costs and fixed asset impairment costs. During the second quarter of 2002, we recorded additional
restructuring costs of $131,000 consisting of employee severance cost. During the fourth quarter of 2002, we recorded additional restructuring costs of $464,000 consisting of idle-lease
space costs. We had previously taken cost reduction actions in July and October 2001, including the termination of an aggregate of approximately 40% of our workforce and the termination of
certain sales facilities leases.

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

15

---

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, software development costs and stock options.

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 Statement of Financial Accounting Standards, or 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.

Stock Options

We account for stock options issued to employees under the intrinsic method in accordance with Accounting Principles Board, or APB, Opinion No. 25, Accounting for Stock Issued to Employees. Under this approach we do not record any expense unless the exercise price is greater than the fair market
price of our ordinary shares on the date of grant. We have provided disclosures of impact to our reported net loss and earnings per share if we had applied the fair value provisions of SFAS
No. 123,Accounting for Stock-Based Compensation, to stock-based employee compensation.

16

---

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 31,2000

2001

2002Revenues:Software licenses

83.4
%
67.4
%
58.8
%Service

16.6
%
32.6
%
41.2
%Total revenues

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

5.3
%
3.1
%
1.1
%Nonrecurring royalty reversal

0.0
%
0.0
%
(7.8
)%Service

4.4
%
13.6
%
11.0
%Total cost of revenues

9.7
%
16.7
%
4.3
%Gross profit

90.3
%
83.3
%
95.7
%Operating expenses:Sales and marketing

107.5
%
160.8
%
91.1
%Research and development

48.4
%
69.9
%
57.5
%General and administrative

28.4
%
33.0
%
38.6
%Stock-based compensation

13.2
%
10.2
%
8.8
%Nonrecurring charges

0.0
%
19.3
%
16.1
%Total operating expenses

197.5
%
293.2
%
212.1
%Loss from operations

(107.2
)%
(209.9
)%
(116.4
)%Other income:Interest income, net

5.2
%
8.0
%
2.3
%Other income, net

0.2
%
0.3
%
0.6
%Net loss

(101.8
)%
(201.6
)%
(113.5
)%


Years Ended December 31, 2001 and 2002

Revenues

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

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

17

---

Services.Services revenues consist primarily of revenue from annual support and maintenance contracts, and to a lesser
extent, training and consulting services. Service revenues decreased $438,000, or 15.5%, from $2.8 million in 2001 to $2.4 million in 2002. The decrease was due to a decline of $608,000
of service revenues in the U.S., offset, in part, by an increase of $170,000 in services revenues from international customers. Service revenues from U.S. customers decreased from $2.3 million
in 2001 to $1.7 million in 2002 due to a slow-down in product revenues, from which services revenues are derived. Service revenues from international customers increased from
$549,000 in 2001 to $719,000 in 2002 due to a larger installed customer base internationally.

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

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

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

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 $13.9 million in 2001, or 160.7% of total
revenues, compared to $5.3 million in 2002, or 91.1% of total revenues. This decrease was due primarily to a 65% reduction of headcount in sales and marketing personnel and approximately
$1.8 million in reductions in discretionary marketing program costs. We expect that sales and marketing expenses in 2003 will remain relatively constant compared to 2002.

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 $6.0 million in 2001, or 69.9% of total revenues, compared to $3.3 million in 2002, or 57.5% of total revenues.
This decrease was due primarily to a 38% reduction of headcount in research and development personnel. We expect that research and development expenses in 2003 will remain relatively constant compared
to 2002.

General and Administrative.General and administrative expenses consist principally of executive, finance and administrative
salaries and related expenses. General and administrative expenses were

18

---

$2.9 million in 2001, or 33.0% of total revenues, compared to $2.2 million in 2002, or 38.5% of total revenues. The decrease in absolute dollars was due to a 58% reduction of headcount
in general and administrative personnel. We expect that general and administrative expenses in 2003 will remain relatively constant compared to 2002.

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

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 $536,000 at December 31, 2002, and will result in additional charges to operations through May 2004.

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

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

The
restructuring charges recorded in 2002 were incurred as a result of the implementation of additional restructuring plans in an effort to further lower operating costs. The
restructuring charges totaled $929,000 and consisted of severance costs for terminated employees of $349,000, idle-lease costs of $474,000, fixed asset impairment costs of $96,000 and
other costs of $10,000. A total of 28 employees were terminated, or approximately 31% of the then current workforce, of whom 15 employees were from sales and marketing, 11 employees were from research
and development, and two employees were from general and administrative. Restructuring charges accrued but not paid as of December 31, 2002 totaled $612,000, and consist of estimated idle lease
costs. Amounts payable within one year have been classified as a current liability.

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

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

19

---

Income Taxes.We have estimated net operating loss carryforwards for Israeli tax purposes totaling approximately
$14.0 million through December 31, 2002 that would reduce future Israeli income taxes, if any. These net operating losses may be carried forward indefinitely and offset against future
taxable income. 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 $26.2 million through December 31, 2002. These
losses are available to offset any future U.S. taxable income of the U.S. subsidiary and will expire between 2012 and 2022. We have recorded a full valuation allowance against its deferred tax asset
due to the uncertainty surrounding the ability and the timing of the realization of these tax benefits.

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 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

20

---

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.

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.

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 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.

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.

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

21

---

$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.

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.

Liquidity and Capital Resources

Cash and cash equivalents totaled $13.2 million as of December 31, 2001 and $7.6 million as of December 31, 2002.

Cash
used in operating activities was $6.3 million in 2000, $15.7 million in 2001 and $5.4 million in 2002. 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 operating activities in 2002 was due to a net loss of $6.5 million, an increase of $7,000 in prepaid expenses, a decrease of $903,000 in
accounts payable and accrued expenses and a decrease of $306,000 in deferred revenue, offset, in part, by depreciation of $875,000, amortization of deferred compensation of $509,000, fixed asset
impairment write-off of $96,000, other non-cash charges of $51,000, a decrease of $419,000 in accounts receivable, and an increase of $381,000 in accrued restructuring charge.

Cash
used in investing activities was $2.1 million in 2000, $677,000 in 2001 and $182,000 in 2002. Cash used in investing activities in 2000 was for the purchase 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 for the purchase of $605,000 in property and equipment and an increase of $72,000 in other assets. Cash used in investing activities in 2002 was for the purchase of
$111,000 in property and equipment and an increase of $71,000 in other assets.

Cash
provided by financing activities was $34.2 million in 2000. Cash used in financing activities was $3.9 million in 2001. There was no cash activity from financing
activities in 2002. 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

22

---

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, 2002, 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, 2002, the future total lease payments
under these leases are as follows: $588,000 in 2003, $536,000 in 2004, and $129,000 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 82.7% in 2000, 92.9% in 2001 and 89.9% in 2002. Expenses denominated in U.S. dollars as a percent of total expenses were 69.0% in 2000, 70.4% in 2001, and 75.8% in 2002.

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

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

Government Grants

The Government of Israel, through the Office of the Chief Scientist, encourages research and development projects that result in products for export. Through
1996, we received grants totaling $605,000 from the Office of the Chief Scientist that were used primarily to fund a predecessor product. We were obligated to pay royalties based on revenues derived
from sales of products funded with these grants, up to 150% of certain grant amounts received. In October 2002, the Office of Chief Scientist completed its examination of our technology and use
of grant funding and concluded that our remaining royalty obligation was $166,000. As a result, we have reversed $448,000 of accrued royalties that has been recorded as a reduction in cost of product
sales during the fourth quarter of 2002.

23

---

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, 2002, 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 June 2002, SFAS No. 146,Accounting for Costs Associated with Exit or Disposal Activities, was
issued. SFAS No. 146 addresses the recognition, measurement, and reporting of costs associated with exit and disposal activities, including restructuring activities. SFAS No. 146
requires that costs associated with exit or disposal activities be recognized when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 146 is
effective for all exit or disposal activities initiated after December 31, 2002. The Company does not expect the adoption of SFAS No. 146 to have a material impact on its results of
operations or financial position.

