UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 20-F

|_|  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                                       OR

|X|  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

|_|  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

Commission File Number 0-29634
                       -------

                                  FUNDTECH LTD.
                                  -------------
             (Exact Name of Registrant as specified in its charter)

                                 STATE OF ISRAEL
                                 ---------------
                 (Jurisdiction of incorporation or organization)

                         12 Ha'hilazon Street, 5th Floor
                                Ramat-Gan, Israel
                                -----------------
                    (Address of principal executive offices)

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

--------------------------------------------------------------------------------
       Title of each class            Name of each exchange on which registered
--------------------------------------------------------------------------------
              None                                     N/A
--------------------------------------------------------------------------------

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

                       Ordinary Shares, NIS 0.01 par value
                       -----------------------------------
                                (Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:  None

Indicate the number of outstanding shares of each of issuer's classes of capital
or common stock as of the close of the period covered by the annual report:

As of December 31, 2003, the Registrant had outstanding 14,527,871 Ordinary
Shares, NIS 0.01 par value per share.

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: |X|  No: |_|

Indicate by check mark which financial statement item the Registrant has elected
to follow:                         Item 17 |_| Item 18 |X|

<PAGE>

              CAUTIONARY STATEMENT FOR FORWARD-LOOKING INFORMATION

      Except for the historical information contained herein, the statements
contained in this annual report are forward-looking statements, within the
meaning of the Private Securities Litigation Report Act of 1995 with respect to
our business, financial condition and results of operations. Actual results
could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including, but not limited to, all
the risks discussed or identified in this annual report and our other public
filings, such as general economic and market conditions, changes in regulations
and taxes and changes in competition and pricing environments.

      We desire to take advantage of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 and we are including this cautionary
statement in connection with this safe harbor legislation. This document and any
other written or oral statements made by us or on our behalf may include
forward-looking statements, which reflect our current views with respect to
future events and financial performance. We urge you to consider that statements
which use the terms "believe," "do not believe," "expect," "plan," "intend,"
"estimate," "anticipate," and similar expressions are intended to identify
forward-looking statements. These statements reflect our current views with
respect to future events and are based on assumptions and are subject to risks
and uncertainties. Except as required by applicable law, including the
securities laws of the United States, we do not intend to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.

      The forward-looking statements in this document are based upon various
assumptions, many of which are based, in turn, upon further assumptions,
including without limitation, management's examination of historical operating
trends, data contained in our records and other data available from third
parties. Although we believe that these assumptions were reasonable when made,
because these assumptions are inherently subject to significant uncertainties
and contingencies which are difficult or impossible to predict and are beyond
our control, we cannot assure you that we will achieve or accomplish these
expectations, beliefs or projections. In addition to these important factors and
matters discussed elsewhere herein and in the documents incorporated by
reference herein, important factors that, in our view, could cause actual
results to differ materially from those discussed in the forward-looking
statements, include the achievement of the anticipated levels of profitability,
growth, cost, the timely development and acceptance of new products, the impact
of competitive pricing, the impact of general business and global economic
conditions and other important factors described from time to time in the
reports filed by us with the Securities and Exchange Commission.

      As used in this annual report, the terms "we," "us," "our," the "Company"
and "Fundtech" mean Fundtech Ltd. and its subsidiaries, unless otherwise
indicated. All reference to dollars or "$" are to United States Dollars and all
references to "NIS" are to New Israeli Shekels.

<PAGE>

                         TABLE OF CONTENTS [CONFIRM #S]

ITEM 1.   IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS...............1

ITEM 2.   OFFER STATISTICS AND EXPECTED TIMETABLE.............................1

ITEM 3.   KEY INFORMATION.....................................................1

ITEM 4.   INFORMATION ON THE COMPANY.........................................11

ITEM 5.   OPERATING AND FINANCIAL REVIEW AND PROSPECTS.......................18

ITEM 6.   DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.........................37

ITEM 7.   MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS..................46

ITEM 8.   FINANCIAL INFORMATION..............................................48

ITEM 9.   THE OFFER AND LISTING..............................................49

ITEM 10.  ADDITIONAL INFORMATION.............................................50

ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.........60

ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.............60

ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES....................60

ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
          AND USE OF PROCEEDS................................................60

ITEM 15.  CONTROLS AND PROCEDURES............................................60

ITEM 16.  [RESERVED].........................................................61

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT...................................61

ITEM 16B. CODE OF ETHICS.....................................................61

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES.............................61

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.........62

ITEM 16E. PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND
          AFFILIATED PURCHASERS..............................................62

ITEM 17.  FINANCIAL STATEMENTS...............................................62

ITEM 18.  FINANCIAL STATEMENTS...............................................62

ITEM 19.  EXHIBITS...........................................................62



                                       i

<PAGE>

ITEM 1.   IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

      Not Applicable

ITEM 2.   OFFER STATISTICS AND EXPECTED TIMETABLE

      Not Applicable

ITEM 3.   KEY INFORMATION

A.    Selected Financial Data.

      The selected consolidated statement of operations data for each of the
three years ended December 31, 2001, 2002 and 2003, and the selected
consolidated balance sheet data as of December 31, 2002 and 2003 are derived
from our audited Consolidated Financial Statements set forth elsewhere herein,
which have been prepared in accordance with U.S. generally accepted accounting
principles. The selected consolidated statement of operations for the two years
ended December 31, 1999 and 2000 and the selected consolidated balance sheet
data as of December 31, 1999, 2000 and 2001 have been derived from our audited
consolidated financial statements not included herein. All of the financial data
set forth below are in thousands (except per share amounts) and should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and Notes
thereto appearing elsewhere herein. Historical results are not necessarily
indicative of any results to be expected in any future period.

<TABLE>
<CAPTION>

                                                                           YEAR ENDED DECEMBER 31
                                                     ---------------------------------------------------------------------
                                                        1999           2000          2001           2002            2003
                                                     ----------     ---------      ---------      ---------      ---------

STATEMENT OF OPERATIONS DATA:
<S>                                                  <C>            <C>            <C>            <C>               <C>
 Total revenues...................................   $  31,995      $  47,948      $  44,994      $  39,828      $  47,614
Operating expenses:
   Software license costs.........................         559            252            896            703            493
   Maintenance and services costs.................       8,355         12,960         19,153         17,612         17,903
   Hardware costs.................................       1,132          1,131            686            317            306
   Research and development.......................      12,880         17,747         19,185         14,525          9,690
   Selling and marketing, net.....................       6,464          9,637         10,325          9,453          9,998
   General and administrative.....................       3,737          6,133          9,116          7,230          6,678
   Amortization of acquisition, related
      goodwill and other intangible assets........       1,275          2,462          2,525            911            940
   Amortization of capitalized software
      development costs...........................           -              -              -          1,182          1,574
   Provision for doubtful accounts................         258            717          5,966          1,335            350
   Non recurring expenses.........................           -              -          4,073          3,252              -
   In-process research and development
      write-off...................................       2,802              -              -              -              -
                                                     ---------      ---------      ---------      ---------      ---------

      Total operating expenses....................      37,462         51,039         71,925         56,520         47,932
                                                     ---------      ---------      ---------      ---------      ---------
Operating income (loss)...........................      (5,467)        (3,091)       (26,931)       (16,692)           318
Impairment and realized losses on
   available for sale marketable
   securities.....................................           -              -         (7,826)          (281)             -
Financial income, net.............................       3,756          5,542          3,343            691            671
Income taxes......................................           -            (74)          (212)          (365)          (286)
                                                     ---------      ---------      ---------      ---------      ---------

Net income (loss).................................   $  (1,711)     $   2,377      $ (31,626)     $ (16,647)     $      67
                                                     =========      =========      =========      =========      =========



                                       1

<PAGE>

<CAPTION>

                                                                           YEAR ENDED DECEMBER 31
                                                     ---------------------------------------------------------------------
                                                        1999           2000          2001           2002            2003
                                                     ----------     ---------      ---------      ---------      ---------
<S>                                                  <C>            <C>            <C>            <C>            <C>
   Basic earnings (loss) per share...............    $   (0.13)     $    0.17      $   (2.22)     $   (1.16)     $    0.00
                                                     =========      =========      =========      =========      =========

   Diluted earnings (loss) per share.............    $   (0.13)     $    0.16      $   (2.22)     $   (1.16)     $    0.00
Shares used in computing:
      Basic earnings (loss) per share............       12,855         14,096         14,218         14,290         14,427
                                                     =========      =========      =========      =========      =========
      Diluted earnings (loss) per share..........       12,855         14,777         14,218         14,290         14,837
                                                     =========      =========      =========      =========      =========

CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents, short-term bank
   deposits and short term investments...........    $  82,516      $  63,315      $  45,385      $  42,496      $  37,928
Long-term marketable securities..................    $       -      $       -      $       -      $       -      $   8,436
Working capital..................................    $  90,016      $  83,840      $  55,206      $  44,630      $  41,183
Total assets.....................................    $ 125,142      $ 126,872      $ 102,056      $  89,380      $  89,560

Shareholders' equity.............................    $ 118,594      $ 119,714      $  91,220      $  75,166      $  76,534
</TABLE>

B.    Capitalization and Indebtedness.

      Not applicable.

C.    Reasons for the Offer and Use of Proceeds.

      Not applicable.

D.    Risk Factors.

Risk Relating to Our Business

Our business is impacted by the uncertain recovery of the worldwide economy as
it pertains to the financial services sector.

      Our business is dependent on current and anticipated market demand for our
software products. The slowdown in the global economy began in the second half
of 2000. It was exacerbated by the terrorist attacks of September 11, 2001 and,
more recently, by continuing actions against global terrorism, such as the war
in Iraq and attacks in Afghanistan by coalition forces led by the United States.
These external factors continue to have some impact on the financial services
industry's spending on information technology, or IT. This slow down has
resulted in longer purchasing cycles with our customers and in customers'
requests for longer payment terms. We cannot predict if or when the IT spending
in our sectors will return to pre-recession levels. This uncertainty has
resulted, and is likely to continue to result, in intensified price competition,
reduced margins, lower revenue growth rates and longer payment terms, which may
result in decreased revenues, increased losses and/or an inability to achieve
profitability. These conditions may have a material adverse impact on our
business, operating results and financial condition.

Our business is affected by conditions in the financial services industry.

      Our customers are highly concentrated in the financial services industry.
Our business is therefore susceptible to a downturn in that industry. For
example, a decrease in spending for software and related services within this
industry could result in a decrease in the number of potential customers for our
products and a decrease in demand by existing customers for additional products.
Financial institutions in the United States continue to consolidate which
increases our customers' ability to negotiate price and decreases the overall
potential market for

                                       2
<PAGE>

our products and services. These factors, as well as other changes occurring in
the financial services industry, could have a material adverse effect on our
business, financial condition and results of operations.

We have a history of losses.

      We incurred a net loss of approximately $31.6 million in 2001 and $16.6
million in 2002. We had a small net profit in 2003. We will need to generate
significant revenues to maintain profitability. Revenue shortfalls were
primarily due to issues related to current adverse economic conditions that are
causing our customers to defer their technology purchasing. Such ongoing adverse
economic conditions could make it more difficult for our revenues to increase
and make it more difficult for us to maintain profitability.

We may experience significant fluctuations in our quarterly results, which makes
it difficult for investors to make reliable period-to-period comparisons and may
contribute to volatility in the market price for our Ordinary Shares.

      Our quarterly revenues, margins and results of operations have fluctuated
significantly in the past as a result of various factors, many of which are
outside our control. These factors include:

      o     the size, timing and shipment of orders for our products and
            services;

      o     changes in global economic conditions in general, and conditions in
            our industry and target markets in particular;

      o     our customers' budget cycles;

      o     the timing of the release of new product upgrades;

      o     enhancements or introductions by us and our competitors;

      o     the mix of product sales;

      o     software "bugs" or other product quality problems;

      o     product pricing;

      o     effectively providing customer support;

      o     delays in implementation;

      o     impact of unrest or political instability in the places we do
            business, such as the current unrest in Israel;

      o     consolidation of our customers; and

      o     currency fluctuations.

      A substantial portion of our expenses, including most product development
and selling and marketing expenses, must be incurred in advance of when revenue
is generated. If our projected revenue does not meet our expectations, we are
likely to experience an even larger shortfall in our operating profit relative
to our expectations. As a result, we believe that period-to-period comparisons
of our historical results of operations are not necessarily meaningful and that
you should not rely on them as an indication for future performance. It is also
possible that our quarterly results of operations may be below the expectations
of public market analysts and investors. If this happens, the price of our
Ordinary Shares will likely decrease.


                                       3
<PAGE>

If we are unable to accurately predict and respond to market developments or
demands, our business will be adversely affected.

      The market for financial institutions payments and cash management
solutions is still developing and evolving. This makes it difficult to predict
demand and market acceptance for our products. We cannot guarantee that the
market for our products will grow or that our products will become widely
accepted. If the market for our products does not develop as quickly as we
expect or if our products are not accepted by customers, our future revenues and
profitability will be adversely affected. In addition, changes in technologies,
industry standards, the regulatory environment, customer requirements and new
product introductions by existing or future competitors could render our
existing products obsolete and unmarketable, or require us to develop new
products. A significant increase in the number of customers and/or a significant
increase in our development of new product offerings would require us to expend
significant amounts of money, time and other resources to meet demand. These
expenditures could strain our personnel and financial resources.

Our sales cycle is variable and sometimes long and involves significant
resources on our part, but may never result in actual sales.

      Our sales cycle from our initial contact with a potential customer to the
signing of a license agreement has historically been lengthy and is variable. We
generally must educate our potential customers about the use and benefit of our
products and services, which can require the investment of significant time and
resources. In addition, the purchasing decisions of our customers are subject to
the uncertainties and delays of the budgeting, approval and competitive
evaluation processes that typically accompany significant capital expenditures.
If our sales cycle lengthens, our quarterly operating results may become less
predictable and may fluctuate more widely than in the past. A number of
companies decide which products to buy through a request for proposal process.
In those situations, we run the risk of investing significant resources in a
proposal that does not result in revenue, because either a competitor obtains
the desired contract from the customer or the customer decides not to proceed
with the project.

Decisions by customers to develop their own payments and cash management
solutions or greater market acceptance of our competitors' products could result
in reduced revenues.

      The market for payments and cash management solutions is continuing to
develop and competition is intense. We compete for the business of global or
nationwide organizations that seek to support complex and sophisticated
products. Some of the larger financial institutions may choose to develop
internally products that are similar in function to our global payments and cash
management products, in lieu of purchasing our products. Thus we might be
competing with both competitors within our industry and the in-house information
technology departments of certain of our clients.

      Our competitors may be in a better position to devote significant
resources to the development, promotion and sale of their products, thus
enabling them to respond more quickly to new or emerging technologies and
changes in customer requirements. Current and potential competitors have
established or may establish cooperative relationships among themselves or with
third parties to increase their ability to successfully market their products.
We also expect that competition will increase as a result of consolidation
within the industry. As we develop new products, we may begin to compete with
companies with which we have not previously competed. We cannot assure you that
competition will not result in price reductions for our products and services,
fewer customer orders, deferred payment terms, reduced revenues or loss of
market share, any of which could materially adversely affect our business,
financial condition and results of operations.

We are and expect to continue to be dependent upon a limited number of customers
for a significant portion of our future revenues.

      We believe that the market for our payments and cash management software
products and services consists of a relatively small number of customers who
have very large potential accounts as well as a great number of customers
comprising smaller accounts. These large accounts may from time to time comprise
a significant percentage of our revenues in a specific fiscal period. Our
failure to attract and retain these large accounts may have a material adverse
effect on our business, financial condition and results of operations.


                                       4
<PAGE>

      We have entered into a contract with one particular customer for the sale
of one of our payments products. This customer represented 18% of our revenue in
2003 and 18% of our revenue in 2002. The cessation of a project of this size,
which has an indefinite term, could have a material adverse effect on our
business, financial condition and results of operations and could also
negatively impact the market acceptance of this product. See Item 5, "Operating
Results and Financial Review and Prospects - Major Customer."

We may not be able to compete successfully in the very competitive markets for
our products.

      We believe there are several principal competitive factors in the industry
in which we operate, including:

                  o     product performance;

                  o     technical features;

                  o     compatibility with existing operating systems;

                  o     reliability;

                  o     security;

                  o     relational database power;

                  o     price;

                  o     customer service and support; and

                  o     ease of use.

      We may be unable to differentiate our products from the products of our
competitors or successfully develop and introduce new products that are less
costly than, or superior to, those of our competitors. In addition, existing and
new competitors may establish relationships with our existing and potential
customers. This could have a material adverse effect on our ability to compete.

      The industry in which we operate is highly competitive and evolving. Our
competitors include, but are not limited to, BankServ, Logica PLC, Digital
Insights, Inc., Politzer & Haney, Transaction Software Technologies, Inc., S1
Corporation, Fidelity Information Services, Banklink and Transaction Systems
Architects, Inc. Furthermore, several large banks have developed solutions
internally which they have then marketed to other banks or implemented in banks
that they have acquired.

      In addition to our current competitors, we expect substantial competition
from both established and emerging companies. Many of our existing and potential
competitors have, or are likely to have, more extensive engineering,
development, marketing, distribution, financial, technological and personnel
resources than us. This increased competition may result in our loss of market
share and pricing pressure which may have a material adverse effect on our
business, financial condition and results of operations. See Item 4B,
"Information on the Company -- Business Overview -- Competition."

We may be unable to expand our sales, marketing and support organizations which
may hinder our ability to grow and meet customer demands and rapid expansion of
these resources could increase our cost and reduce our operating profit.

      Prior to 2003 in order to reduce costs, we substantially reduced the
number of employees in both our research & development and administrative
departments. We believe we have sufficient resources available to meet and
support our current obligations, but, we may need to substantially expand our
direct and indirect sales and marketing operations in order to increase market
awareness and sales of our products. We may also need to increase our technical
and customer support staff to support new customers and the expanding needs of
existing customers.


                                       5
<PAGE>

Since our products are complex we expect that the training process will take a
significant period of time before these personnel can support our customers.
Qualified individuals are in demand throughout the software industry and there
is significant competition for qualified personnel. Competition for qualified
people may lead to increased labor and personnel costs. If we do not succeed in
retaining our personnel or in attracting new employees, our business could
suffer significantly. If we are unable to attract, train and retain qualified
personnel, we may not be able to achieve our objectives and our business could
be harmed.

Marketing and distributing our products outside of the United States may require
increased expenses and greater exposure to risks that we may not be able to
successfully address.

      We market and sell our products and services in the United States, Europe,
Israel, Asia and Australia. We received 29.7% of our total revenues in 2001, 34%
of our total revenues in 2002 and 39.3% of our total revenues in 2003 from sales
to customers located outside of the United States. The expansion of our existing
operations and entry into additional international markets will require
significant management attention and financial resources. We are subject to a
number of risks customary for international operations, including: economic or
political changes in international markets;

      o     greater difficulty in accounts receivable collection and longer
            collection periods;

      o     unexpected changes in regulatory requirements;

      o     difficulties and costs of staffing and managing foreign operations;

      o     the uncertainty of protection for intellectual property rights in
            some countries;

      o     multiple and possibly overlapping tax structures; and

      o     currency and exchange rate fluctuations.

The market price of our Ordinary Shares may be volatile and you may not be able
to resell your shares at or above the price you paid, or at all.

      The stock market in general has experienced price and volume fluctuations.
The market prices of securities of technology companies have not recovered from
the declines experienced in the year 2000, and have experienced fluctuations
that have often been unrelated or disproportionate to the operating performance
of those companies. For additional information, see the table in Item 9, "The
Offer and Listing -- Market Price Information." These market fluctuations could
adversely affect the market price of our Ordinary Shares. The market price of
the Ordinary Shares may fluctuate substantially due to a variety of factors,
including:

      o     any actual or anticipated fluctuations in our financial condition
            and operating results;

      o     public announcements concerning us or our competitors, or the
            financial services industry;

      o     our inability to meet any guidance or forward looking information,
            if provided;

      o     the introduction or market acceptance of new service offerings by us
            or our competitors;

      o     changes in security analysts' financial estimates;

      o     changes in accounting principles;

      o     sales of our Ordinary Shares by existing shareholders;

      o     the loss of any of our key personnel; and


                                       6
<PAGE>

      o     changes in the political conditions in Israel.

      In the past, securities class action litigation has often been brought
against companies following periods of volatility in the market prices of their
securities. We may be the target of similar litigation in the future. Securities
litigation could result in substantial costs and divert our management's
attention and resources, which could cause serious harm to our business.

Future sales of our Ordinary Shares in the public market or issuances of
additional securities could cause the market price for our Ordinary Shares to
fall.

      As of December 31, 2003, we had 14,527,871 Ordinary Shares outstanding,
and, in addition, we have reserved up to 3,092,815 Ordinary Shares for issuance
under our option plans. If a large number of our Ordinary Shares are sold, the
price of our Ordinary Shares would likely decrease or if we continue to issue
shares, convertible securities, warrants and/or options the price of our
Ordinary Shares may decrease.

      We may continue to issue options and we may, in the future, issue options
and the issuance of these securities could be dilutive to our shareholders.
Future acquisitions involving the issuance of shares as part of the purchase
price could result in dilution. See also the risk factor addressing possible
future acquisitions below. Certain warrants or options, when issued, may require
us to reflect appropriate charges in our financial statements at that time.

Undetected defects may increase our costs and impair the market acceptance of
our products and technology.

      Our software products are complex and may contain undetected defects,
particularly when first introduced or when new versions or enhancements are
released. Testing of our products is particularly challenging because it is
difficult to simulate the wide variety of customer environments into which our
products are deployed. Despite testing conducted by us and our customers, some
defects have been discovered after their commercial shipment. Our products are
frequently more critical to our customers' operations compared to other software
solutions used by such customers, and as a result, our customers may have a
greater sensitivity to product defects relating to our products.

      The finding of defects in current or future products and versions after
the start of commercial shipment may result in:

      o     a delay or failure of our products to achieve market acceptance;

      o     adverse customer reaction;

      o     negative publicity and damage to our reputation;

      o     diversion of resources; and

      o     increased service and maintenance costs.

      Defects could also subject us to legal claims. Although our license
agreements contain limitation of liability provisions, these provisions may not
be sufficient to protect us against these legal claims. The sale and support of
our products, as well as our professional services, may also expose us to
product liability claims.

Any future acquisitions of companies or technologies may distract our management
and disrupt our business.

      We have in the past acquired certain assets of Sterling Commerce and
CheckFree as well as one hundred percent of the stock of Biveroni Batschelet
Partners AG and may in the future acquire or make investments in complementary
businesses, technologies, services or products, if appropriate opportunities
arise. We may also engage in discussions and negotiations with companies about
our acquiring or investing in those companies' businesses, products, services or
technologies. We cannot make assurances that we will be able to identify future
suitable acquisition or investment candidates, or if we do identify suitable
candidates, that we will be able to make

                                       7
<PAGE>

the acquisitions or investments on commercially acceptable terms or at all or
that we will have sufficient available resources for such acquisitions or
investments. If we acquire or invest in another company, we could have
difficulty assimilating that company's personnel, operations, customers,
technology or products and service offerings into our own. The key personnel of
the acquired company may decide not to work for us. These difficulties could
disrupt our ongoing business, distract our management and employees, increase
our expenses and adversely affect our results of operations. We may incur
indebtedness or issue equity securities to pay for any future acquisitions. The
issuance of equity securities could be dilutive to our existing shareholders.

We have a limited operating history with respect to certain of our principal
products, which makes it difficult to predict future results of operations.

      From 1999 through 2002, we spent considerable time, effort and money
developing our next generation software, including: PAYplus USA(TM), a funds
transfer solution for use by banks, thrifts, and international agency banks
operating in the United States, Global PAYplus(TM) a client/server funds
transfer solution handling both local and global payments activity, and
CASHplus(TM), an Internet based cash management solution that has multi-currency
capabilities. PAYplus USA(TM) is now operating in approximately one hundred
banks, and we have more recently began to implement Global PAYplus(TM) and
CASHplus(TM). Therefore, this limited history of operations for our newer
solutions and their delivery modes, makes it difficult to predict future results
of operations.

We may be unable to adequately protect our proprietary rights, which may limit
our ability to compete effectively.

      Our success and ability to compete are substantially dependent upon our
internally developed technology. Other than our trademarks, our intellectual
property consists primarily of proprietary or confidential information that is
not subject to patent or similar protections. In general, we have relied on a
combination of technical leadership, trade secret, copyright and trademark law
and nondisclosure agreements to protect our proprietary know-how. Unauthorized
third parties may attempt to copy or obtain and use the technology protected by
those rights. Any infringement of our intellectual property could have a
material adverse effect on our business, financial condition and results of
operations. Policing unauthorized use of our products is difficult and costly,
particularly in countries where the laws may not protect our proprietary rights
as fully as in the United States.

      We have placed, and in the future may place, our software source code in
escrow. The software source code may, under specified circumstances, be made
available to our customers. In certain limited instances, we have also provided
our software source code directly to customers. This may increase the likelihood
of misappropriation or other misuse of our software.

      Substantial litigation over intellectual property rights exists in the
software industry. We expect that software products may be increasingly subject
to third-party infringement claims as the functionality of products in different
industry segments overlaps.

      We believe that many industry participants have filed or intend to file
patent and trademark applications covering aspects of their technology. We
cannot be certain that they will not make a claim of infringement against us
based on our products and technology. Any claims, with or without merit, could:

      o     be expensive and time-consuming to defend;

      o     cause product shipment and installation delays;

      o     divert management's attention and resources; or

      o     require us to enter into royalty or licensing agreements to obtain
            the right to use a necessary product or component.

      If we are required to enter into royalty or licensing agreements, such
agreements may not be available on acceptable terms, if at all. Therefore, a
successful claim of product infringement against us and our failure or inability
to license the infringed or similar technology at all or to license the
infringed or similar technology for

                                       8
<PAGE>

reasonable commercial terms, could have a material adverse effect on our
business, financial condition and results of operations.

We rely on software from third parties. If we cannot continue using that
software, we would have to spend additional capital to redesign our existing
software.

      We utilize off-the-shelf third-party software products to enhance the
functionality of our products. Our business would be disrupted if functional
versions of this software were either no longer available to us or no longer
offered to us on commercially reasonable terms. In either case, we would be
required to spend additional capital to either redesign our software to function
with alternate third-party software or develop these components ourselves. If
functional versions of third-party software were either no longer available to
us or no longer offered to us on commercially reasonable terms, we might be
forced to limit the features available in our current or future product
offerings and the commercial release of our products could be delayed, which
could materially adversely affect our business, financial condition and results
of operations.

Government regulatory policy for the financial services industry affects our
business.

      Our current and prospective customers, which include state and federally
chartered banks and savings and loan associations, operate in markets that are
subject to extensive and complex regulation. While we are not ourselves directly
subject to this regulation, our products and services must be designed to work
within the regulatory constraints under which our customers operate. The
inability of our products and services to work properly within the regulatory
framework may have a material adverse effect on our business, financial
condition and results of operations.

Risks Related to Our Location in Israel

      It may be difficult to effect service of process and enforce judgments
against directors, officers and experts in Israel.

      We are organized under the laws of the State of Israel. Many of our
executive officers and directors named in this annual report are nonresidents of
the United States, and a substantial 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. It may also be difficult to enforce civil liabilities under
United States federal securities laws in actions initiated in Israel.

Political, economic and military conditions in Israel and the Middle East as a
whole, could negatively impact our business.

      Political, economic and military conditions in Israel have a direct
influence on us because one of our significant research and development
facilities and one of our executive offices is located there. Any major
hostilities involving Israel or the interruption or curtailment of trade between
Israel and its present trading partners could adversely affect our operations.
We cannot assure you that ongoing hostilities related to Israel will not have a
material adverse effect on our business and on our share price. Several Arab
countries still restrict business with Israeli companies and these restrictions
may have an adverse impact on our operating results, financial condition or the
expansion of our business. We could be adversely affected by restrictive laws or
policies directed towards Israel and Israeli businesses. The future of peace
efforts between Israel and its Arab neighbors is uncertain. Since October 2000,
there has been a significant deterioration in Israel's relationship with the
Palestinian Authority, including a series of armed clashes between Israel, the
armed forces of the Palestinian Authority, and terrorist organizations, and acts
of terror have been committed inside Israel. Also, the recent war in Iraq led by
coalition forces and the short and long term consequences of such war may
negatively impact our business.

      Generally, all male adult citizens and permanent residents of Israel under
the age of 54 in some cases are, unless exempt, obligated to perform up to 36
days of military reserve duty annually. Additionally, all Israeli residents of
this age are subject to being called to active duty at any time under emergency
circumstances. Some of our officers and employees are currently obligated to
perform annual reserve duty. Although we have operated

                                       9
<PAGE>

effectively under these requirements since we began operations, we cannot assess
the full impact of these requirements on our workforce or business if political
and military conditions should change, and we cannot predict the effect on us of
any expansion or reduction of these obligations.

We may be adversely affected if the rate of inflation in Israel exceeds the rate
of devaluation of the new Israeli shekel against the dollar.

      Most of our revenues are in dollars or are linked to the dollar, while a
portion of our expenses, principally salaries and the related personnel
expenses, are in new Israeli Shekels, or NIS. As a result, we are exposed to the
risk that the rate of inflation in Israel will exceed the rate of devaluation of
the NIS in relation to the dollar or that the timing of this devaluation lags
behind inflation in Israel. This would have the effect of increasing the dollar
cost of our operations. In 1999 and in 2000, while the rate of inflation was
low, there was a devaluation of the dollar against the NIS, and in 2001 the rate
of devaluation of the NIS against the dollar exceeded the rate of inflation. In
2002, the devaluation of the NIS against the dollar was similar to the rate of
inflation. In 2003, the NIS gained in value against the dollar while the rate of
inflation was negative. We cannot predict any future trends in the rate of
inflation in Israel or the rate of devaluation of the NIS against the dollar. If
the dollar cost of our operations in Israel increases, our dollar-measured
results of operations will be adversely affected.

The tax benefits available to us from government programs may be discontinued or
reduced at any time, which would likely increase our taxes.

      We have received Government grants in the past and currently receive tax
benefits under Israeli government programs. To maintain our eligibility for
these programs and benefits, we must continue to meet specified conditions. Some
of these programs restrict our ability to transfer particular technology outside
of Israel. If we fail to comply with these conditions in the future, the
benefits received could be canceled and we could be required to refund any
payments previously received under these programs or pay increased taxes. The
government of Israel has reduced the benefits available under these programs
recently and these programs and tax benefits may be discontinued or reduced in
the future.

Under current Israeli law, we may not be able to enforce covenants not to
compete and therefore may be unable to prevent our competitors from benefiting
from the expertise of some of our former employees.

      We currently have non-competition agreements with our employees. These
agreements prohibit our employees, if they cease working for us, from directly
competing with us or working for our competitors. Recently, Israeli courts have
required employers seeking to enforce non-compete undertakings of a former
employee to demonstrate that the competitive activities of the former employee
will harm one of a limited number of material interests of the employer which
have been recognized by the courts, such as the secrecy of a company's
confidential commercial information or its intellectual property. If we cannot
demonstrate that harm would be caused to us, we may be unable to prevent our
competitors from benefiting from the expertise of our former employees.

Our United States investors could suffer adverse tax consequences if we are
characterized as a passive foreign investment company.

      We cannot assure you that we will not be treated as a passive foreign
investment company in 2004 or in future years. We would be a passive foreign
investment company if (i) 75% or more of our gross income in a taxable year,
including our pro rata share of the gross income of any company, U.S. or
foreign, in which we are considered to own 25% of the shares by value, is
passive income, or (ii) the average value of our assets, including our pro rata
share of the assets of any company in which we are considered to own 25% of the
shares by value, in a taxable year that produce, or are held for the production
of, passive income is at least 50%. Passive income includes interest, dividends,
royalties, rents and annuities. If we are or become a passive foreign investment
company, our U.S. investors could be subject to adverse tax consequences,
including:

being taxed at ordinary income tax rates on gain from the sale or other
disposition of our Ordinary Shares;

                                       10
<PAGE>

being subject to interest on the tax liability resulting from the sale or other
disposition of our Ordinary Shares (and on certain distributions on such shares)
as if the gain from such sale or such distribution had been recognized ratably
over the U.S. investor's holding period and subject to the highest ordinary
income tax rates in effect in the year to which allocated; and

being denied the normally-available increase in tax basis to fair market value
for Ordinary Shares acquired from decedents.

