UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2003

OR

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

Commission File Number: 0-31151

LOGO

RADVIEW SOFTWARE LTD.

(Exact name of registrant as specified in its charter)

Israel(State or other jurisdiction of
incorporation or organization)

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


7 New England Executive Park
Burlington, MA 01803

(Address of principal executive offices)

Telephone Number (781) 238-1111

(Registrant's telephone number, including area code)

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

None

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

Ordinary Shares, NIS 0.01 par value

(Title of Class)

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

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

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

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



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TABLE OF CONTENTS

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

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

PART I

Item 1.    BUSINESS

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

Company 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 software allows companies to accelerate the development and deployment of their web applications and enables the successful implementation of their strategies involving their
websites. We also provide support and maintenance services to our installed base of customers.

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

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



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

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

2003 Business Highlights

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

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

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

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

Industry Background

Distributed Computing Environments

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

Today,
these distributed computing environments have the following attributes:



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

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Characteristics of Web Applications

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



Importance of Web Application Integrity and Performance

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

The
performance of web applications includes the following key elements:



Our Market Opportunity

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

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



Our Solution

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

Our Strategy

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

Increase Revenues

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

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.

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

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

Develop and Expand Strategic Relationships

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

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

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

Leverage Our Installed Customer Base

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

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:



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Products

Our current product line consists of:



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

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

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

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

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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 of the components within a customer's Internet architecture. WebLOAD
reports these data points on a per client and per transaction level, thus providing detailed information about the potential causes of any detected application failures during the simulation and
allowing customers to rapidly and effectively address any performance issues. Customers can analyze this performance data and readily export it to industry-standard, third party formats, such as
Microsoft Excel.

WebRM

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

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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:

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

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

WebFT

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.

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.

WebLOAD Analyzer

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

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

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

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

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

Services

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 1,450 customers worldwide. Our customers include Fortune 1000 companies and other companies across a broad range of
industries, including financial services, technology, retail, manufacturing, telecommunication, health care and education.

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

Sales 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, web hosting companies, independent software vendors and international distributors in Europe, Israel and Asia. Revenues
from our indirect distribution channels as a percentage of total revenues were 9.2% in 2001, 12.2% in 2002 and 12.4% in 2003. We expect revenues from indirect channels to increase as we expand our
distribution capacity with resellers in Asia-Pacific and resellers to the U.S. Government.

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

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

Customer Support

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

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 provide innovative solutions for verifying the performance and scalability of web applications. Our research and
development expenses were $6.0 million in 2001, $3.3 million in 2002, and $2.8 million in 2003.

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

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

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

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

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

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

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 subject to constant change. We may not be able to maintain our competitive position against current and potential competitors, especially those with significantly greater
financial, marketing, service, technical and other resources.

11

---

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.

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

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

Employees

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

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

Available Information

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

12

---

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

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
August 2005. We also lease space for our sales operations in Milpitas, California and in the United Kingdom. We believe that the properties leased by us are adequate for all of our present and
near-term needs.

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





Director Nominee

Votes In Favor

Votes WithheldShai Beilis

15,600,799

22,723Ilan Kinreich

15,600,199

23,323William J. Geary

15,600,199

23,323Kathleen A. Cote

15,611,899

11,623Robert Steinkrauss (1)

15,610,999

12,523






13

---





PART II

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

Market for Ordinary Shares

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

Low
Sales Price

High
Sales PriceYear Ended December 31, 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

$
0.45Year Ended December 31, 2003:Quarter ended March 31, 2003

$
0.12

$
0.22Quarter ended June 30, 2003

$
0.12

$
0.52Quarter ended September 30, 2003

$
0.22

$
0.85Quarter ended December 31, 2003

$
0.54

$
1.35Year Ending December 31, 2004:Quarter ended March 31, 2003 (through March 18, 2004)

$
0.61

$
0.98


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

Holders of Record

As of March 18, 2004, there were approximately 150 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.

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.

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



14

---



Item 6.    SELECTED CONSOLIDATED 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, 2002 and 2003 and for each of the
years ended December 31, 2001, 2002 and 2003 are derived from our audited financial statements, which are included in Item 8 of this Annual Report on Form 10-K. The selected
consolidated financial data as of December 31, 1999, 2000, and 2001 and for the years ended December 31, 1999 and 2000 are derived from our audited consolidated financial statements,
which are not included in this Annual Report on Form 10-K. The data should be read in conjunction with the Consolidated Financial Statements and the Notes thereto and with
"Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Annual Report on Form 10-K.

