As
      filed
      with the Securities and Exchange Commission on April __, 2008







**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**




**FORM
      20-F**




**o**  **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, 2007**




**OR**




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





**OR**





**o**  **SHELL
      COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF
      1934**





**For
      the transition period from __________ to __________**




**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 52522**


(Address
      of principal executive offices)


____________________________________________________________________________




Joseph,
      Aulenti, General Counsel, Fundtech Corporation


30
      Montgomery Street, Suite 501


Jersey
      City, New Jersey 07302


Fax:
      (201) 946-1313


(Name,
      Telephone, E-mail and/or Facsimile number and Address of Company Contact
      Person)


_____________________________________________________________________________




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




Ordinary
                Shares, NIS 0.01 Par Value
            NASDAQ
                Global Market(Title
                of each Class)
            (Name
                of Exchange on which Registered)




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




None




(Title
      of
      Class)




Securities
      for which there is a reporting obligation pursuant to Section 15(d) of the
      Act:




None




(Title
      of
      Class)




________________________




Indicate
      the number of outstanding shares of each of the issuer’s classes of capital or
      common stock as of the close of the period covered by the annual report:
      15,974,124





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. Yes o No þ




If
      this
      report is an annual or transition report, indicate by check mark if the
      registrant is not required to file reports pursuant to Section 13 or 15(d)
      of
      the Securities Exchange Act of 1934. Yes  ̈ No þ




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 þ No  ̈




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one)




Large
      accelerated filer  ̈    Accelerated
      filer þ   Non-accelerated
      filer  ̈




Indicate
      by check mark which basis of accounting the registrant has used to prepare
      the
      financial statements included in this filing:




U.S.
      GAAP:  þ




International
      Financial Reporting Standards as issued by the International Accounting
      Standards Board:   ̈




Other:   ̈




Indicate
      by check mark which financial statement item the registrant has elected to
      follow:




Item
      17 £ Item 18 þ




If
      this
      is an annual report, indicate by check mark whether the registrant is a shell
      company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ̈  No þ







**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 and all references to “Ordinary Shares” are to
      our Ordinary Shares, NIS 0.01 par value per share.







**TABLE
      OF CONTENTS**


**PART
                    I****ITEM
                    1.**
                IDENTITY
                    OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.
                1**ITEM
                    2.**
                OFFER
                    STATISTICS AND EXPECTED TIMETABLE.
                1**ITEM
                    3.**
                KEY
                    INFORMATION.
                1**ITEM
                    4.**
                INFORMATION
                    ON THE COMPANY.
                9**ITEM
                    4A.**
                UNRESOLVED
                    STAFF COMMENTS.
                20**ITEM
                    5.**
                OPERATING
                    AND FINANCIAL REVIEW AND PROSPECTS.
                20**ITEM
                    6.**
                DIRECTORS,
                    SENIOR MANAGEMENT AND EMPLOYEES.
                33**ITEM
                    7.**
                MAJOR
                    SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.
                42**ITEM
                    8.**
                FINANCIAL
                    INFORMATION.
                44**ITEM
                    9.**
                THE
                    OFFER AND LISTING.
                45**ITEM
                    10.**
                ADDITIONAL
                    INFORMATION.
                46**ITEM
                    11.**
                QUANTITATIVE
                    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
                58**ITEM
                    12.**
                DESCRIPTION
                    OF SECURITIES OTHER THAN EQUITY SECURITIES.
                58**PART
                    II****ITEM
                    13.**
                DEFAULTS,
                    DIVIDEND ARREARAGES AND DELINQUENCIES.
                58**ITEM
                    14.**
                MATERIAL
                    MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
                    PROCEEDS.
                58**ITEM
                    15.**
                CONTROLS
                    AND PROCEDURES.
                59**ITEM
                    16.**
                [RESERVED]
                59**ITEM
                    16A.**
                AUDIT
                    COMMITTEE FINANCIAL EXPERT.
                59**ITEM
                    16B.**
                CODE
                    OF ETHICS.
                59**ITEM
                    16C.**
                PRINCIPAL
                    ACCOUNTANT FEES AND SERVICES.
                59**ITEM
                    16D.**
                EXEMPTIONS
                    FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.
                60**ITEM
                    16E.**
                PURCHASES
                    OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
                    PURCHASERS.
                60
  1
  **PART
                    III****ITEM
                    17.**
                FINANCIAL
                    STATEMENTS.
                61**ITEM
                    18.**
                FINANCIAL
                    STATEMENTS.
                61**ITEM
                    19.**
                EXHIBITS.
                61




2




**PART
      I**




**ITEM
      1** **IDENTITY
      OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS**




*Not
      Applicable*




**ITEM
      2** **OFFER
      STATISTICS AND EXPECTED TIMETABLE**




*Not
      Applicable*




**ITEM
      3**  **KEY
      INFORMATION**




**Selected
      Financial Data.**




The
      following selected consolidated financial data for each of the years in the
      three-year period which ended December 31, 2007 and at December 31, 2007 and
      2006 are derived from our audited Consolidated Financial Statements set forth
      elsewhere in this report, which have been prepared in accordance with and
      utilizing accounting principles generally accepted in the United States (“US
      GAAP”). The selected financial data for each of the years in the two-year period
      ended December 31, 2004 and at December 31, 2005, 2004 and 2003 are derived
      from
      other audited consolidated financial statements not appearing in this report
      which have also been prepared in accordance with U.S. GAAP. All of the financial
      data set forth below are in thousands (except per share amounts). You should
      read the following selected consolidated financial data in conjunction with
      “Operating and Financial Review and Prospects” 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.




**2007**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003****FINANCIAL
                DATA:**Total
                revenues
            
            $
            104,634
            
            $
            85,509
            
            $
            74,466
            
            $
            58,537
            
            $
            47,614Operating
                income
            
            
            6,117
            
            
            2,731
            
            
            4,417
            
            
            2,215
            
            
            318Net
                income
            
            
            7,107
            
            
            3,751
            
            
            4,336
            
            
            2,467
            
            
            67Basic
                earnings per share
            
            $
            0.46
            
            $
            0.25
            
            $
            0.29
            
            $
            0.17
            
            $
            0.00Diluted
                earnings per share
            
            $
            0.43
            
            $
            0.24
            
            $
            0.27
            
            $
            0.16
            
            $
            0.00Cash,
                cash equivalents, short-term bank deposits and short term
                investments
            
            $
            42,001
            
            $
            47,167
            
            $
            49,599
            
            $
            36,430
            
            $
            37,928Long-term
                marketable securities
            
            
            12,847
            
            
            -
            
            
            -
            
            
            9,591
            
            
            8,436Working
                capital
            
            
            45,815
            
            
            54,794
            
            
            49,909
            
            
            37,917
            
            
            41,183Total
                assets
            
            
            128,272
            
            
            112,063
            
            
            105,801
            
            
            98,881
            
            
            89,560Shareholders’
                equity
            
            
            102,132
            
            
            89,786
            
            
            85,010
            
            
            79,805
            
            
            76,534




Israeli
      Securities Law allows Israeli companies, such as ours, whose securities are
      listed on both the Tel Aviv Stock Exchange and on certain stock exchanges in
      the
      United States (including The NASDAQ Global Market) to report exclusively under
      the United States Securities and Exchange Commission rules and utilizing US
      GAAP. All financial statements included in this report and all financial
      information released in Israel are presented solely under US GAAP.




**B.**  **Capitalization
      and Indebtedness.**




*Not
      applicable.*




**C.**  **Reasons
      for the Offer and Use of Proceeds.**




*Not
      applicable.*




**D.**  **Risk
      Factors.**




*You
      should carefully consider the risks described below and in the documents we
      have
      incorporated by reference into this prospectus before making an investment
      decision. The risks described below and in the documents we have incorporated
      by
      reference into this prospectus are not the only ones facing our company. Our
      business, financial condition or results of operations could be materially
      adversely affected by any of these risks. The trading price of our Ordinary
      Shares could decline due to any of these risks, and you may lose all or part
      of
      your investment.*




1




**Risk
      Relating to Our Business**




***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. There has
      been
      concern recently over the impact of the sub-prime financing problem on the
      ability of our clients and potential clients to purchase our products and
      services. We cannot be sure that there will not be an adverse impact on our
      business related to sub-prime credit issues. For example, a decrease in spending
      for software and related services within this industry which is related to
      such
      uncertainties could result in a decrease in demand for our products. We should
      also note that financial institutions around the world continue to consolidate
      which somewhat decreases the overall potential market for 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
      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, cash management and securities
      software products and services consists of a relatively small number of
      customers who have very large potential 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.




We
      have
      entered into a contract with three large customers for the sale of one of our
      payments products. Sales to these customers represented 27.3%, 26.4%, and 24.0%
      or our revenues for 2007, 2006 and 2005, respectively. The cessation of projects
      of this size, which have an indefinite term, could have a material adverse
      effect on our business, financial condition and results of operations. We expect
      that a significant portion of our future revenues will continue to be derived
      from a relatively small number of customers. See Item 5, “Operating Results and
      Financial Review and Prospects - Major Customers.”




***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
      potential clients 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 or the customer decides to internally develop the
      product. Due to the relatively large size of some orders, a lost or delayed
      sale
      could have a material adverse effect on our quarterly revenue and operating
      results.




***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 national and
      regional financial services organizations that seek to support complex and
      sophisticated products. Some of the larger financial institutions have developed
      products that are similar in function to our global payments and cash management
      products, in lieu of purchasing our products which they have then marketed
      to
      other banks or implemented in banks that they have acquired. Thus we might
      be
      competing with both software vendors within our industry and the in-house IT
      departments of certain of our clients.




Our
      competitors currently include, but are not limited to, BankServ, Logica PLC,
      Digital Insights, Inc., S1 Corporation, Fidelity Information Services, Banklink,
      TietoEnator, Sunguard, Smartstream Technologies, ACI Worldwide Inc., Dovetail,
      Fiserv, GIFTS Software, Bottomline, OB 10 ,
      Harbor
      Payments and Clear2Pay.




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




·
            product
                performance;


·
            technical
                features;






2




·
            compatibility
                with existing operating systems;


·
            reliability;


·
            security;


·
            relational
                database power;


·
            price;


·
            customer
                service and support; and


·
            ease
                of use.




Our
      competitors may be in a better position to devote significant funds and
      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
      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.




In
      addition to our current competitors, we expect substantial competition from
      both
      established and emerging companies. A number 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. We cannot assure you
      that competition with both competitors within our industry and with the in-house
      IT departments of certain of our clients or prospective clients 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. See Item 4, “Information on the Company — Business Overview —
Competition.”




***We
      may be unable to expand our development or 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.***




We
      increasingly have the need to increase our technical and customer support staff
      to support both new customers and the expanding needs of existing customers.
      With the addition of our Cashtech business, we are increasingly looking to
      India
      to source these requirements. Since our products are complex we expect that
      the
      training process will take a significant period of time before these and other
      newly hired personnel can support our customers. Qualified individuals are
      in
      demand throughout the software industry globally 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 qualified employees, our business could suffer
      significantly.




***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 throughout the world. We received 46.4%
      of
      our total revenues in 2005, 48.1% of our total revenues in 2006 and 56.0% of
      our
      total revenues in 2007 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;


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


·  difficulties
      and costs of staffing and managing foreign operations;


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


·  multiple
      and possibly overlapping tax structures; and


·  currency
      and exchange rate fluctuations.




3




***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
      continues to develop and evolve. This makes it difficult to predict demand
      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 in the time frames and with the demand that we have projected,
      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.




***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:




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


·
            adverse
                customer reaction;


·
            negative
                publicity and damage to our
                reputation;


·
            diversion
                of resources; and


·
            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 Holdings
      Corporation, as well as all of the stock of Biveroni Batschelet Partners AG,
      Switzerland, Datasphere SA, Switzerland and Cashtech Solutions India Private
      Limited, Radius Partners, Inc., Prang GmbH, Germany, the ACH assets of Troy
      Group, Inc. and the stock of Accountis Limited 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 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.




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




We
      have
      spent considerable time, effort and money developing our next generation
      software. Over the period 2004-2007, Global PAYplusTM has been installed
      at **** 15
      banks and
      CASHplus® has been installed at or operating on behalf of 70 **** banks.
      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. We have no
      patents or patent applications pending for our products and services.
      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.




4




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:




·
            be
                expensive and time-consuming to
                defend;


·
            cause
                product shipment and installation
                delays;


·
            affect
                the decision by prospective customers to enter into agreements with
                us;


·
            divert
                management’s attention and resources;
                or


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




***We
      utilize software from third parties. If we cannot continue using that software
      on commercially reasonable terms, we would have to spend additional capital
      to
      redesign our existing software.***




We
      utilize off-the-shelf third-party software products to optimize the performance
      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 this third-party
      software were either no longer available to us or no longer offered to us on
      commercially reasonable terms, we might be forced re-engineer 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.




**Investment
      Risks**




***The
      market price of our Ordinary Shares may be volatile.***




The
      stock
      market in general including its technology market sector has experienced price
      and volume fluctuations. 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:




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


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


·
            our
                inability to meet any guidance or forward looking information, which
                we
                provide from time to time;


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


·
            changes
                in security analysts’ financial
                estimates;


·
            changes
                in accounting principles;


·
            tender
                offers for our shares initiated due to Israeli law
                requirements;


·
            sales
                of our Ordinary Shares by existing
                shareholders;


·
            the
                loss of any of our key personnel;






5




·
            changes
                in the political conditions in Israel;
                and


·
            the
                general state of the securities markets (with particular emphasis
                on the
                technology and Israeli sectors
                thereof).




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.




***Our
      Stock ownership is highly concentrated, and as a result
      certain shareholders may influence our affairs significantly.***




At
      the conclusion of its pending tender offer,  Clal Industries and
      Investments Ltd, or Clal, will own approximately 56.4 of our ordinary
      shares, or 57.1% when taken together with ordinary shares owned by Clal’s
      affiliate IDB Development Corporation, Ltd.  As a result, Clal will
      have the voting power to significantly influence our policies, business and
      affairs, and also has the ability to influence the outcome of any corporate
      transaction or other matter, including mergers, consolidations and the sale
      of
      all or substantially all of our assets. This concentration in control may have
      the effect of delaying, deterring or preventing a change of control that
      otherwise could result in a premium in the price of our ordinary shares.




***We
      are trending toward a lower percentage of license fees and a greater percentage
      in service revenues in our revenue models, which tends to compress our margins
      and adversely affect our share price.***




The
      combination of sales to major clients containing a significant services
      component to implement software globally, increases in sales where significant
      modifications are required to meet customer specific demands (“Solution Sales”)
      and increasing selection of our ASP hosted solution in lieu of our licensed
      solution, particularly with respect to our CASHplus software, may result in
      lower overall margins and a change in the way our share value is viewed by
      the
      marketplace. Although we continue to believe that a solutions and hosting based
      revenue model has numerous advantages, particularly in recurring revenue and
      visibility into our future earnings, the marketplace may view our share price
      as
      a solutions based business in a different way than it views a license-based
      business. This may lead to volatility in our share price.




***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:




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


·
            our
                customers’ budget cycles;


·
            the
                timing of the release of new product
                upgrades;


·
            any
                lengthening of our sales cycle;


·
            changes
                in the proportion of service and license
                revenues;


·
            price
                and product competition;


·
            enhancements
                or introductions of products and services by us and our
                competitors;


·
            the
                mix of product sales;


·
            software
                “bugs” or other product quality
                problems;


·
            product
                pricing;


·
            our
                effectiveness in providing customer
                support;


·
            delays
                in implementation;


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


·
            consolidation
                of our customers;


·
            currency
                fluctuations; and


·
            changes
                in global economic conditions in general, and conditions in our industry
                and target markets in particular.




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 a 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.




6




**Risks
      Related to Our Location in Israel**




***It
      may be difficult to effect service of process and enforce judgments against
      our
      directors and officers 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. Israeli courts may refuse to
      hear a claim based on a violation of U.S. securities laws because Israel is
      not
      the most appropriate forum to bring such a claim. In addition, even if an
      Israeli court agrees to hear a claim, it may determine that Israeli law and
      not
      U.S. law is applicable to the claim. If U.S. law is found to be applicable,
      the
      content of applicable U.S. law must be proved as a fact, which can be a
      time-consuming and costly process. Certain matters of procedure will also be
      governed by Israeli law. There is little binding case law in Israel addressing
      these matters.




***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. Since the establishment of the State of
      Israel in 1948, a number of armed conflicts have taken place between Israel
      and
      its Arab neighbors. A state of hostility, varying in degree and intensity,
      has
      led to security and economic problems for Israel. Any major hostilities
      involving Israel, acts of terrorism 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 or 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. 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. The election of representatives of the Hamas
      militant group to a majority of seats in the Palestinian Legislative Council
      in
      2006 has created additional unrest and uncertainty in the region. The Hamas
      armed takeover of the Gaza Strip in June 2007 and its effective control of
      that
      area since have resulted in an escalation of unrest and violence in that area
      among Israel, the Palestinian Authority and other groups. Further, in July
      2006
      Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist
      Shiite militia group, along Israel’s northern border, which involved thousands
      of missile strikes and disrupted most day-to-day civilian activity in northern
      Israel. Any on-going or future violence between Israel and the Palestinians,
      armed conflicts, terrorist activities, tension along the Israeli-Lebanese or
      the
      Israeli-Syrian borders, or political instability in the region would likely
      disrupt international trading activities in Israel and may materially and
      negatively affect our and our major contract manufacturer’s business conditions
      and could harm our results of operations. Also, the war in Iraq led by coalition
      forces and the short and long term consequences of such war may negatively
      impact our business. Certain countries, as well as certain companies and
      organizations, continue to participate in a boycott of Israeli firms and others
      doing business with Israel and Israeli companies. Thus, there have been sales
      opportunities that we could not pursue and there may be such opportunities
      in
      the future from which we will be precluded. We are also precluded from marketing
      our products to certain of these countries due to U.S. and Israeli
      regulatory restrictions. In addition, such boycott, restrictive laws, policies
      or practices may change over time and we cannot predict which countries, as
      well
      as whether certain companies and organizations, will be subject thereto. The
      boycott, restrictive laws, policies or practices directed towards Israel or
      Israeli businesses could, individually or in the aggregate, have a material
      adverse affect on our business in the future.




Some
      of
      our officers and employees are currently obligated to perform annual reserve
      duty, depending on their age and position in the army. Additionally, they may
      be
      called to active reserve duty at any time under emergency circumstances for
      extended periods of time. Our operations could be disrupted by the absence
      for a
      significant period of one or more of our executive officers or key employees
      due
      to military service, and any significant disruption in our operations could
      harm
      our business. We believe that we have operated effectively given these
      requirements since we began operations. Nevertheless, the full impact on our
      workforce or business if some of our executive officers and employees will
      be
      called upon to perform military service, especially in times of national
      emergency, is difficult to predict. Although we have operated 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.




7




***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 2007, the dollar devalued against the NIS by approximately
      9%
      while the consumer price index has increased at the rate of 3.4%. 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.




***The
      government grants we have received for research and development expenditures
      restrict our ability to manufacture products and transfer technologies outside
      of Israel and require us to satisfy specified
      conditions.***




From
      time
      to time we have received royalty-bearing grants from the Office of the Chief
      Scientist of the Ministry of Industry and Trade of the Government of Israel
      (“OCS”) under the Encouragement of Industrial Research and Development, 1984, or
      the Research and Development Law, and the regulations promulgated thereunder.
      The terms of these grants prohibit us from manufacturing more than 10% of the
      products developed using these grants outside of Israel without special
      approvals. There is no assurance that we will receive such OCS approval. Even
      if
      we receive approval to manufacture these products outside of Israel, we may
      be
      required to pay increased royalties, up to 300% of the grant amount plus
      interest, depending on the manufacturing volume that is performed outside of
      Israel. The Research and Development Law also allows for the approval of grants
      in cases in which the applicant declares that part of the manufacturing will
      be
      performed outside of Israel or by non-Israeli residents and the OCS is convinced
      that doing so is essential for the execution of the program. This declaration
      will be a significant factor in the determination of the OCS whether to approve
      a program and the amount and other terms of benefits to be granted. For example,
      the increased royalty rate and repayment amount will be required in such
      cases.




The
      Research and Development Law also provides that know-how developed under an
      approved research and development program may not be transferred to third
      parties in Israel without the approval of the OCS. Such approval is not required
      for the sale or export of any products resulting from such research or
      development. The Research and Development Law further provides that the know-how
      developed under an approved research and development program may not be
      transferred to any third parties outside Israel, except in certain circumstances
      and subject to prior OCS approval. Even if we receive approval to a transfer
      the
      technology outside of Israel, a percentage of the consideration paid for such
      transfer equal to the ratio of the aggregate amount of OCS grants received
      by us
      and the aggregate amount of all cash investments made in our company, including
      the OCS grants.




The
      Research and Development Law imposes reporting requirements with respect to
      certain changes in the ownership of a grant recipient. The law requires the
      grant recipient and its controlling shareholders and non-Israeli holders of
      more
      than 5% of our share capital to notify the OCS of any change in control of
      the
      recipient, or a change in the holdings of the means of control of the recipient
      that results in a non-Israeli becoming an interested party directly in the
      recipient, and requires the new interested party to undertake to the OCS to
      comply with the Research and Development Law




These
      restrictions may impair our ability to outsource manufacturing or engage in
      similar arrangements for those products or technologies. In addition, if we
      fail
      to comply with any of the conditions imposed by the OCS, we may be required
      to
      refund any grants previously received, together with interest and penalties
      and
      we may be subject to criminal charges. In addition, under the R&D Law, any
      non-Israeli who becomes a direct holder of 5% or more of our share capital
      is
      required to notify the OCS and to undertake to observe the law governing the
      grant programs of the OCS, the principal restrictions of which are the
      transferability limits described above in this paragraph.




8




***The
      tax benefits to which we are currently entitled from our approved enterprise
      program require us to satisfy specified conditions. If we fail to satisfy these
      conditions, we may be required to pay increased taxes and would likely be denied
      these benefits in the future.***




The
      Investment Center of the Ministry of Industry, Trade and Labor has granted
      “approved enterprise” status to investment programs at our facility in Ramat
      Gan. When we begin to generate taxable income from these approved enterprise
      programs, the portion of our income derived from these programs will be exempt
      from tax for a period of two years and will be subject to a reduced tax for
      an
      additional five to eight years thereafter, depending on the percentage of our
      share capital held by non-Israelis. The benefits available to an approved
      enterprise program are dependent upon the fulfillment of conditions stipulated
      under applicable law and in the certificate of approval. If we fail to comply
      with these conditions, in whole or in part, or fail to get approval in whole
      or
      in part, we may be required to pay additional taxes for the period in which
      we
      benefited from the tax exemption or reduced tax rates and would likely be denied
      these benefits in the future. The amount by which our taxes would increase
      will
      depend on the difference between the then applicable tax rate for non-approved
      enterprises and the rate of tax, if any, that we would otherwise pay as an
      approved enterprise, and the amount of any taxable income that we may earn
      in
      the future.




***Provisions
      of Israeli law may delay, prevent or impede an acquisition of us, which could
      prevent a change of control.***




Israeli
      corporate law regulates mergers and tender offers, requires tender offers for
      acquisitions of shares above specified thresholds and regulates other matters
      that may be relevant to these types of transactions. Furthermore, Israeli tax
      considerations may make potential transactions unappealing to us or to some
      of
      our shareholders. These provisions could delay, prevent or impede an acquisition
      of us. See Item 10, “Additional Information-Mergers and Acquisitions” in this
      annual report, for additional discussion about some anti-takeover effects of
      Israeli law.




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




Although
      we believe that we were not a passive foreign investment company, or PFIC,
      in
      2007, we cannot assure you that the United States Internal Revenue Service
      will
      agree with our position. We would be a PFIC 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 treated
      as a corporation for U.S. federal income tax purposes ,
      in
      which we are considered to own directly
      or indirectly 25% or more of the
      shares by value) is passive income, or (ii) the value of our assets averaged
      quarterly over our the taxable year (including our pro rata share of the assets
      of any company treated
      as a corporation for U.S. Federal income tax purposes in
      which
      we are considered to own directly
      or indirectly 25% or more of the
      shares by value) 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 PFIC, our U.S. investors could suffer
      adverse tax consequences, including being taxed at ordinary income tax rates
      and
      subject to an interest charge on gain from the sale or other disposition of
      our
      Ordinary Shares and on
      certain “excess distributions” with respect to Ordinary Shares .
      For
      additional information regarding our PFIC status, see Item 10E, “Additional
      Information — Taxation. - United States Federal Income Taxation Considerations”
- Passive Foreign Investment Company Status.




**ITEM
      4.** **INFORMATION
      ON THE COMPANY.**




**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 as amended (the “Companies Law”), which
      replaced most of the provisions of the Companies Ordinance effective as of
      May
      1, 2000.




Our
      registered office is located at 12 Ha’hilazon Street, 5th Floor, Ramat-Gan,
      Israel 52522, 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 (ACCESS
      BankingTM). In 1999, we acquired the assets of the cash management division of
      Sterling Commerce (Banker product line); as well as 100% of the stock of
      Biveroni Batschelet Partners AG, Switzerland (“BBP”), which connects banks to
      the Central Bank of Switzerland and the SWIFT network for the processing and
      settlement of payments and securities. In 2004, we acquired 100% of the stock
      of
      Datasphere SA, Switzerland (“Datasphere”), which also offers financial messaging
      products; and Cashtech Solutions India Private Limited (“Cashtech”) which offers
      a line of cash management and financial supply chain products. In 2005, we
      acquired 100% of the stock of Radius Partners, Inc. (“Radius Partners”), which
      offers securities settlement products. In early 2007 we acquired 100% of the
      stock of Prang GMBH, Germany (“Prang”), which provides payments software for the
      German market. In January 2008 we acquired the ACH (Automated Clearing House)
      transaction processing, initiation and collection software business of Troy
      Group, Inc in an asset purchase. In February 2008 we acquired 100% of the stock
      of Accountis Limited, which offers electronic bill presentment
      software.




9




On
      March
      13, 1998, we completed our initial public offering and our Ordinary Shares
      began
      trading on the NASDAQ National Market (now the NASDAQ Global 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
      $5.4 million, $5.2 million and $6.7 million during the years ended December
      31,
      2005, 2006 and 2007, respectively. We neither purchased nor owned any real
      property during this same period. We acquired all of the capital stock of
      Cashtech during 2004 for a total of $3.8 million and all of the capital stock
      of
      Radius Partners during 2005 for a total of $2.6 million. Each of these
      transactions carried an “earn out” provision for which we have made payments
      totaling $1.4 million during 2006 and $1.2 million in 2007. We acquired all
      of
      the capital stock of Prang during 2007 for a total of approximately €4.9 million
      ($6.3 million). The acquisition agreement caries an “earn out” provisions
      pursuant to which we made payment of €2.3 million ($3.4 million) in March 2008
      based on Prang’s 2007 performance. Fundtech is currently in the process of
      amending the Prang acquisition agreement, which would change the earn-out
      payment obligations to €597 thousand in each of January 2009 and 2010. No
      further earn-out obligations will exist after these two payments. We acquired
      the ACH business of Troy Group, Inc. in an asset purchase for a total of $1.2
      million in cash. We will pay additional amounts up to $400,000 by the end of
      2008 contingent upon fulfillment of certain conditions. We acquired all of
      the
      capital stock of Accountis Limited in 2008 for £3.9 million paid at closing with
      a possible payment of an additional £2 million over the three years following if
      Accountis meets certain targets for net profits.




Capital
      expenditures for the year ending December 31, 2008 are expected to be
      approximately $11.5 million, of which $8.3 million will be spent in the United
      States and $3.2 million will be expended outside the United States. We
      anticipate financing these capital expenditures with our own funds.




**Business
      Overview**




We
      are a
      leading provider of end-to-end financial transaction processing software
      solutions for financial institutions. These solutions are grouped into five
      broad categories: payment processing, foreign exchange settlement processing,
      financial messaging, cash management and securities settlement straight through
      processing products. The first three categories are transaction processing
      solutions, which enable banks to automate the payment and settlement processes
      and provide real-time transaction processing capabilities to financial
      institutions and their customers. The fourth category, cash management products,
      enable corporate clients to communicate with their financial institutions for
      the purpose of initiating payments, making inquiries and managing their
      activities with the financial institutions. The final category securities
      post-trade settlement is a multi-asset global trade management solution that
      consolidates and automates a broker/dealer’s middle office
      operations.




We
      acquired our ACCESS BankingTM products in April 1998, BBP, our Swiss subsidiary,
      in June 1999 and our banker products in September 1999. Our major products
      include ACCESS BankingTM, CASHplus®, PAYplus USATM, PAYplus for CLSTM, Global
      PAYplusTM, Recovery Services for disaster recovery service bureau solutions and
      related services. We acquired Datasphere through BBP in August 2004 and Cashtech
      in November 2004. BBP and Datasphere have sold their products and services
      to
      approximately 150 customers for the purpose of accessing the SWIFT financial
      messaging network. Cashtech offers a suite of cash management products named
      CashWeb, CashIn and TransactCentral. Radius Partners is an STP (“straight
      through processing”) solutions provider to the securities industry. Radius
      offers two STP products named TRADEplus and TRADEplus Data Manager. Prang,
      acquired in early 2007, is a payments solution provider in Germany where it
      offers its Prang FTS solutions. The newly acquired ACH business’ products
      deliver real-time ACH transaction processing as well as automated exception
      handling. Accountis offers Electronic Invoice Presentment and Payments services
      to financial institutions and corporations in Europe.




