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

                                    FORM 20-F


                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 1999
                        Commission file number 333-10882

                                   JACADA LTD.
             (Exact name of Registrant as specified in its charter)

                                     Israel
                 (Jurisdiction of incorporation or organization)

                             11 Galgalei Haplada St.
                                 P.O. Box 12175
                             Herzliya 46722, Israel
                    (Address of principal executive offices)

Securities  registered or to be registered pursuant to Section 12(b) of the Act:
NONE

Securities  registered or to be registered pursuant to Section 12(g) of the Act:
NONE

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

                            5,175,000 ordinary shares
--------------------------------------------------------------------------------
                                (Title of Class)


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

        Ordinary Shares, par value NIS 0.01 per share: 17,610,893 shares



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     [X] Item 18


NY2:\882891\06\54497.0003
<PAGE>
                                TABLE OF CONTENTS


                                     PART I
<TABLE>
<CAPTION>
<S>                                                                                                            <C>
Item 1.    DESCRIPTION OF BUSINESS..............................................................................1

Item 2.    DESCRIPTION OF PROPERTY.............................................................................16

Item 3.    LEGAL PROCEEDINGS...................................................................................16

Item 4.    CONTROL OF REGISTRANT...............................................................................16

Item 5.    NATURE OF TRADING MARKETING.........................................................................17

Item 6.    EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS..................................17

Item 7.    TAXATION............................................................................................17

Item 8.    SELECTED FINANCIAL DATA.............................................................................22

Item 9.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...............23

Item 9A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES
           ABOUT MARKET RISK...................................................................................29

Item 10.   DIRECTORS AND OFFICERS OF REGISTRANT................................................................30

Item 11.   COMPENSATION OF DIRECTORS AND OFFICERS..............................................................32

Item 12.   OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES......................................33

Item 13.   INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS......................................................33

                                     PART II

Item 14.   DESCRIPTION OF SECURITIES TO BE REGISTERED..........................................................34

                                    PART III

Item 15.   DEFAULTS UPON SENIOR SECURITIES.....................................................................34

Item 16.   CHANGES IN SECURITIES, CHANGES IN SECURITY FOR REGISTERED SECURITIES AND USE OF PROCEEDS............34

                                     PART IV

Item 17.   FINANCIAL STATEMENTS................................................................................34

Item 18.   FINANCIAL STATEMENTS................................................................................35

Item 19.   FINANCIAL STATEMENTS AND EXHIBITS...................................................................35
</TABLE>


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<PAGE>

         This  Annual  Report   contains   forward-looking   statements.   These
forward-looking statements include, but are not limited to, statements about our
plans, objectives, expectations and intentions and other statements contained in
this annual report that are not historical facts.

         Prospective  investors  are  cautioned  that any  such  forward-looking
statements  are not  guarantees  of future  performance  and  involve  risks and
uncertainties,  and that actual results may differ  materially from those in the
forward-looking  statements  as a result of  various  factors.  The  information
contained in this annual report  identifies  important  factors that could cause
such differences.

         We have prepared our consolidated  financial statements in U.S. dollars
and in accordance with U.S. Generally Accepted Accounting Principles (GAAP). All
references in this Annual Report to "dollars" or "$" are to U.S. dollars and all
references to "NIS" are to New Israeli Shekels.

         Amounts and  percentages  appearing in this Annual Report may not total
due to rounding.


                                       ii
<PAGE>


                                     PART I

Item 1.     DESCRIPTION OF BUSINESS

General

         Jacada Ltd.  ("Jacada,"  the "Company" or "we")  develops,  markets and
supports software that enables businesses to utilize their existing host-centric
software  applications  to conduct  business over the Internet.  We also provide
related  professional  services,  including  training,  consulting,  support and
maintenance.  Our products and services provide our end-users with comprehensive
eBusiness  enabling  solutions.  As of December  31,  1999,  we had licensed our
flagship product,  Jacada for Java, to over 100 end-users and our other products
to several  hundred  additional  end-users.  Typical  users of our  products and
services  are  medium  to  large   businesses  with   sophisticated   technology
requirements.  Some of the companies that have  implemented or are  implementing
our solutions include AIG, Bank of America, Caterpillar, Lockheed Martin, McGraw
Hill,  Nabisco,  Porsche and Saab.  We were  incorporated  in Israel in December
1990. On August 9, 1999 we changed our name from  Client/Server  Technology Ltd.
to Jacada Ltd.

Industry Overview

         The Internet has  fundamentally  changed the way companies  think about
their business  strategies.  It has created  opportunities for companies to make
their applications and data accessible to their employees,  customers, suppliers
and other third parties quickly and cost-effectively.

         A significant number of the applications that are critical to companies
in  operating   their   businesses,   such  as  customer   account   information
applications,  sales  and  inventory  management  applications,  customer  order
information   applications  and  manufacturing   enterprise   resource  planning
applications,  are currently  held in  host-centric  environments  such as those
based on mainframes and mini-computers.  According to META Group, an independent
research  organization,  more than 70% of  corporate  data still  resides in the
mainframe environment alone. Applications for host-centric systems are typically
complex and proprietary and tailored to the needs of a specific  company.  These
applications  were originally  designed to be accessible only by a fixed network
of  users,   principally   employees.   Furthermore,   these  applications  have
complicated   text-based  user  interfaces,   which  lack  the  flexibility  and
intuitiveness of today's graphical user interfaces.  Companies  continue to rely
heavily  on and  invest  a  significant  amount  of  resources  in  host-centric
applications and data.

         Companies are  increasingly  seeking to circumvent  the  limitations of
their  existing   host-centric  systems  by  utilizing  the  broad  distribution
potential of the Internet to grant employees, customers, suppliers and corporate
partners  easy access to  applications  and data.  This may be  accomplished  by
completely rewriting  applications or by extending existing  applications to the
Internet.  Rewriting an application  involves  significant time and expense,  as


<PAGE>

well as uncertain  scheduling,  budgeting  and  results.  It may also render the
skills and  knowledge  of a company's  information  technology  staff  obsolete.
Companies' large investments in existing host-centric  applications have created
the need for a solution that enables the extension of these  applications to the
Internet.  GartnerGroup, an independent research organization,  expects that, by
the year 2003,  80% of  application  development  organizations,  which  include
internal application  development  departments and independent software vendors,
will  extend  some  or all of  their  applications  to the  Internet.  Extending
applications  to  the  Internet  allows  companies  to  utilize  their  existing
applications  and data and can  typically  be  accomplished  more  quickly  than
rewriting applications.

         An effective  solution to extend existing  applications to the Internet
         should:

          o    be able to be implemented rapidly;

          o    enable the deployment of a  comprehensive  solution that does not
               require extensive custom programming;

          o    provide a flexible  architecture  that  allows for the  efficient
               incorporation of evolving technologies; and

          o    be able to operate on multiple platforms and support a variety of
               applications.

Our Solutions

         We  develop,   market  and  support   software  that  extends  existing
host-centric  applications  to the  Internet,  thereby  enabling  businesses  to
utilize these existing  applications online. Our solutions provide the following
benefits:

          o    Leverage Existing Information Technology Resources. Our solutions
               permit companies to use their existing host-centric  applications
               online. This eliminates the need to replace existing applications
               through   time-consuming   and  expensive   custom   programming.
               Additionally,  our solutions allow programmers trained in various
               languages to program in their native  software  languages  and to
               generate  code that is usable in  permitting  applications  to be
               accessed from the Internet.

          o    Allow  Rapid  Implementation.  We  design  our  solutions  to  be
               implemented   rapidly  and  to  require  minimal   customization.
               Consequently,  our solutions can  typically be  implemented  more
               rapidly than internally-developed solutions.

          o    Provide a Complete eBusiness Enabling Solution. Our comprehensive
               solutions allow companies to conduct eBusiness to the same extent
               as available by direct connection with the host computer, without
               purchasing  any  other  products.  They  have  been or are  being


                                       2
<PAGE>

               implemented by more than 100 companies  worldwide.  Our solutions
               offer our customers the following advantages:

          o    Flexibility to Adapt to Evolving  Business  Needs.  We design our
               solutions to work  effectively  even as companies modify existing
               and add new  applications in response to their evolving  business
               needs. As companies program changes into their applications,  our
               solutions will, in many cases,  automatically reflect the changes
               in the graphical user interface.

          o    Reliability  and  Scalability.  Our  solutions  are  designed  to
               provide  the  reliability  required  for  applications  that  are
               critical to the operation of businesses,  and are easily scalable
               to  accommodate  additional  users in  response  to the  evolving
               business needs of our customers.

          o    Programming Language  Independence.  Our solutions are compatible
               with  software  applications  written in all leading  programming
               languages,  allowing our customers to use our solutions  across a
               wide range of applications.

          o    Platform Independence. Our Java-based solution provides customers
               with the  flexibility  to run our  products  on any  Java-enabled
               platform,  including  IBM  mainframes,  AS/400,  Sun  Solaris and
               Microsoft Windows NT.

Products and Technology

         Our products and services  provide our customers  with a  comprehensive
eBusiness enabling solution. Our products include:

          o    Jacada for Java. Jacada for Java generates Java-based  interfaces
               for mainframe and  mini-computer  software  applications  without
               requiring any change to the host applications. By generating Java
               source  code,  Jacada for Java  enables our  customers  to extend
               their  host-centric  applications  and data to the  Internet  and
               their  intranets   without  rewriting  these   applications.   In
               addition,  Jacada for Java provides the modern graphical features
               users  expect  from  today's  applications.  Jacada for Java also
               allows   customers   to  enhance   their   applications   to  add
               functionality,  integrate  with  other data  sources  and link to
               other Internet applications.

          o    Jacada Connects.  Jacada Connects enables any Java-based  product
               to access the business logic of an existing  application.  Jacada
               Connects is a derivative of Jacada for Java and provides a single
               application  programming  interface to access the business logic.
               Jacada Connects is designed to be utilized by third party vendors
               and system integrators in their solutions.


                                       3
<PAGE>

          o    Jacada for Visual Basic. Jacada for Visual Basic generates Visual
               Basic   and   ActiveX-based    interfaces   for   mainframe   and
               mini-computer  software applications without requiring any change
               to the host  application.  By  modifying  the code  generated  by
               Jacada  for  Visual  Basic,   our  customers  can  enhance  their
               applications so that they will support added  functions,  be able
               to  operate  with  other  data  sources  and be  linked  to other
               applications.

          o    Jacada for Windows.  Jacada for Windows  generates  Windows-based
               interfaces for mainframe and mini-computer  software applications
               without requiring any change to the host application.

          o    Jacada  Wireless  Family  (currently  in  beta  testing).  Jacada
               Wireless supports any Wireless Application Protocol (WAP) enabled
               device  such  as  mobile  phones,  as well  as  Personal  Digital
               Assistants such as the Palm VII(TM).  Using Jacada Wireless,  any
               mainframe or AS/400  application  can be delivered to WAP-enabled
               or Palm  devices  providing  mobile  users  controlled  access to
               valuable   business   applications  and  data.   Jacada  Wireless
               automatically   produces   Wireless  Markup  Language  (WML)  and
               HyperText  Markup Language (HTML) code that is interpreted by the
               wireless device.

          o    Jacada for HTML.  Jacada for HTML generates  HTML  interfaces for
               mainframe  and  mini-computer   software   applications   without
               requiring any change to the host application.  By generating HTML
               code,  Jacada for HTML enables our customers to provide  seamless
               integration of existing mainframe or AS/400 application  business
               logic with any web server.

         The  above  products  are  based  on  our  following  core   technology
         components:

          o    Jacada  KnowledgeBase.  The  Jacada  KnowledgeBase  is a  set  of
               sophisticated   algorithms   for   analyzing   and   interpreting
               host-centric  applications  and  converting  over 700 patterns on
               those  text-based  applications  into  graphical  user  interface
               components.   During  the  conversion   process,   the  Automated
               Conversion  Environment  automatically  matches all the  patterns
               identified  on  the  screen  with  pattern   definitions  in  the
               KnowledgeBase.  The KnowledgeBase  then generates a new graphical
               user interface based on these pattern definitions.

          o    Jacada  Automated  Conversion  Environment  (ACE). In combination
               with the Jacada  KnowledgeBase,  ACE forms the powerful core of a
               solution  that can quickly  and easily  generate  graphical  user
               interfaces for mainframe and mini-computer software applications.
               This allows companies to extend their  host-centric  applications
               to the Internet  through user  interfaces  that are  graphical in
               nature and  intuitive,  as opposed  to user  interfaces  that are
               comprised  solely  of  text.  Graphical  user  interfaces  may be
               created  using Java,  HTML or  ActiveX/Visual  Basic.  ACE allows
               users to  customize  the  graphical  user  interface  by changing


                                       4
<PAGE>

               colors, fonts, sizes and layout, as well as by adding or deleting
               functions or graphics.

          o    Jacada Innovator  (currently in beta testing).  Jacada Innovator,
               developed in cooperation with IBM, contains innovative technology
               which enables new or existing  applications  written in COBOL, C,
               C++, Java or any other language to be utilized with Java, thereby
               eliminating  the  need  to  create  traditional  text-based  user
               interfaces.  Any software  developer can utilize Jacada Innovator
               without any special knowledge of any other  programming  language
               and without any Java  experience.  This allows  organizations  to
               leverage  their existing  software  skills and resources to build
               modern  applications.  We have a  patent  pending  for  and  full
               ownership rights in Jacada Innovator.

Professional Services

         Our professional  services include  training,  consulting,  support and
maintenance  services.  Support and  maintenance  services  are  provided to our
customers  through  agreements  under  which we  provide  technical  support  by
telephone,  fax,  email and the  Internet  during  business  hours  and  provide
updates,  upgrades and fixes to our software products.  We require our customers
to purchase support and maintenance services at a fixed annual fee for 12 months
after  the  initial  purchase,   renewable  annually  thereafter.  In  addition,
customers can elect optional  services such as emergency  coverage on a 24 hours
per day, seven days per week basis and dedicated technical account managers.  We
also  provide  customer  training at our  Atlanta,  Georgia  facility  and other
locations,  with coursework related to various aspects of our eBusiness enabling
solutions.

         We provide our direct sales customers with training  services to assist
them in learning  how to use our  products.  We also  provide  our direct  sales
customers with  consulting  services to assist them with installing our products
and  integrating  our  products  into  their  systems,  and to assist  them with
managing and enhancing their utilization of our products on an ongoing basis.

         We bill by the hour for consulting services and by the day for training
services.  We typically enter into  commitments with customers to provide blocks
of training and  consulting  services.  However,  customers are not obligated to
utilize the entire blocks of time and are permitted to pay only for the services
that are actually  rendered.  The majority of our trainers and  consultants  are
located in the United States.  Our  distributors  and other resellers  typically
provide training and consulting services to their customers themselves, assisted
by us as necessary.

Sales and Marketing

         We sell our products  through our direct sales force in North  America,
as well as through our indirect  distribution  channels,  consisting of software
distributors,  independent  software  vendors and system  integrators,  in North
America as well as in countries where we have no direct sales operations.  As of
December 31, 1999, we had 39 people in our sales and marketing organization.  We


                                       5
<PAGE>

intend to continue to significantly  increase the size of our direct sales force
and to establish additional sales offices domestically and internationally.

         Our indirect  distribution  channels have  capabilities that complement
and augment our eBusiness  solution and extend our market reach.  In particular,
independent   software   vendors   often   contribute    industry-specific   and
application-specific  expertise  as  well  as  large  scale  project  management
capabilities  that  enable us to  address  a broad  range of  vertical  markets.
Independent software vendors and system integrators often package or incorporate
our  products  with  their  products  or  solutions.  This  enables us to create
combined  offerings  that  address  specific  needs,  particularly  for specific
vertical markets, and provide more complete and tailored offerings.

         Our marketing efforts are focused on developing greater awareness among
our target customers of our solution and the benefits it can provide.  We market
our products and services  through  eMarketing,  tradeshows and public relations
activities.  We have  developed a wide range of  collateral  materials and sales
tools  that are used by our direct  sales  force and our  indirect  distribution
channels.  These materials include brochures,  white papers, case studies, press
releases and our Web site.

Customers

         Our customers  include both  end-users to whom we sell our products and
services  directly and distributors and other  intermediaries  who either resell
our  products to end-users or  incorporate  our products  into their own product
offerings.  As of December  31,  1999,  Jacada for Java was licensed to over 100
end-users and our other  products were  licensed to several  hundred  additional
end-users.  Typical  end-users  of our products and services are medium to large
businesses with sophisticated technology requirements.

         Typical  ways  that  companies  are  using  our  solutions  to  rapidly
implement eBusiness initiatives include:

          o    Automotive  companies  are using our  solutions  to  enhance  the
               quality of their  services by enabling  dealers in their networks
               to utilize previously  centralized sales and inventory management
               systems to locate and order cars and parts inventory.

          o    Retailers are using our solutions to enable existing  back-office
               software  applications  to be used to receive and process  orders
               from customers and to send orders to suppliers via the Internet.

          o    A car  rental  company  is  utilizing  our  solutions  to  permit
               employees of an insurance company to check availability and order
               cars for their insured customers via the Internet.


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<PAGE>

          o    Enterprise  resource  planning software vendors are utilizing our
               solutions  in  concert  with  their  manufacturing   applications
               software  to enable  their  customers  to manage  the  customers'
               manufacturing and inventory processes via the Internet.

          o    Insurance  companies are using our solutions to enable  customers
               to access account information via the Internet.