|                                                                                                                     |                                | Year Ended December 31,  |       
|-------------------------------------------------------------------------------------------------------------------- | ------------------------------ | ------------------------ | ------
|
|
|Consolidated Statements of Operations Data:                                                                          |                                |                          |       
|Revenues:                                                                                                            |                                |                          |       
|                                                                                                                     | Software licenses              |                          | $     
|                                                                                                                     | Services                       |                          |       
|                                                                                                                     |                                |                          |       
|                                                                                                                     |                                | Total revenues           |       
|                                                                                                                     |                                |                          |       
|Cost of revenues:                                                                                                    |                                |                          |       
|                                                                                                                     | Software licenses              |                          |       
|                                                                                                                     | Nonrecurring royalty reversal  |                          |       
|                                                                                                                     | Services                       |                          |       
|                                                                                                                     |                                |                          |       
|                                                                                                                     |                                | Total cost of revenues   |       
|                                                                                                                     |                                |                          |       
|Gross profit                                                                                                         |                                |                          | 4,703 
|                                                                                                                     |                                |                          |       
|Operating expenses:                                                                                                  |                                |                          |       
|                                                                                                                     | Sales and marketing            |                          |       
|                                                                                                                     | Research and development       |                          |       
|                                                                                                                     | General and administrative     |                          |       
|                                                                                                                     | Stock-based compensation       |                          |       
|                                                                                                                     | Restructuring charges          |                          |       
|                                                                                                                     |                                |                          |       
|                                                                                                                     |                                | Total operating expenses |       
|                                                                                                                     |                                |                          |       
|Loss from operations                                                                                                 |                                |                          | (2,401
|                                                                                                                     |                                |                          |       
|Other income (expense):                                                                                              |                                |                          |       
|                                                                                                                     | Interest income (expense), net |                          |       
|                                                                                                                     | Other income (expense), net    |                          |       
|                                                                                                                     |                                |                          |       
|Net loss                                                                                                             |                                |                          | (2,741
|                                                                                                                     |                                |                          |       
|Dividend to certain preferred shareholders                                                                           |                                |                          |      
|                                                                                                                     |                                |                          |       
|Net loss attributable to ordinary shareholders                                                                       |                                | $                        | (2,741
|                                                                                                                     |                                |                          |       
|Basic and diluted net loss attributable to ordinary shareholders                                                     |                                | $                        | (0.80 
|                                                                                                                     |                                |                          |       
|Weighted average number of shares used in computing basic and diluted net loss attributable to ordinary shareholders |                                |                          | 3,414 
|                                                                                                                     |                                |                          |       

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

15

---



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

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

Overview

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

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

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

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



16

---



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

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

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

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

Application of Critical Accounting Estimates

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 and the reported amounts of revenues and expenses during the periods presented. To fully understand and evaluate our reported financial results, we believe it is
important to understand the significant estimates and judgments applied as they relate to our policies for revenue recognition, software development costs, restructuring costs and accounting for stock
options. More detailed descriptions of these policies are provided in Note 2 to the consolidated financial statements.

17

---

Revenue Recognition

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

Software Development Costs

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

Restructuring Charges

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

Accounting for 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 at the time the options are granted unless the exercise price
of a granted option is below the fair market price of our ordinary shares on the date of grant. We have provided disclosures of impact to our reported net loss and net loss per share if we had applied
the fair value method. The pro forma fair value disclosures requires the application of estimates, such as estimated expected life of the options and estimated market volatility for our ordinary
shares. These estimates are based on management's review of historical option lives and computations of market volatility for our ordinary shares.

18

---

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 31,2001

2002

2003Revenues:Software licenses

67.4
%
58.8
%
52.7
%Services

32.6
%
41.2
%
47.3
%Total revenues

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

3.1
%
1.1
%
3.0
%Nonrecurring royalty reversal

0.0
%
(7.8
)%
0.0
%Services

13.6
%
11.0
%
8.8
%Total cost of revenues

16.7
%
4.3
%
11.8
%Gross profit

83.3
%
95.7
%
88.2
%Operating expenses:Sales and marketing

160.8
%
91.1
%
85.4
%Research and development

69.9
%
57.5
%
57.9
%General and administrative

33.0
%
38.6
%
36.5
%Stock-based compensation

10.2
%
8.8
%
8.0
%Restructuring charges

19.3
%
16.1
%
5.1
%Total operating expenses

293.2
%
212.1
%
192.9
%Loss from operations

(209.9
)%
(116.4
)%
(104.7
)%Other income, net:Interest income, net

8.0
%
2.3
%
0.7
%Other income (expense), net

0.3
%
0.6
%
(1.1
)%Net loss

(201.6
)%
(113.5
)%
(105.1
)%


Years Ended December 31, 2002 and 2003

Revenues

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

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

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

19

---

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

Cost of 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 $63,000 in 2002, or 1.9% of software license revenue, compared to $147,000 in 2003, or 5.8% of software license
revenue. The increase in cost of software licenses resulted primarily from a one-time license fee to a third-party in 2003 of $42,000 and royalties payable to a third party totaling
$23,000 based on revenues from our WebLOAD Analyzer product introduced in 2003.

