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


                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 2004
                        Commission file number 000-30342

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

                                     Israel
                 (Jurisdiction of incorporation or organization)

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

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

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

            19,326,010 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


<PAGE>


                           TABLE OF CONTENTS

<TABLE>
<CAPTION>

<S>          <C>                                                                                  <C>
Item 1.      IDENTITY OF DIRECTORS, SENIOR MANAGEMENT, AND ADVISERS................................2

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

Item 3.      KEY INFORMATION.......................................................................2

Item 4.      INFORMATION ON THE COMPANY...........................................................13

Item 5.      OPERATING AND FINANCIAL REVIEW AND PROSPECTS.........................................27

Item 6.      DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES...........................................39

Item 7.      MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS....................................46

Item 8.      FINANCIAL INFORMATION ...............................................................47

Item 9.      THE OFFER AND LISTING................................................................48

Item 10.     ADDITIONAL INFORMATION...............................................................51

Item 11.     QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK............................66

Item 12.     DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES...............................67

Item 13.     DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES......................................67

Item 14.     MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.........67

Item 15.     CONTROLS AND PROCEDURES .............................................................68

Item 16A.    AUDIT COMMITTEE FINANCIAL EXPERT ....................................................68

Item 16B.    CODE OF ETHICS ......................................................................68

Item 16C.    PRINCIPAL ACCOUNTANT FEES AND SERVICES...............................................69

Item 16D.    EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES...........................70

Item 16E.    PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS...............70

Item 18.     FINANCIAL STATEMENTS.................................................................71

Item 19.     EXHIBITS.............................................................................71

</TABLE>


                                       i

<PAGE>


                           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.


<PAGE>


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, 2004, 2003 and 2002 and the selected consolidated balance
sheet data as of December 31, 2004 and 2003 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 US GAAP. The consolidated statements of operations data for the years ended
December 31, 2001 and 2000, and the selected consolidated balance sheet data as
of December 31, 2002, 2001 and 2000 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 Disclosures about Market
Risk" and our consolidated financial statements and the notes thereto included
elsewhere in the Annual Report.


                                       2

<PAGE>

<TABLE>
<CAPTION>

                                                                       Year  ended December 31,
                                                  2004           2003               2002             2001            2000
                                                          (In thousands, except per share and share data)
Consolidated Statement of Operations Data:
<S>                                              <C>              <C>                <C>              <C>             <C>

Revenues:
  Software and products...................      $5,749           $8,354             $9,783          $10,930         $15,506
  Services ...............................       5,481            4,704              4,518            8,986           6,070
  Maintenance.............................       8,554            7,504              7,235            5,630           3,540
                                                ------           ------             ------           ------          ------
                  Total revenues..........      19,784           20,562             21,536           25,546          25,116
                                                ------           ------             ------           ------          ------
Cost of revenues:
  Software  and products..................         631             *846               *534             *615             725
  Services ...............................       3,341            2,384              3,115            4,859           3,636
  Maintenance.............................       1,143            1,110              1,247            1,705           1,574
                                                ------           ------             ------           ------          ------
                  Total cost of revenues..       5,115            4,340              4,896            7,179           5,935
                                                ------           ------             ------           ------          ------
Gross profit..............................      14,669           16,222             16,690           18,367          19,181
                                                ------           ------             ------           ------          ------
Operating expenses:
  Research and development, net...........       5,278           *5,308             *5,905           *6,351           4,979
  Sales and marketing.....................      10,507            9,386              9,450           14,619          12,873
  General and administrative..............       4,758            4,714              4,602            5,679           3,624
Non-recurring charges.....................         525                -                501            2,846               -
                                                ------           ------             ------           ------          ------
                  Total operating expenses      21,068           19,408             20,458           29,495          21,476
                                                ------           ------             ------           ------          ------
Operating loss............................      (6,399)          (3,186)            (3,818)         (11,128)         (2,295)
Financial  income, net....................         786            1,037                909            2,337           3,072
                                                ------           ------             ------           ------          ------
                  Net income (loss).......     $(5,613)         $(2,149)           $(2,909)         $(8,791)          $ 777
                                               ========         ========           ========         ========         ======

Basic net earnings (loss) per share.......      $(0.29)          $(0.11)            $(0.16)          $(0.48)         $ 0.04
                                               ========         ========           ========         ========         ======
Weighted  average number of shares used in
computing basic net earnings (loss) per
share.....................................     19,282,800      19,011,435         18,710,105       18,465,127       18,141,223

Diluted net earnings (loss) per share.....      $(0.29)          $(0.11)            $(0.16)          $(0.48)          $0.04
                                               ========         ========           ========         ========         ======
Weighted  average number of shares used in
computing diluted net earnings (loss) per
share.....................................     19,282,800      19,011,435         18,710,105       18,465,127       19,503,971

</TABLE>

* Includes amounts relating to amortization of intellectual property
reclassified from Research and development, net to Cost of revenues - software
and products to conform to current period presentation.

<TABLE>
<CAPTION>

                                                                          December 31,
                                                  2004           2003         2002        2001         2000
                                                                         (in thousands)
<S>                                             <C>            <C>         <C>          <C>          <C>
         Consolidated Balance Sheet Data:
Cash and cash equivalents...................    $ 3,552        $ 9,845     $ 15,319     $ 5,982      $ 9,360
Cash and investments........................     37,613         41,793       41,382      41,642       52,467
Working capital.............................     17,726         12,170       34,448      39,625       46,740
Total assets................................     49,230         53,387       54,018      56,459       64,797

Shareholders' equity........................     39,089         44,504       46,464      48,588       56,646
Dividends per share.........................       -               -           -            -           -

</TABLE>


Exchange Rates

Not applicable.

B.   Capitalization and Indebtedness

     Not applicable.


                                       3

<PAGE>


C.   Reasons for the Offer and Use of Proceeds

     Not applicable.

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:

Risks Related to Our Business

     The revenue associated with our traditional products has declined and the
revenue generated by our new Jacada Fusion products is less than we anticipated;
failure to increase revenues will result in increased losses and a material
adverse effect on our business. Our revenues are derived mainly from sales of
our traditional products, Jacada Interface Server and Jacada HostFuse, and our
new product, Jacada Fusion. The average selling price of our traditional
products has declined over the past five years due to changes in our competitive
environment, resulting in increased pricing pressures and companies stretching
out commitments and postponing purchases. We believe that this trend will
continue. In addition, it has taken longer than we anticipated to generate sales
of Jacada Fusion, which we introduced in the second quarter of 2004. As a
result, the revenue gap between our declining traditional business revenue and
the anticipated Jacada Fusion revenue is larger than we originally thought. To
the extent that revenues from our traditional products continue to decrease and
revenues from Jacada Fusion do not offset such loss of revenues, we will suffer
increased losses. Even if we are able to offset reductions in our revenues
caused by a decrease in our average selling prices of traditional software
products by increasing the volume of our sales, the reductions in average
selling price would negatively affect our gross margins and operating results.
To the extent that these trends continue for a prolonged period, we may suffer a
material adverse effect.

     Our introduction of Jacada Fusion represents an attempt to enter a new
market in which we do not have experience and failure to successfully penetrate
this market would harm our results of operations. We introduced Jacada Fusion in
the second quarter of 2004 and we have elected initially to target corporate
customer call centers, which we refer to as contact centers, for sales of Jacada
Fusion because we believe there is a need for our product in this market.
However, we have limited experience in this market. Our limited experience and
knowledge regarding the contact center market may impede our ability to sell
Jacada Fusion and result in decreased revenues and increased net losses.

     We do not have a proven business model for the contact center market; if
our business model is inappropriate for this market and our estimations
regarding the sales cycle for this market are incorrect, our efforts to
successfully commercialize Jacada Fusion may be harmed or we will experience a
further delay in generating revenues from this product. Our business model for
selling Jacada Fusion is different than the business model we have used for our
traditional products. To date we have had few deals in which we sold Jacada
Fusion and therefore we do not have enough experience to determine if our


                                       4

<PAGE>


business model is correct and is appropriate for the generation either of new
sales or follow-on sales. In the event that our chosen business model is
inappropriate, we may need to modify our business model and adjust the manner in
which we sell Jacada Fusion in order to close subsequent transactions. If our
business model is incorrect and must be adjusted, our revenues and expense
levels may be adversely affected. Currently, we believe that the sales cycle for
Jacada may be up to 18 months, which is longer than we had originally
anticipated. However, we cannot be assured that our estimations of the sales
cycle for the contact center market or the amount of effort necessary to achieve
sales in this market are correct.

     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 develop, market and support software and solutions that help
customers rapidly simplify and improve high-value business processes while
eliminating traditional long and expensive system replacement projects. Our
software and solutions enable businesses to Web-enable, modernize and integrate
their existing software applications to better serve the needs of their users,
customers and partners. Our solutions provide our customers with a simplified
interaction to dramatically improve the efficiency of the user and the
experience of the user's customer. We also provide related professional
services, including training, consulting, support and maintenance. 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. Many prospective customers have made significant investments in
internally-developed or customized integration and modernization solutions 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 markets 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 markets in which we compete are extremely competitive and subject
to rapid change. In our traditional business, we compete with companies that
utilize varying approaches to enable existing software applications to be
utilized over the Internet. These companies include Attachmate Corporation, IBM,
Seagull Software Ltd., TIBCO Software, Inc., WRQ, Inc. and webMethods, Inc. Our
Jacada Fusion product competes with other contact center solutions offered by
Microsoft, Corizon Ltd. and Level 8 Systems. 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 and contact center solutions. As a result, prospective clients may
decide against purchasing and implementing externally-developed solutions such
as ours.


                                       5

<PAGE>


     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,
competition may intensify and future competition may harm our business.

     In previous years, we experienced fluctuations in our annual and quarterly
results of operations, which resulted, and may continue to result, in volatility
in our share price. In previous years we have experienced, and may continue to
experience, fluctuations in our quarterly results of operations, and we may
likewise experience significant fluctuations in our annual results of
operations. Factors which have contributed and may in the future contribute to
fluctuations in our results of operations include: general economic conditions,
the size and timing of orders, including order deferrals, and subsequent
shipments, market acceptance of new products, the capital spending patterns of
our customers and the timing of our product introductions or enhancements or
that of our competitors or providers of complementary products. Because of these
and other factors, our quarterly revenues may fluctuate materially. Therefore,
the results of past periods should not be relied upon as an indication of our
future performance. It is likely that in some future periods, our operating
results may again be below expectations of public market analysts or investors,
which may cause our share price to drop.

     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 Disclosures about Market Risk."

     The market price of our shares is volatile and the volume of the daily
trading of our shares is very low; therefore you may not be able to resell your
shares at or above the price you paid, or at all. The risks described in this
Item 3.D may adversely affect our revenues and share price. Our share price,
like that of many technology companies, may be subject to volatility. If our
share price decreases to below $1.00 per share and remains there for 30
consecutive trading days, Nasdaq could initiate procedures to de list our shares
from the Nasdaq National Market and onto either the Nasdaq Small Cap Market or
the OTC Bulletin Board. Furthermore, because of the low volume of daily trading
in our shares, you may be unable to sell your shares in the market due to low or
no demand for such shares.


                                       6

<PAGE>


     We must continue our significant investment in our sales and marketing
efforts, including our indirect distribution channels, in order to increase
market awareness of our products and to generate increased revenues. Significant
continued investment in our sales and marketing efforts is essential to increase
market awareness of our products and to generate increased revenues, especially
in relation to Jacada Fusion. Furthermore, we believe that our future success is
dependent upon the expansion of our indirect distribution channels, consisting
of our relationships with independent software vendors, software distributors,
system integrators and partners. We currently have relationships with only a
limited number of these parties. We have expanded our indirect sales channels in
Europe, South Africa, and the Pacific Rim, but we have not expanded these
channels in North and South America. However, we have derived, and we anticipate
that we will continue to derive, a portion of our revenues from these
relationships.

     Our future growth will be limited if:

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

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

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

          o    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 leave 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 sales.

     Rapid changes and developments in our traditional 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 existing products could become obsolete and unmarketable
if we are unable to adapt quickly to new technologies or standards. To be


                                       7

<PAGE>


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 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 would likely impact our business.

     Our future growth will be adversely affected and our future operating
results may be adversely affected if we fail to develop and introduce new
products that address new markets or if our new products fail to achieve market
acceptance. In order to achieve sales growth we will need to develop and
introduce new products for new markets. In the second quarter of 2004, we
announced the introduction of Jacada Fusion, our new solution that is designed
to integrate different applications residing on host, Windows and Web-based
platforms, and allow non-invasive access to those applications through a single
user interface. We have elected initially to target corporate contact centers
for sales of Jacada Fusion because we believe there is a need for our product in
this market. Currently there is a limited demand for e-Business enabling
solutions in corporate contact centers as this market has only recently begun to
develop. If the markets we decide to enter, such as the contact center market,
fail to develop or if we are unable to develop other new products successfully,
our prospects for growth will suffer. In addition, our ability to develop and
introduce new products requires us to invest significant resources in research
and development and in the sales and marketing of a new product. If we fail to
develop and market new products in new markets successfully, we may not be able
to recover our research and development expenditures or our sales and marketing
expenditures, which would adversely impact our operating results.

     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. In addition, our declining revenues may cause current
employees to leave our company, which may have a material adverse effect on our
business.

     We expect to be subject to increasing risks of international operations. We
currently market and sell our products and services primarily in North America,
from which we received approximately 81% of our total revenues for the year
ended December 31, 2004. However, in 2004 we expanded our international
operations, particularly in Europe. Managing these expanded operations requires
significant management attention and financial resources. Further, we currently
have limited experience in marketing and distributing our products in regions


                                       8

<PAGE>


other than North America. Our inability to increase our worldwide operations
successfully could adversely impact our business. In addition, exchange rate
fluctuations between the dollar and foreign currencies may adversely affect us.
Prior to 2003, we did not use currency exchange forward contracts and options to
hedge the risks associated with fluctuations in foreign exchange rates. Although
we did utilize currency exchange forward contracts to hedge the revenues from
most of our Euro and GB Pound-denominated transactions in 2004, some of our
foreign currency-denominated revenues are still not hedged. Accordingly, we are
still exposed to the risk that our revenues will decrease in the event that
those foreign currencies strengthen against the dollar. In addition, 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 non-U.S. markets, thereby causing a
reduction in our sales. See "-Exchange rate fluctuations between the dollar and
the NIS may negatively affect our earnings" for a discussion of risks associated
with fluctuations in the dollar-NIS exchange rate.

     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 errors or defects could:

          o    damage our reputation;

          o    increase our product development costs;

          o    divert our product development resources;

          o    expose us to monetary damages;

          o    cause us to lose future sales; or

          o    delay or diminish market acceptance of our products.

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

     Certain of our products, including Jacada Fusion, contain technology that
we acquired from third parties. Because we did not develop the technology
ourselves, there may be errors in the 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 expose us to 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.


                                       9

<PAGE>


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:

          o    be expensive and time-consuming to defend;

          o    cause product shipment and installation delays;

          o    divert management's attention and resources; or

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

     A successful claim of product infringement against us or our failure or
inability to license the infringed or similar technology could have a material
adverse 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 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.


                                       10

<PAGE>


     Conditions in and around Israel could adversely affect our operations.
Because our 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.
From October 2000 until recently, there was a significant increase in violence
primarily in the West Bank and the Gaza Strip and negotiations between Israel
and Palestinian representatives have ceased for periods of time. There can be no
assurance that the recent calm and renewal of negotiations between Israel and
Palestinian representatives will endure. Any renewed hostilities or other
factors related to Israel could 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 36
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. Although we began in 2003 to hedge partially
against risks associated with fluctuations in the dollar-NIS exchange rate, if
the dollar cost of our operations in Israel increases, our U.S. dollar-measured
results of operations will still 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 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 are 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


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<PAGE>


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 March 2005, the law
governing these tax benefits was amended to revise the criteria for investments
that qualify for tax benefits as an approved enterprise. We cannot assure you
that we will, in the future, be eligible to receive additional tax benefits
under this law. 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, or the OCS. The transfer to a non-Israeli entity of technology developed
with OCS funding, including pursuant to a merger or similar transaction, and the
transfer of rights related to the manufacture of more than ten percent of a
product developed with OCS funding are subject to approval by an OCS committee
and to various conditions, including payment by us to the OCS of a percentage of
the consideration paid to us or our shareholders in the transaction in which the
technology is transferred. In connection with a merger or similar transaction,
the amount payable would be a fraction of the consideration equal to the
relative amount invested by the OCS in the development of the relevant
technology compared to the total investment in our company, net of financial
assets that we have at the time of the transaction, but in no event less than
the amount of the grant. In addition, in the event that the committee believes
that the consideration to be paid in a transaction requiring payment to the OCS
pursuant to the provisions of the law described above does not reflect the true
value of the technology or the company being acquired, it may determine an
alternate value to be used as the basis for calculating the requisite payments.
These restrictions may impair our ability to enter into agreements for those
products or technologies, without OCS approval.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.

     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, which we refer to as
the Companies Law, could also delay or otherwise make more difficult a change in
control. The provisions of the Companies Law relating to mergers and
acquisitions are discussed in greater detail in "Item 10.B: Memorandum and
Articles of Association."


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<PAGE>


     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 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 Fridays
and open on Sundays, while 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

     Our legal and commercial name is Jacada Ltd. We were incorporated under the
laws of the State of 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 Lisa W. Wannamaker, 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. We operate under the Companies Law.

     Since October 1999, our Ordinary Shares have been quoted on the Nasdaq
National Market under the symbol "JCDA." In addition, our 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 and
solutions that help customers rapidly simplify and improve critical business
processes without the need for long and expensive system replacement projects.
Our software and solutions enable businesses to Web-enable, modernize and
integrate their existing software applications to better serve the needs of
their users, customers and partners. Our solutions provide our customers with a
simplified interaction to dramatically improve the efficiency of the user and
the experience of the user's customer.

     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 traditional solutions include AIG, Bank of
America, Caterpillar, Delta Air Lines, U.S. Department of Interior, The Federal
Reserve Bank, Liberty Mutual Insurance, Lockheed Martin, Manpower, Porsche Cars
North America, Prudential Life Insurance Company, Raytheon, The Hartford and
Saab Cars.

     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. In addition, we are not currently engaged in a capital divestiture and
our current capital expenditures are for computers, software and peripheral
equipment. These capital expenditures are financed with our internal cash
resources.


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<PAGE>


         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 2003 and 2004.

B.   Business Overview

Industry Overview

     Jacada has been operating in the application integration and web-enablement
market for 14 years. We refer to this market as our "Traditional Market." In
2004, we introduced Jacada Fusion and elected initially to target corporate
customer call centers. This represents a new market for us and we refer to it as
the "Contact Center (CC) Market."

