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

                                    FORM 20-F

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

                                       OR

|X|  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934
     For the Fiscal year ended December 31, 2004

                                       OR

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

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

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

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

                         12 Ha'hilazon Street, 5th Floor
                             Ramat-Gan, Israel 52522
                             -----------------------
                    (Address of principal executive offices)

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

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

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

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

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

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

As of December 31, 2004, the Registrant had outstanding 14,655,942 Ordinary
Shares, NIS 0.01 par value per share.

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

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

<PAGE>

              CAUTIONARY STATEMENT FOR FORWARD-LOOKING INFORMATION

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

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

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

      As used in this annual report, the terms "we," "us," "our," the "Company"
and "Fundtech" mean Fundtech Ltd. and its subsidiaries, unless otherwise
indicated. All reference to dollars or "$" are to United States Dollars and all
references to "NIS" are to New Israeli Shekels and all references to "Ordinary
Shares' are in our Ordinary Shares, NIS 0.01 par value per share.

<PAGE>

                                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.........................................11

ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS.......................19

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

ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS..................47

ITEM 8.  FINANCIAL INFORMATION..............................................50

ITEM 9.  THE OFFER AND LISTING..............................................51

ITEM 10. ADDITIONAL INFORMATION.............................................52

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.........63

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.............63

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES....................63

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
         PROCEEDS...........................................................63

ITEM 15. CONTROLS AND PROCEDURES............................................63

ITEM 16. [RESERVED].........................................................63

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT..................................63

ITEM 16B. CODE OF ETHICS....................................................63

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES............................64

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES........65

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND
          AFFILIATED PURCHASERS.............................................65


                                       i

<PAGE>

PART III

ITEM 17. FINANCIAL STATEMENTS...............................................65

ITEM 18. FINANCIAL STATEMENTS...............................................65

ITEM 19. EXHIBITS...........................................................65





                                       ii

<PAGE>

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

A.    Selected Financial Data.

      The following selected consolidated financial data for each of the year in
the three year period which ended December 31, 2004 are derived from our audited
Consolidated Financial Statements set forth elsewhere in this report, which have
been prepared in accordance with US GAAP. The selected consolidated financial
data for each of the years in the two year period which ended December 31, 2001
are derived from other audited consolidated financial statements not appearing
in this report. 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.

<TABLE>
<CAPTION>

                                                2000             2001             2002            2003            2004
                                             ---------        ---------        ---------        ---------       ---------
FINANCIAL DATA:
<S>                                          <C>              <C>              <C>              <C>             <C>
Total revenues...........................    $  47,948        $  44,994        $  39,828        $  47,614       $  58,537
Operating income (loss)..................       (3,091)         (26,931)         (16,692)             318           2,215
Net income (loss)........................        2,377          (31,626)         (16,647)              67           2,467
                                             =========        =========        =========        =========       =========

Basic earnings (loss) per share..........    $    0.17        $   (2.22)       $   (1.16)       $    0.00       $    0.17
                                             =========        =========        =========        =========       =========
Diluted earnings (loss) per share........    $    0.16        $   (2.22)       $   (1.16)       $    0.00       $    0.16
                                             =========        =========        =========        =========       =========
Cash, cash equivalents, short-term bank
  deposits and short term investments....    $  63,315        $  45,385        $  42,496        $  37,928       $  36,430
Long-term marketable securities..........            -                -                -            8,436           9,591
Working capital..........................       83,840           55,206           44,630           41,183          37,917
Total assets.............................      126,872          102,056           89,380           89,560          98,881
Shareholders' equity.....................      119,714           91,220           75,166           76,534          79,805
</TABLE>

      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 National Market) to report
exclusively under the United States Securities and Exchange Commission rules and
utilizing accounting principles generally accepted in the United States (" 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.

                                       1
<PAGE>

D.    Risk Factors.

Risk Relating to Our Business

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

      Our business is dependent on current and anticipated market demand for our
software products. A slowdown in the global economy began in the second half of
2000. It was exacerbated by the terrorist attacks of September 11, 2001 and,
more recently, by continuing actions against global terrorism, such as the war
in Iraq and attacks in Afghanistan by coalition forces led by the United States.
Although there are signs of recovery, these external factors continue to have
some impact on the financial services industry's spending on Information
Technology "IT". The result is evidenced in longer purchasing cycles with our
customers and in customers' requests for longer payment terms. Furthermore, even
if we are successful in selling our products and services, our ability to
collect outstanding receivables may be significantly negatively impacted by
liquidity issues of our customers, which may have a material adverse impact on
our business, operating results and financial condition. We cannot predict if or
when the IT spending in our sectors will return to previous historic levels.
This uncertainty has resulted, and is likely to continue to result, in
intensified price competition, reduced margins, lower revenue growth rates and
longer payment terms, which may result in decreased revenues, and/or an
inability to maintain profitability.

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

      Our customers are highly concentrated in the financial services industry.
Our business is therefore susceptible to a downturn in that industry. For
example, a decrease in spending for software and related services within this
industry could result in a decrease in demand for our products. Financial
institutions around the world continue to consolidate which 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 recently suffered through a period of losses, which could reoccur in the
future.

      We incurred a net loss of approximately $31.63 million in 2001 and $16.65
million in 2002. Although we had net income of $.07 million in 2003 and $2.47
million in 2004, we will need to generate significant revenues to maintain
profitability. Historic revenue shortfalls were primarily due to issues related
to then current adverse economic conditions that caused our customers to defer
their technology purchasing, which conditions continue to exist to some degree.
Ongoing adverse economic conditions could make it more difficult for our
revenues to increase and make it more difficult for us to maintain
profitability. We cannot assure you that we will be able to increase our
revenues or that we will be able to maintain profitability on a consistent
basis.

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

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

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

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

      o     our customers' budget cycles;

      o     the timing of the release of new product upgrades;


                                       2
<PAGE>

      o     any lengthening of our sales cycle;

      o     changes in the proportion of service and license revenues;

      o     price and product competition;

      o     enhancements or introductions by us and our competitors;

      o     the mix of product sales;

      o     software "bugs" or other product quality problems;

      o     product pricing;

      o     our effectiveness in providing customer support;

      o     delays in implementation;

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

      o     consolidation of our customers; and

      o     currency fluctuations.

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

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 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.

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

                                       3
<PAGE>

lengthens, our quarterly operating results may become less predictable and may
fluctuate more widely than in the past. A number of companies decide which
products to buy through a request for proposal process. In those situations, we
run the risk of investing significant resources in a proposal that does not
result in revenue, because either a competitor obtains the desired contract from
the customer or the customer decides not to proceed with the project 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
nationwide 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 competitors within our industry and the in-house IT departments of certain
of our clients.

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

      o     product performance;

      o     technical features;

      o     compatibility with existing operating systems;

      o     reliability;

      o     security;

      o     relational database power;

      o     price;

      o     customer service and support; and

      o     ease of use.

      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. Our competitors include,
but are not limited to, BankServ, Logica PLC, Digital Insights, Inc., Politzer &
Haney, S1 Corporation, Fidelity Information Services, Banklink, TietoEnator,
Sunguard, Smartstream Technologies and Transaction Systems Architects, Inc.

      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. Many of our existing and potential
competitors have, or are likely to have, more extensive engineering,
development, marketing, distribution, financial, technological and personnel
resources than us. This

                                       4
<PAGE>

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 4B, "Information on the Company -- Business Overview --
Competition."

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

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

      We have entered into contracts with a particular customer for the sale of
one of our payments products. This customer represented 14% of our revenue in
2004 and 18% of our revenue in 2003. 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 and could also
negatively impact the market acceptance of this product. We expect that a
significant portion of our future revenues will continue to be derived from a
relatively small number of customers. We cannot assure you that other customers
will purchase our products and services in the future. See Item 5, "Operating
Results and Financial Review and Prospects - Major Customer."

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

      Prior to 2003 in order to reduce costs, we substantially reduced the
number of employees in both our research & development and administrative
departments. We believe we currently have sufficient resources available to meet
and support our current operations, but, we may need to increase our technical
and customer support staff to support new customers and the expanding needs of
existing customers. Since our products are complex we expect that the training
process will take a significant period of time before these personnel can
support our customers. Qualified individuals are in demand throughout the
software industry and there is significant competition for qualified personnel.
Competition for qualified people may lead to increased labor and personnel
costs. If we do not succeed in retaining our personnel or in attracting new
employees, our business could suffer significantly. If we are unable to attract,
train and retain qualified personnel, we may not be able to achieve our
objectives and our business could be harmed.

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

      We market and sell our products and services in the United States, Europe,
Israel, Asia and Australia. We received 34% of our total revenues in 2002, 39.3%
of our total revenues in 2003 and 45% of our total revenues in 2004 from sales
to customers located outside of the United States. The expansion of our existing
operations and entry into additional international markets will require
significant management attention and financial resources. We are subject to a
number of risks customary for international operations, including: economic or
political changes in international markets;

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

      o     unexpected changes in regulatory requirements;

      o     difficulties and costs of staffing and managing foreign operations;

                                       5
<PAGE>

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

      o     multiple and possibly overlapping tax structures; and

      o     currency and exchange rate fluctuations.

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

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

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

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

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

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

      o     changes in security analysts' financial estimates;

      o     changes in accounting principles;

      o     sales of our Ordinary Shares by existing shareholders;

      o     the loss of any of our key personnel; and

      o     changes in the political conditions in Israel.

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

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

      As of May 2, 2005, we had 14,816,255 Ordinary Shares outstanding, and, in
addition, we have reserved up to 3,087,593 Ordinary Shares for issuance under
our option plans. If a large number of our Ordinary Shares are sold, the price
of our Ordinary Shares would likely decrease or if we continue to issue shares,
convertible securities, warrants and/or options the price of our Ordinary Shares
may decrease.

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

                                       6
<PAGE>

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

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

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

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

      o     adverse customer reaction;

      o     negative publicity and damage to our reputation;

      o     diversion of resources; and

      o     increased service and maintenance costs.

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

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

      We have in the past acquired certain assets of Sterling Commerce and
CheckFree Holdings Corporation, as well as all of the stock of Biveroni
Batschelet Partners AG, Switzerland, Datasphere SA and Cashtech Solutions India
Private 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. The issuance of equity securities could be
dilutive to our existing shareholders.

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

      From 1999 through 2002, we spent considerable time, effort and money
developing our next generation software, including: PAYplus USA(TM), a funds
transfer solution for use by banks, thrifts, and international agency banks
operating in the United States, Global PAYplus(TM) a client/server funds
transfer solution handling both local and global payments activity, and
CASHplus(R), an Internet based cash management solution that has multi-currency
capabilities. PAYplus USA(TM) is now operating in approximately 110 banks, and
we have more recently begun to implement Global PAYplus(TM) and CASHplus(R).
This limited history of operations for our newer solutions and their delivery
modes, makes it difficult to predict future results of operations.

                                       7
<PAGE>

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

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

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

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

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

      o     be expensive and time-consuming to defend;

      o     cause product shipment and installation delays;

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

      o     divert management's attention and resources; or

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

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

                                       8
<PAGE>

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

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

Risks Related to Our Location in Israel

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

      We are organized under the laws of the State of Israel. Many of our
executive officers and directors named in this annual report are nonresidents of
the United States, and a substantial portion of our assets and the assets of
these persons are located outside the United States. Therefore, it may be
difficult to enforce a judgment obtained in the United States against us or any
of those persons. It may also be difficult to enforce civil liabilities under
United States federal securities laws in actions initiated in Israel.

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

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

      Generally, all male adult citizens and permanent residents of Israel under
the age of 54 are, unless exempt, obligated to perform up to 36 days of military
reserve duty annually. Additionally, all Israeli residents of this age are
subject to being called to active duty at any time under emergency
circumstances. Some of our officers and employees are currently obligated to
perform annual reserve duty. Although we have operated effectively under these
requirements since we began operations, we cannot assess the full impact of
these requirements on our workforce or business if political and military
conditions should change, and we cannot predict the effect on us of any
expansion or reduction of these obligations.

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

      Most of our revenues are in dollars or are linked to the dollar, while a
portion of our expenses, principally salaries and the related personnel
expenses, are in new Israeli Shekels, or NIS. As a result, we are exposed to the
risk that the rate of inflation in Israel will exceed the rate of devaluation of
the NIS in relation to the dollar or that the timing of this devaluation lags
behind inflation in Israel. This would have the effect of increasing the dollar
cost of our operations. In 1999 and in 2000, while the rate of inflation was
low, there was a devaluation of the dollar against the NIS, and in 2001 the rate
of devaluation of the NIS against the dollar exceeded the rate of inflation. In
2002, the devaluation of the NIS against the dollar was similar to the rate of
inflation. In 2003, the NIS gained in value against the dollar while the rate of
inflation was negative. During 2004, the valuation of NIS against the dollar

                                       9
<PAGE>

was stable. We cannot predict any future trends in the rate of inflation in
Israel or the rate of devaluation of the NIS against the dollar. If the dollar
cost of our operations in Israel increases, our dollar-measured results of
operations will be adversely affected.

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

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

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

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

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"). The terms of these grants prohibit us from manufacturing
products or transferring technologies developed using these grants outside of
Israel without special approvals. 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 technology developed with these
grants may not be transferred to third parties, including in the context of an
acquisition of our company, without the prior approval of a governmental
committee under the Research and Development Law, and may not be transferred to
non-residents of Israel without such approval. 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.

      In 2002, the Research and Development Law was amended to, among other
things, enable companies applying for grants from the OCS to seek prior approval
for conducting manufacturing activities outside of Israel without being subject
to increased royalties. However, this amendment will not apply to any of our
existing grants. In addition, the amendment provides that one of the factors to
be taken into consideration by the OCS in deciding whether to approve a grant
application is the percentage of the manufacturing of the relevant product that
will be conducted outside of Israel. Accordingly, should we seek additional
grants from the OCS in connection with which we also seek prior approval for
manufacturing products outside of Israel, we may not receive such grant or may
receive a grant in an amount that is less than the amount we sought.

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

      Although we believe that were not a passive foreign investment company in
2004, we cannot assure you that the IRS will agree with our position. We would
be a passive foreign investment company if (i) 75% or more of

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<PAGE>

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, U.S. or foreign, in which we are considered to own directly or
indirectly 25% or more of the shares by value, is passive income, or (ii) the
average value of our assets, including our pro rata share of the assets of any
company 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, in a taxable year that produce, or are held for the production of,
passive income is at least 50%. Passive income includes interest, dividends,
royalties, rents and annuities. If we are or become a passive foreign investment
company, our U.S. investors could be subject to adverse tax consequences,
including:

      o     being taxed at ordinary income tax rates on gain from the sale or
            other disposition of our Ordinary Shares (and on certain
            distributions on our Ordinary Shares);

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

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

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

ITEM 4.     INFORMATION ON THE COMPANY.

A.    History and Development of the Company

      Both our legal and commercial name is Fundtech Ltd. We were incorporated
in Israel in 1993 under the Israeli Companies Ordinance (New Version), 1983 (the
"Companies Ordinance"), as a private limited company, under the name of
"Fundtrust Technologies Limited". The principal legislation under which we
operate is the Israeli Companies Law, 5759-1999 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. In 1999, we acquired the assets of the cash management division of
Sterling Commerce as well as 100% of the stock of Biveroni Batschelet Partners
AG, Switzerland ("BBP"), which connects banks to the Central Bank of Switzerland
for the processing and settlement of payments, securities trading and
settlement. In 2004, we acquired 100% of the stock of Datasphere SA
("Datasphere") and Cashtech Solutions India Private Limited ("Cashtech").

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

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

      Capital expenditures consisting primarily of purchases of property and
equipment were $1.3 million, $2.1 million and $4.3 million during the years
ended December 31, 2002, 2003 and 2004 respectively. We neither purchased nor
owned any real property during this same period. We did not consummate any
acquisitions of any company or portions of any company during 2002 and 2003. We
acquired all of the capital stock of Datasphere and Cashtech during 2004 for a
total of $4.8 million.

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<PAGE>

      Capital expenditures for the year ending December 31, 2005 are expected to
be approximately $5.6 million, of which $4.5 million will be spent in the United
States and $1.1 million will be expended outside the United States, primarily by
BBP. We anticipate financing these capital expenditures with our own funds.

B.    Business Overview

      We are a leading provider of end-to-end financial transaction processing
software solutions for financial institutions. These solutions are grouped into
four broad categories: payment processing, foreign exchange settlement
processing, financial messaging and cash management 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.

      We acquired our ACCESS Banking(TM) products in April 1998, BBP, our Swiss
subsidiary, in June 1999 and our Banker products in September 1999. Our major
products include ACCESS Banking(TM), CASHplus(R), PAYplus USA(TM), PAYplus for
CLS(TM), Global PAYplus(TM), 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 180 customers for the purpose of
accessing the S.W.I.F.T. financial messaging network. Cashtech offers a suite of
cash management products named CashWeb, CashIn and TransactCentral.

Industry Background

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

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

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

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

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

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

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

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

Products and Services

      Our products and related services are designed to integrate all elements
of the electronic payments cycle, including electronic funds transfer, and cash
and treasury management. We believe that our products are among the

                                       12
<PAGE>

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

      Our end-to-end solutions provide for remote initiation of transactions,
efficient and automated processing of these transactions and settlement of the
transactions at the central bank of the country of origin. We are one of the
largest providers of services linking the banks to networks, such as the Federal
Reserve System in the United States that has approximately 7,500 banks on their
FedLine system. On a global basis, we provide banks with the capability to link
to the Society for Worldwide Financial Interbank Telecommunications
("S.W.I.F.T.") network for communicating cross-border transactions. S.W.I.F.T.
has approximately 6,800 banks in 189 countries. In addition to providing payment
services, we are also a leading provider of settlement solutions that link banks
to the CLS Bank's Continuous Linked Settlement System ("CLS"). CLS is a system
set up by the largest foreign exchange banks in the world to reduce foreign
exchange settlement risk.