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

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

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 $5.3 million in 2002, or 91.1% of total
revenues, compared to $4.1 million in 2003, or 85.4% of total revenues. This decrease was due primarily to a 24% reduction of headcount in sales and marketing personnel and approximately
$75,000 in reductions in discretionary marketing program costs in 2003. We expect that the continuing effect of the 2003 cost reductions will result in lower sales and marketing expenses in 2004.

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

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

20

---

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

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

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

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

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

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

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

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

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

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

21

---

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

Years Ended December 31, 2001 and 2002

Revenues

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

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

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

Cost of Revenues

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

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

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

Operating Expenses

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

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

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.

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

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

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

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

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

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

Liquidity and Capital Resources

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

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

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

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

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

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

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

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

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

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

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Contractual Obligations

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

|                 |  | Payments due by Period
|---------------- |  | ----------------------
|
|
|Operating leases |  | $                     
|Severance pay(1) |  |                       
|                 |  |                       
|Total            |  | $                     
|                 |  |                       

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Impact of Inflation and Currency Fluctuations

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

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

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

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, which we have since paid. As a result, we reversed $448,000 of accrued royalties that had been recorded as a
reduction in cost of product sales during the fourth quarter of 2002. We believe that we will have no future obligations to the Office of Chief Scientist.

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Effective Corporate Tax Rate

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

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.

Impact of Recently Issued Accounting Standards

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

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

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

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

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

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

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

Tax Consequences if We Are a PFIC

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

If
we are a PFIC for U.S. federal income tax purposes for any year during a U.S. Holder's holding period of our ordinary shares and such U.S. Holder does not make either of the special
elections described later, any gain recognized by a U.S. Holder upon the sale of ordinary shares, or upon the receipt of certain distributions, would be treated as ordinary income. Such income
generally would be allocated 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

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

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

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

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

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

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RISK FACTORS

Certain Factors That May Affect Future Results

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

Risks Related to Our Operations

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

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

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

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



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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

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

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

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



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

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

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

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

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

33

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

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

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

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

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

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



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

34

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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.

Risks Relating to the Market for Our Ordinary Shares

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

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



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

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

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

35

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

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



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

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

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

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

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

36

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

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

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

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

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

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

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



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

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

37

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

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

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

The Israeli Companies Law may cause uncertainties regarding corporate governance.

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

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

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

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

38

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

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

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.

39

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

INDEX

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

40

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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 (the "Company") as of December 31, 2003 and the related
consolidated statements of operations, shareholders' equity and cash flows for the year ended December 31, 2003. These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based on our audits.

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

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

| |  | LOGO                                                         
| |  | -------------------------------------------------------------
| |  | Kost Forer Gabbay & Kasierer
A Member of Ernst & Young Global

Tel-Aviv, Israel
January 22, 2004

41

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

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

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

| |  | LOGO                                                                 
| |  | ---------------------------------------------------------------------
| |  | Luboshitz Kasierer
An affiliate member of Ernst & Young International

Tel-Aviv, Israel
January 16, 2003

42

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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.

| |  | Luboshitz Kasierer
Arthur Andersen
| |  | ----------------------------------

