##### Table of Contents

##### Index to Financial Statements

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM 20-F



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

OR



| ̈ | 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)



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##### Index to Financial Statements

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

Securities registered or to be registered pursuant to Section 12(g) of the Act: Ordinary shares, par value

NIS 0.01 per share

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

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

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.

xYes                                 ̈  No

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

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 filling.

US GAAP: x    International Financial Reporting Standards:  ̈    Other:   ̈

If Other has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

 ̈Item 17                            x
Item 18

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

Indicate by check mark whether the registrant has filed all documents and reports required to be
filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

xYes                                 ̈  No



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TABLE OF CONTENTS



|          |  |                                                                              |  |   
|--------- |  | ---------------------------------------------------------------------------- |  | --
|ITEM 1:   |  | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT, ADVISERS AND AUDITORS              |  | 2 
|          |  |                                                                             
|ITEM 2:   |  | OFFER STATISTICS AND EXPECTED TIMETABLE                                      |  | 2 
|          |  |                                                                             
|ITEM 3:   |  | KEY INFORMATION                                                              |  | 2 
|          |  |                                                                             
|ITEM 4:   |  | INFORMATION ON THE COMPANY                                                   |  | 14
|          |  |                                                                             
|ITEM 5:   |  | OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                 |  | 24
|          |  |                                                                             
|ITEM 6:   |  | DIRECTORS, SENIOR MANAGEMENT AND EMPOYEES                                    |  | 38
|          |  |                                                                             
|ITEM 7:   |  | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                            |  | 45
|          |  |                                                                             
|ITEM 8:   |  | FINANCIAL INFORMATION                                                        |  | 46
|          |  |                                                                             
|ITEM 9:   |  | THE OFFER AND LISTING                                                        |  | 48
|          |  |                                                                             
|ITEM 10:  |  | ADDITIONAL INFORMATION                                                       |  | 50
|          |  |                                                                             
|ITEM 11:  |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   |  | 69
|          |  |                                                                             
|ITEM 12:  |  | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       |  | 70
|          |  |                                                                             
|ITEM 13:  |  | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              |  | 70
|          |  |                                                                             
|ITEM 14:  |  | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |  | 70
|          |  |                                                                             
|ITEM 15:  |  | CONTROLS AND PROCEDURES                                                      |  | 71
|          |  |                                                                             
|ITEM 15T: |  | CONTROLS AND PROCEDURES                                                      |  | 71
|          |  |                                                                             
|ITEM 16A: |  | AUDIT COMMITTEE FINANCIAL EXPERT                                             |  | 71
|          |  |                                                                             
|ITEM 16B: |  | CODE OF ETHICS                                                               |  | 72
|          |  |                                                                             
|ITEM 16C: |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                       |  | 72
|          |  |                                                                             
|ITEM 16D: |  | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                   |  | 73
|          |  |                                                                             
|ITEM 16E: |  | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS       |  | 73
|          |  |                                                                             
|ITEM 16F: |  | CHANGES IN REGISTRANTS CERTIFYING ACCOUNTANT                                |  | 74
|          |  |                                                                             
|ITEM 16G: |  | CORPORATE GOVERNANCE                                                         |  | 74
|          |  |                                                                             
|ITEM 17:  |  | FINANCIAL STATEMENTS                                                         |  | 75
|          |  |                                                                             
|ITEM 18:  |  | FINANCIAL STATEMENTS                                                         |  | 75
|          |  |                                                                             
|ITEM 19:  |  | EXHIBITS                                                                     |  | 76



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FORWARD LOOKING STATEMENTS

This Annual Report contains forward-looking statements. These statements include all statements that are not statements of historical facts regarding the
intent, belief, or current expectations of the Company, its directors or its officers with respect to, among other things: (i) the Companys financing plans; (ii) trends affecting the Companys financial condition or results of
operations; and (iii) the Companys growth strategy and operating strategy (including the development of its products and services). The words may, could, would, will, believe,
anticipate, estimate, expect, intend, plan and similar expressions or variations thereof are intended to identify forward-looking statements. Prospective investors are cautioned that any
such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, many of which are beyond the Companys ability to control and that actual results may differ materially from those in the
forward-looking statements as a result of various factors and other information contained in this Annual Report, including the performance and continued acceptance of our products, general economic conditions and other risk factors identified under
the heading Risk Factors including Global recession and continued credit constraints could adversely affect us, If our new management team is unable to fully transition into their respective new positions, our
operations will be adversely affected , The sale of our legacy business may result in the reduction of revenues and impact our ability to achieve profitability, Our business model is focused on continued growth in a market in
which we have only several years of experience and failure to continue our early penetration into this market would negatively impact our results of operations, We do not have a proven business model for the customer services and support
market; if our business model is inappropriate for this market and our estimations regarding the sales cycle for this market are incorrect, our efforts to successfully commercialize Jacada Fusion and Jacada WorkSpace may be harmed or we will
experience a further delay in generating revenues from these products, Our backlog decreased in 2008 and as a result our revenues may decline if we do not increase the number of transactions we enter into in 2009, Our
direct sales and marketing resources are limited, Revenues from our customer services and support products might be concentrated in a few large orders and a small number of customers, meaning that the loss of a significant customer or a
failure to make even a small number of such sales could harm our results of operations, A majority of our revenues derives from the provision of professional services, Failure to deliver professional services efficiently
could negatively impact our gross margins, Exchange rate fluctuations between the dollar and other currencies may negatively affect our results of operation, Negative conditions in the global credit markets may impair the
liquidity and value of our investment portfolio.

The results of operations in this annual report relate to our customers
services and support business. As a result of the sale of our traditional market business effective as of January 1, 2008, the results of the traditional market business were reclassified to one line item in the statement of operations as
Income from discontinued operations.

We have prepared our consolidated financial statements in U.S. dollars and in accordance
with U.S. generally accepted accounting principles (GAAP). All references in this Annual Report to dollars or $ are to U.S. dollars and all references to NIS are to New Israeli Shekels.

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



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Item 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT, ADVISERS AND AUDITORS

Not applicable.

Item 2: OFFER
STATISTICS AND EXPECTED TIMETABLE

Not applicable.

Item 3: KEY INFORMATION



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

The following table sets
forth selected financial data from our consolidated statements of operations and balance sheets for the periods indicated. The selected consolidated statement of operations data for the years ended December 31, 2008, 2007 and 2006 and the
selected consolidated balance sheet data as of December 31, 2008 and 2007 have been derived from our audited consolidated financial statements and the notes thereto included elsewhere in this Annual Report. As a result of the agreement to sell
our traditional market business on December 19, 2007, which closed on January 1, 2008, the results of the traditional market business for all prior periods were reclassified to one line item in the statement of operations as Net
income from discontinued operations, net of taxes. The financial statements included in this Annual Report have been prepared in accordance with US GAAP. The consolidated statements of operations data for the year ended December 31, 2005
and 2004, except for the reclassification to discontinued operations, and the selected consolidated balance sheet data as of December 31, 2006, 2005 and 2004 are derived from audited consolidated financial statements that are not included
herein. During 2008 we purchased a total of 4,447,184 of our ordinary shares pursuant to a share repurchase program as well as a self tender offer conducted by us. The shares we repurchased are held by us as treasury shares. Under the Companies Law
for so long as such treasury shares are owned by us they have no rights and, accordingly, are neither eligible to participate in or receive any future dividends which may be paid to our shareholders nor are they entitled to participate in, be voted
at or be counted as part of the quorum for, any meetings of our shareholders. The financial and shareholders information provided under this annual report do not consider these treasury shares as part of our outstanding share capital. The following
selected financial data are qualified by reference to and should be read in conjunction with the sections entitled Item 5: Operating and Financial Review and Prospects and Item 11: Quantitative and Qualitative Disclosures
about Market Risk and our consolidated financial statements and the notes thereto included elsewhere in the Annual Report.



2



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|                                                                                                   |  |                         |   |  |            |   |  |            |   |  |            |   |  |            |  
|-------------------------------------------------------------------------------------------------- |  | ----------------------- | - |  | ---------- | - |  | ---------- | - |  | ---------- | - |  | ---------- | -
|                                                                                                   |  | Year ended December 31, |   |  |            |   |  |            |  
|                                                                                                   |  | 2008                    |   |  | 2007       |   |  | 2006       |   |  | 2005       |   |  | 2004       |  
|                                                                                                   | 
|                                                                                                   |  | (in thousands)          |  
|                                                                                                   |  |                         |   |  |           
|Consolidated Statement of Operations Data:                                                         |  |                         |   |  |            |   |  |            |   |  |            |   |  |            |  
|Revenues:                                                                                          |  |                         |   |  |            |   |  |            |   |  |            |   |  |            |  
|Software licenses                                                                                  |  | $7,647                  |   |  | $3,706     |   |  | $3,668     |   |  | $3,632     |   |  | $855       |  
|Services                                                                                           |  | 14,540                  |   |  | 8,479      |   |  | 3,781      |   |  | 723        |   |  | 195        |  
|Maintenance                                                                                        |  | 2,178                   |   |  | 1,812      |   |  | 1,356      |   |  | 984        |   |  | 117        |  
|                                                                                                   |  |                         |   |  |            |   |  |            |   |  |            |   |  |            |  
|Total revenues                                                                                     |  | 24,365                  |   |  | 13,997     |   |  | 8,805      |   |  | 5,339      |   |  | 1,167      |  
|                                                                                                   |  |                         |   |  |            |   |  |            |   |  |            |   |  |            |  
|Cost of revenues:                                                                                  |  |                         |   |  |            |   |  |            |   |  |            |   |  |            |  
|Software licenses                                                                                  |  | 544                     |   |  | 449        |   |  | 244        |   |  | 312        |   |  | 86         |  
|Services                                                                                           |  | 11,038                  |   |  | 7,009      |   |  | 3,517      |   |  | 2,517      |   |  | 119        |  
|Maintenance                                                                                        |  | 856                     |   |  | 745        |   |  | 662        |   |  | 643        |   |  | -          |  
|                                                                                                   |  |                         |   |  |            |   |  |            |   |  |            |   |  |            |  
|Total cost of revenues                                                                             |  | 12,438                  |   |  | 8,203      |   |  | 4,423      |   |  | 3,472      |   |  | 205        |  
|                                                                                                   |  |                         |   |  |            |   |  |            |   |  |            |   |  |            |  
|Gross profit                                                                                       |  | 11,927                  |   |  | 5,794      |   |  | 4,382      |   |  | 1,867      |   |  | 962        |  
|                                                                                                   |  |                         |   |  |            |   |  |            |   |  |            |   |  |            |  
|Operating expenses:                                                                                |  |                         |   |  |            |   |  |            |   |  |            |   |  |            |  
|Research and development                                                                           |  | 4,819                   |   |  | 4,402      |   |  | 3,838      |   |  | 3,743      |   |  | 2,639      |  
|Sales and marketing                                                                                |  | 8,829                   |   |  | 9,787      |   |  | 9,759      |   |  | 10,046     |   |  | 1,884      |  
|General and administrative                                                                         |  | 5,583                   |   |  | 5,249      |   |  | 5,108      |   |  | 5,388      |   |  | 4,724      |  
|                                                                                                   |  |                         |   |  |            |   |  |            |   |  |            |   |  |            |  
|Restructuring                                                                                      |  | 451                     |   |  | -          |   |  | -          |   |  | -          |   |  | -          |  
|                                                                                                   |  |                         |   |  |            |   |  |            |   |  |            |   |  |            |  
|Total operating expenses                                                                           |  | 19,682                  |   |  | 19,438     |   |  | 18,705     |   |  | 19,177     |   |  | 9,247      |  
|                                                                                                   |  |                         |   |  |            |   |  |            |   |  |            |   |  |            |  
|Operating loss                                                                                     |  | (7,755                  | ) |  | (13,644    | ) |  | (14,323    | ) |  | (17,310    | ) |  | (8,285     | )
|Financial income, net                                                                              |  | 715                     |   |  | 1,548      |   |  | 1,372      |   |  | 830        |   |  | 786        |  
|                                                                                                   |  |                         |   |  |            |   |  |            |   |  |            |   |  |            |  
|Loss from continuing operations before taxes                                                       |  | (7,040                  | ) |  | (12,096    | ) |  | (12,951    | ) |  | (16,480    | ) |  | (7,499     | )
|Income tax benefit                                                                                 |  | 2,043                   |   |  | 8,672      |   |  | 3,117      |   |  | 4,055      |   |  | 981        |  
|                                                                                                   |  |                         |   |  |            |   |  |            |   |  |            |   |  |            |  
|Net loss from continuing operations                                                                |  | (4,997                  | ) |  | (3,424     | ) |  | (9,834     | ) |  | (12,425    | ) |  | (6,518     | )
|Net income from discontinued operations, net of taxes                                              |  | 18,234                  |   |  | 7,540      |   |  | 7,262      |   |  | 7,467      |   |  | 905        |  
|                                                                                                   |  |                         |   |  |            |   |  |            |   |  |            |   |  |            |  
|Net income (loss)                                                                                  |  | $13,237                 |   |  | $4,116     |   |  | $(2,572    | ) |  | $(4,958    | ) |  | $(5,613    | )
|                                                                                                   |  |                         |   |  |            |   |  |            |   |  |            |   |  |            |  
|Basic and diluted net earnings (loss) per share                                                    |  |                         |   |  |            |   |  |            |   |  |            |   |  |            |  
|Continuing operations                                                                              |  | $(0.26                  | ) |  | $(0.17     | ) |  | $(0.50     | ) |  | $(0.63     | ) |  | $(0.34     | )
|Discontinued operations                                                                            |  | $0.94                   |   |  | $0.37      |   |  | $0.37      |   |  | $0.38      |   |  | $0.05      |  
|Basic and diluted net earnings (loss) per share                                                    |  | $0.68                   |   |  | $0.20      |   |  | $(0.13     | ) |  | $(0.25     | ) |  | $(0.29     | )
|                                                                                                   |  |                         |   |  |            |   |  |            |   |  |            |   |  |            |  
|Weighted average number of shares used in computing basic and diluted net earning (loss) per share |  | 19,354,810              |   |  | 20,364,752 |   |  | 19,827,852 |   |  | 19,497,726 |   |  | 19,282,800 |  
|                                                                                                   |  |                         |   |  |           
|                                                                                                   |  | 2008                    |   |  | 2007       |   |  | 2006       |   |  | 2005       |   |  | 2004       |  
|                                                                                                   |  | (in thousands)          |  
|Consolidated Balance Sheet Data:                                                                   |  |                         |   |  |            |   |  |            |   |  |            |   |  |            |  
|Cash and cash equivalents                                                                          |  | $11,059                 |   |  | $5,960     |   |  | $4,735     |   |  | $3,461     |   |  | $3,552     |  
|Cash and investments                                                                               |  | *33,069                 |   |  | 33,824     |   |  | 35,922     |   |  | 35,651     |   |  | 37,613     |  
|Working capital                                                                                    |  | 23,262                  |   |  | 19,316     |   |  | 10,722     |   |  | 12,638     |   |  | 19,885     |  
|Total assets                                                                                       |  | 44,816                  |   |  | 52,101     |   |  | 45,710     |   |  | 45,612     |   |  | 49,230     |  
|Capital Stock                                                                                      |  | 17,863                  |   |  | -          |   |  | -          |   |  | -          |   |  | -          |  
|Shareholders equity                                                                               |  | 36,801                  |   |  | 39,904     |   |  | 33,395     |   |  | 34,475     |   |  | 39,089     |  
|Dividends per share                                                                                |  | -                       |   |  | -          |   |  | -          |   |  | -          |   |  | -          |  

*Cash and investments include restricted cash, held by trustee.



3



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##### Index to Financial Statements

Exchange Rates

Not
applicable.



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

Not applicable.



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

Not
applicable.



|D. | Risk Factors
|-- | ------------

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

Risks Related to Our Business

Global
recession and continued credit constraints could adversely affect us. Recent disruption in the global credit markets, failures or material business deterioration of investment banks, commercial banks, and other financial institutions and
intermediaries in the United States and elsewhere around the world, and significant reductions in asset values across businesses, households and individuals, combined with other financial and economic indicators, have combined to indicate a global
recession. If these conditions continue or worsen, they may result in reduced demand or funding for projects involving our customer service and support solutions, longer sales cycle for our projects or termination of projects by our customers, which
may adversely affect our results of operations. Among other things, we might face:



| |  |  | potential declines in orders for our customer service and support solutions and in our revenues from such solutions due to reduced or postponed orders or other
factors caused by economic challenges faced by our customers and prospective customers;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | longer sales processes and a need for increased efforts to secure projects in order to be able to demonstrate to customers and prospective customers return on
investment that meets such customers and prospective customers business needs and requirements in current economic conditions;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | potential adverse impact on our customers ability to pay, when due, amounts payable to us, or on our ability to collect amounts payable to us in full (or at
all) if any of our customers fail or seek protection under applicable bankruptcy or insolvency laws;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | potential re-evaluation by our customers and prospective customers of approved or contracted projects in order to address budget reductions or other impacts and
factors of the current economic conditions by such customers and prospective customers;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



4



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##### Index to Financial Statements

Any of these things could adversely affect our business, financial condition, operating results and cash
flow. These economic conditions also impact our ability to forecast orders and revenues and our ability to provide guidance for our performance.

If our new management team is unable to fully transition into their respective new positions, our operations will be adversely affected.Our Chief Executive Officer, Paul OCallaghan, informed us, that he
is leaving Jacada as of April 20, 2009. Our board of directors accepted his resignation and has appointed Tom Clear as our new Chief Executive Officer, effective April 20, 2009, 2009. In addition, our Chief Financial
Officer, Tzvia Broida, has informed us that she will be leaving the company too. Her replacement, Bob Aldwoth, who previously served as our Chief Financial Officer from January 2001 through January 2005, will become Chief
Financial Officer upon Ms. Broidas departure. If this new senior management team is unable to transition into their respective positions, our operations will be adversely affected.

The sale of our legacy business may result in the reduction of revenues and impact our ability to achieve profitability.In January 2008 we
sold the intellectual property and related customer contracts associated with the following Jacada products: Jacada Interface Server and Jacada Integrator, also known as Jacada HostFuse, Jacada Studio, Jacada Innovator and Jacada Terminal Emulator.
These activities associated with these products comprised our application modernization and legacy integration business, which we refer to as our traditional or legacy business. Revenues from our legacy business, which were derived from sales of
licenses, professional services and maintenance services, represented a substantial portion of our revenues, in the years 2005, 2006 and 2007. We cannot assure you that the growth of revenues from our customer service and support business, from
which we expect to generate almost all of our revenues in the future will offset the loss of revenues resulting from the sale of our traditional market business. Furthermore, the costs associated with our legacy business were relatively fixed at
levels that resulted in that business achieving profitability on a stand-alone basis. We have and intend to continue to invest in our customer service and support business, meaning that unless we are successful in achieving significant growth in
revenues from that business, we cannot assure you that we will achieve or maintain profitability in the future. Our ability to increase revenues and maintain profitability will be affected by the other risks and uncertainties described in this
section and in the sections entitled Item 5: Operating and Financial Review and Prospects and Item 11: Quantitative and Qualitative Disclosures about Market
Risk.

Our business model is focused on continued growth in a market in which we have only
several years of experience and failure to continue our early penetration into this market would negatively impact our results of operations. We have elected to focus our business on the sale of our software products and solution in the
customer services and support market. In the second quarter of 2004, we introduced Jacada Fusion, our solution that is designed to integrate different applications residing on host, Windows and Web-based platforms, and allow non-invasive access to
those applications through a single user interface. In the third quarter of 2005, we introduced Jacada WorkSpace, a built for purpose solution designed to be a single agent console that unifies customer interaction tools with a single access point
to all the mission-critical applications required by the customer service representative to effectively complete a customer interaction. Our license to sell our traditional market products, on a stand alone basis, is limited to sales for the use by
our customers in their customer services and support business. However, we have limited experience in this market. Our limited experience and knowledge regarding the customer services and support market may impede our ability to sell our products
and result in decreased revenues and increased losses.



5



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##### Index to Financial Statements

We must continue our significant investment in our sales and marketing efforts, including our
indirect distribution channels, in order to increase market awareness of our products and to generate increased revenues. We believe that our future success is dependent upon the expansion of our indirect distribution channels, consisting of
our relationships with partners, system integrators, call center outsourcers, resellers and distributors. Significant continued investment in indirect distribution channels and in our direct sales and marketing efforts is essential to increase
market awareness of our products and to generate increased revenues, in relation to such products. We currently have relationships with a limited number of these parties.

Our future growth will be limited if:



| |  |  | we fail to work effectively with our indirect distribution partners; or
| | - |  | -----------------------------------------------------------------------



| |  |  | there is a decrease in the willingness or ability of our indirect distribution partners to devote sufficient resources and efforts to market, sale and support our
products or;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

If any of these circumstances occurs, we will have to devote substantially more resources to the sales, marketing, distribution, implementation, customization and
support of our products than we otherwise would. However, our own efforts, limited resources, limited experience in delivering significant and complex implementation and customization projects and relative lack of contacts within the customer
services and support market in comparison with some of our potential indirect distribution channels, may not be as effective as those of our indirect distribution channels.

We do not have a proven business model for the customer services and support market; if our business model is inappropriate for this market and our
estimations regarding the sales cycle for this market are incorrect, our efforts to successfully commercialize Jacada Fusion and Jacada WorkSpace may be harmed or we will experience a further delay in generating revenues from these products.Our business model for selling Jacada Fusion and Jacada WorkSpace products is different than the business model we used for our traditional market products. To date we have had limited number of deals in which we sold Jacada Fusion and
Jacada WorkSpace and therefore we do not have enough experience to determine if our business model is correct and is appropriate for the generation either of new sales or follow-on sales. In the event that our chosen business model is inappropriate,
we may need to modify our business model and adjust the manner in which we sell Jacada Fusion and Jacada WorkSpace in order to close subsequent transactions. If our business model is incorrect and must be adjusted, our revenues and expense levels
may be adversely affected.

Our backlog decreased in 2008 and as a result our revenues may decline if we do not increase the number
of transactions we enter into in 2009. Our backlog at year-end 2008 decreased significantly in relation to year-end 2007. As a result of this decline in backlog, our revenue visibility into 2009 has declined. Reduced backlog means that
we will be more dependent on signing new transactions in 2009 in order to generate revenues. If we fail to sign a sufficient number of new transactions in 2009 for which we recognize revenue in 2009, our revenues and results of operations will
adversely affected.