     Traditional Market

     A significant number of the applications that are critical to companies in
operating their businesses, including applications for customer account
information, sales and inventory management, customer order information and
manufacturing enterprise resource planning, are currently held in existing
application environments such as those based on mainframes, Microsoft Windows
servers and mini-computers. Applications for existing systems are typically
complex and proprietary and tailored to the needs of a specific company. These
applications were originally designed to be accessible only by a fixed network
of users, principally employees. Furthermore, these applications have
complicated user interfaces, which lack the flexibility and intuitiveness of
today's web user interfaces. Companies continue to rely heavily on and invest a
significant amount of resources in existing applications and data.

     Companies are increasingly seeking to circumvent the limitations of their
existing 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, there is an increasing need
to integrate existing host-centric applications with these new systems easily.

     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 reuse without the costs, risks and time
required to rewrite the application.

     An effective solution to extend and integrate existing applications should:

          o    be able to be implemented rapidly;


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

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

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

     Contact Center (CC) Market

     In today's highly competitive markets, companies increasingly focus on the
provision of customer service as a means of increasing customer satisfaction and
customer retention rates. For most companies, the key organization involved in
this effort is the company's contact center, or call center, whose personnel are
directly customer-facing.

     To provide quality customer service, customer service representatives (CSR)
must be able to answer a customer's questions quickly, handle any request the
customer may have, and do so in an efficient and pleasant manner. One of the
significant challenges in the provision of quality customer service is the
complexity of the CSR desktop. This is due both to the number of software
applications on the CSR's computer desktop and to the complexity of the
applications used on the desktop. Most CSRs must manage three or more
applications on their desktop, including billing, inventory, delivery tracking,
call tracking and customer relationship management, or CRM, applications, and
many CSRs have six, eight, or ten or more applications they must learn and
manage.

     The number of applications on the typical CSR desktop is increasing due to
the broader range of services that organizations are demanding of contact
centers and the desire for agents to resolve calls during the first contact with
the customer. These applications are often a combination of Windows, web and
host centric applications that are not integrated, and many of these
applications have a unique user interface that CSRs must master to perform their
jobs.

     The complex CSR desktop results in:

          o    Long average call handle times, or AHT;

          o    Long and expensive training programs for the CSR;

          o    High CSR turnover; and

          o    Poor customer satisfaction and low customer retention.


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<PAGE>


Our Solutions

     We develop, market and support software and solutions that help customers
rapidly simplify and improve critical business processes without the need for
long and expensive system replacement projects. Our software and solutions
enable businesses to Web-enable, modernize and integrate their existing software
applications to better serve the needs of their users, customers and partners.
Our software and solutions also simplify the interaction of our customers with
their customers, thereby significantly improving the efficiency of the user and
the experience of the user's customer.

     Benefits

     Our solutions for our traditional market and contact center market provide
the following benefits:

          o    Leverage Existing Information Technology Resources. Our solutions
               permit companies to access their existing 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 Oracle Corporation. This eliminates the need to replace
               existing applications through time-consuming and expensive custom
               programming.

          o    Platform Independence. Our Java-based solution provides customers
               with the flexibility to run our products on any Java-enabled
               platform, including IBM zSeries S/390, iSeries AS/400, Sun
               Solaris, HP UX, IBM AIX, Microsoft Windows NT, Microsoft Windows
               2000, and Microsoft Windows 2003.

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

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

          o    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.

          o    Flexibility to Adapt to Evolving Business Needs. We design our
               solutions to work effectively even as companies modify existing
               and add new applications in response to their evolving business
               needs. As companies program changes into their applications, our
               solutions automate the changes in the graphical user interface.
               The access to multiple platforms through one interface also


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<PAGE>


               allows companies to respond more quickly to customer demands and
               changes in the marketplace as new business rules and processes
               can be adopted through the single user interface without
               rewriting any code or data.

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

     Our solutions for the contact center market provide the following benefits:

          o    Reducing average handle times (AHT). Because Jacada Fusion
               presents users with a single interface through which applications
               are accessed, it eliminates the need to navigate through and
               between applications. Therefore it eliminates redundant data
               entry, cuts keystrokes and streamlines or even eliminates process
               steps, including time consuming call wrap-up processes, thereby
               generating greater efficiency. This enables increased first call
               resolution (FCR) and significant reduction in AHT.

          o    Significantly reducing CSR training costs. By simplifying the CSR
               desktop and reducing the number of applications with which a CSR
               must interact, our contact center solution allows our customers
               to significantly reduce their CSR training costs.

          o    Increasing revenue opportunities. By reducing AHT and making it
               easier for CSRs to access all the data needed to answer a
               customer's question or complete a customer's request, Jacada
               Fusion enables CSRs to perform increased sales activities,
               leading to potentially greater revenue opportunities.

          o    Improving user and customer experience. Reduced AHT and increased
               FCR enable our customers to improve their customers' experience,
               helping generate increased customer satisfaction and loyalty. The
               access to multiple platforms through one user-friendly interface
               also improves the experience of the CSR, leading to improved CSR
               morale and productivity.

Products and Technology

     Our products and services provide our customers with comprehensive
eBusiness enabling and contact center solutions. Our products include:

     Jacada(R) 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-centric applications and data to the Internet and their intranets
without rewriting these applications. In addition, Jacada Interface Server


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<PAGE>


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(R) HostFuse (formerly known as Jacada Integrator). Jacada HostFuse
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. We have established sales and
marketing relationships in relation to our traditional market with Siebel
Systems, Computer Associates, Oracle, BEA Systems and SeeBeyond, Inc. to utilize
Jacada HostFuse where a real-time, non-intrusive solution is required to
integrate a host-centric application with its CRM or EAI solutions. Our
customers get the benefits of on-line, real-time integration with back-office
applications without rewriting any of their existing systems.

     Jacada Interface Server and Jacada HostFuse are based on our following core
technology components:

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

          o    Jacada Automated Conversion Environment (ACE). In combination
               with the Jacada KnowledgeBase, ACE forms the powerful core of a
               solution that can quickly and easily generate graphical user
               interfaces for mainframe and mid-range 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.

          o    MapMaker. Jacada HostFuse includes our patented 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


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<PAGE>


               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 HostFuse
               also provides a means for packaging MapMaker services as
               Enterprise JavaBeans.

     Jacada(R) Fusion. Jacada Fusion is based on three Jacada technology
components: Jacada HostFuse (described above), Jacada WinFuse and Jacada
WebFuse, enebaling to deliver a simplified desktop to users.

     Jacada(R) WinFuse. Jacada WinFuse, which, together with our Jacada HostFuse
and Jacada WebFuse products, form the core of our Jacada Fusion offering, was
launched in the second quarter of 2004. Jacada WinFuse is a non-invasive
integration solution that allows companies to web-enable and integrate their
Microsoft Windows and client/server applications without modifying or changing
anything in the existing application. Jacada WinFuse enables organizations to
leverage their existing Windows client/server applications to automate business
processes and seamlessly integrate and transfer data from one application to
another. Jacada WinFuse can work with any 32-bit Windows application.

     Jacada WinFuse service-enables Windows client/server applications. Without
changing anything in the original application, and without needing to access the
source code, Jacada WinFuse enables organizations to automate interactions with
their applications and "drive" the system as a user would, navigating a series
of Windows forms, and inserting or retrieving data as required. Jacada WinFuse
exposes these interactions as Web services that can be integrated into any J2EE
or .NET composite application in a scalable and secure fashion. By
service-enabling any Windows-based application, Jacada WinFuse provides for the
rapid adoption of service-oriented architectures (SOA), enabling IT to deliver
new functionality as quickly as the business demands.

     Jacada(R) WebFuse. Jacada WebFuse is a non-invasive solution for accessing
and managing any HTML-based web application, for the purpose of integrating the
data and processes in the application with other business processes. Jacada
WebFuse offers an approach to integrating with Web applications by using the Web
application user interface to quickly encapsulate the processes and data into
web services, which can then be integrated with newly developed and existing
applications. Jacada WebFuse services can be deployed in both J2EE and .NET
environments.

     Jacada WebFuse can be used for a wide variety of business applications that
require access to single or multiple Web-based applications, or when there is no
available means to directly access the data or business logic behind the Web
system. Business scenarios that can benefit from Jacada WebFuse include
integrating to enterprise portals, automating data collection from multiple
third party web applications, and providing bi-directional access and update
capability to internal thin-client applications from a newly implemented system
such as a CRM application.


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<PAGE>


     Jacada(R) Terminal Emulator. Jacada Terminal Emulator 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 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 either on a fixed fee basis or by the hour
plus out-of-pocket expenses, and for training services by the day plus
out-of-pocket expenses. 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 and solutions to customers and providing
customers with training, consulting, and support and maintenance services.
Software and product revenues constituted approximately 29.1%, 40.6% and 45.4%
of our total revenues for the years ended December 31, 2004, 2003 and 2002,
respectively, while service and maintenance revenues constituted approximately
70.9%, 59.4% and 54.6% of our total revenues, respectively, for the same
periods. Software and product revenues generated from North American customers
constituted approximately 21.9%, 30.6% and 31.4% of our total revenues for the
years ended December 31, 2004, 2003 and 2002, respectively, while service and
maintenance revenues generated from North American customers constituted
approximately 58.5%, 49.4% and 48.3% of our total revenues, respectively, for
the same periods. Software and product revenues generated from European
customers constituted approximately 6.6%, 9.2% and 14.0% of our total revenues


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<PAGE>


for the years ended December 31, 2004, 2003 and 2002, respectively, while
service and maintenance revenues generated from European customers constituted
approximately 11.4%, 9.6% and 6.3% of our total revenues, respectively, for the
same periods. Our gross margins on software and products revenues have
historically been higher than our gross margins on service and maintenance
revenues.

Seasonality

          Not  applicable.

Sources and Availability of 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, 2004, we had 46 people in
our sales and marketing organization, representing a slight decrease from 47 at
December 31, 2003.

     Recently we have made changes in our US sales staff as we believe that we
need persons with different skills and experience than those of our 2004 sales
staff in order to sell our Fusion product. As part of these changes, which are
part of our effort to align our company behind Fusion, we terminated 5 sales
force members, including our VP sales, and hired new employees instead.

     We invested significantly in the establishment of indirect sales channels
in 2004 in Europe and Asia. Our indirect distribution channels have capabilities
that complement and augment our eBusiness solutions 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
target customers of our solutions and the benefits they 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 both our direct sales force and indirect distribution
channels. These materials include brochures, white papers, case studies, press
releases and our Web site.


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Customers

     Our customers include both end users to whom we sell our products and
services directly and distributors and other intermediaries who either resell
our products to end users or incorporate our products into their own product
offerings. Typical end users of our products and services are medium to large
businesses with sophisticated technology requirements.

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

          o    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 CRM
               applications.

          o    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.

          o    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.

          o    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.

          o    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.

          o    A telecommunications provider, which uses our solution to assist
               in streamlining its customer retention process and improve the
               productivity and efficiency of its call center.

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. 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


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<PAGE>


recruited and intend in the future to recruit key software engineers and
developers with experience in Java, .net, communications, expert systems,
Windows internals and Internet technologies. Our research and development
efforts, which include internal development as well as acquisition of technology
components, are primarily focused on enhancing and adding functionality to our
existing products and adding new products based on our expectations of future
technologies and industry trends.

     Our research and development expenses were $5.3 million for the year ended
December 31, 2004, $5.3 million for the year ended December 31, 2003 and $5.9
million for the year ended December 31, 2002. As of December 31, 2004, 52
professionals were engaged in research and development activities, no change
from 52 professionals at December 31, 2003. See also "Item 8. Financial
Information, B. Significant Changes."

Dependence on Patents and Licenses

     We own our core technology for our core products. In addition, we own a
significant majority of the software products that we license to customers. We
hold two patents on portions of our technology. For our more established
products, we are generally not dependent on any third party license or patent
with respect to such technology or products. While we have an additional patent
pending with respect to our technology, we believe that the failure to obtain
such patent would not diminish our ownership rights in our technology or our
software products.

Competition

     The markets in which we compete are extremely competitive and subject to
rapid change. We believe that the competitive factors affecting the markets for
our products and services include:

          o    product functionality and features;

          o    availability of global support;

          o    existing vendor relationships;

          o    ease of product implementation;

          o    quality of customer support services;

          o    product reputation; and

          o    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


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<PAGE>


integrators to write new code or rewrite existing applications in an effort to
develop eBusiness solutions. As a result, prospective customers may decide
against purchasing and implementing externally developed and produced solutions
such as ours.

     In our traditional market, we compete with companies that utilize varying
approaches to modernize, web-enable and integrate existing software
applications. These companies include Attachmate Corporation, IBM, Seagull
Software Ltd., TIBCO Software Inc., WRQ, Inc. and webMethods, Inc. Our Jacada
Fusion product competes with other contact center solutions offered by
Microsoft, Corizon and Level 8 Systems. We expect additional competition from
other established and emerging companies. Furthermore, our competitors may
combine with each other, or other companies may enter our markets by acquiring
or entering into strategic relationships with our competitors.

Material Effects of Government Regulation in Israel

     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 are 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. In March 2005, the law governing these tax benefits was amended to
revise the criteria for investments that qualify for tax benefits as an approved
enterprise. We cannot assure you that we will, in the future, be eligible to
receive additional tax benefits under this law. In addition, 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, or OCS. We have used these grants to develop portion of our
technology. The State of Israel does not own proprietary rights in technology
developed with OCS funding and there is no restriction on the export of products
manufactured using technology developed with OCS funding. The technology
developed with OCS funding is, however, subject to transfer restrictions, as


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<PAGE>


described below. These restrictions may impair our ability to sell our
technology assets or to outsource manufacturing and the restrictions continue to
apply even after we have paid the full amount of royalties payable for the
grants. In addition, the restrictions may impair our ability to consummate a
merger or similar transaction in which the surviving entity is not an Israeli
company.

     The transfer to a non-Israeli entity of technology developed with OCS
funding, including pursuant to a merger or similar transaction, and the transfer
of rights related to the manufacture of more than ten percent of a product
developed with OCS funding are subject to approval by an OCS committee and to
the following conditions:

          o    Transfer of Technology. If the committee approves the transfer of
               OCS-backed technology, such a transfer would be subject to the
               payment to the OCS of a portion of the consideration we receive
               for such technology. The amount payable would be a fraction of
               the consideration equal to the relative amount invested by the
               OCS in the development of such technology compared to our total
               investment in the technology, but in no event less than the
               amount of the grant. However, in the event that in consideration
               for our transfer of technology out of Israel we receive
               technology from a non-Israeli entity for use in Israel, we would
               not be required to make payments to the OCS if the approval
               committee finds that such transfer of non-Israeli technology
               would significantly increase the future return to the OCS.

          o    Transfer of Manufacturing Rights. The committee is authorized to
               approve transfers of manufacturing rights only if the transfer is
               conditioned upon either (1) payment of increased aggregate
               royalties, ranging from 120% to 300% of the amount of the grant
               plus interest, depending on the percentage of foreign manufacture
               or (2) a transfer of manufacturing rights into Israel of another
               product of similar or more advanced technology.

          o    Merger or Acquisition. If the committee approves a merger or
               similar transaction in which the surviving entity is not an
               Israeli company, such a transaction would be subject to the
               payment to the OCS of a portion of the consideration paid. The
               amount payable would be a fraction of the consideration equal to
               the relative amount invested by the OCS in the development of
               such technology compared to the total investment in the company,
               net of financial assets that the company has at the time of the
               transaction, but in no event less than the amount of the grant.

     In the event that the committee believes that the consideration to be paid
in a transaction requiring payment to the OCS pursuant to the provisions of the
law described above does not reflect the true value of the technology or the


                                       25

<PAGE>


company being acquired, it may determine an alternate value to be used as the
basis for calculating the requisite payments.

     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. In addition, if we fail to comply with any of the conditions
imposed by the OCS, we may be required to refund any grants previously received,
together with interest and penalties.


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 (Europe)
Limited owns 100% of the stock of Jacada Deutschland GmbH, a limited liability
company organized under the laws of Germany.

D.   Property, Plants and Equipment

     As of December 31, 2004, 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 18,500 square feet in Atlanta,
Georgia, which we utilize for marketing, sales, administration, service and
technical support. The lease expires in June 2009, and we have the right to
extend the lease for an additional five-year term. We also lease office space in
Miami, Florida, Bellevue, Washington and Chicago, Illinois, which we utilize for
marketing and sales; these leases are not material.

     In England, we lease approximately 600 square feet, which we utilize for
sales, marketing and services. The lease expired in March 2005 and was renewed
for an additional three months. In addition, we lease office space in Germany,
which is utilized for sales and marketing activities. This lease is renewable on
an annual basis and is not material.


                                       26

<PAGE>


Item 5:  OPERATING AND FINANCIAL REVIEW AND PROSPECTS

A.   Operating Results

     We develop, market and support solutions that enable customers to rapidly
simplify and improve critical business processes without the need for long and
expensive system replacement projects. 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.

Revenues

     We derive our revenues from license and product fees for our software
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.

     Major factors influencing our revenues include the decrease in the average
deal size for our traditional products, primarily due to increased competition
on this market, and the sales of our new Jacada Fusion product. We began to sell
this product in the second half of 2004. However, we currently believe that the
sales cycle for Jacada Fusion may be up to 18 months, which is longer than we
had originally anticipated. The longer than anticipated sales cycle has caused a
significant reduction in our revenues for the first quarter of 2005, as
decreases in revenues from our traditional markets due to the decrease in
average deal size were not offset by anticipated revenue from Jacada Fusion. In
addition, the growth in our installed base of customers for our traditional
products has resulted in an increase in our maintenance revenues.

     We and our subsidiaries apply 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 also apply SOP
98-9, "Modification of SOP 97-2, Software Revenue Recognition with Respect to
Certain Transactions". 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.

     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


                                       27

<PAGE>


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.

     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 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.

     In transactions where the contractual terms include a provision for
customer acceptance, revenues are recognized either when such acceptance has
been obtained or when the acceptance provision has lapsed provided that all
other revenue recognition criteria have been met.

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

Cost of Revenues

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

     With the introduction of Jacada Fusion, we expect our business to be more
product-oriented rather than service-oriented, as we expect that an increasing


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<PAGE>


portion of our revenues will result from the sale of our Jacada Fusion product.
To the extent that this shift occurs, amounts that would have been accounted for
as cost of services will be accounted for as part of our costs of Software and
Product.

Research and Development Costs

     As part of our long-term growth strategy we have incurred substantial
research and development costs.

     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. Based on our product development process,
technological feasibility is established upon completion of a working model.
Costs incurred between the completion of the working model and the point at
which the products are ready for general release have been insignificant.
Therefore, all research and development costs have been expensed.

