##### Index to Financial Statements

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM 20-F/A

Amendment No. 1



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

OR



|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008
|- | --------------------------------------------------------------------------------------------------------------------------------

OR



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



| ̈ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | -------------------------------------------------------------------------------------------

Date of event requiring this shell company report

For the transition period from  to

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(Title of Class)

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

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

16,538,621 Ordinary Shares, par value NIS 0.01 per share



Indicate by check mark if the registrant is a well
known seasoned issuer, as defined in Rule 405 of the Securities Act.

 ̈Yes                                
x  No

If this report is an annual or transition report, indicate by check
mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 ̈Yes                                
x  No

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

Yes x                                No 
  ̈

Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).

Yes  ̈                                No 
  ̈

Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer (Check one).

Large accelerated filer:  ̈    Accelerated filer:  ̈    Non-accelerated filer: x

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.

US GAAP: x    International Financial Reporting
Standards:  ̈    Other:   ̈

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 ̈Yes                                
x  No



---

##### Index to Financial Statements

EXPLANATORY NOTE

This Amendment No. 1 to the Annual Report on Form 20-F of Jacada Ltd. (Jacada) for the fiscal year ended
December 31, 2008 (the Annual Report) is being filed with the Securities and Exchange Commission (the Commission) due to Jacadas inadvertent omission, from the text of Exhibits 12.1 and 12.2 of the
Annual Report, as filed with the Commission on April 16, 2009, of required certification language pursuant to Rule 13a-14 and Rule 15d-14 under the Securities Exchange Act of 1934 concerning the certifying officers responsibility for
designing, establishing and maintaining internal control over financial reporting, both in the introductory language in paragraph 4 of such certifications and in paragraph 4(b) thereof. As a result of such inadvertent omission, and pursuant to a
published Compliance and Disclosure Interpretation of the Commission, Jacada is filing this Amendment No. 1 in order to rectify all disclosure items affected thereby, by providing (a) once again (i) the Controls and Procedures
disclosure required by Item 15T of Form 20-F and (ii) Jacadas audited consolidated financial statements for the fiscal year ended December 31, 2008, pursuant to Item 18 of Form 20-F, and (b) in Exhibits 12.1 and 12.2
hereto, the requisite certification language previously inadvertently omitted.



2



---

##### Index to Financial Statements

Item 15: CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures. Our chief executive officer and chief financial officer, after evaluating the effectiveness of our
disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Exchange Act) as of December 31, 2008, have concluded that, as of such date, our disclosure controls and procedures were effective to
ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely
decisions regarding required disclosure and is recorded, processed, summarized and reported within the periods specified by the SECs rules and forms.

(b) Management Annual Report on Internal Control over Financial Reporting. Our board of directors and audit committee are responsible for establishing and maintaining adequate internal control over
financial reporting. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of our consolidated financial statements for external purposes
in accordance with generally accepted accounting principles. Our chief executive officer and chief financial officer assessed the effectiveness of our internal control over financial reporting (as defined in Rule 13a-15(f) and Rule
15d-(f) promulgated under the Exchange Act) as of December 31, 2008. In making this assessment, they used the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Based on this assessment, our chief executive officer and chief financial officer have concluded that, as of December 31, 2008, our internal control over financial reporting is effective based on those criteria.
Notwithstanding the foregoing, all internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements and can provide only reasonable
assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.

(c) This annual report does not include an
attestation report of our registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC
that permit us to provide only managements report in this annual report.

(d) Changes in Internal Control over Financial
Reporting. During the period covered by this annual report, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.



3



---

##### Index to Financial Statements

Item 18. FINANCIAL STATEMENTS.



4



---

##### Index to Financial Statements

JACADA LTD. AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2008

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       
|                                                           | 
|Consolidated 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-32







---

##### Index to Financial Statements

LOGO

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

JACADA LTD.

We have audited the accompanying consolidated
balance sheets of Jacada Ltd. and its subsidiaries (the Company) as of December 31, 2008 and 2007 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, 2008. 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 audits included 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 financial statements referred to above present fairly, in all material respects, the consolidated
financial position of the Company as of December 31, 2008 and 2007 and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2008, in conformity with U.S. generally
accepted accounting principles.



|                                |  |                                                              
|------------------------------- |  | -------------------------------------------------------------
|Tel-Aviv, Israel April 16, 2009 |  | KOST FORER GABBAY & KASIERER A Member of Ernst & Young Global



F-2



---

##### Index to Financial Statements

JACADA LTD. AND ITS SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS



U.S. dollars in thousands



|                                                                                                                        |  |              |        |      |   |       
|----------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------ | ---- | - | ------
|                                                                                                                        |  | December 31,
|                                                                                                                        |  | 2008         |        | 2007
|ASSETS                                                                                                                  |  |              |        |      |   |       
|                                                                                                                        |  |             
|CURRENT ASSETS:                                                                                                         |  |              |        |      |   |       
|Cash and cash equivalents                                                                                               |  | $            | 11,059 |      | $ | 5,960 
|Marketable securities                                                                                                   |  |              | 8,915  |      |   | 10,869
|                                                                                                                        |  |             
|Trade receivables (net of allowance for doubtful accounts of $ 200 and $ 0 at December 31, 2008 and
2007, respectively) |  |              | 4,713  |      |   | 3,613 
|Restricted cash held by trustee                                                                                         |  |              | 2,640  |      |   | -     
|Restricted cash                                                                                                         |  |              | 559    |      |   | -     
|Assets of discontinued operation                                                                                        |  |              | 64     |      |   | 7,752 
|Other current assets                                                                                                    |  |              | 2,022  |      |   | 1,736 
|                                                                                                                        |  |              |        |      |   |       
|Total current assets                                                                                                    |  |              | 29,972 |      |   | 29,930
|                                                                                                                        |  |              |        |      |   |       
|                                                                                                                        |  |             
|LONG-TERM ASSETS:                                                                                                       |  |              |        |      |   |       
|Marketable securities                                                                                                   |  |              | 9,896  |      |   | 16,995
|Severance pay fund                                                                                                      |  |              | 586    |      |   | 970   
|Property and equipment, net                                                                                             |  |              | 1,266  |      |   | 992   
|Other intangibles, net                                                                                                  |  |              | -      |      |   | 118   
|Goodwill                                                                                                                |  |              | 3,096  |      |   | 3,096 
|                                                                                                                        |  |              |        |      |   |       
|Total long-term assets                                                                                                  |  |              | 14,844 |      |   | 22,171
|                                                                                                                        |  |              |        |      |   |       
|Total assets                                                                                                            |  | $            | 44,816 |      | $ | 52,101
|                                                                                                                        |  |              |        |      |   |       

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



F-3



---

##### Index to Financial Statements

JACADA LTD. AND ITS SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS



U.S. dollars in thousands, except
share and per share data



|                                                                                                                                                                                                                                             |  |              |         |   |      |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                                                                                                                                                                                                                             |  | December 31, |        
|                                                                                                                                                                                                                                             |  | 2008         |         |   | 2007 |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                                                                         |  |              |         |   |      |   |         |  
|                                                                                                                                                                                                                                             |  |             
|CURRENT LIABILITIES:                                                                                                                                                                                                                         |  |              |         |   |      |   |         |  
|Trade payables                                                                                                                                                                                                                               |  | $            | 1,245   |   |      | $ | 1,167   |  
|Deferred revenues                                                                                                                                                                                                                            |  |              | 1,006   |   |      |   | 1,893   |  
|Accrued expenses and other liabilities                                                                                                                                                                                                       |  |              | 3,096   |   |      |   | 3,308   |  
|Liabilities of discontinued operation                                                                                                                                                                                                        |  |              | 1,363   |   |      |   | 4,246   |  
|                                                                                                                                                                                                                                             |  |              |         |   |      |   |         |  
|Total current liabilities                                                                                                                                                                                                                    |  |              | 6,710   |   |      |   | 10,614  |  
|                                                                                                                                                                                                                                             |  |              |         |   |      |   |         |  
|                                                                                                                                                                                                                                             |  |             
|LONG-TERM LIABILITIES:                                                                                                                                                                                                                       |  |              |         |   |      |   |         |  
|Deferred revenues                                                                                                                                                                                                                            |  |              | -       |   |      |   | 61      |  
|Accrued severance pay                                                                                                                                                                                                                        |  |              | 1,120   |   |      |   | 1,522   |  
|Other long-term liabilities                                                                                                                                                                                                                  |  |              | 185     |   |      |   | -       |  
|                                                                                                                                                                                                                                             |  |              |         |   |      |   |         |  
|Total long-term liabilities                                                                                                                                                                                                                  |  |              | 1,305   |   |      |   | 1,583   |  
|                                                                                                                                                                                                                                             |  |              |         |   |      |   |         |  
|COMMITMENTS AND CONTINGENT LIABILITIES (Note 7)                                                                                                                                                                                              |  |              |         |   |      |   |         |  
|                                                                                                                                                                                                                                             |  |             
|SHAREHOLDERS EQUITY:                                                                                                                                                                                                                        |  |              |         |   |      |   |         |  
|Share capital -                                                                                                                                                                                                                              |  |              |         |   |      |   |         |  
|Ordinary shares of NIS 0.01 par value -                                                                                                                                                                                                      |  |              |         |   |      |   |         |  
|Authorized: 30,000,000 shares at December 31, 2008 and 2007; Issued: 20,985,805 and 20,600,865 shares at
December 31, 2008 and 2007, respectively; Outstanding: 16,538,621 and 20,600,865 shares at December 31, 2008 and 2007, respectively |  |              | 60      |   |      |   | 59      |  
|Additional paid-in capital                                                                                                                                                                                                                   |  |              | 75,173  |   |      |   | 73,393  |  
|Treasury shares at cost - 4,447,184 and 0 Ordinary shares as of December 31, 2008 and 2007, respectively                                                                                                                                     |  |              | (17,863 | ) |      |   | -       |  
|Accumulated other comprehensive income                                                                                                                                                                                                       |  |              | 160     |   |      |   | 418     |  
|Accumulated deficit                                                                                                                                                                                                                          |  |              | (20,729 | ) |      |   | (33,966 | )
|                                                                                                                                                                                                                                             |  |              |         |   |      |   |         |  
|Total shareholders equity                                                                                                                                                                                                                   |  |              | 36,801  |   |      |   | 39,904  |  
|                                                                                                                                                                                                                                             |  |              |         |   |      |   |         |  
|Total liabilities and shareholders equity                                                                                                                                                                                                   |  | $            | 44,816  |   |      | $ | 52,101  |  
|                                                                                                                                                                                                                                             |  |              |         |   |      |   |         |  