Tel-Aviv, Israel
February 6, 2002

43

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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 $171 at December 31, 2002 and $72 at December 31, 2003                                                                                                                                                                 |              |                                           
|Prepaid expenses and other current assets |                                                                                                                                                                                                                                                                |              | 506                                       
|                                          |                                                                                                                                                                                                                                                                |              |                                           
|                                          |                                                                                                                                                                                                                                                                |              | Total Current Assets                      
|                                          |                                                                                                                                                                                                                                                                |              |                                           
|                                          | Property and Equipment, net                                                                                                                                                                                                                                    |              |                                           
|                                          | Other Assets                                                                                                                                                                                                                                                   |              |                                           
|                                          |                                                                                                                                                                                                                                                                |              |                                           
|                                          |                                                                                                                                                                                                                                                                |              | Total Assets                              
|                                          |                                                                                                                                                                                                                                                                |              |                                           
|LIABILITIES AND SHAREHOLDERS' EQUITY      |                                                                                                                                                                                                                                                                |              |                                           
|Current Liabilities:                      |                                                                                                                                                                                                                                                                |              |                                           
|                                          | Accounts payable                                                                                                                                                                                                                                               |              | $                                         
|                                          | Accrued expenses                                                                                                                                                                                                                                               |              |                                           
|                                          | Accrued restructuring charges, current portion                                                                                                                                                                                                                 |              |                                           
|                                          | Deferred revenue                                                                                                                                                                                                                                               |              |                                           
|                                          |                                                                                                                                                                                                                                                                |              |                                           
|                                          |                                                                                                                                                                                                                                                                |              | Total Current Liabilities                 
|                                          |                                                                                                                                                                                                                                                                |              |                                           
|Long-term Liabilities:                    |                                                                                                                                                                                                                                                                |              |                                           
|                                          | Accrued restructuring charges, less current portion                                                                                                                                                                                                            |              |                                           
|                                          | Accrued severance pay                                                                                                                                                                                                                                          |              |                                           
|                                          |                                                                                                                                                                                                                                                                |              |                                           
|                                          |                                                                                                                                                                                                                                                                |              | Total Long-Term Liabilities               
|                                          |                                                                                                                                                                                                                                                                |              |                                           
|                                          |                                                                                                                                                                                                                                                                |              | Total Liabilities                         
|                                          |                                                                                                                                                                                                                                                                |              |                                           
|Commitments (Note 7)                      |                                                                                                                                                                                                                                                                |              |                                           
|Shareholders' Equity:                     |                                                                                                                                                                                                                                                                |              |                                           
|                                          | Ordinary shares, NIS 0.01 par value
Authorized40,000,000 shares;
Issued16,605,177 shares at December 31, 2002 and 17,194,545 shares at December 31, 2003; and
Outstanding16,471,177 shares at December 31, 2002 and 17,060,545 shares at December 31, 2003 |              |                                           
|                                          | Treasury shares, at cost134,000 shares at December 31, 2002 and 2003                                                                                                                                                                                          |              |                                           
|                                          | 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.

44

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

|                                                                                                 |                                        | Year Ended December 31,  |                               
|------------------------------------------------------------------------------------------------ | -------------------------------------- | ------------------------ | ------------------------------
|
|Revenues:                                                                                        |                                        |                          |                               
|                                                                                                 | Software licenses                      |                          | $                             
|                                                                                                 | Services                               |                          |                               
|                                                                                                 |                                        |                          |                               
|                                                                                                 |                                        | Total Revenues           |                               
|                                                                                                 |                                        |                          |                               
|Cost of Revenues:                                                                                |                                        |                          |                               
|                                                                                                 | Software licenses                      |                          |                               
|                                                                                                 | Nonrecurring royalty reversal (Note 6) |                          |                               
|                                                                                                 | Services                               |                          |                               
|                                                                                                 |                                        |                          |                               
|                                                                                                 |                                        | Total Cost of Revenues   |                               
|                                                                                                 |                                        |                          |                               
|Gross Profit                                                                                     |                                        |                          | 7,206                         
|                                                                                                 |                                        |                          |                               
|Operating Expenses:                                                                              |                                        |                          |                               
|                                                                                                 | Sales and marketing                    |                          |                               
|                                                                                                 | Research and development               |                          |                               
|                                                                                                 | General and administrative             |                          |                               
|                                                                                                 | Stock-based compensation (1)           |                          |                               
|                                                                                                 | Restructuring expenses (Note 3)        |                          |                               
|                                                                                                 |                                        |                          |                               
|                                                                                                 |                                        | Total Operating Expenses |                               
|                                                                                                 |                                        |                          |                               
|Operating loss                                                                                   |                                        |                          | (18,144                       
|                                                                                                 |                                        |                          |                               
|Interest income                                                                                  |                                        |                          | 758                           
|Interest expense                                                                                 |                                        |                          | (65                           
|Other income (expense), net                                                                      |                                        |                          | 20                            
|                                                                                                 |                                        |                          |                               
|Net loss                                                                                         |                                        | $                        | (17,431                       
|                                                                                                 |                                        |                          |                               
|Basic and diluted net loss per share                                                             |                                        | $                        | (1.07                         
|                                                                                                 |                                        |                          |                               
|Weighted average number of shares used in computing basic and diluted net loss per share         |                                        |                          | 16,346                        
|                                                                                                 |                                        |                          |                               
|(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.

45

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

|                                       |                                                              | Ordinary Shares |         | Treasury Shares |    |    |         |         |   |      |      |   |       
|-------------------------------------- | ------------------------------------------------------------ | --------------- | ------- | --------------- | -- | -- | ------- | ------- | - | ---- | ---- | - | ------
|
|Balance, December 31, 2000             |                                                              | 16,366,572      |         | $               | 42 |    |        |         | $ |     |      | $ | 58,688
|                                       | Exercise of options                                          |                 | 166,296 |                 |    | (* | )       |        |   |      |     |   |       
|                                       | Purchase of treasury shares                                  |                 |        |                 |    |   |         | 134,000 |   |      | (100 | ) |       
|                                       | 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 | )    | $ | 55,230
|                                       | 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 | )    | $ | 54,888
|                                       | Exercise of options                                          |                 | 589,368 |                 |    | 1  |         |        |   |      |     |   |       
|                                       | Amortization of deferred compensation                        |                 |        |                 |    |   |         |        |   |      |     |   |       
|                                       | Adjustment for forfeiture and cancellations of stock options |                 |        |                 |    |   |         |        |   |      |     |   |       
|                                       | Net loss                                                     |                 |        |                 |    |   |         |        |   |      |     |   |       
|                                       |                                                              |                 |         |                 |    |    |         |         |   |      |      |   |       
|Balance, December 31, 2003             |                                                              | 17,194,545      |         | $               | 43 |    | 134,000 |         | $ | (100 | )    | $ | 55,010
|                                       |                                                              |                 |         |                 |    |    |         |         |   |      |      |   |       
|(*) Represents an amount less than $1. |                                                              |                 |         |                 |    |    |         |         |   |      |      |   |       