Recently Issued Accounting Pronouncements

     On December 16, 2004, the Financial Accounting Standards Board (FASB)
issued FASB Statement No. 123 (revised 2004), Share-Based Payment, or "Statement
123(R)." Statement 123(R) is a revision of FASB Statement No. 123, Accounting
for Stock-Based Compensation. Statement 123(R) requires all share-based payments
to employees, including grants of employee stock options, to be recognized in
the income statement based on their fair values. Pro forma disclosure is no
longer an alternative. This new standard will be effective for us in the first
interim period beginning after January 1, 2006.

     As permitted by Statement 123, we currently account for share-based
payments to employees using the intrinsic value method and, as such, we
generally recognize no compensation cost for employee stock options.
Accordingly, the adoption of Statement 123(R)'s fair value method will have a
significant impact on our results of operations, although it will have no impact
on our overall financial position.

     For a discussion of Statement 123(R) and other 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
ongoing basis. We base our estimates on our historical experience and on various


                                       29

<PAGE>


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 judgments 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 certain
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
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 initial credit evaluations of our
customers and adjust credit limits based upon payment history and the customer's
creditworthiness, as determined by our review of their 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


                                       30

<PAGE>


and training are recognized either on a time and materials basis as the services
are provided or on a fixed fee basis.

     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, 2004, 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 future cash
flows, future short-term and long-term growth rates, weighted average cost of
capital and estimates of market multiples. We have performed impairment tests
and determined that our goodwill of $4.6 million is not subject to an impairment
charge as of our December 31, 2004 fiscal year end.


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     Our historical operating results for the years ended December 31, 2004,
2003 and 2002 as a percentage of net revenues are as follows:

                                                   Year Ended December 31,
                                                   -----------------------
                                                   2004        2003      2002
                                                   ----        ----      ----
Revenues:
   Software and products....................      29.1%       40.6%      45.4%
   Services.................................       27.7        22.9      21.0
   Maintenance..............................       43.2        36.5      33.6
                                                   ----        ----      ----
      Total revenues.....................         100.0%      100.0%    100.0%

Cost of revenues:
   Software and products....................        3.2         4.1       2.5
   Services.................................       16.9        11.6      14.5
   Maintenance..............................        5.8         5.4       5.8
                                                   ----        ----      ----
      Total cost of revenues.............          25.9        21.1      22.8
                                                   ----        ----      ----
Gross profit                                       74.1        78.9      77.2

Operating expenses:
   Research and development.................       26.7        25.8      27.4
   Sales and marketing......................       53.1        45.6      43.9
   General and administrative...............       24.0        22.9      21.4
   Restructuring............................        2.7          -        2.3
                                                   ----        ----      ----
      Total operating expenses...........         106.5        94.3      95.0
                                                   ----        ----      ----
Operating loss.................................   (32.4)      (15.4)    (17.8)
Financial and other income, net................     3.9         5.0       4.2
                                                   ----        ----      ----
Net loss                                          (28.5)%     (10.4)%   (13.6)%
                                                  =======     =======   =======

Years Ended December 31, 2004, 2003 and 2002

Revenues and Cost of Revenues

     Revenues. Revenues were $19.8 million, $20.6 million and $21.5 million for
the years ended December 31, 2004, 2003 and 2002, respectively. The 3.8%
decrease in total revenues in 2004 as compared to 2003 and the 4.5% decrease in
2003 as compared to 2002 are primarily due to the competitive environment in our
traditional software product market, which creates pricing pressures and has
resulted in companies stretching out commitments and postponing purchases. As a
result of these developments, we experienced a decrease in the average dollar
amount of our transactions and in the average number of transactions. For the
years ended December 31, 2004, 2003, and 2002 no customer represented 10% or
more of our revenues.

     Software and products revenues. Software and products revenues were $5.7
million, or 29.1% of revenues for the year ended December 31, 2004, compared to
$8.3 million, or 40.6% of revenues for the year ended December 31, 2003, and
$9.8million, or 45.4% of revenues, for the year ended December 31, 2002. The
31.3% reduction in software revenues during 2004 as compared to 2003 and the
15.3% reduction in 2003 as compared to 2002 were related to the decrease in the
number of transactions and in the average dollar amount per transaction mainly
due to competitive environment.


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<PAGE>


     Service revenues. Service revenues were $5.5 million or 27.7% of revenues
for the year ended December 31, 2004, compared to $4.7 million or 22.9% of
revenues for the year ended December 31, 2003 and $4.5 million or 21.0% of
revenues for the year ended December 31, 2002. Service revenues are generated
primarily from supporting customers during the implementation of projects,
including our software products. The increase in service revenues in 2004 is due
to two large orders and an increase in the number of service transactions. The
increase in service revenue in 2003 was due to the stabilization in the
competitive environment for services after the economic downturn of 2001 and
2002 as well as a number of transactions that involved significant service
components.

     Maintenance revenues. Maintenance revenues were $8.6 million or 43.2% of
revenues for the year ended December 31, 2004, compared to $7.5 million or 36.5%
of revenues for the year ended December 31, 2003 and $7.2 million or 33.6% of
revenues, for the year ended December 31, 2002. The increase in maintenance
revenues during 2004 and 2003 was primarily related to our expanding customer
base and related annual maintenance contract renewals.

     Cost of Revenues. Cost of revenues was $5.1 million or 25.8% of revenues
for the year ended December 31, 2004, compared to $4. 3 million or 21.1% of
revenues for the year ended December 31, 2003 and $4.9 million or 22.7% of
revenues for the year ended December 31, 2002. The increase in cost of revenues
during 2004 was primarily due to an increase in the cost of service revenue as
discussed below.

     Cost of software and products revenues was $0.6 million or 3.0% of revenues
for the year ended December 31, 2004 compared to $0.8 million or 4.1% of
revenues for the year ended December 31, 2003 and $0.5 million or 2.5% of
revenues for the year ended December 31, 2002. The decrease in cost of software
and products revenues in 2004 was due to fewer transactions generated by our
partners in 2004, resulting in reduced royalty payments to our partners. The
increase in cost of software and products revenues in 2003 was due to an
increase in payment of royalties to our partners.

     Cost of service revenues was $3.3 million or 16.9% of revenues for the year
ended December 31, 2004, compared to $2.4 million or 11.6% of revenues for the
year ended December 31, 2003 and $3.1 million or 14.5% of revenues for the year
ended December 31, 2002. The increase in cost of services revenues from 2003 to
2004 was due to the increase in the number of services professionals from 20 at
December 31, 2003 to 28 at December 31, 2004 and the costs relating to
subcontractors needed to support a small number of transaction in which we
required subcontractor services. The decrease in cost of service revenues during
2003 was due to our realizing a full year of benefits from the work force
reduction we effected in mid-2002 in order to adjust the number of our service
professionals to actual and anticipated near term business levels.

     Cost of maintenance revenues was $1.1 million or 5.8% of revenues for the
year ended December 31, 2004, compared to $1.1 million or 5.4% of revenues for
the year ended December 31, 2003 and $1.2 million or 5.8% of revenues for the
year ended December 31, 2002.


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<PAGE>


Total Operating Expenses

     The increase in total operating expenses to $21.1 million in 2004 from
$19.4 million in 2003, was primarily due to an increase in sales and marketing
expenses in the amount of $1.1 million and to restructuring expenses in the
amount of $0.5 million incurred in 2004 for the shutting down of our research
and development operations in Minneapolis in order to consolidate all research
and development in Israel. The increase was also due to the increase in
marketing expenses in connection with the launch of our new Jacada Fusion
solution and expenses relating to expanding our European sales organization. The
decrease in 2003 total operating expenses of $19.4 million from 2002 total
operating expenses of $20.5 million was primarily due to reductions in manpower
and related costs to support actual and projected business levels. These changes
included the benefits from a restructuring and cost reduction plan implemented
in 2002 after the impact of the global economic slowdown in 2001. The reduction
from 2002 to 2003 was also due to a charge incurred in 2002 for acquired
technology.

     During the first quarter of 2005, in response to the realization that the
sales cycle of Jacada Fusion is longer than we anticipated, we adopted a
restructuring plan in an attempt to minimize the gap between our declining
traditional business revenue and the anticipated Jacada Fusion revenue by
improving operational processes. The plan includes merging several departments,
aligning the marketing and sales organization to support the new business model
and implementing various expense reductions. These changes also resulted in a
12% reduction in workforce worldwide and included the related costs associated
with this reduction. The plan is expected to reduce operating expenses by about
$1.9 million in 2005.

     Research and Development. Research and development expenses were $5.3
million, $5.3 million and $5.9 million for the years ended December 31, 2004,
2003 and 2002, respectively. The research and development expenses in 2004
include cost associated with an increase in hiring through the end of the year
offset by savings associated with the closing of our lab in Minneapolis and the
consolidation of all research and development activities into our facilities in
Israel. The decrease from 2002 to 2003 was primarily due to the reduction in
work force as part of our restructuring in mid 2002 and our realization of a
full year of benefits from that restructuring in 2003. In addition, during the
fourth quarter of 2002 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. The
nonrecurring nature of this expense was partially responsible for the decline in
research and development expenses in 2003. As a percentage of total revenues,
research and development expenses were 26.7%, 25.8% and 27.4% for the years
ended December 31, 2004, 2003 and 2002, respectively.

     Sales and Marketing. Sales and marketing expenses were $10.5 million, $9.4
million and $9.4 million for the years ended December 31, 2004, 2003 and 2002,
respectively. The increase in 2004 compared to 2003 was primarily due to the
marketing expenses relating to our new product launch and the expenses relating
to increasing our European sales organization. As a percentage of total
revenues, sales and marketing expenses were 53.1%, 45.6% and 43.9% for the years


                                       34

<PAGE>


ended December 31, 2004, 2003 and 2002, respectively.

     General and Administrative. General and administrative expenses were $4.7
million, $4.7 million and $4.6 million for the years ended December 31, 2004,
2003 and 2002, respectively. As a percentage of total revenues, general and
administrative expenses were 24.0%, 22.9% and 21.4% of total revenues for the
years ended December 31, 2004, 2003 and 2002, respectively.

     Restructuring. During 2004, we recorded a charge in the amount of $0.5
million, or 2.7% of revenues, associated with the consolidation of all research
and development operations in Minneapolis into the lab in Israel. This
consolidation was designed to improve overall development efficiency, accelerate
new product releases and reduce operating expenses.

     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, 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 work force on a
cumulative basis and a general reduction in all operating expenses. As a result
of implementing the restructuring plans and through attrition, 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 nonrecurring 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, Net. Financial income, net, was $0.8 million for the year
ended December 31, 2004, $1.0 million for the year ended December 31, 2003 and
$0.9 million for the year ended December 31, 2002. In October 1999, we raised
approximately $51 million, net of expenses, in an initial public offering. Most
of the financial income was generated from investments of our funds in certain
financial instruments, which generate interest and investment income. The
decline from 2003 to 2004 is primarly due to exchange rate income in 2003 which
was hedged in 2004 and also a reduction in our cash balance during 2004 due to
use of cash to fund working capital.

     Income Taxes. As of December 31, 2004, we had approximately $10.2 million
of net operating loss carryforwards for Israeli tax purposes, approximately
$12.2 million of net operating loss carryforwards for United States federal tax
purposes, approximately $2.6 million of net operating loss carryforwards for
United Kingdom tax purposes, and approximately $1.5 million of net operating
loss carryforwards for German tax purposes. The carryforwards are available to
offset future taxable income. The United States net operating loss carryforwards
expire in various amounts between the years 2011 to 2024. The Israeli and the
United Kingdom net operating loss carryforwards have no expiration date.

     Net Loss. As a result of the above factors, our operations resulted in net
losses of $5.6 million in 2004, $2.1 million in 2003 and $2.9 million in 2002.


                                       35

<PAGE>


B.   Liquidity and Capital Resources

     Since our inception, we have funded operations through the private
placement and public offering of equity securities, internal operations and, to
a lesser extent, borrowings from financial institutions.

     As of December 31, 2004, we had $37.6 million in cash and investments, all
of which were interest and dividend bearing. During 2004, operating activities
used approximately $2.6 million in cash. The major components using cash during
2004 included the net loss of $5.6 million from operations and the acquisition
of technology in the amount of $0.9 million. Partially offsetting the use of
cash was the non-cash depreciation and amortization of $1.2 million, an increase
in deferred revenue of $0.5 million, proceeds from exercise of stock options of
$0.4 million, proceeds from sales of fixed assets of $0.2 million, increase in
trade payables of $0.5 million, and decrease in accrued interest and
amortization of premium on marketable securities of $0.6 million.

     As of December 31, 2003, we had $41.8 million in cash and investments, all
of which were interest and dividend bearing. During 2003, operating activities
provided approximately $0.8 million in cash. One of the major components
providing cash during 2003 was an increase in deferred revenues of $1.2 million.
This increase was due to our ability to structure transactions that feature
multiyear maintenance commitments and yield up front payments. Other major
components providing cash during 2003 included noncash depreciation and
amortization of $1.4 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 $2.1 million generated from operations and
a reduction in trade payables of $0.2 million.

     As of December 31, 2002, we had $41.4 million in cash and investments, all
of which were interest and dividend 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 up front payment and our
collection efforts 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 noncash 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 charges related to acquired
technology and a reduction in accrued expenses and other liabilities of $0.6
million.

     Expenditures for property and equipment were approximately $0.5 million,
$0.3 million and $0.6 million for the years ended December 31, 2004, 2003 and
2002, 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 2002 we had a $2.8 million credit facility with two banks, under which
we had no borrowings. We terminated this facility in 2003.


                                       36

<PAGE>


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

     Derivative Financial Instruments. Since our financial results are reported
in dollars, fluctuations in the rates of exchange between the dollar and
non-dollar currencies may have a material effect on our results of operations.
We therefore use currency exchange forward contracts to hedge the impact of the
variability in the exchange rates on accounts receivable and future cash flows
from certain Euro-denominated transactions as well as certain NIS-denominated
expenses. The counter-parties to our forward contracts are major financial
institutions with high credit ratings. We believe the risk of incurring losses
on such forward contracts related to credit risks is remote and that any losses
would be immaterial. As of December 31, 2004, we had forward contracts to sell
up to $2,859,800 for a total amount of NIS 12,778,663 maturing prior to July 15,
2005.

     Impact of Taxation. Please refer to Item 3.D and Item 10.E for certain
information regarding tax benefits in Israel.

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

     We believe that strong product development is essential to our strategy of
continuing to enhance and expand the capabilities of our products. 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, .net,
communications, expert systems, Windows internals 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 $5.3 million for the year ended
December 31, 2004, $5.3 million for the year ended December 31, 2003 and $5.9
million for the year ended December 31, 2002. As of December 31, 2004, 2003 and
2002, respectively, we had 52, 52 and 49 employees engaged in our product
development activities. See also, "Item 8. Financial Information, B. Significant
Changes."

D.   Trend Information

     The average selling price of our traditional software products has declined
over the past five years due to changes in our competitive environment that have
resulted in increased pricing pressures. We believe that this trend may
continue. See "Risk Factors - The revenue associated with our traditional
products has declined and the revenue generated by our new Jacada Fusion
products is less than we anticipated; failure to increase revenues will result


                                       37

<PAGE>


in increased losses and a material adverse effect on our business" and
"Competitive pressures in our current market will result in continuing
reductions in the average selling price of our traditional software products"
for a discussion of the potential effects of this trend.

     We have developed a new solution, Jacada Fusion, which is designed to
integrate different applications residing on host, Windows and Web-based
platforms. However, we cannot be sure that a market for Jacada Fusion will
develop, that it will achieve market acceptance or that the costs we have
incurred in its development and introduction will be recovered. In addition, our
sales cycle for our new Jacada Fusion solution is longer than we expected.
Therefore, we are unable to determine if our business model will support our
forecasted revenue. We do not have significant backlog of orders, and backlog is
not a significant factor in our business. See "Risk Factors, and specifically -
"Our introduction of Jacada Fusion represents an attempt to enter a new market
in which we do not have experience and failure to successfully penetrate this
market would harm our results of operations" and "We do not have a proven
business model for the contact center market; if our business model is
inappropriate for this market and our estimations regarding the sales cycle for
this market is incorrect, our efforts to successfully commercialize Jacada
Fusion may be harmed or we will experience a further delay in generating
revenues from this product" for a discussion of the risks our business and
prospects for growth face in connection with the introduction of Jacada Fusion.

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

     F.   Tabular Disclosure of Contractual Obligations. The following table
summarizes our contractual obligations and commercial commitments as
of December 31, 2004:

<TABLE>
<CAPTION>

   Contractual Obligations                        Payments due by period (in thousands)
   -----------------------     ----------------------------------------------------------------------------
                                 Total    Less than 1 year   1-3 years   3-5 years     More than 5 years
                                 -----    ----------------   ---------   ---------     -----------------
<S>                             <C>              <C>           <C>          <C>                <C>
Facilities                      $2,228           685           1,365        178                 0
Vehicles                          $281            83             198          0                 0

</TABLE>


                                       38

<PAGE>


Item 6:  DIRECTORS, SENIOR MANAGEMENT AND

A.   Directors and Senior Management

     The following table sets forth certain information regarding our executive
officers and directors as of May 31, 2005:

  Name                    Age                     Position
-----------------------   ---   ---------------------------------------------
Gideon Hollander(1)       40    Chief Executive Officer and Director
Yuda Doron                53    President, Jacada, Inc.
Tzvia Broida              35    Chief Financial Officer
David Holmes              49    Executive Vice President, Sales and Marketing
Christian Singer          41    Managing Director, Jacada Deutschland GmbH
Jeffrey Roth              43    Senior VP of Israeli Operations
Ofer Yourvexel            41    Senior Vice President Sales ,EMEA
Yossie Hollander          47    Chairman of the Board and Director
Amnon Shoham(1)(2)        47    Director
Ohad Zuckerman(2)         40    Director
Naomi Atsmon(2)           52    Director
Dan Falk (2)              60    Director

(1)......Member of the Compensation Committee
(2)......Member of the Audit Committee

     Gideon Hollander was a co-founder of Jacada in 1990 and has served as our
Chief Executive Officer and a director 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. Gideon Hollander is Yossie Hollander's brother.

