<PAGE>   1


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
--------------------------------------------------------------------------------
                                  FORM 20-F/A


                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
                        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 18,428,531 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.

                                 [X] YES [ ] NO


                                  -------------

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

                             [ ] Item 17       [X] Item 18


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<TABLE>

                                                                  TABLE OF CONTENTS
<S>               <C>                                                                                          <C>
Item 1.           IDENTITY OF DIRECTORS AND SENIOR MANAGEMENT.................................................   4

Item 2.           OFFER STATISTICS AND EXPECTED TIMETABLE.....................................................   4

Item 3.           KEY INFORMATION.............................................................................   4

Item 4.           INFORMATION ON THE COMPANY..................................................................  12

Item 5.           OPERATING AND FINANCIAL REVIEW AND PROSPECTS................................................  23

Item 6.           DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES..................................................  30

Item 7.           MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS...........................................  37

Item 8.           FINANCIAL INFORMATION ......................................................................  38

Item 9.           THE OFFER AND LISTING.......................................................................  39

Item 10.          ADDITIONAL INFORMATION......................................................................  41

Item 11.          QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK...................................  47

Item 12.          DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES......................................  48

Item 13.          DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.............................................  48


Item 14.          MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS................  48



Item 18.          FINANCIAL STATEMENTS........................................................................ F-1



Item 19.          EXHIBITS
</TABLE>


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                           FORWARD LOOKING STATEMENTS

         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.


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<PAGE>   4


ITEM 1: IDENTITY OF DIRECTORS AND SENIOR MANAGEMENT

Not applicable.



ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.



ITEM 3:  KEY INFORMATION

A.       SELECTED FINANCIAL DATA

         The following table sets forth our consolidated selected statements of
operations, balance sheets and other data for the periods indicated. The
selected consolidated statement of operations data for the years ended December
31, 1998, 1999 and 2000 and the selected consolidated balance sheet data as of
December 31, 1999 and 2000 have been derived from our audited consolidated
financial statements and the notes thereto included elsewhere in this Annual
Report. These financial statements have been prepared in accordance with GAAP.
The consolidated statements of operations data for the years ended December 31,
1996 and 1997, and the selected consolidated balance sheet data as of December
31, 1996, 1997 and 1998 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 the
sections entitled "Operating and Financial Review and Prospects" and
"Quantitative and Qualitative Disclosure about Market Risks" and our
consolidated financial statements and the notes thereto included elsewhere in
the Annual Report.


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<TABLE>
<CAPTION>
                                                                                   YEAR ENDED DECEMBER 31,
                                                            ---------------------------------------------------------------------
                                                              1996           1997           1998          1999            2000
                                                            ---------      ---------      ---------      ---------      ---------
                                                                       (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S>                                                        <C>            <C>            <C>            <C>            <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
  Software licenses ..................................     $   2,463      $   3,432      $   6,469      $   8,831      $  15,506
  Services and maintenance ...........................         1,273          2,169          3,019          5,768          9,610
                                                           ---------      ---------      ---------      ---------      ---------
    Total revenues ...................................         3,736          5,601          9,488         14,599         25,116
Cost of revenues:
  Software licenses ..................................           220            276            342            639            725
  Services and maintenance ...........................         1,002          1,766          2,558          2,740          5,210
                                                           ---------      ---------      ---------      ---------      ---------
    Total cost of revenues ...........................         1,222          2,042          2,900          3,379          5,935
                                                           ---------      ---------      ---------      ---------      ---------
Gross profit .........................................         2,514          3,559          6,588         11,220         19,181

Operating expenses:
  Research and development, net ......................         1,134          1,515          2,440          3,267          4,979
  Sales and marketing ................................         2,280          4,464          5,411          6,529         12,873
  General and administrative .........................           856          1,033          1,637          1,960          3,624
                                                           ---------      ---------      ---------      ---------      ---------
    Total operating expenses .........................         4,270          7,012          9,488         11,756         21,476
                                                           ---------      ---------      ---------      ---------      ---------

Operating loss .......................................        (1,756)        (3,453)        (2,900)          (536)        (2,295)
Financial  income (expense), net .....................            20             24            (19)           564          3,083
Other income (expense), net ..........................             9             --             (1)           (34)            (1)
                                                           ---------      ---------      ---------      ---------      ---------
Income (loss) before income taxes ....................        (1,727)        (3,429)        (2,920)            (6)           787
Income taxes .........................................            15             (6)            --             --            (10)
                                                           ---------      ---------      ---------      ---------      ---------
Net income (loss) ....................................     $  (1,742)     $  (3,423)        (2,920)            (6)      $    777
                                                           =========      =========      =========      =========      =========
Basic and diluted net earnings (loss) per share:
Basic  net earnings (loss) per share .................     $   (0.46)       $ (0.92)     $   (0.81)     $   (0.00)     $    0.04

Weighted average number of shares used in computing
  basic net earnings (loss) per share ................     3,750,000      3,704,298      3,615,143      6,572,476     18,141,223
  Diluted net earnings (loss) per share ..............     $   (0.46)     $   (0.92)     $   (0.81)     $   (00.0)     $    0.04

Weighted average number of shares used in computing
  diluted net earnings (loss) per share ..............     3,750,000      3,704,298      3,615,143      6,572,476     19,503,971

<CAPTION>
                                                                                    YEAR ENDED DECEMBER 31,
                                                            ----------------------------------------------------------------------
                                                               1996           1997           1998          1999            2000
                                                            ---------      ---------      ---------      ---------      ---------
                                                                                        (IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
<S>                                                        <C>            <C>            <C>            <C>            <C>
Cash and cash equivalents ............................     $   1,735      $   3,044      $   5,613      $   5,141      $   9,360
Working capital ......................................          (207)           727          1,148         53,315         46,740
Total assets .........................................         4,695          7,185         11,131         62,435         64,797
Long-term debt, net of current portion ...............           117             92             90            186             --
Shareholders' equity .................................           591          2,066          2,939         54,854         56,646
</TABLE>


EXCHANGE RATES

Not applicable.

B.       CAPITALIZATION AND INDEBTEDNESS

         Not applicable.

C.       REASONS FOR THE OFFER AND USE OF PROCEEDS

         Not applicable.

D.       RISK FACTORS


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D.       RISK FACTORS

         Readers are cautioned that an 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
strategic focus has been on our current principal market, the eBusiness enabling
software market, only since 1996. Our main source of revenue 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.

         The fiscal year 2000 was our first profitable year, and we may not
maintain profitability. Prior to 2000, we incurred net losses in each fiscal
year since our inception. While we generated net income of approximately $0.8
million for the year ended December 31, 2000, we generated an operating loss of
approximately $2.3 million for this period. 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 maintain profitability will be
affected by the other risks and uncertainties described in this section and in
the sections entitled "Operating and Financial Review and Prospects" and
"Quantitative and Qualitative Disclosure about Market Risks."

         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 70% of our revenues from sales of licenses for 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 position 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 or may
decline.

         Our business enabling products may not be widely adopted. 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


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products. 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. 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.

         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,
Attachmate Corporation, CrossWorlds Software, Inc., IBM, New Era of Networks,
Inc., OpenConnect Systems, Seagull Software Ltd., TIBCO Software, Inc., Vitria
Technology, Inc. and webMethods, Inc. 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 may
take up to six months or more from the


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

         Because of these and other factors, our quarterly revenues may
fluctuate materially and may not meet market expectations in any individual
period. This would likely cause our stock price 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 sales and marketing expenses 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:

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

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

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

         -        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.


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         If any of these circumstances occurs, we will have to devote
substantially more resources to the sales, marketing, distribution,
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.

         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 quickly
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 for research and development over the next two years, we cannot assure
you that we will develop new 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. The loss of services of any of our
key 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


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which we received more than 90% of our total revenues for the year ended
December 31, 2000. However, we plan to increase our 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. In addition, exchange rate fluctuation between the dollar and European
or other foreign currencies may adversely affect us. 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:

         -        damage our reputation;

         -        increase our product development costs;

         -        divert our product development resources;

         -        cause us to lose future sales; or

         -        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 or other claims. Any of these claims,
even if not meritorious, could result in costly litigation or divert
management's attention and resources. We may not have sufficient funds or
insurance coverage to satisfy any or all liability that may be imposed upon us
with respect to these 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


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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 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:

         -        be expensive and time-consuming to defend;

         -        cause product shipment and installation delays;

         -        divert management's attention and resources; or

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

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 our
Israeli accountants and counsel 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.

         Conditions in Israel could adversely affect our operations. 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
materially


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adversely affect our operations. Despite the negotiations 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 on 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 expenses 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 results 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. Although we believe that we have
operated and will continue to operate in compliance with the required
conditions, we cannot guarantee that this will continue.

         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, these
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.

ITEM 4: INFORMATION ON THE COMPANY

A.       HISTORY AND DEVELOPMENT OF THE COMPANY

         We were incorporated in Israel in December 1990 as a limited liability
company. On August 9, 1999 we changed our name from Client/Server Technology
Ltd. to Jacada Ltd. Our commercial name is Jacada.


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         Our registered office in Israel is 11 Galgalei Haplada Street, Herzliya
46722 Israel and our telephone number is 972-9-952-5900. Our agent in the United
States is Gideon Hollander, whose address is 400 Perimeter Center Terrace, Suite
195, Atlanta, Georgia 30346. Since October 1999, the Company's Ordinary Shares
have been quoted on the NASDAQ National Market under the symbol "JCDA."

         Jacada 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.

         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, Delta Air Lines, U.S. Department of Interior, The Federal
Reserve Bank, Lockheed Martin, McGraw Hill Company, Nabisco, Porsche Cars North
America, Prudential Life Insurance Company and Saab Cars USA.

         See Items 5 and 18 for a description of capital expenditures by the
Company for the past three fiscal years. The Company has made no divestitures
during the same time period.

         We are not aware of any public takeover offers by third parties in
respect of our shares, and we have made no public takeover offers in respect of
other companies' shares during fiscal years 1999 and 2000.

B.       BUSINESS OVERVIEW

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. The strategic importance
of eBusiness is driving the demand for solutions that can provide the necessary
infrastructure to extend existing applications and data to the Internet.
International Data Corporation projects that spending on Internet infrastructure
applications will grow from $4.0 billion in 1997 to $27.1 billion in 2002.

         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



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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
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:

         -        be able to be implemented rapidly;

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

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

         -        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:

         -        Leverage Existing Information Technology Resources. Our
                  solutions permit companies to use their existing host-centric
                  applications over the Internet. This eliminates the need to
                  replace existing applications through


                                       14
<PAGE>   15

                  time-consuming and expensive custom programming. Additionally,
                  our solutions allow programmers trained in various languages
                  to program in their native software languages and to deliver
                  applications that are web-enabled.

         -        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.

         -        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. Our
                  solutions have been or are being implemented by hundreds of
                  companies worldwide. Our customers receive the following
                  advantages:

                  -        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 automate the changes in the graphical
                           user interface.

                  -        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.

                  -        Programming Language Independence. Our solutions
                           protect our customers from changes in interface
                           development trends by generating multiple interface
                           language standards from the same interface design.

                  -        Platform Independence. Our Java-based solution
                           provides customers with the flexibility to run our
                           products on any Java-enabled platform, including IBM
                           S/390, 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:

         -        Jacada for Java. Jacada for Java generates Java-based
                  interfaces for mainframe and midrange software applications
                  without requiring any change to the host applications. By
                  generating Java source code for the new graphical thin client
                  interface, Jacada for Java enables our customers


                                       15
<PAGE>   16

                  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.

         -        Jacada for HTML. Jacada for HTML generates HTML interfaces for
                  mainframe and midrange software applications without requiring
                  any change to the host application. By generating HTML code,
                  Jacada for HTML enables our customers to provide seamless
                  access to existing mainframe or AS/400 application business
                  logic from any web browser or web-enabled device.

         -        Jacada Innovator. Jacada Innovator, developed in cooperation
                  with IBM, contains innovative technology which enables new or
                  existing applications written in COBOL, RPG, Java or any other
                  language to leverage the Jacada presentation technology to
                  deliver graphical "thin client" user screens, replacing the
                  text-based," green screen" architecture found in legacy
                  applications. Any software developer can utilize Jacada
                  Innovator without any special knowledge of any other
                  programming language. 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.

         -        Jacada for Palm. Jacada for Palm is the first of the Jacada
                  Wireless family of products. Jacada for Palm provides wireless
                  access to mainframe and midrange systems from devices such as
                  the Palm VII(TM). The Jacada Wireless family is targeted at
                  the corporate mobile user, providing access to internal
                  business systems anytime, anywhere.

         -        Jacada Connects. Jacada Connects enables third party
                  applications such as e-commerce, enterprise application
                  integration (EAI) or customer relationship management (CRM)
                  solutions, to easily access the business logic in mainframe
                  and midrange applications - without requiring any
                  restructuring or recoding of the existing application. Jacada
                  Connects provides a single application programming interface
                  to access the business logic. Jacada Connects can be utilized
                  by third party vendors and system integrators to integrate
                  their solutions.

         -        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,


                                       16
<PAGE>   17

                  be able to operate with other data sources and be linked to
                  other applications.

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

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

         -        Jacada KnowledgeBase. The Jacada KnowledgeBase is a set of
                  sophisticated algorithms for analyzing and interpreting
                  host-centric applications and converting 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.