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



F-4



---

##### Index to Financial Statements

JACADA LTD. AND ITS SUBSIDIARIES



CONSOLIDATED STATEMENTS OF OPERATIONS



U.S. dollars in thousands, except
share and per share data



|                                                                                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|--------------------------------------------------------------------------------------------------- |  | ----------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                                                    |  | Year ended December 31, |           
|                                                                                                    |  | 2008                    |            |   | 2007 |   |            | 2006 | 
|Revenues:                                                                                           |  |                         |            |   |      |   |            |      |  |   |            |  
|Software licenses                                                                                   |  | $                       | 7,647      |   |      | $ | 3,706      |      |  | $ | 3,668      |  
|Services                                                                                            |  |                         | 14,540     |   |      |   | 8,479      |      |  |   | 3,781      |  
|Maintenance                                                                                         |  |                         | 2,178      |   |      |   | 1,812      |      |  |   | 1,356      |  
|                                                                                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|Total revenues                                                                                      |  |                         | 24,365     |   |      |   | 13,997     |      |  |   | 8,805      |  
|                                                                                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|Cost of revenues:*)                                                                                 |  |                         |            |   |      |   |            |      |  |   |            |  
|Software licenses                                                                                   |  |                         | 544        |   |      |   | 449        |      |  |   | 244        |  
|Services                                                                                            |  |                         | 11,038     |   |      |   | 7,009      |      |  |   | 3,517      |  
|Maintenance                                                                                         |  |                         | 856        |   |      |   | 745        |      |  |   | 662        |  
|                                                                                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|Total cost of revenues                                                                              |  |                         | 12,438     |   |      |   | 8,203      |      |  |   | 4,423      |  
|                                                                                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|Gross profit                                                                                        |  |                         | 11,927     |   |      |   | 5,794      |      |  |   | 4,382      |  
|                                                                                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|Operating expenses:*)                                                                               |  |                         |            |   |      |   |            |      |  |   |            |  
|Research and development                                                                            |  |                         | 4,819      |   |      |   | 4,402      |      |  |   | 3,838      |  
|Sales and marketing                                                                                 |  |                         | 8,829      |   |      |   | 9,787      |      |  |   | 9,759      |  
|General and administrative                                                                          |  |                         | 5,583      |   |      |   | 5,249      |      |  |   | 5,108      |  
|Restructuring costs                                                                                 |  |                         | 451        |   |      |   | -          |      |  |   | -          |  
|                                                                                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|Total operating expenses                                                                            |  |                         | 19,682     |   |      |   | 19,438     |      |  |   | 18,705     |  
|                                                                                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|Operating loss                                                                                      |  |                         | (7,755     | ) |      |   | (13,644    | )    |  |   | (14,323    | )
|Financial income, net                                                                               |  |                         | 715        |   |      |   | 1,548      |      |  |   | 1,372      |  
|                                                                                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|Loss from continuing operations before taxes                                                        |  |                         | (7,040     | ) |      |   | (12,096    | )    |  |   | (12,951    | )
|Income tax benefit                                                                                  |  |                         | 2,043      |   |      |   | 8,672      |      |  |   | 3,117      |  
|                                                                                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|Net loss from continuing operations                                                                 |  |                         | (4,997     | ) |      |   | (3,424     | )    |  |   | (9,834     | )
|Income from discontinued operation, net of taxes                                                    |  |                         | 18,234     |   |      |   | 7,540      |      |  |   | 7,262      |  
|                                                                                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|Net income (loss)                                                                                   |  | $                       | 13,237     |   |      | $ | 4,116      |      |  | $ | (2,572     | )
|                                                                                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|Basic and diluted net earnings (loss) per share:                                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|From continuing operations                                                                          |  | $                       | (0.26      | ) |      | $ | (0.17      | )    |  | $ | (0.50      | )
|                                                                                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|From discontinued operation                                                                         |  | $                       | 0.94       |   |      | $ | 0.37       |      |  | $ | 0.37       |  
|                                                                                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|Basic and diluted net earnings (loss) per share                                                     |  | $                       | 0.68       |   |      | $ | 0.20       |      |  | $ | (0.13      | )
|                                                                                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|Weighted average number of shares used in computing basic and diluted net earnings (loss) per
share |  |                         | 19,354,810 |   |      |   | 20,364,752 |      |  |   | 19,827,852 |  
|                                                                                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|*)      Includes stock-based compensation to employees and directors in the
following items:        |  |                         |            |   |      |   |            |      |  |   |            |  
|Cost of revenues                                                                                    |  | $                       | 82         |   |      | $ | 97         |      |  | $ | 67         |  
|Research and development                                                                            |  |                         | 72         |   |      |   | 77         |      |  |   | 79         |  
|Sales and marketing                                                                                 |  |                         | 204        |   |      |   | 252        |      |  |   | 123        |  
|General and administrative                                                                          |  |                         | 502        |   |      |   | 365        |      |  |   | 402        |  
|                                                                                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|Total stock-based compensation expenses                                                             |  | $                       | 860        |   |      | $ | 791        |      |  | $ | 671        |  
|                                                                                                    |  |                         |            |   |      |   |            |      |  |   |            |  

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



F-5



---

##### Index to Financial Statements

JACADA LTD. AND ITS SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS
EQUITY



U.S.
dollars in thousands, except share data



|                                                                               |  |                 |   |  |        |    |                          |   |                       |  |   |                                            |   |  |                    |      |   |                                 |   |         |                          |  |   |        |   |  |   |         |  
|------------------------------------------------------------------------------ |  | --------------- | - |  | ------ | -- | ------------------------ | - | --------------------- |  | - | ------------------------------------------ | - |  | ------------------ | ---- | - | ------------------------------- | - | ------- | ------------------------ |  | - | ------ | - |  | - | ------- | -
|                                                                               |  |                 |   |  |        |    | Additionalpaid-incapital |   | Treasurysharesat cost |  |   | Accumulatedothercomprehensiveincome (loss) |   |  | Accumulateddeficit |      |   | Totalcomprehensiveincome (loss) |   |         | Totalshareholdersequity | 
|                                                                               |  |                 |   |  |        |    |                          |   |                       |  |  
|                                                                               |  | Ordinary shares |   |  |        |    |                          |  
|                                                                               |  | Shares          |   |  | Amount |    |                          |   |                       |  |  
|Balance as of January 1, 2006                                                  |  | 19,619,806      |   |  | $      | 57 |                          | $ | 70,297                |  | $ | -                                          |   |  | $                  | (369 | ) |                                 | $ | (35,510 | )                        |  |   |        |   |  | $ | 34,475  |  
|Exercise of stock options                                                      |  | 512,358         |   |  |        | 1  |                          |   | 572                   |  |   | -                                          |   |  |                    | -    |   |                                 |   | -       |                          |  |   |        |   |  |   | 573     |  
|Stock-based compensation related to options granted to employees and directors |  | -               |   |  |        | -  |                          |   | 671                   |  |   | -                                          |   |  |                    | -    |   |                                 |   | -       |                          |  |   |        |   |  |   | 671     |  
|Stock compensation related to options granted to non-employees                 |  | -               |   |  |        | -  |                          |   | 7                     |  |   | -                                          |   |  |                    | -    |   |                                 |   | -       |                          |  |   |        |   |  |   | 7       |  
|Comprehensive loss:                                                            |  |                 |   |  |        |    |                          |   |                       |  |   |                                            |   |  |                    |      |   |                                 |   |         |                          |  |   |        |   |  |   |         |  
|Net loss                                                                       |  | -               |   |  |        | -  |                          |   | -                     |  |   | -                                          |   |  |                    | -    |   |                                 |   | (2,572  | )                        |  | $ | (2,572 | ) |  |   | (2,572  | )
|Unrealized income from available-for-sale marketable securities                |  | -               |   |  |        | -  |                          |   | -                     |  |   | -                                          |   |  |                    | 227  |   |                                 |   | -       |                          |  |   | 227    |   |  |   | 227     |  
|Unrealized income from derivatives                                             |  | -               |   |  |        | -  |                          |   | -                     |  |   | -                                          |   |  |                    | 14   |   |                                 |   | -       |                          |  |   | 14     |   |  |   | 14      |  
|                                                                               |  |                 |   |  |        |    |                          |   |                       |  |   |                                            |   |  |                    |      |   |                                 |   |         |                          |  |   |        |   |  |   |         |  
|Total comprehensive loss                                                       |  |                 |   |  |        |    |                          |   |                       |  |   |                                            |   |  |                    |      |   |                                 |   |         |                          |  | $ | (2,331 | ) |  |   |         |  
|                                                                               |  |                 |   |  |        |    |                          |   |                       |  |   |                                            |   |  |                    |      |   |                                 |   |         |                          |  |   |        |   |  |   |         |  
|Balance as of December 31, 2006                                                |  | 20,132,164      |   |  |        | 58 |                          |   | 71,547                |  |   | -                                          |   |  |                    | (128 | ) |                                 |   | (38,082 | )                        |  |   |        |   |  |   | 33,395  |  
|Exercise of stock options                                                      |  | 468,701         |   |  |        | 1  |                          |   | 1,016                 |  |   | -                                          |   |  |                    | -    |   |                                 |   | -       |                          |  |   |        |   |  |   | 1,017   |  
|Stock-based compensation related to options granted to employees and directors |  | -               |   |  |        | -  |                          |   | 791                   |  |   | -                                          |   |  |                    | -    |   |                                 |   | -       |                          |  |   |        |   |  |   | 791     |  
|Stock compensation related to options granted to non-employees                 |  | -               |   |  |        | -  |                          |   | 39                    |  |   | -                                          |   |  |                    | -    |   |                                 |   | -       |                          |  |   |        |   |  |   | 39      |  
|Comprehensive income:                                                          |  |                 |   |  |        |    |                          |   |                       |  |   |                                            |   |  |                    |      |   |                                 |   |         |                          |  |   |        |   |  |   |         |  
|Net income                                                                     |  | -               |   |  |        | -  |                          |   | -                     |  |   | -                                          |   |  |                    | -    |   |                                 |   | 4,116   |                          |  | $ | 4,116  |   |  |   | 4,116   |  
|Unrealized income from available-for-sale marketable securities                |  | -               |   |  |        | -  |                          |   | -                     |  |   | -                                          |   |  |                    | 411  |   |                                 |   | -       |                          |  |   | 411    |   |  |   | 411     |  
|Unrealized income from derivatives                                             |  | -               |   |  |        | -  |                          |   | -                     |  |   | -                                          |   |  |                    | 135  |   |                                 |   | -       |                          |  |   | 135    |   |  |   | 135     |  
|                                                                               |  |                 |   |  |        |    |                          |   |                       |  |   |                                            |   |  |                    |      |   |                                 |   |         |                          |  |   |        |   |  |   |         |  
|Total comprehensive income                                                     |  |                 |   |  |        |    |                          |   |                       |  |   |                                            |   |  |                    |      |   |                                 |   |         |                          |  | $ | 4,662  |   |  |   |         |  
|                                                                               |  |                 |   |  |        |    |                          |   |                       |  |   |                                            |   |  |                    |      |   |                                 |   |         |                          |  |   |        |   |  |   |         |  
|Balance as of December 31, 2007                                                |  | 20,600,865      |   |  |        | 59 |                          |   | 73,393                |  |   | -                                          |   |  |                    | 418  |   |                                 |   | (33,966 | )                        |  |   |        |   |  |   | 39,904  |  
|Exercise of stock options                                                      |  | 384,940         |   |  |        | 1  |                          |   | 913                   |  |   | -                                          |   |  |                    | -    |   |                                 |   | -       |                          |  |   |        |   |  |   | 914     |  
|Stock-based compensation related to options granted to employees and directors |  | -               |   |  |        | -  |                          |   | 860                   |  |   | -                                          |   |  |                    | -    |   |                                 |   | -       |                          |  |   |        |   |  |   | 860     |  
|Stock compensation related to options granted to non-employees                 |  | -               |   |  |        | -  |                          |   | 7                     |  |   | -                                          |   |  |                    | -    |   |                                 |   | -       |                          |  |   |        |   |  |   | 7       |  
|Treasury shares at cost                                                        |  | (4,447,184      | ) |  |        | -  |                          |   | -                     |  |   | (17,863                                    | ) |  |                    | -    |   |                                 |   | -       |                          |  |   |        |   |  |   | (17,863 | )
|Comprehensive income:                                                          |  |                 |   |  |        |    |                          |   |                       |  |   |                                            |   |  |                    |      |   |                                 |   |         |                          |  |   |        |   |  |   |         |  
|Net income                                                                     |  | -               |   |  |        | -  |                          |   | -                     |  |   | -                                          |   |  |                    | -    |   |                                 |   | 13,237  |                          |  | $ | 13,237 |   |  |   | 13,237  |  
|Unrealized loss from available-for-sale marketable securities                  |  | -               |   |  |        | -  |                          |   | -                     |  |   | -                                          |   |  |                    | (66  | ) |                                 |   | -       |                          |  |   | (66    | ) |  |   | (66     | )
|Unrealized loss from derivatives                                               |  | -               |   |  |        | -  |                          |   | -                     |  |   | -                                          |   |  |                    | (192 | ) |                                 |   | -       |                          |  |   | (192   | ) |  |   | (192    | )
|                                                                               |  |                 |   |  |        |    |                          |   |                       |  |   |                                            |   |  |                    |      |   |                                 |   |         |                          |  |   |        |   |  |   |         |  
|Total comprehensive income                                                     |  |                 |   |  |        |    |                          |   |                       |  |   |                                            |   |  |                    |      |   |                                 |   |         |                          |  | $ | 12,979 |   |  |   |         |  
|                                                                               |  |                 |   |  |        |    |                          |   |                       |  |   |                                            |   |  |                    |      |   |                                 |   |         |                          |  |   |        |   |  |   |         |  
|Balance as of December 31, 2008                                                |  | 16,538,621      |   |  | $      | 60 |                          | $ | 75,173                |  | $ | (17,863                                    | ) |  | $                  | 160  |   |                                 | $ | (20,729 | )                        |  |   |        |   |  | $ | 36,801  |  
|                                                                               |  |                 |   |  |        |    |                          |   |                       |  |   |                                            |   |  |                    |      |   |                                 |   |         |                          |  |   |        |   |  |   |         |  
|Accumulated other comprehensive income as of December 31, 2008:                |  |                 |   |  |        |    |                          |   |                       |  |   |                                            |   |  |                    |      |   |                                 |   |         |                          |  |   |        |   |  |   |         |  
|Accumulated unrealized loss from derivatives                                   |  |                 |   |  |        |    |                          |   |                       |  |   |                                            |   |  | $                  | (31  | ) |                                 |   |         |                          |  |   |        |   |  |   |         |  
|Accumulated unrealized income from available-for-sale securities               |  |                 |   |  |        |    |                          |   |                       |  |   |                                            |   |  |                    | 191  |   |                                 |   |         |                          |  |   |        |   |  |   |         |  
|                                                                               |  |                 |   |  |        |    |                          |   |                       |  |   |                                            |   |  |                    |      |   |                                 |   |         |                          |  |   |        |   |  |   |         |  
|                                                                               |  |                 |   |  |        |    |                          |   |                       |  |   |                                            |   |  | $                  | 160  |   |                                 |   |         |                          |  |   |        |   |  |   |         |  
|                                                                               |  |                 |   |  |        |    |                          |   |                       |  |   |                                            |   |  |                    |      |   |                                 |   |         |                          |  |   |        |   |  |   |         |  