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 use 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.

24

---

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 and adverse tax implications to any U.S. holder of a foreign corporation's stock, or a U.S. Holder.

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



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

Our Determination of PFIC Status

We believe we were a PFIC for the taxable years ended 2001 and 2002 due primarily to the decline in the market price of our ordinary shares relative to the value
of our Passive Assets. If we were indeed a PFIC for these periods, a U.S. Holder who owned our shares in 2001 or 2002 will be subject to reporting requirements for that year and succeeding years, even
if in subsequent years we are no longer a PFIC. U.S. Holders may also be subject to increased U.S. tax liabilities. If we cease to be a PFIC, a U.S. Holder may avoid PFIC classification for subsequent
years upon making shareholder elections in certain circumstances, as described in greater detail below.

We
expect that we will be a PFIC in 2003. If our expectation is accurate, the same reporting obligations and tax consequences described below will apply to U.S. Holders who acquire
shares during the 2003 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

25

---

allocated ratably over a U.S. Holder's holding period with respect to our ordinary shares. The amount allocated to prior years, with certain exceptions, will be subject to tax at the highest tax rate
in effect for those years and an interest charge would be imposed on the amount of deferred tax on the income allocated to the prior taxable years.

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

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

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

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

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

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

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

26

---

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

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

27

---

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 $11.0 million in 2000, $17.4 million in 2001 and $6.5 million in 2002. As of December 31, 2002, we had an
accumulated deficit of $48.0 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 2002 and is still continuing. 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 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 to $5.8 million 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.

28

---

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 and the threat of continuing military
action, 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.

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

29

---

failure of our products to achieve or maintain market acceptance, any of which could have a material adverse effect on our business, results of operations and financial condition.

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

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

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

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

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

30

---

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 and the United Kingdom. Our directors, executive officers and other key employees are similarly dispersed throughout the world. Our management must devote resources to manage
geographically diverse operations. In addition, conducting international operations subjects us to risks we do not face in the United States. These include:



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

31

---

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

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

32

---

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

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



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

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

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

We 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, 2002, 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

33

---

also might make it more difficult for us to sell equity or equity-related securities in the future at a time and place that we deem appropriate.

Our principal shareholders, executive officers and directors have substantial 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, 2003, 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 two years. The future of peace efforts between Israel and its Arab neighbors is uncertain. In addition, military confrontations in the region, including Iraq,
may ultimately involve the State of Israel. 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.

34

---

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

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

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

Substantially all of our revenues are generated in U.S. dollars, while a portion of our expenses, primarily salaries and 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
dollar-measured operating results unless the inflation in Israel is offset by a devaluation of the NIS in relation to the U.S. dollar. In 2002, the rate of inflation in Israel was 6.5%. We cannot
predict any future trends in the rate of inflation in Israel or trends in the rate of exchange between the NIS and the dollar. If the dollar cost of our operations in Israel increases, our
dollar-measured results of operations will be adversely affected.

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

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



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

We received grants and currently receive tax benefits under Government of Israel programs. In order to maintain our eligibility for these programs and benefits,
we must continue to meet specified conditions, including making specified investments in 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.

35

---

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 pending application to adjust status to United
States Permanent Resident, with an employment authorization document card. 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 Israeli Companies Law may cause uncertainties regarding corporate governance; Israeli tax law may inhibit an acquisition of us.

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

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.

36

---



Item 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

RADVIEW SOFTWARE, LTD. AND SUBSIDIARIES  CONSOLIDATED FINANCIAL STATEMENTS  AS OF DECEMBER 31, 2002  IN U.S. DOLLARS

INDEX

|                                                                   |  | Page
|------------------------------------------------------------------ |  | ----
|Reports of Independent Auditors and Independent Public Accountants |  | 38  
|Consolidated Balance Sheets                                        |  | 40  
|Consolidated Statements of Operations                              |  | 41  
|Consolidated Statements of Shareholders' Equity                    |  | 42  
|Consolidated Statements of Cash Flows                              |  | 43  
|Notes to Consolidated Financial Statements                         |  | 44  

37

---



REPORT OF INDEPENDENT AUDITORS

To
the Shareholders of
RadView Software Ltd.:

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

We
conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of RadView Software Ltd. and
its subsidiaries as of December 31, 2002 and the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting principles generally
accepted in the United States.

LOGO



Tel-Aviv,
Israel
January 16, 2003

38

---

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

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

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 consolidated financial position of RadView Software Ltd. and
its subsidiaries as of December 31, 2000 and 2001 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2001
in conformity with accounting principles generally accepted in the United States.

|                                  |  | LOGO              
|--------------------------------- |  | ------------------
|                                  |  | Luboshitz Kasierer
|                                  |  | Arthur Andersen   
|Tel-Aviv, Israel
February 6, 2002 |  |                   

39

---



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

|                                     |                                                                                                                                                                                                                                                                | December 31, |                                           
|------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------ | ------------------------------------------
|
|ASSETS                               |                                                                                                                                                                                                                                                                |              |                                           
|Current Assets:                      |                                                                                                                                                                                                                                                                |              |                                           
|                                     | Cash and cash equivalents                                                                                                                                                                                                                                      |              | $                                         
|                                     | Accounts receivable, net of reserves of $209 at December 31, 2001 and $171 at December 31, 2002                                                                                                                                                                |              |                                           
|                                     | Prepaid expenses and other current assets                                                                                                                                                                                                                      |              |                                           
|                                     |                                                                                                                                                                                                                                                                |              |                                           
|                                     |                                                                                                                                                                                                                                                                |              | Total Current Assets                      
|                                     |                                                                                                                                                                                                                                                                |              |                                           
|                                     | Property and Equipment, net                                                                                                                                                                                                                                    |              |                                           
|                                     | Other Assets                                                                                                                                                                                                                                                   |              |                                           
|                                     |                                                                                                                                                                                                                                                                |              |                                           
|                                     |                                                                                                                                                                                                                                                                |              | Total Assets                              
|                                     |                                                                                                                                                                                                                                                                |              |                                           
|LIABILITIES AND SHAREHOLDERS' EQUITY |                                                                                                                                                                                                                                                                |              |                                           
|Current Liabilities:                 |                                                                                                                                                                                                                                                                |              |                                           
|                                     | 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 pay                                                                                                                                                                                                                                          |              |                                           
|                                     |                                                                                                                                                                                                                                                                |              |                                           
|                                     |                                                                                                                                                                                                                                                                |              | Total Long-Term Liabilities               
|                                     |                                                                                                                                                                                                                                                                |              |                                           
|                                     |                                                                                                                                                                                                                                                                |              | Total Liabilities                         
|                                     |                                                                                                                                                                                                                                                                |              |                                           
|Commitments (Note 9)                 |                                                                                                                                                                                                                                                                |              |                                           
|Shareholders' Equity:                |                                                                                                                                                                                                                                                                |              |                                           
|                                     | Ordinary shares, NIS 0.01 par value
Authorized40,000,000 shares;
Issued16,532,868 shares at December 31, 2001 and 16,605,177 shares at December 31, 2002; and
Outstanding16,398,868 shares at December 31, 2001 and 16,471,177 shares at December 31, 2002 |              |                                           
|                                     | Treasury shares, at cost134,000 shares at December 31, 2001 and 2002                                                                                                                                                                                          |              |                                           
|                                     | Additional paid-in capital                                                                                                                                                                                                                                     |              |                                           
|                                     | Deferred compensation                                                                                                                                                                                                                                          |              |                                           
|                                     | Accumulated deficit                                                                                                                                                                                                                                            |              |                                           
|                                     |                                                                                                                                                                                                                                                                |              |                                           
|                                     |                                                                                                                                                                                                                                                                |              | Total Shareholders' Equity                
|                                     |                                                                                                                                                                                                                                                                |              |                                           
|                                     |                                                                                                                                                                                                                                                                |              | Total Liabilities and Shareholders' Equity
|                                     |                                                                                                                                                                                                                                                                |              |                                           