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

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 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 customers with training services to assist them
in learning how to use our products. We also provide our direct customers with
consulting services to assist them with installing our products and integrating
our products into their systems,


                                       17
<PAGE>   18

and to assist them with managing and enhancing their utilization of our products
on an ongoing basis.

         We bill for consulting services by the hour plus out of pocket expenses
and for training services by the day plus out of pocket expenses. 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 directly to their customers, assisted by us as necessary.

PRINCIPAL MARKETS

         Our principal markets are North America and Europe. 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%, 60.5% and 61.7% of
our total revenues for the years ended December 31, 1998, 1999, and 2000,
respectively, while service and maintenance revenues constituted approximately
31.8%, 39.5% and 38.3% of our total revenues, respectively, for the same
periods. Software license revenues generated from North American customers
constituted approximately 64%, 46.2% and 55.6% of our total revenues for the
years ended December 31, 1998, 1999, and 2000, respectively, while service and
maintenance revenues generated from North American customers constituted
approximately 28.9%, 35.2% and 36.9% of our total revenues, respectively, for
the same periods. Software license revenues generated from European customers
constituted approximately 4.2%, 14.2%, and 6.1% of our total revenues for the
years ended December 31, 1998, 1999, and 2000, respectively, while service and
maintenance revenues generated from European customers constituted approximately
2.9%, 4.4% and 1.4% of our total revenues, respectively, for the same periods.
The percentage of our revenues derived from the provision of services and
maintenance decreased during 2000 primarily because sales of additional software
licenses to existing customers do not 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.

Seasonality

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


                                       18
<PAGE>   19


RAW MATERIALS

         Not applicable.

SALES AND MARKETING

         We sell our products through our direct sales force in North America
and Europe, as well as through our indirect distribution channels, consisting of
software distributors, independent software vendors and system integrators, in
North America and Europe, as well as in countries where we have no direct sales
operations. As of March 31, 2001, we had 79 people in our sales and marketing
organization. We intend to continue to increase the size of our direct sales
force and to establish additional sales offices in North America 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 online and through 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. Typical end users of our products and services are medium to large
businesses with sophisticated technology requirements.

         These companies are using our solutions to rapidly deploy eBusiness
initiatives. Some examples of our customers include:

         -        Insurance companies are using our solutions to modernize their
                  call center applications, web-enable access to these
                  applications for customers to update account information via
                  the Internet, and integrate their customer information systems
                  with customer relationship management applications.


                                       19
<PAGE>   20

         -        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.

         -        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.

         -        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.

         -        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.

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 development 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 $2.4 million for the year
ended December 31, 1998, $3.3 million for the year ended December 31, 1999 and
$5.0 million for the year ended December 31, 2000. As of December 31, 1999, 49
professionals were engaged in research and development activities. As of
December 31, 2000, 63 professionals were engaged in research and development
activities.

DEPENDENCE ON PATENTS AND LICENSES

         We are the owner of our core technology and the software products we
license to customers. We are not dependent on any third party license or patent
with respect to such technology or products. We have an irrevocable license to
certain technology which we intend to integrate with our current products but we
are not dependent on such license.


                                       20
<PAGE>   21

While a patent is pending for our Jacada Innovator software product, the failure
to obtain such patent would not diminish our ownership rights in Jacada
Innovator.

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:

         -        product functionality and features;

         -        availability of global support;

         -        incumbency of vendors;

         -        ease of product implementation;

         -        quality of customer support services; and

         -        product reputation.

         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 Attachmate Corporation, CrossWorlds Software, Inc., IBM, New
Era of Networks, Inc., OpenConnect Systems, Inc., Seagull Software Ltd., TIBCO
Software Inc., Vitria Technology, Inc. and webMethods, Inc. 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.

MATERIAL EFFECTS OF GOVERNMENT REGULATION IN ISRAEL

         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


                                       21
<PAGE>   22

curtailment of trade between Israel and its present trading partners could
materially adversely affect our operations. Despite the negotiations 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.

         A substantial majority of our revenues and a substantial portion of our
expenses are denominated in dollars. However, a significant portion of the
expenses 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.

         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 results 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. Although we believe that we have
operated and will continue to operate in compliance with the required
conditions, we cannot guarantee this will continue.

         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, these
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.

         In addition, the new Israel Companies Law, which became effective on
February 1, 2000, has brought about significant changes to Israel corporate law.
Under this new law, there may be uncertainties regarding corporate governance in
some areas. These uncertainties will persist until this new law has been
adequately interpreted, and these uncertainties could inhibit takeover attempts
or other transactions and inhibit other corporate decisions.

C.       ORGANIZATIONAL STRUCTURE

         Jacada holds 100% of the stock in Jacada, Inc., a corporation organized
under the laws of the state of Delaware, and 100% of the stock in Jacada
(Europe) Limited, a company organized under the laws of England. Jacada, Inc.
holds 100% of the stock of Jacada Canada, Inc., a federal corporation
incorporated under the laws of Canada. Jacada (Europe) Limited holds 100% of the
stock of Jacada Deutschland GmbH, a limited liability company organized under
the laws of Germany.


                                       22
<PAGE>   23


D.       PROPERTY AND EQUIPMENT

         As of December 31, 2000, our headquarters and principal administrative,
research and development operations were located in approximately 18,000 square
feet of leased office space in Herzliya, Israel. The lease expires in September
2002 with two renewal options each for two additional years.

         In the United States, we lease approximately 19,050 square feet in
Atlanta, Georgia which we utilize for administration, marketing, sales, service
and technical support. The lease expires in June 2002. We also lease office
space in Boston, Massachusetts, Dallas, Texas and Chicago, Illinois which we
utilize for marketing and sales.

         In addition, we currently lease approximately 1,900 square feet in
London, England and approximately 1,940 square feet in Munich, Germany which we
utilize for sales, marketing, services and technical support. The London lease
expires in October 2002 and the Munich lease is for an indefinite period,
terminable on six months notice. 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 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS

A.       OPERATING RESULTS

         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.

         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 have adopted American Institute of Certified Public
  Accountants Statement of Position (SOP) 97-2, "Software Revenue Recognition,"
  as amended. SOP 97-2 generally requires revenue earned on software
  arrangements involving multiple elements to be allocated to each element based
  on the relative fair value of the elements. We have also adopted SOP 98-9,
  "Modification of SOP 97-2, Software Revenue Recognition with Respect to
  Certain Transactions," for all transactions entered into after January 1,
  2000. SOP 98-9 requires that revenue be recognized under the "residual method"
  when vendor specific objective evidence (VSOE) of fair value exists for all
  undelivered elements and no VSOE exists for the delivered elements.


                                       23
<PAGE>   24


                  In December 1999, the SEC issued Staff Accounting Bulletin No.
  101 ("SAB 101"), as amended in June 2000, which summarizes the staff's views
  in applying GAAP to revenue recognition in financial statements. We adopted
  SAB 101 during the fourth quarter of 2000. The adoption did not have a
  material effect on our consolidated results of operations or financial
  position.

          To date, we have derived our revenues from license fees for our
  products, maintenance and support and rendering of services including
  consulting and training. We sell licenses to our products primarily through
  our direct sales force and indirectly through resellers. We are also entitled
  to revenues from some distributors upon the sublicensing of the software to
  end users. Revenues due from these transactions are recognized when such
  revenues are reported to us upon the sublicensing of the software by the
  distributors.

          Revenue from license fees is recognized when persuasive evidence of an
  agreement exists, delivery of the product has occurred, no significant
  obligations with regard to implementation remain, the fee is fixed or
  determinable, and collectibility is probable. We do not grant a right of
  return to our customers. We consider all arrangements with payment terms
  extending beyond one year not to be fixed or determinable. If the fee is not
  fixed or determinable, revenue is recognized as payments become due from the
  customer provided that all other revenue recognition criteria have been met.

          Where software arrangements involve multiple elements, revenue is
  allocated to each element based on VSOE of the relative fair values of each
  element in the arrangement, in accordance with the "residual method"
  prescribed by SOP 98-9. Our VSOE used to allocate the sales price to services,
  support and maintenance is based on the price charged when these elements are
  sold separately. License revenues are recorded based on the residual method.
  Under the residual method, revenue is recognized for the delivered elements
  when (1) there is VSOE of the fair values of all the undelivered elements, and
  (2) all revenue recognition criteria of SOP 97-2, as amended, are satisfied.
  Under the residual method any discount in the arrangement is allocated to the
  delivered element.

          Cost of software license revenues consists of royalties, including
  payments to the Office of the Chief Scientist of the State of Israel,
  amortization of purchased technology, commissions, and 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.


                                       24
<PAGE>   25

Our full-time employees increased from 21 as of January 1, 1995 to 229 as of
December 31, 2000.

         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 internal development costs have been capitalized
to date.

          A majority of our revenues and that of our subsidiaries is generated
in United States dollars. Our management believes that the dollar is the primary
currency of the economic environment in which we and our subsidiaries operate.
Thus, our functional and reporting currency and the functional and reporting
currency of our subsidiaries is the dollar.

         The effects of foreign currency exchange rate for the years ended
December 31, 2000, 1999 and 1998 were immaterial.

RESULTS OF OPERATIONS

         Our historical operating results for the years ended December 31, 1998,
1999 and 2000 as a percentage of net revenues are as follows:

<TABLE>
<CAPTION>
                                                     Year Ended December 31,
                                              -----------------------------------
                                               1998           1999           2000
                                              -----          -----          -----
<S>                                           <C>            <C>            <C>
Revenues:
   Software licenses .................         68.2%          60.5%          61.7%
   Services and maintenance ..........         31.8           39.5           38.3
                                              -----          -----          -----
      Total revenues .................        100.0          100.0          100.0
Cost of revenues:
   Software licenses .................          3.6            4.4            2.9
   Services and maintenance ..........         27.0           18.8           20.7
                                              -----          -----          -----
      Total cost of revenues .........         30.6           23.2           23.6
                                              -----          -----          -----
Gross profit .........................         69.4           76.8           76.4
Operating expenses:
   Research and development, net .....         25.7           22.4           19.8
   Sales and marketing ...............         57.0           44.7           51.2
   General and administrative ........         17.3           13.4           14.4
                                              -----          -----          -----
      Total operating expenses .......        100.0           80.5           85.4
                                              -----          -----          -----
Operating loss .......................        (30.6)          (3.7)          (9.0)
Financial income (expense), net ......         (0.2)           3.9           12.3
Other expense, net ...................         (0.0)          (0.2)           0.0
                                              -----          -----          -----
Income (loss) before income taxes ....        (30.8)          (0.0)           3.1
Income taxes .........................         (0.0)          (0.0)          (0.0)
                                              -----          -----          -----

Net income (loss) ....................        (30.8)%         (0.0)%          3.1%
                                              =====          =====          =====
</TABLE>


                                       25
<PAGE>   26

YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

         Revenues. Net revenues were $25.1 million, $14.6 million and $9.5
million for the years ended December 31, 2000, 1999 and 1998, respectively. The
increases in revenues during these periods were attributable to an increase in
both software license revenues and service and maintenance revenues. For each of
the years ended December 31, 2000, 1999 and 1998, revenues from two different
customers represented 10% or more of our revenues (except that one of the
customers representing 10% of our revenue in 2000 also represented 10% of our
revenue in 1998).

         Software license revenues were $15.5 million, or 61.7% of revenues, for
the year ended December 31, 2000, compared to $8.8 million, or 60.5% of
revenues, for the year ended December 31, 1999 and $6.5 million, or 68.2% of
revenues, for the year ended December 31, 1998. 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 $9.6 million or 38.3% of
revenues, for the year ended December 31, 2000 compared to $5.8 million or 39.5%
of revenues for the year ended December 31, 1999 and $3.0 million, or 31.8% of
revenues, for the year ended December 31, 1998. 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 and our expanding customer base.

         Cost of Revenues. Cost of revenues was $5.9 million, or 23.6% of
revenues, for the year ended December 31, 2000, compared to $3.4 million, or
23.2% of revenues, for the year ended December 31, 1999 and $2.9 million, or
30.6% of revenues, for the year ended December 31, 1998. The increase in cost of
revenues during these periods was primarily due to our increased revenues.

         Cost of software license revenues was $0.7 million, or 4.7% of software
license revenues, for the year ended December 31, 2000, compared to $0.6
million, or 7.2% of software license revenues, for the year ended December 31,
1999 and $0.3 million, or 5.3% of software license revenues, for the year ended
December 31, 1998. The decrease in cost of software license revenues as a
percentage of software license revenues was due to a decrease in payment of
royalties to the Office of the Chief Scientist with respect to certain products.

         Cost of service and maintenance revenues was $5.2 million, or 54.2% of
service and maintenance revenues, for the year ended December 31, 2000, compared
to $2.7 million, or 47.5% of service and maintenance revenues, for the year
ended December 31, 1999 and $2.6 million, or 84.7% of service and maintenance
revenues, for the year ended December 31, 1998. The increase in cost of service
and maintenance in 2000 relative to 1999 and in 1999 relative to 1998 was a
result of increased manpower which was


                                       26
<PAGE>   27

required to support increasing customer needs. The increase in cost of service
and maintenance as a percentage of revenues during 2000 relative to 1999 is also
the result of a temporary decline in the utilization associated with the timing
of certain projects. Starting in mid-1998, the Company began offering consulting
services exclusively on an hourly rate basis plus out-of-pocket expenses. Prior
to mid-1998, these services were offered on a fixed-cost basis.