Research and Development

         We believe that strong product  development  capabilities are essential
to our  strategy of  continuing  to enhance and expand the  capabilities  of our
products in order to continue to provide our customers with  eBusiness  enabling
solutions.  We have  invested  significant  time and  resources  in  creating  a
structured  process  for  undertaking  all  product  development.  This  process
involves several  functional groups at all levels within our organization and is
designed to provide a framework  for  defining  and  addressing  the  activities
required  to  bring  product   concepts  and  development   projects  to  market
successfully.  In  addition,  we  have  recruited  key  software  engineers  and
developers with experience in Java, communications,  expert systems and Internet
technologies.

         Our research and  developments  efforts have been primarily  focused on
enhancing  and adding  functionality  to our  existing  products  and adding new
products based on our expectations of future technologies and industry trends.

         Our research and  development  expenses  were $1.5 million for the year
ended  December 31, 1997,  $2.4 million for the year ended December 31, 1998 and
$3.3 million for the year ended  December 31, 1999.  As of December 31, 1999, 49
professionals were engaged in research and development activities.

Competition

         The eBusiness  enabling  software  market is extremely  competitive and
subject to rapid change.  We believe that the competitive  factors affecting the
market for our products and services include:

          o    product functionality and features;

          o    availability of global support;

          o    incumbency of vendors;

          o    ease of product implementation;

          o    quality of customer support services; and

          o    product reputation.


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<PAGE>

         The  relative  importance  of each of these  factors  depends  upon the
specific  customer  environment.  Although  we  believe  that our  products  and
services  currently compete favorably with respect to these factors,  we may not
be able to maintain  our  competitive  position  against  current and  potential
competitors.  In addition, many companies choose to deploy their own information
technology  personnel or utilize system integrators to write new code or rewrite
existing applications in an effort to develop eBusiness solutions.  As a result,
prospective  clients may decide against  purchasing and implementing  externally
developed and produced solutions such as ours.

         We compete with  companies  that utilize  varying  approaches to enable
host-centric  software  applications  to be utilized  over the  Internet.  These
companies  include Active  Software,  Attachmate,  CrossWorlds,  IBM, New Era of
Networks,  OpenConnect,  Seagull,  and Vitria. We expect additional  competition
from other established and emerging companies.  Furthermore, our competitors may
combine with each other,  or other  companies may enter our markets by acquiring
or entering into strategic relationships with our competitors.

Employees

         As of December  31,  1999,  we had 75  employees  in Israel,  69 in the
United States and 3 in Europe. Of our 147 employees, 49 were engaged in research
and  development,  39  in  sales,  marketing  and  business  development,  36 in
professional  services and technical  support and 23 in finance,  administration
and operations. None of our employees is represented by a labor union.

         We are subject to Israeli  labor laws and  regulations  with respect to
our Israeli  employees.  These laws  principally  concern  matters  such as paid
annual vacation,  paid sick days,  length of the workday and work week,  minimum
wages, pay for overtime, insurance for work-related accidents, severance pay and
other conditions of employment.

         Furthermore,  we and our Israeli employees are subject to provisions of
the collective  bargaining  agreements between the Histadrut (General Federation
of Labor in  Israeli)  and the  Coordination  Bureau of  Economic  Organizations
(including the  Industrialists  Association) by order of the Israeli Ministry of
Labor  and  Welfare.   These  provisions  principally  concern  cost  of  living
increases,  recreation pay and other conditions of employment.  To date, we have
not experienced any work stoppages.

Investment Considerations

         Readers are cautioned that  investment in Jacada is subject to a number
of risks. Readers should consider carefully all information set forth herein and
in particular the following risks in connection with an investment in Jacada:

         We have a limited operating history in our current principal market and
with our current  principal  product.  We  therefore  cannot be certain that our
business  strategy will be  successful.  We were founded in 1990.  However,  our


                                       8
<PAGE>

strategic focus has been on our current principal market, the eBusiness enabling
software  market,  only since 1996.  Our main source of income is currently  our
Jacada for Java  product,  which was  released  in August  1997.  Because of our
limited  experience in our principal market and with our principal  product,  we
cannot assure you that our strategy for operating in that market or selling that
product will be successful.

         We  have  a  history  of  losses,   we  may  not  achieve  or  maintain
profitability.  We have  incurred  net  losses  in each  fiscal  year  since our
inception.  We incurred  net losses of  approximately  $2.9 million for the year
ended  December 31, 1998 and $6,000 for the year ended  December  31,  1999.  We
intend to increase our aggregate  product  development,  sales and marketing and
administrative  expenses  significantly  over the next 12 months. To achieve and
maintain  profitability,  we will need to increase  revenues  significantly.  We
cannot  assure  you that  our  revenues  will  grow or that we will  achieve  or
maintain  profitability  in the  future.  Our  ability to  increase  revenue and
achieve  profitability  will be affected  by the other  risks and  uncertainties
described  in this  section  and in  "Management's  Discussion  and  Analysis of
Financial Condition and Results of Operations."

         Our  revenues  are  largely  dependent  on sales of our Jacada for Java
product and related services. Our business could be materially harmed by factors
that  adversely  affect the pricing and demand for this  product.  We  currently
derive  in excess  of 80% of our  revenues  from  sales of our  Jacada  for Java
product and related  services.  We expect revenues from this product to continue
to  account  for a  substantial  portion of our  future  revenues.  As a result,
factors  adversely  affecting  the  pricing of or demand for our Jacada for Java
product,  such as competition and  technological  change,  could have a material
adverse effect on our business,  financial  condition and results of operations.
If our Jacada for Java  product  does not achieve  market  acceptance  or if our
competitors  release new products that achieve greater market  acceptance,  have
more advanced features,  offer better performance or are more price-competitive,
revenues from this product may not grow as expected and may decline.

         Our eBusiness enabling products may not achieve market  acceptance.  If
eBusiness  enabling  products such as ours are not widely adopted,  our business
could suffer. Our products are complex and generally involve significant capital
expenditures  by our  customers.  We do not have a long  history of selling  our
products and we will have to devote substantial resources to educate prospective
customers about the benefits of our products.  Our efforts to educate  potential
customers  may not  result  in our  products  achieving  market  acceptance.  In
addition,  many  prospective  customers  have made  significant  investments  in
internally-developed  or customized systems and would incur significant costs in
switching  to  third-party  products  such  as  ours.  Furthermore,  even if our
products are effective,  our target customers may not choose them for technical,
cost, support or other reasons.  If the market for our products fails to grow or
grows more slowly than we anticipate, our business could suffer.


                                       9
<PAGE>

         Competition in the market for eBusiness  enabling  software is intense.
If we are unable to compete  effectively,  the demand for, or the prices of, our
products may be reduced. The market for eBusiness enabling software is extremely
competitive  and  subject  to rapid  change.  We  compete  in that  market  with
companies  that  utilize  varying  approaches  to enable  host-centric  software
applications to be utilized over the Internet.  These  companies  include Active
Software,  Attachmate,  CrossWorlds,  IBM,  New  Era of  Networks,  OpenConnect,
Seagull, and Vitria.

         We expect  additional  competition from other  established and emerging
companies.  Furthermore,  our  competitors may combine with each other and other
companies  may enter  our  markets  by  acquiring  or  entering  into  strategic
relationships with our competitors.

         In addition,  many  companies  choose to deploy  their own  information
technology  personnel or utilize system integrators to write new code or rewrite
existing  applications  in an effort to  develop  their own  eBusiness  enabling
solutions.  As a result,  prospective  clients may decide against purchasing and
implementing externally-developed and produced solutions such as ours.

         Many  of our  current  and  potential  competitors  have  significantly
greater financial,  technical and marketing resources,  greater name recognition
and larger  customer bases than we do. Our present or future  competitors may be
able to develop products comparable or superior to ours; adapt more quickly than
we do to new technologies, evolving industry trends or customer requirements; or
devote greater  resources than we do to the  development,  promotion and sale of
products. Accordingly, we may not be able to compete effectively in our markets,
competition may intensify and future competition may harm our business.

         Our software  license revenues result from a relatively small number of
sales, some of which generate  disproportionately  large revenues.  In addition,
our  sales  cycle  is  lengthy.  Sales  of our  products  are  also  subject  to
seasonality.  These factors may cause our revenues to fluctuate  materially from
period to  period.  If we fail to meet  market  expectations  in any  individual
period,  our stock price  could  decline  significantly.  Our  software  license
revenues result from a relatively small number of sales,  some of which generate
disproportionately  large revenues.  These sales typically  involve  significant
capital investment decisions by prospective customers,  as well as a significant
amount of time to educate them as to the benefits of our products.  As a result,
before  purchasing our products,  companies  spend a substantial  amount of time
performing  internal reviews and obtaining  capital  expenditure  approvals.  It
typically  takes up to six months from the time we first  contact a  prospective
customer  before  receiving  an initial  order.  This cycle may  lengthen in the
future.

         Sales of our  products  and  services  tend to be  lower  in our  first
quarter,  and higher in our fourth  quarter,  due to the capital  budgeting  and
purchasing cycles of our current and prospective customers.  It is difficult for
us to  evaluate  the degree to which this  seasonality  may affect our  business


                                       10
<PAGE>

because our growth may have  largely  overshadowed  this  seasonality  in recent
periods.

         Because  of  these  factors,   our  quarterly  revenues  may  fluctuate
materially and may not meet market  expectations in any individual period.  This
would  likely  cause  the price of our  ordinary  shares  to  decline.  Further,
period-to-period comparisons of our revenues will not necessarily be meaningful.
As a  result,  you  should  not  rely  upon  them  as an  indication  of  future
performance.

         The  expansion  of our direct  sales  force and  indirect  distribution
channels will be difficult,  will take time and will be costly. Our growth could
be limited if we fail to achieve  this  expansion.  We need to expand our direct
sales force in order to significantly  increase market awareness of our products
and to generate increased revenue. New sales personnel will require training and
it will  take  time for  them to  achieve  full  productivity.  There is  strong
competition  for qualified  sales  personnel in our business,  and we may not be
able to attract and retain a sufficient  number of new sales personnel to expand
our  operations.  Our cost of sales will  increase as a  percentage  of revenues
while we expand our direct  sales  force.  Unless  this  expansion  results in a
proportionate  increase in  revenues,  our margins and business may be adversely
affected.

         In addition,  we believe that our future  success is dependent upon the
expansion of our indirect distribution channels, consisting of our relationships
with independent software vendors, software distributors and system integrators.
We currently  have  relationships  with only a limited  number of these indirect
distribution channels.  Nevertheless, we have derived, and we anticipate that we
will  continue  to derive,  a  significant  portion of our  revenues  from these
relationships.

         Our future growth will be limited if:

          o    we  fail to  work  effectively  with  our  indirect  distribution
               channels;

          o    we fail to increase the number of indirect  distribution channels
               with which we have relationships;

          o    the business of one or more of our indirect distribution channels
               fails; or

          o    there  is a  decrease  in  the  willingness  and  ability  of our
               indirect distribution channels to devote sufficient resources and
               efforts to marketing and supporting our products.

         If  any  of  these  circumstances   occurs,  we  will  have  to  devote
substantially   more   resources   to  the   distribution,   sales,   marketing,
implementation  and support of our products than we otherwise would, and our own
efforts may not be as effective as those of our indirect distribution channels.


                                       11
<PAGE>

         Our growth could be limited if we fail to hire  additional  consultants
and  sales  implementation  personnel.  We rely  on our  staff  of  professional
consultants  and other  technical  service  personnel to implement our solutions
after purchases by our customers.  Unless we hire,  train and retain  additional
consultants and sales implementation  personnel,  it will be difficult for us to
increase  our  present  level of sales due to  constraints  on our  capacity  to
implement additional sales.

         Rapid  changes and  developments  in the  eBusiness  enabling  software
market could cause our products to become obsolete or require us to redesign our
products.  The eBusiness  enabling  software  market is  characterized  by rapid
technological  change,  frequent new product introductions and emerging industry
standards,  particularly  those related to electronic  commerce.  We also expect
that the rapid evolution of Internet-based  applications and standards,  as well
as general  technology  trends such as changes in or  introductions of operating
systems,  will  require  us to adapt our  products  to remain  competitive.  Our
products could become obsolete and unmarketable if we are unable to adapt to new
technologies or standards.

         To be  successful,  we will need to develop and  introduce new products
and  product  enhancements  that  respond  to  technological  changes,  evolving
industry  standards and other market changes and developments in a timely manner
and on a cost-effective basis. Although we plan to continue to spend substantial
amounts of the cash generated  from our operations for research and  development
expenditures  over the next two years, we cannot assure you that we will develop
these  types of  products  and  product  enhancements  successfully  or that our
products  will  achieve  broad  market  acceptance.  Our failure to respond in a
timely and  cost-effective  manner to new and  evolving  technologies  and other
market changes and developments could adversely impact our business.

         We rely on our founders and other key personnel, whose knowledge of our
business and technical  expertise would be extremely  difficult to replace.  Our
future success depends,  to a significant  degree, on the continued  services of
our  founders,  Gideon  Hollander  and  Nimrod  Gil-Ad,  as  well as  other  key
management,  sales and  technical  personnel.  We have entered  into  employment
agreements with our officers and key employees.  Each of these agreements can be
terminated by either party upon up to 90 days prior  notice.  We do not maintain
life insurance policies on most of our employees. The loss of services of any of
our  management  for any  reason  could have a  material  adverse  effect on our
business,  financial condition and results of operations.  We are also dependent
on our ability to attract,  retain and motivate highly skilled personnel. In the
markets in which we recruit,  competition  for qualified  personnel is extremely
intense and is characterized by rapidly  increasing  salaries.  As a result, our
operating  expenses may increase or our ability to recruit and retain  qualified
candidates may be limited.

         We  expect  to  be  increasingly  subject  to  risks  of  international
operations.  We currently market and sell our products and services primarily in
North America,  from which we received  approximately  81% of our total revenues
for the  year  ended  December  31,  1999.  However,  we plan  to  increase  our


                                       12
<PAGE>

international  operations,  particularly in Europe.  This expansion will require
significant management attention and financial resources.  Further, we currently
have  limited   experience   in   marketing   and   distributing   our  products
internationally.  Our  inability  to  successfully  increase  our  international
operations could adversely impact our business.

         To date,  we have not used risk  management  techniques or "hedged" the
risks associated with fluctuations in foreign exchange rates.

         Our  products  may  contain   unknown   defects  that  could  harm  our
reputation,  result in product  liability or decrease  market  acceptance of our
products.  Our products may contain errors or defects,  particularly  when first
introduced or when new versions or enhancements  are released.  Although we have
not experienced any material  software defects to date,  defects could cause our
customers to experience  system  failures.  Our customers depend on our software
for their critical systems and business functions. Any interruptions could:

          o    damage our reputation;

          o    increase our product development costs;

          o    divert our product development resources;

          o    cause us to lose future sales; or

          o    delay or diminish market acceptance of our products.

         Although we conduct  extensive  testing,  we may not discover  software
defects  that  affect our  products or  enhancements  until after they are sold.
Furthermore,  we are unable to test our products in each of the  applications in
which they are designed to work.

         Our products are integrated  with our customers'  networks and software
applications.  The sale and  support  of our  products  may  entail  the risk of
product  liability  or  warranty  claims  based on damage to these  networks  or
applications.  In  addition,  the failure of our products to perform to customer
expectations  could give rise to warranty claims.  Any of these claims,  even if
not  meritorious,  could  result in  costly  litigation  or divert  management's
attention  and  resources.  Our  current  insurance  coverage  would  likely  be
insufficient  to protect us from all  liability  that may be imposed under these
types of claims.

         Our  technology  may  be  subject  to  infringement  claims  or  may be
infringed upon. Our success and ability to compete are  substantially  dependent
upon our internally  developed  technology.  Most of our intellectual  property,
other than our trademarks,  consists of proprietary or confidential  information
that is not  subject to patent or similar  protection.  Despite  our  efforts to
protect our intellectual property rights, unauthorized third parties may attempt
to copy or otherwise  obtain and use the  technology  protected by those rights.
Any  infringement  of our  intellectual  property could have a material  adverse


                                       13
<PAGE>

effect  on  our  business,   financial  condition  and  results  of  operations.
Furthermore,  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.

         Although we do not believe that we infringe upon any patent,  trademark
or other  intellectual  property rights of others, we cannot be certain that one
or more  persons will not make a claim of  infringement  against us. Any claims,
with or without merit, could:

          o    be expensive and time-consuming to defend;

          o    cause product shipment and installation delays;

          o    divert management's attention and resources; or

          o    require us to enter into royalty or licensing  agreements,  which
               may not be available on acceptable terms, or may not be available
               at all.

         A successful claim of product infringement against us or our failure or
inability to license the infringed or similar  technology  could have a material
adverse affect on our business, financial condition and results of operations.

         In September 1998, we received a letter from a corporation informing us
that the corporation  had been issued a U.S. patent "which involves  Web-To-Host
Connectivity."  We understand  that the  corporation  sent similar  letters to a
number of companies  in addition to us. We do not believe that we infringe  upon
the patent in question.  Moreover,  none of the core  products that we currently
produce or sell  utilizes  any of the  technology  that the patent  purports  to
cover.  However,  if the  corporation  that sent us the letter  were to assert a
claim of  infringement  against  us, the risks  referred to above would apply to
that claim.