      For additional information, see Item 10E, "Additional Information --
Taxation."

ITEM 4.     INFORMATION ON THE COMPANY.

A.    History and Development of the Company

      Both our legal and commercial name is Fundtech Ltd. We were incorporated
in Israel in 1993 under the Israeli Companies Ordinance (New Version), 1983 (the
"Companies Ordinance"), as a private limited company, under the name of
"Fundtrust Technologies Limited". The principal legislation under which we
operate is the Israeli Companies Law, 5759-1999 (the "Companies Law"), which
replaced most of the provisions of the Companies Ordinance effective as of
February 1, 2000.

      Our registered office is located at 12 Ha'hilazon Street, 5th Floor,
Ramat-Gan, Israel, and our telephone number is 972-3-611-6500.

      Our name was changed to "Fundtech Ltd." in June 1994. Our primary business
at that time was the automation of payments for community banks. In 1998, we
acquired the assets of the cash management division of CheckFree Holdings
Corporation. In 1999, we acquired the assets of the cash management division of
Sterling Commerce as well as 100% of the stock of Biveroni Batschelet Partners
AG, Switzerland ("BBP"), which connects banks to the Central Bank of Switzerland
for the processing and settlement of payments, securities trading and
settlement.

      On March 13, 1998, we completed our initial public offering and our
Ordinary Shares began trading on The NASDAQ National Market. As part of the
offering, we issued 3,450,000 Ordinary Shares in consideration of net proceeds
of approximately $41,710,500.

      On August 19, 2003 our Ordinary Shares began trading on the Tel-Aviv Stock
Exchange in Israel, and we became a dual listed company.

      Capital expenditures consisting primarily of purchases of property and
equipment were $2.3 million, $1.3 million and $2.1 million during the years
ended December 31, 2001, 2002 and 2003 respectively. We neither purchased nor
owned any real property during this same period. We did not consummate any
acquisitions of any company or portions of any company during 2001, 2002 and
2003.

      Capital expenditures for the year ending December 31, 2004 are expected to
be approximately $5.2 million, of which $3.9 million will be spent in the United
States and the remainder of $1.3 million will be expended outside the United
States, primarily by BBP. We anticipate financing these capital expenditures
with our own funds.

B.    Business Overview

      We are a leading provider of end-to-end financial transaction processing
software solutions for financial institutions. These solutions are grouped into
three broad categories: payment processing, foreign exchange settlement
processing and delivery channels for financial institutions cash management
products. These solutions enable banks to process and manage payments, foreign
exchange settlements and cash management communication between financial
institutions and their customers. The solutions facilitate communication between
financial institutions and their customers for initiating payments, making
inquiries and managing their activities with the

                                       11
<PAGE>

financial institutions. Our client/server web-enabled software products automate
the payment and settlement processes and provide real-time transaction
processing capabilities to financial institutions and their customers.

      We acquired our ACCESS Banking(TM) products in April 1998, BBP, our Swiss
subsidiary, in June 1999 and our Banker products in September 1999. Our major
products include ACCESS Banking(TM), CASHplus(TM), PAYplus USA(TM), PAYplus for
CLS(TM), Global PAYplus(TM), Recovery Services for disaster recovery service
bureau solutions and related services and third-party hardware sales.

Industry Background

      The increasing integration of global economies as well as the widespread
adoption of new banking technologies has led to dramatic increases in both the
number of transactions consummated through electronic payment systems and the
need for timely delivery of financial information. As a result, financial
institutions are seeking more efficient methods of offering payment, settlement
and cash management services.

      The following trends continue to drive demand for our products and
services in this dynamic market environment: an increasing need for centralized
payment and treasury functions; global adoption of real-time gross settlement;
migration to Internet-based solutions; growth in electronic commerce;
consolidation in the financial services industry; and increased regulatory
requirements imposed on banks.

      We believe that several market trends and the current environment are
favorable to our products and services. Specifically, we will focus on the
following trends and market conditions:

      o     continued expansion of Internet activities as they relate to
            financial transactions;

      o     new and expanded regulatory requirements on banks especially in the
            areas of interdiction and anti-money laundering purposes;

      o     greater emphasis on risk mitigation in areas such as liquidity
            management and contingency and recovery capabilities;

      o     a shift on the part of financial institutions to use outsourcing,
            application service providers and "white-labeling" in lieu of
            developing and managing their own information technology activities;
            and

      o     continued spread of globalization that will require new tools for
            banks to manage 24-hour trading and settlement, real-time
            information demands and end-to-end processing.

Products and Services

      Our products and related services are designed to integrate all elements
of the electronic payments cycle, including electronic funds transfer, and cash
and treasury management. We believe that our products are among the most
technologically advanced and cost-effective solutions in the electronic payments
and banking industry. Our products facilitate all aspects of the electronic
payments and banking cycle including payment initiation, electronic balance
reporting, account reconciliation, real-time account balance verification and
other sophisticated auditing and reporting functionality. In addition, our
products offer exceptional graphical user interfaces, enabling our customers to
easily receive accurate and focused information concerning the status of
electronic payment transactions and other cash management data.

      Our end-to-end solutions provide for remote initiation of transactions,
efficient and automated processing of these transactions and settlement of the
transactions at the central bank of the country of origin. We are one of the
largest providers of services linking the banks to networks, such as the Federal
Reserve System in the United States that has approximately 7,500 banks on their
FedLine system. On a global basis, we provide banks with the capability to link
to the Society for Worldwide Financial Interbank Telecommunications
("S.W.I.F.T.") network for communicating cross-border transactions. S.W.I.F.T.
has approximately 6,800 banks in 189 countries. In addition to providing payment
services, we are also a leading provider of settlement solutions that link banks
to the CLS

                                       12
<PAGE>

Bank's Continuous Linked Settlement System ("CLS"). CLS is a system set up by
the largest foreign exchange banks in the world to reduce foreign exchange
settlement risk.

PRODUCT NAME                 DESCRIPTION
------------                 -----------

Payment Solutions

PAYplus USA(TM)              A payments solution for banks operating in the
                             United States.

Global PAYplus(TM)           A solution for managing the global
                             payments activities of large multi-national banks
                             and financial institutions that conduct business in
                             multiple countries.

Cash Management Solutions

ACCESS Banking(TM)           A solution designed to enable high end and
                             mid-level financial institutions to deliver
                             comprehensive cash management services to their
                             corporate clients.

CASHplus(TM)                 A next generation Internet-based cash management
                             solution designed for high end and mid-level
                             financial institutions.

Fundtech Banker(TM)          A fully integrated cash management solution
                             designed primarily for the community bank market.

Fundtech Banker for the      A Web-based cash management system that runs with
Internet(TM)                 the Fundtech Banker cash management system.

Settlement Solutions

PAYplus for CLS(TM)          A solution designed to allow its members, being the
                             largest international financial institutions, to
                             fully participate in the Continuous Linked
                             Settlement System.

ASP/Outsourcing Solutions

Fundtech Connect (ASP)       An Application Service Provider (outsourcing
- for PAYplus USA            solution) ("ASP") that provides the PAYplus
                             solution to banks operating in the United States.

Fundtech Connect (ASP)       An ASP that provides the ACCESS solution to banks
- for CASHplus               operating in the United States.

Interbank Gateway Services   An ASP that provides payment and settlement
                             solutions to banks in Europe, primarily in
                             Switzerland.

Recovery Services            Disaster recovery and contingency services for
                             users of our products.

PAYplus USA(TM)

      PAYplus USA(TM) is a funds transfer solution used to connect a financial
institution's funds transfer room with the Federal Reserve's FedWire system.
This solution evolved from and replaces two older products, FEDplus(TM) and
PAY$tar(TM). Our target market includes all banks operating in the United States
that do not need a global payment solution, including U.S.-based banks, thrifts,
savings and loans and international agency banks operating in the United States.


                                       13
<PAGE>

      PAYplus USA(TM) supports payment processing, risk management and
regulatory compliance for U.S. financial institutions that utilize the Federal
Reserve Bank's FedWire system for high value payments. PAYplus USA(TM) also
offers the same functionalities for international multi-currency payments of
international banks operating in the United States.

      PAYplus USA(TM) provides financial institutions with complete funds
transfer capacity at a substantially lower cost than other technologies. At the
same time, it both reduces payments risk (through real-time updates of account
balances by means of an on-line interface with the host computer) and improves
customer service (through its comprehensive database containing relevant
information about a transfer - from its creation to accounting and memo
posting).

Global PAYplus(TM)

      Our Global PAYplus(TM) provides institutions with a real-time global view
of their payments activity. This multi-tiered system addresses the needs of both
local and global payment processes. At the local level, Global PAYplus(TM)
employs a client/server funds transfer payment system that supports both the
local payment processing, and risk management and regulatory compliance for the
local clearing systems. At the global level, Global PAYplus(TM) aggregates
worldwide payment activity. Global PAYplus(TM) is a multi-platform system
supporting both UNIX and NT that employs open technology standards. The system
features end-to-end security and multi-currency capabilities.

Cash Management Solutions

ACCESS Banking(TM)

      Our ACCESS Banking(TM) solution is a client/server product that enables
banks and other financial institutions to provide cash management services to
their corporate clients. ACCESS Banking(TM) is targeted at the mid-to-large-size
financial institutions. Through ACCESS Banking(TM), clients can obtain balance
history and intra-day reporting, manage check transactions, originate ACH
transactions and initiate wire transfer payments. ACCESS Banking(TM) consists of
a server located in the back-office of a bank and a remote access module located
at the premises of the bank's corporate client. Clients can interact with the
bank's ACCESS Banking(TM) server remotely via the web, touch-tone telephone with
voice response, teletype terminal emulation or facsimile transmission.

CASHplus(TM)

      The CASHplus(TM) product, which is our newest Internet-based product,
enables corporations to perform sophisticated cash management functions across
accounts at multiple branches, in multiple currencies, and in multiple countries
and regulatory environments. CASHplus(TM) is designed to reduce the cost of
delivering remote banking services through universal access and simplified
maintenance and distribution of remote software.

Fundtech Banker

      Fundtech Banker(TM) is a suite of cash-management products used in
connection with the delivery of comprehensive electronic banking to the
commercial and corporate markets. Fundtech Banker(TM) suite provides a bank's
commercial customers with timely notification of fraudulent or misposted
transactions, expedited funds transfer services, reduced reconcilement costs and
more timely information flow and data delivery.

      Fundtech Banker(TM) allows small and mid-tier banks to offer corporate and
commercial business customers products and services that previously were only
available to large institutions.

Fundtech Banker for the Internet

      Fundtech Banker for the Internet(TM) is a Web-based product that addresses
the unique electronic banking service needs of the small business and middle
market. Fundtech Banker for the Internet(TM) is run with Fundtech Banker(TM),
our PC-based cash management suite of products.

                                       14
<PAGE>

Settlement Solutions

PAYplus for CLS(TM)

      PAYplus for CLS(TM) is an integrated solution that assists large foreign
exchange trading banks in addressing the requirements of the CLS bank. PAYplus
for CLS(TM) provides payments, treasury, reconciliation, interface and systems
management controls that assist banks in meeting the necessary requirements. In
addition, PAYplus for CLS(TM) provides such institutions full control and
functionality for its foreign exchange ("FX") trading relationships.

ASP/Outsourcing Solutions

Fundtech Connect - PAYplus USA and CASHplus

      Fundtech Connect is an ASP solution available for all of our products.
This service allows banks to have our solutions reside at our data center rather
than requiring the bank to purchase the necessary hardware and software to host
the solution in-house.

Interbank Gateway Services

      Interbank Gateway Services is a set of electronic payments and securities
application services provided by our service bureau in Switzerland. The
Interbank Gateway Services provides a secure and reliable technology
infrastructure, which enables financial institutions to initiate, process and
support electronic payment transactions across a wide range of settlement
systems. The service bureau's customers are currently predominantly Swiss banks,
but we intend to expand this offering into other areas of the world. In
addition, we intend to continue expanding the application services offered by
the service bureau in an effort to continue offering our bank customers the most
complete set of electronic payment and e-commerce solutions available in the
market.

      Interbank Gateway Services provides the following application
functionality:

      o     Cigt is a software product that allows banks and other financial
            institutions to connect to the Central Bank of Switzerland for the
            processing and settlement of bank-to-bank e-payments.

      o     EUROSICigt allows banks and other financial institutions to connect
            to the Central Bank of Switzerland for the processing and settlement
            of bank-to-bank Euro-denominated e-payments.

      o     SECOMigt allows banks and other financial institutions to engage in
            the electronic trading and settlement of securities transactions
            through online access to SECOM, Switzerland's securities trading and
            settlement system.

      o     SWIFTigt allows banks and other financial institutions to connect to
            the S.W.I.F.T. network for the processing and settlement of
            international bank-to-bank e-payments.

Recovery Services - Contingency Processing Centers

      Recovery Services - Contingency Processing Centers were developed to
respond to the need of our customers for a contingency back-up system for wire
transfer operations (in accordance with government regulations). Recovery
Services supports all of our U.S.-based product groups and we have centers in
Jersey City, New Jersey, San Leandro, California and Norcross, Georgia.

Customers And Markets

      Our scaleable products are sold to a wide array of financial institutions
and large business enterprises.

      The markets for our products consist of the following end-users:


                                       15
<PAGE>

      o     U.S. Banks - This group of customers is divided into three tiers.
            The top tier consists of approximately 100 banks, each with more
            than $10 billion of assets. The second tier consists of
            approximately 3,500 banks, each with over $100 million in assets.
            The third tier consists of approximately 5,500 small banks, each
            with less than $100 million of assets.

      o     Agency Banks and Branches of Foreign Banks located in the United
            States - These banks are located mainly in financial centers such as
            New York City, San Francisco, Los Angeles and Dallas.

      o     Banks located outside of the United States - These banks are located
            in countries that have moved or will move into processing payments
            on a real time gross settlement basis.

      During the years 2001, 2002 and 2003, we pursued a strategy of penetrating
the top tier of global banks with our PAYplus for CLS(TM) product offering. The
major foreign exchange trading banks worldwide, as well as central banks and
regulators are supporting the creation of the CLS, a global system for providing
foreign exchange, or "FX" or settlement services. CLS is intended to handle FX
trades with a daily value of approximately three trillion U.S. dollars. We have
been successful in obtaining the majority of the CLS contracts awarded to date
from banks including, inter alia, Australia and New Zealand Banking Group Ltd.,
Bank of America, Bank of New York, Citibank, Commerzbank, Deutsche Bank,
Dresdner Bank, National Australia Bank and Banco Bilboa Vizcaya Argentaria. We
believe that this significant step forward will help us leverage our technology
and offer those banks additional products in the future such as the Citibank
Global PAYplus(TM) agreement.

      In 2001, we entered into an agreement with a leading international
financial institution whereby we agreed to license certain of our products,
including PAYplus for CLS(TM) and Global PAYplus(TM), and perform various
consulting and maintenance services in connection with the license of such
products. For the year ended December 31, 2003, the aggregate total revenue
derived from the license of these products, and the fees earned in connection
with the consulting and maintenance services was approximately $8,408, which
represents approximately 18% of our 2003 revenues. See Item 5A, "Operating and
Financial Review and Prospects -- Operating Results -- Major Customer."

      During 2003, we made significant progress marketing our Global PAYplus
software in Europe, which was reflected in agreements for software and services
with Bank Cypress, Bank Austria (a member of the HVB Group) and Banco Popular
Espana.

      Please see the table that presents our consolidated revenues according to
the geographical regions to which such revenues are attributable in Item 5A,
"Operating and Financial Review and Prospects -- Operating Results --
Significant Revenue Information."

Sales and Marketing

      We sell our products and services primarily through our direct sales
force. In the past we have relied more heavily on referrals from local
distributors or independent marketing representatives. A number of our former
distributors have changed their market focus and/or become our direct
competitors. In response to this and other factors, we have grown our sales
force to support our direct sales efforts. We have a dedicated sales staff in
the United States, United Kingdom, Switzerland and Australia.

      We are an active participant in various trade shows and conferences where
we promote our products. In addition, we receive inquiries about our products
directly through our corporate website.

      We maintain a good working relationship with the Federal Reserve Bank in
the United States to ensure that our products meet Federal Reserve requirements.
We also maintain a good working relationship with S.W.I.F.T., a utility for
communication of global financial institutions payment and settlement
instructions owned by the largest banks in the world. By ensuring that our
solutions are S.W.I.F.T.-compliant, we are well positioned to offer payment and
settlement solutions to international banks.

                                       16
<PAGE>

Software Development

      We believe that our software development team provides a significant
competitive advantage. The team is comprised of developers with experience in
visual programming design and object-oriented software development of
mission-critical applications. We also believe that this assembly of diverse
technical expertise contributes to the highly integrated functionality of our
products. Our ability to attract and retain highly qualified employees will be
one of the principal determinants of our success in maintaining technological
leadership. The total software development staff consisted of 98 full-time
employees on December 31, 2003. All of our products have been developed
internally by our product development staff. Some of these products are
embedded, or bundled, with standardized software products developed by other
companies. We believe significant investments in product development are
required to remain competitive.

      To ensure that our products are developed successfully, within their
budgets and according to schedule, all of our products are sent through the
following four distinct design and testing stages: (1) requirements descriptions
are developed through consultation with prospective users to ensure that the
product matches the user's requirements; (2) an internal quality assurance team
verifies the integrity of the product at each stage of development prior to beta
testing; (3) beta testing data is used to evaluate the functionality of the
products and their ability to perform under realistic conditions; and (4) a
controlled group of users is polled regularly to identify any modifications that
may be necessary. In addition, we work closely with current and potential
end-users, our strategic partners and leaders in certain industry segments to
identify market needs and define appropriate product requirements. Our employees
also participate in numerous user focus groups to review product design. We have
software development sites in Georgia, New Jersey, Massachusetts, Israel and
Switzerland. We believe that separating development by geographic region allows
for both development to be in close proximity to the targeted market, while
increasing our ability to attract development talent.

Customer Support

      We believe that effective customer support in the software industry
requires rapid, efficient and comprehensive installation of the product. Upon
installation, we strive to provide superior customer support by solving problems
quickly and providing customers with consistent, accurate and understandable
technical information. We employ test scripts and bank production data to test
our solutions and our products are shipped with back-up procedures installed. We
recognize that timely solutions are essential for our mission-critical solutions
in the event problems do arise. We emphasize responsiveness to our customers'
inquiries and offer telephonic support for the reporting of problems twenty-four
hours a day. Customer inquiries range from production problems to user questions
and hardware issues. In addition, we utilize Remote Access Services (RAS-Windows
NT service) to enhance remote customer support. Certain of our marketing
representatives and contractors also provide sales, service and technical
support functions for our products to end-users in specific geographic
territories.

Proprietary Rights

      We rely upon a combination of trademarks, contractual rights, trade secret
law, copyrights, nondisclosure agreements and technical measures to establish
and protect our proprietary rights in our products and technologies. We also
enter into non-disclosure and confidentiality agreements with our customers,
employees and marketing representatives and with certain contractors with access
to sensitive information. However, we have no registered patents and these
measures taken by us may not be adequate to protect our technology from
third-party infringement. In addition, our competitors may also independently
develop technologies that are substantially equivalent or superior to ours.

Competition

      The industry in which we operate is highly competitive and evolving. Our
competitors include, but are not limited to, BankServ, Logica PLC, Digital
Insights, Inc., Politzer & Haney, S1 Corporation, Transaction Software
Technologies, Inc., Fidelity Information Services, Banklink and Transaction
Systems Architects, Inc. Furthermore, several large financial institutions have
developed solutions internally which they have then marketed to other banks or
implemented in banks that they have acquired. In order to maintain our
competitive position, we must

                                       17
<PAGE>

differentiate our products from the products of our competitors and successfully
develop and introduce new products that are less costly than, or superior to,
those of our competitors.

C.    Organizational Structure

      We are organized under the laws of the State of Israel. We are the parent
company of our wholly-owned operating subsidiaries that are specified in the
table below.
                                                         Country of
Name of Subsidiary                              Incorporation/Organization
------------------                              --------------------------------

Fundtech Corporation .......................    United States, State of Delaware

Fundtech U.K. Limited.......................    United Kingdom

Fundtech Australia Pty Limited .............    Australia

Fundtech Netherlands BV ....................    Netherlands

FCMS, LLC...................................    United States, State of Delaware

Biveroni Batschelet Partners AG ............    Switzerland

D.    Property, Plants and Equipment.

      We do not own any real property. As of December 31, 2003, we leased office
space as specified in the table below. The aggregate annual lease payments for
our facilities were approximately $1,905,000.

                                                      Approximate
Location                                              Aggregate Square Feet
--------                                              ---------------------

Ramat-Gan, Israel...........................          13,000

Burlington, Massachusetts...................          17,000

Jersey City, New Jersey.....................          15,000

Carollton, Texas............................           3,000

San Leandro, California.....................           6,700

Norcross, Georgia...........................          26,000

Switzerland.................................           9,500

United Kingdom..............................           1,800

ITEM 5.     OPERATING AND FINANCIAL REVIEW AND PROSPECTS.

      YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS IN CONJUNCTION WITH
ITEM 3A "SELECTED FINANCIAL DATA" AND OUR AUDITED CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS ANNUAL REPORT. IN
ADDITION TO HISTORICAL INFORMATION, THE FOLLOWING DISCUSSION CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS THAT INVOLVE KNOWN AND UNKNOWN RISKS AND


                                       18
<PAGE>

UNCERTAINTIES, SUCH AS STATEMENTS OF OUR PLANS, OBJECTIVES, EXPECTATIONS AND
INTENTIONS. SEE "CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS."

Overview

      We are a leading provider of end-to-end financial transaction processing
software solutions for financial institutions. These solutions are grouped into
three broad categories: (i) payment processing and management, (ii) foreign
exchange settlement processing and (iii) delivery channels for financial
institutions cash management products, which enable banks to process and manage
communications between financial institutions and their customers. The solutions
facilitate communications between financial institutions and their customers for
initiating payments, making inquiries and managing their activities with the
financial institutions. Our client/server web-enabled software products automate
the payment and settlement processes and provide real-time transaction
processing capabilities to financial institutions and their customers.

      We have noted an increasing emphasis on the generation of fee based income
among financial institutions. Our customers, which include state and federally
chartered banks and savings and loan associations, are subject to extensive and
complex regulation. Regulatory changes may also drive the types of products and
services our customers demand. Additionally these institutions are focusing on
cost reduction through improvements in operating efficiency. Our software
products automate transaction procedures and also allow clients of our customers
both to initiate transactions and access information over the Internet rather
than by contacting the customer's staff. The server-based architecture of our
software also allows cost reductions in comparison to mainframe based
applications. The software permits customers to easily change fee parameters and
offer new financial products without having to reprogram the software.

      We are currently marketing new products which have been developed since
2001, particularly Global PAY plus and CASHplus. This development work
contributed heavily to the operating losses during 2001 and 2002. During 2003,
we were able to refocus our efforts to marketing these new products, resulting
in a reduction in our research and development expenses and an increase in
revenues. Our development focus with respect to these products is now on
upgrades to add new functionality, new interfaces to the products and
performance enhancements in conjunction with out customer implementations.

      In response to declines associated with the current, cautious information
technology spending environment within the financial services industry, we
adopted three restructuring plans during the third and fourth quarters of 2002
and the second quarter of 2001.

      In 2001, a plan consisted of employee termination benefits associated with
the involuntary termination of 89 employees (71 research and development and
professional services employees, 13 administrative employees and 5 sales and
marketing employees) and the sublet of portions of existing office space. As
part of the plan, we also consolidated aspects of our Dallas operations into our
existing Atlanta operations in order to improve efficiency and eliminate
duplicate costs.

      In 2002, two plans consisted of employee termination benefits associated
with the involuntary termination of 78 employees (61 research and development
and professional services employees, 12 administrative employees and 5 sales and
marketing employees) and the closure and sublet of portions of existing office
space.

      Our restructuring program in 2001 and 2002 substantially impacted our
results of operations in those years. All restructuring plans were substantially
completed by February 2003. We began to realize the benefits of the plan in 2001
and continued to see such benefits during 2002 as evidenced by the reduction in
the total sum of maintenance and services costs, research and development costs
(including capitalized development costs), selling and marketing costs and
general and administrative costs (together, "Certain Costs"). Certain Costs
declined from $16.4 million in the second and third quarters of 2001 to $14.0
million in the fourth quarter of 2001 and continued to decline to $12.4 million,
$12.5 million, $11.9 million and $10.9 million in the first, second, third and
fourth quarters of 2002, respectively. Certain Costs stabilized in 2003 to $10.6
million, $10.9 million, $10.7 million and $11.0 million in the first, second,
third and fourth quarters, respectively. The reduced cost structure resulting
from those actions have resulted in a significant improvement in our operating
margins, which improved from (59.8%) in 2001, to (41.9%) in 2002 and (0.7%) in
2003.


                                       19
<PAGE>

      PAYplus USA(TM) is our United States funds transfer solution used to
connect a financial institution's funds transfer room with the Federal Reserve's
FedWire system and with the S.W.I.F.T. system. PAYplus USA(TM) both reduces
payments risk (through real-time updates of account balances by means of an
on-line interface with the host computer) and improves customer service (through
its comprehensive database containing relevant information about a transfer -
from its creation to accounting and memo posting). Out target market for this
product includes all banks operating in the United States that do no need a
global payment solution. PAYplus USA(TM) may be licensed or utilized through ASP
outsourcing arrangement where it is operated at our data center on behalf of the
customer.

      Our Global PAYplus(TM) software provides institutions with real-time
global support of their multi-currency payments activity. Global PAYplus(TM)
employs a client/server funds transfer payment system that supports not only the
local payment processing and risk management and regulatory compliance for local
clearing systems but also aggregates worldwide payment activity. Global
PAYplus(TM) supports both UNIX and NT and employs open technology standards. The
system features end-to-end security and multi-currency capabilities.

      Our CASHplus(TM) product, which is out newest Internet-based product,
enables corporations to perform sophisticated cash management functions across
accounts at multiple branches, in multiple currencies and in multiple countries
and regulatory environments. CASHplus(TM) is designed to reduce the cost of
delivering remote banking services through universal access and simplified
maintenance and distribution of remote software. CASHplus(TM) may be licensed or
utilized through our ASP outsourcing arrangement where it is operated at our
data center on behalf of the customer.

      PAYplus for CLS(TM) is an integrated solution that assists large foreign
exchange trading banks in addressing the requirements of the CLS bank. PAYplus
for CLS(TM) provides payments, treasury, reconciliation, interface and systems
management controls that assist banks in meeting the necessary requirements. In
addition, PAYplus for CLS(TM) provides such institutions full control and
functionality for its foreign exchange ("FX") trading relationships.

      Our BBP subsidiary operates a service bureau in Switzerland providing
Interbank Gateway Services, a set of electronic payments and securities
application services. Interbank Gateway Services provide secure and reliable
technology infrastructure, which enables financial institutions to initiate,
process and support electronic payment transactions across a wide range of
settlement solutions. The service bureau's services include connection to the
Central Bank of Switzerland for the processing and settlement of bank-to-bank
e-payments, the processing and settlement of bank-to-bank Euro-denominated
e-payments, electronic trading and settlement of securities transactions through
online access SECOM, Switzerland's securities trading and settlement system and
connection to the S.W.I.F.T. network for the processing and settlement of
international bank-to-bank e-payments. The IGTplus software utilized to provide
these services is also available on a license basis.

      To some degree, however, the match of our software capabilities to the
positive trends described above has been offset by the slow recovery of the
global financial services industry from the slowdown of 2000-2002. Additionally,
there are few pending major regulatory changes foreseeable to drive technology
procurements. Although spending on technology in the financial services industry
increased during 2003, it is difficult to predict if this trend will continue as
well as the extent of the impact that it may have on our future revenues or
results of operations. Notwithstanding this increase in spending, we have seen
and expect to see a significant percentage of spending on maintaining and
upgrading so-called "legacy systems" that are currently in place with our
customers, or internally developed "in-house" solutions rather than on the
acquisition of new externally developed systems such as those we market.

Acquisition of Businesses from CheckFree, BBP and Certain Assets from Sterling

      In April 1998, we acquired from CheckFree two businesses engaged primarily
in the design and development of cash management software products and the
development and sale of wire transfer products. We paid approximately $18.8
million in cash (including acquisition expenses) for the acquired CheckFree
businesses. The transaction was accounted for as a purchase and resulted in the
initial recording of approximately $3.1 million of goodwill and other
intangibles, of which other intangibles in the amount of $0.9 million are being
amortized over

                                       20
<PAGE>

a period of 10 years. The transaction also resulted in a one-time write-off of
research and development in process in the amount of $16.6 million.

      In June 1999, we entered into a Share Purchase Agreement with Biveroni
Batschelet Partners AG, a Swiss corporation ("BBP"), and its shareholders,
pursuant to which we purchased all of the outstanding shares of BBP for an
aggregate purchase price of approximately $13.9 million, of which 75% was paid
in cash and 25% in stock (105,315 Ordinary Shares). The transaction was
accounted for as a purchase and resulted in the initial recording of
approximately $11.4 million of goodwill and other intangibles, of which other
intangibles in the amount of $3.6 million are being amortized over an average
period of 8.5 years. In addition, a one-time write-off of research and
development in process in the amount of $2.8 million was recorded at the time of
the purchase.

      On September 30, 1999, Fundtech Corporation, a wholly owned subsidiary of
ours and FCMS, LLC, our indirect wholly owned subsidiary, consummated the
purchase of certain assets and assumed liabilities constituting the cash
management business of Sterling Commerce (Northern America) Inc. ("Sterling")
for approximately $6.9 million (including acquisition expenses). The cash
consideration was paid through immediately available funds from our working
capital. The transaction was accounted for as a purchase and resulted in the
initial recording of approximately $8.9 million of goodwill and other
intangibles, of which the other intangibles in the amount of $3.5 million are
being amortized over an average period of 9.2 years.

      Certain pre-acquisition contingency reserves were established as of the
acquisition dates that are subject to adjustment during the "allocation period"
in accordance with SFAS 38 "Accounting for Pre-acquisition Contingencies." The
fair value of the net assets acquired from BBP and Sterling has been adjusted to
reflect the resolution of these contingencies established relating to certain
litigation and liabilities associated with acquired contractual commitments.

      The purchase price reallocation resulted in a total reduction to the fair
value of the Sterling and BBP acquisitions of approximately $1,573,000 and
$214,000 respectively, as well as a corresponding increase to goodwill.

Critical Accounting Policies

      The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which were
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. We evaluate these estimates on an on-going basis. We base our
estimates on our historical experience and on various other assumptions that we
believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.

      We believe that application of the following critical accounting policies
entails the more significant judgments and estimates used in the preparation of
our consolidated financial statements.

      Revenues. Our revenues are generated from licensing the rights to use our
software products directly to end-users, sales of professional services,
including consulting, implementation and training. We also provide hosting
services, contingency and recovery services, as well as maintenance and sales of
hardware.

      Revenue from software license agreements are recognized when all criteria
outlined in Statement of Position (SOP) 97-2 "Software Revenue Recognition" (as
amended) ("SOP 97-2") are met. Therefore, revenue from license fees is
recognized when persuasive evidence of an agreement exists, delivery of the
product has occurred, no significant obligations with regard to implementation
remain, the fee is fixed or determinable and collectibility is probable.

      Where software arrangements involve multiple elements, revenue is
allocated to each element based on vendor specific objective evidence ("VSOE")
of the relative fair values of each element in the arrangement. Our

                                       21
<PAGE>

VSOE used to allocate the sales price to services and maintenance is based on
the price charged when these elements are sold separately. License revenue is
recorded based on the residual method as prescribed by SOP 98-9 "Modification of
SOP 97-2, Software Revenue Recognition With Respect to Certain Transactions."
Under the residual method, revenue is recognized for the delivered elements when
(i) there is VSOE of the fair values of all the undelivered elements, and (ii)
all revenue recognition criteria of SOP 97-2, as amended, are satisfied. Under
the residual method any discount in the arrangement is allocated to the
delivered element or elements.