     Yuda Doron acts as the President of Jacada, Inc. and is responsible for our
North American operations. He started his service with us in January 2005.
Currently he renders his services on a temporary basis, acting as a consultant.
A twenty-year software industry veteran, Mr. Doron has founded and managed a
variety of technology companies, both in Israel and in the United States. From
2000 to 2004, Mr. Doron served as a consultant to various companies including
Breezcom, Bristol and Enterasys and served as a member of the boards of
directors of the following privately-held software companies: Appilog,
Counterstorm, Itran and Webcollage. Mr. Doron served as CEO of Cheyenne
Communications, a Long Island, NY-based unified messaging company from 1990 to
1992. Subsequent to the merger of Cheyenne Communications with Cheyenne
Software, he was responsible for Cheyenne's Netware line of business. In this
capacity Mr Doron was responsible for Sales Management, Tech Support, Customer
Support, and Worldwide Marketing. After Cheyenne Software was acquired by
Computer Associates in 1998, Mr. Doron managed the company's domestic channel
sales organization from 1998 to 1999.


                                       39

<PAGE>


     Tzvia Broida has been our Chief Financial Officer since January 2005,
having served as our Vice President, Finance 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.

     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.

     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,
a company that develops and markets business software. From 1997 to 2000, he
held various positions in Baan Company in Germany and the UK, where he
successfully established the Baan Automotive Organisation. Between 1992 and
1997, Mr. Singer was employed at Zeuna Starker GmbH & Co KG, a German Tier 1
automotive supplier with operations in three continents. In March 2005 Mr.
Singer announced his registration effective at the end of July 2005.

     Jeffrey Roth has been Senior Vice President of Israeli Operations since
March 2000. He served as Vice President, Customer Support from 1998 through
March 2000. From 1993 to 1997, Mr. Roth was Vice President of Service and
Support for Gerber Systems Inc, later acquired by Kronos, Inc., a provider of
HR, payroll, scheduling, and time and labor solutions. From 1990 to 1993, Mr.
Roth was Operations Manager for Pacer/CATS Corporation, a provider of
admissions, point-of-sale and management systems to the leisure industry.

     Ofer Yourvexel joined us in March 2004 as our Senior Vice President Sales,
EMEA. From March 2003 to March 2004, Mr. Yourvexel was Executive Vice President
of Visonic Technologies, a provider of integrated identification solutions to
enhance security, safety and communications throughout enterprises. From
September 1998 to March 2003, Mr. Yourvexel headed the Marketing and Sales
division at Elpas, a Visonic Technologies company. From June 1996 to August
1998, Mr. Yourvexel held the position of President at Enigma U.S.A. Inc.,
stationed in Boston; Enigma is a worldwide leader in the development,
implementation and marketing of electronic publishing solutions from June 1991
to May 1996. Mr. Yourvexel began his career in the high-tech industry at Tefen
Ltd., a leading industrial engineering and system analysis consulting firm,
where he advanced to Vice President of Operations in the Central U.S.A. region.

     Yossie Hollander has been Chairman of the Board of Directors since November
1995 and a director since 1990. Mr. Hollander was a founder, and from 1983 to
1994 served as the Chief Executive Officer, of New Dimension Software Ltd., an


                                       40

<PAGE>


enterprise system and management software company that was acquired by BMC
Software in April 1999. Mr. Hollander is a member of the executive committee of
the Weizman Institute. 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 provider of investment and financial
advice for high technology companies and venture capital funds. Mr. Shoham has
held this position since 2001. From 1997 to 2000, Mr. Shoham was the Managing
Director of Cedar Financial Advisors (Israel) Ltd, an Israeli affiliate of Cedar
Advisors Inc. Mr. Shoham is also associated with the Cedar Funds, venture
capital funds 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 served as a director 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 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 since June 2001. In addition, Ms.
Atsmon has served as a director of Clicksoftware Technologies Ltd. (NASDAQ:
CKSW) since May 2003. 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 held various positions at Amdocs since 1986.

     Dan Falk joined us in August 2004 as a director. Since 2001 Mr. Falk serves
as a member of the boards of directors of Orbotech Systems Ltd., Attunity Ltd.,
Nice System Ltd, Orad Ltd., Netafim Ltd., Visionix Ltd., Ormat Technologies
Inc., ClickSoftware Technologies Ltd., Poalim Ventures 1 Ltd., Dmatek Ltd., and
Plastopil Ltd., all of which are Israeli companies. In 1999 and 2000, Mr. Falk
was President and Chief Operating Officer of Sapiens International Corporation
N.V. From 1985 to 1999, Mr. Falk served in various positions in Orbotech Systems
Ltd., the last of which were Chief Financial Officer and Executive Vice
President. From 1973 to 1985, he served in several executive positions in the
Israel Discount Bank.

B.   Compensation

     The aggregate remuneration we paid for the year ended December 31, 2004 to
all executive officers as a group was $1,357,466 in salaries, fees, commissions
and bonuses. This group included 8 persons, including Robert C. Aldworth and
James M. Breen, our former CFO and Senior Vice President of North American
Sales, respectively, each of whom has left Jacada in the first half of 2005, and


                                       41

<PAGE>

Christian Singer, our Managing Director of Jacada Deutschland GmbH, who will be
leaving Jacada in July 2005. This also includes $65,610 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) each receive $750 for
each meeting of the board of directors attended and each meeting of a committee
of the board of directors attended. 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 May 31, 2005 options to purchase 1,749,546 ordinary shares granted to
our directors and executive officers (13 persons) under our option plans were
outstanding. The weighted average exercise price of these options was $2.90 per
share ranging from $0.99 to $9.125, and the expiration dates of the options
range from July 30, 2006 to December 31, 2014.

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.

     At our annual meeting in August 2004, the shareholders voted to fix the
number of directors at six directors. In accordance with the terms of our
articles of association, the board of directors is divided into four classes,
with the following terms of office:

          o    Class I directors, whose terms expire at the annual meeting of
               shareholders to be held in 2006;

          o    Class II directors, whose terms expire at the annual meeting of
               shareholders to be held in 2007;

          o    Class III directors, whose terms expire at the annual meeting of
               shareholders to be held in 2005; and

          o    A class of directors whose terms expire after one year, at each
               annual meeting of shareholders.

     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. Our director with a term of one year is Dan Falk.


                                       42

<PAGE>


     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 four classes. 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.

     We do not have service contracts with any of our directors; however, Gideon
Hollander, our Chief Executive Office and a member of our board of directors is
party to an employment agreement with us. Our audit committee and board of
directors has approved a two years extension of the agreement; however, this
extension is also subject to shareholders' approval under Israeli law.

Audit Committee

     Under the Companies Law, an audit committee is required to be appointed by
the board of directors. The audit committee must consist of at least three
members, and include 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. In addition, under its charter, our audit
committee is responsible for monitoring the integrity of our financial
statements and auditing, accounting and financial reporting processes,
appointing and evaluating the qualifications and independence of the external
auditor.

     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 has introduced new
listing standards requiring all members of an audit committee to comply with
tightened independence requirements. All four members of our audit committee
currently comply with those requirements .

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


                                       43

<PAGE>


     In addition, the Companies Law requires the board of directors of a public
company to appoint an internal auditor nominated by the audit committee. A
person who does not satisfy certain independence requirements may not be
appointed as an internal auditor. We have appointed Mr. Yossi Ginossar from 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 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 at least 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 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, except that the audit
committee must include both external directors. An external director is only
entitled to compensation as provided in regulations promulgated under the
Companies Law. Amnon Shoham, Ohad Zuckerman, and Naomi Atsmon are currently
serving as our external directors.


                                       44

<PAGE>


     The Companies Law was recently amended to require that at least one
external director have financial and accounting expertise and that the other
external director meet certain professional qualifications. This amendment will
only take effect with respect to appointments (or re-appointments) of external
directors occurring after the adoption of regulations to define the
prerequisites for meeting these qualifications.

D.   Employees

     As of December 31, 2004, we had 78 employees in Israel, 78 in the United
States, 13 in Europe and 3 in Latin America. Of our 172 employees, 52 were
engaged in research and development, 46 in sales, marketing and business
development, 42 in professional services and technical support and 32 in
finance, administration and operations. 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.   Other then Gideon Hollander and Yossie Hollander, whose shareholdings
are described in Item 7 below, none of our officers and directors owns in excess
of one percent of our outstanding ordinary shares.

     2.   Option Plans. We currently maintain three option plans, the 1996
Option Plan, the 1999 Option Plan and the 2003 Share Option Plan. The purpose of
our option plans is to afford an incentive to officers, directors, employees and
consultants of ours, or any of our subsidiaries, to acquire a proprietary
interest in us, to continue as officers, directors, employees and consultants,
to increase their efforts on behalf of us and to promote the success of our
business.

          We have reserved 7,760,450 ordinary shares under these option plans
for issuance upon the exercise of options to be granted to officers, directors,
employees and consultants. As of December 31, 2004, options to purchase
4,433,653 ordinary shares were outstanding under the option plans. As of
December 31, 2004, the weighted average exercise price of options outstanding
under our option plans is $3.07. 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. 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 and is typically the fair market value on the date of grant. The vesting


                                       45

<PAGE>


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 ten years from the date of
the grant. The 1996 Option Plan, the 1999 Option Plan and the 2003 Share Option
Plan will expire on December 31, 2005, December 31, 2009 and December 31, 2012,
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 June 1,
2005, 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               11.0%
Airbus Foundation (2)                        1,802,692                9.3%
Gideon Hollander  (3)                        1,905,613                9.8%

(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 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 14,
         2005, this amount represents 1,802,692 ordinary shares held by Airbus
         Foundation. Based on a Schedule 13G/A filed with the Commission on
         January 9, 2003, Airbus Foundation held 2,025,590 ordinary shares as of
         such date. 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. 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 April 5, 2004.
         Includes 715,625 ordinary shares issuable pursuant to options held by
         Mr. Hollander which are exercisable within 60 days of the date hereof.
         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.


                                       46

<PAGE>


     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 June 1, 2005, there were 55
record holders of Jacada shares in the United States, which represented 43% of
the outstanding shares as of such date. To our knowledge, no corporation,
foreign government or other natural or legal person directly or indirectly
controls Jacada.

B.   Related Party Transactions

     None.

C.   Interests of Expert and Counsel

     Not applicable.

Item 8:  FINANCIAL INFORMATION

A.   Consolidated Statements and Other Financial Information

See Item 18 for audited consolidated financial statements.

Export Sales

     We generated approximately 78% of our revenues in North and Latin America
and approximately 22% in Europe through wholly owned subsidiaries during the
period beginning January 1, 2004 and ending December 31, 2004. Our export sales
consist mainly of intercompany transactions with our subsidiaries.

Legal Proceedings

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

     Other than the matter described below, we do not believe that any legal
proceeding to which we currently are a party is likely to have a material impact
upon us. 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 the distributor by directly selling our
products to a customer with respect to which the distributor claimed 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, and 50% of amounts collected from the customer in the future.

     We 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


                                       47

<PAGE>


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. Pursuant to an October 21, 2003 order, the arbitration award was
confirmed by the United States District Court for the Western District of
Michigan, and our Motion to Vacate was denied. We filed an appeal with the
United States Court of Appeals for the Sixth Judicial Circuit, and on March 18,
2005, the Court of Appeals confirmed the District Court's decision. We filed a
motion for rehearing with the Court of Appeals; the motion for rehearing was
denied on May 27, 2005. Unless we appeal the case to the United States Supreme
Court, the arbitration award will be final. See Note 7(c) to our financial
statements included in Item 18 below for additional information concerning the
potential impact of this matter on our financial condition and results of
operations.

Dividend Policy

     We have no current intention of paying dividends.

B.   Significant Changes

     Other than as disclosed below, there have been no significant changes since
the date of our financial statements filed with this Annual Report for the year
2004.

     During the first quarter of 2005, in response to the realization that the
sales cycle of Jacada Fusion is longer than we anticipated, we adopted a
restructuring plan in an attempt to minimize the gap between our declining
traditional business revenue and the anticipated Jacada Fusion revenue by
improving operational processes.

     The plan includes merging several departments, aligning the marketing and
sales organization to support the new business model, and implementing various
expense reductions. These changes also resulted in a 12% reduction in workforce
worldwide and included the related costs associated with this reduction


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.


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<PAGE>


       Year                  Period                High               Low
   --------------     ----------------------   --------------     -------------
       1999            10/14/99 - 12/31/99        $37.375             $8.000
       2000            01/01/00 - 12/31/00         33.375              4.375
       2001            01/01/01 - 12/31/01          6.300              2.050
       2002            01/01/02 - 12/31/02          3.740              1.080
       2003            01/01/03 - 12/31/03          3.740              1.180
       2004            01/01/04 - 12/31/04          4.730              2.120

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
   ------------------------------             ----------            ----------
        01/01/03 - 03/31/03                      1.71                  1.18
        04/01/03 - 06/30/03                      3.00                  1.47
        07/01/03 - 09/30/03                      3.26                  2.40
        10/01/03 - 12/31/03                      3.74                  2.49
        01/01/04 - 03/31/04                      4.73                  2.86
        04/01/04 - 06/30/04                      3.57                  2.63
        07/01/04 - 09/30/04                      3.05                  2.21
        10/01/04 - 12/31/04                      2.83                  2.12
        01/01/05 - 03/31/05                      2.89                  1.93


     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
   --------------------                -------------         ------------
     May 2005                                2.50                 2.20
     April 2005                              2.61                 2.18
     March 2005                              2.89                 1.93
     February 2005                           2.49                 2.19
     January 2005                            2.72                 2.23
     December 2004                           2.37                 2.30


     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.

      Year                   Period                      High         Low
   -------------      ----------------------       --------------  -----------
      2001             06/18/01 - 12/31/01               3.88         1.91
      2002             01/01/02 - 12/31/02               3.48         1.21
      2003             01/01/03 - 12/31/03               3.87         1.59
      2004             01/01/04 - 12/31/04               4.73         2.12


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<PAGE>


     The following table shows the high and low market prices on the TASE for
our ordinary shares for each financial quarter during our two most recent
financial years. 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 rates between the U.S. Dollar and the NIS.

               Period                        High               Low
     ----------------------------         ----------         ---------
         01/01/03 - 03/31/03                1.70                1.59
         04/01/03 - 06/30/03                2.97                1.64
         07/01/03 - 09/30/03                3.15                2.28
         10/01/03 - 12/31/03                3.87                2.40
         01/01/04 - 03/31/04                4.79                3.02
         04/01/04 - 06/30/04                3.74                2.87
         07/01/04 - 09/30/04                3.13                2.39
         10/01/04 - 12/31/04                2.92                2.26
         01/01/05 - 03/31/05                2.63                1.86


     The following table shows the high and low market prices on the TASE for
our ordinary shares for the most recent six months. 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 rates between the
U.S. Dollar and the NIS.

            Month                              High                   Low
     ---------------------                   ----------            ----------
     May 2005                                   2.41                  2.20
     April 2005                                 2.58                  2.29
     March 2005                                 2.59                  1.95
     February 2005                              2.51                  2.22
     January 2005                               2.63                  2.29
     December 2004                              2.75                  2.26


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.


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<PAGE>


F.   Expenses of the Issue

     Not applicable.

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, as well as Exhibit 1.3 (incorporated by reference to
Exhibit 1.3 to the Company's Annual Report on Form 20-F for the year ended
December 31, 2003) and Exhibit1.4 to this annual report. In addition, because we
are an Israeli company, we are governed by the provisions of the Companies Law,
which are described below along with certain provisions of our governing
documents.

Objects and Purposes

     The objects and purposes of our company appear in our Memorandum of
Association and include engaging in all businesses of trade, finance, import,
export, distribution, services, economic initiatives and capital investments;
production, processing and development of any kind; engaging in any activities
of initiators, founders, and managers of plants, companies, corporations, and
real estate; serving as brokers and agents for any person, business or
corporation in Israel and abroad; and engaging in research, exploration, and
development.

Approval of Specified Related Party Transactions

     The Companies Law imposes a duty of care and a duty of loyalty on all of
the 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 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 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


                                       51

<PAGE>


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 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 compensation 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 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. 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.

     Under our articles of association, our board can, among other things,
determine our plans of activity and the principles of financing such plans,
examine our financial situation and set the framework of credit which we may
take and decide to issue a series of debentures.

     Our directors are not subject to any age limit requirement, nor are they
disqualified from serving on our board of directors because of a failure to own
our shares.

Insurance, Indemnification, and Exculpation of Directors and Officers

     Under the Companies Law, a company may not indemnify an office holder, nor
enter into an insurance contract that would provide coverage for any monetary
liability incurred as a result of any of the following:

          o    a breach by the office holder of his duty of loyalty unless the
               office holder acted in good faith and had a reasonable basis to
               believe that the act would not prejudice the company;
          o    a breach by the office holder of his duty of care if such breach
               was done intentionally or in disregard of the circumstances of
               the breach or its consequences (excluding a breach arising out of
               negligent conduct of the office holder);
          o    any act or omission done with the intent to derive an illegal
               personal benefit; or
          o    any fine levied against the office holder as a result of a
               criminal offense.

     Our articles of association, as amended by a resolution of our shareholders
passed on August 24, 2003, provide that, subject to the provisions of the
Companies Law, we may enter into a contract for the insurance of all or part of
the liability of any of our office holders with respect to:

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


                                       52

<PAGE>


          o    a breach of his duty of loyalty to us, provided that the office
               holder acted in good faith and had reasonable cause to assume
               that his act would not prejudice our interests; or
          o    a financial liability imposed upon such office holder in favor of
               another person concerning an act performed by the office in
               his/her capacity as an office holder.

     Our articles of association, as amended, also provide that we may indemnify
an office holder against:

          o    a financial liability imposed on him in favor of another person
               by a court judgment, including a compromise judgment or an
               arbitrator's award which has been confirmed by a court; and
          o    reasonable litigation expenses, including attorneys' fees,
               expended by the office holder or which were imposed on the office
               holder by a court in proceedings instituted against the office
               holder by us or in our name or by any other person or in a
               criminal charge from which the office holder was acquitted or in
               a criminal proceeding in which the office holder was convicted
               for a criminal offense that does not require proof of criminal
               intent.

     Our articles of association also authorize us to release in advance all or
part of an office holder's liability to us for damages which arises from the
breach of the office holder's duty of care to us.

Required Approvals

     Under the Companies Law, indemnification of, and procurement of insurance
coverage for office holders must be approved by the audit committee and board of
directors and, in specified circumstances, by the shareholders of a company. In
August 2003 and in August 2004, our shareholders approved indemnification
agreements with our directors and chief financial officer under which we have
undertaken to indemnify our directors and chief financial officer to the fullest
extent permitted under the Companies Law.

Rights, Preferences and Restrictions upon Shares

     Our Board of Directors may from time to time declare, and cause us 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 our shareholders, 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


                                       53

<PAGE>


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 of our shares granting
preferential, special or deferred rights or not granting any rights with respect
to dividends, profits 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 us, 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 we are 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, our assets 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 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 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 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:

          o    Any amendment to the articles of association;

          o    An increase in the company's authorized capital;


                                       54

<PAGE>

          o    A merger; or

          o    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 association,
has the power to appoint an office holder in the company, is under a duty to act
in fairness towards the company. The Companies Law does not describe the
substance of this duty except to state that the remedies generally available
upon a breach of contract will apply also in the event of a breach of the duty
to act with fairness.