Our direct sales and marketing resources are limited.We have a limited number of direct sales and
marketing personnel who are in charge of our sales and marketing activities globally. These limited



6



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##### Table of Contents

##### Index to Financial Statements

resources may not be able to identify and qualify a sufficient number of sales opportunities which will constitute our sales pipeline. A limited qualified
sales pipeline may not generate a sufficient number of orders to our customer service and support solutions that is required to support our business growth.

Revenues from our customer services and support products might be concentrated in a few large orders and a small number of customers, meaning that the loss of a significant customer or a failure to make even a
small number of such sales could harm our results of operations. Historically, revenues from our traditional market products were generated from a relatively large number of sales to a wide number of customers. During 2008, 2007 and
2006 revenues from the Jacada Fusion and Jacada WorkSpace products derived from large orders from a small number of customers. In the year 2008 two customers represented 48% of our total revenues, in the year 2007 two customers represented 41% of
our total revenues and in the year 2006 three customers represented 57% of our total revenues. Currently we cannot assure you that we will make repeat sales to these customers. To the extent that this trend continues, our revenues will be dependent
on a relatively limited number of significant customers. We also cannot assure you that new customers will purchase our products and services in the future. The failure to secure new key customers, the loss of key customers or the occurrence of
significant reductions in sales from a key customer would cause our revenues to significantly decrease and make it significantly more difficult for us to become profitable.

Competition in the market in which we operate is intense. If we are unable to compete effectively, the demand for, or the prices of, our products
may be reduced.The markets in which we operate are competitive and subject to changes. Our products compete with other contact center solutions offered by other vendors including Microsoft, Corizon and OpenSpan. We expect additional
competition from other established and emerging companies. Furthermore, our competitors may combine with each other and other companies may enter our markets by acquiring or entering into strategic relationships with our competitors.

In addition, our potential customers may choose to deploy traditional CRM application software, or utilize their own information technology personnel or
system integrators to write new code or rewrite existing applications in an effort to develop their own customer service and support solutions. As a result, prospective clients may decide against purchasing and implementing externally-developed
solutions such as ours.

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

We rely on our key personnel and key management members, whose knowledge of our business and technical expertise would be extremely
difficult to replace.Our future success depends, to a certain degree, on the continued services of key management, as well as on our sales and technical personnel. The loss of services of any of our key management for any reason
could have a material adverse effect on our business, financial condition and results of operations. We are also dependent on our ability to attract, retain and motivate highly skilled personnel. Competition for qualified personnel is intense in the
markets in which we recruit. As a result, our ability to recruit and retain qualified candidates may be limited.



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##### Index to Financial Statements

Our revenues could be adversely affected if we fail to recruit and retain consultants and other
technical service personnel.Sales of our Jacada Fusion and Jacada WorkSpace products require in many cases advance sales activity involving consultants and post-sale implementation and customization. We rely on our staff of
professional consultants, other technical service personnel and subcontractors to implement our solutions after being purchased by our customers. Unless we are able to recruit and retain professional consultants, other technical service personnel
and subcontractors or hire and train such personnel and subcontractors to replace those who leave us, it will be difficult for us to implement our solutions and obtain customer acceptance and to increase or possibly even maintain our present level
of sales due to constraints on our capacity to implement sales. In addition, a growing number of our transactions require implementation of our solutions. In these transactions, the implementation and customization services performed by these
personnel are especially important. If we are unable to hire and retain these personnel, it may adversely impact our ability to successfully close such transactions.

Our future growth will be adversely affected and our future operating results may be adversely affected if we fail to develop and introduce new functionality for our products and new products for the customer
service and support market or if our new products fail to achieve market acceptance.In order to achieve sales growth we will need to develop and introduce new functionality for our customer service and support products and new products for
such market. Our ability to develop and introduce new functionality for our customer service and support products and new products for this market requires us to invest significant resources in research and development and in the sales and marketing
of a new product. If we fail to develop and market new products successfully, we may not be able to recover our research and development expenditures or our sales and marketing expenditures, which would adversely impact our operating results.

Because our products are complex and generally involve significant capital expenditures by customers, we may invest significant time
and expense in trying to make a sale to a potential customer that ultimately chooses not to purchase our products. Our sales typically involve significant capital investment decisions by prospective customers, and often require us to
expend a significant amount of time to educate prospective customers as to the benefits of our products, especially in the current economic conditions. As a result, before purchasing our products, companies spend a substantial amount of time
performing internal reviews and obtaining approvals. Even if our products are effective, our target customers may not choose them for technical, cost, support or other reasons.

A majority of our revenues derives from the provision of professional services.We derive our revenues from license fees for our software
products, from fees for professional services (which include installation, implementation, integration and customization of our solutions), training and from maintenance and support services. In 2006, 2007 and 2008 services revenues constituted a
majority of our total revenues. Services revenues have lower gross margins relative to software revenue. If we do not succeed in increasing the proportion of our total revenue attributable to software license fees we may not be able to achieve or
maintain profitability.

Failure to deliver professional services efficiently could negatively impact our gross margins.Our
limited experience and knowledge regarding the customer services and support market generally and the delivery of our products and solutions for this new market specifically may impact the efficiency of our professional services deliveries, as we
may need to expend more resources in the delivery of professional services to a customer than we had originally estimated. Any such expending of more resources may negatively impact our professional services gross margins and our ability to achieve
or maintain profitability. Additionally, failure to deliver professional services efficiently and to our customers satisfaction may increase



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##### Index to Financial Statements

the potential of termination of projects by our customers, especially in the current economic conditions since customers may be less flexible on budget and
delivery dates.

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

The market price of our shares is volatile and the volume of the daily trading of our shares is very low;
therefore you may not be able to resell your shares at or above the price you paid, or at all.The risks described in this Item 3.D may adversely affect our share price. Our share price, like that of many technology companies, may be
subject to volatility. In addition, our share price may be adversely affected by changes in estimates of our financial results or recommendations by securities analysts, changes in the quarterly financial results of companies perceived to be similar
to us, and changes in market valuations of similar companies. In addition, if the market for stocks in our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our ordinary shares could decline
for reasons unrelated to our business, financial condition or results of operations. If our share price decreases to below $1.00 per share and remains there for 30 consecutive trading days, Nasdaq could initiate procedures to de-list our shares from
the Nasdaq National Market and onto either the Nasdaq Small Cap Market or the OTC Bulletin Board. If our shares are de-listed from the Nasdaq National Market, the benefit of dual-listing reporting requirements would no longer be relevant to us and
we would be required to follow the Israeli and Tel-Aviv stock exchange rules and regulations. Furthermore, because of the low volume of daily trading in our shares, you may be unable to sell your shares in the market due to low or no demand for such
shares.

Our ordinary shares could be treated as shares in a passive foreign investment company, which could have adverse
United States federal income tax consequences to United States Holders.As a non-U.S. company, we could potentially be treated as a passive foreign investment company (a PFIC) if either (1) at least 75% of our gross income
for any taxable year consists of certain types of passive income or (2) at least 50% of the average value of our assets produce or are held for the production of those types of passive income. See discussion under
Item 10E Taxation for further details regarding these tests. We believe that our ordinary shares should not be treated as stock of a PFIC for United States federal income tax purposes, but such a conclusion is a factual
determination made annually and may be subject to change. If we are determined to be PFIC, a U.S. Holder, as this term is described in Item 10E Taxation, may have less advantageous tax consequences upon the sale, exchange or receipt of
dividends with respect to our ordinary shares and may be required to pay United States federal income tax at ordinary income rates for gains, dividends, as well as an interest charge on certain excess distributions as this term is explained
later on. Certain elections may mitigate



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##### Index to Financial Statements

these consequences. See Item 10E Taxation for a more comprehensive discussion of the United States federal income tax consequences if we
were to be treated as a PFIC.

We expect to be subject to increasing risks of international operations.Currently we
market and sell our products and services primarily in North America and Europe, from which areas we received approximately 96.4% of our total revenues for the year ended December 31, 2008. Managing our operations in North America and Europe
requires significant management attention and financial resources. Further, we currently have limited experience in marketing and distributing our products in regions other than North America and Europe. Our inability to increase our worldwide
operations successfully could adversely impact our business.

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



| |  |  | damage our reputation;
| | - |  | ----------------------



| |  |  | increase our product development costs;
| | - |  | ---------------------------------------



| |  |  | divert our product development resources;
| | - |  | -----------------------------------------



| |  |  | expose us to monetary damages;
| | - |  | ------------------------------



| |  |  | cause us to lose future sales;
| | - |  | ------------------------------



| |  |  | damage our ability to deliver our solutions to the customer; or
| | - |  | ---------------------------------------------------------------



| |  |  | delay or diminish market acceptance of our products.
| | - |  | ----------------------------------------------------

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

Certain of our products, contain technology that we acquired or licensed from third
parties. Because we did not develop the technology ourselves, there may be errors in the technology of which we are not aware. In addition, our products are integrated with our customers networks and software applications. The sale and support
of our products may expose us to the risk of product liability or warranty claims based on damage to these networks or applications caused by the technology we developed or the technology developed by a third party and acquired by us. In addition,
the failure of our products to perform to customer expectations could give rise to warranty or other claims. Any of these claims, even if not meritorious, could result in costly litigation or divert managements attention and resources. We may
not have sufficient funds or insurance coverage to satisfy any or all liability that may be imposed upon us with respect to these claims.

Our technology may be subject to infringement claims or may be infringed upon.Our success and ability to compete are substantially dependent upon our technology. Most of our intellectual property, other than our
trademarks, consists of proprietary or confidential information that is not subject to patent or similar



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##### Index to Financial Statements

protection. Despite our efforts to protect our intellectual property rights, unauthorized third parties may attempt to copy or otherwise obtain and use the
technology protected by those rights. Any infringement of our intellectual property could have a material adverse effect on our business, financial condition and results of operations. Furthermore, policing unauthorized use of our products is
difficult and costly, particularly in countries where the laws may not protect our proprietary rights as fully as in the United States.

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



| |  |  | be expensive and time-consuming to defend;
| | - |  | ------------------------------------------



| |  |  | cause product shipment and installation delays;
| | - |  | -----------------------------------------------



| |  |  | divert managements attention and resources; or
| | - |  | -----------------------------------------------



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

We incorporate open source technology in our products which may expose us to liability and have a material impact
on our product development and sales. Some of our products utilize open source technologies. These technologies are licensed to us on varying license structures but include the general public license. This license and others like it
pose a potential risk to products that are integrated with these technologies. For example, in the event we integrate into one of our products a technology covered under the general public license, we may be required to disclose our source code for
the integrated product. Disclosing our source code could enable our competitors to eliminate any technological advantage our products may have over theirs, and therefore materially adversely affect our competitive advantage and impact our business
results of operations and financial condition. In addition, from time to time there have been claims challenging the ownership of open source software against companies that incorporate open source software into their products. We use a limited
amount of open source software in our products and may use more open source software in the future. As a result, we could be subject to suits by parties claiming ownership of what we believe to be open source software.

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

We may fail to maintain effective internal controls
in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002 imposes certain duties on us and our executives and directors. Our efforts to comply with the requirements of Section 404 may result in
increased general and administrative expense and a diversion of management time and attention. If we fail to maintain the adequacy of our internal controls, we may not be able to ensure that we can conclude on an ongoing basis that we have effective
internal controls over financial reporting. In the Future we may identify material weaknesses in our controls over financial reporting. Failure to maintain effective internal controls over financial reporting could result in investigation or
sanctions by regulatory authorities, and could have a material adverse effect on our operating results, investor confidence in our reported financial information, and the market price of our ordinary shares.



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##### Index to Financial Statements

Negative conditions in the global credit markets may impair the liquidity and value of our
investment portfolio. We invest our cash, cash equivalents and short-term investments in a variety of investment vehicles in a number of countries with and in the custody of financial institutions with high credit ratings. While
our investment policy and strategy attempt to manage interest rate risk, limit credit risk, and only invest in what we view as very high-quality securities, the outlook for our investment holdings is dependent on general economic conditions,
interest rate trends and volatility in the financial marketplace, which can all affect the income that we receive, the value of our investments, and our ability to sell them. We believe that our investment securities are carried at fair value.
However, over time the economic and market environment may provide additional insight regarding the fair value of certain securities which could change our judgment regarding impairment. This could result in unrealized or realized losses relating to
other than temporary declines being charged against future income. Given the current market conditions, there is continuing risk that further declines in fair value may occur and additional impairments may be charged to income in future periods,
resulting in realized losses.

Exchange rate fluctuations between the dollar and other currencies may negatively affect our results
of operation.Our results of operations are reported in U.S. dollars, however, a significant portion of our revenues and expenses in 2008 were generated and incurred outside of the United States and in currencies other than the U.S Dollar,
particularly in NIS, English Pounds and Euros. As a result, we are subject to a foreign currency risk. Specifically our sales in Europe and in the UK and our expenses in Israel, Europe and the UK are recorded in local currencies which exposes us to
the direct risk of local currency devaluations or fluctuations against the U.S dollar rate of exchange. As a result, fluctuations in exchange rates between the currencies in which our costs are incurred or revenues are recorded and the U.S. dollar
may have a material adverse effect on our results of operations. We use derivative financial instruments to further reduce our net exposure to currency exchange rate fluctuations in the major foreign currencies in which we operate. However, we
cannot assure you that we will be able to effectively limit all of our exposure to currency exchange rate fluctuations, which could affect our financial results.

Risks Related to Our Location in Israel

Israeli courts might not enforce judgments rendered outside of
Israel.We are incorporated under the laws of the State of Israel and we maintain significant operations in Israel. Certain of our officers and directors reside outside of the United States. Therefore, you might not be able to enforce
any judgment obtained in the United States against us or any of such persons. Additionally, you might not be able to bring civil actions under United States securities laws if you file a lawsuit in Israel. We have been advised by our Israeli counsel
that, subject to certain limitations, Israeli courts may enforce a final executory judgment of a United States court for liquidated amounts in civil matters after a hearing in Israel, provided that certain conditions are met. If a foreign judgment
is enforced by an Israeli court, it will be payable in Israeli currency.

Conditions in and around Israel could adversely affect our
operations.Because our research and development facilities are located in Israel, we are directly influenced by the political, economic and military conditions affecting Israel. Since the establishment of the State of Israel in 1948,
a number of armed conflicts have taken place between Israel and its Arab neighbors. Any major hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners could materially adversely affect
our operations. Despite the negotiations towards peace between Israel and certain of its Arab neighbors, the future of these peace efforts is uncertain. From October 2000 until recently, there was a significant increase



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##### Index to Financial Statements

in violence primarily in the West Bank and the Gaza Strip and negotiations between Israel and Palestinian representatives have ceased for periods of time. In
January 2006, Hamas, the Islamic Resistance Movement, won the majority of the seats in the Parliament of the Palestinian Authority. The election of a majority of Hamas-supported candidates in the Palestinian Parliament and the tension among the
different Palestinian factions may create additional unrest and uncertainty. Hamas does not recognize Israels right to exist as a state and Israel considers Hamas to be a terrorist organization. During December 2008 and January 2009, Israel
was engaged in an armed conflict with Hamas and during the summer of 2006, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia group and political party. These recent conflicts involved missile strikes against
civilian targets in northern and southern Israel, and negatively affected business conditions in Israel. Any renewed hostilities or other factors related to Israel could have a material adverse effect on us or on our business or adversely affect our
share price.

Generally, all non-exempt male adult citizens and permanent residents of Israel under the age of 45 (or older, for citizens
with certain occupations), including some of our officers, directors and employees, are obligated to perform military reserve duty annually, and are subject to being called to active duty at any time under emergency circumstances. The absence of
these employees for significant periods may cause us to experience operating difficulties. Additionally, a number of countries continue to restrict or ban business with Israel or Israeli companies, which may limit our ability to make sales in those
countries.

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

In order to receive tax benefits, we must comply
with a number of conditions and criteria. If we fail to comply in whole or in part with these conditions and criteria, we will not be entitled to the tax benefits. Although we believe that we have operated and will continue to operate in compliance
with the required conditions, we cannot assure you that this will continue.

We cannot assure you that these tax benefits will be continued
in the future at their current levels or at all. The termination or reduction of tax benefits could have a material adverse effect on our business, financial condition and results of operations. In addition, in April 2005, the law governing
these tax benefits was amended to revise the criteria for investments that qualify for tax benefits as an approved enterprise. We cannot assure you that we will, in the future, be eligible to receive additional tax benefits under this
law. In addition, in the event that we increase our activities outside the State of Israel, these activities generally will not be eligible for inclusion in Israeli tax benefit programs. Accordingly, our effective corporate tax rate could increase
significantly in the future.

Certain provisions of our articles of association and of Israeli law could delay, hinder or prevent a
change in our control. Our articles of association contain provisions which could make it more difficult for a third party to acquire control of us, even if that change would be beneficial to our shareholders. For example, our articles of
association provide that our board of directors is divided into four classes, three of which serving three-year terms. In addition, certain provisions of the Israeli Companies Law, which we refer to as the Companies Law, could also delay or
otherwise make more difficult a change in control. The provisions of the



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##### Index to Financial Statements

Companies Law relating to mergers and acquisitions are discussed in greater detail in Item 10.B: Memorandum and Articles of Association.

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

Item 4:
INFORMATION ON THE COMPANY



|A. | History and Development of the Company
|-- | --------------------------------------

Our legal
and commercial name is Jacada Ltd. We were incorporated under the laws of the State of Israel in December 1990 as a limited liability company. On August 9, 1999 we changed our name from Client/Server Technology Ltd. to Jacada Ltd. Our
commercial name is Jacada. Our registered office in Israel is 11 Galgalei Haplada Street, Herzliya 46722 Israel and our telephone number is 972-9-952-5900. Our agent in the United States is Oren Shefler, whose address is 400 Perimeter Center
Terrace, Suite 100, Atlanta, Georgia 30346. Our address on the Internet is http://www.jacada.com. The information on our website is not incorporated into this Annual Report. We operate under the Companies Law.

Since October 1999, our Ordinary Shares have been quoted on the Nasdaq National Market under the symbol JCDA. In addition, our
Ordinary Shares have been quoted on the Tel Aviv Stock Exchange under the same symbol or its Hebrew equivalent since June 18, 2001. We develop, market and support unified service desktop and process optimization solutions that simplify and
automate customer service processes. By bridging disconnected systems into a single, intelligent workspace, our solutions create greater operational efficiency and increase agent and customer satisfaction. Our traditional market products
enable businesses to Web-enable, modernize and integrate their existing software applications to better serve the needs of their users, customers and partners. Our customer service and support products, Jacada Fusion and Jacada WorkSpace, introduced
in May 2004 and September 2005, respectively, target organizations that struggle to reduce operational costs and deliver high quality customer service due to the complexity of the customer service representatives desktop. Our solutions provide
our customers with a simplified interaction designed to improve the efficiency of the user and the experience of the users customer.

In January 2008 we sold the intellectual property and related customer contracts associated with the following Jacada products: Jacada Interface Server and Jacada Integrator, also known as Jacada HostFuse, Jacada Studio, Jacada Innovator
and Jacada Terminal Emulator in consideration for 26 million Dollars in cash. These activities associated with these products comprised our application modernization and legacy integration business, which we refer to as our traditional or
legacy business. Under the terms of the transaction we retained the right to develop, market, sell and support Jacada Interface Server and Jacada HostFuse in support of our customer service and support business.

Typical users of the Jacada Fusion or Jacada WorkSpace products and services are medium to large businesses with inbound contact centers that typically
have in excess of 100 agents (customer service representatives). Some of the companies that have purchased Jacada Fusion and Jacada WorkSpace products



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##### Index to Financial Statements

include Vodafone, West Telemarketing, Cox Communications, Capita Business Services, Lillian Vernon, Quelle Contact Vertrieb, Omnium Worldwide, Central Hudson
Gas & Electric, Station Casinos, Telefonica O2 UK, Nationwide Insurance and Kabel Deutschland.

See Items 5 and 18 for a
description of our capital expenditures for the past three fiscal years. Other than the sale of our legacy business as described in this Item above, we have made no divestitures during the same time period. In addition, we are not currently engaged
in a capital divestiture and our current capital expenditures are for computers, software and peripheral equipment. These capital expenditures are financed with our internal cash resources.

In February 2008 our board of directors authorized the use of up to $10 million of our available cash to repurchase our ordinary shares through
transactions under Rule 10b-18 of the Securities Exchange Act. Through August 2008 we purchased 596,080 shares for a total purchase price of $2,184,468 under this program. Purchases were made from time to time at the discretion of our management in
the open market or in privately negotiated transactions, subject to, among other factors, market conditions, trading volume and our share price. No time limit was set for this program; however, we suspended the program upon commencement of our self
tender offer. In September 2008 we purchased 3,851,104 of our ordinary shares under a self tender offer for total consideration of approximately $15.68 million. See Item 16E: Purchases of Equity Securities by the Issuer and Affiliated
Purchasers for disclosure regarding our repurchase program and self tender offer.

We are not aware of any public takeover offers
by third parties in respect of our shares, and we have made no public takeover offers in respect of other companies shares during fiscal years 2007 and 2008.



|B. | Business Overview
|-- | -----------------

Industry Overview

In 2004, we introduced Jacada Fusion and elected to target corporate customer contact centers. In the third quarter of 2005, we introduced Jacada
WorkSpace, a solution specifically designed for the customer contact center market. We refer to this market as the customer service and support market. Prior to the introduction of our customer service and support market products we have
been operating in the application integration and web-enablement market for 16 years. We refer to this market as our traditional market.

Customer Service and Support Market

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

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



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##### Index to Financial Statements

applications, and many customer service representatives have six, eight, ten or more applications they must learn and manage.

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

The complex
customer service representative desktop results in:



| |  |  | Long average call handle times, or AHT;
| | - |  | ---------------------------------------



| |  |  | Long and expensive training programs for the customer service representative;
| | - |  | -----------------------------------------------------------------------------



| |  |  | High customer service representative turnover; and
| | - |  | --------------------------------------------------



| |  |  | Poor customer satisfaction and low customer retention.
| | - |  | ------------------------------------------------------

Our Solutions

We develop, market and support unified service desktop and process optimization solutions that simplify and
automate customer service processes. By bridging disconnected systems into a single, intelligent workspace, our customer service and support market solutions create greater operational efficiency and increase agent and customer
satisfaction. Our customer service and support market products, Jacada Fusion and Jacada WorkSpace simplify the desktop of customer service representatives to reduce operational costs and improve the customer experience. Our customer service and
support market solutions are designed to provide our customers with a simplified interaction to improve the efficiency of the user and the experience of the users customer.