      We usually provide a warranty period to our customers of up to six months
at no extra charge. As of December 31, 2003 and 2002, the provision for warranty
cost is immaterial.

      Revenue from software licenses that require significant customization,
integration and installation are recognized based on SOP 81-1 "Accounting for
Performance of Construction-Type and Certain Production-Type Contracts," using
contract accounting on the percentage-of-completion method, based on the
relationship of actual labor costs incurred, to total labor costs estimated to
be incurred over the duration of the contract. In recognizing revenues based on
the percentage-of-completion method, we estimate time to completion with
revisions to estimates reflected in the period in which changes become known. If
we do not accurately estimate the resources required or the scope of work to be
performed, or do not manage our projects properly within the planned periods of
time or satisfy our obligations under the contracts, then future services
margins may be significantly and negatively affected or losses on existing
contracts may need to be recognized.

      Arrangements that include professional services are evaluated to determine
whether those services are essential to the functionality of other elements of
the arrangement. When services are considered essential, revenue under the
arrangement is recognized using contract accounting. When services are not
considered essential, the revenue allocable to the software services is
recognized as the services are performed.

      Revenue from maintenance is recognized over the life of the maintenance
agreement.

      Our trade receivables and long-term trade receivables primarily include
amounts due from banks and large financial institutions. An allowance for
doubtful accounts is determined for those specific amounts that we believe are
not likely to be collected. We perform ongoing credit evaluations of our
customers and in judging the probability of collection of receivables we
continuously monitor collection and payments from our customers and maintain a
provision for any specific customer collection issues that we have identified.
For some customers, typically those with whom we have long-term relationships,
we may grant extended payment terms. If the financial situation of any of our
customers were to deteriorate, resulting in an impairment of their ability to
pay the indebtedness they incur with us, an additional provision for doubtful
accounts might be required.

      SFAS No. 86 "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed" requires capitalization of certain software
development costs subsequent to the establishment of technological

                                       22
<PAGE>

feasibility. Based on our product development process, technological feasibility
is established upon completion of a detailed program design.

      Our costs incurred between completion of the detailed program design for
the Global PAYplus(TM) product and the point at which the product was ready for
general release has been capitalized. As of December 31, 2001, we capitalized
development costs totaling $7,876,000 in aggregate. In 2002 we started
amortizing the capitalized development costs and we did not capitalize any
additional development costs. The 2002 and 2003 amortization costs relating to
the capitalized development costs totaled $1,182,000 and $1,576,000,
respectively.

      Long-Lived Assets. We assess the impairment of long-lived assets whenever
events or changes in circumstances indicate that the carrying value may not be
recoverable. Factors we consider important which could trigger an impairment
review include the following:

      o     significant decrease in the market price of a long-lived asset or
            asset group;

      o     significant adverse change in the extent or manner in which a
            long-lived asset or asset group is being used or in its physical
            condition;

      o     significant adverse change in legal factors or in the business
            climate that could affect the value of a long-lived asset or asset
            group, including an adverse action or assessment by a regulator;

      o     accumulation of costs significantly in excess of the amount
            originally expected for the acquisition of a long-lived asset or
            asset group;

      o     current period operating or cash flow loss combined with a history
            of operating or cash flow losses or a projection or forecast that
            demonstrates continuing losses associated with the use of a
            long-lived asset or asset group; and

      o     current expectation that, more likely than not, a long-lived asset
            or asset group will be sold or otherwise disposed of significantly
            before the end of its previously estimated useful life.

      We determine the recoverability of long-lived assets based on an estimate
of undiscounted future cash flows resulting from the use of the asset and its
eventual disposition. Such estimation process is highly subjective and involves
significant management judgment. Determination of impairment loss from
long-lived assets and certain identifiable intangible assets to be disposed of
are reported at the lower of carrying amount or fair value less costs to sell.

      Valuation of Goodwill. We assess the impairment of goodwill on an annual
basis, and potentially more frequently if events or changes in circumstances
indicate that the carrying value may not be recoverable. Factors we consider
important which could trigger an impairment review include the following:

      o     significant underperformance relative to expected historical or
            projected future operating results;

      o     significant changes in the manner of our use of the acquired assets
            or the strategy for our overall business; and

      o     significant negative industry or economic trends.

      When we determine that the carrying value of goodwill may not be
recoverable based upon the existence of one or more of the above indicators of
impairment, we measure this impairment based on a projected discounted cash
flow. We completed a preliminary assessment during the first quarter of 2002 and
performed an annual impairment review during the fourth quarter of 2002 and
2003. We did not record an impairment charge based on our reviews. If our
estimates or the related assumptions change in the future, we may be required to
record impairment charge on goodwill to reduce its carrying amount to its
estimated fair value.

                                       23
<PAGE>

A.    Results of Operations

      The following table sets forth for the periods indicated the percentage of
revenues represented by each of the items in our statement of operations:

<TABLE>
<CAPTION>

                                                                    Year Ended December 31,
                                                             ----------------------------------
                                                                2001         2002         2003
                                                             --------       ------       ------
      Revenues:
      <S>                                                       <C>          <C>          <C>
         Software license fees............................      37.9%        25.3%        27.8%
         Maintenance and service fees.....................       60.2         73.7         71.4
         Hardware sales...................................        1.9          1.0          0.8
                                                              -------        -----        -----
      Total revenues......................................      100.0        100.0        100.0
                                                              -------        -----        -----

      Operating Expenses:
         Software license costs...........................       2.0          1.8          1.0
         Maintenance and service costs....................      42.6         44.2         37.6
         Hardware Costs...................................       1.5          0.8          0.6
         Research and development.........................      42.6         36.5         20.4
         Selling and marketing, net.......................      22.9         23.7         21.0
         General and administrative.......................      20.3         18.1         14.0
         Amortization of capitalized software
            development costs.............................         -          3.0          3.3
         Amortization of acquisition-related
            goodwill......................................       3.7            -            -
         Amortization of other acquired intangible
            assets........................................       1.9          2.3          2.0
         Provision for doubtful accounts..................      13.3          3.3          0.7
         Restructuring expenses...........................       5.7          8.2            -
         Non recurring expenses...........................       3.3            -            -
                                                             -------        -----        -----

         Total operating expenses.........................     159.8        141.9        100.7
                                                             -------        -----        -----
         Operating income (loss)..........................     (59.8)       (41.9)        (0.7)
         Impairment and realized losses on
            available for sale marketable securities......     (17.4)        (0.7)           -
         Financial income, net............................       7.4          1.7          1.4
                                                             -------        -----        -----
         Income (loss) before income taxes................     (69.8)       (40.9)         0.7
         Income taxes.....................................      (0.5)        (0.9)        (0.6)
                                                             -------        -----        -----
         Net income (loss)................................     (70.3)%      (41.8)%        0.1%
                                                             =======        =====        =====
</TABLE>


                                       24

<PAGE>

Significant Revenue Information

      The following table presents our consolidated revenues according to the
geographical regions to which such revenues are attributable:

<TABLE>
<CAPTION>

                             2001                        2002                        2003
                             ----                        ----                        ----
                     Total                       Total                        Total
                   Revenues      Percentage     Revenues      Percentage     Revenues     Percentage
                   --------      ----------     --------      ----------     --------     ----------
<S>                 <C>              <C>        <C>               <C>        <C>              <C>
Israel              $   205          0.4%       $   142           0.4%       $   115          0.3%
U.S.A                31,610         70.3         26,272          66.0         28,908         60.7
Switzerland           7,381         16.4          7,801          19.6          8,865         18.6
Other                 5,798         12.9          5,613          14.0          9,726         20.4
                    -------       ------        -------        ------        -------       ------
                    $44,994        100.0%       $39,828         100.0%       $47,614        100.0%
                    =======       ======        =======        ======        =======       ======
</TABLE>

Major Customer

      We derived approximately 18% of our annual revenues from the license,
consulting and maintenance service fees earned in connection with an agreement
with a leading international financial institution in both 2002 and 2003. See
Item 4B, "Information on the Company -- Business Overview - Customers and
Markets." In 2004 we have entered into new orders under this agreement which
will likely result in an increase in fees earned from this customer in 2004. We
also anticipate that these fees will represent a higher percentage of our total
annual revenue in 2004 as compared to 2003. A failure of the bank to enter into
or proceed with such orders could have a material adverse effect on our
business, financial condition and results of operations.

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

      Revenues. In 2003, revenues increased 20% to $47,614,000 from $39,828,000
in 2002. A comparison between our 2003 and 2002 revenues among our divisions is
as follows:

                                                                   Variance
                                                                   --------
        Division         2003              2002            Increase           %
        --------         ----              ----            --------          --

Cash Management      $11,365,000       $ 8,098,000       $ 3,267,000         40%
Payments              26,972,000        24,214,000         2,758,000         11%
BBP                    9,277,000         7,517,000         1,760,000         23%
                     -----------       -----------        -----------
                     $47,614,000       $39,829,000       $ 7,785,000         20%
                     ===========       ===========        ===========

      Cash Management revenues include ACCESS and CASHplus licenses, services
and ASP solutions sales. The increase in revenues from our Cash Management
division is primarily attributable to new CASHplus sales, increased billable
enhancement requests, and the increase in installed ASP solutions which generate
revenues post-installation. Payment revenues include our Global PAYplus, PAYplus
for CLS and PAYplus USA solutions in both license and ASP form. The increase in
revenues from our Payments division is primarily attributable to the increased
license and increased maintenance due to additional international sales of
Global PAYplus, PAYplus for CLS along with new PAYplus USA sales. The increase
in revenues from our BBP division is primarily attributable to the increased
service fees related to IGTplus implementation among existing clients.

      In 2002, we started evaluating our business activities along the three
division lines of Cash Management, Payments and BBP. In prior years, we
determined that our operating segments had similar economic characteristics such
as products and services, customers' methods used to distribute products and
services, and regulatory environment resulting in their aggregation.

      Software License Fees. Software license fees consist of revenues derived
from software license agreements we enter into with our customers. A comparison
between our 2003 and 2002 software license fees is as follows:

                                                                    Variance
                                                                    --------
                                     2003          2002        Increase      %
                                     ----          ----        --------     --

        Software License Fees     $13,236,000   $10,068,000   $3,168,000    32%

      The increase is primarily attributable to increasing market awareness and
acceptance of the company's new product offerings and increased spending on the
part of the information technology departments of financial institutions.

      Maintenance and Services Fees. Maintenance and services fees include
revenues derived from maintenance contracts, installation and training fees,
service bureau fees, consulting fees, certification fees and

                                       25
<PAGE>

related items. We generally receive a contract for maintenance and services at
the time a contract for the license is entered into. A comparison between our
2003 and 2002 maintenance and services fees is as follows:

                                                                      Variance
                                                                      --------
                                      2003          2002        Increase     %
                                      ----          ----        --------     --

          Maintenance and
          Services Fees            $34,011,000   $29,355,000   $4,656,000   16%

      Software Maintenance fees are generally based on a percentage of the value
of the licenses for the products to which they relate. The increase in
maintenance fees is commensurate with the increase in software licenses (and
corresponding license fees) under maintenance offset by warranty periods
applicable to new licenses. The increase in service fees relates to the more
intense level of services provided under large projects for top-tiered
customers.

      Hardware Sales. Hardware sales consist of the reselling of third-party
hardware in connection with the licensing and installation of our software. A
comparison between our 2003 and 2002 hardware sales is as follows:

                                                                    Variance
                                                                    --------
                                      2003          2002        Decrease     %
                                      ----          ----        --------     --

          Hardware Sales            $367,000      $405,000     ($38,000)    (9%)

      We have placed less emphasis on sales of hardware to our customers. Much
of the hardware upon which our products run can be obtained directly from the
manufacturer rendering the margins on this brokering activity less attractive.
The decrease in hardware sales is attributable to a decrease in the number of
transactions in which our customers also purchased hardware through us.

      Software License Costs. Software license costs consist primarily of
royalty payments and other costs related to product media, duplication, manuals,
shipping and third party embedded software costs. A comparison between our 2003
and 2002 software license costs is as follows:

                                                                    Variance
                                                                    --------
                                      2003          2002       Decrease     %
                                      ----          ----       --------     --

          Software License Costs    $493,000      $703,000    ($210,000)   (30%)

      The decrease in costs is primarily due to a decrease in royalty payments
and third-party embedded software costs resulting from increased focus on
managing these relationships in light of a highly competitive market for these
products.

      Maintenance and Services Costs. Maintenance and services costs consist
primarily of personnel costs, telephone support costs and other costs related to
the provision of maintenance, service bureau and professional services. A
comparison between our 2003 and 2002 maintenance and services costs is as
follows:

<TABLE>
<CAPTION>

                                                                           Variance
                                                                           --------
                                             2003           2002       Increase      %
                                             ----           ----       --------      --

<S>                                        <C>           <C>           <C>         <C>
          Maintenance and Services Costs    $17,903,000   $17,612,000   $291,000    2.0%
</TABLE>

      The increase in costs is principally due to increased personnel numbers
and personnel related expenses incurred in response to the increase in license
revenue and changes in the nature of the maintenance services requested by
top-tier customers. While not directly proportional, the increased number of
licenses granted added to

                                       26
<PAGE>

the number of customers for whom support is provided and this necessitated the
addition of personnel. Greater levels of support availability requested by
top-tier customers also required an increase in the number of personnel
supporting the new call hours. Maintenance and service costs did not increase at
the same rate as associated fees as a result of the Company's restructuring of
its operations in 2001 and 2002, which resulted in a lower base of operating
costs associated with these functions.

      Hardware Costs. Hardware costs consist primarily of our cost of computer
hardware resold to our customers. A comparison between our 2003 and 2002
hardware costs is as follows:
                                                                   Variance
                                                                   --------
                                      2003          2002       Decrease    %
                                      ----          ----       --------    --

          Hardware Costs            $306,000      $317,000    ($11,000)   (3.5%)

      The cost of hardware sales decreased by $11,000, or 3.5%, to $306,000 in
the year ended December 31, 2003 from $317,000 in the year ended December 31,
2002. The reduction in costs is commensurate with the decrease in hardware
sales.

      Software Development. Software development expenses are related to the
development of new products, enhancement of existing products and testing of
products. A comparison between our 2003 and 2002 software development is as
follows:

                                                                     Variance
                                                                     --------
                                      2003        2002         Decrease      %
                                      ----        ----         --------     --

          Software Development     $9,690,000  $14,525,000   ($4,835,000)  (33%)

      We did not capitalize any software development costs in 2003 or 2002,
since the time period during which costs could have been capitalized from the
point of technological feasibility until the time of general product release was
very short, and consequently, these costs were expensed as incurred as the
amounts that could have been capitalized were not material to our financial
position. The decrease in costs is primarily due to the cost cutting measures we
undertook during 2001 and 2002, which resulted in a reduction in personnel
numbers and personnel related expenses. See Item 5, "Operating and Financial
Review and Prospects -- Critical Accounting Policies" for additional information
about the reduction in personnel numbers.

      Selling and Marketing. A comparison between our 2003 and 2002 selling and
marketing expenses is as follows:

                                                                     Variance
                                                                     --------
                                       2003         2002        Increase      %
                                       ----         ----        --------     --

          Selling and Marketing     $9,998,000   $9,453,000     $545,000     6%

      The increase in sales and marketing expenses was principally due to an
increase in marketing initiatives associated with selling and marketing our
products, which helped us achieve corresponding higher revenues and the higher
employee commissions related thereto. While sales and marketing expenses
associated with a 32% increase in both software license fees and maintenance and
service fees increased overall, this increase was offset by the reduction of
five sales and marketing personnel.

                                       27
<PAGE>

      General and Administrative. A comparison between our 2003 and 2002 general
and administrative expenses is as follows:

                                                                      Variance
                                                                      --------
                                          2003        2002      Decrease     %
                                          ----        ----      --------     --

         General and Administrative    $6,678,000  $7,230,000  ($552,000)   (8%)

      This decrease is due to the headcount reduction of general and
administrative personnel and decreases in professional and consulting fees.

      Amortization of Capitalized Software Development Costs. A comparison
between our 2003 and 2002 amortization of capitalized software development costs
is as follows:

                                                                      Variance
                                                                      --------
                                          2003         2002      Increase     %
                                          ----         ----      --------    --
          Amortization of
          Capitalized Software
          Development Costs            $1,574,000   $1,182,000   $392,000    33%

      We started amortizing capitalized software development costs in the second
quarter of 2002, which were incurred through December 31, 2001 in connection
with our Global PAYplus product. For the year ended December 31, 2003 we
amortized four quarters of costs as compared to only three quarters in the year
ended December 31, 2002.

      Amortization of Other Acquired Intangible Assets. A comparison between our
2003 and 2002 amortization of other acquired intangible assets is as follows:

                                                                      Variance
                                                                      --------
                                          2003        2002       Increase     %
                                          ----        ----       --------    --
          Amortization of Other
          Acquired Intangible Assets    $940,000    $911,000     $29,000     3%

      The increase in amortization resulted from exchange rate differences for
assets related to BBP. The adoption of SFAS No. 142 resulted in zero
amortization expense for acquisition-related goodwill in the years ended
December 31, 2003 and 2002. See "Other Critical Accounting Policies".

      Provision for Doubtful Accounts. Management's assessment for uncertainties
of outstanding debts collectibility is reflected in our provision for doubtful
accounts. A comparison between our 2003 and 2002 provision for doubtful accounts
is as follows:

                                                                   Variance
                                                                   --------
                                          2003        2002      Decrease     %
                                          ----        ----      --------    --

          Provision for Doubtful
          Accounts                      $350,000   $1,335,000  ($985,000)  (74%)

      In 2002 the provision for doubtful accounts included $860,000 that related
to a settlement of a dispute with one customer. The decrease in the provision
for doubtful accounts reflects the settlement of previously accrued matters
resulting in the accounts no longer being deemed doubtful of collection.

                                       28
<PAGE>

      Restructuring Expenses. A comparison between our 2003 and 2002
restructuring expenses is as follows:

                                                                    Variance
                                                                    --------
                                       2003       2002       Decrease      %
                                       ----       ----       --------     --

          Restructuring expenses        $0     $3,252,000  ($3,252,000)  (100%)

      In connection with the three restructuring plans we adopted in 2001 and
2002, we recorded non-recurring expenses totaling $3,252,000 in 2002. These
non-recurring expenses included: (i) facility closures and related costs in the
amount of $1,794,000; and (ii) employee termination benefits and related costs
in the amount of $1,458,000. The three plans resulted in the involuntary
termination of 78 employees in 2002. No restructuring expenses were incurred
during 2003.

      Impairment of Marketable Securities. A comparison between our 2003 and
2002 impairment of marketable securities is as follows:

                                                                  Variance
                                                                  --------
                                       2003        2002      Decrease     %
                                       ----        ----      --------    --

          Impairment of Marketable
          Securities                    $0       $281,000   ($281,000)  (100%)

      The charge for impairment and realized losses on available-for-sale
marketable securities was zero for the year ended December 31, 2003, as compared
to $281,000 for the year ended December 31, 2002. See discussion below --
Impairment of Marketable Securities, for the year ended December 31, 2002
compared to the year ended December 31, 2001.

      Financial Income, Net. A comparison between our 2003 and 2002 financial
income, net is as follows:

                                                                   Variance
                                                                   --------
                                       2003        2002       Decrease     %
                                       ----        ----       --------    --

          Financial Income, net      $671,000    $691,000     ($20,000)   (3%)

      The decrease of the net financial income is primarily due to a decrease in
the interest and dividend rates we earned on our cash, cash equivalents and
marketable securities, offset by a small increase in the average balances of
cash, cash equivalents and marketable securities.

      Income Taxes. A comparison between our 2003 and 2002 income taxes is as
follows:

                                                                    Variance
                                                                    --------
                                       2003        2002      Decrease      %
                                       ----        ----      --------     --

          Income Taxes               $286,000    $365,000    ($79,000)   (22%)

      Although revenues increased in 2003, 2002 taxes were increased due to the
elimination of a deferred tax asset which resulted in an increased tax liability
for that year.

                                       29
<PAGE>

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

      Software License Fees. A comparison between our 2002 and 2001 software
license fees is as follows:

                                                                    Variance
                                                                    --------
                                      2002          2001       Decrease      %
                                      ----          ----       --------     --

         Software License Fees    $10,068,000   $17,067,000  ($6,999,000)  (41%)

      The decrease was primarily attributable to lengthening sales cycles and
more cautious spending on the part of the information technology departments of
financial institutions.

      Maintenance and Services Fees. A comparison between our 2002 and 2001
maintenance and service fees is as follows:

                                                                       Variance
                                                                       --------
                                          2002         2001       Increase     %
                                          ----         ----       --------    --

      Maintenance and Services Fees   $29,355,000  $27,085,000   $2,270,000   8%

      The increase is commensurate with new software license sales (and
corresponding license fees) generating additional maintenance, coupled with an
increase in the services provided under large projects for top-tiered customers.

      Hardware Sales. A comparison between our 2002 and 2001 hardware sales is
as follows:

                                                                   Variance
                                                                   --------
                                       2002         2001     Decrease      %
                                       ----         ----     --------     --

          Hardware Sales             $405,000    $842,000   ($437,000)   (52%)

      The decrease in hardware sales is attributable to a decrease in the number
of software license transactions in connection with which the customer also
purchased hardware through us, as well as a de-emphasis on hardware sales due to
the low margins.

      Software License Costs. A comparison between our 2002 and 2001 software
license costs is as follows:

                                                                  Variance
                                                                  --------
                                       2002         2001     Decrease      %
                                       ----         ----     --------     --

          Software License Costs     $703,000    $896,000   ($193,000)   (22%)

      The decrease in costs is primarily due to a decrease in royalty payments
and third-party embedded software costs due to improved terms in our contractual
obligations.

                                       30
<PAGE>

      Maintenance and Services Costs. A comparison between our 2002 and 2001
maintenance and service costs is as follows:

                                                                     Variance
                                                                     --------
                                       2002         2001        Decrease      %
                                       ----         ----        --------     --

          Maintenance and Services
          Costs                     $17,612,000  $19,153,000  ($1,541,000)  (8%)

      The decrease in costs is principally due to the cost cutting measures we
undertook during 2001 and 2002 which resulted in a reduction in personnel
numbers and personnel related expenses.

      Hardware Costs. A comparison between our 2002 and 2001 hardware costs is
as follows:

                                                                  Variance
                                                                  --------
                                       2002        2001      Decrease      %
                                       ----        ----      --------     --

          Hardware Costs             $317,000    $686,000   ($369,000)   (54%)

      The reduction in costs is commensurate with the decrease in hardware
sales.

      Software Development. A comparison between our 2002 and 2001 software
development is as follows:

                                                                    Variance
                                                                    --------
                                      2002         2001        Decrease      %
                                      ----         ----        --------     --

          Software Development     $14,525,000  $19,185,000  ($4,660,000)  (24%)

      These amounts exclude $5,901,000 of capitalized costs in the year ended
December 31, 2001, incurred for the development of our Global PAYplus product.
We did not capitalize any software development costs in 2002. The decrease in
costs is principally due to the cost cutting measures we undertook during 2001
and 2002, which resulted in a reduction in personnel numbers and personnel
related expenses.


      Selling and Marketing, Net. A comparison between our 2002 and 2001 selling
and marketing, net is as follows:

                                                                    Variance
                                                                    --------
                                         2002        2001       Decrease     %
                                         ----        ----       --------    --

          Selling and Marketing       $9,453,000  $10,325,000  ($872,000)  (8%)

      Selling and marketing expenses as a percentage of revenues increased
slightly to 23.7% in the year ended December 31, 2002 from 22.9% in the year

                                       31
<PAGE>

ended December 31, 2001. The reduction in sales and marketing expenses was
principally due to a reduction in marketing programs as well as lower sales
costs associated with the reduced revenues.

      General and Administrative. A comparison between our 2002 and 2001 general
and administrative expenses is as follows:

                                                                     Variance
                                                                     --------
                                       2002         2001       Decrease      %
                                       ----         ----       --------     --

      General and Administrative    $7,230,000   $9,116,000  ($1,886,000)  (21%)

      This decrease is due to the headcount reduction of general and
administrative personnel numbers and decreases in professional and consulting
fees.

      Amortization of Capitalized Software Development Costs. A comparison
between our 2002 and 2001 amortization of capitalized software development costs
is as follows:

                                                              Variance
                                                              --------
                                  2002         2001      Decrease       %
                                  ----         ----      --------      --

      Amortization of
      Capitalized Software
      Development Costs        $1,182,000       $0      $1,182,000     n/a

      In 2002 we started amortizing capitalized software development costs,
which were incurred through December 31, 2001 in connection with our Global
PAYplus product. For the year ended December 31, 2002 amortization costs
amounted to $1,182,000 compared to zero in the year ended December 31, 2001.

      Amortization of Acquisition Related Goodwill A comparison between our 2002
and 2001 amortization of acquisition related goodwill assets is as follows:

                                                                 Variance
                                                                 --------
                                      2002       2001        Decrease       %
                                      ----       ----        --------      --

      Amortization of
      Acquisition Related Goodwill    $ 0     $1,663,000   ($1,663,000)   (100%)

      The adoption of SFAS No. 142 resulted in the elimination of amortization
expenses for acquired goodwill without an identifiable useful life.

      Amortization of Other Acquired Intangible Assets. A comparison between our
2002 and 2001 amortization of other acquired intangible assets is as follows:

                                                                  Variance
                                                                  --------
                                       2002         2001     Increase     %
                                       ----         ----     --------    --

      Amortization of Other
      Acquired Intangible Assets     $911,000     $862,000    $49,000     6%

                                       32
<PAGE>

      The increase in amortization resulted from exchange rate differences for
assets related to BBP.

      Provision for Doubtful Accounts. A comparison between our 2002 and 2001
provision for doubtful accounts is as follows:

                                                                 Variance
                                                                 --------
                                    2002         2001       Decrease      %
                                    ----         ----       --------     --

      Provision for Doubtful
      Accounts                   $1,335,000   $5,966,000  ($4,631,000)  (78%)

      Management's assessment for uncertainties of outstanding debts
collectibility resulted in a provision for doubtful accounts totaling $1,335,000
for the year ended December 31, 2002. Of this amount, $860,000 related to a
settlement of a dispute with one customer. In 2001 the provision for doubtful
accounts amounted to $5,966,000, due principally to an inability to collect sums
due to general economic conditions.

      Restructuring Expenses. A comparison between our 2002 and 2001
restructuring expenses is as follows:

                                                                  Variance
                                                                  --------
                                       2002         2001      Increase     %
                                       ----         ----      --------    --

      Restructuring expenses        $3,252,000   $2,573,000   $679,000    21%

      In connection with the three restructuring plans we adopted in 2001 and
2002, we recorded non-recurring expenses totaling $2,573,000 and $3,252,000 in
2001 and 2002, respectively. These non-recurring expenses included: (i) facility
closures and related costs in the amount of $1,513,000 in 2001 and $1,794,000 in
2002; (ii) employee termination benefits and related costs in the amount of
$790,000 in 2001 and $1,458,000 in 2002 and (iii) in 2001, property and
equipment abandonment costs in the amount of $270,000. The three plans resulted
in the involuntary termination of 89 employees in 2001 and 78 employees in 2002.

      Impairment of Marketable Securities. A comparison between our 2002 and
2001 impairment of marketable securities is as follows:

                                                                 Variance
                                                                 --------
                                      2002        2001       Decrease      %
                                      ----        ----       --------     --

      Impairment of
      Marketable Securities         $281,000   $7,826,000  ($7,545,000)  (96%)

      The charge for impairment and realized losses on available-for-sale
marketable securities was $281,000 for the year ended December 31, 2002, as
compared to $7,826,000 for the year ended December 31, 2001. In 2001, the
Company changed the classification of certain investments in its portfolio from
"held to maturity" to "available-for-sale", which required those investments to
be adjusted to market value and produced a significant decrease in portfolio
value. The Company also sold most, but not all, of those investments in 2001. In
2002, the value of those investments held-for-sale continued to decline in
value, but to a much lesser extent until they were completely sold in that year.

      Financial Income, Net. A comparison between our 2002 and 2001 financial
income, net is as follows:


                                       33
<PAGE>


                                                                 Variance
                                                                 --------
                                    2002        2001       Decrease      %
                                    ----        ----       --------     --

       Financial Income, Net      $691,000   $3,343,000  ($2,652,000)  (79%)

      The decrease of the net financial income is primarily due to a decrease in
the interest and dividend rates we earned on our cash, cash equivalents and
marketable securities, as well as the decline in the average balances of cash,
cash equivalents and marketable securities. While the change in portfolios noted
in Impairment of Marketable Securities above resulted in a less volatile
portfolio mix, it also significantly lowered investment returns.

      Income Taxes. A comparison between our 2002 and 2001 income taxes is as
follows:

                                                              Variance
                                                              --------
                                  2002        2001       Increase      %
                                  ----        ----       --------     --

      Income Net                $365,000    $212,000     $153,000     72%

      The increase was primarily due to the elimination of a deferred tax asset
in 2002 and the recording of a deferred tax asset in 2001.

B.    Liquidity and Capital Resources.

      We have financed our operations primarily through the sale of equity
securities in the amount of approximately $139.7 million including net proceeds
from the 1998 initial public offering in the amount of approximately $29.0
million, proceeds from the follow-on 1999 public offering in the amount of
approximately $92.3 million and grants from the Government of Israel, Office of
the Chief Scientist to fund new product development. In addition, we raised
$879,000 from the exercise of employee options in 2003. As of December 31, 2003,
working capital was $41.2 million, which included cash and cash equivalents and
marketable securities of $37.9 million. Working capital has declined from
December 31, 2002 due to a shift in investments from short to long term.

      Cash flows from operations. Net cash provided by operating activities
amounted to $4.5 million for the year ended December 31, 2003 as compared to net
cash used in operating activities of $1.7 million for the year ended December
31, 2002. This increase of $6.2 million was primarily due to the shift from a
significant net loss to a small profit accounting for a positive cash flow shift
of $16 million, offset by a decrease in trade receivables (receivables decreased
due to a concerted collections effort) of $5.2 million, a decrease in
non-recurring expenses of $2.9 million and, a decrease in the reserve for
doubtful accounts of $1 million.

      Cash flows from investing activities. Net cash used in investing
activities amounted to $3.5 million for the year ended December 31, 2003 as
compared to $12.2 million for the year ended December 31, 2002. During the year
ended December 31, 2003, proceeds from marketable securities amounted to $6.8
million compared to $5.2 million for the year ended December 31, 2002 while
investments in marketable securities amounted to $8.4 million in 2003 as
compared to $15.7 million in the year ended December 31, 2002. Purchases of
property and equipment increased $800,000 to $2.1 million for the year ended
December 31, 2003 from $1.3 million for the year ended December 31, 2002. We
believe our capital expenditure program is sufficient to maintain our current
level and quality of operations. We review our capital expenditures program
periodically and modify it as required to meet current needs. For 2004, our
anticipated capital expenditures are $5.2 million - See Item 4A.

      Cash flows from financing activities. Net cash provided by financing
activities was $0.9 million for the year ended December 31, 2003 as compared to
$0.1 million for the year ended December 31, 2002. The increase

                                       34
<PAGE>

was primarily due to the increase in proceeds from the issuance of share capital
and exercise of stock options, net, offset by the purchase of treasury stock in
the amount of $88,000 in 2002.

      On February 21, 2002, the Company's Board of Directors authorized the
purchase of up to one million of our Ordinary Shares from time to time on the
open market. By December 31, 2003, the Company had purchased a total of 21,500
shares.

      We believe that cash and cash equivalents and marketable securities will
provide adequate financial resources to finance our current and planned future
operations for the foreseeable future. However, in the event that we make one or
more acquisitions for consideration consisting of all or a substantial part of
our available cash, we might be required to seek external debt or equity
financing for such acquisition or acquisitions or to fund subsequent operations.

      The capital expenditures budget for 2004 is $5.2 million.