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



F-6



---

##### Index to Financial Statements

JACADA LTD. AND ITS SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS



U.S. dollars in thousands



|                                                                                                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                                                           |  | Year ended December 31, |        
|                                                                                                                                           |  | 2008                    |         |   | 2007 |   |         | 2006 | 
|Cash flows from operating activities:                                                                                                      |  |                         |         |   |      |   |         |      |  |   |         |  
|Net income (loss)                                                                                                                          |  | $                       | 13,237  |   |      | $ | 4,116   |      |  | $ | (2,572  | )
|Less: net income from discontinued operation                                                                                               |  |                         | (18,234 | ) |      |   | (7,540  | )    |  |   | (7,262  | )
|                                                                                                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Net loss from continuing operations                                                                                                        |  |                         | (4,997  | ) |      |   | (3,424  | )    |  |   | (9,834  | )
|Adjustments required to reconcile net loss from continuing operations to net cash used in operating activities
from continuing operations: |  |                         |         |   |      |   |         |      |  |   |         |  
|Depreciation and amortization                                                                                                              |  |                         | 811     |   |      |   | 746     |      |  |   | 642     |  
|Stock-based compensation related to options granted to employees and directors                                                             |  |                         | 860     |   |      |   | 791     |      |  |   | 671     |  
|Stock-based compensation expenses related to options granted to non-employees                                                              |  |                         | 7       |   |      |   | 39      |      |  |   | 7       |  
|Accrued interest and amortization of premium on marketable securities                                                                      |  |                         | 389     |   |      |   | (155    | )    |  |   | (302    | )
|Other-than-temporary impairment of marketable securities                                                                                   |  |                         | 353     |   |      |   | -       |      |  |   | -       |  
|Loss on sales of marketable securities                                                                                                     |  |                         | 19      |   |      |   | -       |      |  |   | -       |  
|Increase (decrease) in accrued severance pay, net                                                                                          |  |                         | (18     | ) |      |   | 51      |      |  |   | 93      |  
|Increase in trade receivables                                                                                                              |  |                         | (1,100  | ) |      |   | (2,655  | )    |  |   | (225    | )
|Increase in other current assets                                                                                                           |  |                         | (478    | ) |      |   | (668    | )    |  |   | (14     | )
|Deferred tax                                                                                                                               |  |                         | -       |   |      |   | (5,404  | )    |  |   | -       |  
|Increase (decrease) in trade payables                                                                                                      |  |                         | 78      |   |      |   | (35     | )    |  |   | 221     |  
|Increase (decrease) in deferred revenues                                                                                                   |  |                         | (948    | ) |      |   | (954    | )    |  |   | 809     |  
|Increase (decrease) in accrued expenses and other liabilities                                                                              |  |                         | (212    | ) |      |   | 735     |      |  |   | 381     |  
|Increase other long-term liabilities                                                                                                       |  |                         | 185     |   |      |   | -       |      |  |   | -       |  
|Other                                                                                                                                      |  |                         | 10      |   |      |   | (18     | )    |  |   | 48      |  
|                                                                                                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Net cash used in operating activities from continuing operations                                                                           |  |                         | (5,041  | ) |      |   | (10,951 | )    |  |   | (7,503  | )
|Net cash provided by (used in) operating activities from discontinued operation                                                            |  |                         | (1,684  | ) |      |   | 7,725   |      |  |   | 7,114   |  
|                                                                                                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Net cash used in operating activities                                                                                                      |  |                         | (6,725  | ) |      |   | (3,226  | )    |  |   | (389    | )
|                                                                                                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Cash flows from investing activities:                                                                                                      |  |                         |         |   |      |   |         |      |  |   |         |  
|Investment in available-for-sale marketable securities                                                                                     |  |                         | (29,297 | ) |      |   | (12,566 | )    |  |   | (16,748 | )
|Proceeds from redemption of available-for-sale marketable securities                                                                       |  |                         | 37,523  |   |      |   | 16,455  |      |  |   | 18,280  |  
|Purchase of property and equipment                                                                                                         |  |                         | (982    | ) |      |   | (478    | )    |  |   | (461    | )
|Proceeds from sale of property and equipment                                                                                               |  |                         | 5       |   |      |   | 23      |      |  |   | 19      |  
|Increase in restricted cash                                                                                                                |  |                         | (559    | ) |      |   | -       |      |  |   | -       |  
|                                                                                                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Net cash provided by investing activities from continuing operations                                                                       |  |                         | 6,690   |   |      |   | 3,434   |      |  |   | 1,090   |  
|Net cash provided by discontinued operation, net                                                                                           |  |                         | 22,083  |   |      |   | -       |      |  |   | -       |  
|                                                                                                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Net cash provided by investing activities                                                                                                  |  |                         | 28,773  |   |      |   | 3,434   |      |  |   | 1,090   |  
|                                                                                                                                           |  |                         |         |   |      |   |         |      |  |   |         |  

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



F-7



---

##### Index to Financial Statements

JACADA LTD. AND ITS SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS



U.S. dollars in thousands



|                                                                                  |  |                         |         |   |      |   |       |  |   |      
|--------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ----- |  | - | -----
|                                                                                  |  | Year ended December 31,
|                                                                                  |  | 2008                    |         |   | 2007 |   | 2006 
|Cash flows from financing activities:                                             |  |                         |         |   |      |   |       |  |   |      
|Purchase of treasury shares                                                       |  |                         | (17,863 | ) |      |   | -     |  |   | -    
|Proceeds from exercise of stock options                                           |  |                         | 914     |   |      |   | 1,017 |  |   | 573  
|                                                                                  |  |                         |         |   |      |   |       |  |   |      
|Net cash provided by (used in) financing activities from continuing operations *) |  |                         | (16,949 | ) |      |   | 1,017 |  |   | 573  
|                                                                                  |  |                         |         |   |      |   |       |  |   |      
|Increase in cash and cash equivalents                                             |  |                         | 5,099   |   |      |   | 1,225 |  |   | 1,274
|Cash and cash equivalents at the beginning of the year                            |  |                         | 5,960   |   |      |   | 4,735 |  |   | 3,461
|                                                                                  |  |                         |         |   |      |   |       |  |   |      
|Cash and cash equivalents at the end of the year                                  |  | $                       | 11,059  |   |      | $ | 5,960 |  | $ | 4,735
|                                                                                  |  |                         |         |   |      |   |       |  |   |      
|Supplemental disclosure of cash flows activities:                                 |  |                         |         |   |      |   |       |  |   |      
|Cash paid during the year for:                                                    |  |                         |         |   |      |   |       |  |   |      
|Taxes on income                                                                   |  | $                       | 76      |   |      | $ | 22    |  | $ | 130  
|                                                                                  |  |                         |         |   |      |   |       |  |   |      



|*) | There were no cash flows from financing activities related to discontinued operation.
|-- | -------------------------------------------------------------------------------------

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



F-8



---

##### Index to Financial Statements

JACADA LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



U.S. dollars in thousands, except
share and per share data



NOTE 1:-  GENERAL



| | a. | Jacada Ltd. and its subsidiaries (collectively - the Company) develop, market and support unified service desktop and process
optimization solutions that simplify and automate customer service processes. The Company generates revenues from licensing its software products and from services such as implementation and customization, consulting, training and maintenance and
support.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The majority of the Companys sales are made in North America and Europe.



| | b. | Discontinued operation:
| | -- | -----------------------

On December 19, 2007, the Company signed an agreement for the sale of its traditional market business. The closing took place on January 1, 2008.