Payment Solutions            Short Description

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

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

IGTplus                      A payments and settlement solution which provides
                             message broker services between financial
                             institutions and S.W.I.F.T., SIC, SIS and FIX in
                             Switzerland.

PAYplus USA(TM)

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

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

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

Global PAYplus(TM)

      Our Global PAYplus(TM) provides institutions with a real-time global view
of their payments activity. This multi-tiered system addresses the needs of both
local and global payment processes. At the local level, Global PAYplus(TM)
employs a client/server funds transfer payment system that supports both the
local payment processing, and risk management and regulatory compliance for the
local clearing systems. At the global level, Global

                                       13
<PAGE>

PAYplus(TM) aggregates worldwide payment activity. Global PAYplus(TM) is a
multi-platform system supporting both UNIX and NT that employs open technology
standards. The system features end-to-end security and multi-currency
capabilities.

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 S.W.I.F.T., SIC (Swiss Interbank
Clearing), SIS (Swiss Securities Clearing) and FIX (Stock Exchange & Broker)
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 are
served through the BBP Service Bureau, which operates IGTplus.

Cash Management Solutions    Short Description

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

CASHplus(R)                  An Internet-based cash management solution designed
                             for high end and mid-level financial institutions.

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

Banker WebClient(TM)         A Web-based cash management system 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 a building block architecture.

ACCESS Banking(TM)

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

CASHplus(R)

      The CASHplus(R) product, which is our newest Internet-based product,
enables corporations to perform sophisticated cash management functions across
accounts at multiple branches, in multiple currencies, and in

                                       14
<PAGE>

multiple countries and regulatory environments. CASHplus(R) is designed to
reduce the cost of delivering remote banking services through universal access
and simplified maintenance and distribution of remote software.

Fundtech Banker

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

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

Banker WebClient

      Banker WebClient(TM) is a Web-based product that addresses the unique
electronic banking service needs of small and mid-sized businesses.

CashWeb

      Developed by our Cashtech subsidiary, this multi-currency Internet
front-end program that 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 Cashtech's suite of applications which encompass a
complete range of cash management and transaction settlement products. The
TransactCentral Framework is used to customize the modules to suit the
customer's individualized requirements.

Settlement Solutions         Short Description

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

PAYplus for CLS(TM)

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

ASP/Outsourcing Solutions    Short Description

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

Fundtech Connect (ASP)       An ASP that provides the ACCESS solution to banks
                             operating in the

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<PAGE>

- for CASHplus               United States.

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

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

Fundtech Connect - PAYplus USA and CASHplus

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

Interbank Gateway Services

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

      Interbank Gateway Services provides its services to smaller financial
institutions using the IGTplus software to provide communication to/from
S.W.I.F.T., SIC (Swiss Interbank Clearing), SIS (Swiss Securities Clearing) and
FIX (Stock Exchange & Broker).

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.

      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 or will move into processing payments on a real time
gross settlement basis.

      During the period 2001 through 2004, we pursued a strategy of penetrating
the top tier of global banks with our PAYplus for CLS(TM) product offering. The
major foreign exchange trading banks worldwide, as well as central banks and
regulators supported the creation of the CLS, a global system for providing
foreign exchange, or "FX" or settlement services. CLS handles FX trades with a
daily value of approximately two trillion U.S. dollars. We have

                                       16
<PAGE>

been successful in obtaining the majority of the CLS contracts awarded to date
from banks including, inter alia, Australia and New Zealand Banking Group Ltd.,
Bank of America, Bank of New York, Citibank, Commerzbank, Deutsche Bank,
Dresdner Bank, National Australia Bank and Banco Bilboa Vizcaya Argentaria. We
believe that this significant step forward will help us leverage our technology
and offer those banks additional products in the future as evidenced by
Citibank's procurement of Global PAYplus(TM).

      In 2001, we entered into an agreement with a leading international
financial institution whereby we agreed to license certain of our products,
including PAYplus for CLS(TM) and Global PAYplus(TM), and perform various
consulting and maintenance services in connection with the license of such
products. During 2004, we were engaged by another major international financial
institution which licensed Global PAYplus(TM) and retained us to perform product
customizations on its behalf. For the year ended December 31, 2004, the
aggregate total revenue derived from these relationships was approximately $9.5
million which represents approximately 16% of our 2004 revenues. See Item 5A,
"Operating and Financial Review and Prospects --Results of Operations-- Major
Customers."

      During 2003 and 2004, we made significant progress marketing our Global
PAYplus software in Europe, which was reflected in agreements for software and
services with Bank Cypress, Bank Austria (a member of the HVB Group), Banco
Popular Espana and HSBC.

      Also during 2004, we acquired Datasphere and Cashtech and began the
process of assimilating their products and services into our offerings.

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

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

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

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 116 full-time
employees on December 31, 2004. All of our payments products have been developed
internally by our product development staff. Our cash management and BBP
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

                                       17
<PAGE>

are embedded, or bundled, with standardized software products developed by other
companies. We believe significant investments in product development are
required to remain competitive.

      To ensure that our products are developed successfully, within their
budgets and according to schedule, all of our products are sent through the
following four distinct design and testing stages: (1) requirements descriptions
are developed through consultation with prospective users to ensure that the
product matches the user's requirements; (2) an internal quality assurance team
verifies the integrity of the product at each stage of development prior to beta
testing; (3) beta testing data 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, Israel,
Switzerland and India. 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 (RAS-Windows
NT service) to enhance remote customer support. Certain of our marketing
representatives and contractors also provide sales, service and technical
support functions for our products to end-users in specific geographic
territories.

Proprietary Rights

      We rely upon a combination of trademarks, contractual rights, trade secret
law, copyrights, nondisclosure agreements and technical measures to establish
and protect our proprietary rights in our products and technologies. We also
enter into non-disclosure and confidentiality agreements with our customers,
employees and marketing representatives and with certain contractors with access
to sensitive information. However, we have no registered patents and these
measures taken by us may not be adequate to protect our technology from
third-party infringement. In addition, our competitors may also independently
develop technologies that are substantially equivalent or superior to ours. 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., Politzer & Haney, S1 Corporation, Fidelity Information Services,
Banklink, TietoEnator, Sunguard, Smartstream Technologies and Transaction
Systems Architects, Inc. Furthermore, several large financial institutions have
developed solutions internally which they have then marketed to other banks or
implemented in banks that they have acquired. In order to maintain our
competitive position, we must differentiate our products from the products of
our competitors and successfully develop and introduce new products that meet
the changing needs of our clients. See the risk factor entitled "We may not be
able to compete successfully in the very competitive markets for our products"
in Item 3C above.

C.    Organizational Structure

      We are organized under the laws of the State of Israel. We are the parent
company of our wholly-owned operating subsidiaries that are specified in the
table below.

                                       18
<PAGE>

                                                Country of Incorporation/
Name of Subsidiary                              Organization
------------------                              ------------------------

Fundtech Corporation                            United States
Fundtech U.K. Limited                           United Kingdom
Fundtech Australia Pty Limited                  Australia
FCMS, LLC                                       United States
Biveroni Batschelet Partners AG                 Switzerland
Datasphere SA                                   Switzerland
Cashtech Solutions India Private Limited        India

D.    Property, Plants and Equipment.

      We do not own any real property. As of December 31, 2004, we leased office
space as specified in the table below. The aggregate annual lease payments for
our facilities were approximately $1,771,000.

                                                          Approximate
Location                                             Aggregate Square Feet
--------                                             ---------------------
Ramat-Gan, Israel...........................          13,000
Burlington, Massachusetts...................          17,000
Jersey City, New Jersey.....................          25,800
Carrollton, Texas...........................           3,000
San Leandro, California.....................           6,700
Norcross, Georgia...........................          26,000
Switzerland.................................           8,600
United Kingdom..............................           1,800
India.......................................          17,500

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."


                                       19
<PAGE>

Overview

      Fundtech is a leading provider of end-to-end financial transaction
processing software solutions for financial institutions. These solutions are
grouped into four broad categories: (i) payment processing and management; (ii)
foreign exchange settlement processing, both of (i) and (ii) automating the
payment and settlement processes and provide 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;
and (iv) financial messaging products and services that enable banks to
communicate with specialized networks such as the S.W.I.F.T. network.

      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 services to our clients 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; and

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

      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 USA(TM) is our United States funds transfer solution used to
connect a financial institution's funds transfer room with the Federal Reserve's
FedWire system and with the S.W.I.F.T. system. PAYplus USA(TM) both reduces
payments risk (through real-time updates of account balances by means of an
on-line interface with the host computer) and improves customer service (through
its comprehensive database containing relevant information about a transfer -
from its creation to accounting and memo posting). Our target market for this
product includes all banks operating in the United States that do not need a
global payment solution. PAYplus USA(TM) 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
USA(TM) in a live production environment.

      Our Global PAYplus(TM) software provides institutions with real-time
global support of their multi-currency payments activity. Global PAYplus(TM)
employs a client/server funds transfer payment system that supports the local
payment processing and risk management and regulatory compliance for local
clearing systems as well as worldwide payment activity. Global PAYplus(TM)
supports both UNIX and NT and employs open technology standards. The system
features end-to-end security and multi-currency capabilities. 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.

                                       20
<PAGE>

      Our CASHplus(R) 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(R) is
designed to reduce the cost of delivering remote banking services through
universal access and simplified maintenance and distribution of remote software.
CASHplus(R) 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 better serve the needs of their customers.

      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 CLS(TM) is an integrated solution that assists large foreign
exchange trading banks in addressing the requirements of the CLS bank. PAYplus
for CLS(TM) provides payments, treasury, reconciliation, interface and systems
management controls that assist banks in meeting the CLS Bank's requirements. In
addition, PAYplus for CLS(TM) provides such institutions full control and
functionality for its 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 S.W.I.F.T. network for the processing and settlement of
international bank-to-bank e-payments. The IGTplus software utilized to provide
these services is also available on a license basis.

      While we are confident about the match of our products to the current
trends in financial IT, we note that the cautious IT spending environment within
the financial services industry during the period 2001-2002 resulted in
decreased revenues for IT companies operating in that sector. In response, we
adopted three restructuring plans during the second quarter of 2001 and the
third and fourth quarters of 2002.

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

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

      Our restructuring plans in 2001 and 2002 substantially impacted our
results of operations in those years. All restructuring plans were substantially
completed by February 2003. We began to realize the benefits of the plan in 2001
and continued to see such benefits during 2002 as evidenced by the reduction in
the total sum of maintenance and services costs, research and development costs
(including capitalized development costs), selling and marketing costs and
general and administrative costs (together, "Certain Costs"). Certain Costs
declined from $16.4 million in the second and third quarters of 2001 to $14.0
million in the fourth quarter of 2001 and continued to decline to $12.4 million,
$12.5 million, $11.9 million and $10.9 million in the first, second, third and
fourth quarters of 2002, respectively. Certain Costs stabilized in 2003 at $10.6
million, $10.9 million, $10.7 million and $11.0 million in the first, second,
third and fourth quarters, respectively. Certain Costs for 2004 increased to
$11.6

                                       21
<PAGE>

million, $12.2 million, $12.3 million and 15.3 million in the first, second,
third and fourth quarters, respectively. These Certain Costs increases were
necessitated by our improving revenues during this same period.

      We are currently marketing new products which have been developed since
2001, particularly Global PAY plus and CASHplus. This development work
contributed heavily to the operating losses during 2001 and 2002. During 2003,
we were able to dedicate more of our efforts to marketing these new products,
resulting in a reduction in our research and development expenses and an
increase in revenues. During 2004, we continued to heavily market these products
and have seen a corresponding increase in both revenues and backlogs (signed
contracts for which the software has not yet been fully delivered and/or ASP
contracts which are "pre-production" and not yet operational). Our development
focus with respect to these products is now on upgrades to add new
functionality, new interfaces to the products and performance enhancements in
conjunction with out customer implementations.

      During 2005, Certain Costs are expected to rise as we add staff, primarily
to implement a major new Global PAYplus project with a leading multinational
bank, the agreement with respect to which was implemented in 2004.

      To some degree, however, the match of our software capabilities to the
positive trends described above (the drive for more fee based income, lowering
operating costs and adding new corporate products) has been offset by the
lagging recovery of the global financial services industry from the slowdown of
2000-2002. Although spending on technology in the financial services industry
increased during 2003 and 2004, and is expected to continue to grow in 2005, 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.

      We have implemented the majority of Sarbanes-Oxley required policies and
procedures and are working to complete our Section 404 management control
documentation. Notwithstanding the recent decision of the Securities and
Exchange Commission to extend by one year the compliance dates for foreign
private issuers, we are working toward an implementation plan which will allow
the controls to be tested in the fourth quarter of 2005. We do not anticipate a
material cost impact arising from this process, but note that the management
attention devoted to oversight of these activities will increase during 2005.

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 S.W.I.F.T.
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, the Company 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 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.

      The acquisition of Cashtech will enhance the Company's cash management
product line with products that are well suited for non-US markets, as well as
extend the Company's geographic coverage into the Asia Pacific market.

      Under the terms of the acquisition agreement, Fundtech will pay an
additional amount of up to $3.7 million in cash over the next three years,
contingent upon the financial performance of Cashtech. As of December 31, 2004,
no performance milestones have been yet achieved.

                                       22
<PAGE>

Critical Accounting Policies

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

      We believe that application of the following critical accounting policies
entails the more significant judgments and estimates used in the preparation of
our Consolidated Financial Statements.

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

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

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

      We usually provide a warranty period to our customers of up to three
months at no extra charge. As of December 31, 2004 and 2003, the provision for
warranty cost is immaterial.

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

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

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

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

                                       23
<PAGE>

were to deteriorate, resulting in an impairment of their ability to pay the
indebtedness they incur with us, an additional provision for doubtful accounts
might be required.

      SFAS No. 86 "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed" requires capitalization of certain software
development costs subsequent to the establishment of technological feasibility.
Based on our product development process, technological feasibility is
established upon completion of a detailed program design.

      Our costs incurred between completion of the detailed program design for
the Global PAYplus(TM) product and the point at which the product was ready for
general release has been capitalized. As of December 31, 2001, we capitalized
development costs totaling $7,876,000 in aggregate. In 2002 we started
amortizing the capitalized development costs and we did not capitalize any
additional development costs. The 2002, 2003 and 2004 amortization costs
relating to the capitalized development costs totaled $1,182,000, $1,576,000 and
$1,576,000, respectively.

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

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

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

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

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

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

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

      We determine the recoverability of long-lived assets based on an estimate
of undiscounted future cash flows resulting from the use of the asset and its
eventual disposition. 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:

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

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

      o     significant negative industry or economic trends.

                                       24
<PAGE>

      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 2004. If
our estimates or the related assumptions change in the future, we may be
required to record impairment charge on goodwill to reduce its carrying amount
to its estimated fair value.

      Share Based Payments. In December 2004, the FASB issued SFAS No. 123
(revised 2004) "Share Based Payments" ("SFAS 123(R)"). 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 Employees" and
its authoritative interpretations.

      SFAS 123(R) 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
directors services in share-based payment transactions; and does not change the
accounting guidance for share-based payment transactions with parties other than
employees.

      SFAS 123(R) 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 123(R) 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 123(R), in the first
quarter of 2006, the Company will be required to elect between using either the
"modified prospective method" or the "modified retrospective method". Under the
modified prospective method, the Company would be required to recognize
compensation cost for all awards granted after the adoption of SFAS 123(R) and
for the unvested portion of previously granted awards that are outstanding on
that date. Under the modified retrospective method, the Company would be
required to restate its previously issued financial statements to recognize the
amounts previously calculated and reported on a pro forma basis, as if the
original provisions of SFAS 123 had been adopted. Under both methods, it is
permitted to use either a straight line or an accelerated method to amortize the
cost as an expense for awards with graded vesting.

      Management has recently commenced identifying the potential future impact
of applying the provisions of SFAS 123(R), including each of its proposed
transition methods, yet is currently unable to fully quantify the effect of this
Standard on the Company's future financial position and results of operations in
accordance with U.S. GAAP. Nonetheless, it is expected that the adoption of SFAS
123(R) will increase the stock-based-award expenses the Company is to record in
the future in comparison to the expenses recorded under the guidance currently
applied by the Company.