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

40

---



RADVIEW SOFTWARE LTD. AND SUBSIDIARIES        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                      |                          |                               
|                                                                                                 | Nonrecurring royalty reversal (Note 6) |                          |                               
|                                                                                                 | Service                                |                          |                               
|                                                                                                 |                                        |                          |                               
|                                                                                                 |                                        | Total Cost of Revenues   |                               
|                                                                                                 |                                        |                          |                               
|Gross Profit                                                                                     |                                        |                          | 9,740                         
|                                                                                                 |                                        |                          |                               
|Operating Expenses:                                                                              |                                        |                          |                               
|                                                                                                 | Sales and marketing                    |                          |                               
|                                                                                                 | Research and development               |                          |                               
|                                                                                                 | General and administrative             |                          |                               
|                                                                                                 | Stock-based compensation (1)           |                          |                               
|                                                                                                 | Nonrecurring expenses (Note 3)         |                          |                               
|                                                                                                 |                                        |                          |                               
|                                                                                                 |                                        | Total Operating Expenses |                               
|                                                                                                 |                                        |                          |                               
|Operating loss                                                                                   |                                        |                          | (11,568                       
|                                                                                                 |                                        |                          |                               
|Interest income                                                                                  |                                        |                          | 1,058                         
|Interest expense                                                                                 |                                        |                          | (493                          
|Other income, net                                                                                |                                        |                          | 18                            
|                                                                                                 |                                        |                          |                               
|Net loss                                                                                         |                                        | $                        | (10,985                       
|                                                                                                 |                                        |                          |                               
|Noncash stock dividend to preferred shareholders                                                 |                                        | $                        | 2,585                         
|                                                                                                 |                                        |                          |                               
|Net loss attributable to ordinary shareholders                                                   |                                        | $                        | (13,570                       
|                                                                                                 |                                        |                          |                               
|Net loss per share attributable to ordinary shareholders (Note 2(m)):                            |                                        |                          |                               
|Net loss per shareBasic and diluted                                                             |                                        | $                        | (1.51                         
|                                                                                                 |                                        |                          |                               
|Weighted average shares outstandingBasic and diluted                                            |                                        |                          | 8,968                         
|                                                                                                 |                                        |                          |                               
|                                                                                                 |                                        |                          |                               
|(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.

41

---

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

|                           |                                                                                         | Preferred Shares |            | Ordinary Shares |    | Treasury Shares |            |           |   |    |    |         |         |   |     
|-------------------------- | --------------------------------------------------------------------------------------- | ---------------- | ---------- | --------------- | -- | --------------- | ---------- | --------- | - | -- | -- | ------- | ------- | - | ----
|
|Balance, December 31, 1999 |                                                                                         | 5,241,765        |            | $               | 13 |                 | 4,194,000  |           | $ | 12 |    |        |         | $ |    
|                           | Issuance of preferred shares, net of issuance costs of $5                               |                  | 23,810     |                 |    |                |            |          |   |    |   |         |        |   |     
|                           | Exercise of options                                                                     |                  |           |                 |    |                |            | 455,640   |   |    | 1  |         |        |   |     
|                           | Exercise of warrants and options by preferred shareholders                              |                  |           |                 |    |                |            | 2,050,000 |   |    | 6  |         |        |   |     
|                           | Exercise of warrants by a bank                                                          |                  |           |                 |    |                |            | 142,857   |   |    | *  |         |        |   |     
|                           | 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 |         |        |   |     
|                           | Interest imputed on related party loan                                                  |                  |           |                 |    |                |            |          |   |    |   |         |        |   |     
|                           | Deferred compensation                                                                   |                  |           |                 |    |                |            |          |   |    |   |         |        |   |     
|                           | Amortization of deferred compensation                                                   |                  |           |                 |    |                |            |          |   |    |   |         |        |   |     
|                           | Adjustment for forfeiture of stock options                                              |                  |           |                 |    |                |            |          |   |    |   |         |        |   |     
|                           | Net loss                                                                                |                  |           |                 |    |                |            |          |   |    |   |         |        |   |     
|                           |                                                                                         |                  |            |                 |    |                 |            |           |   |    |    |         |         |   |     
|Balance, December 31, 2000 |                                                                                         |                 |            |                 |   |                 | 16,366,572 |           |   | 42 |    |        |         |   |    
|                           | Exercise of options                                                                     |                  |           |                 |    |                |            | 166,296   |   |    | *  |         |        |   |     
|                           | Purchase of treasury shares                                                             |                  |           |                 |    |                |            |          |   |    |   |         | 134,000 |   |     
|                           | Issuance of options to consultants                                                      |                  |           |                 |    |                |            |          |   |    |   |         |        |   |     
|                           | Amortization of deferred compensation                                                   |                  |           |                 |    |                |            |          |   |    |   |         |        |   |     
|                           | Adjustment for forfeiture of stock options                                              |                  |           |                 |    |                |            |          |   |    |   |         |        |   |     
|                           | Net loss                                                                                |                  |           |                 |    |                |            |          |   |    |   |         |        |   |     
|                           |                                                                                         |                  |            |                 |    |                 |            |           |   |    |    |         |         |   |     
|Balance, December 31, 2001 |                                                                                         |                 |            |                 |   |                 | 16,532,868 |           |   | 42 |    | 134,000 |         |   | (100
|                           | Exercise of options                                                                     |                  |           |                 |    |                |            | 64,100    |   |    | *  |         |        |   |     
|                           | Issuance of shares pursuant to employee share purchase plan                             |                  |           |                 |    |                |            | 8,209     |   |    | *  |         |        |   |     
|                           | Amortization of deferred compensation                                                   |                  |           |                 |    |                |            |          |   |    |   |         |        |   |     
|                           | Adjustment for forfeiture of stock options                                              |                  |           |                 |    |                |            |          |   |    |   |         |        |   |     
|                           | Net loss                                                                                |                  |           |                 |    |                |            |          |   |    |   |         |        |   |     
|                           |                                                                                         |                  |            |                 |    |                 |            |           |   |    |    |         |         |   |     
|Balance, December 31, 2002 |                                                                                         |                 |            | $               |   |                 | 16,605,177 |           | $ | 42 |    | 134,000 |         | $ | (100
|                           |                                                                                         |                  |            |                 |    |                 |            |           |   |    |    |         |         |   |     

(*) Represents an amount less than $1.

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

42

---



RADVIEW SOFTWARE LTD. AND SUBSIDIARIES        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                                 |                                          
|                                                                       |                                                                             | Property and equipment write-off             |                                          
|                                                                       |                                                                             | 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             
|                                                                       |                                                                             |                                              | Deferred revenue                         
|                                                                       |                                                                             |                                              |                                          
|                                                                       |                                                                             |                                              |                                          
|                                                                       |                                                                             |                                              |                                          
|Cash Flows from Investing Activities:                                  |                                                                             |                                              |                                          
|                                                                       | Sale of short-term investments                                              |                                              |                                          
|                                                                       | Purchases of property and equipment                                         |                                              |                                          
|                                                                       | Increase in other assets                                                    |                                              |                                          
|                                                                       |                                                                             |                                              |                                          
|                                                                       |                                                                             |                                              |                                          
|                                                                       |                                                                             |                                              |                                          
|Cash Flows from Financing Activities:                                  |                                                                             |                                              |                                          
|                                                                       | Payment of long-term bank loans                                             |                                              |                                          
|                                                                       | Proceeds from issuance of ordinary and preferred shares                     |                                              |                                          
|                                                                       | Proceeds from initial public offering of ordinary shares                    |                                              |                                          
|                                                                       | Purchases of treasury shares                                                |                                              |                                          
|                                                                       |                                                                             |                                              |                                          
|                                                                       |                                                                             |                                              |                                          
|                                                                       |                                                                             |                                              |                                          
|Increase (decrease) in cash and cash equivalents                       |                                                                             |                                              | 25,817                                   
|Cash and cash equivalents at the beginning of the year                 |                                                                             |                                              | 7,652                                    
|                                                                       |                                                                             |                                              |                                          
|Cash and cash equivalents at the end of the year                       |                                                                             | $                                            | 33,469                                   
|                                                                       |                                                                             |                                              |                                          
|Cash paid during the year for interest                                 |                                                                             | $                                            | 476                                      
|                                                                       |                                                                             |                                              |                                          
|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.