OPERATING EXPENSES

         Research and Development, Net. Research and development expenses were
$5.0 million, $3.3 million, and $2.4 million for the years ended December 31,
2000, 1999 and 1998, respectively, net of grants from the Office of the Chief
Scientist of $0.6 million in 1998. The increases during these periods were
attributable primarily to the addition of personnel in our research and
development organization associated with product development, quality assurance
and documentation. As a percentage of total revenues, research and development
expenses were 19.8%, 22.4%, and 25.7% for the years ended December 31, 2000,
1999 and 1998, respectively.

         Sales and Marketing. Sales and marketing expenses were $12.9 million,
$6.5 million and $5.4 million for the years ended December 31, 2000, 1999 and
1998, respectively. The increases during these periods were attributable
primarily to the addition of sales and marketing personnel and increased
commissions related to increased sales 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
51.2%, 44.7% and 57.0% for the years ended December 31, 2000, 1999 and 1998,
respectively.

         General and Administrative. General and administrative expenses totaled
$3.6 million, $2.0 million and $1.6 million for the years ended December 31,
2000, 1999 and 1998, 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 14.4%, 13.4% and 17.3% of total revenues for the
years ended December 31, 2000, 1999 and 1998, respectively.

         Financial Income (Expense), Net. Net financial income was $3.1 million
for the year ended December 31, 2000 and $564,000 for the year ended December
31, 1999. Net financial expense was $19,000 for the year ended December 31,
1998. In October 1999, we raised approximately $51 million, net of expenses, in
an initial public offering. We have maintained most of the funds raised in the
public offering throughout the balance of 1999 and 2000 and have invested these
funds in certain financial instruments which generate interest and investment
income. Prior to the initial public offering, we borrowed funds and paid
interest on our borrowings.

         Income Taxes. As of December 31, 2000, we had approximately $3.2
million of net operating loss carryforwards for Israeli tax purposes,
approximately $4.2 million of


                                       27
<PAGE>   28

net operating loss carryforwards for federal United States tax purposes and
approximately $1.7 million of net operating loss 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 2014. The Israeli and the United Kingdom net operating loss
carryforwards have no expiration date.

         Net Income (Loss). We generated net income of $777,000 in 2000 and
incurred losses of $6000 and $2.9 million in 1999 and 1998, respectively.

B.       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, 2000, we had $52.5 million in cash, cash
equivalents and investments, all interest bearing. During 2000, operating
activities used $2.0 million in cash. The major components using cash included
an increase in trade receivables of $2.6 million in support of increased
revenues, and a decrease in deferred revenues of $2.0 million as we transitioned
from selling products and receiving cash in advance of the period in which the
revenue is earned as a means of financing operations. Partially offsetting the
cash used in operating activities were net income from operations of $0.8
million, non-cash depreciation and amortization of $1.0 million, and increases
in trade payables of $0.3 million and accrued expenses of $1.0 million
associated with increased business levels relative to 1999.

         As of December 31, 1999, we had 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 trade receivables 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 trade
receivables of $1.1 million, partially offset by non-cash charges of $0.5
million, a decrease in other current assets of $0.3 million and an increase in
deferred revenues of $1.0 million.

         Expenditures on property and equipment were approximately $1.7 million,
$1.0 million and $0.9 million for the years ended December 31, 2000, 1999 and
1998, respectively. These expenditures include computer hardware and software
used in product development and testing, leasehold improvements relating to new
and existing facilities and office equipment in support of a growing
organization. In addition, during


                                       28
<PAGE>   29

2000, we licensed technology for $1.5 million which will enhance and accelerate
certain product development activities.

         We have raised approximately $56.6 million, net of issuance costs, from
sales of equity securities and the exercise of stock options from 1998 through
December 31, 2000 consisting of $1.0 million, $51.8 million, $3.8 million for
the years ended December 31, 2000, 1999 and 1998, respectively.

         We have financed our operations and capital requirements through equity
funding and bank borrowing in past years. We have a $3.0 million credit facility
with two banks which is secured by substantially all of our assets. We have
borrowed under the facility from time to time on terms that vary for each
borrowing. Under this facility, as of December 31, 2000, we have a bank
guarantee in Israel, in favor of a lessor, totaling $0.2 million.

         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. We believe our working capital is
sufficient for our present requirements.

         Please refer to Item 3.D and Item 10.E for certain information
regarding the possible elimination of tax benefits in Israel.

C.       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 $5.0 million for the year
ended December 31, 2000, $3.3 million for the year ended December 31, 1999 and
$2.4 million for the year ended December 31, 1998. As of December 31, 1999, 49
professionals were


                                       29
<PAGE>   30

engaged in research and development activities. As of December 31, 2000, 63
professionals were engaged in research and development activities.

D.       TREND INFORMATION

         We have recently experienced pressure from certain potential customers
to lower our license and maintenance fees as a result of the customers'
budgetary restraints, possibly due to the slowing economy. Our sales cycle
generally continues to be at least six months from the date we contact a
prospective customer, but could be longer if the economy worsens. We have no
backlog of orders, as backlog is not a significant factor in our business.

ITEM 6:  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.       DIRECTORS AND SENIOR MANAGEMENT

         The following table sets forth certain information regarding our
executive officers and directors as of May 1, 2001:


<TABLE>
<CAPTION>

  Name                                       Age                             Position
------------------------------------------  -----    ------------------------------------------------------
<S>                                          <C>     <C>
Gideon Hollander(1)(2)                       36      Chief Executive Officer and Director
Michael  J. Potts                            38      President
Robert C. Aldworth                           48      Chief Financial Officer
Peter M. Fausel                              40      President, Jacada Inc.
Roni Or                                      46      General Manager, Israeli Operations
Nimrod Gil-Ad                                35      Vice President, Research and Technology and Chief
                                                     Technology Officer
Tzvia Broida                                 32      Vice President, Finance
Christian Singer                             37      Managing Director, Jacada Deutschland GmbH
William P. Sawyer                            49      General Manager, Jacada (Europe) Limited
Michael Warner                               41      Director, Worldwide Channels, Jacada (Europe) Limited
Boaz Dotan(1) (3)                            58      Director
Yossie Hollander(1)                          43      Chairman of the Board and Director
Amnon Shoham(1)(2)(3)                        43      Director
Ohad Zuckerman(3)                            36      Director
</TABLE>

--------------
(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


                                       30
<PAGE>   31

the projects that Mr. Hollander managed won the most prominent Israeli award for
technological innovations.

         Michael J. Potts has been President of Jacada Ltd. since January 2001.
Prior to his appointment as President, Mr. Potts served as President of Jacada,
Inc. and President of World Wide Distribution since 1998. From July 1995 to May
1998, Mr. Potts was a Senior Vice 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.

         Robert C. Aldworth has been the Chief Financial Officer of Jacada Ltd.
since January 2001. From August 1999 to July 2000, he was Chief Financial
Officer and Director of Real Estate.com, Inc., an internet service provider to
real estate professionals, and from June 1997 to March 1999 he was Chief
Financial Officer at Homestead Village Inc., a provider of extended stay
lodging. From January 1996 to June 1997, he was Chief Operating Officer of LAT
Sportswear Inc., a manufacturer and distributor of sporting apparel.

         Peter M. Fausel has been President of Jacada, Inc. since January 2001.
During 2000, he was the senior vice president of sales and marketing at Ross
Systems, Inc. From 1995 to 2000, Mr. Fausel held various positions at Invensys
Software Systems, ultimately managing an $80 million business unit. From 1983
until 1995, he worked for ABB Group, holding positions in sales and general
management.

         Roni Or has been our General Manager of Israeli Operations since
January 2001. Mr. Or possesses 20 years of research and development experience
in the software industry. From 1997 to 2000, he was the vice president of
product development at Backweb Technologies Ltd. From 1995 to 1997, he was the
Director of On-line Services at Aurec Ltd. From 1980 to 1995 he held various
managerial positions at Scitex Ltd, including Director of Systems Division.

         Nimrod Gil-Ad was a co-founder of Jacada in 1990 and currently serves
as our Vice President of Research and Technology 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.

         Tzvia Broida is the Vice President of Finance at Jacada Ltd., having
served in this capacity since March 2000. Mrs. Broida has held various positions
at Jacada since August 1995. From 1994 to 1995, Mrs. Broida worked as an
accountant at the


                                       31
<PAGE>   32

accounting firm of Yehuda Ehrlich & Partners. From 1992 to 1994, Mrs. Broida
worked as an accountant at the accounting firm of Vexler, Kodenzick & Partners.
Mrs. Broida holds a BA degree in Accounting and Economics from the Jerusalem
University.

         Christian Singer has been Managing Director of Jacada Deutschland GmbH
since February 2001. From April 2000 until he joined Jacada, Mr Singer worked as
Business Unit Manager and Director Sales & Marketing for Geac Central Europe.
From 1997 to 2000 he held various positions in Baan Company in Germany and the
UK, where he successfully established the Baan Automotive Organisation. Between
1992 and 1997 Mr. Singer was employed at Zeuna Starker GmbH & Co KG, a German
Tier 1 automotive supplier with operations on three continents. Mr. Singer holds
a Business Degree from Augsburg University, Germany and an MBA from City
University Business School in London, England.

         William P. Sawyer has been General Manager, Jacada (Europe) Limited
since July 2000. From November 1996 until he joined Jacada, Mr. Sawyer worked
for Sterling Software UK Limited in various managerial positions, serving most
recently as Sales Director, International Business Intelligence Division. In
1996 he worked for Nexus Technology Limited as Sales Manager. From 1992 to 1995,
Mr. Sawyer worked for Bix Building Limited as Director. From 1989 to 1992 he
worked at SEMA Group as European Sales Manager, Dealing Room Systems. From 1985
to 1989, Mr. Sawyer worked at ICL Limited as Account Manager and previously held
several positions as I.T. Manager, Programmer Project Manager, Operations
Manager, Programmer and Computer Operator.


         Michael Warner has been Director, Worldwide Channels, Jacada (Europe)
Limited since May 2000. From 1995 to June 2000, he held various sales management
positions with Sterling Software UK Limited, later acquired by Computer
Associates Inc. until his resignation as Regional Manager, Eastern Europe. From
1990 to 1995 he held various sales positions at McDonnell Douglas Information
Systems Ltd., an international software provider.

         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,
specializing 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, which position he held 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.


                                       32
<PAGE>   33

         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.
Mr. Shoham is also a partner of Cedar Fund, a venture capital firm, investing in
Israel-related, high technology companies, a position he has held since 2000.
From 1993 to 1997, Mr. Shoham served as a Managing Partner of Star Ventures, a
venture capital firm in Israel. Mr. Shoham serves on the board of directors of
several private companies. Mr. Shoham holds a law degree from the Tel-Aviv
University, Israel.

         Ohad Zuckerman has been a director of Jacada since December 2000. Mr.
Zuckerman is the CEO and President of Zeraim Gedera Ltd., a position he has held
since January 2000. From 1998 to January 2000, Mr. Zuckerman served as the
Executive Vice-President of Zeraim Gedera and from 1990 to 1998 he served at the
same company as the Marketing Manager. Mr. Zuckerman served as a member of the
board of directors at Maximal Innovative Intelligence LTD. Mr. Zuckerman holds
an Executive MBA, joint degree from J.L. Kellogg, Graduate School of Management,
Northwestern University and Leon Recanati, Graduate School of Business
Administration, of Tel Aviv University and a BSc. Agriculture of the Faculty of
Agriculture, Hebrew University, Jerusalem.

B.       COMPENSATION

         The aggregate remuneration we paid for the year ended December 31, 2000
to all executive officers as a group (6 persons), was $793,910 in salaries,
fees, commissions and bonuses. This amount includes $17,925 set aside or accrued
to provide for pension, retirement or similar benefits provided to our directors
and executive officers.

         Directors 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 entitled to be reimbursed for their
expenses for each board of directors meeting attended. Directors also receive
options to purchase our ordinary shares.

         As of December 31, 2000, options to purchase 1,644,604 ordinary shares
granted to our directors and executive officers under our option plans were
outstanding. The weighted average exercise price of these options was $2.93 per
share. This amount includes options granted to former officers and directors who
are no longer affiliated with us.

 C.      BOARD PRACTICE

ELECTION AND TERM OF DIRECTORS

         Directors are elected by an ordinary resolution at the annual general
meeting of shareholders, and by a vote of the holders of a majority of the
voting power represented at the meeting. Our ordinary shares do not have
cumulative voting rights in the election


                                       33
<PAGE>   34

of directors. As a result, the holders of ordinary shares that represent more
than 50% of the voting power have the power to elect all of our directors.

         As of the date of filing of this form, we have authorized five
directors. In accordance with the terms of our articles of association, the
board of directors is divided into three classes, with the following terms of
office:

         -        Class I directors, whose terms expire at the annual meeting of
                  shareholders to be held in 2003;

         -        Class II directors, whose terms expire at the annual meeting
                  of shareholders to be held in 2001; and

         -        Class III directors, whose terms expire at the annual meeting
                  of shareholders to be held in 2002.

         Our Class I director is Amnon Shoham, who was re-elected at our year
2000 annual meeting of shareholders to serve as director for a term of three
years, until the annual meeting of shareholders to be held in 2003. Our Class II
directors are Boaz Dotan and Ohad Zuckerman. Our Class III directors are Gideon
Hollander and Yossie Hollander.

