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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 20-F



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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934



For the fiscal year ended December 31, 2002



Commission file number 000-30342



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JACADA LTD.

(Exact name of Registrant as specified in its charter)



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Israel

(Jurisdiction of incorporation or organization)



11 Galgalei Haplada St.

P.O. Box 12175

Herzliya 46722, Israel

(Address of principal executive offices)



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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:  Ordinary shares,
par value NIS 0.01 per share



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



Indicate the number of outstanding shares of each of the registrants classes of capital or common stock as of the close of the
period covered by the Annual Report:



18,935,903 Ordinary Shares, par value NIS 0.01 per share



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     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 OF CONTENTS



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|Item 1. 
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|Item 2. 
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|Item 3. 
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|Item 4. 
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|Item 5. 
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|Item 6. 
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|Item 7. 
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|Item 8. 
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|Item 9. 
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|Item 10.
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|Item 11.
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|Item 12.
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|Item 13.
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|Item 14.
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|Item 15:
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|Item 16A
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|Item 16B
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|Item 18.
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|Item 19.



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FORWARD LOOKING STATEMENTS



This Annual Report contains forward-looking statements. These statements include all statements that are not
statements of historical fact regarding the intent, belief, or current expectations of the Company, its directors or its officers with respect to, among other things: (i) the Companys financing plans; (ii) trends affecting the Companys
financial condition or results of operations; and (iii) the Companys growth strategy and operating strategy (including the development of its products and services). The words may, could, would,
will, believe, anticipate, estimate, expect, intend, plan and similar expressions or variations thereof are intended to identify forward-looking statements.
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, particularly under the heading Risk Factors, 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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Item 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT, AND ADVISERS



Not applicable.



Item 2: OFFER STATISTICS AND EXPECTED TIMETABLE



Not applicable.



Item 3: KEY INFORMATION



|A. |  | Selected Financial Data
|-- |  | -----------------------



The following table sets forth selected financial data from our consolidated statements of operations and balance sheets for the periods
indicated. The selected consolidated statement of operations data for the years ended December 31, 2002, 2001 and 2000 and the selected consolidated balance sheet data as of December 31, 2002 and 2001 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, 1999 and
1998, and the selected consolidated balance sheet data as of December 31, 2000, 1999 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 Item 5: Operating and Financial Review and Prospects and Item 11: 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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|                                                                                          |  | Year ended December 31,                         |           
|----------------------------------------------------------------------------------------- |  | ----------------------------------------------- | ----------
|                                                                                          |  | 2002                                            |           
|                                                                                          |  | (In thousands, except per share and share data) |           
|Consolidated Statement of Operations Data:                                                |  |                                                 |           
|Revenues:                                                                                 |  |                                                 |           
|Software licenses                                                                         |  | $                                               | 9,783     
|Services                                                                                  |  |                                                 | 4,518     
|Maintenance                                                                               |  |                                                 | 7,235     
|                                                                                          |  |                                                 |           
|Total revenues                                                                            |  |                                                 | 21,536    
|                                                                                          |  |                                                 |           
|Cost of revenues:                                                                         |  |                                                 |           
|Software licenses                                                                         |  |                                                 | 248       
|Services                                                                                  |  |                                                 | 3,115     
|Maintenance                                                                               |  |                                                 | 1,247     
|                                                                                          |  |                                                 |           
|Total cost of revenues                                                                    |  |                                                 | 4,610     
|                                                                                          |  |                                                 |           
|Gross profit                                                                              |  |                                                 | 16,926    
|                                                                                          |  |                                                 |           
|Operating expenses:                                                                       |  |                                                 |           
|Research and development, net                                                             |  |                                                 | 6,191     
|Sales and marketing                                                                       |  |                                                 | 9,450     
|General and administrative                                                                |  |                                                 | 4,602     
|Non-recurring charges                                                                     |  |                                                 | 501       
|                                                                                          |  |                                                 |           
|Total operating expenses                                                                  |  |                                                 | 20,744    
|                                                                                          |  |                                                 |           
|Operating loss                                                                            |  |                                                 | (3,818    
|Financial income (expense), net                                                           |  |                                                 | 909       
|                                                                                          |  |                                                 |           
|Income (loss) before income taxes                                                         |  |                                                 | (2,909    
|Income taxes                                                                              |  |                                                 |          
|                                                                                          |  |                                                 |           
|Net income (loss)                                                                         |  | $                                               | (2,909    
|                                                                                          |  |                                                 |           
|Basic net earnings (loss) per share                                                       |  | $                                               | (0.16     
|                                                                                          |  |                                                 |           
|Weighted average number of shares used in computing basic net earnings (loss) per
share   |  |                                                 | 18,710,105
|Diluted net earnings (loss) per share                                                     |  | $                                               | (0.16     
|                                                                                          |  |                                                 |           
|Weighted average number of shares used in computing diluted net earnings (loss) per
share |  |                                                 | 18,710,105



|                                      
|--------------------------------------
|                                      
|                                      
|                                      
|Consolidated Balance Sheet Data:      
|Cash and cash equivalents             
|Working capital                       
|Total assets                          
|Long-term debt, net of current portion
|Shareholders equity                  



Exchange Rates



Not applicable.



|B. |  | Capitalization and Indebtedness
|-- |  | -------------------------------



Not applicable.



|C. |  | Reasons for the Offer and Use of Proceeds
|-- |  | -----------------------------------------



Not applicable.



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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:



Because our products are complex and generally involve significant capital expenditures by customers, we may invest significant time
and expense in trying to make a sale to a potential customer that ultimately chooses not to purchase our products. We do not have a long history of selling our products and we have to devote substantial resources to educating prospective
customers about our products benefits. The complexity of our products may add time to the process of educating prospective customers. 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.



Competition in the market in which we compete is
intense. If we are unable to compete effectively, the demand for, or the prices of, our products may be reduced. The market in which we compete is extremely competitive and subject to rapid change. 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, IBM, Seagull Software Ltd., TIBCO Software, Inc., ClientSoft, Inc., WRQ, 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 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 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 and competition may intensify and future competition may harm our business.



Our software license revenues result from a relatively small number of sales. 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



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price could decline significantly.Our 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 approvals. It
may take six months or more from the time we first contact a prospective customer before receiving an initial order. This sales 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 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 in the near future because we cannot be sure whether recent
reductions in revenue are due to seasonality or to the effect of the general economic slowdown.



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.



Fiscal year 2000 was our only profitable year, and we may not again achieve profitability.We
have incurred net losses in each fiscal year since our inception except for fiscal 2000. To achieve and maintain profitability, we will need to increase revenues and contain expenses. We cannot assure you that our revenues will grow or that we will
achieve or maintain profitability in the future. Our ability to increase revenues and maintain profitability will be affected by the other risks and uncertainties described in this section and in the sections entitled Item 5: Operating and
Financial Review and Prospects and Item 11: Quantitative and Qualitative Disclosure about Market Risks.



The market price of our shares is volatile and you may not be able to resell your shares at or above the price you paid, or at all.The risks described in this Section, combined with a generally sluggish worldwide economy and recently increased geopolitical instability may adversely affect our revenues and share price. If our share price decreases to below $1.00 per
share and remains there for 30 consecutive trading days, Nasdaq could initiate procedures to delist our shares from the Nasdaq National Market and onto either the Nasdaq Small Cap Market or the OTC Bulletin Board.



We must expand our sales and marketing efforts in order
to increase market awareness of our products and to generate increased revenues. As part of a July 2002 company-wide reduction in personnel, we reduced the size of our sales and marketing staff from 50 to 39. However, expansion of our sales
and marketing efforts is essential to increase market awareness of our products and to generate increased revenue. There can be no guarantee that our reduced staff can successfully expand our sales and marketing effort. Furthermore, in addition to
increasing our direct sales and marketing efforts, we believe that our future success is dependent upon the expansion of our indirect distribution channels, consisting of our relationships with independent software vendors,



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software distributors and system integrators. We currently have relationships with only a limited number of these parties. However, 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 partners;
| | - |  | --------------------------------------------------------------------



| |  |  | we fail to increase the number of indirect distribution partners with which we have relationships;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | the business of one or more of our indirect distribution partners fails; or
| | - |  | ---------------------------------------------------------------------------



| |  |  | there is a decrease in the willingness or ability of our indirect distribution partners to devote sufficient resources and efforts to marketing and supporting our
products.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If any of these
circumstances occurs, we will have to devote substantially more resources to the 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 revenues could
be adversely affected if we fail to retain 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 are able to retain consultants and sales implementation personnel or hire and train qualified consultants and sales implementation personnel to replace those who leaves us, it will be difficult for us to increase or possibly
even maintain our present level of sales due to constraints on our capacity to implement additional sales.



Rapid changes and developments in our 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. 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, in a timely manner and on a cost-effective basis, new products and product enhancements that respond to technological changes, evolving industry
standards and other market changes and developments. Although we plan to continue to spend substantial amounts for research and development in the future, 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.



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We rely
on our 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 CEO, Gideon Hollander, 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 intense. As a result, our ability to recruit and retain qualified candidates may be limited.



We expect to be increasingly subject to
risks of international operations.We currently market and sell our products and services primarily in North America, from which we received approximately 80% of our total revenues for the year ended December 31, 2002. However, we
plan to increase our international operations, particularly in Europe and Latin America. 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 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, although we may employ such devices in the future.



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.



Many of our products contained technology that we acquired from third parties. Because we did not develop the technology ourselves, there
may be errors in the



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technology of which we are not aware. In addition, 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 caused by the technology we developed or the technology developed by a third party and acquired by us.
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 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 our products 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
incorporated 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



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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. If a foreign judgment is enforced by an Israeli court, it will be payable in Israeli
currency.



Conditions in and around
Israel could adversely affect our operations.Because our principal research and development facilities are located in Israel, we are 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 adversely affect our operations. Despite the negotiations towards peace between Israel and certain of its Arab neighbors, the future of these peace efforts is uncertain. Since October 2000, there has been a
significant increase in violence primarily in the West Bank and the Gaza Strip and negotiations between Israel and the Palestinian representatives have ceased for periods of time. In addition, during 2002 both Israel and the Palestinians have
intensified their military actions and Israel has undertaken certain military actions in the West Bank and the Gaza Strip. In connection with these actions the Israeli military has instituted a partial mobilization of its reserve forces. There can
be no assurance that ongoing or revived hostilities or other factors related to Israel, including any hostilities occurring in or around Iraq, will not have a material adverse effect on us or on our business or adversely affect our share price.



Some of our officers and employees in Israel are
obligated to perform 39 days or more of military reserve duty annually and in some cases may be called upon to serve upon short notice. The absence of these employees for significant periods may cause us to experience operating difficulties.
Additionally, a number of countries continue to restrict or ban business with Israel or Israeli companies, which may limit our ability to make sales in those countries.



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 U.S. dollars. However, a significant portion of the expenses associated with our Israeli operations, including personnel and
facilities related expenses, are incurred in New Israeli Shekels (NIS). Consequently, inflation in Israel will have the effect of increasing the U.S. dollar cost of our operations in Israel, unless it is offset on a timely basis by a devaluation of
the NIS relative to the U.S. dollar. We cannot predict any future trends in the rate of inflation in Israel or the rate of valuation of the NIS against the U.S. dollar. If the dollar cost of our operations in Israel increases, our U.S.
dollar-measured results of operations will be adversely affected.



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



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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 assure you that this will continue.



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, 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.



The government grants we have received for research and development expenditures restrict our ability to manufacture products and transfer technologies outside of Israel and require us to satisfy specified conditions.
From time to time we have received royalty-bearing grants from the Office of the Chief Scientist of the Ministry of Industry and Trade of the Government of Israel. The terms of these grants prohibit us from manufacturing products or transferring
technologies developed using these grants outside of Israel without special approvals. Even if we receive approval to manufacture these products outside of Israel, we may be required to pay increased royalties, up to 300% of the grant amount plus
interest, depending on the manufacturing volume that is performed outside of Israel. The technology developed with these grants may not be transferred to third parties, including in the context of an acquisition of our company, without the prior
approval of a governmental committee under the Research and Development Law, and may not be transferred to non-residents of Israel. These restrictions may impair our ability to outsource manufacturing or engage in similar arrangements for those
products or technologies. In addition, if we fail to comply with any of the conditions imposed by the Office of the Chief Scientist, we may be required to refund any grants previously received, together with interest and penalties.



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



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Certain
provisions of our articles of association and of Israeli law could delay, hinder or prevent a change in our control. Our articles of association contain provisions which could make it more difficult for a third party to acquire control of
us, even if that change would be beneficial to our shareholders. For example, our articles of association provide that our board of directors is divided into three classes, each serving three-year terms. In addition, certain provisions of the
Israeli Companies Law could also delay or otherwise make more difficult a change in our control. The provisions of the Israeli Companies Law relating to mergers and acquisitions are discussed in greater detail in Item 10: Memorandum and
Articles of Association.



Our stock
is traded on more than one stock exchange and this may result in price variations. Our stock is traded on the Nasdaq National Market and on the Tel Aviv Stock Exchange. Our stock is traded on these markets in different currencies (US dollars
on the Nasdaq and New Israeli Shekels on the Tel Aviv Stock Exchange) and at different opening times (notably, different time zones and public holidays; in addition, the Tel Aviv Stock Exchange is closed on Friday and open on Sunday, while the
Nasdaq is open on Fridays and closed on Sundays). This means that our stock is often traded at a price differential on these two markets resulting, among other factors, from the different trading times and the differences in exchange rates.



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.



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 Robert C. Aldworth, whose address is 400 Perimeter Center Terrace,
Suite 100, Atlanta, Georgia 30346. Our address on the Internet is http://www.jacada.com. The information on our website is not incorporated into this Annual Report.



Since October 1999, the Companys Ordinary Shares have been quoted on the Nasdaq National Market under
the symbol JCDA. In addition, the Companys Ordinary Shares have been quoted on the Tel Aviv Stock Exchange under the same symbol or its Hebrew equivalent since June 18, 2001. We develop, market and support software that
enables businesses to web-enable, modernize and integrate their existing host-centric software applications to better serve the needs of their users, customers, and partners. 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



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Lines, U.S. Department of Interior, The Federal Reserve Bank, Harrahs, Liberty Mutual, Her Majestys Land Registry, Lockheed Martin,
Manpower, Porsche Cars North America, Prudential Life Insurance Company and Saab Cars.



As a result of the downturn in global economic conditions, the resulting decline in overall business levels and the related impact on our operations, we implemented two worldwide restructuring and cost
reduction plans, first during the fourth quarter of 2001 and again in the third quarter of 2002. The plans included the elimination of approximately 45% of our worldwide workforce on a cumulative basis and a general reduction in all operating
expenses. Mainly as a result of implementing the plan, by year-end 2002, total employment was reduced to 156 from a peak of 273 in September 2001. During 2002, total costs and expenses, excluding non-recurring
expenses            , were reduced by approximately $9.0 million. The cost of implementing the restructuring plans was $1.4 million in 2001 and $0.5 million in 2002.



On July 31, 2002 we acquired certain assets and assumed
certain liabilities of Anota Ltd. for an aggregate purchase price of approximately $763,000, including acquisition costs of $123,000 paid in cash, issuance of 367,373 of our Ordinary Shares at a fair value of $ 640,000 and an earnout arrangement on
the basis of future revenues. These assets include key technology and intellectual property related to thin-client, web-to-host, emulation software for desktop connectivity. These technologies enable organizations to make their business critical
applications easily available over the Web, without installing any software on the host system or client machines.



See Items 5 and 18 for a description of our capital expenditures for the past three fiscal years. We have 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 2001 and 2002.



|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 browser-enabled desktops and to the Internet.



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. Applications for host-centric systems are typically complex and proprietary and tailored to the needs of a specific



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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 browser-enabled desktops and the Internet to grant employees, customers, suppliers and corporate partners
easy access to applications and data. Additionally, as newer applications are implemented, such as Customer Relationship Management software (CRM), there is an increasing need to easily integrate existing host-centric applications with these new
systems.



Web-enabling or
integrating existing host-centric applications may be accomplished by either completely rewriting the existing applications or by using technologies like ours to leverage those applications that exist today. 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 application re-use without the costs, risks, and time required to rewrite the application.



An effective solution to extend and integrate existing applications 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 enables businesses to web-enable, modernize, and integrate their existing host-centric
applications to better serve the needs of their users, customers, and partners. Our solutions provide the following benefits:



| |  |  | Leverage Existing Information Technology Resources.Our solutions permit companies to access their existing host-centric applications through
browser-enabled desktops or over the Internet, and can integrate these existing applications with newer software implementations such as CRM solutions from companies such as Siebel Systems, Inc. and PeopleSoft,
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Inc. This eliminates the need to replace existing applications through time-consuming and expensive custom programming. Additionally, our
solutions allow programmers trained in various languages to program in their native software languages and to deliver applications that are web-enabled.



| |  |  | Allow Rapid Implementation.We design our solutions to be implemented rapidly and to require minimal customization, which results in faster implementation
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 evolving business needs.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Programming Language Independence. Our solutions protect 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 (zSeries), AS/400 (iSeries), Sun Solaris, HP UX, IBM AIX, Microsoft Windows NT and Microsoft Windows 2000.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Products and Technology



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



Jacada®Interface Server.Jacada Interface Server generates graphical user interfaces for
mainframe and midrange software applications without requiring any change to the host applications. By generating Java or HTML graphical interfaces, Jacada Interface Server enables our customers to extend their host-



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centric applications and data to the Internet and their intranets without rewriting these applications. In addition, Jacada Interface Server
provides the modern graphical features users expect from todays applications. Jacada Interface Server also allows customers to enhance their applications to add functionality, integrate with other data sources and link to other Internet
applications.



Jacada Interface Server also
provides an ability to modernize the architecture of some host-centric applications. Developed in cooperation with IBM, the Jacada Interface Servers DDS Bridge and Jacada Interface Server for New Development contain innovative technology which
enables new or existing applications written in COBOL or RPG 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 the Jacada Interface Server without any special knowledge of any other programming language. This allows organizations to leverage their existing software skills and resources to build modern
applications.



Jacada®Integrator. Jacada Integrator is a software solution for
integrating core host-centric business systems, including the data and processes in those systems, with multiple packaged applications, frameworks, and client environments.



Jacada has established sales and marketing relationships with Siebel Systems, PeopleSoft, Computer Associates
and SeeBeyond, Inc. to utilize Jacada Integrator where a real-time, non-intrusive solution is required to integrate a host-centric application with its CRM or EAI solutions, respectively. Our customers get the benefits of on-line, real-time
integration with back-office applications without rewriting any of their existing systems.