*Industry
      Background*




As
      global
      commerce continues to increase, and new banking technologies are adopted, there
      have been dramatic increases in both the number of transactions consummated
      through electronic payment systems and the need for timely delivery of financial
      information. Financial institutions continue to seek more efficient methods
      of
      offering payment, settlement and cash management services.




10


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; increased regulatory requirements imposed on banks,
      particularly in respect to initiatives in the European Union, a desire to
      accelerate top-line revenue growth in the form of additional fee income
      generating services, the need to lower operating costs, a growing move away
      from
      in-house development toward packaged applications, increasing interest in
      financial supply chain solutions, and the need to develop unique services that
      allow an institution to differentiate itself from its competitors.




We
      believe that the current dynamic market environment and several market trends
      are favorable to our products and services. The following trends continue to
      drive demand for our products and services:




·
            adoption
                of real-time gross settlement by central banks around the world;


·
            growth
                in globalization and electronic commerce resulting in continued migration
                to Internet-enabled financial services such as 24-hour trading and
                settlement, as well as real-time information on financial positions
                and
                transactions;


·
            demand
                from clients for simplified corporate banking relationship, which
                require
                banks to re-engineer customer facing
                systems;


·
            the
                need among financial institutions to lower operating costs which
                is
                driving the need among banks for centralized payment and treasury
                functions;


·
            increased
                regulatory requirements imposed on banks, including, but not limited
                to,
                those in the areas of interdiction, anti-money laundering, and in
                the
                European Union, the conversion to a Single European Payments Area
                (“SEPA”);


·
            a
                desire among financial institutions to unlock un-tapped value in
                their
                transaction banking franchises and accelerate top-line revenue growth
                in
                the form of additional fee income-generating services, which is increasing
                the interest in financial supply chain solutions such as electronic
                invoice presentment and payment
                (EIPP);


·
            a
                growing shift away from in-house development toward packaged applications,
                as well as an increased use of outsourcing, application service providers
                and “white-labeling” in lieu of developing and managing their own IT
                activities;


·
            a
                shift on the part of financial institutions to establish strategic
                technology partnerships with a few key vendors in order to lower
                the cost
                and risk of integrating new applications with existing infrastructure;
                and


·
            greater
                emphasis on risk mitigation in areas such as liquidity management
                and
                contingency and recovery
                capabilities.




*Products
      and Services*




Our
      products and related services are designed to integrate all elements of the
      electronic payments cycle, and we believe that they are among the most
      technologically advanced and cost-effective solutions in the financial services
      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 feature-rich graphical user interfaces that are easy learn and use, and
      enabling our customers to maximize their efficiency.




We
      are
      one of the largest providers of products and services that link banks to
      domestic and international payment networks. In the United States our products
      connect banks to the Federal Reserve System’s FedLine, which has approximately
      7,500 banks connected. On a global basis, we provide banks with the capability
      to link to the SWIFT network for communicating cross-border transactions. SWIFT
      has over 7,000 banks in over 200 countries connected to their global network.
      Fundtech is also a leading provider in global settlements through the CLS Bank’s
      Continuous Linked Settlement System (“CLS”), which was established by the
      largest foreign exchange banks in the world to reduce foreign exchange
      settlement risk.




11




***Payment
                Solutions***
            
            ***Short
                Description***PAYplus
                USATM
            
            A
                payments solution for banks operating in the United
                States.Global
                PAYplusTM
            
            A
                solution for managing the global payments activities of large
                multi-national banks and financial institutions that conduct business
                in
                multiple countries.Pan-European
                PAYplus
            
            A
                comprehensive solution to meet the Single European Payments Area
                (SEPA)
                and the European Central Bank’s Target 2 initiative
                compliance.


OmniPay
            
            A
                payments hub that enables corporate clients to transmit a single
                file of
                mixed payments, thereby simplifying this process.IGTplus
            
            A
                payments and settlement solution which provides message broker services
                between financial institutions and SWIFT, SIC, SIS and SWX in
                Switzerland.Global
                PAYplusTM Liquidity Manager
            
            A
                system that provides centralized control of a bank’s liquidity management
                needs, ensuring more efficient management of multi-currency, multi-bank
                liquidity assets across bank accounts, clearing systems, and central
                bank
                channels.StarACH
            
            A
                high volume system that automates the processing of ACH payments
                and
                provides a bank with tools to streamline this
                operation.Originet
            
            An
                Internet-based software application that corporations use to make
                and
                collect ACH payments.ProcessMaster
            
            A
                low-volume system that automates the processing of ACH payments and
                provides a bank with tools to streamline this
                operation.BACSTEL-IP
            
            An
                Internet based software application that corporations use to make
                and
                collect ACH payments over the UK BACS system, which is an automated
                direct
                debit and credit processing facility.Electronic
                Invoice Presentment and Payment Solutions (“EIPP”)
            
            Software
                that enables the accounts receivable department of the selling
                organization to send an electronic invoice to the accounts payable
                department of the buying
                organization.




**PAYplus
      USATM**




PAYplus
      USATM is a funds transfer solution used to connect a financial institution’s wire
      transfer room with the Federal Reserve’s FedWire system. This solution evolved
      from and replaces two older products, FEDplusTM and PAY$tarTM. 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.




PAYplus
      USATM 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 USATM also offers the same
      functionalities for international multi-currency payments of international
      banks
      operating in the United States.




PAYplus
      USATM 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
      PAYplusTM**




Our
      Global PAYplusTM 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 PAYplusTM 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 PAYplusTM aggregates worldwide payment
      activity. Global PAYplusTM is a multi-platform system supporting both UNIX and
      Microsoft operating systems that employ open technology standards. The system
      features end-to-end security and multi-currency capabilities.




12




**Pan-European
      PAYplus**




Pan-European
      PAYplus is a solution that provides a financial institution with the payment
      processing and liquidity management functionality required for handling Euro
      payments in the Single European Payments Area (SEPA). Pan European PAYplus
      provides an integrated solution to meet SEPA high impact changes while
      maximizing STP and preserving income from existing payment operations.
      Pan-European PAYplus incorporates new technology embedded in the SEPA technical
      infrastructure (e.g. ISO 20022, SWIFT Cash Reporting). The product can be
      deployed on a stand-alone basis for banks to integrate within their existing
      payments infrastructure, or as an integrated component of our Global PAYplus
      payment solution.




**OmniPay**




OmniPay
      is a web-based, intelligent payments hub that processes mixed payments files
      using the bank’s existing payments infrastructure. By eliminating the “siloed”
approach of legacy systems, OmniPay allows banks to offer clients highly
      automated and highly customized payments services that integrate with their
      enterprise resource planning (ERP) systems. Banks are able to deliver a new
      level of customer satisfaction and generate new service fee revenue from
      value-added services.




**IGTplus**




Our
      Swiss
      subsidiary markets IGTplus, a message broker application for financial messages.
      For financial institutions it comprises the interface to their central banking
      system. IGTplus processes payments, securities transactions or related orders
      and information to/from other financial institutions, clearing organizations,
      and central banks, among others, using straight through processing in order
      to
      provide faster, better quality service to customers and to reduce costs. The
      SWIFT, SIC (Swiss Interbank Clearing), SIS (Swiss Securities Clearing) and
      FIX
      applications of IGTplus provide communication to/from these financial services
      with the option of manual investigations, exception handling and queries for
      liquidity information. Due to the high sensitivity and performance requirements
      inherent in this application, IGTplus is designed for very high throughput
      and
      24x7 fully automated operation. The target markets are large banks, service
      centers and financial market infrastructures. Smaller
      financial institutions may obtain the same functionality as they would obtain
      by
      acquiring a license by contracting for the services of the BBP Service Bureau,
      which operates IGT Plus on behalf of a number of such institutions.




**Global
      PAYplus Liquidity Manager**




Global
      PAYplus Liquidity Manager (GLM) is a management and planning tool, that ensures
      more efficient control and management of multi-currency liquidity assets across
      the bank’s accounts and Real Time Gross Settlement channels. The system provides
      flexible functionality which allows the bank to centralize, monitor and control
      the management of liquidity. GLM provides Treasury personnel with accurate,
      online and timely information to facilitate better decision-making and also
      can
      provide Treasury staff with efficient payment delivery and execution based
      upon
      up-to-date information. GLM interfaces with other systems within the bank to
      gather liquidity information, ensuring that a complete and accurate liquidity
      position is continuously available.




**StarACH**




StarACH
      is a server-based, enterprise class software application designed to streamline
      processing for all levels of ACH processors. The system is built on a scalable
      platform that can handle increasing transaction volumes as needed. The system
      includes many advanced features such as continuous processing, process
      automation, advanced reporting, and risk management. Its web interface allows
      originators, bank internal staff, and ACH operators to upload files to the
      system for processing, search the warehouse and retrieve and view
      reports.




**Originet**




OrigiNET
      is an Internet-based software application, derivative of StarACH, which allows
      corporations and banks to make or collect payments electronically using ACH.
      The
      software structures payment data into a standard file format that can be
      accepted by any financial institution, third-party processor, or ACH operator.
      Common applications of OrigiNET include payroll, expense reimbursements,
      pensions, annuities, dividends, commissions, and benefit payments.




**ProcessMaster**




ProcessMaster
      is a Windows®-based software application that enables small to medium size
      processors to streamline their ACH operations, enabling them to reduce
      operational costs by providing increased transaction capacity through
      automation. The system includes features that ensure National Automated Clearing
      House Association (NACHA) compliance, improve risk management, automate
      processing, scheduling and billing, and address other critical issues involved
      in ACH processing. This central, automated processing system effectively manages
      the origination and receipt of ACH transactions and enables ACH processors
      to
      automate tasks, minimize risk and increase productivity.




13




**BACSTEL-IP**




Accountis
      BACSactive-IP provides organizations with a modern, well designed, reliable
      and
      secure electronic funds transfer solution. Designed by experts in the field
      of
      Internet payments to take advantage of features of the BACS system and all
      it
      has to offer, such as the highest levels of security and easy-to-use reporting
      facilities.




**Accountis
      EIPP Services**




Accountis
      Enterprise AP enables corporations to automate payables process from the
      creation of purchase orders and receipt of invoices, to handling disputes and
      submitting payments online by integrating with existing ERP or accounting
      systems. It can work as a stand-alone solution or in conjunction with Accountis
      Enterprise AR and additional modules to provide a complete end-to-end solution.
      Accountis Enterprise AP is designed for organizations that deal with large
      volumes of inbound and wish to receive them electronically. It supports multiple
      currencies and languages and is fully VAT compliant across European member
      states. The system integrates easily with existing ERP or finance systems to
      save resources by automating the receivables process, from capturing purchase
      orders and issuing invoices to controlling debtors and collecting payments
      online. It can also work as a stand-alone solution. By consolidating invoice
      data quickly and simply, Accountis Enterprise AR presents one-view of all
      receivables transactions for the benefit of both internal users and buyers
      alike.




***Cash
                Management Solutions***
            
            ***Short
                Description***ACCESS
                BankingTM
            
            A
                solution designed to enable high end and mid-level financial institutions
                to deliver comprehensive cash management services to their corporate
                clients.CASHplus®
            
            An
                Internet-based cash management solution designed for high end and
                mid-level financial institutions.webBANKERTM
            
            A
                fully integrated cash management solution designed primarily for
                the
                community bank market.CashWeb
            
            A
                multi-currency Internet front end for cash management
                systems.CashIn
            
            A
                business engine supporting all forms of cash management services
                utilized
                primarily in India.TransactCentral
            
            A
                fully integrated suite of cash management modules with building block
                architecture, designed for large financial institutions requiring
                significant customization.Transact
                Remit TM
            
            A
                powerful, web-based, international remittance transaction processing
                system, which automates the entire process of money transfer for
                a
                bank/financial institution.




**ACCESS
      BankingTM**




Our
      ACCESS BankingTM solution is a client/server product that enables banks and other
      financial institutions to provide cash management services to their corporate
      clients. ACCESS BankingTM is targeted at the mid-to-large-size financial
      institutions. Through ACCESS BankingTM, clients can obtain balance history and
      intra-day reporting, manage check transactions, originate wire transfer payment
      transactions and initiate intra-bank account transfers. ACCESS BankingTM 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 BankingTM server remotely via the web, touch-tone
      telephone with voice response, teletype terminal emulation or facsimile
      transmission.




**CASHplus®**




The
      CASHplus® 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® is designed to reduce
      the cost of delivering remote banking services through universal access and
      simplified maintenance and distribution of remote software.




14




**webBANKERTM**




web
      BANKERTM was designed for community banks – it is cost-effective to operate and
      easy to set up and use. It offers the features needed to be competitive in
      the
      marketplace such as wire transfer. ACH origination with federal and state tax
      payments, compatibility with FEDLine Advantage, information reporting, cash
      concentration and disbursement. Fundtech offers this system on an installed
      or
      ASP basis.




**CashWeb**




Developed
      by our Cashtech subsidiary, this multi-currency Internet front-end program
      offers a single-window interface for all types of cash management transactions.
      The software can also be customized to meet both client and country specific
      requirements.




**CashIn**




Also
      developed by our Cashtech subsidiary, CashIn is a business
      engine equipped with features that support all cash management activities and
      products. The system handles basic clearing products like automated
      clearinghouse, wire clearing and other collection mechanisms. CashIn can also
      be
      customized to meet more complex client needs.




**TransactCentral**




TransactCentral is a
      component-based cash management platform that is designed to be highly
      customized by the bank’s in-house development staff. This rules-based system is
      built in Java (J2EE) and can be integrated into a highly complex bank
      infrastructure. TransactCentral enables financial institutions to offer their
      corporate customers the business benefits of tracking cash balances, monitoring
      payments and receivables and performing liquidity management
      functions.




**Transact
      Remit**




Transact
      Remit is a powerful, web-based, international remittance transaction processing
      system, which automates the entire process of money transfer for a
      bank/financial institution. It is also a highly customized solution that ensures
      speedy remittances to and from anywhere in the world, without the usual transit
      losses. Transact Remit is built using Transact Central, Cashtech’s robust,
      central financial application hosting platform.




***Settlement
                Solutions***
            
            ***Short
                Description***PAYplus
                for CLSTM
            
            A
                solution designed to allow its members, being the largest international
                financial institutions, to fully participate in the CLS Bank
                system.




**PAYplus
      for CLSTM**




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




***Securities
                Solutions***
            
            ***Short
                Description***TRADEplusTM
            
            TRADEplus
                is a multi-asset, global trade management solution that consolidates
                and
                automates a broker/dealer’s middle office operations.TRADEplus
                Data Manager
            
            TRADEplus
                Data Manager audits, controls and manages all of the customer, account
                and
                settlement instruction data necessary for institutional trade
                processing.TRADEplus
                Fixed Income
            
            TRADEplus
                Fixed income provides web based, straight through processing solutions
                that provides real-time Omgeo and FIX (Financial
                Information eXchange) information systemsconnectivity,
                as well as automated matching and intelligent routing by business
                area.TRADEplus
                Correspondent Clearing
            
            TRADEplus
                allows correspondent clearing firms to provide superior Internet
                based
                services to their clients.




15




**TRADEplusTM**




TRADEplus
      is a multi-asset, global trade management solution that consolidates and
      automates a broker/dealer’s middle office operations. Its advanced exceptions
      management capabilities allow users to detect and resolve trade issues in real
      time. Its rules engine ensures more efficient control and management of
      transactions across asset classes, offices, central services and clients. Its
      services oriented architecture provides scalability, simplifies enterprise
      integration and allows clients to quickly enable new external client and service
      connections and to automate trade operations for greater efficiency and client
      service. TRADEplus automates the trade process from the point of execution
      through booking and notification of settlement, delivering significant operating
      efficiencies and reducing complexity and costs.




**TRADEplus
      Data Manager**




TRADEplus
      Data Manager audits, controls and manages all of the customer, account and
      settlement instruction data necessary for institutional trade processing. Its
      real-time interfaces automatically access new and changed information from
      industry sources such as Omgeo ALERT and SWIFT. Its rules-based workflows
      efficiently convert inconsistent and inaccurate data into a trusted,
      high-quality source that can be relied upon for trade and back office process
      automation. In addition, TRADEplus Data Manager enriches trade messages as
      needed for timely and accurate settlement.




**TRADEplus
      Fixed Income**




TRADEplus
      Fixed Income allows brokers to choose to process at the Trade level or Breakdown
      level. Trade level users send trades into TRADEplus that are matched against
      allocations received from Omgeo OASYS, FIX or manual input. Exceptions are
      routed to the appropriate business area based on trade inputs and routing rules.
      Matched trades auto-generate ACCEPTS back to OASYS. Mismatched trades are
      reviewed by users and can be amended, accepted or rejected. Breakdown level
      users receive allocations from OASYS (using one or more acronyms) and these
      allocations are routed to the appropriate business area based on allocation
      inputs and routing rules. Users accept or reject allocations online. Regardless
      of level, once the trade is accepted then the broker’s back office system can be
      updated via an automated FIX, MQ or file-based communication.





**TRADEplus
      Correspondent Clearing**




TRADEplus
      allows Correspondent Clearing firms to provide superior Internet services to
      their clients. TRADEplus services include Trade Capture, Trade Matching,
      Allocations Processing, New Account Set Up and Verification, Account
      Maintenance, Account Inquiry, Trade Confirmation and Statement and Report
      Access. TRADEplus Portal enables Correspondent Clients to communicate with
      their
      Clearing firm through a custom view of these services that is designed to their
      specific business needs.




***ASP/Outsourcing
                Solutions***
            
            ***Short
                Description***Fundtech
                Connect (ASP)
              –
                for PAYplus USA
            
            An
                Application Service Provider (ASP) solution that provides the PAYplus
                solution to banks operating in the United States.Fundtech
                Connect (ASP)
              –
                for CASHplus
            
            An
                ASP solution that provides the CASHplus solution to banks operating
                in the
                United States.Interbank
                Gateway Services
            
            An
                ASP solution that provides payment and settlement solutions to banks
                in
                Europe, primarily in Switzerland and through the SWIFT
                network.Recovery
                Services
            
            Disaster
                recovery and contingency services for users of our
                products.




**Fundtech
      Connect – PAYplus USA and CASHplus**




Fundtech
      Connect is an ASP solution available based upon our PAYplus USA and Cash
      Management 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.




16




**SWIFT
      Services**




Corporate
              Connect
            
            Fundtech's
                service bureau is an efficient way for corporations to connect to
                their
                banks via SWIFT.Message
              Converter
            
            A
                unique middleware solution allows users to convert proprietary messages
                into SWIFT and other standard messages.Compliance
              Filter
            
            The
                Compliance Filter monitors transaction flow based on the requirements
                of
                the OFAC (Office of Foreign Assets Control), Factiva, Worldcheck
                or other
                country specific standards.




**Corporate
      Connect**




Through
      Fundtech’s SWIFT Service Bureau, corporate entities now have access to a
      cost-effective connection to the SWIFT messaging network. The service is a
      complete interbank solution that is centrally operated, eliminating the need
      for
      significant investment in hardware or software. Installation is quick and
      relatively easy.




Both
      corporate entities and their banks will benefit by processing transactions
      in an
      STP (straight through processing) environment, with fewer interfaces to
      enterprise resource planning (ERP) systems and other in-house applications.
      Fundtech’s SWIFT Service Bureau is the world’s largest, currently serving over
      100 financial institutions. Corporate access to the SWIFTNet is made possible
      through SWIFT’s Member Administered Closed User Groups (MA-CUG).




**IGTplus
      Message Converter**




The
      IGTplus Message Converter is a unique middleware application specifically
      designed for the financial services industry. It allows financial institutions
      to convert proprietary messages into SWIFT and other standard messages and
      vice
      versa, saving time and reducing costs of conversion.




**IGTplus
      Compliance Filter**




IGTplus
      Compliance Filter provides online, real time compliance protection. Every
      transaction is checked before it leaves or enters the bank system. It monitors
      transaction flow based on the requirements of the OFAC (Office of Foreign Assets
      Control), Factiva, Worldcheck or other country specific standards. The IGTplus
      Compliance Filter is available for SWIFT, SIC/euroSIC and SECOM.




**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.




·
            Interbank
                Gateway Services provides its services to smaller financial institutions
                using the IGTplus software to provide communication to/from SWIFT,
                SIC
                (Swiss Interbank Clearing), SIS (Swiss Securities Clearing) and FIX
                (Financial Information Exchange)
                protocol.




**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:




·
            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.




17




·
            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.


·
            Banks
                located outside of the United States – These banks are located in
                countries that have moved to or will move to processing payments
                on a real
                time gross settlement (RTGS) basis.




Capital
      Market Institutions - The back office processing in capital markets is complex
      and costly. For decades the securities industry has continually sought
      efficiency improvements through greater automation. This trend continues today
      and is accelerated by the expanding number of new investment vehicles and
      globalization of the markets. Fundtech sees an opportunity in the securities
      industry from leveraging its knowledge of back office processing at banks.
      Process improvements from automated transaction processing, error repair and
      routing are integral to Fundtech’s banking product line, and can be applied to
      the securities industry.




Corporations
      – With the addition of Accountis AR and Accountis AP and Troy’s OrigiNET,
      Fundtech has a line of payments related products that are being sold directly
      to
      corporate entities. While we intend to continue to support the sale of these
      products directly to end users, we will also expand the distribution of the
      products through Fundtech’s traditional client base of financial
      institutions.




In
      2004
      we acquired Datasphere and Cashtech and began the process of assimilating their
      products and services into our offerings. We acquired Radius Partners in 2005
      and have begun to market its solutions through our securities division.
      Likewise, we acquired Prang in early 2007. Prang has approximately 50 customers,
      primarily in Germany. We also acquired the ACH business of Troy Group in early
      2008 which brings several new ACH products to our portfolio along with
      approximately 18 customer relationships. Accountis Limited acquired in February
      2008, has over 770 clients using its BACS payments and electronic invoicing
      and
      presentment products and services.




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 —Results — Significant Revenue
      Information.”




**Sales
      and Marketing**




We
      sell
      our products and services primarily through our direct sales force, located
      in
      the United States, United Kingdom, Switzerland, India and Singapore. We use
      the
      services of distributors in the Republic of Korea, Greece and the
      Balkans.




Our
      marketing efforts include a variety of activities that promote our products
      including public relations and industry analyst relations, direct response
      marketing programs, telemarketing lead generation and lead nurturing, and
      industry trade shows and conferences. In addition, we receive inquiries about
      our products directly through our corporate website.




We
      maintain a working relationship with the Federal Reserve Bank in the United
      States to ensure that our products meet Federal Reserve requirements. We also
      maintain a working relationship with SWIFT, 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 SWIFT-compliant,
      we are well positioned to offer payment and settlement solutions to
      international banks.




**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 achieving technological leadership. The total
      software development staff consisted of 266 full-time employees on December
      31,
      2007. All of our payments products have been developed internally by our product
      development staff. Our cash management, BBP, ACH, EIPP and securities products
      were initially developed by the personnel of the businesses we acquired (such
      personnel migrating to us with the acquired businesses), and have since
      continued to be developed 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.




18




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 are 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, California,
      Israel, Switzerland, India, Wales and Germany. We believe that separating
      development by geographic region allows for 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 inclusive
      of
      virtual private networks, 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. See the
      risk
      factor entitled “We may be unable to adequately protect our proprietary rights,
      which may limit our ability to compete effectively” in Item 3C
      above.




**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.,
      S1 Corporation, Fidelity Information Services, Banklink, TietoEnator, Sunguard,
      Smartstream Technologies, ACI Worldwide Inc., Dovetail, Fiserv, GIFTS Software,
      Bottomline, OB 10 ,
      Harbor
      Payments and Clear2Pay. 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 differentiate our products from the products
      of
      our competitors and successfully develop and introduce new products that meet
      the changing needs of our clients.




**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.




**Name
                  of Subsidiary**
              
              **Country
                  of Incorporation/Organization**Fundtech
                  Corporation
              
              United
                  StatesFundtech
                  U.K. Limited
              
              United
                  KingdomFundtech
                  Australia Pty Limited
              
              AustraliaFundtech
                  International, LLC
              
              United
                  StatesBiveroni
                  Batschelet Partners AG
              
              SwitzerlandDatasphere
                  SA
              
              SwitzerlandCashtech
                  Solutions India Limited
              
              IndiaRadius
                  Partners, Inc.
              
              United
                  StatesFundtech
                  Germany, GmbH
              
              GermanyFundtech
                  GmbH
              
              GermanyAccountis
                  Limited
              
              United
                  Kingdom




19




**Property,
      Plants and Equipment.**




We
      do not
      own any real property. As of December 31, 2007, we leased office space as
      specified in the table below. The aggregate annual lease payments for our
      facilities during 2007 were approximately $3,109,000.




**Location**
              
              **Approximate**
                **Aggregate
                  Square Feet**Ramat-Gan,
                  Israel
              
              25,000Burlington,
                  Massachusetts
              
              12,000Pembroke,
                  Massachusetts
              
              2,800Jersey
                  City, New Jersey
              
              25,800Flower
                  Mound, Texas
              
              400San
                  Leandro, California
              
              6,700Norcross,
                  Georgia
              
              26,000Switzerland
              
              10,500United
                  Kingdom
              
              3,450India
              
              37,411German
              
              3,660Costa
                  Mesa, California
              
              2,330Bangor,
                  Wales
              
              2,400





**ITEM
        4A.** **UNRESOLVED
        STAFF COMMENTS**





None





**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
      UNCERTAINTIES, SUCH AS STATEMENTS OF OUR PLANS, OBJECTIVES, EXPECTATIONS AND
      INTENTIONS. SEE “CAUTIONARY STATEMENT FOR FORWARD-LOOKING
      STATEMENTS.”




20




**Overview**




Fundtech
      is a leading provider of end-to-end financial transaction processing software
      solutions for financial institutions. These solutions are grouped into five
      broad categories: (i) payment processing and management; (ii) foreign exchange
      settlement processing, both of (i) and (ii) automating the payment and
      settlement processes and providing real-time transaction processing capabilities
      to financial institutions and their customers; (iii) cash management products,
      used by a bank’s corporate clients for initiating payments, making inquiries and
      managing their activities with their financial institution; (iv) financial
      messaging products and services that enable banks to communicate with
      specialized networks such as the SWIFT network; and (v) securities settlement
      straight through processing products.




We
      derive
      our revenues principally from software licensing and from the provision of
      professional services. Professional services are derived from (i) providing
      maintenance services with respect to our software, (ii) installation and
      training services related to the software, (iii) services to enhance or
      customize the software for particular client needs, inclusive of requirements
      analysis, (iv) operating hosting service bureaus which process transactions
      or
      messages and provide cash management and access to securities settlement
      services to our clients or which operate client licensed applications on their
      behalf and (v) providing contingency and recovery services to our clients.
      See
“Critical Accounting Policies” below for a discussion of how we account for
      these revenues and their associated costs.




The
      demand for Fundtech products and services is influenced by a number of
      industry-wide factors:




(i)  An
      increased focus on finding new sources of fee-based income, which currently
      account for almost half of banks’ revenues. This is largely the result of the
      increased competitiveness of their lending activities, which has resulted in
      lower profit margins;




(ii)  An
      ongoing objective to lower operating costs through automation. This has become
      an even greater issue as new regulations such as the U.S. Patriot Act are
      requiring banks to perform additional complex analyses that significantly
      benefit from automation;




(iii)  Changes
      in the regulatory requirements that mandate changes in the IT systems of
      banks;




(iv)  The
      competitive marketplace for corporate accounts that is continually innovating
      new services that are largely driven by new and more flexible technology;
      and




(v)  The
      need
      to simplify banking relationships for corporate clients by eliminating “siloed”
processing systems, that is, systems operating in a narrow or limited
      functionality spectrum.




Fundtech’s
      products offer financial institutions new capabilities that address these major
      industry factors. 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.




PAYplus
      USATM 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 SWIFT network. PAYplus USATM 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). Our target market for this product includes all
      banks operating in the United States that do not need a global payment solution.
      PAYplus USATM may be licensed or utilized through an ASP outsourcing arrangement
      where it is operated at our data center on behalf of the customer. We currently
      have approximately 130 customers operating PAYplus USATM in a live production
      environment.




Our
      Global PAYplusTM software provides institutions with real-time global support of
      their multi-currency payments activity. Global PAYplusTM employs a client/server
      funds transfer payment system that supports the local payment processing and
      risk management and regulatory compliance for local clearing systems as well
      as
      worldwide payment activity. Global PAYplusTM supports both UNIX and Microsoft and
      employs open technology standards. The system features end-to-end security
      and
      multi-currency capabilities. Global PAYplus is being marketed to larger
      multinational banks. It is also being marketed to large financial institutions
      who wish to use it for low value, bulk payments processing.