         At each annual meeting of shareholders, the successors to directors
whose terms will then expire will be elected to serve from the time of election
and qualification until the third annual meeting following the election. Any
additional directorships resulting from an increase in the number of directors
will be distributed among the three classes so that, as nearly as possible, each
class will consist of one-third of the directors. This classification of our
board of directors may have the effect of delaying or preventing changes in
control or management of our company.

         Directors may be removed at any time by the holders of 75% of the
voting power at a general meeting of shareholders. Shareholders may, by a
majority vote (Ordinary Resolution), elect a director to fill the vacancy. If
the shareholders do not elect a director to fill such vacancy within 30 days
after the removal of the incumbent director, the board of directors may also
elect a director to fill such vacancy. Any director elected to fill a vacancy
will hold office for the remainder of the full term of the class of directors in
which the vacancy occurred and until such director's successor is elected and
qualified.

ALTERNATE DIRECTORS

         Our articles of association provide that a director may appoint, by
written notice to us, any individual, whether or not the person is then a member
of the board of directors, to serve as an alternate director. The appointment of
an alternate director is subject to the consent of the board of directors if the
appointee is not then a member of the board of directors. Any alternate director
shall have all of the rights and obligations


                                       34
<PAGE>   35


of the director appointing him or her, except the power to appoint an alternate,
unless otherwise specifically provided for in the appointment of such alternate.
The alternate director may not act at any meeting at which the director
appointing him or her is present. The alternate director may act as an alternate
for several directors and have the corresponding number of votes. Unless the
time period or scope of any appointment is limited by the appointing director,
the appointment is effective for all purposes and for a period of time
concurrent with the term of the appointing director. Currently, no alternate
directors have been appointed.

AUDIT COMMITTEE

         We are currently subject to the provisions of the new Israeli Companies
Law which became effective on February 1, 2000 and which replaced the old
Companies Ordinance. Under the Companies Law, an audit committee is required to
be appointed by the board of directors. The audit committee must consist of at
least three members, and include our external directors. Neither the Chairman of
the board of directors, directors employed by us or granting services to us on a
permanent basis, nor any controlling shareholder or any relative of a
controlling shareholder may serve on the audit committee.

         The responsibilities of the audit committee include identifying
irregularities in the management of our business and approving related-party
transactions as required by law.

         Pursuant to the listing requirements of the Nasdaq National Market, we
are required to have at least two independent directors on our board of
directors and to establish an audit committee, at least a majority of whose
members are independent of management. We have appointed such audit committee.

         The current members of the audit committee are: Boaz Dotan, Amnon
Shoham and Ohad Zuckerman.

         In addition, the new Israeli Companies Law requires the board of
directors of a public company to appoint an internal auditor nominated by the
audit committee. A person who does not satisfy certain independence requirements
may not be appointed as an internal auditor. We have appointed Mr. Eyal Weizman
from Fahn Kanne Management Services to serve as our internal auditor.

EXTERNAL DIRECTORS

         Under the new Israeli Companies Law, Israeli companies that are
registered under the laws of Israel and whose shares are listed for trading on a
stock exchange outside of Israel are treated as public companies. Under this
law, a public company, like ours, is required to appoint two external directors.
This law provides that a person may not be appointed as an external director if
the person or the person's relative, partner, employer or any entity under the
person's control, has, as of the date of the person's appointment to


                                       35
<PAGE>   36

serve as external director, or had, during the two years preceding that date,
any affiliation with the company, any entity controlling the company or any
entity controlled by the company or this controlling entity. The term
"affiliation" includes an employment relationship, a business or professional
relationship maintained on a regular basis, control and service as an office
holder. External directors are elected at a shareholders meeting, provided that
either the majority of shares voted at the meeting, including at least one third
of the shares of non-controlling shareholders voted at the meeting, vote in
favor of such election or the total number of shares voted against the election
does not exceed one percent of the aggregate voting rights in the company.
External directors do not have powers or authority that are different from those
granted to all other directors. An external director is appointed for a term of
three years.

         A person may not serve as an external director if the person's position
or other business creates, or may create, conflict of interests with the
person's responsibilities as an external director. Any committee of the board of
directors must include at least one external director. An external director is
only entitled to compensation as provided in regulations to be adopted under the
new law. Amnon Shoham and Ohad Zuckerman are currently serving as our external
directors.

D.       EMPLOYEES

         As of December 31, 2000, we had 94 employees in Israel, 126 in the
United States, 1 in Canada and 8 in Europe. Of our 229 employees, 63 were
engaged in research and development, 74 in sales, marketing and business
development, 54 in professional services and technical support and 38 in
finance, administration and operations.

         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.

E.       SHARE OWNERSHIP

         1.       Not applicable.

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

                  The purpose of our 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 our subsidiaries. As of December 31, 2000, options to purchase
2,957,787 ordinary shares were outstanding and no additional ordinary shares
were available for grants of additional options. The weighted average exercise
price of options outstanding under our option plans is $5.02 as of December 31,
2000. Subsequent to December 31, 2000, our board of directors approved an
amendment to add 1,800,000 ordinary shares to our 1999 Option Plan, which
amendment is subject to shareholder approval.

                  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
December 31, 2008, respectively.


                                       36
<PAGE>   37


ITEM 7:  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.       MAJOR SHAREHOLDERS

         The following table sets forth, to the best of our knowledge, as of
March 31, 2001, those shareholders that own 5% or more of our capital stock.

<TABLE>
<CAPTION>
                NAME OF BENEFICIAL OWNER (1)                NUMBER OF SHARES OWNED      PERCENTAGE
--------------------------------------------------------    ----------------------      ----------
<S>                                                         <C>                         <C>
The Goldman Sachs Group, Inc.(1)                                  1,822,625                9.89%
Star Ventures Group (2)                                           1,702,814                9.24%
Gideon Hollander  (3)                                             1,189,988                6.46%
Yossie Hollander (4)                                                800,280                4.34%
</TABLE>


 (1)     Based on a Schedule 13G/A filed with the Commission on February 13,
         2001, this amount represents 1,822,625 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 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.; (e) 58,230 ordinary shares
         held by Bridge Street Fund 1997, L.P; and (f) 41,112 ordinary shares
         held by other entities. 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. We make
         no representation as to the accuracy or completeness of the information
         reported. The address of GS Group is 85 Broad Street, New York, NY
         10004.

(2)      Based on a Schedule 13G/A filed with the Commission dated January 15,
         2001, this amount represents 1,038,278 ordinary shares held by SVM Star
         Venture Capital Management Ltd. (Star Israel) and 647,242 ordinary
         shares held by Star Ventures Management GmbH no. 3 (Star Germany). We
         make no representation as to the accuracy or completeness of the
         information reported. The address of Star Ventures Group is
         Possartstrasse 9, D-81679, Munich, Germany.

(3)      Based on a Schedule 13G filed with Commission on February 13, 2001. We
         make no representation as to the accuracy or completeness of the
         information reported. The address of Mr. Hollander is 400 Perimeter
         Center Terrace, Suite 195, Atlanta, Georgia 30346.

(4)      Does not include 302,670 ordinary shares held by Dana Hollander (Yossie
         Hollander's wife). Mr. Hollander disclaims any beneficial ownership in
         these


                                       37
<PAGE>   38

         shares. The address of Mr. Hollander is 11 Galgalei Haplada Street,
         Herzliya, 46722, Israel.

         H&Q Client Server Investment Management L.L.C., which held 1,112,655
shares of stock, or 6.39% of the shares then outstanding on December 31, 1999,
no longer hold more than five percent (5%) of our outstanding shares as
reflected in the Schedule 13G/A filed by this shareholder on February 13, 2001.

         As of May 5, 2001, there were 2,437 record holders of Jacada shares in
the United States, which represented 45% of the outstanding shares as of such
date.

B.       RELATED PARTY TRANSACTIONS

         A loan in the amount of $60,000 was made in November 2000 to Tzvia
Broida, who is our Vice President of Finance. The loan, which bears interest in
accordance with Israeli law at the rate of 4% per annum, is evidenced by a
promissory note. The loan is repayable in monthly installments of 2,000 NIS
(about $500) beginning in November 2001. The amount outstanding on such loan on
March 31, 2001 was $ 59,334.

C.       INTERESTS OF EXPERT AND COUNSEL

         Not applicable.

ITEM 8:  FINANCIAL INFORMATION

A.       CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

SEE ITEM 18 FOR AUDITED CONSOLIDATED FINANCIAL STATEMENTS.

EXPORT SALES

         The Company generated approximately 93% of its revenues in North
America and approximately 7% in Europe during the period beginning January 1,
2000 and ending December 31, 2000.

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 a
complaint with the American Arbitration Association 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. The arbitration was held in November 2000 and a decision by the
arbitrators was entered on April 3, 2001. The arbitrators awarded the
distributor a net amount of $542,000 and 50% of the amounts of any revenue
actually received from the customer in


                                       38
<PAGE>   39

question in the future. 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, which the arbitrators disregarded.
We have appealed the arbitrators' decision.

         On March 31, 2000, Jacada, Inc., one of our subsidiaries, received a
demand for indemnification from counsel for one of its licensees, the Crawford
Group Inc. ("Crawford"). Crawford has advised Jacada, Inc. that Crawford had
been named as a defendant in a lawsuit in which the plaintiff alleged that
Crawford is using software which infringes on certain patents held by him. The
plaintiff's complaint seeks unspecified royalties and treble damages from
Crawford. Crawford stated that it is entitled to indemnification for this claim
from Jacada, Inc. pursuant to a Software License Agreement dated June 9, 1999.
Although not expressly stated in Crawford's demand, the implication of this
demand is that the software Crawford licensed from Jacada, Inc. is the subject
of the plaintiff's lawsuit. However, the plaintiff's Complaint does not
specifically reference any Jacada, Inc. software product and Jacada, Inc. has
been unable to determine from the descriptions contained in the complaint
whether its software is at issue. Moreover, Jacada, Inc. has not received any
notification or demand directly from the plaintiff in connection with his
asserted patents. No specific dollar amounts have been demanded by Crawford, and
no further action has been taken by it.

         We 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.

DIVIDEND POLICY

         We have no current intention of paying dividends.

B.       SIGNIFICANT CHANGES

         There have been no significant changes since the date of our financial
statements filed with Form 20-F for the year 1999.

ITEM 9:  THE OFFER AND LISTING

A.       OFFER AND LISTING DETAILS

SHARE HISTORY

         Our ordinary shares are quoted on the NASDAQ National Market under the
symbol "JCDA."


                                       39
<PAGE>   40


         The following table shows the high and low market prices of our
ordinary shares in the indicated years. Trading in our shares commenced on
October 14, 1999.

<TABLE>
<CAPTION>
         Year                       Period                             High             Low
         ----                       ------                             ----             ---
         <S>                        <C>                                <C>              <C>
         1999                       10/14/99 - 12/31/99                $37.375          $8.000
         2000                       010/1/00 - 12/31/00                 33.375           4.375
</TABLE>

         The following table shows the high and low market prices for our
ordinary shares for each financial quarter since trading commenced.



<TABLE>
<CAPTION>
         Period                                                          High             Low
         ------                                                          ----             ---
         <S>                                                          <C>               <C>
         10/14/99 - 12/31/99                                           $37.375          $ 8.000
         01/01/00 - 03/31/00                                            33.375           14.625
         04/01/00 - 06/30/00                                            17.000            7.625
         07/01/00 - 09/30/00                                            13.500            8.625
         10/01/00 - 12/31/00                                             8.625            4.375
         01/01/01 - 03/31/01                                             6.250            4.375
</TABLE>


         The following table shows the high and low market prices for our
ordinary shares for the most recent six months.

<TABLE>
<CAPTION>
         Month                                                           High              Low
         -----                                                           ----              ---
         <S>                                                           <C>               <C>
         April 2001                                                    $ 5.200           $3.688
         March 2001                                                      5.281            4.375
         February 2001                                                   5.781            5.000
         January 2001                                                    6.250            4.625
         December 2000                                                   5.438            4.375
         November 2000                                                   6.938            4.500
</TABLE>

B.       PLAN OF DISTRIBUTION

         Not applicable.

C.       MARKETS

         Our ordinary shares are quoted on the NASDAQ National Market under the
symbol "JCDA."

D.       SELLING SHAREHOLDERS

         Not applicable.


                                       40
<PAGE>   41

E.       DILUTION

         Not applicable.

F.       EXPENSES OF THE ISSUE

         Not applicable.

ITEM 10: ADDITIONAL INFORMATION

A.       SHARE CAPITAL

         Not applicable.

B.       MEMORANDUM AND ARTICLES OF ASSOCIATION

         For this information, see Item 19, Exhibits 1.1 and 1.2 which have been
incorporated by reference as part of this Annual Report from our Registration
Statement on Form F-1, File No. 333-10882.

C.       MATERIAL CONTRACTS

                  In May 2000, we acquired an irrevocable, paid-up, perpetual,
non-exclusive worldwide license to certain technology owned by Cortlandt Reade
Technical Corporation ("CRTR"). In accordance with the terms and conditions of
the license agreement, CRTR has provided and will continue to provide consulting
and development services to integrate the technology into Jacada's software
products. The purchase price for the license and for the consulting and
development services was $1.5 million, $1.2 million of which has been paid as of
the date of filing this form ($700,000 of which was paid in April 2001). Jacada
will pay CRTR the remaining balance of $300,000 three months after the date that
the Jacada software product which incorporates the licensed technology is
accepted by Jacada. Other than the foregoing, we have entered into no material
contracts outside of the ordinary course of business for the two year period
ending March 31, 2001.