Some of Jacada Integrators key features include:



| |  |  | Automated tools for capturing screens and navigation, minimizing the amount of code to be written;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | Support for a wide range of client front-ends, including Java, Windows APIs (such as ActiveX), and C-language libraries;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | Special adapters and validation with Siebel eBusiness Solutions (CRM);
| | - |  | ----------------------------------------------------------------------



| |  |  | Special adapter and validation with SeeBeyond (EAI);
| | - |  | ----------------------------------------------------



| |  |  | Special adapter for IBM MQSeries;
| | - |  | ---------------------------------



| |  |  | Support for XML;
| | - |  | ----------------



| |  |  | Support for Application Servers, including WebSphere and WebLogic; and
| | - |  | ----------------------------------------------------------------------



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| |  |  | Support for a wide range of back-end host-centric systems, including IBM mainframes (S/390 or zSeries) presenting 3270 screens, IBM AS/400s or iSeries presenting a
5250 interface, and a variety of UNIX, VMS, and other systems presenting a Telnet (VT100/220) interface.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Jacada Interface Server and Jacada Integrator 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.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | MapMaker. Jacada Integrator includes our MapMaker graphical integration environment that enables the development of complex application integration solutions
in an easy to use and understand modeling environment. It employs a rapid, component-based approach to legacy integration that requires no changes to the existing systems, saving time and eliminating complexity. MapMaker creates a map of the host
application that consists of the application screens, the navigational information required to traverse through a sequence of screens, and the tags and fields included on each host application screen. This information is stored in Java class files
produced within MapMaker that are implemented as Java services. Jacada Integrator also provides a means for packaging MapMaker services as Enterprise Java Beans.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Jacada®Terminal Emulator. Jacada Terminal Emulator, introduced in August 2002, is a full featured, Java-based, thin client terminal emulator
that provides companies with a low cost, thin client alternative to traditional fat client emulation software. Jacada Terminal Emulator eliminates the need to install emulation software on each users desktop by automatically deploying such



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software from a web server, which lowers the total cost of ownership for terminal access to host systems.



Professional Services



Our professional services include training, consulting and
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 for 12 months after the initial purchase of a software license, 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
products.



We provide our 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 and integrating our products into their systems, and 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 training and consulting services
which are billed on time and materials basis. 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 training, consulting and support, and maintenance services. Software license revenues constituted approximately 45.4%, 42.8% and 61.7% of our
total revenues for the years ended December 31, 2002, 2001 and 2000, respectively, while service and maintenance revenues constituted approximately 54.6%, 57.2% and 38.3% of our total revenues, respectively, for the same periods. Software license
revenues generated from North American customers constituted approximately 31.4%, 37.3% and 55.6% of our total revenues for the years ended December 31, 2002, 2001 and 2000, respectively, while service and maintenance revenues generated from North
American customers constituted approximately 48.3%, 54.5% and 36.9% of our total revenues, respectively, for the same periods. Software license revenues generated from European customers constituted approximately 14.0%, 5.5% and 6.1% of our total
revenues for the years ended December 31, 2002, 2001 and 2000, respectively, while service and maintenance revenues generated from European customers constituted approximately 6.3%, 2.7% and 1.4% of our total revenues, respectively, for the same
periods. Our gross margins on software



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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 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 in the near future
because we cannot be sure to what extent recent reductions in revenue are due to seasonality or to the effect of the general economic slowdown.



Raw Materials



Not applicable.



Sales and Marketing



We sell our products through our direct sales force in North America, Europe and Latin America, as well as through our indirect
distribution channels, consisting of software distributors, independent software vendors and system integrators. We also use indirect distribution channels in countries where we have no direct sales operations. As of December 31, 2002, we had 40
people in our sales and marketing organization, reduced from 53 at December 31, 2001. The reduction in personnel was effected as part of our July 2002 restructuring.



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



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our products and services are medium to large businesses with sophisticated technology requirements.



Our customers are using our solutions to rapidly deploy
eBusiness applications. Some examples of our customers and their uses of our products include:



| |  | Insurance companies, which use 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.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Financial institutions, which use our solutions to provide real-time integration between Siebel eBusiness Solutions (CRM) and existing back-office systems,
eliminating redundant data entry, providing real-time data access and processing, and enhancing customer service and service levels.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Automotive companies, which use 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, which use 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.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Enterprise resource planning software vendors, which use 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 is 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, which include internal development as well as acquisition of technology components, 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.



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Our research
and development expenses were $6.2 million for the year ended December 31, 2002, $6.4 million for the year ended December 31, 2001, and $5.0 million for the year ended December 31, 2000. As of December 31, 2002, 49 professionals were engaged in
research and development activities, reduced from 62 professionals at December 31, 2001 as part of our July 2002 restructuring.



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. While we have two patents pending for our technology, we believe that the failure to obtain such patents would not diminish our ownership rights in our technology or our software products.



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;
| | - |  | -------------------------------



| |  |  | existing vendor relationships;
| | - |  | ------------------------------



| |  |  | ease of product implementation;
| | - |  | -------------------------------



| |  |  | quality of customer support services;
| | - |  | -------------------------------------



| |  |  | product reputation; and
| | - |  | -----------------------



| |  |  | financial stability of vendors.
| | - |  | -------------------------------



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, 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, IBM, Seagull Software Ltd., TIBCO Software Inc., ClientSoft, Inc., WRQ, Inc. and webMethods, Inc. We expect
additional competition from other established and emerging companies. Furthermore, our competitors may combine with



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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



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. 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. Once we generate taxable income, if we fail to comply in
whole or in part with these conditions and criteria, the tax benefits that we receive could be partially or fully canceled and we could be forced to refund the amount of the benefits we received, adjusted for inflation and interest. We 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, 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.



From time to time
we have received royalty-bearing grants from the Office of the Chief Scientist of the Ministry of Industry and Trade of the Government of Israel. The terms of these grants prohibit us from manufacturing products or transferring technologies
developed using these grants outside of Israel without special approvals. Even if we receive approval to manufacture these products outside of Israel, we may be required to pay increased royalties, up to 300% of the grant amount plus interest,
depending on the manufacturing volume that is performed outside of Israel. The technology developed with these grants may not be transferred to third parties, including in the context of an acquisition of our company, without the prior approval of a
governmental committee under the Research and Development Law, and may not be transferred to non-residents of Israel. These restrictions may impair our ability to outsource manufacturing or engage in similar arrangements for those products or
technologies. In addition, if we fail to comply with any of the conditions imposed by the Office of the Chief Scientist, we may be required to refund any grants previously received, together with interest and penalties.



In 2002, the Research and Development Law was amended to,
among other things, enable companies applying for grants from the Office of the Chief Scientist to seek prior approval for conducting manufacturing activities outside of Israel without being subject to increased royalties. However, this amendment
will not apply to any of our existing grants. In addition, the amendment provides that one of the factors to be



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taken into consideration by the Office of the Chief Scientist in deciding whether to approve a grant application is the percentage of the
manufacturing of the relevant product that will be conducted outside of Israel. Accordingly, should we seek additional grants from the Office of the Chief Scientist in connection with which we also seek prior approval for manufacturing products
outside of Israel, we may not receive such grant or may receive a grant in an amount that is less than the amount we sought.



The Israeli Companies Law, which came into effect in February 2000, brought about significant changes to Israels corporate law.
Under this law, there may be uncertainties regarding corporate governance in some areas. In addition, additional uncertainties exist concerning the application of new U.S. corporate governance rules to foreign companies operating and whose shares
trade in the U.S. These uncertainties will persist until these laws have been adequately interpreted, and these uncertainties could inhibit takeover attempts or other transactions and inhibit other corporate decisions.



|C. |  | Organizational structure
|-- |  | ------------------------



Jacada owns 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. owns 100% of the stock of Jacada Canada, Inc., a federal corporation incorporated under the laws of Canada. Jacada (Europe) Limited owns 100% of the stock of Jacada
Deutschland GmbH, a limited liability company organized under the laws of Germany. Jacada is in the process of organizing two additional subsidiaries in Brazil and Mexico; when the organization is completed, 100% of the stock of each such subsidiary
will be owned by Jacada.



|D. |  | Property and Equipment
|-- |  | ----------------------



As of December 31, 2002, our headquarters and principal administrative, research and development operations were located in approximately
16,000 square feet of leased office space in Herzliya, Israel. The lease expires in March 2007.



In the United States, we lease approximately 18,000 square feet in Atlanta, Georgia which we utilize for administration, marketing, sales, service and technical support. The lease expires in June 2004.
In addition, we lease approximately 5,100 square feet in Brooklyn Park, Minnesota which we use for research and development, sales, and technical support. The lease expires in September 2007. We also lease office space in Miami, Florida, Bellevue,
Washington and Chicago, Illinois which we utilize for marketing and sales.



We currently lease office space in England, Germany, Brazil and Mexico which we utilize for sales, marketing and services. These leases are renewable on an annual basis.



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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. 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 and our subsidiaries 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 and our 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. We derive our revenues from license fees for our products, fees from
consulting and training and from maintenance and support. We sell licenses to our customers primarily through our direct sales force and indirectly through resellers. Both our customers and our resellers are considered end users. We are also
entitled to revenues from some resellers upon the sublicensing of the software to end users. Revenues from these sublicensing transactions are recognized when such revenues are paid to us upon the sublicensing of the software by the resellers.



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.



Revenues from royalties are recognized when such royalties are paid to us, and our subsidiaries, by the resellers.



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Maintenance
and support revenue included in multiple element arrangements is deferred and recognized on a straight-line basis over the term of the maintenance and support agreement.



Transactions that include consulting and training services are evaluated to determine whether those services
are essential to the functionality of other elements of the transaction. When services are not considered essential, the revenue allocable to the software services is recognized as the services are performed. To date, we have determined that the
consulting and training services are not considered essential to the functionality of other elements of the transaction.



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.



For further discussion of our revenue recognition policy, see below under Critical Accounting Policies.



Cost of software license revenues consists of
royalties, including payments to the Office of the Chief Scientist of the State of Israel, amortization of acquired technology, commissions, and costs of duplicating media and documentation. Cost of service and maintenance revenues consists of
compensation expense, related overhead and subcontractors costs for personnel engaged in training, consulting, support and maintenance services for our customers.



We have incurred substantial research and development costs and have invested heavily in the expansion of our
sales and marketing and professional services organizations to build an infrastructure to support our long-term growth strategy. Our full-time employees increased from 21 as of January 1, 1995 to 156 as of December 31, 2002. At times, the number of
full-time employees during 2002 exceeded 156 persons; however, we reduced our workforce in July 2002, in an effort to contain our costs during the economic downturn.



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 do not incur material costs between the time of completion of development of a software product
and the point at which the product is ready for general release, development costs are charged to the statement of operations as incurred.



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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, 2002, 2001, and 2000 were immaterial.



Recently Issued Accounting Pronouncements



For a discussion of applicable recently issued accounting pronouncements, see Note 2 to our financial
statements included in Item 18 below.



Critical Accounting
Policies



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



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



Revenues. Our revenue recognition policy is significant because our revenues are a key component of our results of operations. Revenue results are difficult to predict, and any shortfall in revenues or delay in recognizing
revenues could cause our operating results to vary significantly from quarter to quarter and could result in future operating losses. In addition, our revenue recognition determines the timing of certain expenses, such as commissions and royalties.
We follow very specific and detailed guidelines in measuring revenues, however, certain judgments affect the application of our revenue policy. Our revenues are principally derived from the licensing of our software and the provision of related
services. We recognize revenues in accordance with SOP 97-2 as amended and modified by SOP 98-9. Revenues from software license fees are recognized when persuasive evidence of an arrangement exists, either by written agreement or a purchase order
signed by the customer, the software product has been delivered, the license fees are fixed and determinable, and collection of the license fees is considered probable. License fees from software arrangements which involve multiple elements, such as
post-contract customer support, consulting and training, are allocated to each



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element of the arrangement based on the relative fair values of the elements. We determine the fair value of each element in multiple-element
arrangements based on VSOE.



In judging the
probability of collection of software license fees we continuously monitor collection and payments from our customers and maintain a provision for estimated credit losses based upon our historical experience and any specific customer collection
issues that we have identified. In connection with customers with whom we have no previous experience, we may utilize independent resources to evaluate the creditworthiness of those customers. For some customers, typically those with whom we have
long-term relationships, we may grant extended payment terms. We perform on-going credit evaluations of our customers and adjust credit limits based upon payment history and the customers current creditworthiness, as determined by our review
of their current credit information. If the financial situation of any of our customers were to deteriorate, resulting in an impairment of their ability to pay the indebtedness they incur with us, additional allowances may be required.



Our software products do not require significant customization
or modification. Service revenues include post-contract customer support, consulting and training. Post-contract customer support arrangements provide for technical support and the right to unspecified upgrades on an if-and-when-available basis.
Revenues from those arrangements are recognized ratably over the term of the arrangement, usually one year. Consulting services and training are recognized on a time and material basis as the services are provided.



Impairment of long-lived assets. We and our
subsidiaries long-lived assets and certain identifiable intangibles are reviewed for impairment in accordance with Statement of Financial Accounting Standard No.144 Accounting for the Impairment or Disposal of Long-Lived Assets
(SFAS No.144) whenever events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be recoverable. Recoverability of an asset or group of assets to be held and used is measured by a
comparison of the carrying amount of an asset or group of assets to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the assets. We have performed impairment tests on our long-lived assets and as of December 31, 2002, no impairment losses have been identified.



Goodwill. Under Statement of Financial Accounting
Standard No.142, Goodwill and Other Intangible Assets (SFAS No, 142) goodwill acquired in a business combination which closes on or after July 1, 2001 is deemed to have indefinite life and will not be amortized. SFAS No.142
requires goodwill to be tested for impairment on adoption and at least annually thereafter or between annual tests in certain circumstances, and written down when impaired, rather than being amortized as previous accounting standards required.
Goodwill is tested for impairment by comparing the fair value of the reporting unit with its carrying value. Fair value is determined using market multiples and comparative analysis. Significant estimates used in the methodologies include estimates



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of market multiples for the reportable unit. We have performed impairment tests and determined that our goodwill of $4.6 million is not
subject to an impairment charge as of year end 2002.



Our historical operating results for the years ended December 31, 2002, 2001 and 2000 as a percentage of net revenues are as follows:



|                                              |  | Year Ended December 31, |   
|--------------------------------------------- |  | ----------------------- | --
|                                              |  | 2002                    |   
|Revenues:                                     |  |                         |   
|Software licenses                             |  | 45.4                    | % 
|Services                                      |  | 21.0                    |   
|Maintenance                                   |  | 33.6                    |   
|                                              |  |                         |   
|Total revenues                                |  | 100.0                   | % 
|Cost of revenues:                             |  |                         |   
|Software licenses                             |  | 1.1                     |   
|Services                                      |  | 14.5                    |   
|Maintenance                                   |  | 5.8                     |   
|                                              |  |                         |   
|Total cost of revenues                        |  | 21.4                    |   
|                                              |  |                         |   
|Gross profit                                  |  | 78.6                    |   
|Operating expenses:                           |  |                         |   
|Research and development                      |  | 28.7                    |   
|Sales and marketing                           |  | 43.9                    |   
|General and administrative                    |  | 21.4                    |   
|Restructuring and other non recurring charges |  | 2.3                     |   
|                                              |  |                         |   
|Total operating expenses                      |  | 96.3                    |   
|                                              |  |                         |   
|Operating loss                                |  | (17.7                   | ) 
|Financial and other income (expense), net     |  | 4.2                     |   
|                                              |  |                         |   
|Income (loss) before income taxes             |  | (13.5                   | ) 
|Income taxes                                  |  | 0.0                     |   
|                                              |  |                         |   
|Net income (loss)                             |  | (13.5                   | )%
|                                              |  |                         |   



Years Ended December
31, 2002, 2001 and 2000



Revenues and Cost of
Revenues



Revenues.Revenues were $21.5 million, $25.5 million and $25.1 million for the years ended December 31, 2002, 2001 and 2000, respectively. The decrease in total revenues in 2002 in relation to the two prior years is primarily due to sluggish global
economic conditions. For the year ended December 31, 2002, no customer represented 10% or more of our revenues, while for the years ended December 31, 2001 and 2000, there were one and two such customers, respectively.



Software license revenues were $9.8 million, or 45.4% of
revenues for the year ended December 31, 2002, compared to $10.9 million, or 42.8% of revenues, for the year ended December 31, 2001, and compared to $15.5 million, or 61.7% of revenues, for the year ended December 31, 2000. The reduction in
software revenues during 2002 and 2001 is directly related to the continuing downturn in global economic conditions, as a



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result of which many customers delayed purchases or placed smaller initial orders for our software products. In addition, during 2002 and
2001, increased pricing pressures as a result of our competitors reducing their prices and of customers more aggressively seeking more favorable prices also impacted overall software revenues.



Service revenues were $4.5 million or 21.0% of revenues for
the year ended December 31, 2002 compared to $9.0 million or 35.2% of revenues, for the year ended December 31, 2001 and compared to $6.1 million or 24.2% of revenues for the year ended December 31, 2000. Service revenues are generated primarily
from supporting customers during the implementation of projects, including our software products. As a result, service revenues decreased in 2002 due to a decline in our software revenues and to a decrease in average rates charged for services, as
we experienced a greater degree of competition from customers in house technical resources.



Maintenance revenues were $7.2 million or 33.6% of revenues for the year ended December 31, 2002 compared to $5.6 million or 22.0% of
revenues, for the year ended December 31, 2001 and compared to $3.5 million or 14.1% of revenues for the year ended December 31, 2000. The increase in maintenance revenues during 2002 was primarily related to our expanding customer base and related
annual maintenance renewals.



Cost of
Revenues.Cost of revenues was $4.6 million, or 21.4% of revenues for the year ended December 31, 2002 compared to $7.1 million, or 27.7% of revenues, for the year ended December 31, 2001 and compared to $5.9 million, or 23.6% of revenues, for
the year ended December 31, 2000. The changes in cost of revenues during these periods were primarily due to changes in the costs of service and maintenance revenues, discussed below, which together comprise 93% of total cost of revenues.



Cost of software license revenues was $0.3
million, or 1.1% of revenues, for the year ended December 31, 2002 compared to $0.5 million, or 2.0% of revenues, for the year ended December 31, 2001 and compared to $0.7 million, or 2.9% of revenues, for the year ended December 31, 2000. The
decrease in cost of software license revenues is due to a decrease in payment of royalties to the Office of the Chief Scientist with respect to certain products and amortization of acquired technology.



Cost of service revenues was $3.1 million, or 14.5% of
revenues, for the year ended December 31, 2002, compared to $4.9 million, or 19.0% of revenues, for the year ended December 31, 2001 and $3.6 million, or 14.4% of revenues, for the year ended December 31, 2000. The decrease in cost of service
revenues during 2002 was primarily due to the decrease in service revenues and utilization for the period, as we adjusted the number of service professionals in relation to actual and anticipated near term business levels.



Cost of maintenance revenues was $1.2 million, or 5.8% of
revenues, for the year ended December 31, 2002, compared to $1.7 million, or 6.7% of revenues, for the year ended December 31, 2001 and $1.6 million, or 6.3% of revenues, for the year ended December 31, 2000. The decline in cost of maintenance, as a
percentage of maintenance



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revenues for 2002, is related to efficiencies gained from providing support to an expanding customer base.



Operating Expenses



The changes in total operating expenses to $20.2 million in
2002 from $26.7 million in 2001 and from $21.5 million in 2000, exclusive of non-recurring expenses, were primarily due to changes in manpower and related costs in support of actual and projected business levels. We experienced compounded annual
growth rates in excess of 60% during the years prior to 2001 and had similar growth expectations built into our 2001 business plan. The impact of the global economic slowdown did not affect Jacada until late in the second quarter of 2001. As we
gained an understanding of the impact of the slow down in the global economy and the anticipated impact on our business, we implemented a restructuring and cost reduction plan described in Restructuring below. The restructuring moves were at least
partially responsible for reducing operating expenses (excluding non-recurring charges) as a percentage of revenues to 94.0% in 2002 compared to 104.6% in 2001.



Research and Development.Research and development expenses were $6.2 million, $6.4 million, and $5.0
million for the years ended December 31, 2002, 2001 and 2000, respectively. The increase during 2001 was attributable to the acquisition of Propelis and to increased development programs, quality assurance and documentation, and amortization of
capitalized technology associated with acquisitions. As part of our restructuring, we re-focused our development efforts and began supplementing internal development efforts with acquired technology. During the 2002 fourth quarter we
acquired technology components for incorporation into our future product suite resulting in approximately $0.4 million of incremental expense, partially offsetting some of our expense reduction efforts. As a percentage of total revenues, research
and development expenses were 28.7%, 25.2%, and 19.8% for the years ended December 31, 2002, 2001 and 2000, respectively. The increase in percentage of total 2002 revenues represented by research and development expenses was due to the decline in
revenues, which was not offset by the same decrease in research and development expenses.