                                       25
<PAGE>

A.    Results of Operations

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

                                                       Year Ended December 31,
                                                       -----------------------
                                                       2002     2003      2004
                                                       ----     ----      ----
       Revenues:
          Software license fees.................       25.3%    27.8%     28.0%
          Maintenance and service fees..........       73.7     71.4      71.5
          Hardware sales........................        1.0      0.8       0.5
                                                      -----    -----     -----
       Total revenues...........................      100.0    100.0     100.0
                                                      =====    =====     =====


       Operating Expenses:
          Software license costs................        1.8      1.0       1.1
          Maintenance and service costs.........       44.2     37.6      39.3
          Hardware Costs........................        0.8      0.6       0.5
          Research and development..............       36.5     20.4      19.1
          Selling and marketing, net............       23.7     21.0      19.1
          General and administrative............       18.1     14.0      12.4
          Amortization of capitalized software
            development costs...................        3.0      3.3       2.7
          Amortization of other acquired
            intangible assets...................        2.3      2.0       1.7
          Provision for doubtful accounts.......        3.3      0.7       0.5
          Restructuring expenses................        8.2      0.0       0.0

       Total operating expenses.................      141.9    100.7      96.2
                                                      -----    -----     -----
       Operating income (loss)..................      (41.9)    (0.7)      3.8
       Impairment and realized losses on
         available for sale marketable
         securities.............................       (0.7)     0.0       0.0
       Financial income, net....................        1.7      1.4       1.2
                                                      -----    -----     -----
       Income (loss) before income taxes........      (40.9)     0.7       5.0
                                                      -----    -----     -----
       Income taxes.............................        0.9      0.6       0.8
                                                      -----    -----     -----
       Net income (loss)........................      (41.8)%    0.1%      4.2%
                                                      =====    =====     =====


Significant Revenue, Segment and Earnings Information

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

<TABLE>
<CAPTION>

                              2002                         2003                         2004
                              ----                         ----                         ----
                       Total                       Total                        Total
                      Revenues    Percentage      Revenues     Percentage      Revenues     Percentage
                      --------    ----------      --------     ----------      --------     ----------

<S>                   <C>            <C>         <C>              <C>          <C>             <C>
Israel                $   142         0.4%        $   115           0.3%        $    62          0.1%
U.S.A                  26,272        66.0          28,908          60.7          31,920         54.5
Switzerland             7,801        19.6           8,865          18.6          15,425         17.8
Other                   5,613        14.0           9,726          20.4          16,130         27.6
                      -------       -----         -------         -----         -------        -----
                      $39,828       100.0%        $47,614         100.0%        $58,537        100.0%
                      =======       =====         =======         =====         =======        =====
</TABLE>

                                       26
<PAGE>

Segment Information:

                                 2002            2003             2004
                                 ----            ----             ----

Cash Mgmt. Revenue            $  8,098        $ 11,365          $ 13,416
Operating income (loss)         (2,844)          1,249               201
Payments Revenue                24,214          26,972            33,870
Operating income (loss)         (2,681)          4,827             8,229
BBP Revenue                      7,516           9,277            11,251
Operating income (loss)             42             106               600

      While Cash Management revenues continued to grow from 2002 to 2004,
operating income has been adversely impacted by the costs associated with the
launch of the new CASHplus product. 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. 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 18% of our annual revenues from the license,
consulting and maintenance service fees earned in connection with an agreement
with a leading international financial institution in 2003. We derived
approximately 14% of our annual revenues from this major customer in 2004. See
Item 4B, "Information on the Company -- Business Overview - Customers and
Markets." We anticipate that fees from these this customer, along with a second
major new Global PAYplus customer signed in 2004 will represent approximately
16% of our total annual revenue in 2005. A failure of either institution to
enter into new orders or proceed with existing orders could have a material
adverse effect on our business, financial condition and results of operations.

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

      Revenues.

                                                                  Variance
                                                                  --------
                                   2003         2004       Increase       %
                                   ----         ----       --------       -

Total Revenues                   $ 47,614     $ 58,537     $10,923       22.9%

      The increase in revenues was primarily attributable to (i) new CASHplus
sales inclusive of billable enhancement requests and installed hosting services
solutions which increased revenues by $1,673; (ii) revenues from launch of
Global PAYplus in the United States, inclusive of a new major bank, strong sales
of PAYplus for CLS and PAYplus USA solutions in both license and hosting
services solution form which increased revenues by $5,920; (iii) increased
service fees related to BBP's IGTplus implementation which increased revenues by
$1,975; and (iv) a new securities services initiative which generated $1,347 in
new revenues.

      Software License Fees. Software license fees consist of revenues derived
from software license agreements we enter into with our customers. A comparison
between our 2003 and 2004 software license fees is as follows:

                                                                  Variance
                                                                  --------
                                     2003         2004       Increase     %
                                     ----         ----       --------     -

          Software License Fees  $13,236,000  $16,395,000   $3,159,000   23%


                                       27
<PAGE>

      The increase was attributable to increasing market awareness and
acceptance of the company's new product offerings as well as increased spending
on the part of the IT departments of financial institutions. The notable aspects
are (i) increased CASHplus sales which increased fees by $705; the launch of
Global PAYplus in the United States and the continued strong sales of PAYplus
USA which increased which increased fees by $2,624; offset by a decline in
license fees of BBP of ($170).

      Maintenance and Services Fees. Maintenance and services fees include
revenues derived from maintenance contracts, installation and training fees,
service bureau fees, consulting fees, certification fees and related items. We
generally receive a contract for maintenance and services at the time a contract
for the license is entered into. A comparison between our 2003 and 2004
maintenance and services fees is as follows:

                                                                      Variance
                                                                      --------

                                           2003         2004      Increase    %
                                           ----         ----      --------    -

       Maintenance and Services Fees   $34,011,000  $41,827,000  $7,816,000  24%

      The increase in fees relates to (i) increases in maintenance fees payable
for newly installed banks of $2,320; (ii) increases in the fees related to
customizations and product installations, particularly with respect to two major
clients, which increases totaled $4,091; and (ii) an offset due to a decline in
fees from hosting services of ($1,099).

      Hardware Sales. Hardware sales consist of the reselling of third-party
hardware in connection with the licensing and installation of our software. A
comparison between our 2003 and 2004 hardware sales is as follows:

                                                                   Variance
                                                                   --------

                                       2003         2004     Decrease      %
                                       ----         ----     --------      -

          Hardware Sales             $367,000    $315,000    ($52,000)   (14%)

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

      Software License Costs. Software license costs consist primarily of
royalty payments and other costs related to product media, duplication, manuals,
shipping and third party embedded software costs. A comparison between our 2003
and 2004 software license costs is as follows:

                                                                   Variance
                                                                   --------

                                       2003         2004     Increase      %
                                       ----         ----     --------      -

          Software License Costs     $493,000    $626,000    $133,000     27%

      The increase in costs is due to a increase third-party embedded software
utilized by our newer CASHplus and Global PAYplus environments. The combination
of additional embedded software and more licenses granted caused the increase
noted.

                                       28

<PAGE>

      Amortization of Capitalized Software Development Costs. A comparison
between our 2003 and 2004 amortization of capitalized software development costs
is as follows:

                                                                   Variance
                                                                   --------

                                       2003         2004     Increase      %
                                       ----         ----     --------      -

          Amortization of
          Capitalized Software
          Development Costs         $1,574,000   $1,576,000  $2,000.00   .001%

      This reflects the amortized capitalized software development costs in
connection with our Global PAYplus product. The variance is not significant.

      Amortization of Other Acquired Intangible Assets. A comparison between our
2003 and 2004 amortization of other acquired intangible assets is as follows:

                                                                    Variance
                                                                    --------

                                         2003        2004      Increase     %
                                         ----        ----      --------     -

          Amortization of Other
          Acquired Intangible Assets   $940,000    $966,000     $26,000    .03%

      The increase in amortization resulted from exchange rate differences for
assets related to BBP plus the effects of the Datasphere and Cashtech
acquisitions.

      Maintenance and Services Costs. Maintenance and services costs consist
primarily of personnel costs, telephone support costs and other costs related to
the provision of maintenance, service bureau and professional services. A
comparison between our 2003 and 2004 maintenance and services costs is as
follows:

                                                                   Variance
                                                                   --------

                                       2003         2004      Increase      %
                                       ----         ----      --------      -
          Maintenance and Services
          Costs                     $17,903,000  $23,001,000  $5,098,000   29%

      Maintenance costs declined by ($867), which we attribute to the impact of
staff reductions previously implemented as described in Item 5, Operating and
Financial Review and Prospects - Overview. Services costs increased by $3,523,
primarily related to the number personnel assigned to Global PAYplus and PAYplus
USA engagements. Hosting costs increased $2,223 due to staffing increases and
related infrastructure costs related to the set-up phase of newly sold
contracts.

      Hardware Costs. Hardware costs consist primarily of our cost of computer
hardware resold to our customers. A comparison between our 2003 and 2004
hardware costs is as follows:

                                                                   Variance
                                                                   --------

                                       2003         2004    Decrease      %
                                       ----         ----    --------      -

          Hardware Costs             $306,000    $266,000   ($40,000)   (13%)

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

                                       29
<PAGE>

      Software Development. Software development expenses are related to the
development of new products, enhancement of existing products and testing of
products. A comparison between our 2003 and 2004 software development is as
follows:

                                                                    Variance
                                                                    --------

                                       2003         2004      Increase      %
                                       ----         ----      --------      -

          Software Development      $9,690,000  $11,171,000  $1,481,000    15%

      We did not capitalize any software development costs in 2004 or 2003,
since the time period during which costs could have been capitalized from the
point of technological feasibility until the time of general product release was
very short, and consequently, these costs were expensed as incurred as the
amounts that could have been capitalized were not material to our financial
position. The increase in costs is primarily due to the addition of 32 staff in
the United States and Israel to handle new engagements and projects as well as
the 174 Cashtech staff added by acquisitions, prorated for a partial year from
the acquisition date. We also experienced an increase in consulting fees payable
of $525 which related to work on new software customization projects.

      Selling and Marketing. A comparison between our 2003 and 2004 selling and
marketing expenses is as follows:

                                                                    Variance
                                                                    --------

                                       2003         2004      Increase      %
                                       ----         ----      --------      -

          Selling and Marketing     $9,998,000  $11,193,000  $1,195,000    12%

      The increase in sales and marketing expenses was principally due to (i) an
increase in commissions of $526 related to the 23% revenue growth achieved; and
(ii) increases in the costs associated with trade shows and the annual user
conference which totaled $200.

      General and Administrative. A comparison between our 2003 and 2004 general
and administrative expenses is as follows:

                                                                    Variance
                                                                    --------

                                       2003         2004      Increase      %
                                       ----         ----      --------      -

          General and
          Administrative            $6,678,000   $7,523,000   $845,000     13%

      This increase is due to the addition of five U.S. administrative personnel
and 23 Cashtech administrative personnel.

      Provision for Doubtful Accounts. Management's assessment for uncertainties
of outstanding debts collectibility is reflected in our provision for doubtful
accounts. A comparison between our 2003 and 2004 provision for doubtful accounts
is as follows:

                                                                   Variance
                                                                   --------

                                       2003         2004     Decrease     %
                                       ----         ----     --------     -
          Provision for Doubtful
          Accounts                   $350,000     $269,000   ($81,000)   (30%)

      The decrease in the provision for doubtful accounts reflects the
settlement of previously accrued matters resulting in the accounts no longer
being deemed doubtful of collection.

                                       30
<PAGE>

      Financial Income, Net. A comparison between our 2003 and 2004 financial
income, net is as follows:

                                                                   Variance
                                                                   --------

                                       2003         2004     Increase      %
                                       ----         ----     --------      -

          Financial Income, net      $671,000    $727,000     $56,000     8%

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

      Income Taxes. A comparison between our 2003 and 2004 income taxes is as
follows:

                                                                   Variance
                                                                   --------

                                       2003         2004     Increase      %
                                       ----         ----     --------      -

          Income Taxes               $286,000    $475,000    $189,000     66%

      The elimination of a deferred tax asset and increasing profits, both in
Switzerland, resulted in an increased tax liability.

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

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

      Revenues.

                                                                  Variance
                                                                  --------

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

Total Revenues                   $ 39,828     $ 47,614      $7,786       19.5%

      The increase in revenues was primarily attributable to (i) new CASHplus
sales inclusive of billable enhancement requests and installed hosting services
solutions which increased revenues by $3,536; (ii) revenues from Global PAYplus,
inclusive of a major bank, strong sales of PAYplus USA solutions in both license
and hosting services solution form which increased revenues by $2,400; (iii)
increased service fees related to BBP's IGTplus implementation which increased
revenues by $1,761.

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

                                                                    Variance
                                                                    --------

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

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

      The increase was attributable to increased CASHplus sales which increased
fees by $466; a major bank license of Global PAYplus along with continued strong
sales of PAYplus USA which increased which increased fees by $2,624; and an
increase in the license fees produced by BBP of $434.


                                       31
<PAGE>

      Maintenance and Services Fees. A comparison between our 2002 and 2003
maintenance and services fees is as follows:

                                                                      Variance
                                                                      --------

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

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

      The increase in service fees relates to (i) increases in maintenance fees
payable for newly installed banks of $2,193; (ii) decreases in the fees related
to customizations and product installations, primarily due to the completion of
most PAYplus for CLS projects in 2002, which decreases totaled ($184); and (ii)
an increase in fees from hosting services of $2,400.

      Hardware Sales. A comparison between our 2002 and 2003 hardware sales is
as follows:

                                                                   Variance
                                                                   --------

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

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

      The decrease in hardware sales is attributable to a decrease in the number
of transactions in which our customers purchased hardware through us.

      Software License Costs. A comparison between our 2002 and 2003 software
license costs is as follows:

                                                                    Variance
                                                                    --------

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

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

      The decrease in costs was primarily due to a new agreement with a primary
supplier which heavily discounted its fees.

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

                                                                    Variance
                                                                    --------

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

          Amortization of
          Capitalized Software
          Development Costs         $1,182,000   $1,574,000   $392,000     33%

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

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

                                       32
<PAGE>

                                                                   Variance
                                                                   --------

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

          Amortization of Other
          Acquired Intangible
          Assets                     $911,000     $940,000    $29,000      3%

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

      Maintenance and Services Costs. A comparison between our 2002 and 2003
maintenance and services costs is as follows:

                                                                   Variance
                                                                   --------

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

          Maintenance and Services
          Costs                     $17,612,000  $17,903,000  $291,000    2.0%

      Maintenance Costs declined by ($564), which we attribute to the impact of
staff reductions previously implemented as described in Item 5, Operating and
Financial Review and Prospects - Overview. Services costs increased by $1,472,
primarily related to the number personnel assigned to Global PAYplus and PAYplus
USA engagements. Hosting costs declined by ($476) which we attribute to the
impact of staff reductions previously implemented as described in Item 5,
Operating and Financial Review and Prospects - Overview.

      Hardware Costs. A comparison between our 2002 and 2003 hardware costs is
as follows:

                                                                  Variance
                                                                  --------

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

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

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

      Software Development. A comparison between our 2002 and 2003 software
development is as follows:

                                                                    Variance
                                                                    --------

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

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

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

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


                                       33
<PAGE>

                                                                  Variance
                                                                  --------

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

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

      The increase in sales and marketing expenses was principally due to (i) an
increase in commissions of $410 related to the 19.5% revenue growth achieved;
and (ii) increases in the costs associated with trade shows and the annual user
conference which totaled $95.

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

                                                                     Variance
                                                                     --------

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

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

      This decrease was due to (i) a reduction of general and administrative
personnel of $72, and (ii) decreases in professional and consulting fees of
$412.

      Provision for Doubtful Accounts. A comparison between our 2002 and 2003
provision for doubtful accounts is as follows:

                                                                  Variance
                                                                  --------

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

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

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

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

                                                                  Variance
                                                                  --------

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

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

      In connection with the three restructuring plans we adopted in 2001 and
2002, we recorded non-recurring expenses in 2002. These non-recurring expenses
included: (i) facility closures and related costs in the amount of $1,794,000;
and (ii) employee termination benefits and related costs in the amount of
$1,458,000. The three plans resulted in the involuntary termination of 78
employees in 2002.

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


                                       34

<PAGE>

                                                                   Variance
                                                                   --------

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

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

      In 2001, the Company changed the classification of certain investments in
its portfolio from "held to maturity" to "available-for-sale", which required
those investments to be adjusted to market value and produced a significant
decrease in portfolio value. The Company also sold most, but not all, of those
investments in 2001. In 2002, the value of those investments held-for-sale
continued to decline in value. During 2002, the Company changed its investment
strategy to mitigate this risk by confirming preservation of capital as a main
objective.

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

                                                                   Variance
                                                                   --------

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

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

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

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

                                                                    Variance
                                                                    --------

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

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

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

B.    Liquidity and Capital Resources.

      We have financed our operations primarily through the sale of equity
securities in the amount of approximately $139.7 million including net proceeds
from the 1998 initial public offering in the amount of approximately $29.0
million, proceeds from the follow-on 1999 public offering in the amount of
approximately $92.3 million and grants from the Government of Israel, Office of
the Chief Scientist to fund new product development. In addition, we raised
$544,000 from the exercise of employee options in 2004. As of December 31, 2004,
working capital was $37.9 million, which included cash and cash equivalents and
marketable securities of $36.4 million. Working capital has declined from
December 31, 2003 primarily due to the cash used in the acquisition of
subsidiaries.

      Cash flows from operations. Net cash provided by operating activities
amounted to $7.6 million for the year ended December 31, 2004 as compared to net
cash provided by operating activities of $4.5 million for the year ended
December 31, 2003. This increase of $3.1 million was primarily due to an
increase in profitability plus an increase in deferred revenues due to
accelerated collection of 2005 maintenance, employees and payroll accruals and
other accounts payable and accrued expenses offset by an increase in trade
receivables due to increased revenues.

                                       35
<PAGE>

      Cash flows from investing activities. Net cash used in investing
activities amounted to $9.6 million for the year ended December 31, 2004 as
compared to $3.5 million for the year ended December 31, 2003. During the year
ended December 31, 2004, proceeds from marketable securities amounted to $11.7
million compared to $6.8 million for the year ended December 31, 2003 while
investments in marketable securities amounted to $12.6 million in 2004 as
compared to $8.4 million in the year ended December 31, 2003. We invested $4.3
million net of cash acquired to purchase our Cashtech and Datasphere
subsidiaries. Purchases of property and equipment increased $2.2 million to $4.3
million for the year ended December 31, 2004 from $2.1 million for the year
ended December 31, 2003. 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 2005, our anticipated capital expenditures are $5.6 million -
See Item 4A.

      Cash flows from financing activities. Net cash provided by financing
activities was $0.5 million for the year ended December 31, 2004 as compared to
$0.9 million for the year ended December 31, 2003. The decrease was primarily
due a decrease in proceeds from the issuance of share capital and exercise of
stock options.

      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.

      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 its initial approval
enterprise program on November 27, 1997. Income derived from this program was
tax exempt for two years commencing in 1998 and will be subject to the reduced
tax rates for eight years ending in 2005 (subject to an adjustment based upon
the foreign investors' ownership in us). In 1998, we received approval for our
first expansion program. In 2000, we received approval for our second expansion
program and in July 2004 we received approval for our 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. 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, 2004, we had net operating loss ("NOL") carryforwards of
approximately $51.2 million and $26.5 million in the United States and in
Israel, respectively. The U.S. NOL carryforwards begin to expire in 2010 through
2017 and the Israeli NOL carryforwards have no expiration. See Note 13 to the
Consolidated Financial Statements.