The proceeds from the sale amounted to $ 26,000, of which $ 2,600 is held in escrow by a trustee through July 2009 as a
security for payment of potential indemnification claims (the escrow amount together with accrued interest of $ 40 are presented as restricted cash held by trustee on the balance sheet as of December 31, 2008). The capital gain, net of taxes
amounted to $ 18,399.

In accordance with the provisions of Statement of Financial Accounting Standards
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144), the activity of the disposed traditional market business was classified as discontinued operation in previous and in these
consolidated financial statements.

The carrying amounts of the major classes of assets and liabilities
included as part of the discontinued operation are as follows:



|                                       |  |              |       |      |   |      
|-------------------------------------- |  | ------------ | ----- | ---- | - | -----
|                                       |  | December 31,
|                                       |  | 2008         |       | 2007
|Trade receivables                      |  | $            | 11    |      | $ | 808  
|Other current assets                   |  |              | 53    |      |   | 6    
|Deferred tax                           |  |              | -     |      |   | 5,404
|Goodwill                               |  |              | -     |      |   | 1,534
|                                       |  |              |       |      |   |      
|Assets of discontinued operation       |  | $            | 64    |      | $ | 7,752
|                                       |  |              |       |      |   |      
|Deferred revenues                      |  | $            | -     |      | $ | 3,217
|Accrued expenses and other liabilities |  |              | 1,363 |      |   | 996  
|Accrued severance pay                  |  |              | -     |      |   | 33   
|                                       |  |              |       |      |   |      
|Liabilities of discontinued operation  |  | $            | 1,363 |      | $ | 4,246
|                                       |  |              |       |      |   |      



F-9



---

##### Index to Financial Statements

JACADA LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



U.S. dollars in thousands, except
share and per share data



NOTE 1:-  GENERAL (Cont.)

The results of the discontinued operation for the years ended December 31, 2008, 2007 and 2006 are presented below:



|                 |  |                         |        |      |   |        |  |   |       
|---------------- |  | ----------------------- | ------ | ---- | - | ------ |  | - | ------
|                 |  | Year ended December 31,
|                 |  | 2008                    |        | 2007 |   | 2006  
|Revenues         |  | $                       | -      |      | $ | 12,719 |  | $ | 12,318
|Pretax income *) |  | $                       | 25,968 |      | $ | 10,894 |  | $ | 10,633
|Net income **)   |  | $                       | 18,234 |      | $ | 7,540  |  | $ | 7,262 



| | *) | In 2008, includes capital gain before taxes on income, in the amount of $ 26,133.
| | -- | ---------------------------------------------------------------------------------

| | **) | In 2008, includes capital gain, net of taxes on income in the amount of $ 18,399.
| | --- | ---------------------------------------------------------------------------------

The disposal of the traditional market business meets the criteria of discontinued operations under EITF 03-13,
Applying the Conditions in Paragraph 42 of FASB Statement No. 144 in Determining Whether to Report Discontinued Operations, because, among other things, no significant cash outflow or cash inflow are expected to be generated or paid
by the Company in respect of the discontinued operation and the Company will not have significant continuing involvement in the operations of the traditional market business after its disposal.



| | c. | As for major customers, see Note 11b.
| | -- | -------------------------------------



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

On December 1, 2008, the Companys board of directors approved a comprehensive global Restructuring plan (the Plan). The Plan included a reduction in the Company work force and other
related cost containment strategies in order to align the Companys operations and expenses with the Companys revenue targets for 2009. These changes resulted in a 14% reduction in workforce worldwide. The Plan establishes the terms of
the benefit arrangement, including the benefits that employees will receive upon termination. In accordance with Statement of Financial Accounting Standard No. 146, Accounting for Costs Associated with Exit or Disposal Activities
(SFAS No. 146) the Company recorded $ 201 related to one-time termination benefits provided to terminated employees. As of December 31, 2008, all terminated employees no longer provide services to the Company. In addition the
Company incurred costs for abandonment of a floor in the building in which its offices are located and other costs in the amounts of $ 164 and $ 86 respectively.



F-10



---

##### Index to Financial Statements

JACADA LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



U.S. dollars in thousands, except
share and per share data



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

Monetary accounts maintained in currencies other than the dollar are remeasured into dollars in accordance with Statement
of Financial Accounting Standard No. 52, Foreign Currency Translation (SFAS No. 52). All transaction gains and losses of the remeasurement of monetary balance sheet items are reflected in the statement of operations
as financial income or expenses, as appropriate.



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

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany transactions and balances have been eliminated upon consolidation.



| | d. | Cash equivalents:
| | -- | -----------------

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



| | e. | Investments in marketable securities:
| | -- | -------------------------------------

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

Management determines the appropriate classification of its investments at the time of purchase and
reevaluates such determinations at each balance sheet date.

The Company classifies all of its securities as
available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported in accumulated other comprehensive income (loss) in shareholders equity. The amortized cost of
marketable securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion are included in financial income, net. Interest on securities is included in financial income, net. Realized gains
and losses on sale of investments are included in earnings and are derived using the specific identifications method for determining the cost of securities.



F-11



---

##### Index to Financial Statements

JACADA LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



U.S. dollars in thousands, except
share and per share data



NOTE 2:-  SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Impairment losses are recognized as realized or when the Company has determined that other-than-temporary decline in fair
value has occurred. FASB Staff Position (FSP) No. 115-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investment (FSP 115-1) and SAB Topic 5M, Other Than Temporary
Impairment of Certain Investments in Debt and Equity Securities provide guidance for determining when an investment is considered impaired, whether impairment is other-than-temporary, and measurement of an impairment loss. An investment is
considered impaired if the fair value of the investment decreased below its cost in an other-than-temporary manner. If, after consideration of all available evidence to evaluate the realizable value of its investment, impairment is determined to be
other-than-temporary, then an impairment loss should be recognized equal to the difference between the investments cost and its fair value. During 2008, an other-than-temporary impairment on marketable securities of $ 353 was recorded. See
further details in Note 3.



| | f. | Restricted cash:
| | -- | ----------------

Restricted cash is invested in bank deposits, which are pledged in favor of the banks which provides to the Company guarantees with respect to office lease agreements and hedging transactions.



| | g. | Property and equipment:
| | -- | -----------------------

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



|                                   |  |                                                                                             
|---------------------------------- |  | --------------------------------------------------------------------------------------------
|                                   |  | %                                                                                           
|Computers and peripheral equipment |  | 25 - 33                                                                                     
|Office furniture and equipment     |  | 6 - 15                                                                                      
|Motor vehicles                     |  | 15                                                                                          
|Leasehold improvements             |  | Over the shorter of the relatedlease period (including optionterms) or the life of the asset



| | h. | Other intangible assets:
| | -- | ------------------------

Intangible assets are amortized using the straight-line method over their estimated economic life which is five years.



| | i. | Impairment of property and equipment:
| | -- | -------------------------------------

The Companys property and equipment are reviewed for impairment in accordance with SFAS No. 144 whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. During 2008, 2007 and 2006, no impairment losses were identified in accordance with SFAS No. 144.



F-12



---

##### Index to Financial Statements

JACADA LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



U.S. dollars in thousands, except
share and per share data



NOTE 2:-  SIGNIFICANT ACCOUNTING POLICIES (Cont.)



| | j. | Impairment of intangible assets:
| | -- | --------------------------------

The carrying value of the Companys identifiable intangible assets is periodically reviewed by management, based on the expected future undiscounted operating cash flows over the remaining
amortization period. If this review indicates that an intangible asset will not be recoverable, its carrying value is reduced to estimated fair value. During 2008 and 2006, no impairment losses were identified. During 2007, the Company recorded an
impairment loss in the amount of $ 155 in cost of revenues.



| | k. | Goodwill:
| | -- | ---------

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

Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS
No. 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.

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 the Companys market capitalization. The Company performs the impairment tests during the third fiscal quarter. During 2008, 2007 and 2006, no impairment losses were identified.



| | l. | 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 Companys product development process, technological feasibility is established upon completion of a
working model. No costs are incurred by the Company between the completion of the working model and the point at which the products are ready for general release. Therefore, research and development costs have been expensed as incurred.



F-13



---

##### Index to Financial Statements

JACADA LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



U.S. dollars in thousands, except
share and per share data



NOTE 2:-  SIGNIFICANT ACCOUNTING POLICIES (Cont.)



| | m. | 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 their estimated realizable value.

On January 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, an Interpretation of FASB Statement No. 109 (FIN 48). FIN 48 contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with SFAS No. 109. The first step
is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be
sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The adoption of FIN 48
did not have a material impact on the Companys consolidated financial statements.



| | n. | Revenue recognition:
| | -- | --------------------

The Company derives revenues from the sale of software licenses, rendering services and the provision of support and maintenance. Services include consulting services, implementation and customization
services and training. Maintenance includes telephone support, bug repairs, and rights to receive upgrades and enhancements to licensed software on a when-and-if-available basis. The Company 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 sales of software licenses in accordance with Statement of Position No. 97-2, Software Revenue Recognition, as amended (SOP No. 97-2). Sales of software licenses are recognized when
all criteria outlined in SOP No. 97-2 (as amended by SOP 98-9, as defined bellow) are met. Accordingly, revenue from software license fees is recognized when persuasive evidence of an agreement exists, delivery of the product has occurred, the
fee is fixed or determinable, and collectibility is probable.

The Company considers all arrangements with
payment terms extending beyond six months from the delivery of the elements, 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. The Company does not grant a right of return to its customers.

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.



F-14



---

##### Index to Financial Statements

JACADA LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



U.S. dollars in thousands, except
share and per share data



NOTE 2:-  SIGNIFICANT ACCOUNTING POLICIES (Cont.)

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 other services) and recognizes revenue for the remainder of the arrangement fee attributable to the elements initially
delivered in the arrangement (software licenses) when the basic criteria in SOP No. 97-2 have been met. Any discount in the arrangement is allocated to the delivered element. VSOE of fair value for maintenance and other services is determined
based on the price charged for the undelivered element when sold separately.

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

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

In arrangements which include significant customization of software and services, the Company accounts for the services together with the software under contract accounting in accordance with Statement of
Position No. 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts (SOP 81-1).

Revenues recognized in accordance with SOP 81-1 are accounted for using either the completed contract or percentage of completion method. The percentage of completion method is used when the required
services are quantifiable, based on the estimated number of labor hours necessary to complete the project, and under that method revenues are recognized using labor hours incurred as the measure of progress towards completion but is limited to
revenue that has been earned by the attainment of any milestones acceptance included in the contract. The completed contract method is used when the Company cannot make reasonable dependable estimates of the extent of progress toward completion.
Under that method revenues are recognized only when final acceptance from the customer has been received or, when no such acceptance is required, upon the Companys compliance with performance specifications under the contract terms.

Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are
determined in the amount of the estimated loss on the entire contract. As of December 31, 2008, 2007 and 2006, no such estimated losses were identified.