Benefits

Our solutions for
the customer service and support market provide the following business benefits:



| |  |  | Reducing operating expense. Because Jacada Fusion and Jacada Workspace products present users with a single interface through which applications are
accessed, they eliminate the need to navigate through and between applications. Therefore they eliminate redundant data entry, cut keystrokes and streamline or even eliminate process steps, including time consuming call wrap-up processes, thereby
generating greater agent efficiency. This enables increased first call resolution and significant reduction in average handle times and operating costs.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Significantly reducing customer service representative training costs. By simplifying the customer service representative desktop and reducing the number of
applications with which a customer service representative must interact, our contact center solutions allow our customers to significantly reduce their customer service representative training costs.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Increasing revenue opportunities.By reducing average handle times and making it easier for customer service representatives to access all the data needed to
answer a customers question or complete a customers request, Jacada Fusion and Jacada Workspace enable customer service representatives to perform increased sales activities, leading to potentially greater revenue opportunities.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Improving user and customer experience.Reduced average handle times and increased first call resolution enable our customers to improve their
customers experience, helping generate increased customer satisfaction and loyalty. The access to multiple platforms through one user-friendly interface also improves the experience of the customer service representative, leading to improved
customer service representative morale and productivity.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our technology and approach to delivering solutions provide the
following implementation benefits:



| |  |  | Leverage Existing Information Technology Resources.Our solutions permit companies to integrate their existing applications without modifying or replacing
any existing systems. This eliminates the need for time-consuming and expensive custom programming or application upgrades or replacement projects.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Allow Rapid Implementation.We design our solutions to be implemented rapidly, which results in faster time-to-market than internally developed solutions or
packaged application software implementations.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Flexibility to Adapt to Evolving Business Needs. We design our solutions to work effectively even as companies modify existing and add new applications in
response to their evolving business needs. The access to multiple platforms through one interface also allows companies to respond more quickly to customer demands and changes in the marketplace as new business rules and processes can be adopted
through the single user interface without rewriting any application code or data.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

Products and Technology

Our products include:

Jacada® WorkSpace. Jacada WorkSpace is a built for purpose solution that unifies customer interaction tools and provides a single access point to all the mission-critical
applications required by the customer service representatives to effectively complete a customer interaction. Jacada WorkSpace delivers a wide range of capabilities that enable companies to freely implement optimal contact center processes and
maximize customer service representative productivity. Jacada WorkSpace eliminates the inefficiency of a desktop maze by providing an agent with a single interface to access the multitude of disparate systems and resources needed to effectively
perform his or her job. In addition, by using dynamic, role-based desktop controls, Jacada WorkSpace enables companies to transform product- specific or function-specific agents to universal agents, maximizing agent productivity and
reducing operational costs.



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Jacada® Fusion. Jacada Fusion, a bundling of
two Jacada products: Jacada HostFuse and Jacada WinFuse mentioned below, is a non-invasive integration platform which can automate processes that involve different kinds of business application  whether traditional legacy green
screen mainframe applications, Windows client/server applications or newer web-based (browser-based) applications.

Jacada® WinFuse. Jacada WinFuse is a non-invasive integration solution that allows companies to web-enable and integrate their Microsoft Windows client/server and web-based applications without
modifying or changing anything in the existing application. Jacada WinFuse enables organizations to leverage their existing Windows client/server and web-based applications to automate business processes and seamlessly integrate and transfer data
from one application to another. Jacada WinFuse can work with almost any 32-bit Windows and web or browser-based application.

Jacada
WinFuse web service-enables Windows client/server or web-based applications. Without changing anything in the original application, and without needing to access the source code, Jacada WinFuse enables organizations to automate interactions with
their applications and drive the system as a user would, navigating a series of Windows forms or web pages, and inserting or retrieving data as required. Jacada WinFuse exposes these interactions as Web services that can be integrated
into any J2EE or .NET composite application in a scalable and secure fashion.

By service-enabling any Windows-based or web-based
application, Jacada WinFuse provides for the rapid adoption of service-oriented architectures (SOA), enabling IT to rapidly deliver new functionality.

Jacada® Interaction Manager.Jacada Interaction Manager guides the customer service agent through an optimized interaction with the customer. A
typical contact center interaction contains elements of guidance language presented to the agent as a best practice suggestion regarding how to answer the customers inquiry, mandatory language that must be read for compliance
reasons, business rules to determine what the agent may offer or do next, and workflow between these steps to ensure that all necessary information is gathered and presented to the customer. Jacada Interaction Manager deploys in conjunction with
Jacada WorkSpace ensuring seamless cooperation between the customer interaction workflow and the multiple business systems controlled by Jacada WorkSpace.

Jacada® HostFuse (formerly known as Jacada Integrator). Jacada HostFuse is a software solution for integrating core host-centric business systems,
including the data and processes in those systems, with multiple packaged applications, frameworks and client environments. Users of Jacada® HostFuse enjoy the benefits of on-line,
real-time integration with back-office applications without rewriting any of their existing systems.

Jacada® Interface Server. Jacada Interface Server generates graphical user interfaces for mainframe and midrange software applications without requiring any change to the host applications. By generating Java or HTML
graphical interfaces, Jacada Interface Server enables our customers to extend their host-centric applications and data to the Internet and their intranets without rewriting these applications. In addition, Jacada Interface Server provides the modern
graphical features users expect from todays applications. Jacada Interface Server also allows customers to enhance their applications to add functionality, integrate with other data sources and link to other Internet applications.



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Our intellectual property rights in the Jacada Interface Server and the Jacada HostFuse products were
sold in January 2008 as part of the sale of our traditional market business. We are licensed to develop and sell these products under an irrevocable license agreement. Our license to sell our traditional market products, on a stand alone basis, is
limited to sales for the use by our customers in their customer services and support business. See Item 4A History and Development of the Company.

Professional Services

Our professional services include training, consulting services (which
include installation, implementation, integration and customization of our solutions), solution support services and product support and maintenance services.

We provide our direct customers and our partners with professional services to assist them with installing, integrating, implementing and customizing our products into the customers systems, and with managing
and enhancing their utilization of our products on an ongoing basis. We also provide customer and partner training services to assist our customers and partners in learning how to use our products at our Atlanta, Georgia facility and other
locations, with coursework related to various aspects of our products. In addition we provide our customers with solution support services for the work product deliverables that were provided as part of our professional services.

We bill for our professional consulting services (which includes installation, implementation, integration and customization of our solutions), and for
our solution support services either on a fixed fee basis or by the hour plus out-of-pocket expenses, and for training services by the day plus out-of-pocket expenses.

Support and maintenance services are provided to our customers through agreements under which we provide technical support by telephone, fax, email and the Internet and provide updates, upgrades and fixes to our
software products. Our customers may purchase support and maintenance services for 12 months after the initial purchase of a software license, renewable annually thereafter. In addition, customers can elect optional services such as emergency
coverage on a 24 hours per day, seven days per week basis and on-site dedicated technical representative.

Principal Markets

Our principal markets are North America and Europe. We generate revenues from licensing our software products and solutions to customers and providing
customers with training, professional, and product support and maintenance services. Software licenses revenues constituted approximately 31.4%, 26.5% and 41.7% of our total revenues for the years ended December 31, 2008, 2007 and 2006,
respectively, while service and maintenance revenues constituted approximately 68.6%, 73.5% and 58.3% of our total revenues, respectively, for the same periods. Software licenses revenues generated from North American customers constituted
approximately 13.0%, 10.7% and 18.9% of our total revenues for the years ended December 31, 2008, 2007 and 2006, respectively, while service and maintenance revenues generated from North American customers constituted approximately 30.1%, 30.5%
and 29.7% of our total revenues, respectively, for the same periods. Software license revenues generated from European customers constituted approximately 18.1%, 13.7% and 19.2% of our total revenues for the years ended December 31, 2008, 2007
and 2006, respectively, while service and maintenance revenues generated from European customers constituted approximately 34.7%, 41.5% and 28.1% of our total revenues, respectively, for the same periods.



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Seasonality

Not applicable.

Sources and Availability of Raw Materials

Not applicable.

Sales and Marketing

We sell our products through our direct sales force in North America and Europe, as well as through our indirect distribution channels, consisting of system integrators, partners and call center outsourcers. We also
use indirect distribution channels in countries where we have no direct sales operations. As of December 31, 2008, we had 34 people in our sales and marketing organization, compared to 44 as of December 31, 2007.

During 2008 we continued to invest in our business arrangements with our strategic indirect sales channels for our customer service and support products
as well as in the establishment of arrangements with new indirect channels. Our indirect distribution channels for our customer service and support products include Accenture, a global management consulting, technology services and outsourcing
provider, IBM Global Services and Tieto Enator, a large global IT services provider. It is our expectation that our indirect distribution channels will extend our market reach by increasing market awareness to our solution and presenting us to
potential customers. We intend to continue to invest in 2009 in the development of our indirect sales channels, including through broadening the relations with our existing partners.

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

Customers

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

Some examples of the
industries in which our customers operate and their uses of our products include:



| |  |  | Telecommunications providers, which use our solution to assist in streamlining and automating their customer service process, billing inquiries, account changes,
and to generally improve the productivity and efficiency of their contact center.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Insurance companies, which use our solutions to modernize their contact center applications, Web-enable access to these applications for customers to update account
information via the Internet, and integrate their customer information systems with CRM applications.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Contact Center Outsourcers; which utilize our solutions to reduce their operational costs, to provide better service for their customers, to implement new customers
into production faster, and to provide a differentiated service when they compete for new business.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Retailers, which use our solutions in their contact centers or their back-office software applications in order to reduce their operational costs, as well as to
provide better service for their customers, to simplify complex ordering and customization interactions, and to enable existing back-office software applications to be used to receive and process orders from customers and to send orders to suppliers
via the Internet.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Public utility providers use our solutions to automate critical call processes and integrate their existing business systems into a simplified customer service
desktop, reduce customer service agent desktop complexity and optimize key customer service processes in their contact centers in order to reduce agent training time, increase agent productivity and improve overall customer service.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Entertainment, gaming and hospitality companies use our solutions to simplify and automate the customer service desktop for their call center agents to drive
incremental revenue through up-sell and cross-sell activities.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Research and Development

We believe that strong product development is essential to our strategy of continuing to enhance and expand the capabilities of our products. We have
invested significant time and resources in creating a structured process for undertaking all product development. This process involves several functional groups at all levels within our organization and is designed to provide a framework for
defining and addressing the activities required to bring product concepts and development projects to market successfully. In addition, we have recruited and intend in the future to recruit key software engineers and developers with experience in
Java, .Net, communications, expert systems, Windows internals and Internet technologies. Our research and development efforts, which include internal development as well as acquisition of technology components, are primarily focused on enhancing and
adding functionality to our customer service and support products as well as adding new products based on our expectations of future technologies and industry trends.

Our research and development expenses were $4.8 million for the year ended December 31, 2008, $4.4 million for the year ended December 31, 2007 and $3.8 million for the year ended December 31, 2006. As
of December 31, 2008, 31 professionals were engaged in research and development activities, a decrease compared to 38 professionals at December 31, 2007, however, in 2008 and 2007 we also used third party service providers for some of our
research and development activities. See also Item 5: Operating and Financial Review and Prospects, A. Operating Results, Total Operating Expenses.



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Dependence on Patents and Licenses

We are generally not dependent on any third party license or patent with respect to our technology for the customer service and support products. However, sales of our customer services and support products often
include licenses to our traditional market products as part of the solution we provide to our customers. Our rights to develop and sell our traditional market products are granted to us under an irrevocable license agreement which we have entered
into as part of the sale of our traditional market business. Our license to sell our traditional market products, on a stand alone basis, is limited to sales for the use by our customers in their customer services and support business. See
Item 4A: History and Development of the Company. As part of that asset sale we have also sold the two patents we had on portions of our traditional market products technology. While we have a patent pending with respect to our
customer service and support products technology, we believe that the failure to obtain such patent would not diminish our ownership rights in our technology or our software products.

Our rights to sell, market and support the Jacada Interaction Manager product, which is an ancillary product to our customer service and support
products, are governed by a license agreement we entered into in April 2007.

Competition

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



| |  |  | relationships with key distribution partners;
| | - |  | ---------------------------------------------



| |  |  | product functionality and features;
| | - |  | -----------------------------------



| |  |  | Our ability to successfully deliver our projects/solutions
| | - |  | ----------------------------------------------------------



| |  |  | availability of global support;
| | - |  | -------------------------------



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



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



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



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



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

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



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Our customer service and support products compete with other contact center solutions offered by vendors
including Microsoft, OpenSpan and Corizon. We expect additional competition from other established and emerging companies. Furthermore, our competitors may combine with each other, or other companies may enter our markets by acquiring or entering
into strategic relationships with our competitors. In addition, our potential customers may choose to deploy traditional CRM application software, or utilize their own information technology personnel or system integrators to write new code or
rewrite existing applications in an effort to develop their own customer service and support solutions.

Material Effects of Government Regulation in
Israel

Pursuant to the Law for the Encouragement of Capital Investments, 1959, the Israeli government has granted Approved
Enterprise status to our existing capital investment programs under the Alternative Benefits Program. Consequently, we are eligible for certain tax benefits for the first several years in which we generate taxable income. However, we have not
yet begun to generate taxable income for purposes of this law. Once we begin to generate taxable income, our financial results could suffer if our tax benefits are significantly reduced.

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

In April 2005, the law governing these tax benefits was amended to revise the criteria for investments that qualify for tax benefits as an approved enterprise.

The revised criteria include provisions generally requiring that at least 25% of the Approved Enterprises income will be derived from export and
that minimum qualifying investments in productive assets be made. Additionally, this amendment enacted major changes in the manner in which tax benefits are awarded under the Law for the Encouragement of Capital Investments, 1959, so that companies
no longer require Investment Center approval in order to qualify for tax benefits. Rather, the year in which a company elects to commence its tax benefits is designated as the year of election (Year of Election). A company may choose its
Year of Election by notifying the Israel Tax Authorities in connection with filings of its annual tax return or within 12 months after the end of the Year of Election, whichever is earlier, or by requesting an advance ruling from the Israel Tax
Authorities no later than within six months after the end of the Year of Election.

We cannot assure you that we will, in the future,
be eligible to receive additional tax benefits under this law. In addition, we cannot assure you that these tax benefits will be continued in the future at their current levels or at all. The termination or reduction of tax benefits could have a
material adverse effect on our business, financial condition and results of operations. In addition, in the event that we increase our activities outside the State of Israel, these activities generally will not be eligible for inclusion in Israeli
tax benefit programs. Accordingly, our effective corporate tax rate could increase significantly in the future.

From time to time we have
received royalty-bearing grants from the Office of the Chief Scientist of the Ministry of Industry and Trade of the Government of Israel, or OCS. We have used these grants to develop portion of our traditional market products, which we sold in
January 2008. The State of Israel does not own



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##### Index to Financial Statements

proprietary rights in technology developed with OCS funding and there is no restriction on the export of products manufactured using technology developed
with OCS funding. The technology developed with OCS funding is, however, subject to transfer restrictions, which we complied with in connection with the sale of the intellectual property rights in the traditional market products. As of
December 31, 2008 our outstanding royalty obligations to the OCS (accrued and contingent) were in an aggregate amount of approximately $0.4 million. As part of the sale of our traditional market business, we transferred such obligation to the
buyer and committed to reimburse the buyer for these future payments.



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

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



|D. | Property, Plants and Equipment
|-- | ------------------------------

As of
December 31, 2008, our headquarters and principal administrative, research and development operations were located in approximately 13,000 square feet of leased office space in Herzliya, Israel. The lease expires in March 2010. As of February
2009 we sublet approximately 6,000 square feet of such office space.

In the United States, we lease approximately 18,500 square feet in
Atlanta, Georgia, which we utilize for marketing, sales, administration, service and technical support. The lease expires in June 2012, and we have the right to extend the lease for an additional three-year term.

In the UK, we lease approximately 800 square feet, which we utilize for sales, marketing and services. The lease expires in October 2009. In addition, we
lease office space in Germany, which is utilized for sales and marketing activities. The lease expires in April 2009 and is not material.

Item 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS



|A. | Operating Results
|-- | -----------------

We develop, market and support
unified service desktop and process optimization solutions that simplify and automate customer service processes. By bridging disconnected systems into a single, intelligent workspace, our solutions create greater operational efficiency
and increase agent and customer satisfaction. We also provide related professional services, including training, consulting, support and maintenance.

We were incorporated in December 1990. In 2004, we introduced Jacada Fusion and elected initially to target corporate customer contact centers, however Jacada Fusion may be also used by our customers for back office
applications. In the third quarter of 2005, we introduced a solution specifically for customer service representatives called Jacada WorkSpace. We refer to this market as the customer service and support market. Prior to the introduction
of our customer service and support market products we have been operating in the legacy application integration and web-enablement market for 16 years. We refer to this market as our Traditional Market. Customers of our customer service
and support market products may also use our traditional market products.



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In January 2008 we sold the intellectual property and related customer contracts associated with the
following Jacada products: Jacada Interface Server and Jacada Integrator, also known as Jacada HostFuse, Jacada Studio, Jacada Innovator and Jacada Terminal Emulator in consideration for 26 million Dollars in cash. The activities associated
with these products comprised our application modernization and legacy integration business, which we refer to as our traditional or legacy business. Under the terms of the transaction we retained the right to develop, market, sell and support
Jacada Interface Server and Jacada HostFuse in support of our customer service and support business. The results of the traditional market business were reclassified to one line item in the statement of operations as Net income from
discontinued operations, net of taxes.

In February 2008 our board of directors authorized the use of up to $10 million of our
available cash to repurchase our ordinary shares through transactions under Rule 10b-18 of the Securities Exchange Act. Through August 2008 we purchased 596,080 shares for a total purchase price of $2,184,468 under this program. Purchases were made
from time to time at the discretion of our management in the open market or in privately negotiated transactions, subject to, among other factors, market conditions, trading volume and our share price. No time limit was set for this repurchase
program; however, we suspended the program upon commencement of our self tender offer. In September 2008 we purchased 3,851,104 of our ordinary shares under a self tender offer for total consideration of approximately $15.68 million. See Item
16E: Purchases of Equity Securities by the Issuer and Affiliated Purchasers for disclosure regarding our repurchase program and self tender offer.

During the fourth quarter of 2008, we announced a reduction in our work force and other related cost containment strategies in order to align our operations and expenses with our revenue targets for 2009. These
changes resulted in a 14% reduction in workforce worldwide, which included approximately 18 employees and 6 third party research and development service providers and the related costs associated with this reduction. The cost of implementing this
restructuring plan was $0.5 million, which is included in the results for the fourth quarter of 2008. The plan is expected to reduce annual operating expenses in 2009 by approximately $2.3 million.

On April 6, 2009 we announced additional measures to reduce expenses in order to align our operations with revenue expectations for 2009. These
measures resulted in a 7% reduction in workforce worldwide which impacts 10 positions, as well as salary reductions and other additional cost saving initiatives. These actions are expected to produce total savings for the remainder of fiscal year
2009 of approximately $2.5 million, which includes a reduction in cost of revenues of $700,000, and a $1.8 million reduction in operating expenses.

Revenues

We derive our revenues from license fees for our software products, including software products that
require significant customization, as well as from fees from professional services (which include installation, implementation, integration and customization of our solutions) and training and from maintenance and support services. We sell licenses
to our customers primarily through our direct sales force and indirectly through resellers and partners. Both our customers and our resellers are considered end users.

Cost of Revenues

Our costs of revenues are comprised of (a) costs of software licenses,
(b) costs of services and (c) costs of maintenance.



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Cost of software licenses revenues consists of royalties, amortization of acquired technology and costs
of duplicating media and documentation.

Cost of services and maintenance revenues consists of compensation expense, related overhead and
subcontractor costs for personnel engaged in training, consulting, support and maintenance services for our customers.

Research and Development
Costs

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

Costs for the development of new software products and substantial enhancements to existing software products are expensed as incurred. Based on our
product development process, technological feasibility is established upon completion of a working model. No costs are incurred between the completion of the working model and the point at which the products are ready for general release. Therefore,
all research and development costs are expensed.

Critical Accounting Policies

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

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

Revenues. Our revenue recognition policy is significant because our revenues are a key
component of our results of operations. Revenue results are difficult to predict, and any shortfall in revenues or delay in recognizing revenues could cause our operating results to vary significantly from quarter to quarter and could result in
future operating losses. We follow very specific and detailed guidelines in measuring revenues; however, certain judgments affect the application of our revenue policy. Our revenues are principally derived from the licensing of our software and the
provision of related services.



| |  |  | We recognize revenues from software licenses in accordance with SOP 97-2 as amended and modified by SOP 98-9. Revenues from software license fees are
recognized when persuasive evidence of an arrangement exists, either by written agreement or a purchase order, the software product has been delivered, the license fees are fixed and determinable and collection of the license fees is considered
probable. License fees from software arrangements which involve multiple elements, such as post-contract customer support, consulting and training, are
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Index to Financial Statements

| | allocated to each element of the arrangement under the residual method when Vendor Specific Objective Evidence (VSOE) of fair value exists for
all undelivered elements. We determine the fair value of each undelivered element in multiple-element arrangements based on the Vendor Specific Objective Evidence (VSOE) of fair value of each undelivered element when sold separately. In judging the
probability of collection of software license fees we continuously monitor collection and payments based upon our historical experience of our existing customers to evaluate collectability. In connection with customers with whom we have no previous
experience, we evaluate the creditworthiness of those customers. For some customers we may grant extended payment terms. Payment terms extending beyond six months are considered 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Currently, the substantial majority of our revenues are generated through transactions in which we provide software and services. In arrangements which include
significant customization, we account 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 (a) the completed contract or (b) 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 we 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 such acceptance is not required, upon our compliance with performance specifications under the contract terms.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Service revenues include consulting, training and post-contract customer support. Consulting services, which include installation, implementation and customization
services and training, are recognized either on a time and materials basis as the services are provided, on a fixed fee basis over the service period. Where the contractual terms include a provision for customer acceptance, revenues are recognized
either when such acceptance has been obtained or when the acceptance provision has lapsed. Post-contract customer support arrangements provide for technical support and the right to unspecified upgrades on an if-and-when-available basis. Revenues
from those arrangements are recognized ratably over the term of the arrangement.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Impairment of property and equipment. We review our property and equipment 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.

Goodwill. Under Statement of Financial Accounting Standard No.142, Goodwill and Other Intangible Assets
(SFAS No, 142) goodwill is not amortized. SFAS No.142 requires goodwill to be tested for impairment at least annually or between annual tests in certain circumstances, and written down when impaired. Goodwill is tested for impairment by
comparing the fair value of the reporting unit with its carrying value. We operate under a single reporting unit. Fair value is determined using our market capitalization. We perform impairment tests during the third fiscal quarter. Following the
test no impairment losses were identified.