Sales and Marketing.Sales and marketing expenses were $9.4 million, $14.6 million and $12.9 million for the years ended December 31, 2002, 2001 and 2000, respectively. The changes during these
periods were attributable to changes in our sales and marketing personnel in support of business levels, the impact of different revenue levels on variable compensation costs, such as sales commissions and to increased spending on marketing programs
aimed at increasing our brand awareness. As a percentage of total revenues, sales and marketing expenses were 43.9%, 57.2% and 51.2% for the years ended December 31, 2002, 2001 and 2000, respectively.



General and Administrative.General and administrative
expenses were $4.6 million, $5.7 million and $3.6 million for the years ended December 31, 2002, 2001 and 2000, respectively. The changes in general and administrative expenses were in part due to changes in the number of personnel and related
overhead required in support of our operations during the 2000 to 2002 periods. During 2001, we also increased our reserve



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for potential non-collectable trade receivables associated with the worsening global economy. As a percentage of total revenues, general and
administrative expenses were 21.4%, 22.2% and 14.4% of total revenues for the years ended December 31, 2002, 2001 and 2000, respectively.



Restructuring and other Non-Recurring Charges. During 2002 we recorded a charge in the amount of $0.5 million, or 2.3% of revenues,
associated primarily with a reduction in work force as part of the July 2002 restructuring plan discussed below. During 2001, we recorded a charge of $2.8 million, or 11.2% of revenues, including charges associated with an arbitration award ($0.2
million), the write-off of previously acquired technology ($1.2 million) and the cost of our fourth quarter 2001 restructuring plan ($1.4 million). Each of these charges is discussed in more detail below.



Arbitration Charge. In August 1999 a former distributor
filed an arbitration complaint against one of our subsidiaries, alleging, among other things, that the subsidiary breached its agreement with such distributor by directly selling our products to a customer which the distributor claimed that it had
the exclusive right to sell, entitling the distributor to damages. 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 $392,000, including
costs, to date and 50% of amounts collected from the customer in the future. We had previously established a reserve for a potential settlement of $125,000, representing an amount equal to the limitation of liability clause in the agreement. As a
result of the award, we recorded a charge in the first quarter of 2001 of $417,000, representing the award to date plus $150,000 for amounts billed to the customer, less the reserve previously recorded. During the fourth quarter of 2001, we reduced
the reserve by $150,000 based on the customers failure to pay the amounts billed during the first quarter of 2001.



We have appealed the decision of the arbitrators on the grounds that the decision did not cap the subsidiarys exposure to the amount
set forth in the limitation of liability provision of the agreement. In the interim, pursuant to the arbitrators decision, we have accrued and will accrue on a prospective basis as a selling expense an amount equal to 50% of amounts collected
from the customer that relate to the agreement that was the subject of the arbitration proceeding.



Technology Write Off. During the third quarter of 2001 and as part of our 2001 restructuring, we revised our product development
plan and abandoned the use of technology previously acquired for use in the product development cycle. As a result, we wrote off unamortized technology in the amount of $1.2 million during 2001.



Restructuring. As a result of the downturn in global
economic conditions, the resulting decline in overall business levels and the related impact on our operations, we implemented two worldwide restructuring and cost reduction plans, first during the fourth quarter of 2001 and again in the third
quarter of 2002. The plans included the elimination of approximately 45% of our worldwide workforce on a cumulative basis and a general reduction in all operating expenses. Mainly as a result of implementing the plan, by year-end 2002, total
employment was reduced to 156 from a peak of 273 in September 2001.



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During 2002, total costs and expenses, excluding non-recurring expenses, were reduced by approximately $9.0 million. The cost of implementing
the restructuring plans was $1.4 million in 2001 and $0.5 million in 2002.



Financial Income (Expense), Net.Net financial income was $0.9 million for the year ended December 31, 2002, $2.3 million for the year ended December 31, 2001 and $3.1 million for the year ended
December 31, 2000. In October 1999, we raised approximately $51 million, net of expenses, in an initial public offering. We maintained most of the funds raised in the public offering throughout 2000 and the first half of 2001. In August 2001 we used
approximately $6.9 million for the acquisition of certain assets of Propelis Software, Inc., a business unit of Computer Network Technology Corporation, and related expenses. Most of the financial income was generated from investments of our funds
in certain financial instruments, which generate interest and investment income. The decline is also associated with a general reduction in interest rates during the 2000 to 2002 periods.



Income Taxes.As of December 31, 2002, we had approximately $6.0 million of net operating loss
carryforward for Israeli tax purposes, approximately $0.8 million of net operating loss carryforward for German tax purposes, approximately $4.2 million of net operating loss carryforward for United States federal tax purposes and approximately $4.9
million of net operating loss carryforward for United Kingdom tax purposes. The carryforwards are available to offset future taxable income. The United States net operating loss carryforward expires in various amounts between the years 2010 and
2022. The Israeli and the United Kingdom net operating loss carryforwards have no expiration date.



Net Income (Loss). As a result of the above factors, our operations resulted in net losses of $2.9 million in 2002 and $8.8 million
in 2001. In 2000, we generated net income of $0.8 million.



|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, 2002, we had $41.4 million in cash and investments, all of which were interest bearing. During 2002, operating activities provided approximately $0.2 million in cash. One of the major components providing cash
during 2002 was a reduction in trade receivables of $1.6 million. Our ability to structure transactions to yield upfront payment and our collection efforts have resulted in a decline in trade receivables expressed in days outstanding from 66 in 2001
to 44 in 2002. Other major components providing cash during 2002 included non-cash depreciation and amortization of $1.6 million and the accrued interest and amortization of premium on marketable securities of $0.4 million. Partially offsetting the
provision of cash was the net loss of $2.9 million generated from operations and non-recurring charges and a reduction in accrued expenses and other liabilities of $0.6 million.



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As of December
31, 2001, we had $41.6 million in cash and investments, all of which were interest bearing. During 2001, operating activities used approximately $1.8 million in cash. The major components using cash during 2001 included the net loss of $8.8 million
from operations and non-recurring charges and a reduction in trade payables of $1.6 million. Partially offsetting the use of cash was a reduction in trade receivables of $4.4 million at the end of 2001, the non-cash write-off of acquired technology
of $1.2 million and non-cash depreciation and amortization of $1.5 million. The reduction in trade receivables resulted from a decline in days sales outstanding from 74 in 2000 to 66 in 2001 and from a reduction in fourth quarter 2001 revenues in
relation to fourth quarter 2000 as a result of global economic conditions.



Expenditures on property and equipment were approximately $0.6 million, $1.5 million and $1.7 million for the years ended December 31, 2002, 2001 and 2000, 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 our operations. In addition, during 2001 we invested approximately $6.9 million
in the acquisition of certain assets of Propelis Software, a business unit of Computer Network Technology Corporation, and $0.7 million to license technology for use in product development. The acquisition of certain assets of Anota Ltd. during 2002
did not involve the payment of cash consideration as part of the purchase price.



The purchase price of the acquisitions has been allocated to the assets acquired and the liabilities assumed based on the estimated fair value of such assets at the date of acquisition. The excess of
the purchase price over the estimated fair value of the net assets acquired has been recorded as goodwill. Fair value of assets acquired and liabilities assumed approximate their book value. Fair value of technology rights was determined using the
income approach, which reflects the present value of the projected earnings to be generated by the product which incorporates the technology. Based on the income approach, Propelis technology rights were valued at $1.3 million and determined to have
a remaining life of five years, based on the income approach and the product life cycle. Anota technology rights and customer lists were each valued at $0.2 million and determined to have remaining lives of five and three years, respectively.



We have financed our operations and capital
requirements through the sale of equity securities and bank borrowings in past years. We have a $2.8 million credit facility with two banks, which is secured by substantially all of our assets in Israel. We have borrowed under the facility from time
to time on terms that vary for each borrowing. There were no borrowings outstanding as of December 31, 2002 or 2001 under the facility.



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, acquisitions and other factors. Over the next two years, we expect to devote substantial capital resources to expand our sales
and marketing channels, and to invest in



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research and development activities. We believe our working capital is sufficient for our present requirements.



We are not party to any material off-balance sheet
arrangements.



|                        |  | Payments due by period
|----------------------- |  | ----------------------
|Contractual Obligations |  | Total                 
|Operating Leases        |  | 1,731                 



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 is essential to our strategy of continuing to enhance and expand the capabilities of our
products in order to continue to provide our customers with 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 $6.2 million for the year ended December 31, 2002, $6.4 million for the year ended December 31, 2001 and $5.0 million for the year ended December 31, 2000. As
of December 31, 2002, 2001 and 2000, respectively, we had 49, 62 and 63 employees engaged in our product development activities.



|D. |  | Trend Information
|-- |  | -----------------



We have been affected by global economic conditions in that existing and potential customers are closely monitoring their capital
investments in products such as ours. The early effects of these conditions forced us to temper our business plan objectives and ultimately resulted in a small staff reduction in July 2001 as well as in the restructuring and further staff reductions
in 2002 discussed in part A of this Item 5.



Partially as a response to the economic slowdown in the United States, we increased our focus on non-U.S. sales. We believe that this was one of the reasons for the increase in the percentage of our revenues generated by customers in
Europe from 8.2% in 2001 to 20.3% in 2002. In the last quarter of 2002, we opened offices in Mexico City, Mexico, and in Sao Paulo, Brazil. We intend to continue this focus on non-U.S. sales in



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2003. This strategy may result in our increasingly being subject to risks of international operations. We have also adopted a strategy of
seeking to increase our sales both in and out of the U.S. by utilizing indirect distribution channels.



Our sales cycle generally continues to be at least six months from the date we qualify a prospective customer, but could be longer based
on specific circumstances. We have no backlog of orders, as backlog is not a significant factor in our business.



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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 February 28, 2003:



|Name                   |  | Age |  | Position                                     
|---------------------- |  | --- |  | ---------------------------------------------
|Gideon Hollander(1)(2) |  | 38  |  | Chief Executive Officer and Director         
|Michael J. Potts       |  | 40  |  | President                                    
|Robert C. Aldworth     |  | 50  |  | Chief Financial Officer                      
|David Holmes           |  | 47  |  | Executive Vice President, Sales and Marketing
|Tzvia Broida           |  | 33  |  | Vice President, Finance                      
|Christian Singer       |  | 39  |  | Managing Director, Jacada Deutschland GmbH   
|Michael Warner         |  | 42  |  | Managing Director, Jacada (Europe) Limited   
|Yossie Hollander(1)    |  | 45  |  | Chairman of the Board and Director           
|Amnon Shoham(1)(2)(3)  |  | 45  |  | Director                                     
|Ohad Zuckerman(3)      |  | 38  |  | Director                                     
|Naomi Atsmon(3)        |  | 50  |  | Director                                     

---

|(1) |  | Member of the Executive Committee
|--- |  | ---------------------------------

|(2) |  | Member of the Compensation Committee
|--- |  | ------------------------------------

|(3) |  | Member of the Audit Committee
|--- |  | -----------------------------



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



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 and Jacada have entered into an agreement which
calls for Mr. Potts to resign from his current position with Jacada effective May 31, 2003, and, from that time through the end of 2004, to provide Jacada with advisory services.



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 a 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
publicly held provider of extended stay lodging. From January 1996 to June 1997, he was Chief Operating Officer of L.A. T Sportswear Inc., a publicly held manufacturer and distributor of sporting apparel.



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David
Holmes has been Executive Vice President of Sales and Marketing since December 2002. He served as Senior Vice President, Marketing from June 1998 through December 2002 and as Vice President of Marketing from October 1995 to June 1998. From June
1991 to October 1995, Mr. Holmes was Marketing Director for KnowledgeWare, Inc., later acquired by Sterling Software, Inc. From March 1984 to June 1991, Mr. Holmes was a consultant for Deloitte & Touche.



Tzvia Broidais the Vice President, Finance of 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 accounting firm of Yehuda Ehrlich & Partners. From 1992 to
1994, Mrs. Broida worked as an accountant at the accounting firm of Vexler, Kodenzick & Partners.



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 Stärker GmbH & Co KG, a German Tier 1 automotive supplier with operations on three continents.



Michael Warner has been Managing Director, Jacada (Europe) Limited since August 2001 and Director
Channels of Jacada (Europe) Limited since June 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.



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.



Amnon Shoham
has served as a director since January 1994. Mr. Shoham is the Managing Director of Cedar Advisors Inc., a position he has held since 2001. From 1997 to 2000, Mr. Shoham was the Managing Director of Cedar Financial Advisors (Israel) Ltd. Mr. Shoham
is also associated with Cedar Fund II, a venture fund investing in Israel-related, high technology companies. 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.



Ohad Zuckerman has been a director of Jacada since December 2000. Mr. Zuckerman is the CEO and President of Zeraim Gedera Ltd., an agricultural company which specializes in development and production of vegetable seeds, 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



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company as the Marketing Manager. Mr. Zuckerman served as a member of the board of directors at Maximal Innovative Intelligence LTD, a
provider of software for extracting information from data warehouses, from 1998 to 2002.



Naomi Atsmon has served as a director of Jacada since June 2001. Ms. Atsmon served as a Division President of Amdocs Ltd., a provider of information system solutions to communications companies,
from July 1997 to December 2002. From 1994 until 1997, Ms. Atsmon served as a vice president at Amdocs Ltd. Ms. Atsmon has held various positions at Amdocs since 1986.



|B. |  | Compensation
|-- |  | ------------



The aggregate remuneration we paid for the year ended December 31, 2002 to all executive officers as a group (9 persons including our
former CTO, who resigned effective October 2002 and the former president of Jacada, Inc., who resigned effective July 2002), was $1,696,156 in salaries, fees, commissions and bonuses. This amount includes $41,161 set aside or accrued to provide for
pension, retirement or similar benefits provided to our executive officers.



As of May 20, 2003, directors (except the CEO) will receive $750 for each meeting of the board of directors attended and each meeting of a committee of the board of directors attended. Prior to such
date, directors did not receive cash compensation for their service on the board of directors or any committee of the board of directors. In addition, all directors are entitled to be reimbursed for their expenses incurred in connection with the
discharge of their responsibilities as board members, including attending board of directors meetings. Directors also receive options to purchase our ordinary shares.



As of April 30, 2003, options to purchase 1,318,091 ordinary shares granted to our directors and executive
officers (11 persons) under our option plans were outstanding. The weighted average exercise price of these options was $3.24 per share.



|C. |  | Board Practices
|-- |  | ---------------



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 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:



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| |  |  | 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 2004; and
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | Class III directors, whose terms expire at the annual meeting of shareholders to be held in 2005.
| | - |  | -------------------------------------------------------------------------------------------------



Our Class I directors are Amnon Shoham and Ohad Zuckerman. Our
Class II director is Naomi Atsmon. 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 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.



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Audit Committee



Under the Israeli 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 the two external directors we are also required to appoint pursuant to Israeli law. 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 current listing requirements of the Nasdaq National Market, we are required to have at least three independent directors
on our audit committee. We have appointed such audit committee. Pursuant to the Sarbanes-Oxley Act of 2002, the Nasdaq National Market is expected to introducenew listing standards requiring all members of an audit committee to comply with tightened
independence requirements. All three members of our audit committee currently comply with those requirements.



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



In addition, the 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 Fahn Kanne Control
Management Ltd. to serve as our internal auditor.



Compensation Committee



The responsibilities of the compensation committee include reviewing and, as required, approving policies under which compensation is awarded to our executive officers and key managers and overseeing the administration of our
executive compensation programs, including the stock option plans.



The current members of the compensation committee are: Gideon Hollander and Amnon Shoham.



External Directors



Under the 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



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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, Ohad Zuckerman, and Naomi Atsmon are currently
serving as our external directors.



|D. |  | Employees
|-- |  | ---------



As of December 31, 2002, we had 60 employees in Israel, 86 in the United States, 9 in Europe and 1 in Latin America. Of our 156 employees,
49 were engaged in research and development, 40 in sales, marketing and business development, 35 in professional services and technical support and 32 in finance, administration and operations. During fiscal 2002, we reduced our workforce by a total
of 39 primarily through the restructuring implemented in July 2002.



With respect to our Israeli employees, we are subject to Israeli labor laws and regulations. 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, with respect to our Israeli employees, we are subject to provisions of the collective bargaining agreements between the
Histadrut (General Federation of Labor in Israel) 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.
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------



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



We have reserved 5,760,450 ordinary shares under these option plans for issuance upon the exercise of options to be granted to officers, directors, employees and consultants of our subsidiaries. As of December 31, 2002,
options to purchase 3,551,382 ordinary shares were outstanding under the option plans. The weighted average exercise price of options outstanding under our option plans is $3.74 as of December 31, 2002.



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. Generally, options granted under the option plans are 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, 2009, respectively.



Item 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS



|A. |  | Major Shareholders
|-- |  | ------------------



The following table sets forth, to the best of our knowledge, as of May 19, 2003, those shareholders that own 5% or more of our capital
stock.



|Name of Beneficial Owner |  | Number of Shares Owned |  | Percentage
|------------------------ |  | ---------------------- |  | ----------
|Yossie Hollander(1)      |  | 2,144,010              |  | 11.3%     
|Airbus Foundation(2)     |  | 2,025,590              |  | 10.7%     
|Dr. Meir Barel(3)        |  | 1,712,814              |  | 9.1%      
|Gideon Hollander(4)      |  | 1,189,988              |  | 6.4%      

---

|(1) |  | Based on a Directors and Officers Questionnaire submitted to us by Mr. Hollander. Represents 1,341,280 ordinary shares owned individually by Mr. Hollander,
302,670 ordinary shares owned by Mr. Hollanders spouse and 500,060 ordinary shares owned by Dana Hollander Settlement 1991, LLC, a Nevada limited liability company as to which Mr. Hollander is an income beneficiary of a trust holding a 99%
membership interest therein. Does not include an aggregate of 1,549,600 ordinary shares owned indirectly by various trusts, as equity holders of certain foreign entities, as to which Mr. Hollander and/or his children, as beneficiaries of such
trusts, may be deemed to have interests. Any such interest would be in an indeterminable number of the ordinary shares owned indirectly by such trusts. Mr. Hollander disclaims beneficial ownership of any ordinary shares so held by such trusts. We
make no representation as to the accuracy or
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | completeness of the information reported. The address of Mr. Hollander is 400 Perimeter Center Terrace, Suite 100, Atlanta, Georgia 30346.
| | ------------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | Based on a Schedule 13G/A filed with the Commission on January 9, 2003, this amount represents 2,025,590 ordinary shares held by Airbus Foundation. Based on a
Schedule 13G/A filed with the Commission on January 30, 2002, Airbus Foundation held 1,146,300 ordinary shares as of such date. Based on a Schedule 13G filed with the Commission on July 19, 2001, Airbus Foundation held 1,002,500 ordinary shares as
of such date. We make no representation as to the accuracy or completeness of the information reported. The address of Airbus Foundation is c/o Allegemeines, Treuunternehmen, P.O. Box 83, FL  9490 Vaduz, Liechtenstein.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) |  | Based on a Schedule 13G/A filed with the Commission on February 11, 2002, this amount represents ordinary shares held by the following entities of which Dr. Barel is
the sole director and primary owner: (a) 1,038,278 ordinary shares held by SVM Star Venture Capital Management Ltd. (Star Israel) and (b) 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 Dr. Barel is Possartstrasse 9, D-81679, Munich, Germany.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) |  | 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 11 Galgalei Haplada Street, Herzliya, 46722, Israel.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The shareholders that own 5% or more of our capital stock do not have different voting rights.