The Company accounts for reimbursements received for out-of-pocket expenses incurred, in accordance with Emerging Issue Task Force (EITF) 01-14 Income Statement
Characterization of Reimbursements Received for Out-of-Pocket Expenses Incurred, under which reimbursements received for out-of-pocket expenses incurred should be characterized as revenue in the income statement. The reimbursements
received for out-of-pocket expenses for years ended December 31, 2008, 2007 and 2006 amounted to $ 1,310, $ 655 and $ 299, respectively. Prior years revenues and cost of revenues amounts have been reclassified to comply with the provisions of
the above mentioned EITF.



F-15



---

##### Index to Financial Statements

JACADA LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



U.S. dollars in thousands, except
share and per share data



NOTE 2:-  SIGNIFICANT ACCOUNTING POLICIES (Cont.)



| | o. | Accounting for stock-based compensation:
| | -- | ----------------------------------------

The Company accounts for stock-based compensation under SFAS No. 123 (revised 2004), Share-Based Payment (SFAS No. 123(R)), which requires the
measurement and recognition of compensation expense based on estimated fair values for all stock-based payment awards made to employees and directors. SFAS No. 123(R) requires companies to estimate the fair value of equity-based payment awards
on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Companys consolidated statements of operations.

The Company recognizes compensation expenses for the value of its awards based on the accelerated
attribution method over the requisite service period of each of the awards, net of estimated forfeitures. SFAS No. 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. Estimated forfeitures are based on actual historical pre-vesting forfeitures.

The Company selected the Black-Scholes option pricing model as the most appropriate fair value method for its stock-options awards. The fair value for options granted in 2008, 2007 and 2006 was estimated
at the date of grant using the following weighted average assumptions:



|                      |  |      |   |  |      |   |  |      |  
|--------------------- |  | ---- | - |  | ---- | - |  | ---- | -
|                      |  | 2008 |   |  | 2007 |   |  | 2006 |  
|Dividend yield        |  | 0    | % |  | 0    | % |  | 0    | %
|Expected volatility   |  | 41   | % |  | 46   | % |  | 54   | %
|Risk-free interest    |  | 2.71 | % |  | 4.03 | % |  | 4.7  | %
|Expected life (years) |  | 4.6  |   |  | 4.5  |   |  | 4.8  |  

The Company has historically not paid dividends and has no
foreseeable plans to pay dividends.

The Company used its historical stock prices for calculating volatility
in accordance with SFAS No. 123(R).

The risk-free interest rate assumption is based on the rate of
zero-coupon U.S. government appropriate for the expected term of the Companys employee stock options.

In 2007 and 2006, in accordance with Staff Accounting Bulletin No. 107 (SAB 107) relating to SFAS No. 123(R), the Company determined the expected life of the options according to the simplified method, average of
vesting and the contractual term of the Companys stock option. In 2008, in connection with the amendment of SAB 107 by Staff Accounting Bulletin No. 110 (SAB 110), the Company determined the expected life of the options
according to the historical exercise data.



| | p. | Advertising expenses:
| | -- | ---------------------

Advertising expenses are charged to the statement of operations, as incurred. Advertising expenses for the years ended December 31, 2008, 2007 and 2006 were $ 439, $ 574 and $ 488,
respectively.



F-16



---

##### Index to Financial Statements

JACADA LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



U.S. dollars in thousands, except
share and per share data



NOTE 2:-  SIGNIFICANT ACCOUNTING POLICIES (Cont.)



| | q. | Severance pay:
| | -- | --------------

The Company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 (losses) 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.

Commencing from 2005, new employees of the Company are subject to Section 14 of the Severance Pay Law, under which the payments to the pension funds and insurance companies discharge the
Companys obligation to the employees. Accumulated amounts in the pension funds and with the insurance companies are not under the control or administration of the Company, and accordingly, neither those amounts nor the corresponding accrual
for severance pay are reflected in the balance sheet. The obligation of the Company, under law and labor agreements, for termination benefits to employees not covered by the aforementioned pension or insurance plans are included in the balance
sheet.

The severance pay expense for the years ended December 31, 2008, 2007 and 2006 amounted to
$ 492, $ 435 and $ 502, respectively.



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

Effective January 1, 2008, the Company adopted the provisions of SFAS No. 157, Fair Value Measurements (SFAS No. 157) for financial assets and
liabilities, and related FSPs, including FSP FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active (FSP FAS 157-3). Under SFAS No. 157, fair value is defined as the
price that would be received to sell an asset or paid to transfer a liability (i.e., the exit price) in an orderly transaction between market participants at the measurement date.

In determining fair value, the Company uses various valuation approaches. SFAS No. 157 establishes a hierarchy for
inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants
would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Companys assumptions about the assumptions market participants would
use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the observability of inputs as follows:



| |  |  | Level 1 - Valuations based on quoted prices in active markets for identical assets that the Company has the ability to access. Valuation adjustments
and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-17



---

##### Index to Financial Statements

JACADA LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



U.S. dollars in thousands, except
share and per share data



NOTE 2:-  SIGNIFICANT ACCOUNTING POLICIES (Cont.)



| |  |  | Level 2 - Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either
directly or indirectly.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Level 3 - Valuations based on unobservable inputs which are supported by little or no market activity and significant to the overall fair value
measurement.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

The availability of observable inputs can vary from investment to investment
and is affected by a wide variety of factors, including, for example, the type of investment, the liquidity of markets and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less
observable or unobservable in the market, the determination of fair value requires more judgment and the investments are categorizes as Level 3.

The carrying amounts of financial instruments carried at cost, including cash and cash equivalents, trade receivables, other current assets, trade payables and other liabilities approximate their fair
value due to the short-term maturities of such instruments.



| | s. | 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 balance sheet 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.

For 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 (loss) 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 impairment of 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 entered into derivative instruments arrangements to hedge portions of its
forecasted expenses denominated in foreign currencies. These derivative instruments are designated as cash flows hedges, as defined by SFAS No. 133, as amended, and are all highly effective

At December 31, 2008, the Company expects to reclassify $ 31 of net losses on derivative instruments from
accumulated other comprehensive income to earnings during the next year, due to actual payments to suppliers and payroll payment.



F-18



---

##### Index to Financial Statements

JACADA LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



U.S. dollars in thousands, except
share and per share data



NOTE 2:-  SIGNIFICANT ACCOUNTING POLICIES (Cont.)



| | t. | Net earnings (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 earnings (loss) per share from continuing operations 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 earnings (loss) per share due to their anti-dilutive effect were 3,520,450, 3,646,461 and 3,602,673 for the years ended December 31, 2008, 2007 and 2006, respectively.



| | u. | 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 mainly in U.S. dollars with major banks in the United States, Israel and other
international banks. Such cash and cash equivalents in the United States may be in excess of insured limits and are not insured in other jurisdictions.

The Companys marketable securities include investments in debentures of U.S. corporations, U.S. government securities, other government securities, U.S. government sponsored enterprises securities
and other securities. The Companys investment policy limits the amount the Company may invest in any one type of issuer, except U.S. government securities, thereby reducing credit risk concentrations.

The Companys trade receivables are mainly derived from sales to customers in North America and Europe. In judging the
probability of collection from customers we continuously monitor collection and payments based upon our historical experience of our existing customers to evaluate collectability. In connection with customers with whom the Company does not have
previous experience, it evaluates 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.



| | v. | Treasury shares:
| | -- | ----------------

The Company presents the cost to repurchase treasury shares as a reduction of shareholders equity.



F-19



---

##### Index to Financial Statements

JACADA LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



U.S. dollars in thousands, except
share and per share data



NOTE 2:-  SIGNIFICANT ACCOUNTING POLICIES (Cont.)



| | x. | Recently issued accounting pronouncements:
| | -- | ------------------------------------------

In February 2008, the FASB issued FASB Staff Position (FSP) FAS No. 157-2, Effective Date of FASB Statement No. 157 (FSP 157-2),
to delay the effective date of FASB Statement 157 for one year for certain nonfinancial assets and nonfinancial liabilities, excluding those that are recognized or disclosed in financial statements at fair value on a recurring basis (that is, at
least annually). For purposes of applying the FSP 157-2, nonfinancial assets and nonfinancial liabilities include all assets and liabilities other than those meeting the definition of a financial asset or a financial liability in FASB Statement
159. FSP 157-2 defers the effective date of Statement 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of this FSP 157-2. The Company does not expect the
adoption of FSP 157-2 to have a material impact on its financial position, results of operations or cash flows.

In March 2008, the FASB issued Statement 161 Disclosures about Derivative Instruments and Hedging Activities (SFAS 161) an amendment to FASB No. 133. This statement changes the disclosure requirements for
derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why and entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted
for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entitys financial position, financial performance, and cash flows. This statement is effective for
financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Early application is encouraged. The Company does not expect the adoption of SFAS 161 to have a material impact on its financial
position, results of operations or cash flows.

NOTE 3:-  MARKETABLE SECURITIES

The following is a summary of the Companys investment in marketable securities:



|                                                 |  |                   |        |                     |   |                       |  |                 |   |               |   |                     |  |                       |        |  |                 |     |  |   |     |   |  |   |       
|------------------------------------------------ |  | ----------------- | ------ | ------------------- | - | --------------------- |  | --------------- | - | ------------- | - | ------------------- |  | --------------------- | ------ |  | --------------- | --- |  | - | --- | - |  | - | ------
|                                                 |  | December 31, 2008 |        | December 31, 2007  
|                                                 |  | Amortizedcost     |        | Grossunrealizedgain |   | Grossunrealizedlosses |  | Fairmarketvalue |   | Amortizedcost |   | Grossunrealizedgain |  | Grossunrealizedlosses |        |  | FairMarketValue
|Available-for-sale:                              |  |                   |        |                     |   |                       |  |                 |   |               |   |                     |  |                       |        |  |                 |     |  |   |     |   |  |   |       
|Corporate debentures                             |  | $                 | 7,358  |                     | $ | 114                   |  | $               | - |               | $ | 7,472               |  | $                     | 23,637 |  | $               | 226 |  | $ | (16 | ) |  | $ | 23,847
|U.S. government securities                       |  |                   | 3,900  |                     |   | -                     |  |                 | - |               |   | 3,900               |  |                       | 1,002  |  |                 | 5   |  |   | -   |   |  |   | 1,007 
|States of the U.S securities *)                  |  |                   | 2,647  |                     |   | -                     |  |                 | - |               |   | 2,647               |  |                       | -      |  |                 | -   |  |   | -   |   |  |   | -     
|Other government securities                      |  |                   | 1,533  |                     |   | 21                    |  |                 | - |               |   | 1,554               |  |                       | 997    |  |                 | -   |  |   | (2  | ) |  |   | 995   
|U.S. government sponsored enterprises securities |  |                   | 3,182  |                     |   | 56                    |  |                 | - |               |   | 3,238               |  |                       | 1,159  |  |                 | 29  |  |   | -   |   |  |   | 1,188 
|Other securities                                 |  |                   | -      |                     |   | -                     |  |                 | - |               |   | -                   |  |                       | 812    |  |                 | 15  |  |   | -   |   |  |   | 827   
|                                                 |  |                   |        |                     |   |                       |  |                 |   |               |   |                     |  |                       |        |  |                 |     |  |   |     |   |  |   |       
|                                                 |  | $                 | 18,620 |                     | $ | 191                   |  | $               | - |               | $ | 18,811              |  | $                     | 27,607 |  | $               | 275 |  | $ | (18 | ) |  | $ | 27,864
|                                                 |  |                   |        |                     |   |                       |  |                 |   |               |   |                     |  |                       |        |  |                 |     |  |   |     |   |  |   |       



| | *) | At December 31, 2008, the Company had $ 3,000 of principal invested in Auction Rate Security (ARS). The ARS held by the Company is
a municipal bond of a U.S state, guaranteed by the Federal government, under the Federal Family Education Loan Program for financing student loans, with long-term nominal maturities for which the interest rates are reset through an auction each
month. The monthly auctions historically have provided a liquid market for these securities.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-20



---

##### Index to Financial Statements

JACADA LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



U.S. dollars in thousands, except
share and per share data



NOTE 3:-  MARKETABLE SECURITIES (Cont.)