43

---



RADVIEW SOFTWARE LTD. AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Operations

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

The
Company incurred net losses of $11.0 million in 2000, $17.4 million in 2001 and $6.5 million in 2002, and had an accumulated deficit of approximately
$48.0 million as of December 31, 2002. The Company has funded these losses principally from proceeds from equity financing. In 2001 and 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 3). Management believes that existing cash and cash equivalents
will be adequate to fund operations into 2004.

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
accounting policies followed in the preparation of the consolidated financial statements, applied on a consistent basis, are as follows:

(a)  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.

(b)  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 4.041 New Israeli Shekel ("NIS") at December 31, 2000, U.S. $1.00 to NIS 4.416 at December 31, 2001 and U.S. $1.00 to NIS 4.737 at
December 31, 2002.

44

---

(c)  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 intercompany balances and transactions have been eliminated in consolidation.

(d)  Cash Equivalents

Cash equivalents are highly liquid investments with original maturities of less than 90 days. The Company's cash equivalents are invested in U.S. Treasury
securities as of December 31, 2001 and 2002.

(e)  Accounts Receivable Reserves

The Company provides for reserves against its accounts receivable that consist of an allowance for doubtful accounts and a reserve for sales returns. The
allowance for doubtful accounts is computed for specific accounts, the collectibility of which is doubtful based upon the Company's experience. The provision for the allowance for doubtful accounts is
recorded as general and administrative expense. In accordance with SFAS No. 48,Revenue Recognition when Right of Return Exists,the reserve for
sales returns is computed based on the Company's experience with sales returns. The provision for sales returns is recorded as a reduction to revenues. A summary of the allowance for doubtful accounts
and sales returns reserve is as follows:

Year Ended December 31,2000

2001

2002(In thousands)Balance at the beginning of year

$
150

$
345

$
209Provision for doubtful accounts


66


136


92Provision for sales returns


200





46Write-offs


(71
)

(272
)

(176
)Balance at the end of year

$
345

$
209

$
171


(f)  Property and Equipment

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

Category

Estimated Useful
Life
(In years)Equipment

3Office furniture

3 to 5Leasehold improvements

Life of lease


The
Company periodically assesses the recoverability of the carrying amount of property and equipment in accordance with SFAS No. 144,Accounting for
Impairment or Disposal of Long-Lived Assets, and provides for any possible impairment loss based upon the difference between the carrying amount and fair value of
such assets. Impairment losses were in respect of restructuring changes and amounted to $369,000 in 2001 and $97,000 in 2002.

(g)  Severance Pay

In accordance with Israeli compensation law, the Company is required to make severance payments to Israeli employees upon their termination of employment. The
amount of such severance

45

---

payments is based on the most recent monthly salary multiplied by the number of years of employment. Certain senior executives are entitled to receive additional severance pay. The Company has
accrued for the estimated total cost of severance pay as computed as of the balance sheet date. Severance pay expense totaled to $291,000 in 2000, $92,000 in 2001 and $50,000 in 2002.

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

(h)  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 and no further obligations exist. 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 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.

The
Company generally does not grant a right of return to its customers. When a right of return exists, revenue is deferred until the right of return expires, at which time revenue is
recognized provided that all other revenue recognition criteria are met. The Company maintains a reserve for product returns (see Note 2(e)).

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

(i)  Advertising Expenses

Advertising expenses are charged to the consolidated statements of operations as they are incurred. Advertising expenses totaled $640,000 in 2000, $218,000 in
2001, and $40,000 in 2002.

(j)  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.

46

---

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.

(k)  Income Taxes

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

(l)  Employee Stock Options

At December 31, 2002, the Company has three stock option plans, which are described more fully in Note 10(h). The Company accounts for those plans
under the recognition and measurement principles of Accounting Principles Board Opinion No. 25Accounting for Stock Issued to Employeesand
related interpretations (collectively "APB No. 25"). Stock-based compensation included in the reported net loss relates to stock options issued to employees at an exercise price below the
market price on the date of grant. The following table illustrates the effect on net loss and earnings per share if the Company had applied the fair value recognition provisions of SFAS
No. 123,Accounting for Stock-Based Compensation, to stock-based employee compensation.

Year Ended December 31,2000

2001

2002(In thousands, except per share data)Net loss attributable to ordinary shareholders, as reported

$
(13,570
)
$
(17,431
)
$
(6,549
)Add: Stock-based compensation included in reported net loss


1,418


878


509Deduct: Total stock-based compensation expense under fair value based methods


(1,783
)

(1,622
)

(1,073
)Pro forma net loss attributable to ordinary shareholders

$
(13,935
)
$
(18,175
)
$
(7,113
)Net loss per share attributable to ordinary shareholders:As reported

$
(1.51
)
$
(1.07
)
$
(0.40
)Pro forma

$
(1.55
)
$
(1.11
)
$
(0.43
)


(m)  Basic and Diluted Net Loss 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.

47

---

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.

Stock
options outstanding as of each year end that were not included in the calculation of diluted net loss per share as their inclusion would be antidilutive totaled approximately
3,355,000 in 2000, 3,140,000 in 2001 and 4,667,000 in 2002.

(n)  Fair Value of Financial Instruments

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

(o)  Concentrations of Credit Risk

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

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

Accounts
receivable are derived from sales to customers located in the United States, Europe, Israel and Japan. The Company performs on-going credit evaluations of its
customers. An allowance for doubtful accounts is maintained with respect to those amounts that the Company has determined to be doubtful of collection.

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

For
each of the three years ended December 31, 2002, no customer individually comprised greater than 10% of total revenue. At December 31, 2001, one customer represented
12% of total accounts receivable. At December 31, 2002, no customer represented greater than 10% of total accounts receivable.

(p)  Recent Accounting Standards

In June 2002, SFAS No. 146,Accounting for Costs Associated with Exit or Disposal Activities, was
issued. SFAS No. 146 addresses the recognition, measurement, and reporting of costs associated with exit and disposal activities, including restructuring activities. SFAS No. 146
requires that costs associated with exit or disposal activities be recognized when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 146 is
effective for all exit or disposal activities initiated after December 31, 2002. The Company does not expect the adoption of SFAS No. 146 to have a material impact on its results of
operations or financial position.

(q)  Reclassification

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

48

---

3.    Nonrecurring Expenses

Nonrecurring expenses consist of restructuring charges and other nonrecurring costs. There were no nonrecurring expenses in 2000. Nonrecurring expenses totaled
$1.7 million in 2001, which consisted of a
$237,000 payment for the termination of a facility lease agreement in March 2001 and $1.4 million of restructuring charges. Nonrecurring expenses totaled $929,000 in 2002 and consisted
exclusively of restructuring charges.

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

|Description                    |                                   | Balance,
Beginning
of Year |     | Provision |   | Payments
and
Write-offs |     | Balance,
End of Year
|------------------------------ | --------------------------------- | -------------------------- | --- | --------- | - | ----------------------- | --- | --------------------
|
|Year Ended
December 31, 2001: |                                   |                            |     |           |   |                         |     |                     
|                               | Employee severance costs          |                            | $   |          |   | $                       | 634 |                     
|                               | Idle-lease costs                  |                            |     |          |   |                         | 339 |                     
|                               | Property and equipment impairment |                            |     |          |   |                         | 369 |                     
|                               | Vendor contract termination fees  |                            |     |          |   |                         | 92  |                     
|                               |                                   |                            |     |           |   |                         |     |                     
|                               |                                   | $                          |    |           | $ | 1,434                   |     | $                   
|                               |                                   |                            |     |           |   |                         |     |                     
|December 31, 2002:             |                                   |                            |     |           |   |                         |     |                     
|                               | Employee severance costs          |                            | $   |          |   | $                       | 349 |                     
|                               | Idle-lease costs                  |                            |     | 231       |   |                         | 474 |                     
|                               | Property and equipment impairment |                            |     |          |   |                         | 97  |                     
|                               | Vendor contract termination fees  |                            |     |          |   |                         | 9   |                     
|                               |                                   |                            |     |           |   |                         |     |                     
|                               |                                   | $                          | 231 |           | $ | 929                     |     | $                   
|                               |                                   |                            |     |           |   |                         |     |                     

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

The
restructuring charges in 2001 were incurred in July 2001 and October 2001 when the Company implemented two separate restructuring plans to lower operating costs.
Employee severance costs resulted from the termination of 61 employees, of whom 35 were sales and marketing employees, 12 were research and development employees, and 14 were general and
administrative employees. The Company also incurred idle lease space and termination payments for offices worldwide that were no longer required as a result of the reduction in personnel. In
determining the costs of idle lease space, the Company has estimated the vacancy period and sub-lease income.