Amendment of Articles of Association

     Our Articles of Association 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 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 Companies Law provides that the board of a public company is
required to convene an extraordinary meeting upon the 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 Companies Law in this respect, as under the 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


                                       55

<PAGE>


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 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 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 our Company
must approve a merger involving our company by a vote of the 75% of our 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 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.

     A merger may not be completed unless at least 50 days have passed from the
date that a request for the approval of the merger was filed with the Israeli
registrar of companies and 30 days from the date that shareholder approval of
both merging companies was obtained. The request for the approval of a merger
may be filed once a shareholder meeting has been called to approve the merger.

     The 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


                                       56

<PAGE>


acquisition, the purchaser would become a 45% shareholder of the company, unless
there already is another 45% 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, the acquirer may not acquire in such tender offer
any tendered shares to the extent that the acquisition of those shares would
bring the acquirer's ownership to more than 90% but less than 95% of the shares
of the target company. In addition, 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 6C.

Changes in Capital

     Our articles enable us to increase our share capital. Any such changes are
subject to the provisions of the 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 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

None.

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 nonresidents 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.

     Nonresidents 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 nonresidents, 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.


                                       57

<PAGE>


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, 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


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<PAGE>


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 (currently 28%) 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.

     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 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 corporations. 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


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<PAGE>


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 (i) 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. holder to United States
taxation on a net income basis), or (ii) 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 or 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 15% 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
(i) 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 (ii) 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.


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<PAGE>


     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 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. This 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

     Generally, Israeli companies are subject to corporate tax at the rate of
34% on taxable income and are subject to capital gains tax at a rate of 25% on
capital gains (other than gains derived from the sale of listed securities that
are taxed at the prevailing corporate tax rates) derived after January 1, 2003.
The corporate tax rate was reduced in June 2004, from 36% to 35% for the 2004
tax year, 34% for the 2005 tax year, 32% for the 2006 tax year and 30% for the
2007 tax year and thereafter. However, the effective tax rate payable by a
company that derives income from an approved enterprise (as discussed below) may
be considerably less.


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<PAGE>


     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.

     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 be able to avail ourselves in the future 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.


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<PAGE>


     An Approved Enterprise approved after April 1, 1986 may elect to forego any
entitlement to the grants otherwise available under the Capital Investments Law
and, in lieu of the foregoing, may participate in an Alternative Benefits
Program, under which the undistributed income from the Approved Enterprise is
fully exempt from corporate tax for a defined period of time. The period of tax
exemption ranges between two and 10 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.

     In March 2005, the government of Israel passed an amendment to the
Investment Law in which it revised the criteria for investments qualified to
receive tax benefits as an Approved Enterprise. Among other things, companies
that meet the criteria of the alternate package of tax benefits will receive
those benefits without prior approval. However, no assurance can be given that
we will, in the future, be eligible to receive additional tax benefits under
this law.

     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 the 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.


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<PAGE>


     The benefits available to an Approved Enterprise are conditional upon the
fulfillment of certain conditions stipulated in the Capital Investments Law and
its regulations and the criteria set forth in the specific certificate of
approval, as described above. In the event that these conditions are violated,
in whole or in part, we would be required to refund the amount of tax benefits,
together with linkage differences to the Israeli CPI and interest. We believe
that our Approved Enterprise programs operate in compliance with all such
conditions and criteria.

Other Benefits

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

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

          o    accelerated 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.

Measurement of Taxable Income

     Results for tax purposes are measured in real terms, in accordance with the
changes in the Israeli Consumer Price Index, or changes in exchange rate of the
NIS against the dollar, for a "foreign investors" company. Until taxable year
2002, Jacada measured its results for tax purposes in accordance with changes in
the Israeli consumer price index. Commencing with taxable year 2003, Jacada has
elected to measure its results for tax purposes on the basis of the changes in
the exchange rate of NIS against the dollar. This election obligates Jacada for
three years.

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.


                                       64

<PAGE>

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 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.


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<PAGE>


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 our 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 EDGAR filings may
be accessed.

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

I.   Subsidiary Information

     Not applicable.

Item 11:   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We develop products in Israel 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 years ended December 31, 2004, 2003, and
2002 were immaterial.

     In addition, since our financial results are reported in dollars,
fluctuations in the rates of exchange between the dollar and non-dollar
currencies may have a material effect on our results of operations. We therefore
use currency exchange forward contracts to hedge the impact of the variability
in the exchange rates on accounts receivable and future cash flows from certain
Euro-denominated transactions as well as certain NIS-denominated expenses. The
counter-parties to our forward contracts are major financial institutions with
high credit ratings. We believe the risk of incurring losses on such forward
contracts related to credit risks is remote and that any losses would be
immaterial. As of December 31, 2004, we had forward contracts to sell up to
$2,859,197 for a total amount of NIS 12,531,860 that matured prior to July 15
2005.

     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


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<PAGE>


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, 2004, 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, 2004, 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.

     The effective date of the registration statement (No. 333-10882) for our
initial public offering of our ordinary shares, par value NIS 0.01 per share,
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 these
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, 2004, 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 in August 2001
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.


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<PAGE>


Item 15: CONTROLS AND PROCEDURES

     (a) Disclosure Controls and Procedures. 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-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended) as of December 31, 2004. 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.

     (b) Not yet applicable

     (c) Not yet applicable

     (d) Changes in Internal Control Over Financial Reporting. There has been no
change in the Company's internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during 2004,
that has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.

Item 16A: AUDIT COMMITTEE FINANCIAL EXPERT

     At our annual shareholders meeting in August 2004, the shareholders elected
Dan Falk to the Company's Board of Directors to serve for a one year term. Our
Board of Directors has determined that Mr. Falk qualifies as an audit committee
financial expert, and Mr. Falk was appointed by the Board to serve on the audit
committee. Mr. Falk also meets the requirements of the NASDAQ Stock Market
listing standards to be an "independent" director and audit committee member.

Item 16B: CODE OF ETHICS

     In March 2003, our Board of Directors adopted a Code of Ethics relating to,
among others, our principal executive officer, principal financial officer and
principal accounting officer. The code was filed as exhibit 11 to our Annual
Report for the year ended December 31, 2003 and is incorporated by reference to
that filing, which is available and can be reached through the Investor
Relations link on our website, www.jacada.com. Pursuant to new requirements of
the Nasdaq Stock Market, we adopted, in May 2004, a Code of Business Conduct and
Ethics that is applicable to all our directors, officers and employees. This
code is also available on our website.


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<PAGE>


Item 16C: PRINCIPAL ACCOUNTANT FEES AND SERVICES

         Audit Fees
--------------------------------------   ---------------------------------------
2003                                      $77,500
--------------------------------------   ---------------------------------------
2004                                      $77,500
--------------------------------------   ---------------------------------------

         Audit Related Fees
--------------------------------------   ---------------------------------------
2003                                      $16,500
--------------------------------------   ---------------------------------------
2004                                            0
--------------------------------------   ---------------------------------------

         Tax Fees
--------------------------------------   ---------------------------------------
2003                                      $34,000
--------------------------------------   ---------------------------------------
2004                                      $55,000
--------------------------------------   ---------------------------------------

         Other Fees
--------------------------------------   ---------------------------------------
2003                                            0
--------------------------------------   ---------------------------------------
2004                                      $20,000
--------------------------------------   ---------------------------------------


     The tax fees we incurred in 2003 and 2004 were related to preparation of
tax returns, consultations regarding international tax. The Audit Related Fees
we incurred in 2003 are related to consultations regarding revenue recognition
policy. The other fees incurred in 2004 are related to services performed in
connection with the transfer of our HostFuse technology from Jacada, Inc. to
Jacada Ltd.

     Our audit committee is responsible for the appointment and oversight of our
independent auditors' work. Pursuant to its charter, the audit committee also
has the sole authority to review in advance, and grant any appropriate
pre-approvals of, (a) all auditing services to be provided by our independent
auditors; (b) all non-audit services to be provided by our independent auditors
as permitted by Section 10A of the U.S. Securities Exchange Act of 1934; and (c)
all fees and other terms of engagement. The audit committee's policy is to
specifically pre-approve all annual services provided by our independent
auditors in connection with the preparation of their audit, which may include


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<PAGE>


audit services, audit-related services, tax services and other services. The
audit committee sets forth the basis for its pre-approval in detail, listing the
particular services or categories of services which are pre-approved, and
setting a specific budget for such services. Additional services may be
commissioned on the basis of a pre-approval by the audit committee for
non-annual audit related services up to a specified amount. Once such services
have been pre-approved and performed, the independent auditors and our
management report to the audit committee on a periodic basis regarding the
extent of services actually provided in accordance with the applicable
pre-approval, and regarding the fees for the services performed.

Item 16D: EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

     Not applicable.

Item 16E: PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

     None.


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<PAGE>


                                    PART III

Item 17:       FINANCIAL STATEMENTS

     See Item 18.

Item 18:       FINANCIAL STATEMENTS

Item 19:       EXHIBITS

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)).

1.3            Amendments to the Company's Articles of Association, dated August
               24, 2003 (incorporated by reference to Exhibit 1.3 to the
               Company's Annual Report on Form 20-F for the year ended December
               31, 2003).

1.4            Amendments to the Company's Articles of Association, dated August
               25, 2004.

4.2            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)).

4.3            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)).

4.4            Restated Employment Agreement of Gideon Hollander with Jacada
               Ltd. dated as of October 1, 2001 (incorporated by reference to
               Exhibit 4.5 to the Company's Annual Report on Form 20-F for the
               year ended December 31, 2001

4.5            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).

4.6            Amendment to 1999 Share Option and Incentive Plan (incorporated
               by reference to Exhibit 10.2 to the Company's Registration
               Statement on Form S-8 (file no. 333-73650)).

4.7            2003 Share Option Plan (incorporated by reference to Exhibit 99.1
               to the Company's Registration Statement on Form S-8 (file no.
               333-111303).


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<PAGE>


8              List of Jacada's Subsidiaries (incorporated by reference to the
               Company's Annual Report on Form 20-F for the year end December
               31, 2000).

11             Code of Ethics of the Company (incorporated by reference to
               Exhibit 11 to the Company's Annual Report on Form 20-F for the
               year ended December 31, 2003).

12.1           Certificate of Chief Executive Officer pursuant to Rule
               13a-14(a)/Rule 15d-14(a).

12.2           Certificate of Chief Financial Officer pursuant to Rule
               13a-14(a)/Rule 15d-14(a).

13.1           Certification of Chief Executive Officer andChief Financial
               Officer pursuant to 18 U.S.C. Section 1350.

14.1           Consent of Kost, Forer, Gabbay and Kasierer, a member of Ernst &
               Young Global.


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<PAGE>


                                   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 28, 2005.

                                          JACADA LTD.


                                          /s/Tzvia Broida
                                          ----------------------------------
                                          By:  Tzvia Broida
                                               Chief Financial Officer


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<PAGE>


                                                     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)).

1.3            Amendments to the Company's Articles of Association, dated August
               24, 2003 (incorporated by reference to Exhibit 1.3 to the
               Company's Annual Report on Form 20-F for the year ended December
               31, 2003).

1.4            Amendments to the Company's Articles of Association, dated August
               25, 2004.

4.2            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)).

4.3            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)).

4.4            Restated Employment Agreement of Gideon Hollander with Jacada
               Ltd. dated as of October 1, 2001 (incorporated by reference to
               Exhibit 4.5 to the Company's Annual Report on Form 20-F for the
               year ended December 31, 2001

4.5            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).

4.6            Amendment to 1999 Share Option and Incentive Plan (incorporated
               by reference to Exhibit 10.2 to the Company's Registration
               Statement on Form S-8 (file no. 333-73650)).

4.7            2003 Share Option Plan (incorporated by reference to Exhibit 99.1
               to the Company's Registration Statement on Form S-8 (file no.
               333-111303).

8              List of Jacada's Subsidiaries (incorporated by reference to the
               Company's Annual Report on Form 20-F for the year end December
               31, 2000).


                                       74

<PAGE>


11             Code of Ethics of the Company (incorporated by reference to
               Exhibit 11 to the Company's Annual Report on Form 20-F for the
               year ended December 31, 2003).

12.1           Certificate of Chief Executive Officer pursuant to Rule
               13a-14(a)/Rule 15d-14(a).

12.2           Certificate of Chief Financial Officer pursuant to Rule
               13a-14(a)/Rule 15d-14(a).

13.1           Certification of Chief Executive Officer andChief Financial
               Officer pursuant to 18 U.S.C. Section 1350.

14.1           Consent of Kost, Forer, Gabbay and Kasierer, a member of Ernst &
               Young Global.


                                       75
<PAGE>


                        JACADA LTD. AND ITS SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                             AS OF DECEMBER 31, 2004

                            U.S. DOLLARS IN THOUSANDS


                                      INDEX


                                                                    Page
                                                             -------------------

Report of Independent Registered Public Accounting Firm              F-2

Consolidated Balance Sheets                                       F-3 - F-4

Consolidated Statements of Operations                                F-5

Statements of Changes in Shareholders' Equity                        F-6

Consolidated Statements of Cash Flows                             F-7 - F-8

Notes to Consolidated Financial Statements                       F-9 - F-30


<PAGE>


                                       F-2


                  REPORT OF INDEPENDENT PUBLIC ACCOUNTING FIRM

                             To the Shareholders of

                                   JACADA LTD.


     We have audited the accompanying consolidated balance sheets of Jacada Ltd.
and its  subsidiaries  ("the  Company") as of December 31, 2004 and 2003 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,
2004.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.


     We  conducted  our audits in  accordance  with the  standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial statements are free of material  misstatement.  We were not engaged to
perform an audit of the Company's internal control over financial reporting. Our
audit includes  consideration of internal control over financial  reporting as a
basis for designing audit procedures that are appropriate in the  circumstances,
but not for the purpose of  expressing  an opinion on the  effectiveness  of the
Company's internal control over financial reporting.  Accordingly, we express no
such  opinion.  An audit also  includes  examining,  on a test  basis,  evidence
supporting the amounts and  disclosures in the financial  statements,  assessing
the accounting principles used and significant estimates made by management, and
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,  2004 and 2003 and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period  ended  December  31, 2004,  in  conformity  with U.S.
generally accepted accounting principles.


Tel-Aviv, Israel                                  KOST FORER GABBAY & KASIERER
February 3, 2005                               A Member of Ernst & Young Global


                                      F-2

<PAGE>


                                                JACADA LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. dollars in thousands

<TABLE>
<CAPTION>

                                                                                            December 31,
                                                                                ------------------------------------
                                                                                      2004                2003
                                                                                ----------------    ----------------

     ASSETS

<S>                                                                                     <C>                 <C>
CURRENT ASSETS:
   Cash and cash equivalents                                                     $       3,552       $       9,845
   Marketable securities                                                                19,573               6,638
   Trade receivables (net of allowance for doubtful accounts of $ 220 and
     $ 234 at December 31, 2004 and 2003, respectively)                                  2,472               2,759
   Other current assets                                                                    791                 622
                                                                                ----------------    ----------------

 Total current assets                                                                   26,388              19,864
 -----
                                                                                ----------------    ----------------

 LONG-TERM INVESTMENTS:
   Marketable securities                                                                14,488              25,310
   Severance pay fund                                                                      969                 758
                                                                                ----------------    ----------------

 Total long-term investments                                                            15,457              26,068
 -----
                                                                                ----------------    ----------------

 PROPERTY AND EQUIPMENT, NET                                                             1,326               1,874
                                                                                ----------------    ----------------

 OTHER ASSETS, NET:
   Other intangibles, net                                                                1,429                 951
   Goodwill                                                                              4,630               4,630
                                                                                ----------------    ----------------

Total other assets, net                                                                  6,059               5,581
-----                                                                           ----------------    ----------------

Total assets                                                                     $      49,230       $      53,387
-----                                                                           ================    ================

</TABLE>


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


                                      F-3

<PAGE>

                                                JACADA LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. dollars in thousands, except share data

<TABLE>
<CAPTION>

                                                                                                   December 31,
                                                                                       ------------------------------------
                                                                                             2004                2003
                                                                                       ----------------    ----------------
     LIABILITIES AND SHAREHOLDERS' EQUITY

<S>                                                                                             <C>                 <C>
 CURRENT LIABILITIES:
   Trade payables                                                                        $      1,024        $        515
   Deferred revenues                                                                            3,822               3,348
   Accrued expenses and other liabilities                                                       3,816               3,831
                                                                                       ----------------    ----------------

Total current liabilities                                                                       8,662               7,694
-----                                                                                  ----------------    ----------------

 ACCRUED SEVERANCE PAY                                                                          1,479               1,189
                                                                                       ----------------    ----------------

 SHAREHOLDERS' EQUITY:
   Share capital:
   Ordinary shares of NIS 0.01 par value -
     Authorized: 30,000,000 shares as of December 31, 2004 and 2003; Issued and
     outstanding: 19,326,010 and 19,033,778 shares as of December 31, 2004 and
     2003, respectively                                                                           56                   55
   Additional paid-in capital                                                                 69,785               69,277
   Accumulated other comprehensive income (loss)                                                (200)                 111
   Accumulated deficit                                                                       (30,552)             (24,939)
                                                                                       ----------------    ----------------

 Total shareholders' equity                                                                   39,089               44,504
 -----                                                                                 ----------------    ----------------

 Total liabilities and shareholders' equity                                              $    49,230        $      53,387
 -----                                                                                 ================    ================

</TABLE>



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


                                      F-4

<PAGE>


                                                JACADA LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
U.S. dollars in thousands, except share and per share data

<TABLE>
<CAPTION>

                                                                                Year ended December 31,
                                                                 ------------------------------------------------------
                                                                       2004               2003              2002
                                                                 ----------------   ----------------- -----------------
<S>                                                                        <C>                <C>               <C>
 Revenues:
   Software and products                                          $        5,749     $        8,354     $       9,783
   Services                                                                5,481              4,704             4,518
   Maintenance                                                             8,554              7,504             7,235
                                                                 ----------------   ----------------- -----------------

 Total revenues                                                           19,784             20,562            21,536
 -----                                                           ----------------   ----------------- -----------------

 Cost of revenues:
   Software and products                                                     631       *)       846      *)       534
   Services                                                                3,341              2,384             3,115
   Maintenance                                                             1,143              1,110             1,247
                                                                 ----------------   ----------------- -----------------

 Total cost of revenues                                                    5,115              4,340             4,896
 -----                                                           ----------------   ----------------- -----------------