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

      During 2004, $11.2 million in current expense charges was made related to
the development of our software with no capitalized costs. During 2003 and 2002,
$9,690,000 and $14,525,000, respectively, in current

                                       36
<PAGE>

expense charges were made with no capitalized costs for our software. There were
no Office of the Chief Scientist grants in 2002, 2003 or 2004.

D.    Trend Information.

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

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, 2004, 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    1-3       3-5     More than
                                         1 year     years      years    5 years
--------------------------------------------------------------------------------
Operating leases               $10,643   $1,933     $3,095     $2,572    $3,043
--------------------------------------------------------------------------------

ITEM 6.     DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.

A. Directors and Senior Management.

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

                NAME            AGE          POSITION
                ----            ---          --------

        Gideon Argov             48          Chairman of the Board of Directors
        Reuven Ben Menachem      44          Chief Executive Officer, Director
        Yaffa Krindel            50          Director
        George M. Lieberman      61          Director
        Stanley Stern            47          Director
        Gil Weiser               63          Director
        Ben-Zion Zilberfarb      55          Director

        Joseph J. Aulenti        58          Senior Vice President, General
                                             Counsel and Secretary
        Yoram Bibring            47          Chief Financial Officer
        Joseph P. Mazzetti       64          Executive Vice President,
                                             Corporate Development
        Michael Sgroe            48          President & Chief Operating Officer

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

                                       37
<PAGE>

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

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

      Stanley Stern has served as a director of Fundtech since July 2003. Since
2004, Mr. Stern 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 is a member of the Board of Directors for Zen Research
PLC, Interregnum PLC, Diamond.com and the EON Company. Mr. Stern has earned
degrees from Harvard University Graduate School of Business and City University
of New York.

      Gil Weiser has served as a director of Fundtech since July 2000 and as a
director of BBP, the Company's wholly owned Swiss subsidiary since May 2001.
Beginning in 2000 to the present, Mr. Weiser has served as Chairman or Director
of various Israeli high-tech companies. In addition, Mr. Weiser has served as a
director of the Tel Aviv Stock Exchange from 2003 until 2004. From 2000 until
2001, Mr. Weiser served as the Vice Chairman of Orama, an Israeli/U.S. merchant
bank located in Tel Aviv, Israel. From 1995 until 2000, Mr. Weiser served as the
General Manager of Hewlett Packard (Israel), a distributor of Hewlett Packard
products and services located in Tel Aviv, Israel. From 1993 until 1995, Mr.
Weiser served as President and Chief Executive Officer of Fibronics
International Inc., a worldwide provider of network solutions. From 1976 until
1993, Mr. Weiser served as Managing Director of Digital Corp. Israel. Mr. Weiser
has and continues to hold significant public positions including Chairman of the
Multinational Companies Forum and Vice Chairman of the Israeli Management
Center. Presently he serves as Chairman of the Executive Board of Haifa
University, one of the leading institutions of higher education in Israel and is
a member of the Israel High-Tech Association Executive Committee. Mr. Weiser
holds a Bachelors degree from the Technion in Haifa, Israel and a Masters from
the University of Minnesota in Minneapolis.

Currently Serving External Directors

George M. Lieberman has served as a director of Fundtech since 1998 and as an
external director since 2000. Mr. Lieberman has more than 30 years of IT
management and development experience across a broad spectrum of industries. He
regularly serves as CEO of companies at the request of their venture investors.
Mr. Lieberman is currently CEO of Enforsys Inc., a law enforcement workflow
management system company, a senior advisor to WebScreen Ltd., a network
security company. Mr. Lieberman was the CEO of Pragmatic Vision Inc. and of Gen3
Partners, subsequent to its merger with Pragmatic Vision, until December 2003.
Mr. Lieberman was the Chief

                                       38
<PAGE>

Information Officer of Wit Capital Group, a pioneer Internet investment banking
firm until April 2000. Prior to January 1999, he held a number of positions at
Merrill Lynch & Co., including First Vice President of Technology Strategy and
Planning, where he participated in setting the Merrill Lynch and Co. Internet
financial services strategy. He was also on the advisory board of the Technology
Mezzanine Funding group that oversees the venture technology investment for the
firm's own account. Additionally, he was a member of the Merrill Lynch
Technology Advisory Board for the Global Technology Research Department. Prior
to joining Merrill Lynch, Mr. Lieberman developed major systems projects at many
financial industry companies including Citibank and ADP. Mr. Lieberman holds
advanced degrees in Industrial Engineering and Operations Research. Mr.
Lieberman is the current Chairman of the Corporate Advisory Board of The
Institute for Technology and Enterprise, at the Polytechnic University of New
York. He holds two computer related patents.

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

Senior Management

      Joseph Aulenti was appointed Senior Vice President, General Counsel and
Secretary of Fundtech on October 1, 2002. Mr. Aulenti previously served as
Associate General Counsel since joining Fundtech in August 2001. Prior to
joining Fundtech, Mr. Aulenti was engaged in private practice representing 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 Chief Financial Officer since joining Fundtech
in September 2001. Prior to joining Fundtech, Mr. Bibring served from April 1999
until May 2001 as Chief Financial Officer of ViryaNet, a provider of software
solutions to the workforce management market, located in Southborough,
Massachusetts. From November 1998 until April 1999, Mr. Bibring served as a
Financial Consultant for ViryaNet and others. Prior to joining ViryaNet, Mr.
Bibring served from February 1998 until November 1998 as Chief Financial Officer
of Americash, Inc., a leading operator of e-cash platforms located in New York,
New York, which was sold to American Express. Prior to joining Americash, from
January 1990 until January 1998, Mr. Bibring was employed by Geotek
Communications, a wireless communications service provider located in Montvale,
New Jersey, where he served initially as Chief Financial Officer and then as the
President of its International Division. Mr. Bibring's extensive financial
career also includes several years in public accounting in Israel and the United
States. He holds a B.A. in Accounting and Economics from Tel-Aviv University and
is a certified public accountant in both Israel and the United States.

      Joseph P. Mazzetti joined Fundtech in November 1994 and is currently
serving as Executive Vice President Corporate Development. Prior to joining
Fundtech, Mr. Mazzetti was employed from 1992 to 1994 as an

                                       39
<PAGE>

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 & Chief Operating Officer of
Fundtech since April 2004. Prior to that time Mr. Sgroe held positions as COO,
President of U.S. Products & Operations and Senior Vice President and General
Manager of the U.S. Payments Division since joining Fundtech in May 1000. Before
joining Fundtech, Mr. Sgroe was employed for over 16 years at Chase Manhattan
Bank, a leading financial institution headquartered in New York City, where he
served as Vice President with responsibility for developing and deploying
high-performance solutions for the bank's Payments and Cash Management
businesses. During this period, Mr. Sgroe also served as 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.

B.    Compensation.

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

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

      The aggregate remuneration we paid for the year ended December 31, 2004 to
our directors and executive officers as a group was $1,435,700 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 $50,600 for
2004. There were no amounts set aside or accrued to provide for pension,
retirement or similar benefits to our directors and executive officers.

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

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


                                       40
<PAGE>

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. Upon shareholder approval, directors also receive options to purchase
Ordinary Shares as noted below.

Option Grants in Last Fiscal Year

      During 2004, options to purchase 335,000 Ordinary Shares were granted to
our directors and executive officers. The weighted average exercise price of
these options was $7.51 per share for both directors and for officers, with
vesting over a one to four year period. All director options were granted
pursuant to the Director's Stock Option Plan and executive officers options were
granted under the 1999 Employee Option Plan. Options granted under the
Directors' Option Plan expire five years from the date of grant. Options granted
under the 1999 Employee Option Plan expire ten years from the date of grant.

C.    Board Practices.

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

<TABLE>
<CAPTION>

                                                                                                      Termination/Renewal
          Name                           Current Office(s) Held              Commencement of Office      Date of Office
          ----                           ----------------------              ----------------------   --------------------
<S>                               <C>                                        <C>                     <C>
Gideon Argov (2)(4)(5)             Chairman                                  July 22, 2003            2005 Annual Meeting
Reuven Ben Menachem                Chief Executive Officer, Director         October 28, 2002         2005 Annual Meeting
Stanley Stern (2)(3)               Director                                  July 22, 2003            2005 Annual Meeting
Yaffa Krindel (2)(3)               Director                                  February 12, 2004        2005 Annual Meeting
Gil Weiser (2)(4)(5)               Director                                  October 28, 2002         2005 Annual Meeting
George M. Lieberman                                                          November 30, 2000        2006 Annual Meeting
(1)(2)(3)(4)(5)(6)                 Director
Ben-Zion Zilberfarb (1)(2)(3)(7)   Director                                  January 31, 2002         2007 Annual Meeting
Joseph Aulenti                     Senior Vice President, General Counsel
                                   and Secretary                             October 1, 2002          Not Applicable
Yoram Bibring                      Chief Financial Officer                   September 6, 2001        Not Applicable
Joseph P. Mazzetti                 Executive Vice President, Corporate
                                   Development                               June 1, 2001             Not Applicable
Michael Sgroe                      President & Chief Operating Officer       June 1, 2001             Not Applicable
</TABLE>

      (1)   External Director under the Companies Law.

      (2)   Independent Director.

      (3)   Member of the Audit Committee.

      (4)   Member of the Compensation Committee.

      (5)   Member of the Nominating Committee.

      (6)   Mr. Lieberman was elected for a second and final three year term as
            an external director on December 18, 2003.

      (7)   Mr. Zilberfarb was elected for a second and final three year term as
            an external director on December 21, 2004.

                                       41
<PAGE>

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

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

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

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

External Directors

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

      o     an employment relationship;

      o     business or professional relationship maintained on a regular basis;

      o     control; and/or

      o     service as an office holder.

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

      Under recent amendments to the Companies Law, at least one of the external
directors serving on a company's board of directors is required to have
"financial expertise" and the other external director or directors are required
to have "professional expertise." The definition of each of these terms is to be
determined under relevant regulations, which have not yet been published.

      Under the Companies Law, each committee which is authorized to exercise
one of the functions of the Board of Directors is required to include at least
one external director. The term of an external director is three years and may
be extended by the shareholders for an additional three-year term. Until the
lapse of two years from termination of service as director, a company may not
engage an external director to serve as an office holder and

                                       42
<PAGE>

cannot employ or receive services from that person, either directly or
indirectly, including through a corporation controlled by that person. The
external directors must be elected by the majority of the shareholders in a
general meeting. Such majority must either include at least one-third (1/3) of
the shares of non-controlling shareholders voting on the matter, or the total
shares of non-controlling shareholders voting against the election may not
represent more than one percent (1%) of the voting rights in the company.

      George Lieberman and Ben-Zion Zilberfarb currently serve as "external"
directors within the meaning prescribed by the Companies Law. Mr. Lieberman's
second and final term of office ends after the 2006 Annual Shareholder Meeting.
Mr. Zilberfarb's second and final term of office ends after the 2007 Annual
Shareholder Meeting.

Independent Directors

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

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

      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
National Market.

                                       43
<PAGE>

      The members of the Audit Committee for the fiscal year ended December 31,
2004 were Stanley Stern, Chairman, George Lieberman, Ben-Zion Zilberfarb and
Yaffa Krindel. Ms. Krindel qualifies as a financial expert under the
Sarbanes-Oxley Act of 2002. We do not anticipate a change in committee
composition during 2005.

Compensation Committee

      The members of the Compensation Committee for the fiscal year ended
December 31, 2004 were George Lieberman, Chairman, Gideon Argov 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. We do not anticipate a change in committee
composition during 2005.

Nominating Committee

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

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. 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.

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.

                                       44
<PAGE>

The NASDAQ National Market

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

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 not less than quarterly. 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.

D.    Employees.

      The following table summarizes the main category of activity and
geographic location of our employees as of December 31, 2004:

                 ---------------------------------------------------------------
                   Software                Sales and                   Total
                 Development  Operations   Marketing  Administration  Employees
--------------------------------------------------------------------------------
United States         72          91           25           31          219
--------------------------------------------------------------------------------
Israel                16          48           2            3            69
--------------------------------------------------------------------------------
Switzerland           14          21           7            6            48
--------------------------------------------------------------------------------
United Kingdom        0           15           6            1            22
--------------------------------------------------------------------------------
Australia             0            2           0            0            2
--------------------------------------------------------------------------------
India                 14          160          9            26          209
--------------------------------------------------------------------------------
Singapore             0            0           1            0            1
--------------------------------------------------------------------------------
                                                                        570
                                                                  --------------

      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,

                                       45
<PAGE>

the wages of most of our employees are automatically adjusted based on changes
in the Israeli consumer price index. The amount and frequency of these
adjustments are modified occasionally.

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

      Our Cashtech subsidiary, as required by Indian regulations, provides a
severance payment (known locally as a "Gratuity") 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.

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

E.    Share Ownership.

Security Ownership of Directors and Senior Management and Certain Key Employees

      As of May 1, 2005, the aggregate number of our Ordinary Shares
beneficially owned by our directors, senior managers and certain key employees
was 732,665 shares, representing 4.82% of the outstanding Ordinary Shares.
Beneficial ownership by a person, as of a particular date, assumes the exercise
of all options and warrants held by such person that are currently exercisable
or are exercisable within 60 days of such date. No director is affiliated with a
Major Shareholder.

      As of May 1, 2005, options to purchase up to 1,127,818 Ordinary Shares
granted to our directors, senior managers and certain key employees were
outstanding under our option plans. The weighted average exercise price of these
options was $6.95 per share. From these options, options to purchase 534,483
Ordinary Shares granted to our directors and executive employees are exercisable
or will become exercisable within 60 days of May 1, 2005.

      As of May 2, 2005, we had 50 shareholders of record.

Stock Option Plans

      Fundtech has established two plans for granting options to our employees
and one plan for granting 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. All of the other Company Option Plans are still active.

      Pursuant to the Company Option Plans, a total of 3,592,815 options were
allocated for grant to employees and directors of Fundtech and its subsidiaries,
and an equal number of Ordinary Shares have been reserved for issuance upon the
exercise of such options. As of May 1, 2005, 2,332,699 of these options were
outstanding, 502,097 of these options had been exercised, and 758,019 options
remain available to be granted. The following options have been reserved and
granted pursuant to the following plans.

1997 Stock Option Plan

      The 1997 Plan was adopted in December 1997. The options granted under the
1997 Plan expire five years from the date of grant and vest as determined by the
Compensation Committee or the Board of Directors at the time of the grant,
generally over a period of four years. As of May 1, 2005, 49,904 Ordinary Shares
were reserved and

                                       46
<PAGE>

allocated to the 1997 Plan of which 1,250 options were outstanding and 48,654
options have been exercised. By authorization of the shareholders granted on
October 28, 2002, 491,814 options were transferred to the 1999 Plan and no
options remain available.

1999 Stock Option Plan

      The 1999 Option Plan was adopted in September 1999. The Compensation
Committee or the Board of Directors determines the vesting period and expiration
period for options granted under the 1999 Option Plan at the time of the grant.
The options generally vest over a period of between five and ten years from the
date of grant. As of May 1, 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 May 1, 2005, 2,021,699 options were
outstanding, 476,097 options had been exercised, and 658,019 options remained
available to be issued.

Directors' Option Plan

      The Directors' Option Plan was adopted in May 1998. The Compensation
Committee or the Board of Directors determines the vesting period and expiration
period for options granted under the Directors' Option Plan at the time of the
grant. The options granted under the Directors' Option Plan generally vest over
a period between one and two years and expire five years from the date of grant.
As of May 1, 2005, 437,000 Ordinary Shares were reserved and allocated to the
Directors' Option Plan. Of the 437,000 options available for grant under the
Directors' Option Plan, as of May 1, 2005, 311,000 options were outstanding,
26,000 options had been exercised, and 100,000 options remained available to be
issued.

Offer To Exchange/Tender Offer

      In June 2002 we commenced a voluntary stock option exchange program for
our employees. Under the program participating employees were given the
opportunity to have unexercised stock options previously granted to them
cancelled, and to receive replacement options at a future date. Replacement
options were granted at a ratio of one new option for each option cancelled, at
an exercise price equal to the fair market value of our Ordinary Shares on the
date of the re-grant.

      Pursuant to the terms of the offer, 1,025,700 options were cancelled on
July 16, 2002. We granted the 969,311 replacement options on January 17, 2003.

ITEM 7.     MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.

A.    Major Shareholders.

      The following table summarizes information about the beneficial ownership
of our outstanding Ordinary Shares as of May 1, 2005 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 above is based on 14,655,942
Ordinary Shares outstanding as of May 1, 2005.



                                       47

<PAGE>

<TABLE>
<CAPTION>

                                                         NUMBER OF SHARES    PERCENTAGE
                                                           BENEFICIALLY      BENEFICIALLY
        NAME OF BENEFICIAL OWNER                              OWNED            OWNED*
        ------------------------                         ----------------    ------------
<S>                                                        <C>                  <C>
    Clal Industries and Investments Ltd.(1)...........       5,315,871          36.3%
    Cannell Capital LLC(2)............................       1,583,226          10.8%
    FMR Corp. (3).....................................       1,317,700           9.0%
    Aura Investments Research & Development
    Ltd.(4)...........................................         905,590           6.2%
    All directors and executive officers as a
    group (11 persons)................................         732,665           5.0%
</TABLE>

      1.    As of May 1, 2005, Clal Industries and Investments Ltd. owns
            5,315,871 Ordinary Shares. IDB Development Corporation Ltd., IDB
            Holding Corporation Ltd., Nochi Dankner, Shelly Dankner-Bergman,
            Avraham Livnat, and Ruth Manor have shared power to vote and dispose
            of the 5,315,871 Ordinary Shares held by Clal Industries and
            Investments Ltd. In addition, Mr. Nochi Dankner now has sole power
            to vote and dispose of 3,200 Ordinary Shares.