D.       EXCHANGE CONTROLS

         In 1998, the Israeli currency control regulations were liberalized
significantly, so that Israeli residents generally may freely deal in foreign
currency and foreign assets, and non-residents may freely deal in Israeli
currency and Israeli 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 that all taxes were paid or withheld;
however, legislation remains in effect pursuant to which currency controls can
be imposed by administrative 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


                                       41
<PAGE>   42

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.

E.       TAXATION

INFORMATION REGARDING TAXES TO WHICH U.S HOLDERS MAY BE SUBJECT.

         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
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.


                                       42
<PAGE>   43

         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
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


                                       43
<PAGE>   44

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.

         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


                                       44
<PAGE>   45

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:

         -        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

         -        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.


                                       45
<PAGE>   46

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.

         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
covered by this Annual Report are exempt from Israeli capital gains tax for so
long as:

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

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

         -        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.


                                       46
<PAGE>   47

         Israel presently has no estate or gift tax.

         TAX CONSEQUENCES IF WE ARE A PASSIVE FOREIGN INVESTMENT COMPANY.

         We will be deemed to be a passive foreign investment company or PFIC if
75% or more of our gross income in a taxable year, including the pro rata share
of the gross income of any company, U.S. or foreign, in which we are considered
to own 25% or more of the shares by value, is passive income. Alternatively, we
will be considered to be a PFIC if 50% or more of our assets in a taxable year,
averaged over the year and ordinarily determined based on fair market value and
including the pro rata share of the assets of any company in which we are
considered to own 25% or more of the shares by value, are held for the
production of, or produce, passive income. Passive income includes amounts
derived by reason of the temporary investment of funds. We do not expect to be
treated as a PFIC for 2000. The tests for determining PFIC status, however, are
applied annually based on facts and circumstances, and it is difficult to make
accurate predictions of future income, assets and activities which are relevant
to this determination and that to some extent, may be beyond our control.
Accordingly, there can be no assurance that we will never be deemed to be a
PFIC. If we were deemed to be a PFIC, and a U.S. Holder did not make an election
to treat us as a "qualified electing fund" (as described below), U.S. Holders
could be subject to adverse tax consequences upon receipt of certain
distributions from us or upon disposition of our ordinary shares, including
denial of capital gains rates and interest charges.

         The adverse tax consequences referred to above would not apply to a
U.S. Holder that makes an election to treat us as a "qualified electing fund,"
or a QEF election, in the first taxable year in which the U.S. Holder owns
ordinary shares if we comply with certain reporting requirements, which we
intend to do. A shareholder of a qualified electing fund would, however, be
required to include in income a pro rata share of the earnings of the qualified
electing fund whether or not the earnings are distributed.

         As an alternative to a QEF election, you may elect to mark-to-market
your ordinary shares, recognizing as ordinary income or loss each year an
amount equal to the difference as of the close of the taxable year between the
fair market value of the ordinary shares and your adjusted tax basis in such
ordinary shares. Losses would be limited to the net mark-to-market gains, if
any, that you included in income with respect to such ordinary shares in prior
years.

         You are urged to consult your own tax advisors regarding the
advisability of making a QEF election or a mark-to-market election in the
event we are classified as a PFIC.

F.       DIVIDENDS AND PAYING AGENTS

         Not applicable.

G.       STATEMENT BY EXPERTS

         Not applicable.

H.       DOCUMENTS ON DISPLAY

         We are currently subject to the information and periodic reporting
requirements of the U.S. Securities Exchange Act of 1934, as amended, and file
periodic reports and other information with the Securities and Exchange
Commission through its electronic data gathering, analysis and retrieval (EDGAR)
system. Our securities filings, including this Annual Report and the exhibits
thereto, are available for inspection and copying at the public reference
facilities of the Securities and Exchange Commission located at Room 1024, 450
Fifth Street, NW, Washington, D.C. 20549, and the Commission's regional offices
located in New York, New York and Chicago, Illinois. Copies of all or any part
of the registration statement or other filings may be obtained from these
offices after payment of fees required by the Commission. Please call the
Commission at 1-800-SEC-0330 for further information. The Commission also
maintains a website at http://www.sec.gov from which certain filings may be
accessed.

         As a foreign private issuer, we are exempt from certain rules under the
Securities Exchange Act of 1934, as amended, prescribing the furnishing and
content of proxy statements to our shareholders. In addition, we, our directors,
and our officers are also exempt from the shortswing profit recovery and
disclosure regime of Section 16 of the Exchange Act.

I.       SUBSIDIARY INFORMATION

         Not applicable.

ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         We do not use derivative financial instruments for trading purposes
and, as of year end, we had no derivative financial instruments of any kind
outstanding. Accordingly, we have concluded that there is no material market
risk exposure of the type contemplated by Item 11, and that no quantitative
tabular disclosures are required. We are 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


                                       47
<PAGE>   48

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, 2000, 1999, and
1998 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.

         We invest in U.S. Treasury notes, investment grade U.S. corporate bonds
and dollar deposits with banks. Since these investments typically carry fixed
interest rates and since our policy and practice is to hold these investments to
maturity, financial income over the holding period is not sensitive to changes
in interest rates.

         As of December 31, 2000, we had no other exposure to changes in
interest rates and had no interest rate derivative financial instruments
outstanding.

ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

         Not applicable.

ITEM 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

         None.

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

         There have been no changes in the rights of holders of any of our
registered securities.

         The effective date of the registration statement (No. 333-10882) for
our initial public offering of our ordinary shares, NIS 0.01 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. We registered 5,175,000 ordinary shares in the
offering, including shares issued pursuant to the exercise of the underwriters'
over-allotment option. We 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, we incurred underwriting discounts of $3,984,750. We also incurred
expenses of $2,769,250 million in connection with the offering. None of the
amounts was paid directly or indirectly to any director, officer, general
partner of ours or to their associates, persons owing ten percent or more of any
class of our equity securities, or to any of our affiliates.


                                       48
<PAGE>   49

         The net proceeds that we received as a result of the offering were
$50,568,390. As of December 31, 2000, the net proceeds have been used to invest
in a variety of financial instruments and for general corporate purposes. None
of the net proceeds of the offering was paid directly or indirectly to any
director, officer, general partner of ours or to their associates, persons
owning ten percent or more of any class of our equity securities, or to any
of our affiliates.

ITEM 17: FINANCIAL STATEMENTS

         See Item 18.

ITEM 18: FINANCIAL STATEMENTS


                                       49
<PAGE>   50



                                   JACADA LTD.


                        CONSOLIDATED FINANCIAL STATEMENTS


                             AS OF DECEMBER 31, 2000


                                 IN U.S. DOLLARS




                                      INDEX



<TABLE>
<CAPTION>

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

<S>                                                                                                <C>
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-26
</TABLE>


<PAGE>   51
[ERNST & YOUNG LOGO}

                                            Kost Forer &
                                            Gabbay                 Phone: 972-3-
                                            3 Aminadav St.         6232525
                                            Tel-Aviv               Fax: 972-3-
                                            67067, Israel          5622555








                         REPORT OF INDEPENDENT AUDITORS

                             TO THE SHAREHOLDERS OF

                                   JACADA LTD.


           We have audited the accompanying consolidated balance sheets of
Jacada Ltd. (the "Company") and its subsidiaries as of December 31, 2000 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, 2000. 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 and its subsidiaries as of December 31, 2000 and 1999
and the consolidated results of their operations and cash flows for each of the
three years in the period ended December 31, 2000, in conformity with generally
accepted accounting principles in the United States.





                                               /s/ Kost Forer & Gabbay
Tel-Aviv, Israel                                 KOST FORER & GABBAY
January 29, 2001                      A Member of Ernst and Young International

<PAGE>   52
                                                                     JACADA LTD.
CONSOLIDATED BALANCE SHEETS

U.S. DOLLARS IN THOUSANDS

<TABLE>
<CAPTION>
                                                                                             DECEMBER 31,
                                                                                     --------------------------
                                                                                       2000              1999
                                                                                     --------          --------
<S>                                                                                  <C>               <C>
  ASSETS

CURRENT ASSETS:
Cash and cash equivalents                                                            $  9,360          $  5,141
Short-term bank deposits                                                                5,309                56
Marketable securities                                                                  32,154            50,519
Trade receivables (net of allowance for doubtful accounts of $204
  as of December 31, 2000 and $40 as of December 31, 1999)                              6,403             3,760
Other current assets                                                                      485               261
                                                                                     --------          --------

Total current assets                                                                   53,711            59,737
                                                                                     --------          --------

LONG-TERM OTHER ASSETS                                                                    369               128
                                                                                     --------          --------

LONG-TERM INVESTMENTS:
Marketable securities                                                                   5,644                --
Severance pay fund                                                                        548               430
                                                                                     --------          --------

Total long-term investments                                                             6,192               430
                                                                                     --------          --------

PROPERTY AND EQUIPMENT, NET                                                             3,151             2,140
                                                                                     --------          --------

OTHER ASSETS (net of accumulated amortization of $126 as of
  December 31, 2000)                                                                    1,374                --
                                                                                     --------          --------

                                                                                     $ 64,797          $ 62,435
                                                                                     ========          ========
</TABLE>

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


                                      F-3
<PAGE>   53
                                                                     JACADA LTD.

CONSOLIDATED BALANCE SHEETS

U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA

<TABLE>
<CAPTION>
                                                                                             DECEMBER 31,
                                                                                     -----------------------------
                                                                                        2000               1999
                                                                                     ---------           ---------
<S>                                                                                  <C>                 <C>
   LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Current portion of long-term debt                                                  $      12           $     194
  Trade payables                                                                         2,105               1,443
  Deferred revenues                                                                      1,046               3,024
  Accrued expenses and other liabilities                                                 3,808               1,761
                                                                                     ---------           ---------

Total current liabilities                                                                6,971               6,422
                                                                                     ---------           ---------

LONG-TERM LIABILITIES:
  Accrued severance pay                                                                  1,036                 677
  Long-term debt, net of current portion                                                    --                 186
  Other long-term payable                                                                  144                 296
                                                                                     ---------           ---------

Total long-term liabilities                                                              1,180               1,159
                                                                                     ---------           ---------

SHAREHOLDERS' EQUITY:
Share capital:
Ordinary shares of NIS 0.01 par value:
    Authorized: 30,000,000 shares as of December 31, 2000 and as
    of December 31, 1999; Issued and outstanding: 18,428,531
    shares as of December 31, 2000 and 17,610,893 shares as of
    December 31, 1999                                                                       54                  52
Additional paid-in capital                                                              67,843              66,941
Deferred stock compensation                                                               (161)               (272)
Accumulated deficit                                                                    (11,090)            (11,867)
                                                                                     ---------           ---------

Total shareholders' equity                                                              56,646              54,854
                                                                                     ---------           ---------

                                                                                     $  64,797           $  62,435
                                                                                     =========           =========
</TABLE>

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


                                      F-4
<PAGE>   54

                                                                     JACADA LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA

<TABLE>
<CAPTION>
                                                                      YEAR ENDED
                                                                     DECEMBER 31,
                                                    -------------------------------------------
                                                       2000             1999              1998
                                                    ---------        ---------        ---------
<S>                                                 <C>              <C>              <C>
Revenues:
  Software licenses                                 $  15,506        $   8,831        $   6,469
  Services and maintenance                              9,610            5,768            3,019
                                                    ---------        ---------        ---------

Total revenues                                         25,116           14,599            9,488
                                                    ---------        ---------        ---------

Cost of revenues:
  Software licenses                                       725              639              342
  Services and maintenance                              5,210            2,740            2,558
                                                    ---------        ---------        ---------

Total cost of revenues                                  5,935            3,379            2,900
                                                    ---------        ---------        ---------

Gross profit                                           19,181           11,220            6,588
                                                    ---------        ---------        ---------

Operating expenses:
  Research and development                              4,979            3,267            3,054
  Less - royalty-bearing grants                            --               --              614
                                                    ---------        ---------        ---------

  Research and development, net                         4,979            3,267            2,440
                                                    ---------        ---------        ---------

  Selling and marketing                                12,873            6,529            5,411
  General and administrative                            3,624            1,960            1,637
                                                    ---------        ---------        ---------

Total operating expenses                               21,476           11,756            9,488
                                                    ---------        ---------        ---------

Operating loss                                         (2,295)            (536)          (2,900)
Financial expenses                                       (130)            (206)            (216)
Financial income                                        3,213              770              197
Other expenses, net                                        (1)             (34)              (1)
                                                    ---------        ---------        ---------

Income (loss) before taxes on income                      787               (6)          (2,920)
Taxes on income                                            10               --               --
                                                    ---------        ---------        ---------

Net income (loss)                                   $     777        $      (6)       $  (2,920)
                                                    =========        =========        =========


Basic net earnings (loss) per share                 $    0.04        $   *) --        $   (0.81)
                                                    =========        =========        =========

Diluted net earnings (loss) per share               $    0.04        $  *)  --        $   (0.81)
                                                    =========        =========        =========
</TABLE>

*) Represents an amount lower than $ 0.01.

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


                                      F-5
<PAGE>   55

                                                                     JACADA LTD.