Our
      CASHplus® product, which is our newest Internet-based cash management 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® is designed to reduce the cost of
      delivering remote banking services through universal access and simplified
      maintenance and distribution of remote software. CASHplus® may be licensed or
      utilized through our ASP outsourcing arrangement where it is operated at our
      data center on behalf of the customer. Banks using CASHplus can create unique
      versions of the software that address the specific needs of the multiple market
      segments they serve. This feature enables banks to reduce their operating costs
      by replacing numerous cash management systems with a single platform, as well
      as
      to better serve the needs of their customers.




21




Our
      Cashtech subsidiary markets its CashIn, CashWeb and TransactCentral cash
      management software products to financial institutions throughout Southeast
      Asia. Its multi-currency, Internet-enabled products are highly customizable
      and
      we are currently evaluating how best to extend the marketing of these products
      to new geographies.




PAYplus
      for CLSTM is an integrated solution that assists large foreign exchange trading
      banks in addressing the requirements of the CLS bank. PAYplus for CLSTM provides
      payments, treasury, reconciliation, interface and systems management controls
      that assist banks in meeting the CLS Bank’s requirements. In addition, PAYplus
      for CLSTM provides such institutions with full control and functionality for
      their foreign exchange (“FX”) trading relationships. CLS member banks are the
      primary customers for this software.




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 SWIFT 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.




Our
      newest ACH solutions include StarACH which is a server-based, enterprise class
      software application built on a scalable platform that can handle increasing
      transaction volumes as needed. StarACH includes continuous processing, process
      automation, advanced reporting, and risk management. OrigiNET is an
      Internet-based software application, derivative of StarACH, which allows
      corporations and banks to make or collect payments electronically through the
      Automated Clearing House (ACH). ProcessMaster is a Windows® based software
      application that enables small to medium size processors to streamline their
      ACH
      operations, enabling them to reduce operational costs by providing increased
      transaction capacity through automation.




Accountis
      Limited markets BACSactive-IP which provides organizations with a reliable
      and
      secure electronic funds transfer solution utilizing the UK’s BACS system.
      Accountis Enterprise EIPP solutions enable corporations to automate their
      payables and receivables processes from the creation of purchase orders and
      receipt of invoices in electronic form, to handling disputes and submitting
      payments online. The system integrates with existing ERP or accounting systems
      to eliminate errors, reduce costs and improve relationships with suppliers.
      The
      solution supports multiple currencies and languages and is fully VAT compliant
      across European member states.




While
      we
      note that although spending on technology in the financial services industry
      increased during the period 2004 through 2006, and is expected to continue
      to
      grow in 2007, 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 and Certain Assets**




In
      August
      of 2004, BBP completed the acquisition of Datasphere SA from its shareholders.
      Datasphere provides software linking IBM systems to the SWIFT alliance platform
      and also provides consulting services to financial institutions related to
      their
      clearing and settlement requirements. The cash consideration of $1 million
      was
      paid from our working capital.




In
      November 2004, we acquired all outstanding shares of India-based Cashtech
      Solutions India Private Limited (“Cashtech”), a leading provider of cash
      management software and services throughout Southeast Asia for an aggregate
      purchase price of approximately $3.8 million. Cashtech’s products are targeted
      at large banks that seek highly customized applications and prefer a
      component-based approach in order to integrate with their complex
      infrastructure. Cashtech has sales offices in Singapore and Tokyo.




The
      acquisition of Cashtech enhanced our cash management product line with products
      that are well suited for non-US markets, as well as extending our geographic
      coverage into the Asia Pacific market.




Under
      the
      terms of the acquisition agreement, we paid additional amounts of $991,000
      in
      2005, $1.1 million in 2006 and $1.0 million in 2007 based on achieved
      performance milestones.




22




In
      October of 2005, we acquired all of the outstanding shares of Radius Partners,
      Inc. (“Radius”) for an aggregate purchase price of approximately $2.5 million.
      Additional cash consideration will be paid if and when certain conditions are
      met between the acquisition date and December 31, 2011, which may amount to
      an
      additional $3.5 million payable. During 2006, payments of $220,000 were made
      based on and for 2005, and payments were made in 2007 in the amount of $200,000
      based on and for 2006. We made payment of an additional $200,000 in 2008 based
      on and for 2007. We do not anticipate further future payments at this
      time.




In
      February of 2007, we acquired all of the outstanding shares of Prang, GmbH.
      The
      purchase price was €4.9 million ($6.3 million) which was paid in cash.
      Additional cash consideration in an amount of up to €4 million will be paid if
      and when certain conditions related to the performance of Prang are met between
      the acquisition date and December 31, 2010. In 2008, we made payment of
€2,306,612 ($3,369,000) based upon Prang’s financial performance, which was
      accrued and accounted for in 2007. Fundtech is currently in the process of
      finalizing an amendment to the original agreement to change the terms related
      to
      the additional cash consideration. Under this amendment, €597,000 will be paid
      in January 2009 and January 2010. No further earn-out obligations will exist
      after these two payments.




In
      February 2008, we acquired the ACH business of Troy Group, Inc. The purchase
      price was approximately $1.2 million in cash. Under the terms of the agreement,
      we will pay up to an additional $400,000 prior to the end of 2008 upon the
      fulfillment of certain conditions. Also in February 2008 we acquired all of
      the
      outstanding shares of Accountis Limited which provides solutions for our
      financial supply chain suite of services. The initial purchase price was £3.9
      million. Additional cash consideration will be paid if and when certain
      conditions are met between the acquisition date and December 31, 2011, which
      may
      amount to an additional £2 million.




**Critical
      Accounting Policies**




The
      operating and financial condition review is based upon our consolidated
      financial statements, which were prepared in accordance with US GAAP. 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 and 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 collectability 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 VSOE used to allocate the
      sales price to services and maintenance is based on the price charged when
      these
      elements are sold separately.




We
      generally do not grant rights-of-return to our customers. We usually provide
      a
      warranty period to our customers of up to three months at no extra charge.
      As of
      December 31, 2007 and 2006, 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.




23




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.




As
      we
      provide hosting services to our customers without any contractual right to
      take
      possession of the software licenses, we recognize revenue from hosting over
      the
      hosting contract period following the consensus reached in EITF Issue 00-03
      “Application of AICPA Statement of Position 97-2 to Arrangement That Includes
      the Right to Use Software Stored on Another Entity’s Hardware”. Revenues from
      set up fees are also recognized over the related hosting contract in accordance
      with SAB Topic 13.




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




*Receivables* .
      Our
      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 may not be collected. We generally do not
      require collateral; however, in certain circumstances, we may require letters
      of
      credit, other collateral or additional guarantees. 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.




*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:




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


·
            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;


·
            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;


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


·
            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


·
            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. This 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:




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


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


·
            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 did not record
      an
      impairment charge based on our reviews in 2005, 2006 or 2007. If our estimates
      or the related assumptions change in the future, we may be required to record
      an
      impairment charge on goodwill to reduce its carrying amount to its estimated
      fair value.




24




Share
      Based Payments .
      In
      December 2004, the FASB issued SFAS No. 123 (revised 2004) “Share Based
      Payments” (“SFAS 123R”). This Statement is a revision of FASB Statement No. 123,
“Accounting for Stock-Based Compensation”, which supersedes APB Opinion No. 25,
“Accounting for Stock Issued to Employees” and its authoritative
      interpretations.




SFAS
      123R
      establishes standards for the accounting for transactions in which an entity
      exchanges its equity instruments for goods or services; focuses primarily on
      accounting for transactions in which an entity obtains employee and director
      services in share-based payment transactions; and does not change the accounting
      guidance for share-based payment transactions with parties other than
      employees.




SFAS
      123R
      eliminates the alternative to use APB 25's intrinsic value method of accounting
      that was provided in SFAS 123 as originally issued and requires companies to
      measure the cost of employee services received in exchange for an award of
      equity instruments based on the grant-date fair value of the award. The
      fair-value-based method in this Statement is similar to the fair-value-based
      method in SFAS 123 in most respects. The costs associated with the awards will
      be recognized over the period during which an employee is required to provide
      service in exchange for the award (usually the vesting period).




The
      grant-date fair value of employee share options and similar instruments will
      be
      estimated using option-pricing models adjusted for the unique characteristics
      of
      those instruments (unless observable market prices for the same or similar
      instruments are available). If an equity award is modified after the grant
      date,
      incremental compensation cost will be recognized in an amount equal to the
      excess of the fair value of the modified award over the fair value of the
      original award immediately before the modification.




The
      provisions of SFAS 123R apply to all awards which will vest after January 1,
      2006 and to awards modified, repurchased, or cancelled after that date. When
      initially applying the provisions of SFAS 123R, in the first quarter of 2006,
      we
      elected to use the “modified prospective method”. Under the modified prospective
      method, we were required to recognize compensation cost for all awards granted
      after the adoption of SFAS 123R and for the unvested portion of previously
      granted awards that were outstanding on that date.




Under
      the
      modified prospective method of adoption for SFAS No. 123R, the compensation
      cost
      recognized by us beginning in 2006 included (a) compensation cost for all equity
      incentive awards granted prior to, but not yet vested as of January 1, 2006,
      based on the grant-date fair value estimated in accordance with the original
      provisions of SFAS No. 123, and (b) compensation cost for all stock-based
      compensation granted subsequent to January 1, 2006, based on the grant-date
      fair
      value estimated in accordance with the provisions of SFAS No. 123R. We use
      the
      straight-line attribution method to recognize stock-based compensation costs
      over the service period of the award. The share-based compensation resulting
      from the application of SFAS No. 123R resulted in charge of $2,487,000 in 2006
      and $2,596,000 in 2007.




**Operating
      Results**




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




**Year
                Ended December 31,****2005**
            
            **2006**
            
            **2007**Revenues:Software
                license fees
            
            
            22.2
            %
            
            15.9
            %
            
            18.9
            %Maintenance,
                hosting and service fees
            
            
            77.7
            
            
            84.0
            
            
            81.0Hardware
                sales
            
            
            0.1
            
            
            0.1
            
            
            0.1Total
                revenues
            
            
            100.0
            
            
            100.0
            
            
            100.0Operating
                Expenses:Software
                license costs
            
            
            0.7
            
            
            0.7
            
            
            0.6Maintenance
                and service costs
            
            
            40.2
            
            
            40.6
            
            
            43.4Hardware
                Costs
            
            
            0.1
            
            
            0.1
            
            
            -Research
                and development
            
            
            18.1
            
            
            19.5
            
            
            18.5Selling
                and marketing, net
            
            
            17.8
            
            
            18.4
            
            
            17.0General
                and administrative
            
            
            12.8
            
            
            13.7
            
            
            13.0Amortization
                of capitalized software development costs.
            
            
            2.1
            
            
            1.8
            
            
            0.4Amortization
                of other acquired intangibleassets
            
            
            1.6
            
            
            1.5
            
            
            1.3Provision
                for doubtful accounts
            
            
            0.7
            
            
            0.5
            
            
            (0.1
            )Total
                operating expenses
            
            
            94.1
            
            
            96.8
            
            
            94.1Operating
                income
            
            
            5.9
            
            
            3.2
            
            
            5.9Financial
                income, net
            
            
            1.5
            
            
            2.3
            
            
            2.1Income
                before income taxes
            
            
            7.4
            
            
            5.5
            
            
            8.0Income
                taxes
            
            
            1.6
            
            
            1.1
            
            
            1.2Net
                income
            
            
            5.8
            %
            
            4.4
            %
            
            6.8
            %




25




We
      again
      note in particular the impact on net income of the application of SFAS No.
      123R
      resulted in charge of $2.5 million in 2006 and $2.6 million in
      2007.




**Significant
      Revenue, Segment and Earnings Information**




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


2005
                
                2006
                
                2007Total
                  Revenues
                
                Percentage
                
                Total
                  Revenues
                
                Percentage
                
                Total
                  Revenues
                
                PercentageIsrael
                
                $
                149
                
                
                0.2
                %
                $
                2,006
                
                
                2.4
                %
                $
                1,331
                
                
                1.3
                %U.S.A.
                
                
                39,948
                
                
                53.6
                
                
                44,399
                
                
                51.9
                
                
                46,028
                
                
                44.0Switzerland
                
                
                11,666
                
                
                15.7
                
                
                11,471
                
                
                13.4
                
                
                12,711
                
                
                12.1India
                
                
                1,020
                
                
                1.4
                
                
                1,105
                
                
                1.3
                
                
                2,302
                
                
                2.2United Kingdom
                
                
                8,781
                
                
                11.8
                
                
                14,469
                
                
                17.0
                
                
                19,966
                
                
                19.1Germany
                
                
                467
                
                
                0.6
                
                
                547
                
                
                0.6
                
                
                2,611
                
                
                2.5Australia
                
                
                576
                
                
                0.8
                
                
                546
                
                
                0.6
                
                
                2,839
                
                
                2.7Other
                
                
                11,859
                
                
                15.9
                
                
                10,966
                
                
                12.8
                
                
                16,846
                
                
                16.1$
                74,466
                
                
                100.0
                %
                $
                85,509
                
                
                100.0
                %
                $
                104,634
                
                
                100.0
                %





Segment
      Information **:**




**2005**
            
            **2006**
            
            **2007**Cash
                management revenue
            
            $
            16,454
            
            $
            20,492
            
            $
            24,074Operating
                income (loss)
            
            
            (503
            )
            
            178
            
            
            1,057Payments
                revenue
            
            
            44,900
            
            
            51,608
            
            
            65,460Operating
                income
            
            
            11,753
            
            
            13,363
            
            
            14,640BBP
                revenue
            
            
            13,112
            
            
            13,409
            
            
            15,100Operating
                income
            
            
            1,061
            
            
            634
            
            
            4,140





Segment
      Information (in thousands) **:**




While
      cash management revenues continued to grow during 2005, 2006 and 2007, operating
      income has been adversely impacted by the costs associated with the launch
      of
      the new CASHplus product and related modules. Payments revenues and operating
      income are primarily related to strong sales and installations of PAYplus USA
      and Global PAYplus leading to both increased license fees and services revenues
      as well as the acquisition of our German subsidiary, Prang. BBP revenue and
      operating income have steadily increased due to the implementation of IGTplus.
      License and services fee trends are discussed more fully in the year to year
      comparisons below.




**Major
      Customers**




We
      derived approximately 26.4% and 27.3% of our annual revenues, or approximately
      $22.6 million and $28.6 million, from the license, consulting and maintenance
      service fees earned in connection with agreements with three leading
      international financial institutions in 2006 and 2007, respectively. See Item
      4,
“Information on the Company — Business Overview – Customers and
      Markets.”




26




**Year
      Ended December 31, 2007 Compared to Year Ended December 31,
      2006**




*Revenues* .




**Variance****2006**
            
            **2007**
            
            **Increase**
            
            **%**Total
                Revenues
            
            $
            85,509,000
            
            $
            104,634,000
            
            $
            19,125,000
            
            
            22.3
            %





The
      increase in revenues was primarily attributable to (i) higher United States
      revenues from our cash management products which were partially offset by a
      decline in Cashtech revenues netting an increase of $3.6 million, (ii) higher
      revenues from our payments business which increased by $13.9 million consisting
      of CLS initiatives of $3.4 million, Global PAYplus increases of $5.4 million
      and
      partial year revenues from Prang (acquired in February 2007) of $4.1 million
      and
      (iii) higher revenue from BBP which increased by $1.6 million, partially due
      to
      exchange rate changes.





*Software
      License Fees.* Software
      license fees consist primarily of revenues derived from software license
      agreements we enter into with our customers. A comparison between our 2006
      and
      2007 software license fees is as follows:




**Variance****2006**
            
            **2007**
            
            **Increase**
            
            **%**Software
                License Fees
            
            $
            13,576,000
            
            $
            19,741,000
            
            $
            6,165,000
            
            
            45.4
            %




The
      increase in license fees was primarily attributable to increases in (i) United
      States cash management licenses of $2.3 million offset by a decline of $1.2
      million in Cashtech revenue, (ii) BBP license increases of $0.5 million and
      (iii) payments license increases of $4.6 million which included Prang license
      increases of $1.7 million. See also *Maintenance,
      Hosting and Services Fees* immediately below.




*Maintenance,
      Hosting and Services Fees* .
      Maintenance, hosting and services fees include revenues derived from maintenance
      contracts, customizations and product installation, training, hosting and
      consulting fees. We generally receive a contract for maintenance and services
      at
      the time a contract for software license is entered into. A comparison between
      our 2006 and 2007 maintenance and services fees is as follows:




**Variance****2006**
            
            **2007**
            
            **Increase**
            
            **%**Maintenance,
                Hosting and Services Fees
            
            $
            71,933,000
            
            $
            84,893,000
            
            $
            12,960,000
            
            
            18.0
            %




Our
      service fees increased by $5.9 million primarily due to an increase in customers
      implementing our Global Pay Plus solution or existing customers seeking
      additional services, as well an increase of $1.1 million in our cash management
      services from new and existing customers.




Our
      hosting fees increased by $2 million consisting of BBP increases of $1 million,
      increases of $0.5 million in our US payments operations and increases of $0.5
      million in our US cash management.




Our
      maintenance fees increased by $5.1 million comprising an increase of $4 million
      in payments, $0.8 million in cash management and $0.3 million in
      BBP.




*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 2006 and 2007 software license
      costs is as follows:




**Variance****2006**
            
            **2007**
            
            **Decrease**
            
            **%**Software
                License Costs
            
            $
            604,000
            
            $
            590,000
            
            $
            (14,000
            )
            
            (2.3
            )%




This
      decrease relates solely to the presence of fewer embedded third party software
      component sales and lower sales of free standing third party
      modules.




*Amortization
      of Capitalized Software Development Costs* .
      A
      comparison between our 2006 and 2007 amortization of capitalized software
      development costs is as follows:




27




**Variance****2006**
            
            **2007**
            
            **Decrease**
            
            **%**Amortization
                of CapitalizedSoftware Development Costs
            
            $
            1,575,000
            
            $
            394,000
            
            $
            (1,181,000
            )
            
            (75.0
            )%




This
      reflects the fully amortized capitalized software development costs in
      connection with our Global PAYplus product. We began amortizing this product
      in
      the second quarter of 2002 over a five year period. The software was fully
      amortized by the end of March 2007.




*Amortization
      of Other Acquired Intangible Assets* .
      A
      comparison between our 2006 and 2007 amortization of other acquired intangible
      assets is as follows:




**Variance****2006**
            
            **2007**
            
            **Increase**
            
            **%**Amortization
                of Other Acquired Intangible Assets
            
            $
            1,275,000
            
            $
            1,387,000
            
            $
            112,000
            
            
            8.8
            %




The
      increase in amortization resulted from the partial year amortization of the
      newly acquired Prang assets which was offset by the decrease in amortization
      of
      BBP assets due to the completion of their amortization during 2007.




*Maintenance,
      Hosting and Services Costs* .
      Maintenance, hosting and services costs consist primarily of personnel and
      related expenses, voice and data expenses and other costs related to the
      provision of maintenance, hosting, and professional services. A comparison
      between our 2006 and 2007 services costs is as follows:




**Variance****2006**
            
            **2007**
            
            **Increase**
            
            **%**Maintenance,
                Hosting andServices Costs
            
            $
            34,726,000
            
            $
            45,578,000
            
            $
            10,852,000
            
            
            31.3
            %




Maintenance
      costs increased by $2.0 million directly related to headcount in the support
      organizations *.* Services
      costs increased by $6.5 million, primarily related to the number personnel
      assigned to large bank cash management projects in the United States and
      payments projects offshore. The offshore services personnel costs were also
      impacted by fluctuations in their home country currencies against the United
      States dollar. Hosting costs increased by $1.4 million, commensurate with the
      increased number of hosted customers. Others services costs increased by
      $894,000, which are reimbursable expenses that are billed back to customers.




*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 2006 and 2007 software development expenses is as follows:




**Variance****2006**
            
            **2007**
            
            **Increase**
            
            **%**Software
                Development
            
            $
            16,710,000
            
            $
            19,348,000
            
            $
            2,638,000
            
            
            15.8
            %




We
      did
      not capitalize any software development costs in 2007 or 2006 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. These costs were expensed as incurred as the amounts that could have
      been
      capitalized were not material to our financial position. The increase in
      software development expenses consists primarily of (i) an increase of $1.4
      million in costs for additional hiring to provide enhancements for our Global
      PAYplus product, and (ii) an increase of $1.2 million for additional consultants
      retained to create enhancements to our United States cash management
      product.




*Selling
      and Marketing* .
      A
      comparison between our 2006 and 2007 selling and marketing expenses is as
      follows:




**Variance****2006**
            
            **2007**
            
            **Increase**
            
            **%**Selling
                and Marketing
            
            $
            15,324,000
            
            $
            17,801,00
            
            $
            2,477,000
            
            
            16.2
            %




The
      increase in selling and marketing expenses was primarily due to (i) our
      acquisition of Prang and (ii) increases in travel, promotional, and convention
      costs.




*Provision
      for Doubtful Accounts* .
      Management’s assessment for uncertainties of outstanding accounts receivable
      collectability is reflected in our provision for doubtful accounts. A comparison
      between our 2006 and 2007 provision for doubtful accounts is as
      follows:




28




**Variance****2006**
            
            **2007**
            
            **Decrease**
            
            **%**Provision
                for Doubtful Accounts
            
            $
            430,000
            
            $
            (134,000
            )
            $
            (564,000
            )
            
            (131
            )%




The
      decrease in the provision for doubtful accounts reflects an increased confidence
      in customer collectability in 2007 and an increased emphasis on collections.
      We
      determine write off provisions on a case by case basis.




*General
      and Administrative* .
      A
      comparison between our 2006 and 2007 general and administrative expenses is
      as
      follows:




**Variance****2006**
            
            **2007**
            
            **Increase**
            
            **%**General
                and Administrative
            
            $
            12,133,000
            
            $
            13,553,000
            
            $
            1,420,000
            
            
            11.7
            %




The
      increase is primarily due to (i) the acquisition of Prang, (ii) increased hiring
      in the U.S and (iii) higher bonuses.




*Financial
      Income, Net* .
      A
      comparison between our 2006 and 2007 financial income, net is as
      follows:




**Variance****2006**
            
            **2007**
            
            **Increase**
            
            **%**Financial
                Income, net
            
            $
            1,984,000
            
            $
            2,197,000
            
            $
            213,000
            
            
            10.7
            %




The
      increase of net financial income is primarily due to an increase in the average
      cash and cash equivalent invested balances, as well as a higher average interest
      rate on our instruments in 2007 compared to 2006.




*Income
      Taxes* .
      A
      comparison between our 2006 and 2007 income taxes is as follows:




**Variance****2006**
            
            **2007**
            
            **Increase**
            
            **%**Income
                Taxes
            
            $
            964,000
            
            $
            1,207,000
            
            $
            243,000
            
            
            25.2
            %




We
      experienced higher taxes in Israel, the United Kingdom and Switzerland totaling
      $240,011 and taxes related to Prang totaling $418,795. These were offset by
      a
      decrease in taxes of $268,384 in the United States, $142,069 in India, and
      Australia $5,357.




**Year
      Ended December 31, 2006 Compared to Year Ended December 31,
      2005**




*Revenues* .




**Variance****2005**
            
            **2006**
            
            **Increase**
            
            **%**Total
                Revenues
            
            $
            74,466,000
            
            $
            85,509,000
            
            $
            11,043,000
            
            
            14.8
            %





The
      increase in revenues was primarily attributable to (i) revenues from our
      securities initiative that increased by $2.1 million, (ii) revenues from our
      global PAYplus implementation with three major clients which increased by $2.0
      million and (iii) revenues from cash management products which increased by
      $2.9
      million. Total payments business grew by 10% or $4.1 million, primarily from
      PAYplus USA business growth and new GPP clients. Total cash management business
      grew by 21% or $3.4 million primarily due to Cashtech growth. Securities revenue
      grew by 53% contributing $2.8 million growth primarily from project
      revenue.





*Software
      License Fees.* A
      comparison between our 2005 and 2006 software license fees is as
      follows:




**Variance****2005**
            
            **2006**
            
            **Decrease**
            
            **%**Software
                License Fees
            
            $
            16,523,000
            
            $
            13,576,000
            
            $
            (2,947,000
            )
            
            (17.8
            )%




License
      fees for one large Global PAYplus client declined $3.6 million from 2005. In
      addition, we noted a shift in sales of our CASHplus and PAYplus USA products
      that indicates a trend away from licensing and toward hosting services. See
      also *Maintenance
      and Services Fees* immediately below.




*Maintenance
      and Services Fees* .
      A
      comparison between our 2005 and 2006 maintenance and services fees is as
      follows:




29




**Variance****2005**
            
            **2006**
            
            **Increase**
            
            **%**Maintenance
                and Services Fees
            
            $
            57,943,000
            
            $
            71,933,000
            
            $
            13,990,000
            
            
            24.1
            %




The
      increase in fees primarily related to (i) increases in maintenance fees payable
      for newly installed banks of $2.3 million; (ii) increases in the fees related
      to
      customizations and product installations, particularly with respect to three
      major clients, that totaled $8.9 million; and (ii) and increases in hosting
      fees
      totaling $2.9 million.




*Hardware
      Sales.* We
      continue to de-emphasize sales of hardware to our customers. The total hardware
      sales for 2006 were immaterial. For the year ended December 31, 2006, the
      Company combined hardware sales with maintenance and service fees for 2006
      and
      conformed the 2005 presentation for comparative purposes.




*Software
      License Costs* .
      A
      comparison between our 2005 and 2006 software license costs is as
      follows:




**Variance****2005**
            
            **2006**
            
            **Increase**
            
            **%**Software
                License Costs
            
            $
            522,000
            
            $
            604,000
            
            $
            82,000
            
            
            15.7
            %




The
      software license costs increased primarily related to third-party embedded
      software utilized by our newer CASHplus and Global PAYplus environments. Costs
      increased primarily for new implementations of hosted customers.




*Amortization
      of Capitalized Software Development Costs* .
      A
      comparison between our 2005 and 2006 amortization of capitalized software
      development costs is as follows:




**Variance****2005**
            
            **2006**
            
            **Decrease**
            
            **%**Amortization
                of CapitalizedSoftware Development Costs
            
            $
            1,575,000
            
            $
            1,575,000
            
            
            -
            
            
            -




This
      reflects the amortized capitalized software development costs in connection
      with
      our Global PAYplus product.




*Amortization
      of Other Acquired Intangible Assets* .
      A
      comparison between our 2005 and 2006 amortization of other acquired intangible
      assets is as follows:




**Variance****2005**
            
            **2006**
            
            **Increase**
            
            **%**Amortization
                of Other Acquired Intangible Assets
            
            $
            1,154,000
            
            $
            1,275,000
            
            $
            121,000
            
            
            10.5
            %




The
      increase in amortization resulted from (i) exchange rate differences for assets
      related to BBP and Cashtech and (ii) the full year’s amortization of Radius
      acquisition assets.




*Maintenance,
      Hosting and Services Costs* .
      A
      comparison between our 2005 and 2006 services costs is as follows:




**Variance****2005**
            
            **2006**
            
            **Increase**
            
            **%**Maintenance,
                Hosting andServices Costs
            
            $
            30,027,000
            
            $
            34,726,000
            
            $
            4,699,000
            
            
            15.6
            %




Maintenance
      costs decreased by $833,000, directly related to headcount efficiencies in
      the
      support organizations *.* Services
      costs increased by $4.5 million, primarily related to the number personnel
      assigned to Global PAYplus and securities projects. Hosting costs increased
      by
      $361,000, commensurate with the increased number of hosted customers. Others
      services costs increased by $529,000, which are reimbursable expenses that
      will
      be billed back to customers.




*Hardware
      Costs.* The
      reduction in costs is commensurate with the decrease in hardware sales
      previously noted. For the year ended December 31, 2006, we combined hardware
      costs with maintenance and service costs and conformed the 2005 presentation
      for
      comparative purposes.




*Software
      Development* .
      A
      comparison between our 2005 and 2006 software development expenses is as
      follows:




**Variance****2005**
            
            **2006**
            
            **Increase**
            
            **%**Software
                Development
            
            $
            13,480,000
            
            $
            16,710,000
            
            $
            3,230,000
            
            
            24.0
            %




30




We
      did
      not capitalize any software development costs in 2006 or 2005 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. These costs were expensed as incurred as the amounts that could have
      been
      capitalized were not material to our financial position. The increase in costs
      was primarily due to the addition in staff in the United States and Israel
      to
      handle change orders for our major clients, and to enhance our Global PAYplus
      product, staff added in the United States to handle enhancements to our cash
      management software and projects as well as Cashtech staff added to accommodate
      their revenue growth. The implementation of SFAS 123R in 2006 accounted for
      $152,000.