Effective Corporate Tax Rate

      Our development facility in Israel has been granted "Approved Enterprise"
status under Israel's Law for the Encouragement of Capital Investments. We have
derived, and expect to continue to derive, a portion of our income from Approved
Enterprise investments. The Company has elected the alternative benefits
program, which provides for a waiver of grants in return for tax exemptions.
Pursuant thereto, the income of the Company derived from the Approved Enterprise
program is tax-exempt for two years commencing with the year it first earns
taxable income relating to each expansion program, and subject to Israeli
corporate taxes at the reduced rate of 10% to 25%, for an additional eight
years.

      We completed our investment in accordance with its initial approval
enterprise program on November 27, 1997. Income derived from this program was
tax exempt for two years commencing in 1998 and will be subject to the reduced
tax rates for eight years ending in 2005 (subject to an adjustment based upon
the foreign investors' ownership in us). In 1998, we received approval for our
first expansion program. In 2000, we received approval for our second expansion
program. Income derived from the expansion programs will be tax-exempt for a
period of two years and will be subject to a reduced tax rate, as mentioned
above, for an additional period of eight years. The period of benefits for these
programs has not yet commenced since no income has been derived from the
programs. In September 2003 we finished our investments related to the second
expansion program and have issued a request for a third expansion program. The
period of tax benefits detailed above is subject to limits of 12 years from the
year of commencement of production, or 14 years from the date of granting the
approval, whichever is earlier. See "Note 14b - Income Taxes" for additional
information.

      At December 31, 2003, we had net operating loss ("NOL") carry forwards of
approximately $52.3 million and $20.7 million in the United States and in
Israel, respectively. The U.S. NOL carry forwards begin to expire in 2010
through 2023 and the Israeli NOL carry forwards have no expiration. See Note 14
to the Consolidated Financial Statements.

C.    Research and Development, Patents and Licenses, etc.

      During 2003 and 2002, $9,690,000 and $14,525,000, respectively, in current
expense charges were made with no capitalized costs. During 2001, the Company
incurred $19,185,000 in current expense charges and, in addition, capitalized
$5,901,000 in research and development costs relating to its Global PAYplus (TM)
software. There were no Office of the Chief Scientist grants in 2001, 2002 or
2003.

D.    Trend Information.

      Our trends are disclosed above in the Overview of this Item 5, "Operating
and Financial Review and Prospects".


                                       35

<PAGE>

E.    Off-Balance Sheet Arrangements

      We have no off-balance sheet arrangements.

F.    Tabular Disclosure of Contractual Obligations

      The following table of our material contractual obligations as of December
31, 2003, summarizes the aggregate effect that these obligations are expected to
have on our cash flows in the periods indicated:

<TABLE>
<CAPTION>

                            -----------------------------------------------------------
                                               Payments Due by Period
                                                   (in thousands)
---------------------------------------------------------------------------------------
                                     Less than   Less than    2-3      4-5    More than
Contractual Obligations     Total     1 year      2 years    years    years   5 years
---------------------------------------------------------------------------------------
<S>                        <C>        <C>         <C>       <C>      <C>       <C>
Operating leases           $10,163    $2,368      $2,845    $2,845   $1,804    $3,146
---------------------------------------------------------------------------------------
</TABLE>



                                       36
<PAGE>

ITEM 6.   DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.

A.    Directors and Senior Management.

      The following table lists the names and ages of the current directors,
executive officers and key employees:

                   NAME            AGE        POSITION
        Gideon Argov               47         Chairman of the Board of Directors
        Reuven Ben Menachem        43         Chief Executive Officer, Director
        Yaffa Krindel              49         Director
        George M. Lieberman        61         Director
        Stanley Stern              47         Director
        Gil Weiser                 62         Director
        Ben-Zion Zilberfarb        54         Director

        Joseph J. Aulenti          57         Senior Vice President,
                                              General Counsel and Secretary
        Yoram Bibring              46         Chief Financial Officer
        Joseph P. Mazzetti         63         Executive Vice
                                              President, International
                                              Sales & Marketing
        Michael Sgroe              48         Chief Operating Officer

      Gideon Argov was elected Chairman of the Board of Directors in July 2003.
Mr. Argov is currently serving as the Managing Director, operations of Parthenon
Capital, a private equity partnership based in Boston, Massachusetts. Prior to
joining Parthenon Capital, between 1991 and 2000, Mr. Argov served as Chairman,
CEO and President of Kollmorgen Corporation, a global leader in industrial
automation specializing in electronic motion control and servo systems, located
in Waltham Massachusetts. From 1988 to 1991, he served as CEO of High Voltage
Engineering Corporation, a private manufacturing corporation based in Burlington
Massachusetts. Mr. Argov was employed by Bain and Company from 1983 to 1988.
Presently, he serves on the board of TransTechnology Corporation, Amazys Holding
AG and Helix Technologies. Mr. Argov has earned an MBA from Stanford University,
as well as a B.A. in Economics from Harvard University.

      Reuven Ben Menachem, a co-founder of Fundtech, has served as the Chief
Executive Officer and as a director of the Company since its inception in April
1993. He served as Chairman of the Board of Directors of the Company from August
1998 to July 2003. Before founding the Company, Mr. Ben Menachem was employed at
Logica Data Architects, a funds transfer software provider located in Waltham,
Massachusetts from 1986 until 1992, most recently as a Technical Director and a
Product Manager. From January 1984 until June 1986, Mr. Ben Menachem served as
Director of Banking Systems at Manof Communications Systems, a middleware
software provider located in Tel Aviv, Israel. Prior to joining Manof, Mr. Ben
Menachem served as a senior programmer/analyst in the Israeli Air Force.

      Yaffa Krindel was elected as a director on February 12, 2004. She is
currently serving as a partner in the Herzlia, Israel office of STAR Ventures, a
private venture capital partnership headquartered in Munich, Germany. Ms.
Krindel joined Star in 1997 as the managing partner of Star in Israel. Before
joining STAR Ventures, between 1992 and 1996, Ms. Krindel served as CFO and VP
Finance of Lannet Data Communications Ltd., then a publicly traded company in
NASDAQ (now part of Avaya Inc. - NYSE: AV), a leader in data communication
systems for the enterprise market, then located in Tel Aviv. From 1993 to 1997
she served as CFO of BreezeCOM Ltd. (now part of Alvarion Ltd. - NASDAQ: ALVR),
a premier provider of solutions based on Point-to-Multipoint (PMP) Broadband
Wireless Access headquartered in Tel Aviv. Prior to joining Lannet, Ms. Krindel
held several executive positions in companies and banks in Israel. Ms. Krindel
currently serves on the boards of VisionSense Ltd., OrSense Ltd., Trivnet Inc.,
and Broadlight Incorporated. Ms. Krindel has earned M.B.A. from Tel Aviv
University and a B.A. in Economics and Japanese Studies from the Hebrew
University in Jerusalem.

      Stanley Stern has served as a director of Fundtech since July 2003. Since
2004, Mr. Stern is currently serving as Head of Investment Banking of
Oppenheimer & Co. Inc. in New York, New York. Prior to joining Oppenheimer & Co.
Inc., Mr. Stern served as the Head of Investment Banking of C.E. Unterberg,
Towbin in New

                                       37
<PAGE>

York, New York from 2002 to 2004. Prior to joining C.E. Unterberg, Towbin, from
2000 to 2003, Mr. Stern served as Managing Director of the U.S.A. and a member
of the Board of Directors and Investment Committee for STI Ventures, a global
venture capital firm. From 1981 to 2000, he was a partner with Oppenheimer &
Co., Inc. and CIBC/Oppenheimer in a number of roles including Head of Technology
Investment Banking. He is a member of the Board of Directors for Zen Research
PLC, Interregnum PLC, Diamond.com and the EON Company. Mr. Stern has earned
degrees from Harvard University Graduate School of Business and City University
of New York.

      Gil Weiser has served as a director of Fundtech since July 2000 and as a
consultant to BBP, the Company's indirectly wholly owned Swiss subsidiary since
May 2001. Mr. Weiser is presently serving as Chairman of various Boards and has
other affiliations with a number of other Israeli high-tech companies since
December 2000. In addition, Mr. Weiser has served as a director of the Tel Aviv
Stock Exchange since January 2001. From 2000 until 2001, Mr. Weiser served as
the Vice Chairman of Orama, an Israeli/U.S. merchant bank located in Tel Aviv,
Israel. From early 1999 until the Spring 2000, Mr. Weiser served as the General
Manager of Hewlett Packard (Israel), a distributor of Hewlett Packard products
and services located in Tel Aviv, Israel. Prior to serving as General Manager of
Hewlett Packard (Israel), Mr. Weiser served from 1995 until 1998 as President
and Chief Executive Officer of Computation and Measurement Systems Ltd. (CMS)
located in Tel Aviv, the Israeli representative of Hewlett Packard. From 1993
until 1995, Mr. Weiser served as President and Chief Executive Officer of
Fibronics International Inc., a worldwide provider of network solutions for
complex data operations in heterogeneous computing environments located in
Haifa, Israel. From 1976 until 1993, Mr. Weiser served as Managing Director of
Digital Israel located in Herzlia, a wholly owned subsidiary of Digital
Equipment Corporation. Mr. Weiser has and continues to hold significant public
positions including Chairman of the Multinational Companies Forum and Vice
Chairman of the Israeli Management Center. Presently he serves as Chairman of
the Executive Board of Haifa University, one of the leading institutions of
higher education in Israel. Mr. Weiser has earned a B.S.E.E. in Electrical
Engineering from the Technion in Haifa as well as an M.S.E.E. in Electronics
Computer Sciences from the University of Minnesota.

      Currently Serving External Directors

      George M. Lieberman has served as a director since 1998 and as an external
director since 2000. Mr. Lieberman has more than 30 years of information
technology management and development experience across a broad spectrum of
industries. He regularly serves as CEO of companies at the request of their
venture investors. Mr. Lieberman is currently acting CEO of EnforSys Inc., a law
enforcement workflow management system company, and a senior advisor to
WebScreen Ltd., a network security company. Mr. Lieberman was the CEO of
Pragmatic Vision Inc. and of Gen3 Partners, subsequent to its merger with
Pragmatic Vision, until December 2003. Mr. Lieberman was the Chief Information
Officer of Wit Capital Group, a pioneer Internet investment banking firm until
April 2000. Prior to January 1999, he held a number of positions at Merrill
Lynch & Co., including First Vice President of Technology Strategy and Planning,
where he participated in setting the Merrill Lynch and Co. Internet financial
services strategy. He was also on the advisory board of the Technology Mezzanine
Funding group that oversees the venture technology investment for the firm's own
account. Additionally, he was a member of the Merrill Lynch Technology Advisory
Board for the Global Technology Research Department. Prior to joining Merrill
Lynch, Mr. Lieberman developed major systems projects at many financial industry
companies including Citibank and ADP. Mr. Lieberman holds advanced degrees in
Industrial Engineering and Operations Research from New York University. Mr.
Lieberman is the current Chairman of the Corporate Advisory Board of The
Institute for Technology and Enterprise, at the Polytechnic University of New
York. He holds two computer related patents.

      Ben-Zion Zilberfarb has served as an external director since his election
to the Board of Directors in January 2002. Dr. Zilberfarb has served as a
Professor of Economics since 1988 and head of the A. Meir Center for Banking
since the fall of 2000, at Bar-Ilan University located in Ramat-Gan, Israel. Dr.
Zilberfarb also served as the Director General of the Ministry of Finance from
March 1998 until July 1999 and as Chairman of the Board of Euro-Trade Bank from
March 2000 until April 2001. Dr. Zilberfarb has served on various government
committees since 1982, including most recently, as a member of the committee to
privatize El Al Airlines, and as a member of the U.S. Israel Bi-national Science
Foundation. From January 1989 until February 1998, Dr. Zilberfarb served as the
Chairman of the Investment Committee of Bank Leumi Provident Funds, a mutual
fund located in Tel Aviv, Israel and as a consultant to several other financial
institutions and several government and regulatory authorities including the
Israel Securities Authority and the Bank of Israel. Dr. Zilberfarb served as
Chairman of the Board of Directors of Karnit Insurance Co. from 1998 until 2002.
Presently he is on the Board of Directors of Partner

                                       38
<PAGE>

Communications and chairman of the investment committee of Clal Gemel (provident
funds and study funds of Clal Insurance Company). Dr. Zilberfarb has earned a
Ph.D. in Economics from the University of Pennsylvania and both an M.A. and a
B.A. in Economics from Bar-Ilan University.

Senior Management

      Joseph Aulenti was appointed Senior Vice President, General Counsel and
Secretary of Fundtech on October 1, 2002. Mr. Aulenti previously served as
Associate General Counsel since joining Fundtech in August 2001. Prior to
joining Fundtech, Mr. Aulenti was engaged in private practice representing
information technology companies from October 2000 until August 2001. From May
1995 until October 2000, Mr. Aulenti served as Senior Vice President and Chief
Legal Officer of Century Technology Group, Inc., a privately held technology
solutions provider located in Falls Church, Virginia. From 1991 to 1995, Mr.
Aulenti served as Senior Vice President - Group Counsel of Fiserv, Inc., a
leading provider of banking technology solutions located in Milwaukee,
Wisconsin. Mr. Aulenti was Senior Vice President and General Counsel of Citicorp
Information Resources, Inc., a leading financial information technology
solutions provider located in Stamford, Connecticut from January 1986 until it
was acquired by Fiserv in June 1991. Mr. Aulenti graduated from the Catholic
University of America with a B.A., holds a M.Sc. from the University of
Bridgeport and a J.D. from Fordham University.

      Yoram Bibring has served as Chief Financial Officer since joining Fundtech
in September 2001. Prior to joining Fundtech, Mr. Bibring served from April 1999
until May 2001 as Chief Financial Officer of ViryaNet, a provider of software
solutions to the workforce management market, located in Southborough,
Massachusetts. From November 1998 until April 1999, Mr. Bibring served as a
Financial Consultant for ViryaNet and others. Prior to joining ViryaNet, Mr.
Bibring served from February 1998 until November 1998 as Chief Financial Officer
of Americash, Inc., a leading operator of e-cash platforms located in New York,
New York, which was sold to American Express. Prior to joining Americash, from
January 1990 until January 1998, Mr. Bibring was employed by Geotek
Communications, a wireless communications service provider located in Montville,
New Jersey, where he served initially as Chief Financial Officer and then as the
President of its International Division. Mr. Bibring's extensive financial
career also includes several years in public accounting in Israel and the United
States. He holds a B.A. in Accounting and Economics from Tel-Aviv University and
is a certified public accountant in both Israel and the United States.

      Joseph P. Mazzetti joined Fundtech in November 1994 and is currently
serving as EVP Global Sales and Marketing. Prior to joining Fundtech, Mr.
Mazzetti was employed from 1992 to 1994 as an Executive Vice President at PRT
Corp., a software consulting company located in New York City. From 1984 to
1992, Mr. Mazzetti was employed at Logica Data Architects, a global consulting
and systems integration firm located in Waltham, Massachusetts, where he held
the position of Executive Vice President of the Financial Products Group with
responsibility for the funds transfer, message switching and asset/liability
product lines. Mr. Mazzetti has more than 30 years of experience in information
technology in the public and private sectors with concentration in the banking
and financial institutions market. Mr. Mazzetti holds a M.Sc. in Industrial
Engineering from Stevens Institute of Technology and a B.S. in Physics from
Georgetown University.

      Michael Sgroe has served as Chief Operating Officer since January of 2003.
Mr. Sgroe was President of U.S. Products and Operations from January 2001 to
January of 2003 and Senior Vice President and General Manager of the U.S.
Payments Division since May 2000, when he joined Fundtech. Prior to joining
Fundtech, Mr. Sgroe was employed for over 16 years at Chase Manhattan Bank, a
leading financial institution headquartered in New York City, where he served as
Vice President with responsibility for developing and deploying high-performance
solutions for the bank's Payments and Cash Management businesses. During this
period, Mr. Sgroe also served as CIO and Vice President of Technology and
Operations for the e-Procurement solutions provider Metiom, an e-commerce
start-up with an equity ownership position held by Chase Manhattan Bank. Mr.
Sgroe began his career in 1979 at Morgan Guaranty Trust, where he held
assignments both in New York and in London. Mr. Sgroe holds a B.A. in
Anthropology from the City University of New York.

B.    Compensation.

      We have entered into an employment agreement with Reuven Ben Menachem,
which provides for annual review of his compensation by the Compensation
Committee and Board of Directors. Mr. Ben Menachem's

                                       39
<PAGE>

compensation is also subject to shareholder approval. It also provides for a
notification period in the event the agreement is terminated without cause.

      In addition, Gil Weiser, a member of the Board of Directors, receives
$2,200 per month to provide consulting services and to serve as the Chairman of
the Executive Committee of BBP, our indirectly wholly owned Swiss subsidiary.
See Item 7B below for "Related Party Transactions.

      The aggregate remuneration we paid for the year ended December 31, 2003 to
our directors, executive officers and former executive officers as a group was
$881,400 in salaries and bonuses . In addition, certain officers are provided a
car allowance that totaled $68,585 for 2003. There were no amounts set aside or
accrued to provide for pension, retirement or similar benefits to our directors
and executive officers.

      In January of 2004, the shareholders approved payment of an annual
retainer of $20,000 to non-employee directors for future annual periods,
beginning January 1, 2004, payable on a quarterly basis of $5,000 per quarter,
provided that any such quarterly payment for any non-employee director shall be
contingent upon such director participating in 75% or more of the Board of
Directors and committees meetings (in which such non-employee director is a
member) held during such quarter. In addition, the Chairman of the Board of
Directors shall be entitled to an additional annual payment of $20,000, payable
on a quarterly basis of $5,000 per quarter, and the Chairman of the Audit
Committee of the Board of Directors (provided that such Chairman is not an
external director) shall be entitled to an additional annual payment of $5,000
payable on a quarterly basis of $1,250 per quarter, provided that any such
quarterly payment(s) for any non-employee director shall be contingent upon such
director participating in 75% or more of the Board of Directors and committees
meetings (in which such non-employee director is a member) held during such
quarter.

      All directors are reimbursed for their expenses for each board meeting
attended. For our external directors, such reimbursement is made in accordance
with the applicable provisions of the Companies Law. For additional information,
please see the discussion set forth under "External Directors," in subsection C
of this Item 6.

Directors Compensation

      Other than as set forth in the compensation section above, we do not
currently compensate directors for attending meetings of the Board of Directors
or committee meetings of the Board of Directors, but we do reimburse directors
for their reasonable travel expenses incurred in connection with attending these
meetings. All directors are reimbursed for their expenses as noted above.
Directors also receive options to purchase Ordinary Shares as noted below.

Option Grants in Last Fiscal Year

      During 2003, options to purchase 480,000 Ordinary Shares were granted to
our directors and executive officers. Of these 480,000 Ordinary Shares, 264,500
are repriced options granted to executive officers on January 13, 2003 under an
Offer To Exchange/Tender Offer (see Offer To Exchange/Tender Offer below) and
17,500 options were granted to Rony Ross, a former director. The weighted
average exercise price of these outstanding options was $6.98 per share for both
directors and for officers, with vesting over a one to four year period. All
director options were granted pursuant to the Director's Stock Option Plan and
executive officers options were granted under the 1999 Employee Option Plan.
Options granted under the Director's Stock Option Plan expire five years from
the date of grant. Options granted under the 1999 Employee Option Plan expire
ten years from the date of grant.

C.    Board Practices.

      The following table sets forth certain information concerning our current
directors and executive officers:


                                       40
<PAGE>

<TABLE>
<CAPTION>

                                                                      Commencement of      Termination/Renewal Date
        Name                     Current Office(s) Held                  Office                  of Office
        ----                     ----------------------               ---------------      ------------------------

<S>                          <C>                                   <C>                    <C>
Gideon Argov (2)(4)(5)        Chairman                              July 22, 2003          2004 Annual Meeting
Reuven Ben Menachem           Chief Executive Officer               October 28, 2002       2004 Annual Meeting
Stanley Stern (2)(3)          Director                              July 22, 2003          2004 Annual Meeting
Yaffa Krindel (2)(3)          Director                              February 12, 2004      2004 Annual Meeting
Gil Weiser (2)(4)(5)          Director                              October 28, 2002       2004 Annual Meeting
George M. Lieberman                                                 December 18, 2003      2006 Annual Meeting
(1)(2)(3)(4)(5)
Ben-Zion Zilberfarb           Director                              January 10, 2002       2004 Annual Meeting
(1)(2)(3)
Joseph Aulenti                Senior Vice President, General        October 1, 2002        Not Applicable
                              Counsel and Secretary
Yoram Bibring                 Chief Financial Officer               September 6, 2001      Not Applicable
Joseph P. Mazzetti            Executive Vice President,             June 1, 2001           Not Applicable
                              International Sales & Marketing
Michael Sgroe                 Chief Operating Officer               June 1, 2001           Not Applicable
</TABLE>

      (1) External Director under the Companies Law.

      (2) Independent Director.

      (3) Member of the Audit Committee.

      (4) Member of the Compensation Committee.

      (5) Member of the Nominating Committee.

      Our Articles of Association (the "Articles of Association"), provide that,
unless otherwise resolved by a resolution of the General Meeting, our Board of
Directors shall consist of not less than five and not more than seven directors.
Officers serve at the discretion of the Board of Directors.

      Prior to every annual meeting, the Board of Directors selects a panel of
between five and seven persons to be proposed to the shareholders of Fundtech
for election as directors. Such individuals, if elected, serve as directors
until the next annual meeting. The above does not apply to the nomination of
"external" directors under the Companies Law, as explained below. Except for
such nominees, no panel of candidates for a directorship may be proposed at an
annual meeting unless not less than 72 hours and not more than 42 days prior to
the date appointed for the ordinary annual meeting, a notice in writing, signed
by shareholders holding at least 10% of our issued and outstanding shares who
are entitled to attend and vote at a meeting in respect of which such notice has
been sent and is delivered to Fundtech stating that such shareholders intend to
propose candidates for such directorships instead of the nominees proposed by
the Board of Directors. The directors, other than the "external" directors under
the Companies Law, are elected by a resolution at every annual meeting, for a
term of office which shall end upon the convening of the first annual
shareholder meeting held after the date of their election.

      The Articles of Association provide that a director may appoint, by
written notice to Fundtech, any individual to serve as an alternate director,
subject to the provisions of the Companies Law. Any alternate director shall
have all of the rights and obligations of the appointing director except the
power to appoint an alternate for himself or herself. Unless the period or scope
of any such appointment is limited by the appointing director, such appointment
is effective for all purposes and for a period of time concurrent with the term
of the appointing director.

      We have no service contracts in place with any of our directors that
provide for benefits upon termination of their services as directors.

External Directors

                                       41

<PAGE>

      Under the Companies Law, companies incorporated under the laws of Israel
whose shares have been offered to the public in or outside of Israel (i.e.,
public companies) are required to appoint two independent or "external"
directors to their Board of Directors. A person may not be appointed as an
external director if the person or the person's relative, partner, employer or
any entity under such person's control, has, as of the date of the person's
election as an external director, or had, during the two years preceding such
election, any affiliation with the company, any person or entity controlling the
company or any entity controlled by the company or by this controlling entity.
The term "affiliation" includes:

      o     an employment relationship;

      o     business or professional relationship maintained on a regular basis;

      o     control; and/or

      o     service as an office holder.

      A person may not serve as an external director if the person's other
duties or responsibilities create, or may create, a conflict of interest with
the person's responsibilities as an external director or may adversely impact
such person's ability to serve as an external director.

      Under the Companies Law, each committee which is authorized to exercise
one of the functions of the Board of Directors is required to include at least
one external director. The term of an external director is three years and may
be extended by the shareholders for an additional three-year term. Until the
lapse of two years from termination of service as director, a company may not
engage an external director to serve as an office holder and cannot employ or
receive services from that person, either directly or indirectly, including
through a corporation controlled by that person. The external directors must be
elected by the majority of the shareholders in a general meeting. Such majority
must either include at least one-third (1/3) of the shares of non-controlling
shareholders voting on the matter, or the total shares of non-controlling
shareholders voting against the election may not represent more than one percent
(1%) of the voting rights in the company.

      George Lieberman and Ben-Zion Zilberfarb currently serve as "external"
directors within the meaning prescribed by the Companies Law.

Independent Directors

      The Ordinary Shares are listed for quotation on The NASDAQ National Market
and are subject to the rules of The NASDAQ National Market applicable to quoted
companies. Under The NASDAQ rules, we are required to appoint a sufficient
number of independent directors for them to constitute a majority. The
independence standard under the NASDAQ rules excludes any person (i) who is an
officer or employee of the Company or its subsidiaries, or (ii) that the board
of directors believes has a relationship that would interfere with such
individual's independent judgment as a director. Additional circumstances that
preclude an individual from serving as an Independent Director are set forth in
the NASDAQ rules, including, with certain limited exceptions, receipt by a
director or his/her immediate family of consulting compensation in excess of
$60,000 per annum. George Lieberman, Gil Weiser, Ben-Zion Zilberfarb, Stanley
Stern and Yaffa Krindel qualify as independent directors and meet the
independence standard of the NASDAQ rules.

Duties under the Companies Law

      The Companies Law codifies the fiduciary duties that an "office holder,"
including directors and executive officers, owe to a company. An office holder's
fiduciary duties consist of a duty of care and a duty of loyalty. The duty of
care requires an office holder to act with the same level of skill with which a
reasonable office holder in the same position would act under the same
circumstances. This includes a duty to use reasonable means to obtain
information on the advisability of a given action brought for such office
holder's approval or performed by him by virtue of his position, and all other
significant information pertaining to such action. The duty of loyalty requires
an office holder to act in good faith and for the company's benefit, and
includes avoiding any conflict of interest

                                       42
<PAGE>

between the office holder's position in the company and any other position held
by him or his personal affairs, avoiding any competition with the company,
avoiding exploiting any business opportunity of the company in order to receive
personal advantage for himself or others and revealing to the company any
information or documents relating to the company's affairs which the office
holder has received due to his position as an office holder. Under the Companies
Law, all arrangements as to compensation of office holders who are not directors
require approval of the Board of Directors, in certain cases with the prior
approval of the Audit Committee, and, with respect to indemnification and
insurance of these office holders, also require Audit Committee approval.
Arrangements regarding the compensation of directors, regardless of whether to
be paid in such director's position as a director or employee of the Company,
require the approval of the Audit Committee, Board of Directors and
shareholders.

Audit Committee

      Pursuant to the Companies Law, the Board of Directors of a public company
must appoint an Audit Committee. The Audit Committee must be comprised of at
least three directors, including all of the external directors elected as such
in accordance with the requirements of the Companies Law. The Audit Committee
may not include the chairman of the Board of Directors, any director we employ
or any director who provides significant services to us on a regular basis or a
controlling shareholder or his relative. The roles of our audit committee under
the Companies Law include identifying irregularities in the management of the
company's business and approving related party transactions as required by law.
The responsibilities of the audit committee under the NASDAQ rules include,
among other things, evaluating the independence of a company's outside auditors.

      In addition to such functions as the audit committee may have under the
Companies Law or under the NASDAQ rules, the primary purpose of our audit
committee is to assist the board of directors in fulfilling its responsibility
to oversee management's conduct of the financial reporting process, the systems
of internal accounting and financial controls and the annual independent audit
of the company's financial statements. The audit committee reviews with
management and our outside auditors the audited financial statements included in
our Annual Report on Form 20-F and our interim quarterly financial results
included on Form 6-K.

      The audit committee must observe the independence of our external auditors
and has the authority and responsibility to nominate for shareholder approval,
evaluate and, where appropriate, recommend the replacement of our external
auditors. In addition, the Audit Committee is responsible for pre-approving all
services provided to us by our external auditors.

      In discharging its oversight role, our audit committee is empowered to
investigate any matter brought to its attention with full access to all books,
records, facilities and personnel of our company and the power to retain outside
counsel, auditors or other experts for this purpose.

      The members of the Audit Committee for the fiscal year ended December 31,
2003 were Gil Weiser, George Lieberman and Ben-Zion Zilberfarb. As of the date
of filing of this Annual Report, the Audit Committee is comprised of Stanley
Stern, Chairman, George Lieberman, Ben-Zion Zilberfarb and Yaffa Krindel. Ms.
Krindel qualifies as a financial expert under the Sarbanes-Oxley Act of 2002.

Internal Auditor

      Under the Companies Law, the board of directors of a public company must
appoint an internal auditor proposed by the audit committee. The duty of the
internal auditor is to examine, inter alia, whether the company's conduct
complies with applicable law and orderly business procedure. The internal
auditor may participate in all audit committee meetings and has the right to
demand that the chairman of the audit committee convenes a meeting. Under the
Companies Law, the internal auditor may not be an interested party, an office
holder or a relative of any of the foregoing, nor may the internal auditor be
the company's independent accountant or its representative. The Companies Law
defines the term "interested party" to include a person who holds 5% or more of
the company's outstanding share capital or voting rights, a person who has the
right to appoint one or more directors or the general manager, or any person who
serves as a director or as the general manager. We have appointed BKR Yarel,
Haguel & Co., as the internal auditor.


                                       43
<PAGE>

The NASDAQ National Market

      Our Ordinary Shares are listed for quotation on The NASDAQ National Market
and we are subject to the rules of The NASDAQ National Market applicable to
listed companies. Under the NASDAQ rules companies quoted on NASDAQ are required
to have a majority of independent directors. In addition, the company must
maintain an audit committee, all of whose members are independent in accordance
with the NASDAQ definition of independence which is applied to audit committee
members and which prohibits any form of compensation for services other than for
services as a director. The audit committee must also adopt an audit committee
charter. The responsibilities of the audit committee under the new NASDAQ rules
include, among other things, evaluating the independence of a company's outside
auditors. The NASDAQ rules further require the appointment of a Compensation
Committee which is comprised solely of independent directors and which is
responsible for setting and approving salaries for the directors and for the
executive officers of the company and a Nominating Committee which is comprised
solely of independent directors and which is responsible for the selection of
directors and for communications with shareholders on the subject of shareholder
nominations. Gideon Argov, Stanley Stern, George Lieberman, Gil Weiser, Ben-Zion
Zilberfarb and Yaffa Krindel qualify as independent directors under the current
NASDAQ National Market requirements, but Mr. Weiser would not be considered
independent under the Audit Committee standards.

Compensation Committee

      The members of the Compensation Committee for the fiscal year ended
December 31, 2003 were Ben-Zion Zilberfarb, George Lieberman and Gideon Argov.
No member of the Compensation Committee is an officer or employee of the
Company. The responsibilities of the Compensation Committee include
administering our stock plans and approving the compensation of our executive
officers. For 2004, the Compensation Committee consists of George Lieberman,
Chairman, Gideon Argov and Gil Weiser.

Nominating Committee

      In accordance with NASDAQ rules, a Nominating Committee has been
established for 2004. Its members are Gil Weiser, Chairman, Gideon Argov and
George Lieberman. The Nominating Committee is responsible for making
recommendations with respect to (i) the nomination by the Board of Directors of
qualified candidates to serve as our Directors, (ii) Board committee assignments
and (iii) chair appointments.

D.    Employees.

      The following table summarizes the main category of activity and
geographic location of our employees as of December 31, 2003:

               ----------------------------------------------------------------
                 Software                Sales and                     Total
               Development  Operations   Marketing   Administration  Employees
               ----------------------------------------------------------------
United States       75          62           26           19            182
-------------------------------------------------------------------------------
Israel              29          11           3            3              46
-------------------------------------------------------------------------------
Switzerland         12          21           7            7              47
-------------------------------------------------------------------------------
United Kingdom      0            4           7            0              11
-------------------------------------------------------------------------------
Australia           0            2           0            0              2
-------------------------------------------------------------------------------
                                                                        288
                                                                     ----------

      We consider ourselves to have good relations with our employees and have
never experienced a labor dispute, strike or work stoppage. Our employees are
not represented by a labor union.

      None of our employees is a party to a collective bargaining agreement with
us. However, we are subject to certain provisions of collective bargaining
agreements among the Government of Israel, the Histadrut (General Federation of
Labor in Israel) and the Coordinating Bureau of Economic Organizations
(including the Industrialists' Association) that are applicable to our Israeli
employees by virtue of expansion orders of the Israeli Ministry of Labor and
Welfare. In addition, Israeli labor laws are applicable to all of our employees
in Israel. Those provisions

                                       44
<PAGE>

and laws principally concern the length of the workday, minimum daily wages for
workers, procedures for dismissing employees, determination of severance pay and
other conditions of employment. Under these provisions, the wages of most of our
employees are automatically adjusted based on changes in the Israeli consumer
price index. The amount and frequency of these adjustments are modified
occasionally.