Based on information available to us, as of May 7, 2003, there were 63 record holders of Jacada shares in the United States, which
represented 42.9% 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 instalments of 2,000 NIS (about $430) beginning in October 2001. The monthly instalments increased to 5,000 NIS
(about $1,100) in February 2002 and to 7,000 NIS (about $1,400) in January 2003. The amount outstanding on such loan on December 31, 2002 was 150,007 NIS (approximately $31,667).



|C. |  | Interests of Expert and Counsel
|-- |  | -------------------------------



Not applicable.



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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 80% of its revenues in
North America and approximately 20% in Europe during the period beginning January 1, 2002 and ending December 31, 2002.



Legal Proceedings



We are, from time to time, a party to legal proceedings that are incidental to our business.



We do not believe that any legal proceeding to which we
currently are a party 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 this Annual Report for the year
2002.



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 and on the Tel Aviv Stock Exchange
(TASE) under the same symbol or its Hebrew equivalent.



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



|Year |  | Period              |  | High |        | Low
|---- |  | ------------------- |  | ---- | ------ | ---
|1999 |  | 10/14/99 - 12/31/99 |  | $    | 37.375 |    
|2000 |  | 01/01/00 - 12/31/00 |  |      | 33.375 |    
|2001 |  | 01/01/01 - 12/31/01 |  |      | 6.300  |    
|2002 |  | 01/01/02 - 12/31/02 |  |      | 3.740  |    



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The following
table shows the high and low market prices on the Nasdaq National Market for our ordinary shares for each financial quarter during our two most recent financial years.



|Period              |  | High |       | Low
|------------------- |  | ---- | ----- | ---
|01/01/01  03/31/01 |  | $    | 6.250 |    
|04/01/01  06/30/01 |  |      | 6.300 |    
|07/01/01  09/30/01 |  |      | 4.240 |    
|10/01/01  12/31/01 |  |      | 3.200 |    
|01/01/02  03/31/02 |  |      | 3.740 |    
|04/01/02  06/30/02 |  |      | 3.500 |    
|07/01/02  09/30/02 |  |      | 2.440 |    
|10/01/02  12/31/02 |  |      | 1.850 |    
|01/01/03  03/31/03 |  |      | 1.710 |    



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



|Month         |  | High |      | Low
|------------- |  | ---- | ---- | ---
|April 2003    |  | $    | 2.12 |    
|March 2003    |  |      | 1.71 |    
|February 2003 |  |      | 1.65 |    
|January 2003  |  |      | 1.52 |    
|December 2002 |  |      | 1.71 |    
|November 2002 |  |      | 1.85 |    



The
following table shows the high and low market prices on the TASE of our ordinary shares in the indicated years. Trading in our shares on the TASE commenced on June 18, 2001. Share prices in the TASE are denominated in New Israeli Shekels (NIS). The
following prices are denominated in U.S. Dollars in accordance with the applicable exchange rate between the U.S. Dollar and the NIS as of December 31, 2002.



|Year |  | Period              |  | High |      | Low
|---- |  | ------------------- |  | ---- | ---- | ---
|2001 |  | 06/18/01 - 12/31/01 |  | $    | 3.88 |    
|2002 |  | 01/01/02 - 12/31/02 |  | $    | 3.48 |    



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



|Period              |  | High |      | Low
|------------------- |  | ---- | ---- | ---
|06/18/01  06/30/01 |  | $    | 3.88 |    
|07/01/01  09/30/01 |  |      | 3.79 |    
|10/01/01  12/31/01 |  |      | 2.91 |    
|01/01/02  03/31/02 |  |      | 3.48 |    
|04/01/02  06/30/02 |  |      | 3.48 |    
|07/01/02  09/30/02 |  |      | 2.12 |    
|10/01/02  12/31/02 |  |      | 1.58 |    
|01/01/03  03/31/03 |  |      | 1.57 |    



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



|Month         |  | High |      | Low
|------------- |  | ---- | ---- | ---
|April 2003    |  | $    | 1.90 |    
|March 2003    |  |      | 1.57 |    
|February 2003 |  |      | 1.54 |    
|January 2003  |  |      | 1.52 |    
|December 2002 |  |      | 1.52 |    
|November 2002 |  |      | 1.58 |    



|B. |  | Plan of distribution
|-- |  | --------------------



Not applicable.



|C. |  | Markets
|-- |  | -------



Our ordinary shares are quoted on the Nasdaq National Market under the symbol JCDA and on the TASE under the same
symbol or its Hebrew equivalent.



|D. |  | Selling Shareholders
|-- |  | --------------------



Not applicable.



|E. |  | Dilution
|-- |  | --------



Not applicable.



|F. |  | Expenses of the Issue
|-- |  | ---------------------



Not applicable.



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Item 10: ADDITIONAL INFORMATION



|A. |  | Share Capital
|-- |  | -------------



Not applicable.



|B. |  | Memorandum and Articles of Association
|-- |  | --------------------------------------



For a copy of our Memorandum of Association and our Articles of Association, 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. In addition, because we are an Israeli company, we are governed by the provisions of the Israeli Companies Law which are
described below along with certain provisions of our governing documents.



Approval of Specified Related Party Transactions



The Israeli Companies Law imposes a duty of care and a duty of loyalty on all of a companys office holders as defined below, including directors and executive officers. The duty of care requires an office holder to act
with the level of care that a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty generally requires an office holder to act in good faith and for the good of the company. An office
holder as defined in the Israeli Companies Law is a director, a general manager, a chief executive officer, a deputy chief executive officer, a vice chief executive officer, other managers directly subordinate to the chief executive officer
and any person who fills one of the above positions without regard to title.



The Israeli Companies Law requires that an office holder of a company promptly disclose any personal interest that he or she may have and all related material information known to him or her, in
connection with any existing or proposed transaction by the company. Once an office holder complies with these disclosure requirements, the board of directors may approve a transaction between the company and the office holder, or a third party in
which an office holder has a personal interest, unless the articles of association provide otherwise. A transaction that is adverse to the companys interest cannot be approved. If the transaction is an extraordinary transaction under the
Israeli Companies Law, then, in addition to any approval stipulated by the articles of association, it also requires audit committee approval before board approval and, in specified circumstances, subsequent shareholder approval. Any transaction
between a company and one of its directors relating to the conditions of the directors service, including in relation to exculpation, insurance or indemnification, or in relation to the terms of the directors service in any other
capacity requires audit committee approval before board approval and subsequent shareholder approval.



The Israeli Companies Law also provides that a director with an interest in an extraordinary transaction brought before the board or the
audit committee for its approval may not vote on the approval and may not be present for the discussion of the issue.



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However, this rule would not apply if a majority of the directors or a majority of the members of the audit committee also possessed an
interest in the transaction.



Rights, Preferences and
Restrictions upon Shares



Our Board of
Directors may from time to time declare, and cause the Company to pay, an interim dividend and final dividend for any fiscal year only out of retained earnings, or earnings derived over the two most recent fiscal years, whichever is higher. Our
articles provide that the final dividend in respect of any fiscal year shall be proposed by the Board of Directors and shall be payable only after the same has been approved by a resolution of the shareholders of the Company, approved by a majority
of the shares voting thereon. However, no such resolution shall provide for the payment of an amount exceeding the amount proposed by the Board of Directors for the payment of such final dividend, and no such resolution or any failure to approve a
final dividend shall affect any interim dividend theretofore declared and paid. The Board of Directors shall determine the time for payment of such dividends, both interim and final, and the record date for determining the shareholders entitled
thereto.



Subject to the provisions of our
articles of association and subject to any rights or conditions attached at that time to any share in the capital of the Company granting preferential, special or deferred rights or not granting any rights with respect to dividends, the profits of
the Company which shall be declared as dividends shall be distributed according to the proportion of the nominal value paid upon account of the shares held at the date so appointed by the Company, without regard to the premium paid in excess of the
nominal value, if any. No amount paid or credited as paid on a share in advance of calls shall be treated as paid on a share.



If the Company is wound up, after satisfying liabilities to creditors, then subject to applicable law and to the rights of the holders of
shares with special rights upon winding up, the assets of the Company available for distribution among the shareholders shall be distributed to them in proportion to their respective holdings.



Holders of ordinary shares have one vote for each fully-paid
share held of record, on every resolution, without regard to whether the vote thereon is conducted by a show of hands, by written ballot or by any other means.



We may, subject to applicable law, issue redeemable shares and redeem the same. In addition, our Board of Directors may, from time to
time, as it, in its discretion, deems fit, make calls for payment upon shareholders in respect of any sum which has not been paid up in respect of shares held by such shareholders.



Under the Israeli Companies Law, the disclosure requirements that apply to an office holder also apply to a
controlling shareholder of a public company. A controlling shareholder includes a shareholder that holds 25% or more of the voting rights in a public company if no other shareholder owns more than 50% of the voting rights in the company.
Extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, and the terms of compensation of a



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controlling shareholder who is an office holder, require the approval of the audit committee, the board of directors and the shareholders of
the company. The shareholder approval requires that: (a) the majority of shares voted at the meeting, including at least one third of the shares of disinterested shareholders voted at the meeting, vote in favor of the transaction; or (b) the total
number of shares of disinterested shareholders voted against the transaction does not exceed one percent of the aggregate voting rights in the company.



The Israeli Companies Law also requires a shareholder to act in good faith towards a company in which he holds shares and towards other
shareholders and to refrain from abusing his power in the company, including in connection with voting at a shareholders meeting on:



| |  |  | Any amendment to the articles of association;
| | - |  | ---------------------------------------------



| |  |  | An increase in the companys authorized capital;
| | - |  | ------------------------------------------------



| |  |  | A merger; or
| | - |  | ------------



| |  |  | Approval of some of the acts and transactions which require shareholder approval.
| | - |  | ---------------------------------------------------------------------------------



A shareholder has the general duty to refrain from depriving other shareholders of their rights. Any
controlling shareholder, any shareholder that knows that it possesses the power to determine the outcome of a shareholder vote and any shareholder that, under the provisions of the articles of associations, has the power to appoint an office holder
in the company, is under a duty to act in fairness towards the company. The Israeli Companies Law does not describe the substance of this duty.



Amendment of Articles



Our articles require, in order to amend the articles, the approval of the holders of at least 75% of the shares represented at a meeting,
in person or by proxy, with the right to vote on the issue. Our articles differ from the Israeli Companies Law in this respect as the law requires only the consent of at least 50% of the voting power of the company represented at a meeting and
voting on the change for amendment of articles of association.



Shareholders Meetings and Resolutions



We are required to hold an annual general meeting of our shareholders once every calendar year, but no later than 15 months after the date of the previous annual general meeting. All meetings other than the annual general meeting of
shareholders are referred to as extraordinary general meetings. Extraordinary general meetings may be called by our board whenever it sees fit, at such time and place, within or without the State of Israel, as it may determine. In addition, the
Israeli Companies Law provides that the board of a public company is required to convene an extraordinary meeting upon the



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request of (a) any two directors of the company or one quarter of the companys board of directors or (b) one or more shareholders
holding, in the aggregate, (i) five percent of the outstanding shares of the company and one percent of the voting power in the company or (ii) five percent of the voting power in the company.



The quorum required by our articles for a meeting of
shareholders consists of at least two shareholders present in person or by proxy who hold or represent between them at least 33.3% of the voting power in our Company. Our articles differ from the Israeli Companies Law in this respect, as under the
Israeli Companies Law only the presence of two shareholders holding at least 25% of the voting power in the Company is required for a quorum. A meeting adjourned for lack of quorum is adjourned to the same day in the following week at the same time
and place or any time and place as the chairman of the meeting decides with the consent of the holders of a majority of the voting power represented at such meeting. At such reconvened meeting, the required quorum consists of any two shareholders
present in person or by proxy.



Our articles
enable our board to fix a record date to allow us to determine the shareholders entitled to notice of, or to vote at, any general meeting of our shareholders. The Israeli Companies Law provides that a record date may not be more than 40 nor less
than four days before the date of the meeting. Each shareholder of record as of the record date determined by the board may vote the shares then held by that shareholder unless all calls and other sums then payable by the shareholder in respect of
its shares have not been paid.



Limitation on Ownership of
Securities



The ownership and voting of our
ordinary shares by non-residents of Israel are not restricted in any way by our articles or by the laws of the State of Israel, except for shareholders who are subjects of countries that are in a state of war with the State of Israel.



Mergers and Acquisitions; Anti-takeover Provisions



The Israeli Companies Law includes provisions allowing
corporate mergers. These provisions require that the board of directors of each company that is party to the merger approve the transaction. In addition, the shareholders of each company must approve the merger by a vote of the 75% of the
companys shares, present and voting on the proposed merger at a shareholders meeting, provided that the merger is not objected to by a majority of the shares represented at the meeting after excluding shares held by the other party to
the merger or any person holding at least a 25% interest in such other party, including related parties or entities under the other partys control.



The Israeli Companies Law does not require court approval of a merger other than in specified situations. However, upon the request of a
creditor of either party to the proposed merger, a court may delay or prevent the merger if it concludes that there exists a reasonable concern that as a result of the merger, the surviving company will be unable to satisfy the obligations of any of
the parties of the merger to their creditors.



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A merger may
not be completed unless at least 70 days have passed from the time that a request for the approval of the merger has been filed with the Israeli registrar of companies. This request may be filed once a shareholder meeting has been called to approve
the merger.



The Israeli Companies Law also
provides that the acquisition of shares in a public company on the open market must be made by means of a tender offer if, as a result of the acquisition, the purchaser would become a 25% shareholder of the company. The rule does not apply if there
already is another 25% shareholder of the company. Similarly, the law provides that an acquisition of shares in a public company must be made by means of a tender offer if, as a result of the acquisition, the purchaser would become a 45% shareholder
of the company, unless there already is a 50% shareholder of the company.



If, following any acquisition of shares, the purchaser would hold 90% or more of the shares of the company, that acquisition must be made by means of a tender offer for all of the target companys shares. An acquirer
who wishes to eliminate all minority shareholders must do so by means of a tender offer and acquire 95% of all shares not held by or for the benefit of the acquirer prior to the acquisition. However, in the event that the tender offer to acquire
that 95% is not successful, the acquirer may not acquire tendered shares if by doing so the acquirer would own more than 90% of the shares of the target company.



Our articles contain provisions which could delay, defer or prevent a change in our control. These provisions
include the staggered board provisions of our articles described above under Item 6 C.



Changes in Capital



Our articles enable us to increase our share capital. Any such changes are subject to the provisions of the Israeli Companies Law and must be approved by a resolution passed by a majority of the holders of at least 75% of our shares
represented, in person or by proxy, at a general meeting voting on such change in the capital. Our articles differ from the Israeli Companies Law in this respect, as under the law changes in capital require approval only of a majority of the voting
power of a company represented at the relevant shareholders meeting and voting thereon.



|C. |  | Material Contracts
|-- |  | ------------------



In August 2001, we acquired from Computer Network Technology Corporation certain assets and assumed certain liabilities related to its
business unit known as Propelis Software pursuant to an Asset Purchase Agreement. The purchase price for Propelis Software was $7,463,000, which includes a warrant issued to Computer Network Technology Corporation to purchase 350,000 ordinary shares
of Jacada, the fair value of which was $500,000. Among the assets we acquired from Computer Network Technology Corporation was the software product now known as Jacada Integrator, as



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well as certain software license, maintenance and support, and consulting services agreements with customers.



On July 31, 2002 we acquired certain assets and assumed
certain liabilities of Anota Ltd. for an aggregate purchase price of approximately $763,000, including acquisition costs of $123,000 paid in cash, issuance of 367,373 our Ordinary Shares at a fair value of $ 640,000 and an earnout arrangement on the
basis of future revenues. These assets include key technology and intellectual property related to thin-client, web-to-host, emulation software for desktop connectivity. These technologies enable organizations to make their business critical
applications easily available over the Web, without installing any software on the host system or client machines.



Other than the foregoing, we have entered into no material contracts outside of the ordinary course of business for the two year period
ending December 31, 2002.



|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 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
|-- |  | --------



The following discussion sets forth the material United States and Israeli tax consequences of the ownership of ordinary shares by a
holder that holds our ordinary shares, as capital assets.



The following discussion does not address the tax consequences to holders of ordinary shares to which special tax rules may apply, such as tax-exempt entities, certain insurance companies, broker-dealers, traders in securities that
elect to mark to market, holders liable for alternative minimum tax, holders that actually or constructively own 10% or more of our voting stock, holders that hold ordinary shares as part of a straddle or a hedging or conversion transaction or
holders whose functional currency is not the U.S. dollar. This discussion also does not apply to holders who acquired their ordinary shares pursuant to the exercise of employee stock options or otherwise as compensation or through a tax-qualified
retirement plan. This discussion is based on the tax laws of Israel and the United States, including the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations under the Internal Revenue Code,



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published rulings and court decisions, as in effect on the date of this document, as well as the Income Tax Treaty Between the United States
of America and Israel, as amended (the Treaty), all of which are subject to change or change in interpretation, possibly with retroactive effect.



For purposes of this discussion, a U.S. holder is any beneficial owner of ordinary shares that is:



a citizen or resident of the United States;



a corporation or other entity taxable as a corporation
organized under the laws of the United states or any political subdivision of the United States;



an estate the income of which is subject to United States federal income taxation without regard to its source; or



a trust if a court within the United States is able to exercise primary supervision over the administration
of the trust and one or more United States persons have the authority to control all substantial decisions of the trust.



This discussion does not address any aspects of United States taxation other than federal income taxation. Holders are urged to consult
their tax advisors regarding the United States federal, state and local and the Israeli and other tax consequences of owning and disposing of ordinary shares.



Information Reporting and Backup Withholding



U.S. information reporting requirements and backup withholding tax generally will apply to payments to some non-corporate holders of
ordinary shares. Information reporting generally will apply to payments of dividends on, and to proceeds from the sale or redemption of, ordinary shares by a payor within the United States to a holder of ordinary shares other than an exempt
recipient, including a corporation and any payee that is not a U.S. Holder that provides an appropriate certification.



A payor within the United States will be required to withhold at the fourth lowest rate of tax applicable to single individual taxpayers
(30% for taxable years beginning in 2003) on any payments of dividends on, or proceeds from the sale of, ordinary shares within the United States to a holder, other than an exempt recipient, if the holder fails to furnish its correct
taxpayer identification number or otherwise fails to comply with, or establish an exemption from, backup withholding tax requirements.



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United
States Federal Income Taxation of Owning and Selling Ordinary Shares.



Dividends and Distributions



U.S. Holders



Subject to the passive foreign investment company rules discussed below, U.S. holders will include in gross income the gross amount of any dividend paid, before reduction of Israeli withholding taxes, by us out of its
current or accumulated earnings and profits, as determined for Untied States federal income tax purposes, as ordinary income when the dividend is actually or constructively received by the U.S. holder. Dividends will be income from sources outside
the United States for foreign tax credit limitation purposes, but generally will be passive income or financial services income, which are treated separately from other types of income for foreign tax credit limitation
purposes. Dividends will not be eligible for the dividends-received deduction generally allowed to United States corporations in respect of dividends received from other United States corporation. The amount of the dividend distribution included in
income of a U.S. holder will be the U.S. dollar value of the NIS payments made, determined at the spot NIS/U.S. dollar rate on the date such dividend distribution is included in the income of the U.S. holder, regardless of whether the payment is in
fact converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend distribution is included in income to the date such dividend distribution is converted into U.S.
dollars will be treated as ordinary income or loss. Such gain or loss will generally be income from sources within the United States for foreign tax credit limitation purposes. Distributions in excess of current and accumulated earnings and profits,
as determined for United States federal income tax purposes, will be treated as a return of capital to the extent of the U.S. holders basis in the ordinary shares and thereafter as capital gain. We will notify our shareholders of any
distribution in excess of current and accumulated earnings and profits at the time of such distribution in accordance with the requirements of the Internal Revenue Code.