At the time of purchase the ARS investment had AAA credit ratings. With the liquidity issues experienced in global credit
and capital markets, the ARS held by the Company at December 31, 2008 have experienced multiple failed auctions as the amount of securities submitted for sale has exceeded the amount of purchase orders. As of December 31, 2008 the ARS
continues to pay interest according to its stated terms.

The estimated market value of the ARS as of
December 31, 2008 was $ 2,647, which was determined based on valuation model performed by the Company. As the Company has no intent to hold the ARS until its fair value recovers, the Company has recorded an other-than-temporary impairment
charge of $ 353 to financial expenses in 2008. The Company has started a legal action process against the bank (from whom it bought the ARS) claiming a repurchase of this ARS.

In March 2009, the Company sold the ARS in consideration for its par value in amount of $3,000, plus any and all accrued interest.

The amortized cost and fair value of marketable securities as of December 31, 2008, by contractual maturity, are shown
below:



|                                          |  |                   |        |                  |   |       
|----------------------------------------- |  | ----------------- | ------ | ---------------- | - | ------
|                                          |  | December 31, 2008
|                                          |  | Amortizedcost     |        | Fairmarket value
|Matures in one year                       |  | $                 | 8,760  |                  | $ | 8,915 
|Matures after one year through five years |  |                   | 7,213  |                  |   | 7,249 
|Matures after ten years                   |  |                   | 2,647  |                  |   | 2,647 
|                                          |  |                   |        |                  |   |       
|Total                                     |  | $                 | 18,620 |                  | $ | 18,811
|                                          |  |                   |        |                  |   |       

NOTE 4:-  PROPERTY AND EQUIPMENT, NET



|                                   |  |              |       |      |   |      
|---------------------------------- |  | ------------ | ----- | ---- | - | -----
|                                   |  | December 31,
|                                   |  | 2008         |       | 2007
|Cost:                              |  |              |       |      |   |      
|Computers and peripheral equipment |  | $            | 4,861 |      | $ | 4,507
|Office furniture and equipment     |  |              | 977   |      |   | 926  
|Motor vehicles                     |  |              | -     |      |   | 14   
|Leasehold improvements             |  |              | 734   |      |   | 530  
|                                   |  |              |       |      |   |      
|                                   |  |              | 6,572 |      |   | 5,977
|Accumulated depreciation           |  |              | 5,306 |      |   | 4,985
|                                   |  |              |       |      |   |      
|Depreciated cost                   |  | $            | 1,266 |      | $ | 992  
|                                   |  |              |       |      |   |      

Depreciation expenses for the years ended December 31, 2008,
2007 and 2006 were $ 693, $ 411, and $ 462, respectively.



F-21



---

##### Index to Financial Statements

JACADA LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



U.S. dollars in thousands, except
share and per share data



NOTE 5:-  OTHER INTANGIBLES, NET



| | a. | Composition:
| | -- | ------------



|                          |  |              |     |      |   |    
|------------------------- |  | ------------ | --- | ---- | - | ---
|                          |  | December 31,
|                          |  | 2008         |     | 2007
|Original amounts:         |  |              |     |      |   |    
|Technology                |  | $            | 900 |      | $ | 900
|                          |  |             
|Accumulated amortization: |  |              |     |      |   |    
|Technology                |  |              | 900 |      |   | 782
|                          |  |              |     |      |   |    
|Amortized cost            |  | $            | -   |      | $ | 118
|                          |  |              |     |      |   |    



| | b. | Amortization expense for the years ended December 31, 2008, 2007 and 2006 amounted to $ 118, $ 180 and $ 180, respectively, and
were recorded in cost of revenues in the Companys statements of operations.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE
6:-  ACCRUED EXPENSES AND OTHER LIABILITIES



|                               |  |              |       |      |   |      
|------------------------------ |  | ------------ | ----- | ---- | - | -----
|                               |  | December 31,
|                               |  | 2008         |       | 2007
|Employees and payroll accruals |  | $            | 1,933 |      | $ | 2,539
|Accrued expenses               |  |              | 1,163 |      |   | 769  
|                               |  |              |       |      |   |      
|                               |  | $            | 3,096 |      | $ | 3,308
|                               |  |              |       |      |   |      

NOTE 7:-  COMMITMENTS AND CONTINGENT LIABILITIES



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

The Company participated in programs sponsored by the Israeli Government for the support of research and development activities. Through December 31, 2008, the Company had obtained grants from the
Office of the Chief Scientist of Israels Ministry of Industry, Trade and Labor (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% 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.

In December 2007, as part of the sale of the Companys traditional market business (see Note 1b), the Company
transferred its obligation to the OCS to the buyer and committed to reimburse the buyer for that future obligation.

Through December 31, 2008, the Company has paid or accrued royalties associated with the OCS in the amount of $ 2,086. As of December 31, 2008, the aggregate contingent liability to the OCS amounted to $ 200.

The royalties accrued and paid are presented as part of the discontinued operation.



F-22



---

##### Index to Financial Statements

JACADA LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



U.S. dollars in thousands, except
share and per share data



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



| | b. | Legal proceedings:
| | -- | ------------------

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.

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 an appeal with the
United States Court for the Sixth Judicial Circuit and on March 18, 2005, the Court of Appeals confirmed the District Courts decision. The subsidiarys motion for rehearing filed with the Court of Appeals was also denied. The
arbitration award is therefore final.

On October 2, 2008, the distributor sent an attorneys letter
indicating its intention to enforce the Judgment and requested that the parties try to resolve the matter by mutual settlement prior to their commencement of any enforcement proceedings. On December 8, 2008, the subsidiary of the Company
responded in a letter to the distributors attorney setting forth its assertions and defenses against the enforcement of the judgment.

As of December 31, 2008, the Company accrual related to this obligation is presented as part of the liabilities of discontinued operation.



| | c. | Lease commitments:
| | -- | ------------------

The Companys facilities are leased under various operating lease agreements, which expire on various dates, the latest of which is in 2012. Future minimum lease payments under non-cancelable
operating leases are as follows:

Year ended December 31,



|     |  |   |      
|---- |  | - | -----
|2009 |  | $ | 665  
|2010 |  |   | 464  
|2011 |  |   | 412  
|2012 |  |   | 210  
|     |  |   |      
|     |  | $ | 1,751
|     |  |   |      

Total rent expenses for the years ended December 31, 2008, 2007
and 2006 were approximately $ 832, $ 916 and $ 898, respectively.



F-23



---

##### Index to Financial Statements

JACADA LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



U.S. dollars in thousands, except
share and per share data



NOTE 8:-  FINANCIAL INSTRUMENTS

The Companys marketable securities are generally classified within level 2 of the fair value hierarchy. In
accordance with SFAS No. 157, the Company does not adjust the quoted price for such instruments. The types of instruments that trade in markets that are not considered to be active, but are valued based on quoted market prices, broker or
dealer quotations, or alternative pricing sources with reasonable levels of price transparency (level 2) include corporate debentures, U.S government treasuries, other government securities and U.S. government sponsored enterprises securities.

Foreign currency derivative contracts are classified within Level 2 as the valuation inputs are based on
quoted prices and market observable data of similar instruments.

Investments in student loan Auction
Rate Securities (ARS) with interest rates that are reset through periodic auctions are backed by pools of student loans. ARS were historically traded and valued at par due to the auction mechanism and generally liquid markets that
existed. Beginning in fiscal 2008, uncertainties in the credit markets have resulted in auctions failing for certain types of ARS. Once the auctions failed, ARS could no longer be valued using observations of auction market prices. Accordingly, the
ARS are classified within level 3 as its fair value is determined using internally developed methodology to discount for the lack of liquidity and non-performance risk in the current market environment.

The following table presents the Companys assets and liabilities measured at fair value on a recurring basis at
December 31, 2008:



|                                                                |  |                                          |   |         |   |        |         |  |       |       |  |   |        |  
|--------------------------------------------------------------- |  | ---------------------------------------- | - | ------- | - | ------ | ------- |  | ----- | ----- |  | - | ------ | -
|                                                                |  | Fair value measurements using input type |  
|                                                                |  | Level 1                                  |   | Level 2 |   |        | Level 3 |  | Total |      
|Cash equivalents:                                               |  |                                          |   |         |   |        |         |  |       |       |  |   |        |  
|U.S government treasuries                                       |  | $                                        | - |         | $ | 1,000  |         |  | $     | -     |  | $ | 1,000  |  
|                                                                |  |                                          |   |        
|Marketable securities:                                          |  |                                          |   |         |   |        |         |  |       |       |  |   |        |  
|Corporate debentures                                            |  |                                          | - |         |   | 7,472  |         |  |       | -     |  |   | 7,472  |  
|U.S government treasuries                                       |  |                                          | - |         |   | 3,900  |         |  |       | -     |  |   | 3,900  |  
|Auction Rate Securities issued by a State of the U.S securities |  |                                          |   |         |   | -      |         |  |       | 2,647 |  |   | 2,647  |  
|Other government securities                                     |  |                                          | - |         |   | 1,554  |         |  |       | -     |  |   | 1,554  |  
|U.S. government sponsored enterprises securities                |  |                                          | - |         |   | 3,238  |         |  |       | -     |  |   | 3,238  |  
|Foreign currency derivative contracts:                          |  |                                          | - |         |   | (14    | )       |  |       | -     |  |   | (14    | )
|                                                                |  |                                          |   |         |   |        |         |  |       |       |  |   |        |  
|Total                                                           |  | $                                        | - |         | $ | 17,150 |         |  | $     | 2,647 |  | $ | 19,797 |  
|                                                                |  |                                          |   |         |   |        |         |  |       |       |  |   |        |  

The following table presents the changes in Level 3 instruments
measured on a recurring basis for the year ended December 31, 2008. The Companys Level 3 instrument consists of an Auction Rate Security (see Note 3).



|                             |  |                               |       |   |  | 
|---------------------------- |  | ----------------------------- | ----- | - |  | 
|                             |  | ARS issuedby states ofthe U.S |       |   | 
|Balance, beginning of period |  | $                             | -     |   |  | 
|Transfer to Level 3          |  | $                             | 3,000 |   |  | 
|Total realized losses        |  |                               | (353  | ) |  | 
|                             |  |                               |       |   |  | 
|Balance, end of period       |  | $                             | 2,647 |   |  | 
|                             |  |                               |       |   |  | 



F-24



---

##### Index to Financial Statements

JACADA LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



U.S. dollars in thousands, except
share and per share data



NOTE 9:-  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 also been traded on the Tel-Aviv Stock Exchange. Ordinary
shares confer upon their holders the right to receive notice to participate and vote in general meetings of the Company, and the right to receive dividends if declared.



| | b. | Options issued to employees and directors:
| | -- | ------------------------------------------

As of December 31, 2008, the Company had three Incentive Share Option Plans (the 1996, 1999 and 2003 plans), which provide for the grant of options to officers, management,
employees and key employees, directors, consultants and others of up to 7,760,450 of the Companys Ordinary shares. The options granted generally become fully exercisable after two to four years and expire between 7 to 10 years from the grant
date. Any options from 1999 and 2003 plans 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 or the Companys compensation committee but may not be less than the par value
of the Ordinary shares.