Valuation of investment in marketable securities.Based on our intent with respect to a
particular investment at the time of investment, we are generally required to classify our investments into one of three investment categories under GAAP: (i) trading; (ii) held to maturity; or (iii) available for sale. The
classification of the investment may affect our reported results. We classify the investments as available for sale. Available for sale investments are carried at fair value. Changes in the fair value of investments classified as available for sale
are not recognized to income during the period, but rather are recognized as a separate component of equity until realized, unless other than temporary impairment exists. We regularly review our investments for factors that may indicate that a
decline in the fair value of an investment below its cost or amortized cost is other than temporary. Some factors considered in evaluating whether or not a decline in fair value is other than temporary include:



| |  |  | Our ability and intent to retain the investment for a period of time sufficient to allow for a recovery in value;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | The duration and extent to which the fair value has been less than cost; and
| | - |  | ----------------------------------------------------------------------------



| |  |  | The financial condition and prospects of the issuer.
| | - |  | ----------------------------------------------------

Such reviews are inherently uncertain in that the value of the investment may not fully recover or may decline further in future periods resulting in realized losses.

Valuation of financial instruments. Effective January 1, 2008, we adopted the provisions of SFAS No. 157, Fair Value
Measurements 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. SFAS 157 clarifies that fair value is
an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based
on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, SFAS 157 establishes a three-tier value hierarchy, as set forth below, which prioritizes the inputs used in the
valuation methodologies in measuring fair value:



| |  |  | Level 1  Valuations based on quoted prices in active markets for identical assets or liabilities 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.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Index to Financial Statements

| |  |  | 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 fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the
use of unobservable inputs when measuring fair value. The actual value at which such securities could actually be sold or settled with a willing buyer or seller may differ from such estimated fair values depending on a number of factors, including,
but not limited to, current and future economic conditions, the quantity sold or settled, the presence of an active market and the availability of a willing buyer or seller.

Contingencies. From time to time, we are defendant or plaintiff in various legal actions, which arise in the normal course of business. We
are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of reserves required for these contingencies, if any, which would be charged to
earnings, is made after careful and considered analysis of each individual action together with our legal advisors. The required reserves may change in the future due to new developments in each matter or changes in circumstances, such as a change
in settlement strategy. A change in the required reserves would affect our earnings in the period the change is made.

Equity-based
compensation expense. We account for equity-based compensation in accordance with SFAS No. 123(R), Share-Based Payment beginning January 1, 2006. Under the fair value recognition provisions of this statement,
share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense over the requisite service periods. Determining the fair value of share-based awards at the grant date requires the
exercise of judgment, including the amount of share-based awards that are expected to be forfeited. If actual results differ from these estimates, equity- based compensation expense and our results of operations could be impacted.

Results of operations

Our
historical operating results for the years ended December 31, 2008, 2007 and 2006 as a percentage of total revenues are as follows:



|                                                      |  |        |  |        |  |        
|----------------------------------------------------- |  | ------ |  | ------ |  | -------
|                                                      |  | 2008   |  | 2007   |  | 2006   
|Revenues:                                             |  |        |  |        |  |        
|Software Licenses                                     |  | 31.4%  |  | 26.5%  |  | 41.7%  
|Services                                              |  | 59.7   |  | 60.6   |  | 42.9   
|Maintenance                                           |  | 8.9    |  | 12.9   |  | 15.4   
|                                                      |  |        |  |        |  |        
|Total revenues                                        |  | 100.0% |  | 100.0% |  | 100.0% 
|Cost of revenues:                                     |  |        |  |        |  |        
|Software Licenses(*)                                  |  | 7.1    |  | 12.1   |  | 6.7    
|Services(*)                                           |  | 75.9   |  | 82.7   |  | 93.0   
|Maintenance(*)                                        |  | 39.3   |  | 41.1   |  | 48.8   
|                                                      |  |        |  |        |  |        
|Total cost of revenues                                |  | 51.0   |  | 58.6   |  | 50.2   
|                                                      |  |        |  |        |  |        
|Gross profit                                          |  | 49.0   |  | 41.4   |  | 49.8   
|Operating expenses:                                   |  |        |  |        |  |        
|Research and development                              |  | 19.8   |  | 31.4   |  | 43.6   
|Sales and marketing                                   |  | 36.2   |  | 69.9   |  | 110.8  
|General and administrative                            |  | 22.9   |  | 37.5   |  | 58.0   
|Restructuring                                         |  | 1.9    |  | -      |  | -      
|Total operating expenses                              |  | 80.8   |  | 138.9  |  | 212.4  
|                                                      |  |        |  |        |  |        
|Operating loss                                        |  | (31.8) |  | (97.5) |  | (162.6)
|Financial income, net                                 |  | 2.9    |  | 11.1   |  | 15.6   
|                                                      |  |        |  |        |  |        
|Loss from continuing operations before taxes          |  | (28.9) |  | (86.4) |  | (147.0)
|                                                      |  |        |  |        |  |        
|Income Tax benefit                                    |  | 8.4    |  | 62.0   |  | 35.4   
|Net loss from continuing operations                   |  | (20.5) |  | (24.5) |  | (111.6)
|Net income from discontinued operations, net of taxes |  | 74.8   |  | 53.9   |  | 82.5   
|                                                      |  |        |  |        |  |        
|Net income (loss)                                     |  | 54.3   |  | 29.4   |  | (29.1) 
|                                                      |  |        |  |        |  |        

* Respective revenues



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##### Index to Financial Statements

Adoption of new accounting standards

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This standard defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS N. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. See the discussion under - Critical Accounting Policies for more detail.

In December 2007, the
U.S. Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin 110 (SAB 110) to amend the SECs views set forth in Staff Accounting Bulletin 107 (SAB 107) regarding the use of the simplified
method in developing an estimate of expected life of share options in accordance with SFAS No. 123(R). SAB 110 is effective in relation to us beginning in the first quarter of 2008. The adoption of SAB 110 did not have a material
impact on our financial statements.

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.
We do not expect the adoption of FSP 157-2 to have a material impact on its financial position, results of operations or cash flows.



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##### Index to Financial Statements

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 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. We do not expect the adoption of SFAS 161 to have a material impact on its financial position, results of operations or cash flows.

Years Ended December 31, 2008, 2007 and 2006

Revenues and Cost of Revenues

Revenues.Revenues were $24.4 million, $14.0 million and $8.8 million for the years ended December 31, 2008, 2007 and 2006, respectively. Total revenues in
2008 increased in comparison to 2007 due to the fact that we started 2008 with high backlog for which revenues were recognized over 2008. In addition, we were successful in deploying projects signed in 2008 more rapidly by achieving interim
milestones and acceptance criteria over the year. . The increase in total revenues in 2007 as compared to 2006 was due to the growth in sales of our customer service and support market solutions. The growth resulted mainly from our increased
penetration of the customer service and support market, increased number of customers and ability to sell and deliver to our customers strategic solutions which are heavily weighted with services components, in addition to growth in our recurring
maintenance revenue.

In each of 2008, 2007 and 2006, a significant portion of our revenues was derived from a few large orders. In 2008
two customers represented 48.0% of our total revenues, in 2007 two customers represented 40% of our total revenues and in 2006 three customers represented 55% of our total revenues.

Software licenses revenues.Software license revenues were $7.6 million, or 31.4 % of revenues for the year ended December 31, 2008,
$3.70 million, or 26.5 % of revenues for the year ended December 31, 2007 and $3.7 million, or 41.7% of revenues for the year ended December 31, 2006. The increase in software license revenues in 2008 was due to the factors discussed
above in -Revenues relating to the increase in total revenues in 2008 in addition to two significant software contracts that were recognized in 2008. Although software license revenues were flat during 2006 and 2007, total
revenues increased year over year. The decrease in the proportion of the software license revenues out of total revenues in 2007 resulted from the increased amount of service revenues in certain of our transactions over those years.

Service revenues. Service revenues were $14.5 million, or 59.7% of revenues for the year ended December 31, 2008, compared to $8.5 million,
or 60.6% of revenues for the year ended December 31, 2007, and $3.5 million or 42.9% of revenues for the year ended December 31, 2006. Service revenues are generated primarily from installation, implementation and customization of our
software products. The increase in service revenues in 2008 was due to the factors discussed above in -Revenues relating to the increase in total revenues in 2008. The increase in service revenues in 2007 and 2006 resulted from an
increase in the size of certain deals due to higher process improvement requirements resulting in services revenues comprising a higher proportion of the total revenues for the deal.

Maintenance revenues. Maintenance revenues were $2.2 million, or 8.9% of revenues for the year ended December 31, 2008, compared to $1.8
million, or 12.9% of revenues for the year ended



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##### Index to Financial Statements

December 31, 2007, and $1.4 million or 15.4% of revenues for the year ended December 31, 2006. The increase in maintenance revenues in 2008, 2007
and 2006 was related to the increased number of customers using our customer service and support market products. The decrease in proportion of the maintenance revenues out of total revenues in 2008, 2007 and 2006 resulted from the fact that
provision of maintenance services starts only upon completion of a project and the recognition of maintenance revenue is spread over the maintenance period which is usually twelve month from project completion.

Total Cost of Revenues.Total cost of revenues was $12.4 million, or 51.0% of revenues for the year ended December 31, 2008, compared to $8.2
million, or 58.6% of revenues for the year ended December 31, 2007, and $4.4 million or 50.2% of revenues for the year ended December 31, 2006. The increases in cost of revenues during 2008, 2007 and 2006 were primarily due to an increase
in the cost of services revenues as discussed below.

Cost of software licenses revenues was $0.5 million, or 7.1% of software revenues for
the year ended December 31, 2008, compared to $0.4 million, or 12.1% of software revenues for the year ended December 31, 2007, and $0.2 million, or 6.7% of software revenues for the year ended December 31, 2006. The increase in cost
of software licenses in 2008 compared to 2007 was due to increase in royalty payments to partners which were partially offset by a decrease in amortization of acquired intangible assets, while the decrease in the percentage of cost of software
licenses revenues out of software revenue results from the significant increase in 2008 software revenue compared to the 2007 software revenue. The increase in cost of software licenses in 2007 compared to 2006 was mainly due to an impairment in the
amount of $0.2 million related to a technology we purchased in June 2004, which we subsequently stopped selling to new customers.

Cost of
service revenues was $11.0 million, or 75.9% of services revenues for the year ended December 31, 2008, compared to $7.0 million, or 82.7% of services revenues for the year ended December 31, 2007, and $3.5 million, or 93.0% of services
revenues for the year ended December 31, 2006. The increase in cost of services revenues in 2008, 2007 and 2006 was due to an increase in services personnel, as we grew from 25 services professionals at year end 2006 to 43 at year end 2007 and
49 at year end 2008, resulting in increase in compensation costs and the increase in use of subcontractors in order to support the increase in services revenue. In 2008 we experienced fluctuations in the amount of headcount which at certain period
reached 58 services professionals. Services gross margins have improved year over year due to improving efficiencies in our services operation. See Risk Factor entitled: Failure to deliver professional services efficiently could negatively
impact our gross margins.

Cost of maintenance revenues was $0.9 million, or 39.3% of maintenance revenues for the year ended
December 31, 2008, compared to $0.7 million, or 41.1% of maintenance revenues for the year ended December 31, 2007, and $0.7 million or 48.8% of maintenance revenues for the year ended December 31, 2006. Maintenance gross margins have
improved year over year due to increase in our customer base.

Total Operating ExpensesTotal operating expenses in 2008 were $19.7
million, representing an increase of $0.3 million from $19.4 million in 2007. The increase in total operating expenses in 2008 was mainly due to an increase in an amount of $0.4 million in our research and development expenses in support of the
continuing development of our customer service and support market products, an increase in our general and administrative expenses in an amount of $0.3 million and increase in an amount of $0.5 million in restructuring costs associated with the cost
reduction process which was announced in December, 2008, which



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##### Index to Financial Statements

included a 14% reduction in workforce and additional cost reduction. These increases were offset by a reduction in sales and marketing costs resulting mainly
from the decrease in sales and marketing head count and costs related thereto associated with our plans to increase efficiency of these departments.

Total operating expenses in 2006 were $18.7 million. The increase in total operating expenses in 2007 was mainly due to an increase in an amount of $0.4 million in our research and development expenses in support of
the continuing development of our customer service and support market products, and an increase in expenses in an amount of $0.2 million due to the appreciation of the New Israeli Shekel against the U.S. dollar.

Research and Development.Research and development expenses were $4.8 million, $4.4 million and $3.8 million for the years ended December 31,
2008, 2007 and 2006, respectively. The increase in research and development expenses from 2007 to 2008 resulted mainly from the impact of the appreciation of the New Israeli Shekel against the U.S dollar and the continuation of our offshore
development team through a third party service provider. The increase in research and development expenses between 2006 and 2007 resulted mainly from salary adjustments, the appreciation of the New Israeli Shekel against the U.S dollar, costs
associated with licensed technology components for incorporation into our products suite and the establishment of our offshore development team through a third party service provider in order to support the continuing development of our customer
service and support market products. As a percentage of total revenues, research and development expenses were 19.8%, 31.4% and 43.6% for the years ended December 31, 2008, 2007 and 2006, respectively.

Sales and Marketing.Sales and marketing expenses were $8.8 million, $9.8 million and $9.8 million for the years ended December 31, 2008,
2007 and 2006, respectively. The decrease in 2008 compared to 2007 was primarily due to decrease in head count and the costs related thereto and a decrease in marketing costs associated with increased efficiency in the sales and marketing
organization. As a percentage of total revenues, sales and marketing expenses were 36.2%, 69.9% and 110.8% for the years ended December 31, 2008 2007 and 2006, respectively.

General and Administrative.General and administrative expenses were $5.6 million, $5.2 million and $5.1 million for the years ended
December 31, 2008, 2007 and 2006, respectively. As a percentage of total revenues, general and administrative expenses were 22.9%, 37.5% and 58.0% of total revenues for the years ended December 31, 2008, 2007 and 2006, respectively. The
increase in 2008 compared to 2007 was primarily related to an increase in ordinary course of business expenses and expenses associated with stock based compensation. The increase in 2007 compared to 2006 was primarily related to compensation expense
related to the separation agreement with our former chief executive officer offset by reduction in ordinary course of business expenses.

Financial Income, Net.Financial income, net, was $0.7 million for the year ended December 31, 2008, $1.6 million for the year ended December 31, 2007 and $1.4 million for the year ended December 31, 2006. The decrease
in Financial Income in 2008 was mainly due to a one time impairment charge associated with our investment in auction rate securities (or ARS) in the amount of $3 million (see also Item 3: Key Information. D. Risk Factors.Negative
conditions in the global credit markets may impair the liquidity and value of our investment portfolio and Item 11: Quantitative and Qualitative Disclosures About Market Risk). In addition, our financial income was
adversely affected by the negative impact of the reduced market interest rates and the weakening of the English Pound on our monetary English Pound balances. In 2007 and 2006 most of the financial income were generated from investments of our funds
in certain financial instruments, which generate interest income. The increase from 2006 to 2007 was primarily due to the increase in interest paid on marketable securities.



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##### Index to Financial Statements

Pre-tax Loss from our Continuing Operations. As a result of the above factors, our continuing
customer service and support operations resulted in net losses of $7.0 million in 2008, $12.1 million in 2007 and $12.95 million in 2006.

Tax benefit.In 2008, our tax benefit in the amount of $2.0 million is composed of $2.1 million in tax benefit from continuing operations, used to offset the capital gain in the discontinued operation, and $0.1 million tax expenses.
In 2007, our tax benefit in the amount of $8.7 million was composed of $5.4 million in deferred tax income and $3.3 million in tax benefit from continuing operations. The deferred tax income of $5.4 million was recorded due to the expected
utilization of the net operating losses carryforward in respect of the sale of our traditional market business for the amount of $26 million. The tax benefit of $3.3 million relates to current losses of the continuing operation. The tax benefits in
2006 were in the amounts of $3.1 million. Such benefits relate to current losses of the continuing operation.

Net Income from
Discontinued Operations net of taxes.The income from discontinued operation for the year ended December 31, 2008 was $18.2 million includes mainly the capital gain net of taxes. The income from discontinued operation for the years ended
December 31, 2007 and 2006 in the amounts of $7.5 million and $7.2 million, respectively, include the activities of the traditional market business.

Net Income (Loss). As a result of the above factors, our operations resulted in net income of $13.2 million in 2008, net income of $4.1 in 2007 and net losses of $2.6 million in 2006.



|B. | Liquidity and Capital Resources
|-- | -------------------------------

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

As of December 31, 2008, we had $29.9 million in cash and investments, all of which were interest bearing. We believe that our cash and investments
are sufficient to cover our liabilities for the next twelve months. Our cash does not include $3.2 restricted cash of which $2.6 million is to be held in escrow by a third party through June 2009 as a security for payment of potential
indemnification claims under the January 2008 agreement for the sale of our traditional business, for which we received consideration of $26 million. Expenses associated with that transaction were approximately $1.4 million. During 2008 we purchased
a total of 4,447,184 of our ordinary shares pursuant to a share repurchase program as well as a self tender offer conducted by us for a total of $17.9 million including related expenses. During 2008, operating activities (including discontinued
operations) used approximately $6.7 million in cash, composed of $5.0 million net cash used in continuing operations and $1.7 million net cash used by discontinued operation. The major components using cash in the continuing operations were the net
loss of $5.0 million from continuing operations, the increase of $1.1 million in trade receivables and the decrease of $0.9 million in deferred revenue and the increase in other current assets of $ 0.5 million that was partly offset by non-cash
depreciation and amortization of $0.8 million, non-cash expenses for stock compensation related to options granted to employees and officers in the amount of $0.9 million and the impairment of marketable securities of $0.4 million. The major
component using cash in discontinued operations was decrease in accruals. Net cash provided by investing activities was $28.8 million in 2008, composed of $6.7 million net cash provided by continuing operations and



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##### Index to Financial Statements

$22.1 million net cash provided by discontinued operation. The major components providing cash in the continuing operations were the net proceeds from
marketable securities in the amount of $8.2 million and was partly offset by the purchase of property and equipment in the amount of $1.0 million and the increase in restricted cash of $0.6 million. The major component providing cash in discontinued
operations was the net gain from selling our discontinued operation. Net cash used by financing activities was $16.9 million from continuing operations attributed to the $17.9 million used to purchase our shares, which was offset by $0.9 million of
proceeds received from the exercise of stock options.

At the start of 2008, we purchased $3 million principal amount of an
auction rate security, or ARS. The issuer of the ARS we purchased is rated AAA and the ARS is guaranteed by the US government. The recent negative conditions in the credit markets restricted our ability to liquidate our holdings of our ARS
because the amount of such securities submitted for sale in the market has exceeded the amount of purchase orders for such securities. During 2008, we were unable to sell the ARS via a successful auction or
redemption process. Given the failed auction, the entire remaining amount of our ARS was classified as a long-term investment, and, during the fourth quarter of 2008, we recorded an impairment charge of $353,130 with respect to such
ARS, reflecting what we determined to be an other-than-temporary decline in its value. As of December 31, 2008 the ARS continued to pay interest according to its stated terms. In March 2009 we sold such ARS for the par value thereof, a total
sum of $3 million, plus accrued interest.

As of December 31, 2007, we had $33.8 million in cash and investments, all of which were
interest bearing. During 2007, operating activities (including discontinued operations) used approximately $3.2 million in cash, composed of $10.9 million net cash used in continuing operations which was offset by $7.7 million net cash provided by
discontinued operations. The major components using cash in the continuing operations were the net loss of $3.4 million from continuing operations, the $5.4 million deferred tax assets that was created in 2007, the increase of $2.6 million in trade
receivables and the decrease of $1.0 million in deferred revenue that was partly offset by the non-cash depreciation and amortization of $0.7 million and the non-cash expenses for stock compensation related to options granted to employees and
officers of $0.8 million. The major component generating cash in discontinued operations was net income of $7.5 million. Net cash provided by investing activities was $3.4 million in 2007. It consisted primarily of net proceeds from marketable
securities in the amount of $3.9 million and was partly offset by the purchase of property and equipment in the amount of $0.5 million. Net cash provided by financing activities was attributed to the $1.0 million proceeds received from the exercise
of stock options.

As of December 31, 2006, we had $35.9 million in cash and investments, all of which were interest bearing. During
2006, operating activities (including discontinued operations) used approximately $0.4 million in cash, composed of $7.5 million net cash used in continuing operations which was offset by $7.1 million net cash provided by discontinuing operations.
The major component using cash in the continuing operations were the net loss of $9.8 million from continuing operations which was partially offset by the non-cash depreciation and amortization of $0.6 million, the non-cash expenses for stock
compensation related to options granted to employees of $0.7, increase in deferred revenues of $0.8 million and proceeds from exercise of stock options of $0.6 million.

Expenditures for property and equipment were approximately $1.0 million, $0.5 million and $0.5 million for the years ended December 31, 2008, 2007 and 2006, respectively. These expenditures include computer
hardware and software used in product development and testing, leasehold improvements relating to new and existing facilities and office equipment in support of our operations.



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##### Index to Financial Statements

Our capital requirements depend on numerous factors, including market acceptance of our products, the
resources we devote to developing, marketing, selling and supporting our products, the timing and extent of establishing additional international operations, acquisitions and other factors. We believe our working capital is sufficient for our
projected requirements.

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



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

We believe that strong product development is essential to our strategy of continuing to enhance and expand the capabilities of our products. We have invested significant time and resources in creating a structured process for undertaking
all product development. This process involves several functional groups at all levels within our organization and is designed to provide a framework for defining and addressing the activities required to bring product concepts and development
projects to market successfully. In addition, we have recruited key software engineers and developers with experience in Java, .Net, communications, expert systems, Windows internals and Internet technologies. Our research and development efforts in
recent years have been primarily focused on enhancing and adding functionality to our contact center market products and adding new products based on our expectations of future technologies and industry trends.

Our research and development expenses were $4.8 million for the year ended December 31, 2008, $4.4 million for the year ended December 31, 2007
and $3.8 million for the year ended December 31, 2006. As of December 31, 2008, 2007 and 2006, respectively, we had 31, 38 and 41 employees engaged in our product development activities. See Item 5: Operating and Financial Review
and Prospects, A. Operating Results. Restructuring Charges for disclosure regarding the reduction of our workforce in 2008 which included termination of our engagement with research and development third party service providers.