Subject to certain limitations, the Israeli tax withheld in accordance with the Treaty and paid over to
Israel will be creditable against the U.S. holders United States federal income tax liability. To the extent a refund of the tax withheld is available to a U.S. holder under the laws of Israel or under the Treaty, the amount of tax withheld
that is refundable will not be eligible for credit against the U.S. holders United States federal income tax liability, whether or not the refund is actually obtained.



Non-U.S. Holders



A non-U.S. holder is not subject to United States federal income tax with respect to dividends paid on
ordinary shares unless the dividends are effectively connected with that non-U.S. holders conduct of a trade or business in the United States, and attributable to a permanent establishment maintained in the United States if that is
required by an applicable income tax treaty as a condition for subjecting that non-U.S.



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holder to United States taxation on a net income basis, or that non-U.S. holder is an individual present
in the United States for at least 183 days in the taxable year of the dividend distribution and certain other conditions are met. In such cases, a non-U.S. holder will be taxed in the same manner as a U.S. holder. A corporate non-U.S. holder may
also, under certain circumstances, be subject to an additional branch profits tax at a 30% rate, or at a lower rate if that corporate non-U.S. holder is eligible for the benefits of an income tax treaty providing for a lower rate, with respect to
gains that are effectively connected with its conduct of a trade of business in the United States.



Sale or Exchange of Ordinary Shares



U.S. Holders



Subject to the passive foreign investment company rules discussed below, a U.S. holder that sells or otherwise disposes of ordinary shares
generally will recognize capital gain or loss for United States federal income tax purposes equal to the difference between the U.S. dollar value of the amount realized on the sale or disposition and the tax basis, determined in U.S. dollars, in the
ordinary shares. Capital gain of a non-corporate U.S. holder is generally taxed at a maximum rate of 20% if the ordinary shares were held for more than one year. The gain or loss will generally be income or loss from sources within the United States
for foreign tax credit limitation purposes.



Non-U.S. Holders



A
non-U.S. holder will not be subject to United States federal income tax on gain recognized on the sale or other disposition of ordinary shares unless the gain is effectively connected with the non-U.S. holders conduct of a trade or
business in the United States, and the gain is attributable to a permanent establishment maintained in the United States if that is required by an applicable income tax treaty as a condition for subjecting that non-U.S. holder to United States
taxation on a net income basis, or the non-U.S. holder is an individual and present in the United States for at least 183 days in the taxable year of the sale and certain other conditions are met. In such cases, a non-U.S. holder will be taxed in
the same manner as a U.S. holder. A corporate non-U.S. holder may also, under certain circumstances, be subject to an additional branch profits tax at a 30% rate, or at a lower rate if eligible for the benefits of an income tax treaty
that provides for a lower rate, on effectively connected gains recognized.



Passive Foreign Investment Company Rules



We believe that our ordinary shares should not be treated as stock of a passive foreign investment company for United States federal income tax purposes, but this conclusion is a factual determination
made annually and may be subject to change. In general, we will be a passive foreign investment company with respect to a U.S. holder if, for any taxable year in which the U.S. holder held ordinary shares, either at least 75% of our gross income for
the taxable year is passive income or at least 50% of the value, determined on the basis of a quarterly average, of our assets is attributable to assets that produce or are held for the production of passive income. If we were to be treated as a



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passive foreign investment company, then unless a U.S. holder makes a mark-to-market election, gain
realized on the sale or other disposition of our ordinary shares would in general not be treated as capital gain. Instead, a U.S. holder would be treated as if the holder had realized such gain and certain excess distributions ratably
over the holders holding period for the shares and would be taxed at the highest tax rate in effect for each such year to which the gain was allocated, together with an interest charge in respect of the tax attributable to each such year.



Israeli Taxation



The following is a summary of the principal tax laws
applicable to companies in Israel, with special reference to their effect on us, and certain Israeli Government programs benefiting us. This section also contains a discussion of certain Israeli tax consequences to persons acquiring ordinary 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%,
although the tax rate on capital gains was lowered to 25% on January 1, 2003. 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



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33.3% per annum of expenses incurred in connection with the issuance of publicly-traded shares over a
period of three years from the time the expenses were incurred.



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



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



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lieu of the foregoing, may participate in an Alternative Benefits Program, under which the undistributed
income from the Approved Enterprise is fully exempt from corporate tax for a defined period of time. The period of tax exemption ranges between two and ten years commencing in the first year in which the company generates taxable income, depending
upon the location within Israel of the Approved Enterprise and the type of the Approved Enterprise. On expiration of the exemption period, the Approved Enterprise would be eligible for the otherwise applicable beneficial tax rates under the Capital
Investments Law, ranging from 10% to 25%, for the remainder, if any, of the otherwise applicable benefits period. There can be no assurance that the current benefit programs will continue to be available or that we will continue to qualify for
benefits under the current programs.



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 the alternative benefits program
which provides for the waiver of grants in return for tax exemption. Accordingly, our income is tax-exempt for a period of two years commencing with the year we first earn taxable income relating to each expansion program, and is subject to
corporate taxes at the reduced rate of 10% to 25%, for an additional period of five years. The exact rate reduction is based on the percentage of foreign ownership in each tax year. See note 9 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



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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 elected to measure our results for tax purposes based on the dollar exchange rate beginning with our tax returns for fiscal year 2003.



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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.



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. 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% on all distributions of dividends, although if the dividend
recipient holds 10% of our voting stock for a certain period prior to the declaration and payment of the dividend, we are only required to withhold at a 12.5% rate. Notwithstanding the foregoing, with regard to dividends generated by an Approved
Enterprise, we are required to withhold income tax at the rate of 15%.



Israeli law generally imposes a capital gains tax on the sale of publicly traded securities. Pursuant to changes made to the Israeli Income Tax Ordinance in January 2003, capital gains on the sale of our ordinary shares will be
subject to Israeli capital gains tax, generally at a rate of 15%. However, as of January 1, 2003 nonresidents of Israel will be exempt from capital gains tax in relation to the sale of our ordinary shares for so long as (a) our ordinary shares are
listed for trading on a stock exchange outside of Israel, (b) the capital gains are not accrued or derived by the nonresident shareholders permanent enterprise in Israel, (c) the ordinary shares in relation to which the capital gains are
accrued or derived were acquired by the nonresident shareholder after the initial listing of the ordinary shares on a stock exchange outside of Israel and (d) neither the shareholder nor the particular capital gain is otherwise subject to certain
sections of the Israeli Income Tax Ordinance. As of January 1, 2003 nonresidents of Israel are also exempt from Israeli capital gains tax resulting from the sale of securities on the Tel Aviv Stock Exchange provided that the capital gains are not
accrued or derived by the nonresident shareholders permanent enterprise in Israel.



In addition, 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 during the 12 months preceding such sale, exchange or other disposition.



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



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from the duty to file tax returns in Israel with respect to such income, provided such income was not
derived from a business conducted in Israel by the taxpayer.



Israel presently has no estate or gift tax.



|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.



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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 North America and sell them
worldwide. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. As most of our sales are currently made in dollars, an increase in the
value of the dollar could make our products less competitive in foreign markets. The foreign currency exchange rate effects for the year ended December 31, 2002, 2001, and 2000 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 securities and dollar deposits with banks. These investments typically
carry fixed interest rates. Until September 2001 our marketable securities were designated under FAS 115 as held-to-maturity marketable securities. As a result of unexpected events, we sold our held-to-maturity marketable securities. As of December
31, 2002, our marketable securities were designated as available for sale. If we hold these securities to the maturity date, financial income over the holding period is not sensitive to changes in interest rates.



As of December 31, 2002, 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.



PART II



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.



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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.



The net proceeds that we received as a result of the offering
were $50,568,390. As of December 31, 2002, the net proceeds have been used to invest in a variety of financial instruments and for general corporate purposes. More specifically, a portion of the proceeds, $6.9 million, was used to purchase certain
assets of Propelis Software, Inc., a business unit of Computer Network Technology Corporation. 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 15: CONTROLS AND PROCEDURES



During the 90 day period prior to the filing of this annual report, we performed an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer (CEO) and Chief Financial
Officer (CFO), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended). Following that evaluation, our management,
including the CEO and CFO, concluded that based on the evaluation, the design and operation of our disclosure controls and procedures were effective at that time. Since the evaluation, there have been no significant changes in our internal controls
or in factors that could significantly affect internal controls, including, because we have not identified any significant deficiencies or material weaknesses in our internal controls, any corrective actions with regard to significant deficiencies
and material weaknesses.



Item 16A: AUDIT COMMITTEE FINANCIAL EXPERT



Not yet applicable



Item 16B: CODE OF ETHICS



Not yet applicable



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PART III



Item 17: FINANCIAL STATEMENTS



See Item 18.



Item 18: FINANCIAL STATEMENTS



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JACADA LTD.
AND ITS SUBSIDIARIES



CONSOLIDATED
FINANCIAL STATEMENTS



AS OF DECEMBER 31,
2002



IN U.S. DOLLARS



INDEX



|                                              |  | Page   
|--------------------------------------------- |  | -------
|Report of Independent Auditors                |  | 65     
|                                             
|Consolidated Balance Sheets                   |  | 66 - 67
|                                             
|Consolidated Statements of Operations         |  | 68     
|                                             
|Statements of Changes in Shareholders Equity |  | 69     
|                                             
|Consolidated Statements of Cash Flows         |  | 70 - 71
|                                             
|Notes to Consolidated Financial Statements    |  | 72 - 96





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[GRAPHIC APPEARS HERE]



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, 2002 and 2001 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, 2002. 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 auditing standards
generally accepted 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, 2002 and 2001 and the consolidated results of their operations and cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States.



|Tel-Aviv, Israel |  | KOST FORER & GABBAY               
|---------------- |  | ----------------------------------
|January 26, 2003 |  | A Member of Ernst and Young Global



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JACADA LTD.



CONSOLIDATED BALANCE SHEETS

U.S. Dollars in thousands



|                                                                                                                            |  | December 31,
|--------------------------------------------------------------------------------------------------------------------------- |  | ------------
|                                                                                                                            |  | 2002        
|ASSETS                                                                                                                      |  |             
|CURRENT ASSETS:                                                                                                             |  |             
|Cash and cash equivalents                                                                                                   |  | $           
|Marketable securities                                                                                                       |  |             
|Trade receivables (net of allowance for doubtful accounts of $ 398 and $ 1,022 at
December 31, 2002 and 2001, respectively) |  |             
|Other current assets                                                                                                        |  |             
|                                                                                                                            |  |             
|Total current assets                                                                                                        |  |             
|                                                                                                                            |  |             
|LONG-TERM INVESTMENTS:                                                                                                      |  |             
|Marketable securities                                                                                                       |  |             
|Severance pay fund                                                                                                          |  |             
|Other long-term assets                                                                                                      |  |             
|                                                                                                                            |  |             
|Total long-term investments                                                                                                 |  |             
|                                                                                                                            |  |             
|PROPERTY AND EQUIPMENT, NET                                                                                                 |  |             
|                                                                                                                            |  |             
|OTHER ASSETS, NET:                                                                                                          |  |             
|Technology (net of accumulated amortization of $ 381 and $ 95 at December 31, 2002 and
2001, respectively)                  |  |             
|Other intangibles, net (net of accumulated amortization of $ 23 and $ 0 at December 31,
2002 and 2001, respectively)        |  |             
|Goodwill                                                                                                                    |  |             
|                                                                                                                            |  |             
|Total other assets                                                                                                          |  |             
|                                                                                                                            |  |             
|                                                                                                                            |  | $           
|                                                                                                                            |  |             



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



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JACADA LTD.



CONSOLIDATED BALANCE SHEETS

(A) U.S. Dollars in thousands, except for share and per share data



|                                                                                                                                                                        |  | December 31, |        
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | -------
|                                                                                                                                                                        |  | 2002         |        
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                    |  |              |        
|CURRENT LIABILITIES:                                                                                                                                                    |  |              |        
|Trade payables                                                                                                                                                          |  | $            | 760    
|Deferred revenues                                                                                                                                                       |  |              | 2,144  
|Accrued expenses and other liabilities                                                                                                                                  |  |              | 3,599  
|                                                                                                                                                                        |  |              |        
|Total current liabilities                                                                                                                                               |  |              | 6,503  
|                                                                                                                                                                        |  |              |        
|LONG-TERM LIABILITIES:                                                                                                                                                  |  |              |        
|Accrued severance pay                                                                                                                                                   |  |              | 927    
|Accrued expenses                                                                                                                                                        |  |              | 124    
|                                                                                                                                                                        |  |              |        
|Total long-term liabilities                                                                                                                                             |  |              | 1,051  
|                                                                                                                                                                        |  |              |        
|SHAREHOLDERS EQUITY:                                                                                                                                                   |  |              |        
|Share capital:                                                                                                                                                          |  |              |        
|Ordinary shares of NIS 0.01 par value:                                                                                                                                  |  |              |        
|Authorized: 30,000,000 shares as of December 31, 2002 and 2001; Issued and outstanding:
18,935,903 and 18,537,704 shares as of December 31, 2002 and 2001, respectively |  |              | 55     
|Additional paid-in capital                                                                                                                                              |  |              | 69,143 
|Deferred stock compensation                                                                                                                                             |  |              | (25    
|Accumulated other comprehensive income                                                                                                                                  |  |              | 81     
|Accumulated deficit                                                                                                                                                     |  |              | (22,790
|                                                                                                                                                                        |  |              |        
|Total shareholders equity                                                                                                                                              |  |              | 46,464 
|                                                                                                                                                                        |  |              |        
|                                                                                                                                                                        |  | $            | 54,018 
|                                                                                                                                                                        |  |              |        



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



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JACADA LTD.



CONSOLIDATED STATEMENTS OF OPERATIONS

U.S. Dollars in thousands, except for share data



|                                                |  | Year ended December 31, |       
|----------------------------------------------- |  | ----------------------- | ------
|                                                |  | 2002                    |       
|Revenues:                                       |  |                         |       
|Software licenses                               |  | $                       | 9,783 
|Services                                        |  |                         | 4,518 
|Maintenance                                     |  |                         | 7,235 
|                                                |  |                         |       
|Total revenues                                  |  |                         | 21,536
|                                                |  |                         |       
|Cost of revenues:                               |  |                         |       
|Software licenses                               |  |                         | 248   
|Services                                        |  |                         | 3,115 
|Maintenance                                     |  |                         | 1,247 
|                                                |  |                         |       
|Total cost of revenues                          |  |                         | 4,610 
|                                                |  |                         |       
|Gross profit                                    |  |                         | 16,926
|                                                |  |                         |       
|Operating expenses:                             |  |                         |       
|Research and development                        |  |                         | 6,191 
|Sales and marketing                             |  |                         | 9,450 
|General and administrative                      |  |                         | 4,602 
|Restructuring and other non-recurring charges   |  |                         | 501   
|                                                |  |                         |       
|Total operating expenses                        |  |                         | 20,744
|                                                |  |                         |       
|Operating loss                                  |  |                         | (3,818
|Financial income, net                           |  |                         | 909   
|                                                |  |                         |       
|Income (loss) before taxes on income            |  |                         | (2,909
|Taxes on income (benefit)                       |  |                         |      
|                                                |  |                         |       
|Net income (loss)                               |  | $                       | (2,909
|                                                |  |                         |       
|Basic and diluted net earnings (loss) per share |  | $                       | (0.16 
|                                                |  |                         |       



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



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JACADA LTD.



STATEMENTS OF CHANGES IN
SHAREHOLDERS EQUITY

U.S. Dollars in thousands, except for share data



|                                                                            |  | Ordinary shares |  |        | Additionalpaid-incapital |    |  | DeferredStockcompensation |        |   | AccumulatedotherComprehensiveincome |   | Accumulateddeficit |   |  | TotalComprehensiveincome (loss) |    |  | Totalshareholders equity |        
|--------------------------------------------------------------------------- |  | --------------- |  | ------ | ------------------------ | -- |  | ------------------------- | ------ | - | ----------------------------------- | - | ------------------ | - |  | ------------------------------- | -- |  | ------------------------- | -------
|                                                                            |  | Shares          |  | Amount |                          |    |  |                           |        |   |                                    
|Balance as of January 1, 2000                                               |  | 17,610,893      |  | $      | 52                       |    |  | $                         | 66,941 |   |                                     | $ | (272               | ) |  | $                               |   |  | $                         | (11,867
|                                                                           
|Exercise of stock options, net                                              |  | 817,638         |  |        | 2                        |    |  |                           | 958    |   |                                     |   |                   |   |  |                                 |   |  |                           |       
|Cancellation of deferred stock compensation in respect of forfeited
options |  |                |  |        |                         |    |  |                           | (56    | ) |                                     |   | 56                 |   |  |                                 |   |  |                           |       
|Amortization of deferred stock compensation                                 |  |                |  |        |                         |    |  |                           |       |   |                                     |   | 55                 |   |  |                                 |   |  |                           |       
|Net income                                                                  |  |                |  |        |                         |    |  |                           |       |   |                                     |   |                   |   |  |                                 |   |  |                           | 777    
|                                                                            |  |                 |  |        |                          |    |  |                           |        |   |                                     |   |                    |   |  |                                 |    |  |                           |        
|Total comprehensive income                                                  |  |                 |  |        |                          |    |  |                           |        |   |                                     |   |                    |   |  |                                 |    |  |                           |        
|                                                                            |  |                 |  |        |                          |    |  |                           |        |   |                                     |   |                    |   |  |                                 |    |  |                           |        
|Balance as of December 31, 2000                                             |  | 18,428,531      |  |        | 54                       |    |  |                           | 67,843 |   |                                     |   | (161               | ) |  |                                 |   |  |                           | (11,090
|                                                                           
|Exercise of stock options, net                                              |  | 109,173         |  |        |                         | *) |  |                           | 158    |   |                                     |   |                   |   |  |                                 |   |  |                           |       
|Cancellation of deferred stock compensation in respect of forfeited
options |  |                |  |        |                         |    |  |                           | (15    | ) |                                     |   | 15                 |   |  |                                 |   |  |                           |       
|Amortization of deferred stock compensation                                 |  |                |  |        |                         |    |  |                           |       |   |                                     |   | 75                 |   |  |                                 |   |  |                           |       
|Issuance of warrant in respect of the acquisition of Propelis               |  |                |  |        |                         |    |  |                           | 500    |   |                                     |   |                   |   |  |                                 |   |  |                           |       
|Net loss                                                                    |  |                |  |        |                         |    |  |                           |       |   |                                     |   |                   |   |  |                                 |   |  |                           | (8,791 
|                                                                            |  |                 |  |        |                          |    |  |                           |        |   |                                     |   |                    |   |  |                                 |    |  |                           |        
|Total comprehensive loss                                                    |  |                 |  |        |                          |    |  |                           |        |   |                                     |   |                    |   |  |                                 |    |  |                           |        
|                                                                            |  |                 |  |        |                          |    |  |                           |        |   |                                     |   |                    |   |  |                                 |    |  |                           |        
|Balance as of December 31, 2001                                             |  | 18,537,704      |  |        | 54                       |    |  |                           | 68,486 |   |                                     |   | (71                | ) |  |                                 |   |  |                           | (19,881
|                                                                           
|Exercise of stock options, net                                              |  | 30,826          |  |        |                         | *) |  |                           | 43     |   |                                     |   |                   |   |  |                                 |   |  |                           |       
|Cancellation of deferred stock compensation in respect of forfeited
options |  |                 |  |        |                          |    |  |                           | (25    | ) |                                     |   | 25                 |   |  |                                 |   |  |                           |       
|Amortization of deferred stock compensation                                 |  |                |  |        |                         |    |  |                           |       |   |                                     |   | 21                 |   |  |                                 |   |  |                           |       
|Issuance of Ordinary shares in respect of the acquisition of Anota          |  | 367,373         |  |        | 1                        |    |  |                           | 639    |   |                                     |   |                   |   |  |                                 |   |  |                           |       
|Net loss                                                                    |  |                |  |        |                         |    |  |                           |       |   |                                     |   |                   |   |  |                                 |   |  |                           | (2,909 
|Unrealized gains from available for sale marketable securities, net         |  |                |  |        |                         |    |  |                           |       |   |                                     |   |                   |   |  |                                 | 81 |  |                           |       
|                                                                            |  |                 |  |        |                          |    |  |                           |        |   |                                     |   |                    |   |  |                                 |    |  |                           |        
|Total comprehensive loss                                                    |  |                 |  |        |                          |    |  |                           |        |   |                                     |   |                    |   |  |                                 |    |  |                           |        
|                                                                            |  |                 |  |        |                          |    |  |                           |        |   |                                     |   |                    |   |  |                                 |    |  |                           |        
|Balance as of December 31, 2002                                             |  | 18,935,903      |  | $      | 55                       |    |  | $                         | 69,143 |   |                                     | $ | (25                | ) |  | $                               | 81 |  | $                         | (22,790
|                                                                            |  |                 |  |        |                          |    |  |                           |        |   |                                     |   |                    |   |  |                                 |    |  |                           |        

---

|*) |  | Represents an amount lower than $ 1.
|-- |  | ------------------------------------



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



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JACADA LTD.



CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. Dollars in thousands



|                                                                                                            |  | Year ended December 31, |        
|----------------------------------------------------------------------------------------------------------- |  | ----------------------- | -------
|                                                                                                            |  | 2002                    |        
|Cash flows from operating activities:                                                                       |  |                         |        
|Net income (loss)                                                                                           |  | $                       | (2,909 
|Adjustments required to reconcile net income (loss) to net cash provided by (used in)
operating activities: |  |                         |        
|Depreciation and amortization                                                                               |  |                         | 1,619  
|Write-off of Precise Technology                                                                             |  |                         |       
|Amortization of deferred stock compensation                                                                 |  |                         | 21     
|Accrued interest on short-term bank deposits                                                                |  |                         |       
|Accrued interest and amortization of premium and discount on marketable
securities                          |  |                         | 356    
|Gain on sales of marketable securities                                                                      |  |                         | (6     
|Decrease (increase) in accrued interest on other long-term assets                                           |  |                         | 17     
|Increase (decrease) in accrued severance pay, net                                                           |  |                         | (49    
|Decrease (increase) in trade receivables                                                                    |  |                         | 1,607  
|Decrease (increase) in other current assets                                                                 |  |                         | (36    
|Increase (decrease) in trade payables                                                                       |  |                         | (29    
|Increase (decrease) in deferred revenues                                                                    |  |                         | 57     
|Increase (decrease) in accrued expenses and other liabilities                                               |  |                         | (637   
|Increase in long-term accrued expenses                                                                      |  |                         | 124    
|Other                                                                                                       |  |                         | 75     
|                                                                                                            |  |                         |        
|Net cash provided by (used in) operating activities                                                         |  |                         | 210    
|                                                                                                            |  |                         |        
|Cash flows from investing activities:                                                                       |  |                         |        
|Investment in short-term bank deposits                                                                      |  |                         | (7,133 
|Proceeds from sale of short-term bank deposits                                                              |  |                         | 7,133  
|Investment in held to maturity marketable securities                                                        |  |                         |       
|Investment in available for sale marketable securities                                                      |  |                         | (95,886
|Redemption of held to maturity marketable securities                                                        |  |                         |       
|Proceeds from sale and redemption of available for sale of marketable
securities                            |  |                         | 105,214
|Proceeds from sale of held to maturity marketable securities                                                |  |                         |       
|Purchase of property and equipment (b)                                                                      |  |                         | (613   
|Payment in respect of other assets                                                                          |  |                         |       
|Proceeds from sale of property and equipment                                                                |  |                         | 213    
|Investment in other long-term assets                                                                        |  |                         | (18    
|Cash with respect of Propelis acquisition (c)                                                               |  |                         |       
|Cash with respect of Anota acquisition, net of cash acquired (d)                                            |  |                         | 28     
|Other                                                                                                       |  |                         | 146    
|                                                                                                            |  |                         |        
|Net cash provided by (used in) investing activities                                                         |  |                         | 9,084  
|                                                                                                            |  |                         |        
|Cash flows from financing activities:                                                                       |  |                         |        
|Exercise of stock options, net                                                                              |  |                         | 43     
|Payment of principal of long-term debt                                                                      |  |                         |       
|                                                                                                            |  |                         |        
|Net cash provided by financing activities                                                                   |  |                         | 43     
|                                                                                                            |  |                         |        
|Increase (decrease) in cash and cash equivalents                                                            |  |                         | 9,337  
|Cash and cash equivalents at the beginning of the year                                                      |  |                         | 5,982  
|                                                                                                            |  |                         |        
|Cash and cash equivalents at the end of the year                                                            |  | $                       | 15,319 
|                                                                                                            |  |                         |        



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



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JACADA LTD.



CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. Dollars in thousands



|                                                  |  |                                                                                                                                                                                                                                                                                                                            |  | Year ended December 31,
|------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------
|                                                  |  |                                                                                                                                                                                                                                                                                                                            |  | 2002                   
|Supplemental disclosure of cash flows activities: |  |                                                                                                                                                                                                                                                                                                                            |  |                        
|                                                 
|(a)                                               |  | Cash paid during the year for:                                                                                                                                                                                                                                                                                             |  |                        
|                                                 
|                                                  |  | Interest and charges                                                                                                                                                                                                                                                                                                       |  | $                      
|                                                  |  |                                                                                                                                                                                                                                                                                                                            |  |                        
|                                                 
|(b)                                               |  | Non-cash activities:                                                                                                                                                                                                                                                                                                       |  |                        
|                                                 
|                                                  |  | Purchase of property and equipment                                                                                                                                                                                                                                                                                         |  | $                      
|                                                  |  |                                                                                                                                                                                                                                                                                                                            |  |                        
|                                                  |  | Purchase of Precise technology                                                                                                                                                                                                                                                                                             |  | $                      
|                                                  |  |                                                                                                                                                                                                                                                                                                                            |  |                        
|                                                 
|(c)                                               |  | In August 2001, the Company and its subsidiaries acquired certain assets and
assumed certain liabilities of Propelis Software, Inc., a business unit of Computer Network Technology Corporation. The estimated net fair value of the assets acquired and liabilities assumed as of the date of acquisition was as
follows: |  |                        
|                                                 
|                                                  |  | Working capital, excluding cash and cash equivalents                                                                                                                                                                                                                                                                       |  |                        
|                                                  |  | Property and equipment                                                                                                                                                                                                                                                                                                     |  |                        
|                                                  |  | Goodwill                                                                                                                                                                                                                                                                                                                   |  |                        
|                                                  |  | Propelis technology                                                                                                                                                                                                                                                                                                        |  |                        
|                                                  |  |                                                                                                                                                                                                                                                                                                                            |  |                        
|                                                  |  |                                                                                                                                                                                                                                                                                                                            |  |                        
|                                                  |  | Lessamounts acquired by issuance of warrant                                                                                                                                                                                                                                                                               |  |                        
|                                                  |  |                                                                                                                                                                                                                                                                                                                            |  |                        
|                                                  |  |                                                                                                                                                                                                                                                                                                                            |  |                        
|                                                  |  |                                                                                                                                                                                                                                                                                                                            |  |                        
|(d)                                               |  | In July 2002, the Company acquired certain assets and assumed certain
liabilities of Anota Ltd. The estimated net fair value of the assets acquired and liabilities assumed as of the date of acquisition was as follows:                                                                                                  |  |                        
|                                                 
|                                                  |  | Working capital deficiency, excluding cash and cash equivalents                                                                                                                                                                                                                                                            |  | $                      
|                                                  |  | Property and equipment                                                                                                                                                                                                                                                                                                     |  |                        
|                                                  |  | Other intangibles                                                                                                                                                                                                                                                                                                          |  |                        
|                                                  |  | Goodwill                                                                                                                                                                                                                                                                                                                   |  |                        
|                                                  |  | Anota Technology                                                                                                                                                                                                                                                                                                           |  |                        
|                                                  |  |                                                                                                                                                                                                                                                                                                                            |  |                        
|                                                  |  |                                                                                                                                                                                                                                                                                                                            |  |                        
|                                                  |  | Lessamounts acquired by issuance of shares                                                                                                                                                                                                                                                                                |  |                        
|                                                  |  |                                                                                                                                                                                                                                                                                                                            |  |                        
|                                                  |  |                                                                                                                                                                                                                                                                                                                            |  | $                      
|                                                  |  |                                                                                                                                                                                                                                                                                                                            |  |                        



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



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JACADA LTD.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands





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) and its wholly-owned subsidiary Jacada Deutschland GmbH, (the
German subsidiary) Jacada, Inc. (the U.S. subsidiary) and its wholly-owned subsidiary Jacada Canada, Inc.develop and market web application hosting and business-to-business infrastructure software. The Company and its subsidiaries generate
revenues from licensing their software products and from services such as maintenance, support, consulting and training.
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The majority of the Company and its subsidiaries sales are made in North America and Europe. As for major customers, see also Note 14.



| | c. |  | Acquisitions:
| | -- |  | -------------



| | 1. |  | Acquisition of Propelis Software Inc. (Propelis)
| | -- |  | --------------------------------------------------



On August 23, 2001, the Company and its U.K. and U.S. subsidiaries acquired certain assets and assumed certain liabilities related to
Propelis Software Inc., a business unit of Computer Network Technology Corporation, for an aggregate purchase price of approximately $ 7,463 of which $ 6,963 in cash (of which $ 100 were paid in 2002), and a warrant to purchase 350,000 Ordinary
shares of the Company at a fair value of $ 500. (See also Note 10e).



Products acquired as part of the Propelis acquisition enable organizations to leverage their existing information assets and infrastructure in highly collaborative e-business solutions that integrate critical business
processes, information and people.



The
operations of Propelis are included in the consolidated statements from the date of acquisition.



The acquisition was accounted for by the purchase method of accounting, in accordance with Statement of Financial Accounting Standards
No. 141 Business Combination (SFAS 141), and accordingly, the purchase price has been allocated to the assets acquired and the liabilities assumed based on their estimated fair value at the date of acquisition. The excess of
the purchase price over the estimated fair value of the net assets acquired has been recorded as goodwill.



The following table summarizes the estimated fair value of assets acquired and liabilities assumed at the date of acquisition:



|Working capital, net   |  | $ | 1,455
|---------------------- |  | - | -----
|Property and equipment |  |   | 385  
|Goodwill               |  |   | 4,283
|Propelis Technology(1) |  |   | 1,340
|                       |  |   |      
|Net assets acquired    |  | $ | 7,463
|                       |  |   |      

---

|(1) |  | See also Note 6, 7.
|--- |  | -------------------





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JACADA LTD.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

U.S. Dollars in thousands



NOTE 1:- GENERAL (Cont.)



The following represents the unaudited pro-forma results of operations for the years ended December 31, 2001
and 2000, assuming that the Propelis acquisition had been consummated as of January 1, 2001 and 2000, respectively:



|                                     |  | Year ended December 31, |        
|------------------------------------ |  | ----------------------- | -------
|                                     |  | 2001                    |        
|Revenues                             |  | $                       | 32,507 
|                                     |  |                         |        
|Net loss                             |  | $                       | (16,686
|                                     |  |                         |        
|Basic and diluted net loss per share |  | $                       | (0.89  
|                                     |  |                         |        



The
pro-forma financial information is not necessarily indicative of the consolidated results that would have been attained had the acquisition taken place at the beginning of 2000 or 2001, nor is it necessarily indicative of future results.



| | 2. |  | Acquisition of Anota Ltd. (Anota):
| | -- |  | ------------------------------------





On July 31, 2002, the Company acquired certain assets and
assumed certain liabilities related to Anota Ltd. for an aggregate purchase price of approximately $ 763 including acquisition costs of $ 123 in cash, issuance of 367,373 Ordinary shares at a fair value of $ 640 and the right to receive additional
cash, based on percentage from certain post-acquisition revenues.



When the contingency is resolved and additional consideration is distributable, the Company shall record the fair value of the consideration paid or to be paid as an additional goodwill.



As of December 31, 2002, no material related revenues were
generated and as a result no additional consideration has been paid.



The Company determined the fair value of the issued Ordinary shares using Emerging Issues Task Force No. 99-12 Determination of the Measurement Date For the Market Price of Acquirer Securities Issued in a Purchase
Business Combination (EITF No. 99-12). According to EITF No. 99-12 the fair value is determined based on the average market price of the Companys ordinary shares close to the acquisition date.



Products acquired as part of the Anota acquisition enable
organizations to make their business critical applications available over the Web in a matter of minutes without installing any software on the host system or client machine. Following Anotas acquisition the Company enhanced the functionality
of its existing products and increased its market penetration.



The operations of Anota are included in the consolidated statements from the date of acquisition.



73



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JACADA LTD.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

U.S. Dollars in thousands



NOTE 1:- GENERAL (Cont.)



The acquisition was accounted for by the purchase method of accounting, in accordance with SFAS No. 141, and
accordingly, the purchase price has been allocated to the assets acquired and the liabilities assumed based on their estimated fair value at the date of acquisition. The excess of the purchase price over the estimated fair value of the net assets
acquired has been recorded as goodwill.



The
following table summarizes the estimated fair value of assets acquired and liabilities assumed at the date of acquisition:



|Current assets         |  | $ | 162  |  
|---------------------- |  | - | ---- | -
|Property and equipment |  |   | 141  |  
|Anota Technology       |  |   | 218  |  
|Other Intangibles      |  |   | 163  |  
|Goodwill               |  |   | 271  |  
|Current liabilities    |  |   | (192 | )
|                       |  |   |      |  
|Net assets acquired    |  | $ | 763  |  
|                       |  |   |      |  



The
following represents the unaudited pro-forma results of operations for the years ended December 31, 2002 and 2001 assuming that the Anota acquisition had been consummated as of January 1, 2002 and 2001, respectively:



|                                     |  | Year ended December 31, |       
|------------------------------------ |  | ----------------------- | ------
|                                     |  | 2002                    |       
|Revenues                             |  | $                       | 21,546
|                                     |  |                         |       
|Net loss                             |  | $                       | (3,587
|                                     |  |                         |       
|Basic and diluted net loss per share |  | $                       | (0.19 
|                                     |  |                         |       



The
pro-forma financial information is not necessarily indicative of the consolidated results that would have been attained had the acquisition taken place at the beginning of 2002 or 2001, nor is it necessarily indicative of future results.



| | d. |  | Restructuring charges:
| | -- |  | ----------------------



| | 1. |  | In October 2001, due to recent events and a slowdown in the software industry, the Company and its subsidiaries made changes in their business strategies, operations
and structure in an attempt to improve future operating results, by adopting a restructuring plan.
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The plan consisted of the involuntary termination of 56 employees (14 research and development employees, 16 professional services and
support employees, 22 sales and marketing employees and 4 administrative employees), the subletting of a portion of the existing office space of the Company and its subsidiaries and decreasing compensation and benefits to the Companys
employees.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

U.S. Dollars in thousands



NOTE 1:- GENERAL (Cont.)



| | 2. |  | In July 2002, the Company and its subsidiaries adopted another restructuring plan in an attempt to improve future operating results. The plan consisted of the
involuntary termination of 39 employees (14 research and development employees, 5 professional service and support employees, 11 sales and marketing employees and 9 administrative employees) and the subletting of a portion of the existing office
space of the Company.
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In
connection with the 2002 and 2001 restructuring plans, EITF 94-3 Liability Recognition for Certain Employee Termination Benefits and Other Cost to Exit an Activity (including certain cost in restructuring) and Staff Accounting Bulletin
No. 100 Restructuring and Impairment Charges (SAB No. 100) were applied and accordingly, the Company and its subsidiaries incurred expenses of $ 501 and $ 1,391, respectively, of which, as of December 31, 2002 and 2001, $ 254
and $ 518 remain accrued.



The major components
of restructuring charges are as follows:



|                              |  | Year ended December 31,
|----------------------------- |  | -----------------------
|                              |  | 2002                   
|Employee termination benefits |  | $                      
|Facilities closures           |  |                        
|Other                         |  |                        
|                              |  |                        
|                              |  | $                      
|                              |  |                        



NOTE 2:- SIGNIFICANT
ACCOUNTING POLICIES



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



| | a. |  | Use of estimates:
| | -- |  | -----------------



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



| | b. |  | Financial statements in U.S. Dollars:
| | -- |  | -------------------------------------



A majority of the revenues of the Company and its subsidiaries is generated in United States dollars (dollars). The Company
and its subsidiaries 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.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

U.S. Dollars in thousands



NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)



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



| | c. |  | Principles of consolidation:
| | -- |  | ----------------------------



The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany transactions
and balances have been 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. |  | Marketable securities:
| | -- |  | ----------------------



The Company and its subsidiaries account for their investments in marketable securities using Statement of Financial Accounting Standard
No. 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS No. 115).



Management determines the appropriate classification of its investments in debt securities at the time of purchase and re-evaluates such
determinations at each balance sheet date. Debt securities are classified as held-to-maturity when the Company and its subsidiaries have the positive intent and ability to hold the securities to maturity and 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). The cost of securities sold is based on the specific identification method.



Debt securities for which the Company and its subsidiaries do
not have the intent or ability to hold to maturity are classified as available-for-sale, along with any investments in equity securities that have not been classified as trading securities.



At December 31, 2002 and 2001 all marketable securities
covered by SFAS No. 115 were designated as available for sale. Accordingly, these securities are stated at fair value, with the unrealized gains and losses, reported as a separate component of shareholders equity, accumulated other
comprehensive income (loss). Realized gains and losses on sales of investments, as determined on a specific identification basis, are included in the consolidated statement of operations.



The Company and its subsidiaries investments in debt securities are diversified among high-credit quality
securities in accordance with the Company and its subsidiaries investment policy, (see also Note 3).



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

U.S. Dollars in thousands



NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)



| | f. |  | Property and equipment:
| | -- |  | -----------------------



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



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



| | g. |  | Other assets:
| | -- |  | -------------



| | 1. |  | During 2000, the Company purchased and capitalized technology with accordance to Statement of Financial Accounting Standard No. 86 Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed (SFAS No. 86), in the amount of $ 1,500 (Precise Technology).
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Precise Technology was amortized using the straight line method over the estimated economic life of the
technology, which was four years.



Due to the
slowdown in the software industry and to the purchase of Propelis Technology, the Company and its subsidiaries decided in 2001 to stop the selling and marketing efforts of the Precise Technologys Product.