 Gross profit                                                             14,669             16,222            16,640
                                                                 ----------------   ----------------- -----------------

 Operating expenses:
   Research and development                                                5,278       *)     5,308      *)     5,905
   Sales and marketing                                                    10,507              9,386             9,450
   General and administrative                                              4,758              4,714             4,602
   Restructuring charges                                                     525                  -               501
                                                                 ----------------   ----------------- -----------------

 Total operating expenses                                                 21,068             19,408            20,458
 -----                                                           ----------------   ----------------- -----------------

 Operating loss                                                           (6,399)            (3,186)           (3,818)
 Financial income, net                                                       786              1,037               909
                                                                 ----------------   ----------------- -----------------

 Net loss                                                         $       (5,613)    $       (2,149)    $      (2,909)
                                                                 ================   ================= =================

 Basic and diluted net loss per share                             $        (0.29)    $        (0.11)    $       (0.16)
                                                                 ================   ================= =================

 Weighted average number of shares used in computing basic
   and diluted net loss per share                                     19,282,800         19,011,435         18,710,105
                                                                 ================   ================= =================

</TABLE>

*)   Reclassified


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


                                      F-5

<PAGE>


                                                JACADA LTD. AND ITS SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------
U.S. dollars in thousands, except share data


<TABLE>
<CAPTION>


                                                                              Accumulated
                                   Ordinary shares    Additional   Deferred      other                     Total         Total
                                ---------------------  paid-in      stock    comprehensive Accumulated comprehensive shareholders'
                                  Shares     Amount    capital   compensation income (loss)   deficit       loss         equity
                                ----------- --------- ---------- ------------ ------------- ----------- ------------- -----------

<S>                             <C>              <C>    <C>             <C>             <C>   <C>                <C>     <C>
Balance as of January 1, 2002   18,537,704  $     54  $  68,486  $       (71)  $         -  $  (19,881)               $   48,588
Exercise of stock options           30,826  *)     -         43            -             -           -                        43
Cancellation of deferred stock
 compensation in respect of
 forfeited options                                          (25)          25             -           -                         -
Amortization of deferred stock
 compensation                            -         -          -           21             -           -                        21
Issuance of Ordinary shares in
 respect of the acquisition of
 Anota                             367,373         1        639            -             -           -                       640
Comprehensive loss:
  Net loss                               -         -          -            -             -      (2,909)      $(2,909)     (2,909)
  Unrealized gains from
   available-for-sale
   marketable securities                 -         -          -            -            81           -            81          81
                                ----------- --------- ---------- ------------ ------------- ----------- ------------- -----------

Total comprehensive loss                                                                                $     (2,828)
-------------------------------                                                                         =============

Balance as of December 31, 2002 18,935,903        55     69,143          (25)           81     (22,790)                   46,464
Exercise of stock options           97,875  *)     -        134            -             -           -                       134
Amortization of deferred stock
 compensation                            -         -          -           25             -           -                        25
Comprehensive loss:
  Net loss                               -         -          -            -             -      (2,149)      $(2,149)     (2,149)
  Unrealized loss from
   available-for-sale
   marketable securities                 -         -          -            -           (11)          -           (11)        (11)
  Unrealized gains from
   derivatives                           -         -          -            -            41           -            41          41
                                ----------- --------- ---------- ------------ ------------- ----------- ------------- -----------

Total comprehensive loss                                                                                $     (2,119)
-------------------------------                                                                         =============
Balance as of December 31, 2003 19,033,778        55     69,277            -           111     (24,939)                   44,504

Exercise of stock options          292,232         1        435            -             -           -                       436
Stock compensation related to
 options granted to non-
 employees                               -         -         73            -             -           -                        73
Comprehensive loss:
  Net loss                               -         -          -            -             -      (5,613)      $(5,613)     (5,613)
  Unrealized loss from
   available-for-sale
   marketable securities                 -         -          -            -          (326)          -          (326)       (326)
  Unrealized gains from
   derivatives                           -         -          -            -            15           -            15          15
                                ----------- --------- ---------- ------------ ------------- ----------- ------------- -----------

Total comprehensive loss                                                                                $     (5,924)
-------------------------------                                                                         =============
Balance as of December 31, 2004 19,326,010  $     56  $  69,785  $         -   $      (200) $  (30,552)               $   39,089
                                =========== ========= ========== ============ ============= ===========               ===========

Accumulated other comprehensive
 income (loss) as of  December
 31, 2004:
-------------------------------
   Accumulated unrealized gains
    from derivatives                                                           $        56
   Accumulated loss from
    available for sale securities                                                     (256)
                                                                              -------------
                                                                               $      (200)
                                                                              =============


</TABLE>


*) Represents an amount lower than $ 1.
The accompanying notes are an integral part of the consolidated financial
statements.


                                      F-6

<PAGE>


                                                JACADA LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
U.S. dollars in thousands

<TABLE>
<CAPTION>

                                                                                       Year ended December 31,
                                                                         ----------------------------------------------------
                                                                               2004              2003              2002
                                                                         ----------------  ----------------  ----------------

<S>                                                                       <C>               <C>               <C>
 Cash flows from operating activities:
 -------------------------------------
   Net loss                                                               $     (5,613)     $    (2,149)      $    (2,909)
   Adjustments required to reconcile net loss to net cash provided by
     (used in) operating activities:
     Depreciation and amortization                                               1,226            1,444             1,619
     Stock compensation related to options granted to non employees                 73                -                 -
     Amortization of deferred stock compensation                                     -               25                21
     Accrued interest and amortization of premium on marketable
       securities                                                                  562              388               356
     Increase (decrease) in accrued severance pay, net                              79               80                (49)
     Decrease (increase) in trade receivables                                      287              (98)             1,607
     Decrease (increase) in other current assets                                  (154)              98                (36)
     Increase (decrease) in trade payables                                         481             (235)               (29)
     Increase in deferred revenues                                                 474            1,204                 57
     Increase (decrease) in accrued expenses and other liabilities                  40              101               (637)
     Increase (decrease) in long-term accrued expenses                             (55)             (69)               124
     Other                                                                         (31)             (32)                86
                                                                         ----------------  ----------------  ----------------

 Net cash provided by (used in) operating activities                            (2,631)             757                210
                                                                         ----------------  ----------------  ----------------

 Cash flows from investing activities:
 -------------------------------------
   Investment in available for sale marketable securities                      (18,416)         (83,478)           (95,886)
   Proceeds from sale and redemption of available-for-sale of
     marketable securities                                                      15,415           77,194            105,214
   Purchase of property and equipment (a)                                         (512)            (318)              (613)
   Purchase of technology                                                         (900)               -                  -
   Proceeds from sale of property and equipment                                    315              176                213
   Proceeds from other long-term assets                                              -               61                146
   Investment in other long-term assets                                              -                -                (18)
   Cash with respect of Anota acquisition, net of cash acquired (b)                  -                -                 28
                                                                         ----------------  ----------------  ----------------

 Net cash provided by (used in) investing activities                            (4,098)          (6,365)             9,084
                                                                         ----------------  ----------------  ----------------

 Cash flows from financing activities:
 -------------------------------------
   Proceeds from exercise of stock options                                         436              134                 43
                                                                         ----------------  ----------------  ----------------

 Net cash provided by financing activities                                         436              134                 43
                                                                         ----------------  ----------------  ----------------

 Increase (decrease) in cash and cash equivalents                               (6,293)          (5,474)             9,337
 Cash and cash equivalents at the beginning of the year                          9,845           15,319              5,982
                                                                         ----------------  ----------------  ----------------

 Cash and cash equivalents at the end of the year                         $      3,552      $     9,845       $     15,319
                                                                         ================  ================  ================

</TABLE>

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


                                      F-7

<PAGE>


                                                JACADA LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
U.S. dollars in thousands

<TABLE>
<CAPTION>

                                                                                       Year ended December 31,
                                                                         ----------------------------------------------------
                                                                               2004              2003              2002
                                                                         ----------------  ----------------  ----------------

<S>                                                                        <C>               <C>               <C>
 Supplemental disclosure of cash flows activities:
 -------------------------------------------------

 (a) Non-cash activities:
     --------------------

        Purchase of property and equipment                                 $         28      $         10      $         33

        Additional goodwill in respect of Anota acquisition                -                 76                -
                                                                         ----------------  ----------------  ----------------

                                                                           $         28      $         86      $         33
                                                                         ================  ================  ================


 (b) Cash in respect of Anota acquisition (see also Note 1b):
     ------------------------------------

        Estimated net fair value of the assets acquired and liabilities assumed
          at the date of acquisition: Working capital deficit, excluding cash
          and cash
            equivalents                                                                                        $       (181)
          Property and equipment                                                                                        141
          Other intangibles                                                                                             163
          Goodwill                                                                                                      271
          Technology                                                                                                    218
                                                                                                             ----------------

                                                                                                                        612
          Less - amounts acquired by issuance of shares                                                                (640)
                                                                                                             ----------------

                                                                                                               $        (28)
                                                                                                             ================

</TABLE>


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


                                      F-8

<PAGE>



                                                JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands, except share data


NOTE 1:-      GENERAL

               a.   Jacada  Ltd.  was  incorporated  under the laws of Israel in
                    December 1990. Jacada Ltd. and its wholly-owned subsidiaries
                    ("the Company")  develop,  market and support  software that
                    enables  businesses to  web-enable,  modernize and integrate
                    their existing software applications.  The Company generates
                    revenues  from  licensing  its  software  products  and from
                    services  such  as  maintenance,   support,  consulting  and
                    training.
                    The  majority  of the  Company's  sales  are  made in  North
                    America and Europe.

               b.   Acquisition of Anota Ltd. ("Anota"):

                    On July 31, 2002, the Company entered into an asset purchase
                    agreement  pursuant  to  the  terms  of  which  the  Company
                    acquired  certain  assets and  assumed  certain  liabilities
                    related  to  Anota  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.  The  value  of  the  Ordinary   shares  issued  was
                    determined   based  on  the  average  market  price  of  the
                    Company's  Ordinary shares close to the acquisition date. In
                    addition,  Anota had the right to receive  additional  cash,
                    based on a percentage of certain post-acquisition  revenues,
                    until  December 31, 2003.  In 2003,  related  revenues  were
                    generated  and as a result  an  additional  goodwill  in the
                    amount of $ 76 has been  recorded.  In  accordance  with the
                    provisions  of  the  acquisition  agreement,  the  right  to
                    receive additional cash expired on December 31, 2003.

                    Technology acquired as part of the Anota acquisition enables
                    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.

                    The  operations  of Anota 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  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:
                                                             July 31, 2002
                                                          ----------------------

                      Current assets                        $        162
                      Property and equipment                         141
                      Technology                                     218
                      Other intangibles                              163
                      Goodwill                                       271
                      Current liabilities                           (192)
                                                          ----------------------

                      Net assets acquired                   $        763
                                                          ======================


                                      F-9

<PAGE>


                                                JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands, except share data

NOTE 1:-      GENERAL (Cont.)

                    The following  represents the unaudited pro-forma results of
                    operations  for the year ended  eDecember  31, 2002 assuming
                    that  the  Anota  acquisition  had  been  consummated  as of
                    January 1, 2002:

                                                               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, nor is it necessarily indicative of future results.

               c.   Restructuring charges:

                    1.   In July 2002, the Company adopted a 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.

                    2.   In  February  2004,  the Company  consolidated  all its
                         research  and  development  activities  into its lab in
                         Israel.  As part of this plan,  the  Company  shut down
                         research and  development  operations in Minneapolis in
                         order  to  improve  overall   development   efficiency,
                         accelerate  new product  release  and reduce  operating
                         expenses. The Company completed the plan in June, 2004.

                         The plan  consisted  of the involuntary  termination of
                         10 research and  development  employees, termination of
                         the  lease  agreement  of  the  Company's   premises in
                         Minneapolis  and  other  expenses   that  consisted  of
                         shipment and relocation costs and travel costs.

                    In connection  with the 2004 and 2002  restructuring  plans,
                    the Company incurred  expenses of $ 501 in 2002 and $ 525 in
                    2004,  of which,  as of December  31, 2004 all amounts  were
                    paid.

                    The  major  components  of  restructuring   charges  are  as
                    follows:

<TABLE>
<CAPTION>
                                                                    Year ended December 31,
                                                        ------------------------------------------------
                                                            2004              2003             2002
                                                        -------------    --------------   --------------

<S>                                                      <C>              <C>              <C>
                    Employee termination benefits        $       373      $          -     $        395
                    Facilities closures                          108                 -              106
                    Other                                         44                 -                -
                                                        -------------    --------------   --------------

                                                         $       525      $          -     $        501
                                                        =============    ==============   ==============

</TABLE>


                                      F-10

<PAGE>


                                                JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands

NOTE 2:-       SIGNIFICANT ACCOUNTING POLICIES

               The  consolidated  financial  statements  have been  prepared  in
               accordance with U.S.  generally  accepted  accounting  principles
               ("U.S. 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 is  generated  in
                    United States dollars ("dollars").  The Company's management
                    believes  that the  dollar is the  primary  currency  of the
                    economic   environment   in  which  the   Company   and  its
                    subsidiaries  operate.  Thus,  the  functional and reporting
                    currency of the Company is the dollar.

                    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  Jacada  Ltd.  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  maturities  of
                    three months or less at the date acquired.

               e.   Marketable securities:

                    Management  determines the  classification of investments in
                    debt  securities  with  fixed  maturities  at  the  time  of
                    purchase  and  reevaluates  such  designations  as  of  each
                    balance  sheet  date.  At December  31,  2004 and 2003,  all
                    marketable  securities  covered by  Statement  of  Financial
                    Accounting   Standard  No.  115,   "Accounting  for  Certain
                    Investments in Debt and Equity  Securities" ("SFAS No. 115")
                    were designated as  available-for-sale.  Accordingly,  these
                    securities are stated at fair value,  with unrealized  gains
                    and  losses  reported  in  accumulated  other  comprehensive
                    income (loss), a separate component of shareholders' equity.
                    The  amortized  cost  of  available-for-sale  securities  is
                    adjusted  for  amortization  of premiums to  maturity.  Such
                    amortization and interest are included in financial  income,
                    net.

                    Realized  gains  and  losses  on  sales of  investments,  as
                    determined on a specific  identification basis, are included
                    in the consolidated statement of operations.


                                      F-11

<PAGE>


                                                JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
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:

<TABLE>
<CAPTION>
                                                                        %
                                                          --------------------------------
<S>                                                                    <C>

                     Computers and peripheral equipment              20 - 33
                     Office furniture and equipment                   6 - 15
                     Motor vehicles                                     15
                     Leasehold improvements                  Over the shorter of the
                                                           related lease period or the
                                                                life of the asset

</TABLE>

               g.   Other assets:

                    Intangible  assets  acquired in a business  combination  are
                    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").

                    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  intangible  assets,  are
                    amortized over three years.

               h.   Impairment of long-lived assets:

                    The  Company's  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.  During 2004,  2003 and
                    2002, no impairment losses have been identified.

               i.   Goodwill:

                    Goodwill  represents  the  excess of the cost of  businesses
                    acquired  over the fair value of the net assets  acquired in
                    the acquisition.

                    Effective  January 1, 2002,  the  Company  adopted  the full
                    provisions  of Statement of Financial  Accounting  Standards
                    No. 142,  "Goodwill and Other Intangible  Assets" ("SFAS No.
                    142").
                    SFAS 142  prescribes  a two  phase  process  for  impairment
                    testing of goodwill. The first phase screens for impairment,
                    while the second phase (if necessary) measures impairment.


                                      F-12

<PAGE>


                                                JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (Cont.)

                    In  the  first  phase  of   impairment   testing,   goodwill
                    attributable  to each of the  reporting  units is tested for
                    impairment  by  comparing  the fair value of each  reporting
                    unit with its carrying  value.  If the carrying value of the
                    reporting  unit exceeds its fair value,  the second phase is
                    then performed.  The second phase of the goodwill impairment
                    test compares the implied fair value of the reporting unit's
                    goodwill with the carrying  amount of that goodwill.  If the
                    carrying amount of the reporting unit's goodwill exceeds the
                    implied fair value of that goodwill,  an impairment  loss is
                    recognized in an amount equal to that excess.

                    Goodwill attributable to the Company's single reporting unit
                    as defined under SFAS No. 142, was tested for  impairment by
                    comparing its fair value with its carrying value. Fair value
                    is  determined   using  market   multiples  and  comperative
                    analyses. Estimates used in the methodologies include future
                    cash flows,  future  short-term and long-term  growth rates,
                    weighted  average  cost of capital and  estimates  of market
                    multiples.  The Company performs the impairment tests during
                    the third fiscal  quarter.  During 2004,  2003 and 2002,  no
                    impairment losses have been identified.

               j.   Research and development costs:

                    Research and development  costs are charged to the Statement
                    of Operations as incurred. 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  Jacada  Ltd.'s  product  development  process,
                    technological  feasibility is established upon completion of
                    a working model.  Costs 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
                    have been expensed.

               k.   Income taxes:

                    The Company  accounts  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  provides a valuation  allowance,  if necessary,  to
                    reduce  deferred  tax  assets  to its  estimated  realizable
                    value.

               l.   Revenue recognition:

                    The Company generates  revenues mainly from license fees for
                    the right to use its software products, maintenance, support
                    and rendering of services including consulting and training.
                    The Company  and sells its  products  primarily  through its
                    direct  sales  force to  customers  and  indirectly  through
                    resellers.   Both  the   customers  and  the  resellers  are
                    considered end users.

                    The Company  accounts for software sales in accordance  with
                    Statement   of  Position   No.   97-2,   "Software   Revenue
                    Recognition", as amended ("SOP No. 97-2").


                                      F-13

<PAGE>


                                                JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (Cont.)

                    Revenue from license fees and services are  recognized  when
                    persuasive  evidence of an arrangement  exists,  delivery of
                    the product has occurred or the services have been rendered,
                    the fee is  fixed  or  determinable  and  collectibility  is
                    probable.  The  Company  does not grant a right of return to
                    its customers.

                    Persuasive  evidence of an arrangement  exists - The Company
                    determines that persuasive evidence of an arrangement exists
                    with respect to a customer when it has a purchase order from
                    the customer or a written contract,  which is signed by both
                    the Company and the customer  (documentation is dependent on
                    the business practice for each type of customer).

                    Delivery has occurred - The Company's software may be either
                    physically or electronically  delivered to the customer. The
                    Company  determines that delivery has occurred upon shipment
                    of the  software or when the  software is made  available to
                    the customer through electronic delivery,  when the customer
                    has been  provided with access codes that allow the customer
                    to  take  immediate   possession  of  the  software  on  its
                    hardware.

                    The fee is fixed or determinable - The Company considers 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.