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

We believe that our sales cycle
for our customer service and support market products might be lengthened due to the reasons discussed in the risk factors referenced below. As a result, we are unable to determine if our business model will support our forecasted revenue. See
Risk Factors Our business model is focused on continued growth in a market in which we have only several years of experience and failure to continue our early penetration into this market would negatively impact our results of
operations,We do not have a proven business model for the customer services and support market; if our business model is inappropriate for this market and our estimations regarding the sales cycle for this market are incorrect,
our efforts to successfully commercialize Jacada Fusion and Jacada WorkSpace may be harmed or we will experience a further delay in generating revenues from these productsand Global recession and continued credit constraints
could adversely affect usfor a discussion of the potential effects of this trend.

Currently, we anticipate that our customer
service and support market products might continue to generate revenues from a small number of deals with large average dollar amounts compared to our traditional market products. See Risk Factor: Revenues from Jacada Fusion and
Jacada Workspace, our customer services and support products, might be concentrated in a few large orders and a small number of customers, meaning that the loss of a significant customer or a failure to make even a small number of such sales could
harm our results of operationsfor a discussion of the risks our business and prospects for growth face in connection with continued customer concentration.



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We anticipate that a large number of our future customer service and support market products deals will
continue to involve substantial customization and implementation services of our solutions and that a majority of our revenues will continue to derive from the provision of professional services. If we do not succeed in increasing the proportion of
our total revenue attributable to software license fees we may not be able to achieve or maintain profitability. Our limited experience and knowledge regarding the customer services and support market may impact the efficiency of our professional
services deliveries, as we may need to expend more resources in the delivery of professional services to a customer than we had originally estimated. Any such expending of more resources may negatively impact our professional services gross margins
and our ability to achieve or maintain profitability. See Risk Factors: Our revenues could be adversely affected if we fail to recruit and retain consultants and other technical service personnel, A majority of our
revenues derives from the provision of professional servicesand Failure to deliver professional services efficiently could negatively impact our gross margins for a discussion of the potential effects of this trend.

We may continue to be subject to a foreign currency risk. Our results of operations are reported in U.S. dollars, however, we expect that
a significant portion of our revenues and expenses will be generated and incurred outside of the United States and in currencies other than the U.S Dollar. Depreciation of the Euro or the English Pound against the U.S. dollar will have the effect of
reducing of our U.S. dollar revenues from transactions recorded in these currencies. Additionally fluctuations in the U.S. dollar against the New Israeli Shekel (NIS), English Pound or Euro exchange rate will have the effect of increasing the U.S.
dollar cost of our operations in Israel, in the UK or in European countries as applicable. As a result, we may be subject to a foreign currency risk. See Risk Factor: Exchange rate Fluctuations between the dollar and other currencies may
negatively affect our results of operation for a discussion of the potential effects of this trend.

Our backlog may
continue to decrease if we do not increase the number of transactions we enter into and due to our accelerated recognition of revenue from our customer service and support contracts. See: Item 5 Operating and Financial Review and
Prospects. A. Operating Results, Revenues and Cost of Revenues for further disclosure regarding our revenue recognition policy in 2008. Reduced backlog means that we will be more dependent on signing new transactions in 2009 in order to
generate revenues. See Risk Factor: Our backlog decreased in 2008 and as a result our revenues may decline if we do not increase the number of transactions we enter into in 2009 for a discussion of the potential effects of this
trend.

E. Off-balance sheet arrangements. We are not party to any off-balance sheet arrangements.
See Item 4b: Material Effects of Government Regulation in Israel.

F.     Tabular Disclosure of
Contractual Obligations. The following table summarizes our contractual obligations and commercial commitments as of December 31, 2008:



|                        |       |                                       |                  |      |           |        |           |   |                   |  
|----------------------- | ----- | ------------------------------------- | ---------------- | ---- | --------- | ------ | --------- | - | ----------------- | -
|Contractual Obligations |       | Payments due by period (in thousands)
|                        | Total |                                       | Less than 1 year |      | 1-3 years |        | 3-5 years |   | More than 5 years
|Facilities              |       | $1,751                                |                  | $665 |           | $1,086 |           | - |                   | -
|Vehicles                |       | $613                                  |                  | $332 |           | $281   |           | - |                   | -
|Severance pay*          |       | $1,120                                |                  | -    |           | -      |           | - |                   | -

*Severance pay relates to accrued severance obligations to our Israeli employees as required under Israeli labor
laws. For employees whose employment commencement date is prior to January 1, 2005 these obligations are payable only upon the termination of the respective employee. However, while this amount may be reduced upon voluntary termination by an
employee, it is not our general practice to reduce the amounts of severance payments in cases of voluntary termination. As of December 31, 2008, the severance pay funds were $0.6 million and will be used to satisfy a portion of our obligations.



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Item 6: DIRECTORS, SENIOR MANAGEMENT AND EMPOYEES



|A. | Directors and Senior Management
|-- | -------------------------------

The following
table sets forth certain information regarding our executive officers and directors as of April 15, 2009:



|                     |  |  |  |     |  |                                                  
|-------------------- |  |  |  | --- |  | -------------------------------------------------
|Name                 |  |  |  | Age |  | Position                                         
|Paul OCallaghan     |  |  |  | 53  |  | Chief Executive Officer                          
|Tzvia Broida         |  |  |  | 40  |  | Chief Financial Officer                          
|Guy Tweedale         |  |  |  | 47  |  | Senior Vice President European Operations        
|Eyal Shpin           |  |  |  | 37  |  | Senior Vice President of Research and Development
|Gideon Hollander(1)  |  |  |  | 44  |  | Chairman of the Board and Director               
|Yossie Hollander     |  |  |  | 51  |  | Director                                         
|Ohad Zuckerman(2)(1) |  |  |  | 44  |  | Director                                         
|Naomi Atsmon(2)      |  |  |  | 56  |  | Director                                         
|Dan Falk (2)         |  |  |  | 64  |  | Director                                         
|Avner Atsmon(2)      |  |  |  | 46  |  | Director                                         

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

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

Paul
OCallaghan has been our Chief Executive Officer since January 2008, having served as our President since May 2006. Mr. OCallaghan has more than 27 years of executive experience in the international software, Internet and network
infrastructure markets. From February 2003 to May 2006 Mr. OCallaghan was Senior Vice President of Worldwide Sales & Field Services for Optio Software a provider of software solutions that enable organizations to improve
functionality and quality in their inbound and outbound document processes. Mr. OCallaghan also held that position from May 2001 to November 2001. From July 2000 to February 2001 Mr. OCallaghan was Senior Vice President of
Worldwide Sales and Services for Idapta Inc. From November 1997 to July 2000 Mr. OCallaghan was Vice President of Sales for XACCT Technologies (acquired by Amdocs Limited). From December 1994 to November 1997 Mr. OCallaghan was
Area Vice President for Southeastern Operations, Cisco Systems. From November 1993 to December 1994 Mr. OCallaghan was Vice President of Sales for Network Systems Corporation. From January 1990 to November 1993 Mr. OCallaghan
was Senior Vice President of Sales and Marketing for Imnet Systems. From January 1982 to January 1990 Mr. OCallaghan was Country Manager (UK)/Southern Region Sales Vice President Network Systems Corporation (acquired by StorageTek).

Tzvia Broidahas been our Chief Financial Officer since January 2005, having served as our Vice President, Finance since March
2000. Mrs. Broida has held various positions at Jacada since August 1995. From 1994 to 1995, Mrs. Broida worked as an accountant at the accounting firm of Yehuda Ehrlich & Partners. From 1992 to 1994, Mrs. Broida worked as an
accountant at the accounting firm of Vexler, Kodenzick & Partners.

Guy Tweedalejoined us on October 2007 as our executive
of our European operations. Mr. Tweedale has more than 19 years of experience in the IT industry and his background includes a strong focus on business process automation and enhancement in key areas such as customer management, field-based
activities and financial control. From January 2004 to June 2007 Mr. Tweedale served as Managing Director for Saratoga Systems in Northern Europe for their CRM and Mobile Data Access divisions. Prior to January 2004 Mr. Tweedale has held a
number of key senior management roles with companies such as Extensity, Microsoft (Visio), TDK (mobile communications hardware), and Toshiba (mobile computing platforms).



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Eyal Shpin joined us in November 2007 as our Vice President of Research and Development. From
September 2004 to October 2007, Mr. Shpin served as Director of CRM and PLM development at Infor/SSA. From February 2001 to August 2004 Mr. Shpin served as VP R&D of C-Ark/Baan Israel. Mr. Shpin holds a Bachelor of Science in
Computer Science and Physics from Ben Gurion University in Israel.

Gideon Hollander was a co-founder of Jacada in 1990.
Mr. Hollander has been our Chairman of the Board of Directors since January 2008, having served as our Chief Executive officer from 1990 to December 2007. From 1988 to 1990, Mr. Hollander worked in the area of research and development at
Comverse Technology. From 1982 to 1987, Mr. Hollander served in various technology and management positions in an elite unit of the Israeli Defense Forces, where he specialized in expert systems and user interface design. Two of the projects
that Mr. Hollander managed won the most prominent Israeli award for technological innovations. Gideon Hollander is Yossie Hollanders brother.

Yossie Hollander has been Chairman of the Board of Directors from November 1995 to December 2007 and a director since 1990. Mr. Hollander was a founder, and from 1983 to 1994 served as the Chief Executive
Officer, of New Dimension Software Ltd., an enterprise system and management software company that was acquired by BMC Software in April 1999. Mr. Hollander is a member of the executive board of the Weizmann Institute of Science. Yossie
Hollander is Gideon Hollanders brother

Ohad Zuckerman has served as a director since December 2000. Mr. Zuckerman owns
and manages Beyond Service Ltd., a consulting and investment banking company. Between January 2000 and March 2008 Mr. Zuckerman served as the CEO and President of Zeraim Gedera Ltd., an agricultural company which specializes in breeding of
vegetable varieties as well as in production and marketing to the seeds of such varieties, a position he has held since January 2000. From 1998 to January 2000, Mr. Zuckerman served as the Executive Vice President of Zeraim Gedera and from 1990
to 1998 he served at the same company as the Marketing Manager. Mr. Zuckerman served as a member of the board of directors at Maximal Innovative Intelligence LTD, a provider of software for extracting information from data warehouses, from 1998
to 2002.

Naomi Atsmon has served as a director since June 2001. In addition, Ms. Atsmon has served as a director of
Clicksoftware Technologies Ltd. (NASDAQ: CKSW) since May 2003. Ms. Atsmon served as a Division President of Amdocs Ltd., a provider of information system solutions to communications companies, from July 1997 to December 2002. From 1994 until
1997, Ms. Atsmon served as a vice president at Amdocs Ltd. Ms. Atsmon held various positions at Amdocs since 1986.

Dan
Falk as served as a director since August 2004. Mr. Falk serves as a member of the boards of directors of Orbotech Ltd., Attunity Ltd., Nice System Ltd., Orad Hi-Tech Systems Ltd., Ormat Technologies Inc., ClickSoftware Technologies Ltd.,
Poalim Ventures 1 Ltd., Dmatek Ltd., Plastopil Ltd., Nova Measuring Systems Ltd., AVT Ltd., Amiad Filteration Systems Ltd and Oridion Madical Ltd. In 1999 and 2000, Mr. Falk was President and Chief Operating Officer of Sapiens International
Corporation N.V. From 1985 to 1999, Mr. Falk served in various positions in Orbotech Ltd., the last of which were Chief Financial Officer and Executive Vice President. From 1973 to 1985, he served in several executive positions in the Israel
Discount Bank.



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Avner Atsmon joined us in October 2006 as a director. Mr. Atsmon served as Vice President of
Engineering of Starhome Ltd. from January 2000 to June 2002. From December 1993 to December 1999 Mr. Atsmon served in several positions at Comverse Infosys including as a Chief Operating Officer. From November 1991 to November 1993
Mr. Atsmon was Fax Application Manager of National Semi-Conductors, Palo Alto California. Naomi Atsmon and Avner Atsmon have notified us that they are not related.



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

The aggregate remuneration we paid
for the year ended December 31, 2008 to all executive officers as a group, including our former Senior Vice President of Global Marketing was $1.14 million in salaries, fees, commissions and bonuses. This also includes $0.5 million set aside or
accrued to provide for pension, retirement or similar benefits provided to our executive officers. As of August 2008 our directors, other than our chairman of the board, each receive annual compensation of NIS 42,600 plus NIS 2,200 for each meeting
of the board and each meeting of a committee of the board attended. As of January 1, 2008, and for as long as Mr. Gideon Hollander provides us with professional services in connection with our investor relations activities,
Mr. Hollander receives a quarterly fee of $12,000 as total consideration for his services as a consultant, director and the chairman of our board. Upon the termination of the engagement of Mr. Hollanders services in connection with
our investor relations activities and for as long as the Mr. Hollander serves as the chairman of our board, Mr. Hollander shall be entitled to a quarterly fee of $6,000 per calendar quarter in addition to his compensation as a director
which shall be equal to the other directors compensation. In addition, all directors are entitled to be reimbursed for their expenses incurred in connection with the discharge of their responsibilities as board members, including attending
board of directors meetings. Directors also receive options to purchase our ordinary shares.

As of March 31, 2009 options to purchase
1,909,900 ordinary shares granted to our directors and executive officers (12 persons), including our former Senior Vice President Sales and Managing Director of EMEA & APAC and our former Senior Vice President of Global Marketing under our
option plans were outstanding. The weighted average exercise price of these options was $3.5 per share ranging from $0.99 to $9.13, and the expiration dates of the options range from October 19, 2009 to February 28, 2015.



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

Election and Term of Directors

Directors are elected by an ordinary resolution at the annual general meeting of shareholders, and by a vote of the holders of a majority of the
voting power represented at the meeting. Our ordinary shares do not have cumulative voting rights in the election of directors. As a result, the holders of ordinary shares that represent more than 50% of the voting power have the power to elect all
of our directors.

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



| |  |  | Class I directors, whose terms expire at the annual meeting of shareholders to be held in 2009;
| | - |  | -----------------------------------------------------------------------------------------------



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| |  |  | Class II directors, whose terms expire at the annual meeting of shareholders to be held in 2010;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | Class III directors, whose terms expire at the annual meeting of shareholders to be held in 20011; and
| | - |  | ------------------------------------------------------------------------------------------------------



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

Our Class I directors are Avner Atsmon and Ohad Zuckerman. Our Class II director is Naomi Atsmon. Our Class III directors are Gideon Hollander and Yossie
Hollander. Our director with a term of one year is Dan Falk.

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

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

We do not have service contracts with any of our directors, other than with, Gideon Hollander, our chairman of the board, under which
Mr. Hollander provides us with investor relations services.

Audit Committee

Under the Companies Law, an audit committee is required to be appointed by the board of directors. The audit committee must consist of at least three
members, and include the two external directors we are also required to appoint pursuant to Israeli law. Neither the Chairman of the board of directors, directors employed by us or granting services to us on a permanent basis, nor any controlling
shareholder or any relative of a controlling shareholder may serve on the audit committee.

The responsibilities of the audit committee
include identifying irregularities in the management of our business and approving related-party transactions as required by law. In addition, under its charter, our audit committee is responsible for monitoring the integrity of our financial
statements and auditing, accounting and financial reporting processes, appointing and evaluating the qualifications and independence of the external auditor.



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Pursuant to the current listing requirements of the Nasdaq National Market, we are required to have at
least three independent directors on our audit committee. We have appointed such audit committee. Pursuant to the Sarbanes-Oxley Act of 2002, the Nasdaq National Market has introduced listing standards requiring all members of an audit committee to
comply with tightened independence requirements. All four members of our audit committee currently comply with those requirements.

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

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

Options Committee

The responsibilities of the options committee include granting of options under our stock options plans in accordance with policies determined by our
board of directors.

The current members of the options committee are Gideon Hollander and Ohad Zuckerman.

External Directors

Under the Companies Law, Israeli
companies that are registered under the laws of Israel and whose shares are listed for trading on a stock exchange outside of Israel are treated as public companies. Under this law, a public company, like ours, is required to appoint at least two
external directors. This law provides that a person may not be appointed as an external director if the person or the persons relative, partner, employer or any entity under the persons control, has, as of the date of the persons
appointment to serve as external director, or had, during the two years preceding that date, any affiliation with the company, any entity controlling the company or any entity controlled by the company or this controlling entity. The term
affiliation includes an employment relationship, a business or professional relationship maintained on a regular basis, control and service as an office holder. External directors are elected at a shareholders meeting, provided that
either the majority of shares voted at the meeting, including at least one third of the shares of non-controlling shareholders voted at the meeting, vote in favor of such election or the total number of shares voted against the election does not
exceed one percent of the aggregate voting rights in the company. External directors do not have powers or authority that are different from those granted to all other directors. An external director is appointed for a term of three years and may be
reelected to one additional term of three years by a majority vote at a shareholders meeting, subject to the conditions described above for the election of external directors. In addition, external directors of public companies whose shares
are also registered for trading in certain stock exchanges outside of Israel, like ours, may be elected for additional three year terms (in excess of the original six year term) provided that in light of such external directors expertise and
special contribution to the work of the companys board of directors and audit committee, the re-election of such external director is for the benefit of the company.

A person may not serve as an external director if the persons position or other business creates, or may create, conflict of interests with the
persons responsibilities as an external director. Any committee of the board of directors must include at least one external director, except that the audit committee must include both external directors. An external director is only entitled
to compensation as provided in regulations promulgated



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under the Companies Law. Ohad Zuckerman, Naomi Atsmon and Avner Atsmon are currently serving as our external directors. Naomi Atsmon and Avner Atsmon have
notified us that they are not related.

The Companies Law requires that at least one external director have financial and accounting
expertise and that the other external director meet certain professional qualifications. Certain regulations promulgated under the Companies Law set out the conditions and criteria for a director qualifying as having a financial and accounting
expertise or a professional qualification. A director with financial and accounting expertise is a director who, due to his education, experience and skills, possesses capabilities relating to and an understanding of business and
accounting matters and financial statements, which enable him to understand in depth the companys financial statements and to initiate a debate regarding the manner in which the companys financial information is presented. However, a
public company whose shares are also registered for trading in certain stock exchanges outside of Israel, like ours, is not required to appoint an external director with financial and accounting expertise, if at such time there is another director
serving on the board of directors of such company who has financial and accounting expertise and who is an independent director for purposes of membership on the audit committee thereof, in accordance with the applicable laws of the state in which
such shares are registered (and the rules and regulations of such foreign stock exchange). Our Board of Directors has determined that Mr. Dan Falk has financial and accounting expertise. Mr. Falk also meets the requirements of the Nasdaq
Global Market listing standards to be an independent director and audit committee member. Therefore we are not required to appoint an external director with financial and accounting expertise under the Companies Law. A director who meets
certain professional qualifications is a director who satisfies one of the following requirements: (i) the director holds an academic degree in either economics, business administration, accounting, law or public administration, (ii) the
director either holds another academic degree or has obtained other high education in the companys primary field of business or in an area that is relevant to his position, (iii) the director has at least five (5) years of experience
serving in one of the following capacities or an aggregate of at least five (5) years of experience in two or more of the following capacities: (a) a senior business management position of a company with a substantial scope of business,
(b) a senior position in the primary field of business of the company or (c) a senior public administration position. A proposed external director must submit to the company a declaration as to his or her compliance with the requirements
for his or her election as an external director (including with respect to such persons financial and according expertise or professional qualification).

Nomination Committee Charter  Exemption

As a foreign private issuer we are entitled to follow our home country
practice in lieu of compliance with the Nasdaq rule that requires adoption of a formal written charter or board resolution addressing the nominations process. Under the Companies Law, the nominations process is conducted by the full board of
directors, and there is no requirement to adopt a formal written charter or board resolution addressing a companys nomination process.

Compensation Committee  Exemption

As a foreign private issuer we are entitled to follow our home country practice in
lieu of compliance with the Nasdaq rule that requires that the compensation of the chief executive officer and all other executive officers of the company be determined, or recommended to the board for determination, either by a majority of the
independent directors, or by a compensation committee comprised solely of independent directors. Under the Companies Law, the compensation of such officers is determined by the full board of directors, and there is no requirement for a
recommendation or determination by independent directors or a compensation committee.



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

As of December 31, 2008, we had 53
employees in Israel, 68 in the United States and 29 in Europe. Of our 150 employees, 31 were engaged in research and development, 34 in sales, marketing and business development, 56 in professional services and technical support and 29 in finance,
administration and operations. With respect to our Israeli and European employees, we are subject to local labor laws and regulations. These laws principally concern matters such as paid annual vacation, paid sick days, length of the workday and
work week, minimum wages, pay for overtime, insurance for work-related accidents, severance pay, termination of employment procedures and other conditions of employment. See Item 5: Operating and Financial Review and Prospects, A. Operating
Results. Restructuring Chargesfor disclosure regarding the reduction of our workforce in 2008.

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

The following table sets forth for the last three financial years, the number of our employees broken down into categories.



| |                                                   |                            |     |      |     |      |     |     
| | ------------------------------------------------- | -------------------------- | --- | ---- | --- | ---- | --- | ----
| |                                                   | Period ending December 31, |     | 2008 |     | 2007 |     | 2006
| | Research and Development                          |                            | 31  |      | 38  |      | 41 
| | Marketing, Sales, Services and Customer Support   |                            | 90  |      | 93  |      | 80 
| | Administration Management and Information Systems |                            | 29  |      | 32  |      | 30 
| | Discontinued Operation                            |                            | -   |      | 8   |      | 8  
| | Total                                             |                            | 150 |      | 171 |      | 159



|E. | Share Ownership
|-- | ---------------

Other then Gideon Hollander,
Yossie Hollander and Paul OCallaghan, whose shareholdings are described in Item 7 below, none of our officers and directors owns in excess of one percent of our outstanding ordinary shares

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

1,478,730 ordinary shares available for future grants under these
option plans to be granted to officers, directors, employees and consultants. As of December 31, 2008, options to purchase 3,146,038 ordinary shares were outstanding under the option plans. As of December 31, 2008, the weighted average
exercise price of options outstanding under our option plans is $3.36. Our option plans are administered by our board of



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directors and the options committee of our board of directors. Under the option plans, options to purchase our ordinary shares may be granted to officers,
directors, employees or consultants. In addition, pursuant to the option plans, the exercise price of options shall be determined by our board of directors or our options committee but may not be less than the par value of the ordinary shares and is
typically the fair market value on the date of grant. The vesting schedule of the options is also determined by our board of directors or our options committee but generally the options vest over a four year period. Generally, options granted under
the option plans are exercisable until seven to ten years from the date of the grant. The 1996 Option Plan expired on December 31, 2005. The 1999 Option Plan and the 2003 Share Option Plan will expire on December 31, 2009 and
December 31, 2012, respectively.