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

49

---

4.  Property and Equipment

December 31,2001

2002(In thousands)Equipment

$
3,325

$
3,374Office furniture


315


215Leasehold improvements


194


1943,834


3,783LessAccumulated depreciation


2,147


2,957$
1,687

$
826


Depreciation
expense was $668,000 in 2000, $1.1 million in 2001, and $875,000 in 2002.

5.  Other Assets

December 31,2001

2002(In thousands)Severance pay deposits

$
423

$
513Deposits on operating leases


189


170$
612

$
683


6.  Accrued Expenses

December 31,2001

2002(In thousands)Employee compensation and related costs

$
1,126

$
994Accrued royalties


614


110Other accrued expenses


611


399$
2,351

$
1,503


Accrued
royalties consist of amounts due to the Government of Israel through the 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. Through 2001, the Company accrued a total of $670,000, which had been recorded as royalty expense in costs of revenues. In
October 2002, the Office of Chief Scientist completed its examination of the Company's technology and use of grant funding and concluded that the Company's remaining royalty obligation was
$166,000. The remaining obligation is payable in three equal installments, of which one was made in 2002, and the other two will be due in 2003. The Company reversed $448,000 of accrued royalties as a
reduction in cost of sales during the fourth quarter of 2002.

50

---

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 amount charged to interest expense due to fluctuations in the
Israeli CPI was $52,000 in 2000. The loan was repaid in full in September 2000.

8.  Long-Term Loans

The Company had two loans denominated in U.S. dollars 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 10(d)). 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.  Commitments

The Company operates primarily from leased facilities. Lease agreements expire through year 2005. Annual minimum future rental payments due under the lease
agreements as of December 31, 2002 are as follows:

Amount(In thousands)For the Year Ended December 31,2003

$
5882004


5362005


1291,253Less idle-lease cost amounts included in accrued restructuring


612$
641


Rent
expense was $635,000 in 2000, $896,000 in 2001, and $560,000 in 2002.

10.  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, 2002, 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 an 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

51

---

Series A preferred shareholders, which was accounted for as a stock dividend. The Company 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 was increased by the fair value of the ordinary shares issued.

(c)  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.

(d)  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 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.

(e)  Treasury Stock

In April 2001, the Company's board of directors approved a stock repurchase program under which the Company may repurchase its ordinary shares for an
aggregate consideration that shall not exceed $2.5 million. Purchases may be made based on market conditions from time-to-time at the discretion of management in open
market purchases or privately negotiated transactions. Through December 31, 2002, the Company has repurchased 134,000 of ordinary shares at an aggregate cost of $100,000. Although such shares
are legally considered outstanding, the Company has no dividend or voting rights associated with its treasury stock.

(f)  Dividends

The Company has never paid cash dividends to shareholders. The Company intends to retain future earnings for use in its business and does not anticipate paying
cash dividends on its ordinary shares in the foreseeable future. Any future dividend policy will be determined by the board of directors and will be based upon conditions then existing, including
results of operations, financial

52

---

condition, current and anticipated cash needs, contractual restrictions and other conditions as the board of directors may deem relevant.

(g)  Employee Share Purchase Plan

In November 2002, the Company established an employee share purchase plan (the "ESPP") which permits the eligible employees of the Company to purchase
shares of the Company's ordinary shares at 85% of the closing market price on either the first day or the last day of the applicable three-month period, whichever is lower. Employees may participate
in the ESPP through regular payroll deductions of up to 10% of their pre-tax gross salary. Subject to adjustment for stock splits, stock dividends and similar events, a maximum of
1,500,000 ordinary shares may be issued under the ESPP. Through December 31, 2002, 8,209 ordinary shares have been issued under the ESPP at a weighted average purchase price of $0.21 per share.

(h)  Stock Option Plans

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



The
1996 Option Plan provides for the grant by the Company of option awards to officers and employees of the Company and its subsidiaries and to non-employees. The options
granted under the 1996 Option Plan vest ratably over vesting periods ranging from three to five years 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 and 2002. 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
$23,000 in 2000, $8,000 in 2001, and $11,000 in 2002.

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.

Under
all option plans, any options that are cancelled or forfeited before expiration become available for future grants. As of December 31, 2002, 2,458,628 options are available
for future grant.

53

---



Transactions related to the Company's stock option plans for the three years in the period ended December 31, 2002 are summarized as follows:

Options
Outstanding

Weighted
Average
Exercise
Price
Per Share

Weighted
Average Fair
Value of
Options GrantedOutstanding, December 31, 1999

1,481,311

$
0.38Granted

2,863,500


2.69

$
3.60Exercised

(470,786
)

0.12Forfeited or cancelled

(518,536
)

2.59Outstanding, December 31, 2000

3,355,489


2.05Granted

1,784,000


1.56

$
1.19Exercised

(151,150
)

Forfeited or cancelled

(1,848,733
)

2.00Outstanding, December 31, 2001

3,139,606


1.85Granted

2,310,000


0.33

$
0.23Exercised

(64,100
)

Forfeited or cancelled

(718,308
)

1.95Outstanding, December 31, 2002

4,667,198

$
1.10Exercisable, December 31, 2000

883,549

$
0.64Exercisable, December 31, 2001

1,276,063

$
1.48Exercisable, December 31, 2002

2,108,995

$
1.35


The
following table summarizes information about options outstanding and exercisable at December 31, 2002:

|             |  | Options Outstanding |  |     |  |  
|------------ |  | ------------------- |  | --- |  | -
|
|
|
|$0.26$0.28  |  | 2,110,000           |  | 9.0 |  | $
|$0.63$0.69  |  | 605,360             |  | 3.0 |  |  
|$0.95$1.00  |  | 1,383,578           |  | 4.2 |  |  
|$2.25$2.70  |  | 345,000             |  | 6.4 |  |  
|$4.50        |  | 30,000              |  | 4.6 |  |  
|$8.21$10.00 |  | 193,260             |  | 3.8 |  |  
|             |  |                     |  |     |  |  
|             |  | 4,667,198           |  | 6.4 |  | $
|             |  |                     |  |     |  |  

The
amount of stock-based compensation arising from the difference between the exercise price and the fair market value on the date of the grant is included in
shareholders' equity as deferred compensation and totaled $8.5 million in 2000, and none in 2001 and 2002. Under APB Opinion No. 25, deferred compensation is amortized over the vesting
periods of the underlying options as stock-based compensation expense. Stock-based compensation expense included in the reported net loss totaled $1.4 million in 2000, $878,000 in 2001 and
$509,000 in 2002. Unamortized deferred compensation totaled $536,000 as of December 31, 2002.