Risks Related to Our Location in Israel

         Israeli courts might not enforce judgments  rendered outside of Israel.
We are  organized  under  the  laws  of the  State  of  Israel  and we  maintain
significant  operations in Israel. Certain of our officers and directors and the
Israeli  experts  appearing in this annual report  reside  outside of the United
States. Therefore, you might not be able to enforce any judgment obtained in the
United States against us or any of such persons.  Additionally, you might not be
able to bring civil actions under United  States  securities  laws if you file a
lawsuit in Israel. We have been advised by our Israeli counsel that,  subject to
certain limitations,  Israeli courts may enforce a final executory judgment of a
United States court for  liquidated  amounts in civil matters after a hearing in
Israel, provided that certain conditions are met. We have appointed Jacada Inc.,
our United States subsidiary,  as our agent to receive service of process in any
action against us arising out of our initial public offering.  We have not given
our consent for our agent to accept  service of process in  connection  with any
other claim.  If a foreign  judgment is enforced by an Israeli court, it will be
payable in Israeli currency.


                                       14
<PAGE>

         Conditions  in Israel could  adversely  affect our  operations.  We are
organized  under the laws of the State of Israel and our principal  research and
development  facilities  are  located  in  Israel.  We  are  therefore  directly
influenced by the political,  economic and military conditions affecting Israel.
Since  the  establishment  of the  State of  Israel  in 1948,  a number of armed
conflicts  have taken place  between  Israel and its Arab  neighbors.  Any major
hostilities involving Israel or the interruption or curtailment of trade between
Israel and its present trading  partners could adversely  affect our operations.
Despite the progress towards peace between Israel and its Arab neighbors,  there
can be no assurance that ongoing or revived hostilities or other factors related
to Israel will not have a material adverse effect on us or our business.

         Exchange  rate  fluctuations   between  the  dollar  and  the  NIS  may
negatively  affect our earnings.  A  substantial  majority of our revenues and a
substantial  portion of our  expenses are  denominated  in dollars.  However,  a
significant  portion  of the  costs  associated  with  our  Israeli  operations,
including  personnel  and  facilities  related  expenses,  is  incurred  in NIS.
Consequently,  inflation in Israel will have the effect of increasing the dollar
cost of our  operations  in Israel,  unless it is offset on a timely  basis by a
devaluation of the NIS relative to the dollar.

         Any failure to obtain the tax benefits from the State of Israel that we
anticipate receiving could adversely affect our plans and prospects. Pursuant to
the Law  for  the  Encouragement  of  Capital  Investments,  1959,  the  Israeli
government  has granted  "Approved  Enterprise"  status to our existing  capital
investment programs.  Consequently, we are eligible for certain tax benefits for
the first several years in which we generate  taxable income.  However,  we have
not yet begun to generate taxable income for purposes of this law. Once we begin
to generate  taxable  income,  our financial  condition  could suffer if our tax
benefits were significantly reduced.

         In order to  receive  tax  benefits,  we must  comply  with a number of
conditions  and  criteria.  If we fail to comply in whole or in part with  these
conditions and criteria,  the tax benefits that we receive could be partially or
fully  canceled  and we could be forced to refund the amount of the  benefits we
received,  adjusted for inflation and interest. We believe that we have operated
and will  continue  to  operate  in  compliance  with the  required  conditions,
although we cannot be certain.

         From time to time, the  Government of Israel has discussed  reducing or
eliminating the benefits  available under the Approved  Enterprise  program.  We
cannot  assure you that these tax  benefits  will be  continued in the future at
their  current  levels or at all. The  termination  or reduction of tax benefits
could have a material  adverse effect on our business,  financial  condition and
results of operations. In addition, in the event that we increase our activities
outside  the State of Israel  due to,  for  example,  future  acquisitions,  our
increased activities generally will not be eligible for inclusion in Israeli tax
benefit programs.  Accordingly,  our effective corporate tax rate could increase
significantly in the future.


                                       15
<PAGE>

Item 2.     DESCRIPTION OF PROPERTY

         As of December 31, 1999, our headquarters and principal administrative,
finance and research and development  operations  were located in  approximately
16,000 square feet of leased office space in Herzliya, Israel. The lease expires
in September 2002 with two options each for two additional  years. In the United
States, we lease approximately  10,400 square feet in Atlanta,  Georgia which we
utilize for marketing,  sales,  service and technical support. The lease expires
in June 2002. We also leased office space in Boston,  Massachusetts and Chicago,
Illinois  which we utilize for marketing and sales.  We expect that we will need
additional  space as we expand our  business and believe that we will be able to
obtain such space as needed.

Item 3.     LEGAL PROCEEDINGS

         We are, from time to time, a party to legal proceedings incident to our
business.  For example,  on August 31, 1999, a former distributor filed with the
American  Arbitration  Association an arbitration  complaint  against one of our
subsidiaries.  The arbitration  complaint alleges,  among other things, that our
subsidiary  breached  its  agreement  with the former  distributor  by  directly
selling to a customer  products which the  distributor had an exclusive right to
sell to the customer,  and that the  distributor  is entitled to damages of $3.5
million.  Our  management  believes  that  our  subsidiary  did not  breach  its
agreement  with  the  distributor  and  that  no  damages  were  caused  to  the
distributor.  Moreover,  the agreement with the distributor  sets a limit on the
subsidiary's  liability  under the agreement.  Our management  believes that the
limit is approximately  $200,000.  Hence, we do not believe that the arbitration
proceeding  will have any  material  impact upon us. We also do not believe that
any other legal  proceeding  to which we have been or currently  are a party has
had, or is likely to have, a material impact upon us.

Item 4.     CONTROL OF REGISTRANT

Jacada's Share Ownership

            The  table  below  sets  forth  certain  information  regarding  the
beneficial  ownership of Jacada's  capital stock as of March 1, 2000 by (i) each
beneficial owner of 10% or more of Jacada's voting securities and (ii) the total
amount of Jacada's voting securities owned by Jacada's officers and directors as
a group.

             Name of Beneficial Owner (1)           Capital Stock    Percentage
                                                    -------------    ----------
Goldman Sachs Group, Inc.(1)....................    1,781,513        10%
All executive officers and directors as a group
(eleven persons)................................    4,182,529        22.4%

----------
(1)  Represents   1,781,513   ordinary   shares  owned  by  certain   investment
     partnerships,  of which  affiliates of The Goldman  Sachs Group,  Inc. ("GS
     Group") are the general  partner,  managing  general  partner or investment
     manager,  including  (a)  1,117,763  ordinary  shares  held  by GS  Capital
     Partners II, L.P.; (b) 444,368  ordinary shares held by GS Capital Partners


                                       16
<PAGE>

     II Offshore,  L.P.; (c) 41,227  ordinary shares held by Goldman Sachs & Co.
     Verwaltungs  GmbH;  (d) 119,925  ordinary  shares held by Stone Street Fund
     1997, L.P.; and (e) 58,230 ordinary shares held by Bridge Street Fund 1997,
     L.P. GS Group  disclaims  beneficial  ownership of the shares owned by such
     investment partnerships to the extent attributable to partnership interests
     therein  held by persons  other than GS Group and its  affiliates.  Each of
     such  investment  partnerships  shares  voting  and  investment  power with
     certain of its respective  affiliates.  The address of GS Group is 85 Broad
     Street, New York, NY 10004.

Item 5.     NATURE OF TRADING MARKETING

         The Company's  Ordinary Shares are quoted on the NASDAQ National Market
under the symbol "JCDA."

         The following  table shows the high and low sale prices of the Ordinary
Shares of the Company in the indicated quarters. Trading in the Company's shares
commenced on October 14, 1999.

--------------------------------------------------------------------------------
              1999                        HIGH                      LOW
--------------------------------------------------------------------------------
      10/14/99 - 12/31/99                37 3/8                      8
--------------------------------------------------------------------------------

Item 6.     EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS

         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 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 provided all
taxes were paid or withheld; however,  legislation remains in effect pursuant to
which currency controls can be imposed by administration action at any time.

         Non-residents  of Israel  may  freely  hold and  trade our  securities.
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,  except that such restrictions may exist with
respect  to  citizens  of  countries  which  are in a state of war with  Israel.
Israeli residents are allowed to purchase our Ordinary Shares.

Item 7.     TAXATION

         The  following is a summary of the  principal  tax laws  applicable  to
companies in Israel,  with special  reference to their effect on us, and certain
Israeli  Government  programs  benefiting  us.  This  section  also  contains  a
discussion of certain  Israeli tax  consequences to persons  acquiring  ordinary


                                       17
<PAGE>

shares.  This  summary does not discuss all the acts of Israeli tax law that may
be relevant to a particular  investor in light of his or her personal investment
circumstances  or to certain  types of  investors  subject to special  treatment
under Israeli law,  such as traders in securities or persons that own,  directly
or  indirectly,  10% or more of our  outstanding  voting share  capital.  To the
extent that the  discussion is based on new tax  legislation  which has not been
subject to judicial or administrative interpretation,  there can be no assurance
that  the  views  expressed  in  this  discussion  will be  accepted  by the tax
authorities. The discussion should not be construed as legal or professional tax
advice and is not exhaustive of all possible tax considerations.

         Potential  investors  are urged to consult their own tax advisors as to
the Israeli or other tax consequences of the purchase, ownership and disposition
of ordinary shares,  including, in particular,  the effect of any foreign, state
or local taxes.

General Corporate Tax Structure

         The general corporate tax rate in Israel is currently 36%. However, the
effective tax rate payable by a company  which derives  income from an "Approved
Enterprise" may be considerably less.

         Under the Law for the Encouragement of Industry (Taxes), 1969, which is
referred to below as 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, exclusive of income from certain loans,
marketable  securities,  capital gains, interest and dividends,  is derived from
Industrial Enterprises owned by it. An "Industrial  Enterprise" is defined as an
enterprise whose major activity in a given tax year is industrial manufacturing.
We currently qualify as an Industrial Company.

         Pursuant to the Industry  Encouragement  Law, an Industrial  Company is
entitled  to deduct the  purchase  price of know how,  patents or rights  over a
period of eight  years  beginning  with the year in which such rights were first
used,  and is also  entitled to deduct  33.3% per annum of expenses  incurred in
connection  with the issuance of  publicly-traded  shares over a period of three
years from the time the expenses were incurred.

         Moreover,  Industrial  Enterprises  which are Approved  Enterprises can
choose  between  the  regular   depreciation  rates  and  accelerated  rates  of
depreciation  applied  on a  straight-line  basis in  respect  of  property  and
equipment,  generally  ranging  from 200% in respect of equipment to 400% of the
ordinary  depreciation rates in respect of buildings during the first five years
of service of the assets,  subject to a ceiling of 20% per year with  respect to
depreciation of buildings.

         Qualification   as  an   Industrial   Company   under  the   Industrial
Encouragement Law is not conditioned upon the receipt of prior approval from any
Israeli Government authority. No assurance can be given that we will continue to


                                       18
<PAGE>

qualify  as an  Industrial  Company  or will  in the  future  be  able to  avail
ourselves of any benefits available to companies so qualifying.

Law for the Encouragement of Capital Investments, 1959

         The Law for  Encouragement  of  Capital  Investments,  1959,  which  is
referred  to  below  as the  Capital  Investments  Law,  provides  that  capital
investments  in a  production  facility  or  other  eligible  assets  may,  upon
application  to the Israeli  Investment  Center of the  Ministry of Industry and
Commerce,  be  designated  as an  "Approved  Enterprise."  Each  certificate  of
approval for an Approved  Enterprise relates to a specific investment program in
the  Approved  Enterprise,  delineated  both  by  the  financial  scope  of  the
investment and by the physical  characteristics of the facility or the asset. An
Approved   Enterprise  is  entitled  to  certain  benefits,   including  Israeli
Government cash grants, state-guaranteed loans and tax benefits.

Tax Benefits

         Taxable  income  derived  from an Approved  Enterprise  is subject to a
reduced  corporate  tax  rate  of 25%.  That  income  is  eligible  for  further
reductions in tax rates depending on the percentage of the foreign investment in
our 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.  The tax rate is 20% if the foreign investment is 49% or
more but less than 74%,  15% if the foreign  investment  is 74% or more but less
than 90% and 10% if the foreign  investment 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 years or 10 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.

         An Approved Enterprise approved after April 1, 1986 may elect to forego
any entitlement to the grants otherwise  available under the Capital Investments
Law and, in lieu of the foregoing,  may  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 commencing in the first year in which
the company generates taxable income,  depending upon the location within Israel
of the  Approved  Enterprise  and  the  type  of  the  Approved  Enterprise.  On
expiration of the exemption  period,  the Approved  Enterprise would be eligible
for the otherwise applicable  beneficial tax rates under the Capital Investments
Law,  ranging  from 10% to 25%,  for the  remainder,  if any,  of the  otherwise
applicable  benefits period.  There can be no assurance that the current benefit
programs  will  continue to be available or that we will continue to qualify for
benefits under the current programs.


                                       19
<PAGE>

         We  currently  have  Approved  Enterprise  programs  under the  Capital
Investments  Law,  which  entitle us to certain  tax  benefits.  The tax benefit
period for these programs has not yet commenced.  We have elected to participate
in three  Alternative  Benefit  Programs.  Income  derived from our  Alternative
Benefit Programs is exempt from tax for a period of two years, commencing in the
first year in which we generate taxable income from the Approved Enterprise. For
the five years following this two year period of exemption,  we are subject to a
reduced tax rate of 25%. See note 11 to our consolidated financial statements.

         A company that has elected to participate in the  Alternative  Benefits
Program and that subsequently pays a dividend out of the income derived from the
Approved Enterprise during the tax exemption period will be subject to corporate
tax in respect of the amount distributed,  including withholding tax thereon, at
the rate that  would  have been  applicable  had the  company  not  elected  the
Alternative Benefits Program, ranging from 10% to 25%. The dividend recipient is
taxed  at the  reduced  rate of  15%,  applicable  to  dividends  from  Approved
Enterprises  if the dividend is  distributed  within 12 years after the benefits
period. The withholding tax rate will be 25% after such period. In the case of a
company with over 25% foreign  investment  level, as defined by law, the 12-year
limitation  on reduced  withholding  tax on dividends  does not apply.  This tax
should be withheld by the company at source,  regardless of whether the dividend
is converted into foreign  currency.  See  "Withholdings and Capital Gains Taxes
Applicable to Non-Israeli Shareholders."

         From time to time, the Israeli  Government  has discussed  reducing the
benefits  available  to  companies  under  the  Capital   Investments  Law.  The
termination or substantial  reduction of any of the benefits available under the
Capital  Investments  Law  could  materially  impact  the  cost  of  our  future
investments.

         Each application to the Investment Center is reviewed separately, and a
decision as to whether or not to approve such application is based,  among other
things,  on the then  prevailing  criteria set forth in the Capital  Investments
Law,  on the  specific  objectives  of the  applicant  company set forth in such
application  and  on  certain  financial  criteria  of  the  applicant  company.
Accordingly,  there  can be no  assurance  that  any  such  application  will be
approved.  In addition,  the benefits  available to an Approved  Enterprise  are
conditional upon the fulfillment of certain conditions stipulated in the Capital
Investments  Law and its  regulations and the criteria set forth in the specific
certificate of approval,  as described above. In the event that these conditions
are violated,  in whole or in part, we would be required to refund the amount of
tax benefits, together with linkage differences to the Israeli CPI and interest.
We believe that our Approved  Enterprise programs operate in compliance with all
such conditions and criteria.

Other Benefits

         An Approved  Enterprise  is also  entitled to the  following  two other
incentives  from the Israeli  Government  regardless of whether the  Alternative
Benefits Program is elected:


                                       20
<PAGE>

          o    loans to Approved Enterprises, approved prior to January 1, 1997,
               which also qualify as Industrial Companies,  from banks and other
               financial  institutions,   of  up  to  70%  of  approved  project
               expenditures,   of  which  75%  or  in  certain  cases  85%,  are
               State-guaranteed; and

          o    accelerated  depreciation  on property and  equipment,  generally
               ranging  from 200% with respect to equipment to 400% with respect
               to buildings of the ordinary  depreciation rates during the first
               five tax years of the  operation  of these  assets,  subject to a
               ceiling  of  20%  per  year  with  respect  to   depreciation  on
               buildings.

Taxation Under Inflationary Conditions

         The Income Tax  (Inflationary  Adjustment) Law, 1985, which is referred
to below as the  Inflationary  Adjustment Law,  attempts to overcome some of the
problems presented to a traditional tax system by an economy  experiencing rapid
inflation,  which  was the  case in  Israel  at the  time  the law was  enacted.
Generally,  the Inflationary Adjustments Law provides significant tax deductions
and  adjustments  to  depreciation  methods  and  tax  loss  carry  forwards  to
compensate for loss of value resulting from an inflationary economy. Our taxable
income is subject to the provisions of this law.

         The Israeli Income Tax Ordinance and the  Inflationary  Adjustments Law
allow "Foreign-Invested  Companies," which maintain their accounts in dollars in
compliance with  regulations  published by the Israeli  Minister of Finance,  to
base their tax returns on their  operating  results as  reflected  in the dollar
financials  statements  or to adjust  their tax returns  based on exchange  rate
changes  rather than changes in the Israeli CPI, in lieu of the  principles  set
forth  by  the   Inflationary   Adjustments   Law.   For   these   purposes,   a
"Foreign-Invested  Company" is a company,  more than 25% of whose share capital,
in terms of rights to profits, voting and appointment of directors, and of whose
combined  share and loan  capital is held by persons  who are not  residents  of
Israel.  A company that elects to measure its results for tax purposes  based on
the dollar exchange rate cannot change that election for a period of three years
following  the  election.  We believe  that we  qualify as a Foreign  Investment
Company within the meaning of the  Inflationary  Adjustment Law. We have not yet
elected to measure  our results for tax  purposes  based on the dollar  exchange
rate, but may do so in the future.