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

46

---



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

|                                                       |                                                                                      | Year Ended December 31,                       |                                          
|------------------------------------------------------ | ------------------------------------------------------------------------------------ | --------------------------------------------- | -----------------------------------------
|
|Cash Flows from Operating Activities:                  |                                                                                      |                                               |                                          
|                                                       | Net loss                                                                             |                                               | $                                        
|                                                       | Adjustments required to reconcile net loss to net cash used in operating activities |                                               |                                          
|                                                       |                                                                                      | Depreciation                                  |                                          
|                                                       |                                                                                      | Property and equipment write-off              |                                          
|                                                       |                                                                                      | Amortization of deferred compensation         |                                          
|                                                       |                                                                                      | 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:                  |                                                                                      |                                               |                                          
|                                                       | Purchases of property and equipment                                                  |                                               |                                          
|                                                       | Decrease (increase) in other assets                                                  |                                               |                                          
|                                                       |                                                                                      |                                               |                                          
|                                                       |                                                                                      |                                               |                                          
|                                                       |                                                                                      |                                               |                                          
|Cash Flows from Financing Activities:                  |                                                                                      |                                               |                                          
|                                                       | Payment of long-term bank loans                                                      |                                               |                                          
|                                                       | Exercise of stock options                                                            |                                               |                                          
|                                                       | Purchases of treasury shares                                                         |                                               |                                          
|                                                       |                                                                                      |                                               |                                          
|                                                       |                                                                                      |                                               |                                          
|                                                       |                                                                                      |                                               |                                          
|Decrease in cash and cash equivalents                  |                                                                                      |                                               | (20,287                                  
|Cash and cash equivalents at the beginning of the year |                                                                                      |                                               | 33,469                                   
|                                                       |                                                                                      |                                               |                                          
|Cash and cash equivalents at the end of the year       |                                                                                      | $                                             | 13,182                                   
|                                                       |                                                                                      |                                               |                                          
|Cash paid during the year for interest                 |                                                                                      | $                                             | 65                                       
|                                                       |                                                                                      |                                               |                                          

---

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

47

---



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

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

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 amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.

(b)  Financial Statements in U.S. Dollars

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

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



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

48

---

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

(c)  Principles of Consolidation

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

(d)  Cash Equivalents

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

(e)  Accounts Receivable Reserves

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

Year Ended December 31,2001

2002

2003(In thousands)Balance at the beginning of year

$
345

$
209

$
171Provision (benefit)


136


138


(18
)Write-offs


(272
)

(176
)

(81
)Balance at the end of year

$
209

$
171

$
72


(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

Over the shorter
of the term of the
lease or the life of the asset


(g)  Impairment of Long-Lived Assets

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

49

---

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

(h)  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 payments is based on the most recent monthly salary multiplied by the number of years of employment as of the balance sheet date. The Company has accrued for the estimated
total cost of severance pay as computed as of the balance sheet date. Severance expense totaled to $92,000 in 2001, $50,000 in 2002 and $178,000 in 2003.

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

(i)  Revenue Recognition

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

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

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

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

50

---

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

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

(j)  Advertising Expenses

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

(k)  Research and Development Costs

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

(l)  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.

(m)  Stock-Based Compensation

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

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

51

---

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

Year Ended December 31,2001

2002

2003(In thousands, except per share data)Net loss, as reported

$
(17,431
)
$
(6,549
)
$
(5,085
)Add: Stock-based employee compensation included in reported net loss


870


498


379Deduct: Total stock-based employee compensation expense under fair value based methods


(1,622
)

(1,073
)

(873
)Pro forma net loss

$
(18,183
)
$
(7,124
)
$
(5,579
)Basic and diluted net loss per share:As reported

$
(1.07
)
$
(0.40
)
$
(0.31
)Pro forma

$
(1.11
)
$
(0.43
)
$
(0.34
)


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

Year Ended December 31,2001

2002

2003Expected life of option

4 years

5 years

5 yearsDividend yield





Expected volatility

120
%
140
%
135
%Risk-free interest rate

4.6
%
4.0
%
4.0
%


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

(n)  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.