      2.    As of May 1, 2005 beneficial ownership consisted of 1,583,226
            Ordinary Shares held by investment advisory clients who have granted
            Cannell Capital LLC, for which J. Carlo Cannell is the Managing
            Member, with discretionary authority to buy, sell and vote shares.
            Shares are held by The Anegada Master Fund Limited (299,863 Ordinary
            Shares); The Cuttyhunk Fund Limited (442,566 Ordinary Shares); Tonga
            Partners, L.P. (532,389 Ordinary Shares); GS Cannell Portfolio, LLC
            (198,917 Ordinary Shares); Pleiades Investment Partners, L.P.
            (109,491 Ordinary Shares). The address of Cannell Capital LLC is 150
            California Street, Fifth Floor, San Francisco, CA 94111. Cannell
            Capital LLC formerly held 17.4% of our Ordinary Shares. Based on
            information set forth on a Schedule 13G/A filed February 15, 2005 by
            Cannell Capital LLC.

      3.    As of May 1, 2005 beneficial ownership consisted of 1,317,700
            Ordinary Shares. Based on information provided by FMR Corp. on
            behalf of itself and Fidelity International Investments, Ltd.
            without further elaboration.

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

      13,197,699 of our Ordinary Shares (of which 13,046,255 are in CEDE
account) constituting 90% of our Ordinary Shares are held by record holders
located in the United States. 34 record holders are located in the United
States. We have determined that in excess of 60% of our Ordinary Shares are
beneficially owned by non-United States persons.

      During the period between December 31, 2001 and May 1, 2005 Clal
Industries and Investments Ltd. has purchased 862,374 Ordinary Shares increasing
its percentage ownership form 31.19% to its present 36.3%. Cannell Capital LLC
first reported purchasing Ordinary Shares in 2002. Cannell's ownership on
December 31, 2002 was reported at 2,383,800 Ordinary Shares (16.6%), increasing
to 2,527,826 (17.4%) on December 31, 2003, but declining to 1,583,226 (10.8%) as
of May 1, 2005. FMR Corp. first reported the purchase of Ordinary Shares in May
2005.

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


                                       48
<PAGE>

B.    Related Party Transactions.

      Gil Weiser, a member of the Board of Directors, receives $2,200 per month
to provide consulting services and serve as the Chairman of the Executive
Committee of BBP, our indirectly wholly owned Swiss subsidiary. This consulting
agreement expires each year in March, unless extended by the Audit Committee or
unless previously terminated by either party upon thirty (30) days advanced
written notice to the other. This agreement was approved by the Audit Committee,
the Board of Directors and the shareholders and has been renewed for 2005.

   Insurance

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

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

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

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

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

Indemnification

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

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

Fees for members of the Board of Directors.

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

                                       49
<PAGE>

C.    Interests of Experts and Counsel.

      Not applicable.

ITEM 8.     FINANCIAL INFORMATION.

A.    Consolidated Financial Statements and Other Financial Information.

      The following Consolidated Financial Statements of Fundtech Ltd. and its
subsidiaries for the years ended December 31, 2002, 2003 and 2004, together with
the report of the independent auditors thereon, are presented under Item 18 of
this report:

            Report of Independent Auditors

            Consolidated Balance Sheets

            Consolidated Statements of Operations

            Statements of Changes in Shareholders' Equity

            Consolidated Statements of Cash Flows

            Notes to Consolidated Financial Statements

Legal Proceedings

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

Dividend Distribution Policy

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

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

B.    Significant Changes.

      None

                                       50
<PAGE>

ITEM 9.     THE OFFER AND LISTING.

Market Price Information

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

                                HIGH          LOW
                                ----          ---

2000                            41.63        15.00
2001                            18.13         3.42
2002                             5.24         3.28
2003                             8.58         3.30
2004                             9.90         6.26

2003
First Quarter                    4.20         3.38
Second Quarter                   5.52         3.30
Third Quarter                    7.00         5.12
Fourth Quarter                   8.58         6.60


                                 HIGH         LOW
                                 ----         ---
2004
First Quarter                    9.90         7.17
Second Quarter                   7.97         7.01
Third Quarter                    8.08         6.26
Fourth Quarter                   8.76         6.44

2005
First Quarter                   10.97         8.09

                      Most recent six months
                      ---- ------ --- ------
November 2004                    7.99         6.70
December 2004                    8.76         7.87
January 2005                     8.92         8.09
February 2005                    9.97         9.05
March 2005                      10.97         9.71
April 2005                      10.13         9.88


      On May 2, 2005, the last closing sale price of the Ordinary Shares, as
reported by the NASDAQ National Market, was $10.01 per share. As of May 2, 2005,
we had 50 shareholders of record. We believe that the number of beneficial
owners of the Ordinary Shares is approximately 1,500.

      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 28.69
2004                            46.38        28.39

2003
Fourth Quarter              NIS 38.90    NIS 29.12


                                       51
<PAGE>

                              HIGH                   LOW
                              ----                   ---
2004
First Quarter               NIS 46.38             NIS 32.04
Second Quarter                  36.05                 32.15
Third Quarter                   36.01                 28.59
Fourth Quarter                  38.27                 28.71

                     Most recent six months
                     ---- ------ --- ------
November 2004               NIS 34.28             NIS 30.51
December 2004                   38.27                 33.53
January 2005                    38.79                 36.10
February 2005                   44.54                 38.23
March 2005                      47.66                 42.04
April 2005                      44.50                 42.65

      As of May 2, 2005, the exchange rate of the NIS to the U.S. Dollar was
$1=NIS 4.372.

ITEM 10.    ADDITIONAL INFORMATION.

A.    Share Capital.

      Not Applicable.

B.    Memorandum and Articles of Association.

Company's objectives

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

Directors

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

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

      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

                                       52
<PAGE>

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.

General Meetings

      We are required to hold an annual general shareholders meeting once in
every calendar year within a period of not more than fifteen (15) months after
the last preceding annual general shareholders meeting. All general shareholders
meetings other than the annual general shareholders meeting are deemed to be
special shareholders meetings. Our Board of Directors may call for a general
meeting whenever it sees fit, and, under the Companies Law, is required to call
a general meeting upon a demand in writing by (i) a shareholder or shareholders
holding at least 5% of the outstanding shares and 1% of the voting rights in the
company or (ii) a shareholder or shareholders holding at least 5% of the voting
rights in the company. Subject to applicable law and regulations, prior notice
of at least 21 days of any general shareholders meeting, specifying the place,
date and hour of the meeting, shall be given to the shareholders of the Company.
No business shall be transacted at any general shareholders meeting unless a
quorum is present when the meeting proceeds to business. For all purposes, the
quorum shall not be less than two

                                       53
<PAGE>

(2) shareholders present in person, or by proxy, or deemed by the Companies Law
to be present at such meeting, holding, in the aggregate, at least, thirty-three
and one-third percent (33 1/3%) of the voting rights in our issued share
capital. If, within half an hour from the time appointed for the meeting, a
quorum is not present (or within such longer time not exceeding one (1) hour as
the Chairman of the meeting may decide), the meeting, if convened upon the
requisition of the shareholders, shall be dissolved; in any other case, it shall
stand adjourned to the same day in the next week at the same place and time
(unless such day shall fall on a public holiday either in Israel or the United
States, in which case the meeting will be adjourned to the first day, not being
a Friday, Saturday or Sunday, which follows such public holiday), or any other
day, hour and/or place as the directors shall notify the shareholders. If a
quorum is not present at the second meeting within half an hour from the time
appointed for the meeting, any two shareholders present personally or by proxy
or any other valid instrument, shall constitute a quorum, and shall be entitled
to deliberate and to resolve in respect of the matters for which the meeting was
convened.

Ownership of Our Shares

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

Change of Control

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

      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.

C.    Material Contracts.

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

D.    Exchange Controls.

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

                                       54
<PAGE>

      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.

E.    Taxation.

United States Federal Income Tax Considerations

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

      o     a citizen or resident of the United States;

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

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

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

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

      This discussion is based on current provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), current and proposed Treasury regulations
promulgated thereunder, and administrative and judicial decisions as of the date
hereof, all of which are subject to change, possibly on a retroactive basis.
This discussion does not address all aspects of United States federal income
taxation that may be relevant to any particular U.S. holder in light of such
Holder's individual circumstances. In particular, this discussion does not
address the potential application of the alternative minimum tax or United
States federal income tax consequences to shareholders that are subject to
special treatment, including Holders that:

      o     are broker-dealers or insurance companies;

      o     are regulated investment companies or real estate investment trusts;

      o     have elected mark-to-market accounting;

      o     are tax-exempt organizations or retirement plans;

      o     are financial institutions or "financial services entities";

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

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

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

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


                                       55
<PAGE>

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

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

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

Taxation of Ordinary Shares

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

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

      The maximum U.S. federal income tax rate on certain qualified dividends
paid to non-corporate U.S. Holders through 2008 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 year the dividends are paid or in the prior 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 Israeli
income taxes withheld on a dividend distribution either as a deduction from
gross income or as a dollar-for-dollar credit against their United States
federal income tax liability. Individuals who do not claim itemized deductions,
but instead utilize the standard deduction, may not claim a deduction for the
amount of the Israeli income taxes withheld, but such amount may be claimed as a
credit against the individual's United States federal income tax liability. The
amount of foreign income taxes that may be claimed as a credit in any year is
subject to complex limitations and restrictions, which must be determined on an
individual basis by each shareholder. These limitations include, among others,
rules that limit foreign tax credits allowable with respect to specific classes
of income to the United States federal income taxes otherwise payable with
respect to each such class of income. The total amount of allowable foreign tax
credits in any year cannot exceed 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 Israeli income tax withheld from
a dividend received on the Ordinary Shares if such U.S. Holder has not held the
Ordinary Shares for at least 16 days of the 31-day period beginning on the date
which is 15 days before the ex-dividend date with respect to such dividend, or
to the extent such U.S. Holder is under an obligation to make related payments
with respect to substantially similar or related property. Any days during which
a U.S. Holder has substantially diminished its risk of loss on the Ordinary
Shares are not counted toward meeting the required 16 day holding period.
Distributions of current or accumulated earnings and profits will be foreign
source passive income for United States foreign tax credit purposes; 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

                                       56
<PAGE>

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. Israeli withholding 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, 2008 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 will be treated as United States source income for United States
foreign tax credit purposes. A loss recognized by a U.S. Holder on the sale,
exchange or other disposition of Ordinary Shares is allocated to U.S. source
income. 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.

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

      Foreign Personal Holding Company Status. If at any time during a taxable
year more than 50% of the total combined voting power or the total value of our
outstanding shares is owned, actually or constructively, by five or fewer
individuals who are citizens or residents of the United States and 60% or more
of our gross income for such year was derived from certain passive sources
(e.g., from dividends received from our subsidiaries), we would be treated as a
"foreign personal holding company." In that event, U.S. Holders that hold
Ordinary Shares would be required to include in income for such year their
allocable portion of our passive income which would have been treated as a
dividend had that passive income actually been distributed. The foreign personal
holding company rules have been repealed for taxable years beginning after
December 31, 2004.

      Controlled Foreign Corporation Status. If more than 50% of the voting
power of all classes of our stock or the total value of the stock of our company
is owned, directly or indirectly, by U.S. Holders, each of whom own after
applying rules of attribution 10% or more of the total combined voting power of
all classes of our stock, we would be treated as a "controlled foreign
corporation" or "CFC" under Subpart F of the Code. This classification would
bring into effect many complex rules including the required inclusion by such
10% U.S. Holders in income of their pro rata share of our "Subpart F income" (as
defined by the Code) and our earnings invested in "U.S. property" (as defined by
Section 956 of the Code). In addition, under Section 1248 of the Code if we are
considered a CFC at any time during the five year period ending with the sale or
exchange of our Ordinary Shares, gain from the sale or exchange of our Ordinary
Shares by such 10% U.S. Holders is treated as ordinary dividend income to the
extent of our earnings and profits attributable to the stock sold or exchanged.
If we were a CFC, we would not be a passive foreign investment company, as
discussed below, with regard to any such 10% U.S. Holder. Because of the


                                       57
<PAGE>

complexity of Subpart F, and because we may never be a CFC, a more detailed
review of these rules is beyond of the scope of this discussion.

Passive Foreign Investment Company Status. We would be a passive foreign
investment company 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, U.S. or foreign, in which we
are considered to own directly or indirectly 25% or more of the shares by value,
is passive income, or (ii) the average value of our assets, including our pro
rata share of the assets of any company 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, in a taxable year 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 2004.

      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
distributions with respect to Ordinary Shares as if such income had been
recognized ratably over the U.S. Holder's holding period for the Ordinary
Shares. The U.S. Holder's income for the current taxable year would include (as
ordinary income) amounts allocated to the current year and to any period prior
to the first day of the first taxable year for which we were a PFIC. Tax would
also be computed at the highest ordinary income tax rate in effect for each
other period to which income is allocated, and an interest charge on the tax as
so computed would also apply. Additionally, if we were a PFIC, U.S. Holders who
acquire our Ordinary Shares from decedents (other than 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). 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 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 shares and the
shareholder's adjusted basis in the shares. Losses would be allowed only to the
extent of net mark-to-market gain previously included in income by the U.S.
Holder.

      As indicated above, we will be a PFIC for any tax year if the average
percentage (by value) of our assets held for the production of, or that produce,
passive income is at least 50 percent. Based on discussions with our advisors,
we believe that we were not a passive foreign investment company for our tax
year ended December 31, 2004. However, there can be no assurance that the
Internal Revenue Service will not challenge this conclusion. The tests for
determining PFIC status are applied annually and it is difficult to make
accurate predictions of future income and assets, which are relevant to this
determination. Accordingly, there can be no assurance that we will not become a
PFIC in 2005 or in subsequent years. U.S. Holders who hold Ordinary Shares
during a period when we are a PFIC (whether we were determined to be a PFIC in
2005, 2004 or any earlier year) will be subject to the foregoing rules, even if
we cease to be a PFIC, subject to certain exceptions for U.S. Holders who made a
QEF election or the mark-to-market election.

      Although a U.S. Holder normally is not permitted to make a retroactive QEF
election for a foreign corporation, a retroactive election may be made for a
taxable year of the U.S. Holder (the "retroactive election year") if the U.S.
Holder (i) reasonably believed that, as of the date the QEF election was due,
the foreign corporation was not a PFIC for its taxable year that ended during
the retroactive election year and (ii) filed 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.

                                       58
<PAGE>

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

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

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

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

      o     the non-U.S. Holder is an individual who holds the Ordinary Shares
            as a capital asset and is present in the United States for 183 days
            or more in the taxable year of the disposition and certain other
            requirements are met; or

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

Information Reporting and Back-up 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 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 dividends paid on our Ordinary Shares unless the holder
provides proof of an applicable exemption or correct taxpayer identification
number and otherwise complies with applicable requirements of the backup
withholding rules.

      A holder of Ordinary Shares who does not provide a correct taxpayer
identification number may be subject to penalties imposed by the IRS. Amounts
withheld under the backup withholding rules are not an additional tax and may be
refunded or credited against the holder's federal income tax liability, provided
the required information is furnished to the IRS.

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

Israeli Income Tax Considerations

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

General Corporate Tax Structure

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

                                       59
<PAGE>

Law for the Encouragement of Industry (Taxes), 1969

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

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

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

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

Law for the Encouragement of Capital Investments, 1959

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

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

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

      A company that has elected to participate in the alternative benefits
program and that subsequently pays a dividend out of the income derived from the
approved enterprise during the tax exemption period will be subject to corporate
tax in respect of the amount distributed (including withholding tax thereon) at
the rate that would have

                                       60
<PAGE>

been applicable had the company not elected the alternative benefits program
(generally 10% - 25%). The dividend recipient is taxed at the reduced
withholding tax rate of 15%, applicable to dividends from the approved
enterprises if the dividend is distributed within 12 years after the benefits
period or other rate provided under a treaty. The withholding tax rate will be
25% after such period. In the case of a company with a foreign investment level
(as defined by the Investment Law) of 25% or more, the 12-year limitation on
reduced withholding tax on dividends does not apply. Tax should be withheld by
the company at source, regardless of whether the dividend is converted into
foreign currency.

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

Taxation under Inflationary Conditions

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

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

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

Withholding and Capital Gains Taxes Applicable to Non-Israeli Shareholders

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

Capital Gains Taxes on Sales of our Ordinary Shares

      Until the end of the year 2002, capital gains from the sale of our
securities were generally exempt from Israeli Capital Gains Tax. This exemption
did not apply to a shareholder whose taxable income was determined

                                       61
<PAGE>

pursuant to the Israeli Income Tax Law (Inflationary Adjustments), 1985, or to a
person whose gains from selling or otherwise disposing of our securities were
deemed to be business income.

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

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

      Israel presently has no estate or gift tax.

F.    Dividends and Paying Agents.

      Not Applicable.

G.    Statement by Experts.

      Not Applicable.

H.    Documents on Display.

      We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, applicable to foreign private issuers and
fulfill the obligation with respect to such requirements by filing reports with
the Securities and Exchange Commission. You may read and copy any document we
file with the Securities and Exchange Commission without charge at the
Securities and Exchange Commission's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. Copies of such material may be obtained by mail
from the Public Reference Branch of the Securities and Exchange Commission at
such address, at prescribed rates. Additionally, copies of this material may be
obtained from the Securities and Exchange Commission's website at
http://www.sec.gov. Please call the Securities and Exchange Commission at
l-800-SEC-0330 for further information on the public reference room.

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

I. Subsidiary Information.

      Not Applicable.


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ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

ITEM 12.    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.

      Not Applicable.

                                     PART II

ITEM 13.    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.

      None.

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

      Not Applicable

ITEM 15.    CONTROLS AND PROCEDURES.

      (a) Disclosure Controls and Procedures.