      As a general practice, although not legally required, we contribute funds
on behalf of most of our full-time employees in Israel to an individual
insurance policy known as "Managers' Insurance." This policy provides a
combination of savings plan, insurance and severance pay benefits to the insured
employee, provides for payments to the employee upon retirement or death and
secures severance pay, if any, to which the employee is legally entitled upon
termination of employment. The remaining part of this obligation is presented on
our balance sheet as a provision for severance pay. See Note 2(l) to the
Consolidated Financial Statements.

      We have to comply with various labor and immigration laws throughout the
world, including laws and regulations in Israel, the United Kingdom and
Switzerland. Compliance with these laws has not been a material burden for us.
If the number of our employees increases over time, our compliance with these
regulations could become more burdensome.

E.    Share Ownership.

Security Ownership of Directors and Senior Management and Certain Key Employees

      As of May 3, 2004, the aggregate number of our Ordinary Shares
beneficially owned by our directors, senior managers and certain key employees
was 569,559 shares, representing 3.82% of the outstanding Ordinary Shares.
Beneficial ownership by a person, as of a particular date, assumes the exercise
of all options and warrants held by such person that are currently exercisable
or are exercisable within 60 days of such date.

      As of May 3, 2004, options to purchase up to 839,918 Ordinary Shares
granted to our directors, senior managers and certain key employees were
outstanding under our option plans. The weighted average exercise price of these
options was $6.19 per share. From these options, options to purchase 359,827
Ordinary Shares granted to our directors, senior managers and certain key
employees are exercisable or will become exercisable within 60 days of May 3,
2004.

Stock Option Plans

      Fundtech has established five plans for granting options to our employees
and one plan for granting options to our directors: the Fundtech Ltd. 1996
Israeli Stock Option Plan for the Employees of Fundtech Ltd. (the "1996 Israel
Plan"); the Fundtech Ltd. 1996 Stock Option Plan for Fundtech Corporation (the
"1996 U.S. Plan," and together with the 1996 Israel Plan, the "1996 Plans"); the
Fundtech Ltd. 1997 Stock Option Plan for Fundtech Corporation (the "1997 U.S.
Plan"); the Fundtech Limited the 1997 Israeli Share Option Plan for the
Employees of Fundtech Ltd. (the "1997 Israel Plan," and together with the 1997
U.S. Plan, the "1997 Plans"); the Fundtech Ltd. 1999 Employee Option Plan (the
"1999 Option Plan"); and the Fundtech Ltd. Directors' Option Plan (the
"Directors' Option Plan," and together with the 1996 Plans, the 1997 Plans and
the 1999 Option Plan, the "Company Option Plans"). The 1996 Israel Plan and 1996
U.S. Plan have expired. All of the other Company Option Plans are still active.

      Pursuant to the Company Option Plans, a total of 3,092,815 options were
allocated for grant to employees and directors of Fundtech and its subsidiaries,
and an equal number of Ordinary Shares have been reserved for issuance upon the
exercise of such options. As of May 3, 2004, 2,102,087 of these options were
outstanding, 210,419 of these options had been exercised, and 771,140 options
remain available to be granted. The following options have been reserved and
granted pursuant to the following plans.

1996 Stock Option Plans

      The 1996 Israel Plan was adopted in May 1996 and expired five years later.
The Compensation Committee or the Board of Directors determines the vesting
period and expiration period for options granted under the 1996

                                       45
<PAGE>

Israel Plan at the time of the grant. The options granted under the 1996 Israel
Plan vest over a period of four years and expire five years from the date of
grant. As of May 3, 2004, 112,504 options had been exercised, no options
remained outstanding and no options remained available to be issued under the
1996 Israel Plan.

      The 1996 U.S. Plan was adopted in October 1996 and expired five years
later. The Compensation Committee or the Board of Directors determines the
vesting period and expiration period for options granted under the 1996 U.S.
Plan at the time of the grant. The options granted under the 1996 U.S. Plan vest
over a period of four years and expire five years from the date of grant. As of
May 3, 2004, 182,572 options had been exercised, no options remained outstanding
and no options remained available to be issued under the 1996 U.S. Plan.

1997 Stock Option Plans

      The 1997 U.S. Plan was adopted in September 1997. The options granted
under the 1997 U.S. Plan expire five years from the date of grant and vest as
determined by the Compensation Committee or the Board of Directors at the time
of the grant, generally over a period of four years. As of May 3, 2004, Ordinary
Shares were reserved and allocated to the 1997 U.S. Plan for option grants of
which 157,905 options have been exercised. By authorization of the shareholders
granted on October 28, 2002, 330,956 options were transferred to the 1999 Plan
and no options remain available.

      The 1997 Israel Plan was adopted in December 1997. The options granted
under the 1997 Israel Plan expire five years from the date of grant and vest as
determined by the Compensation Committee or the Board of Directors at the time
of the grant, generally over a period of four years. As of May 3, 2004, 49,904
Ordinary Shares were reserved and allocated to the 1997 Israel Plan of which
1,250 options were outstanding and 48,654 options have been exercised. By
authorization of the shareholders granted on October 28, 2002, 491,814 options
were transferred to the 1999 Plan and no options remain available.

1999 Stock Option Plan

      The 1999 Option Plan was adopted in September 1999. The Compensation
Committee or the Board of Directors determines the vesting period and expiration
period for options granted under the 1999 Option Plan at the time of the grant.
The options generally vest over a period of between five and ten years from the
date of grant. As of May 3, 2004, 2,655,815 Ordinary Shares were reserved and
allocated to the 1999 Option Plan. Of the 2,655,815 options available for grant
under the 1999 Option Plan, as of May 3, 2004, 1,911,923 options were
outstanding, 233,313 options had been exercised, and 510,579 options remained
available to be issued.

Directors' Option Plan

      The Directors' Option Plan was adopted in May 1998. The Compensation
Committee or the Board of Directors determines the vesting period and expiration
period for options granted under the Directors' Option Plan at the time of the
grant. The options granted under the Directors' Option Plan generally vest over
a period between one and two years and expire five years from the date of grant.
As of May 3, 2004, 437,000 Ordinary Shares were reserved and allocated to the
Directors' Option Plan. Of the 437,000 options available for grant under the
Directors' Option Plan, as of May 3, 2004, 308,000 options were outstanding,
1,000 options had been exercised, and 128,000 options remained available to be
issued.

Offer To Exchange/Tender Offer

      In June 2002, we initiated an offer to exchange certain options held by
certain officers and employees under the 1997 Plans and the 1999 Option Plan
(the "Offer To Exchange"). The offer and withdrawal rights expired on July 15,
2002. We were obligated under the Offer to Exchange to grant 969,311 options to
our officers and employees who were continuously employed by and on active
service with Fundtech or one of its subsidiaries from the date the officers or
employees tendered their options through the date on which the new options were
granted. We issued the options pursuant to the Offer to Exchange on January 17,
2003.

ITEM 7.     MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.


                                       46
<PAGE>

A.    Major Shareholders.

      The following table summarizes information about the beneficial ownership
of our outstanding Ordinary Shares as of May 3, 2004 for each person or group
that we know owns 5% or more of our Ordinary Shares.

<TABLE>
<CAPTION>

                                                          NUMBER OF SHARES          PERCENTAGE
                                                            BENEFICIALLY           BENEFICIALLY
        NAME OF BENEFICIAL OWNER                               OWNED                  OWNED*
        ------------------------                         ------------------    -------------------

<S>                                                          <C>                    <C>
    Clal Industries and Investments Ltd.(1)............       5,161,197               35.5%

    Cannell Capital LLC(2).............................       2,527,826               17.4%

    Aura Investments Research & Development
    Ltd.(3)............................................         905,590                6.2%

    All directors and executive
    officers as a group (11 persons)...................         569,559                3.8%
</TABLE>

      *     We determine beneficial ownership of shares under the rules of the
            Securities and Exchange Commission and include any Ordinary Shares
            over which a person exercises sole or shared voting or investment
            power, or of which a person has the right to acquire ownership at
            any time within 60 days. Applicable percentage ownership in the
            table set forth above is based on 14,553,881 Ordinary Shares
            outstanding as of May 3, 2004.

      1.    As of June 27, 2003, Clal Industries and Investments Ltd. owns
            5,161,197 Ordinary Shares. IDB Development Corporation Ltd., IDB
            Holding Corporation Ltd., Nochi Dankner, Shelly Dankner-Bergman,
            Avraham Livnat, and Ruth Manor have shared power to vote and dispose
            of the 5,161,197 Ordinary Shares held by Clal Industries and
            Investments Ltd. In addition, Mr. Nochi Dankner now has sole power
            to vote and dispose of 3,200 Ordinary Shares.

      2.    As of December 31, 2003 beneficial ownership consists of 2,527,826
            Ordinary Shares held by investment advisory clients who have granted
            Cannell Capital LLC, for which J. Carlo Cannell is the Managing
            Member, with discretionary authority to buy, sell and vote shares.
            Shares are held by The Anegada Fund Limited (620,400 Ordinary
            Shares); The Cuttyhunk Fund Limited (619,300 Ordinary Shares); Tonga
            Partners, L.P. (933,735 Ordinary Shares); GS Cannell Portfolio, LLC
            (228,100 Ordinary Shares); Pleiades Investment Partners, L.P.
            (126,291 Ordinary Shares). The address of Cannell Capital LLC is 150
            California Street, Fifth Floor, San Francisco, CA 94111.

      3.    Based on information set forth on a Schedule 13G, filed June 8,
            2004, by Aura Investments Research & Development Ltd.

      13.6% of our Ordinary Shares are held by record holders located in the
United States. 37 record holders are in the United States.

      Our major shareholders do not have voting rights that differ from those of
our other shareholders.


B. Related Party Transactions.

      Gil Weiser, a member of the Board of Directors, receives $2,200 per month
to provide consulting services and serve as the Chairman of the Executive
Committee of BBP, our indirectly wholly owned Swiss subsidiary. This consulting
agreement expires March 2004, unless extended by the Audit Committee or unless
previously terminated by either party upon thirty (30) days advanced written
notice to the other. This agreement was approved by the Audit Committee, the
Board of Directors and the shareholders. This agreement was renewed at the April
2004 meeting of the Audit Committee.

                                       47
<PAGE>

Insurance

      We have obtained directors and officers liability insurance for the
benefit of our office holders and intend to continue to maintain such coverage
and pay all premiums thereunder to the fullest extent permitted by the Companies
Law. Under the Companies Law, an Israeli company may not exempt an office holder
from liability for a breach of his duty of loyalty, but may exempt in advance an
office holder from his liability to the company, in whole or in part, for a
breach of his duty of care.

      Our Articles of Association provide that, subject to the provisions of the
Companies Law, we may enter into a contract for the insurance of the liability
of any of our office holders for acts which he or she performed in his or her
capacity as an office holder in relation to:

      o     a breach of his/her duty of care to us or to another person;

      o     a breach of his/her duty of loyalty to us, provided that the office
            holder acted in good faith and had reasonable cause to assume that
            his/her act would not prejudice our interests; or

      o     a financial liability imposed upon him/her in favor of another
            person.

Indemnification

      We previously undertook to undertake to indemnify in advance our directors
and office holders for the breach of his or her duty of care to the fullest
extent permitted by the Companies Law, and have entered into indemnification
agreements with the majority of our directors.

      Under Section 260(B) of the Companies Law, a company is entitled to
undertake in advance to indemnify an office holder for the breach of his or her
duty of care, provided that the articles of association of the company permit
such indemnification in advance and further provided that such indemnification
shall be limited to the type of events that, in the discretion of the Board of
Directors of the company, may be anticipated at such time of undertaking and
that such undertaking shall be limited to an amount which the Board of Directors
deems reasonable in light of the applicable circumstances. These are
specifically limited in their scope by Section 263 of the Companies Law, which
provides that a company may not indemnify an office holder nor enter into an
insurance contract which would provide coverage for any liability incurred as a
result of the following: (a) a breach by the office holder of his fiduciary duty
unless he acted in good faith and had a reasonable basis to believe that the act
would not prejudice the company; (b) a breach by the office holder of his duty
of care if such breach was done intentionally or recklessly; (c) any act or
omission done with the intent to derive an unlawful personal benefit; or (d) any
fine levied against such office holder. In addition, under Section 259 of the
Companies Law a company may exempt an office holder from his duty of care to the
company, in whole or in part and subject to the limitations of Section 263 of
the Companies Law described above, provided that such actions are authorized by
the company's articles of association.

C.    Interests of Experts and Counsel.

      Not applicable.

ITEM 8.     FINANCIAL INFORMATION.

A.    Consolidated Statements and Other Financial Information.

      The following Consolidated Financial Statements of Fundtech Ltd. and its
subsidiaries for the years ended December 31, 2001, 2002 and 2003, together with
the report of the independent auditors thereon, are presented under Item 18 of
this report:

            o     Report of Independent Auditors


                                       48
<PAGE>

            o     Consolidated Balance Sheets

            o     Consolidated Statements of Operations

            o     Statements of Changes in Shareholders' Equity

            o     Consolidated Statements of Cash Flows

            o     Notes to Consolidated Financial Statements

Legal Proceedings

      We are not a party to any litigation or legal proceeding of a material
nature, either in Israel or abroad, and are not aware of any other pending or
threatened litigation that we believe may have a material adverse effect on us
or our business.

Dividend Distribution Policy

      We intend to retain all future earnings for use in the development of our
business and do not anticipate paying cash dividends in the foreseeable future.
If we declare cash dividends, they could be taxable to the recipient. Because we
have received benefits under the Law for the Encouragement of Capital
Investments, 1959, as amended (the "Investment Law"), payment of cash dividends
during the exemption period granted under the Investment Law will subject that
portion of our income derived from the Approved Enterprise status granted to us
under the Investment Law to Israeli taxes to which the income would not
otherwise be subject. We intend to reinvest the amount of the tax-exempt income
derived from our "Approved Enterprises" status permanently and not to distribute
such income as dividends.

      Under the Israeli Companies Law, dividends may be paid by an Israeli
company only out of its profits, as defined in such law. Under the Companies
Law, a company's Board of Directors has the general authority to distribute
dividends to the shareholders out of profits referred to above, and a company
may determine in its Articles of Association that dividends may be approved: (i)
by the general meeting, following a recommendation of the Board of Directors
(the shareholders may reduce, but not increase, the dividends recommended by the
Board of Directors), (ii) by the Board of Directors, after the shareholders have
approved the maximum amount of dividends which may be distributed and (iii) in
any other manner detailed in a company's Articles of Association, provided that
the company's Board of Directors shall determine that such distribution complies
with the provisions of the Companies Law. In the event we pay dividends, it is
anticipated that any dividends paid to non-residents of Israel would be paid in
NIS.

B.    Significant Changes.

      None

ITEM 9.     THE OFFER AND LISTING.

Market Price Information

      Our Ordinary Shares are quoted on The NASDAQ National Market under the
symbol "FNDT". The following table sets forth, for the periods indicated, the
high and low closing sales prices for the Ordinary Shares:

                                                 HIGH         LOW
                                                 ----         ---
                1998                            24.63         8.75
                1999                            44.25        10.56
                2000                            41.63        14.31
                2001                            18.04         3.42
                2002                             5.24         3.04


                                       49

<PAGE>

                                                 HIGH         LOW
                                                 ----         ---

                2003                             8.88         3.37

                2002
                First Quarter                    5.24         3.54
                Second Quarter                   4.58         3.61
                Third Quarter                    4.00         3.04
                Fourth Quarter                   4.35         3.19

                2003
                First Quarter                    4.20         3.38
                Second Quarter                   5.59         3.37
                Third Quarter                    7.15         5.22
                Fourth Quarter                   8.88         6.47

                2004
                First Quarter                   10.20         7.15

                                       Most recent six months
                                       ----------------------
                December 2003                    8.88         7.36
                January 2004                    10.20         8.42
                February 2004                    9.77         7.75
                March 2004                       8.22         7.15
                April 2004                       7.91         7.26
                May 2004                         7.97         7.00

      On May 3, 2004, the last closing sale price of the Ordinary Shares, as
reported by the NASDAQ National Market, was $7.10 per share. As of May 3, 2004,
we had 52 shareholders of record. We believe that the number of beneficial
owners of the Ordinary Shares is approximately 1,425.

ITEM 10.    ADDITIONAL INFORMATION.

A.    Share Capital.

      Not Applicable.

B.    Memorandum and Articles of Association.

Company's objectives

      The Company's objectives, as set forth in our Articles of Association, are
to carry on any business and do any act which is not prohibited by law. We may
also make contributions of reasonable sums to worthy purposes even if such
contributions are not made on the basis of business considerations.

Directors

      Any director is entitled to vote in a meeting of our Board of Directors,
except that a director who has a personal interest in an "extraordinary
transaction" (as defined below), which is considered at a meeting of our Board
of Directors, may not be present at this meeting or vote on this matter. An
"extraordinary transaction" is defined in the Companies Law as a transaction
that is either (i) not in the ordinary course of business; (ii) not on market
terms; or (iii) that is likely to have a material impact on the Company's
profitability, assets or liabilities.

      A quorum at a meeting of our Board of Directors shall be constituted by
the presence in person, by alternate or by telephone or similar communication
equipment, of a majority of the directors then in office who are lawfully
entitled to participate and vote at the meeting.

                                       50
<PAGE>

      If within one-half hour (or within such longer time not to exceed one (1)
hour, as the Chairman of the meeting, at his discretion, may decide) from the
time appointed for the convening of the board meeting, a quorum is not present,
the board meeting shall stand adjourned to the same day in the next week at the
same time and place (unless such day shall fall on a public holiday either in
Israel or the United States, in which case the meeting will be adjourned to the
first day, not being a Friday, Saturday or Sunday, which follows such public
holiday). If, at such adjourned board meeting, a quorum is not present within
half an hour from the time appointed for holding the meeting, the directors
present, in person, by alternate or by telephone or similar communication
equipment who are lawfully entitled to participate and vote at such meeting,
shall be a quorum.

      Our business is managed by the Board of Directors, which may exercise all
such company powers and perform on our behalf all such acts as are not, by the
Companies Law or by our Articles of Association, required to be exercised or
performed through a general meeting of our shareholders. Our Articles of
Association provide that the Board of Directors may from time to time, at its
discretion, cause us to borrow or secure the payment of any sum or sums of money
for the Company's purposes, and may secure or provide for the repayment of such
sum or sums in such manner, at such times and upon such terms and conditions as
it deems fit, and, in particular, by the issuance of bonds, perpetual or
redeemable debentures, debenture stock, or any mortgages, charges, or other
securities on the undertaking of the whole or any part of our property, both
present and future, including its uncalled or called but unpaid capital for the
time being.

      There is no age limit as to the ability of individuals to serve as members
of our Board of Directors.

      A director is not required to hold our shares as a condition to his
nomination or election as a director.

Rights attached to our shares

      All dividends shall be declared by our Board of Directors and paid in
proportion to the amount paid up on account of the nominal value of the Ordinary
Shares in respect of which the dividend is being paid. As regards to Ordinary
Shares not fully paid throughout the period in respect of which the dividend is
paid, dividends in respect thereto shall be apportioned and paid pro rata
according to amounts deemed under our Articles of Association to be paid up on
account of the nominal value of such shares during any portion or portions of
the period in respect of which the dividend is paid.

      Under our Articles of Association, every shareholder who is present, in
person, by proxy, or by written ballot or is deemed under the Companies Law to
be present at a general meeting of the shareholders, shall be entitled to one
vote for each Ordinary Share of which he or she is the holder.

      The distribution of dividends is under the discretion of our Board of
Directors, which is under no obligation to distribute dividends to our
shareholders out of the Company's profits.

      Upon liquidation, all available surplus, after payments of all debts,
shall be distributed to our shareholders on a pro-rata basis.

Changes of rights attached to our shares

      Changes to the rights attached to our Ordinary Shares require the approval
of shareholders present, in person, by proxy, or by written ballot, or deemed
under the Companies Law to be present, holding greater than fifty percent (50%)
of the total voting power attached to the Ordinary Shares whose holders were
present, in person, by proxy, or by written ballot, or deemed under the
Companies Law to be present, at such general meeting, and voted thereon. If, at
any time, the share capital of the Company is divided into different classes of
shares, the right attached to any class (unless otherwise provided by the terms
of issue of the shares of that class) may be varied only upon consent of a
separate general meeting of the holders of the shares of that class and the
provisions of our Articles of Association relating to general meetings shall
apply to every such separate general meeting. The enlargement of an authorized
class of shares, or the issuance of additional shares thereof out of the
authorized and unissued share capital, shall not be deemed to vary, modify or
abrogate the rights attached to previously issued shares of such class or of any
other class of shares.

                                       51
<PAGE>

General Meetings

      We are required to hold an annual general shareholders meeting once in
every calendar year within a period of not more than fifteen (15) months after
the last preceding annual general shareholders meeting. All general shareholders
meetings other than the annual general shareholders meeting are deemed to be
special shareholders meetings. Our Board of Directors may call for a general
meeting whenever it sees fit, and, under the Companies Law, is required to call
a general meeting upon a demand in writing by (i) a shareholder or shareholders
holding at least 5% of the outstanding shares and 1% of the voting rights in the
company or (ii) a shareholder or shareholders holding at least 5% of the voting
rights in the company. Subject to applicable law and regulations, prior notice
of at least 21 days of any general shareholders meeting, specifying the place,
date and hour of the meeting, shall be given to the shareholders of the Company.
No business shall be transacted at any general shareholders meeting unless a
quorum is present when the meeting proceeds to business. For all purposes, the
quorum shall not be less than two (2) shareholders present in person, or by
proxy, or deemed by the Companies Law to be present at such meeting, holding, in
the aggregate, at least, thirty-three and one-third percent (33 1/3%) of the
voting rights in our issued share capital. If, within half an hour from the time
appointed for the meeting, a quorum is not present (or within such longer time
not exceeding one (1) hour as the Chairman of the meeting may decide), the
meeting, if convened upon the requisition of the shareholders, shall be
dissolved; in any other case, it shall stand adjourned to the same day in the
next week at the same place and time (unless such day shall fall on a public
holiday either in Israel or the United States, in which case the meeting will be
adjourned to the first day, not being a Friday, Saturday or Sunday, which
follows such public holiday), or any other day, hour and/or place as the
directors shall notify the shareholders. If a quorum is not present at the
second meeting within half an hour from the time appointed for the meeting, any
two shareholders present personally or by proxy or any other valid instrument,
shall constitute a quorum, and shall be entitled to deliberate and to resolve in
respect of the matters for which the meeting was convened.

Ownership of Our Shares

      Our Articles of Association and the laws of the State of Israel do not
restrict in anyway the ownership or voting of our shares by non-residents of
Israel.

Change of Control

      Our Articles of Association do not contain specific provisions intended to
delay, defer or prevent a change of control.

C.    Material Contracts.

      We have no material contracts that have been entered into outside the
ordinary course of business in the past two years.

D.    Exchange Controls.

      Until May 1998, Israel imposed restrictions on transactions in foreign
currency. These restrictions affected our operations in various ways, and also
affected the right of non-residents of Israel to convert into foreign currency
amounts they received in Israeli currency, such as the proceeds of a judgment
enforced in Israel. Despite these restrictions, foreign investors who purchased
shares with foreign currency were able to repatriate in foreign currency both
dividends (after deduction of withholding tax) and the proceeds from the sale of
the shares. In 1998, the Israeli currency control regulations were liberalized
significantly, as a result of which Israeli residents generally may freely deal
in foreign currency and non-residents of Israel generally may freely purchase
and sell Israeli currency and assets. There are currently no Israeli currency
control restrictions on remittances of dividends on the Ordinary Shares or the
proceeds from the sale of the shares; however, legislation remains in effect
pursuant to which currency controls can be imposed by administrative action at
any time.

      Neither our Memorandum of Association nor our Articles of Association nor
the laws of the State of Israel restrict in any way the ownership or voting of
Ordinary Shares by non-residents of Israel.

                                       52
<PAGE>

E.    Taxation.

United States Federal Income Tax Considerations

      Subject to the limitations described herein, the following discussion
summarizes the material United States federal income tax consequences to a U.S.
Holder of our Ordinary Shares. A "U.S. Holder" means a holder of our Ordinary
Shares who is:

      o     a citizen or resident of the United States;

      o     a corporation (or other entity taxable as a corporation) created or
            organized in the United States or under the laws of the United
            States or any political subdivision thereof;

      o     an estate, the income of which is subject to United States federal
            income tax regardless of its source; or

      o     a trust, (i) if, in general a court within the United States is able
            to exercise primary supervision over its administration and one or
            more U.S. persons have the authority to control all of its
            substantial decisions, or (ii) that has in effect a valid election
            under applicable U.S. Treasury regulations to be treated as a U.S.
            person.

      This discussion considers only U.S. Holders that will own their Ordinary
Shares as capital assets and does not purport to be a comprehensive description
of all of the tax considerations that may be relevant to each person's decision
to purchase Ordinary Shares.

      This discussion is based on current provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), current and proposed Treasury regulations
promulgated thereunder, and administrative and judicial decisions as of the date
hereof, all of which are subject to change, possibly on a retroactive basis.
Under legislation adopted in 2003, certain dividends subject to a lower income
tax rate and individual income tax rates on ordinary income have been reduced.
It is not clear at this time whether, or in what form, any of such legislative
proposals (or other proposals) will be enacted, what the effective date of any
such changes would be, and what other changes would be made that could further
affect the tax consequences discussed herein. This discussion does not address
all aspects of United States federal income taxation that may be relevant to any
particular U.S. holder in light of such Holder's individual circumstances. In
particular, this discussion does not address the potential application of the
alternative minimum tax or United States federal income tax consequences to
shareholders that are subject to special treatment, including Holders that:

      o     are broker-dealers or insurance companies;

      o     have elected mark-to-market accounting;

      o     are tax-exempt organizations or retirement plans;

      o     are financial institutions or "financial services entities";

      o     hold Ordinary Shares as part of a straddle, "hedge" or "conversion
            transaction" with other investments;

      o     acquired their shares upon the exercise of employee stock options or
            otherwise as compensation;

      o     hold their shares through partnerships or other pass-through
            entities;

      o     own directly, indirectly or by attribution at least 10% of our
            voting power; or

      o     have a functional currency that is not the U.S. dollar.

      In addition, this discussion does not address any aspect of state, local
or non-United States tax laws or the possible application of United States
federal gift or estate tax.


                                       53
<PAGE>

      Each holder of Ordinary Shares is advised to consult such person's own tax
advisor with respect to the specific tax consequences to such person of
purchasing, holding or disposing of our Ordinary Shares, including the
applicability and effect of federal, state, local and foreign income tax and
other tax laws in such person's particular circumstances.

Taxation of Ordinary Shares

      Taxation of Dividends Paid On Ordinary Shares. A U.S. Holder will be
required to include in gross income as ordinary dividend income the amount of
any distribution paid on Ordinary Shares, including any Israeli taxes withheld
from the amount paid, on the date the distribution is received to the extent the
distribution is paid out of our current or accumulated earnings and profits as
determined for United States federal income tax purposes. Distributions in
excess of such earnings and profits will be applied against and will reduce the
U.S. Holder's basis in our Ordinary Shares and, to the extent in excess of such
basis, will be treated as gain from the sale or exchange of our Ordinary Shares.
The dividend portion of such distributions generally will not qualify for the
dividends received deduction available to corporations.

      Distributions of current or accumulated earnings and profits paid in
foreign currency to a U.S. Holder (including any Israeli taxes withheld
therefrom) will be includible in the income of a U.S. Holder in a U.S. dollar
amount calculated by reference to the exchange rate on the day the distribution
is received. A U.S. Holder that receives a foreign currency distribution and
converts the foreign currency into U.S. dollars subsequent to receipt will have
foreign exchange gain or loss based on any appreciation or depreciation in the
value of the foreign currency against the U.S. dollar, which will generally be
U.S. source ordinary income or loss.

      U.S. Holders will have the option of claiming the amount of any Israeli
income taxes withheld at source either as a deduction from gross income or as a
dollar-for-dollar credit against their United States federal income tax
liability. Individuals who do not claim itemized deductions, but instead utilize
the standard deduction, may not claim a deduction for the amount of the Israeli
income taxes withheld, but such amount may be claimed as a credit against the
individual's United States federal income tax liability. The amount of foreign
income taxes that may be claimed as a credit in any year is subject to complex
limitations and restrictions, which must be determined on an individual basis by
each shareholder. These limitations include, among others, rules that limit
foreign tax credits allowable with respect to specific classes of income to the
United States federal income taxes otherwise payable with respect to each such
class of income. The total amount of allowable foreign tax credits in any year
cannot exceed regular U.S. tax liability for the year attributable to foreign
source taxable income. A U.S. Holder will be denied a foreign tax credit with
respect to Israeli income tax withheld from a dividend received on the Ordinary
Shares if such U.S. Holder has not held the Ordinary Shares for at least 16 days
of the 30-day period beginning on the date which is 15 days before the
ex-dividend date with respect to such dividend, or to the extent such U.S.
Holder is under an obligation to make related payments with respect to
substantially similar or related property. Any days during which a U.S. Holder
has substantially diminished its risk of loss on the Ordinary Shares are not
counted toward meeting the required 16 day holding period. Distributions of
current or accumulated earnings and profits will be foreign source passive
income for United States foreign tax credit purposes.

      Taxation of the Disposition of Ordinary Shares. Upon the sale, exchange or
other disposition of our Ordinary Shares, a U.S. Holder will recognize capital
gain or loss in an amount equal to the difference between such U.S. Holder's
basis in such Ordinary Shares, which is usually the cost of such shares, and the
amount realized on the disposition. A U.S. Holder that uses the cash method of
accounting calculates the U.S. dollar value of the proceeds received on the sale
as of the date that the sale settles, while a U.S. Holder that uses the accrual
method of accounting is required to calculate the value of the proceeds of the
sale as of the "trade date," unless such U.S. Holder has elected to use the
settlement date to determine its proceeds of sale. Capital gain from the sale,
exchange or other disposition of Ordinary Shares held more than one year is
long-term capital gain, and is eligible for a reduced rate of taxation for
individuals. Gains recognized by a U.S. Holder on a sale, exchange or other
disposition of Ordinary Shares will be treated as United States source income
for United States foreign tax credit purposes. A loss recognized by a U.S.
Holder on the sale, exchange or other disposition of Ordinary Shares is
allocated to U.S. source income. The deductibility of a capital loss recognized
on the sale, exchange or other disposition of Ordinary Shares is subject to
limitations. A U.S. Holder that receives foreign currency upon disposition of
Ordinary Shares and converts the foreign currency into U.S. dollars subsequent
to the settlement date or trade date (whichever date the taxpayer was required
to use to calculate the value of the proceeds of sale) will have foreign
exchange gain or

                                       54
<PAGE>

loss based on any appreciation or depreciation in the value of the foreign
currency against the U.S. dollar, which will generally be U.S. source ordinary
income or loss.

      Anti-Deferral Regimes. Notwithstanding the above rules regarding
distributions and dispositions, special rules may apply to some U.S. Holders (or
to the direct or indirect beneficial owners of some non-U.S. Holders) if one or
more anti-deferral regimes discussed below are applicable. The rules regarding
each of these regimes, as well as their interaction with each other, are
complex, and holders should consult their tax advisers with respect to any
impact these regimes may have on the tax consequences of their ownership of our
shares.

      Foreign Personal Holding Company Status. If at any time during a taxable
year more than 50% of the total combined voting power or the total value of our
outstanding shares is owned, actually or constructively, by five or fewer
individuals who are citizens or residents of the United States and 60% or more
of our gross income for such year was derived from certain passive sources
(e.g., from dividends received from our subsidiaries), we would be treated as a
"foreign personal holding company." In that event, U.S. Holders that hold
Ordinary Shares would be required to include in income for such year their
allocable portion of our passive income which would have been treated as a
dividend had that passive income actually been distributed.