Tax Benefits of Research and Development

         Israeli tax law permits,  under certain conditions,  a tax deduction in
the  year  incurred  for  expenditures,   including  capital  expenditures,   in
scientific research and development  projects,  if the expenditures are approved
by the relevant government ministry, determined by the field of research, and if
the research and  development  is for the  promotion  of the  enterprise  and is
carried out by, or on behalf of, a company seeking such deduction.  Expenditures
not so approved are deductible over a three year period;  however,  expenditures
made out of proceeds  made  available  to us through  government  grants are not
deductible.


                                       21
<PAGE>

         To date,  certain of our research and  development  programs  have been
approved  by the  Chief  Scientist  and we have  been  able to  deduct,  for tax
purposes,  a portion of our research and development  expenses net of the grants
received.

Withholding and Capital Gains Taxes Applicable to Non-Israeli Shareholders

         Nonresidents  of Israel are subject to income tax 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 generally  required
to withhold income tax at the rate of 25%, or 15% for dividends  generated by an
Approved Enterprise, on all distributions of dividends.

         Israeli law imposes a capital gains tax on the sale of  securities  and
other capital assets.  Under current law, however,  sales of our ordinary shares
offered by this annual  report are exempt from Israeli  capital gains tax for so
long as

          o    the  shares  are  quoted on Nasdaq or listed on a stock  exchange
               recognized by the Israeli Ministry of Finance,

          o    we continue  to qualify as an  Industrial  Company or  Industrial
               Holding Company, and

          o    the shares are not held for business purposes.

         Furthermore,  under the income tax treaty between the United States and
Israel,  a holder of ordinary  shares who is a United  States  resident  will be
exempt from Israeli capital gains tax on the sale, exchange or other disposition
of such ordinary shares unless the holder owns,  directly or indirectly,  10% or
more of our voting power.

         A  nonresident  of Israel who  receives  interest,  dividend or royalty
income  derived  from or accrued in Israel,  from which tax was  withheld at the
source,  is  generally  exempt  from the duty to file tax returns in Israel with
respect to such  income,  provided  such income was not derived  from a business
conducted in Israel by the taxpayer.

         Israel presently has no estate or gift tax.

Item 8.     SELECTED FINANCIAL DATA

         The following table sets forth the consolidated  selected statements of
operations,  balance  sheet  and  other  data for the  Company  for the  periods
indicated.  The selected consolidated statement of operations data for the years
ended December 31, 1997,  1998 and 1999, and the selected  consolidated  balance
sheet data as of December 31, 1998 and 1999,  have been derived from our audited
financial  statements  and the notes thereto  included  elsewhere in this annual
report.  These  financial  statements have been prepared in accordance with U.S.
GAAP.  The  consolidated  statements  of  operations  data for the  years  ended


                                       22
<PAGE>

December 31, 1995 and 1996, and the selected  consolidated balance sheet data as
of December  31,  1995,  1996 and 1997 are  derived  from  audited  consolidated
financial  statements  that are not  included  herein.  The  following  selected
financial  data are qualified by reference to and should be read in  conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations"  and our  consolidated  financial  statements  and the notes thereto
included elsewhere in the financial statements.
<TABLE>
<CAPTION>
                                                                                    Year Ended December 31,
                                                                    -------------------------------------------------------
                                                                1995           1996          1997           1998           1999
                                                            -----------    -----------    -----------    -----------    -----------
                                                                        (in thousands, except share and per share data)
<S>                                                         <C>            <C>            <C>            <C>            <C>
Consolidated Statement of Operations Data:
Revenues:

   Software license .....................................   $       333    $     2,463    $     3,432    $     6,469    $     8,831
   Service and maintenance ..............................           472          1,273          2,169          3,019          5,768
                                                            -----------    -----------    -----------    -----------    -----------
      Total revenues ....................................           805          3,736          5,601          9,488         14,599
Cost of revenues:
   Software license .....................................           154            220            276            342            639
   Service and maintenance ..............................           418          1,002          1,766          2,558          2,740
                                                            -----------    -----------    -----------    -----------    -----------
      Total cost of revenues ............................           572          1,222          2,042          2,900          3,379
                                                            -----------    -----------    -----------    -----------    -----------
Gross profit ............................................           233          2,514          3,559          6,588         11,220
Operating expenses:
   Research and development, net ........................           757          1,134          1,515          2,440          3,267
   Sales and marketing, net .............................         1,090          2,280          4,464          5,411          6,529
   General and administrative ...........................           551            856          1,033          1,637          1,960
                                                            -----------    -----------    -----------    -----------    -----------
      Total operating expenses ..........................         2,398          4,270          7,012          9,488         11,756
                                                            -----------    -----------    -----------    -----------    -----------
Operating loss ..........................................        (2,165)        (1,756)        (3,453)        (2,900)          (536)
Interest income (expense), net ..........................           (44)            20             24            (19)           564
Other income (expense), net .............................          --                9           --               (1)           (34)
                                                            -----------    -----------    -----------    -----------    -----------

Loss before income taxes ................................        (2,209)        (1,727)        (3,429)        (2,920)            (6)
Income taxes ............................................          --               15             (6)          --             --
                                                            -----------    -----------    -----------    -----------    -----------
Net loss ................................................   $    (2,209)   $    (1,742)   $    (3,423)   $    (2,920)   $        (6)
                                                            ===========    ===========    ===========    ===========    ===========
Net loss per share:
Basic and diluted net loss per share ....................   $     (0.40)   $     (0.46)   $     (0.92)   $     (0.81)          (0.0)
Weighted average number of shares used in computing basic
   and diluted net loss per share .......................     5,571,875      3,750,000      3,704,298      3,615,143      6,572,476
</TABLE>


<TABLE>
<CAPTION>
                                                                        December 31,
                                                         ---------------------------------------
                                                     1995        1996       1997       1998     1999
                                                     ----        ----       ----       ----     ----
                                                                       (in thousands)
<S>                                                 <C>       <C>         <C>        <C>       <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents.....................      $1,371    $ 1,735     $ 3,044    $ 5,613   $ 5,141
Working capital...............................       1,723       (207)        727      1,148    53,315
Total assets..................................       3,482      4,695       7,185     11,131    62,435
Long-term debt, net of current portion........          23        117          92         90       186
Shareholders' equity..........................       2,135        591       2,066      2,939    54,854
</TABLE>


Item 9. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

Overview

         We develop,  market and support  software  that enables  businesses  to
utilize their existing  host-centric  software  applications to conduct business
over the Internet.  We also provide  related  professional  services,  including
training, consulting, support and maintenance.


                                       23
<PAGE>


            We were incorporated in December 1990. In March 1994, we shipped our
first  product,  GUISys,  now called  Jacada for Windows.  Until that time,  our
operations consisted primarily of research and development, recruiting personnel
and  raising  capital.  Since that  time,  we have  continued  to focus on these
activities,  as well as on building our sales and marketing presence,  expanding
and enhancing our product offerings,  building relationships with third parties,
and supporting and maintaining our product  deployments in an expanding customer
base.

         We generate  revenues from licensing our software products to customers
and providing customers with such services as training,  consulting, support and
maintenance. Software license revenues constituted approximately 68.2% and 60.5%
of our total  revenues  for the year ended  December 31, 1998 and the year ended
December  31,  1999,  respectively,   while  service  and  maintenance  revenues
constituted  approximately 31.8% and 39.5% of our total revenues,  respectively,
for the same periods.  The percentage of our revenues derived from the provision
of services and  maintenance  rose during 1999 primarily as a result of a change
in our consulting  services billing  practices from a fixed-cost basis to a time
and materials  basis.  We currently  anticipate,  although we cannot be certain,
that this  percentage  will  decline over time as we do not expect that sales of
additional  software  licenses to existing  customers  will require  significant
training and consulting services. Our gross margins on software license revenues
have  historically been higher than our gross margins on service and maintenance
revenues.  During  the past 12  months,  the rate of growth of our  service  and
maintenance revenues has exceeded the rate of growth of our license revenues.

         Prior to 1998, we recognized  software  license  revenues in accordance
with the  American  Institute  of  Certified  Public  Accountants  Statement  of
Position  91-1,  meaning  that we  recognized  sales of software  licenses  upon
shipment,  provided that we had no remaining  significant  obligations  and that
collection  of payment was probable.  Commencing  in 1998, we began  recognizing
revenues  in  accordance  with  the  American   Institute  of  Certified  Public
Accountants  Statement of Position 97-2, "Software Revenue  Recognition," or SOP
97-2, as amended by Statement of Position  98-4. To date,  our adoption of these
new standards has not had any material effect on our revenue recognition.

         Software  license  revenues are  comprised  of perpetual or  multi-year
software  license fees  primarily  derived from  contracts with our direct sales
customers and our indirect distribution  channels.  Under SOP 97-2, we recognize
software license revenues when a software license agreement has been executed or
a definitive purchase order has been received and the product has been delivered
to end-user customers,  no significant obligations with regard to implementation
remain, the fee is fixed and determinable, and collectability is probable.


                                       24
<PAGE>

         Service and  maintenance  revenues are primarily  comprised of revenues
from  training  and  consulting  fees  and  standard   support  and  maintenance
agreements.  Customers  licensing  our  products  generally  purchase a standard
annual  maintenance   agreement.   Revenues  from  maintenance   agreements  are
recognized on a straight-line basis over the life of the agreement. In mid-1998,
we began  to offer  consulting  services  exclusively  on an  hourly  rate  plus
out-of-pocket  expenses.  Prior to that time,  these  services were offered on a
fixed-cost  basis. We recognize service revenues from consulting and training at
the time that services are rendered, and in certain consulting contracts,  using
the percentage of completion method.

         Cost of software  license revenues  consists  primarily of royalties to
the  Office of the Chief  Scientist  of the  State of  Israel  and,  to a lesser
extent,  costs of  duplicating  media and  documentation.  Cost of  service  and
maintenance revenues consists of compensation expense and related overhead costs
for personnel engaged in training,  consulting, support and maintenance services
for our customers.

         Since  our  inception,   we  have  incurred  substantial  research  and
development  costs and have  invested  heavily in the expansion of our sales and
marketing and professional services  organizations to build an infrastructure to
support our long-term growth strategy. Our full-time employees increased from 21
as of January 1, 1995 to 147 as of December 31, 1999. As a result of this growth
and other  factors,  we have  incurred  net losses in each fiscal year since our
inception. As of December 31, 1999, we had an accumulated  shareholders' deficit
of $11.9 million.

         Costs for the  development  of new software  products  and  substantial
enhancements  to existing  software  products  are  expensed  as incurred  until
technological  feasibility  has been  established,  at which time any additional
development  costs are  capitalized.  Because we believe our current process for
developing  software  is  completed   concurrently  with  the  establishment  of
technological feasibility, no costs have been capitalized to date.

         The functional  currency of our operations is the dollar,  which is the
primary currency in the economic environment in which we conduct our business. A
significant  portion  of the  costs  associated  with  our  Israeli  operations,
including  personnel and facilities  related  expenses,  is incurred in NIS. The
results of our operations are subject to fluctuations in the dollar-NIS exchange
rate which is influenced by various global economic factors including  inflation
in Israel.

         The foreign currency exchange rate effects for the years ended December
31, 1999, 1998 and 1997 were immaterial.

Liquidity and Capital Resources

         Since our inception,  we have funded  operations  primarily through the
private  placement  and public  offering of equity  securities  and, to a lesser
extent, borrowings from financial institutions.  As of December 31, 1999, we had


                                       25
<PAGE>

cash and cash  equivalents of $5.1 million and $50.5 million in U.S.  Government
debentures.  Cash  used in  operations  includes  expenditures  associated  with
development  activities  and  marketing  efforts  related  to  promotion  of our
products.  For the year ended December 31, 1999, cash provided by operations was
$0.6  million,  comprised  of the net loss of $6,000,  an  increase  in accounts
receivable  of $0.8  million,  partially  offset  by  non-cash  charges  of $0.7
million,  and an increase in accrued  expenses of $0.9 million and a decrease in
deferred  revenues of $1.1 million.  For the year ended December 31, 1998,  cash
used in operations was $2.3 million,  comprised of the net loss of $2.9 million,
an increase in accounts receivable of $1.1 million, partially offset by non-cash
charges of $0.5 million, a decrease in other accounts receivable of $0.3 million
and an  increase  in  deferred  revenues  of $1.0  million.  For the year  ended
December 31, 1997,  cash used in operations  was $2.7 million,  comprised of the
net loss of $3.4  million,  an increase in accounts  receivable of $0.4 million,
partially  offset by non-cash  charges of $0.3  million,  an increase in accrued
expenses of $0.5 million and an increase in deferred revenues of $0.2 million.

         Expenditures on property and equipment were  approximately  $1 million,
$0.9  million and $0.9 million for the years ended  December 31, 1999,  1998 and
1997, respectively.

         We have raised approximately $60.5 million, net of issuance costs, from
sales of equity  securities from 1997 through  December 31, 1999,  consisting of
$51.8  million,  $3.8 million and $4.9 million for the years ended  December 31,
1999, 1998 and 1997.

         We have financed our operations and capital requirements through equity
funding and bank borrowing in past years.  We have a $3 million credit  facility
with two banks which is secured by  substantially  all of our assets.  We borrow
under the facility from time to time on terms that vary for each  borrowing.  As
of December 31, 1999, we had outstanding approximately $0.4 million of long-term
loans under this facility. These loans are generally repayable over a three year
period at an interest rate of LIBOR plus 2.0% per annum.

         Our capital  requirements depend on numerous factors,  including market
acceptance of our products,  the resources we devote to  developing,  marketing,
selling  and  supporting  our  products,  the timing and extent of  establishing
additional  international operations and other factors. Over the next two years,
we  expect to  devote  substantial  capital  resources  to expand  our sales and
marketing channels, invest in research and development activities,  and increase
our professional services activities.


                                       26
<PAGE>


Results of Operations

         Our historical operating results for the years ended December 31, 1997,
1998 and 1999 as a percentage of net revenues are as follows:

                                                   Year Ended December 31,
                                                  -----------------------

                                              1997         1998         1999
                                            -------      -------      -------

Revenues:
   Software license .....................      61.3%        68.2%        60.5%
   Service and maintenance ..............      38.7         31.8         39.5
                                            -------      -------      -------
        Total revenues ..................     100.0        100.0        100.0
Cost of revenues:
   Software license .....................       4.9          3.6          4.4
   Service and maintenance ..............      31.5         27.0         18.8
                                            -------      -------      -------
        Total cost of revenues ..........      36.4         30.6         23.2
                                            -------      -------      -------
Gross profit ............................      63.6         69.4         76.8
Operating expenses:
   Research and development, net ........      27.1         25.7         22.4
   Sales and marketing, net .............      79.7         57.0         44.7
   General and administrative ...........      18.4         17.3         13.4
                                            -------      -------      -------
        Total operating expenses ........     125.2        100.0         80.5
                                            -------      -------      -------
Operating loss ..........................     (61.6)       (30.6)        (3.7)
Interest income (expense), net ..........       0.4         (0.2)         3.9
Other income (expense), net .............    --           --             (0.2)
                                            -------      -------      -------
Loss before income taxes ................     (61.2)       (30.8)        (0)
Income taxes ............................       0.1       --           --
                                            -------      -------      -------
Net loss ................................     (61.1)%      (30.8)%       (0)%
                                            =======      =======      =======

Years Ended December 31, 1999, 1998 and 1997

         Revenues.  Net  revenues  were $14.6  million,  $9.5  million  and $5.6
million for the years ended December 31, 1999, 1998 and 1997, respectively.  The
increases in revenues  during these periods were  attributable to an increase in
both software  license  revenues and service and maintenance  revenues.  For the
years ended  December  31,  1999,  1998 and 1997,  revenues  from two  customers
represented 13% and 10% of revenues, revenues from two customers represented 15%
and 12% of revenues and revenues from two customers  represented  16% and 11% of
revenues, respectively.

         Software license revenues were $8.8 million, or 60.5% of revenues,  for
the  year  ended  December  31,  1999,  compared  to $6.5  million,  or 68.2% of
revenues,  for the year ended December 31, 1998,  and $3.4 million,  or 61.3% of
revenues, for the year ended December 31, 1997. The increase in software license
revenues  during these  periods was  primarily due to the growth of our customer
base,  recurring  sales  to our  installed  base  and  an  increase  in  average
transaction size.

         Service and maintenance revenues were $5.8 million or 39.5% of revenues
for the year ended  December  31,  1999  compared to $3.0  million,  or 31.8% of
revenues,  for the year ended December 31, 1998,  and $2.2 million,  or 38.7% of


                                       27
<PAGE>

revenues,  for the year ended  December 31, 1997.  The  increases in service and
maintenance  revenues  during  these  periods  were  primarily  a result  of the
increased service and maintenance  revenue  associated with new software license
sales.

         Cost of  Revenues.  Cost of  revenues  was  $3.4  million,  or 23.2% of
revenues,  for the year ended  December 31, 1999,  compared to $2.9 million,  or
30.6% of revenues, for the year ended December 31, 1998 and $2 million, or 36.4%
of  revenues,  for the year ended  December  31,  1997.  The increase in cost of
revenues during these periods was due to our increased revenues. The decrease in
cost of services  resulted from the change in our  consulting  services  billing
practices.