Therefore, the unamortized capitalized cost of Precise
Technology exceeded the net realizable value and the balance was written off.



As of December 31, 2001, Precise Technologys unamortized balance was charged as expenses to the statement of operations (see also Note 13).



| | 2. |  | Intangible assets acquired in a business combination for which date is on or after July 1, 2001, should be amortized over their useful life using a method of
amortization that reflects the pattern in which the economic benefits of the intangible assets are consumed or otherwise used up, in accordance with Statement of Financial Accounting Standards No. 142 Goodwill and Other Intangible
Assets, (SFAS No. 142).
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In August 2001, as a result of the Propelis acquisition, the Companys U.S. subsidiary acquired new technology (Propelis Technology) in the amount of $ 1,340.



The Propelis Technology is being amortized using the
straight-line method over the estimated economic life of the technology rights, which is five years (for impairment see also Note 2h).



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

U.S. Dollars in thousands



NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)



In July 2002, as a result of the Anota Acquisition, the
Company acquired other assets in the amount of $ 381, composed of technology rights (Anota Technology) in the amount of $ 218 and other intangibles in the amount of $ 163.



The Anota technology is being amortized using the straight-line method over the estimated economic life of
the technology rights, which is five years and the other intangibles are amortized over 3 years (for impairment see also Note 2h).



| | h. |  | Impairment of long-lived assets:
| | -- |  | --------------------------------



The Company and its subsidiaries long-lived assets and certain identifiable intangibles are reviewed for impairment in accordance
with Statement of Financial Accounting Standard No.144 Accounting for the Impairment or Disposal of Long-Lived Assets(SFAS No.144) whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. As of December 31, 2002, no impairment losses have been identified.



| | i. |  | Goodwill:
| | -- |  | ---------



Under SFAS No.142, goodwill acquired in a business combination on or after July 1, 2001, is deemed to have indefinite life and shall not
be amortized.



SFAS No.142 requires goodwill to
be tested for impairment on adoption and at least annually thereafter or between annual tests in certain circumstances, and written down when impaired, rather than being amortized as previous accounting standards required. Goodwill is tested for
impairment by comparing the fair value of the reporting unit with its carrying value. Fair value is determined using market multiples and comparative analyze. Significant estimates used in the methodologies include estimates of market multiples for
the reportable unit. The Company has performed the impairment tests during the third fiscal quarter. As of December 31, 2002, no impairment losses have been identified.



| | j. |  | Research and development costs:
| | -- |  | -------------------------------



Statement of Financial Accounting Standards No. 86 Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed (SFAS No. 86), requires capitalization of certain software development costs subsequent to the establishment of technological feasibility.



Based on the Company and its subsidiaries product development process, technological feasibility is
established upon completion of a working model. Cost incurred by the Company between the completion of the working model and the point at which the products are ready for general release have been insignificant. Therefore, research and development
costs are charged to the statement of operations as incurred.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

U.S. Dollars in thousands



NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)



| | k. |  | Income taxes:
| | -- |  | -------------



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



| | l. |  | Revenue recognition:
| | -- |  | --------------------



The Company and its subsidiaries generate revenues mainly from license fees for the right to use their software products, maintenance,
support and rendering of services including consulting and training. The Company and its subsidiaries sell their products primarily through their direct sales force to customers and indirectly through resellers, both the customers and the resellers
are considered end users. The Company and its subsidiaries are also entitled to royalties from some resellers upon the sublicensing of the software to end users.



The Company and its subsidiaries account for software sales in accordance with Statement of Position No.
97-2, Software Revenue Recognition, as amended (SOP No. 97-2). SOP No. 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 Statement of Position No. 98-9, Modification of Statement of Position 97-2, Software Revenue Recognition with Respect to Certain Transactions (SOP No. 98-9),
for all multiple element transactions entered into after January 1, 2000. SOP No. 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, no VSOE exists for all of the delivered elements and all other four criteria of SOP 97-2 are met. Under the residual method any discount in the arrangement is allocated to the delivered element.



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 and its subsidiaries do not grant a
right of return to their 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.



Revenues from royalties are recognized when such royalties are paid to the Company and its subsidiaries by the distributors. Such
revenues are immaterial to the financial statements results.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

U.S. Dollars in thousands



NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)



Maintenance and support revenue included in multiple element
arrangements is deferred and recognized on a straight-line basis over the term of the maintenance and support agreement.



Arrangements that include consulting and training services are evaluated to determine whether those services are essential to the
functionality of other elements of the arrangement. To date, the Company and its subsidiaries had determined that the consulting and training services are not considered essential to the functionality of other elements of the arrangement, therefore,
these revenues are recognized as the services are performed.



Deferred revenue includes unearned amounts received under maintenance and support contracts, and amounts received from customers but not recognized as revenues.



| | m. |  | 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 No. 25) and FASB Interpretation No. 44 Accounting for Certain Transactions Involving Stock Compensation (FIN No. 44) in accounting for its employee stock option plans. Under APB No. 25, when
the exercise price of the Companys stock options is less than the market price of the underlying shares on the date of grant, compensation expense is recognized.



Under SFAS No. 123, pro forma information regarding net loss and net loss per share is required and has been
determined as if the Company and its subsidiaries had accounted for its employee stock option under the fair value method of that Statement. The fair value for options granted was estimated at the date of grant using the Black-Scholes option pricing
model, with the following weighted-average assumptions for 2002, 2001 and 2000: risk-free interest rate of 2.5% for the year 2002, 4% for the year 2001 and 6% for the year 2000; dividend yields of 0% for each year, volatility factor of the expected
market price of the Companys Ordinary shares of 0.6, 1.14 and 1.253, respectively; and a weighted-average expected life of 2.5 years for each year.



Pro forma information under SFAS 123:



|                                                                                           |  | Year ended December 31, |       
|------------------------------------------------------------------------------------------ |  | ----------------------- | ------
|                                                                                           |  | 2002                    |       
|Net income (loss) as reported                                                              |  | $                       | (2,909
|                                                                                           |  |                         |       
|Add: Stock-based compensation expenses included in reported net income
(loss)              |  | $                       | 21    
|                                                                                           |  |                         |       
|Deduct: Stock-based compensation expense determined under fair value method for all
awards |  | $                       | 3,270 
|                                                                                           |  |                         |       
|Pro forma net loss                                                                         |  | $                       | (6,158
|                                                                                           |  |                         |       
|Basic and diluted net earnings (loss) per share as reported                                |  | $                       | (0.16 
|                                                                                           |  |                         |       
|Pro forma basic and diluted net loss per share                                             |  | $                       | (0.33 
|                                                                                           |  |                         |       



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

U.S. Dollars in thousands



NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)



The Company and its subsidiaries apply SFAS No. 123, EITF
96-18 Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services and its amendments with respect to options issued to non-employees. SFAS No. 123 requires
use of an option valuation model to measure the fair value of the options at the date of grant.



| | n. |  | Advertising expenses:
| | -- |  | ---------------------



Advertising expenses are charged to the statement of operations, as incurred. Advertising expenses for the years ended December 31, 2002,
2001 and 2000 were $ 539, $ 633 and $ 329, 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. Israeli employees are entitled to severance equal to one months salary for each year of employment or a portion thereof. The Companys liability for
all of its Israeli employees, is fully provided 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 financial income (loss)
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, 2002, 2001 and 2000, were $ 305, $ 566 and $ 502, respectively.



| | p. |  | Fair value of financial instruments:
| | -- |  | ------------------------------------



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



Cash and cash
equivalents, trade receivables and trade payables approximate their fair value due to the short-term maturities of such instruments.



The fair value of marketable securities is based on the quoted market prices and do not differ significantly from the carrying amount
(see Note 3).



The carrying amounts of the
Company and its subsidiaries other long-term assets approximate their fair values. The fair values were estimated using discounted cash flow analyses, based on the Company and its subsidiaries incremental borrowing rates for similar types of
borrowing arrangements.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

U.S. Dollars in thousands



NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)



| | 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 net earnings per share is computed based on the weighted average number of Ordinary shares outstanding during each year, plus dilutive potential Ordinary shares considered outstanding during the year, in accordance with Statement of
Financial Accounting Standard No. 128, Earnings Per Share (SFAS No. 128).



Certain outstanding stock options and warrants have been excluded from the calculation of the diluted net earnings (loss) per Ordinary
share because the securities are anti-dilutive for all periods presented. The total weighted average number of shares related to the outstanding stock, options and warrants excluded from the calculations of diluted net earning (loss) per share were
4,296,953, 4,115,720 and 1,094,514 for the years ended December 31, 2002, 2001 and 2000, 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 trade receivables and other long-term assets.



Cash and cash equivalents are invested in U.S. dollars, European currencies and New Israeli Shekels with major banks in the United States, England, Germany and Israel. Such cash and cash equivalents 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 hold the Companys and its subsidiaries investments are financially sound, and
accordingly, minimal credit risk exists.



The
Company and its subsidiaries marketable securities include investments in debentures of the U.S government and U.S. corporations securities. 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 North America and Europe. The Company and its subsidiaries perform ongoing credit evaluations of
their customers and provide an allowance for doubtful accounts with respect to those amounts that the Company and its subsidiaries have determined to be doubtful of collection. Adjustments to allowance account for the years ended December 31, 2002,
2001 and 2000, were $ (165), $ 903 and $ 164, respectively. Write-offs of uncollectible accounts for the years ended December 31, 2002, 2001 and 2000 were $ 459, $ 85 and $ 0, 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.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

U.S. Dollars in thousands



NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)



| | s. |  | Impact of recently issued accounting standards:
| | -- |  | -----------------------------------------------



In June 2002, the FASB issues Statement of Financial Accounting Standard No. 146, Accounting for Costs Associated with Exit or
Disposal Activities (SFAS No. 146), which addresses significant issue regarding the recognition, measurement, and reporting of costs associated with exit and disposal activities, including restructuring activities. SFAS No. 146
requires that costs associated with exit or disposal activities be recognized when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 146 is effective for all exit or disposal activities initiated after
December 31, 2002. The Company does not expect the adoption of SFAS No. 146 to have a material impact on its results of operations or financial position.



NOTE 3:- MARKETABLE SECURITIES



The following is a summary of available-for-sale marketable securities:



|                          |  | December 31, 
|------------------------- |  | -------------
|                          |  | 2002         
|                          |  | Amortizedcost
|Available-for-sale:       |  |              
|U.S. Corporate securities |  | $            
|U.S. Treasury notes       |  |              
|                          |  |              
|                          |  | $            
|                          |  |              



The
Company did not realize any gains or losses on redemption of held-to-maturity securities in 2000. During 2001, the Company sold held-to-maturity securities at an amortized cost of $ 22,447, and recorded realized gain in the amount of $ 192. During
fiscal year 2002, the Company recorded proceeds from sales and redemption of available for sale securities in the amount of $ 105,214 and related gains of $ 6 in financial income, net.



The marketable securities cost for computing realized gain was determined by using the specific
identification method.



Long-term marketable
securities mature within two years.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

U.S. Dollars in thousands



NOTE 4:- OTHER CURRENT ASSETS





|                            |  | December 31,
|--------------------------- |  | ------------
|                            |  | 2002        
|Recoverable value added tax |  | $           
|Prepaid expenses            |  |             
|Rent deposits               |  |             
|Others                      |  |             
|                            |  |             
|                            |  | $           
|                            |  |             



NOTE 5:- PROPERTY AND
EQUIPMENT



Composition of property and
equipment is as follows:



|Cost:                              |  |   |       |  |   |      
|---------------------------------- |  | - | ----- |  | - | -----
|Computers and peripheral equipment |  | $ | 4,617 |  | $ | 4,263
|Office furniture and equipment     |  |   | 1,027 |  |   | 1,056
|Motor vehicles                     |  |   | 1,124 |  |   | 1,445
|Leasehold improvements             |  |   | 641   |  |   | 561  
|                                   |  |   |       |  |   |      
|                                   |  |   | 7,409 |  |   | 7,325
|Accumulated depreciation           |  |   | 4,605 |  |   | 3,693
|                                   |  |   |       |  |   |      
|Depreciated cost                   |  | $ | 2,804 |  | $ | 3,632
|                                   |  |   |       |  |   |      



Depreciation expenses for the years ended December 31, 2002, 2001 and 2000 were $ 1,310, $ 1,193 and $ 861, respectively.



As for charges, see Note 9d.



NOTE 6:- OTHER ASSETS



| | a. |  | Original amounts:
| | -- |  | -----------------



|Propelis Technology and Anota Technology |  | $ | 1,558 |  | $ | 1,340
|---------------------------------------- |  | - | ----- |  | - | -----
|Other intangibles                        |  |   | 163   |  |   |     
|                                         |  |   |       |  |   |      
|                                         |  |   | 1,721 |  |   | 1,340
|                                         |  |   |       |  |   |      
|Accumulated amortization:                |  |   |       |  |   |      
|Propelis technology and Anota technology |  |   | 381   |  |   | 95   
|Other intangibles                        |  |   | 23    |  |   |     
|                                         |  |   |       |  |   |      
|                                         |  |   | 404   |  |   | 95   
|                                         |  |   |       |  |   |      
|Amortized cost                           |  | $ | 1,317 |  | $ | 1,245
|                                         |  |   |       |  |   |      



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

U.S. Dollars in thousands



NOTE 6:- OTHER ASSETS (Cont.)



| | b. |  | Amortization expense for the years ended December 31, 2002, 2001 and 2000 amounted to $ 309, $ 281 and $ 126, respectively. As of December 31, 2002, the weighted
average amortization period is 3.5 years.
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. |  | Estimated amortization expenses for the years ended:
| | -- |  | ----------------------------------------------------



|Year ended December 31, |  |  
|----------------------- |  | -
|2003                    |  | $
|2004                    |  |  
|2005                    |  |  
|2006                    |  |  
|2007                    |  |  



NOTE 7:- GOODWILL



The changes in the carrying amount of
goodwill for the year ended December 31, 2002, are as follows:



|Balance as of January 1, 2002     |  | $ | 4,283
|--------------------------------- |  | - | -----
|Goodwill acquired during the year |  |   | 271  
|                                  |  |   |      
|Balance as of December 31, 2002   |  | $ | 4,554
|                                  |  |   |      



NOTE 8:- ACCRUED
EXPENSES AND OTHER LIABILITIES



|                               |  | December 31,
|------------------------------ |  | ------------
|                               |  | 2002        
|Employee and payroll accruals  |  | $           
|Accrued expenses               |  |             
|Restructuring accruals(1)      |  |             
|Precise Technology             |  |             
|Accrued arbitration charges(2) |  |             
|                               |  |             
|                               |  | $           
|                               |  |             

---

|(1) |  | See also Note 1d.
|--- |  | -----------------

|(2) |  | See also Note 9(e)(1).
|--- |  | ----------------------



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

U.S. Dollars in thousands



NOTE 9:- COMMITMENTS AND CONTINGENT LIABILITIES



| | a. |  | Royalties:
| | -- |  | ----------



The Company participates in programs sponsored by the Israeli Government for the support of research and development activities. Through
December 31, 2002, the Company had obtained grants from the Office of the Chief Scientist of the Israeli Ministry of Industry and Trade (the OCS) in the aggregate amount of $ 2,178 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. dollar.



The obligation to pay these royalties is
contingent on actual sales of the products and in the absence of such sales no payment is required.



Through December 31, 2002, the Company has paid or accrued royalties to the OCS in the amount of $ 1,731. As of December 31, 2002, the
aggregate contingent liability to the OCS amounted to $ 425.



| | 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 2007. Future minimum lease payments under non-cancelable operating leases are as follows:



|Year endedDecember 31, |  |  
|---------------------- |  | -
|2003                   |  | $
|2004                   |  |  
|2005                   |  |  
|2006                   |  |  
|2007                   |  |  
|                       |  |  
|                       |  | $
|                       |  |  



Total
rent expenses for the years ended December 31, 2002, 2001 and 2000 were approximately $ 1,130, $ 1,164 and $ 902, respectively.



| | c. |  | Guarantees:
| | -- |  | -----------



The Company has obtained guarantees, in favor of a lessor in form of a bank credit, totaling $ 140 and $ 200 as of December 31, 2002 and
2001, respectively.



As of December 31, 2002 and
2001 the Company had an unused credit facility in the amount of approximately $ 2,860 and $ 2,800, respectively with a renewal option at the beginning of every year and bearing interest at the rate of Libor + 1.5% and 1.75%, respectively.



86



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JACADA LTD.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

U.S. Dollars in thousands



NOTE 9:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)



| | d. |  | Charges:
| | -- |  | --------



As collateral for the Companys unused credit facilities, charges have been placed on all of the Companys assets in Israel,
including insurance rights.



| | e. |  | Litigation:
| | -- |  | -----------



| | 1. |  | In August 1999, a former distributor filed an arbitration demand against a subsidiary of the Company. This demand alleged that the subsidiary breached its agreement
with the distributor by directly selling products to a customer, while the distributor had an exclusive right to sell products to said customer, and that the distributor was entitled to damages of $ 3,500. A decision by arbitration was entered
during 2001. The arbitrators awarded the distributor a net amount of $ 392 and 50% of amounts collected from this customer in the future.
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In 1999, the Company made a provision for a potential liability of $ 125. As a result of the arbitration the Company recorded in 2001 a
non-recurring charge of $ 267. During 2002, the Company recorded recurring expenses of $ 225 related to the amounts collected from the customer.



On April 24, 2001, the subsidiary of the Company filed a separate action to vacate the arbitration award. Subsequently, the distributor
filed an application for enforcement of the arbitration award. As of December 31, 2002, no court has addressed any of the substantive issues in the case.



| | 2. |  | In November 2001, the Company received a claim by a third party (the claimant), which has arisen out of the Propelis acquisition, regarding an alleged
infringement of a patent. The claimant purported to be the exclusive licensee of the patent which is used by the Company since the Propelis acquisition.
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



To date, the Company has not responded to the claim nor received any subsequent correspondence from
claimant. The Companys management believes that under the acquisition agreement CNT should indemnify the Company for any such patent infringement.



Since the claim is in its preliminary stages, the Companys management and its legal advisors are unable to estimate the outcome of
the claim.



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JACADA LTD.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

U.S. Dollars in thousands



NOTE 10:- SHAREHOLDERS EQUITY



| | a. |  | General:
| | -- |  | --------



Since October 1999, the Companys shares have been traded on the NASDAQ, National Market. Since June 2001, the Companys shares
have been traded on the Tel-Aviv Stock Exchange as well.



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



| | b. |  | Composition of share capital:
| | -- |  | -----------------------------



In July 2002, the Company issued 367,373 Ordinary shares in respect of Anotas acquisition, at a fair value of $ 640. Issuance
expenses were immaterial (see also Note 1c).



| | c. |  | Stock Option Plans:
| | -- |  | -------------------



As of December 31, 2002, the Company has three Incentive Share Option Plans (the 1994, 1996 and 1999 plans), which provide for the grant
of options to officers, management, other key employees, directors, consultants and others of up to 5,760,450 of the Companys Ordinary shares. The options granted generally become fully exercisable after three to four years and expire ten
years from the grant date. Any options which are forfeited or canceled before expiration, become available for future grants.



Pursuant to the option plans, the exercise price of options shall be determined by the Companys compensation committee but may not
be less than the par value of the Ordinary shares.



As of December 31, 2002, an aggregate of 1,225,556 Ordinary shares of the Company are still available for future grant under the Incentive Share Option Plans.