Item 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS



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

During 2008 we purchased a
total of 4,447,184 of our ordinary shares pursuant to a share repurchase program as well as a self tender offer conducted by us. The shares we repurchased are held by us as treasury shares. Under the Companies Law for so long as such treasury shares
are owned by us they have no rights and, accordingly, are neither eligible to participate in or receive any future dividends which may be paid to our shareholders nor are they entitled to participate in, be voted at or be counted as part of the
quorum for, any meetings of our shareholders. The financial and shareholders information provided under this annual report do not consider these treasury shares as part of our issued and outstanding share capital.

The following table sets forth, to the best of our knowledge, as of March 31, 2009, those shareholders that own 5% or more of our capital stock and
officers that own 1% or more of our capital stock.



|                                |  |                  |  |           
|------------------------------- |  | ---------------- |  | ----------
|Name of Beneficial Owner        |  | Number of Shares |  | Percentage
|                                |  | Owned            |  |           
|Yossie Hollander (1)            |  | 2,256,510        |  | 13.52%    
|Gideon Hollander (2)            |  | 2,064,987        |  | 12.12%    
|Emancipation Capital, LP (3)    |  | 1,754,849        |  | 10.61%    
|KVO Capital Management, LLC (4) |  | 998,602          |  | 6.04%     
|Paul OCallaghan (5)            |  | 337,500          |  | 2.04%     



|(1) | Based on a Directors and Officers Questionnaire submitted to us by Mr. Hollander. Represents 1,301,280 ordinary shares owned individually by Mr. Hollander, 302,670
ordinary shares owned by Mr. Hollanders spouse and 500,060 ordinary shares owned individually by Dana Hollander Settlement 1991, LLC, a Nevada limited liability company, as to which Mr. Hollander is an income beneficiary of a trust
holding a 99% membership interest therein. Includes 152,500 ordinary shares issuable pursuant to options held by Mr. Hollander which are exercisable within 60 days of the date hereof. Does not include 480,000 ordinary shares owned by
Mr. Hollander mother as Mr. Hollander disclaims beneficial ownership of such shares and an aggregate of 1,549,600 ordinary shares owned indirectly by various trusts, as equity holders of certain foreign entities, as to which
Mr. Hollander and/or his children, as beneficiaries of such trusts, may be deemed to have interests. Any such interest would be in an indeterminable number of the ordinary shares owned indirectly by such trusts. Mr. Hollander disclaims
beneficial ownership of any ordinary shares so held by such trusts. We make no representation as to the accuracy or completeness of the information reported. The address of Mr. Hollander is 400 Perimeter Center Terrace, Suite 100, Atlanta,
Georgia 30346.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Based on a Schedule 13G filed with the Commission on February 14, 2007. Represents 1,564,987 ordinary shares owned individually by Mr. Hollander, and
500,000 ordinary shares issuable pursuant to options held by Mr. Hollander which are exercisable within 60 days of the date hereof. Does not include 480,000 ordinary shares  owned by Mr. Hollander mother as
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | Mr. Hollander disclaims beneficial ownership of such shares. We make no representation as to the accuracy or completeness of the information reported.
The address of Mr. Hollander is 11 Galgalei Haplada Street, Herzliya, 46722, Israel.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Based on a Schedule 13G filed with the Commission on February 12, 2009. This amount represents ordinary shares held by the following entities: Emancipation Capital, LP,
Emancipation Capital, LLC, Emancipation Capital Master, Ltd., Charles Frumberg, and Hurley Capital, LLC. Based on information provided to us by Emancipation Capital Funds, such funds sold 668,204 shares in our self tender offer. See Item 16E:
Purchases of Equity Securities by the Issuer and Affiliated Purchasers for disclosure regarding our self tender offer. We make no representation as to the accuracy or completeness of the information reported. The address of Emancipation
Capital, LP and of Hurley Capital, LLC is 1120 Avenue of the Americas, Suite 1504 New York, NY 10036, USA.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Based on a Schedule 13G filed with the Commission on February 11, 2009. Includes 113,030 shares held in a private account on behalf of Mr. Robert B. Ashton, a
portfolio manager of KVO Capital Management, LLC, over which KVO has both voting and dispositive power pursuant to contract and 885,572 shares held in other private accounts over which KVO has both voting and dispositive power pursuant to
contract. The address of KVO Capital Management, LLC and Mr. Robert B. Ashton is 44 S. Main Street, Box 17 Hanover, NH 03755 USA.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | The shares listed represent shares issuable upon exercise of options vested within 60 days of the date hereof.
|--- | --------------------------------------------------------------------------------------------------------------

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

Based on information available to us, as of March 1, 2009, there were 47 record holders of our shares in the United States, which represented
approximately 35% of the outstanding shares as of such date. To our knowledge, no corporation, foreign government or other natural or legal person directly or indirectly controls Jacada.



|B. | Related Party Transactions
|-- | --------------------------

As of August 2008 our
directors, other than our chairman of the board, each receive annual compensation of NIS 42,600 plus NIS 2,200 for each meeting of the board and each meeting of a committee of the board attended. In February 2008, our audit committee and board of
directors authorized us to enter into a services agreement with Mr. Gideon Hollander, our chairman of the board under which he would continue to provide us with investor relations services. Such arrangements were approved by our shareholders in
the annual shareholders meeting held in December 2008. See Item 6: Directors, Senior Management And Employeesfor disclosure about our directors compensation. In March 2009, our board of directors approved the purchase of
vested options held by our departing CFO for an aggregate amount of $250,000.



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

Not applicable.

Item 8: FINANCIAL INFORMATION



|A. | Consolidated Statements and Other Financial Information
|-- | -------------------------------------------------------

See
Item 18 for audited consolidated financial statements.

Export Sales

We generated approximately 43% of our revenues in North America and approximately 57% in Europe through wholly owned subsidiaries during the period
beginning January 1, 2008 and ending December 31, 2008. Our export sales consist mainly of intercompany transactions with our subsidiaries.



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##### Index to Financial Statements

Legal Proceedings

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

In August
1999, a former distributor filed an arbitration demand against our UK subsidiary. 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 $3.5 million. A decision by the arbitrator was entered during 2001. The arbitrator awarded the distributor a net amount of $392 thousand and 50% of amounts
collected from this customer in the future and legal expenses related to the arbitration. The arbitration award was validated by the United States Courts and is therefore final. On October 2, 2008, the distributor sent an attorneys letter
indicating its intent 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, our subsidiary 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, our accruals which are related to this obligation are presented as part of the
liabilities of discontinued operation.

We do not believe that any legal proceeding to which we currently are a party is likely to have a
material impact upon us.

Dividend Policy

Our policy has been not to pay dividends. See Item 10.B Memorandum and Articles of Associationfor disclosure regarding the procedures for dividend distribution and Item 16.E Purchases of Equity Securities by the
Issuer and Affiliated Purchasers for disclosure regarding our repurchase program and self tender offer.



|B. | Significant Changes
|-- | -------------------

In March 2009 we sold an
auction rate security (ARS) that we held for the par value thereof, a total sum of $3 million, plus any and all accrued interest. See Item 11 Quantitative and Qualitative Disclosures About Market for further disclosure regarding our
investment in ARS.

On April 6, 2009 we announced measures to reduce expenses in order to align our operations with our revenue
expectations for 2009. These measures resulted in a 7% reduction in workforce worldwide which impacts 10 positions, as well as salary reductions and other additional cost saving initiatives. These actions are expected to produce total savings for
the remainder of fiscal year 2009 of approximately $2.5 million, which includes a reduction in cost of revenues of $700,000, and a $1.8 million reduction in operating expenses.

On April 16, 2009 we announced that our chief executive officer, Mr. Paul OCallaghan, will be replaced by Mr. Thomas H. Clear
as of April 20, 2009. Mr. Clear brings over 25 years of global experience in leading successful, multi-national, new business development initiatives and delivering operational success and long-term value to customers. Most recently,
Mr. Clear served as President and chief commercial officer at Spinvox Inc., a provider of voicemail-to-text service for telecommunications carriers. Prior to that, from 1998 to 2006, Mr. Clear served as a general manager at Amdocs (NYSE:
DOX) focusing on building license and



47



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##### Index to Financial Statements

services revenue from several strategic accounts in support of billing and customer relationship management. Mr. Clears prior background
includes senior management positions at SBC, Convergys and a broad base of other product development and business growth management positions.

Separately, on April 16, 2009 we also announced that our chief financial officer, Mrs. Tzvia Broida will be replaced by Mr. Bob Aldworth as of April 20, 2009. Mr. Aldworth served as our chief financial officer from
2001 to 2005. Since 2005, Mr. Aldworth held the position of SVP-Finance at Infor Global Solutions, a provider of enterprise applications software and services. Mr. Aldworth has extensive experience in finance, operations and with investor
relations.

Item 9: THE OFFER AND LISTING



|A. | Offer and Listing Details
|-- | -------------------------

Share History

Our ordinary shares are quoted on the Nasdaq National Market under the symbol JCDA and on the Tel Aviv Stock Exchange
(TASE) under the same symbol or its Hebrew equivalent.

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



|     |  |                     |  |      |  |     
|---- |  | ------------------- |  | ---- |  | ----
|Year |  | Period              |  | High |  | Low 
|2004 |  | 01/01/04  12/31/04 |  | 4.73 |  | 2.12
|2005 |  | 01/01/05  12/31/05 |  | 3.58 |  | 1.93
|2006 |  | 01/01/06  12/31/06 |  | 3.10 |  | 2.06
|2007 |  | 01/01/07  12/31/07 |  | 4.27 |  | 2.46
|2008 |  | 01/01/08  12/31/08 |  | 4.07 |  | 2.03

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



|                    |  |      |  |     
|------------------- |  | ---- |  | ----
|Period              |  | High |  | Low 
|01/01/07  03/31/07 |  | 3.40 |  | 2.46
|04/01/07  06/30/07 |  | 3.98 |  | 3.12
|07/01/07  09/30/07 |  | 4.34 |  | 3.10
|10/01/07  12/31/07 |  | 4.27 |  | 3.56
|01/01/08  03/31/08 |  | 4.07 |  | 2.76
|04/01/08  06/30/08 |  | 3.97 |  | 3.06
|07/01/08  09/30/08 |  | 3.90 |  | 3.17
|10/01/08  12/31/08 |  | 3.83 |  | 2.03
|01/01/09  03/31/09 |  | 3.28 |  | 1.41



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



|      |  |  |  |      |  |     
|----- |  |  |  | ---- |  | ----
|Month |  |  |  | High |  | Low 
|09/08 |  |  |  | 3.90 |  | 3.61
|10/08 |  |  |  | 3.83 |  | 2.25
|11/08 |  |  |  | 3.49 |  | 2.21
|12/08 |  |  |  | 3.27 |  | 2.03
|01/09 |  |  |  | 3.21 |  | 2.22
|02/09 |  |  |  | 2.96 |  | 1.41
|03/09 |  |  |  | 3.28 |  | 2.10

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



|     |  |                     |  |      |  |     
|---- |  | ------------------- |  | ---- |  | ----
|Year |  | Period              |  | High |  | Low 
|2004 |  | 01/01/04  12/31/04 |  | 4.73 |  | 2.12
|2005 |  | 01/01/05  12/31/05 |  | 3.37 |  | 1.86
|2006 |  | 01/01/06  12/31/06 |  | 3.11 |  | 2.19
|2007 |  | 01/01/07  12/31/07 |  | 4.38 |  | 2.48
|2008 |  | 01/01/08  12/31/08 |  | 4.20 |  | 2.24

The following table shows the high and low market prices on the TASE for our ordinary shares for
each financial quarter during our two most recent financial years. Share prices in the TASE are denominated in New Israeli Shekels (NIS). The following prices are denominated in U.S. Dollars in accordance with the applicable exchange rates between
the U.S. Dollar and the NIS.



|                    |  |  |  |      |  |     
|------------------- |  |  |  | ---- |  | ----
|Period              |  |  |  | High |  | Low 
|01/01/07  03/31/07 |  |  |  | 3.34 |  | 2.48
|04/01/07  06/30/07 |  |  |  | 3.98 |  | 3.12
|07/01/07  09/30/07 |  |  |  | 4.06 |  | 3.38
|10/01/07  12/31/07 |  |  |  | 4.38 |  | 3.52
|01/01/08  03/31/08 |  |  |  | 4.14 |  | 2.90
|04/01/08  06/30/08 |  |  |  | 4.20 |  | 3.21
|07/01/08  09/30/08 |  |  |  | 4.12 |  | 3.25
|10/01/08  12/31/08 |  |  |  | 3.82 |  | 2.24
|01/01/09  03/31/09 |  |  |  | 3.42 |  | 2.13

The following table shows the high and low market prices on the TASE for our ordinary shares for
the most recent six months. Share prices in the TASE are denominated in New Israeli Shekels (NIS). The following prices are denominated in U.S. Dollars in accordance with the applicable exchange rates between the U.S. Dollar and the NIS.



|      |  |  |  |      |  |     
|----- |  |  |  | ---- |  | ----
|Month |  |  |  | High |  | Low 
|09/08 |  |  |  | 4.14 |  | 3.80
|10/08 |  |  |  | 3.82 |  | 3.38
|11/08 |  |  |  | 3.69 |  | 2.36
|12/08 |  |  |  | 3.57 |  | 2.24
|01/09 |  |  |  | 3.26 |  | 2.34
|02/09 |  |  |  | 2.80 |  | 2.13
|03/09 |  |  |  | 3.42 |  | 2.37



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

Not applicable.



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



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##### Index to Financial Statements

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



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

Not applicable.



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

Not applicable.



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

Not applicable.



|Item 10: | ADDITIONAL INFORMATION
|-------- | ----------------------



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

Not applicable.



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

For a copy
of our Memorandum of Association and our Articles of Association, see Item 19, Exhibits 1.1 and 1.2 which have been incorporated by reference as part of this Annual Report from our Registration Statement on Form F-1, File No. 333-10882, as
well as Exhibit 1.3 (incorporated by reference to Exhibit 1.3 to the our Annual Report on Form 20-F for the year ended December 31, 2003) and Exhibit 1.4 (incorporated by reference to Exhibit 1.4 to our Annual Report on Form 20-F for the year
ended December 31, 2004). In addition, because we are an Israeli company, we are governed by the provisions of the Companies Law, which are described below along with certain provisions of our governing documents.

Objects and Purposes

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

Approval of Specified Related Party Transactions

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



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##### Index to Financial Statements

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

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

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

Insurance, Indemnification, and Exculpation of Directors and Officers

Under the Companies Law, an Israeli company may not exculpate an office holder from liability for a breach of the duty of loyalty of the office holder.
However, the company may approve an act performed in breach of the duty of loyalty of an office holder provided that the office holder acted in good faith, the act or its approval does not harm the company, and the office holder discloses the nature
of his or her personal interest in the act and all material facts and documents a reasonable time before discussion of the approval. An Israeli company may exculpate an office holder in advance from liability to the company, in whole or in part, for
a breach of duty of care but only if a provision authorizing such exculpation is inserted in its articles of association. Our articles of association include such a provision. An Israeli company may not exculpate a director for liability arising out
of a prohibited dividend or distribution to shareholders.

An Israeli company may indemnify an office holder in respect of certain
liabilities either in advance of an event or following an event provided a provision authorizing such indemnification is inserted in its articles of association. Our articles of association contain such an authorization. An undertaking provided in
advance by an Israeli company to indemnify an office holder with respect to a financial liability imposed on him or her in favor of another person pursuant to a judgment, settlement or arbitrators award approved by a court must be limited to
events which in the opinion of the board of directors can be foreseen based on the companys activities when the undertaking to indemnify is given, and to an amount or according to criteria determined by the board of directors as reasonable
under the circumstances, and such undertaking shall detail the



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abovementioned events and amount or criteria. In addition, a company may undertake in advance to indemnify an office holder against the following liabilities
incurred for acts performed as an office holder:



| |  |  | reasonable litigation expenses, including attorneys fees, incurred by the office holder as a result of an investigation or proceeding instituted against him
or her by an authority authorized to conduct such investigation or proceeding, provided that (i) no indictment was filed against such office holder as a result of such investigation or proceeding; and (ii) no financial liability, such as a
criminal penalty, was imposed upon him or her as a substitute for the criminal proceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does not require
proof of criminal intent; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | reasonable litigation expenses, including attorneys fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her by
the company, on its behalf or by a third party or in connection with criminal proceedings in which the office holder was acquitted or as a result of a conviction for a crime that does not require proof of criminal intent.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

An Israeli company may insure an office holder against the following liabilities incurred for acts performed as an
office holder:



| |  |  | a breach of duty of loyalty to the company, to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not
prejudice the company;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a breach of duty of care to the company or to a third party, including a breach arising out of the negligent conduct of the office holder; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a financial liability imposed on the office holder in favor of a third party.
| | - |  | -----------------------------------------------------------------------------

An Israeli company may not indemnify or insure an office holder against any of the following:



| |  |  | a breach of duty of loyalty, except to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice
the company;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a breach of duty of care committed intentionally or recklessly, excluding a breach arising out of the negligent conduct of the office holder;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an act or omission committed with intent to derive illegal personal benefit; or
| | - |  | -------------------------------------------------------------------------------



| |  |  | a fine levied against the office holder.
| | - |  | ----------------------------------------

Under the Companies Law, exculpation, indemnification and insurance of office holders must be approved by our audit committee and our board of directors and, in respect of our directors, by our shareholders.

Our articles of association, provide that, subject to the provisions of the Companies Law, we may enter into a contract for the insurance of all or part
of the liability of any of our office holders with respect to:



| |  |  | a breach of his duty of care to us or to another person;
| | - |  | --------------------------------------------------------



| |  |  | a breach of his duty of loyalty to us, provided that the office holder acted in good faith and had reasonable cause to assume that his act would not prejudice our
interests; or
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a financial liability imposed upon such office holder in favor of another person concerning an act performed by the office in his/her capacity as an office holder.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Index to Financial Statements

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



| |  |  | a financial liability imposed on him in favor of another person by a court judgment, including a compromise judgment or an arbitrators award which has been
confirmed by a court; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | reasonable litigation expenses, including attorneys fees, expended by the office holder or which were imposed on the office holder by a court in proceedings
instituted against the office holder by us or in our name or by any other person or in a criminal charge from which the office holder was acquitted or in a criminal proceeding in which the office holder was convicted for a criminal offense that does
not require proof of criminal intent.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Required Approvals

Under the Companies Law, indemnification of, and procurement of insurance coverage for office holders must be approved by the audit committee and board
of directors and, in specified circumstances, by the shareholders of a company. In August 2003, August 2004 and October 2006, our shareholders approved indemnification agreements with our directors under which we have undertaken to indemnify
our directors to the fullest extent permitted under the Companies Law. In July 2005, our audit committee and board of directors approved an indemnification agreement with our chief financial officer under which we have undertaken to indemnify our
chief financial officer to the fullest extent permitted under the Companies Law.

Rights, Preferences and Restrictions upon Shares

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

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

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



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

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

Under the Companies Law, the disclosure requirements that apply to an office holder also
apply to a controlling shareholder of a public company. A controlling shareholder includes a shareholder that holds 25% or more of the voting rights in a public company if no other shareholder owns more than 50% of the voting rights in the company.
Extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, and the terms of compensation of a controlling shareholder who is an office holder, require the approval of the audit committee,
the board of directors and the shareholders of the company. The shareholder approval requires that: (a) the majority of shares voted at the meeting, including at least one third of the shares of disinterested shareholders voted at the meeting,
vote in favor of the transaction; or (b) the total number of shares of disinterested shareholders voted against the transaction does not exceed one percent of the aggregate voting rights in the company.

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



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



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



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



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

A shareholder has the general duty to refrain from depriving other shareholders of their rights. Any controlling shareholder, any shareholder that knows
that it possesses the power to determine the outcome of a shareholder vote and any shareholder that, under the provisions of the articles of association, has the power to appoint an office holder in the company, is under a duty to act in fairness
towards the company. The Companies Law does not describe the substance of this duty except to state that the remedies generally available upon a breach of contract will apply also in the event of a breach of the duty to act with fairness.

Amendment of Articles of Association

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



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Shareholders Meetings and Resolutions

We are required to hold an annual general meeting of our shareholders once every calendar year, but no later than 15 months after the date of the
previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to as extraordinary general meetings. Extraordinary general meetings may be called by our board whenever it sees fit, at such time and
place, within or without the State of Israel, as it may determine. In addition, the Companies Law provides that the board of a public company is required to convene an extraordinary meeting upon the request of (a) any two directors of the
company or one quarter of the companys board of directors or (b) one or more shareholders holding, in the aggregate, (i) five percent of the outstanding shares of the company and one percent of the voting power in the company or
(ii) five percent of the voting power in the company.

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

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

Limitation on Ownership of Securities

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

Mergers and Acquisitions; Anti-takeover Provisions

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



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##### Index to Financial Statements

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

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

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

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

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

Changes in Capital

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



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

None.



|D. | Exchange Controls
|-- | -----------------

In 1998, the Israeli currency
control regulations were liberalized significantly, so that Israeli residents generally may freely deal in foreign currency and foreign assets, and nonresidents may freely deal in Israeli currency and Israeli assets. There are currently no Israeli
currency control restrictions on remittances of



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##### Index to Financial Statements

dividends on the ordinary shares or the proceeds from the sale of the shares provided that all taxes were paid or withheld; however, legislation remains in
effect pursuant to which currency controls can be imposed by administrative action at any time.

Nonresidents of Israel may freely hold and
trade our securities. Neither our Memorandum of Association nor our Articles of Association nor the laws of the State of Israel restrict in any way the ownership or voting of ordinary shares by nonresidents, except that such restrictions may exist
with respect to citizens of countries which are in a state of war with Israel. Israeli residents are allowed to purchase our ordinary shares.



|E. | Taxation
|-- | --------

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

The following
discussion does not address the tax consequences to holders of ordinary shares to which special tax rules may apply, such as tax-exempt entities, certain insurance companies, broker-dealers, traders in securities that elect to mark to market,
holders liable for alternative minimum tax, holders that actually or constructively own 10% or more of our voting stock, holders that hold ordinary shares as part of a straddle or a hedging or conversion transaction or holders whose functional
currency is not the U.S. dollar. This discussion also does not apply to holders who acquired their ordinary shares pursuant to the exercise of employee stock options or otherwise as compensation or through a tax-qualified retirement plan. This
discussion is based on the tax laws of Israel and the United States, including the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations under the Internal Revenue Code, published rulings and court
decisions, as in effect on the date of this document, as well as the Income Tax Treaty between the United States of America and Israel, as amended (the Treaty), all of which are subject to change or change in interpretation, possibly
with retroactive effect.