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

52

---

(o)  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.

(p)  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 and to date has not experienced any material losses. An allowance for doubtful accounts is maintained with respect to those amounts that the Company has determined to be doubtful of
collection.

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

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

(q)  Recent Accounting Standards

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

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

53

---

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

3. Restructuring Expenses

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

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

|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                     |     | $                   
|                               |                                   |                            |     |           |   |                         |     |                     
|December 31, 2003:             |                                   |                            |     |           |   |                         |     |                     
|                               | Employee severance costs          |                            | $   |          |   | $                       | 215 |                     
|                               | Idle-lease costs                  |                            |     | 612       |   |                         | 22  |                     
|                               | Vendor contract termination fees  |                            |     |          |   |                         | 8   |                     
|                               |                                   |                            |     |           |   |                         |     |                     
|                               |                                   | $                          | 612 |           | $ | 245                     |     | $                   
|                               |                                   |                            |     |           |   |                         |     |                     

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

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

54

---

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

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

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

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

4. Property and Equipment

December 31,2002

2003(In thousands)Equipment

$
3,374

$
3,454Office furniture


215


218Leasehold improvements


194


1943,783


3,866LessAccumulated depreciation


2,957


3,533$
826

$
333


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

55

---



5.  Other Assets

December 31,2002

2003(In thousands)Severance pay funds

$
513

$
474Deposits on operating leases


170


169$
683

$
643


6.  Accrued Expenses

December 31,2002

2003(In thousands)Employee compensation and related costs

$
994

$
727Accrued royalties (1)


110


Other accrued expenses


399


262$
1,503

$
989


---

56

---

7.  Commitments

(a)  Lease Obligations

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

Amount(In thousands)For the Year Ending December 31,2004

$
5462005


129675Less: Idle-lease cost amounts included in accrued restructuring


320$
355


Rent
expense was $896,000 in 2001, $560,000 in 2002, and $335,000 in 2003.

(b)  Royalties

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

8.  Shareholders' Equity

(a)  Authorized Share Capital

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

(b)  Treasury Shares

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

(c)  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

57

---

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

(d)  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.
No ordinary shares were issued in connection with the ESPP in 2003. As of December 31, 2003, there are 1,491,791 ordinary shares available for future issuance under the ESPP.

(e)  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 of employment and expire 62 months from the date of issuance.

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

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

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

58

---

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

Options
Outstanding

Weighted
Average
Exercise Price
Per Share

Weighted
Average Fair
Value of
Options GrantedOutstanding, December 31, 2000

1,481,311

$
0.38Granted

1,784,000


1.56

$
1.19Exercised

(151,150
)

0.00Forfeited or cancelled

(1,848,733
)

2.00Outstanding, December 31, 2001

3,139,606


1.85Granted

2,310,000


0.33

$
0.23Exercised

(64,100
)

0.55Forfeited or cancelled

(718,308
)

1.95Outstanding, December 31, 2002

4,667,198


1.10Granted

817,500


0.17

$
0.15Exercised

(589,368
)

0.31Forfeited or cancelled

(1,185,166
)

1.59Outstanding, December 31, 2003

3,710,164

$
0.87Exercisable, December 31, 2001

1,276,063

$
1.48Exercisable, December 31, 2002

2,108,995

$
1.35Exercisable, December 31, 2003

2,125,761

$
1.16


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

|             |  | Options Outstanding |  | Options Exercisable
|------------ |  | ------------------- |  | -------------------
|
|$0.16        |  | 442,068             |  | 4.2                
|$0.25$0.39  |  | 1,643,133           |  | 8.0                
|$0.63$1.00  |  | 1,398,703           |  | 3.2                
|$2.25        |  | 95,000              |  | 3.7                
|$8.21$10.00 |  | 131,260             |  | 3.3                
|             |  |                     |  |                    
|             |  | 3,710,164           |  | 5.5                
|             |  |                     |  |                    

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

59

---

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

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

|                   |                                           | For Options on the Grant Date that:
|------------------ | ----------------------------------------- | -----------------------------------
|
|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 |                                    
|December 31, 2003: |                                           |                                    
|                   | Weighted average exercise price           |                                    
|                   | Weighted average fair value on grant date |                                    

9.  Taxes on Income

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

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

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

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

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

60

---

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

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

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

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

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

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

(d)  Loss before Income Tax

Year Ended December 31,2001

2002

2003(In thousands)Israel

$
(4,899
)
$
(916
)
$
(1,104
)Foreign


(12,532
)

(5,633
)

(3,981
)$
(17,431
)
$
(6,549
)
$
(5,085
)