54

---

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 31,2000

2001

2002Expected life of option

2 to 4 years

4 years

5 yearsDividend yield





Expected volatility

61%

120%

140%Risk-free interest rate

5.0%

4.6%

4.0%


The
following table summarizes the weighted average fair value of options granted for each of the three years in the period ended December 31, 2002:

|                   |                                           | For Options on the Grant Date that:
|------------------ | ----------------------------------------- | -----------------------------------
|
|December 31, 2000: |                                           |                                    
|                   | Weighted average exercise price           |                                    
|                   | Weighted average fair value on grant date |                                    
|December 31, 2001: |                                           |                                    
|                   | Weighted average exercise price           |                                    
|                   | Weighted average fair value on grant date |                                    
|December 31, 2002: |                                           |                                    
|                   | Weighted average exercise price           |                                    
|                   | Weighted average fair value on grant date |                                    

11.    Taxes on Income

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

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

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

In 1998, the Company's investment program totaling $66,000 was granted "Approved Enterprise" status under the Law. The Company elected to adopt the "Alternative
Benefits Program Status." This status entitles the Company to a benefit period of seven years on income derived from this program as follows: (a) a full income tax exemption for the first two
years and (b) a reduced income tax rate of 25%, instead of the regular rate of 36%, for the remaining five-year period. If foreign shareholdings in the Company exceed 25%, the
period for which the Company is entitled to a reduced tax rate of 25% is extended to eight years. The period of the benefit is limited to 12 years from commencement of production or
14 years from the date of approval.

55

---

As
the Company has not yet reported any taxable income, the benefit period has not yet commenced.

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

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

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

By
virtue of the Law, the Company is entitled to claim accelerated depreciation on equipment used by the "Approved Enterprise."

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

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

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)  Loss before Income Tax

Year Ended December 31,2000

2001

2002(In thousands)Israel

$
(6,368
)
$
(4,899
)
$
(916
)Foreign


(4,617
)

(12,532
)

(5,633
)$
(10,985
)
$
(17,431
)
$
(6,549
)


(e)  Net Operating Losses

As of December 31, 2002, the Company's net operating loss carryforwards for Israeli tax purposes amounted to approximately $14.0 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.

56

---

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, 2002 amounted to approximately $26.2 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 2022. 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 31,2001

2002(In thousands)Net operating loss carryforwards

$
8,598

$
10,485Temporary differences


238


1338,836


10,618LessValuation allowance


8,836


10,618Net deferred tax asset

$


$



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

(f)  Final Tax Assessments

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

12.    Related Party Balances and Transactions

Balances with related parties consisted of the following:

December 31,2000

2001(In thousands)Accounts receivable

$
16

$
7Accounts payable and accrued expenses


18


5


Transactions
with related parties consisted of the following:

Year Ended December 31,2000

2001

2002(In thousands)Revenues

$


$
50

$
Costs and expenses


(93
)

(110
)

(30
)Finance expenses


(52
)




Property and equipment purchased


63


195


4


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

57

---

13.    Disclosures About Segments of an Enterprise

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 31,2000

2001

2002(In thousands)United States

$
8,927

$
5,890

$
3,403Europe


1,137


1,798


1,275Israel


551


229


199Other


175


729


891$
10,790

$
8,646

$
5,768


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, 2000Total revenues

$
8,927

$
1,863

$


$


$
10,790Net income (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
)
$
17,425December 31, 2002Total revenues

$
3,557

$
3,813

$
1,160

$
(2,762
)
$
5,768Net income (loss)

$
(5,728
)
$
(844
)
$
95

$
(72
)
$
(6,549
)Identifiable assets

$
1,291

$
37,292

$
294

$
(28,270
)
$
10,607


14.    Quarterly Statement of Operations Information (Unaudited)

The following table presents a summary of quarterly results of operations for the years ended December 31, 2001 and 2002:

Mar. 31,
2001

June 30,
2001

Sept. 30,
2001

Dec. 31,
2001(In thousands, except per share data)Total revenues

$
2,303

$
2,603

$
1,738

$
2,002


58

---

Gross 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
)


Mar. 31,
2002

June 30,
2002

Sept. 30,
2002

Dec. 31,
2002(In thousands, except per share data)Total revenues

$
1,574

$
1,418

$
1,264

$
1,512Gross profit

$
1,401

$
1,247

$
1,095

$
1,779Net loss

$
(1,945
)
$
(1,637
)
$
(1,576
)
$
(1,391
)Basic and diluted net loss per share attributable to ordinary shareholders

$
(0.12
)
$
(0.10
)
$
(0.10
)
$
(0.08
)


59

---



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

Name

Age

PositionShai Beilis

54

Chairman of the BoardIlan Kinreich

45

Chief Executive Officer, President and DirectorBrian E. LeClair

50

Vice President, Chief Financial OfficerWilliam J. Geary

44

DirectorRobert Steinkrauss

51

DirectorKathleen A. Cote

55

DirectorDavid Assia

51

Director


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

ILAN KINREICHhas served as a Director and our Chief Executive Officer and President since inception of our operations in 1993. From
August 1989 to February 1991, Mr. Kinreich was a co-founder and Vice President of Research and Development at Mercury Interactive, a software testing company. From
May 1985 until joining Mercury Interactive, Mr. Kinreich held the position of Research and Development Manager at Daisy Systems. Prior to that, Mr. Kinreich was part of the
integration team for the Lavi jet fighter. Prior to this, Mr. Kinreich served seven years in the Israel Defense Forces, holding the rank of Captain, where he led development and deployment of
command and control systems. Mr. Kinreich holds a B.Sc. in Mathematics and Computer Science from Bar Ilan University.

BRIAN E. LECLAIRhas served as our Vice President and Chief Financial Officer since December 2000. From May 1999 until
joining us, Mr. LeClair served as Executive Vice President and Chief Financial Officer of Infosis Corp., a business-to-business Internet service provider. From
April 1998 until joining Infosis Corp., Mr. LeClair served as the Vice President and Chief Financial Officer for Beacon Application Services, a systems integration company. From 1997
until joining Beacon Application Services, Mr. LeClair served as the Chief Financial Officer of Microcom after its acquisition by Compaq Computer Corp. in 1997 and served as the Corporate
Controller of Microcom from 1995 until the acquisition. In addition, Mr. LeClair has four years of public accounting experience as a Certified Public Accountant with Arthur Andersen LLP.
Mr. LeClair has a B.S. in accounting from Northeastern University.

60

---

WILLIAM J. GEARYhas served as a Director since December 1999. Mr. Geary has been a General Partner of North Bridge Venture
Partners V, L.P. since its inception in September 2001, of North Bridge Venture Partners IV, L.P. since its inception in November 1999, of North Bridge Venture Partners III, L.P. since
its inception in August 1998, and of North Bridge Venture Partners II, L.P. since its inception in September 1996, and a Principal of North Bridge Venture Partners, L.P. since its
inception in March 1994. Mr. Geary holds a B.S. from Boston College, School of Management and is a Certified Public Accountant.

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

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

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

Section 16(a) Beneficial Ownership Reporting Compliance

To the Company's knowledge, during the fiscal year ended December 31, 2002, our executive officers and Directors complied with all applicable filing
requirements under Section 16(a) of the Securities Exchange Act of 1934, as amended.

Item 11.    EXECUTIVE COMPENSATION

The following tables set forth certain information with respect to compensation paid or accrued for services rendered to the Company in all capacities for each of
the three fiscal years ended December 31, 2002 by its Chief Executive Officer and the other most highly compensated executive officer of the Company whose salary and bonus during the fiscal
year ended December 31, 2002 exceeded $100,000 (collectively, the "Named Executive Officers"). No other executive officer of the Company earned greater than $100,000 in the fiscal year ended
December 31, 2002.

61

---

SUMMARY COMPENSATION TABLE

|                                                            |  |                |  | Annual Compensation |                         |  |   | Long Term
Compensation Awards
|----------------------------------------------------------- |  | -------------- |  | ------------------- | ----------------------- |  | - | -----------------------------
|
|Ilan Kinreich
Chief Executive Officer
and President         |  | 2002
2001
2000 |  | $                   | 190,000
184,000
140,000 |  | $ | 
43,763
56,500              
|Brian E. LeClair
Vice President and
Chief Financial Officer |  | 2002
2001
2000 |  |                     | 200,000
200,000
12,308  |  |   | 
20,689
250                 

Employment Contracts, Termination of Employment and Change of Control Arrangements

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

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

Option Grants

The following table presents each grant of ordinary share options during the fiscal year ended December 31, 2002 to each of the Named Executive Officers.