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

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

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



| |  |  | a citizen or resident of the United States;
| | - |  | -------------------------------------------



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



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



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



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If a partnership (or any other entity treated as a partnership for U.S. federal income tax purposes) holds ordinary
shares, the tax treatment of such partnership and a partner in such partnership generally will depend on the status of the partner and the activities of the partnership. Such a partnership or partner should consult its own tax advisors as to its
consequences.

Dividends and Distributions

U.S. Holders

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

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

For certain non-corporate U.S. Holders, subject to the discussion below under Passive Foreign Investment Company Rules (the PFIC discussion), for taxable years before January 1, 2011, a
dividend paid by us to certain shareholders will be taxed at the preferential tax rates applicable to long-term capital gains if (a) we are a qualified foreign corporation (as defined below), (b) the U.S. Holder receiving such
dividend is an individual, estate, or trust and (c) such dividend is paid on our shares that have been held by such U.S. Holder for more than 60 days during the 120-day period beginning 60 days before the ex-dividend date (i.e., the
first date that a purchaser of such Share will not be entitled to receive such dividend). Generally, we may be considered a qualified foreign corporation (a QFC) if we are eligible for the benefits of a comprehensive income
tax treaty with the United States which includes an information exchange program that the IRS determines is satisfactory. However, even we are so eligible, we will not be treated as a QFC if we were a PFIC for the taxable year during which we paid a
dividend or for the preceding taxable year. See the discussion below as to PFIC status.



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##### Index to Financial Statements

Non-U.S. Holders

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

Subject to the discussion under Backup Withholding Tax and Information Reporting Requirements below in this section, a non-U.S. Holder of
ordinary shares generally will not be subject to U.S. federal income or withholding tax on dividends received on shares or unless such income is effectively connected with the conduct by such non-U.S. Holder of a trade or business in the United
States.

Sale or Exchange of Ordinary Shares

U.S. Holders

Subject to the passive foreign investment company rules discussed below, a U.S. holder that sells or
otherwise disposes of ordinary shares generally will recognize capital gain or loss for United States federal income tax purposes equal to the difference between the U.S. dollar value of the amount realized on the sale or disposition and the tax
basis, determined in U.S. dollars, in the ordinary shares. Capital gain of a non-corporate U.S. holder is generally taxed at a maximum rate of 15% if the ordinary shares were held for more than one year. The gain or loss will generally be income or
loss from sources within the United States for foreign tax credit limitation purposes.

Non-U.S. Holders

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



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Passive Foreign Investment Company Rules

We believe that our ordinary shares should not be treated as stock of a passive foreign investment company (a PFIC) for United States federal income tax
purposes, but such a conclusion is a factual determination made annually and may be subject to change. A U.S. Holder may have less advantageous tax consequences upon the sale, exchange or receipt of dividends with respect to our shares if we are
deemed a PFIC, unless such U.S. Holder makes certain elections which may have additional tax consequences, as described below.

Generally, a non-United
States corporation is deemed to be a PFIC if either (i) 75% or more of its gross income (including the pro rata gross income of any company (United States or non-United States) in which such corporation is considered to own 25% or more of the
stock by value) for the taxable year is passive income (generally referred to as the income test) or (ii) 50% or more of the average value of its assets (including the pro rata value of the assets of any company in which such
corporation is considered to own 25% or more of the stock by value) during the taxable year, measured at the end of each quarter, produce, or are held for the production of, passive income in the taxable year (generally referred to as the
asset test).

Based on the active nature of our assets and income, we do not believe that we have been a PFIC for the tax years through and
ending on December 31, 2008. However, the statutory provisions, legislative history and administrative pronouncements related to the application of the asset test leave unanswered a number of questions pertaining to the application of such test
to us. In addition, there are circumstances both in our control and out of our control that may affect our potential status as a PFIC. For example, sale of non-passive assets in exchange for passive assets (such as cash) may impact the percentage of
passive assets in applying the assets test. Fluctuation in the market price of our shares may also impact the application of such test.

While we will
attempt to manage our business so as to avoid PFIC status, to the extent consistent with our other business goals, we cannot predict whether our business plans will allow us to avoid PFIC status in the future or whether our business plans will
change in a manner that affects our PFIC determination.

Taxation of U.S. Holders of PFIC Shares Generally

If we were deemed to be a PFIC for any taxable year during which a U.S. Holder held our ordinary shares and such holder failed to make either a QEF election
or a mark-to-market election (each as described below), then the following would apply to the U.S. Holder:



| |  |  | gain recognized by the U.S. Holder upon the disposition of, as well as income recognized upon receiving excess distributions on, our ordinary shares would be
taxable as ordinary income (excess distributions are the portion of any distributions received in a taxable year in excess of 125% of the average annual distributions received in the three preceding taxable years, or, if shorter, during
the U.S. Holders holding period for our ordinary shares);
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the U.S. Holder would be required to allocate such excess distribution income and/or disposition gain ratably over such holders entire holding period for our
ordinary shares;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the amount allocated to each year other than the year of the distribution payment or disposition would be subject to tax at the highest individual or corporate tax
rate, as applicable, in effect for such other year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax liability for each such other year;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | the U.S. Holder would be required to file an annual return on IRS Form 8621 regarding distributions received on, and gain recognized on dispositions of, our
ordinary shares; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any U.S. Holder who acquired our ordinary shares upon the death of a U.S. Holder would not receive a step-up of the income tax basis to the fair market value of
such shares. Instead, such U.S. Holder beneficiary would have a tax basis equal to the decedents basis, if lower.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

A determination
as to a corporations PFIC status is made annually. However, a determination that a corporation is a PFIC for any taxable year generally will cause the PFIC status to continue to apply during all future years with respect to U.S. Holders who
hold the corporations shares during the year in which the determination was made and who did not timely make a QEF election or mark-to-market election (each as described below) for the first tax year in which such U.S. Holder owned the shares
and the corporation was a PFIC. This PFIC treatment will continue to apply even if the corporation actually ceases to be a PFIC in later years. However, once a corporations PFIC status ceases, a U.S. Holder may avoid some of the adverse
consequences of the PFIC regime by making a deemed sale election with respect to the subject shares. In such case, the U.S. Holder will be treated as if it had sold the subject shares for their fair market value on the last day of the taxable year
and will recognize gain, but not loss, on such deemed sale in accordance with the general PFIC rules, including the interest charge provisions described above. Thereafter, the U.S. Holders interest will be treated as an interest in a non-PFIC.

Taxation of U.S. Holders of PFIC Shares Making Timely QEF Election

In order to avoid some of the adverse consequences resultant from our being deemed a PFIC, a U.S. Holder that holds our ordinary shares may elect to have us treated, with respect to that person, as a Qualified
Electing Fund or QEF. (We refer to such election as a QEF Election and to a U.S. Holder who makes such QEF election as an Electing Shareholder). The QEF Election applies to all ordinary shares that the Electing
Shareholder held or subsequently acquired and can only be revoked with consent of the United States Internal Revenue Service (the IRS). The QEF Election must be made on or before the due date (after taking into account extensions) for
the Electing Shareholders tax return for the taxable year for which the election is made and, once made, will be effective for all subsequent taxable years of such person unless revoked.

An Electing Shareholder generally will be required to include currently in gross income his or her pro rata share of our annual ordinary earnings and net capital gains,
if any, in any taxable year for which we are a PFIC, regardless of whether or not distributions were received from us by the Electing Shareholder. Any income inclusion will be required whether or not the Electing Shareholder owns our ordinary shares
for an entire taxable year or merely at the end of our taxable year. The amount required to be included in income will be determined without regard to our prior year losses. Tax would need to be paid currently on such income, unless an election is
made to defer such payment (interest charges would apply as a result, however). The Electing Shareholders adjusted tax basis in our ordinary shares would be increased to reflect such taxes paid on undistributed earnings and
profits. Subsequent distributions of our earnings and profits that had been previously taxed will result in a corresponding reduction in the adjusted tax basis in the ordinary shares held by the Electing Shareholder and will not be taxed again
once distributed.



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A primary advantage of a QEF election relates to treatment of gain upon disposition of ordinary shares. So long as an
Electing Shareholders QEF election is in effect with respect to the entire holding period for its ordinary shares, any gain or loss realized by such shareholder on the sale or exchange of such ordinary shares held as capital assets ordinarily
would be a capital gain or loss and taxable to such shareholder in the same manner as if the shares were not shares in a PFIC.

U.S. Holders will be
permitted to make retroactive elections in particular circumstances, including if the U.S. Holder had a reasonable belief that the Company was not a PFIC and filed a protective election. U.S. Holders should consult their tax advisors as to the
consequences of making a protective QEF election or other consequences of making the QEF election.

Even it is not made in a timely fashion, a QEF election
can still be made together with a deemed sale election or purging election for the same taxable year. If a purging election is made, the U.S. Holder will be treated if it had sold our ordinary shares for their fair market value on the
last day of the taxable year and will recognize gain, but not loss, on such deemed sale in accordance with the general PFIC rules, including the interest charge provisions described above. Thereafter, the U.S. Holders interest will be treated
as an interest in a QEF.

Taxation of U.S. Holders of PFIC Shares Making Mark-to-Market Election

Alternatively, if we were to be deemed a PFIC for any taxable year and our ordinary shares are treated as marketable stock, a U.S. Holder would be allowed to
make a mark-to-market election with respect to the ordinary shares he or she holds. The term marketable stock generally includes stock of a PFIC that is regularly traded on a qualified exchange or other
market as these terms are explained below.

Generally, a qualified exchange or other market means (i) a national securities exchange
which is registered with the United States Securities and Exchange Commission or the national market system established pursuant to Section 11A of the United States Securities Exchange Act of 1934; or (ii) a foreign securities exchange
that is regulated or supervised by a governmental authority of the country in which the market is located and that has the following characteristics: (a) the exchange has trading volume, listing, financial disclosure, surveillance and other
requirements designed to prevent fraudulent and manipulative acts and practices, to remove impediments to and perfect the mechanism of a free and open, fair and orderly, market, and to protect investors, and the laws of the country in which the
exchange is located and the rules of the exchange ensure that such requirements are actually enforced and (b) the rules of the exchange effectively promote active trading of listed stocks. A class of stock is regularly traded on a
qualified exchange or other market for any calendar year during which such class of stock is traded (other than in de minimis quantities) on at least 15 days during each calendar quarter, subject to special rules for an initial public offering.

As with a QEF election, a mark-to-market election is made on a shareholder-by-shareholder basis, applies to all ordinary shares held or subsequently
acquired by a U.S. Holder and can only be revoked with consent of the IRS (except to the extent the ordinary shares no longer constitute marketable stock). As a result of a mark-to-market election, in any taxable year in which we are a
PFIC, a U.S. Holder would generally be required to report gain or loss annually to the extent of the difference between the fair market value of our ordinary shares at the end of the taxable year and such U.S. Holders adjusted tax basis in our
ordinary shares at that time. Any gain under this computation, and any gain on an actual disposition of the ordinary shares, would be treated as ordinary income. Any loss under this computation, and any loss on an actual disposition of ordinary
shares, generally would be treated as ordinary loss to the extent of the cumulative net mark-to-market gain



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##### Index to Financial Statements

previously included. Any remaining loss from marking ordinary shares to market will not be allowed, and any remaining loss from an actual disposition of
ordinary shares generally would be capital loss. The U.S. Holders tax basis in the ordinary shares is adjusted annually for any gain or loss recognized under the mark-to-market election.

Unless either (i) the mark-to-market election is made with respect to the taxable year in which the U.S. Holders holding period for the ordinary shares
commences or (ii) a QEF election has been in effect for such persons entire holding period, any mark-to-market gain for the election year generally will be subject to the general rules applicable to the disposition of shares of a PFIC,
discussed above.

U.S. HOLDERS OF OUR ORDINARY SHARES SHOULD CONSULT THEIR TAX ADVISORS ABOUT THE PFIC RULES, INCLUDING THE POSSIBILITY,
AND ADVISABILITY OF, AND THE PROCEDURE AND TIMING FOR MAKING A QEF (OR A PROTECTIVE QEF) ELECTION OR MARK-TO-MARKET ELECTION IN CONNECTION WITH THEIR HOLDING OF ORDINARY SHARES, AS WELL AS OPTIONS TO ACQUIRE OUR ORDINARY SHARES.

Information Reporting and Backup Withholding

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

A payor within the United States will be required to withhold at the fourth lowest rate of tax applicable to
single individual taxpayers (currently 28%) on any payments of dividends on, or proceeds from the sale of, ordinary shares within the United States to a holder, other than an exempt recipient, if the holder fails to furnish its correct
taxpayer identification number or otherwise fails to comply with, or establish an exemption from, backup withholding tax requirements.

Israeli Taxation

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

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



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General Corporate Tax Structure

Generally, Israeli companies are subject to Corporate Tax on their taxable income at the rate of 27% for the 2008 tax year and 26% for the
2009 year tax. Following an amendment to the Tax Ordinance, which came into effect on January 1, 2006, the Corporate Tax rate is scheduled to decrease to 25% for the 2010 tax year and thereafter. Israeli companies are generally subject to
Capital Gains Tax at a rate of 25% for capital gains (other than gains deriving from the sale of listed securities) derived after January 1, 2003. However, the effective tax rate payable by a company which derives income from an approved
enterprise (as further discussed below) may be considerably less.

Following an additional amendment to the Tax Ordinance, which came into
effect on January 1, 2009, an Israeli corporation may elect a 5% rate of corporate tax (instead of 25%) for income from dividend distributions received from a foreign subsidiary which is used in Israel in 2009, or within one year after actual
receipt of the dividend, whichever is later. The 5% tax rate is subject to various conditions, which include conditions with regard to the identity of the corporation that distributes the dividends, the source of the dividend, the nature of the use
of the dividend income, and the period during which the dividend income will be used in Israel.

Tax Benefits under the Law for the
Encouragement of Industry (Taxes), 1969

The Law for the Encouragement of Industry (Taxes), 1969, generally referred to as the Industry
Encouragement Law, provides several tax benefits for industrial companies. A company qualifies as an Industrial Company if it is resident in Israel and at least 90% of its income in a given tax year, determined in NIS (exclusive of
income from certain specified sources), is derived from Industrial Enterprises owned by that company. An Industrial Enterprise is defined as an enterprise whose major activity in a particular tax year is industrial manufacturing
activity. Industrial Companies are entitled to the following preferred corporate tax benefits, among others:



| |  |  | Deduction of purchases of know-how and patents over an eight-year period for tax purposes;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | Right to elect, under specified conditions, to file a consolidated tax return with additional related Israeli Industrial Companies;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | Accelerated depreciation rates on equipment and buildings; and
| | - |  | --------------------------------------------------------------



| |  |  | Deductions over a three-year period of expenses involved with the issuance and listing of shares on the Tel Aviv Stock Exchange or, on or after January 1,
2003, on a recognized stock market outside of Israel.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Under some tax laws and regulations, an industrial enterprise may be eligible for
special depreciation rates for machinery, equipment and buildings. These rates differ based on various factors, including the date the operations begin and the number of work shifts. An industrial company owning an approved enterprise may choose
between these special depreciation rates and the depreciation rates available to the approved enterprise.

Eligibility for benefits under the Industry
Encouragement Law is not contingent upon the approval of any Government agency. No assurance can be given that we will continue to qualify as an Industrial Company, or will be able to avail us of any of the benefits described above under the
Industry Encouragement Law in the future.



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##### Index to Financial Statements

We believe that we currently qualify as an industrial company within the definition of the Industry Encouragement Law. We
cannot assure you that the Israeli tax authorities will agree that we qualify, or, if we qualify, that we will continue to qualify as an industrial company or that the benefits described above will be available to us in the future.

Law for the Encouragement of Capital Investments, 1959

Tax benefits prior to March 2005 Amendment

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

Tax Benefits

Taxable income derived from an
Approved Enterprise under the Capital Investments Law grants program is subject to a reduced corporate tax rate of 25%. That income is eligible for further reductions in tax rates depending on the percentage of the foreign investment in our share
capital. The tax rate is 20% if the foreign investment is 49% or more but less than 74%, 15% if the foreign investment is 74% or more but less than 90%, and 10% if the foreign investment is 90% or more. The lowest level of foreign investment during
the year will be used to determine the relevant tax rate for that year. These tax benefits are granted for a limited period not exceeding seven years, or 10 years for a company whose foreign investment level exceeds 25%, from the first year in which
the Approved Enterprise has taxable income, after the year in which production commenced (as determined by the Israeli Investment Center of the Ministry of Industry and Commerce, or the Investment Center). The period of benefits may in no event,
however, exceed the lesser of 12 years from the year in which the production commenced (as determined by the Investment Center) or 14 years from the year of receipt of Approved Enterprise status.

An Approved Enterprise may elect to forego any entitlement to the grants otherwise available under the Capital Investments Law and, in lieu of the foregoing, may
participate in an Alternative Benefits Program. Under the Alternative Benefits Program, a companys undistributed income derived from an Approved Enterprise will be exempt from company tax for a period of between two and ten years from the
first year of taxable income, depending on the geographic location of the Approved Enterprise within Israel, and the company will be eligible for a reduced tax rate of 10%-25% for the remainder of the benefits period. There can be no assurance that
the current benefit programs will continue to be available or that we will continue to qualify for benefits under the current programs.

Tax benefits Subsequent to the March 2005 Amendment

In March 2005, the government of Israel passed an amendment to the Investment Law in
which it revised the criteria for investments qualified to receive tax benefits as an Approved Enterprise. Among other things, companies that meet the criteria of the alternate package of tax benefits will receive those benefits without prior
approval. We believe that our capital investments qualify to receive tax benefits as an Approved Enterprise,



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however no assurance can be given that such investments will be approved as in fact qualifying for such tax benefits by the Israeli tax authorities.
Additionally, no assurance can be given that we will, in the future, be eligible to receive additional tax benefits under this law. See Risk Factors, and specifically - Any failure to obtain the tax benefits from the State of Israel
that we anticipate receiving could adversely affect our plans and prospectsand The government grants we have received for research and development expenditures restrict our ability to manufacture products and transfer
technologies outside of Israel and require us to satisfy specified conditionsfor a discussion of the risks our business and prospects for growth face in connection with Tax benefits under Israeli law.

We currently have Approved Enterprise programs under the Capital Investments Law, which to our belief, entitle us to certain tax benefits. The tax benefit period for
these programs has not yet commenced. We have elected the Alternative Benefits Program which provides for the waiver of grants in return for tax exemption. Accordingly, our income is tax exempt for a period of two years commencing with the year we
first earn taxable income relating to each expansion program, and is subject to corporate taxes at the reduced rate of 10% to 25%, for an additional period of five years to eight years, depending on the percentage of the companys ordinary
shares held by foreign shareholders in each taxable year. The exact rate reduction is based on the percentage of foreign ownership in each tax year. See note 9 to our consolidated financial statements. A company that has elected to participate in
the Alternative Benefits Program and that subsequently pays a dividend out of the income derived from the Approved Enterprise during the tax exemption period will be subject to corporate tax in respect of the gross amount distributed, including
withholding tax thereon, at the rate that would have been applicable had the company not elected the Alternative Benefits Program, ranging from 10% to 25%. The dividend recipient is subject to withholding tax at the reduced rate of 15%, applicable
to dividends from Approved Enterprises if the dividend is distributed within 12 years after the benefits period. The withholding tax rate will be 25% after such period. In the case of a company with over 25% foreign investment level, as defined by
law, the 12-year limitation on reduced withholding tax on dividends does not apply. This tax should be withheld by the company at the source, regardless of whether the dividend is converted into foreign currency. See Withholdings and Capital
Gains Taxes Applicable to Non-Israeli Shareholders.

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

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

Foreign investors Company (FIC)

A company that has an approved enterprise program is eligible for
further tax benefits if it qualifies as a foreign investors company. A foreign investors company is a company of which more than 25% of its share capital and combined share and loan capital is owned by non-Israeli residents. A company that
qualifies as a foreign investors company and has an approved enterprise program is eligible for tax benefits for a ten-year benefit period. As specified above, depending on the geographic location of the approved enterprise within Israel,
income derived from the approved enterprise program may be entitled to the following:



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##### Index to Financial Statements

| |  |  | Exemption from tax on its undistributed income up to ten years.
| | - |  | ---------------------------------------------------------------



| |  |  | An additional period of reduced corporate tax liability at rates ranging between 10% and 25%, depending on the level of foreign (i.e., non-Israeli) ownership of our
shares.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The twelve years limitation period for reduced tax rate of 15% on dividend from the approved enterprise does not apply to Foreign Investors Company.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

Measurement of Taxable Income

Results for tax purposes are measured in real terms, in accordance with the changes in the Israeli CPI, or changes in exchange rate of the NIS against the dollar, for a foreign investors company. Until
taxable year 2002, we measured our results for tax purposes in accordance with changes in the Israeli CPI. Commencing with taxable year 2003, we have elected to measure its results for tax purposes on the basis of the changes in the exchange rate of
NIS against the dollar.

Tax Benefits of Research and Development

Israeli tax law allows, under specified conditions, a tax deduction for expenditures, including capital expenditures, in the year incurred relating to scientific research and development projects, if the expenditures
are approved by the relevant Israeli Government ministry, determined by the field of research, and the research and development is for the promotion of the company and is carried out by or on behalf of the company seeking such deduction. However,
the amount of such deductible expenses shall be reduced by the sum of any funds received through government grants for the finance of such scientific research and development projects. Expenditures not so approved are deductible over a three-year
period.

On November 29, 2006, Income Tax Regulations (Determination of Market Terms), 2006, promulgated under Section 85A of the Tax Ordinance,
came into effect (the Transfer Pricing Regulations). Section 85A of the Tax Ordinance and the Transfer Pricing Regulations generally requires that all cross-border transactions carried out between related parties be conducted on an
arms length principle basis and will be taxed accordingly. The Transfer Pricing Regulations are not expected to have a material affect on the Company.