      Controlled Foreign Corporation Status. If more than 50% of the voting
power of all classes of our stock or the total value of the stock of our company
is owned, directly or indirectly, by U.S. Holders, each of whom own after
applying rules of attribution 10% or more of the total combined voting power of
all classes of our stock, we would be treated as a "controlled foreign
corporation" or "CFC" under Subpart F of the Code. This classification would
bring into effect many complex rules including the required inclusion by such
10% U.S. Holders in income of their pro rata share of our "Subpart F income" (as
defined by the Code) and our earnings invested in "U.S. property" (as defined by
Section 956 of the Code). In addition, under Section 1248 of the Code if we are
considered a CFC at any time during the five year period ending with the sale or
exchange of our Ordinary Shares, gain from the sale or exchange of our Ordinary
Shares by a 10% U.S. Holder is treated as ordinary dividend income to the extent
of our earnings and profits attributable to the stock sold or exchanged. If we
were a CFC, we would not be a passive foreign investment company, as discussed
below, with regard to any such 10% U.S. Holder. Because of the complexity of
Subpart F, and because we may never be a CFC, a more detailed review of these
rules is beyond of the scope of this discussion.

      Passive Foreign Investment Company Status. We would be a passive foreign
investment company (a "PFIC") for 2003 if (taking into account certain
"look-through" rules with respect to the income and assets of our subsidiaries)
either 75 percent or more of our gross income for the taxable year is passive
income or the average percentage (by value) of our passive assets during the
taxable year is at least 50 percent. As discussed below, we believe that we were
not a PFIC for 2003.

      If we were a PFIC, each U.S. Holder would (unless it made one of the
elections discussed below on a timely basis) be taxable on gain recognized from
the disposition of Ordinary Shares (including gain deemed recognized if the
Ordinary Shares are used as security for a loan) and upon receipt of certain
distributions with respect to Ordinary Shares as if such income had been
recognized ratably over the U.S. Holder's holding period for the Ordinary
Shares. The U.S. Holder's income for the current taxable year would include (as
ordinary income) amounts allocated to the current year and to any period prior
to the first day of the first taxable year for which we were a PFIC. Tax would
also be computed at the highest ordinary income tax rate in effect for each
other period to which income is allocated, and an interest charge on the tax as
so computed would also apply. Additionally, if we were a PFIC, U.S. Holders who
acquire our Ordinary Shares from decedents (other than nonresident aliens) dying
before 2010 would be denied the normally-available step-up in basis for such
shares to fair market value at the date of death and, instead, would have a tax
basis in such shares equal to the decedent's basis, if lower.

      As an alternative to the tax treatment described above, a U.S. Holder
could elect to treat us as a "qualified electing fund" (a "QEF"), in which case
the U.S. Holder would be taxed currently on its pro rata share of our ordinary
earnings and net capital gain (subject to a separate election to defer payment
of taxes, which deferral is subject to an interest charge). Special rules apply
if a U.S. Holder makes a QEF election after the first year in its holding period
in which we are a PFIC. We have agreed to supply U.S. Holders with the
information needed to report income and gain under a QEF election if we were a
PFIC. As another alternative to the tax treatment described above, a U.S. Holder
could elect to mark our shares to market annually, recognizing as ordinary
income or

                                       55
<PAGE>

loss each year an amount equal to the difference as of the close of the taxable
year between the fair market value of our shares and the shareholder's adjusted
basis in the shares. Losses would be allowed only to the extent of net
mark-to-market gain previously included in income by the U.S. Holder.

      As indicated above, we will be a PFIC for any tax year if the average
percentage (by value) of our assets held for the production of, or that produce,
passive income is at least 50 percent. Based on discussions with our advisors,
we believe that we were not a passive foreign investment company for our tax
year ended December 31, 2003. However, there can be no assurance that the
Internal Revenue Service will not challenge this conclusion. The tests for
determining PFIC status are applied annually and it is difficult to make
accurate predictions of future income and assets, which are relevant to this
determination. Accordingly, there can be no assurance that we will not become a
PFIC in 2004 or in subsequent years. U.S. Holders who hold Ordinary Shares
during a period when we are a PFIC (whether we were determined to be a PFIC in
2004, 2003 or any earlier year) will be subject to the foregoing rules, even if
we cease to be a PFIC, subject to certain exceptions for U.S. Holders who made a
QEF election or the mark-to-market election.

      Although a U.S. Holder normally is not permitted to make a retroactive QEF
election for a foreign corporation, a retroactive election may be made for a
taxable year of the U.S. Holder (the "retroactive election year") if the U.S.
Holder (i) reasonably believed that, as of the date the QEF election was due,
the foreign corporation was not a PFIC for its taxable year that ended during
the retroactive election year and (ii) filed a protective statement with respect
to the foreign corporation, applicable to the retroactive election year, in
which the U.S. Holder described the basis for its reasonable belief and extended
the period of limitation on the assessment of taxes determined under Sections
1291 through 1298 of the Code with respect to the foreign corporation (PFIC
related taxes) for all taxable years of the shareholder to which the protective
statement applies. U.S. Holders should consult their tax advisors regarding the
advisability of filing a protective statement.

      U.S. Holders are urged to consult their tax advisors about the PFIC rules,
including eligibility for and the manner and advisability of making, the QEF
election (or a protective QEF election) or the mark-to market election.

Tax Consequences for Non-U.S. Holders of Ordinary Shares

      Except as described in "Information Reporting and Back-up Withholding"
below, a non-U.S. Holder of Ordinary Shares will not be subject to U.S. federal
income or withholding tax on the payment of dividends on, and the proceeds from
the disposition of, Ordinary Shares, unless:

      o     such item is effectively connected with the conduct by the non-U.S.
            Holder of a trade or business in the United States and, in the case
            of a resident of a country which has a treaty with the United
            States, such item is attributable to a permanent establishment or,
            in the case of an individual, a fixed place of business, in the
            United States;

      o     the non-U.S. Holder is an individual who holds the Ordinary Shares
            as a capital asset and is present in the United States for 183 days
            or more in the taxable year of the disposition and does not qualify
            for an exemption; or

      o     the non-U.S. Holder is subject to tax pursuant to the provisions of
            United States tax law applicable to U.S. expatriates.

Information Reporting and Back-up Withholding

      U.S. Holders generally are subject to information reporting requirements
with respect to dividends paid in the United States on Ordinary Shares. Under
the Code, a U.S. Holder may be subject, under certain circumstances, to backup
withholding at a rate of up to 30% with respect to dividends paid on our
Ordinary Shares unless the holder provides proof of an applicable exemption or
correct taxpayer identification number and otherwise complies with applicable
requirements of the backup withholding rules.

      A holder of Ordinary Shares who does not provide a correct taxpayer
identification number may be subject to penalties imposed by the IRS. Amounts
withheld under the backup withholding rules are not an additional tax

                                       56
<PAGE>

and may be refunded or credited against the holder's federal income tax
liability, provided the required information is furnished to the IRS.

      Non-U.S. Holders generally are not subject to information reporting or
back-up withholding with respect to dividends paid on, or the proceeds from the
disposition of, Ordinary Shares, provided that such non-U.S. Holder provides a
taxpayer identification number, certifies to its foreign status, or otherwise
establishes an exemption.

Israeli Income Tax Considerations

      The following is a summary of the current tax structure applicable to
companies in Israel, with special reference to its effect on us. The following
also contains a discussion of certain Israeli Government programs benefiting us.
To the extent that the discussion is based on new tax legislation that has not
been subject to judicial or administrative interpretation, there can be no
assurance that the views expressed in the discussion will be accepted by the tax
authorities in question. The discussion is not intended, and should not be
construed, as legal or professional tax advice and is not exhaustive of all
possible tax considerations.

General Corporate Tax Structure

      Israeli companies are subject to corporate tax at the rate of 36%.
However, the effective rate of tax of a company that derives income from an
"approved enterprise" (as referred to below) may be considerably lower. See "Law
for the Encouragement of Capital Investments, 1959" in this Item 10E, below.

Law for the Encouragement of Industry (Taxes), 1969

      We currently qualify as an "industrial company" under the Law for the
Encouragement of Industry (Taxes), 1969 (the "Industry Encouragement Law"). A
company qualifies as an "industrial company" if it is resident in Israel and at
least 90% of its income in a given tax year, determined in NIS (other than
income from certain types of loans, capital gains, interest and dividends), is
derived from industrial enterprises owned by that company. An "industrial
enterprise" is defined as an enterprise whose major activity in a particular tax
year is industrial manufacturing activity.

      Under the Industry Encouragement Law, an industrial company is entitled to
deduct the purchase price of patents and certain other intangible property
rights (other than goodwill) over a period of eight years, beginning with the
year in which such rights were first used.

      An industrial company may be eligible for special depreciation rates for
machinery, equipment and buildings. These rates differ based on various factors,
including the date of commencement of operation and the number of work shifts.
An industrial company owning an approved enterprise may choose between such
special depreciation rates and the depreciation rates available to approved
enterprises.

      Qualification as an industrial company under the Industry Encouragement
Law is not conditioned upon the receipt of prior approval from any Israel
government authority. No assurance can be given that we will continue to qualify
as an industrial company or that we will, in the future, be able to take
advantage of any tax benefits available to industrial companies.

Law for the Encouragement of Capital Investments, 1959

      An approved enterprise approved after April 1, 1986, may elect to forego
any entitlement to the grants otherwise available under the Investment Law and,
in lieu of the foregoing, participate in an alternative benefits program, under
which the undistributed income from the approved enterprise is fully exempt from
corporate tax for a defined period of time. The period of tax exemption ranges
between two and ten years, depending upon the location within Israel of the
approved enterprise and the type of approved enterprise. Upon expiration of the
exemption period, the approved enterprise would be eligible for the otherwise
applicable reduced tax rates under the Investment Law for the remainder, if any,
of the otherwise applicable benefits period.

                                       57
<PAGE>

      The reduced corporate tax rate is generally 25%. However, further
reductions in tax rates depending on the percentage of the foreign investment in
a company's share capital (conferring rights to profits, voting and appointment
of directors) and the percentage of its combined share and loan capital owned by
non-Israeli residents, would apply. The tax rate is 20% if the foreign
investment level is 49% or more but less than 74%, 15% if the foreign investment
level is 74% or more but less than 90%, and 10% if the foreign investment level
is 90% or more. The lowest level of foreign investment during the year will be
used to determine the relevant tax rate for that year. These tax benefits are
granted for a limited period not exceeding seven or ten years for a company
whose foreign investment level exceeds 25% from the first year in which the
approved enterprise has taxable income. The period of benefits may in no event,
however, exceed the lesser of 12 years from the year in which the production
commenced or 14 years from the year of receipt of approved enterprise status.

      We have three approved enterprises. We elected to participate in the
alternative benefits program. Since March 1998, following our initial public
offering in the United States, we have been a "foreign investors' company," as
defined by the Investment Law and we are therefore entitled to a ten year period
of benefits (instead of a seven-year period), for enterprises approved after
March 1998. The period of benefits of our approved enterprises will expire
during the period 2004 through 2014, and is conditioned upon maintaining our
approved enterprise status. There can be no assurance that the current benefit
program will continue to be available or that we will continue to qualify for
such benefits.

      A company that has elected to participate in the alternative benefits
program and that subsequently pays a dividend out of the income derived from the
approved enterprise during the tax exemption period will be subject to corporate
tax in respect of the amount distributed (including withholding tax thereon) at
the rate that would have been applicable had the company not elected the
alternative benefits program (generally 10% - 25%). The dividend recipient is
taxed at the reduced withholding tax rate of 15%, applicable to dividends from
the approved enterprises if the dividend is distributed within 12 years after
the benefits period or other rate provided under a treaty. The withholding tax
rate will be 25% after such period. In the case of a company with a foreign
investment level (as defined by the Investment Law) of 25% or more, the 12-year
limitation on reduced withholding tax on dividends does not apply. Tax should be
withheld by the company at source, regardless of whether the dividend is
converted into foreign currency.

      The Law for the Encouragement of Capital Investments, 1959, as amended
(the "Investment Law"), provides that a capital investment in eligible
facilities may, upon application to the Investment Center, be designated as an
approved enterprise. Each certificate of approval for an approved enterprise
relates to a specific investment program delineated both by its financial scope,
including its capital resources, and by its physical characteristics, e.g., the
equipment to be purchased and utilized pursuant to the program. The tax benefits
derived from any such certificate of approval relate only to taxable income
attributable to the specific approved enterprise. If a company has more than one
approval, its effective tax rate is the result of a weighted combination of the
applicable rates. Income derived from activity that is not integral to the
activity of the enterprise should not be divided between the different
enterprises and should not enjoy tax benefits.

Taxation under Inflationary Conditions

      The Income Tax (Inflationary Adjustments) Law, 1985 (the "Inflationary
Adjustments Law"), was designed to neutralize the erosion of capital investments
in business and to prevent tax benefits resulting from deduction of inflationary
expenses. This law applies a supplementary set of inflationary adjustments to
the normal taxable profits computed under regular historical cost principles.

      The Inflationary Adjustments Law introduced a special tax adjustment for
the preservation of equity based on changes in the Israeli CPI, whereby certain
corporate assets are classified broadly into fixed (inflation-resistant) assets
and non-fixed assets. Where a corporation's equity exceeds the depreciated cost
of fixed assets, a tax deduction that takes into account the effect of the
annual rate of inflation on such excess is allowed (up to a ceiling of 70% of
taxable income for companies in any single year, with the unused portion carried
forward on a linked basis, without limit). If the depreciated cost of fixed
assets exceeds shareholders' equity, then such excess, multiplied by the annual
inflation rate, is added to taxable income.

                                       58
<PAGE>

      Under the Inflationary Adjustments Law, results for tax purposes are
measured in real terms, in accordance with changes in the Israeli CPI. We are
taxed under this law. The discrepancy between the change in (1) the Israeli CPI
and (2) the exchange rate of Israeli currency in relation to the dollar, may in
future periods cause significant differences between taxable income and the
income measured in dollars as reflected by our financial statements (which are
measured in dollars). In addition, subject to certain limitations, depreciation
of fixed assets and losses carried forward are adjusted for inflation on the
basis of changes in the Israeli CPI.

Withholding and Capital Gains Taxes Applicable to Non-Israeli Shareholders

      The State of Israel imposes income tax on nonresidents of Israel on income
accrued or derived from sources in Israel or received in Israel. These sources
of income include passive income such as dividends, royalties and interest, as
well as non-passive income from services rendered in Israel. We are required to
withhold income tax at the rate of 25%, or 15% for dividends of income generated
by an approved enterprise, on all distributions of dividends other than bonus
shares (stock dividends), unless a different rate is provided in a treaty
between Israel and the shareholder's country of residence. Under the income tax
treaty between the United States and Israel, the maximum tax on dividends paid
to a holder of Ordinary Shares who is a U.S. resident (as defined in the treaty)
is 25%.

Capital Gains Taxes on Sales of our Ordinary Shares

      Until the end of the year 2002, capital gains from the sale of our
securities were generally exempt from Israeli Capital Gains Tax. This exemption
did not apply to a shareholder whose taxable income was determined pursuant to
the Israeli Income Tax Law (Inflationary Adjustments), 1985, or to a person
whose gains from selling or otherwise disposing of our securities were deemed to
be business income.

      As a result of the recent tax reform legislation in Israel, gains from the
sale of our Ordinary Shares and warrants to purchase our Ordinary Shares derived
from January 1, 2003 and on will in general be liable to capital gains tax of up
to 15% while our shares are eligible for sale on a designated foreign stock
market such as the NASDAQ. However, according to the tax reform legislation,
non-residents of Israel will be exempt from any capital gains tax from the sale
of our securities so long as the gains are not derived through a permanent
establishment that the non-resident maintains in Israel, and so long as our
securities remain listed for trading as described above. These provisions
dealing with capital gains are not applicable to a person whose gains from
selling or otherwise disposing of our securities are deemed to be business
income or whose taxable income is determined pursuant to the Israeli Income Tax
Law (Inflation Adjustments), 1985. The Israeli Income Tax Law (Inflation
Adjustments) would not normally be applicable to non-resident shareholders who
have no business activity in Israel.

      In any event, under the US-Israel Tax Treaty, a U.S. treaty resident may
only be liable for Israeli capital gains tax on the sale of our Ordinary Shares
(subject to the provisions of Israeli domestic law as described above) if that
U.S. treaty resident holds 10% or more of the voting power in our company.

      Israel presently has no estate or gift tax.

F.    Dividend and Paying Agents.

      Not Applicable.

G.    Statement by Experts.

      Not Applicable.

H.    Documents on Display.

      We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, applicable to foreign private issuers and
fulfill the obligation with respect to such requirements by filing reports with
the Securities and Exchange Commission. You may read and copy any document we
file with the Securities and

                                       59
<PAGE>

Exchange Commission without charge at the Securities and Exchange Commission's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies
of such material may be obtained by mail from the Public Reference Branch of the
Securities and Exchange Commission at such address, at prescribed rates.
Additionally, copies of this material may be obtained from the Securities and
Exchange Commission's website at http://www.sec.gov. Please call the Securities
and Exchange Commission at l-800-SEC-0330 for further information on the public
reference room.

      As a foreign private issuer, we are exempt from the rules under the
Exchange Act prescribing the furnishing and content of proxy statements, and our
officers, directors and principal shareholders are exempt from the reporting and
"short-swing" profit recovery provisions contained in Section 16 of the Exchange
Act. In addition, we are not be required under the Exchange Act to file periodic
reports and financial statements with the Securities and Exchange Commission as
frequently or as promptly as U.S. companies whose securities are registered
under the Exchange Act. A copy of each report submitted in accordance with
applicable U.S. law is available for public review at our principal executive
offices.

I.    Subsidiary Information.

      Not Applicable.

ITEM 11.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

      We do not utilize financial instruments for trading purposes and hold no
derivative financial instruments that could expose us to significant market
risk.

ITEM 12.    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.

      Not Applicable.

                                     PART II

ITEM 13.    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.

      None.

ITEM 14.    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
            PROCEEDS.

      Not Applicable

ITEM 15.    CONTROLS AND PROCEDURES.

      (a) Disclosure Controls and Procedures.

      Our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO,
are responsible for establishing and maintaining our disclosure controls and
procedures. These controls and procedures were designed to ensure that
information relating to us and our subsidiaries required to be disclosed in the
reports that we file under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time periods specified
in the rules and forms of the SEC. We evaluated these disclosure controls and
procedures under the supervision of our CEO and CFO as of December 31, 2003.
Based on this evaluation, our CEO and CFO concluded that our disclosure controls
and procedures are effective in timely alerting them to information required to
be disclosed in our periodic reports to the SEC.

      (b)  Changes in Internal Control Over Financial Reporting

                                       60
<PAGE>

      There were no changes in the Company's internal control over financial
reporting that occurred during the year ended December 31, 2003 that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.

ITEM 16.    [RESERVED]

ITEM 16A.   AUDIT COMMITTEE FINANCIAL EXPERT

      Our Board of Directors has determined that the Company has at least one
audit committee financial expert, Yaffa Krindel, serving on our Audit Committee.

ITEM 16B.   CODE OF ETHICS

      The Company has adopted a written code of ethics that applies to all
Company employees, including the Company's principal executive officer,
principal financial officer and principal accounting officer. Our Code of Ethics
is filed as an exhibit to this report.

      Our Code of Ethics is also posted on our website at
http://www.fundtech.com or you may request a copy, at no cost, by writing to or
telephoning us as follows:

            12 Ha'hilazon Street, 5th Floor
            Ramat-Gan, Israel
            -----------------
            Tel#. 011-972-3-611-6500

ITEM 16C.   PRINCIPAL ACCOUNTANT FEES AND SERVICES

      In the annual meeting held on December 18, 2003, our shareholders
re-appointed Brightman Almagor & Co., a member of Deloitte Touche Tohmatsu to
serve as our independent auditors for the 2003 fiscal year.

      Brightman Almagor & Co. billed the following fees to us for professional
services in each of the last two fiscal years:

                                        Year Ended December 31,
                                         2003             2002
                                         ----             ----

            Audit fees                 $141,900         $158,700

            Audit related fees               --              --

            Tax fees [a]                     --              --

            Other fees                 $  5,000              --
                                       --------         --------
            Total                      $146,900         $158,700
                                       ========         ========

      [a] Included under audit fees under a fixed fee arrangement.

AUDIT FEES

      Audit fees are the aggregate fees associated with the annual audit and
reviews of the Company's quarterly interim financial results submitted on Form
6-K, and consultations on various accounting issues.


                                       61

<PAGE>

AUDIT-RELATED FEES

      Audit-related services principally include due diligence examinations as
well as assistance with the requirements of the Sarbanes-Oxley Act of 2002 and
related SEC regulations that are not reasonably related to the performance of
the audit or review of our financial statements and are not reported under Audit
Fees.

TAX FEES

      Tax fees are the aggregate fees associated with professional services
rendered for tax compliance, tax advice on actual or contemplated transactions
and tax planning such assistance with tax audits and tax advice.

ALL OTHER FEES

      In fiscal 2003, Other Fees included consulting with respect to
applications for approved enterprise zone status in Israel.

Audit Committee's Pre-Approval policies and Procedures

      Our audit committee is responsible for the oversight of our independent
auditor's work. The audit committee's policy is to pre-approve all audit and
non-audit services provided by our independent auditors. These services may
include audit services, audit-related services, tax services and other services,
as described above. The audit committee sets forth the basis for its
pre-approval in detail, listing the particular services or categories of
services which are pre-approved, and approving a specific budget for such
services. Additional services may be pre-approved by the audit committee on an
individual basis. Once services have been pre-approved, our independent auditors
and our management team report to the audit committee on a periodic basis
regarding the extent of services actually provided in accordance with the
applicable pre-approval, and regarding the fees for services performed.

ITEM 16D.   EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

      Not Applicable.

ITEM 16E.   PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
            PURCHASERS

      Not Applicable.

                                    PART III

ITEM 17.    FINANCIAL STATEMENTS.

      Not Applicable.

ITEM 18.    FINANCIAL STATEMENTS.

      The Financial Statements required by this item are found at the end of
this Annual Report, beginning on page F-1.

ITEM 19.    EXHIBITS.

      The exhibits filed with or incorporated into this annual report are listed
on the index of exhibits below.


                                       62
<PAGE>

 EXHIBIT
 NUMBER   DESCRIPTION OF EXHIBIT
 ------   ----------------------

   1.1    Amended Memorandum of Association of Registrant(1)

   1.2    Amended and Restated Articles of Association of Registrant(1)

   2.1    Form of Ordinary Share Certificate(1)

   2.2    Form of Registration Rights(1)

   4.1    Fundtech Ltd. 1997 Stock Option Plan for Fundtech Corporation(1)

   4.2    Fundtech Ltd. December 1997 Israeli Share Option Plan (English
          summary)(1)

   4.3    Fundtech Ltd. 1999 Employee Option Plan(3)

   4.4    Fundtech Ltd. Directors Option Plan(4)

   4.5    Employment Agreement between Reuven Ben Menachem and Fundtech
          Corporation, dated November 25, 1997(2)

   4.6    Lease Agreement relating to Fundtech's Facility in Ramat-Gan, Israel
          (English summary)(2)

   4.7    Lease Agreement relating to Fundtech's Facility in Norcross,
          Georgia(2)

   4.8    Lease Agreement relating to Fundtech's Facility in Jersey City, New
          Jersey(5)

   4.9    Lease Agreement relating to Fundtech's Facility in Burlington,
          Massachusetts(5)

   8      Subsidiaries of Registrant*

  10.1    Blackout Period Notice*

  11      Code of Ethics*

  12.1    Certification of the Chief Executive Officer of the Company in
          accordance with Section 302 of the Sarbanes-Oxley Act of 2002*

  12.2    Certification of the Chief Financial Officer of the Company in
          accordance with Section 302 of the Sarbanes-Oxley Act of 2002*

  13.1    Certification of the Chief Executive Officer of the Company in
          accordance with Section 906 of the Sarbanes-Oxley Act of 2002*

  13.2    Certification of the Chief Financial Officer of the Company in
          accordance with Section 906 of the Sarbanes-Oxley Act of 2002*

  15.1    Consent of Brightman Almagor & Co.*

  15.2    Consent of Kost Forer & Gabbay*

----------------------
(1) Previously filed as an exhibit to the Registrant's Registration Statement on
    Form F-1, as amended, dated March 13, 1998, and incorporated herein by
    reference.

(2) Previously filed as an exhibit to the Registrant's Report on Form 10-K,
    dated March 30, 1999, and incorporated herein by reference.

(3) Previously filed as an annex to the Registrant's Proxy Statement, dated
    August 23, 1999.

                                       63
<PAGE>

(4) Previously filed as Exhibit to the Registrant's Registration Statement on
    Form S-8, as amended (Commission Registration No. 333-9380), and
    incorporated herein by reference.

(5) Previously filed as an exhibit to the Registrant's Report on Form 20-F,
    dated June 11, 2003, and incorporated herein by reference.

*   Filed herewith.




                                       64


<PAGE>




                                  FUNDTECH LTD.
                                  -------------

                        CONSOLIDATED FINANCIAL STATEMENTS
                        ---------------------------------

                                DECEMBER 31, 2003
                                -----------------



<PAGE>


                                  FUNDTECH LTD.
                                  -------------

                        CONSOLIDATED FINANCIAL STATEMENTS
                        ---------------------------------


                                      INDEX


                                                                 Page
                                                                 ----

Report of Independent Auditors                                     1

Consolidated Financial Statements:

Balance Sheets
as of December 31, 2003 and 2002                                 2 - 3

Statements of Operations
for the years ended December 31, 2003, 2002 and 2001               4

Statements of Changes in Shareholders' Equity
for the years ended December 31, 2003, 2002 and 2001             5 - 6

Statements of Cash Flows
for the years ended December 31, 2003, 2002 and 2001             7 - 8

Notes to Financial Statements                                    9 - 29

<PAGE>

REPORT OF INDEPENDENT AUDITORS



To the Shareholders of
Fundtech Ltd.


We have audited the accompanying consolidated balance sheets of Fundtech Ltd.
("the Company") and its subsidiaries as of December 31, 2003 and 2002 and the
related statements of operations, changes in shareholders' equity and cash flows
for each of the two years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

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

In our opinion, the consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company and its
subsidiaries as of December 31, 2003 and 2002 and the consolidated results of
their operations and their consolidated cash flows for each of the two years
then ended, in conformity with U.S. generally accepted accounting principles.


Brightman Almagor & Co.
Certified Public Accountants
A member of Deloitte Touche Tohmatsu


Tel Aviv, Israel
February 12, 2004



                                       1

<PAGE>

                                  FUNDTECH LTD.
                           CONSOLIDATED BALANCE SHEETS
                                 (In thousands)
                       (except share and per share data)

<TABLE>
<CAPTION>

                                                                    December 31,
                                                                --------------------
                                                                 2 0 0 3     2 0 0 2
                                                                --------     -------
ASSETS

CURRENT ASSETS
<S>                                                              <C>         <C>
   Cash and cash equivalents                                     $28,900     $26,571
   Marketable securities (Note 3)                                  9,028      15,925
   Trade receivables (net of allowance for doubtful
     accounts of $ 2,366 and $ 3,551 as of
     December 31, 2003 and 2002, respectively)
     (Note 4)                                                     13,009      13,386
   Other accounts receivable and prepaid expenses                  1,936       1,256
                                                                 -------     -------

     Total current assets                                         52,873      57,138
                                                                 -------     -------

  LONG-TERM ASSETS
   Marketable securities (Note 3)                                  8,436           -
   Severance pay fund                                                520         474
   Long-term trade receivables (net of allowance
     for doubtful accounts of $0 and $961 as of
     December 31, 2003 and 2002, respectively)
     (Note 5)                                                      1,031       1,497
   Long-term deposits                                                860       1,027
   Property and equipment, net (Note 6)                            6,375       7,265
   Other assets, net (Note 7)                                     19,465      21,979
                                                                 -------     -------

      Total long-term assets                                      36,687      32,242
                                                                 -------     -------
                                                                 _______     _______

                                                                 $89,560     $89,380
                                                                 =======     =======
</TABLE>

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



                                       2

<PAGE>

<TABLE>
<CAPTION>

                                  FUNDTECH LTD.
                           CONSOLIDATED BALANCE SHEETS
                                 (In thousands)
                        (except share and per share data)


                                                                              December 31,
                                                                       --------------------------
                                                                         2 0 0 3         2 0 0 2
                                                                       ----------       ---------
LIABILITIES AND SHAREHOLDERS' EQUITY

<S>                                                                     <C>             <C>
CURRENT LIABILITIES
   Trade payables                                                       $     932       $   1,221
   Deferred revenues                                                        5,112           4,959
   Accrued restructuring expenses (Note 9b)                                   581           1,523
   Employees and payroll accruals                                           2,015           1,496
   Other accounts payable and accrued expenses (Note 8)                     3,050           3,309
                                                                        ---------       ---------

      Total current liabilities                                            11,690          12,508
                                                                        ---------       ---------

LONG-TERM LIABILITIES
   Accrued severance pay                                                      586             527
   Accrued restructuring expenses (Note 9b)                                   750           1,179
                                                                        ---------       ---------

      Total long-term liabilities                                           1,336           1,706
                                                                        ---------       ---------
                                                                        _________       _________

      Total liabilities                                                    13,026          14,214
                                                                        ---------       ---------

COMMITMENTS AND CONTINGENCIES (Note 11)

SHAREHOLDERS' EQUITY (Note 12)
   Share capital:
   Ordinary shares of NIS 0.01 par value: Authorized:
     19,949,998 shares as of December 31, 2003 and
     2002; Issued and outstanding: 14,527,871
     and 14,321,452 shares as of December 31, 2003
     and 2002, respectively                                                    43              43
   Deferred shares of NIS 0.01 par value: Authorized,
     issued and outstanding:
     50,002 shares as of December 31, 2002                                      -          (*)  -
   Additional paid-in capital                                             140,730         139,851
   Accumulated other comprehensive loss                                      (180)           (602)
   Accumulated deficit                                                    (63,971)        (64,038)
                                                                        ---------       ---------
                                                                           76,622          75,254

   Treasury shares at cost, 21,500 shares as of December 31,
     2003 and 2002                                                            (88)            (88)
                                                                        ---------       ---------

      Total shareholders' equity                                           76,534          75,166
                                                                        ---------       ---------

                                                                        $  89,560         $89,380
                                                                        =========       =========
</TABLE>

(*) Represents an amount lower than $ 1.