62

---

OPTION GRANTS IN LAST FISCAL YEAR

|                 |  |           |   |      |   |   |      |  |         | Potential Realizable
Value At Assumed
Annual Rates
Of Stock Price
Appreciation
For Option Terms (3)
|---------------- |  | --------- | - | ---- | - | - | ---- |  | ------- | ---------------------------------------------------------------------------------------------------
|
|
|
|
|
|Ilan Kinreich    |  | 800,000(4 | ) | 34.6 | % | $ | 0.28 |  | 8/11/12 |                                                                                                    
|Brian E. LeClair |  | 175,000(5 | ) | 7.6  | % |   | 0.26 |  | 7/22/12 |                                                                                                    

---

The
following table sets forth information with respect to (i) stock options exercised in the fiscal year ended December 31, 2002 by the Named Executive Officers and
(ii) unexercised stock options held by such individuals.

AGGREGATED OPTION EXERCISES IN 2002  AND FISCAL YEAR-END OPTION VALUES

|                 |  |   |  |   |  | Number of Securities
Underlying Unexercised
Options at
December 31, 2002 |  |         |  |  
|---------------- |  | - |  | - |  | ------------------------------------------------------------------------ |  | ------- |  | -
|
|
|
|
|Ilan Kinreich    |  |  |  |  |  | 493,178                                                                  |  | 977,723 |  | 
|Brian E. LeClair |  |  |  |  |  | 183,314                                                                  |  | 226,686 |  | 

---

63

---



Report of Compensation Committee on Executive Compensation

This report is submitted by the Compensation Committee. The Compensation Committee consists of Messrs. Assia, Beilis and Geary. Messrs. Assia,
Beilis and Geary are non-employee Directors. Pursuant to authority delegated by the Board of Directors, the Compensation Committee is responsible for reviewing and administering the
Company's stock option plans and reviewing and approving salaries and other incentive compensation of the Company's officers and employees, including recommendations to the Board of Directors with
respect to the grant of stock options to officers and employees.

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

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

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

The
salary compensation for the executive officers is based upon their qualifications, experience and responsibilities, as well as the attainment of planned objectives.
Mr. Kinreich's planned objectives included: (1) implementing the 2002 operating plan, (2) building strategic relationships, and (3) executing product release plans. The
Chief Executive Officer makes recommendations to the Compensation Committee regarding the planned objectives and executive compensation levels. The overall plans and operating performance levels upon
which management compensation is based are reviewed by the Compensation Committee on a periodic basis.

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

Stock Options.The Company relies on incentive compensation in the form of stock options to retain
and motivate executive officers and employees, which generally is provided through initial option grants at the date of hire and periodic additional grants. Incentive compensation in the form of stock

64

---

options is designed to provide long-term incentives to executive officers and other employees, to encourage the executive officers and other employees to remain with the Company and to
enable them to develop and maintain a stock ownership position in the Company's ordinary shares.

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

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

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



Compensation Committee Interlocks and Insider Participation

Messrs. Assia, Beilis and Geary constitute the Company's Compensation Committee. Messrs. Assia, Beilis and Geary are non-employee
Directors. None of our executive officers serve as a member of the board of directors or compensation committee of any entity that has any executive officer serving as a member of our Board of
Directors or Compensation Committee.

Director Compensation

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

65

---



COMPARATIVE SHARE PERFORMANCE GRAPH

The following graph shows the cumulative shareholder return of the Company's ordinary shares from August 10, 2000 through December 31, 2002 as
compared with that of the Nasdaq Composite and the Nasdaq Computer Index. The graph assumes the investment of $100 in the Company's ordinary shares and each of the comparison groups on
August 10, 2000 and assumes the reinvestment of dividends. The Company has never declared a dividend on its ordinary shares. The ordinary share price performance depicted in the graph below is
not necessarily indicative of future price performance. This graph is not "soliciting material," is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by
reference in any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934 whether made before or after the date hereof and irrespective of any general
incorporation language in any such filing.

LOGO

66

---



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

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information known to us regarding the beneficial ownership of our ordinary shares as of February 28, 2003, unless
otherwise indicated, by: (i) each person known by us to beneficially own more than 5% of our ordinary shares; (ii) each Director of the Company; (iii) each executive officer named
in the Summary Compensation Table above; and (iii) all of our Directors and executive officers as a group. Beneficial ownership is determined in accordance with the rules of the Securities and
Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, ordinary shares under options and warrants held by that person that
are currently exercisable or exercisable within 60 days of February 28, 2003 are considered outstanding. These shares, however, are not considered outstanding when computing the
percentage ownership of each other person. Except as indicated in the footnotes to this table and pursuant to state community property laws, each shareholder named in the table has sole voting and
investment power for the shares shown as beneficially owned by them. Ownership percentages are based on 16,471,177 ordinary shares outstanding on February 28, 2003. Unless otherwise noted
below, each shareholder's address is c/o RadView Software Ltd., 7 New England Executive Park, Burlington, Massachusetts 01803.

|Name of Beneficial Owner:         |                                                                                                | Total Shares
Beneficially Owned |           | Percentage of
Ordinary Shares |     
|--------------------------------- | ---------------------------------------------------------------------------------------------- | ------------------------------- | --------- | ----------------------------- | ----
|Five Percent Shareholders:        |                                                                                                |                                 |           |                               |     
|                                  | Computer Associates International, Inc. (1)                                                    |                                 | 1,635,067 |                               | 9.9 
|                                  | Formula Ventures (2)                                                                           |                                 | 2,604,823 |                               | 15.8
|                                  | North Bridge Venture Partners (3)                                                              |                                 | 1,666,666 |                               | 10.1
|                                  | Sadot Research and Development Fund Ltd. (4)                                                   |                                 | 1,510,959 |                               | 9.2 
|                                  | Zohar Zisapel (5)                                                                              |                                 | 2,079,522 |                               | 12.6
|                                  | Yehuda Zisapel (6)                                                                             |                                 | 2,079,522 |                               | 12.6
|Directors and Executive Officers: |                                                                                                |                                 |           |                               |     
|                                  | Ilan Kinreich (7)                                                                              |                                 | 940,269   |                               | 5.5 
|                                  | Brian E. LeClair (8)                                                                           |                                 | 229,643   |                               | 1.4 
|                                  | Shai Beilis (2) (9)                                                                            |                                 | 2,695,873 |                               | 16.3
|                                  | William Geary (3) (9)                                                                          |                                 | 1,747,916 |                               | 10.6
|                                  | Robert Steinkrauss (10)                                                                        |                                 | 99,583    |                               | *   
|                                  | Kathleen A. Cote (11)                                                                          |                                 | 100,000   |                               | *   
|                                  | David Assia (12)                                                                               |                                 | 37,505    |                               | *   
|                                  | All executive officers and Directors as a group (7 persons) (2) (3) (7) (8) (9) (10) (11) (12) |                                 | 5,850,789 |                               | 33.2

---

67

---



68

---



EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth certain information, as of December 31, 2002, regarding the Company's equity compensation plans.

|Plan Category                                                  |  | Number of Securities to
be issued upon exercise
of outstanding options,
warrants and rights |  | Weighted-average
exercise price of
outstanding options,
warrants and rights |      | Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected
in column (a))
|-------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- | ---- | -------------------------------------------------------------------------------------------------------------------------------------------
|
|Equity compensation plans approved by security holders (1)     |  | 2,633,750                                                                                   |  | $                                                                           | 0.75 |                                                                                                                                            
|Equity compensation plans not approved by security holders (2) |  | 2,033,458                                                                                   |  | $                                                                           | 1.56 |                                                                                                                                            
|                                                               |  |                                                                                             |  |                                                                             |      |                                                                                                                                            
|Total                                                          |  | 4,667,198                                                                                   |  | $                                                                           | 1.11 |                                                                                                                                            
|                                                               |  |                                                                                             |  |                                                                             |      |                                                                                                                                            

---

69

---

Material Features of the Key Employee Share Incentive Plan (1996)

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

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

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

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

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

Material Features of the Affiliate Plan

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

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

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

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

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

70

---

Item 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

PART IV

ITEM 14. CONTROLS AND PROCEDURES

Evaluation of Controls and Procedures

Within 90 days prior to the filing of this report, under the supervision and with the participation of the Company's management, including the Company's
Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), an evaluation of the effectiveness of the Company's disclosure controls and procedures was performed. Based on this evaluation, the
CEO and CFO have concluded that the Company's disclosure controls and procedures are effective to ensure that material information is recorded, processed, summarized and reported by management of the
Company on a timely basis in order to comply with the Company's disclosure obligations under the Securities Exchange Act of 1934 and the SEC rules thereunder.