         Cost of software license revenues was $0.6 million, or 7.2% of software
license  revenues,  for the year  ended  December  31,  1999,  compared  to $0.3
million,  or 5.3% of software license revenues,  for the year ended December 31,
1998, and $0.3 million, or 8.0% of software license revenues, for the year ended
December  31,  1997.  The  increase  in cost of software  license  revenues as a
percentage of software license revenues was due to an increase in the payment of
royalties to the Office of the Chief Scientist.

         Cost of service and maintenance  revenues was $2.7 million, or 47.5% of
service and maintenance revenues, for the year ended December 31, 1999, compared
to $2.6  million,  or 84.7% of service and  maintenance  revenues,  for the year
ended December 31, 1998, and $1.8 million,  or 81.4% of service and  maintenance
revenues,  for the year ended December 31, 1997. The increases from 1997 to 1998
and 1998 to 1999 were due 64% and 61%,  respectively,  to costs  associated with
the increased  headcount in our professional  services  organization and 36% and
39%,  respectively,  to costs  associated  with  increased  the headcount in our
technical  support group.  The decrease in percentage  from 1998 to 1999 results
from  the  fact  that  in  mid-1998,  we  began  to  offer  consulting  services
exclusively on an hourly rate plus out-of-pocket  expenses.  Prior to that time,
these services were offered on a fixed-cost basis.

Operating Expenses

         Research and Development,  Net. Research and development  expenses were
$3.3  million,  $2.4 million and $1.5  million for the years ended  December 31,
1999,  1998 and 1997,  respectively,  net of grants from the Office of the Chief
Scientist of $0.0 million,  $0.6 million and $0.6 million in each of 1999,  1998
and 1997. The increases during these periods were attributable  primarily to the
addition of personnel in our research and  development  organization  associated
with  product  development.  As a  percentage  of total  revenues,  research and
development  expenses were 22.4%,  25.7% and 27.1% for the years ended  December
31, 1999, 1998 and 1997, respectively.

         Sales and  Marketing,  Net.  Sales  and  marketing  expenses  were $6.5
million,  $5.4 million,  and $4.5 million for the years ended December 31, 1999,
1998 and 1997,  respectively,  net of grants from the Israeli  Government's Fund
for the Encouragement of Marketing  Activities of immaterial amounts received in
1997.  The  increases  during these periods were  attributable  primarily to the
addition of sales and marketing  personnel and increased  commissions related to


                                       28
<PAGE>

increased  revenues  and,  to a lesser  extent,  to our  efforts  to expand  our
marketing programs worldwide and increase brand awareness for our products. As a
percentage of total revenues, sales and marketing expenses were 44.7%, 57.0% and
79.7% for the years ended December 31, 1999, 1998 and 1997, respectively.

         General and Administrative. General and administrative expenses totaled
$2 million, $1.6 million and $1.0 million for the years ended December 31, 1999,
1998 and  1997,  respectively.  The  increases  in  general  and  administrative
expenses  were due  primarily to  increased  personnel  and related  overhead to
support  our  growth.   As  a  percentage   of  total   revenues,   general  and
administrative  expenses were 13.4%,  17.3% and 18.4% of total  revenues for the
years ended December 31, 1999, 1998 and 1997, respectively.

         Interest  Income  (Expense),  Net. Net interest income was $564,000 for
the year ended December 31, 1999. Net interest  expense was $19,000 for the year
ended  December 31, 1998 and net interest  income was $24,000 for the year ended
December 31, 1997.

         Income Taxes. As of December 31, 1999, we had approximately $4.4 of net
operating loss carryforwards for Israeli tax purposes, approximately $4.5 of net
operating  loss  carryforwards  for  federal  United  States  tax  purposes  and
approximately  $1.9 of net losses  carryforwards for United Kingdom tax purposes
available to offset future taxable income.  The United States net operating loss
carryforwards  expire in various  amounts  between the years 2010 and 2011.  The
Israeli  and  the  United  Kingdom  net  operating  loss  carryforwards  have no
expiration date.

ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company does not use derivative  financial  instruments for trading
purposes  and,  as  of  year  end,  the  Company  had  no  derivative  financial
instruments of any kind outstanding. Accordingly, the Company has concluded that
there is no material  market risk exposure of the type  contemplated by Item 9A,
and that no  quantitative  tabular  disclosures  are  required.  The  Company is
exposed to certain other types of market risks, as further described below.

         We  develop  products  in  Israel  and sell them in North  America  and
Europe. As a result,  our financial results could be affected by factors such as
changes  in foreign  currency  exchange  rates or weak  economic  conditions  in
foreign markets. As most of our sales are currently made in dollars, an increase
in the value of the dollar could make our products less  competitive  in foreign
markets.  The foreign currency exchange rate effects for the year ended December
31, 1999, 1998 and 1997 were  immaterial.  Our interest  expense is sensitive to
changes  in LIBOR.  Due to the  nature  and  levels of our  borrowings,  we have
concluded that there is no material market risk exposure.


                                       29
<PAGE>

         The Company invests in investment grade U.S. corporate bonds and dollar
deposits with  FDIC-insured  United States banks.  Since these investments carry
fixed  interest  rates and since the  Company's  policy and  practice is to hold
these  investments to maturity,  interest  income over the holding period is not
sensitive to changes in interest rates.

         As of December 31, 1999,  the Company had no other  exposure to changes
in interest  rates and had no interest  rate  derivative  financial  instruments
outstanding.

Item 10. DIRECTORS AND OFFICERS OF REGISTRANT

         The  following  table  sets forth  certain  information  regarding  our
executive officers and directors as of March 1, 2000:

  Name                   Age                Position
--------------------------------------------------------------------------------
Gideon Hollander(1)(2)   34  Chief Executive Officer and Director
Ran Oz ................  33  Chief Financial Officer and General Manager
Michael J. Potts ......  37  President Jacada Inc. and World Wide Distribution
David Holmes ..........  44  Senior Vice President of Marketing
Robert Consoli ........  36  Vice President of Sales
Eyran Blumberg ........  34  Senior Vice President of Products
Nimrod Gil-Ad .........  33  Vice President Research and Chief Technical Officer
Aramis Alvarez ........  35  Senior Vice President of Operations
Boaz Dotan(1) .........  57  Director
Yossie Hollander(1)(3)   41  Director
Jay B. Morrison(3) ....  52  Director
Amnon Shoham(1)(2)(3) .  42  Director
----------
(1)         Member of the Executive Committee
(2)         Member of the Compensation Committee
(3)         Member of the Audit Committee

         Gideon  Hollander  was a co-founder of Jacada in 1990 and has served as
our Chief Executive  Officer since then. From 1988 to 1990, Mr. Hollander worked
in the area of research and  development  at Comverse  Technology.  From 1982 to
1987, Mr. Hollander served in various technology and management  positions in an
elite unit of the Israeli Defense Forces, where he specialized in expert systems
and user interface  design.  Two of the projects that Mr. Hollander  managed won
the most prominent Israeli award for technological innovations.

         Ran Oz is our Chief Financial Officer and General Manager. From 1992 to
1994, Mr. Oz was a certified  public  accountant at Somech  Chaikin,  one of the
leading accounting firms in Israel, at that time the correspondent firm of Price
Waterhouse in Israel.  Mr. Oz is a certified public accountant and holds masters
degrees in Business  Administration and Economics and an undergraduate degree in
Accounting and Economics from the Hebrew University of Jerusalem.

         Michael  J.  Potts has been  President  of Jacada  Inc.  and World Wide
Distribution since 1998. From July 1995 to May 1998, Mr. Potts was a Senior Vice


                                       30
<PAGE>

President  of Jacada Inc.  From  September  1987 to April 1995,  Mr.  Potts held
various sales and sales management  positions with Dun & Bradstreet  Software, a
financial  application  software  company,   later  acquired  by  Geac  Computer
Corporation  Limited,  until his resignation as Eastern  Regional  Manager.  Mr.
Potts holds an undergraduate degree in Marketing from the University of Georgia.

         David Holmes has been Senior Vice  President  of  Marketing  since June
1998 and Vice  President  of Marketing  since  October  1995.  From June 1991 to
October 1995, Mr. Holmes was Marketing Director for  KnowledgeWare,  an AD/Cycle
company, later acquired by Sterling. From March 1984 to June 1991 Mr. Holmes was
a  consultant  for  Deloitte  & Touche.  Mr.  Holmes  holds a masters  degree in
Decision  Sciences from Georgia State University and an undergraduate  degree in
Industrial Economics from Union College in Schenectady, New York.

         Robert Consoli has been Vice President of Sales for North America since
February  1999.  From February 1998 to February  1999, he was the District Sales
Manager for the  Southeastern  Region.  From August 1996 to February  1998,  Mr.
Consoli was the Southeastern Channels Manager for Forte Software, an application
development  tools vendor.  From November 1993 to July 1996,  Mr. Consoli worked
for Visix software, an application development tool vendor. Mr. Consoli holds an
undergraduate  degree in  Aerospace  Engineering  from Auburn  University  and a
masters degree in Engineering Management from Southern Methodist University.

         Eyran  Blumberg has been the Senior Vice  President  of Products  since
March  2000,  prior to which Mr.  Blumberg  had been Vice  President  of Product
Planning and Management  since September 1998. From October 1994 to August 1998,
Mr. Blumberg was Vice President of Customer Service and Technical  Support.  Mr.
Blumberg joined us in April 1994 and in September 1994 he established our United
States  subsidiary,  Jacada Inc. From 1991 to 1994, Mr.  Blumberg was a business
management  and  information  technology  consultant  for Plant  Design Ltd. Mr.
Blumberg holds undergraduate  degrees in Industrial  Management  Engineering and
Statistics from the Tel-Aviv University, Israel.

         Nimrod Gil-Ad was a co-founder  of Jacada in 1990 and currently  serves
as our Vice  President of Research and Chief  Technology  Officer.  From 1988 to
1990,  Mr. Gil-Ad worked at  Algorithmic  Research  Limited,  later  acquired by
Cylink,  a world  leader  in the  fields of  cryptography,  access  control  and
communications security. From 1983 to 1988, Mr. Gil-Ad was part of an elite unit
in the Israel Defense Forces where he  specialized  in systems  programming  and
design.  Mr. Gil-Ad directed the development of new software concepts  including
one of the  first  full  client/server  systems  in 1985.  Mr.  Gil-Ad  holds an
undergraduate  degree in  Mathematics  and  Computer  Science  from the Tel-Aviv
University, Israel.

         Aramis Alvarez has been our Senior Vice  President of Operations  since
January  2000,  prior to which  Mr.  Alvarez  had  been  our Vice  President  of
Professional  Services since  September  1999. From 1997 to 1999 Mr. Alvarez was


                                       31
<PAGE>

Vice-President,  International  Services,  for  PeopleSoft,  Inc., an enterprise
application  software vendor.  From 1996 to 1997 Mr. Alvarez was Vice-President,
Emerging Markets and from 1995 to 1996 Regional Vice-President, Southern Region,
U.S.  both at  PeopleSoft,  Inc.  From 1992 to 1995 Mr.  Alvarez was Director of
Latin American Professional Services at Dun and Bradstreet Software.

         Boaz Dotan has been a director of Jacada since November 1995. Mr. Dotan
was among the founders of Amdocs Ltd.,  the largest  software  vendor in Israel,
specialized  in billing and yellow pages  software  and  services for  telephone
companies.  Mr.  Dotan  joined  Amdocs  Ltd.  in 1982 and held the  position  of
President and Chief Executive Officer until 1995, at which time he was appointed
Chairman of the Board of  Directors  until 1998.  Mr.  Dotan holds a bachelor of
science  degree in  Mathematics  and  Statistics  from the Tel-Aviv  University,
Israel.

         Yossie  Hollander has been chairman of the board of directors of Jacada
since November 1995 and a director  since 1990. Mr.  Hollander was a founder of,
and from 1983 to 1994 served as the Chief  Executive  Officer of, New  Dimension
Software  Ltd., an enterprise  system and management  software  company that was
acquired by BMC Software in April 1999.  Yossie Hollander is Gideon  Hollander's
brother.

         Jay B.  Morrison  has served as a director  since  November  1995.  Dr.
Morrison is the founder and managing general partner of Newbury Ventures,  Inc.,
a United States venture  capital firm  established in 1992. Dr. Morrison is also
the fund manager of Jerusalem  Pacific  Ventures L.P., one of our  shareholders.
Prior to 1992,  Dr.  Morrison held a number of positions  with Govett & Co. Ltd.
and European  International  Fund Management  Company including the positions of
Chief  Financial  Officer and President of its venture capital  subsidiary.  Dr.
Morrison  currently  serves as a director of Fundtech  Ltd. and in several other
privately held technology companies.  He holds undergraduate and masters degrees
in Operations  Research from Ohio State  University  and a doctorate in Business
Administration  from the Haas School of Business at the University of California
at Berkeley.

         Amnon Shoham has served as a director since January 1994. Mr. Shoham is
the managing director of Cedar Advisors Ltd., a position he has held since 1997.
From 1993 to 1997, Mr. Shoham served as a Managing  Partner of Star Ventures,  a
venture capital firm in Israel.  Mr. Shoham serves as a director on the board of
directors of several private  companies.  Mr. Shoham holds a law degree from the
Tel-Aviv University, Israel.

Item 11.    COMPENSATION OF DIRECTORS AND OFFICERS

Compensation of Directors and Officers

         The aggregate remuneration we paid for the year ended December 31, 1999
to all executive officers as a group (7 persons),  was $1.1 million in salaries,
fees, commissions and bonuses. This amount includes $10,000 set aside or accrued
to provide for pension, retirement or similar benefits provided to our directors
and executive officers.


                                       32
<PAGE>

         Directors  of ours  who  are  not  executive  officers  do not  receive
compensation  for  their  service  on the  board of  directors  or any  board of
directors committee.  However,  all non-management  directors are reimbursed for
their expenses for each board of directors meeting attended.

         As of December 31, 1999 options to purchase  1,467,604  ordinary shares
granted to our  directors  and  executive  officers  under our option plans were
outstanding.  The weighted average exercise price of these options was $2.52 per
share.

Item 12.    OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES

         We currently  maintain  three option plans,  the 1994 Option Plan,  the
1996 Option Plan and the 1999 Option Plan.

         The purpose of our option  plans is to afford an incentive to officers,
directors,  employees and  consultants of ours, or any of our  subsidiaries,  to
acquire a  proprietary  interest  in us, to  continue  as  officers,  directors,
employees  and  consultants,  to increase  their  efforts on behalf of us and to
promote the success of our business.

         We have  reserved  3,960,450  ordinary  shares  for  issuance  upon the
exercise  of  options  to be  granted  to  officers,  directors,  employees  and
consultants  of ours or any of our  subsidiaries.  As of the date of this annual
report,  options to purchase  2,356,136  ordinary  shares were  outstanding  and
1,331,016  additional  ordinary  shares were  available for grants of additional
options.  The weighted average exercise price of options  outstanding  under our
option plans is $3.52.

         Our option plans are  administered  by our board of  directors  and the
compensation  committee  of our  board of  directors.  Under the  option  plans,
options to purchase our ordinary  shares may be granted to officers,  directors,
employees or consultants of ours or our subsidiaries.  In addition,  pursuant to
the option  plans,  the exercise  price of options  shall be  determined  by our
compensation  committee  but may not be less than the par value of the  ordinary
shares.  The  vesting  schedule  of  the  options  is  also  determined  by  our
compensation  committee but generally the options vest over a three to four year
period.  Each option  granted  under the option plans is  exercisable  until the
earlier of ten years from the date of the grant of the option or the  expiration
dates of the respective option plans. The 1994 Option Plan, the 1996 Option Plan
and the 1999 Option Plan will expire on December 31, 2003, December 31, 2005 and
September 22, 2009, respectively.

Item 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS

         Not Applicable


                                       33
<PAGE>

                                    PART II

Item 14. DESCRIPTION OF SECURITIES TO BE REGISTERED

         Not Applicable.

                                    PART III

Item 15. DEFAULTS UPON SENIOR SECURITIES

         None.

Item 16.  CHANGES IN SECURITIES,  CHANGES IN SECURITY FOR REGISTERED  SECURITIES
          AND USE OF PROCEEDS

         There have been no changes in  securities  or changes in  security  for
registered securities.

         The effective date of the  registration  statement (No.  333-10882) for
Jacada's initial public offering of its Ordinary Shares,  NIS .01 par value, was
October 14, 1999.  The offering  commenced on October 20, 1999,  and  terminated
after the sale of all the securities registered. The managing underwriter of the
offering was Lehman Brothers. Jacada registered 5,175,000 ordinary shares in the
offering,  including shares issued pursuant to the exercise of the underwriters'
over-allotment  option.  Jacada sold 5,175,000  ordinary  shares at an aggregate
offering  price of  $56,925,000  ($11.00  per  share).  Under  the  terms of the
offering,  Jacada  incurred  underwriting  discounts of $3,984,750.  Jacada also
incurred  estimated  expenses  of  $2,769,250  million  in  connection  with the
offering.  None of the amounts were paid directly or indirectly to any director,
officer,  general  partner  of Jacada  or their  associates,  persons  owing ten
percent or more of any class of equity  securities of Jacada, or an affiliate of
Jacada.