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA

<TABLE>
<CAPTION>
                                          CONVERTIBLE
                                           PREFERRED                                                                       TOTAL
                                             SHARES              ORDINARY SHARES     ADDITIONAL   DEFERRED                 SHARE-
                                       -------------------     --------------------   PAID-IN    STOCK COM-  ACCUMULATED   HOLDERS'
                                         SHARES     AMOUNT       SHARES      AMOUNT    CAPITAL   PENSATION      DEFICIT    EQUITY
                                       ----------   ------     -----------   ------  ----------- ----------  ------------ ---------
<S>                                    <C>          <C>        <C>           <C>     <C>         <C>         <C>          <C>
Balance as of  January 1, 1998          7,454,422     $ 24       3,612,893     $12    $ 10,971     $  --     $ (8,941)    $  2,066
Issuance of Preferred "D"
shares, net                               953,213        2              --      --       3,781        --           --        3,783
Exercise of stock options, net                 --       --           9,000     *)-          10        --           --           10
Deferred stock compensation                    --       --              --      --         125      (125)          --           --
Net loss                                       --       --              --      --          --        --       (2,920)      (2,920)
                                       ----------     ----     -----------     ---    --------     -----     --------     --------

Balance as of December 31, 1998         8,407,635       26       3,621,893      12      14,887      (125)     (11,861)       2,939
Issuance of Preferred "C"
shares, net                               389,490        2              --      --       1,237        --           --        1,239
Conversion of Ordinary shares into
Preferred shares                           31,155      *)-         (31,155)    *)-          --        --           --           --
Conversion of Preferred shares into
Ordinary shares                        (8,828,280)     (28)      8,828,280      28          --        --           --           --
Issuance of Ordinary shares, net               --       --       5,175,000      12      50,556        --           --       50,568
Exercise of stock options, net                 --       --          16,875     *)-          19        --           --           19
Deferred stock compensation                    --       --              --      --         242      (242)          --           --
Amortization of deferred stock
compensation                                   --       --              --      --          --        95           --           95
Net loss                                       --       --              --      --          --        --           (6)          (6)
                                       ----------     ----     -----------     ---    --------     -----     --------     --------

Balance as of December 31, 1999                --       --      17,610,893      52      66,941      (272)     (11,867)      54,854
Exercise of stock options, net                 --       --         817,638       2         958        --           --          960
Cancellation of stock compensation             --       --              --      --         (56)       56           --           --
Amortization of deferred stock
compensation                                   --       --              --      --          --        55           --           55
Net income                                     --       --              --      --          --        --          777          777
                                       ----------     ----     -----------     ---    --------     -----     --------     --------

Balance as of December 31, 2000                --     $ --      18,428,531     $54    $ 67,843     $(161)    $(11,090)    $ 56,646
                                       ==========     ====     ===========     ===    ========     =====     ========     ========
</TABLE>

*) Represents an amount lower than $ 1.

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


                                      F-6
<PAGE>   56

                                                                     JACADA LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. DOLLARS IN THOUSANDS

<TABLE>
<CAPTION>
                                                                          YEAR ENDED DECEMBER 31,
                                                              ----------------------------------------------
                                                                 2000              1999               1998
                                                              ----------        ----------        ----------
<S>                                                           <C>               <C>               <C>
Cash flows from operating activities:
Net income (loss)                                             $      777        $       (6)       $   (2,920)
Adjustments to reconcile net income (loss) to net cash
   provided by (used in) operating activities:
   Depreciation and amortization                                     987               724               525
   Amortization of deferred stock compensation                        55                95                --
   Accrued interest on short-term bank deposits                      (92)               --                --
   Accrued interest and amortization of premium
     on marketable securities                                       (490)             (222)               --
   Accrued interest on long-term other assets                        (20)               --                --
   Increase in accrued severance pay, net                            241                85                20
   Capital loss on sale of property and equipment, net                 1                34                 1
   Increase in trade receivables                                  (2,643)             (794)           (1,121)
   Decrease (increase) in other current assets                      (296)              (90)              269
   Increase (decrease) in trade payables                             340             1,006               (80)
   Increase (decrease) in deferred revenues                       (1,978)           (1,128)            1,014
   Increase in accrued expenses and other liabilities              1,047               899                33
                                                              ----------        ----------        ----------

Net cash provided by (used in) operating activities               (2,071)              603            (2,259)
                                                              ----------        ----------        ----------
Cash flows from investing activities:
Investment in short-term bank deposits, net                       (5,161)              (56)               --
Investment in held to maturity marketable securities             (89,301)          (50,297)               --
Redemption of held to maturity marketable securities             102,512                --                --
Purchase of property and equipment                                (1,717)           (1,048)             (884)
Purchase of other assets                                            (500)               --                --
Proceeds from sales of property and equipment                         14                41                 2
Investment in long-term other assets                                (175)               --                --
Other                                                                 26                19              (100)
                                                              ----------        ----------        ----------
Net cash provided by (used in) investing activities                5,698           (51,341)             (982)
                                                              ----------        ----------        ----------

Cash flows from financing activities:
Proceeds from issuance of shares, net                                960            52,122             3,793
Payment of principal of long-term debt                              (368)             (202)             (163)
Proceeds from long-term debt                                          --               368               158
Short-term bank debt, net                                             --            (2,022)            2,022
                                                              ----------        ----------        ----------
Net cash provided by financing activities                            592            50,266             5,810
                                                              ----------        ----------        ----------
Increase (decrease) in cash and cash equivalents                   4,219              (472)            2,569
Cash and cash equivalents at the beginning of the year             5,141             5,613             3,044
                                                              ----------        ----------        ----------
Cash and cash equivalents at the end of the year              $    9,360        $    5,141        $    5,613
                                                              ==========        ==========        ==========

Supplemental disclosure of cash flows activities:
a.   Cash paid during the year for:
     Interest                                                 $       20        $      118        $       72
                                                              ==========        ==========        ==========
b.   Non-cash activities:
     Other long-term payable                                  $       --        $      296        $       --
                                                              ==========        ==========        ==========
     Purchase of property and equipment                       $      170        $       --        $       --
                                                              ==========        ==========        ==========
     Purchase of other assets                                 $    1,000        $       --        $       --
                                                              ==========        ==========        ==========
</TABLE>

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



                                      F-7
<PAGE>   57
                                                                     JACADA LTD.

NOTE 1:- GENERAL

         a.       Jacada Ltd. (the "Company") was incorporated, under the laws
                  of Israel, in December 1990.

         b.       Jacada Ltd. and its wholly-owned subsidiaries - Jacada
                  (Europe) Limited (the U.K. subsidiary), Jacada Inc. (the U.S.
                  subsidiary) and its subsidiary Jacada Canada - 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 majority of the Company's sales are made in North America
                  and Europe. As for major customers, see Note 12.

         c.       During the year 2000, Jacada Inc. established a wholly-owned
                  marketing subsidiary in Canada.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES

         The consolidated financial statements have been prepared in accordance
         with generally accepted accounting principles in the United States.

         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 its subsidiaries
                  is generated in United States dollars ("dollars"). The
                  Company's management believes that the dollar is the primary
                  currency of the economic environment in which the Company and
                  its subsidiaries operate. Thus, the functional and reporting
                  currency of the Company and its subsidiaries is the dollar.

                  Accordingly, monetary accounts maintained in currencies other
                  than the dollar are remeasured into U.S. dollars in accordance
                  with Statement No. 52 of the Financial Accounting Standard
                  Board ("FASB"), "Foreign Currency Translation". 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.


                                      F-8
<PAGE>   58

                                                                     JACADA LTD.

                  Foreign currency translation differences expenses amounted to
                  approximately $ 73, $ 94 and $ 104 for the years ended
                  December 31, 2000, 1999 and 1998, respectively.

         c.       Principles of consolidation:

                  The consolidated financial statements include the accounts of
                  Jacada Ltd. and its wholly-owned subsidiaries. Intercompany
                  transactions and balances were eliminated upon 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.

         e.       Short-term bank deposits:

                  Bank deposits with maturities of more than three months but
                  less than one year are included in short-term bank deposits.
                  The short-term deposits are presented at cost, including
                  accrued interest.

         f.       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.

         g.       Property and equipment:

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


                                      F-9
<PAGE>   59

                                                                     JACADA LTD.

<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>

                  The Company and its subsidiaries periodically assess the
                  recoverability of the carrying amount of property and
                  equipment and provide for any possible impairment loss based
                  upon the difference between the carrying amount and fair value
                  of such assets, in accordance with SFAS No. 121 "Accounting or
                  the Impairment of Long-Lived Assets and for Long-Lived Assets
                  to Be Disposed Of". As of December 31, 2000, no impairment
                  losses have been identified.

         h.       Acquired other assets:

                  During 2000, the Company purchased and capitalized technology
                  rights at the amount of $ 1,500.

                  Technology rights are amortized using the straight line method
                  over the estimated economic life of the technology rights,
                  which is four years. (see also Note 5).

                  The net realizable value of the technology rights is
                  periodically reviewed by management, based on the estimated
                  future gross revenues from the technology rights reduced by
                  the estimated future costs completing and disposing of the
                  technology rights. If this review indicates that the
                  unamortized capitalized costs exceed the net realizable value
                  of the technology rights than that amount should be reduced.
                  As of December 31, 2000, no amount was reduced.

         i.       Research and development costs:

                  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 material costs between the
                  completion of the working model and the point at which the
                  products ready for general release. Therefore, research and
                  development costs are charged to the statement of operations
                  as incurred.

         j.       Income taxes:

                  The Company and its subsidiaries account for income taxes in
                  accordance with SFAS No. 109, "Accounting for Income Taxes".
                  This statement


                                      F-10
<PAGE>   60

                                                                     JACADA LTD.

                  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 and its subsidiaries provide
                  a valuation allowance, if necessary, to reduce deferred tax
                  assets to their estimated realizable value.

         k.       Revenue recognition:

                  The Company and its subsidiaries have adopted Statement of
                  Position (SOP) 97-2, "Software Revenue Recognition", as
                  amended. SOP 97-2, generally requires revenue earned on
                  software arrangements involving multiple elements to be
                  allocated to each element based on the relative fair value of
                  the elements. The Company and its subsidiaries have also
                  adopted SOP 98-9, "Modification of SOP 97-2, Software Revenue
                  Recognition with Respect to Certain Transactions", for all
                  transactions entered into after January 1, 2000. SOP 98-9
                  requires that revenue be recognized under the "residual
                  method" when vendor specific objective evidence (VSOE) of fair
                  value exists for all undelivered elements and no VSOE exists
                  for the delivered elements.

                  In December 1999, the SEC issued Staff Accounting Bulletin No.
                  101 ("SAB 101"), as amended in June 2000, which summarizes the
                  staffs views in applying generally accepted accounting
                  principles to revenue recognition in financial statements. The
                  Company and its subsidiaries adopted SAB 101 during the fourth
                  quarter of 2000. The adoption did not have a significant
                  effect on the consolidated results of operations or financial
                  position.

                           To date, the Company and its subsidiaries have
                  derived its revenues from license fees for its products,
                  maintenance and support and rendering of services including
                  consulting and training. The Company and its subsidiaries sell
                  its products primarily through its direct sales force and
                  indirectly through resellers, both of whom are considered end
                  users. The Company and its subsidiaries are also entitled to
                  royalties from some distributors upon the sublicensing of the
                  software to end users. Royalties due from these transactions
                  are recognized when such royalties are reported to the Company
                  upon the sublicensing of the software by the distributors.

                           Revenue from license fees is recognized when
                  persuasive evidence of an agreement exists, delivery of the
                  product has occurred, no significant obligations with regard
                  to implementation remain, the fee is fixed or determinable,
                  and collectibility is probable. The Company does not grant a
                  right of return to its customers. The Company and its
                  subsidiaries consider all arrangements with payment terms
                  extending beyond one year not to be fixed or determinable. If
                  the fee is not fixed or determinable, revenue is recognized as
                  payments become due from the customer provided that all other
                  revenue recognition criteria have been met.


                                      F-11
<PAGE>   61

                                                                     JACADA LTD.

                  Where software arrangements involve multiple elements, revenue
                  is allocated to each element based on vendor specific
                  objective evidence ("VSOE") of the relative fair values of
                  each element in the arrangement, in accordance with the
                  "residual method" prescribed by SOP 98-9 "Modification of SOP
                  97-2, Software Revenue Recognition With Respect to Certain
                  Transactions". The Company's VSOE used to allocate the sales
                  price to services, support and maintenance is based on the
                  price charged when these elements are sold separately. License
                  revenues are recorded based on the residual method. Under the
                  residual method, revenue is recognized for the delivered
                  elements when (1) there is VSOE of the fair values of all the
                  undelivered elements, and (2) all revenue recognition criteria
                  of SOP 97-2, as amended, are satisfied. Under the residual
                  method any discount in the arrangement is allocated to the
                  delivered element.

                  Revenue recognized under the percentage of completion method
                  amounted to approximately $ 0, $ 158 and $ 550 for the years
                  ended December 31, 2000, 1999 and 1998, respectively.

                  Deferred revenue includes amounts received from customers for
                  which revenue has not been recognized.

         l.       Accounting for stock-based compensation:

                  The Company and its subsidiaries have elected to follow
                  Accounting Principles Board Opinion No. 25 "Accounting for
                  Stock Issued to Employees" ("APB 25") and Interpretation No.
                  44 "Accounting for Certain Transactions Involving Stock
                  Compensation" ("FIN 44") in accounting for its employee stock
                  option plans. Under APB 25, when the exercise price of the
                  Company's share options is less than the market price of the
                  underlying shares on the date of grant, compensation expense
                  is recognized. The pro forma disclosures required by SFAS No.
                  123 "Accounting for Stock-Based Compensation" ("SFAS 123"),
                  are provided in Note 9.