As of December 31, 2008, an aggregate of 1,478,730 Ordinary shares of the
Company are still available for future grant under the Incentive Share Option Plans.

A summary of the
Companys option activity and related information with respect to options granted to employees for the year ended December 31, 2008 is as follows:



|                                                   |  |                 |   |  |                               |      |                                                     |      |                         |   |      
|-------------------------------------------------- |  | --------------- | - |  | ----------------------------- | ---- | --------------------------------------------------- | ---- | ----------------------- | - | -----
|                                                   |  | Numberofoptions |   |  | Weighted-averageexerciseprice |      | Weighted-averageremainingcontractualterm (in years) |      | Aggregateintrinsicvalue
|Outstanding at the beginning of the year           |  | 3,721,583       |   |  | $                             | 3.35 |                                                     | 4.94 |                         | $ | 2,778
|Granted                                            |  | 317,750         |   |  | $                             | 3.58 |                                                     |      |                         |   |      
|Exercised                                          |  | (384,940        | ) |  | $                             | 2.37 |                                                     |      |                         |   |      
|Forfeited and cancelled                            |  | (600,605        | ) |  | $                             | 4.02 |                                                     |      |                         |   |      
|                                                   |  |                 |   |  |                               |      |                                                     |      |                         |   |      
|Outstanding at the end of the year                 |  | 3,053,788       |   |  | $                             | 3.36 |                                                     | 4.55 |                         | $ | *)606
|                                                   |  |                 |   |  |                               |      |                                                     |      |                         |   |      
|Exercisable options at the end of the year         |  | 2,181,369       |   |  | $                             | 3.31 |                                                     | 4.14 |                         | $ | *)559
|                                                   |  |                 |   |  |                               |      |                                                     |      |                         |   |      
|Vested and expected-to-vest at the end of the year |  | 2,837,839       |   |  | $                             | 3.33 |                                                     | 4.45 |                         | $ | *)606
|                                                   |  |                 |   |  |                               |      |                                                     |      |                         |   |      



| | *) | Represents the total intrinsic value that would have been received by the option holders had all the in the-money option holders exercised their
options on December 31, 2008.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-25



---

##### Index to Financial Statements

JACADA LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



U.S. dollars in thousands, except
share and per share data



NOTE 9:-  SHAREHOLDERS EQUITY (Cont.)

The total intrinsic value of stock options exercised during 2008, 2007 and 2006 were $ 395, $ 616 and $ 620,
respectively.

The weighted-average estimated grant date fair value of employee stock options granted during
the years 2008, 2007 and 2006, was $ 1.37, $ 1.58 and $ 1.4 per share, respectively.

The options
outstanding as of December 31, 2008 have been classified by exercise price, as follows:



|                 |  |                                         |  |                                                 |  |                              |      |                                         |           |                                                   |   |                                                |  |     
|---------------- |  | --------------------------------------- |  | ----------------------------------------------- |  | ---------------------------- | ---- | --------------------------------------- | --------- | ------------------------------------------------- | - | ---------------------------------------------- |  | ----
|Exercise price   |  | Optionsoutstandingas ofDecember 31,2008 |  | Weightedaverageremainingcontractuallife (years) |  | Weightedaverageexerciseprice |      | Optionsexercisableas ofDecember 31,2008 |           | Weightedaverageexerciseprice ofoptionsexercisable |   | Weightedaverageremainingcontractuallife(years)
|$ 0.99 - $ 1.18  |  | 3,000                                   |  | 3.87                                            |  | $                            | 1.18 |                                         | 3,000     |                                                   | $ | 1.18                                           |  | 3.87
|$ 1.20 - $ 1.40  |  | 111,864                                 |  | 4.12                                            |  | $                            | 1.27 |                                         | 111,864   |                                                   | $ | 1.27                                           |  | 4.12
|$ 2.28 - $ 3.18  |  | 1,732,196                               |  | 4.72                                            |  | $                            | 2.77 |                                         | 1,429,444 |                                                   | $ | 2.76                                           |  | 4.70
|$ 3.41 - $ 5.06  |  | 1,140,128                               |  | 4.53                                            |  | $                            | 4.12 |                                         | 570,461   |                                                   | $ | 4.41                                           |  | 3.11
|$ 9.00 - $ 11.00 |  | 66,600                                  |  | 1.01                                            |  | $                            | 9.37 |                                         | 66,600    |                                                   | $ | 9.37                                           |  | 1.01
|                 |  |                                         |  |                                                 |  |                              |      |                                         |           |                                                   |   |                                                |  |     
|                 |  | 3,053,788                               |  | 4.55                                            |  | $                            | 3.36 |                                         | 2,181,369 |                                                   | $ | 3.31                                           |  | 4.14
|                 |  |                                         |  |                                                 |  |                              |      |                                         |           |                                                   |   |                                                |  |     

Stock-based compensation expense in respect of options granted to
employees amounted to $ 860, $ 791 and $ 671 for the years ended December 31, 2008, 2007 and 2006, respectively.



| | c. | Extension of the exercise period:
| | -- | ---------------------------------

On October 5, 2006, the Companys shareholders approved the extension of the exercise period of options to certain of the Companys directors to a period of two years from the date of
termination (instead of 90 days). As a result, in 2006, the Company recorded additional compensation cost in the amount of $ 96.



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

The Companys outstanding options to consultants as of December 31, 2008, are as follows:



|           |  |                           |  |                        |       |                    |        |                    |     
|---------- |  | ------------------------- |  | ---------------------- | ----- | ------------------ | ------ | ------------------ | ----
|Grant date |  | Options forOrdinaryshares |  | Exerciseprice pershare |       | Optionsexercisable |        | Exercisablethrough
|1999       |  | 1,500                     |  | $                      | 11.00 |                    | 1,500  |                    | 2009
|2000       |  | 4,750                     |  | $                      | 4.38  |                    | 4,750  |                    | 2010
|2001       |  | 5,000                     |  | $                      | 2.89  |                    | 5,000  |                    | 2011
|2002       |  | 11,000                    |  | $                      | 2.61  |                    | 11,000 |                    | 2012
|2004       |  | 30,000                    |  | $                      | 2.94  |                    | 30,000 |                    | 2014
|2007       |  | 40,000                    |  | $                      | 3.18  |                    | 40,000 |                    | 2011
|           |  |                           |  |                        |       |                    |        |                    |     
|Total      |  | 92,250                    |  |                        |       |                    | 92,250 |                    |     
|           |  |                           |  |                        |       |                    |        |                    |     



F-26



---

##### Index to Financial Statements

JACADA LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



U.S. dollars in thousands, except
share and per share data



NOTE 9:-  SHAREHOLDERS EQUITY (Cont.)

In March 2007, the Company granted 40,000 options to a consultant. On the grant date, 10,000 options were fully vested and
the remaining options will vest over a period of 1.5 years, commencing on the grant date, 10,000 options every six months.

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 the Black-Scholes
option-pricing model, with the following assumptions: risk free interest rate of 3.4%, dividend yield 0%, volatility factor of 0.33 and contractual life of 3.8 years.

Stock-based compensation expense in respect of options granted to non employees amounted to $ 7, $ 39 and $ 7 for the years ended December 31, 2008, 2007 and 2006,
respectively.



| | e. | As of December 31, 2008, there was $ 569 of total unrecognized compensation cost related to non-vested share-based compensation arrangements
granted under the Companys stock option plans. That cost is expected to be recognized over a weighted-average period of 1.36 years.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | f. | During 2008, the Company purchased a total of 4,447,184 of its Ordinary shares pursuant to a share repurchase program as well as a self tender offer
conducted by the Company. Such shares are held by the Company as treasury shares and are presented at cost. Under the Companies Law for so long as such treasury shares are owned by the Company they have no rights and, accordingly, are neither
eligible to participate in or receive any future dividends which may be paid to the Companys shareholders nor are they entitled to participate in, be voted at or be counted as part of the quorum for, any meetings of shareholders.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 10:-  TAXES ON INCOME



| | a. | Tax benefits under the Law for the Encouragement of Capital Investments, 1959 (the law):
| | -- | ------------------------------------------------------------------------------------------

The production facilities of the Company have been granted the status of an Approved Enterprise under the law,
for four separate investment programs, which were approved in 1994, 1995, 1996 and 2002. The investment programs expire in 2007, 2008, 2010 and 2014, respectively.

According to the provisions of the law, the Company has elected the alternative benefits trackthe waiver of grants in return for a tax exemption and, accordingly,
the Companys income is tax-exempt for a period of two years commencing with the year it first earns taxable income relating to each expansion program, and subject to corporate taxes at the reduced rate of 10% to 25%, for an additional period
of five years to eight 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 letters 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, 2008, management believes that the Company is meeting all of the
aforementioned conditions.



F-27



---

##### Index to Financial Statements

JACADA LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



U.S. dollars in thousands, except
share and per share data



NOTE 10:-  TAXES ON INCOME (Cont.)

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

The tax-exempt income attributable to the Approved Enterprises can be distributed to
shareholders, without subjecting the Company to taxes only upon the complete liquidation of the Company. If this retained tax-exempt income is distributed in a manner other than on the complete liquidation of the Company, it would be taxed at the
corporate tax rate applicable to such profits as if the Company had not elected the alternative tax benefits (currently between 10% to 25% for an Approved Enterprise). As of December 31, 2008, the accumulated deficit of the Company
does not include tax-exempt income earned by the Companys Approved enterprise.

Income not
eligible for the Approved Enterprise benefits mentioned above is taxed at the regular corporate tax rate.

An amendment to the law, which has been officially published effective as of April 1, 2005 (the Amendment) has 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 provision of the Amendment. As of December 31, 2008, there is no income attributed to the Amendment.



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

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



| | c. | Net operating losses carryforward:
| | -- | ----------------------------------

As of December 31, 2008, the Company had a U.S. net operating loss carryforward for income tax purposes of approximately $ 4,180. The net operating loss carryforward expires within 14 to 18
years.

Utilization of U.S. net operating losses may be subject to substantial annual limitations 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.

The Israeli Company has net operating losses for income tax purposes, as of December 31, 2008, of approximately
$ 9,263 which can be carried forward and offset against taxable income with no expiration date.



F-28



---

##### Index to Financial Statements

JACADA LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



U.S. dollars in thousands, except
share and per share data



NOTE 10:-  TAXES ON INCOME (CONT.)



| | d. | Theoretical tax:
| | -- | ----------------

In 2008 and 2006, the main reconciling items between the statutory tax rate of the Company and the effective tax rate are the non-recognition of tax benefits from accumulated net operating losses carried
forward due to the uncertainty of the realization of such tax benefits.