Changes in internal controls

There were no significant changes in the company's internal controls or in other factors that could significantly affect these controls subsequent to the date of
the evaluation.

ITEM 15. 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.

(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 (filed as Appendix B to the Company's Proxy Statement Pursuant to Section 14(a) for the Year Ended December 31, 2000, and incorporated
herein by reference)
|4.1         |  | Form of Ordinary Share Certificate (filed as Exhibit 4.1 to the Company's Registration Statement on Form F-1, No. 333-41526, and incorporated herein by reference)                                                            
|4.2         |  | Investor Rights Agreement (filed as Exhibit 4.2 to the Company's Registration Statement on Form F-1, No. 333-41526, and incorporated herein by reference)                                                                     
|10.1        |  | Lease Agreement for 2 Habarzel St., Tel-Aviv, 69710, Israel (English Translation) (filed as Exhibit 10.1 to the Company's Registration Statement on Form F-1, No. 333-41526, and incorporated herein by
reference)            

71

---

|10.2  |  | Lease Agreement for 7 New England Executive Park, Burlington, Massachusetts, 01803 (filed as Exhibit 10.2 to the Company's Registration Statement on Form F-1, No. 333-41526, and incorporated herein by
reference)                         
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.3  |  | Lease Agreement for 890 Hillview Court, Suite 130, Milpitas, California 95035 (filed as Exhibit 10.3 to the Company's Registration Statement on Form F-1, No. 333-41526, and incorporated herein by
reference)                              
|10.4* |  | Amended and Restated Key Employee Share Incentive Plan (1996)                                                                                                                                                                               
|10.5  |  | Amended and Restated United States Share Incentive Plan (2000) (filed as Exhibit 99.2 to the Company's Registration Statement on Form S-8, No. 333-67086, and incorporated herein by reference)                                             
|10.6  |  | Form of Indemnification Agreement (filed as Exhibit 10.7 to the Company's Registration Statement on Form F-1, No. 333-41526, and incorporated herein by reference)                                                                          
|10.7  |  | Employee Share Purchase Plan (filed as Exhibit 10.1 to the Company's Form 10-Q for the quarterly period ended September 30, 2002, and incorporated herein by reference)                                                                     
|10.8  |  | Employment Agreement dated February 6, 2001 with Ilan Kinreich, President and Chief Executive Officer (filed as Exhibit 10.1 to the Company's Form 10-Q for the quarterly period ended March 31, 2001,
and incorporated herein by reference)
|10.9  |  | Employment Agreement dated January 6, 2001 with Brian E. LeClair, Vice President and Chief Financial Officer (filed as Exhibit 10.8 to the Company's Form 10-K for the year ended December 31, 2001, and
incorporated herein by reference)  
|21.1  |  | Subsidiaries of the Registrant (filed as Exhibit 21.1 to the Company's Form 10-K for the year ended December 31, 2001, and incorporated herein by reference)                                                                                
|23.1* |  | Consent of Independent Public Accountants                                                                                                                                                                                                   
|99.1* |  | Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                      

---

(b)    Reports on Form 8-K.

No reports on Form 8-K were filed in the three-month period ended December 31, 2002.

72

---



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, 2003.

| |  | 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, 2003
|/s/SHAI BEILISShai Beilis               |  | Director and Chairman of
the Board              |  | March 25, 2003
|/s/WILLIAM J. GEARYWilliam J. Geary     |  | Director                                        |  | March 25, 2003
|/s/ROBERT STEINKRAUSSRobert Steinkrauss |  | Director                                        |  | March 25, 2003
|/s/KATHLEEN A. COTEKathleen A. Cote     |  | Director                                        |  | March 25, 2003
|/s/DAVID ASSIADavid Assia               |  | Director                                        |  | March 25, 2003
|/s/BRIAN E. LECLAIRBrian E. LeClair     |  | Vice President and Chief Financial Officer      |  | March 25, 2003

73

---



CERTIFICATIONS

Ilan Kinreich, President and Chief Executive Officer

I, Ilan Kinreich, certify that:





|Date: March 25, 2003 |  | /s/ILAN KINREICHIlan Kinreich
President and Chief Executive Officer
|-------------------- |  | -------------------------------------------------------------------

74

---

Brian E. LeClair, Vice President and Chief Financial Officer

I, Brian E. LeClair, certify that:





|Date: March 25, 2003 |  | /s/BRIAN E. LECLAIRBrian E. LeClair
Vice President and Chief Financial Officer
|-------------------- |  | ------------------------------------------------------------------------------

75

---



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 (filed as Appendix B to the Company's Proxy Statement Pursuant to Section 14(a) for the Year Ended December 31, 2000, and incorporated
herein by reference)              
|4.1         |  | Form of Ordinary Share Certificate (filed as Exhibit 4.1 to the Company's Registration Statement on Form F-1, No. 333-41526, and incorporated herein by reference)                                                                          
|4.2         |  | Investor Rights Agreement (filed as Exhibit 4.2 to the Company's Registration Statement on Form F-1, No. 333-41526, and incorporated herein by reference)                                                                                   
|10.1        |  | Lease Agreement for 2 Habarzel St., Tel-Aviv, 69710, Israel (English Translation) (filed as Exhibit 10.1 to the Company's Registration Statement on Form F-1, No. 333-41526, and incorporated herein by
reference)                          
|10.2        |  | Lease Agreement for 7 New England Executive Park, Burlington, Massachusetts, 01803 (filed as Exhibit 10.2 to the Company's Registration Statement on Form F-1, No. 333-41526, and incorporated herein by
reference)                         
|10.3        |  | Lease Agreement for 890 Hillview Court, Suite 130, Milpitas, California 95035 (filed as Exhibit 10.3 to the Company's Registration Statement on Form F-1, No. 333-41526, and incorporated herein by
reference)                              
|10.4*       |  | Amended and Restated Key Employee Share Incentive Plan (1996)                                                                                                                                                                               
|10.5        |  | Amended and Restated United States Share Incentive Plan (2000) (filed as Exhibit 99.2 to the Company's Registration Statement on Form S-8, No. 333-67086, and incorporated herein by reference)                                             
|10.6        |  | Form of Indemnification Agreement (filed as Exhibit 10.7 to the Company's Registration Statement on Form F-1, No. 333-41526, and incorporated herein by reference)                                                                          
|10.7        |  | Employee Share Purchase Plan (filed as Exhibit 10.1 to the Company's Form 10-Q for the quarterly period ended September 30, 2002, and incorporated herein by reference)                                                                     
|10.8        |  | Employment Agreement dated February 6, 2001 with Ilan Kinreich, President and Chief Executive Officer (filed as Exhibit 10.1 to the Company's Form 10-Q for the quarterly period ended March 31, 2001,
and incorporated herein by reference)
|10.9        |  | Employment Agreement dated January 6, 2001 with Brian E. LeClair, Vice President and Chief Financial Officer (filed as Exhibit 10.8 to the Company's Form 10-K for the year ended December 31, 2001, and
incorporated herein by reference)  
|21.1        |  | Subsidiaries of the Registrant (filed as Exhibit 21.1 to the Company's Form 10-K for the year ended December 31, 2001, and incorporated herein by reference)                                                                                
|23.1*       |  | Consent of Independent Public Accountants                                                                                                                                                                                                   
|99.1*       |  | Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                      

---

76

---

QuickLinks