         The net proceeds that Jacada  received as a result of the offering were
$50,568,390.  As of  December  31,  1999,  the net  proceeds  have  been used as
follows:  $50,519,000 has been used to purchase U.S.  Government  debentures and
the  balance  has been  used for  general  corporate  purposes.  None of the net
proceeds of the  offering  were paid  directly or  indirectly  to any  director,
officer,  general  partner  of Jacada or their  associates,  persons  owning ten
percent or more of any class of equity  securities of Jacada, or an affiliate of
Jacada.

                                    PART IV

Item 17. FINANCIAL STATEMENTS

         Not applicable. (See Items 18 and 19.)


                                       34
<PAGE>

Item 18. FINANCIAL STATEMENTS

         See pages F-1 to F-24 incorporated herein by reference.

Item 19. FINANCIAL STATEMENTS AND EXHIBITS

         (i) The following  financial  statements and  supporting  documents are
filed with this report beginning on page F-1 hereof:

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

         (ii) No financial statement schedules are filed with this report.

         (iii) No  exhibits  are filed  with  this  report  or  incorporated  by
reference herein.


                                       35
<PAGE>


                                   SIGNATURES

         Pursuant to the requirements of the Securities Act of 1934, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the  requirements for filing on Form 20-F and has duly caused this annual
report  to  be  signed  on  its  behalf  by  the  undersigned,  thereunto,  duly
authorized, on March 27, 2000.


                                        JACADA LTD.


                                        /s/ Ran Oz
                                        -----------------------
                                        By: Ran Oz
                                        Chief Financial Officer







                                       36

<PAGE>
                                   JACADA LTD.


                        CONSOLIDATED FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 1999


                                 IN U.S. DOLLARS



                                      INDEX

                                                                       PAGE
                                                                   ------------

REPORT OF INDEPENDENT AUDITORS                                          F-2

CONSOLIDATED BALANCE SHEETS                                          F-3 - F4

CONSOLIDATED STATEMENTS OF OPERATIONS                                   F-5

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY                           F-6

CONSOLIDATED STATEMENTS OF CASH FLOWS                                   F-7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                          F-8 - F-24




                              - - - - - - - - - - -




                                      F-1
<PAGE>
ERNST & YOUNG
KOST FORER & GABBAY





                         REPORT OF INDEPENDENT AUDITORS

                             TO THE SHAREHOLDERS OF

                                   JACADA LTD.



             We have audited the accompanying consolidated balance sheets of
Jacada Ltd. and its subsidiaries (collectively, "the Company") as of December
31, 1998 and 1999 and the related consolidated statements of operations, changes
in shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 1999. 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 generally accepted
auditing standards in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

             In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of the Company as of December 31, 1998 and 1999 and the consolidated
results of its operations and cash flows for each of the three years in the
period ended December 31, 1999, in conformity with generally accepted accounting
principles in the United States.




Tel-Aviv, Israel                                 KOST FORER & GABBAY
February 15, 2000                     A Member of Ernst and Young International





                                      F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
IN U.S. DOLLARS IN THOUSANDS

<TABLE>
<CAPTION>
                                                                                               DECEMBER 31,
                                                                                -------------------------------------------
                                                                                       1998                    1999
                                                                                -------------------     -------------------
<S>                                                                             <C>                     <C>
       ASSETS

 CURRENT ASSETS:
     Cash and cash equivalents                                                          $   5,613             $   5,141
     Short-term deposit                                                                         -                    56
     Trade receivables (net of allowance for doubtful accounts of $ 30
       and $ 40 as of December 31, 1998 and 1999, respectively)                             2,966                 3,760
     Other accounts receivable                                                                171                   261
     Marketable securities                                                                      -                50,519
                                                                                -------------------     -------------------

                                                                                            8,750                59,737
                                                                                -------------------     -------------------

 LONG-TERM RECEIVABLES                                                                        152                   128
                                                                                -------------------     -------------------

 SEVERANCE PAY FUND                                                                           338                   430
                                                                                -------------------     -------------------

 PROPERTY AND EQUIPMENT, NET                                                                1,891                 2,140
                                                                                -------------------     -------------------

                                                                                       $   11,131            $   62,435
                                                                                ===================     ===================


</TABLE>


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





                                      F-3
<PAGE>
                                                                   JACADA LTD.
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
IN U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA


<TABLE>
<CAPTION>
                                                                                            DECEMBER 31,
                                                                            -------------------------------------------
                                                                                   1998                    1999
                                                                            -------------------     -------------------
<S>                                                                         <C>                     <C>
       LIABILITIES AND SHAREHOLDERS' EQUITY

 CURRENT LIABILITIES:
     Short-term debt                                                              $   2,022                   $   -
     Current portion of  long-term debt                                                 129                     194
     Trade payables                                                                     437                   1,443
     Deferred revenues                                                                4,152                   3,024
     Accrued expenses and other liabilities                                             862                   1,761
                                                                            --------------------    ---------------------

                                                                                      7,602                   6,422
                                                                            --------------------    ---------------------
 LONG TERM LIABILITIES:
     Accrued severance pay                                                              500                     677
     Long-term debt, net of current portion                                              90                     186
     Offering expenses payable                                                            -                     296
                                                                            --------------------    ---------------------

                                                                                        590                   1,159
                                                                            --------------------    ---------------------
 COMMITMENTS AND CONTINGENT LIABILITIES

 SHAREHOLDERS' EQUITY:
     Preferred shares of NIS 0.01 par value:
       Authorized: 9,750,000 as of December 31, 1998 and 0 as of
 December 31, 1999; Issued and outstanding: 8,407,635 as of
     December 31, 1998 and 0 as of December 31, 1999;                                    26                       -
     Ordinary shares of NIS 0.01 par value:
       Authorized: 20,250,000 as of December 31, 1998 and 30,000,000
 as of December 31, 1999; Issued and outstanding: 3,621,893 as
 of December 31, 1998 and 17,610,893 as of December 31, 1999                             12                      52
     Additional paid-in capital                                                      14,887                  66,941
     Deferred compensation                                                             (125)                   (272)
     Accumulated deficit                                                            (11,861)                (11,867)
                                                                            --------------------    ---------------------

 Total shareholders' equity                                                           2,939                  54,854
                                                                            --------------------    ---------------------

                                                                                 $   11,131                $ 62,435
                                                                            ====================    =====================

</TABLE>


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







                                      F-4
<PAGE>
                                                                   JACADA LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
IN U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA

<TABLE>
<CAPTION>
                                                                               YEAR ENDED DECEMBER 31,
                                                         --------------------------------------------------------------------
                                                                1997                     1998                    1999
                                                         --------------------     -------------------     -------------------
<S>                                                      <C>                      <C>                     <C>
Revenues:
  Software license                                          $        3,432            $       6,469          $        8,831
  Service and maintenance                                            2,169                    3,019                   5,768
                                                         --------------------     -------------------     -------------------

Total revenues                                                       5,601                    9,488                  14,599
                                                         --------------------     -------------------     -------------------
Cost of revenues:
  Software license                                                     276                      342                     639
  Service and maintenance                                            1,766                    2,558                   2,740
                                                         --------------------     -------------------     -------------------

Total cost of revenues                                               2,042                    2,900                   3,379
                                                         --------------------     -------------------     -------------------

Gross profit                                                         3,559                    6,588                  11,220
                                                         --------------------     -------------------     -------------------
Operating expenses:
Research and development                                             2,164                    3,054                   3,267
Less - royalty bearing grants                                          649                      614                       -
                                                         --------------------     -------------------     -------------------

Research and development, net                                        1,515                    2,440                   3,267
                                                         --------------------     -------------------     -------------------

Selling and marketing, net                                           4,464                    5,411                   6,529
General and administrative                                           1,033                    1,637                   1,960
                                                         --------------------     -------------------     -------------------

Total operating expenses                                             7,012                    9,488                  11,756
                                                         --------------------     -------------------     -------------------

Operating loss                                                      (3,453)                  (2,900)                   (536)
Interest income                                                        159                      197                     770
Interest expenses                                                     (135)                    (216)                   (206)
Other expenses, net                                                      -                       (1)                    (34)
                                                         --------------------     -------------------     -------------------

Loss before income taxes                                            (3,429)                  (2,920)                     (6)
Income taxes                                                            (6)                       -                       -
                                                         --------------------     -------------------     -------------------

Net loss                                                    $       (3,423)          $       (2,920)      $              (6)
                                                         ====================     ===================     ===================

Basic and diluted net loss per share                        $        (0.92)          $        (0.81)      $               -
                                                         ====================     ===================     ===================
Weighted average number of shares used in
  computing basic and diluted net loss per share                 3,704,298                3,615,143               6,572,476
                                                         ====================     ===================     ===================

</TABLE>


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


                                      F-5
<PAGE>
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------
IN U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA

<TABLE>
<CAPTION>
                                               CONVERTIBLE
                                             PREFERRED SHARES                         ORDINARY SHARES
                                    -----------------------------------     ------------------------------------
                                        SHARES              AMOUNT              SHARES               AMOUNT
                                    ---------------     ---------------     ---------------      ---------------
<S>                                 <C>                 <C>                 <C>                  <C>
Balance as of January 1, 1997          5,603,415            $   18             3,750,000             $   12
  Conversion of Ordinary shares
    to Preferred "C" shares              137,107         (*      -              (137,107)        (*       -
  Issuance of Preferred "C"
    shares, net                        1,713,900                 6                     -                  -
  Net loss                                     -                 -                     -                  -
                                    ---------------     ---------------     ------------------   ---------------
Balance as of
  December 31, 1997                    7,454,422                24             3,612,893                 12
  Issuance of Preferred "D"
    shares, net                          953,213                 2                     -                  -
  Exercise of stock options, net               -                 -                 9,000          (*      -
  Deferred compensation                        -                 -                     -                  -
  Net loss                                     -                 -                     -                  -
                                    ---------------     ---------------     ------------------   ---------------
Balance as of
  December 31, 1998                    8,407,635                26             3,621,893                 12
Issuance of Preferred "C"
  shares, net                            389,490                 2                     -                  -
Conversion of Ordinary shares
  to Preferred shares                     31,155        (*       -               (31,155)         (*      -
Conversion of Preferred shares
  to Ordinary shares                  (8,828,280)              (28)            8,828,280                 28
Issuance of Ordinary shares, net               -                 -             5,175,000                 12
Exercise of stock options, net                 -                 -                16,875                 (*
Deferred compensation                          -                 -                     -                  -
Amortization of deferred
  compensation                                 -                 -                     -                  -
  Net loss                                     -                 -                     -                  -
                                    ---------------     ---------------     ------------------   ---------------
Balance as of
  December 31, 1999                            -             $   -            17,610,893             $   52
                                    ===============     ===============     ==================   ===============
</TABLE>

** TABLE CONTINUED..... **

<TABLE>
<CAPTION>
                                          ADDITIONAL                                                            TOTAL
                                           PAID-IN               DEFERRED              ACCUMULATED          SHAREHOLDERS'

                                           CAPITAL             COMPENSATION              DEFICIT               EQUITY
                                       -----------------     ------------------     ------------------     ----------------
<S>                                    <C>                   <C>                    <C>                    <C>
Balance as of January 1, 1997               $   6,079             $       -             $   (5,518)              $   591
  Conversion of Ordinary shares
    to Preferred "C" shares                         -                     -                      -                     -
  Issuance of Preferred "C"
    shares, net                                 4,892                     -                      -                 4,898
  Net loss                                          -                     -                 (3,423)               (3,423)
                                       ------------------     ------------------     -----------------     -----------------
Balance as of
  December 31, 1997                            10,971                     -                 (8,941)                2,066
  Issuance of Preferred "D"
    shares, net                                 3,781                     -                      -                 3,783
  Exercise of stock options, net                   10                     -                      -                    10
  Deferred compensation                           125                  (125)                     -                     -
  Net loss                                          -                     -                 (2,920)               (2,920)
                                       ------------------     ------------------     -----------------     -----------------
Balance as of
  December 31, 1998                            14,887                  (125)               (11,861)                2,939
Issuance of Preferred "C"
  shares, net                                   1,237                     -                      -                 1,239
Conversion of Ordinary shares
  to Preferred shares                               -                     -                      -                     -
Conversion of Preferred shares
  to Ordinary shares                                -                     -                      -                     -
Issuance of Ordinary shares, net               50,556                     -                      -                50,568
Exercise of stock options, net                     19                     -                      -                    19
Deferred compensation                             242                  (242)                     -                     -
Amortization of deferred
  compensation                                      -                    95                      -                    95
  Net loss                                          -                     -                     (6)                   (6)
                                       ------------------     ------------------     -----------------     -----------------
Balance as of
  December 31, 1999                        $   66,941              $   (272)           $   (11,867)           $   54,854
                                       ==================     ==================     =================     =================
</TABLE>

(*    Represents an amount of less than $ 1 thousand.

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





                                      F-6
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
IN U.S. DOLLARS IN THOUSANDS

<TABLE>
<CAPTION>
                                                                                    YEAR ENDED DECEMBER 31,
                                                              --------------------------------------------------------------------
                                                                     1997                     1998                    1999
                                                              --------------------     -------------------     -------------------
<S>                                                           <C>                      <C>                     <C>
 Cash flows from operating activities:
 Net loss                                                           $  (3,423)               $  (2,920)                 $   (6)
 Adjustments to reconcile net loss to net cash
   used in operating activities:
   Depreciation                                                           309                      525                     724
   Amortization of deferred compensation                                    -                        -                      95
   Accrued interest on marketable securities                                -                        -                    (222)
   Increase in accrued severance pay, net                                  35                       20                      85
   Capital loss on sale of property and equipment, net                      -                        1                      34
   Increase in trade receivables                                         (445)                  (1,121)                   (794)
   Decrease (increase) in other accounts receivable                        84                      269                     (90)
   Increase (decrease) in trade payables                                   (3)                     (80)                  1,006
   Increase in accrued expenses and other liabilities                     521                       33                     899
   Increase (decrease) in deferred revenues                               171                    1,014                  (1,128)
                                                              --------------------     -------------------     -------------------

 Net cash provided by (used in) operating activities                   (2,751)                  (2,259)                    603
                                                              --------------------     -------------------     -------------------

 Cash flows from investing activities:
 Purchase of short-term deposits                                            -                        -                     (56)
 Purchase of marketable securities                                          -                        -                 (50,297)
 Purchase of property and equipment                                      (848)                    (884)                 (1,048)
 Proceeds from sale of property and equipment                               5                        2                      41
 Other                                                                    (17)                    (100)                     19
                                                              --------------------     -------------------     -------------------

 Net cash used in investing activities                                   (860)                    (982)                (51,341)
                                                              --------------------     -------------------     -------------------

 Cash flows from financing activities:
 Proceeds from issuance of shares, net                                  4,898                    3,793                  52,122
 Payment of principal of long-term debt                                  (106)                    (163)                   (202)
 Proceeds from long-term debt                                             131                      158                     368
 Short-term debt, net                                                      (3)                   2,022                  (2,022)
                                                              --------------------     -------------------     -------------------

 Net cash provided by financing activities                              4,920                    5,810                  50,266
                                                              --------------------     -------------------     -------------------

 Increase (decrease) in cash and cash equivalents                       1,309                    2,569                    (472)
 Cash and cash equivalents at the beginning of the year                 1,735                    3,044                   5,613
                                                              --------------------     -------------------     -------------------

 Cash and cash equivalents at the end of the year                   $   3,044                $   5,613              $    5,141
                                                              ====================     ===================     ===================

 Supplemental disclosure of cash flows information:
 a.Cash paid during the year for:
     Interest                                                      $       30               $       72             $       118
                                                              ====================     ===================     ===================
 b.Non-cash activities:
     Offering expenses payable                                    $         -              $         -             $       296
                                                              ====================     ===================     ===================

</TABLE>

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


                                      F-7
<PAGE>
                                                                    JACADA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
IN U.S. DOLLARS IN THOUSANDS


NOTE 1:-   GENERAL

           Jacada Ltd. (formerly: Client/Server Technology Ltd.) was
           incorporated, under the laws of Israel, in December 1990.

           Jacada Ltd. and its wholly-owned marketing subsidiaries - Jacada Inc.
           (the U.S. subsidiary) and Jacada (Europe) Ltd. (the UK subsidiary)
           (collectively: "the Company") - develop and market software that
           enables businesses to utilize their existing host-centric software
           applications to conduct business over the Internet. The Company
           generates revenues principally from licensing its Jacada software
           products and, to a lesser extent, from services such as maintenance
           and support, consulting and training.

           The Company's sales are made in North America and Europe. As for
           major customers, see Note 12.


NOTE 2:-   SIGNIFICANT ACCOUNTING POLICIES

           a.         Use of estimates:

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

           b.         Financial statements in U.S. Dollars:

                      A majority of the revenues of Jacada Ltd. and each of its
                      subsidiaries is generated in United States dollars
                      ("dollars"). In addition, a substantial portion of Jacada
                      Ltd. and each of its subsidiaries costs are incurred in
                      dollars. Since the dollar is the primary currency in the
                      economic environment in which the Company operates, the
                      dollar is its functional currency. Accordingly, monetary
                      accounts maintained in currencies other than the dollar
                      are remeasured into dollars in accordance with Statement
                      No. 52 of the Financial Accounting Standard Board
                      ("FASB"). All transaction gains and losses of the
                      remeasurement of monetary balance sheet items are
                      reflected in the statement of operations as financial
                      income or expenses, as appropriate. The foreign currency
                      exchange rate effects in the years ended December 31,
                      1997, 1998 and 1999 were immaterial.

           c.         Principles of consolidation:

                      The consolidated financial statements include the accounts
                      of Jacada Ltd. and its subsidiaries. Significant
                      intercompany transactions and balances were eliminated in
                      the consolidation.

           d.         Cash equivalents:

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


                                      F-8
<PAGE>
           e.         Marketable securities:

                      The Company accounts for investments in debt and equity
                      securities (other than those accounted for under the
                      equity method of accounting) in accordance with FASB
                      Statement No. 115, "Accounting for Certain Investments in
                      Debt and Equity Securities".