(e)  Net Operating Losses

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

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

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

61

---

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

December 31,2002

2003(In thousands)Net operating loss carryforwards

$
10,485

$
11,207Temporary differences


133


7810,618


11,285LessValuation allowance


10,618


11,285Net deferred tax asset

$


$



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

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

(f)  Final Tax Assessments

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

(g)  Israeli tax reform

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

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

62

---



10. Related Party Balances and Transactions

Balances with related parties consisted of the following:

December 31,2002

2003(In thousands)Accounts receivable

$
7

$
2Accounts payable and accrued expenses


5


6


Transactions
with related parties consisted of the following:

Year Ended December 31,2001

2002

2003(In thousands)Revenues

$
50

$


$
Costs and expenses


(110
)

(30
)

(34
)Property and equipment purchased


195


4





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

11. Disclosures About Segments of an Enterprise

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

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

Year Ended December 31,2001

2002

2003(In thousands)United States

$
5,890

$
3,403

$
3,251Europe


1,798


1,275


933Israel


229


199


110Other


729


891


542$
8,646

$
5,768

$
4,836


The
Company's long-lived assets by geographic location are as follows:

December 31,2002

2003(In thousands)United States

$
524

$
277Europe


44


17Israel


941


682Total

$
1,509

$
976


63

---

12. Quarterly Statement of Operations Information (Unaudited)

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

Mar. 31,
2002

June 30,
2002

Sept. 30,
2002

Dec. 31,
2002(In thousands)Total revenues

$
1,574

$
1,418

$
1,264

$
1,512Gross 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

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


Mar. 31,
2003

June 30,
2003

Sept. 30,
2003

Dec. 31,
2003(In thousands)Total revenues

$
1,220

$
1,211

$
1,152

$
1,253Gross profit

$
1,081

$
1,085

$
996

$
1,101Net loss

$
(1,541
)
$
(1,395
)
$
(1,062
)
$
(1,087
)Basic and diluted net loss per share

$
(0.09
)
$
(0.08
)
$
(0.06
)
$
(0.06
)


13. Subsequent Events (Unaudited)

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

64

---



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

None.

Item 9A.    CONTROLS AND PROCEDURES

Evaluation of Controls and Procedures

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

Changes in Internal Controls

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

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

55

Chairman of the BoardIlan Kinreich

46

Chief Executive Officer, President and DirectorChristopher Dineen

34

Chief Financial OfficerWilliam J. Geary

45

DirectorRobert Steinkrauss

52

DirectorKathleen A. Cote

55

DirectorDavid Assia

52

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 Blue Phoenics Ltd., Applicom
Software Industries Ltd. and several private companies. Mr. Beilis holds a B.S. degree in Mathematics and Economics from the Hebrew University in Jerusalem and a M.S. in Computer Science
from the Weizmann Institute of Science.

ILAN 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

65

---

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

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

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

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

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

DAVID 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.

66

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Section 16(a) Beneficial Ownership Reporting Compliance

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

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

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

Audit Committee

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

Code of Ethics

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

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, 2003 by its Chief Executive Officer and the other most highly compensated executive officer of the Company whose salary and bonus during the fiscal
year ended December 31, 2003 exceeded $100,000 (collectively, the "Named Executive Officers"). No other executive officer of the Company earned greater than $100,000 in the fiscal year ended
December 31, 2003.

67

---

SUMMARY COMPENSATION TABLE

|                                                               |  |                |  | Annual Compensation |                         |  |   | Long Term
Compensation Awards | 
|-------------------------------------------------------------- |  | -------------- |  | ------------------- | ----------------------- |  | - | ----------------------------- | 
|
|Ilan Kinreich
Chief Executive Officer and President            |  | 2003
2002
2001 |  | $                   | 179,038
190,000
184,000 |  | $ | 

43,763                    | 
|Christopher Dineen(1)
Chief Financial Officer                  |  | 2003
2002
2001 |  |                     | 100,962
97,500
97,500   |  |   | 

11,500                    | 
|Brian E. LeClair
Vice President and Chief Financial Officer(2) |  | 2003
2002
2001 |  |                     | 106,985
200,000
200,000 |  |   | 

20,689                    | 

---

Employment Contracts, Termination of Employment and Change of Control Arrangements

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

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

68

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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, 2003 to each of the Named Executive Officers.