      Our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO,
are responsible for establishing and maintaining our disclosure controls and
procedures. These controls and procedures were designed to ensure that
information relating to us and our subsidiaries required to be disclosed in the
reports that we file under the Securities Exchange Act of 1934 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, 2004.
Based on this evaluation, our CEO and CFO concluded that our disclosure controls
and procedures are effective in timely alerting them to information required to
be disclosed in our periodic reports to the SEC.

      (b)  Changes in Internal Control Over Financial Reporting

      There were no changes in the Company's internal control over financial
reporting that occurred during the year ended December 31, 2004 that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.

ITEM 16.    [RESERVED]

ITEM 16A.   AUDIT COMMITTEE FINANCIAL EXPERT

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


                                       63
<PAGE>

            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 21, 2004, our shareholders
re-appointed Brightman Almagor & Co., a member of Deloitte Touche Tohmatsu to
serve as our independent auditors for the 2004 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,
                                         2004          2003
                                         ----          ----

            Audit fees                 $164,600     $141,900
            Audit related fees           79,200           --
            Tax fees [a]                     --           --
            Other fees                    4,000        5,000
                                       --------     --------
            Total                      $247,800     $146,900
                                       ========     ========

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

AUDIT FEES

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

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 2004, Other Fees included consulting with respect to
applications for approved enterprise zone status in Israel.

AUDIT COMMITTEE'S PRE-APPROVAL POLICIES AND PROCEDURES

      Our audit committee is responsible for the oversight of our independent
auditor's work. The audit committee's policy is to pre-approve all audit and
non-audit services provided by our independent auditors. These services may
include audit services, audit-related services, tax services and other services,
as described above. The audit committee sets forth the basis for its
pre-approval in detail, listing the particular services or categories of


                                       64
<PAGE>

services which are pre-approved, and approving a specific budget for such
services. Additional services may be pre-approved by the audit committee on an
individual basis. Once services have been pre-approved, our independent auditors
and our management team report to the audit committee on a periodic basis
regarding the extent of services actually provided in accordance with the
applicable pre-approval, and regarding the fees for services performed.

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

      Not Applicable.

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

      Not Applicable.

                                    PART III

ITEM 17.    FINANCIAL STATEMENTS.

      Not Applicable.

ITEM 18.    FINANCIAL STATEMENTS.

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

ITEM 19.    EXHIBITS.

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

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

   1.1    Amended Memorandum of Association of Registrant(1)

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

   2.1    Form of Ordinary Share Certificate(1)

   2.2    Form of Registration Rights(1)

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

   4.2    Fundtech Ltd. 1999 Employee Option Plan(3)

   4.3    Fundtech Ltd. Directors Option Plan(4)

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

   4.5    Lease Agreement for Cashtech's facility in Bombay, India*

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

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

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


                                       65
<PAGE>

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

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

   8      Subsidiaries of Registrant*

  11      Code of Ethics(6)

  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 10-K,
      dated March 30, 1999, and incorporated herein by reference.

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

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

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

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

*   Filed herewith.



                                       66

<PAGE>




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

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

                                DECEMBER 31, 2004
                                -----------------

<PAGE>



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

                        CONSOLIDATED FINANCIAL STATEMENTS



                                      INDEX


                                                                        Page
                                                                        ----

A. Report of Independent Registered Public Accounting Firm              F-1

B. Consolidated Financial Statements:

C. Balance Sheets as of December 31, 2004 and 2003                    F-2 - F-3

D. Statements of Operations for the years ended
   December 31, 2004, 2003 and 2002                                     F-4

E. Statements of Changes in Shareholders' Equity
   for the years ended December 31, 2004, 2003 and 2002               F-5 - F-6

F. Statements of Cash Flows for the years ended
   December 31, 2004, 2003 and 2002                                   F-7 - F-8

G. Notes to Financial Statements                                      F-9 - F-34




<PAGE>

                                                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, 2004 and 2003 and the
related statements of operations, changes in shareholders' equity and cash flows
for each of the three years in the period ended December 31, 2004. 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 includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. 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, 2004 and 2003 and the consolidated results of
their operations and their consolidated cash flows for each of the three years
in the period ended December 31, 2004, in conformity with U.S. generally
accepted accounting principles.


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


Tel Aviv, Israel
March 15, 2005


                                       F-1

<PAGE>

<TABLE>
<CAPTION>

                                  FUNDTECH LTD.
                    CONSOLIDATED STATEMENTS OF BALANCE SHEET
                                 (In thousands)

                                                                                  December 31,
                                                                              ---------------------
                                                                              2 0 0 4       2 0 0 3
                                                                              -------       -------

ASSETS

<S>                                                                           <C>           <C>
CURRENT ASSETS
   Cash and cash equivalents                                                  $27,810       $28,900
   Marketable securities (Note 4)                                               8,620         9,028
   Trade receivables (net of allowance for doubtful accounts of $ 1,287
     and $ 2,366 at December 31, 2004 and 2003, respectively) (Note 5)         17,588        13,009
   Other accounts receivable and prepaid expenses                               1,765         1,936
                                                                              _______       _______

       Total current assets                                                    55,783        52,873
                                                                              -------       -------

LONG-TERM ASSETS
   Marketable securities (Note 4)                                               9,591         8,436
   Severance pay fund                                                             676           520
   Long-term trade receivables                                                      -         1,031
   Long-term deposits                                                             924           838
   Prepaid Expenses                                                             1,352            22
   Property and equipment, net (Note 6)                                         8,204         6,375
   Other assets, net (Note 7)                                                  22,351        19,465
                                                                              _______       _______

      Total long-term assets                                                   43,098        36,687
                                                                              -------       -------

Total Assets                                                                  $98,881       $89,560
                                                                              =======       =======
</TABLE>


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


                                       F-2

<PAGE>

<TABLE>
<CAPTION>

                                  FUNDTECH LTD.
                    CONSOLIDATED STATEMENTS OF BALANCE SHEET
                                 (In thousands)
                        (except share and per share data)

                                                                             December 31,
                                                                      -------------------------
                                                                       2 0 0 4          2 0 0 3
                                                                      ---------        --------

      LIABILITIES AND SHAREHOLDERS' EQUITY

<S>                                                                   <C>              <C>
CURRENT LIABILITIES
   Trade payables                                                     $   1,896        $     932
   Deferred revenues                                                      8,204            5,112
   Accrued restructuring expenses (Note 9b)                                 445              581
   Employees and payroll accruals                                         2,673            2,015
   Other accounts payable and accrued expenses (Note 8)                   4,648            3,050
                                                                      _________        _________

      Total current liabilities                                          17,866           11,690
                                                                      ---------        ---------

LONG-TERM LIABILITIES
   Accrued severance pay                                                    751              586
   Accrued restructuring expenses (Note 9b)                                 281              750
   Other long term liabilities                                              178                -
                                                                      _________        _________

      Total long-term liabilities                                         1,210            1,336
                                                                      ---------        ---------
                                                                      _________        _________

      Total liabilities                                                  19,076           13,026
                                                                      ---------        ---------

COMMITMENTS AND CONTINGENCIES (Note 10)

SHAREHOLDERS' EQUITY (Note 11)
   Share capital:
   Ordinary shares of NIS 0.01 par value: Authorized:
     30,000,000 and 19,949,998  shares as of
     December 31, 2004 and 2003 respectively ;
     Issued and outstanding: 14,655,942 and 14,527,871
       shares as of December 31, 2004 and 2003, respectively                 43               43
   Additional paid-in capital                                           141,274          140,730
   Accumulated other comprehensive income (loss)                             80             (180)
   Accumulated deficit                                                  (61,504)         (63,971)
                                                                      _________        _________

                                                                         79,893           76,622

   Treasury shares at cost, 21,500 shares as of December
     31, 2004 and 2003                                                      (88)             (88)
                                                                      _________        _________

      Total shareholders' equity                                         79,805           76,534
                                                                      _________        _________

Total Liabilities and shareholders equity                             $  98,881        $  89,560
                                                                      =========        =========
</TABLE>

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

                                       F-3

<PAGE>

<TABLE>
<CAPTION>

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

                                                                        Year ended December 31,
                                                                ---------------------------------------
                                                                 2 0 0 4         2 0 0 3        2 0 0 2
                                                                ---------       --------       --------

Revenues (Note 2j)

<S>                                                             <C>             <C>            <C>
   Software license fees                                        $ 16,395        $ 13,236       $ 10,068
   Maintenance and services fees                                  41,827          34,011         29,355
   Hardware sales                                                    315             367            405
                                                                ________        ________       ________

     Total revenues                                               58,537          47,614         39,828
                                                                --------        --------       --------
Operating Expenses

   Software license costs                                            626             493            703
   Amortization of capitalized software
   development costs                                               1,576           1,574          1,182
   Amortization of other acquired intangibles assets                 966             940            911
   Maintenance and services costs                                 23,001          17,903         17,612
   Hardware costs                                                    266             306            317
   Research and development                                       11,171           9,690         14,525
   Selling and marketing, net (Note 15a)                          11,462          10,348         10,788
   General and administrative                                      7,254           6,678          7,230
   Restructuring expenses (Note 9a)                                    -               -          3,252
                                                                ________        ________       ________

     Total operating expenses                                     56,322          47,932         56,520
                                                                --------        --------       --------
                                                                ________        ________       ________

   Operating income (loss)                                         2,215            (318)       (16,692)
   Impairment and realized losses on
     available-for-sale marketable securities                          -               -           (281)
   Financial income, net (Note 15b)                                  727             671            691
                                                                ________        ________       ________

   Income (loss) before income taxes                               2,942             353        (16,282)

   Income taxes                                                     (475)           (286)          (365)
                                                                ________        ________       ________

   Net income (loss)                                            $  2,467        $     67       $(16,647)
                                                                ========        ========       ========

     Basic earnings (loss) per share (Note 12)                  $   0.17        $      -       $  (1.16)
                                                                ========        ========       ========

     Diluted earnings (loss) per share (Note 12)                $   0.16        $      -       $  (1.16)
                                                                ========        ========       ========
</TABLE>

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

                                       F-4

<PAGE>

<TABLE>
<CAPTION>

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


                                   Ordinary shares             Deferred shares     Additional
                                ---------------------          ----------------      paid-in     Treasury
                                Shares         Amount          Shares    Amount      capital      shares
                                ------         ------          ------    ------    ----------    --------

<S>                          <C>              <C>             <C>        <C>       <C>         <C>
Balance as of
  January 1, 2002             14,278,096      $     43         50,002    (*)$   -   $139,708    $       -
Exercise of stock
  options                         64,856             -              -           -        143            -
Purchase of
  treasury shares                (21,500)            -              -           -          -          (88)
Foreign currency
  translation adjustments              -             -              -           -          -            -
Net loss                               -             -              -           -          -            -
                            ____________      ________      _________     ________   _______    _________

  Total comprehensive
   loss

Balance as of
  December 31, 2002           14,321,452            43         50,002    (*)    -    139,851          (88)
Exercise of stock
  options                        206,419             -              -           -        879            -
Cancellation of
  deferred shares                      -             -        (50,002)   (*)    -          -            -
Foreign currency
  translation adjustments              -             -              -           -          -            -
Net income                             -             -              -           -          -            -
                            ____________      ________      _________     ________    ________  _________
  Total comprehensive
    loss

Balance as of
  December 31, 2003           14,527,871            43              -           -    140,730          (88)
Exercise of stock
  options                        128,071             -              -           -        544            -
Foreign currency
  translation adjustments              -             -              -           -          -            -
Net income                             -             -              -           -          -            -
                            ____________      ________      _________     ________    ________  _________

  Total comprehensive
    income

Balance as of
  December 31, 2004           14,655,942      $     43              -     $      -    $141,274  $     (88)
                            ============      ========     ==========     ========    ========  =========

(*) Represents an amount lower than $ 1.


The accompanying notes are an integral part of the consolidated financial
statements. (except share data)

                                                                                                (Continued)

                                       F-5

<PAGE>

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

<CAPTION>

                                       Accumulated
                                          other                                     Total             Total
                                      comprehensive         Accumulated         comprehensive      shareholders'
                                      Income (loss)           deficit           Income (Loss)         equity
                                      -------------         -----------         -------------      -------------

<S>                                   <C>                   <C>                  <C>               <C>
Balance as of
  January 1, 2002                      $  (1,140)           $ (47,391)                             $  91,220
Exercise of stock
  options                                      -                    -                                    143
Purchase of
  treasury shares                              -                    -                                    (88)
Foreign currency
  translation adjustments                    538                    -              $    538              538
Net loss                                       -              (16,647)              (16,647)         (16,647)
                                       _________             ________              ________        _________

  Total comprehensive
   loss                                                                            $(16,109)
                                                                                   ========
Balance as of
  December 31, 2002                         (602)             (64,038)                                75,166
Exercise of stock
  options                                      -                    -                                    879
Cancellation of
  deferred shares                              -                    -                                (*)   -
Foreign currency
  translation adjustments                    422                    -              $    422              422
Net income                                     -                   67                    67               67
                                       _________             ________              ________        _________
  Total comprehensive
    income                                                                         $    489
                                                                                   ========
Balance as of
  December 31, 2003                         (180)             (63,971)                                76,534
Exercise of stock
  options                                      -                    -                     -              544
Foreign currency
  translation adjustments                    260                    -              $    260              260
Net income                                     -                2,467                 2,467            2,467
                                       _________             ________              ________        _________

  Total comprehensive
    income                                                                         $  2,727
                                                                                   ========
Balance as of
  December 31, 2004                    $      80            $ (61,504)                             $  79,805
                                       =========            =========                              =========
</TABLE>


(*) Represents an amount lower than $ 1.



The accompanying notes are an integral part of the consolidated financial
statements. (except share data)


                                       F-6

<PAGE>

<TABLE>
<CAPTION>

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

                                                                             Year ended December 31,
                                                                    ----------------------------------------
                                                                     2 0 0 4         2 0 0 3         2 0 0 2
                                                                    ---------       ---------       --------

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

<S>                                                                 <C>             <C>             <C>
  Net income (loss)                                                 $  2,467        $     67        $(16,647)
  Adjustments to reconcile net income (loss) to
  net cash provided by (used in) operating activities
   (Appendix A):                                                       5,182           4,462          14,987
                                                                    ________        ________        ________

     Net cash provided by (used in) operating activities               7,649           4,529          (1,660)
                                                                    --------        --------        --------

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

  Investments in available-for-sale (in 2002) and
    held-to-maturity (in 2003 and 2004) marketable securities        (12,633)         (8,369)        (15,729)
  Proceeds from sale of available-for-sale (in
   2002) and held-to-maturity (in 2003 and in 2004)
   marketable securities                                              11,714           6,822           5,181
  Acquisition of subsidiaries, net of cash acquired
    (Appendix B)                                                      (4,311)              -               -
  Reduction (Increase) in Long-term lease deposits                       (86)            167            (365)
  Purchase of property and equipment                                  (4,318)         (2,108)         (1,298)
  Proceeds from sale of property and equipment                            24               6              60
                                                                    ________        ________        ________

     Net cash used in investing activities                            (9,610)         (3,482)        (12,151)
                                                                    --------        --------        --------

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

  Proceeds from exercise of stock options, net                           544             879             143
  Increase in other long-term liabilities                                (82)              -               -
  Purchase of treasury shares                                              -               -             (88)
                                                                    ________        ________        ________

     Net cash provided by financing activities                           462             879              55
                                                                    --------        --------        --------
Effect of exchange rate on cash and cash equivalents                     409             403             404
----------------------------------------------------                ________        ________        ________

  Increase (decrease) in cash and cash equivalents                    (1,090)          2,329         (13,352)
  Cash and cash equivalents at the beginning of the year              28,900          26,571          39,923
                                                                    ________        ________        ________

  Cash and cash equivalents at the end of the year                  $ 27,810        $ 28,900        $ 26,571
                                                                    ========        ========        ========

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

  Cash paid during the year for:
   Interest                                                         $     24        $     56        $    123
                                                                    ========        ========        ========
   Income taxes                                                     $    566        $    149        $    287
                                                                    ========        ========        ========
</TABLE>

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


                                       F-7
<PAGE>

<TABLE>
<CAPTION>

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

                                                                      Year ended December 31,
                                                                ----------------------------------
                                                                2 0 0 4      2 0 0 3        2 0 0 2
                                                                -------      --------      --------

<S>                                                              <C>         <C>           <C>
 Appendix A - Adjustments to reconcile net income (loss) to
  net cash provided by (used in) operating activities:

   Depreciation and amortization                                 5,333       $  5,656      $  5,580
   Impairment and realized losses on available for
    sale marketable securities                                       -              -           281
   Deferred income taxes, net                                        -              -           109
   Decrease (increase) in trade receivables and
     long-term Trade receivables, net                           (2,863)           921         6,072
   Decrease (increase) in other accounts
    receivable and prepaid expenses                               (725)          (615)           52
   Increase ( Decrease ) in trade payables                         717           (300)       (1,059)
   Increase  in deferred revenues, employees and
    payroll accruals and other accounts payable
    and accrued expenses                                         3,150            112         2,609
   Increase (decrease) in accrued restructuring
    expenses                                                      (605)        (1,371)        1,540
   Accrued severance pay, net                                        9             13           (40)
   Accrued interest on marketable securities                       172              8          (196)
   Other                                                            (6)            38            39
                                                              ________       ________      ________

                                                              $  5,182       $  4,462      $ 14,987
                                                              ========       ========      ========

Appendix B - Acquisition of subsidiaries, net of cash
  acquired: (see note 3)

   Working capital deficiency, excluding cash
    and cash equivalents                                      $ (1,394)             -             -
   Long term deposits                                              103              -             -
   Property and equipment                                          174              -             -
   Developed technology                                            873              -             -
   Goodwill                                                      4,555              -             -
                                                              ________       ________      ________

                                                              $  4,311       $      -      $      -
                                                              ========       ========      ========
</TABLE>


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


                                       F-8

<PAGE>

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

NOTE 1   -GENERAL OVERVIEW

          a.  Fundtech Ltd, an Israeli corporation and its subsidiaries ("the
              Company"), is a leading provider of software solutions and
              services that facilitate payments, settlement and cash management
              by enabling banks and their customers to electronically manage
              cash, process payments and transfer funds. The Company's
              client-server and Internet 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 mainly in the United
              States and Europe.