                  The Company and its subsidiaries apply SFAS 123 and EITF 96-18
                  "Accounting for Equity Instruments that are Issued to Other
                  than Employees for Acquiring, or in Conjunction with Selling,
                  Goods or Services" 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.

         m.       Royalty-bearing grants:

                  Royalty-bearing grants from the Government of Israel for
                  funding approved research and development projects are
                  recognized at the time the Company and its subsidiaries are
                  entitled to such grants, on the basis of the costs incurred
                  and included as a deduction of research and development costs.


                                      F-12
<PAGE>   62

                                                                     JACADA LTD.

         n.       Advertising costs:

                  Advertising costs are charged to expense, as incurred.
                  Advertising expenses were $ 329, $ 159 and $ 142 for the years
                  ended December 31, 2000, 1999 and 1998, respectively.

         o.       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
                  insurance policies and by an accrual. The value of these
                  policies is recorded as an asset in the company's balance
                  sheet.

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

                  Severance pay expenses for the years ended December 31, 2000,
                  1999, and 1998, were $ 502 and $ 332 and $ 241, respectively.

         p.       Fair value of financial instruments:

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

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

                  The fair value for held to maturity marketable securities are
                  based on the quoted market price.

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

         q.       Basic and diluted net earnings (loss) per share:

                  Basic net earnings (loss) per share is computed based on the
                  weighted average number of Ordinary shares outstanding during
                  each year. Diluted earning 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".


                                      F-13
<PAGE>   63

                                                                     JACADA LTD.

                  All convertible Preferred shares and outstanding stock options
                  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
                  weighted average number of shares related to the outstanding
                  convertible Preferred share and options excluded from the
                  calculations of diluted net loss per share were 2,604,384 and
                  10,707,069 for the years ended December 31, 1999 and 1998,
                  respectively.

         r.       Concentrations of credit risk:

                  Financial instruments that potentially subject the Company and
                  its subsidiaries to concentrations of credit risk consist
                  principally of cash and cash equivalents, marketable
                  securities, short-term bank deposits and trade receivables.
                  Cash and cash equivalents are deposited in U.S. dollars,
                  European currencies and New Israeli Shekels with major banks
                  in United States, England and Israel. Such deposits in the
                  United States may be in excess of insured limits and are not
                  insured in other jurisdictions. Management believes that the
                  financial institutions that had the Company's and its
                  subsidiaries investments are financial sound, and accordingly,
                  minimal credit risk exist.

                  The Company's marketable securities include investments in
                  debentures of the U.S. government and corporations. Management
                  believes that those corporations are financially sound, the
                  portfolio is well diversified, and accordingly, minimal credit
                  risk exists with respect to these marketable securities.

                  The Company and its subsidiaries trade receivables are mainly
                  derived from sales to customers in the North America and
                  Europe. The Company and its subsidiaries perform ongoing
                  credit evaluations of its customers and, to date, has not
                  experienced any material losses. An allowance for doubtful
                  accounts is determined with respect to those amounts that the
                  Company and its subsidiaries have determined to be doubtful of
                  collection.

                  Write-offs of uncollectible accounts in the years ended
                  December 2000, 1999 and 1998 were $0, $9, and $20,
                  respectively.

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

         s.       Impact of recently issued accounting standards:

                  In June 1998, the Financial Accounting Standards Board issued
                  Statement No. 133, "Accounting for Derivative Instruments and
                  Hedging Activities", as amended, which is required to be
                  adopted in years beginning after June 15, 2000. Because of the
                  Company's minimal use of derivatives, the adoption of the new
                  Statement has no effect on earnings or the financial position
                  of the Company.


                                      F-14
<PAGE>   64

                                                                     JACADA LTD.

NOTE 3:- MARKETABLE SECURITIES

<TABLE>
<CAPTION>
                                          AMORTIZED COST                GROSS UNREALIZED        ESTIMATED FAIR VALUE
                                                                             LOSSES
                                      ---------------------------------------------------------------------------------
                                        2000           1999          2000          1999           2000           1999
                                      -------        -------        ------        -------        -------        -------
<S>                                   <C>            <C>            <C>           <C>            <C>            <C>
U.S. government securities            $32,280        $50,519        $  431        $ 1,090        $31,849        $49,429
U.S. corporate securities               5,518             --           200             --          5,318             --
                                      -------        -------        ------        -------        -------        -------

                                      $37,798        $50,519        $  631        $ 1,090        $37,167        $49,429
                                      =======        =======        ======        =======        =======        =======
</TABLE>

                  The scheduled maturities of held-to-maturities as of December
                  31, 2000 and 1999, are as follows:

<TABLE>
<CAPTION>
                                            2000                               1999
                                  ------------------------------------------------------------
                                  AMORTIZED        ESTIMATED        AMORTIZED        ESTIMATED
                                    COST          FAIR VALUE           COST         FAIR VALUE
                                  ---------       ----------        ----------      ----------
<S>                               <C>             <C>               <C>             <C>
Held to maturity:
Matures in one year                $32,154          $31,457          $50,519          $49,429
Matures after one year
   through three years               5,644            5,710               --               --
                                   -------          -------          -------          -------

                                   $37,798          $37,167          $50,519          $49,429
                                   =======          =======          =======          =======
</TABLE>

The Company did not realize any gains or losses on redemption of held to
         maturity securities in 2000 and 1999.

NOTE 4:- PROPERTY AND EQUIPMENT, NET

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                       ------------------------
                                                        2000              1999
                                                       -------          -------
<S>                                                    <C>              <C>
Cost:
  Leasehold improvements                               $   459          $   256
  Computers and peripheral equipment                     3,188            2,266
  Office furniture and equipment                           824              554
  Motor vehicles                                         1,230              771
                                                       -------          -------

                                                         5,701            3,847
Accumulated depreciation                                 2,550            1,707
                                                       -------          -------

Depreciated cost                                       $ 3,151          $ 2,140
                                                       =======          =======
</TABLE>

         Depreciation expenses for the years ended December 31, 2000, 1999 and
         1998 were $ 861, $ 724 and $ 525, respectively.


                                      F-15
<PAGE>   65

                                                                     JACADA LTD.

         As for charges, see Note 8.

NOTE 5:- OTHER ASSETS, NET

<TABLE>
<CAPTION>
                                              DECEMBER 31,
                                        ----------------------
                                         2000            1999
                                        ------          ------
<S>                                     <C>             <C>
Original amounts:
  Acquired technology rights            $1,500          $   --
Accumulated amortization:
  Acquired technology rights               126              --
                                        ------          ------

Amortized cost                          $1,374          $   --
                                        ======          ======
</TABLE>

         Amortization expenses for the year ended December 31, 2000 was $ 126.

NOTE 6:- ACCRUED EXPENSES AND OTHER LIABILITIES

<TABLE>
<CAPTION>
                                               DECEMBER 31,
                                        ----------------------
                                         2000            1999
                                        ------          ------
<S>                                     <C>             <C>
Employees and payroll accruals          $2,228          $1,020
Accrued expenses                           251             427
Technology rights                        1,000              --
Other liabilities                          329             314
                                        ------          ------

                                        $3,808          $1,761
                                        ======          ======
</TABLE>

NOTE 7:- LONG-TERM DEBT

<TABLE>
<CAPTION>
                                                                                        DECEMBER 31,
                                           LINKED           INTEREST              ---------------------------
                                             TO               RATE                2000                  1999
                                           ------           --------              ----                 ------
   <S>                                  <C>                 <C>                   <C>                  <C>
   Long-term debt from
   financial institutions and
   others                                U.S. Dollars          7.125               $12                  $380
                                                                                   ===                  ====
              Aggregate maturities of long-term debt:

   First year (current portion)                                                    $12                  $194
                                                                                   ---                  ----

   Second year                                                                      --                   143
   Third year                                                                       --                    43
                                                                                   ---                  ----

                                                                                    --                   186
                                                                                   ---                  ----

                                                                                   $12                  $380
                                                                                   ===                  ====
</TABLE>


                                      F-16
<PAGE>   66

                                                                     JACADA LTD.

NOTE 8:- 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, 2000, the Company had
                  obtained grants from the Office of the Chief Scientist of 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, linked to
                  the U.S. dollars.

                  Through December 31, 2000, the Company has paid or accrued
                  royalties to the OCS in the amount of $ 1,665. As of December
                  31, 2000, the aggregate contingent liability to the OCS
                  amounted to $554.

         b.       Lease commitments:

                  The Company and its subsidiaries facilities are leased under
                  various operating lease agreements, which expire on various
                  dates, the latest of which is in 2005. Future minimum rental
                  payments under non-cancelable operating leases are as follows:

<TABLE>
<CAPTION>
                                              YEAR ENDED
                                              DECEMBER 31
                                              -----------
                            <S>               <C>
                            2001                $1,249
                            2002                   770
                            2003                    63
                            2004                    46
                            2005                    41
                                                ------
                                                $2,169
                                                ======
</TABLE>

                  Total rent expenses for the years ended December 31, 2000,
                  1999 and 1998 were approximately $ 902, $ 513 and $ 557
                  respectively.

         c.       Guarantees:

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

                  The Company had an unused credit facility in the amount of
                  approximately $ 2,800 as of December 31, 2000, with a renewal
                  option at the beginning of every year and bearing interest at
                  the rate of LIBOR +1.75%.

         d.       Charges:


                                      F-17
<PAGE>   67

                                                                     JACADA LTD.

                  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.       Litigation:

                  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. Company's management and its legal
                  advisor believe 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 $
                  125. The Company has provided an allowance in the total amount
                  of $ 125.

                  A hearing was conducted in this case, during November 2000,
                  and a ruling is expected soon.

NOTE 9:- SHAREHOLDERS' EQUITY

         a.       General:

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

                  All share and per share data included in these financial
                  statements have been retroactively adjusted to reflect the
                  stock split effected as stock dividend of four Ordinary shares
                  for every one share outstanding as 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
                  953,213 Series "D" Preferred shares, for net proceeds of $
                  3,783.

                  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 "C"
                  shares at a price of $ 3.21 per share. On July 24, 1999, these
                  warrants were exercised.


                                      F-18
<PAGE>   68

                                                                     JACADA LTD.

         b.       Composition of share capital:

                  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
                  completion of the Company's Initial Public Offering which took
                  place in October 1999.

         c.       Stock Options Plans:

                  As of December 31, 2000, the Company has authorized by several
                  Incentive Share Option Plans (the 1994, 1996 and 1999 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. Any options, which are forfeited or not
                  exercised before expiration, become available for future
                  grants.

                  As of December 31, 2000, no Ordinary shares of the Company are
                  available for future grant.

                  Subsequent to the balance sheet date, the Board of Directors
                  approved an amendment to add 1,800,000 Ordinary shares to the
                  1999 plan, which amendment is subject to shareholders
                  approval.


                                      F-19
<PAGE>   69
                                                                     JACADA LTD.

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

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                           -----------------------------------------------------------------------------------------
                                    2000                             1999                            1998
                           -------------------------       -------------------------       -------------------------
                                            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  of       2,594,634       $    3.28       1,902,444       $    1.32       1,790,985       $    1.07
   the year
   Granted                 1,379,133            6.53         747,840            8.20         370,607            2.37
   Exercised                 817,638            1.18          16,875            1.13           9,000            1.13
   Forfeited and
    cancelled                198,342            6.12          38,775            3.05         250,148            1.13
                           ---------       ---------       ---------       ---------       ---------       ---------

Outstanding - at
   the end of the
   year                    2,957,787       $    5.02       2,594,634       $    3.28       1,902,444       $    1.32
                           =========       =========       =========       =========       =========       =========

Exercisable
options
as of
December 31,               1,169,478       $    2.51       1,618,308       $    1.22       1,039,013       $    1.08
                           =========       =========       =========       =========       =========       =========
</TABLE>

                  The options outstanding as of December 31, 2000 have been
                  classified by exercise price, as follows:

<TABLE>
<CAPTION>

                           OPTIONS          WEIGHTED                                                     WEIGHTED
                         OUTSTANDING         AVERAGE                              OPTIONS                AVERAGE
                            AS OF           REMAINING         WEIGHTED          EXERCISABLE              EXERCISE
      EXERCISE           DECEMBER 31,      CONTRACTUAL        AVERAGE              AS OF                 PRICE OF
        PRICE               2000          LIFE (YEARS)     EXERCISE PRICE    DECEMBER 31, 2000     OPTIONS EXERCISABLE
   ---------------      -------------     ------------     ---------------   -----------------     --------------------
   <S>                  <C>               <C>              <C>               <C>                   <C>
   $ 0.99 - $ 1.13         676,707             4.8             $ 1.02             676,707                $  1.03
   $ 1.60 - $ 2.22         500,223               6             $ 2.10             306,064                $  2.03
   $ 4.04 - $ 5.06         769,382            9.88             $ 4.49              50,126                $  4.19
   $    9 - $   11       1,011,475            9.11             $  9.6             136,581                $ 10.11
   ---------------       ---------           -----             ------          ----------                -------
   $ 0.99 - $   11       2,957,787             6.2             $ 5.02           1,169,478                $  2.51
   ===============       =========           =====             ======          ==========                =======
</TABLE>


                                      F-20
<PAGE>   70

                                                                     JACADA LTD.