*Selling
      and Marketing* .
      A
      comparison between our 2005 and 2006 selling and marketing expenses is as
      follows:




**Variance****2005**
            
            **2006**
            
            **Increase**
            
            **%**Selling
                and Marketing
            
            $
            13,182,000
            
            $
            15,324,000
            
            $
            2,142,000
            
            
            16.2
            %




The
      increase in selling and marketing expenses was primarily due to, (i) an increase
      in personnel and related expenses including commissions related to our revenue
      growth and, (ii) increases in travel, promotional, and infrastructure expense
      of
      $369,000. The implementation of SFAS 123R in 2006 accounted for
      $504,000.




*Provision
      for Doubtful Accounts* .
      A
      comparison between our 2005 and 2006 provision for doubtful accounts is as
      follows:




**Variance****2005**
            
            **2006**
            
            **Decrease**
            
            **%**Provision
                for Doubtful Accounts
            
            $
            552,000
            
            $
            430,000
            
            $
            (122,000
            )
            
            (22.1
            )%




The
      decrease in the provision for doubtful accounts reflects an increase confidence
      in customer collectability in 2006. We determine write off provisions on a
      case
      by case basis.




*General
      and Administrative* .
      A
      comparison between our 2005 and 2006 general and administrative expenses is
      as
      follows:




**Variance****2005**
            
            **2006**
            
            **Increase**
            
            **%**General
                and Administrative
            
            $
            9,557,000
            
            $
            12,133,000
            
            $
            2,576,000
            
            
            27.0
            %




This
      increase is due to higher head count and related expenses $1.0 million or 19%
      in
      the U.S., Switzerland, India. The implementation of SFAS 123R in 2006 attributed
      $1.6 million to the increase.




*Financial
      Income, Net* .
      A
      comparison between our 2005 and 2006 financial income, net is as
      follows:




**Variance****2005**
            
            **2006**
            
            **Increase**
            
            **%**Financial
                Income, net
            
            $
            1,085,000
            
            $
            1,984,000
            
            $
            899,000
            
            
            82.9
            %




The
      increase of the net financial income is primarily due to increasing interest
      that was earned on our cash, cash equivalents and marketable securities. To
      a
      lesser extent, a higher average cash balance added to the increase interest
      earned.




*Income
      Taxes* .
      A
      comparison between our 2005 and 2006 income taxes is as follows:




**Variance****2005**
            
            **2006**
            
            **Decrease**
            
            **%**Income
                Taxes
            
            $
            1,166,000
            
            $
            964,000
            
            $
            (202,000
            )
            
            (17.3
            )%




Cashtech’s
      effective tax rate was reduced in 2006 resulting in an overall decreased tax
      liability. This decrease was due, in part, to a reduction in tax rates in
      Japan..




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 our 1998
      initial public offering in the amount of approximately $29.0 million, proceeds
      from our 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 $2,341,000 from the
      exercise of employee options in 2007. As of December 31, 2007, working capital
      was $45.8 million, which included cash and cash equivalents, short term
      investments and marketable securities of $42.0 million.




31




*Cash
      flows from operations.* Net
      cash
      provided by operating activities amounted to $17.3 million for the year ended
      December 31, 2007 as compared to net cash provided by operating activities
      of
      $5.3 million for the year ended December 31, 2006. This increase of $12.0
      million was primarily due to an increase in our net income, a decrease in trade
      receivables, net, offset by a decrease in trade payables.




*Cash
      flows from investing activities.* Net
      cash
      used in investing activities amounted to $17.5 million for the year ended
      December 31, 2007 as compared to $6.2 million for the year ended December 31,
      2006. During the year ended December 31, 2007, we invested $7.5 million to
      fund
      the acquisition of our German subsidiary as well as to pay additional amounts
      as
      per the terms of the acquisition agreements with Radius Partners and Cashtech.
      Purchases of property and equipment increased $1.5 million to $6.7 million
      for
      the year ended December 31, 2007 from $5.2 million for the year ended December
      31, 2006. 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 2008,
      our anticipated capital expenditures are $11.5 million - See Item
      4A.




*Cash
      flows from financing activities.* Net
      cash
      provided by financing activities was $2.3 million for the year ended December
      31, 2007 as compared to net cash used for financing activities of $1.8 million
      for the year ended December 31, 2006. The increase was primarily due to the
      purchases of Ordinary Shares by us in the amount of $3.2 million in 2006, as
      noted below.




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. No
      shares were purchased during 2004 and 2005. On June 4, 2006, the Company’s Board
      of Directors authorized the Company to utilize up to $20 million to purchase
      Ordinary Shares from time to time on the open market. No shares were purchased
      during 2007.




We
      believe that cash and cash equivalents and marketable securities will provide
      adequate financial resources to finance our current and planned future
      operations for at least the next 12 months. 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.




**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 our initial approved enterprise
      program on November 27, 1997. In 1998, we received approval for our first
      expansion program. In 2000, we received approval for our second expansion
      program and in 2005 we received approval for our third expansion program and
      in
      2007 we submitted a request for an approval for our forth 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. 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, 2007, we had net operating loss (“NOL”) carryforwards of
      approximately $43.4 million and $25.1 million in the United States and in
      Israel, respectively. The U.S. NOL carryforwards begin to expire in 2010 through
      2025 and the Israeli NOL carryforwards have no expiration. See Note 12 to the
      Consolidated Financial Statements.




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




During
      2007, $19.3 million in current expense charges were made related to the
      development of our software with no capitalized costs. During 2006 and 2005,
      $16.7 million and $13.5 million, respectively, in current expense charges were
      made with no capitalized costs for our software. There were no Office of the
      Chief Scientist grants in 2005, 2006 or 2007.




D.
            **Trend
                Information.**




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




32




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,
      2007,
      summarizes the aggregate effect that these obligations are expected to have
      on
      our cash flows in the periods indicated:




**Payments
                Due by Period**
              **(in
                thousands)****Contractual Obligations**
            
            Total
            
            Less than
              1 year
            
            1-3
              years
            
            3-5
              years
            
            More than
              5 yearsOperating
                leases
            
            $
            9,871,000
            
            $
            3,190,000
            
            $
            4,804,000
            
            $
            1,479,000
            
            $
            398,000





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




**Directors
      and Senior Management.**




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




**NAME**
            **AGE**
            **POSITION**Gideon
                Argov
            51
            Chairman
                of the Board of DirectorsReuven
                Ben Menachem
            47
            Chief
                Executive Officer, DirectorRobert
                Cobuzzi
            66
            DirectorGerald
                Dogon
            68
            DirectorYaffa
                Krindel
            53
            DirectorStanley
                Stern
            51
            DirectorGil
                Weiser
            66
            DirectorMichael
                Sgroe
            52
            President
                & Chief Operating OfficerJoseph
                J. Aulenti
            61
            Executive
                Vice President, General Counsel and SecretaryYoram
                Bibring
            50
            Executive
                Vice President, Chief Financial OfficerJoseph
                P. Mazzetti
            67
            Executive
                Vice President, Corporate
                Development





**Gideon
      Argov** was
      elected Chairman of the Board of Directors in July 2003. Mr. Argov is currently
      serving as the President and Chief Executive Officer of Entegris, Inc., a
      materials integrity management leader in high technology. From 2001 to November
      2004, he was 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. Presently, he serves on the boards of Entegris, Inc., Interline
      Brands, Inc. and X-Rite Inc. Mr. Argov has earned an M.B.A. 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** has
      served as a director since February 2004. She is currently serving as a General
      Partner of Tamarix Ventures, a new Cleantech venture capital fund located in
      Herzliya, Israel. From 1997 she served as a Managing Partner and an Investment
      Partner in the Herzliya office of STAR Ventures, a private venture capital
      partnership headquartered in Munich, Germany. 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 on 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 and
      director of BreezeCOM Ltd. (now part of Alvarion Ltd. - NASDAQ: ALVR), a leading
      provider of innovative wireless broadband network solutions. 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 Syneron Medical (ELOS) and Voltaire (VOLT), publicly
      traded companies and on the boards of the following private companies: Siano
      Mobile Silicon Inc., and OrSense Ltd. Ms. Krindel has earned an M.B.A. from
      Tel
      Aviv University and a B.A. in Economics and Japanese Studies from the Hebrew
      University in Jerusalem.




33




**Stanley
      Stern** has
      served as a director of Fundtech since July 2003. Since 2004, Mr. Stern has
      served 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 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 serves
      as
      Chairman of the board of Tucows, Inc. 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 has served as director
      and
      chairman of the executive committee to BBP, the Company's Swiss subsidiary
      from
      2001 to 2006. Mr. Weiser presently serves as the CEO of Orsus Solutions since
      August 2006. He serves as director of various boards and has other affiliations
      with a number of other Israeli high-tech companies. Mr. Weiser served as a
      director of the Tel Aviv Stock Exchange from 2002 to 2004. He served as the
      Vice
      Chairman of Orama, an Israeli/U.S. merchant bank from 2000 to 2001. From 1976
      until 1993, Mr. Weiser served as Managing Director of Digital Israel, a wholly
      owned subsidiary of Digital Equipment Corporation located in Herzliya. From
      1993
      until 1995, Mr. Weiser served as President and Chief Executive Officer of
      Fibronics International Inc., a worldwide provider of network solutions located
      in Haifa, Israel. From early 1995 until the spring of 2000, Mr. Weiser served
      as
      the Managing Director of Hewlett Packard (Israel) located in Tel Aviv and CMS
      -
      distributor of Hewlett Packard products and services. Mr. Weiser has and
      continues to hold significant public positions. He has served as Chairman of
      the
      Multinational Companies Forum and Vice Chairman of the Israeli Management Center
      and as Chairman of the Executive Board of Haifa University from 1994 to 2006.
      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 under the Companies Law***




**Robert
      Cobuzzi** was
      elected to serve as a director of Fundtech on December 20, 2007. Since 2006,
      Mr.
      Cobuzzi has served as a member of the Board of Directors of Economic Development
      Industrial Corporation. Prior to joining the Board of Directors of Economic
      Development Industrial Corporation, from 2002 until 2006, Mr. Cobuzzi served
      as
      the Chief Financial Officer of Akamai Technologies Inc., a multi-million dollar
      global provider of software services for accelerating and improving the delivery
      of content and business processes over the Internet, located in Cambridge,
      Massachusetts. From 2000 to 2002, Mr. Cobuzzi served as the Executive Vice
      President and Chief Financial Officer of Network Plus Corporation, located
      in
      Massachusetts, a network-based communications provider offering broadband data
      telecommunications and data hosting services to small and medium-sized
      businesses from New Hampshire to Florida. Prior to 2002, he served as Senior
      Vice President, and Chief Financial Officer of Kollmorgen Corporation, a global
      leader in high-performance electronic equipment, systems software from 1991
      to
      2000. Mr. Cobuzzi also served on the Board of Directors of Kollmorgen
      Corporation. He has earned degrees from Northeastern University and Bentley
      College of Massachusetts.




**Gerald
      Dogon** was
      elected to serve as a director of Fundtech as of December 20, 2007. Mr. Dogon
      served as the Executive Vice President, Chief Financial Officer and a member
      of
      the Board of Directors of DSP Communications Inc. DSP
      is a
      leading developer of chip sets and products for cellular, personal communication
      services (PCS), and wireless local loop (WLL) markets, headquartered in
      Cupertino, California from 1994 to 1999. DSP was
      acquired by Intel Corp. in 2000. Prior to joining DSP, Mr. Dogon served as
      the
      Director of Finance of Nilit Ltd., a privately held company manufacturing Nylon,
      Polyamide fibers from 1992 to 1994. From 1991 until 1992, he served as the
      Vice
      President of Finance and Director of Mul T Lock Ltd., Yavne, Israel,
      manufacturers of high security products. Prior to joining Mul T Lock Ltd.,
      Mr.
      Dogon served as Manager of the International Division of Israel General Bank
      Ltd., a commercial bank in Tel-Aviv, Israel from 1989 to 1991. Mr. Dogon served
      as a member of the Board of Directors and Chairman of the Audit Committee of
      Contahal Ltd. and Nogatech Inc in addition to serving as a member of the
      Investment and Nomination Committees of Scailex Corporation from 1993 to 2006.
      He currently is a member of the Boards of Directors of Rosetta Genomics Ltd.
      and
      serves as the Chairman of the Audit Committee and a member of the Compensation
      and Nomination Committees of Rosetta Genomics Ltd. from 2007 to present. Mr.
      Dogon earned degrees from Columbia University and University of Cape
      Town.




34




**Senior
      Management**




**Joseph
      Aulenti** was
      appointed General Counsel and Secretary of Fundtech on October 1, 2002 and
      named
      Executive Vice President in February, 2007. 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
      IT
      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 IT 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 Executive Vice President and 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 Ltd., 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 Montvale, New Jersey, where he served initially as Chief Financial
      Officer and then as the President of its International Division. Mr. Bibring’s
      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 Executive Vice President
      Corporate Development. 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 IT 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 President and Chief Operating Officer of Fundtech since April 2004.
      Prior to that time Mr. Sgroe held positions as Chief Operating Officer,
      President of U.S. Products & Operations and Senior Vice President and
      General Manager of the U.S. Payments Division since joining Fundtech in May
      2000. Before joining Fundtech, Mr. Sgroe was employed for over 16 years at
      Chase
      Manhattan Bank, 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 Chief
      Information Officer 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.




**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 compensation as a director of the Company is also
      subject to shareholder approval. Mr. Ben Menachem’s agreement also provides for
      a notification period in the event the agreement is terminated without cause
      and
      a severance payment in the event the agreement is terminated subsequent to
      a
      change of control.




The
      aggregate remuneration we paid for the year ended December 31, 2007 to our
      directors and executive officers as a group was $1,705,692 in salaries and
      bonuses, inclusive of the retainer payments to directors as described below.
      In
      addition, certain officers are provided a car allowance that totaled $66,228
      for
      2007. There were no amounts set aside or accrued to provide for pension,
      retirement or similar benefits to our directors and executive
      officers.




35




In
      December of 2007, the shareholders approved payment of an annual retainer of
      $25,000 to non-employee directors for future annual periods, beginning January
      1, 2008, payable on a quarterly basis of $6,250 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
      committee meetings (in which such non-employee director is a member) held during
      such quarter. In addition, shareholders approved that the Chairman of the Board
      of Directors shall be entitled to an additional annual payment of $25,000,
      payable on a quarterly basis of $6,250 per quarter, and the Chairman of the
      Audit Committee of the Board of Directors (provided that such Chairman is not
      an
      external director under the Companies Law) shall be entitled to an additional
      annual payment of $10,000 payable on a quarterly basis of $2,500 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 committee meetings (in which such non-employee director is a
      member) held during such quarter, and the Chairmen of the Compensation and
      Nominating Committees shall be entitled to an additional annual payment of
      $5,000 payable on a quarterly basis of $1,650 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. The shareholders also approved the grant of 4,000
      restricted shares to the Chairman of the Board of Directors and of 2,000
      restricted shares to each other non-employee director.




All
      directors are reimbursed for their reasonable expenses for each Board of
      Directors 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**




The
      sole
      compensation paid directors for attending meetings of the Board of Directors
      or
      committee meetings of the Board of Directors is the retainer described above.
      We
      also reimburse directors for their reasonable travel expenses. Subject to
      shareholder approval for each of the proposed grants, directors also receive
      options to purchase Ordinary Shares or restricted share grants as noted
      below.




**Option
      or Restricted Share Grants in Last Fiscal Year**




Grants
      of
      a total of 102,500 shares of restricted stock were made to our directors and
      executive officers under the terms of the 2005 International Share Option and
      Restricted Share Incentive Plan and the 2005 Israeli Share Option and Restricted
      Share Incentive Plan (the “2005 Plans”). Director’s shares vest quarterly over a
      one-year period, and executive management’s shares vest semi-annually over a
      three-year term. Inclusive of Director and executive officers, 234,500
      restricted shares were granted during 2007 on four separate dates. The share
      price on these grant dates were $13.20, $12.41, $12.00 and $13.79,
      respectively.




**Board
      Practices.**




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




**Name**
            
            **Current Office(s) Held**
            
            **Commencement of**
              **Office**
            
            **Termination/Renewal**
              **Date of Office**Gideon
                Argov (2)(5)
            
            Chairman
            
            July
                22, 2003
            
            2008
                Annual MeetingReuven
                Ben Menachem
            
            Chief
                Executive Officer, Director
            
            October
                28, 2002
            
            2008
                Annual MeetingStanley
                Stern (2)(3)
            
            Director
            
            July
                22, 2003
            
            2008
                Annual MeetingYaffa
                Krindel (2)(4)
            
            Director
            
            February
                12, 2004
            
            2008
                Annual MeetingGil
                Weiser (2)(4)(5)
            
            Director
            
            October
                28, 2002
            
            2008
                Annual MeetingRobert
                Cobuzzi (1)(2)(3)(4)(6)
            
            Director
            
            December
                20, 2007
            
            2010
                Annual MeetingGerald
                Dogon (1)(2)(3)(5)(7)
            
            Director
            
            December
                20, 2007
            
            2010
                Annual MeetingJoseph
                Aulenti
            
            Executive
                Vice President, General Counsel and Secretary
            
            October
                1, 2002
            
            Not
                ApplicableYoram
                Bibring
            
            Executive
                Vice President, Chief Financial Officer
            
            September
                6, 2001
            
            Not
                ApplicableJoseph
                P. Mazzetti
            
            Executive
                Vice President, Corporate Development
            
            June
                1, 2001
            
            Not
                ApplicableMichael
                Sgroe
            
            President
                & Chief Operating Officer
            
            June
                1, 2001
            
            Not
                Applicable




(1)
      External Director under the Companies Law.


(2)
      NASDAQ Independent Director.


(3)
      Member of the Audit Committee.


(4)
      Member of the Compensation Committee.


(5)
      Member of the Nominating Committee.


(6)
      Mr.
      Cobuzzi was elected for a three year term as an external director on December
      20, 2007.


(7)
      Mr.
      Dogon was elected for a three year term as an external director on December
      20,
      2007.




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.




36




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 shareholders holding at least 10% of our issued and outstanding shares
      who are entitled to attend and vote at a meeting deliver to Fundtech a proper
      notice in writing, 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 of our residing directors can-not serve
      an
      as alternate director for any of the other directors. 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 in their capacity as
      such that provide for benefits upon termination of their services as
      directors.




**External
      Directors**




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:




·
            an
                employment relationship;


·
            business
                or professional relationship maintained on a regular
                basis;


·
            control;
                and/or


·
            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.




Our
      external directors are required to possess professional qualifications as set
      forth in the regulations promulgated under the Companies Law. In addition,
      our
      board of directors is required to determine how many of our directors must
      have
      financial and accounting expertise. In determining such number, the board of
      directors must consider, among other things, the type and size of the company
      and the scope and complexity of its operations. The Companies Law provides
      that
      if we have an "audit committee financial expert" as defined by the SEC rules
      that has the requisite financial sophistication as defined by The NASDAQ Global
      Market rules and regulations and is independent within the meaning of the
      independent director standards of The NASDAQ Global Market and the SEC, then
      our
      external directors are only required to possess requisite professional
      qualifications.




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 initial term of an external director is three years, and he or
      she
      may be reelected to one additional term of three years by a majority vote at
      a
      shareholders' meeting; provided that external directors of an Israeli company
      whose securities are listed on certain non-Israeli stock exchanges or stock
      markets (including The NASDAQ Global Market) may be reelected for additional
      periods of up to three years each (beyond the first two three-year periods),
      in
      each case provided that (i) the audit committee and thereafter the board of
      directors confirm that, in light of the external director's expertise and
      special contribution to the work of the board of directors and its committees,
      the reelection for such additional period(s) is beneficial to the company,
      (ii)
      the reelection for each additional period is approved by the company's
      shareholders as described in the immediately preceding paragraph and (iii)
      the
      period of service of the external director in such office and the reasons of
      the
      audit committee and board of directors for the proposed reelection for an
      additional period are presented to the general meeting of shareholders prior
      to
      the shareholders' voting on the proposed reelection.




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.




37




The
      majority of the shareholders in a general meeting must elect the external
      directors. 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.




Robert
      Cobuzzi and Gerald Dogon currently serve as “external” directors within the
      meaning prescribed by the Companies Law. Their current term of office ends
      after
      the 2010 Annual Shareholder Meeting.




**Independent
      Directors**




The
      Ordinary Shares are listed for quotation on The NASDAQ and are subject to the
      rules of The NASDAQ Global Market applicable to listed 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.




Gideon
      Argov, Robert Cobuzzi, Gerald Dogon, Yaffa Krindel, Stanley Stern and Gil Weiser
      qualify as independent directors and meet the independence standard of the
      NASDAQ rules.




**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.




Under
      the
      NASDAQ rules, we are required to form an Audit Committee consisting of at least
      three independent directors. In addition, NASDAQ requires that the members
      of
      the Audit Committee (a) not have any relationship to the company that may
      interfere with the exercise of their independence, and (b) must be financially
      literate.




Under
      the
      NASDAQ rules and the Sarbanes-Oxley Act, the Audit Committee (i) has the sole
      authority and responsibility to select, evaluate, and, where appropriate,
      replace the company’s independent auditors, (ii) is directly responsible for the
      appointment, compensation and oversight of the work of the independent auditors
      for the purpose of preparing its audit report or related work, and (iii) is
      responsible for establishing procedures for (A) the receipt, retention and
      treatment of complaints received by the company regarding accounting, internal
      accounting controls or auditing matters, and (B) the confidential, anonymous
      submission by employees of the company of concerns regarding questionable
      accounting or auditing matters. The Audit Committee is required to consult
      with
      management but may not delegate these responsibilities.




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.




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 Audit Committee has a separate
      budget to fund its retention of such outside assistance. The Audit Committee
      has
      also adopted a charter in accordance with the rules of the NASDAQ Global
      Market.




The
      members of the Audit Committee for the fiscal year ended December 31, 2007
      were
      Stanley Stern, Chairman, Tsvi Gal and Ben-Zion Zilberfarb. Dr. Zilberfarb
      qualifies as a financial expert under the Sarbanes-Oxley Act of 2002. For 2008,
      the Audit Committee will consist of Stanley Stern, Chairman, Robert Cobuzzi
      and
      Gerald Dogon. Mr. Cobuzzi has been designated as the financial expert under
      the
      Sarbanes-Oxley Act of 2002.




38




**Compensation
      Committee**




The
      members of the Compensation Committee for the fiscal year ended December 31,
      2007 were Yaffa Krindel, Chairman, Ben-Zion Zilberfarb and Gil Weiser. No member
      of the Compensation Committee is an officer or employee of the Company and
      each
      is an independent director. The responsibilities of the Compensation Committee
      include administering our stock plans and approving the compensation of our
      executive officers. For 2008, the Compensation Committee will consist of Yaffa
      Krindel, Chairman, Gil Weiser and Robert Cobuzzi.




**Nominating
      Committee**




In
      accordance with NASDAQ rules, a Nominating Committee was established in 2004.
      Its members during 2007 were Gil Weiser, Chairman, Gideon Argov and Tsvi Gal.
      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.
      The Nominating Committee has adopted a charter, as well as policies and
      procedures governing its activities. The committee has also adopted and
      published policies and procedures governing communications from shareholder
      or
      other interested parties to the board of directors. For 2008, the Nominating
      Committee will consist of Gil Weiser, Chairman, Gideon Argov and Gerald
      Dogon.




**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 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. The Companies Law requires that an office holder of the company
      promptly disclose any personal interest that he or she may have and all related
      material information known to him or her, in connection with any existing or
      proposed transaction by the company. In addition, if the transaction is an
      extraordinary transaction as defined under Israeli law, the office holder must
      also disclose any personal interest held by the office holder’s spouse,
      siblings, parents, grandparents, descendants, spouse’s descendants and the
      spouses of any of the foregoing. In addition, the office holder must also
      disclose any interest held by any corporation in which the office holder is
      a 5%
      or greater shareholder, director or general manager or in which he or she has
      the right to appoint at least one director or the general manager. An
      extraordinary transaction is defined as a transaction other than in the ordinary
      course of business, otherwise than on market terms, or that is likely to have
      a
      material impact on the company’s profitability, assets or liabilities. 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. In any event, the transaction must not be adverse to the company’s
      interest.




**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 convene 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.




39




**The
      NASDAQ Global Market**




Our
      Ordinary Shares are listed for quotation on The NASDAQ Global Market and we
      are
      subject to the rules of The NASDAQ Global Market applicable to listed companies.
      Under the NASDAQ rules companies quoted on NASDAQ are required to have a
      majority of independent directors. 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, Robert Cobuzzi, Gerald Dogon, Yaffa
      Krindel, Stanley Stern, and Gil Weiser and qualify as independent directors
      under the current NASDAQ Global Market requirements.




**Disclosure
      Committee**




A
      Disclosure Committee consisting solely of company employees was established
      in
      2004 under the auspices of the Audit Committee to assist the Chief Executive
      Officer and Chief Financial Officer with monitoring developments within the
      Company and with the preparation of annual and quarterly reports. The committee
      is chaired by the General Counsel and has members from the finance, operations
      and marketing departments as well as from our BBP and Cashtech subsidiaries.
      Meetings are held periodically as warranted. The committee has also adopted
      and
      published policies and procedures governing its activities. The Charter of
      the
      Committee was approved by the Audit Committee. No directors serve on the
      committee.




**Employees**




The
      following table summarizes the main category of activity and geographic location
      of our employees as of December 31, 2007:




**Software**
              **Development**
            
            **Operations**
            
            **Sales
                and**
              **Marketing**
            
            **Administration**
            
            **Total**
              **Employees**United
                States
            
            
            69
            
            
            143
            
            
            38
            
            
            25
            
            
            275Israel
            
            
            58
            
            
            97
            
            
            2
            
            
            8
            
            
            165Switzerland
            
            
            18
            
            
            29
            
            
            11
            
            
            11
            
            
            69United
                Kingdom
            
            
            0
            
            
            13
            
            
            5
            
            
            0
            
            
            18Australia
            
            
            0
            
            
            2
            
            
            0
            
            
            0
            
            
            2India
            
            
            117
            
            
            208
            
            
            13
            
            
            39
            
            
            377Germany
            
            
            4
            
            
            6
            
            
            2
            
            
            3
            
            
            15921





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 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, which became legally required in May 2006, 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.




Our
      Cashtech subsidiary, as required by Indian regulations, provides a severance
      payment to any employee who resigns after working for five years with Cashtech.
      This obligation, whose
      valuations are carried out by an independent actuary, is
      reflected on the Cashtech balance sheet.




40






We
      have
      to comply with various labor and immigration laws throughout the world,
      including laws and regulations in Israel, the United Kingdom, Switzerland,
      Australia, Singapore, India and Germany. 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.




**Share
      Ownership**




***Security
      Ownership of Directors and Senior Management and Certain Key
      Employees***




As
      of
      March 24, 2008, the aggregate number of our Ordinary Shares beneficially owned
      by our directors, senior managers and certain key employees was as
      follows:




Owner:
            
            No.
                of Ordinary Shares:Gideon
                Argov
            
            Beneficially
                owns less than one percent.Reuven
                Ben Menachem
            
            416,457
                (2.6%)Robert
                Cobuzzi
            
            Beneficially
                owns less than one percent.Stanley
                Stern
            
            Beneficially
                owns less than one percent.Gil
                Weiser
            
            Beneficially
                owns less than one percent.Gerald
                Dogon
            
            Beneficially
                owns less than one percent.Yaffa
                Krindel
            
            Beneficially
                owns less than one percent.Joseph
                J. Aulenti
            
            Beneficially
                owns less than one percent.Yoram
                Bibring
            
            Beneficially
                owns less than one percent.Joseph
                P. Mazzetti
            
            Beneficially
                owns less than one percent.Michael
                Sgroe
            
            337,353
                (2.1%)Total
            
            1,582,106
                (9.8%)




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 and all restricted shares that will
      be
      released from any vesting schedule within 60 days of such date. No director
      is
      affiliated with a major shareholder.




As
      of
      March 24, 2008, options to purchase up to 911,729 Ordinary Shares were
      outstanding and 411,165 Restricted Shares have been granted to our directors
      and
      executive employees under our option and Restricted Share plans. The weighted
      average exercise price of the options was $7.87 per share. From these options
      and Restricted Shares, options to purchase 915,103 Ordinary Shares and 109,369
      Restricted Shares granted to our directors and executive employees are
      exercisable or will become exercisable within 60 days of March 24,
      2008.




As
      of
      March 24, 2008, we had 90 shareholders of record.




**Equity
      Compensation Plans**




Fundtech
      had established two plans for granting share options to our employees and one
      plan for granting share options to our directors: the Fundtech Limited 1997
      Israeli Share Option Plan for the Employees of Fundtech Ltd. (the “1997 Plan”);
      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 1997 Plan and the 1999 Option Plan, the “Company Option Plans”). The
      1997 Plan has expired. On December 21, 2005, the shareholders approved the
      adoption of two new equity plans, the 2005 International Share Option and
      Restricted Share Incentive Plan and the 2005 Israeli Share Option and Restricted
      Share Incentive Plan (the “2005 Plans”), which are discussed below.