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



                                       F-9

<PAGE>

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


NOTE 2   -SIGNIFICANT ACCOUNTING POLICIES (Cont.)

               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 as a separate component of
               accumulated other comprehensive income (loss) in shareholders'
               equity.

          c. Principles of consolidation

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

          d. Cash equivalents

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

          e. Marketable securities

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

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

               As of December 31, 2004 and 2003 all marketable securities are
               designated as held-to-maturity and, accordingly, are stated at
               amortized cost. Interest income including the amortization of
               premium and discount are included in the consolidated statement
               of operations.



                                       F-10

<PAGE>

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


NOTE 2-     SIGNIFICANT ACCOUNTING POLICIES (Cont.)

          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, at the following annual rates:

                                                           %
                                                          ---
               Office furniture and equipment            6 - 15
               Computers and software                   20 - 33
               Motor vehicles                              15
               Leasehold improvements           Over the term of the lease

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


          g. Software development costs

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

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

          h. Acquisition-related intangible assets

               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.
               Acquisition-related intangible assets are reported at cost, net
               of accumulated amortization. Identifiable intangible assets 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.


                                       F-11
<PAGE>

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


NOTE 2-     SIGNIFICANT ACCOUNTING POLICIES (Cont.)

          i.   Income taxes

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


          j.   Revenue recognition

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

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

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

               The Company generally does not grant right-of-return to its
               customers. The Company generally provides a warranty period for
               three months at no extra charge. As of December 31, 2004 and
               2003, the provision for warranty cost is immaterial.

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

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

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


                                       F-12
<PAGE>

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


NOTE 2-     SIGNIFICANT ACCOUNTING POLICIES (Cont.)

          k. Severance pay

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

               The deposited funds include profits accumulated up to the balance
               sheet date. The deposited funds may be withdrawn only upon the
               fulfillment of the conditions pursuant to Israeli severance pay
               law or labor agreements. The value of the deposited funds is
               based on the cash surrender value of these policies, including
               immaterial profits.

               Severance expenses for the years ended December 31, 2004, 2003
               and 2002, amounted to approximately $ 216, $ 177 and $ 138,
               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 and long-term trade receivables of the
               Company include banks and large financial institutions. The
               Company generally does not require collateral; however, in
               certain circumstances, the Company may require letters of credit,
               other collateral or additional guarantees. An allowance for
               doubtful accounts is determined with respect to those amounts
               that the Company has determined to be doubtful of collection. The
               Company performs ongoing credit evaluations of its customers (see
               Note 5).

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



                                       F-13

<PAGE>

                                  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 (loss) per share

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

               In 2004, 2003 and 2002, certain outstanding stock options and
               warrants have been excluded from the calculation of the diluted
               earnings per ordinary share because of the anti-dilutive effect.
               The total weighted average number of shares related to the
               outstanding options and warrants excluded from the calculations
               of diluted earnings(loss) per share were 557,175, 442,250 and
               313,700 for the years ended December 31, 2004, 2003 and 2002,
               respectively (see Note 12).


          n. Stock-based compensation

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

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



                                       F-14

<PAGE>

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


NOTE 2-     SIGNIFICANT ACCOUNTING POLICIES (Cont.)

               For purposes of estimating fair value in accordance with SFAS
               123, the Company utilized the Black & Scholes option-pricing
               model. The following assumptions were utilized in such
               calculations for the years 2004, 2003 and 2002 (all in weighted
               averages):

                                                   2004        2003       2002
                                                   ----        ----       ----

              Risk-free interest rate              3.24%       2.69%      3.78%
              Expected life of options            4 year      4 year     4 year
              Expected volatility                  66.5%        64%        64%
              Expected dividend yield              none        none       none

               Had compensation cost for the Company's stock option plans been
               determined based on fair value at the grant dates for all awards
               made in 2004, 2003 and 2002 in accordance with SFAS 123, as
               amended by SFAS 148, the Company's pro forma loss per share would
               have been as follows:

<TABLE>
<CAPTION>

                                                                   2 0 0 4          2 0 0 3          2 0 0 2
                                                                 -----------       ---------        ----------

<S>                                                              <C>               <C>              <C>
B. Pro forma net income (loss)

Net income (loss) for the year, as reported                      $     2,467       $      67        $  (16,647)

Deduct - stock-based compensation determined under  APB-25

Add - stock-based compensation determined under
    SFAS 123                                                          (1,610)         (3,151)           (4,390)
                                                                 ___________       _________        __________

Pro forma net income (loss)                                      $       857       $  (3,084)       $  (21,037)
                                                                 ===========       =========        ==========

C.

Pro forma basic earnings (loss) per share                        $      0.06       $   (0.21)       $    (1.47)
                                                                 ===========       =========        ==========

Pro forma diluted earnings (loss) per share                      $      0.06       $   (0.21)       $    (1.47)
                                                                 ===========       =========        ==========

Basic earnings (loss) per share as reported                      $      0.17       $       -        $    (1.16)
                                                                 ===========       =========        ==========

Diluted earnings (loss) per share as reported                    $      0.16       $       -        $    (1.16)
                                                                 ===========       =========        ==========
</TABLE>



                                       F-15

<PAGE>

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

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

               The fair value of marketable securities is based on quoted market
               price (see Note 4).


          p. Impact of recently issued accounting standards

              SFAS NO. 123 (REVISED 2004) "SHARE BASED PAYMENTS" - In December
              2004, the FASB issued SFAS No. 123 (revised 2004) "Share Based
              Payments" ("SFAS 123(R)"). 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
              Employees" and its authoritative interpretations.

              SFAS 123(R) 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 directors
              services in share-based payment transactions; and does not change
              the accounting guidance for share-based payment transactions with
              parties other than employees.

              SFAS 123(R) eliminates the alternative to use APB 25's intrinsic
              value method of accounting that was provided in SFAS 123 as
              originally issued and requires 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- the requisite service period (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.


                                       F-16
<PAGE>

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


NOTE 2-     SIGNIFICANT ACCOUNTING POLICIES (Cont.)

          p. Impact of recently issued accounting standards (Cont.)

              The provisions of SFAS 123(R) apply to all awards to be granted by
              the Company after June 30, 2005 and to awards modified,
              repurchased, or cancelled after that date. When initially applying
              the provisions of SFAS 123(R), in the third quarter of 2005, the
              Company will be required to elect between using either the
              "modified prospective method" or the "modified retrospective
              method". Under the modified prospective method, the Company is
              required to recognize compensation cost for all awards granted
              after the adoption of SFAS 123(R) and for the unvested portion of
              previously granted awards that are outstanding on that date. Under
              the modified retrospective method, the Company is required to
              restate its previously issued financial statements to recognize
              the amounts previously calculated and reported on a pro forma
              basis, as if the original provisions of SFAS 123 had been adopted.
              Under both methods, it is permitted to use either a straight line
              or an accelerated method to amortize the cost as an expense for
              awards with graded vesting.

              Management has recently commenced identifying the potential future
              impact of applying the provisions of SFAS 123(R), including each
              of its proposed transition methods, yet is currently unable to
              fully quantify the effect of this Standard on the Company's future
              financial position and results of operations in accordance with
              U.S. GAAP. Nonetheless, it is expected that the adoption of SFAS
              123(R) will increase the stock-based-award expenses the Company is
              to record in the future in comparison to the expenses recorded
              under the guidance currently applied by the Company.

              The Company is assessing the impact of the adoption of this
              Standard, and currently estimates that its adoption in not
              expected to have a material effect on the Company's financial
              position and results of operations.

               SFAS 153, EXCHANGE OF NON-MONETARY ASSETS - In December 2004, the
               FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets an
               amendment of APB No. 29". This Statement amends Opinion 29 to
               eliminate the exception for nonmonetary exchanges of similar
               productive assets and replaces it with a general exception for
               exchanges of nonmonetary assets that do not have commercial
               substance. The Statement specifies that a nonmonetary exchange
               has commercial substance if the future cash flows of the entity
               are expected to change significantly as a result of the exchange.
               This Statement is effective for nonmonetary asset exchanges
               occurring in fiscal periods beginning after June 15, 2005.
               Earlier application is permitted for nonmonetary asset exchanges
               occurring in fiscal periods beginning after the date this
               Statement is issued. Retroactive application is not permitted.



                                       F-17
<PAGE>

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


NOTE 3-     RECENT ACQUISITIONS

         a.   In November 2004, the Company 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 $3,759. 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.

              The acquisition of Cashtech will enhance the Company's cash
              management product line with products that are well suited for
              non-US markets, as well as extend the Company's geographic
              coverage into the Asia Pacific market.

              Under the terms of the acquisition agreement, Fundtech will pay an
              additional amount of up to $3.7 million in cash over the next
              three years, contingent upon the financial performance of
              Cashtech. As of December 31, 2004, no performance milestones have
              been yet achieved.

              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 know-how
              and goodwill. The purchase price attributed to know-how 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,               $  (456)
                      Long term deposits                             95
                      Property and equipment                        153
                      Know-how                                      873
                      Goodwill                                    3,094
                                                                _______

                                                                $ 3,759
                                                                =======

              The following unaudited pro forma summary presents information as
              if the acquisition of Cashtech occurred at the beginning of the
              periods 2003 and 2004. The pro forma information, which is
              provided for information purposes only, is based on historical
              information and does not necessarily reflect the results that
              would have occurred, nor is it necessarily indicative of future
              results of operations of the consolidated entities.


                                       F-18

<PAGE>

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


NOTE 3   -RECENT ACQUISITIONS (Cont.)

                                                         Year ended December 31,
                                                         -----------------------
                                                           2 0 0 4     2 0 0 3
                                                         ----------   ---------
                  Revenue                                  $ 61,516    $ 51,641
                  Net income (loss)                        $  1,634    $    238
                  Basic earnings (loss) per share          $   0.11    $   0.02
                  Diluted earnings (loss) per share        $   0.11    $   0.02

          b.  In October 2004, the Company acquired through BBP all outstanding
              shares of Datasphere S.A. ("Datasphere"), a Swiss provider of
              interbank clearing and securities settlement systems in Europe
              based in Geneva for an aggregate purchase price of $973. This
              includes $200 paid in cash directly to the shareholders, $746 that
              was transferred to fund the working capital of Datasphere and $27
              of acquisition costs. The acquisition will allow the Company to
              expand its product line to support mainframe-systems as well as
              expand its geographic reach to southern Europe.

              This acquisition was accounted for in accordance with SFAS No.141
              and SFAS No. 142, and the financial results of Datasphere 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 goodwill.
              In accordance with SFAS No. 141 and SFAS No. 142, the purchase
              price attributed to goodwill is no longer amortized, but rather is
              subject to periodic impairment test.

              The allocation of fair value is as follows:

                 Working capital deficiency                         $  (517)
                 Long term deposits                                       8
                 Property and equipment                                  21
                 Goodwill                                             1,461
                                                                    _______

                                                                    $   973
                                                                    =======



                                       F-19

<PAGE>

<TABLE>
<CAPTION>

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


NOTE 4-     MARKETABLE SECURITIES

            A.   Short-term investments                   December 31,
                                                    ------------------------
                                                    2 0 0 4          2 0 0 3
                                                    -------          -------

<S>              <C>                                <C>             <C>
                 Held to maturity -
                   Corporate bonds                  $3,893           $4,668
                   Corporate notes                     553              412
                   Euro-dollar bonds                 1,024            3,948
                   Federal Agency                    1,004                -
                   Asset backed securities           2,146                -
                                                    ______           ______

                                                    $8,620           $9,028
                                                    ======           ======

                 Fair value                         $8,570           $8,964
                                                    ======           ======


          B.     Long-term investments                     December 31,
                                                     ------------------------
                                                     2 0 0 4         2 0 0 3
                                                     -------         -------

                 Held to maturity -
                   Corporate bonds                  $2,664           $4,071
                   Corporate notes                       -              569
                   Euro-dollar bonds                     -            1,588
                   Federal Agency                    6,927                -
                   Asset backed securities               -            2,208
                                                    ______           ______

                                                    $9,591            8,436
                                                    ======           ======

                 Fair value                         $9,481           $8,419
                                                    ======           ======
</TABLE>

        As of December 31, 2004 all long-term investments mature in 2006.



                                       F-20

<PAGE>

<TABLE>
<CAPTION>

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


NOTE 5-     TRADE RECEIVABLES

                                                                                        December 31,
                                                                                     --------------------
                                                                                     2 0 0 4      2 0 0 3
                                                                                     -------      -------

<S>                                                                                 <C>          <C>
          Accounts receivable, net of allowance for doubtful accounts               $ 11,301     $  9,731
          Unbilled receivables, net of allowance for doubtful accounts              $  6,287        3,278
                                                                                    ________     ________

                                                                                    $ 17,588     $ 13,009
                                                                                    ========     ========

      Management's assessment for uncertainties of outstanding debt
      collectibility resulted in doubtful accounts expenses of $269, $350 and $
      1,335 in the Statements of Operations for 2004, 2003 and 2002,
      respectively


NOTE 6-     PROPERTY AND EQUIPMENT, NET
                                                                                         December 31,
                                                                                     --------------------
                                                                                     2 0 0 4     2 0 0 3
                                                                                     -------     --------
          Cost:
             Office furniture and equipment                                         $  2,521     $  2,296
             Computers and software                                                   19,379       18,407
             Motor vehicles                                                              288          222
             Leasehold improvements                                                    2,185        1,583
                                                                                    ________     ________

                                                                                      24,373       22,508

             Accumulated depreciation                                                 16,169       16,133
                                                                                    ________     ________

                  Net book value                                                    $  8,204     $  6,375
                                                                                    ========     ========


NOTE 7-     OTHER ASSETS, NET
                                                                                         December 31,
                                                                                     --------------------
                                                                                     2 0 0 4      2 0 0 3
                                                                                     -------      -------

          Acquisition-related intangible assets
          -------------------------------------
          Cost:
             Goodwill                                                               $ 19,346     $ 14,791
             Developed technology and know-how                                         5,114        4,241
             Customer base                                                             3,461        3,461
             Other intangible assets                                                      58           58
                                                                                    ________     ________

                                                                                      27,979       22,551
          Accumulated amortization                                                    (9,172)      (8,206)
                                                                                    ________     ________

                                                                                      18,807       14,345
                                                                                    --------     --------

          Capitalized software development costs
          --------------------------------------
          Cost                                                                         7,876        7,876
             Accumulated amortization                                                 (4,332)      (2,756)
                                                                                    ________     ________

                                                                                       3,544        5,120
                                                                                    --------     --------
                                                                                    ________     ________

             Net book value                                                         $ 22,351     $ 19,465
                                                                                    ========     ========
</TABLE>


                                       F-21

<PAGE>

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


NOTE 8-     OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES

                                                        December 31,
                                                    ---------------------
                                                    2 0 0 4       2 0 0 3
                                                    -------       -------

            Accrued expenses                        $3,803        $2,176
            Government authorities                     809           705
            Other                                       36           169
                                                    ______        ______

                                                    $4,648        $3,050
                                                    ======        ======

NOTE 9-     RESTRUCTURING EXPENSES

          Prior years restructuring plans

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

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


        a. Restructuring expenses:
                                                    Year ended December 31,
                                                -------------------------------
                                                2 0 0 4       2 0 0 3    2 0 0 2
                                                -------       -------    -------

           Employee termination benefits
            and related costs                   $    -        $    -     $1,458
           Facility closures and related costs       -             -      1,794
                                                ______        ______     ______

                                                $    -        $    -     $3,252
                                                ======        ======     ======



                                       F-22

<PAGE>

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


NOTE 9-     RESTRUCTURING EXPENSES (Cont.)

          b. The following table summarizes the restructuring accruals status as
          of December 31, 2004:

                                                   Facility
                                   Employee        closures
                               termination and    and related
                                 related costs      costs          Total
                                 -------------    -----------      -----

           Original Accrual         $2,248           $3,307        $5,555

           Paid in Cash
            During 2001                628              513         1,141
            During 2002                900              812         1,712
            During 2003                720              651         1,371
            During 2004                  -              605           605
                                    ______           ______        ______

           Total                     2,248            2,581         4,829
                                    ------           ------        ------
                                    ______           ______        ______

          Net Balance as of
           December 31, 2004        $    -           $  726        $  726
                                    ======           ======        ======

          Net Balance as of
           December 31, 2003        $    -           $1,331        $1,331
                                    ======           ======        ======


NOTE 10-    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,
              -----------------------

              2005                                          $  2,050
              2006                                             1,660
              2007                                             1,435
              2008                                             1,393
              2009-2014                                        4,222
                                                            ________

                                                              10,760
              Less - sublease rentals                           (117)
                                                            ________
                                                            $ 10,643
                                                            ========

               The above minimum lease commitments include amounts previously
               accrued under the Company's restructuring plans (see also Note
               9b).

               Total facilities lease expenses for the years ended December 31,
               2004, 2003 and 2002, were approximately $1,771, $1,905 and $1,982
               (net of sublease rentals incurred of $175, $99, and $31),
               respectively.


                                       F-23
<PAGE>

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


          b.   Guarantees:

               1.  The Company has obtained a bank guarantee of $45 in
                   connection with the Company's facilities operating lease
                   agreement in Israel.