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



                                       3

<PAGE>

<TABLE>
<CAPTION>

                                  FUNDTECH LTD.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (In thousands)
                             (except per share data)

                                                                    Year ended December 31,
                                                       ---------------------------------------------------
                                                        2 0 0 3               2 0 0 2             2 0 0 1
                                                        --------             --------             --------
Revenues (Note 15)

<S>                                                     <C>                  <C>                  <C>
   Software license fees                                $ 13,236             $ 10,068             $ 17,067
   Maintenance and services fees                          34,011               29,355               27,085
   Hardware sales                                            367                  405                  842
                                                        --------             --------             --------

      Total revenues                                      47,614               39,828               44,994
                                                        --------             --------             --------

Operating Expenses

   Software license costs                                    493                  703                  896
   Amortization of capitalized software
     development costs                                     1,574                1,182                    -
   Amortization of other acquired
     intangible assets                                       940                  911                  862
   Maintenance and services costs                         17,903               17,612               19,153
   Hardware costs                                            306                  317                  686
   Research and development                                9,690               14,525               19,185
   Selling and marketing, net                              9,998                9,453               10,325
   General and administrative                              6,678                7,230                9,116
   Provision for doubtful accounts                           350                1,335                5,966
   Amortization of acquisition-related
     goodwill                                                  -                    -                1,663
   Restructuring expenses (Note 9a)                            -                3,252                2,573
   Non recurring expenses (Note 10)                            -                    -                1,500
                                                        --------             --------             --------

      Total operating expenses                            47,932               56,520               71,925
                                                        --------             --------             --------

   Operating loss                                           (318)             (16,692)             (26,931)
   Impairment and realized losses on
     available-for-sale marketable securities                  -                 (281)              (7,826)
   Financial income, net (Note 16)                           671                  691                3,343
                                                        --------             --------             --------

   Income (loss) before income taxes                         353              (16,282)             (31,414)

   Income taxes                                             (286)                (365)                (212)
                                                        --------             --------             --------
   Net income (loss)                                    $     67             $(16,647)            $(31,626)
                                                        ========             ========             ========

      Basic earnings (loss) per share (Note 13)         $      -             $  (1.16)            $  (2.22)
                                                        ========             ========             ========

      Diluted earnings (loss) per share                 $      -             $  (1.16)            $  (2.22)
                                                        ========             ========             ========
</TABLE>


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


                                       4

<PAGE>

<TABLE>
<CAPTION>

                                                        FUNDTECH LTD.
                                   CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                                        (In thousands)
                                                      (except share data)


                                                  Ordinary shares                   Deferred shares             Additional
                                             --------------------------        --------------------------        paid-in
                                              Shares          Amount            Shares         Amount            capital
                                             ----------    ------------        -------      -------------     ------------
<S>                   <C>                    <C>           <C>                  <C>         <C> <C>           <C>
Balance as of January 1, 2001                14,184,474    $         42         50,002      (*) $       -     $    139,420

Exercise of stock options                        93,622               1              -                  -              288
Amortization of deferred stock-based
  compensation                                        -               -              -                  -                -
Comprehensive loss:
   Foreign currency translation
    adjustments                                       -               -              -                  -                -
   Unrealized losses on available-
    for-sale marketable securities,
    net                                              -                -              -                  -                -
   Realization of losses on available-
    for-sale marketable securities                   -                -              -                  -                -
Net loss                                             -                -              -                  -                -
                                            -----------       ---------       --------           --------        ---------

     Total comprehensive loss

Balance as of December 31, 2001              14,278,096              43         50,002   (*)            -          139,708

Exercise of stock options                        64,856               -              -                  -              143
Purchase of treasury shares                     (21,500)              -              -                  -                -
Comprehensive loss:
   Foreign currency translation
    adjustments                                       -               -              -                  -                -
Net loss                                              -               -              -                  -                -
                                            -----------       ---------       --------           --------        ---------

     Total comprehensive loss

Balance as of December 31, 2002              14,321,452              43         50,002   (*)            -          139,851
</TABLE>

<TABLE>
<CAPTION>

                                                                          Accumulated                                      Total
                                             Deferred                        other                           Total         share-
                                           stock-based       Treasury    comprehensive    Accumulated     comprehensive    holders'
                                           compensation       shares         loss           deficit           loss         equity
                                           ------------      ---------   -------------    -----------     -------------  -----------

<S>                                            <C>                 <C>        <C>             <C>                 <C>          <C>
Balance as of January 1, 2001               $     (32)             -    $     (3,951)     $  (15,765)              -    $  119,714

Exercise of stock options                           -              -               -               -               -           289
Amortization of deferred stock-based
  compensation                                     32              -               -               -               -            32
Comprehensive loss:
   Foreign currency translation
    adjustments                                    -               -            (225)              -      $     (225)         (225)
   Unrealized losses on available-
    for-sale marketable securities,
    net                                            -               -          (4,790)              -          (4,790)       (4,790)
   Realization of losses on available-
    for-sale marketable securities                 -               -           7,826               -           7,826         7,826
Net loss                                           -               -               -         (31,626)        (31,626)      (31,626)
                                           ---------         -------        --------       ---------      ----------      --------

Total comprehensive loss                                                                                  $  (28,815)
                                                                                                          ==========

Balance as of December 31, 2001                   -                -          (1,140)        (47,391)                       91,220

Exercise of stock options                         -                -               -               -               -           143
Purchase of treasury shares                       -      $       (88)              -               -               -           (88)
Comprehensive loss:
   Foreign currency translation
    adjustments                                   -                -             538               -        $    538           538
Net loss                                          -                -               -         (16,647)        (16,647)      (16,647)
                                           --------         --------        --------       ---------      ----------      --------

     Total comprehensive loss                                                                              $ (16,109)
                                                                                                          ==========

Balance as of December 31, 2002                   -              (88)           (602)        (64,038)                       75,166
</TABLE>

(*) Represents an amount lower than $ 1.


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


                                       5

<PAGE>

<TABLE>
<CAPTION>

                                                        FUNDTECH LTD.
                                   CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                                        (In thousands)
                                                      (except share data)
                                                         (continued)


                                         Ordinary shares                  Deferred shares           Additional     Deferred
                                    --------------------------        ------------------------       paid-in      Stock-based
                                     Shares          Amount            Shares        Amount          capital      compensation
                                    ----------    ------------        -------    -------------     ------------   ------------
<S>                   <C>           <C>           <C>                 <C>        <C>  <C>           <C>           <C>
Balance as of December 31, 2002     14,321,452    $         43         50,002    (*)  $      -     $   139,851   $         -

Exercise of stock options              206,419               -              -                -             879             -
Cancellation of deferred shares              -               -        (50,002)   (*)         -               -             -
Foreign currency translation
  adjustments                                -               -              -                -               -             -
Net income  (loss)                           -               -              -                -               -             -
                                    ----------    ------------       --------     ------------      ----------      --------

     Total comprehensive loss

Balance as of December 31, 2003     14,527,871    $         43              -        $       -     $   140,730    $        -
                                    ==========     ===========       ========     ============     ===========     =========
</TABLE>

<TABLE>
<CAPTION>

                                                                 Accumulated
                                                                     other                             Total           Total
                                                  Treasury       comprehensive    Accumulated      comprehensive   shareholders
                                                   shares            loss           deficit            loss           equity
                                                ------------    -------------    ------------      -------------   ------------

<S>                                          <C>               <C>              <C>               <C>               <C>
Balance as of December 31, 2002                $        (88)    $       (602)    $    (64,038)                     $   75,166

Exercise of stock options                                 -                -                -               -             879
Cancellation of deferred shares                           -                -                -               -      (*)      -
Foreign currency translation
  adjustments                                             -             (422)               -      $     (422)           (422)
Net income  (loss)                                        -                -               67              67              67
                                               -------------     -----------       ----------      ----------      ----------

     Total comprehensive loss                                                                      $     (355)
                                                                                                   ==========
 Balance as of December 31, 2003                $       (88)    $       (180)     $   (63,971)                     $   76,534
                                               ============     ============      ===========                      ==========
</TABLE>


(*) Represents an amount lower than $ 1.


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


                                       6

<PAGE>

<TABLE>
<CAPTION>

                                  FUNDTECH LTD.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

                                                                     Year ended December 31,
                                                             ------------------------------------------
                                                              2 0 0 3          2 0 0 2         2 0 0 1
                                                             ---------        ---------       ---------

Cash flows from operating activities:
------------------------------------

<S>                                                          <C>              <C>             <C>
  Net income (loss)                                          $     67         $(16,647)       $(31,626)
  Adjustments to reconcile net income (loss) to
    net cash provided by (used in) operating
    activities (Appendix A)                                     4,462           14,987          26,495
                                                             --------         --------        --------

     Net cash provided by (used in) operating activities        4,529           (1,660)         (5,131)
                                                             --------         --------        --------

Cash flows from investing activities:
------------------------------------

  Investments in available-for-sale (in 2001)
    and held-to-maturity (in 2002 and 2003)
    marketable securities                                      (8,369)         (15,729)         (1,986)
  Proceeds from sales of available-for-sale (in
    2001 and 2002) and held-to-maturity (in
    2003) marketable securities                                 6,822            5,181          33,801
  Proceeds from  short-term bank deposits                           -                -           3,170

  Reduction (increase) in long-term lease deposits                167             (365)           (143)
  Purchase of property and equipment                           (2,108)          (1,298)         (2,322)
  Proceeds from sale of property and equipment                      6               60               -
  Capitalized software development costs                            -                -          (5,901)
                                                             --------         --------        --------

     Net cash (used in) provided by investing activities       (3,482)         (12,151)         26,619
                                                             --------         --------        --------

Cash flows from financing activities:
-------------------------------------

  Proceeds from exercise of stock options, net                    879              143             289
  Purchase of treasury shares                                       -              (88)              -
                                                             --------         --------        --------

     Net cash provided by financing activities                    879               55             289
                                                             --------         --------        --------

  Effect of exchange rate on cash and cash equivalents            403              404              30
  ----------------------------------------------------       --------         --------        --------

  Increase (decrease) in cash and cash equivalents              2,329          (13,352)         21,807
  Cash and cash equivalents at the beginning of
    the year                                                   26,571           39,923          18,116
                                                             --------         --------        --------

  Cash and cash equivalents at the end of the year           $ 28,900         $ 26,571        $ 39,923
                                                             ========         ========        ========

Supplemental disclosure of cash flows activities:
------------------------------------------------

  Cash paid during the year for:
   Interest                                                  $     56         $    123        $     31
                                                             ========         ========        ========
   Income taxes                                              $    149         $    287        $    224
                                                             ========         ========        ========
</TABLE>


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


                                       7

<PAGE>

<TABLE>
<CAPTION>

                                  FUNDTECH LTD.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)


                                                                         Year ended December 31,
                                                                 -----------------------------------------
                                                                  2 0 0 3         2 0 0 2         2 0 0 1
                                                                 --------        ---------       ---------

Appendix A
----------
<S>                                                              <C>             <C>             <C>
Adjustments to reconcile net income (loss) to
  net cash provided by (used in) operating activities:
   Depreciation and amortization                                 $  5,656        $  5,580        $  6,303
   Provision for doubtful accounts                                    350           1,335           5,966
   Impairment and realized losses on
     available-for-sale marketable securities                           -             281           7,826
   Write-off of other accounts receivable                               -               -           1,035
   Loss on abandonment of property and
     equipment                                                          -               -             270
   Amortization of deferred stock-based
     compensation                                                       -               -              32
   Deferred income taxes, net                                           -             109            (319)
   Decrease in trade receivables and
     long-term trade receivables                                      571           4,737           1,202
   (Increase) decrease in other accounts
     receivable and prepaid expenses                                 (615)             52             344
   Decrease in trade payables                                        (300)         (1,059)           (832)
   Increase  in deferred revenues, employees
     and payroll accruals and other accounts
     payable and accrued expenses                                     112           2,609           3,546
   (Decrease) increase in accrued
     restructuring expenses                                        (1,371)          1,540           1,162
   Accrued severance pay, net                                          13             (40)            (26)
   Accrued interest on marketable securities                            8            (196)              -
   Other                                                               38              39             (14)
                                                                 --------        --------        --------

                                                                 $  4,462        $ 14,987        $ 26,495
                                                                 ========        ========        ========
</TABLE>


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


                                       8

<PAGE>

                                  FUNDTECH LTD.
                          NOTES TO FINANCIAL STATEMENTS
                                 (In thousands)
                        (except share and per share data)

NOTE 1   -GENERAL OVERVIEW

          Fundtech Ltd, an Israeli corporation and its subsidiaries ("the
          Company"), is a leading provider of software solutions and services
          that facilitate payments, settlement and cash management by enabling
          banks and their customers to electronically manage cash, process
          payments and transfer funds. The Company's client-server and Internet
          software products automate the process of transferring funds among
          corporations, banks and clearance systems and enable businesses to
          manage global cash positions efficiently and in real-time.

          The Company sells and supports its products mainly in the United
          States and Europe.

          The Company operates in three business segments: Cash Management,
          Payments and its Swiss subsidiary Biveroni Batschelet Partners AG
          ("BBP").

          The Company's cash management solutions enable small, mid and
          large-tier financial institutions to deliver a complete set of cash
          management services through the Internet and other delivery channels.
          The Company's payment solutions automate all aspects of the funds
          transfer, including foreign exchange settlement and customer
          notification process, enabling straight-through-processing (STP) of
          payments. BBP develops, implements, maintains and operates systems for
          the automatic processing and transport of data in the finance
          industry. BBP also provides interbank gateway services. Its products
          include system solutions for interbank applications, as well as
          integration modules for host connections.


NOTE 2   -SIGNIFICANT ACCOUNTING POLICIES

          The consolidated financial statements have been prepared in accordance
          with generally accepted accounting principles in the United States of
          America ("US GAAP").

          a.   Use of estimates

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

          b.   Financial statements in U.S. dollars

               A majority of the revenues of Fundtech Ltd. and certain of its
               subsidiaries is generated in U.S. dollars ("dollar" or
               "dollars"). In addition, substantial portions of the Company's
               costs are incurred in dollars. The Company believes that the
               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 dollar.

               Accordingly, monetary accounts maintained in currencies other
               than the dollar are remeasured into dollars in accordance with
               Statement of Financial Accounting Standard ("SFAS") No. 52
               "Foreign Currency Translation" ("SFAS No. 52"). All transaction
               gains and losses from the remeasurement of monetary balance sheet
               items are reflected in the statements of operations as financial
               income or expenses, as appropriate. The financial statements of a
               foreign subsidiary, whose functional currency is not the dollar,
               have been translated into dollars. Assets and liabilities have
               been translated using the exchange rates in effect at the balance
               sheet date. Statement of Operations amounts have been translated
               using the average exchange rate for the period. The resulting
               translation adjustments are reported as a separate component of
               accumulated other comprehensive loss in shareholders' equity.


                                       9

<PAGE>

                                  FUNDTECH LTD.
                          NOTES TO FINANCIAL STATEMENTS
                                 (In thousands)
                        (except share and per share data)


NOTE 2   -SIGNIFICANT ACCOUNTING POLICIES (Cont.)

          c.   Principles of consolidation

               The consolidated financial statements include the accounts of
               Fundtech Ltd. and its subsidiaries, all of which are
               wholly-owned. Intercompany balances and transactions have been
               eliminated in consolidation.

          d.   Cash equivalents

               Cash equivalents include short-term, highly liquid investments
               that are readily convertible to cash, with original maturities of
               three months or less.

          e.   Marketable securities

               The Company accounts for its investments in marketable securities
               in accordance with SFAS No. 115, "Accounting for Certain
               Investments in Debt and Equity Securities".

               Management determines the appropriate classification of its
               investments in marketable debt and equity securities at the time
               of purchase and reevaluates such determinations at each balance
               sheet date. Held-to-maturity securities include debt securities
               for which the Company has the intent and ability to hold to
               maturity. Debt securities for which the Company does not have the
               intent or ability to hold to maturity are classified as
               available-for-sale. The Company does not hold any equity
               securities classified as trading securities.

               As of December 31, 2003 and 2002 all marketable securities are
               designated as held-to-maturity and, accordingly, are stated at
               amortized cost. Interest income including the amortization of
               premium and discount are included in the consolidated statement
               of operations.

          f.   Property and equipment

               Property and equipment are stated at cost, net of accumulated
               depreciation. Depreciation is calculated by the straight-line
               method over the estimated useful lives of the assets, at the
               following annual rates:
                                                             %
                                                            ---
               Office furniture and equipment              6 - 15
               Computers and software                     20 - 33
               Motor vehicles                                15
               Leasehold improvements            Over the term of the lease

               The Company periodically assesses the recoverability of the
               carrying amount of property and equipment based on expected
               undiscounted cash flows. If an asset's carrying amount is
               determined to be not recoverable, the Company recognizes an
               impairment loss based upon the difference between the carrying
               amount and the fair value of such assets, in accordance with SFAS
               No. 144 "Accounting for the Impairment or Disposal of Long-Lived
               Assets" ("SFAS No. 144").


                                       10

<PAGE>

                                  FUNDTECH LTD.
                          NOTES TO FINANCIAL STATEMENTS
                                 (In thousands)
                        (except share and per share data)


NOTE 2   -SIGNIFICANT ACCOUNTING POLICIES (Cont.)


          g.   Software development costs

               The Company capitalizes software development costs in accordance
               with SFAS No. 86 "Accounting for the Costs of Computer Software
               to be Sold, Leased or Otherwise Marketed" ("SFAS No. 86").
               Capitalization of software development costs begins upon the
               establishment of technological feasibility, and continues up to
               the time the software is available for general release to
               customers. The establishment of technological feasibility and the
               ongoing assessment of the recoverability of these costs requires
               considerable judgment by management with respect to certain
               external factors including, but not limited to, anticipated
               future gross product revenue, estimated economic life and changes
               in software and hardware technology.

               Amortization of capitalized software development costs is
               provided on a product-by-product basis and begins when the
               product is available for general release to customers. Annual
               amortization is the greater of the amount computed using the
               ratio of current gross revenue for a product to the total of
               current and anticipated product revenue or the straight-line
               basis over the remaining economic useful life of the software,
               which is not more than five years.

          h.   Acquisition-related intangible assets

               Acquisition-related intangible assets result from the Company's
               acquisitions of businesses accounted for under the purchase
               method and consist of the values of identifiable intangible
               assets including mainly developed technology and customer base,
               as well as goodwill. Goodwill is the amount by which the
               acquisition cost exceeds the fair values of the identifiable net
               assets on the date of purchase. Acquisition-related intangible
               assets are reported at cost, net of accumulated amortization.
               Developed technology and customer base are amortized on a
               straight-line basis over their estimated useful lives of five and
               ten years, respectively.

               In July 2001, the Financial Accounting Standards Board (FASB)
               issued SFAS No. 141 "Business Combinations" ("SFAS No. 141") and
               No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142").
               SFAS No. 141 requires all business combinations initiated after
               June 30, 2001 to be accounted for using the purchase method.
               Under SFAS No. 142, goodwill and intangible assets with
               indefinite lives are no longer amortized effective January 1,
               2002, but are reviewed annually (or more frequently if impairment
               indicators arise) for impairment. Identifiable intangible assets
               that are not deemed to have indefinite lives will continue to be
               amortized over their useful lives (but with no maximum life). The
               adoption of SFAS No. 142 resulted in a reduction of amortization
               expense in the amount of approximately $1,700 in 2003 and 2002. A
               reconciliation of previously reported net income (loss) and
               earnings (loss) per share to the amounts adjusted for the
               exclusion of goodwill amortization is as follows:

<TABLE>
<CAPTION>

                                                      2 0 0 3         2 0 0 2           2 0 0 1
                                                      -------        ----------        ----------

<S>                                                   <C>            <C>               <C>
Reported net income (loss)                            $    67        $  (16,647)       $  (31,626)
Goodwill amortization                                       -                 -             1,663
                                                      -------        ----------        ----------
Adjusted net income (loss)                            $    67        $  (16,647)       $  (29,963)
                                                      =======        ==========        ==========

Reported basic earnings (loss) per share                   -         $    (1.16)       $    (2.22)
Goodwill amortization                                      -                  -              0.12
                                                      -------        ----------        ----------
Adjusted basic  earnings (loss) per share                  -        $    (1.16)      $     (2.10)
                                                      =======        ==========        ==========

Reported diluted earnings (loss) per share                 -        $    (1.16)      $     (2.22)
Goodwill amortization                                      -                 -              0.12
                                                      -------        ----------        ----------
Adjusted diluted earnings (loss) per share                 -        $    (1.16)      $     (2.10)
                                                      =======        ==========        ==========
</TABLE>


                                       11

<PAGE>

                                  FUNDTECH LTD.
                          NOTES TO FINANCIAL STATEMENTS
                                 (In thousands)
                        (except share and per share data)


NOTE 2   -SIGNIFICANT ACCOUNTING POLICIES (Cont.)

          i.   Income taxes

               The Company accounts for income taxes in accordance with SFAS No.
               109, "Accounting for Income Taxes" ("SFAS No. 109"). This
               Statement prescribes the use of the liability method whereby
               deferred tax asset and liability account balances 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 reverse. The Company provides a valuation allowance,
               if necessary, to reduce deferred tax assets to their estimated
               realizable value.

          j.   Revenue recognition

               The Company generates revenues from licensing the rights to use
               its software products directly to end-users, sales of
               professional services, including consulting, implementation and
               training. The Company also provides hosting services, contingency
               and recovery services, as well as maintenance and sales of
               hardware.

               Revenue from software license agreements are recognized when all
               criteria outlined in Statement of Position 97-2 "Software Revenue
               Recognition" (as amended) ("SOP 97-2") are met. Therefore,
               revenue from license fees is recognized when persuasive evidence
               of an agreement exists, delivery of the product has occurred, no
               significant obligations with regard to implementation remain, the
               fee is fixed or determinable and collectibility is probable.

               Where software arrangements involve multiple elements, revenue is
               allocated to each element based on vendor specific objective
               evidence ("VSOE") of the relative fair values of each element in
               the arrangement. The Company's VSOE used to allocate the sales
               price to services and maintenance is based on the price charged
               when these elements are sold separately.

               The Company generally does not grant right-of-return to its
               customers. The Company generally provides a warranty period for
               up to six months at no extra charge. As of December 31, 2003 and
               2002, the provision for warranty cost is immaterial.

               Revenue from software licenses that require significant
               customization, integration and installation are recognized based
               on SOP 81-1 "Accounting for Performance of Construction-Type and
               Certain Production-Type Contracts", using contract accounting on
               the percentage-of-completion method, based on the relationship of
               actual labor costs incurred, to total labor costs estimated to be
               incurred over the duration of the contract. Provisions for
               estimated losses on uncompleted contracts are made in the period
               in which such losses are first determined, in the amount of the
               estimated loss on the entire contract.

               Arrangements that include professional services are evaluated to
               determine whether those services are essential to the
               functionality of other elements of the arrangement. When services
               are considered essential, revenue under the arrangement is
               recognized using contract accounting. When services are not
               considered essential, the revenue allocable to the software
               services is recognized as the services are performed.

               Revenue from maintenance is recognized over the life of the
               maintenance agreement.


                                       12
<PAGE>

                                  FUNDTECH LTD.
                          NOTES TO FINANCIAL STATEMENTS
                                 (In thousands)
                        (except share and per share data)


NOTE 2   -SIGNIFICANT ACCOUNTING POLICIES (Cont.)

          j.   Revenue recognition (Cont.)

               Through December 31, 2001 the Company applied Emerging Issues
               Task Force (EITF) No. 00-03 "Application of AICPA SOP 97-2 to
               Arrangements That Include the Right to Use Software Stored on
               Another Entity's Hardware" regarding revenues from
               ASP/Outsourcing solutions. Such arrangements also included
               extended payment terms of more than twelve months (generally 36
               to 60 months). In accordance with SOP 97-2, extended payment
               terms in a software licensing arrangement may indicate that the
               software license fees are not deemed to be fixed or determinable.
               In addition, if payment of a significant portion of the software
               license fees are not due until more than twelve months after
               delivery, the software license fees should be presumed not to be
               fixed or determinable and, thus, should be recognized as the
               payments become due. However, SOP 97-2 provides that the software
               vendor can overcome the presumption that the software license
               fees are not fixed or determinable if the vendor has a standard
               business practice of using long-term or installment contracts and
               has a history of successfully collecting the software license
               fees under the original payment terms of the software license
               arrangement without making concessions. The Company had concluded
               that for these arrangements the "fixed or determinable"
               presumption had been overcome and the related software license
               fees had been recognized upon meeting the remaining SOP 97-2
               revenue recognition criteria. The present value of such software
               license fees recognized in 2001 totaled approximately $ 1,883.

               In 2002, the Company changed its business practice regarding
               ASP/outsourcing arrangements in a manner that it no longer grants
               software license rights in these arrangements. Revenues from such
               arrangements are recognized as the related services are provided.
               Accordingly, no additional long-term trade receivables arise from
               these arrangements.

          k.   Severance pay

               The Company's liability for severance pay is calculated pursuant
               to Israeli severance pay law based on the most recent salary of
               the employees multiplied by the number of years of employment, as
               of the balance sheet date. Israeli employees are entitled to one
               month's salary for each year of employment or a portion thereof.
               The Company's liability for all of its Israeli employees is fully
               provided for by monthly deposits with insurance policies and by
               an accrual. The value of these policies is recorded as an asset
               in the Company's balance sheet.

               The deposited funds include profits accumulated up to the balance
               sheet date. The deposited funds may be withdrawn only upon the
               fulfillment of the conditions 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, including
               immaterial profits.

               Severance expenses for the years ended December 31, 2003, 2002
               and 2001, amounted to approximately $ 177, $ 138 and $ 89,
               respectively.


                                       13
<PAGE>

                                  FUNDTECH LTD.
                          NOTES TO FINANCIAL STATEMENTS
                                 (In thousands)
                        (except share and per share data)


NOTE 2   -SIGNIFICANT ACCOUNTING POLICIES (Cont.)

          l.   Concentration of credit risks

               Financial instruments that potentially subject the Company to
               concentrations of credit risk consist principally of cash and
               cash equivalents, short-term bank deposits, marketable
               securities, trade receivables and long-term trade receivables.
               The Company's cash, cash equivalents and marketable securities
               are maintained with high-quality institutions, and the
               composition and maturities of investments are regularly monitored
               by management. Generally, these securities and deposits are
               traded in a highly liquid market, may be redeemed upon demand and
               bear minimal risk.
               The Company's marketable securities include corporate bonds and
               notes, Euro dollar bonds and asset-backed securities.

               The trade receivables and long-term trade receivables of the
               Company include banks and large financial institutions. The
               Company generally does not require collateral; however, in
               certain circumstances, the Company may require letters of credit,
               other collateral or additional guarantees. An allowance for
               doubtful accounts is determined with respect to those amounts
               that the Company has determined to be doubtful of collection. The
               Company performs ongoing credit evaluations of its customers (see
               Note 4).

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

          m.   Basic and diluted earnings (loss) per share

               Basic earnings (loss) per share is computed based on the weighted
               average number of ordinary shares outstanding during each year.
               Diluted earnings (loss) per share is computed based on the
               weighted average number of ordinary shares outstanding during
               each year, plus dilutive potential ordinary shares considered
               outstanding during the year, in accordance with SFAS No. 128,
               "Earnings Per Share" ("SFAS No. 128").

               In 2003, 2002 and 2001, certain outstanding stock options and
               warrants have been excluded from the calculation of the diluted
               earnings per ordinary share because of the anti-dilutive effect.
               The total weighted average number of shares related to the
               outstanding options and warrants excluded from the calculations
               of diluted earnings(loss) per share were 442,250, 313,700 and
               398,428 for the years ended December 31, 2003, 2002 and 2001,
               respectively (see Note 12).

          n.   Stock-based compensation

               The Company accounts for employee stock-based compensation in
               accordance with Accounting Principles Board Opinion No. 25,
               "Accounting for Stock Issued to Employees" ("APB 25") and in
               accordance with FASB Interpretation No. 44. Pursuant to these
               accounting pronouncements, the Company records compensation for
               stock options granted to employees over the vesting period of the
               options based on the difference, if any, between the exercise
               price of the options and the market price of the underlying
               shares at the date of grant. With respect to variable awards,
               changes in the market price of the underlying shares at each
               balance sheet date affect the aggregate amount of compensation
               recorded. Deferred compensation is amortized to compensation
               expense over the vesting period of the options. See below for pro
               forma disclosures required in accordance with SFAS No. 123,
               "Accounting for Stock-Based Compensation" ("SFAS No.123"), as
               amended by SFAS 148.


                                       14

<PAGE>

                                  FUNDTECH LTD.
                          NOTES TO FINANCIAL STATEMENTS
                                 (In thousands)
                        (except share and per share data)


NOTE 2   -SIGNIFICANT ACCOUNTING POLICIES (Cont.)

          n.   Stock-based compensation (Cont.)

               Pro forma Loss Per Share According to SFAS 123 and SFAS 148:

               For purposes of estimating fair value in accordance with SFAS
               123, the Company utilized the Black & Scholes option-pricing
               model. The following assumptions were utilized in such
               calculations for the years 2003, 2002 and 2001 (all in weighted
               averages):

                                                   2003        2002       2001
                                                   ----        ----       ----

              Risk-free interest rate              2.69%       3.78%      6.0%
              Expected life of options            4 year      4 year     4 years
              Expected volatility                   64%         64%        73%
              Expected dividend yield              none        none       none

              Had compensation cost for the Company's stock option plans been
              determined based on fair value at the grant dates for all awards
              made in 2003, 2002 and 2001 in accordance with SFAS 123, as
              amended by SFAS 148, the Company's pro forma loss per share would
              have been as follows:

<TABLE>
<CAPTION>

                                                       2 0 0 3           2 0 0 2           2 0 0 1
                                                      --------          --------          --------
<S>                                                   <C>               <C>               <C>
Pro forma net income (loss)
Net income (loss) for the year, as reported           $     67          $(16,647)         $(31,626)
Deduct - stock-based compensation
   determined under APB-25                                   -                 -                32
Add - stock-based compensation
   determined under SFAS 123                            (3,151)           (4,390)           (2,897)
                                                      --------          --------          --------
Pro forma net income (loss)                           $ (3,084)         $(21,037)         $(34,491)
                                                      ========          ========          ========

Pro forma loss per share                              $  (0.21)         $  (1.47)         $  (2.43)
                                                      ========          ========          ========
Basic and diluted earnings (loss) per
   share as reported                                  $      -          $  (1.16)         $  (2.22)
                                                      ========          ========          ========
</TABLE>

          o.   Fair value of financial instruments

               The following methods and assumptions were used by the Company in
               estimating its fair value disclosures for financial instruments:

               The carrying amounts of cash and cash equivalents, short-term
               bank deposits, trade receivables and trade payables approximate
               their fair value due to the short-term maturity of such
               instruments.

               The fair value of marketable securities is based on quoted market
               price (see Note 3).

               The fair value of long-term receivables is estimated by
               discounting the future cash flows using the current rates of
               which similar credits would be made to customers with similar
               credit ratings and for the same remaining maturities. The
               carrying amount of long-term trade receivables approximates their
               fair value since the interest rate which was used in order to
               discount future cash flows remained unchanged.


                                       15

<PAGE>

                                  FUNDTECH LTD.
                          NOTES TO FINANCIAL STATEMENTS
                                 (In thousands)
                        (except share and per share data)


NOTE 2   -SIGNIFICANT ACCOUNTING POLICIES (Cont.)

          p.  Reclassification

              Certain prior years amounts have been reclassified in conformity
              with current year's financial statement.

          q.  Impact of recently issued accounting standards

              In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
              "Consolidation of Variable Interest Entities, and Interpretation
              of ARB 51." The primary objectives of this interpretation are to
              provide guidance on the identification of entities for which
              control is achieved through means other than through voting rights
              ("variable interest entities") and how to determine when and which
              business enterprise (the "primary beneficiary") should consolidate
              the variable interest entity. This new model for consolidation
              applies to an entity in which either (i) the equity investors (if
              any) do not have a controlling financial interest; or (ii) the
              equity investment at risk is insufficient to finance that entity's
              activities without receiving additional subordinated financial
              support from other parties. In addition, FIN 46 requires that the
              primary beneficiary, as well as all other enterprises with a
              significant variable interest in a variable interest entity, make
              additional disclosures. Certain disclosure requirements of FIN 46
              were effective for financial statements issued after January 31,
              2003. In December 2003, the FASB issued FIN 46 (revised December
              2003), "Consolidation of Variable Interest Entities" ("FIN 46-R")
              to address certain FIN 46 implementation issues. The effective
              dates and impact of FIN 46 and FIN 46-R are as follows: (i)
              Special-purpose entities ("SPEs") created prior to February 1,
              2003. The Company must apply either the provisions of FIN 46 or
              early adopt the provisions of FIN 46-R at the end of the first
              interim or annual reporting period ending after December 15, 2003.
              (ii) Non-SPEs created prior to February 1, 2003. The Company is
              required to adopt FIN 46-R at the end of the first interim or
              annual reporting period ending after March 15, 2004. (iii) All
              entities, regardless of whether an SPE, that were created
              subsequent to January 31, 2003. The provisions of FIN 46 were
              applicable for variable interests in entities obtained after
              January 31, 2003. The adoption of FIN 46-R did not, and is not
              expected to, have a material impact on the Company's consolidated
              financial position, consolidated results of operations, or
              liquidity.

              In April 2003, the FASB issued SFAS No. 149, "Amendment of SFAS
              No. 133 on Derivative Instruments and Hedging Activities." SFAS
              No. 149 amends and clarifies accounting for derivative
              instruments, including certain derivative instruments embedded in
              other contracts, and for hedging activities under SFAS No. 133. In
              particular, this Statement clarifies under what circumstances a
              contract with an initial net investment meets the characteristic
              of a derivative. It also clarifies when a derivative contains a
              financing component that warrants special reporting in the
              statement of cash flows. SFAS No. 149 is generally effective for
              contracts entered into or modified after June 30, 2003. The
              adoption of SFAS No. 149 did not have an impact on the Company's
              financial statements.