Pursuant
      to the Company option plans, a total of 3,592,815 options and restricted shares
      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. On December 20, 2007, the
      Shareholders approved the allocation of an additional 300,000 shares to the
      2005
      Plans. As of December 31, 2007, 2,024,967 of these options and shares were
      outstanding, 1,356,186 of these options had been exercised, and 317,590 options
      remain available to be granted.




***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 four years from the date of grant. As of
      December 20, 2005, 3,155,815 Ordinary Shares were reserved and allocated to
      the
      1999 Option Plan. Of the 3,155,815 options available for grant under the 1999
      Option Plan, as of December 20, 2005, 2,131,521 options were outstanding and
      232,306 options had been exercised. By authorization of the shareholders granted
      on December 21, 2005, 391,988 options were transferred to the 2005 Share Option
      and Restricted Share Incentive Plans and no options remain
      available.




41




***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. By
      authorization of the shareholders granted on December 21, 2005, 130,000 options
      were transferred to the 2005 Share Option and Restricted Share Incentive Plans
      and no options remain available.




***2005
      Share Option and Restricted Share Incentive Plans***




On
      December 21, 2005, the shareholders of the Company approved the adoption of
      the
      2005 International Share Option and Restricted Share Incentive Plan and the
      2005
      Israeli Share Option and Restricted Share Incentive Plan (collectively, the
      “2005 Plans”). The 2005 Plans as adopted did not increase the maximum number of
      the Company's Ordinary Shares that may be issued under the Company's option
      plans. Rather, the Company transferred the aggregate number of un-granted
      Ordinary Shares as of the date on which the 2005 Plans were adopted, then
      reserved for issuance under the Company’s 1999 Employee Stock Option Plan and
      the Director’s Option Plan (the “Previous Plans”) to the 2005 Plans. Any options
      that remain available for grants under the Previous Plans are now available
      for
      subsequent grants of awards under the 2005 Plans. In addition, if any
      outstanding award under the Previous Plans should, for any reason, expire,
      be
      canceled or be forfeited without having been exercised in full, the shares
      subject to the unexercised, canceled or terminated portion of such award shall
      become available for subsequent grants of awards under the 2005 Plans. On
      December 20, 2007, the Shareholders approved the allocation of an additional
      300,000 shares to the 2005 Plans. The cumulative number of such shares that
      may
      be so issued under the 2005 Plans, inclusive of any award or grant under the
      Previous Plans, may not exceed 3,892,815 shares. Grants under the 2005 Plans
      vest over periods of between one and four years. As of March 24, 2008, 702,268
      restricted shares had been granted under the 2005 Plans.




***Administration
      of Our Plans***




The
      Compensation Committee of the Board of Directors administers our plans. Under
      the plans, options or restricted shares to purchase our Ordinary Shares may
      be
      granted to the officers, directors, employees or consultants of the Company
      or
      of any of our subsidiaries. Under the plans, the Compensation Committee of
      the
      Board of Directors shall determine the exercise price of options. The Board
      of
      Directors also determines the vesting schedule of the options and restricted
      shares.




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




**Major
      Shareholders.**




The
      following table summarizes information about the beneficial ownership of our
      outstanding Ordinary Shares as of March 24, 2008, for each person or group
      that
      we know owns 5% or more of our Ordinary Shares.




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 below is based on 16,069,981 Ordinary Shares
      outstanding as of March 24, 2008.




Update
      for Tender.





**NAME OF BENEFICIAL OWNER**
            
            **NUMBER OF SHARESBENEFICIALLY****OWNED**
            
            **PERCENTAGEBENEFICIALLYOWNED**Clal
                Industries and Investments Ltd.(1)
            
            
            6,791,176
            
            
            42.3
            %Cannell
                Capital LLC(2)
            
            
            2,056,597
            
            
            12.8
            %All
                directors and executive officers as a group (11 persons)
            
            
            1,154,347
            
            
            7.2
            %




1.
            Clal
                Industries and Investments Ltd., or “Clal”, is an Israeli corporation and
                is controlled by IDB Development Corporation Ltd., or “IDBD”, which, in
                turn, is controlled by IDB Holding Corporation, or “IDBH”, all of which
                companies are considered part of the IDB group.




42




Based
      upon publicly available information, as at March 24, 2008, IDBH is controlled
      by
      a group comprised of: (i) Ganden Investments I.D.B. Ltd., or “Ganden”, a private
      Israeli company controlled by Nochi Dankner (who is the chairman of IDBH, IDBD
      and Clal) and his sister Shelly Bergman, which holds 31.02% of the equity of
      and
      voting power in IDBH; (ii) Manor Investments - IDB Ltd., or “Manor”, a private
      Israeli company controlled by Ruth Manor (whose husband, Isaac Manor, and their
      son, Dori Manor, are directors of IDBH, IDBD and Clal), which holds 10.34%
      of
      the equity of and voting power in IDBH; and (iii) Avraham Livnat Investments
      (2002) Ltd., or “Livnat”, a private Israeli company controlled by Avraham Livnat
      (one of whose sons, Zvi Livnat, is a director and executive vice president
      of
      IDBH, deputy chairman of IDBD and a director and co-chief executive officer
      of
      Clal, and another son, Shay Livnat, is a director of IDBD and Clal), which
      holds
      10.34% of the equity of and voting power in IDBH. Ganden, Manor and Livnat,
      owning in the aggregate approximately 51.70% of the equity of and voting power
      in IDBH, entered into a Shareholders Agreement relating, among other things,
      to
      their joint control of IDBH, the term of which is until May 19, 2023. In
      addition, (a) Ganden Holdings Ltd., the parent company of Ganden, holds 11.35%
      of the equity of and voting power in IDBH; (b) Ganden holds a further 6.71%
      of
      the equity of and voting power in IDBH; (c) Manor Holdings B.A. Ltd., the parent
      company of Manor, holds 0.03% of the equity of and voting power in IDBH; (d)
      Avraham Livnat Ltd., the parent company of Livnat, holds 0.04% of the equity
      of
      and voting power in IDBH; and (e) Ms. Bergman owns, through a private company
      which is wholly owned by her, approximately 7.23% of the equity and voting
      power
      of IDBH.




Based
      on
      the foregoing, IDBH (by reason of its control of IDBD), Ganden, Manor and Livnat
      (by reason of their control of IDBH), Mr. Dankner, Ms. Bergman, Ms. Manor and
      Mr. A. Livnat (by reason of their control, respectively, of Ganden, Manor and
      Livnat) may be deemed to share the power to vote and dispose: (i) with IDBD
      (by
      reason of its control of Clal), and Clal, of the Fundtech shares held by Clal;
      and (ii) with IDBD, of the Fundtech shares held by IDBD.




2.
            As
                of March 24, 2008 beneficial ownership consisted of2,056,597Ordinary 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 Master Fund Limited (656,922 Ordinary Shares); The
                Cuttyhunk Fund Limited (500,000 Ordinary Shares); Tonga Partners,
                L.P.
                (1,023,695 Ordinary Shares); TE Cannell Portfolio, LLC (619,383 Ordinary
                Shares). The address of Cannell Capital LLC is 150 California Street,
                Fifth Floor, San Francisco, CA 94111. Cannell Capital LLC formerly
                held
                18.2% of our Ordinary Shares. Based on information set forth on a
                Schedule
                13G/A filed February 15, 2008 by Cannell Capital
                LLC.




16,246,859
      of our Ordinary Shares (of which 14,400,425 are in CEDE account) constituting
      90% of our Ordinary Shares are held by record holders located in the United
      States. 37 record holders are located in the United States. We have determined
      that in excess of 63% of our Ordinary Shares are beneficially owned by
      non-United States persons.




During
      the period between December 14, 2004 and December 4, 2007, Clal purchased 34,890
      Ordinary Shares. However, its percentage ownership decreased from 36.3% to
      33.5%. 1,316,641 additional shares were purchased by Clal during 2007 and their
      percentage ownership increased to 42.3%. Cannell Capital LLC first reported
      purchasing Ordinary Shares in 2002. Cannell’s ownership was reported at
      2,527,826 (17.4%) on December 31, 2003, decreased to 2,280,800 (15.1%) as of
      June 14 2006, increased to 2,800,000 (17.5%) as of February 15, 2007 and
      decreased to 2,056,597
      (12.8%) as of February 15, 2008.




On
      March
      5, 2008, Clal filed a tender offer seeking to purchase up to 2,338,686 shares
      of
      the Company at a per share price of $12.50. On April 8, 2008, Clal announced
      that it had received tenders of 2,104,720 shares. Upon consummation of the
      share
      purchases, Clal’s share holdings will increase to 8,797,398 (56.4%) or 57.9%,
      when taken together with 98,498 ordinary shares held by its affiliate IDB
      Development Corporation, Ltd.




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




**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.




43




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:




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


·
            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


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




**Indemnification**




On
      our
      annual meeting held on December 2007, our shareholders approved amendments
      to
      our Articles of Association dealing with indemnification, exemption and
      insurance of directors and officers of the Company, intended to conform the
      provisions of the Articles of Association to Amendment No. 3 adopted to the
      Companies Law. In such meeting our shareholders also approved entering into
      undertakings 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 entering into indemnification agreements with our
      directors.




Under
      our
      Articles of Association and Section 260 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 or
      standard 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 interests of 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.




**Fees
      and Reimbursement of Expenses for Members of the Board of
      Directors.**




Our
      members of the Board of Directors are entitled to compensation and reimbursement
      of expenses for their services to the Company. See Item 6B above.




**Interests
      of Experts and Counsel**




***Not
      applicable.***




**ITEM
        8** **FINANCIAL
        INFORMATION.**




**Consolidated
      Financial Statements and Other Financial Information.**




The
      following Consolidated Financial Statements of Fundtech Ltd. and its
      subsidiaries for the years ended December 31, 2005, 2006 and 2007, together
      with
      the report of the independent auditors thereon, are presented under Item 18
      of
      this report:


Report
                  of Independent Auditors
              F-1Consolidated
                  Balance Sheets
              F-3Consolidated
                  Statements of Operations
              F-4Statements
                  of Changes in Shareholders’ Equity
              F-5Consolidated
                  Statements of Cash Flows
              F-7Notes
                  to Consolidated Financial Statements
              F-9




44




**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
      have
      never declared or paid dividends to our shareholders.  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.




**Significant
      Changes.**




None




**ITEM
      9** **THE
      OFFER AND LISTING.**




**Market
      Price Information**




Our
      Ordinary Shares are quoted on The NASDAQ Global 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**2003
              
              
              8.58
              
              
              3.302004
              
              
              9.90
              
              
              6.262005
              
              
              11.23
              
              
              8.092006
              
              
              12.94
              
              
              8.722007
              
              
              17.78
              
              
              11.332005Fourth
                  Quarter
              
              
              11.23
              
              
              9.612006First
                  Quarter
              
              
              12.11
              
              
              10.11Second
                  Quarter
              
              
              12.94
              
              
              9.14Third
                  Quarter
              
              
              10.31
              
              
              8.72Fourth
                  Quarter
              
              
              12.60
              
              
              10.032007First
                  Quarter
              
              
              14.13
              
              
              11.33Second
                  Quarter
              
              
              16.00
              
              
              14.16Third
                  Quarter
              
              
              17.59
              
              
              14.25Fourth
                  Quarter
              
              
              17.78
              
              
              13.05




45




Most
                recent six monthsOctober
                2007
            
            
            17.83
            
            
            15.88November
                2007
            
            
            17.78
            
            
            15.04December
                2007
            
            
            15.50
            
            
            12.67January
                2008
            
            
            13.37
            
            
            9.68February
                2008
            
            
            12.71
            
            
            10.57March
                2008
            
            
            12.49
            
            
            11.50




On
      March
      24, 2008 , the last closing sale price of the Ordinary Shares, as reported
      by
      the NASDAQ Global Market, was $12.15 per share. As of March 24, 2008, we had
      90
      shareholders of record. We believe that the number of beneficial owners of
      the
      Ordinary Shares is approximately 1859.




Since
      August 19, 2003, our Ordinary Shares have also been listed on the Tel Aviv
      Stock
      Exchange under the symbol “FNDT”. The following table sets forth, for the
      periods indicated, the high and low closing sales prices in NIS of our Ordinary
      Shares on the Tel Aviv Stock Exchange.




**HIGH**
              
              **LOW**2003
              
              NIS
              38.90
              
              NIS
              28.692004
              
              
              46.38
              
              
              28.392005
              
              
              50.77
              
              
              36.12005Fourth
                  Quarter
              
              
              50.37
              
              
              45.362006First
                  Quarter
              
              NIS
              58.36
              
              NIS
              46.87Second
                  Quarter
              
              
              58.88
              
              
              44.62Third
                  Quarter
              
              
              47.89
              
              
              39.21Fourth
                  Quarter
              
              
              52.33
              
              
              42.602007First
                  Quarter
              
              NIS
              59.09
              
              NIS
              45.41Second
                  Quarter
              
              
              63.21
              
              
              59.29Third
                  Quarter
              
              
              70.00
              
              
              60.35Fourth
                  Quarter
              
              
              71.65
              
              
              37.48




Most
                recent six monthsOctober
                2007
            
            NIS
            71.68
            
            NIS
            65.06November
                2007
            
            
            69.71
            
            
            61.37December
                2007
            
            
            59.63
            
            
            47.35January
                2008
            
            
            51.52
            
            
            37.48February
                2008
            
            
            46.00
            
            
            38.50March
                2008
            
            
            44.20
            
            
            38.70




As
      of
      March 24, 2008, the exchange rate of the NIS to the U.S. Dollar was $1=NIS
      3.523.




**ITEM
      10.** **ADDITIONAL
      INFORMATION**




**Share
      Capital.**




***Not
      Applicable.***




**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.




46




**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.




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.




47




**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 35 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 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.




The
      Companies Law provides that the acquisition of shares in a public company on
      the
      open market (i.e., from other shareholders of the company) must be made by
      means
      of a tender offer if, as a result of the acquisition, the purchaser would become
      a 25% shareholder of the public company. The rule does not apply if there
      already is another 25% shareholder of the public company. Similarly, the law
      provides that an acquisition of shares in a public company must be made by
      means
      of a tender offer if, as a result of the acquisition, the purchaser would become
      a 45% shareholder of the public company, unless there already is another 45%
      shareholder of the public company.




If,
      following any acquisition of shares, the purchaser would hold 90% or more of
      the
      shares of the public company that acquisition must be made by means of a tender
      offer for all of the target company’s shares. An acquirer who wishes to
      eliminate all minority shareholders of the public company must do so by means
      of
      a tender offer and acquire 95% of all shares not held by or for the benefit
      of
      the acquirer prior to the acquisition. However, in the event that the tender
      offer to acquire that 95% is not successful, the acquirer may not acquire
      tendered shares if by doing so the acquirer would own more than 90% of the
      shares of the target company. The law provides for appraisal rights if any
      shareholder files a request in court within three months following the
      consummation of a full tender offer.




**Mergers
      and Acquisitions**




A
      merger
      of a company requires the approval of the holders of a majority of the voting
      power represented at the annual or special general meeting in person or by
      proxy
      or by written ballot, as shall be permitted, and voting thereon in accordance
      with the provisions of the Companies Law. Upon the request of a creditor of
      either party of the proposed merger, the court may delay or prevent the merger
      if it concludes that there exists a reasonable concern that as a result of
      the
      merger, the surviving company will be unable to satisfy the obligations of
      any
      of the parties to the merger. In addition, a merger may not be completed unless
      at least (i) 50 days have passed from the time that the requisite proposal
      for
      the merger has been filed by each party with the Israeli Registrar of Companies
      and (ii) 30 days have passed since the merger was approved by the shareholders
      of each party.




**Material
      Contracts**




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




48




**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.




**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
      the
      purchase, ownership and disposition of our Ordinary Shares to a U.S. Holder
      that
      owns our Ordinary Shares as a capital asset (generally for investment). A U.S.
      Holder is a holder of our Ordinary Shares that is for U.S. federal income tax
      purposes:




·
            an
                individual citizen or resident of the United
                States;


·
            a
                  corporation (or other entity taxable as a corporation for U.S.
                  federal
                  income tax purposes) created or organized in the United States
                  or under
                  the laws of the United States any political subdivision thereof
                  or the
                  District of Columbia;


·
            an
                estate, the income of which is subject to U.S. federal income tax
                regardless of its source; or


·
            a
                trust, (i) if 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 (generally, for investment) 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. Certain aspects of U.S.
      federal income taxation relevant to a holder of Ordinary Shares that is not
      a
      U.S. Holder (a “non-U.S. Holder”). are also discussed below. If a partnership
      (or any other entity treated as a partnership for U.S. federal income tax
      purposes) holds Ordinary Shares, the tax treatment of the partnership as a
      partner in such partnership will generally depend on the activities of the
      partnership. Such a partner or partnership should consult its advisor as to
      its
      tax consequences. 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. This discussion does not address all aspects of U.S. 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 U.S. federal
      income tax consequences to shareholders that are subject to special treatment,
      including U.S. Holders that:




·
            are
                broker-dealers or insurance
                companies;


·
            are
                regulated investment companies or real estate investment
                trusts;


·
            have
                elected mark-to-market accounting;


·
            are
                tax-exempt organizations or retirement
                plans;


·
            are
                financial institutions or “financial services entities;
                ”


·
            hold
                Ordinary Shares as part of a straddle, “hedge” or “conversion transaction”
                with other investments;


·
            acquired
                their Ordinary Shares upon the exercise of employee stock options
                or
                otherwise as compensation;


·
            are
                grantor trusts;


·
            are
                certain former citizen or long-term residents of the United States;
                or


·
            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-U.S. tax laws or the possible application of U.S. federal gift or estate
      taxes.




49




**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,
      owning 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 Distributions 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 non-U.S.
      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 U.S. 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 non-U.S. taxes withheld therefrom) generally 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 may 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.




The
      maximum U.S. federal income tax rate on certain “qualified dividends” paid to
      non-corporate U.S. Holders for taxable years beginning on or before December
      31,
      2010 is currently 15% and subject to U.S. ordinary tax rates thereafter. This
      reduced rate generally will not apply, however, to dividends paid by us if
      we
      are treated as a passive foreign investment company in the taxable year the
      dividends are paid or in the prior taxable year, or if certain holding period
      or
      other requirements are not met. See the discussion below under the heading
      “Passive Foreign Investment Company Status.” U.S. Holders are urged to consult
      their own tax advisors regarding the U.S. federal income tax rate that will
      be
      applicable to their receipt of any dividends paid with respect to Ordinary
      Shares .




U.S.
      Holders will have the option of claiming the amount of any non-U.S. income
      taxes
      withheld on a dividend distribution either as a deduction from gross income
      or
      as a dollar-for-dollar credit against their U.S. 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 non-U.S.
      income taxes withheld, but such amount may be claimed as a credit against the
      individual’s U.S. 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
      U.S. 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 the U.S. Holder’s 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 non-U.S. income
      taxes
      withheld from a dividend received on the Ordinary Shares if (1) such U.S. Holder
      has not held the Ordinary Shares for at least 16 days of the 31-day period
      beginning on the date which is 15 days before the ex-dividend date with respect
      to such dividend, or (2) 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 generally will be foreign source passive income for U.S. foreign tax
      credit purposes ;
      however, special rules will apply if we are a “United States-owned foreign
      corporation.” In that case, distributions of current or accumulated earnings and
      profits will be treated as U.S.-source and foreign-source income in proportion
      to our earnings and profits in the year of the distribution allocable to U.S.
      and foreign sources. We will be treated as a “United States-owned foreign
      corporation” as long as stock representing 50% or more of the voting power or
      value of our shares is owned, directly or indirectly, by United States persons.
      Non-U.S. taxes allocable to the portion of our distributions treated as from
      U.S. sources under these rules may not be creditable against a U.S. Holder’s
      U.S. federal income tax liability on such portion .




*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. Individual
      U.S. Holders currently are subject to a maximum rate of 15% on long-term capital
      gains for taxable years beginning on or before December 31, 2010 and generally
      subject to a maximum capital gain rate of 20% thereafter. Gains
      recognized by a U.S. Holder on a sale, exchange or other disposition of Ordinary
      Shares generally will be treated as U.S. source income for U.S. foreign tax
      credit purposes. Under
      the
      income tax treaty between the United States and Israel (the “Tax Treaty”), gain
      derived from the sale, exchange or other disposition of Ordinary Shares by
      a
      holder who qualifies as a resident of the United States and is entitled to
      claim
      the benefits under the Tax Treaty, and who sells the Ordinary Shares within
      Israel, may be treated as foreign-source income for U.S. foreign tax credit
      purposes. 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 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.




50




*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 U.S. Holders should
      consult their tax advisers with respect to any impact these regimes may have
      on
      the tax consequences of their purchase, ownership or disposition of our Ordinary
      Shares.




*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 in income by such 10% U.S. Holders 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 by such 10%
      U.S.
      Holders, gain from such sale or exchange of our Ordinary Shares generally is
      treated as ordinary dividend income to the extent of our earnings and profits
      attributable to the stock sold or exchanged. We do not believe that we are
      a
      CFC, but if we were to become 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 classified as a passive foreign investment company, or PFIC, 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 treated  as
      a
      corporation for U.S. federal income tax purposes, in which we are considered
      to
      own directly or indirectly 25% or more of the shares by value) is passive
      income, or (ii) the value of our assets averaged quarterly over the taxable
      year
      (including our pro rata share of the assets of any company treated as a
      corporation for U.S. federal income tax purposes in which we are considered
      to
      own directly or indirectly 25% or more of the shares by value) that produce,
      or
      are held for the production of, passive income is at least 50%. As discussed
      below, we believe that we were not a PFIC for 2007.




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 pledged as security for a loan) and upon receipt of certain “excess
      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 taxable 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 certain
      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). In any taxable year in which we
      are
      a PFIC 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 are a PFIC. As another alternative to the tax treatment described
      above, a U.S. Holder could elect to mark our Ordinary Shares to market annually,
      recognizing as ordinary income or loss each year an amount equal to the
      difference as of the close of the taxable year between the fair market value
      of
      our Ordinary Shares and the shareholder’s adjusted basis in the Ordinary Shares.
      Losses would be allowed only to the extent of net mark-to-market gain previously
      included in income by the U.S. Holder.




51




Based
      on
      our income, assets, market capitalization and discussions with our advisors,
      we
      believe that we were not a PFIC for our taxable year ended December 31, 2007.
      However, there can be no assurance that the United States Internal Revenue
      Service (“IRS”) 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, and our market capitalization which
      are
      relevant to this determination. Accordingly, there can be no assurance that
      we
      will not become a PFIC in 2008 or in subsequent taxable 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 2006, or any earlier taxable 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 QEF 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 and complied with 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, in the case of U.S. federal income
      taxes:




·
            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;
                or


·
            in
                the case of a disposition of our Ordinary Shares, 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 certain other requirements are
                met.




*Information
      Reporting and Backup Withholding*




U.S.
      Holders (other than exempt recipients such as corporations) generally are
      subject to information reporting requirements with respect to dividends paid
      in
      the United States on, and proceeds from the disposition of, Ordinary Shares.
      Under the Code, a U.S. Holder may be subject, under certain circumstances,
      to
      backup withholding at a rate of up to 28% with respect to such dividends paid
      on
      or proceeds from the disposition of, our Ordinary Shares unless the U.S. Holder
      provides proof of an applicable exemption or correct taxpayer identification
      number and otherwise complies with applicable requirements of the backup
      withholding rules.




A
      U.S.
      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 and may be refunded
      or
      credited against the Holder’s U.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 backup 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.




52




**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 currently subject to corporate tax at the rate of 31%. Until
      December 31, 2003, the regular tax rate applicable to income of companies was
      36%. In June 2004 and in July 2005, the “Knesset” (Israeli parliament) passed
      amendments to the Income Tax Ordinance (No. 140 and Temporary Provision), 2004
      and (No. 147), 2005 respectively, which determined, among other things, that
      the
      corporate tax rate is to be gradually reduced to the following tax rates: 2004
      -
      35%, 2005 - 34%, 2006 - 31%, 2007 - 29%, 2008 - 27%, 2009 - 26% and 2010 and
      thereafter - 25%.




**Law
      for the Encouragement of Industry (Taxes), 1969**




We
      believe that we currently qualify as an industrial company within the definition
      of the Law for the Encouragement of Industry (Taxes), 1969, generally referred
      to as the Industry Encouragement Law, which provides several tax benefits for
      industrial companies. An industrial company is defined as a company resident
      in
      Israel, at least 90% of the income of which in a given tax year exclusive of
      income from specified government loans, capital gains, interest and dividends,
      is derived from an industrial enterprise owned by it. An industrial enterprise
      is defined as an enterprise whose major activity in a given tax year is
      industrial production activity.




Under
      the
      Industry Encouragement Law, industrial companies are entitled to a number of
      corporate tax benefits, including:




·
            deduction
                of purchase of know-how and patentsand/or
                right to use a patentover an eight-year period;


·
            the
                right to elect, under specified conditions, to file a consolidated
                tax
                return with additional related Israeli industrial companies and an
                industrial holding company;


·
            accelerated
                depreciation rates on equipment and buildings;
                and


·
            Expenses
                related to a public offering on the Tel Aviv stock exchange and as
                of
                1.1.2003 on recognized stock markets outside of Israel, are deductible
                in
                equal amounts over three years.




Under
      some tax laws and regulations, an industrial enterprise may be eligible for
      special depreciation rates for machinery, equipment and buildings. These rates
      differ based on various factors, including the date the operations begin and
      the
      number of work shifts. An industrial company owning an approved enterprise
      may
      choose between these special depreciation rates and the depreciation rates
      available to the approved enterprise.




Eligibility
      for benefits under the Industry Encouragement Law is not subject to receipt
      of
      prior approval from any governmental authority.




Even
      though we believe that we currently qualify as an industrial company within
      the
      definition of the Industry Encouragement Law, we cannot assure you that the
      Israeli tax authorities will agree that we qualify, or, if we qualify, that
      we
      will continue to qualify as an industrial company or that the benefits described
      above will be available to us in the future.




**Law
      for the Encouragement of Capital Investments, 1959**




**Tax
      benefits prior the 2005 amendment**




The
      Law
      for the Encouragement of Capital Investments, 1959 (the “Investments Law”),
      provides that a proposed capital investment in eligible facilities may, upon
      application to the Investment Center of the Ministry of Industry and Commerce
      of
      the State of Israel, be designated as an approved enterprise. The Investment
      Center bases its decision as to whether or not to approve an application, among
      other things, on the criteria set forth in the Investments Law and regulations,
      the then prevailing policy of the Investment Center, and the specific objectives
      and financial criteria of the applicant. Each certificate of approval for an
      approved enterprise relates to a specific investment program delineated both
      by
      its financial scope, including its capital sources, and by its physical
      characteristics, e.g *.* ,
      the
      equipment to be purchased and utilized pursuant to the program.




53




The
      Investments Law provides that an approved enterprise is eligible for tax
      benefits on taxable income derived from its approved enterprise programs. The
      tax benefits under the Investments Law also apply to income generated by a
      company from the grant of a usage right with respect to know-how developed
      by
      the approved enterprise, income generated from royalties, and income derived
      from a service which is auxiliary to such usage right or royalties, provided
      that such income is generated within the approved enterprise’s ordinary course
      of business. If a company has more than one approval or only a portion of its
      capital investments are approved, its effective tax rate is the result of a
      weighted average of the applicable rates. The tax benefits under the Investments
      Law are not, generally, available with respect to income derived from products
      manufactured outside of Israel. In addition, the tax benefits available to
      an
      approved enterprise are contingent upon the fulfillment of conditions stipulated
      in the Investments Law and regulations and the criteria set forth in the
      specific certificate of approval, as described above. In the event that a
      company does not meet these conditions, we would be required to refund the
      amount of tax benefits, plus a consumer price index linkage adjustment and
      interest.




The
      Investments Law also provides that an approved enterprise is entitled to
      accelerated depreciation on its property and equipment that are included in
      an
      approved enterprise program in the first five years of using the
      equipment.




Taxable
      income of a company derived from an approved enterprise is subject to corporate
      tax at the maximum rate of 25%, rather than the regular corporate tax rate,
      for
      the benefit period.




A
      company
      may elect to receive an alternative route of benefits. Under the alternative
      route of benefits, a company’s undistributed income derived from the approved
      enterprise will be exempt from corporate tax for a period of between two and
      ten
      years from the first year the company derives taxable income under the program,
      depending on the geographic location of the approved enterprise within Israel,
      and such company will be eligible for a reduced tax rate for the remainder
      of
      the benefits period **.** This
      period is ordinarily seven years commencing with the year in which the approved
      enterprise first generates taxable income, and is limited to 12 years from
      commencement of production or 14 years from the date of approval, whichever
      is
      earlier.




A
      company
      that has elected the alternative route of benefits, that subsequently pays
      a
      dividend out of income derived from the approved enterprise during the tax
      exemption period will be subject to corporate tax in respect of the amount
      distributed, including any taxes thereon, at the rate which would have been
      applicable had it not elected the alternative route of benefits, generally
      10%-25%, depending on the percentage of the company’s ordinary shares held by
      foreign shareholders. The dividend recipient is subject to withholding tax
      at
      the rate of 15% applicable to dividends from approved enterprises, if the
      dividend is distributed during the tax exemption period or within twelve years
      thereafter. The company must withhold this tax at source.