                      Management determines the appropriate classification of
                      its investments in debt securities at the time of purchase
                      and reevaluates such determinations at each balance sheet
                      date. Debt securities are classified as held-to-maturity
                      when the Company has the positive intent and ability to
                      hold the securities to maturity, which are stated at
                      amortized cost.

                      The amortized cost of debt securities is adjusted for
                      amortization of premiums and accretion of discounts to
                      maturity. Such amortization and interest are included in
                      financial expense (income), net. The cost of securities
                      sold is based on the specific identification method.

                      The Company's investments in debt securities are
                      diversified among high-credit quality securities, in
                      accordance with the Company's investment policy.

           f.         Property and equipment:

                      Property and equipment are stated at cost. Depreciation is
                      calculated by the straight-line method over the estimated
                      useful lives of the assets at the following annual rates:

<TABLE>
<CAPTION>
                                                                                    %
                                                                   ----------------------------------
<S>                                                                <C>
                      Computers and peripheral equipment                         20 - 33
                      Office furniture and equipment                              6 - 10
                      Motor vehicles                                                15
                      Leasehold improvements                            Over the term of the lease
</TABLE>

           g.         Research and development costs:

                      Research and development costs incurred in the process of
                      developing product improvements or new products, are
                      charged to expenses as incurred, net of participation of
                      the Office of the Chief Scientist in the Israeli Ministry
                      of Industry and Trade ("the OCS").

                      Statement of Financial Accounting Standards (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 the
                      Company's product development process, technological
                      feasibility is established upon completion of a working
                      model. The Company does not incur any costs between the
                      completion of the working model and the point at which the
                      product is ready for general release.


                                      F-9
<PAGE>
                      Therefore, through December 31, 1999, the Company has
                      charged all software development costs to research and
                      development expense.

           h.         Income taxes:

                      The Company accounts for income taxes in accordance with
                      SFAS No. 109, "Accounting for Income Taxes". 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.

           i.         Revenue recognition:

                      The Company generates revenues from licensing the rights
                      to use its software products directly to end-users and
                      indirectly through sub-license fees from resellers. The
                      Company also generates revenues from sales of professional
                      services, including consulting, support, training and
                      maintenance.

                      Revenues from software license agreements are recognized,
                      in accordance with Statement Of Position (SOP) 97-2
                      "Software Revenue Recognition" (as amended by SOP 98-4),
                      upon delivery of the software when collection is probable;
                      all license payments are due within one year, the license
                      fee is otherwise fixed or determinable, vendor-specific
                      objective evidence exists to allocate the total fee to the
                      elements of the arrangement and persuasive evidence of an
                      arrangement exists.

                      Revenues from service and maintenance are recognized over
                      the life of the maintenance agreement or at the time that
                      services are rendered, and in certain consulting
                      contracts, using the percentage of completion method.

                      Revenues recognized under the percentage of completion
                      method amounted to approximately $ 800, $ 550 and $ 158
                      for the years ended December 31, 1997, 1998 and 1999,
                      respectively.

                      Deferred revenues include unearned amounts received under
                      maintenance and support contracts and amounts billed to
                      customers but not recognized as revenues.

                      In December 1998, the AICPA issued Statement of Position
                      98-9, "Modification of SOP 97-2, Software Revenue
                      Recognition, With Respect to Certain Transactions" ("SOP
                      98-9"). SOP 98-9 amends SOP 98-4 to extend the deferral of
                      the application of certain passages of SOP 97-2 provided
                      by SOP 98-4 through fiscal years beginning on or before
                      March 15, 1999. All other provisions of SOP 98-9 are
                      effective for transactions entered into in fiscal years
                      beginning after March 15, 1999. The Company believes that
                      the effect of the final adoption of SOP 98-9 on its
                      financial condition or results of operations would be
                      insignificant.


                                      F-10
<PAGE>
           j.         Royalty-bearing grants:

                      Royalty-bearing grants from the Government of Israel for
                      funding certain approved research projects are recognized
                      at the time in which the Company is entitled to such
                      grants on the basis of the related costs incurred.

           k.         Advertising costs:

                      Advertising costs are charged to expense, as incurred.
                      Advertising expenses for the years ended December 31,
                      1997, 1998 and 1999 were $ 529, $ 142 and $ 159,
                      respectively.

           l.         Accounting for stock-based compensation:

                      The Company has elected to follow Accounting Principles
                      Board Opinion No. 25 ("APB-25"), "Accounting for Stock
                      Issued to Employees" in accounting for its employee stock
                      option plan. Under APB-25, when the exercise price of the
                      Company's share options equals or is above the market
                      price of the underlying shares on the date of grant, no
                      compensation expense is recognized.

                      The Company applies Financial Accounting Standards Board
                      Statement No. 123 "Accounting for Stock-Based
                      Compensation" ("SFAS 123") with respect to options issued
                      to non-employees. SFAS 123 requires use of an option
                      valuation model to measure the fair value of the options
                      at the grant date. The pro-forma disclosures required by
                      SFAS 123, are provided in Note 10.

           m.         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.
                      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 employees, is fully provided by
                      monthly deposits with severance pay funds, insurance
                      policies and by an accrual.

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

           n.         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 deposits, accounts receivable and short-term
                      bank debt approximate their fair value due to the
                      short-term maturity of such instruments.


                                      F-11
<PAGE>
                      The carrying amounts of the Company's long-term borrowing
                      arrangements approximate their fair value. Fair values
                      were estimated using discounted cash flow analyses, based
                      on the Company's incremental borrowing rates for similar
                      types of borrowing arrangements.

           o.         Basic and diluted net loss per share:

                      Basic net loss per share is computed based on the weighted
                      average number of Ordinary shares outstanding during each
                      year. Diluted net 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
                      FASB Statement No. 128, "Earnings Per Share".

                      All convertible Preferred shares, outstanding stock
                      options, and warrants have been excluded from the
                      calculation of the diluted net loss per Ordinary share
                      because all such of these securities are anti-dilutive for
                      all periods presented. The total numbers of shares related
                      to the outstanding convertible Preferred shares, options
                      and warrants excluded from the calculations of diluted net
                      loss per share were 9,642,398, 10,707,069 and 2,604,384
                      for the years ended December 31, 1997, 1998 and 1999,
                      respectively.

           p.         Concentrations of credit risk:

                      Financial instruments that potentially subject the Company
                      to concentrations of credit risk consist principally of
                      cash, cash equivalents, marketable securities and trade
                      receivables. Cash and cash equivalents are deposited with
                      major banks in Israel, England and the United States. Such
                      deposits in the United States may be in excess of insured
                      limits and are not insured in other jurisdictions. Market
                      securities are invested in U.S. debentures. Management
                      believes that the financial institutions that hold the
                      Company's investments are financially sound, and,
                      accordingly, minimal credit risk exists with respect to
                      these investments. The Company's trade receivables are
                      mainly derived from sales to customers in the United
                      States and Europe. Provisions for bad debts in the years
                      ended December 31, 1997 and 1998 and 1999 were $ 35, $ 30
                      and $ 40, respectively. Write-offs of uncollectible
                      accounts in the years ended December 31, 1997, 1998 and
                      1999 were $ 1, $ 20 and $ 9, respectively. The Company has
                      adopted credit policies and standards intended to
                      accommodate industry growth and inherent risk. Management
                      believes that credit risks are moderated by the diversity
                      of its end customers and geographic sales areas. The
                      Company performs ongoing credit evaluations of its
                      customers' financial condition and requires collateral as
                      deemed necessary.




                                      F-12
<PAGE>
           q.         Disclosure about segments:

                      The Company adopted SFAS No. 131, "Disclosures About
                      Segments of an Enterprise and Related Information", in
                      1997. SFAS No. 131 supersedes SFAS No. 14, replacing the
                      "industry segment approach" with the "management
                      approach", whereby companies report financial and
                      descriptive information about their operating segments.
                      Operating segments are revenue-producing components of the
                      enterprise for which separate financial information is
                      produced internally and are subject to evaluation by the
                      chief operating decision-maker in deciding how to allocate
                      resources to segments (see Note 12).

           r.         Impact of recently issued accounting standards

                      In June 1998, the Financial Accounting Standards Board
                      issued Statement 133, "Accounting for Derivative
                      Instruments and Hedging Activities" ("Statement 133").
                      This statement establishes accounting and reporting
                      standards requiring that every derivative instrument
                      (including certain derivative instruments embedded in
                      other contracts) be recorded in the balance sheet as
                      either an asset or liability measured at its fair value.
                      The statement also requires that changes in the
                      derivative's fair value be recognized currently in
                      earnings unless specific hedge accounting criteria are
                      met. Special accounting for qualifying hedges allows a
                      derivative's gains and losses to offset related results on
                      the hedged item in the income statement and requires that
                      a company formally document, designate, and assess the
                      effectiveness of transactions that receive hedge
                      accounting. Statement 133 is effective for fiscal years
                      beginning after June 15, 2000 and cannot be applied
                      retroactively. The Company does not expect the impact of
                      this new statement on the Company's consolidated balance
                      sheets or results of operations to be material.


NOTE 3:-   MARKETABLE SECURITIES

<TABLE>
<CAPTION>
                                                                         GROSS UNREALIZED
                                           AMORTIZED COST                     LOSSES                  ESTIMATED FAIR VALUE
                                     ----------------------------  -----------------------------  -----------------------------
                                        1998            1999           1998            1999           1998           1999
                                     ------------   -------------  -------------   -------------  -------------  --------------
<S>                                  <C>            <C>            <C>             <C>            <C>            <C>
      U.S. Government debentures        $    -        $ 50,519        $    -         $ 1,090         $    -         $ 49,429
                                     ============   =============  =============   =============  =============  ==============
</TABLE>

                      The scheduled maturities of held-to-maturities as of
                      December 31, 1999 are as follows:


                                       AMORTIZED                ESTIMATED
                                          COST                 FAIR VALUE
                                 ---------------------     --------------------
     Held to maturity:
     ----------------

     Due within one year                 $  50,519               $  49,429
                                 =====================     ====================



                                      F-13
<PAGE>
NOTE 4:-         PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
                                                                                                   DECEMBER 31,
                                                                                    -------------------------------------------
                                                                                           1998                    1999
                                                                                    -------------------     -------------------
<S>                                                                                <C>                      <C>
                 Cost:
                   Leasehold improvements                                                $     251                   $   256
                   Computers and peripheral equipment                                        1,761                     2,266
                   Office furniture and equipment                                              559                       554
                   Motor vehicles                                                              388                       771
                                                                                    -------------------     -------------------

                                                                                             2,959                     3,847
                 Accumulated depreciation                                                    1,068                     1,707
                                                                                    -------------------     -------------------

                 Depreciated cost                                                        $   1,891                 $   2,140
                                                                                    ===================     ===================

                 As for charges, see Note 9.


NOTE 5:-         SHORT-TERM DEBT

                 As of December 31 1999, the Company has an authorized credit
                 facility in the amount of $ 2,800 denominated in dollars and
                 bearing interest at the rate Libor + 1.5%.

                 The weighted average interest rate of the credit facility as of
                 December 31, 1998 and 1999 was approximately 7.0% and 6.9%,
                 respectively.

                 The Company had an unused credit facility in the amount of
                 approximately $ 2,600 as of December 31, 1999 (there is no fee
                 for the unused portion of the credit facility).


NOTE 6:-         ACCRUED EXPENSES AND OTHER LIABILITIES
                                                                                                   DECEMBER 31,
                                                                                    -------------------------------------------
                                                                                           1998                    1999
                                                                                    -------------------     -------------------

                 Employees and payroll accruals                                            $   614               $   1,020
                 Accrued expenses                                                              191                     427
                 Other liabilities                                                              57                     314
                                                                                    -------------------     -------------------

                                                                                           $   862               $   1,761
                                                                                    ===================     ===================

</TABLE>



                                      F-14
<PAGE>
NOTE 7:-         ACCRUED SEVERANCE PAY, NET

                 Under Israeli law, the liability for severance pay to Israeli
                 employees is calculated based upon the employees' most recent
                 monthly salary multiplied by the period of employment. This
                 liability is covered mainly through insurance policies and
                 deposits with reputable severance pay funds. The Company may
                 only withdraw the amounts funded for the purpose of
                 disbursement of severance pay.

                 Severance expenses for the years ended December 31, 1997, 1998
                 and 1999 were $ 42, $ 79 and $ 160, respectively.


NOTE 8:-         LONG-TERM DEBT

                 The liabilities are repayable in payments over a maximum period
                 of three years.

<TABLE>
<CAPTION>
                                                     LINKED             INTEREST                      DECEMBER 31,
                                                                                       -------------------------------------------
                                                       TO                 RATE                1998                    1999
                                                 ---------------     ----------------  -------------------     -------------------
<S>                                              <C>                 <C>               <C>                     <C>
   Long-term debt from financial institutions       Dollars              7.125                $   219                 $   380
                                                                                       ===================    ====================

   Aggregate maturities of long-term debt:

   First year (current portion)                                                               $   129                 $   194
                                                                                       -------------------    --------------------

   Second year                                                                                     64                     143
   Third year                                                                                      26                      43
                                                                                       -------------------    --------------------

                                                                                                   90                     186
                                                                                       -------------------    --------------------

                                                                                              $   219                 $   380
                                                                                       ===================    ====================
</TABLE>

NOTE 9:-         COMMITMENTS AND CONTINGENT LIABILITIES

                 a.      Royalties:

                         The Company participated in programs sponsored by the
                         Israeli Government for the support of research and
                         development activities. Through December 31, 1999, the
                         Company had obtained grants from the Office of the
                         Chief Scientist in the Israeli Ministry of Industry and
                         Trade ("the OCS") aggregating to $1,976 for certain of
                         the Company's research and development projects. The
                         Company is obligated to pay royalties to the OCS,
                         amounting to 3%-4% of the sales of the products and
                         other related revenues generated from such projects, up
                         to 100%-150% of the grants received.

                         Through December 31, 1999, the Company has paid or
                         accrued royalties to the OCS in the amount of $ 1,243.
                         As of December 31, 1999, the aggregate contingent
                         liability to the OCS amounted to $ 1,150.


                                      F-15
<PAGE>
                 b.      Lease commitments:

                         The Company's facilities are leased under several
                         operating lease agreements for periods ending in 2002.

                         Future minimum lease commitments under non-cancelable
                         operating leases for the year ending December 31, 2000,
                         2001 and 2002 amount to $790, $ 836 and $ 535,
                         respectively.

                 c.      Guarantees:

                         The Company has provided guarantees, in connection with
                         bank credit, in favor of a lessor, totaling $ 200.

                 d.      Charges:

                         As collateral for the liabilities of the Company to
                         financial institutions, charges have been placed on all
                         of the Company's assets in Israel, including insurance
                         rights.

                 e.      On August 31, 1999, a former distributor filed an
                         arbitration complaint against a subsidiary of the
                         Company, alleging, among other things, that the
                         subsidiary breached its agreement with the former
                         distributor by directly selling to a customer
                         products which the distributor had an exclusive
                         right to sell to the customer and that the
                         distributor is entitled to damages of $ 3.5 million.
                         Management believes that the subsidiary did not
                         breach its agreement with the distributor and that
                         no damages were caused to the distributor. Moreover,
                         the agreement with the distributor sets a limit on
                         the subsidiary's liability under the agreement,
                         which management believes to be approximately $ 200.
                         In the opinion of the Company's attorneys, it is not
                         currently possible to estimate the chances of the
                         claim. Hence, Management does not believe that the
                         arbitration proceeding will have any material impact
                         upon the Company.

NOTE 10:-        SHARE CAPITAL

                 a.      General:

                         As of October 1999, the Company's shares are traded on
                         NASDAQ.

                         All share and per share data included in these
                         financial statements have been retroactively adjusted
                         to reflect the issuance of share dividend of four
                         Ordinary shares for every one share outstanding
                         effected in September 1998, and the share dividend of
                         one Ordinary share for every two shares outstanding
                         effected in September 1999.

                         During 1998, the Company increased its authorized share
                         capital to 20,250,000 shares of NIS 0.01 par value
                         each. The increase in authorized share capital is
                         presented as of December 31, 1998.

                         In July 1998, the Company issued to investors an
                         aggregate of 635,475 Series "D" Preferred shares, for
                         net proceeds of $3,783.


                                      F-16
<PAGE>
                         In July 1999, 31,155 Ordinary shares and 85,688
                         Preferred "A" shares were converted into Preferred "C"
                         shares on a one-for-one basis.