In 2007, the main reconciling item
between the statutory tax rate of the Company and the effective tax rate is the tax benefit from the reduction in valuation allowance in respect of deferred tax assets resulting from the expected utilization of the net operating losses carryforward
in respect of the sale of its traditional market business.



| | e. | 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 assets are as follows:



|                                                    |  |              |        |   |      |   |        |  
|--------------------------------------------------- |  | ------------ | ------ | - | ---- | - | ------ | -
|                                                    |  | December 31, |       
|                                                    |  | 2008         |        |   | 2007 |  
|Deferred tax assets:                                |  |              |        |   |      |   |        |  
|                                                    |  |             
|Operating loss carryforward                         |  | $            | 5,003  |   |      | $ | 10,579 |  
|Reserves and allowances                             |  |              | 2,060  |   |      |   | 1,902  |  
|                                                    |  |              |        |   |      |   |        |  
|                                                    |  |             
|Total deferred tax asset before valuation allowance |  |              | 7,063  |   |      |   | 12,481 |  
|Valuation allowance                                 |  |              | (7,063 | ) |      |   | (7,077 | )
|                                                    |  |              |        |   |      |   |        |  
|                                                    |  |             
|Net deferred tax asset                              |  | $            | -      |   |      | $ | 5,404  |  
|                                                    |  |              |        |   |      |   |        |  

The Company has provided valuation allowances in respect of deferred
tax assets resulting from tax loss carryforward and temporary differences. Management currently believes that since the Company has a history of losses it is more likely than not that the deferred tax regarding the loss carryforward will not be
realized in the foreseeable future. The net deferred tax asset as of December 31, 2007 resulted from the loss carryforward that was realized against the Companys capital gain from the sale of its traditional market business in 2008 (see
Note 1b).



| | f. | Loss from continuing operations before taxes is comprised as follows:
| | -- | ---------------------------------------------------------------------



|                  |  |                         |        |   |      |   |         |      |  |   |         |  
|----------------- |  | ----------------------- | ------ | - | ---- | - | ------- | ---- |  | - | ------- | -
|                  |  | Year ended December 31, |       
|                  |  | 2008                    |        |   | 2007 |   |         | 2006 | 
|Domestic (Israel) |  | $                       | (7,801 | ) |      | $ | (9,722  | )    |  | $ | (7,784  | )
|Foreign           |  |                         | 761    |   |      |   | (2,374  | )    |  |   | (5,167  | )
|                  |  |                         |        |   |      |   |         |      |  |   |         |  
|                  |  | $                       | (7,040 | ) |      | $ | (12,096 | )    |  | $ | (12,951 | )
|                  |  |                         |        |   |      |   |         |      |  |   |         |  



F-29



---

##### Index to Financial Statements

JACADA LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



U.S. dollars in thousands, except
share and per share data



NOTE 10:-  TAXES ON INCOME (Cont.)



| | g. | Changes in tax rates in Israel:
| | -- | -------------------------------

The regular corporate tax rate in Israel in 2006 and 2007 was 31% and 29%, respectively. The corporate tax rate is to be gradually reduced as follows: in 2008  27%, in 2009  26% and in 2010
and onward  25%.



| | h. | Taxes on income from continuing operations are comprised as follows:
| | -- | --------------------------------------------------------------------



|                                       |  |                         |       |   |      |   |       |      |  |   |       |  
|-------------------------------------- |  | ----------------------- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                       |  | Year ended December 31, |      
|                                       |  | 2008                    |       |   | 2007 |   |       | 2006 | 
|Deferred tax income                    |  | $                       | -     |   |      | $ | 5,404 |      |  | $ | -     |  
|Tax benefit from continuing operations |  |                         | 2,126 |   |      |   | 3,300 |      |  |   | 3,246 |  
|Current income tax expenses            |  |                         | (83   | ) |      |   | (32   | )    |  |   | (129  | )
|                                       |  |                         |       |   |      |   |       |      |  |   |       |  
|                                       |  |                         | 2,043 |   |      |   | 8,672 |      |  |   | 3,117 |  
|                                       |  |                         |       |   |      |   |       |      |  |   |       |  
|Domestic                               |  |                         | 2,126 |   |      |   | 4,910 |      |  |   | 1,850 |  
|Foreign                                |  |                         | (83   | ) |      |   | 3,762 |      |  |   | 1,267 |  
|                                       |  |                         |       |   |      |   |       |      |  |   |       |  
|                                       |  | $                       | 2,043 |   |      | $ | 8,672 |      |  | $ | 3,117 |  
|                                       |  |                         |       |   |      |   |       |      |  |   |       |  

Due to the presentation of discontinued operation, the Company
recorded tax benefit related to current losses from continuing operation against tax expenses related to current profits from discontinued operation for the years 2008, 2007 and 2006 in accordance with SFAS No. 109 (see Note 1b for discontinued
operation).

NOTE 11:-  GEOGRAPHIC INFORMATION



| | a. | 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 the end-customers location:



|                 |  |                         |        |      |   |        |  |   |      
|---------------- |  | ----------------------- | ------ | ---- | - | ------ |  | - | -----
|                 |  | Year ended December 31,
|                 |  | 2008                    |        | 2007 |   | 2006  
|Revenues:        |  |                         |        |      |   |        |  |   |      
|                 |  |                         |       
|North America    |  | $                       | 10,502 |      | $ | 5,766  |  | $ | 4,276
|Europe and other |  |                         | 13,863 |      |   | 8,231  |  |   | 4,529
|                 |  |                         |        |      |   |        |  |   |      
|                 |  | $                       | 24,365 |      | $ | 13,997 |  | $ | 8,805
|                 |  |                         |        |      |   |        |  |   |      



F-30



---

##### Index to Financial Statements

JACADA LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



U.S. dollars in thousands, except
share and per share data



NOTE 11:-  GEOGRAPHIC INFORMATION (Cont.)



|                   |  |              |       |      |   |       |  |   |      
|------------------ |  | ------------ | ----- | ---- | - | ----- |  | - | -----
|                   |  | December 31,
|                   |  | 2008         |       | 2007 |   | 2006 
|Long-lived assets: |  |              |       |      |   |       |  |   |      
|Israel             |  | $            | 3,622 |      | $ | 3,786 |  | $ | 4,035
|North America      |  |              | 693   |      |   | 400   |  |   | 420  
|Other              |  |              | 47    |      |   | 20    |  |   | 24   
|                   |  |              |       |      |   |       |  |   |      
|                   |  | $            | 4,362 |      | $ | 4,206 |  | $ | 4,479
|                   |  |              |       |      |   |       |  |   |      



| | b. | Major customers data as a percentage of total revenues:
| | -- | --------------------------------------------------------



|           |  |                         |   |  |      |   |  |      |  
|---------- |  | ----------------------- | - |  | ---- | - |  | ---- | -
|           |  | Year ended December 31, |  
|           |  | 2008                    |   |  | 2007 |   |  | 2006 |  
|Customer A |  | 30                      | % |  | 2    | % |  | 1    | %
|Customer B |  | 18                      | % |  | 3    | % |  | -    |  
|Customer C |  | 6                       | % |  | 6    | % |  | 24   | %
|Customer D |  | 4                       | % |  | 26   | % |  | 4    | %
|Customer E |  | 2                       | % |  | 14   | % |  | -    |  
|Customer F |  | 2                       | % |  | 1    | % |  | 18   | %
|Customer G |  | -                       |   |  | 2    | % |  | 13   | %

NOTE 12:-  SUPPLEMENTARY DATA ON SELECTED STATEMENTS OF INCOME



| | a. | Financial income, net:
| | -- | ----------------------



|                                         |  |                         |       |   |      |   |       |      |  |   |       |  
|---------------------------------------- |  | ----------------------- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                         |  | Year ended December 31, |      
|                                         |  | 2008                    |       |   | 2007 |   |       | 2006 | 
|Financial income:                        |  |                         |       |   |      |   |       |      |  |   |       |  
|Foreign currency translation adjustments |  | $                       | -     |   |      | $ | 29    |      |  | $ | 103   |  
|Interest on marketable securities        |  |                         | 1,537 |   |      |   | 1,595 |      |  |   | 1,362 |  
|                                         |  |                         |       |   |      |   |       |      |  |   |       |  
|                                         |  |                         | 1,537 |   |      |   | 1,624 |      |  |   | 1,465 |  
|                                         |  |                         |       |   |      |   |       |      |  |   |       |  
|Financial expenses:                      |  |                         |       |   |      |   |       |      |  |   |       |  
|Losses on marketable securities          |  |                         | (372  | ) |      |   | -     |      |  |   | -     |  
|Bank charges                             |  |                         | (113  | ) |      |   | (76   | )    |  |   | (93   | )
|Foreign currency translation adjustments |  |                         | (337  | ) |      |   | -     |      |  |   | -     |  
|                                         |  |                         |       |   |      |   |       |      |  |   |       |  
|                                         |  |                         | (822  | ) |      |   | (76   | )    |  |   | (93   | )
|                                         |  |                         |       |   |      |   |       |      |  |   |       |  
|                                         |  | $                       | 715   |   |      | $ | 1,548 |      |  | $ | 1,372 |  
|                                         |  |                         |       |   |      |   |       |      |  |   |       |  



F-31



---

##### Index to Financial Statements

JACADA LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



U.S. dollars in thousands, except
share and per share data



NOTE 12:-  SUPPLEMENTARY DATA ON SELECTED STATEMENTS OF INCOME (Cont.)



| | b. | Allowance for doubtful accounts:
| | -- | --------------------------------

The change in the allowance for doubtful accounts for the years ended December 31, 2008, 2007 and 2006, is as follows:



|                                     |  |                         |     |   |      |   |    |      |  |   |     |  
|------------------------------------ |  | ----------------------- | --- | - | ---- | - | -- | ---- |  | - | --- | -
|                                     |  | Year ended December 31, |    
|                                     |  | 2008                    |     |   | 2007 |   |    | 2006 | 
|Balance at the beginning of the year |  | $                       | -   |   |      | $ | 8  |      |  | $ | 76  |  
|Allowance for doubtful accounts      |  |                         | 201 |   |      |   | (7 | )    |  |   | (63 | )
|Written-off bad debts                |  |                         | (1  | ) |      |   | (1 | )    |  |   | (5  | )
|                                     |  |                         |     |   |      |   |    |      |  |   |     |  
|Balance at the end of the year       |  | $                       | 200 |   |      | $ | -  |      |  | $ | 8   |  
|                                     |  |                         |     |   |      |   |    |      |  |   |     |  

NOTE 13:-  SUBSEQUENT EVENTS

On April 6, 2009, the Companys announced a 7% reduction in headcount worldwide, which will impacts 10 positions, as well as
salary reductions and other additional cost saving initiatives.







F-32



---

##### Index to Financial Statements

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the
undersigned to sign this Amendment No. 1 to the Annual Report on its behalf on October 2, 2009.



JACADA LTD.By:

/s/ Robert C. AldworthName: Title:

Robert C. Aldworth Chief
Financial Officer




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