Subject
      to applicable provisions concerning income under the alternative route of
      benefits, dividends paid by a company are considered to be attributable to
      income received from the entire company and the company’s effective tax rate is
      the result of a weighted average of the various applicable tax rates, excluding
      any tax-exempt income. Under the Investments Law, a company that has elected
      the
      alternative route of benefits is not obliged to distribute retained profits,
      and
      may generally decide from which year’s profits to declare dividends. We
      currently intend to reinvest any income derived from our approved enterprise
      program and not to distribute such income as a dividend.




**Foreign
      Investors’ Company (“FIC”)**




A
      company
      that has an approved enterprise program is eligible for further tax benefits
      if
      it qualifies as a foreign investors’ company. A foreign investors company is a
      company which more than 25% of its share capital and combined share and loan
      capital is owned by non-Israeli residents. A company that qualifies as a foreign
      investors’ company and has an approved enterprise program is eligible for tax
      benefits for a ten-year benefit period. As specified above, depending on the
      geographic location of the approved enterprise within Israel, income derived
      from the approved enterprise program may be entitled to the
      following:




·
            Exemption
                from tax on its undistributed income up to ten
                years.




·
            An
                additional period of reduced corporate tax liability at rates ranging
                between 10% and 25%, depending on the level of foreign (i.e., non-Israeli)
                ownership of our shares.Those tax rates and the related levels of foreign investment are
                as set
                forth in the following table:


Rate of
                Reduced Tax
              
              Reduced Tax
                Period
              
              Tax Exemption
                Period
              
              Percent of
                Foreign Ownership25
              
              5
                years
              
              10
                years
              
              
              0-25
              %25
              
              8
                years
              
              10
                years
              
              
              25-48.99
              %20
              
              8
                years
              
              10
                years
              
              
              49-73.99
              %15
              
              8
                years
              
              10
                years
              
              
              74-89.99
              %10
              
              8
                years
              
              10
                years
              
              
              90-100
              %




The
      twelve years limitation period for reduced tax rate of 15% on dividend from
      the
      approved enterprise does not apply to foreign investor’s Company.




54




**Tax
      benefits under the 2005 Amendment**




An
      amendment to the Law, which has been officially published effective as of April
      1, 2005 (the “Amendment”) has changed certain provisions of the Law. The
      Amendment includes revisions to the criteria for investments qualified to
      receive tax benefits as an Approved Enterprise. The Amendment also, applies
      to
      new investment programs and investment programs commencing after 2004, and
      does
      not apply to investment programs approved prior to December 31, 2004. However,
      a
      company that was granted benefits according to section 51 of the Investment
      Law
      would not be allowed to commence production for a period of 3 years from the
      date of approval.




Our
      company will continue to enjoy its current tax benefits in accordance with
      the
      provisions of the Investment Law prior to its revision, but if our company
      is
      granted any new benefits in the future they will be subject to the provisions
      of
      the amended Investment Law. Therefore, the following discussion is a summary
      of
      the Investment Law prior to its amendment as well as the relevant changes
      contained in the new legislation.




The
      Amendment simplifies the approval process: according the Amendment, only
      Approved Enterprises receiving cash grants require the approval of the
      Investment Center. The Investment Center will be entitled, to approve such
      programs only until December 30, 2007 .




The
      Amendment does not apply to benefits included in any certificate of approval
      that was granted before the Amendment came into effect, which will remain
      subject to the provisions of the Investment Law as they were on the date of
      such
      approval.




Tax
      benefits are available under the Amendment to production facilities (or other
      eligible facilities), which are generally required, among others, to derive
      more
      than 25% of their business income from export (referred to as a “Benefited
      Enterprise”). In order to receive the tax benefits, the Amendment states that
      the company must make an investment in the Benefited Enterprise exceeding a
      certain percentage or a minimum amount specified in the Law. Such investment
      may
      be made over a period of no more than three years ending at the end of the
      year
      in which the company requested to have the tax benefits apply to the Benefited
      Enterprise (the “Year of Election”). Where the company requests to have the tax
      benefits apply to an expansion of existing facilities, then only the expansion
      will be considered a Benefited Enterprise and the company’s effective tax rate
      will be the result of a weighted combination of the applicable rates. In this
      case, the minimum investment required in order to qualify as a Benefited
      Enterprise is required to exceed a certain percentage or a minimum amount of
      the
      company’s production assets before the expansion.




The
      duration of tax benefits is subject to a limitation of the earlier of 7 to
      10
      years from the Commencement Year, or 12 years from the first day of the Year
      of
      Election. Please note that the year’s limitations also apply to the exemption
      period. The tax benefits granted to a Benefited Enterprise are determined,
      as
      applicable to its geographic location within Israel, according to one of the
      following new tax routes, which may be applicable to us:




·
            Similar
                to the currently available alternative route, exemption from corporate
                tax
                on undistributed income for a period of two to ten years, depending
                on the
                geographic location of the Benefited Enterprise within Israel, and
                a
                reduced corporate tax rate of 10% to 25% for the remainder of the
                benefits
                period, depending on the level of foreign investment in each year.
                Benefits may be granted for a term of seven to ten years, depending
                on the
                level of foreign investment in the company. If the company pays a
                dividend
                out of income derived from the Benefited Enterprise during the tax
                exemption period, such income will be subject to corporate tax at
                the
                applicable rate (10%-25%) in respect of the gross amount of the dividend
                that we may distribute. The company is required to withhold tax at
                the
                source at a rate of 15% from any dividends distributed from income
                derived
                from the Benefited Enterprise; and




·
            A
                special tax route, which enables companies owning facilities in certain
                geographical locations in Israel to pay corporate tax at the rate
                of 11.5%
                on income of the Benefited Enterprise. The benefits period is ten
                years.
                Upon payment of dividends, the company is required to withhold tax
                at
                source at a rate of 15% for Israeli residents and at a rate of 4%
                for
                foreign residents.




Generally,
      a company that is Abundant in Foreign Investment (as defined in the Investments
      Law) is entitled to an extension of the benefits period by an additional five
      years, depending on the rate of its income that is derived in foreign
      currency.




The
      Amendment changes the definition of “foreign investment” in the Investments Law
      so that the definition now requires a minimal investment of NIS 5.0 million
      by
      foreign investors. Furthermore, such definition now also includes the purchase
      of shares of a company from another shareholder; provided that the company’s
      outstanding and paid-up share capital exceeds NIS 5.0 million. Such changes
      to
      the aforementioned definition will take effect retroactively from
      2003.




The
      Amendment will apply to approved enterprise programs in which the year of
      election under the Investments Law is 2004 or later, unless such programs
      received approval from the Investment Center on or prior to December 31, 2004,
      in which case the Amendment provides that terms and benefits included in any
      certificate of approval already granted will remain subject to the provisions
      of
      the law as they were on the date of such approval.




55


As
      a
      result of the amendment, tax-exempt income generated under the provisions of
      the
      new law, will subject the Company to taxes upon distribution or liquidation
      and
      the Company may be required to record deferred tax liability with respect to
      such tax-exempt income.




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.




Our
      approved enterprise program and the tax benefits thereunder may not continue
      in
      the future at their current levels or at any level. The termination or reduction
      of these tax benefits would likely increase our taxes. The amount, if any,
      by
      which our taxes would increase will depend upon the rate of the tax increase,
      the amount of any tax benefit reduction, and the amount of any taxable income
      that we may earn in the future.




**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.




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%.




56




**Capital
      Gains Taxes on Sales of our Ordinary Shares**




Israeli
      law generally imposes a capital gains tax on the sale of any capital assets
      by
      residents of Israel, as defined for Israeli tax purposes, and on the sale of
      assets located in Israel, including shares in Israeli companies, by both
      residents and non-residents of Israel, unless a specific exemption is available
      or unless a tax treaty between Israel and the shareholder’s country of residence
      provides otherwise. The law distinguishes between real gain and inflationary
      surplus. The inflationary surplus is a portion of the total capital gain which
      is equivalent to the increase of the relevant asset’s purchase price which is
      attributable to the increase in the Israeli consumer price index or, in certain
      circumstances, a foreign currency exchange rate, between the date of purchase
      and the date of sale. The real gain is the excess of the total capital gain
      over
      the inflationary surplus.




Generally, until
      the
      2006 tax year, capital gains tax was imposed on Israeli resident individuals at
      a rate
      of 15% on real gains derived on or after January 1, 2003, from the sale of
      shares in, among others, Israeli companies publicly traded on the NASDAQ
      Exchange or on a recognized stock exchange or regulated market in a country
      that
      has a treaty for the prevention of double taxation with Israel. This tax rate
      was contingent upon the shareholder not claiming a deduction for financing
      expenses in connection with such shares (in
      which
      case the gain was generally be taxed at a rate of 25%) ,
      and did
      not apply to: (i) the sale of shares to a relative (as defined in the
      Israeli Income Tax Ordinance); (ii) the sale of shares by dealers in securities;
      (iii) the sale of shares by shareholders that report in accordance with the
      Inflationary Adjustments Law (that
      were taxed at corporate tax rates for corporations and at marginal tax rates
      for
      individuals) ;
      or (iv)
      the sale of shares by shareholders who acquired their shares prior to an initial
      public offering (that may be subject to a different tax arrangement).




As
      of
      January 1, 2006, the tax rate applicable to capital gains derived from the
      sale
      of shares, whether listed on a stock market or not, is 20%, retroactive from
      January 1, 2003, for Israeli individuals, unless such shareholder claims a
      deduction for financing expenses in connection with such shares, in which case
      the gain will generally be taxed at a rate of 25%. Additionally, if such
      shareholder is considered a “material shareholder” at any time during the
      12-month period preceding such sale, i.e., such shareholder holds directly
      or
      indirectly, including with others, at least 10% of any means of control in
      the
      company, the tax rate shall be 25%. Israeli companies are subject to the
      Corporate Tax rate on capital gains derived from the sale of shares, unless
      such
      companies were not subject to the Adjustments Law (or certain regulations)
      at
      the time of publication of the aforementioned amendment to the Tax Ordinance
      that came into effect on January 1, 2006, in which case the applicable tax
      rate
      is 25%. However, the foregoing tax rates do not apply to: (i) dealers in
      securities; and (ii) shareholders who acquired their shares prior to an initial
      public offering (that may be subject to a different tax
      arrangement).




The
      tax
      basis of publicly shares acquired prior to January 1, 2003 will be determined
      in
      accordance with the average closing share price in the three trading days
      preceding January 1, 2003. However, a request may be made to the tax authorities
      to consider the actual adjusted cost of the shares as the tax basis if it is
      higher than such average price.




Non-Israeli
      residents are exempt from Israeli capital gains tax on any gains derived from
      the sale of shares of Israeli companies publicly traded on a recognized stock
      exchange or regulated market outside of Israel, provided however that such
      capital gains are not derived from a permanent establishment in Israel, such
      shareholders are not subject to the Adjustments Law, and such shareholders
      did
      not acquire their shares prior to an initial public offering. However,
      non-Israeli corporations will not be entitled to such exemption if an Israeli
      resident (i) has a controlling interest of 25% or more in such non-Israeli
      corporation, or (ii) is the beneficiary or is entitled to 25% or more of the
      revenues or profits of such non-Israeli corporation, whether directly or
      indirectly.




In
      some
      instances where our shareholders may be liable to Israeli tax on the sale of
      their ordinary shares, the payment of the consideration may be subject to the
      withholding of Israeli tax at the source.




Pursuant
      to the Convention Between the government of the United States of America and
      the
      government of Israel with Respect to Taxes on Income, as amended (the
“U.S.-Israel Tax Treaty”), the sale, exchange or disposition of ordinary shares
      by a person who (i) holds the ordinary shares as a capital asset, (ii) qualifies
      as a resident of the United States within the meaning of the U.S.-Israel Tax
      Treaty and (iii) is entitled to claim the benefits afforded to such person
      by
      the U.S.-Israel Tax Treaty, generally, will not be subject to the Israeli
      capital gains tax. Such exemption will not apply if (i) such Treaty U.S.
      Resident holds, directly or indirectly, shares representing 10% or more of
      our
      voting power during any part of the 12-month period preceding such sale,
      exchange or disposition, subject to certain conditions, (ii) the U.S. Resident
      is present in Israel for a total of 183 days or more during the tax year, or
      (iii) the capital gains from such sale, exchange or disposition can be allocated
      to a permanent establishment in Israel. In such case, the sale, exchange or
      disposition of ordinary shares would be subject to Israeli tax, to the extent
      applicable; however, under the U.S.-Israel Tax Treaty, such Treaty U.S. Resident
      would be permitted to claim a credit for such taxes against the U.S. federal
      income tax imposed with respect to such sale, exchange or disposition, subject
      to the limitations in U.S. laws applicable to foreign tax credits. The
      U.S.-Israel Tax Treaty does not relate to U.S. state or local
      taxes.




Israel
      presently has no estate or gift tax.




57




**Dividends
      and Paying Agents.**




***Not
      Applicable.***




**Statement
      by Experts.**




***Not
      Applicable.***




**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 Exchange Commission without charge at the Securities
      and
      Exchange Commission’s public reference room at 100 F Street, NE., 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.




**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.




We
      are
      exposed to financial market risk associated with changes in foreign currency
      exchange rates. A significant portion of our revenue is generated, and a
      substantial portion of our expenses is incurred, in dollars. A portion of our
      expenses, however, is denominated in NIS and Rupees and a portion of our revenue
      is in British Pounds and Euros. Since our financial results are reported in
      dollars, fluctuations in the rates of exchange between the dollar and non-dollar
      currencies may have an effect on our results of operations.




**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.***




58




**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 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, 2007.
      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)  *Management’s
      annual report on internal control over financial reporting* .
      The
      Company’s management, under the supervision of its chief executive officer and
      its chief financial officer, is responsible for establishing and maintaining
      adequate internal controls over financial reporting for the Company and its
      subsidiaries. Based
      on
      the criteria for effective internal control over financial reporting established
      in *Internal
      Control—Integrated Framework* ,
      which
      was issued by the Committee of Sponsoring Organizations of the Treadway
      Commission, management has assessed the Company’s internal control over
      financial reporting as effective as of December 31, 2007.




(c)
      *Attestation Report of the Registered Public Accounting Firm*. The
      attestation report of our registered public accounting firm is included in
      page
      F-1 of our audited consolidated financial statements set forth in “Item 18.
      Financial Statements,” and is incorporated herein by reference.




(d) *Changes
      in Internal Control Over Financial Reporting* .
      There
      were no changes in the Company’s internal control over financial reporting that
      occurred during the year ended December 31, 2007 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, Robert Cobuzzi, serving on our Audit Committee. Mr. Cobuzzi
      is
      also an independent director.




**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 was
      filed
      as an exhibit to our Form 20-F, for the year ended December 31,
      2003.




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 20, 2007, our shareholders re-appointed
      Brightman Almagor & Co., a member of Deloitte Touche Tohmatsu to serve as
      our independent auditors for the 2007 fiscal year.




Deloitte
      Touche Tohmatsu billed the following fees to us for professional services in
      each of the last two fiscal years:




Year
                Ended December 31,2007
            
            2006Audit
                fees
            
            $
            296,000
            
            $
            262,200Audit
                related fees
            
            
            54,900
            
            
            42,100Tax
                fees [a]
            
            
            16,952
            
            
            7,000All
                other fees
            
            
            3,023
            
            
            600Total
            
            $
            370,836
            
            $
            311,900





[a]  Amount
      represents tax fees for a subsidiary of Fundtech Ltd. Tax fees for Fundtech
      Ltd.
      are included in audit fees under a fixed fee arrangement.





59




**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.




**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
      2007, Other Fees paid were immaterial.




**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. In fiscal 2007, the Company’s Audit Committee
      approved all of the services provided by our independent auditor.




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




***Not
      Applicable.***




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




**Issuer
      Purchases of Equity Securities**




Period
            
            (a) Total Number of
                Shares (Or Units) Purchased
            
            (b) Average Price Paid
                per Share (or Units)
            
            (c) Total Number of
              Shares (or Units)
              Purchased as Part of
              Publicly Announced
              Plans or Programs
            
            (d) Maximum Number (or
              Approximate Dollar
              Value) of Shares (or Units)
              that May Yet Be
              Purchased Under the Plans
              or ProgramsMay
                2007
            
            
            -
            
            
            -
            
            
            -
            
            
            -June
                2007
            
            
            -
            
            
            -
            
            
            -
            
            
            -July
                2007
            
            
            -
            
            
            -
            
            
            -
            
            
            -August
                2007
            
            
            132,409
            (1)
            
            15.360
            
            
            -
            
            
            -September
                2007
            
            
            125,476
            (1)
            
            16.252
            
            
            -
            
            
            -October
                2007
            
            
            -
            
            
            -
            
            
            -
            
            
            -November
                2007
            
            
            1,084,032
            (1)
            
            16.134
            
            
            -
            
            
            -December
                2007
            
            
            -
            
            
            -
            
            
            -
            
            
            -





(1)  Represents
      ordinary shares purchases by Clal.





60




**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.




**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)1.3
            
            Amendment
                to Amended and Restated Articles of Association of
                Registrant(2)2.1
            
            Form
                of Ordinary Share Certificate(1)2.2
            
            Form
                of Registration Rights(1)4.1
            
            Fundtech
                Ltd. December 1997 Israeli Share Option Plan (English
                summary)(1)4.2
            
            Fundtech
                Ltd. 1999 Employee Option Plan(4)4.3
            
            Fundtech
                Ltd. Directors Option Plan(5)4.4
            
            Employment
                Agreement between Reuven Ben Menachem and Fundtech Corporation, dated
                November 25, 1997(3)4.5
            
            Lease
                Agreement for Cashtech’s facility in Bombay, India(9)4.6
            
            Lease
                Agreement relating to Fundtech’s Facility in Ramat-Gan, Israel (English
                summary)(3)4.7
            
            Lease
                Agreement relating to Fundtech’s Facility in Norcross,
                Georgia(3)4.8
            
            Lease
                Agreement relating to Fundtech’s Facility in Jersey City, New
                Jersey(6)4.9
            
            Lease
                Agreement relating to Fundtech’s Facility in Burlington,
                Massachusetts(7)4.10
            
            Fundtech
                Ltd. 2005 International Share Option and Restricted Share Incentive
                Plan(8)4.11
            
            Fundtech
                Ltd. 2005 Israeli Share Option and Restricted Share Incentive
                Plan(9)8
            
            Subsidiaries
                of Registrant*11
            
            Code
                of Ethics(7)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.*




(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 6-K, dated November
                14, 2007, and incorporated herein by reference.


(3)
            Previously
                filed as an exhibit to the Registrant’s Report on Form 20-F, dated March
                30, 1999, and incorporated herein by
                reference.


(4)
            Previously
                filed as an annex to the Registrant’s Proxy Statement, dated August 23,
                1999.


(5)
            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.


(6)
            Previously
                filed as an exhibit to the Registrant’s Report on Form 20-F, dated June
                11, 2003, and incorporated herein by
                reference.


(7)
            Previously
                filed as an exhibit to the Registrant’s Report on Form 20-F, dated June
                29, 2004, and incorporated herein by
                reference.


(8)
            Previously
                filed as an annex to the Registrant’s Proxy Statement, filed on
                November 30, 2005.


(9)
            Previously
                filed as an exhibit to the Registrant’s Report on Form 20-F, dated
                May 27, 2005, and incorporated herein by reference.


*
            Filed
                herewith.




61


**FUNDTECH
      LTD**





**CONSOLIDATED
      FINANCIAL STATEMENTS**





**DECEMBER
      31, 2007**





**FUNDTECH
      LTD.**





**CONSOLIDATED
      FINANCIAL STATEMENTS**





**INDEX**





Page**Report
                of Independent Registered Public Accounting Firm**
            
            
            F-1
                - F-2**Consolidated
                Financial Statements:****Balance
                Sheets**as
                of December 31, 2007 and 2006
            
            
            F-3**Statements
                of Operations**for
                the years ended December 31, 2007, 2006 and 2005
            
            
            F-4**Statements
                of Shareholders' Equity**for
                the years ended December 31, 2007, 2006 and 2005
            
            
            F-5
                - F-6**Statements
                of Cash Flows**for
                the years ended December 31, 2007, 2006 and 2005
            
            
            F-7
                - F-8**Notes
                to Consolidated Financial Statements**
            
            
            F-9
                - F-30




62






**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





**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, 2007 and 2006 and the related statements of operations, changes in
      shareholders' equity and comprehensive income, and cash flows for each of the
      three years in the period ended December 31, 2007. These financial statements
      are the responsibility of the Company's management. Our responsibility is to
      express an opinion on these financial statements based on our
      audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement.  An
      audit
      also includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the financial statements, assessing the accounting principles
      used and significant estimates made by management, 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, 2007 and 2006 and the consolidated results
      of
      their operations and their consolidated cash flows for each of the three years
      in the period ended December 31, 2007, in conformity with U.S. generally
      accepted accounting principles.





We
      have
      also audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the Company’s internal control over financial
      reporting as of December 31, 2007, based on the criteria established in *Internal
      Control—Integrated Framework* issued
      by the Committee of Sponsoring Organizations of the Treadway Commission and
      our
      report dated  March 24, 2008 expressed an unqualified opinion on the
      Company’s internal control over financial reporting.





**Brightman
      Almagor & Co.**





**Certified
      Public Accountants**


**A
      member firm of Deloitte Touche Tohmatsu**





Tel
      Aviv,
      Israel


March
      24,
      2008


F-1







**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





**To
      the Shareholders of**


**Fundtech
      Ltd.**




We
      have
      audited the internal control over financial reporting of Fundtech Ltd .
      and
      subsidiaries (the “Company”) as of December 31, 2007, based on criteria
      established in *Internal
      Control — Integrated Framework* issued
      by
      the Committee of Sponsoring Organizations of the Treadway Commission. The
      Company’s management is responsible for maintaining effective internal control
      over financial reporting and for its assessment of the effectiveness of internal
      control over financial reporting, included in the accompanying *Management’s
      Report on Internal Control over Financial Reporting* .
      Our
      responsibility is to express an opinion on the Company’s internal control over
      financial reporting based on our audit.




We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether effective
      internal control over financial reporting was maintained in all material
      respects. Our audit included obtaining an understanding of internal control
      over
      financial reporting, assessing the risk that a material weakness exists, testing
      and evaluating the design and operating effectiveness of internal control based
      on the assessed risk, and performing such other procedures as we considered
      necessary in the circumstances. We believe that our audit provides a reasonable
      basis for our opinion.




A
      company’s internal control over financial reporting is a process designed by, or
      under the supervision of, the company’s principal executive and principal
      financial officers, or persons performing similar functions, and effected by
      the
      company’s board of directors, management, and other personnel to provide
      reasonable assurance regarding the reliability of financial reporting and the
      preparation of financial statements for external purposes in accordance with
      generally accepted accounting principles. A company’s internal control over
      financial reporting includes those policies and procedures that (1) pertain
      to the maintenance of records that, in reasonable detail, accurately and fairly
      reflect the transactions and dispositions of the assets of the company;
      (2) provide reasonable assurance that transactions are recorded as
      necessary to permit preparation of financial statements in accordance with
      generally accepted accounting principles, and that receipts and expenditures
      of
      the company are being made only in accordance with authorizations of management
      and directors of the company; and (3) provide reasonable assurance
      regarding prevention or timely detection of unauthorized acquisition, use,
      or
      disposition of the company’s assets that could have a material effect on the
      financial statements.




Because
      of the inherent limitations of internal control over financial reporting,
      including the possibility of collusion or improper management override of
      controls, material misstatements due to error or fraud may not be prevented
      or
      detected on a timely basis. Also, projections of any evaluation of the
      effectiveness of the internal control over financial reporting to future periods
      are subject to the risk that the controls may become inadequate because of
      changes in conditions, or that the degree of compliance with the policies or
      procedures may deteriorate.




In
      our
      opinion, the Company maintained, in all material respects, effective internal
      control over financial reporting as of December 31, 2007, based on the
      criteria established in *Internal
      Control — Integrated Framework* issued
      by
      the Committee of Sponsoring Organizations of the Treadway
      Commission.




We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the consolidated balance sheets of the Company
      and its subsidiaries as of **** December
      31, 2007 and 2006 and the related statements of operations, changes in
      shareholders' equity and comprehensive income, and cash flows for each of the
      three years in the period ended December 31, 2007 and our
      report dated March
      24 ,
      2008
      expressed an unqualified opinion thereon.





**Brightman
      Almagor & Co.**





**Certified
      Public Accountants**


**A
      member firm of Deloitte Touche Tohmatsu**





Tel
      Aviv,
      Israel


March
      24,
      2008


F-2





**FUNDTECH
      LTD.**




**CONSOLIDATED
      BALANCE SHEET**


**(In
      thousands)**





**December
                31,****2007**
            
            **2006****ASSETS****CURRENT
                ASSETS**Cash
                and cash equivalents
            
            $
            31,612
            
            $
            28,616Short
                term investments
            
            
            1,765
            
            
            -Marketable
                securities – Short Term (Note 4)
            
            
            8,624
            
            
            18,551Trade
                receivables (net of allowance for doubtful accounts of $ 859
              and
                $ 1,078 at December 31, 2007 and 2006, respectively) (Note
                5)
            
            
            22,387
            
            
            25,058Other
                accounts receivable and prepaid expenses
            
            
            3,600
            
            
            2,608**Total
                current assets**
            
            
            67,988
            
            
            74,833Marketable
                Securities – Long Term (Note 4)
            
            
            12,847
            
            
            -Severance
                pay fund
            
            
            1,197
            
            
            1,221Long-term
                deposits
            
            
            778
            
            
            639Prepaid
                expenses
            
            
            2,434
            
            
            1,821Property
                and equipment, net (Note 6)
            
            
            14,070
            
            
            11,944Goodwill
            
            
            26,802
            
            
            18,979Intangible
                assets, net (Note 7a)
            
            
            2,156
            
            
            2,232Capitalized
                software development, net (Note 7b)
            
            
            -
            
            
            394**Total
                assets**
            
            $
            128,272
            
            $
            112,063**LIABILITIES
                AND SHAREHOLDERS' EQUITY****CURRENT
                LIABILITIES**Trade
                payables
            
            $
            1,079
            
            $
            2,444Deferred
                revenues
            
            
            6,143
            
            
            7,567Accrued
                restructuring expenses
            
            
            62
            
            
            185Employees
                and payroll accruals
            
            
            6,298
            
            
            4,483Other
                accounts payable and accrued expenses (Note 8)
            
            
            8,591
            
            
            5,360**Total
                current liabilities**
            
            
            22,173
            
            
            20,039Accrued
                severance pay
            
            
            1,518
            
            
            1,399Accrued
                restructuring expenses
            
            
            -
            
            
            62Deferred
                Taxes
            
            
            878
            
            
            -Other
                long term liabilities
            
            
            1,571
            
            
            777**Total
                liabilities**
            
            
            26,140
            
            
            22,277SHAREHOLDERS'
                EQUITY(Note 10)Share
                capital
            
            
            47
            
            
            46Additional
                paid-in capital
            
            
            151,547
            
            
            146,611Accumulated
                other comprehensive income (loss)
            
            
            506
            
            
            (196
            )Accumulated
                deficit
            
            
            (46,710
            )
            
            (53,417
            )105,390
            
            
            93,044Treasury
                shares at cost, 320,883 shares as of December 31, 2007 and
                2006
            
            
            (3,258
            )
            
            (3,258
            )**Total
                shareholders' equity**
            
            
            102,132
            
            
            89,786**Total
                liabilities and shareholders’ equity**
            
            $
            128,272
            
            $
            112,063





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


F-3




**FUNDTECH
      LTD.**




**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**(In
      thousands)**





**Year
                ended December 31,****2007**
            
            **2006**
            
            **2005****Revenues**(Note 2j)Software
                license
            
            $
            19,741
            
            $
            13,576
            
            $
            16,523Software
                hosting
            
            
            15,384
            
            
            13,403
            
            
            10,501Maintenance
            
            
            27,570
            
            
            22,513
            
            
            20,248Services
            
            
            41,939
            
            
            36,017
            
            
            27,100Hardware
                sales
            
            
            -
            
            
            -
            
            
            94**Total
                revenues**
            
            
            104,634
            
            
            85,509
            
            
            74,466**Operating
                Expenses**Software
                license costs
            
            
            590
            
            
            604
            
            
            522Amortization
                of capitalized software development costs
            
            
            394
            
            
            1,576
            
            
            1,575Amortization
                of other acquired intangible assets
            
            
            1,387
            
            
            1,275
            
            
            1,154Maintenance,
                hosting and services costs
            
            
            45,578
            
            
            34,726
            
            
            29,947Hardware
                costs
            
            
            -
            
            
            -
            
            
            80Research
                and development
            
            
            19,348
            
            
            16,710
            
            
            13,480Selling
                and marketing
            
            
            17,667
            
            
            15,754
            
            
            13,734General
                and administrative
            
            
            13,553
            
            
            12,133
            
            
            9,557**Total
                operating expenses**
            
            
            98,517
            
            
            82,778
            
            
            70,049Operating
                income
            
            
            6,117
            
            
            2,731
            
            
            4,417Financial
                income, net (Note 14)
            