                  Deferred compensation expenses which represent the excess of
                  the market value over the exercise price totaled $311 and are
                  amortized to the statements of operations over the vesting
                  period which usually is four years. Options granted to the
                  Chief Executive Officer vest over an eight to ten year period,
                  with possible acceleration of vesting if certain criteria are
                  met.

                  Compensation expenses of approximately $55, $95 and $0 were
                  recognized during the years ended December 31, 2000, 1999 and
                  1998, respectively.

                  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
                  the year ended December 31, 1998 and the period commencing
                  January 1, 1999 through the date of the IPO: risk-free
                  interest rates of approximately 6% for each year, dividend
                  yields of 0% for each year and an expected life of the option
                  of approximately 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 and 2000:
                  risk-free interest rate of 6% for each year; dividend yields
                  of 0% for each year, volatility factor of the expected market
                  price of the Company's common shares of 0.5 and 1.253,
                  respectively; and a weighted-average expected life of the
                  option of 2.5 years for each year.

                  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:
                                                                ------------------------------------
                                                                      YEAR ENDED DECEMBER 31,
                                                                ------------------------------------
                                                                  2000          1999          1998
                                                                -------       -------       --------
                    <S>                                         <C>           <C>           <C>
                    Equals to fair value at date of grant       $  4.58       $  3.67       $    ---
                                                                =======       =======       ========

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

                    Less than fair value at date of grant       $    --       $  1.59       $  0.84
                                                                =======       =======       ========
</TABLE>

                  The weighted average exercise price of options granted at an
                  exercise price less than the market price at their grant date
                  for the year ended December 31, 1999 and 1998 was $2.22. All
                  options granted during 2000 were at an exercise price that is
                  equal to the fair value of the share at the date of grant.


                                      F-21
<PAGE>   71

                                                                     JACADA LTD.

         Pro forma information under SFAS 123:

<TABLE>
<CAPTION>
                                                                                     YEAR ENDED DECEMBER 31,
                                                                        ----------------------------------------------
                                                                           2000              1999               1998
                                                                        ----------        ----------        ----------
                  <S>                                                   <C>               <C>               <C>
                  Net income (loss) as reported                         $      777        $       (6)       $   (2,920)
                                                                        ==========        ==========        ==========

                  Pro forma net loss                                    $     (322)       $     (140)       $   (2,992)
                                                                        ==========        ==========        ==========

                  Pro forma basic and diluted net loss per share        $    (0.03)       $    (0.02)       $    (0.83)
                                                                        ==========        ==========        ==========
</TABLE>

         d.       Options issued to consultants:

                  a)       The Company's outstanding options to consultants as
                           of December 31, 2000, are as follows:

<TABLE>
<CAPTION>
                                             OPTIONS FOR      EXERCISE
                                               ORDINARY         PRICE            OPTIONS       EXERCISABLE
                          ISSUANCE DATE        SHARES         PER SHARE        EXERCISABLE       THROUGH
                          -------------      -----------      ---------        -----------     ------------
                          <S>                <C>              <C>              <C>             <C>
                             1996               7,500           $ 1.13             7,500            (*
                             1999               1,500           $11.00               938            (*
                             2000               4,000           $4.375             4,000            (*
                                               ------                             ------

                             Total             13,000                             12,438
                                               ======                             ======
</TABLE>

                                    *)    10 years from the date of grant.

                  b)       The Company had accounted for its options to
                           consultants under the fair value method of SFAS No.
                           123 and EITF 96-18. The fair value for these options
                           was estimated using a Black-Scholes option-pricing
                           model with the following weighted-average assumptions
                           for 2000, 1999 and 1998: risk-free interest rates of
                           6% for each year, dividend yields of 0% for each
                           year, volatility factors of the expected market price
                           of the Company's Ordinary shares of 1.253%, 0.5%, and
                           0.5% respectively and a weighted-average expected
                           life of the options of approximately 2.5 years for
                           each year.

                  c)       Due to immateriality, no compensation expenses have
                           been recorded in the financial statements.

         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-22
<PAGE>   72

                                                                     JACADA LTD.

NOTE 10- EARNINGS PER SHARE:

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

         Numerator:

<TABLE>
<CAPTION>
                                                                     YEAR ENDED DECEMBER 31,
                                                              ------------------------------------
                                                               2000          1999           1998
                                                              -------       -------        -------
<S>                                                           <C>           <C>            <C>
Net income (loss)                                             $   777       $    (6)       $(2,920)
                                                              =======       =======        =======

Numerator for basic and diluted net earnings
   (loss) per share - income available to
   shareholders of Ordinary shares                            $   777       $    (6)       $(2,920)
                                                              =======       =======        =======
</TABLE>

         Denominator:

<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
                                                              --------------------------------------------
                                                                 2000             1999             1998
                                                              ----------       ----------       ----------
<S>                                                           <C>              <C>              <C>
Denominator for basic net earnings (loss) per
   share - weighted average shares                            18,141,223        6,572,476        3,615,143
                                                              ----------       ----------       ----------

Effect of dilutive securities:

Employee stock options and options to
   consultants                                                 1,362,748             (*--             (*--
                                                              ----------       ----------       ----------

Dilutive potential Ordinary shares                             1,362,748             (*--             (*--
                                                              ----------       ----------       ----------

Denominator for diluted net earnings (loss)
   per share                                                  19,503,971        6,572,476        3,615,143
                                                              ==========       ==========       ==========
</TABLE>

              *)     Antidilutive.

NOTE 11:- TAXES ON INCOME

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

                  The production facilities of Jacada Ltd. 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%


                                      F-23
<PAGE>   73

                                                                     JACADA LTD.

                  to 25%, for an additional period of five years. (based on the
                  percentage of foreign ownership in each taxable year).

                  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.

                  The entitlement to the above benefits is conditional upon the
                  Company's fulfilling the conditions stipulated by the above
                  law, regulations published thereunder and the instruments of
                  approval for the specific investments in "approved
                  enterprises". In the event of failure to comply with these
                  conditions, the benefits may be canceled and the Company may
                  be required to refund the amount of the benefits, in whole or
                  in part, including interest.

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

                  The tax-exempt income attributable to the "Approved
                  Enterprises" can be distributed to shareholders, without
                  subjecting the Company to taxes, only upon the complete
                  liquidation of the Company. If these retained tax-exempt
                  income is distributed in a manner other than in the complete
                  liquidation of the Company, it would be taxed at the corporate
                  tax rate applicable to such profits as if the Company had not
                  chosen the alternative tax 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 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.

                  Income not eligible for the "Approved Enterprise" benefits
                  mentioned above, is taxed at the regular corporate rate of
                  36%.

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

                  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 2b, the financial statements
                  are presented in U.S. dollars. The difference between the
                  change in the Israeli Customer Price Index 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.

         c.       Tax benefits under the Law for the Encouragement of Industry
                  (Taxation), 1969:


                                      F-24
<PAGE>   74

                                                                     JACADA LTD.

                  Jacada Ltd. is an "industrial company", as defined by this law
                  and, as such, is entitled to certain tax benefits, mainly
                  accelerated depreciation of machinery and equipment, as
                  prescribed by regulations published under the Inflationary
                  Adjustments Law, the right to claim public issuance expenses
                  and amortization of patents and other intangible property
                  rights as a deduction for tax purposes.

         d.       Net operating losses carryforward:

                  As of December 31, 2000, Jacada Ltd. had approximately $3,235
                  of Israeli net operating loss carryforwards. The Israeli loss
                  carryforwards have no expiration date.

                  As of December 31, 2000, the UK subsidiary had accumulated
                  losses for income tax purposes in the amount of approximately
                  $ 1,743. These net operating losses may be carried forward and
                  offset against taxable income in the future for an indefinite
                  period.

                  The U.K. subsidiary has interest income that cannot be offset
                  against operating loss; therefore, the U.K. subsidiary has
                  provided for taxes on income in the amount of $10.

                  As of December 31, 2000, the U.S. subsidiary had U.S. federal
                  net operating loss carryforwards for income tax purposes in
                  the amount of approximately $4,200, which can be carried
                  forward and offset against taxable income for 15 years and
                  expire from 2010 to 2014.

                  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:


                                      F-25
<PAGE>   75

                                                                     JACADA LTD.

<TABLE>
<CAPTION>
                                                                        DECEMBER 31,
                                                                 ---------------------------
                                                                   2000               1999
                                                                 --------           --------
<S>                                                              <C>                <C>
Deferred tax assets:
   U.S. operating loss carryforward                              $  1,470           $  1,575
   U.K. operating loss carryforward                                   610                650
                                                                 --------           --------

Total deferred tax asset before valuation allowance                 2,080              2,225
Valuation allowance                                                (2,080)            (2,225)
                                                                 --------           --------

Net deferred tax asset                                           $     --           $     --
                                                                 ========           ========
</TABLE>

         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,
                                -------------------------------------
                                  2000           1999            1998
                                -------        -------        -------
<S>                             <C>            <C>            <C>
Domestic (Israel)               $    76        $   154        $  (198)
Foreign                             701           (160)        (2,722)
                                -------        -------        -------

                                $   777        $    (6)       $(2,920)
                                =======        =======        =======
</TABLE>

NOTE 12:- GEOGRAPHIC OPERATING INFORMATION

          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 end customers' location.


                                      F-26
<PAGE>   76

                                                                     JACADA LTD.

<TABLE>
<CAPTION>
                                                   YEAR ENDED DECEMBER 31,
                                          -----------------------------------
                                            2000          1999         1998
                                          -------       -------       -------
<S>                                       <C>           <C>           <C>
Revenues from sales to unaffiliated
   customers:
   United States                          $23,030       $11,894       $ 8,797
   United Kingdom                           1,582         2,193           406
   Canada                                     195            --            --
   Israel and others                          309           512           285
                                          -------       -------       -------

                                          $25,116       $14,599       $ 9,488
                                          =======       =======       =======
<CAPTION>
                                                   YEAR ENDED DECEMBER 31,
                                          -----------------------------------
                                            2000          1999         1998
                                          -------       -------       -------
<S>                                       <C>           <C>           <C>
Long-lived assets:
   Israel                                 $ 3,403       $ 1,516       $ 1,252
   United States                            1,021           617           582
   United Kingdom                             101             7            57
                                          -------       -------       -------

                                          $ 4,525       $ 2,140       $ 1,891
                                          =======       =======       =======
</TABLE>

Major customer data as a percentage of total revenues:

<TABLE>
<CAPTION>
                             YEAR ENDED DECEMBER 31,
                     ---------------------------------------
                      2000              1999            1998
                     ------            ------           ----
<S>                  <C>               <C>              <C>
Customer A              12%               *)             12%
                                         --
Customer B          *)  --                *)             15%
                                         --
Customer C          *)  --               13%             --
Customer D          *)  --               10%             --
Customer E              14%              --              --
</TABLE>

         *)       Less than 10% of total revenues.


                                      F-27
<PAGE>   77


                                                                     JACADA LTD.

ITEM 19:    EXHIBITS

<TABLE>
<CAPTION>
Exhibit     Description of Document
Number      -----------------------
------
<S>         <C>
1.1         Memorandum of Association of the Company (incorporated by reference
            to Exhibit 3.1 from the Company's Registration Statement filed on
            Form F-1 (file no. 333-10882)).

1.2         Articles of Association of the Company (incorporated by reference to
            Exhibit 3.2 from the Company's Registration Statement filed on Form
            F-1 (file no. 333-10882)).

4.2         1994 Stock Option and Incentive Plan (incorporated by reference to
            Exhibit 10.1 from the Company's Registration Statement filed on Form
            F-1 (file no. 333-10882)).

4.3         1996 Stock Option and Incentive Plan (incorporated by reference to
            Exhibit 10.2 from the Company's Registration Statement filed on Form
            F-1 (file no. 333-10882)).

4.4         1999 Stock Option and Incentive Plan (incorporated by reference to
            Exhibit 10.3 from the Company's Registration Statement filed on Form
            F-1 (file no. 333-10882)).

4.5         Employment Agreement of Gideon Hollander with Jacada Inc. dated
            March 3, 1999 (incorporated by reference to Exhibit 10.4 from the
            Company's Registration Statement filed on Form F-1 (file no.
            333-10882)).

4.6         Employment Agreement of Michael J. Potts dated June 10, 1995
            (incorporated by reference to Exhibit 10.6 from the Company's
            Registration Statement filed on Form F-1 (file no. 333-10882)).

4.7         Employment Agreement of Nimrod Gil-Ad dated August 21, 1996
            (incorporated by reference to Exhibit 10.10 from the Company's
            Registration Statement filed on Form F-1 (file no. 333-10882)).

4.8         Technology and Product License Agreement between the Company and
            Cortlandt Reade Technical Corporation dated May 25, 2000 (previously
            filed with the Company's Annual Report on Form 20-F for the year
            ended December 31, 2000 on May 29, 2001).

8           List of Jacada's Subsidiaries (previously filed with the Company's
            Annual Report on Form 20-F for the year ended December 31, 2000 on
            May 29, 2001).

10          Consent of Kost, Forer and Gabbay, a member of Ernst & Young
            International.
</TABLE>

SIGNATURES

         The registrant hereby certifies that it meets all of the requirements
for filing on Form 20-F and it has duly caused and authorized the undersigned to
sign this Annual Report on its behalf on June 4, 2001.

                                             JACADA LTD.



                                             /s/ Robert C. Aldworth
                                             ----------------------------------
                                             By: Robert C. Aldworth
                                                 Chief Financial Officer