                    Collectibility is probable - The Company  determines whether
                    collectibility  is probable on a  case-by-case  basis.  When
                    assessing  probability of collection,  the Company considers
                    the number of years in business  and history of  collection.
                    If   the   Company   determines   from   the   outset   that
                    collectibility   is  not  probable  based  upon  its  review
                    process, revenue is recognized as payments are received.

                    With  regard to  software  arrangements  involving  multiple
                    elements,  the Company  applies  Statement  of Position  No.
                    98-9,  "Modification  of  SOP  No.  97-2,  Software  Revenue
                    Recognition with Respect to Certain  Transactions" ("SOP No.
                    98-9").  According  to SOP  No.  98-9,  revenues  should  be
                    allocated to the different elements in the arrangement 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.
                    Under the residual method,  at the outset of the arrangement
                    with the customer,  the Company  defers revenue for the fair
                    value of its undelivered  elements  (maintenance and support
                    and  training) and  recognizes  revenue for the remainder of
                    the arrangement fee  attributable to the elements  initially
                    delivered in the  arrangement  (software  product)  when the
                    basic  criteria in SOP No. 97-2 have been met.  Any discount
                    in the arrangement is allocated to the delivered element.

                    The Company's determination of fair value of each element in
                    multiple-element  arrangements is based on VSOE. The Company
                    aligns its  assessment of VSOE for each element to the price
                    charged  when  the  same  element  is sold  separately.  The
                    Company has  analyzed  all of the  elements  included in its
                    multiple-element  arrangements  and  determined  that it has
                    sufficient  VSOE to allocate  revenue to the maintenance and
                    support and training ("professional") services components of
                    its license arrangements. The Company sells its professional
                    services separately, and accordingly it has established VSOE
                    for  professional  services  based  on its  hourly  or daily
                    rates.  VSOE for maintenance and support is determined based
                    upon the customer's annual renewal rates for these elements.
                    Accordingly, assuming all other revenue recognition criteria
                    are met, the Company  recognizes  revenue from licenses upon
                    delivery  using the residual  method in accordance  with SOP
                    No. 98-9.


                                      F-14

<PAGE>


                                                JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands


NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (Cont.)

                    Arrangements for the sale of software  products that include
                    consulting and training  services are evaluated to determine
                    whether those services are essential to the functionality of
                    other   elements  of  the   arrangement.   The  Company  has
                    determined that these services are not considered  essential
                    to the  functionality  of other elements of the arrangement,
                    therefore,  these  revenues  are  recognized  as a  separate
                    element of the arrangement.

                    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.

                    Services   revenues  are  recognized  as  the  services  are
                    performed.

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

                    In  transactions,   where  a  customer's  contractual  terms
                    include a provision  for customer  acceptance,  revenues are
                    recognized  either when such acceptance has been obtained or
                    as the acceptance provision has lapsed.

               m.   Accounting for stock-based compensation:

                    The  Company  has  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.

                    Pro forma  information  regarding the Company's net loss and
                    net loss per share is required  by  Statement  of  Financial
                    Accounting  Standards No. 123,  "Accounting  for Stock-Based
                    Compensation" ("SFAS No. 123") and has been determined as if
                    the Company had  accounted  for its employee  stock  options
                    under the fair value method prescribed by SFAS No. 123.

                    The fair value for options granted in 2004, 2003 and 2002 is
                    amortized  over their  vesting  period and  estimated at the
                    date of grant using a  Black-Scholes  options  pricing model
                    with the following weighted average assumptions:

<TABLE>
<CAPTION>

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

<S>                                                   <C>           <C>            <C>
                      Dividend yield                  0%            0%             0%
                      Expected volatility            60%            66%           60%
                      Risk-free interest             3.5%           3%            2.5%
                      Expected life (years)          3.25           2.5           2.5
</TABLE>


                                      F-15

<PAGE>


                                                JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands, except per share data


NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (Cont.)

                    Pro forma information under SFAS No. 123:

<TABLE>
<CAPTION>

                                                                                      Year ended December 31,
                                                                        ---------------------------------------------------
                                                                             2004              2003              2002
                                                                        ---------------   ---------------   ---------------

<S>                                                                      <C>               <C>               <C>
                    Net loss as reported                                 $    (5,613)      $    (2,149)      $    (2,909)
                    Add: Stock-based compensation expenses included
                      in reported net loss - intrinsic value                       -                25                21
                    Deduct: Stock-based compensation expense
                      determined under fair value method for all
                      awards                                                  (1,879)           (2,551)           (2,227)
                                                                        ---------------   ---------------   ---------------

                    Pro forma net loss                                   $    (7,492)      $    (4,675)      $    (5,115)
                                                                        ===============   ===============   ===============
                    Basic and diluted net loss per share as reported     $     (0.29)       $    (0.11)       $    (0.16)
                                                                        ===============   ===============   ===============
                    Pro forma basic and diluted net loss per share       $     (0.39)       $    (0.25)       $    (0.27)
                                                                        ===============   ===============   ===============
</TABLE>

                    The Company  applies SFAS No. 123 and  Emerging  Issues Task
                    Force No. 96-18, "Accounting for Equity Instruments that are
                    Issued  to  Other  than  Employees  for  Acquiring,   or  in
                    Conjunction  with  Selling,  Goods or  Services"  ("EITF No.
                    96-18") 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 (including trade shows) are charged to
                    the  statement  of  operations,  as  incurred.   Advertising
                    expenses for the years ended  December  31,  2004,  2003 and
                    2002 were $ 468, $ 530 and $ 539, respectively.

               o.   Severance pay:

                    Jacada Ltd's  liability  for  severance  pay for its Israeli
                    employees is calculated  pursuant to Israel's  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  profits  accumulated up to the
                    balance  sheet date.  The  deposited  funds may be withdrawn
                    only upon the  fulfillment  of the  obligation  pursuant  to
                    Israel's 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,
                    2004,  2003  and  2002,  were  $  499,  $  533  and  $  305,
                    respectively.


                                      F-16

<PAGE>


                                                JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands


NOTE 2:-       SIGNIFICANT ACCOUNTING POLICIES (Cont.)

               p.   Fair value of financial instruments:

                    The estimated fair value of financial  instruments  has been
                    determined by the Company using available market information
                    and  valuation   methodologies.   Considerable  judgment  is
                    required  in  estimating  fair  values.   Accordingly,   the
                    estimates  may not be  indicative of the amounts the Company
                    could realize in a current market exchange.

                    The  carrying  amounts of 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  fair  value  of
                    derivative  instruments  is estimated  by obtaining  current
                    quotes from banks.

               q.   Derivative instruments:

                    Financial  Accounting  Standards  Board  Statement  No. 133,
                    "Accounting   for   Derivative   Instruments   and   Hedging
                    Activities"   ("SFAS  No.  133"),   requires   companies  to
                    recognize all of its derivative instruments as either assets
                    or  liabilities  in the  statement of financial  position at
                    fair  value.  The  accounting  for changes in the fair value
                    (i.e.,  gains or losses) of a derivative  instrument depends
                    on whether it has been designated and qualifies as part of a
                    hedging  relationship  and  further,  on the type of hedging
                    relationship.  For  those  derivative  instruments  that are
                    designated and qualify as hedging  instruments,  the Company
                    must  designate  the  hedging  instrument,  based  upon  the
                    exposure  being  hedged,  as a fair value  hedge,  cash flow
                    hedge or a hedge of a net investment in a foreign operation.

                    Derivative  instruments that are designated and qualify as a
                    cash flow hedge (i.e.,  hedging the exposure to  variability
                    in  expected  future  cash flows that is  attributable  to a
                    particular  risk), the effective portion of the gain or loss
                    on the  derivative  instrument is reported as a component of
                    other comprehensive income and reclassified into earnings in
                    the  same  line   item   associated   with  the   forecasted
                    transaction  in the same period or periods  during which the
                    hedged transaction affects earnings.

                    To protect  against  the  reduction  in value of  forecasted
                    foreign  currency cash flows resulting from payroll expenses
                    and payment to suppliers over the next year, the Company has
                    instituted a foreign currency cash flow hedging program. The
                    Company   hedges   portions  of  its   forecasted   expenses
                    denominated in foreign  currencies  with forward  contracts.
                    When  the  dollar  strengthens   significantly  against  the
                    foreign  currencies,  the decline in value of future foreign
                    currency  expenses  is  offset by losses in the value of the
                    forward contracts designated as hedges. Conversely, when the
                    dollar weakens,  the increase in the value of future foreign
                    currency  cash  flows is offset by gains in the value of the
                    forward contracts. These forward contracts are designated as
                    cash flow  hedges,  as  defined  by SFAS No. 133 and are all
                    effective.

                    At December 31, 2004, the Company expects to reclassify $ 56
                    of net  gains on  derivative  instruments  from  accumulated
                    other  comprehensive  income to earnings during the next six
                    months,  due to actual  payments  to  suppliers  and payroll
                    payment.


                                      F-17

<PAGE>


                                                JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands, except share data


NOTE 2:-       SIGNIFICANT ACCOUNTING POLICIES (Cont.)

               r.   Net loss per share:

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

                    All  outstanding   stock  options  and  warrants  have  been
                    excluded  from the  calculation  of the diluted net 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 loss
                    per share due to their  anti-dilutive  effect was 4,271,178,
                    4,717,397  and  4,296,953  for the years ended  December 31,
                    2004, 2003 and 2002, respectively.

               s.   Concentrations of credit risk:

                    Financial  instruments that potentially  subject the Company
                    to concentrations of credit risk consist principally of cash
                    and  cash  equivalents,   marketable  securities  and  trade
                    receivables.

                    Cash and cash  equivalents are invested in U.S. dollars 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.  However,  management believes that the
                    financial  institutions that hold the Company's  investments
                    are financially sound, and accordingly,  minimal credit risk
                    exists with respect to these investments.

                    The Company's  marketable  securities include investments in
                    debentures   of  U.S   corporations   and  U.S.   government
                    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's  trade  receivables  are mainly  derived from
                    sales  to  customers  in  North   America  and  Europe.   In
                    connection  with  customers  with whom the Company  does not
                    have  previous   experience,   it  may  utilize  independent
                    resources   to  evaluate  the   creditworthiness   of  those
                    customers.  An allowance for doubtful accounts is determined
                    with   respect  to  those   amounts  that  the  Company  has
                    determined  to be doubtful  of  collection.  Adjustments  to
                    allowance  account for the years ended  December  31,  2004,
                    2003 and 2002, were $ 68, $ (63) and $ (165),  respectively.
                    Write-offs  of  uncollectible  accounts  for the years ended
                    December 31, 2004, 2003 and 2002 were $ 54, $ 101 and $ 459,
                    respectively.

               t.   Reclassification:

                    Certain  amounts from prior years  referring to amortization
                    of other intangible assets have been reclassified to conform
                    to current period presentation.


                                      F-18

<PAGE>


                                                JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands


NOTE 2:-       SIGNIFICANT ACCOUNTING POLICIES (Cont.)

               u.   Impact of recently issued accounting standards

                    On December 16, 2004,  the  Financial  Accounting  Standards
                    Board (FASB) issued FASB  Statement No. 123 (revised  2004),
                    "Share-Based Payment", which is a revision of FASB Statement
                    No.  123,   "Accounting   for   Stock-Based   Compensation".
                    Statement 123(R) supersedes APB Opinion No. 25,  "Accounting
                    for Stock Issued to  Employees",  and amends FASB  Statement
                    No. 95, "Statement of Cash Flows".  Generally,  the approach
                    in Statement 123(R) is similar to the approach  described in
                    Statement  123.  However,   Statement  123(R)  requires  all
                    share-based  payments  to  employees,  including  grants  of
                    employee  stock  options,  to be  recognized  in the  income
                    statement based on their fair values.  Pro forma  disclosure
                    is  no  longer  an  alternative.   Early  adoption  will  be
                    permitted in periods in which financial  statements have not
                    yet been issued.  The new standard will be effective for the
                    Company in the first interim period  beginning after January
                    1, 2006.

                    As  permitted  by  Statement  123,  the  Company   currently
                    accounts for share-based payments to employees using Opinion
                    25's  intrinsic   value  method  and,  as  such,   generally
                    recognizes no compensation  cost for employee stock options.
                    In  addition,  non-compensatory  plans  under APB 25 will be
                    considered    compensatory    for   FAS   123(R)   purposes.
                    Accordingly,  the adoption of Statement  123(R)'s fair value
                    method  will  have a  significant  impact  on the  Company's
                    results of  operations,  although  it will have no impact on
                    the Company's  overall financial  position.  Had the Company
                    adopted  Statement  123(R) in prior  periods,  the impact of
                    that  standard  would  have   approximated   the  impact  of
                    Statement  123 as described in the  disclosure  of pro forma
                    net  loss and loss per  share  in Note 2m.  The  Company  is
                    currently  evaluating  the  impact of this  standard  on its
                    results of operations and financial position.

                    In  March  2005,  the  SEC  staff  issued  Staff  Accounting
                    Bulletin   No.   107   (SAB   107)  to  give   guidance   on
                    implementation  of SFAS  123R,  which the  Company  plans to
                    adopt in implementing SFAS 123R.

                    In March 2004,  the  Financial  Accounting  Standards  Board
                    ("FASB")  approved  the  consensus  reached on the  Emerging
                    Issues Task Force  (EITF)  Issue No.  03-1,  "The Meaning of
                    Other-Than-Temporary   Impairment  and  Its  Application  to
                    Certain  Investments"  ("EITF 03-1").  The objective of this
                    Issue  is  to  provide  guidance  for  identifying  impaired
                    investments.   EITF  03-1  also   provides  new   disclosure
                    requirements   for   investments   that  are  deemed  to  be
                    temporarily  impaired.  In September  2004,  the FASB issued
                    FASB Staff Position ("FSP") FSP EITF 03-1-1, "Effective Date
                    of  Paragraphs  10-20 of EITF Issue No.  03-1," which defers
                    the  effective  date  for the  measurement  and  recognition
                    guidance  contained in paragraphs 10-20 of EITF 03-1 pending
                    the  development  of  further  guidance.  The  Company  will
                    continue to monitor these developments concerning this Issue
                    and is currently unable to determine the impact of EITF 03-1
                    on its financial position or results of operations.


                                      F-19

<PAGE>

                                                JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands


NOTE 3:-       MARKETABLE SECURITIES

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

<TABLE>
<CAPTION>

                                                                          December 31, 2004
                                        -------------------------------------------------------------------------------------
                                            Less than 12 months         12 months or greater                Total
                                        --------------------------- ---------------------------- ----------------------------
                                                       Unrealized                   Unrealized                  Unrealized
                                          Fair value     losses       Fair value      losses       Fair value     losses
                                        ------------- ------------- -------------- ------------- ------------- --------------
<S>                                       <C>           <C>           <C>            <C>           <C>           <C>
               U.S. corporate
                 debentures               $  17,513     $     (64)    $   4,912      $     (56)    $  22,425     $    (120)

               U.S. government
                 securities                   2,060           (28)        9,576           (108)       11,636          (136)
                                        ------------- ------------- -------------- ------------- ------------- --------------

                                          $  19,573     $     (92)    $  14,488      $    (164)    $  34,061     $    (256)
                                        ============= ============= ============== ============= ============= ==============

</TABLE>

<TABLE>
<CAPTION>

                                                                           December 31, 2004
                                 ---------------------------------------------------------------------------------------------------
                                     Less than 12 months                  12 months or greater                     Total
                                 --------------------------- ------------------------------------------  ---------------------------
                                                Unrealized                   Unrealized    Unrealized                   Unrealized
                                   Fair value     gains        Fair value      gains         losses        Fair value      gains
                                 ------------- ------------- -------------- ------------- ------------- -------------- -------------
<S>                                <C>           <C>           <C>            <C>           <C>           <C>            <C>

               U.S. corporate
                 debentures        $   3,191     $       1     $  17,534      $      67     $     (35)    $  20,725      $      33

               U.S. government
                 securities            3,447            14         7,776             28            (5)       11,223             37
                                 ------------- ------------- -------------- ------------- ------------- -------------- -------------

                                   $   6,638     $      15     $  25,310      $      95     $     (40)    $  31,948      $      70
                                 ============= ============= ============== ============= ============= ============== =============
</TABLE>

               Long-term marketable securities mature within three years.

               The   unrealized   losses  in  the   Company's   investments   in
               available-for-sale  marketable securities were caused by interest
               rate increases.  The contractual cash flows of these  investments
               are either guaranteed by the U.S.  government or an agency of the
               U.S.  government  or were  issued by highly  rated  corporations.
               Accordingly,  it is  expected  that the  securities  would not be
               settled at a price less than the amortized  cost of the Company's
               investment.  Based on the immaterial  severity of the impairments
               and  the  ability  and  intent  of  the  Company  to  hold  these
               investments  until  a  recovery  of  fair  value,  which  may  be
               maturity,  the  bonds  were  not  considered  to  be  other  than
               temporarily impaired at December 31, 2004.

NOTE 4:-       PROPERTY AND EQUIPMENT, NET

               Composition of property and equipment is as follows:

<TABLE>
<CAPTION>
                                                                           December 31,
                                                              --------------------------------------
                                                                    2004                  2003
                                                              -----------------     ----------------
<S>                                                             <C>                  <C>

               Cost:
                 Computers and peripheral equipment             $       4,388        $       4,888
                 Office furniture and equipment                         1,039                1,009
                 Motor vehicles                                           438                  800
                 Leasehold improvements                                   644                  645
                                                               ----------------     ----------------

                                                                        6,509                7,342
               Accumulated depreciation                                 5,183                5,468
                                                               ----------------     ----------------

               Depreciated cost                                 $       1,326        $       1,874
                                                               ================     ================

</TABLE>

               Depreciation expenses for the years ended December 31, 2004, 2003
               and 2002 were $ 804, $ 1,078, and $ 1,310, respectively.


                                      F-20

<PAGE>


                                                JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands

NOTE 5:-       OTHER ASSETS, NET

<TABLE>
<CAPTION>
                                                               December 31,
                                                   ------------------------------------
                                                         2004                2003
                                                   ----------------    ----------------
<S>                                                 <C>                 <C>

               a. Original amounts:
                    Technology                      $       2,458       $       1,558
                    Other intangibles                         163                 163
                                                   ----------------    ----------------

                                                            2,621               1,721
                                                   ----------------    ----------------
                  Accumulated amortization:
                    Technology                              1,061               693
                    Other intangibles                         131                 77
                                                   ----------------    ----------------

                                                            1,192               770
                                                   ----------------    ----------------

                        Amortized cost              $       1,429       $         951
                                                   ================    ================
</TABLE>

               b.   Amortization  expense for the years ended December 31, 2004,
                    2003  and  2002  amounted  to  $  422,  $  366  and  $  309,
                    respectively.  As of December 31, 2004, the weighted average
                    amortization period is 2.1 years.

               c.   Estimated amortization expenses for the years ended:

                    Year ended December 31,
                    -----------------------

                      2005              $         462
                      2006                        430
                      2007                        263
                      2008                        180
                      2009                         94
                                       ---------------

                                        $       1,429
                                       ===============

               d.   During 2004, the Company purchased and capitalized  software
                    technology in accordance  with SFAS No. 86, in the amount of
                    $ 900.