            
            2,197
            
            
            1,984
            
            
            1,085Income
                before taxes on income
            
            
            8,314
            
            
            4,715
            
            
            5,502Taxes
                on income (Note 12f)
            
            
            (1,207
            )
            
            (964
            )
            
            (1,166
            )Net
                income
            
            $
            7,107
            
            $
            3,751
            
            $
            4,336Basic
                earnings per share (Note 11)
            
            $
            0.46
            
            $
            0.25
            
            $
            0.29Diluted
                earnings per share (Note 11)
            
            $
            0.43
            
            $
            0.24
            
            $
            0.27




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


F-4


**FUNDTECH
        LTD.**
 CONSOLIDATED
        STATEMENTS OF
  SHAREHOLDERS'
        EQUITY AND COMPREHENSIVE INCOME
 (In
        thousands)
  **(except
        share data)**


**Additional**
                  
                  
                  
                  **Accumulated**
                    **other**
                  
                  
                  
                  **Total**
                  
                  **Total****Ordinary shares**
                  
                  **paid-in**
                  
                  **Treasury**
                  
                  **comprehensive**
                  
                  **Accumulated**
                  
                  **comprehensive**
                  
                  **shareholders'****Shares**
                  
                  **Amount**
                  
                  **capital**
                  
                  **shares**
                  
                  **income
                      (loss)**
                  
                  **deficit**
                  
                  **income**
                  
                  **equity**Balance
                      as of January 1, 2005
                  
                  
                  14,655,942
                  
                  
                  43
                  
                  
                  141,274
                  
                  
                  (88
                  )
                  
                  80
                  
                  
                  (61,504
                  )
                  
                  -
                  
                  
                  79,805Exercise
                      of stock options
                  
                  
                  316,522
                  
                  
                  1
                  
                  
                  1,362
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  1,363Foreign
                      currency translation adjustments
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (494
                  )
                  
                  -
                  
                  
                  (494
                  )
                  
                  (494
                  )Net
                      income
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  4,336
                  
                  
                  4,336
                  
                  
                  4,336Total
                      comprehensive income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  3,842Balance
                      as of December 31, 2005
                  
                  
                  14,972,464
                  
                  $
                  44
                  
                  $
                  142,636
                  
                  $
                  (88
                  )
                  $
                  (414
                  )
                  $
                  (57,168
                  )
                  
                  
                  
                  $
                  85,010




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


F-5





**FUNDTECH
        LTD.**
 CONSOLIDATED
        STATEMENTS OF
  SHAREHOLDERS'
        EQUITY AND COMPREHENSIVE INCOME
  (In
        thousands)
  **(except
        share data)**


**Accumulated****Additional**
              
              
              
              **other**
              
              
              
              **Total**
              
              **Total****Ordinary
                  shares**
              
              **paid-in**
              
              **Treasury**
              
              **comprehensive**
              
              **Accumulated**
              
              **comprehensive**
              
              **shareholder'****Shares**
              
              **Amount**
              
              **capital**
              
              **shares**
              
              **income
                  (loss)**
              
              **deficit**
              
              **Income**
              
              **equity**Balance
                  as of January 1, 2006
              
              
              14,972,464
              
              $
              44
              
              $
              142,636
              
              $
              (88
              )
              $
              (414
              )
              $
              (57,168
              )
              
              -
              
              $
              85,010Exercise
                  of stock options
              
              
              289,745
              
              
              1
              
              
              1,488
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,489Vested
                  restricted stock -net of forfeited & cancelled
              
              
              48,147
              
              
              1
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1Stock
                  based compensation
              
              
              -
              
              
              -
              
              
              2,487
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,487Foreign
                  currency translation adjustments
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              218
              
              
              -
              
              $
              218
              
              
              218Purchase
                  of Treasury shares
              
              
              (299,383
              )
              
              -
              
              
              -
              
              
              (3,170
              )
              
              -
              
              
              -
              
              
              -
              
              
              (3,170
              )Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              3,751
              
              
              3,751
              
              
              3,751Total
                  comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              3,969Balance
                  as of December 31, 2006
              
              
              15,010,973
              
              $
              46
              
              $
              146,611
              
              $
              (3,258
              )
              $
              (196
              )
              $
              (53,417
              )
              
              
              
              $
              89,786Exercise
                  of stock options
              
              
              405,010
              
              
              1
              
              
              2,340
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,341Vested
                  restricted stock – net of forfeited & cancelled
              
              
              145,925
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Stock
                  based compensation
              
              
              -
              
              
              -
              
              
              2,596
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,596Adjustment
                  for the cumulative effect of prior years adoption of Interpretation
                  48
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (400
              )
              
              -
              
              
              (400
              )Foreign
                  currency translation adjustments
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              702
              
              
              -
              
              $
              702
              
              
              702Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              7,107
              
              
              7,107
              
              
              7,107Total
                  comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              7,809Balance
                  as of December 31, 2007
              
              
              15,561,908
              
              $
              47
              
              $
              151,547
              
              $
              (3,258
              )
              $
              506
              
              $
              (46,710
              )
              
              
              
              $
              102,132





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




F-6


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





**Year
                ended December 31,****2007**
            
            **2006**
            
            **2005**Cash
                flows provided by operating activities:Net
                income
            
            $
            7,107
            
            $
            3,751
            
            $
            4,336Adjustments
                  to reconcile net income to net cash
                provided
                  by operating activities (Appendix A):
            
            
            10,214
            
            
            1,578
            
            
            5,972Net
                cash provided by operating activities
            
            
            17,321
            
            
            5,329
            
            
            10,308Cash
                flows used for investing activities:Investments
                in marketable securities – short-term
            
            
            (25,841
            )
            
            (34,294
            )
            
            (16,440
            )Proceeds
                from sale of marketable securities – short term
            
            
            37,090
            
            
            34,352
            
            
            20,490Investment
                in marketable securities – long term
            
            
            (12,696
            )
            
            -
            
            
            -Acquisition
                of subsidiaries, net of cash acquired (Appendix B)
            
            
            (7,465
            )
            
            (1,350
            )
            
            (1,973
            )Decrease
                in long-term lease deposits and prepaid
            
            
            (111
            )
            
            314
            
            
            (20
            )Increase
                in maturity of short term investments
            
            
            (1,765
            )
            
            -
            
            
            -Purchase
                of property and equipment
            
            
            (6,745
            )
            
            (5,177
            )
            
            (5,390
            )Proceeds
                from sale of property and equipment
            
            
            14
            
            
            3
            
            
            27Net
                cash used for investing activities
            
            
            (17,519
            )
            
            (6,152
            )
            
            (3,306
            )Cash
                flows provided by financing activities:Proceeds
                from exercise of stock options, net
            
            
            2,341
            
            
            1,490
            
            
            1,363Purchase
                of Treasury shares, at cost
            
            
            -
            
            
            (3,170
            )
            
            -Repayment
                of long-term debt
            
            
            (61
            )
            
            (82
            )
            
            -Net
                cash provided by (used for) financing activities
            
            
            2,280
            
            
            (1,762
            )
            
            1,363Effect
                of exchange rate on cash and cash equivalents:
            
            
            914
            
            
            394
            
            
            (918
            )Increase
                (decrease) in cash and cash equivalents
            
            
            2,996
            
            
            (2,191
            )
            
            7,447Cash
                and cash equivalents at the beginning of the year
            
            
            28,616
            
            
            30,807
            
            
            23,360Cash
                and cash equivalents at the end of the year
            
            $
            31,612
            
            $
            28,616
            
            $
            30,807Supplemental
                disclosure of cash flows activities:Cash
                paid during the year for:Interest
            
            $
            20
            
            $
            12
            
            $
            16Income
                taxes
            
            $
            1,890
            
            $
            807
            
            $
            1,108




F-7


**FUNDTECH
        LTD.**
 CONSOLIDATED
        STATEMENTS OF CASH FLOWS
  (In
        thousands)
 
 **Year
                  ended December 31,****2007**
              
              **2006**
              
              **2005****Appendix
                  A**-**Adjustments
                  to reconcile net income to net cash provided by operating
                  activities**:Depreciation
                  and amortization
              
              $
              6,581
              
              $
              6,450
              
              $
              5,836Decrease
                  (increase) in trade receivables , net
              
              
              3,853
              
              
              (7,658
              )
              
              868Increase
                  in other accounts receivable and prepaid expenses
              
              
              (835
              )
              
              (387
              )
              
              (1,193
              )Increase
                  (decrease) in trade payables
              
              
              (1,441
              )
              
              407
              
              
              178Increase
                  in deferred revenues, employees and payroll accruals and other
                  accounts
                  payable and accrued expenses
              
              
              2,350
              
              
              2,906
              
              
              508Decrease
                  in accrued restructuring expenses
              
              
              (185
              )
              
              (189
              )
              
              (290
              )Accrued
                  severance pay, net
              
              
              143
              
              
              68
              
              
              35Accrued
                  interest on marketable securities
              
              
              (170
              )
              
              (33
              )
              
              34Deferred
                  taxes, net
              
              
              (120
              )
              
              -
              
              
              -Other
              
              
              38
              
              
              14
              
              
              (4
              )$
              10,214
              
              $
              1,578
              
              $
              5,972**Appendix
                  B****- Acquisition of subsidiaries, net of cash Acquired: (see Note
                  3)**Working
                  capital deficiency, excluding cash and cash equivalents
              
              $
              620
              
              $
              -
              
              $
              (351
              )Long
                  term deposits
              
              
              -
              
              
              -
              
              
              6Property
                  and equipment
              
              
              74
              
              
              -
              
              
              38Other
                  assets
              
              
              1,313
              
              
              -
              
              
              878Goodwill
              
              
              5,458
              
              
              1,350
              
              
              1,402$
              7,465
              
              $
              1,350
              
              $
              1,973
 
 The
        accompanying notes are an integral part of the consolidated financial
        statements
  F-8
  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 to financial institutions 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 based systems 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 worldwide.
 
 The
        Company operates in three business segments: Cash Management, Payments, and
        its
        Swiss subsidiary, Biveroni Batschelet Partners AG including its subsidiary Datasphere
        S.A (Collectively “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, compliance,
        settlement and customer notification process, enabling
        straight-through-processing (STP) of transactions. BBP develops implements,
        maintains and operates systems for the automated processing and transport
        of
        data in the finance industry, primarily over the SWIFT Network. 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 U.S.
        generally accepted accounting principles ("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
 
 The
        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
        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 foreign subsidiaries, 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 in
        accumulated other comprehensive income (loss) in shareholders'
        equity.
  F-9
  FUNDTECH
                    LTD.
                  NOTES
                    TO FINANCIAL STATEMENTS
                  (in
                    thousands, except share and per share
                    data)
   **-**  **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.
 
 Marketable
        securities that are designated as held-to-maturity 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 shorter of the lease period
        or the estimated useful lives of the assets, as follows:
  **years**Office
                  furniture and equipment
              
              6-17Computers
                  and software
              
              3-5Motor
                  vehicles
              
              6Leasehold
                  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").
 F-10
 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 sof tware
          and
          hardware technology.
  Capitalized
        software development cost is amortized 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
 
 The
        Company accounts for its business combinations in accordance with SFAS No.
        141
“Business Combinations” (“SFAS 141”) and the related acquired intangible assets
        and goodwill in accordance with SFAS No. 142 “Goodwill and Other Intangible
        Assets” (“SFAS 142”). SFAS 141 specifies the accounting for business
        combinations and the criteria for recognizing and reporting intangible assets
        apart from goodwill.
  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 developed software products, distribution rights
        and
        trade names, as well as goodwill. Goodwill is the amount by which the
        acquisition cost exceeds the fair values of identifiable acquired net assets
        on
        the date of purchase. SFAS 142 requires that goodwill not be amortized but
        instead be tested for impairment in accordance with the provisions of SFAS
        142
        at least annually and more frequently upon the occurrence of certain events.
        Acquisition-related intangible assets are reported at cost, net of accumulated
        amortization. Identifiable intangible assets other than goodwill are amortized
        on a straight-line basis over their estimated useful lives of three to five
        years for developed software products and distribution rights, and seven
        years
        for trade-names.
 
 i.
              Income
                  taxes
 
 Deferred
        tax assets and liabilities are recognized for the future tax consequences
        attributable to differences between the financial statement carrying amounts
        of
        existing assets and liabilities and their respective tax bases. Deferred
        tax
        assets and liabilities are measured using enacted tax rates expected to apply
        to
        taxable income in the years in which those temporary differences are expected
        to
        be recovered or settled. Income tax expense (benefit) is generally comprised
        of
        the taxable (receivable) for the period and the change in deferred income
        tax
        assets and liabilities during the period. Valuation allowances are recorded
        to
        reduce deferred tax assets to the amount that will more likely than not be
        realized.
 
 On
        January 1, 2007, the company adopted the provisions of FASB interpretation
        No 48
        (Fin 48), “Accounting for Uncertainty in Income Taxes”, an interpretation of
        FASB 109. As a result of this adoption, the Company recognized a charge of
        $400
        to the beginning balance of the accumulated deficit on the accompanying
        consolidated balance sheet as of December 31, 2007.
 
 The
        Company’s continuing practice is to recognize interest and/or penalties related
        to income tax matters in income tax expense
  F-11
  FUNDTECH
                  LTD.
                NOTES
                  TO FINANCIAL STATEMENTS
                (in
                  thousands, except share and per share
                  data)
  **NOTE
        2**  **-**  **SIGNIFICANT
        ACCOUNTING POLICIES (Cont.)**
 
 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.
 
 As
        the
        Company provides hosting services to its customers without any contractual
        right
        to take possession of the software license, the Company recognizes revenue
        from
        hosting over the hosting contract period following the consensus reached
        in EITF
        Issue 00-03 “Application of AICPA Statement of Position 97-2 to Arrangement That
        Includes the Right to Use Software Stored on Another Entity’s Hardware”.
        Revenues from set up fees are also recognized over the related hosting contract
        in accordance with SAB Topic 13.
 
 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 collectability 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 three months. The provision for
        warranty as of December 31, 2007 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.
  F-12
  FUNDTECH
                  LTD.
                NOTES
                  TO FINANCIAL STATEMENTS
                (in
                  thousands, except share and per share
                  data)
  **NOTE
        2**  **-**  **SIGNIFICANT
        ACCOUNTING POLICIES (Cont.)**
  k.
              Severance
                  pay
 
 Israeli
        employees are entitled to one month’s salary for each year of employment or a
        portion thereof. Accordingly, 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. 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 profits which were immaterial for all periods presented.
 
 Severance
        expenses for the years ended December 31, 2007, 2006 and 2005, amounted to
        approximately $695, $418 and $283, respectively.
 
 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 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 5).
 
 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 per share
 
 Basic
        earnings per share are computed based on the weighted average number of ordinary
        shares outstanding during each year. Diluted earnings 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").
  F-13
 FUNDTECH
                    LTD.
                  NOTES
                    TO FINANCIAL STATEMENTS
                  (in
                    thousands, except share and per share
                    data)
 **NOTE
        2**  **-**  **SIGNIFICANT
        ACCOUNTING POLICIES (Cont.)**
 
 m.
              Basic
                  and diluted earnings per share
                  (Cont.)
 
 In
        2007,
        2006 and 2005, certain outstanding stock options 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 excluded from the calculations of diluted earnings per
        share
        were 0, 7,000 and 54,000 for the years ended December 31, 2007, 2006 and
        2005,
        respectively (see Note 11).
 
 n.
              Stock-based
                  compensation
 
 Effective
        January 1, 2006, the Company adopted the provisions of SFAS No. 123 (revised
        2004), “Share-Based Payment” (SFAS No. 123(R)). SFAS No. 123(R) requires
        employee share-based equity awards to be accounted for under the fair value
        method. Accordingly, stock-based compensation is measured at the grant date,
        based on the fair value of the award. Prior to January 1, 2006, the Company
        accounted for stock-based equity awards granted using the intrinsic value
        method
        prescribed by Accounting Principles Board (APB) Opinion No. 25, “Accounting for
        Stock Issued to Employees” (APB No. 25), and related interpretations, and
        provided the required pro forma disclosures prescribed by SFAS No. 123,
“Accounting for Stock-Based Compensation” (SFAS No. 123), as amended. The
        exercise price of options is equal to the Company share market price on the
        date
        of grant.
 
 Under
        the
        modified prospective method of adoption for SFAS No. 123(R), the compensation
        cost recognized by the Company beginning in 2006 includes (a) compensation
        cost
        for all equity incentive awards granted prior to, but not yet vested as of
        January 1, 2006, based on the grant-date fair value estimated in accordance
        with
        the original provisions of SFAS No. 123, and (b) compensation cost for all
        stock-based compensations granted subsequent to January 1, 2006, based on
        the
        grant-date fair value estimated in accordance with the provisions of SFAS
        No.
        123(R). The Company uses the straight-line attribution method to recognize
        stock-based compensation costs over the service period of the
        award.
 
 The
        following table summarizes the effects of share-based compensation resulting
        from the application of SFAS No. 123(R):
 
 **2007**
              
              **2006**
              
              **2005**Cost
                  of revenue
              
              $
              308
              
              $
              219
              
              $
              -Research
                  and development
              
              
              358
              
              
              151
              
              
              -Selling
                  and marketing
              
              
              514
              
              
              506
              
              
              -General
                  and administrative
              
              
              1,416
              
              
              1,611
              
              
              -Share-based
                  compensation effects in income before taxes
              
              $
              2,596
              
              $
              2,487
              
              $
              -Share-based
                  compensation effects on basic earnings per common share
              
              $
              0.17
              
              $
              0.17
              
              $
              -Share-based
                  compensation effects on diluted earnings per common share
              
              $
              0.16
              
              $
              0.16
              
              $
              -
  F-14
 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.)
 Stock-based
        compensation recognized in 2006 as a result of the adoption of SFAS No. 123(R),
        as well as pro forma disclosures according to the original provisions of
        SFAS
        No. 123 for periods prior to the adoption of SFAS No. 123(R), use the
        Black-Scholes option pricing model for estimating the fair value of options
        granted under the Company’s equity plans. The weighted average assumptions that
        were used in calculating such values during 2007, 2006, and 2005, were based
        on
        estimates at the date of grant as follows:
 
 **2007(*)**
              
              **2006(*)**
              
              **2005**Risk-free
                  interest rate
              
              
              -
              
              
              -
              
              
              3.86
              %Expected
                  life of options
              
              
              -
              
              
              -
              
              
              5
                  yearExpected
                  volatility
              
              
              -
              
              
              -
              
              
              55.9
              %Expected
                  dividend yield
              
              
              -
              
              
              -
              
              
              None
 
 (*)
        No
        options were granted during 2006 and 2007.
 
 Pro
        forma
        information required under SFAS No. 123(R) for periods prior to fiscal year
        2006, as if the Company had applied the fair value recognition provisions
        of
        SFAS No. 123 to options granted is as follows:
 
 **2005****Pro
                  forma net income:**Net
                  income for the year, as reported
              
              $
              4,336Add
                  – stock-based compensation determined under APB-25
              
              
              -Deduct
                  - stock-based compensation determined under SFAS 123
              
              
              (1,833
              )Pro
                  forma net income
              
              $
              2,503Pro
                  forma basic earnings per share
              
              $
              0.17Basic
                  earnings per share as reported
              
              $
              0.29Pro
                  forma diluted earnings per share
              
              $
              0.16Diluted
                  earnings per share as reported
              
              $
              0.27
  F-15
  FUNDTECH
                    LTD.
                  NOTES
                    TO FINANCIAL STATEMENTS
                  (in
                    thousands, except share and per share
                    data)
  NOTE
        2  **-**  **SIGNIFICANT
        ACCOUNTING POLICIES (Cont.)**
 
 o.
              Fair
                  value of financial instruments
 
 The
        following 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 prices (see
        Note
        4).
 
 p.
              Recent
                  Accounting Pronouncements
 
 In
        December 2007, the FASB issued FAS No. 141 (revised 2007), *Business
        Combinations* ,
        and FAS
        No. 160, *Noncontrolling
        Interests in Consolidated Financial Statements-an amendment of ARB
        No. 51* .
        FAS
        No. 141 (revised 2007) requires an acquirer to measure the identifiable
        assets acquired, the liabilities assumed and any noncontrolling interest
        in the
        acquiree at their fair values on the acquisition date, with goodwill being
        the
        excess value over the net identifiable assets acquired. This standard also
        requires the fair value measurement of certain other assets and liabilities
        related to the acquisition such as contingencies and research and development.
        FAS No. 160 clarifies that a noncontrolling interest in a subsidiary should
        be reported as a component of shareholders’ equity in the consolidated financial
        statements. Consolidated net income should include the net income for both
        the
        parent and the noncontrolling interest with disclosure of both amounts on
        the
        consolidated statement of income. The calculation of earnings per share will
        continue to be based on income amounts attributable to the parent. The effective
        date for both Statements is for fiscal years beginning after December 15,
        2008. The adoption of FAS No. 141 (revised 2007) is prospective. The
        effects on our financial position and consolidated results of operations
        could
        be significant, but there will be no impact on our cash flows. The adoption of
        FAS No. 160 is prospective. The impact to presentation and disclosure are
        applied retrospectively. We are currently in the process of evaluating the
        impact, if any, that the adoption of FAS No. 141 (revised 2007) and FAS
        No. 160 will have on our financial position, consolidated results of
        operations and cash flows.
 
 In
        September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS
        No. 157). The purpose of SFAS No. 157 is to define fair value, establish
        a
        framework for measuring fair value, and enhance disclosures about fair value
        measurements. The measurement and disclosure requirements are effective for
        the
        Company beginning in the first quarter of fiscal year 2008. The Company does
        not
        expect that the adoption of SFAS No. 157 will have a significant impact on
        its
        financial statements.
 
 In
        February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
        Financial Assets and Financial Liabilities” (SFAS No. 159). SFAS
        No. 159 permits companies to choose to measure certain financial
        instruments and certain other items at fair value. The standard requires
        that
        unrealized gains and losses on items for which the fair value option has
        been
        elected be reported in earnings. SFAS No. 159 is effective for the Company
        beginning in the first quarter of fiscal year 2008, although earlier adoption
        is
        permitted. The Company does not expect that the adoption of SFAS No. 159
        will have a significant impact on its financial statements.
  F-16
  FUNDTECH
                  LTD.
                NOTES
                  TO FINANCIAL STATEMENTS
                (in
                  thousands, except share and per share
                  data)
  **NOTE
        2**  **-**  **SIGNIFICANT
        ACCOUNTING POLICIES (Cont.)**
 
 p.
              Recent
                  Accounting Pronouncements(
                  Cont.)
  In
        June 2007, the FASB ratified Emerging Issues Task Force (EITF) Issue
        No. 07-3, “Accounting for Nonrefundable Advance Payments for Goods or
        Services to Be Used in Future Research and Development Activities” (EITF 07-3).
        EITF 07-3 requires non-refundable advance payments for goods and services
        to be
        used in future research and development activities to be recorded as an asset
        and
        the payments to be expensed when the research and development activities
        are
        performed. EITF 07-3 applies prospectively for new contractual arrangements
        entered into beginning in the first quarter of fiscal year 2008. The adoption
        of
        EITF 07-3 is not expected to have a significant impact on the Company's
        consolidated financial statements.
 
 **NOTE
        3**  **-**  **ACQUISITIONS**
  **a.**
              In
                  February 2007, the Company acquired all outstanding shares of Prang
                  GmbH.
                  (“Prang”), a provider of payments software solutions, located in
                  Frankfurt, Germany, for an aggregate purchase price of approximately
                  €4,879 ($6,339). This includes €4,505 ($5,839) paid in cash directly to
                  the shareholders and €374 ($500) of acquisition
                  costs.
 
 Under
        the
        terms of the acquisition agreement, Fundtech will pay additional amounts
        of up
        to €4,000 in cash over four years following the acquisition, contingent upon
        the
        financial performance of Prang. In March 2008 Fundtech paid €2,307 ($3,369)
        based on Prang’s 2007 financial performances, which were already accounted for
        in 2007.
 
 Fundtech
        is currently in the process of finalizing an amendment to the terms of the
        additional payments to change them as follows - €597 will be paid in January
        2009 and in January 2010. No further earn-out obligations will exist after
        these
        two payments.
 
 This
        acquisition was accounted for in accordance with SFAS No. 141 and SFAS No.
        142,
        and the financial results of Prang have been included in the Company's financial
        statements beginning on the acquisition date.
 
 The
        purchase price has been allocated on the basis of the estimated fair value
        of
        the assets purchased and the liabilities assumed. The excess of the purchase
        price over the fair value of the net tangible assets acquired has been
        attributed to other know-how and goodwill. The purchase price attributed
        to
        know-how is being amortized over its estimated useful life, which is 4 years.
        In
        accordance with SFAS No. 141 and SFAS No. 142, the purchase price attributed
        to
        goodwill is not amortized, but rather is subject to periodic impairment
        tests.
 
 The
        allocation of fair value is as follows:
 
 Working
                  capital
              
              $
              698Property
                  and equipment
              
              
              74Other
                  Assets
              
              
              1,313Goodwill
              
              
              7,623$
              9,708
 
 **b.**
              In
                  October 2005, the Company acquired all outstanding shares of Radius
                  Partners, Inc. (“Radius”), a leading provider of straight through
                  processing (STP) solutions to the global securities industry, located
                  in
                  Pembroke, Massachusetts, for an aggregate purchase price of approximately
                  $2,544. This includes $2,242 paid in cash directly to the shareholders,
                  $250 of liability to Fundtech that was converted to be part of
                  the
                  acquisition consideration and $52 of acquisition
                  costs.
 
 Radius
        provides software solutions and services that facilitate the matching and
        settlement of institutional trades. Radius’ business automation solutions
        provide financial institutions with the ability to improve operational
        efficiency, strengthen client relationships, securely increase transaction
        volumes and bring new products and services to market - quickly and profitably.
        By acquiring Radius, Fundtech adds domain knowledge and management depth
        in the
        securities processing arena
 
 Under
        the
        terms of the acquisition agreement, Fundtech will pay additional amounts
        of up
        to $3,500 in cash over six years following the acquisition, contingent upon
        the
        financial performance of Radius. Fundtech paid an additional amount of $220
        and
        $200 in 2006 and 2007 respectively based on achieved financial performance
        milestones of which $100 and $200 were already accounted
        for in 2005 and 2006 respectively. Further payments of $200 were made in
        March,
        2008 based on Radius 2007 financial performance, which were already accounted
        for in 2007.
  F-17
  FUNDTECH
                  LTD.
                NOTES
                  TO FINANCIAL STATEMENTS
                (in
                  thousands, except share and per share
                  data)
  **NOTE
        3**  **-
        ACQUISITIONS** **(cont.)**
  This
        acquisition was accounted for in accordance with SFAS No. 141 and SFAS No.
        142,
        and the financial results of Radius have been included in the Company's
        financial statements beginning on the acquisition date.
 
 The
        purchase price has been allocated on the basis of the estimated fair value
        of
        the assets purchased and the liabilities assumed. The excess of the purchase
        price over the fair value of the net tangible assets acquired has been
        attributed to other know-how and goodwill. The purchase price attributed
        to
        know-how is being amortized over its estimated useful life, which is 5 years.
        In
        accordance with SFAS No. 141 and SFAS No. 142, the purchase price attributed
        to
        goodwill is not amortized, but rather is subject to periodic impairment
        tests.
  The
        allocation of fair value is as follows:
 
 Working
                  capital
              
              $
              576Long
                  term deposits
              
              
              6Property
                  and equipment
              
              
              38Know-how
              
              
              878Goodwill
              
              
              1,666$
              3,164
 
 **c.**
              In
                  November 2004, the Company acquired all outstanding shares of India-based
                  CashtechSolutions India Private Limited (“Cashtech”), a leading provider of cash
                  management software and services throughout Asia, for an aggregate
                  purchase price of $3,759 (including acquisition costs of $187).
                  Cashtech’s
                  products are targeted to large banks that seek highly customized
                  applications and prefer a component-based approach in order to
                  integrate
                  with their complex infrastructure. Cashtech has sales offices in
                  Singapore
                  and Tokyo.
 
 Under
        the
        terms of the acquisition agreement, Fundtech will pay additional amounts
        of up
        to $3.7 million in cash over three years following the acquisition, contingent
        upon the financial performance of Cashtech. Fundtech paid additional amounts
        of
        $991, $1,130 and $1,004 in 2005, 2006 and 2007 respectively, based on achieved
        financial performance milestones.
 
 This
        acquisition was accounted for in accordance with SFAS No. 141 and SFAS No.
        142,
        and the financial results of CashTech have been included in the Company's
        financial statements beginning on the acquisition date.
 