               2.  The Company has obtained a bank guarantee of $442 for BBP as
                   required by Swiss Law.

NOTE 11-    SHAREHOLDERS' EQUITY

          a.   The Ordinary Shares of the Company are traded on the NASDAQ
               National Market. Since August 19, 2003 the shares of the company
               are also traded on Tel-Aviv Stock Exchange market.

          b.   The Ordinary Shares confer upon the holders the right to receive
               notice to participate and vote in general meetings of the Company
               and the right to receive dividends, if declared.

          c.   Treasury shares:

               On February 21, 2002, the Company's Board of Directors authorized
               to purchase up to one million Ordinary Shares of the Company from
               time to time on the open market. By December 31, 2004, the
               Company had purchased a total of 21,500 shares.

          d.   Stock options:

               1.  Under the Company's 1998 Directors' Stock Option Plan and the
                   1999 Employee Stock Option Plan, as amended by the
                   Shareholders on December 31, 2004, (collectively - the
                   "Plans"), up to 3,592,815 options will reserved for grants to
                   employees and directors of the Company.

               2.  Pursuant to the Plans, as of December 31, 2004, an aggregate
                   of 1,052,931 options of the Company are still available for
                   future grants.

               3.  Each option granted under the Plans to employees expires not
                   later than ten years from the date of the grant, except for
                   grants to persons holding 10% or more of the Company's stock,
                   which expire in five years. Each option granted under the
                   Plans to directors expires no later than five years from the
                   date of grant. The options vest primarily over four years.
                   Any options that are canceled or forfeited before expiration
                   become available for future grants. Options granted to
                   directors are vested over a one year period from their date
                   of grant. The exercise price of the options granted under the
                   plans may not be less than the nominal value of the shares
                   into which such options are exercised.

               4.  In June 2002 the Company commenced a voluntary stock option
                   exchange program for its employees. Under the program
                   participating employees were given the opportunity to have
                   unexercised stock options previously granted to them
                   cancelled, and to receive replacement options at a future
                   date. Replacement options will be granted at a ratio of one
                   new option for each option cancelled, at an exercise price
                   equal to the fair market value of the Company's Ordinary
                   Shares on the date of the re-grant.

                   Pursuant to the terms of the offer, 1,025,700 options were
                   cancelled on July 16, 2002. The Company granted the 969,311
                   replacement options on January 17, 2003.


                                       F-24
<PAGE>

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


NOTE 11-    SHAREHOLDERS' EQUITY (Cont.)

          e.   A summary of the Company's option activity under the Plans is as
follows:

<TABLE>
<CAPTION>

                                                                   Year ended December 31,
                                  ----------------------------------------------------------------------------------------
                                            2 0 0 4                        2 0 0 3                      2 0 0 2
                                  ----------------------------    --------------------------    --------------------------

                                                     Weighted                       Weighted                      Weighted
                                                     average                        average                       Average
                                     Number          exercise        Number         exercise      Number          Exercise
                                   of options         price        of options        price      of options         Price
                                   ----------       ---------      ----------      --------     ----------      ---------

<S>                                <C>            <C>             <C>              <C>          <C>           <C>
Outstanding at January 1            2,114,087       $   5.56         564,455       $   6.68      1,363,843      $   14.85
   Granted                            270,350           8.20         913,025           6.35        500,800           3.84
   Option exchange program                  -                        969,311           4.02     (1,025,700)         15.65
   Exercised                         (128,071)          4.11        (206,419)          3.92        (64,856)          3.33

   Forfeited/cancelled                (60,141)         16.91        (126,285)          7.06       (209,632)         10.23
                                  ___________                    ___________                   ___________

Outstanding at December 31          2,196,225       $   5.65       2,114,087       $   5.56        564,455      $    6.68
                                  ===========                    ===========                   ===========

Exercisable options at
    December 31                     1,275,563       $   4.76       1,069,421       $   5.27        241,921      $   10.43
                                  ===========                    ===========                   ===========
</TABLE>

          The options outstanding as of December 31, 2004, have been separated
          into ranges of exercise price, as follows.

<TABLE>
<CAPTION>

                       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                   2004           Life (years)     Price           2004           Price
-----------          -----------       ------------    --------      -----------      --------

<C>                 <C>                 <C>           <C>           <C>             <C>
$3.55-5.00            1,204,075            7.2        $    4.00       1,030,696       $  4.04
$5.79-8.53              866,100            8.9        $    7.21         193,117       $  6.29
$8.70-9.35               87,800            9.7        $    8.89          13,500       $  8.87
$13.25-15.25             38,250            1.6        $   14.88          38,250       $ 14.88
                      _________                                       _________

                      2,196,225            7.9        $    5.65       1,275,563       $  4.76
                      =========                                       =========
</TABLE>

          All options granted during 2004, 2003 and 2002 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-25

<PAGE>

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


NOTE 12-    NET EARNINGS (LOSS) PER SHARE

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

<TABLE>
<CAPTION>

                                                                          Year ended December 31,
                                                             ------------------------------------------------
                                                                2 0 0 4          2 0 0 3            2 0 0 2
                                                             ------------      ------------      ------------
Numerator:
<S>                                                          <C>               <C>               <C>
  Net income (loss)                                          $      2,467      $         67      $    (16,647)
                                                             ============      ============       ===========

Numerator for basic earnings (loss) per share -
    income (loss) available to Ordinary
    shareholders                                             $      2,467      $         67      $    (16,647)
                                                             ============      ============       ===========

Numerator for diluted net earnings (loss) per
    share - income (loss) available to Ordinary
    shareholders after assumed exercises                     $      2,467      $         67      $    (16,647)
                                                             ============      ============       ===========


Denominator:                                                                  Number of shares
                                                             ------------------------------------------------
  Denominator for basic net earnings (loss) per
    share - weighted - average shares                          14,590,310        14,426,655        14,290,317
                                                             ____________      ____________       ___________

  Effect of dilutive securities:
    Employee stock options                                        679,853           410,813        (*)      -
                                                             ____________      ____________       ___________

Dilutive potential Ordinary Shares                                679,853           410,813        (*)      -
                                                             ============      ============       ===========

Denominator for diluted net earnings (loss)
  per share                                                    15,270,163        14,837,468        14,290,317
                                                             ============      ============       ===========
</TABLE>

      (*)   Antidilutive.


                                       F-26

<PAGE>

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


NOTE 13-    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 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.   Tax benefits under the Israeli Law for the Encouragement of
               Capital Investments, 1959

               The Company has been granted in November 1995 the status of an
               "Approved Enterprise", under the Israeli Law for the
               Encouragement of Capital Investments, 1959 (the "Investment Law")
               and the Company has elected the alternative benefits program,
               waiver of grants in return for tax exemptions. Pursuant thereto,
               the income of the Company derived from the "Approved Enterprise"
               program is tax-exempt for two years commencing with the year it
               first earns taxable income relating to each expansion program,
               and subject to corporate taxes at the reduced rate of 10% to 25%,
               for an additional eight years. The Company completed its
               investment according to certain of its first program on November
               27, 1997. Income derived from this program was tax exempt for two
               years commencing in 1998 and will be subject to the reduced tax
               rates for eight years ending in 2005 (subject to an adjustment
               based upon the foreign investors' ownership of the Company). In
               1998, the Company received approval for its first expansion
               program. In 2000, the Company received approval for its second
               expansion program. Income derived from the expansion programs
               will be tax-exempt for a period of two years and will be subject
               to a reduced tax rate as mentioned above for an additional period
               of eight years. The period of benefits for these programs has not
               yet commenced since no income was derived. In July 2004 the
               company received approval for its third expansion program. The
               period of tax benefits detailed above is subject to limits of 12
               years from the year of commencement of production, or 14 years
               from the date of granting the approval, whichever is earlier.

               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, 2004, retained
               earnings included approximately $4,312 in tax exempt income
               earned by the Company's "Approved Enterprise". The Company has
               decided to permanently reinvest its tax exempt income.
               Accordingly, no deferred income taxes have been provided on
               income attributable to the Company's "Approved Enterprise". If
               these retained tax-exempt profits are distributed in a manner
               other than in the complete liquidation of the Company, they would
               be taxed at the corporate tax rate applicable to such profits as
               if the Company had not elected the alternative tax benefits
               (currently between 10% to 25% for an "Approved Enterprise").

               The Investment Law also grants entitlement to claim accelerated
               depreciation on equipment used by the "Approved Enterprise"
               during five tax years.

               The entitlement to the above benefits is conditional upon the
               Company fulfilling the conditions stipulated by the above law,
               regulations published thereunder and the instruments of approval
               for the specific investments in "Approved Enterprises". In the
               event of failure to comply with these conditions, the benefits
               may be canceled and the Company may be required to refund the
               amount of the benefits, in whole or in part, including interest.


                                       F-27
<PAGE>

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


NOTE 13-    INCOME TAXES (Cont.)

               Income not eligible for "Approval Enterprise" benefits mentioned
               above is taxed at the regular rate of 35%. The regular Company
               Tax rate is to be gradually reduced to 30% until 2007 (34% in
               2005, 32% in 2006 and 30% in 2007).

          c.   Net operating losses carryforwards

               As of December 31, 2004, the Company had approximately $26,504 of
               Israeli net operating loss carryforwards. The Israeli loss
               carryforwards have no expiration date.

               As of December 31, 2004, Fundtech Corporation had a U.S. federal
               net operating loss carryforward of approximately $51,184 that can
               be carried forward and offset against taxable income for 10-15
               years and begin to expire in 2010 through 2017. 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.

<TABLE>
<CAPTION>

                                                                     December 31,
                                                                 --------------------
                                                                  2 0 0 4    2 0 0 3
                                                                 --------    --------
<S>                                                              <C>         <C>
               Deferred tax assets:
                U.S. net operating loss carryforwards            $ 20,474    $ 20,884
                Israel net operating loss carryforwards             2,650       1,071
                Other reserve and allowances                        5,340       6,693
                                                                 ________    ________
               Total deferred tax assets before valuation
                allowance                                          28,464      29,648
               Valuation allowance                                (28,464)    (29,648)

               Balance at the end of the year (all foreign)      $      -    $      -
                                                                 ========    ========
               Deferred tax liabilities:
               Deferred taxes due to assets acquired and
               liabilities assumed (all foreign)                 $      -    $      -
                                                                 ========    ========
</TABLE>

               As of December 31, 2004, the Company and its subsidiaries have
               provided valuation allowances of approximately $28,464 in respect
               of deferred tax assets resulting from tax loss carryforwards and
               other temporary differences. Management currently believes that
               since the Company and its subsidiaries have a history of losses,
               it is more likely than not that the deferred tax regarding the
               loss carryforwards and other temporary differences will not be
               realized in the foreseeable future.


                                       F-28

<PAGE>

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


NOTE 13-    INCOME TAXES (Cont.)

          e.   Tax assessments

               The Company received final tax assessments through the tax year
               ended December 31, 1999. The subsidiaries of the Company have not
               been assessed for income tax purposes since incorporation.

          f. Composition of income tax expenses

<TABLE>
<CAPTION>

                                                          Year ended December 31,
                                                      ------------------------------
                                                      2 0 0 4     2 0 0 3    2 0 0 2
                                                      -------     -------    -------
              Income (loss) before taxes on income:

<S>                                                   <C>         <C>        <C>
              Domestic                                $(2,490)    $(1,863)   $ (2,205)
              Foreign                                   5,432       2,216     (14,077)
                                                      -------     -------    --------

                                                      $ 2,942     $   353    $(16,282)
                                                      =======     =======    ========


              Income tax provision (benefit) :

              Current:
                 Domestic                             $  119      $   99     $     51
                 Foreign                                 356         187          205
                                                      ______      ______     ________

                                                         475         286          256
                                                      ------      ------     --------
              Deferred:
                 Domestic                                  -           -            -
                 Foreign                                   -           -          109
                                                      ______      ______     ________

                                                           -           -          109
                                                      ______      ______     ________

                                                      $  475      $  286     $    365
                                                      ======      ======     ========
</TABLE>


                                       F-29
<PAGE>

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


NOTE 13-    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:

<TABLE>
<CAPTION>

                                                                             Year ended December 31,
                                                                    ---------------------------------------
                                                                     2 0 0 4         2 0 0 3        2 0 0 2
                                                                    --------        --------       --------

<S>                                                                 <C>             <C>            <C>
               Income (loss) before taxes on income                 $  2,942        $    353       $(16,282)
                                                                    ========        ========       ========

               Theoretical tax on the above amount                  $  1,030        $    127       $ (5,862)

               Tax benefit arising from "Approved Enterprise"            968           1,607            396

               Increase (decrease) in valuation allowance             (1,184)           (130)         6,071

               Adjustments arising from differences
                  in the basis of measurement for
                  tax purposes and for financial
                  reporting purposes                                    (236)         (1,414)             -

               Other, net                                               (103)             96           (240)
                                                                    ________        ________       ________

                                                                    $    475        $    286       $    365
                                                                    ========        ========       ========
</TABLE>


                                       F-30

<PAGE>

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


NOTE 14-    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 aligned
               itself into three operating business segments: Cash Management,
               Payments and BBP.

               The Company's cash management solutions enable small, mid and
               large-tier financial institutions to deliver a complete set of
               cash management services through the Internet and other delivery
               channels. The Company's payments solutions automate all aspects
               of the funds transfer, including foreign exchange, compliance,
               settlement and customer notification process, enabling
               straight-through-processing (STP) of payments. BBP develops,
               implements, maintains and operates systems for the automated
               processing and transport of data in the finance industry,
               primarily over the S.W.I.F.T. Network. 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 expense 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,
                                               ------------------------------
                                                2 0 0 4   2 0 0 3     2 0 0 2
                                                -------   -------     -------

               Cash Management:
               ----------------
                  Revenues                     $ 13,416   $ 11,365    $  8,098
                  Operating income (loss)      $    201   $  1,249    $ (2,844)

               Payments:
               ---------
                  Revenues                     $ 33,870   $ 26,972    $  24,214
                  Operating income (loss)      $  8,229   $  4,827    $ (2,681)

               BBP:
               ----
                  Revenues                     $ 11,251   $  9,277    $  7,516
                  Operating income (loss)      $    600   $   (106)   $     42



                                       F-31

<PAGE>

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


NOTE 14-    OPERATING SEGMENT AND GEOGRAPHICAL INFORMATION  (Cont.)

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

<TABLE>
<CAPTION>

                                                                                                 Year ended
                                                                                                December 31,
                                                                                     -------------------------------
                                                                                        2004      2003        2002
                                                                                     --------   --------    --------

<S>                    <C>                                                          <C>         <C>        <C>
                         Total operating income (loss) of the reportable segments:   $  9,030   $  5,970    $ (5,483)

                         Amounts not allocated to segments:
                             General and administrative expenses                        5,574      5,326       6,172
                             Marketing expenses                                         1,241        962       1,785
                             Restructuring expenses                                      --         --         3,252
                                                                                     ________   ________    ________

                         Consolidated operating income (loss)                           2,215   $   (318)   $(16,692)
                                                                                     ========   ========    ========

                 c.      Geographic information:

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

<TABLE>
<CAPTION>

                                                       Year ended December 31,
                                       ---------------------------------------------------------
                                            2 0 0 4            2 0 0 3             2 0 0 2
                                       -----------------   ----------------    -----------------
                                                  Long -              Long -              Long -
                                        Total     lived     Total     lived     Total     lived
                                       revenues   Assets   revenues   assets   revenues   assets
                                       --------   ------   --------   ------   --------   ------

<S>                     <C>           <C>       <C>       <C>       <C>       <C>        <C>
                         Israel        $    62   $   910   $   115   $    74   $   142   $   827
                         U.S            31,920    18,503    28,908    17,771    26,272    20,844
                         Switzerland    10,425     9,221     8,865     8,185     7,801     8,451
                         India             292     4,176         -         -         -         -
                         Others         15,838        21     9,726        68     5,613       149
                                       _______   _______   _______   _______   _______   _______

                                       $58,537   $32,831   $47,614   $26,698   $39,828   $30,271
                                       =======   =======   =======   =======   =======   =======
</TABLE>

                 d.      Major customer data as a percentage of total revenue:

                                                 Year ended December 31,
                                           ----------------------------------
                                           2 0 0 4      2 0 0 3       2 0 0 2
                                           -------      -------       -------

                        Customer A           14%           18%           17%
                                             ===           ===           ===

                                       F-32

<PAGE>

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


NOTE 15-    FINANCIAL INCOME, NET

<TABLE>
<CAPTION>

                                                                  Year ended December 31,
                                                               -----------------------------
                                                               2 0 0 4    2 0 0 3    2 0 0 2
                                                               -------    -------    -------
<S>                                                            <C>         <C>        <C>
            Financial expenses:
              Interest and other                               $  18       $  47      $ 172
              Foreign currency translation differences, net       50           -         67
                                                               _____       _____      _____

                                                                  68          47        239
                                                               _____       _____      _____

            Financial income:
              Interest and other                                 795         716        930
              Foreign currency translation differences, net        -           2         -
                                                               _____       _____      _____

                                                                 795         718        930
                                                               -----       -----      -----
                                                               _____       _____      _____

                                                               $ 727       $ 671      $ 691
                                                               =====       =====      =====
</TABLE>



                                       F-33

<PAGE>

                                   SCHEDULE II
                                  FUNDTECH LTD.
                        VALUATION AND QUALIFYING ACCOUNTS

                                                      Year ended December 31,
                                                  ----------------------------
                                                    2004      2003        2002
                                                  -------    -------    -------

                Allowance for doubtful
                  accounts at beginning of year   $ 2,366    $ 4,512    $ 5,966
                Provision                             269        350      1,335
                Translation adjustments                 3          4          6
                Accounts receivable written off    (1,351)    (2,500)    (2,795)
                                                  _______    _______    _______

                Allowance for doubtful accounts
                 at end of year                   $ 1,287    $ 2,366    $ 4,512
                                                  =======    =======    =======




                                       F-34

<PAGE>


                                    SIGNATURE

      The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.

                                    FUNDTECH LTD.


                                    By: /s/ Reuven Ben Menachem
                                       ---------------------------------
                                       Reuven Ben Menachem
                                       Chief Executive Officer

Date:  May 27, 2005