A summary of the Companys share option activity (except options to consultants) and related
information is as follows:



|                                           |  | Year ended December 31,
|------------------------------------------ |  | -----------------------
|                                           |  | 2002                   
|                                           |  | Number ofoptions       
|                                           |  |                        
|Outstandingat the beginning of the year   |  | 3,596,270              
|Granted                                    |  | 1,112,352              
|Exercised                                  |  | 30,826                 
|Forfeited and cancelled                    |  | 1,155,414              
|                                           |  |                        
|Outstandingat the end of the year         |  | 3,522,382              
|                                           |  |                        
|Exercisable options at the end of the year |  | 2,042,641              
|                                           |  |                        



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JACADA LTD.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

U.S. Dollars in thousands



NOTE 10:- SHAREHOLDERS EQUITY (Cont.)



The exercise price of the options is equal to the market
value of the Ordinary shares on the date the option is granted. Weighted average fair value of options granted during 2002, 2001 and 2000, which the exercise price equals the market price on the date of grant, is $ 0.95, $ 2.81 and $ 4.58,
respectively.



The options outstanding as of
December 31, 2002 have been classified by exercise price, as follows:



|Exercise price |  | Optionsoutstandingas ofDecember 31,2002 |  | Weightedaverageremainingcontractuallife (years) |  | WeightedaverageexercisePrice |  | Optionsexercisableas ofDecember 31,2002 |  | Weightedaverageexerciseprice ofoptionsexercisable
|-------------- |  | --------------------------------------- |  | ----------------------------------------------- |  | ---------------------------- |  | --------------------------------------- |  | -------------------------------------------------
|$              |  |                                         |  |                                                 |  | $                            |  |                                         |  | $                                                
|0.99 - 1.18    |  | 630,632                                 |  | 3.98                                            |  | 1.03                         |  | 555,132                                 |  | 1.01                                             
|1.60 - 2.22    |  | 380,702                                 |  | 5.68                                            |  | 2.10                         |  | 343,202                                 |  | 2.09                                             
|2.23 - 3.34    |  | 968,287                                 |  | 8.97                                            |  | 2.80                         |  | 176,741                                 |  | 3.38                                             
|4.04 - 5.06    |  | 1,139,473                               |  | 7.96                                            |  | 4.60                         |  | 661,561                                 |  | 4.60                                             
|9.00 - 11.00   |  | 403,288                                 |  | 6.91                                            |  | 9.49                         |  | 306,005                                 |  | 9.49                                             
|               |  |                                         |  |                                                 |  |                              |  |                                         |  |                                                  
|               |  | 3,522,382                               |  | 7.17                                            |  | 3.74                         |  | 2,042,641                               |  | 3.83                                             
|               |  |                                         |  |                                                 |  |                              |  |                                         |  |                                                  



The
Company has recorded deferred stock compensation in 1999 for options issued with an exercise price below the fair market value of the Ordinary shares, the deferred stock compensation has been amortized and recorded as compensation expense ratably
over the vesting period of the options. Compensation expenses of $21, $75 and $55 were recognized during the years ended December 31, 2002, 2001 and 2000, respectively. Options granted to the Chief Executive Officer in 1998 vest over an eight to ten
year period, with possible acceleration of vesting if certain criteria are met.



| | d. |  | Options issued to consultants:
| | -- |  | ------------------------------



| | 1. |  | The Companys outstanding options to consultants as of December 31, 2002, are as follows:
| | -- |  | -----------------------------------------------------------------------------------------



|Issuance date |  | Options forOrdinaryshares |  | Exerciseprice pershare |  | Optionsexercisable |  | Exercisablethrough |  
|------------- |  | ------------------------- |  | ---------------------- |  | ------------------ |  | ------------------ | -
|              |  |                           |  | $                      |  |                    |  |                    |  
|1996          |  | 7,500                     |  | 1.13                   |  | 7,500              |  | *                  | )
|1999          |  | 1,500                     |  | 11.00                  |  | 1,500              |  | *                  | )
|2000          |  | 4,000                     |  | 4.38                   |  | 4,000              |  | *                  | )
|2001          |  | 5,000                     |  | 2.89                   |  | 5,000              |  | *                  | )
|2002          |  | 11,000                    |  | 2.61                   |  | 11,000             |  | *                  | )
|              |  |                           |  |                        |  |                    |  |                    |  
|Total         |  | 29,000                    |  |                        |  | 29,000             |  |                    |  
|              |  |                           |  |                        |  |                    |  |                    |  

---

|*) |  | 10 years from the date of grant.
|-- |  | --------------------------------



The additional disclosures required by FAS 123 (paragraphs 47 and 48) were not provided due to immateriality.



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JACADA LTD.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

U.S. Dollars in thousands



NOTE 10:- SHAREHOLDERS EQUITY (Cont.)



| | 2. |  | 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 Black-Scholes option-pricing model with the following weighted-average assumptions for 2002, 2001 and 2000: risk-free interest rates of 2.5% for 2002, 4% for 2001 and 6% for 2000, dividend yields of 0% for each year, volatility factors of the
expected market price of the Companys Ordinary shares of 0.6, 1.14 and 1.253, respectively and a weighted-average contractual life of approximately 10 years for each year.
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. |  | Due to immateriality, no compensation expenses have been recorded in the financial statements.
| | -- |  | ----------------------------------------------------------------------------------------------



| | e. |  | Warrant:
| | -- |  | --------



During 2001, in connection with the acquisition of Propelis, the Company issued CNT a warrant to purchase 350,000 Ordinary shares of the
Company at an exercise price of $ 3.26. This warrant is exercisable until August 2004. As of December 31, 2002, the warrant was not exercised. (See also Note 1c).



The fair value of the warrant was included in the purchase price. The fair value of the warrant amounting to
$ 500 was estimated using a Black-Scholes Option-Pricing Model with the following weighted-average assumptions for 2001: risk-free interest rate of 4%, dividend yields of 0%, volatility factors of the expected market price of the Companys
Ordinary shares of 0.808 and a weighted-average expected life of the warrant of approximately 2 years.



| | f. |  | Dividends:
| | -- |  | ----------



In the event that cash dividends are declared in the future, such dividends will be paid in NIS. The Company does not intend to pay cash
dividends in the foreseeable future.



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 four separate investment programs, which were approved in July 1994, July 1995, December 1996 and April 2002. The investment programs expiration dates are July 2007, July 2008 and
December 2010, respectively.



As of December 31,
2002, the investments under April 2002 investment program remain in progress and were not completed.



According to the provisions of the law, the Company has elected the alternative benefitswaiver of grants in return for
tax exemption and, accordingly, the Companys income is tax-exempt for a period of two years commencing with the year it first earns taxable income relating to each expansion program, and subject to corporate taxes at the reduced rate of 10% to
25%, for an additional period of five years, (based on the percentage of foreign ownership in each taxable year).



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JACADA LTD.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

U.S. Dollars in thousands



NOTE 11:- TAXES ON INCOME (Cont.)



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 of December 31, 2002, management believes that the Company
is meeting all of the aforementioned conditions.



As the Company currently has no taxable income, these benefits have not yet commenced for all programs since inception.



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 this 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 elected 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 provided 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 for tax purposes of the Company are measured and reflected in real terms in accordance with the
changes in the Israeli Customer Price Index. 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:
| | -- |  | ------------------------------------------------------------------------------



The Company 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.



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JACADA LTD.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

U.S. Dollars in thousands



NOTE 11:- TAXES ON INCOME (Cont.)



| | d. |  | On July 24, 2002, Amendment 132 to the Israeli Income Tax Ordinance (the Amendment) was approved by the Israeli parliament and came into effect on
January 1, 2003. The principal objectives of the Amendment were to broaden the categories of taxable income and to reduce the tax rates imposed on employees income.
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The material consequences of the Amendment applicable to the Company include, among other things, imposing
tax upon all income of Israel residents, individuals and corporations, regardless of the territorial source of income and certain modifications in the qualified taxation tracks of employee stock options.



| | e. |  | Net operating losses carryforwards:
| | -- |  | -----------------------------------



As of December 31, 2002, Jacada Ltd. had approximately $ 5,970 of Israeli net operating loss carryforwards. The Israeli loss
carryforwards have no expiration date.



As of
December 31, 2002, the U.K. subsidiary had accumulated losses for income tax purposes in the amount of approximately $ 4,940. These net operating losses may be carried forward and offset against taxable income in the future for an indefinite period.



During 2000, the U.K. subsidiary had interest
income that cannot be offset against operating loss; therefore, the U.K. subsidiary had provided for taxes on income the amount of $ 10 which was offset during 2001.



As of December 31, 2002, the U.S. subsidiary had U.S. federal net operating loss carryforwards for income
tax purposes in the amount of approximately $ 4,163. Net operating loss carryforwards arising in taxable years beginning before August 6, 1997 can be carried forward and offset against taxable income for 15 years and expire from 2010 to 2012. Net
operating loss carryforwards arising in taxable years beginning after August 5, 1997 can be carried forward and offset against taxable income for 20 years and expire from 2017 to 2021.



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.



As of December 31, 2002, Jacada Deutschland GmbH
(German subsidiary) had accumulated losses for income tax purposes in the amount of approximately $ 761. The net operating loss carryforwards have no expiration date.



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JACADA LTD.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

U.S. Dollars in thousands



NOTE 11:- TAXES ON INCOME (Cont.)



| | f. |  | Deferred income taxes:
| | -- |  | ----------------------



Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. Significant components of the Companys deferred tax liabilities and assets are as follows:



|                                                    |  | December 31, |       
|--------------------------------------------------- |  | ------------ | ------
|                                                    |  | 2002         |       
|Deferred tax assets:                                |  |              |       
|U.S. operating loss carryforward                    |  | $            | 1,457 
|U.K. operating loss carryforward                    |  |              | 988   
|German operating loss carryforward                  |  |              | 190   
|                                                    |  |              |       
|Total deferred tax asset before valuation allowance |  |              | 2,635 
|Valuation allowance                                 |  |              | (2,635
|                                                    |  |              |       
|Net deferred tax asset                              |  | $            |      
|                                                    |  |              |       



The
U.S., U.K. and German subsidiaries have provided valuation allowances in respect of deferred tax assets resulting from tax loss carryforwards. Management currently believes that since the subsidiaries have a history of losses it is more likely than
not that the deferred tax regarding the loss carryforwards will not be realized in the foreseeable future. During fiscal 2002, the subsidiaries reduced the valuation allowance by $ 475 to $ 2,635.



| | g. |  | The main reconciling item between the statuary tax rate of the Company and its subsidiaries and the effective tax rate are the non-recognition of tax benefits from
accumulated net operating losses carryforward among the various subsidiaries worldwide due to the uncertainty of the realization of such tax benefits and the effect of approved enterprise.
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | h. |  | Pre-tax income (loss):
| | -- |  | ----------------------



|                  |  | Year ended December 31,
|----------------- |  | -----------------------
|                  |  | 2002                   
|Domestic (Israel) |  | $                      
|Foreign           |  |                        
|                  |  |                        
|                  |  | $                      
|                  |  |                        



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JACADA LTD.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

U.S. Dollars in thousands



NOTE 12:- EARNING PER SHARE



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



| | a. |  | Numerator:
| | -- |  | ----------



|                                                                                                                  |  | Year ended December 31,
|----------------------------------------------------------------------------------------------------------------- |  | -----------------------
|                                                                                                                  |  | 2002                   
|Net income (loss)                                                                                                 |  | $                      
|                                                                                                                  |  |                        
|Numerator for basic and diluted net earnings (loss) per shareincome available to
shareholders of Ordinary shares |  | $                      
|                                                                                                                  |  |                        



| | b. |  | Denominator:
| | -- |  | ------------



|Denominator for basic net earnings (loss) per shareweighted average
shares                                         |  | 18,710,105 |    |  | 18,465,127 |    |  | 18,141,223
|------------------------------------------------------------------------------------------------------------------- |  | ---------- | -- |  | ---------- | -- |  | ----------
|                                                                                                                    |  |            |    |  |            |    |  |           
|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adjusted weighted average
shares, assumed of options exercise |  | 18,710,105 |    |  | 18,465,127 |    |  | 19,503,971
|                                                                                                                    |  |            |    |  |            |    |  |           

---

|*) |  | The effect of the inclusion of the options in 2002 and 2001 would have been antidilutive.
|-- |  | -----------------------------------------------------------------------------------------



NOTE 13:- RESTRUCTURING AND OTHER NON-RECURRING CHARGES



|                                   |  | Year ended December 31,
|---------------------------------- |  | -----------------------
|                                   |  | 2002                   
|Restructuring charges(1)           |  | $                      
|Arbitration charge(2)              |  |                        
|Write-off of Precise Technology(3) |  |                        
|                                   |  |                        
|                                   |  | $                      
|                                   |  |                        

---

|(1) |  | See also Note 1d.
|--- |  | -----------------

|(2) |  | See also Note 9e.
|--- |  | -----------------

|(3) |  | See also Note 2g.
|--- |  | -----------------



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JACADA LTD.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

U.S. Dollars in thousands



NOTE 14:- GEOGRAPHIC AND MAJOR CUSTOMER INFORMATION



Summary information about geographical areas:



The Company and its subsidiaries manage their business on a
basis of one reportable segment (see Note 1b for a brief description of the Companys business) and follows the requirements of Statement of Financial Accounting Standards No. 131, Disclosures About Segments of an Enterprise and Related
Information (SFAS No. 131).



The following is a summary of operations within geographic areas based on end customers location.



|                                               |  | Year ended December 31,
|---------------------------------------------- |  | -----------------------
|                                               |  | 2002                   
|Revenues from sales to unaffiliated customers: |  |                        
|                                              
|North America                                  |  | $                      
|Europe                                         |  |                        
|                                               |  |                        
|                                               |  | $                      
|                                               |  |                        
|                                              
|                                               |  | December 31,           
|                                               |  | 2002                   
|Long-lived assets:                             |  |                        
|                                              
|Israel                                         |  | $                      
|North America                                  |  |                        
|United Kingdom                                 |  |                        
|Germany                                        |  |                        
|                                               |  |                        
|                                               |  | $                      
|                                               |  |                        



Major
customer data as a percentage of total revenues:



|           |  | Year ended December 31, |   
|---------- |  | ----------------------- | --
|           |  | 2002                    |   
|Customer A |  |                        | *)
|Customer B |  |                        | *)

---

|*) |  | Less than 10% of total revenues.
|-- |  | --------------------------------



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JACADA LTD.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

U.S. Dollars in thousands



NOTE 15:- FINANCIAL INCOME (EXPENSES), NET



|                                         |  | December 31, |      
|---------------------------------------- |  | ------------ | -----
|                                         |  | 2002         |      
|Financial expenses:                      |  |              |      
|Foreign currency translation adjustments |  | $            | (59  
|Bank charges                             |  |              | (50  
|                                         |  |              |      
|                                         |  |              | (109 
|                                         |  |              |      
|Financial income:                        |  |              |      
|Foreign currency translation adjustments |  |              | 176  
|Interest on short-term deposits          |  |              | 836  
|Gain on sale of marketable securities    |  |              | 6    
|                                         |  |              |      
|                                         |  |              | 1,018
|                                         |  |              |      
|                                         |  | $            | 909  
|                                         |  |              |      



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



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Item 19: EXHIBITS



|ExhibitNumber |  | Description of Document                                                                                                                                                                                                                                                                               
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|             
|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 Share 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           |  | Restated Employment Agreement of Gideon Hollander with Jacada Ltd. dated as of October 1, 2001.                                                                                                                                                                                                       
|             
|4.6           |  | Amendment to 1999 Share Option and Incentive Plan.                                                                                                                                                                                                                                                    
|             
|4.7           |  | Technology and Product License Agreement between the Company and Cortlandt Reade Technical Corporation dated May 25,
2000 (incorporated by reference to the Companys Annual Report on Form 20-F for the year ended December 31, 2000).                                                               
|             
|4.8           |  | Amendment to 1999 Share Option and Incentive Plan (incorporated by reference to Exhibit 10.2 from the Companys
Registration Statement on Form S-8 (file no. 333-73650)                                                                                                                               
|             
|4.9           |  | Asset Purchase Agreement dated as of August 19, 2001 among the Company and its subsidiaries and Computer Network
Technology Corporation and its subsidiaries (incorporated by reference to Exhibit 4.10 to the Companys Annual Report on Form 20-F for the year ended December 31, 2001).            
|             
|4.10          |  | First Amendment to Asset Purchase Agreement among the Company and its subsidiaries and Computer Network Technology
Corporation and its subsidiaries dated August 23, 2001(incorporated by reference to Exhibit 4.11 to the Companys Annual Report on Form 20-F for the year ended December 31, 2001).
|             
|4.11          |  | Purchase Agreement dated as of June 28, 2002 among the Company and Anota Ltd.                                                                                                                                                                                                                         



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|      
|------
|4.11.1
|      
|8     
|      
|10    
|      
|99.1  





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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 2, 2003.



JACADA LTD./s/ Robert C. AldworthBy: Robert C. Aldworth Chief Financial Officer




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CERTIFICATIONS



CEO CERTIFICATION



I, Gideon Hollander, certify that:



| | 1. |  | I have reviewed this annual report on Form 20-F of Jacada Ltd. (the registrant);
| | -- |  | ----------------------------------------------------------------------------------



| | 2. |  | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. |  | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this annual report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report
(the Evaluation Date); and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. |  | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | 5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent function):
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6. |  | The registrants other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                  
|------------------
|Date: June 2, 2003
|                  



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CFO
CERTIFICATION



I, Robert C. Aldworth, certify that:



| | 1. |  | I have reviewed this annual report on Form 20-F of Jacada Ltd. (the registrant);
| | -- |  | ----------------------------------------------------------------------------------



| | 2. |  | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. |  | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this annual report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report
(the Evaluation Date); and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. |  | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent function):
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------



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| | record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in
internal controls; and
| | --------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6. |  | The registrants other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                  
|------------------
|Date: June 2, 2003
|                  





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EXHIBIT
INDEX



|Exhibit Number |  | Description of Document                                                                                                                                                                                                                                                                                
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|              
|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 Share 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            |  | Restated Employment Agreement of Gideon Hollander with Jacada Ltd. dated as of October 1, 2001.                                                                                                                                                                                                        
|              
|4.6            |  | Amendment to 1999 Share Option and Incentive Plan.                                                                                                                                                                                                                                                     
|              
|4.7            |  | Technology and Product License Agreement between the Company and Cortlandt Reade Technical Corporation dated May 25,
2000 (incorporated by reference to the Companys Annual Report on Form 20-F for the year ended December 31, 2000).                                                                
|              
|4.8            |  | Amendment to 1999 Share Option and Incentive Plan (incorporated by reference to Exhibit 10.2 from the Companys
Registration Statement on Form S-8 (file no. 333-73650)                                                                                                                                
|              
|4.9            |  | Asset Purchase Agreement dated as of August 19, 2001 among the Company and its subsidiaries and Computer Network
Technology Corporation and its subsidiaries (incorporated by reference to Exhibit 4.10 to the Companys Annual Report on Form 20-F for the year ended December 31, 2001).             
|              
|4.10           |  | First Amendment to Asset Purchase Agreement among the Company and its subsidiaries and Computer Network Technology
Corporation and its subsidiaries dated August 23, 2001 (incorporated by reference to Exhibit 4.11 to the Companys Annual Report on Form 20-F for the year ended December 31, 2001).
|              
|4.11           |  | Purchase Agreement dated as of June 28, 2002 among the Company and Anota Ltd.                                                                                                                                                                                                                          
|              
|4.11.1         |  | Amendment No. 1 to Purchase Agreement dated as of July 31, 2002 among the Company and Anota Ltd.                                                                                                                                                                                                       





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