OPTION GRANTS IN LAST FISCAL YEAR

|                   |  |        |     |     |   |   |      |  |         | Potential Realizable Value At Assumed Annual Rates Of Stock Price Appreciation For Option Terms(3)
|------------------ |  | ------ | --- | --- | - | - | ---- |  | ------- | --------------------------------------------------------------------------------------------------
|
|
|
|Ilan Kinreich      |  |       |     |    |   |   |     |  |        |                                                                                                   
|Christopher Dineen |  | 75,000 | (4) | 9.2 | % | $ | 0.28 |  | 5/16/13 |                                                                                                   

---

69

---

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

AGGREGATED OPTION EXERCISES IN 2003
AND FISCAL YEAR-END OPTION VALUES

|                    |  |        |  |   |        | Number of Securities Underlying Unexercised Options at
December 31, 2003 |         | Value of Unexercised in-the-Money Options at
December 31, 2003
|------------------- |  | ------ |  | - | ------ | ------------------------------------------------------------------------ | ------- | --------------------------------------------------------------
|
|
|Ilan Kinreich       |  |       |  |   |       |                                                                          | 680,678 |                                                               
|Christopher Dineen  |  |       |  |   |       |                                                                          | 94,968  |                                                               
|Brian E. LeClair(1) |  | 87,456 |  | $ | 39,924 |                                                                          |        |                                                               

---

REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION

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

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

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

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

70

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

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

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

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

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

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

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



Compensation Committee Interlocks and Insider Participation

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

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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 make an annual
cash payment in the amount of $5,000 to our Directors, other than Mr. Kinreich, and grant options to purchase ordinary shares to our Directors from time to time and to comply with Israeli
regulations.

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

LINE CHART

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

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

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EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth certain information, as of December 31, 2003, 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)     |  | 1,855,477                                                                                   |  | $                                                                           | 0.63 |                                                                                                                                            
|Equity compensation plans not approved by security holders (2) |  | 1,854,687                                                                                   |  | $                                                                           | 1.11 |                                                                                                                                            
|                                                               |  |                                                                                             |  |                                                                             |      |                                                                                                                                            
|Total                                                          |  | 3,710,164                                                                                   |  | $                                                                           | 0.87 |                                                                                                                                            
|                                                               |  |                                                                                             |  |                                                                             |      |                                                                                                                                            

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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" provision of Section 102 of the Israeli Income Tax
Ordinance.

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

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

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

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

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

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

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

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

Item 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

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PART IV

Item 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

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

Year Ended December 31,2002

2003Audit Fees

$
60,000

$
60,000Audit Related Fees





Tax Fees


5,000


5,000All Other Fees





$
65,000

$
65,000


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

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

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

Website Availability of Reports and Other Corporate Governance Information

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

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

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Item 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(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)                          
|10.2        |  | Lease Agreement for 7 New England Executive Park, Burlington, Massachusetts, 01803 (filed as Exhibit 10.2 to the Company's Registration Statement on Form F-1, No. 333-41526, and incorporated herein by
reference)                         
|10.3        |  | Lease Agreement for 890 Hillview Court, Suite 130, Milpitas, California 95035 (filed as Exhibit 10.3 to the Company's Registration Statement on Form F-1, No. 333-41526, and incorporated herein by
reference)                              
|10.4        |  | Amended and Restated Key Employee Share Incentive Plan (1996)                                                                                                                                                                               
|10.5        |  | Amended and Restated United States Share Incentive Plan (2000) (filed as Exhibit 99.2 to the Company's Registration Statement on Form S-8, No. 333-67086, and incorporated herein by reference)                                             
|10.6        |  | Form of Indemnification Agreement (filed as Exhibit 10.7 to the Company's Registration Statement on Form F-1, No. 333-41526, and incorporated herein by reference)                                                                          
|10.7        |  | Employee Share Purchase Plan (filed as Exhibit 10.1 to the Company's Form10-Q for the quarterly period ended September 30, 2002, and incorporated herein by reference)                                                                      
|10.8        |  | Employment Agreement dated February 6, 2001 with Ilan Kinreich, President and Chief Executive Officer (filed as Exhibit 10.1 to the Company's Form 10-Q for the quarterly period ended March 31, 2001, and
incorporated herein by reference)
|10.9        |  | Employment Agreement dated September 16, 2003 with Christopher Dineen, Chief Financial Officer (filed as Exhibit 10.1 to the Company's Form 10-Q for the quarter ended September 30, 2003, and
incorporated herein by reference)            
|            |  |                                                                                                                                                                                                                                             

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

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(b)    Reports on Form 8-K.

None.

79

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SIGNATURES

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

| |  | 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 26, 2004
|/s/SHAI BEILISShai Beilis               |  | Director and Chairman of the Board              |  | March 26, 2004
|/s/WILLIAM GEARYWilliam Geary           |  | Director                                        |  | March 26, 2004
|/s/ROBERT STEINKRAUSSRobert Steinkrauss |  | Director                                        |  | March 26, 2004
|/s/KATHLEEN A. COTEKathleen A. Cote     |  | Director                                        |  | March 26, 2004
|/s/DAVID ASSIADavid Assia               |  | Director                                        |  | March 26, 2004
|/s/CHRISTOPHER DINEENChristopher Dineen |  | Chief Financial Officer                         |  | March 26, 2004

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