Withholding and Capital Gains Taxes Applicable to Non-Israeli Shareholders

Nonresidents of Israel are subject to income tax on income
accrued or derived from sources in Israel. These sources of income include passive income such as dividends, royalties and interest, as well as non-passive income from services rendered in Israel. We are generally required to withhold income tax at
the rate of 20% on all distributions of dividends, although, with respect to U.S. taxpayers, if the dividend recipient is a corporation that holds 10% or more of our voting stock for a certain period prior to the declaration and payment of the
dividend, we are only required to withhold at a 12.5% rate. Notwithstanding the foregoing, with regard to dividends generated by an Approved Enterprise, we are required to withhold income tax at the rate of 15%. If the dividend is attributable
partly to income derived from an Approved Enterprise, and partly to other sources of income, the withholding rate will be a blended rate reflecting the relative portions of the two types of income. The withheld tax is the final tax in Israel on
dividends paid to non-residents who do not conduct business in Israel.



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##### Index to Financial Statements

Israeli law generally imposes a capital gains tax on the sale of publicly traded securities. Pursuant to changes made to
the Israeli Income Tax Ordinance in January 2006, capital gains on the sale of our ordinary shares will be subject to Israeli capital gains tax, generally at a rate of 20% unless the holder holds 10% or more of our voting power during the 12 months
preceding the sale, in which case it will be subject to a 25% capital gains tax. However, as of January 1, 2003, nonresidents of Israel are exempt from capital gains tax in relation to the sale of our ordinary shares for so long as (a) our
ordinary shares are listed for trading on a stock exchange outside of Israel, (b) the capital gains are not accrued or derived by the nonresident shareholders permanent enterprise in Israel, (c) the ordinary shares in relation to
which the capital gains are accrued or derived were acquired by the nonresident shareholder after the initial listing of the ordinary shares on a stock exchange outside of Israel, and (d) neither the shareholder nor the particular capital gain
is otherwise subject to certain sections of the Israeli Income Tax Ordinance. Notwithstanding this, non-Israeli companies may not benefit from this exemption if Israeli residents (1) have a controlling interest of 25% or more in the non-Israeli
company or (2) are the beneficiaries of, or are entitled to, 25% or more of the revenues or profits of the non-Israeli company, whether directly or indirectly.

In addition, under the income tax treaty between the United States and Israel, a United States resident holder of ordinary shares which are not listed for trading on a stock exchange outside of Israel will be exempt
from Israeli capital gains tax on the sale, exchange or other disposition of such ordinary shares unless the holder owns, directly or indirectly, 10% or more of our voting power during the 12 months preceding such sale, exchange or other
disposition.

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



|F. | Dividends and Paying Agents
|-- | ---------------------------

Not applicable.



|G. | Statement by Experts
|-- | --------------------

Not applicable.



|H. | Documents on Display
|-- | --------------------

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



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##### Index to Financial Statements

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



|I. | Subsidiary Information
|-- | ----------------------

Not applicable.



|Item 11: | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- | ----------------------------------------------------------

Our results of operations are reported in U.S. dollars, however, a significant portion of our revenues and expenses in 2008 were generated and incurred outside of the United States and in currencies other than the U.S Dollar, particularly
in NIS, English Pounds, or GBP, and Euros. As a result, we are subject to a foreign currency risk. Our sales in Europe and in the UK and our expenses in Israel, Europe and the UK are recorded in local currencies which exposes us to the direct risk
of local currency devaluations or fluctuations against the U.S dollar rate of exchange. As a result, fluctuations in exchange rates between the currencies in which our costs are incurred or revenues are recorded and the U.S. dollar may have a
material adverse effect on our results of operations. We therefore use currency exchange forward contracts to hedge the impact of the variability in the exchange rates on accounts receivable and future cash flows from certain Euro and
GBPdenominated transactions as well as certain NIS-denominated expenses. Our hedging program reduces, but does not eliminate, the impact of foreign currency rate movements. As of December 31, 2008, we had forward contracts to sell
$1,865,551 for a total amount of NIS 7,092,825 that matures prior to December 1, 2009, forward contracts to sell GBP840,000 for a total amount of $1,224,633 that matures prior to January 31, 2009 and forward contracts to sell Euro130,000
for a total amount of $180,982 that matures prior to January 31, 2009.

We invest our cash, cash equivalents and short-term
investments in a variety of investment vehicles in a number of countries with and in the custody of financial institutions with high credit ratings. While our investment policy and strategy attempt to manage interest rate risk, limit credit
risk, and only invest in what we view as very high-quality securities, the outlook for our investment holdings is dependent on general economic conditions, interest rate trends and volatility in the financial marketplace, which can all affect the
income that we receive, the value of our investments, and our ability to sell them. We believe that our investment securities are carried at fair value. However, over time the economic and market environment may provide additional insight
regarding the fair value of certain securities which could cause us to change our judgment regarding impairment. This could result in unrealized or realized losses relating to other than temporary declines being charged against future income. Given
the current market conditions, there is continuing risk that further declines in fair value may occur and additional impairments may be charged to income in future periods, resulting in realized losses. See Risk Factor: Negative conditions
in the global credit markets may impair the liquidity and value of our investment portfolio.



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##### Index to Financial Statements

At the start of 2008, we purchased $3 million principal amount of an auction rate
security, or ARS. The issuer of the ARS we purchased is rated AAA and the ARS is guaranteed by the US government. The recent negative conditions in the credit markets have restricted our ability to liquidate our holdings of our ARS because
the amount of such securities submitted for sale in the market has exceeded the amount of purchase orders for such securities. During 2008, we were unable to sell the ARS via a successful auction or redemption
process. Given the failed auction, the entire remaining amount of our ARS was classified as a long-term investment, and, during the fourth quarter of 2008, we recorded an impairment charge of $353,130 with respect to such ARS,
reflecting what we determined to be an other-than-temporary decline in its value. Rating downgrades of the security issuer or the third parties insuring such investments may require us to adjust the carrying value of these investments through an
impairment charge. As of December 31, 2008 the ARS continued to pay interest according to its stated terms. In March 2009 we sold such ARS for the par value thereof, a total sum of $3 million, plus accrued interest. As of December 31,
2008, we had no other exposure to changes in interest rates and had no interest rate derivative financial instruments outstanding.



|Item 12: | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
|-------- | ------------------------------------------------------

Not applicable.

PART II



|Item 13: | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
|-------- | -----------------------------------------------

None.



|Item 14: | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
|-------- | ----------------------------------------------------------------------------

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

The effective
date of the registration statement (No. 333-10882) for our initial public offering of our ordinary shares, par value NIS 0.01 per share, was October 14, 1999. The offering commenced on October 20, 1999, and terminated after the sale
of all the securities registered. The managing underwriter of the offering was Lehman Brothers. We registered 5,175,000 ordinary shares in the offering, including shares issued pursuant to the exercise of the underwriters over-allotment
option. We sold 5,175,000 ordinary shares at an aggregate offering price of $56,925,000 ($11.00 per share). Under the terms of the offering, we incurred underwriting discounts of $3,984,750. We also incurred expenses of $2,769,250 million in
connection with the offering. None of these amounts was paid directly or indirectly to any director, officer, general partner of ours or to their associates, persons owing ten percent or more of any class of our equity securities, or to any of our
affiliates.

The net proceeds that we received as a result of the offering were $50,568,390. As of December 31, 2008, the net proceeds
have been used to invest in a variety of financial instruments and for general corporate purposes. More specifically, a portion of the proceeds, $6.9 million, was used in August 2001 to purchase certain assets of Propelis Software, Inc., a business
unit of Computer Network Technology Corporation. None of the net proceeds of the offering was paid directly or indirectly to any director, officer, general partner of ours or to their associates, persons owning ten percent or more of any class of
our equity securities, or to any of our affiliates.



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|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.



|Item 15T: | CONTROLS AND PROCEDURES
|--------- | -----------------------

Not applicable



|Item 16A: | AUDIT COMMITTEE FINANCIAL EXPERT
|--------- | --------------------------------

At our annual
shareholders meeting in December 2008, the shareholders re-elected Dan Falk to the Companys Board of Directors to serve for a one year term. Our Board of Directors has determined that Mr. Falk qualifies as an audit committee financial
expert, and Mr. Falk was appointed by the Board



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##### Index to Financial Statements

to serve on the audit committee. Mr. Falk also meets the requirements of the NASDAQ Stock Market listing standards to be an independent
director and audit committee member.



|Item 16B: | CODE OF ETHICS
|--------- | --------------

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



|Item 16C: | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|--------- | --------------------------------------

Audit Fees



|     |  |         
|---- |  | --------
|2007 |  | $130,000
|2008 |  | $130,000

Audit Related Fees



|     |  |   
|---- |  | --
|2007 |  | $0
|2008 |  | $0

Tax Fees



|     |  |         
|---- |  | --------
|2007 |  | $10,000 
|2008 |  | $133,000

Other Fees



|     |  |        
|---- |  | -------
|2007 |  | $1,400 
|2008 |  | $75,000

The tax fees we incurred in 2008 were related to preparation of tax returns, consultations
regarding options plans, international taxes, tax implication of our self tender offer and regarding our status as a PFIC. The other fees we incurred in 2008 were related to consultations regarding the sale of our traditional market business. The
tax fees we incurred in 2007 are related to preparation of tax returns.



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##### Index to Financial Statements

Our audit committee is responsible for the appointment and oversight of our independent auditors
work. Pursuant to its charter, the audit committee also has the sole authority to review in advance, and grant any appropriate pre-approvals of, (a) all auditing services to be provided by our independent auditors; (b) all non-audit
services to be provided by our independent auditors as permitted by Section 10A of the U.S. Securities Exchange Act of 1934; and (c) all fees and other terms of engagement. The audit committees policy is to specifically pre-approve
all annual services provided by our independent auditors in connection with the preparation of their audit, which may include audit services, audit-related services, tax services and other services. The audit committee sets forth the basis for its
pre-approval in detail, listing the particular services or categories of services which are pre-approved, and setting a specific budget for such services. Additional services may be commissioned on the basis of a pre-approval by the audit committee
for non-annual audit related services up to a specified amount. Once such services have been pre-approved and performed, the independent auditors and our management report to the audit committee on a periodic basis regarding the extent of services
actually provided in accordance with the applicable pre-approval, and regarding the fees for the services performed.



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

Not applicable.



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

Issuer Purchases of Equity Securities



|                       |  |                                                         |     |  |                              |  |                                                                              |  |                                                                                                        
|---------------------- |  | ------------------------------------------------------- | --- |  | ---------------------------- |  | ---------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------
|Period                 |  | Total Number
of        Ordinary Shares        Purchased |     |  | Average Price Paid per Share |  | Total Number ofShares Purchased asPart of
PubliclyAnnounced Plans orPrograms |  | Maximum Number (orApproximate DollarValue) of
Shares thatMay Yet Be PurchasedUnder the Plans orPrograms
|May 19  May 30, 2008  |  | 118,267                                                 | (1) |  | $3.626                       |  | 118,267                                                                      |  | US$9,571,163                                                                                           
|June 2  June 30, 2008 |  | 269,469                                                 | (1) |  | $3.774                       |  | 269,469                                                                      |  | US$8,554,216                                                                                           
|July 1  July 31, 2008 |  | 138,138                                                 | (1) |  | $3.466                       |  | 138,138                                                                      |  | US$8,075,388                                                                                           
|Aug 1-Aug 13, 2008     |  | 70,206                                                  | (1) |  | $3.701                       |  | 70,206                                                                       |  | US$7,815,534                                                                                           
|September 15, 2008     |  | 3,851,104                                               | (2) |  | $4.00                        |  | 3,851,104                                                                    |  | US$0                                                                                                   



|(1) | Represents ordinary share repurchases under our repurchase program. In February 2008 our board of directors has authorized the use of up to $10 million of our available cash to
repurchase our ordinary shares through transactions under Rule 10b-18 of the Securities Exchange Act. Purchases were made from time to time at the discretion of our management in the open market or in privately negotiated transactions, subject to,
among other factors, market conditions, trading volume and our share price. No time limit was set for this program, however, we suspended the program upon commencement of our self tender offer. Under this program we purchased a total of 596,080 of
our shares for a total purchase price of $2,170,896.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Represents ordinary shares purchased under our self tender offer. In August 2008 we announced our offer to repurchase up to 4 million of our ordinary shares at a price per
share between $3.50 to $4.00 through a Dutch Auction procedure. We refer to this offer as our self tender offer. The expiration date of the self tender offer was September 15, 2008. In September 15, 2008 we purchased 3,851,104
of our ordinary shares under the self tender offer for a total consideration of approximately $15.68 million. Upon the commencement of the self tender offer we suspended our repurchase program.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Index to Financial Statements

The shares purchased under our repurchase program and our self tender offer are held by us as treasury shares. Under the
Companies Law for so long as such treasury shares are owned by us they have no rights and, accordingly, are neither eligible to participate in or receive any future dividends which may be paid to our shareholders nor are they entitled to participate
in, be voted at or be counted as part of the quorum for, any meetings of our shareholders. The financial information provided under this annual report does not consider these treasury shares as being part of our issued and outstanding share capital.



|Item 16F: | CHANGES IN REGISTRANTS CERTIFYING ACCOUNTANT
|--------- | ---------------------------------------------

Not applicable.



|Item 16G: | CORPORATE GOVERNANCE
|--------- | --------------------

As a foreign private issuer
we are entitled to follow our home country practice in lieu of compliance with the Nasdaq rule that requires adoption of a formal written charter or board resolution addressing the nominations process. Under the Companies Law, the nominations
process is conducted by the full board of directors, and there is no requirement to adopt a formal written charter or board resolution addressing a companys nomination process.

As a foreign private issuer we are entitled to follow our home country practice in lieu of compliance with the Nasdaq rule that requires that the
compensation of the chief executive officer and all other executive officers of the company be determined, or recommended to the board for determination, either by a majority of the independent directors, or by a compensation committee comprised
solely of independent directors. Under the Companies Law, the compensation of such officers is determined by the full board of directors, and there is no requirement for a recommendation or determination by independent directors or a compensation
committee. If the chief executive officer or any other executive officer is also a director, then the Companies Law requires that the terms of compensation of the officer must be approved by the audit committee, board of directors and shareholders
of a company and that the officer may not be present when the audit committee or board of directors discusses or acts upon the terms of his or her compensation.

As a foreign private issuer we are entitled to follow our home country practice in lieu of compliance with the Nasdaq rule that requires disclosure of the compensation of our directors and members of our
administrative, supervisory or management bodies. Since under the Companies Law such disclosure is not required on an individual basis, the compensation of our executive officers is provided on an aggregate basis.



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PART III

|Item 17: | FINANCIAL STATEMENTS
|-------- | --------------------

See Item 18.





|Item 18: | FINANCIAL STATEMENTS
|-------- | --------------------



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##### 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









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##### Index to Financial Statements

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



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##### 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



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##### 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



---

##### Table of Contents

##### 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



---

##### Table of Contents

##### Index to Financial Statements

JACADA LTD. AND ITS SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY



U.S. dollars in thousands, except share data



|                                                                               |  |                 |   |                          |        |                       |  |   |                                            |  |   |                    |   |  |                                 |      |   |                          |   |         |   |  |   |        |   |  |   |         |  
|------------------------------------------------------------------------------ |  | --------------- | - | ------------------------ | ------ | --------------------- |  | - | ------------------------------------------ |  | - | ------------------ | - |  | ------------------------------- | ---- | - | ------------------------ | - | ------- | - |  | - | ------ | - |  | - | ------- | -
|                                                                               |  | Ordinary shares |   | Additionalpaid-incapital |        | Treasurysharesat cost |  |   | Accumulatedothercomprehensiveincome
(loss) |  |   | Accumulateddeficit |   |  | Totalcomprehensiveincome (loss) |      |   | Totalshareholdersequity |  
|                                                                               |  | 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



---

##### Table of Contents

##### 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



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##### Table of Contents

##### 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



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##### Table of Contents

##### 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



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##### Table of Contents

##### 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



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##### Table of Contents

##### 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



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##### Table of Contents

##### 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 related lease period (including option terms) 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



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##### Table of Contents

##### 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



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##### Table of Contents

##### 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



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##### Table of Contents

##### 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



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##### Table of Contents

##### 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



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##### Table of Contents

##### 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



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##### Table of Contents

##### 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



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##### Table of Contents

##### 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



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##### Table of Contents

##### 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



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##### Table of Contents

##### 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



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##### Table of Contents

##### 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



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##### Table of Contents

##### 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



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##### Table of Contents

##### 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



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##### Table of Contents

##### 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 theyear                 |  | 3,053,788       |   |  | $                             | 3.36 |                                                     | 4.55 |                         | $ | *)606
|                                                  |  |                 |   |  |                               |      |                                                     |      |                         |   |      
|Exercisable options at the endof the year         |  | 2,181,369       |   |  | $                             | 3.31 |                                                     | 4.14 |                         | $ | *)559
|                                                  |  |                 |   |  |                               |      |                                                     |      |                         |   |      
|Vested and expected-to-vest atthe 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



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##### Table of Contents

##### 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



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##### Table of Contents

##### 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



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##### Table of Contents

##### 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



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##### Table of Contents

##### 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



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##### Table of Contents

##### 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



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##### Table of Contents

##### 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



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##### Table of Contents

##### 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



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##### Table of Contents

##### Index to Financial Statements

|Item 19: | EXHIBITS
|-------- | --------



|               |  |                                                                                                                                                                                                                                        
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Document                                                                                                                                                                                                                
|               | 
|1.1            |  | Memorandum of Association of the Company (incorporated by reference to Exhibit 3.1 from the Companys Registration Statement filed on Form F-1 (file no. 333-10882)).                                                                  
|               | 
|1.2            |  | Articles of Association of the Company (incorporated by reference to Exhibit 3.2 from the Companys Registration Statement filed on Form F-1 (file no. 333-10882)).                                                                    
|               | 
|1.3            |  | Amendments to the Companys Articles of Association, dated August 24, 2003 (incorporated by reference to Exhibit 1.3 to the Companys Annual Report on Form 20-F for the year ended
December 31, 2003).                                
|               | 
|1.4            |  | Amendments to the Companys Articles of Association, dated August 25, 2004 (incorporated by reference to Exhibit 1.3 to the Companys Annual Report on Form 20-F for the year ended
December 31, 2004).                                
|               | 
|4.2            |  | 1996 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.2 from the Companys Registration Statement filed on Form F-1 (file no. 333-10882)).                                                                     
|               | 
|4.3            |  | 1999 Share Option and Incentive Plan (incorporated by reference to Exhibit 10.3 from the Companys Registration Statement filed on Form F-1 (file no. 333-10882)).                                                                     
|               | 
|4.5            |  | Technology and Product License Agreement between the Company and Cortlandt Reade Technical Corporation dated May 25, 2000 (incorporated by reference to the Companys Annual Report on
Form 20-F for the year ended December 31, 2000).
|               | 
|4.6            |  | Amendment to 1999 Share Option and Incentive Plan (incorporated by reference to Exhibit 10.2 to the Companys Registration Statement on Form S-8 (file no. 333-73650)).                                                                
|               | 
|4.7            |  | 2003 Share Option Plan (incorporated by reference to Exhibit 99.1 to the Companys Registration Statement on Form S-8 (file no. 333-111303)).                                                                                          
|               | 
|8              |  | List of Jacadas Subsidiaries.                                                                                                                                                                                                         
|               | 
|11             |  | Code of Ethics of the Company (incorporated by reference to Exhibit 11 to the Companys Annual Report on Form 20-F for the year ended December 31, 2003).                                                                              
|               | 
|12.1           |  | Certificate of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a).                                                                                                                                                      
|               | 
|12.2           |  | Certificate of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a).                                                                                                                                                      
|               | 
|13.1           |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350.                                                                                                                               
|               | 
|14.1           |  | Consent of Kost, Forer, Gabbay and Kasierer, a member of Ernst & Young Global.                                                                                                                                                         



76



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##### Index to Financial Statements

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and it has duly caused and authorized the undersigned to sign this Annual Report on its behalf on April 16, 2009.



| |  |  |  |                        
| |  |  |  | -----------------------
| |  |  |  | JACADA LTD.            
| |  | 
| |  |  |  | /s/ Tzvia
Broida       
| |  |  |  | By: Tzvia Broida       
| |  |  |  | Chief Financial Officer



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##### Table of Contents

##### Index to Financial Statements

EXHIBIT INDEX



|              |  |                                                                                                                                                                                                                                        
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|              | 
|ExhibitNumber |  | Description of Document                                                                                                                                                                                                                
|              | 
|1.1           |  | Memorandum of Association of the Company (incorporated by reference to Exhibit 3.1 from the Companys Registration Statement filed on Form F-1 (file no. 333-10882)).                                                                  
|              | 
|1.2           |  | Articles of Association of the Company (incorporated by reference to Exhibit 3.2 from the Companys Registration Statement filed on Form F-1 (file no. 333-10882)).                                                                    
|              | 
|1.3           |  | Amendments to the Companys Articles of Association, dated August 24, 2003 (incorporated by reference to Exhibit 1.3 to the Companys Annual Report on Form 20-F for the year ended
December 31, 2003)                                 
|              | 
|1.4           |  | Amendments to the Companys Articles of Association, dated August 25, 2004 (incorporated by reference to Exhibit 1.3 to the Companys Annual Report on Form 20-F for the year ended
December 31, 2004).                                
|              | 
|4.2           |  | 1996 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.2 from the Companys Registration Statement filed on Form F-1 (file no. 333-10882)).                                                                     
|              | 
|4.3           |  | 1999 Share Option and Incentive Plan (incorporated by reference to Exhibit 10.3 from the Companys Registration Statement filed on Form F-1 (file no. 333-10882)).                                                                     
|              | 
|4.5           |  | Technology and Product License Agreement between the Company and Cortlandt Reade Technical Corporation dated May 25, 2000 (incorporated by reference to the Companys Annual Report on Form
20-F for the year ended December 31, 2000).
|              | 
|4.6           |  | Amendment to 1999 Share Option and Incentive Plan (incorporated by reference to Exhibit 10.2 the Companys Registration Statement on Form S-8 (file no. 333-73650)).                                                                   
|              | 
|4.7           |  | 2003 Share Option Plan (incorporated by reference to Exhibit 99.1 to the Companys Registration Statement on Form S-8 (file no. 333-111303)                                                                                            
|              | 
|8             |  | List of Jacadas Subsidiaries.                                                                                                                                                                                                         
|              | 
|11            |  | Code of Ethics of the Company (incorporated by reference to Exhibit 11 to the Companys Annual Report on Form 20-F for the year ended December 31, 2003).                                                                              
|              | 
|12.1          |  | Certificate of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a)                                                                                                                                                       
|              | 
|12.2          |  | Certificate of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a)                                                                                                                                                       
|              | 
|13.1          |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350.                                                                                                                               
|              | 
|14.1          |  | Consent of Kost, Forer, Gabbay and Kasierer, a member of Ernst & Young Global.