              In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
              Financial Instruments with Characteristics of both Liabilities and
              Equity." SFAS No. 150 establishes standards for how a company
              classifies and measures certain financial instruments with
              characteristics of both liabilities and equity. It requires that
              an issuer classify certain financial instruments as a liability
              (or as an asset in some circumstances). SFAS No. 150 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 did not have an impact on the Company's financial
              statements.


                                       16

<PAGE>

                                  FUNDTECH LTD.
                          NOTES TO FINANCIAL STATEMENTS
                                 (In thousands)
                        (except share and per share data)


NOTE 3   -MARKETABLE SECURITIES

          A. Short-term investments
                                                                December 31,
                                                             ------------------
                                                             2 0 0 3   2 0 0 2
                                                             -------   --------

                Held to maturity -
                  Corporate bonds                            $ 4,668   $ 5,698
                  Corporate notes                                412     2,603
                  Euro-dollar bonds                            3,948     2,660
                  Asset backed securities                          -     4,964
                                                             -------   -------
                                                             $ 9,028   $15,925
                                                             =======   =======

                Fair value                                   $ 8,964   $15,924
                                                             =======   =======

          B. Long-term investments

                                                                December 31,
                                                             ------------------
                                                             2 0 0 3   2 0 0 2
                                                             -------   --------

                Held to maturity -
                  Corporate bonds                            $ 4,071   $     -
                  Corporate notes                                569         -
                  Euro-dollar bonds                            1,588         -
                  Asset backed securities                      2,208         -
                                                             -------   -------
                                                             $ 8,436   $     -
                                                             =======   =======

                Fair value                                   $ 8,419   $     -
                                                             =======   =======

        As of December 31, 2003 all long-term investments mature in 2005


NOTE 4 -TRADE RECEIVABLES

                                                               December 31,
                                                            ------------------
                                                             2 0 0 3   2 0 0 2
                                                             -------   -------

          Accounts receivable, net of allowance for
            doubtful accounts                                $ 9,731   $10,535
          Unbilled receivables                                 3,278     2,851
                                                             -------   -------
                                                             $13,009   $13,386
                                                             =======   =======

          Management's assessment for uncertainties of outstanding debt
          collectibility resulted in doubtful accounts expenses of $350, $1,335
          and $5,966 in the Statement of Operations for 2003, 2002 and 2001,
          respectively.


                                       17

<PAGE>

<TABLE>
<CAPTION>

                                  FUNDTECH LTD.
                          NOTES TO FINANCIAL STATEMENTS
                                 (In thousands)
                        (except share and per share data)

NOTE 5   -LONG-TERM TRADE RECEIVABLES
                                                                     December 31,
                                                                 ---------------------
                                                                  2 0 0 3      2 0 0 2
                                                                 ---------    ---------
<S>                                                              <C>          <C>

          Maturity dates - long-term trade receivables:
             First year (current maturities)                     $     914    $   1,675
             Second year                                               671        1,452
             Third year                                                360          740
             Fourth year                                                 -          266
                                                                 ---------    ---------
                                                                     1,945        4,133

             Less - Current maturities                                 914        1,675
                    Allowance for doubtful accounts (see
                      also Note 4)                                       -          961
                                                                 ---------    ---------
                                                                 $   1,031    $   1,497
                                                                 =========    =========

<CAPTION>

                                                                     December 31,
                                                                 ---------------------
                                                                  2 0 0 3      2 0 0 2
                                                                 ---------    ---------

NOTE 6    -PROPERTY AND EQUIPMENT, NET

          Cost:
<S>                                                              <C>          <C>
             Office furniture and equipment                      $   2,296    $   2,442
             Computers and software                                 18,407       16,344
             Motor vehicles                                            222          225
             Leasehold improvements                                  1,583        1,316
                                                                 ---------    ---------
                                                                    22,508       20,327

             Accumulated depreciation                               16,133       13,062
                                                                 ---------    ---------
                  Net book value                                 $   6,375    $   7,265
                                                                 =========    =========

<CAPTION>

NOTE 7    -OTHER ASSETS, NET

                                                                     December 31,
                                                                 ---------------------
                                                                  2 0 0 3      2 0 0 2
                                                                 ---------    ---------

          Acquisition-related intangible assets
          -------------------------------------
          Cost:
<S>                                                              <C>          <C>
             Goodwill                                            $  14,791    $  14,791
             Developed technology                                    4,241        4,241
             Customer base                                           3,461        3,461
             Other intangible assets                                    58           58
                                                                 ---------    ---------
                                                                    22,551       22,551
          Accumulated amortization                                  (8,206)      (7,266)
                                                                 ---------    ---------
                                                                    14,345       15,285
                                                                 ---------    ---------
          Capitalized software development costs
          --------------------------------------
          Cost                                                       7,876        7,876
             Accumulated amortization                               (2,756)      (1,182)
                                                                 ---------    ---------
                                                                     5,120        6,694
                                                                 ---------    ---------

             Net book value                                      $  19,465    $  21,979
                                                                 =========    =========
</TABLE>


                                       18

<PAGE>

                                  FUNDTECH LTD.
                          NOTES TO FINANCIAL STATEMENTS
                                 (In thousands)
                        (except share and per share data)


NOTE 8 - OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES

                                                       December 31,
                                                 -------------------------
                                                 2 0 0 3           2 0 0 2
                                                 -------           -------

          Accrued expenses                        $2,176           $2,426
          Government authorities                     705              857
          Other                                      169               26
                                                  ------           ------
                                                  $3,050           $3,309
                                                  ======           ======


NOTE 9 - RESTRUCTURING EXPENSES

         Prior years restructuring plans

         In response to declines associated with cautious information technology
         ("IT") spending environment within the financial services industry, the
         Company adopted three restructuring plans during the third and fourth
         quarters of 2002 and the second quarter of 2001.

         In 2002, two plans consisted of employee termination benefits
         associated with the involuntary termination of 78 employees (61
         research and development and professional services employees, 12
         administrative employees and 5 selling and marketing employees) and the
         closure and sublet of portions of existing office space.

         In 2001, the plan consisted of employee termination benefits associated
         with the involuntary termination of 89 employees (71 research and
         development and professional services employees, 13 administrative
         employees and 5 selling and marketing employees) and the sublet of
         portions of existing office space. As part of the plan, the Company
         also consolidated aspects of its Dallas operations into its existing
         Atlanta operations in order to improve efficiency and eliminate
         duplicate costs.

          a.The following table summarizes restructuring expenses as of December
          31, 2003, 2002 and 2001:


                                                   Year ended December 31,
                                                -----------------------------
                                                2 0 0 3     2 0 0 2     2 0 0 1
                                                -------     -------     -------

          Employee termination benefits
               and related costs                $    -       $1,458     $  790
          Facility closures and related costs        -        1,794      1,513
          Property and equipment abandonment         -            -        270
                                                ------       ------     ------
                                                $    -       $3,252     $2,573
                                                ======       ======     ======



                                       19

<PAGE>

                                  FUNDTECH LTD.
                          NOTES TO FINANCIAL STATEMENTS
                                 (In thousands)
                        (except share and per share data)


NOTE 9   -RESTRUCTURING EXPENSES (Cont.)

          b.The following table summarizes the restructuring accruals status as
          of December 31, 2003:

<TABLE>
<CAPTION>

                                                   Employee
                                                termination and    Facility closures
                                                 related costs     and related costs      Total
                                                ---------------    -----------------      -----

          <S>                                       <C>                <C>                <C>
          Original Accrual                          $2,248             $3,307             $5,555
                                                    ------             ------             ------
          Paid in cash
                   During 2001                         628                513              1,141
                   During 2002                         900                812              1,712
                   During 2003                         720                651              1,371
                                                    ------             ------             ------
                                                     2,248              1,976              4,224
                                                    ------             ------             ------
          Net Balance as of
            December 31, 2003                       $    -             $1,331             $1,331
                                                    ======             ======             ======

          Net Balance as of
            December 31, 2002                       $  720             $1,982             $2,702
                                                    ======             ======             ======
</TABLE>


NOTE 10  -NON-RECURRING EXPENSES

          a.   Integration costs

               In 2001, as part of the restructuring plan, the Company recorded
               $ 465 of integration costs primarily for relocating employees and
               abandonment of property and equipment pursuant to the plan.

               The Company does not anticipate material additional integration
               charges in the future. All integration charges have been, and
               will be, expensed as incurred.

          b.   Write-off of other accounts receivable

               In 2001 and 2000, the Company incurred expenses on behalf of a
               new venture in the amount of approximately $ 111 and $ 924,
               respectively. It was agreed between the investors that such
               expenses would be reimbursed upon the formation of the new
               entity, therefore such expenses were recorded as other accounts
               receivable. In April 2001, the Company and the other investor
               decided not to proceed with the formation of the new entity.
               Accordingly, the Company wrote-off the related other account
               receivable for the total amount of $1,035.


                                       20

<PAGE>

                                  FUNDTECH LTD.
                          NOTES TO FINANCIAL STATEMENTS
                                 (In thousands)
                        (except share and per share data)


NOTE 11  -COMMITMENTS AND CONTINGENCIES

          a.   Lease commitments

               The Company leases its facilities and vehicles under various
               operating lease agreements, which expire on various dates, the
               latest of which is in 2014. The minimum lease commitments under
               non-cancelable operating leases are as follows:

               Year ended December 31,

                        2004                             $ 2,368
                        2005                               1,763
                        2006                               1,082
                        2007                                 902
                        2008-2014                          4,048
                                                        --------
                                                          10,163
                        Less - sublease rentals             (235)
                                                        --------
                                                         $ 9,928
                                                        ========

               The above minimum lease commitments include amounts previously
               accrued under the Company's restructuring plans (see also Note
               9b).

               Total facilities lease expenses for the years ended December 31,
               2003, 2002 and 2001, were approximately $1,905, $1,982 and $2,150
               (net of sublease rentals incurred of $99, $31 and $4),
               respectively.

          b.   Guarantees:

               1.  The Company has obtained a bank guarantee of $45 in
                   connection with the Company's facilities operating lease
                   agreement in Israel.

               2.  The Company has obtained a bank guarantee of $405 for BBP as
                   required by Swiss Law.

          c.   Tax Notice:

               BBP received correspondence from the Tax Office of the Canton
               Aargovia, Switzerland ("Aargovia") asserting deficiencies in
               BBP's corporate income tax returns for 1999 through 2001 tax
               years. The Company intends to continue to challenge the
               deficiencies asserted by Aargovia. The Company believes that it
               has meritorious defenses to those alleged deficiencies and
               believes that the ultimate outcome of the case will not result in
               a material impact on the Company's consolidated results of
               operations or financial position.


NOTE 12  -SHAREHOLDERS' EQUITY

          a.   The Ordinary shares of the Company are traded on the NASDAQ
               National Market. Since August 19, 2003 the shares of the company
               are also traded on Tel-Aviv Stock Exchange market.

          b.   The Ordinary shares confer upon the holders the right to receive
               notice to participate and vote in general meetings of the Company
               and the right to receive dividends, if declared.

              Deferred shares were non-transferable and entitled their holders
              to no voting, dividend or other rights except for the right to
              receive the par value of the shares upon dissolution of the
              Company. In the beginning of 2003 these deferred shares have been
              cancelled.


                                       21

<PAGE>

                                  FUNDTECH LTD.
                          NOTES TO FINANCIAL STATEMENTS
                                 (In thousands)
                        (except share and per share data)


NOTE 12  -SHAREHOLDERS' EQUITY (Cont.)

          c.   Treasury shares:

               On February 21, 2002, the Company's Board of Directors authorized
               to purchase up to one million ordinary shares of the Company from
               time to time on the open market. As of December 31, 2003, the
               Company had purchased a total of 21,500 shares.

          d.   Stock options:

               1.  Under the Company's 1998 Director's Stock Option Plan and the
                   1999 Employee Stock Option Plan (collectively - the "Plans"),
                   up to 3,092,815 options may be granted to employees and
                   directors of the Company.

               2.  Pursuant to the Plans, as of December 31, 2003, an aggregate
                   of 763,140 options of the Company are still available for
                   future grants.

               3.  Each option granted under the Plans to employees expires not
                   later than ten years from the date of the grant, except for
                   grants to persons holding 10% or more of the Company's stock,
                   which expire in five years. Each option granted under the
                   Plans to directors expires no later than five years from the
                   date of grant. The options vest primarily over four years.
                   Any options that are canceled or forfeited before expiration
                   become available for future grants. Options granted to
                   directors are vested over a one year period from their date
                   of grant. The exercise price of the options granted under the
                   plans may not be less than the nominal value of the shares
                   into which such options are exercised.

               4.  In June 2002 the Company commenced a voluntary stock option
                   exchange program for its employees. Under the program
                   participating employees were given the opportunity to have
                   unexercised stock options previously granted to them
                   cancelled, and to receive replacement options at a future
                   date. Replacement options will be granted at a ratio of one
                   new option for each option cancelled, at an exercise price
                   equal to the fair market value of the Company's Ordinary
                   Shares on the date of the re-grant.

                   Pursuant to the terms of the offer, 1,025,700 options were
                   cancelled on July 16, 2002. The Company granted the 969,311
                   replacement options on January 17, 2003.

          e.   A summary of the Company's option activity under the Plans is as
               follows:

<TABLE>
<CAPTION>

                                                                Year ended December 31,
                                 ----------------------------------------------------------------------------------------
                                           2 0 0 3                      2 0 0 2                      2 0 0 1
                                 ---------------------------   ---------------------------   ----------------------------
                                                    Weighted                      Weighted                       Weighted
                                                    average                        average                       average
                                    Number          exercise     Number           exercise      Number           exercise
                                  of options         price     of options          price      of options          price
                                  ----------        --------   ----------         --------    ----------        ---------

<S>                              <C>              <C>          <C>             <C>            <C>              <C>
Outstanding at January 1            564,455        $   6.68     1,363,843        $   14.85     1,830,893        $   14.15
   Granted                          913,025            6.35       500,800             3.84             -                -
   Option exchange program          969,311            4.02    (1,025,700)           15.65             -                -
   Exercised                       (206,419)           3.92       (64,856)            3.33       (93,622)            2.94

   Forfeited/cancelled             (126,285)           7.06      (209,632)           10.23      (373,428)           14.54
                                 ----------                    ----------                     ----------        ---------

Outstanding at December 31        2,114,087        $   5.56       564,455        $    6.68     1,363,843        $   14.85
                                 ==========                    ==========                     ==========        =========

Exercisable options at
    December 31                   1,069,421        $   5.27       241,921        $   10.43       810,987        $   13.85
                                 ==========                    ==========                     ==========        =========
</TABLE>


                                       22

<PAGE>

                                  FUNDTECH LTD.
                          NOTES TO FINANCIAL STATEMENTS
                                 (In thousands)
                        (except share and per share data)


NOTE 12    -SHAREHOLDERS' EQUITY (Cont.)

           The options outstanding as of December 31, 2003, have been separated
           into ranges of exercise price, as follows:

<TABLE>
<CAPTION>

                                   Options         Weighted                     Options
                                 Outstanding        Average        Weighted    Exercisable      Weighted
                                    as of          Remaining       Average        as of         Average
           Ranges of Exercise    December 31,      Contractual     Exercise    December 31,     Exercise
           Price                    2003           Life (years)      Price        2003           Price
           ------------------    -----------       ------------    --------    -----------      --------

<S>         <C>                  <C>                  <C>         <C>          <C>             <C>
            $  3.55-5.00          1,330,062            8.4         $   4.00       928,648        $   4.07
            $  5.79-8.16            703,775            9.7         $   7.01        60,836        $   5.84
            $  13.25-15.25           38,250            2.6         $  14.88        37,937        $  14.87
            $  22.31                 42,000            0.7         $  22.31        42,000        $  22.31
                                  ---------                                     ---------

                                  2,114,087            8.6         $   5.56     1,069,421        $   5.27
                                  =========                                     =========
</TABLE>

          All options granted during 2003 and 2002 were at an exercise price
          that is equal to the fair value of the stock at the grant date. No
          options were granted during 2001.

          f.   Dividends

               In the event that cash dividends are declared in the future, such
               dividends will be paid in NIS. The Company does not intend to pay
               cash dividends in the foreseeable future.

               The Company has decided to permanently reinvest its tax-exempt
               income (see Note 14b).

NOTE 13  -NET EARNINGS (LOSS) PER SHARE

          The following table sets forth the computation of historical basic and
          diluted net earnings (loss) per share:

<TABLE>
<CAPTION>

                                                                           Year ended December 31,
                                                                --------------------------------------------
                                                                   2 0 0 3           2 0 0 2        2 0 0 1
                                                                -------------      ----------     ----------
   Numerator:
<S>                                                             <C>                <C>            <C>
     Net income (loss)                                          $         67       $  (16,647)    $  (31,626)
                                                                ============       ==========     ==========

   Numerator for basic earnings (loss) per share -
     income (loss) available to Ordinary
     shareholders                                               $         67       $  (16,647)    $  (31,626)
                                                                 ============      ==========     ==========

   Numerator for diluted net earnings (loss) per
     share - income (loss) available to Ordinary
     shareholders after assumed exercises                       $         67       $  (16,647)    $  (31,626)
                                                                ============       ==========     ==========


                                                                               Number of shares
                                                                --------------------------------------------
Denominator:
   Denominator for basic net earnings (loss) per
     share - weighted - average shares                            14,426,655       14,290,317     14,218,388
                                                                ------------       ----------     ----------

   Effect of dilutive securities:
     Employee stock options                                          410,813     (*)        -     (*)      -
                                                                ------------     ------------     ----------

Dilutive potential Ordinary Shares                                   410,813     (*)        -     (*)      -
                                                                ============     ============     ==========

Denominator for diluted net earnings (loss)
   per share                                                      14,837,468       14,290,317     14,218,388
                                                                ============    =============     ==========
</TABLE>


                                       23

<PAGE>

                                  FUNDTECH LTD.
                          NOTES TO FINANCIAL STATEMENTS
                                 (In thousands)
                        (except share and per share data)

NOTE 14  -INCOME TAXES

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

               Results for tax purposes are measured in real terms of earnings
               in NIS after certain adjustments for increases in the Israeli
               Customer Price Index. As explained in Note 2b, the financial
               statements are measured in dollars. The difference between the
               annual change in the CPI and in the NIS/dollar exchange rate
               causes a difference between taxable income and the income before
               taxes shown in the financial statements. In accordance with
               paragraph 9(f) of 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 Israeli Law for the Encouragement of
               Capital Investments, 1959

               The Company has been granted in November 1995 the status of an
               "Approved Enterprise", under the Israeli Law for the
               Encouragement of Capital Investments, 1959 (the "Investment Law")
               and the Company has elected the alternative benefits program,
               waiver of grants in return for tax exemptions. Pursuant thereto,
               the income of the Company derived from the "Approved Enterprise"
               program is tax-exempt for two years commencing with the year it
               first earns taxable income relating to each expansion program,
               and subject to corporate taxes at the reduced rate of 10% to 25%,
               for an additional eight years. The Company completed its
               investment according to certain of its first program on November
               27, 1997. Income derived from this program was tax exempt for two
               years commencing in 1998 and will be subject to the reduced tax
               rates for eight years ending in 2005 (subject to an adjustment
               based upon the foreign investors' ownership of the Company). In
               1998, the Company received approval for its first expansion
               program. In 2000, the Company received approval for its second
               expansion program. Income derived from the expansion programs
               will be tax-exempt for a period of two years and will be subject
               to a reduced tax rate as mentioned above for an additional period
               of eight years. The period of benefits for these programs has not
               yet commenced since no income was derived. In September 2003, the
               company finished its investments related the second expansion
               program and has issued a new request for a third expansion
               program, which is in the final process of approval. The period of
               tax benefits detailed above is subject to limits of 12 years from
               the year of commencement of production, or 14 years from the date
               of granting the approval, whichever is earlier.

               The tax-exempt profits that will be earned by the Company's
               "Approved Enterprise" can be distributed to shareholders, without
               imposing tax liability on the Company only upon the complete
               liquidation of the Company. As of December 31, 2003, retained
               earnings included approximately $ 4,242 in tax exempt income
               earned by the Company's "Approved Enterprise". The Company has
               decided to permanently reinvest its tax exempt income.
               Accordingly, no deferred income taxes have been provided on
               income attributable to the Company's "Approved Enterprise". If
               these retained tax-exempt profits are distributed in a manner
               other than in the complete liquidation of the Company, they would
               be taxed at the corporate tax rate applicable to such profits as
               if the Company had not elected the alternative tax benefits
               (currently between 10% to 25% for an "Approved Enterprise").

               The Investment Law also grants entitlement to claim accelerated
               depreciation on equipment used by the "Approved Enterprise"
               during five tax years.

               The entitlement to the above benefits is conditional upon the
               Company fulfilling the conditions stipulated by the above law,
               regulations published thereunder and the instruments of approval
               for the specific investments in "Approved Enterprises". In the
               event of failure to comply with these conditions, the benefits
               may be canceled and the Company may be required to refund the
               amount of the benefits, in whole or in part, including interest.

               Income not eligible for "Approval Enterprise" benefits mentioned
               above is taxed at the regular rate of 36%.

                                       24

<PAGE>

                                  FUNDTECH LTD.
                          NOTES TO FINANCIAL STATEMENTS
                                 (In thousands)
                        (except share and per share data)


NOTE 14  -INCOME TAXES (Cont.)

          c.   Net operating losses carryforwards

               As of December 31, 2003, the Company had approximately $ 20,709
               of Israeli net operating loss carryforwards. The Israeli loss
               carryforwards have no expiration date.

               As of December 31, 2003, Fundtech Corporation had a U.S. federal
               net operating loss carryforward of approximately $ 52,209 that
               can be carried forward and offset against taxable income for 5-20
               years and begin to expire in 2010 through 2023. Utilization of
               U.S. net operating losses may be subject to substantial annual
               limitation due to the "change in ownership" provisions of the
               Internal Revenue Code of 1986 and similar state provisions. The
               annual limitation may result in the expiration of net operating
               losses before utilization.

          d.   Deferred income taxes

               Deferred income taxes reflect the net tax effects of temporary
               differences between the carrying amounts of assets and
               liabilities for financial reporting purposes and the amounts used
               for income tax purposes.

               Significant components of the Company and its subsidiaries assets
               are as follows:

                                                              December 31,
                                                          ---------------------
                                                           2 0 0 3     2 0 0 2
                                                           -------     --------
              Deferred tax assets:
                 U.S. net operating loss carryforwards    $  20,884   $ 20,967
                 Israel net operating loss carryforwards      2,071      1,462
                 Swiss net operating loss carryforwards           -          -
                 Other reserve and allowances                 6,693       6,642
                                                          ---------   ---------
              Total deferred tax assets before
                valuation allowance                          29,648      29,071
              Valuation allowance                           (29,648)    (29,071)
                                                          ---------   ---------
              Balance at the end of the year (all
                foreign)                                  $       -   $       -
                                                          =========   =========

              Deferred tax liabilities:
              Deferred taxes due to assets acquired
                and liabilities assumed (all foreign)     $       -   $       -
                                                          =========   =========

               As of December 31, 2003, the Company and its subsidiaries have
               provided valuation allowances of approximately $ 29,648 in
               respect of deferred tax assets resulting from tax loss
               carryforwards and other temporary differences. Management
               currently believes that since the Company and its subsidiaries
               have a history of losses, it is more likely than not that the
               deferred tax regarding the loss carryforwards and other temporary
               differences will not be realized in the foreseeable future.

          e.   Tax assessments

               The Company received final tax assessments through the tax year
               ended December 31, 1999. The subsidiaries of the Company have not
               been assessed for income tax purposes since incorporation.


                                       25

<PAGE>

                                  FUNDTECH LTD.
                          NOTES TO FINANCIAL STATEMENTS
                                 (In thousands)
                        (except share and per share data)


NOTE 14  -INCOME TAXES (Cont.)

          f. Composition of income tax expenses

                                                   Year ended December 31,
                                           -----------------------------------
                                            2 0 0 3       2 0 0 2      2 0 0 1
                                            -------       -------      -------
Income (loss) before taxes on
  income:

Domestic                                   $ (1,863)     $ (2,205)     $ (7,441)
Foreign                                       2,216       (14,077)      (23,973)
                                           --------      --------      --------
                                           $    353      $(16,282)     $(31,414)
                                           ========      ========      ========

Income tax provision (benefit):

Current:
   Domestic                                $     99      $     51      $    136
   Foreign                                      187           205           185
                                           --------      --------      --------
                                                286           256           321
                                           --------      --------      --------

Deferred:
   Domestic                                       -             -             -
   Foreign                                        -           109          (109)
                                           --------      --------      --------
                                                  -           109          (109)
                                           --------      --------      --------
                                           $    286      $    365      $    212
                                           ========      ========      ========

          g.   Theoretical taxes

               The following is a reconciliation of the theoretical taxes on
               income assuming that all income is taxed at the ordinary rate
               applicable to Israeli companies and the actual taxes on income:

<TABLE>
<CAPTION>

                                                             Year ended December 31,
                                                   -------------------------------------------
                                                    2 0 0 3           2 0 0 2          2 0 0 1
                                                   ---------        ----------        --------

<S>                                                <C>               <C>              <C>
Income (loss) before taxes on income               $    353          $(16,282)        $(31,414)
                                                   ========          ========         ========
Theoretical tax on the above amount                $    127          $ (5,862)        $(11,309)

Tax benefit arising from "Approved Enterprise"        1,607               396            1,602

Increase in valuation allowance                        (130)            6,071            8,388

Adjustments arising from
   differences in the basis of
   measurement for tax purposes
   and for financial reporting purposes              (1,414)                -            2,095

Other, net                                               96              (240)            (564)
                                                   --------          --------         --------

                                                   $    286          $    365         $    212
                                                   ========          ========         ========
</TABLE>


                                       26

<PAGE>

                                  FUNDTECH LTD.
                          NOTES TO FINANCIAL STATEMENTS
                                 (In thousands)
                        (except share and per share data)


NOTE 15  -OPERATING SEGMENT AND GEOGRAPHICAL INFORMATION

          a.   The Company evaluates its business activities in accordance with
               the provisions of SFAS No. 131 "Disclosure about Segments of an
               Enterprise and Related Information". Prior to 2002, the Company
               determined that its operating segments had similar economic
               characteristics such as products and services, customers' methods
               used to distribute products and services, and regulatory
               environment resulting in their aggregation.

               As a result of the substantial completion of the Company's
               restructuring and integration efforts that began in the second
               quarter of 2001, in 2002 the Company aligned itself into three
               operating business segments: Cash Management, Payments and BBP.

               The Company's cash management solutions enable small, mid and
               large-tier financial institutions to deliver a complete set of
               cash management services through the Internet and other delivery
               channels. The Company's payments solutions automate all aspects
               of the funds transfer, including foreign exchange settlement and
               customer notification process, enabling
               straight-through-processing (STP) of payments. BBP develops,
               implements, maintains and operates systems for the automatic
               processing and transport of data in the finance industry. BBP
               also provides interbank gateway services. Its products include
               system solutions for interbank applications, as well as
               integration modules for host connections. In the beginning of
               2002, the Company also changed it's management reporting
               structure to include relevant operating data for each of its
               three segments. The Company's chief operating decision makers
               evaluate performance of each segment based on income (loss) from
               operations before restructuring expenses, interest expenses and
               income taxes.

               The Company does not identify or allocate its assets by operating
               segments as part of the assessment of segment performance.

               Summarized financial information for each of the reportable
               segments is presented below. Segment information related to Cash
               Management and Payments revenue or operating loss for 2001 has
               not been provided as the Company's operations and internal
               reporting were not organized in a manner consistent with the
               current reportable segments and the Company has determined it is
               impracticable to identify such information.

               The following table sets forth the Company's revenue and
               operating income (loss) from all reportable segments for the
               years 2003 and 2002 as well as BBP for the year 2001:

                                                Year ended December 31,
                                         --------------------------------------
                                          2 0 0 3       2 0 0 2         2 0 0 1
                                          -------       -------         -------

Cash Management:
----------------
   Revenues                              $ 11,365       $  8,098              -
   Operating income (loss)               $  1,249       $ (2,844)             -

Payments:
---------
   Revenues                              $ 26,972       $ 24,214              -
   Operating income (loss)               $  4,827       $ (2,681)             -

BBP:
----
   Revenues                              $  9,277       $  7,516       $  6,901
   Operating income (loss)               $   (106)      $     42       $   (914)



                                       27

<PAGE>

                                  FUNDTECH LTD.
                          NOTES TO FINANCIAL STATEMENTS
                                 (In thousands)
                        (except share and per share data)


NOTE 15  -OPERATING SEGMENT AND GEOGRAPHICAL INFORMATION  (Cont.)

          b.   Following is a reconciliation of the operating loss of the
               reportable segments to the data included in the consolidated
               financial statements:

                                                        Year ended December 31,
                                                       -------------------------
                                                         2003            2002
                                                       --------        --------

                Total operating income (loss)
                 of the reportable segments:           $  5,970        $ (5,483)

                Amounts not allocated to segments:
                 General and administrative expenses      5,326           6,172
                 Marketing expenses                         962           1,785
                 Restructuring expenses                       -           3,252
                                                       --------        ---------
Consolidated operating loss                            $   (318)       $(16,692)
                                                       ========        =========

          c.   Geographic information:

               The total revenues are attributed to geographic information,
               based on the customers' location.

                                      Year ended December 31,
                     -----------------------------------------------------------
                            2 0 0 3            2 0 0 2           2 0 0 1
                     -------------------  -----------------   ------------------
                                  Long -             Long -              Long -
                        Total     lived     Total    lived     Total     lived
                      revenues   Assets   revenues   assets   revenues   assets
                      --------   ------   --------   ------   --------   -------

Israel                 $   115   $    74   $   142   $   827   $   205   $   737
U.S.                    28,908    17,771    26,272    20,844    31,610    24,140
Switzerland              8,865     8,185     7,801     8,451     7,381     8,847
Others                   9,726        68     5,613       149     5,798       232
                       -------   -------   -------   -------   -------   -------
                       $47,614   $26,698   $39,828   $30,271   $44,994   $33,956
                       =======   =======   =======   =======   =======   =======

          d. Major customer data as a percentage of total revenue:

                                                     Year ended December 31,
                                                 -------------------------------
                                                 2 0 0 3     2 0 0 2    2 0 0 1
                                                 -------     -------    -------

              Customer A                           18%         18%        17%
                                                 =======     =======    ========



                                       28

<PAGE>

                                  FUNDTECH LTD.
                          NOTES TO FINANCIAL STATEMENTS
                                 (In thousands)
                        (except share and per share data)


NOTE 16  -FINANCIAL INCOME, NET:


                                                     Year ended December 31,
                                                 -------------------------------
                                                 2 0 0 3     2 0 0 2    2 0 0 1
                                                 -------     -------    --------

Financial expenses:
  Interest and other                              $   47      $  172      $  325
  Foreign currency translation
  differences, net                                    71         161         205
                                                  ------      ------      ------

                                                     118         333         530
                                                  ------      ------      ------

Financial income:
  Interest and other                                 716         930       3,787
  Foreign currency translation
    differences, net                                  73          94          86
                                                  ------      ------      ------

                                                     789       1,024       3,873
                                                  ------      ------      ------
                                                  $  671      $  691      $3,343
                                                  ======      ======      ======



                                       29


<PAGE>

[OBJECT OMITTED]ERNST & YOUNG




                         REPORT OF INDEPENDENT AUDITORS

                             To the Shareholders of

                                  FUNDTECH LTD.

         We have audited the accompanying consolidated statements of operations,
changes in shareholders' equity and cash flows of Fundtech Ltd. ("the Company")
and its subsidiaries for the year 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 audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
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 results of their
operations and cash flows of the Company and its subsidiaries for the three year
ended December 31, 2001, in conformity with U.S. generally accepted accounting
principles.




Tel-Aviv, Israel                                            KOST, FORER & GABBAY
March 15, 2002                                  A Member of Ernst & Young Global

<PAGE>


                                    SIGNATURE

      The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.

                                    FUNDTECH LTD.


                                    By: /s/ Reuven Ben Menachem
                                       ------------------------------
                                       Reuven Ben Menachem
                                       Chief Executive Officer

Date:  June 29, 2004