                         As part of the issuance of shares in July 1997, the
                         investors received warrants to purchase 389,490
                         additional Preferred shares at a price of $ 3.21 per
                         share. On July 24, 1999, these warrants were exercised.

                 b.      Composition of share capital:

<TABLE>
<CAPTION>
                                                                        DECEMBER 31,
                            ---------------------------------------------------------------------------------------------------
                                         1997                               1998                               1999
                            ----------------------------        ----------------------------       ----------------------------
                                              ISSUED AND                         ISSUED AND                         ISSUED AND
                            AUTHORIZED       OUTSTANDING        AUTHORIZED       OUTSTANDING       AUTHORIZED       OUTSTANDING
                            ----------       -----------        ----------       -----------       ----------       -----------
                                                    NUMBER OF SHARES                                    NUMBER OF SHARES
                            ---------------------------------------------------------------------------------------------------
<S>                         <C>              <C>              <C>               <C>              <C>              <C>
Ordinary shares of
   NIS 0.01 par value         5,369,430        3,612,893        20,250,000        3,621,893        30,000,000       17,610,893
Preferred "A" NIS 0.01
   par value each             2,400,000        2,308,763         2,400,000        2,308,763                 -                -
Preferred "B" NIS 0.01
   par value each             3,000,000        2,917,597         3,000,000        2,917,597                 -                -
Preferred "C" NIS 0.01
   par value each             2,485,283        2,228,062         3,000,000        2,228,062                 -                -
Preferred "D" NIS 0.01
   par value each                     -                -         1,350,000          953,213                 -                -
                           ------------     ------------      ------------     ------------      ------------     ------------
                             13,254,713       11,067,315        30,000,000       12,029,528        30,000,000       17,610,893
                           ============     ============      ============     ============      ============     ============
</TABLE>

                         In October 1999, 4,500,000 Ordinary shares were issued
                         in consideration of $ 49,500,000 (not including
                         issuance expenses) in an Initial Public Offering
                         ("IPO").

                         The Company has granted an option to the underwriters
                         related to the IPO, to purchase up to 675,000
                         additional Ordinary shares on the same terms and
                         conditions as set forth in the Initial Public Offering
                         solely to cover over allotment if any. On November 4,
                         1999, the underwriters exercised their option to
                         purchase 675,000 Ordinary shares in the amount of $
                         7,425,000 (not including issuance expenses).

                         All of the Company's Preferred shares were
                         automatically converted into Ordinary shares on a
                         one-for-one basis upon the Initial Public Offering
                         which took place in October 1999.


                                      F-17
<PAGE>
                 c.      Stock options:

                         The Company has elected to follow Accounting Principles
                         Board Opinion No. 25, "Accounting for Shares Issued to
                         Employees" ("APB-25"), and related interpretations in
                         accounting, for its employee share options because, as
                         discussed below, the alternative fair value accounting
                         provided for under FASB Statement No. 123, "Accounting
                         for Share-Based Compensation", requires the use of
                         option valuation models that were not developed for use
                         in valuing employee share options.

                         In September 1999, the Board of Directors approved a
                         new Share Option plan (the 1999 plan). Under the 1999
                         plan, the Company authorized the grant of up to
                         1,800,000 of its Ordinary shares. During the fourth
                         quarter, the Company granted to certain of its
                         employees and suppliers 561,000 options, at an exercise
                         price of $ 9.13 - $ 11 per share, under the 1999 plan.
                         The options are fully exercisable four years from the
                         grant date and expire ten years from the date of
                         shareholder approval of the 1999 plan.

                         As of December 31, 1999, the Company has authorized by
                         several Incentive Share Option Plans, the grant of
                         options to officers, management, other key employees
                         and others of up to 3,960,450 of the Company's Ordinary
                         shares. The options granted generally become fully
                         exercisable after 3-4 consecutive years and expire ten
                         years from the approval date of the option plan under
                         the terms they were granted.

                         The options granted in the 1994 plan are fully-vested,
                         the options granted through the 1996 plan will be
                         gradually vested by December 2000, and the options
                         granted through the 1999 plan will be gradually vested
                         by September 2003.

                         A summary of the Company's employees share option
                         activity, and related information is as follows:

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                              ------------------------------------------------------------------------------------------
                                         1997                            1998                             1999
                              --------------------------       --------------------------      -------------------------
                                               WEIGHTED                         WEIGHTED                        WEIGHTED
                                               AVERAGE                          AVERAGE                         AVERAGE
                              NUMBER OF        EXERCISE        NUMBER OF        EXERCISE       NUMBER OF        EXERCISE
                               OPTIONS          PRICE           OPTIONS          PRICE          OPTIONS          PRICE
                               -------          -----           -------          -----          -------          -----
<S>                        <C>               <C>            <C>               <C>            <C>               <C>
  Outstanding - at
     the beginning            1,686,698       $   1.03        1,790,985        $   1.07        1,902,444           1.32
     of the year
     Granted                    165,637           1.6           370,607            2.37          747,840           8.20
     Exercised                        -           -               9,000            1.13           16,875           1.13
     Forfeited                   61,350           1.15          250,148            1.13           38,775           3.05

  Outstanding - at
     the end of
     the year                 1,790,985           1.07        1,902,444            1.32        2,594,634           3.28
                            --------------  --------------  ---------------  --------------  --------------  --------------
  Exercisable
     options                    838,800       $   1.03        1,039,013        $   1.08      $ 1,618,308         $ 1.22
                            ==============  ==============  ===============  ==============  ==============  ==============

</TABLE>


                                      F-18
<PAGE>
                         The options outstanding as of December 31, 1999 have
                         been classified by exercise price, as follows:

<TABLE>
<CAPTION>
                      OPTIONS OUTSTANDING    WEIGHTED AVERAGE                           OPTIONS EXERCISABLE     WEIGHTED AVERAGE
                             AS OF              REMAINING          WEIGHTED AVERAGE            AS OF            EXERCISE PRICE OF
 EXERCISE PRICE        DECEMBER 31, 1999     CONTRACTUAL LIFE       EXERCISE PRICE       DECEMBER 31, 1999     OPTIONS EXERCISABLE
 --------------        -----------------     ----------------       --------------       -----------------     -------------------
<S>                    <C>                   <C>                  <C>                    <C>                   <C>
     $ 0.30                     64,357              4                   $ 0.30                   64,357               $ 0.30
$ 0.99 - $ 1.13              1,302,143              4.8                 $ 1.05                1,291,551               $ 1.05
 $ 1.60 - 2.22                 637,884              6                   $ 2.08                  234,274               $ 1.97
 $ 4.04 - $ 11                 590,250              9.5                 $ 9.83                   28,126               $ 4.73
 --------------        -----------------     ----------------       --------------       -----------------     -------------------
 $ 0.30 - $ 11               2,594,634              6.2                 $ 3.28                1,618,308               $ 1.22
 ==============        =================     ================       ==============       =================     ===================

</TABLE>

                         Deferred compensation expenses which represent the
                         excess of the market value over the exercise price
                         totaled $ 367 and are amortized to the statements of
                         operations over the vesting period which usually is
                         four years. Options granted to the CEO vest over an
                         eight to ten year period, with possible acceleration of
                         vesting if certain criteria are met.

                         In 1996, the Company granted to a supplier, options to
                         purchase 7,500 Ordinary shares, at an exercise price of
                         $ 1.13, vesting over a period of three years. As of
                         December 31, 1999, these options are fully vested. The
                         Company accounts for these options in accordance with
                         the provisions of SFAS 123. No compensation expense has
                         been recorded in the financial statements regarding
                         these options, due to the insignificant amount of
                         deferred compensation.

                         In 1999, the Company granted to two of its suppliers
                         options to purchase 2,250 Ordinary shares at an
                         exercise price of $11, vesting over a period of four
                         years. As of December 31, 1999, none of these options
                         were vested. The Company accounts for these options in
                         accordance with the provisions of SFAS 123.

                         Total compensation expense amounting to approximately
                         $95 has been recorded in the financial statements.

                         Under SFAS 123, pro forma information regarding net
                         income and earnings per share is required and has been
                         determined as if the Company had accounted for its
                         employee stock option under the fair value method of
                         that Statement. The fair value for these options was
                         estimated at the date of grant using a Minimum Value
                         Option Pricing Model for options granted prior to the
                         IPO with the following weighted-average assumptions for
                         each of the two years in the period ended December 31,
                         1998 and the period commencing January 1, 1999 through
                         the date of the IPO: risk-free interest rates of
                         approximately 5.5%, 6% and 6%, respectively, dividend
                         yields of 0% and an expected life of the option of
                         approximately 3.00, 3.68 and 4.00 years, respectively.
                         As from the IPO, the fair value for options granted was
                         estimated using the Black and Scholes option pricing
                         model, with the following weighted-average assumptions
                         for 1999: risk-free interest rate of 6%; dividend
                         yields of 0%, volatility factor of the expected market
                         price of the Company's common shares of 0.5; and a
                         weighted-average expected life of the option of 2.5
                         years.


                                      F-19
<PAGE>
                         The Minimum Value Option Valuation Model and the Black
                         and Scholes option pricing model were developed for use
                         in estimating the fair value of traded options that
                         have no vesting restrictions and are fully
                         transferable. In addition, option valuation models
                         require the input of highly subjective assumptions.
                         Because the Company's employee stock options have
                         characteristics significantly different from those
                         traded options, and because changes in the subjective
                         input assumptions can materially affect the fair value
                         estimate, in management's opinion, the existing models
                         do not necessarily provide a reliable single measure of
                         the fair value of its employee stock options.

                         Weighted-average fair values of options whose exercise
                         price (1) equals, (2) exceeds, or (3) is less than the
                         market price of the stock on date of grant are as
                         follows:

<TABLE>
<CAPTION>
                                                                             WEIGHTED-AVERAGE FAIR VALUE OF
                                                                          OPTIONS GRANTED AT AN EXERCISE PRICE:
                                                             -------------------------------------------------------------
                                                                                     DECEMBER 31,
                                                             -------------------------------------------------------------
                                                                   1997                 1998                  1999
                                                             -----------------    ------------------    ------------------
<S>                                                         <C>                   <C>                  <C>
          Less than fair value at date of grant                 $  -                  $ 0.84                 $  1.59
                                                             =================    ==================    ==================

          Equals to fair value at date of grant                  $ 0.27              $  -                    $  3.67
                                                             =================    ==================    ==================

          Exceeds fair value at date of grant                   $  -                 $  0.23                $       -
                                                             =================    ==================    ==================

          Pro forma information under SFAS 123:

                                                                               YEAR ENDED DECEMBER 31,
                                                             -------------------------------------------------------------
                                                                   1997                 1998                  1999
                                                             -----------------    ------------------    ------------------

          Net loss as reported                                     $ (3,423)           $ (2,920)           $       (6)
                                                              ================     =================     =================

          Pro forma net loss                                       $ (3,467)           $ (2,992)             $   (140)
                                                              ================     =================     =================

          Pro forma basic and diluted net loss per share          $   (0.93)          $  (0.83)             $  (0.02)
                                                              ================     =================     =================
</TABLE>

                 e.      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-20
<PAGE>
NOTE 11:-        TAXES ON INCOME

                 a.      Tax benefits under the Law for the Encouragement of
                         Capital Investments, 1959 (the "law"):

                         The Company's production facilities have been granted
                         the status of "Approved Enterprise" under the law, for
                         three separate investment programs, which were approved
                         in July 1994, July 1995 and December 1996.

                         According to the provisions of the law, the Company has
                         elected the "alternative benefits" - waiver of grants
                         in return for tax exemption and, accordingly, the
                         Company's income is tax-exempt for a period of 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 period of five years.

                         As the Company currently has no taxable income, these
                         benefits have not yet commenced.

                         The tax-exempt profits that will be earned by the
                         Company's "Approved Enterprises" can be distributed to
                         shareholders, without imposing tax liability on the
                         Company only upon the complete liquidation of the
                         Company. 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 system of
                         benefits (currently between 10% to 25% for an "Approved
                         Enterprise"). The Company's board of directors has
                         determined that such tax exempt income will not be
                         distributed as dividends.

                         The period of tax benefits, detailed above, is limited
                         to the earlier of 12 years from the commencement of
                         production, or 14 years from the approval date.

                         Should the Company derive income in Israel from sources
                         other than the approved enterprises during the relevant
                         period of benefits, such income will be taxable at
                         regular corporate tax rate of 36%.

                 b.      Measurement of results for tax purposes:

                         Results of Jacada Ltd. for tax purposes are measured
                         and reflected in real terms in accordance with the
                         changes in the Israeli CPI. As explained in Note 2, the
                         financial statements are presented in U.S. dollars. The
                         difference between the change in the Israeli CPI and in
                         the NIS/U.S. dollar exchange rate causes a difference
                         between taxable income or loss and the income or loss
                         before taxes reflected in the financial statements. In
                         accordance with paragraph 9(f) of SFAS No. 109, the
                         Company has not provided deferred income taxes on this
                         difference between the reporting currency and the tax
                         bases of assets and liabilities.


                                      F-21
<PAGE>
                 c.      Tax benefits under the Law for the Encouragement of
                         Industry (Taxation), 1969:

                         The Company is an "industrial company" under the above
                         law and as such is entitled to certain tax benefits,
                         including accelerated rates of depreciation on certain
                         assets and deduction of expenses incurred in respect of
                         public issuance of securities. The Company has not
                         utilized these tax benefits.

                 d.      Net operating losses carryforward:

                         As of December 31, 1999, Jacada Ltd. had approximately
                         $ 4,400 of Israeli net operating loss carryforwards.
                         The Israeli loss carryforwards have no expiration date.
                         The Company expects that during the period in which
                         these tax losses are utilized, its income would be
                         substantially tax exempt. Accordingly, there will be no
                         tax benefit available from such losses and no deferred
                         income taxes have been included in these financial
                         statements.

                         As of December 31, 1999 the UK subsidiary had
                         accumulated losses for income tax purposes in the
                         amount of approximately $ 1,860. These net operating
                         losses may be carried forward and offset against
                         taxable income in the future for an indefinite period.

                         As of December 31, 1999, the U.S. subsidiary had U.S.
                         federal net operating loss carryforwards for income tax
                         purposes in the amount of approximately $ 4,500, which
                         can be carried forward and offset against taxable
                         income for 15 years and expire from 2010 to 2011.

                         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.

                 e.      Deferred 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's deferred tax
                         liabilities and assets are as follows:

<TABLE>
<CAPTION>
                                                                                           DECEMBER 31,
                                                                            --------------------------------------------
                                                                                   1998                     1999
                                                                            --------------------     -------------------
<S>                                                                         <C>                      <C>
                         Deferred tax assets:
                            U.S. operating loss carryforward                    $   1,438                 $  1,575
                            U.K. operating loss carryforward                          770                      650
                                                                            --------------------     -------------------

                         Total deferred tax asset                                   2,208                    2,225
                         Valuation allowance                                       (2,208)                  (2,225)
                                                                            --------------------     -------------------

                         Net deferred tax asset                               $         -               $        -
                                                                            ====================     ===================

</TABLE>


                                      F-22
<PAGE>
                         The Company's U.S and U.K subsidiaries have provided
                         valuation allowances in respect of deferred tax assets
                         resulting from tax loss carryforward. Management
                         currently believes that since the Company has a history
                         of losses it is more likely than not that the deferred
                         tax regarding the loss carryforward and other temporary
                         differences will not be realized in the foreseeable
                         future.

                 f.      Pre-tax income (loss):

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                           --------------------------------------------------------------
                                                 1997                  1998                  1999
                                           ------------------    ------------------    ------------------
<S>                                       <C>                    <C>                   <C>
                         Domestic              $   (1,266)           $     (198)             $    154
                         Foreign                   (2,163)               (2,722)                 (160)
                                            -----------------     -----------------     -----------------

                                               $   (3,429)            $  (2,920)           $       (6)
                                            =================     =================     =================

</TABLE>











                                      F-23
<PAGE>
NOTE 12:-        GEOGRAPHIC OPERATING INFORMATION

                 a.      Summary information about geographical areas:

                         The Company manages its business on a basis of one
                         reportable segment (see Note 1 for a brief description
                         of the Company's business) and follows the requirements
                         of SFAS 131, "Disclosures About Segments of an
                         Enterprise and Related Information".

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

<TABLE>
<CAPTION>
                                                                                     YEAR ENDED DECEMBER 31,
                                                                  --------------------------------------------------------------
                                                                        1997                  1998                  1999
                                                                  ------------------    ------------------    ------------------
<S>                                                               <C>                   <C>                   <C>
                         Revenues from sales to unaffiliated
                             customers:
                            United States                              $   4,310             $   8,797             $  11,894
                            United Kingdom                                   677                   406                 2,193
                            Others                                           614                   285                   512
                                                                  ------------------    ------------------    ------------------

                                                                       $   5,601             $   9,488            $   14,599
                                                                  ==================    ==================    ==================



                                                                                          DECEMBER 31,
                                                                  --------------------------------------------------------------
                                                                        1997                  1998                  1999
                                                                  ------------------    ------------------    ------------------
                         Long-lived assets:
                            Israel                                     $   1,103             $   1,252             $   1,516
                            United States                                    349                   582                   617
                            United Kingdom                                    83                    57                     7
                                                                  ------------------    ------------------    ------------------

                                                                       $   1,535              $  1,891             $   2,140
                                                                  ==================    ==================    ==================
                         Major customer data as a percentage
                         of total revenues:


                                                                                     YEAR ENDED DECEMBER 31,
                                                                  --------------------------------------------------------------
                                                                        1997                  1998                  1999
                                                                  ------------------    ------------------    ------------------

                         Customer A                                         16%               *)   -                *)   -
                         Customer B                                         11%                   12%               *)   -
                         Customer C                                     *)   -                    15%               *)   -
                         Customer D                                          -                     -                    13%
                         Customer E                                          -                     -                    10%

                         *)      Less than 10% of total revenues.

</TABLE>

                              - - - - - - - - - -


                                      F-24



<PAGE>
                                 EXHIBIT INDEX


Exhibit No.                   Description
-----------                   -----------

    27                        Financial Data Schedule