                    The  technology is amortized  using the straight line method
                    over the estimated economic life of the technology, which is
                    five years.



                                      F-21

<PAGE>


                                                JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands


NOTE 6:-      ACCRUED EXPENSES AND OTHER LIABILITIES

<TABLE>
<CAPTION>
                                                                    December 31,
                                                        -------------------------------------
                                                              2004                2003
                                                        ----------------    -----------------
<S>                                                              <C>                 <C>

               Employee and payroll accruals              $      1,768        $      1,465
               Accrued expenses                                  1,104               1,348
               Liability in respect of technology                  281                 300
               Accrued arbitration charges (1)                     663                 663
               Restructuring accruals (2)                            -                  55
                                                        ----------------    -----------------

                                                          $      3,816        $      3,831
                                                        ================    =================

</TABLE>
               (1) See also Note 7c.
               (2) See also Note 1(c).


NOTE 7:-       COMMITMENTS AND CONTINGENT LIABILITIES

               a.   Royalties:

                    Jacada  Ltd.  participated  in  programs  sponsored  by  the
                    Israeli   Government   for  the  support  of  research   and
                    development  activities.  Through December 31, 2004,  Jacada
                    Ltd.  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%-5% 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  and for
                    grants received after January 1, 1999 also bearing  interest
                    at the rate of LIBOR.  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, 2004,  the Company has paid or accrued
                    royalties  to the  OCS  in  the  amount  of $  1,761.  As of
                    December 31, 2004, the aggregate contingent liability to the
                    OCS amounted to $ 458.

                    Royalties  accrued or paid were recorded as part of the cost
                    of software and product.

               b.   Lease commitments:

                    The Company's  facilities are leased under various operating
                    lease agreements,  which expire on various dates, the latest
                    of which is in 2009.  Future  minimum lease  payments  under
                    non-cancelable operating leases are as follows:

                      Year ended
                      December 31,
                     ------------------

                      2005                 $    685
                      2006                      606
                      2007                      409
                      2008                      350
                      2009                      178
                                      ----------------------

                                           $  2,228
                                      ======================


                                      F-22

<PAGE>


                                                JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands


NOTE 7:-      COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

                    Total rent  expenses for the years ended  December 31, 2004,
                    2003 and 2002 were  approximately  $ 856, $ 798 and $ 1,130,
                    respectively.

               c.   Litigation:

                    In August 1999, a former  distributor  filed an  arbitration
                    demand  against a  subsidiary  of Jacada  Ltd.  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 the arbitrator
                    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  and  legal
                    expenses related to the arbitration.

                    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  2004  and  2003  and  2002,  the  Company   recorded
                    recurring  expenses  of $ 0, $ 46  and $ 225,  respectively,
                    which  include  amounts  collected  from the  customer,  and
                    related legal expenses (see also Note 6).

                    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. Pursuant to an October
                    21, 2003 Order,  the arbitration  award was validated by the
                    United  States  Court for the Western  District of Michigan,
                    and the  subsidiary's  motion  to  vacate  was  denied.  The
                    subsidiary  has filed a timely appeal with the United States
                    Court for the Sixth Judicial Circuit. The Company has stated
                    the  intention  of  vigorously  contesting  the  arbitration
                    award.

                    The parties have filed briefs in connection  with the appeal
                    and oral arguments were heard by the Court in November 2004.
                    A decision is currently pending.

                    The Company's  legal  counselors  believe that the Company's
                    maximum liability  regarding the appeal is a confirmation of
                    the arbitration award (see also Note 12b).


NOTE 8:-       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.


                                      F-23

<PAGE>


                                                JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands, except share and per share data


NOTE 8:-       SHAREHOLDERS' EQUITY (Cont.)

               b.   Stock Option Plans:

                    As of December  31,  2004,  the  Company has four  Incentive
                    Share  Option Plans (the 1994,  1996,  1999 and 2003 plans),
                    which   provide  for  the  grant  of  options  to  officers,
                    management, other key employees, directors,  consultants and
                    others of up to 7,760,450 of the Company's  Ordinary shares.
                    The 1994  Option  Plan,  pursuant  to its terms,  expired on
                    December  31, 2003.  The options  granted  generally  become
                    fully  exercisable  after two to four  years  and  expire 10
                    years from the grant date. Any options that 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  Board of Directors but
                    may not be less than the par value of the Ordinary shares.

                    As of December 31, 2004, an aggregate of 2,046,773  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:

<TABLE>
<CAPTION>

                                                                           Year ended December 31,
                                               --------------------------------------------------------------------------------
                                                         2004                        2003                       2002
                                               -------------------------  --------------------------  -------------------------
                                                              Weighted                    Weighted                   Weighted
                                                               average                    average                     Average
                                                Number of     exercise     Number of      exercise     Number of     Exercise
                                                 options        price       Options        price        options        Price
                                               -----------   -----------  ------------  ------------  -----------   -----------
<S>                                             <C>            <C>         <C>            <C>          <C>            <C>
                      Outstanding - at the
                        beginning of the
                        year                    4,326,506      $  3.18     3,522,382      $  3.74      3,596,270      $  4.52
                        Granted                 730,500        $  2.67     1,326,700      $  1.98      1,112,352      $  2.60
                        Exercised               (198,637)      $  2.19     (97,875)       $  1.40      (30,826)       $  1.40
                        Forfeited and
                         cancelled              (539,466)      $  3.74     (424,701)      $  4.50      (1,155,414)    $  5.11
                                               -----------                ------------                -----------

                      Outstanding - at the
                        end of the year         4,318,903      $  3.07     4,326,506      $  3.18      3,522,382      $  3.74
                                               ===========   ===========  ============  ============  ===========   ===========

                      Exercisable options
                        at the end of the
                        year                    2,821,881      $  3.48     2,381,142      $  3.86      2,042,641      $  3.83
                                               ===========   ===========  ============  ============  ===========   ===========

</TABLE>

                    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 2004, 2003 and 2002,  which the exercise price equals
                    the market price on the date of grant, is $ 1.21, $ 0.60 and
                    $ 0.95, respectively.


                                      F-24

<PAGE>


                                                JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands, except share and per share data


NOTE 8:-      SHAREHOLDERS' EQUITY (Cont.)

                    The options  outstanding  as of December  31, 2004 have been
                    classified by exercise price, as follows:

<TABLE>
<CAPTION>

                                                                                                         Weighted
                                     Options          Weighted                         Options            average
                                   outstanding        average         Weighted       exercisable         exercise
                                      as of          remaining        average           as of            price of
                 Exercise          December 31,     contractual       exercise       December 31,         options
                  price                2004         life (years)       price             2004           exercisable
           --------------------  ----------------  --------------  --------------  ----------------   ---------------
<S>          <C>      <C>            <C>               <C>              <C>             <C>                <C>
             $ 0.99 - $ 1.18         522,507           2.37             $   1.03        491,011            $     1.02
             $ 1.20 - $ 1.40         648,375           5.17             $   1.26        283,836            $     1.26
             $ 1.60 - $ 2.22         235,861           3.73             $   2.05        198,361            $     2.02
             $ 2.50 - $ 3.14       1,851,500           8.39             $   2.72        788,013            $     2.79
             $ 4.04 - $ 5.06         755,835           4.31             $   4.58        755,835            $     4.58
             $ 9.00 - $ 11.00        304,825           4.89             $   9.51        304,825            $     9.51
                                 ----------------                                  ----------------

                                   4,318,903           5.96             $   3.07      2,821,881            $     3.48
                                 ================  ==============  ==============  ================   ===============

</TABLE>

                    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.

               c.   Options issued to consultants:

                    The  Company's  outstanding  options  to  consultants  as of
                    December 31, 2004, are as follows:

<TABLE>
<CAPTION>
                                                  Options for        Exercise price         Options           Exercisable
                            Grant date           Ordinary shares        per share          exercisable           through
                     ------------------------  ------------------  ------------------  ------------------  -----------------
<S>                           <C>                    <C>                <C>                  <C>                      <C>
                              1999                   1,500              $    11.00           1,500                     *)
                              2000                   4,750              $     4.38           4,750                     *)
                              2001                   5,000              $     2.89           5,000                     *)
                              2002                  11,000              $     2.61          11,000                     *)
                              2004                  62,500              $     3.2           62,500                     **)
                              2004                  30,000              $     2.94               -                     *)
                                               ------------------                      ------------------
                              Total                114,750                                 84,750
                                               ==================                      ==================
</TABLE>

                     *) 10 years from the date of grant.
                    **) 1.5 years from the date of grant.

                    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  2004,  2003  and  2002:
                    risk-free  interest  rates of 3.1% for the  grant of  62,500
                    options  granted  in 2004  and  4.2%  for the  other  30,000
                    options  granted  in 2004,  3% for  2003 and 2.5% for  2002,
                    dividend yields of 0% for each year,  volatility  factors of
                    the expected  market price of the Company's  Ordinary shares
                    of 0.6 for the  years  2003 and  2002  and for the  grant of
                    30,000  options  in 2004 and 0.69  for the  grant of  62,500
                    options in 2004 and a contractual  life of 10 years for each
                    year,  except for the 2004 grant that has a contractual life
                    of 1.5 years.


                                      F-25

<PAGE>


                                                JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands, except share and per share data


NOTE 8:-       SHAREHOLDERS' EQUITY (Cont.)

               d.   Warrants:

                    During 2001, in connection with a business combination,  the
                    Company issued a warrant to purchase 350,000 Ordinary shares
                    of the  Company at an exercise  price of $ 3.26.  In January
                    2004, the warrants  holders  exercised their warrant and the
                    Company issued 93,595 Ordinary shares.

               e.   Dividends:

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


NOTE 9:-       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,
                    2004,  the  investments  under  the  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 a tax  exemption  and,  accordingly,  the Jacada
                    Ltd.'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).

                    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 letter
                    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,  2004,  management  believes  that  the
                    Company is meeting all of the aforementioned conditions.

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


                                      F-26

<PAGE>


                                                JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands


NOTE 9:-      TAXES ON INCOME (Cont.)

                    The  tax-exempt   income   attributable   to  the  "Approved
                    Enterprises"  can be  distributed to  shareholders,  without
                    subjecting  Jacada  Ltd.  to taxes,  only upon the  complete
                    liquidation  of  Jacada  Ltd.  If this  retained  tax-exempt
                    income is distributed in a manner other than in the complete
                    liquidation  of  Jacada  Ltd.,  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.

                    Jacada  Ltd.  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 tax rate.

                    A recent  amendment  to the law,  which has been  officially
                    published effected as of April 1, 2005 ("the Amendment") has
                    significantly   changed  the  provisions  of  the  law.  The
                    Amendment  limits  the  scope of  enterprises  which  may be
                    approved by the  Investment  Center by setting  criteria for
                    the approval of a facility as an "Approved Enterprise", such
                    as provisions  generally  requiring that at least 25% of the
                    "Approved  Enterprise's" income will be derived from export.
                    Additionally,  as explained  below,  the  Amendment  enacted
                    major  changes  in the  manner  in which  tax  benefits  are
                    awarded  under the law so that  companies no longer  require
                    Investment  Center  approval  in  order to  qualify  for tax
                    benefits.  However, the law provides that terms and benefits
                    included  in any letter of  approval  already  granted  will
                    remain  subject to the provisions of the law as they were on
                    the date of such approval. Therefore, the Company's existing
                    "Approved  Enterprises" will generally not be subject to the
                    provisions of the Amendment.

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

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

               c.   Net operating losses carryforwards:

                    As of December 31, 2004,  Jacada Ltd.  had  approximately  $
                    10,240 of Israeli  net  operating  loss  carryforwards.  The
                    Israeli loss carryforwards have no expiration date.

                    As of December 31, 2004, the U.K. subsidiary had accumulated
                    losses   for   income   tax   purposes   in  the  amount  of
                    approximately  $ 2,560.  These net  operating  losses may be
                    carried  forward and offset  against  taxable  income in the
                    future for an indefinite period.


                                      F-27

<PAGE>


                                                JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands


NOTE 9:-      TAXES ON INCOME (Cont.)

                    As of  December  31,  2004,  the  U.S.  subsidiary  had U.S.
                    federal  net  operating  loss  carryforwards  for income tax
                    purposes  in the  amount  of  approximately  $  12,245.  Net
                    operating  loss  carryforwards   arising  in  taxable  years
                    beginning  before August 6, 1997 can be carried  forward and
                    offset  against tax income for 15 years and expire from 2011
                    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 2024.  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,  2004,  Jacada  Deutschland  GmbH ("the
                    German  subsidiary")  had accumulated  losses for income tax
                    purposes  in the amount of  approximately  $ 1,470.  The net
                    operating loss carryforwards have no expiration date.

               d.   Deferred income taxes:

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

<TABLE>
<CAPTION>

                                                                                         December 31,
                                                                             -------------------------------------
                                                                                   2004                 2003
                                                                             ----------------     ----------------
<S>                                                                            <C>                  <C>
                    Deferred tax assets:
                      U.S. operating loss carryforward                         $      4,286         $      4,128
                      U.K. operating loss carryforward                                  513                  944
                      German operating loss carryforward                                367                  251
                    Reserves and allowances                                           1,524                1,153
                                                                             ----------------     ----------------

                    Total deferred tax asset before valuation allowance               6,690                6,476
                    Valuation allowance                                              (6,690)              (6,476)
                                                                             ----------------     ----------------

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

</TABLE>

                    The  U.S.,  U.K.  and  German   subsidiaries  have  provided
                    valuation  allowances  in  respect  of  deferred  tax assets
                    resulting   from  tax  loss   carryforwards   and  temporary
                    differences.  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  2004,  the  subsidiaries   increased  the  valuation
                    allowance by $ 843 to $ 6,166.

               e.   The main  reconciling item between the statutory tax rate of
                    the Company ( U.S. - 35%, U.K. - 20%,  Germany - 25%, Israel
                    - 36% in 2002 and 2003  and 35% in 2004)  and the  effective
                    tax rate (0%) is 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
                    Enterprises".


                                      F-28

<PAGE>


                                                JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands


NOTE 9:-      TAXES ON INCOME (Cont.)

               f.   Pre-tax income (loss) is comprised as follows:

<TABLE>
<CAPTION>

                                                          Year ended December 31,
                                             --------------------------------------------------
                                                  2004             2003              2002
                                             --------------   ---------------   ---------------
<S>                                            <C>              <C>               <C>
                      Domestic (Israel)        $    (4,377)     $   (1,152)       $      677
                      Foreign                       (1,236)           (997)           (3,586)
                                              -------------    --------------    --------------

                                               $    (5,613)     $   (2,149)       $   (2,909)
                                              =============    ==============    ==============

</TABLE>

               g.   Reduction in corporate tax rate:

                    In June 2004, the Israeli  Parliament  approved an amendment
                    to  the  Income  Tax   Ordinance   (No.  140  and  Temporary
                    Provision) (the "Amendment"),  which  progressively  reduces
                    the regular  corporate tax rate from 36% to 35% in 2004, 34%
                    in  2005,  32% in  2006  and to a rate of 30% in  2007.  The
                    amendment  was  signed  and  published  in July 2004 and is,
                    therefore, considered enacted in July 2004.


NOTE 10:-      GEOGRAPHIC INFORMATION

               Summary information about geographical areas:

               The  Company  manages its  business on a basis of one  reportable
               segment  (see Note 1a 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.

<TABLE>
<CAPTION>
                                                                              Year ended December 31,
                                                                 --------------------------------------------------
                                                                      2004             2003              2002
                                                                 ---------------  ---------------   ---------------
               Revenues from sales to unaffiliated customers:
<S>                                                               <C>              <C>               <C>
               North America                                      $    15,982      $    16,435       $    17,158
               Europe and other                                         3,802            4,127             4,378
                                                                 ---------------  ---------------   ---------------

                                                                  $    19,784      $    20,562       $    21,536
                                                                 ===============  ===============   ===============

                                                                                     December 31,
                                                                 ----------------------------------------------------
                                                                       2004              2003              2002
                                                                 ----------------  ----------------  ----------------
                Long-lived assets:

                  Israel                                          $     2,485       $     1,543       $     2,100
                  North America                                         4,876             5,893             6,537
                  United Kingdom                                           14                5                 19
                  Germany                                                  10                14                19
                                                                 ----------------  ----------------  ----------------

                                                                  $     7,385       $     7,455       $     8,675
                                                                 ================  ================  ================
</TABLE>


                                      F-29

<PAGE>


                                                JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands


NOTE 11:-     FINANCIAL INCOME, NET

<TABLE>
<CAPTION>

                                                                                    December 31,
                                                                ----------------------------------------------------
                                                                      2004              2003              2002
                                                                ----------------  ----------------  ----------------
<S>                                                                       <C>              <C>                <C>
                Financial expenses:
                  Foreign currency translation adjustments       $         -       $         -       $        (59)
                  Bank charges                                          (112)              (93)               (50)
                                                                ----------------  ----------------  ----------------

                                                                        (112)              (93)              (109)
                                                                ----------------  ----------------  ----------------
                Financial income:
                  Foreign currency translation adjustments                70               263                176
                  Interest on marketable securities                      828               867                842
                                                                ----------------  ----------------  ----------------

                                                                         898             1,130              1,018
                                                                ----------------  ----------------  ----------------

                                                                 $       786       $     1,037       $        909
                                                                ================  ================  ================
</TABLE>


NOTE 12:-      SUBSEQUENT EVENTS (Unaudited)

               a.   During the first  quarter of 2005,  the Company  initiated a
                    restructuring  plan in  order  to  improve  its  operational
                    processes.

                    The plan includes merging several departments,  aligning the
                    marketing and sales organization,  and implementing  various
                    expense  reductions.  These  changes have also resulted in a
                    12%  reduction in the  workforce  worldwide  and include the
                    related cost associated with such a reduction.

               b.   Regarding  the  appeal  that was  filed by a  subsidiary  of
                    Jacada  Ltd.  (see Note 7c), on March 18,  2005,  the United
                    States Court for the Western District of Michigan  confirmed
                    the  arbitration  award.  The  Company  filed a motion for a
                    rehearing with the Court of Appeals, which was denied in May
                    2005.


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


                                      F-30