 The
        purchase price has been allocated on the basis of the estimated fair value
        of
        the assets purchased and the liabilities assumed. The excess of the purchase
        price over the fair value of the net tangible assets acquired has been
        attributed to knowhow and goodwill. The purchase price attributed to knowhow
        is
        being amortized over its estimated useful lives, which is 5 years. In accordance
        with SFAS No. 141 and SFAS No. 142, the purchase price attributed to goodwill
        is
        not amortized, but rather is subject to periodic impairment test.
 
 The
        allocation of fair value is as follows:
 
 Working
                  capital deficiency
              
              $
              (459
              )Long
                  term deposits
              
              
              95Property
                  and equipment
              
              
              153Know-how
              
              
              873Goodwill
              
              
              5,584$
              6,246
  F-18
  FUNDTECH
                    LTD.
                  NOTES
                    TO FINANCIAL STATEMENTS
                  (in
                    thousands, except share and per share
                    data)
  **NOTE
        4**  **-**  **MARKETABLE
        SECURITIES**
  a.
                Short-term
                    investments
  **December
                  31,****2007**
              
              **2006**Held
                  to maturity -Corporate
                  bonds
              
              $
              3,027
              
              $
              2,138Corporate
                  notes
              
              
              1,110
              
              
              409Euro-dollar
                  bonds
              
              
              718
              
              
              511Corporate
                  Certificates of Deposit
              
              
              2,467
              
              
              1,024Federal
                  Agency Issues
              
              
              -
              
              
              511$
              7,322
              
              $
              4,593Available
                  for sale –Taxable
                  auction securities
              
              
              1,302
              
              
              13,958Total
                  short-term investment
              
              $
              8,624
              
              $
              18,551Fair
                  value of held to maturity securities–short-term
              
              $
              7,191
              
              $
              4,556
  b.
                Long
                    – term investments
  Held
                  to maturity -Corporate
                  bonds
              
              $
              3,941
              
              
              -Corporate
                  notes
              
              
              4,216
              
              
              -Euro-dollar
                  bonds
              
              
              607
              
              
              -8,764
              
              
              -Available
                  for Sale –Taxable
                  auction securities
              
              
              4,083
              
              
              -Total
                  Long-term investment
              
              $
              12,847
              
              
              -Fair
                  Value of held to maturity securities–long-term
              
              $
              8,605
              
              
              -
 
 The
        investments held by the company include Auction Rate Securities (ARS). The
        ARS
        held are securities issued by municipalities and closed end preferred funds
        which had ratings of AAA and Aaa at the time of purchase.
 
 Subsequent
        to February 15 ,
        2008 an
        unprecedented number of auctions for ARS failed and it has become increasingly
        difficult for the industry to value certain ARS. These failed auctions do
        not
        represent a default by the issuer. Upon an auction failure, coupons were
        reset
        at the maximum reset rate. These failures to sell are primarily a liquidity
        event not a credit event. Issuers continue to pay interest and dividends
        to all
        ARS holders
 
 The
        Company successfully liquidated $1,302 ARS in February 2008 and additional
        $2,083 in the beginning of March 2008, leaving a balance of $2,000 as of
        March
        31, 2008.
 
 The
        Company believes that the underlying credit quality of its ARS investment
        have
        not been impacted by the reduced liquidity. The Company is continuing to
        evaluate the credit quality, liquidity, classification, and valuation of
        its ARS
        investments; however, the Company is not yet able to quantify the amount
        of
        impairment, if any, or change in classification in these investments at this
        time. The Company does not believe that the lack of liquidity relating to
        its
        ARS investments will impact adversely its ability to fund working capital
        needs,
        capital expenditures and other operating requirements.
  F-19
 FUNDTECH
                  LTD.
                NOTES
                  TO FINANCIAL STATEMENTS
                (in
                  thousands, except share and per share
                  data)
  **NOTE
        5**  **-**  **TRADE
        RECEIVABLES**
  **December
                  31,****2007**
              
              **2006**Accounts
                  receivable, net of allowance for doubtful accounts
              
              $
              17,614
              
              $
              21,550Unbilled
                  receivables
              
              
              4,773
              
              
              3,508$
              22,387
              
              $
              25,058
 
 Management's
        assessment for uncertainties of outstanding debt collectability resulted
        in
        doubtful accounts income of $134 for 2007 and expenses of $430 and $552 in
        the
        statement of operations for 2006 and 2005, respectively.
 
 **NOTE
        6**  **-**  **PROPERTY
        AND EQUIPMENT, NET**
  **December
                  31,****2007**
              
              **2006**Cost:Office
                  furniture and equipment
              
              $
              2,828
              
              $
              2,644Computers
                  and software
              
              
              33,180
              
              
              27,877Motor
                  vehicles
              
              
              585
              
              
              292Leasehold
                  improvements
              
              
              3,323
              
              
              3,00739,916
              
              
              33,820Accumulated
                  depreciation
              
              
              25,846
              
              
              21,876Net
                  book value
              
              $
              14,070
              
              $
              11,944
 
 **NOTE
        7**  **-INTANGIBLE
        ASSETS AND CAPITALIZED SOFTWARE DEVELOPMENT COST, NET**
 a.
                Intangible
                    assets
 **December
                  31,****2007**
              
              **2006**CostDeveloped
                  technology and know-how
              
              $
              7,303
              
              $
              5,992Customer
                  base
              
              
              3,461
              
              
              3,461Other
                  intangible assets
              
              
              58
              
              
              5810,822
              
              
              9,511Accumulated
                  AmortizationDeveloped
                  technology and know-how
              
              
              (5,419
              )
              
              (4,416
              )Customer
                  base
              
              
              (3,189
              )
              
              (2,809
              )Other
                  intangible assets
              
              
              (58
              )
              
              (54
              )8,666
              
              
              7,279Net
                  book value
              
              $
              2,156
              
              $
              2,232
  b.
                Capitalized
                    software development
  Cost
              
              $
              7,876
              
              $
              7,876Accumulated
                  amortization
              
              
              (7,876
              )
              
              (7,482
              )Net
                  book value
              
              $
              -
              
              $
              394
 
 **NOTE
        8**  **-**  **OTHER
        ACCOUNTS PAYABLE AND ACCRUED EXPENSES**
 
 **December
                  31,****2007**
              
              **2006**Accrued
                  expenses
              
              $
              7,379
              
              $
              4,475Government
                  authorities
              
              
              1,159
              
              
              877Other
              
              
              53
              
              
              8$
              8,591
              
              $
              5,360
 F-20
  FUNDTECH
                  LTD.
                NOTES
                  TO FINANCIAL STATEMENTS
                (in
                  thousands, except share and per share
                  data)
  **NOTE
        9**  **-**  **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,**2008
              
              $
              3,1902009
              
              
              2,4072010
              
              
              1,4142011
              
              
              9832012-2014
              
              
              1,877$
              9,871
 
 Total
        facilities lease expenses for the years ended December 31, 2007 , 2006 and 2005 ,
        were
        approximately $3,109, $2,487 and $2,319 respectively.
 
 b.
              Guarantees:
 
 1.
              The
                  Company has obtained a bank guarantee of $120 in connection with
                  the
                  Company's facilities operating lease agreement in
                  Israel.
 
 2.
              The
                  Company has obtained a bank guarantee of $570 for BBP as required
                  by Swiss
                  Law.
 
 3.
              The
                  Company has obtained a bank guarantee of $42 for Prang in Company’s
                  facilities operating lease agreement in
                  Germany.
  **NOTE
        10**  **-**  **SHAREHOLDERS’
        EQUITY**
 
 **a.**
              The
                  Ordinary shares of the Company are traded on the NASDAQ Global
                  Market and
                  on the Tel-Aviv Stock Exchange.
 
 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.
 
 c.
              Treasury
                  shares:
 
 On
        February 21, 2002, the Company’s Board of Directors authorized the Company to
        purchase up to one million ordinary shares of the Company from time to time
        on
        the open market. On June 4, 2006, this authorization was modified to provide
        for
        the use of up to $6.7 million to purchase ordinary shares of the Company
        from
        time to time at a purchase price not to exceed $12.00 per share. As of December
        31, 2007, the Company had purchased a total of 320,883 shares.
 
 d.
              Stock
                  -based compensation:
 
 **1.**
              On
                  December 21, 2005, the shareholders of the Company approved two
                  new equity
                  plans, the 2005 Israeli Share Option and Restricted Share Plan
                  and 2005
                  International Share Option and Restricted Share Plan (the “2005
                  Plans”).  No new shares were allocated to the 2005 Plans.  These
                  plans replaced the Company's 1998 Director’s Stock Option Plan and the
                  1999 Employee Stock Option Plan (the “Old Plans”), and all shares
                  available for grant under the Old Plans, inclusive of shares which
                  are
                  returned to the share pool due to terminations or expirations,
                  were
                  transferred to the 2005 Plans. On December 20, 2007, the shareholders
                  approved the addition of 300,000 shares for the 2005 plan. A total
                  of
                  3,892,815 shares is reserved for grants to employees and directors
                  of the
                  Company under the Old Plans and the 2005
                  Plans.
 
 2.
              Pursuant
                  to the Plans, as of December 31, 2007, an aggregate of 311,590
                  shares of
                  the Company are still available for future
                  grants.
  F-21
  FUNDTECH
                  LTD.
                NOTES
                  TO FINANCIAL STATEMENTS
                (in
                  thousands, except share and per share
                  data)
  NOTE
        10  **-**  **SHAREHOLDERS’
        EQUITY (cont.)**
  3.
              The
                  Company began issuing restricted shares to certain employees and
                  directors
                  in the fourth quarter of 2005. Shares are issued on the date the
                  restricted stock units vest, with employees being responsible for
                  payment
                  of any taxes due on the shares. The Company has the right to retain
                  amounts sufficient to cover statutory withholding requirements
                  related to
                  grants. Grantees have ownership of shares, but shares may not be
                  transferred and accrue no voting or other rights until they are
                  issued
                  upon vesting. As of December 31, 2007 the Company had issued 615,662
                  restricted shares of ordinary stock of which 194,072 are vested.
 
 4.
              Each
                  option granted under the 2005 Plan to employees and directors 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 Old Plan to directors expires
                  no
                  later than five years from the date of grant. The options and restricted
                  shares vest primarily over four years. Any options or restricted
                  shares
                  that are canceled or forfeited before expiration become available
                  for
                  future grants. Options or restricted shares 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.
 
 e.
              A
                  summary of the Company's option activity under the Plans is as
                  follows:
 
 **Year ended December 31,****2007**
              
              **2006**
              
              **2005****Weighted**
              
              
              
              **Weighted**
              
              
              
              **Weighted****average**
              
              
              
              **average**
              
              **Number**
              
              **Average****Number**
              
              **exercise**
              
              **Number**
              
              **exercise**
              
              **Of**
              
              **Exercise****of options**
              
              **Price**
              
              **of options**
              
              **price**
              
              **options**
              
              **Price**Outstanding
                  at January 1
              
              
              2,109,720
              
              $
              6.59
              
              
              2,410,490
              
              $
              6.43
              
              
              2,196,225
              
              $
              5.65Granted
              
              
              -
              
              
              
              
              
              -
              
              
              
              
              
              569,500
              
              
              8.75Exercised
              
              
              (405,010
              )
              
              5.78
              
              
              (289,745
              )
              
              5.13
              
              
              (316,522
              )
              
              4.30Forfeited/cancelled
              
              
              (95,323
              )
              
              7.50
              
              
              (11,025
              )
              
              9.74
              
              
              (38,713
              )
              
              13.96Outstanding
                  at December 31
              
              
              1,609,387
              
              $
              6.74
              
              
              2,109,720
              
              $
              6.59
              
              
              2,410,490
              
              $
              6.43Exercisable
                  options at December 31
              
              
              1,407,364
              
              $
              6.46
              
              
              1,555,172
              
              $
              5.93
              
              
              1,403,054
              
              
              5.28
                  $
 
 
 The
        options outstanding as of December 31, 2007, have been separated into ranges
        of
        exercise price, as follows:
 
 **Options**
              
              **Weighted**
              
              
              
              **Options****Outstanding**
              
              **Average**
              
              **Weighted**
              
              **Exercisable**
              
              **Weighted****Ranges of**
              
              **as of**
              
              **Remaining**
              
              **Average**
              
              **as of**
              
              **Average****Exercise**
              
              **December 31,**
              
              **Contractual**
              
              **Exercise**
              
              **December 31,**
              
              **Exercise****Price**
              
              **2007**
              
              **Life (years)**
              
              **Price**
              
              **2007**
              
              **Price**$
                  3.55-5.00
              
              
              488,437
              
              
              4.9
              
              $
              3.96
              
              
              488,437
              
              $
              3.96$
                  5.79-8.53
              
              
              844,798
              
              
              6.0
              
              
              7.27
              
              
              749,044
              
              
              7.28$
                  8.70-10.52
              
              
              269,152
              
              
              7.3
              
              
              9.94
              
              
              162,883
              
              
              9.92$
                  13.25-13.25
              
              
              7,000
              
              
              1.8
              
              
              13.25
              
              
              7,000
              
              
              13.251,609,387
              
              
              5.9
              
              $
              6.74
              
              
              1,407,364
              
              $
              6.46
 
 All
        options granted during 2005 and 2004 were at an exercise price that is equal
        to
        the fair value of the stock at the grant date.
 
 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.
  F-22


FUNDTECH
                  LTD.
                NOTES
                  TO FINANCIAL STATEMENTS
                (in
                  thousands, except share and per share
                  data)
  NOTE
      11 - EARNINGS
      PER SHARE





The
      following table sets forth the computation of historical basic and diluted
      net
      earnings per share:





**Year ended December 31,****2007**
            
            **2006**
            
            **2005**Numerator:Net
                income
            
            $
            7,107
            
            $
            3,751
            
            $
            4,336Numerator
                for basic earnings per share - income available to Ordinary
                shareholders
            
            $
            7,107
            
            $
            3,751
            
            $
            4,336Numerator
                for diluted net earnings per share - income available to Ordinary
                shareholders after assumed exercises
            
            $
            7,107
            
            $
            3,751
            
            $
            4,336




**Number of shares**Denominator:Denominator
                  for basic net earnings per share - weighted - average
                  shares
              
              
              15,322,515
              
              
              14,879,241
              
              
              14,862,054Effect
                  of dilutive securities:Employee
                  stock options
              
              
              1,270,768
              
              
              971,552
              
              
              932,389Denominator
                  for diluted net earnings per share
              
              
              16,593,283
              
              
              15,850,793
              
              
              15,794,443




F-23


FUNDTECH
                  LTD.
                NOTES
                  TO FINANCIAL STATEMENTS
                (in
                  thousands, except share and per share
                  data)
  **NOTE
        12**  **-**  **INCOME
        TAXES**





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





The Company
      is assessed for tax purposes on an unconsolidated basis. Fundtech Ltd. is
      assessed under the provisions of the Income Tax Law (Inflationary Adjustments),
      1985, pursuant to which the results for the tax purposes are measured in Israeli
      currency in real terms in accordance with changes in the Israeli Consumer Price
      Index (“CPI”). Each of the subsidiaries is subject to the tax rules prevailing
      in the country of incorporation.





b.
            Israeli
                Taxation





1.
            Corporate
                tax structure:





Taxable
      income of Israeli companies is subject to tax at the rate of 29% in 2007
      (“Regular Tax Rate”). This rate is to be gradually reduced to 25% until 2010
      (27% in 2008, 26% in 2009 and 25% in 2010 and thereafter).





2.
            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 was subject to the reduced tax rates for eight years ending in 2007 (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. In 2005, under
      the Amendment to the Investment Law (see below for additional information),
      the
      company received approval for its third 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. In 2007 the Company has submitted a request for an approval for
      its
      fourth expansion program. The period of benefits for these programs has not
      yet
      commenced since no income was derived. 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,
      2007, retained earnings included approximately $4,828 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
      such
      tax-exempt income is distributed in a manner other upon the complete liquidation
      of the Company, it would be taxed at the reduced corporate tax rate applicable
      to such profits (between 20%-25%) and an income tax liability of up to
      approximately $1,207 would be incurred as December 31, 2007.





On
      April
      1, 2005, an amendment to the Investment Law came into effect (“the Amendment”)
      and has significantly changed the provisions of the Investment Law. The
      Amendment limits the scope of enterprises which may be approved by the
      Investment Center by setting criteria for the approval of a facility as a
      Privileged Enterprise, such as provisions generally requiring that at least
      25%
      of the Privileged Enterprise’s income will be derived from export. Additionally,
      the Amendment enacted major changes in the manner in which tax benefits are
      awarded under the Investment Law so that companies no longer require Investment
      Center approval in order to qualify for tax benefits. In addition, the
      Investment Law provides that terms and benefits included in any certificate
      of
      approval already granted will remain subject to the provisions of the law as
      they were on the date of such approval.




F-24


FUNDTECH
                  LTD.
                NOTES
                  TO FINANCIAL STATEMENTS
                (in
                  thousands, except share and per share
                  data)
  **NOTE
        12**  **-**  **INCOME
        TAXES (Cont.)**





As
      a
      result of the A mendment,
      tax-exempt income generated under the provisions of the amended law, will
      subject the Company to taxes upon dividend distribution or complete
      liquidation.





As
      of
      December 31, 2007, none of Fundtech's income was generated under the
      provision s
      of the
      Amendment.





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 “Approved Enterprise” benefits mentioned above is taxed at the
      Regular Tax Rate.





c.
            Net
                operating losses carryforwards





As
      of
      December 31, 2007, the Company had approximately $25,124 of Israeli net
      operating loss (NOL)
      carryforwards and approximately $7,295 capital loss carryforwards. The Israeli
      loss carryforwards have no expiration date.





As
      of
      December 31, 2007, Fundtech Corporation had a U.S. federal net operating loss
      carry forward of $43,368 which can be carried forward and offset against taxable
      income. NOL’s incurring prior to 1998 have a 15 year carryover, whereas NOL’s
      incurring after 1997 are carried forward 20 years. Fundtech Corporation’s NOL
      begins to expire 2010 through 2025. 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,****2007**
            
            **2006**Deferred
                tax assets:U.S.
                net operating loss carry forward
            
            $
            17,347
            
            $
            17,609Israel
                net operating loss carry forward
            
            
            6,281
            
            
            6,760Other
                reserve and allowances
            
            
            5,129
            
            
            5,138Total
                deferred tax assets
            
            
            28,757
            
            
            29,507Valuation
                allowance
            
            
            (27,491
            )
            
            (27,472
            )$
            1,266
            
            $
            2,035Deferred
                tax liabilities:
            
            
            (1,589
            )
            
            (2,035
            )$
            (323
            )
            $
            -




F-25




FUNDTECH
                  LTD.
                NOTES
                  TO FINANCIAL STATEMENTS
                (in
                  thousands, except share and per share
                  data)
  NOTE
      12 - INCOME
      TAXES (Cont.)





Deferred
      tax assets for carryforward losses are being calculated using the applicable
      tax
      rate at the time of expected realization of the carryforward
      losses.





Our
      deferred income tax assets and liabilities at December 31, 2007 are
      included in the accompanying consolidated balance sheets as
      follows:





**December 31,****2007**
            
            **2006**Short
                Term deferred tax, net
            
            $
            555
            
            
            -Long
                Term deferred tax liability
            
            
            (878
            )
            
            -Net
                deferred income tax assets/(liabilities)
            
            $
            (323
            )
            
            -





The
      Company has provided valuation allowances in respect of deferred tax assets
      resulting from net operating loss carry forwards in Israel and for part of
      its
      net operating loss carry forwards in the US. Management currently believes
      that
      it is more likely than not that those deferred tax losses will not be realized
      in the foreseeable future.





e.
            Tax
                assessments





The
      Company received final tax assessments through the tax year ended December
      31,
      2001. Fundtech U.K. Ltd. received final tax assessment through the tax year
      ended December 31, 2005. BBP received final tax assessment through the tax
      year
      ended December 31, 2005 Cashtech received final tax assessment through the
      tax
      year ended March 31, 2000. Prang received
      final tax assessment through the tax year ended December 31, 2002.





f.
            Composition
                of income tax expenses (cont.)


**Year ended December 31,****2007**
              
              **2006**
              
              **2005****Income
                  (loss) before taxes on income:**Domestic
              
              $
              2,241
              
              $
              (7,305
              )
              $
              (2,309
              )Foreign
              
              
              6,073
              
              
              12,020
              
              
              7,811$
              8,314
              
              $
              4,715
              
              $
              5,502**Income
                  tax provision (benefit) :**Current:Domestic
              
              $
              149
              
              $
              106
              
              $
              33Foreign
              
              
              1,178
              
              
              858
              
              
              1,1331,327
              
              
              964
              
              
              1,166Deferred:Domestic
              
              
              -
              
              
              -
              
              
              -Foreign
              
              
              (120
              )
              
              -
              
              
              -(120
              )
              
              -
              
              
              -$
              1,207
              
              $
              964
              
              $
              1,166




F-26


FUNDTECH
                  LTD.
                NOTES
                  TO FINANCIAL STATEMENTS
                (in
                  thousands, except share and per share
                  data)
  **NOTE
        12**  **-**  **INCOME
        TAXES (Cont.)**





**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:





**Year ended December 31,****2007**
            
            **2006**
            
            **2005**Income
                before taxes on income
            
            $
            8,314
            
            $
            4,715
            
            $
            5,502Theoretical
                tax on the above amount
            
            $
            2,946
            
            $
            2,312
            
            $
            1,871Tax
                benefit arising from "Approved Enterprise"
            
            
            (90
            )
            
            1,534
            
            
            554Decrease
                in valuation allowance
            
            
            (19
            )
            
            (2,069
            )
            
            (2,420
            )Options
                & Stock based compensation - non deductable expenses
            
            
            (1,294
            )
            
            (772
            )
            
            -Adjustments
                arising from differences in the basis of measurement for tax purposes
                and
                for financial reporting purposes
            
            
            (216
            )
            
            (44
            )
            
            905Other,
                net
            
            
            (120
            )
            
            3
            
            
            256$
            1,207
            
            $
            964
            
            $
            1,166





The
      Company adopted the provisions of FIN 48 on January 1, 2007. As a result of
      the implementation, the Company recognized a $400 increase to reserves for
      uncertain tax positions. This increase was accounted for as an adjustment to
      the
      beginning balance of the accumulated deficit on the accompanying consolidated
      balance sheet as of December 31, 2007.





The
      following reconciliation summarizes the total gross unrecognized tax
      benefits





**Year ended**
              **December 31, 2007**Balance
                at January 1, 2007
            
            $
            400Gross
                change tax positions of current period
            
            
            -Gross
                change for tax positions of prior year
            
            
            -Balance
                at December 31, 2007
            
            $
            400




F-27


FUNDTECH
                  LTD.
                NOTES
                  TO FINANCIAL STATEMENTS
                (in
                  thousands, except share and per share
                  data)
  **NOTE
        13**  **-**  **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".





The
      Company has 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.
      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.





The
      following table sets forth the Company’s revenue and operating income (loss)
      from all reportable segments:





**Year ended December 31,****2007**
            
            **2006**
            
            **2005**Cash
                Management:Revenues
            
            $
            24,074
            
            $
            20,492
            
            $
            16,454Operating
                income (loss)
            
            $
            1,057
            
            $
            178
            
            $
            (503
            )Payments:Revenues
            
            $
            65,460
            
            $
            51,608
            
            $
            44,900Operating
                income
            
            $
            14,640
            
            $
            13,363
            
            $
            11,753BBP:Revenues
            
            $
            15,100
            
            $
            13,409
            
            $
            13,112Operating
                income
            
            $
            4,140
            
            $
            634
            
            $
            1,061





**b.**
            Following
                is a reconciliation of the operating income of the reportable segments
                to
                the data included in the consolidated financial
                statements:


**c.**






**Year ended****December 31,****2007**
            
            **2006**
            
            **2005**Total
                operating income of the reportable segments:
            
            $
            19,837
            
            $
            14,175
            
            $
            12,311Amounts
                not allocated to segments:Stock
                based compensation
            
            
            2,596
            
            
            2,487
            
            
            -General
                and administrative expenses
            
            
            7,742
            
            
            6,798
            
            
            6,186Marketing
                expenses
            
            
            3,382
            
            
            2,159
            
            
            1,708Consolidated
                operating income
            
            $
            6,117
            
            $
            2,731
            
            $
            4,417




F-28


FUNDTECH
                  LTD.
                NOTES
                  TO FINANCIAL STATEMENTS
                (in
                  thousands, except share and per share
                  data)
  **NOTE
        13**  **-**  **OPERATING
        SEGMENT AND GEOGRAPHICAL INFORMATION (Cont.)**





c.
            **Geographic
                information:**





The
      total
      revenues are attributed to geographic information, based on the customers'
      location.





**Year ended December 31,****2007**
            
            **2006**
            
            **2005****Long -**
            
            
            
            **Long -**
            
            
            
            **Long -****Total**
            
            **lived**
            
            **Total**
            
            **lived**
            
            **Total**
            
            **lived****revenues**
            
            **Assets**
            
            **revenues**
            
            **assets**
            
            **revenues**
            
            **assets**Israel
            
            $
            1,331
            
            $
            1,782
            
            $
            2,006
            
            $
            1,140
            
            $
            149
            
            $
            1,073United
                States
            
            
            46,028
            
            
            18,376
            
            
            44,399
            
            
            19,904
            
            
            39,948
            
            
            20,330Switzerland
            
            
            12,711
            
            
            8,341
            
            
            11,471
            
            
            8,230
            
            
            11,666
            
            
            8,417India
            
            
            2,302
            
            
            6,645
            
            
            1,105
            
            
            6,650
            
            
            1,020
            
            
            5,544United
                Kingdom
            
            
            19,966
            
            
            76
            
            
            14,469
            
            
            83
            
            
            8,781
            
            
            101Germany
            
            
            2,611
            
            
            7,851
            
            
            547
            
            
            -
            
            
            467
            
            
            -Australia
            
            
            2,839
            
            
            5
            
            
            546
            
            
            4
            
            
            576
            
            
            3Others
            
            
            16,846
            
            
            -
            
            
            10,966
            
            
            -
            
            
            11,859
            
            
            -$
            104,634
            
            $
            43,076
            
            $
            85,509
            
            $
            36,011
            
            $
            74,466
            
            $
            35,468





**d.**
            **Major
                customers data as a percentage of total
                revenue:**





**Year ended December 31,****2007**
            
            **2006**
            
            **2005**Customer
                A
            
            
            10
            %
            
            12
            %
            
            10
            %Customer
                B
            
            
            11
            %
            
            12
            %
            
            14
            %




**NOTE
      14**  **-**  **FINANCIAL
      INCOME, NET**




**Year ended December 31,****2007**
            
            **2006**
            
            **2005**Financial
                expenses:Interest
                and other
            
            $
            209
            
            $
            37
            
            $
            39Foreign
                currency translation differences, net
            
            
            222
            
            
            188
            
            
            190431
            
            
            225
            
            
            229Financial
                income:Interest
                and other
            
            
            2,464
            
            
            2,043
            
            
            1,122Foreign
                currency translation differences, net
            
            
            164
            
            
            166
            
            
            1922,628
            
            
            2,209
            
            
            1,314$
            2,197
            
            $
            1,984
            
            $
            1,085




F-29


FUNDTECH
                  LTD.
                NOTES
                  TO FINANCIAL STATEMENTS
                (in
                  thousands, except share and per share
                  data)
  **NOTE
        15**  **-**  **SUBSEQUENT
        EVENTS**





a
            In
                January 2008, the Company acquired the ACH Software Product unit
                from TROY
                Group, Inc. for an aggregate purchase price of approximately $ 1,181
                in
                cash.





Under
      the
      terms of the acquisition agreement, Fundtech will pay additional amounts of
      up
      to $400 in cash by the end of 2008, contingent upon fulfillment of certain
      conditions.





This
      acquisition will be accounted for in accordance with SFAS No.141 and SFAS No.
      142.





b
            In
                February 2008, the Company acquired all outstanding shares of Accountis
                Limited (“Accountis”), a leading supplier of electronic invoice
                presentment and payment (EIPP) systems for an aggregate purchase
                price of
                approximately GBP 3,890 in cash.





Under
      the
      terms of the acquisition agreement, Fundtech will pay additional amounts of
      up
      to GBP 2 million in cash over three years following the acquisition, contingent
      upon the financial performance of Accountis.





This
      acquisition will be accounted for in accordance with SFAS No.141 and SFAS No.
      142.




F-30




**SCHEDULE
      II**




**FUNDTECH
      LTD.**


**VALUATION
      AND QUALIFYING ACCOUNTS**





**Year ended December 31,****2007**
            
            **2006**
            
            **2005**Allowance
                for doubtful account at beginning of year
            
            $
            1,078
            
            $
            1,664
            
            $
            1,287Provision
            
            
            (134
            )
            
            430
            
            
            552Translation
                adjustments
            
            
            (6
            )
            
            4
            
            
            (6
            )Accounts
                receivable written off
            
            
            (79
            )
            
            (1,020
            )
            
            (169
            )Allowance
                for doubtful accounts at end of year
            
            $
            859
            
            $
            1,078
            
            $
            1,664




63




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 MenachemName:
                  Reuven Ben MenachemTitle:
                  Chief Executive OfficerDate:
                  April 11, 2008




64